SJW GROUP (Form: 10-K, Received: 02/28/2017 19:36:16)

Pension Benefits

Other Benefits

Amortization of prior service cost

Amortization of loss

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K



ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-8966

SJW GROUP

(Exact name of registrant as specified in its charter)



Delaware		77-0066628
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

110 West Taylor Street, San Jose, California		95110
(Address of principal executive offices)		(Zip Code)

408-279-7800

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



	Title of each class		Name of each exchange on which registered
	Common Stock, $0.001 par value per share		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ý Non-accelerated filer ¨ Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

As of June 30, 2016, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $624 million based on the closing sale price as reported on the New York Stock Exchange.

Indicate the number of shares outstanding of registrant’s common stock, as of the latest practicable date.



	Class		Outstanding at February 14, 2017
	Common Stock, $0.001 par value per share		20,488,997

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement relating to the registrant’s Annual Meeting of Stockholders, to be held on April 26, 2017, are incorporated by reference into Part III of this Form 10-K where indicated.

TABLE OF CONTENTS



		Page
PART I

Forward-Looking Statements		3
Item 1.	Business	3
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	18
Item 2.	Properties	18
Item 3.	Legal Proceedings	19
Item 4.	Mine Safety Disclosures	19

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
Item 6.	Selected Financial Data	22
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 8.	Financial Statements and Supplementary Data	41
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	75
Item 9A.	Controls and Procedures	75
Item 9B.	Other Information	76

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	76
Item 11.	Executive Compensation	76
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	76
Item 13.	Certain Relationships and Related Transactions, and Director Independence	76
Item 14.	Principal Accountant Fees and Services	76

PART IV

Item 15.	Exhibits and Financial Statement Schedules	77
Exhibit Index		78
Signatures		83

PART I

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the federal securities laws relating to future events and future results of SJW Group and its subsidiaries that are based on current expectations, estimates, forecasts, and projections about SJW Group and its subsidiaries and the industries in which SJW Group and its subsidiaries operate and the beliefs and assumptions of the management of SJW Group. Such forward-looking statements are identified by words including “expect”, “estimate”, “anticipate”, “intends”, “seeks”, “plans”, “projects”, “may”, “should”, “will”, and variation of such words, and similar expressions. These forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Important factors that could cause or contribute to such differences include, but are not limited to, those discussed in this report under Item 1A, “Risk Factors,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere, and in other reports SJW Group files with the Securities and Exchange Commission (the “SEC”), specifically the most recent report on Form 10-Q and reports on Form 8-K filed with the SEC, each as it may be amended from time to time.

SJW Group undertakes no obligation to update or revise the information contained in this report, including the forward-looking statements, to reflect any event or circumstance that may arise after the date of this report.


Item 1.	Business

General Development of Business

SJW Corp. was incorporated in California on February 8, 1985. On November 15, 2016, SJW Corp. changed its state of incorporation from the state of California to the state of Delaware and changed its name to SJW Group. The reincorporation was effected by means of a merger pursuant to the terms of the agreement and plan of merger, dated November 14, 2016, between SJW Corp. and SJW Group, Inc., a Delaware corporation and a wholly owned subsidiary of SJW Corp., which was formed solely for the purpose of effecting the reincorporation. Under the Merger Agreement, SJW Corp. merged with and into SJW Group, Inc., and SJW Corp. ceased to exist and SJW Group, Inc. became the surviving entity following the effectiveness of the merger. Concurrently with the consummation of the merger, SJW Group, Inc. changed its name to SJW Group. SJW Group is a holding company with five subsidiaries:

•

San Jose Water Company, a wholly owned subsidiary of SJW Group, with its headquarters located at 110 West Taylor Street in San Jose, California 95110, was originally incorporated under the laws of the State of California in 1866. As part of a reorganization on February 8, 1985, San Jose Water Company became a wholly owned subsidiary of SJW Corp. and subsequently SJW Group on November 15, 2016. San Jose Water Company is a public utility in the business of providing water service to approximately 229,000 connections that serve a population of approximately one million people in an area comprising approximately 138 square miles in the metropolitan San Jose, California area.

•

SJWTX, Inc., a wholly owned subsidiary of SJW Group, was incorporated in the State of Texas in 2005. SJWTX, Inc. is doing business as Canyon Lake Water Service Company (“CLWSC”). CLWSC is a public utility in the business of providing water service to approximately 13,000 connections that serve approximately 39,000 people. CLWSC’s service area comprises more than 244 square miles in western Comal County and southern Blanco County in the growing region between San Antonio and Austin, Texas. SJWTX, Inc. has a 25% interest in Acequia Water Supply Corporation (“Acequia”). The water supply corporation has been determined to be a variable interest entity within the scope of Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 810, “Consolidation” with SJWTX, Inc. as the primary beneficiary. As a result, Acequia has been consolidated with SJWTX, Inc.


•	SJW Land Company, a wholly owned subsidiary of SJW Group, was incorporated in 1985. SJW Land Company owns undeveloped land in the states of California and Tennessee, owns and operates commercial buildings in the states of California and Tennessee, and has a 70% limited partnership interest in 444 West Santa Clara Street, L.P.

•

Texas Water Alliance Limited (“TWA”), a wholly owned subsidiary of SJW Group, is undertaking activities that are necessary to develop a water supply project in Texas. On February 22, 2016, SJW Group entered into an agreement with the Guadalupe-Blanco River Authority (“GBRA”), pursuant to which SJW Group agreed to sell all of its equity interest in TWA to GBRA for $31.0 million in cash (the “TWA Agreement”). The TWA Agreement is subject to specified closing conditions, including the completion of a financing by GBRA to fund the purchase price. Please also see Item 1A, “Risk Factors,” and Note 1 of “Notes to Consolidated Financial Statements.”

Together, San Jose Water Company, CLWSC and TWA are referred to as “Water Utility Services.”

SJW Land Company and its consolidated variable interest entity, 444 West Santa Clara Street, L.P., which operates commercial building rentals, are collectively referred to as “Real Estate Services.”

Regulation and Rates

San Jose Water Company’s rates, service and other matters affecting its business are subject to regulation by the California Public Utilities Commission (“CPUC”).

Generally, there are three types of rate adjustments that affect San Jose Water Company’s revenue collection: general rate adjustments, cost of capital adjustments, and offset rate adjustments. General rate adjustments are authorized in general rate case decisions, which usually authorize an initial rate adjustment followed by two annual escalation adjustments. General rate applications are normally filed and processed during the last year covered by the most recent general rate case as required by the CPUC in order to avoid any gaps in regulatory decisions on general rate adjustments.

Cost of capital adjustments are rate adjustments resulting from the CPUC’s usual tri-annual establishment of a reasonable rate of return for San Jose Water Company’s capital investments.

The purpose of an offset rate adjustment is to compensate utilities for changes in specific pre-authorized offsettable capital investments or expenses, primarily for purchased water, groundwater extraction charges, purchased power and pension. Pursuant to Section 792.5 of the California Public Utilities Code, a balancing account must be maintained for each expense item for which such revenue offsets have been authorized. The purpose of a balancing account is to track the under-collection or over-collection associated with such expense changes.

On January 5, 2015, San Jose Water Company filed General Rate Case Application No. 15-01-002 requesting authority for an increase of revenue of $34.9 million , or 12.22% , in 2016, $10 million , or 3.11% , in 2017 and $17.6 million , or 5.36% , in 2018. On June 9, 2016, the CPUC issued Decision 16-06-004 approving two partial settlements, resolving disputed issues and adopting revenue requirements for San Jose Water Company. The decision authorizes an increase of 8.6% in authorized revenue requirement effective January 1, 2016. Updated rates were implemented on June 14, 2016. Rates and revenue for 2017 and 2018 are determined based on the forecasted change in the consumer price index from the preceding year. The decision also approved the requested recovery of the net under-collected balance of $3.8 million accumulated in various balancing and memorandum accounts. This balance was previously recorded by the Company as revenue through the balancing and memorandum accounts in prior periods in accordance with San Jose Water Company’s revenue recognition policy. Since a decision was not reached by the end of 2015, the CPUC authorized San Jose Water Company to implement a surcharge to true-up the difference between interim rates for the period January 1, 2016 to the implementation date of updated rates on June 14, 2016. On June 28, 2016, San Jose Water Company filed Advice Letter 492 seeking recovery of $8.8 million which was not collected over the period January 1, 2016 through June 13, 2016 due to the delayed decision. Subsequently, under the CPUC staff’s direction, this filing was amended to include previously uncollected revenue from the prior general rate case in the amount of $524 thousand , for a total recovery of $9.291 million . San Jose Water Company’s request was approved and a surcharge of $0.1832 per centum cubic-feet (“CCF”) was implemented effective July 9, 2016 to recover this balance.

On July 30, 2015, San Jose Water Company filed Application No. 15-07-027 with the CPUC seeking the authorization to change the state of incorporation of SJW Group, the parent holding company of San Jose Water Company, from California to Delaware. On May 26, 2016, the CPUC issued Decision 16-05-037 authorizing the reincorporation.

On December 15, 2015, San Jose Water Company filed Advice Letter No. 481 with the CPUC requesting authorization to re-implement a previously existing surcharge of $0.0492 per CCF to amortize the remaining uncollected balancing account recovery authorized in General Rate Case Decision 14-08-006. In Decision No. 14-08-006 the CPUC authorized San Jose Water Company to recover the $2.6 million under-collection in various balancing accounts over a 12-month period beginning in August of 2014. However, at the end of the 12-month period $590 thousand of the originally authorized $2.6 million remained uncollected. This under-collection is due primarily to actual sales being substantially lower than the commission authorized sales estimate which was used to calculate the surcharge level. The advice letter was approved and effective on January 15, 2016.

On February 5, 2016, San Jose Water Company filed Advice Letter No. 482 with the CPUC. With this advice letter, San Jose Water Company requested authorization to recover the $7.7 million balance accumulated in the Water Conservation Memorandum Account (“WCMA”) during the period January 1, 2015 through December 31, 2015. The WCMA is used to track the revenue impact of mandatory conservation upon San Jose Water Company’s quantity revenue resulting from mandatory conservation instituted by the State of California and the SCVWD. The requested $7.7 million recovery is the net amount of the total drought related revenue reduction calculated in the WCMA offset by the drought surcharges collected during 2015. On April 21, 2016, the CPUC passed Resolution W-5095 approving San Jose Water Company’s requested

recovery. The under-collection is being recovered via a surcharge of $0.1441 per CCF on the existing quantity rate for a period of 12 months from the date of CPUC approval.

On February 25, 2016, the CPUC passed Resolution W-5074 which affirmed San Jose Water Company’s Water Shortage Contingency Plan in Schedule 14.1 with water allocations and drought surcharges. Schedule 14.1 is the tariff that includes the drought allocations and drought surcharges for residential customers and for dedicated landscape services. San Jose Water Company originally implemented Schedule 14.1 in June 2015 in response to the Governor’s Executive Order B-29-15, and by orders of the State Water Board and the CPUC. Subsequently, with the current improved water supply outlook, the allocation and drought surcharge program was suspended effective February 1, 2017.

On February 29, 2016, San Jose Water Company filed Advice Letter No. 483 with the CPUC. This advice letter requested authorization to increase the revenue requirement by $1.7 million via a rate base offset for 2015 calendar year plant additions related to the Montevina Water Treatment Plant Upgrade Project. With this increase, the bill for a residential customer using 15 CCF per month increased by $0.46 , or 0.55% per month. This requested increase was approved and became effective March 30, 2016.

On June 10, 2016, San Jose Water Company filed Advice Letter No. 490 with the CPUC requesting authorization to increase revenues by $21.4 million , or approximately 6.72% . This increase is intended to recover increased costs for purchased water and ground water production charged by the SCVWD. As directed by the CPUC’s Water Division, the revenue increase recovered via surcharges on the existing quantity rate. The request was authorized and effective on July 1, 2016.

San Jose Water Company filed Advice Letters 491 and 493 on June 24, 2016 and June 30, 2016, respectively, with the CPUC to revise the existing Tariff Rule 14.1 which is a water shortage contingency plan with mandatory water usage reductions and drought surcharges. The applicable tariffs were revised to reflect SCVWD conservation standard of a 20% reduction from 2013 usage levels. With these advice letters, San Jose Water Company proposed to ease the existing drought allocations and existing drought rules. San Jose Water Company’s requested changes were approved by the CPUC with an effective date of July 1, 2016. Subsequently, with the current improved water supply outlook, the allocation and drought surcharge program was suspended effective February 1, 2017.

Effective September 15, 2016, the Cupertino City Council authorized San Jose Water Company to implement a 8.6% general rate increase and a 2016 Interim Rate True-Up Surcharge of $0.1832 per CCF to be collected over a 12-month period from customers in the Cupertino leased water system San Jose Water Company operates. The new rates match those previously approved by the CPUC in San Jose Water Company’s most recent General Rate Case Decision effective January 1, 2016.

On November 15, 2016, San Jose Water Company filed Advice Letter No. 498 with the CPUC requesting a revenue increase of $13.2 million , or 3.8% , for the 2017 escalation year. This request was approved and the new rates became effective on January 1, 2017.

On January 6, 2017, San Jose Water Company filed Advice Letter No. 501 with the CPUC requesting authorization to implement a sales reconciliation mechanism to conform water forecasts authorized in the last general rate case to recorded consumption for the period of October 2015 through September 2016. The CPUC has ordered all Class A and B water utilities that have a five percent or greater divergence between authorized and actual sale during declared drought years to request a sales reconciliation mechanism to conform water forecasts authorized in the last general rate case to recorded consumption. If the CPUC authorizes this request, the resulting monthly bill for a typical residential customer using 15 CCF per month will increase by $3.66 , or 3.65% . If approved, the requested rate increase would be effective around March 15, 2017.

San Jose Water Company filed Advice Letter No. 505 on January 27, 2017 with the CPUC to suspend its allocation program and all drought surcharges in Schedule 14.1, Water Shortage Contingency Plan with Staged Mandatory Reductions and Drought Surcharges. However, Schedule 14.1, and all of the water use restrictions defined therein, will remain in effect in light of the call for continued conservation by the SCVWD and the State Water Resources Control Board. The allocations and drought surcharges were suspended effective February 1, 2017.

On February 17, 2017, San Jose Water Company filed Advice Letter No. 506 with the CPUC requesting authorization to increase its revenue requirement by $5.3 million via a rate base offset for calendar year 2016 plant additions related to the Montevina Water Treatment Plant upgrade project. If approved, the bill for a residential customer using 15 CCF per month will increase by $1.52 , or 1.5% per month. San Jose Water Company has requested that the rate increase become effective on or about March 18, 2017.

Change. Rate cases may be filed as they become necessary, provided there is no current rate case outstanding. Further, rate cases may not be filed more frequently than once every 12 months.

On September 16, 2015, CLWSC filed an application with the PUCT requesting approval of the reincorporation of SJW Group from a California corporation to a Delaware corporation. A decision was issued on March 24, 2016 approving the reincorporation.

Please also see Item 1A, “Risk Factors,” Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 1 of “Notes to Consolidated Financial Statements.”

Financial Information about Industry Segments

See Note 12 of “Notes to Consolidated Financial Statements” for information regarding SJW Group’s business segments.

Description of Business

General

The principal business of Water Utility Services consists of the production, purchase, storage, purification, distribution, wholesale, and retail sale of water. San Jose Water Company provides water services to approximately 229,000 connections that serve customers in portions of the cities of San Jose and Cupertino and in the cities of Campbell, Monte Sereno, Saratoga and the Town of Los Gatos, and adjacent unincorporated territories, all in the County of Santa Clara in the State of California. San Jose Water Company distributes water to customers in accordance with accepted water utility methods. CLWSC provides water service to approximately 13,000 connections that serve approximately 39,000 people in a service area comprising more than 244 square miles in the growing region between San Antonio and Austin, Texas. TWA has water lease arrangements with certain landowners in Gonzales County, Texas. In January of 2013, TWA’s groundwater production and transportation permits were approved by the groundwater district in Gonzales County. On February 22, 2016, SJW Group entered into an agreement with GBRA, pursuant to which SJW Group agreed to sell all of its equity interest in TWA to GBRA. The agreement is subject to specified closing conditions, including the completion of a financing by GBRA to fund the purchase price. SJW Land Company owns commercial properties, several undeveloped real estate properties, and warehouse properties in the states of California and Tennessee and holds a 70% limited partnership interest in 444 West Santa Clara Street, L.P.

San Jose Water Company also provides non-tariffed services under agreements with municipalities and other utilities. These non-tariffed services include water system operations, maintenance agreements and antenna site leases.

In October 1997, San Jose Water Company commenced operation of the City of Cupertino municipal water system under the terms of a 25-year lease. The system is adjacent to the San Jose Water Company service area and has approximately 4,600 service connections. Under the terms of the lease, San Jose Water Company paid an upfront $6.8 million concession fee to the City of Cupertino that is amortized over the contract term. San Jose Water Company assumed responsibility for all maintenance and operating costs, while receiving all payments for water service.

Among other things, operating results from the water business fluctuate according to the demand for water, which is often influenced by seasonal conditions, such as impact of drought, summer temperatures or the amount and timing of precipitation in Water Utility Services’ service areas. Revenue, production expenses and income are affected by changes in water sales and the availability of surface water supply. Overhead costs, such as payroll and benefits, depreciation, interest on long-term debt, and property taxes, remain fairly constant despite variations in the amount of water sold. As a result, earnings are highest in the higher demand, warm summer months and lowest in the lower demand, cool winter months.

Water Supply

San Jose Water Company’s water supply consists of groundwater from wells, surface water from watershed run-off and diversion, reclaimed water, and imported water purchased from the SCVWD under the terms of a master contract with SCVWD expiring in 2051. Purchased water provides approximately 40% to 50% of San Jose Water Company’s annual production. San Jose Water Company pumps approximately 40% to 50% of its water supply from the underground basin and pays a groundwater extraction charge to SCVWD. Surface supply, which during a year of normal rainfall satisfies about 6% to 8% of San Jose Water Company’s annual needs, provides approximately 1% of its water supply in a dry year and approximately 14% in a wet year. In dry years, the decrease in water from surface run-off and diversion and the corresponding increase in purchased and pumped water, increases production expenses substantially.

The pumps and motors at San Jose Water Company’s groundwater production facilities are propelled by electric power. San Jose Water Company has installed standby power generators at 33 of its strategic water production sites. In addition, the commercial office and operations control centers are outfitted with standby power equipment that allow critical distribution and customer service operations to continue during a power outage. SCVWD has informed San Jose Water Company that its filter plants, which deliver purchased water to San Jose Water Company, are also equipped with standby generators. In the event of a

power outage, San Jose Water Company believes it will be able to prevent an interruption of service to customers for a limited period by pumping water with its standby generators and by using purchased water from SCVWD.

In 2016, the level of water in the Santa Clara Valley groundwater basin, which is managed by the SCVWD, experienced an increase due to: (1) a reduction in groundwater pumping by various water retailers in the region, and (2) a substantial increase in groundwater recharge efforts on the part of the SCVWD. As reported by the SCVWD at the end of 2016, groundwater level in the Santa Clara Plain was 19 feet higher compared to the same time in 2015, and 19 feet higher than the five-year average. The total groundwater storage at the end of 2016 was within the lower range of Stage 1 (Normal) of the SCVWD’s Water Shortage Contingency Plan. On January 19, 2017, SCVWD’s 10 reservoirs were 71.2% full with 120,269 acre-feet of water in storage. As of December 31, 2016, San Jose Water Company’s Lake Elsman contained 6,153 acre-feet or approximately 485.7% of the five-year seasonal average. In addition, the rainfall at San Jose Water Company’s Lake Elsman was measured at 23.55 inches for the period from July 1, 2016 through December 31, 2016, which is 171.3% of the five-year average. Local surface water is a less costly source of water than groundwater or purchased water and its availability significantly impacts San Jose Water Company’s results of operations. The Montevina Water Treatment Plant is undergoing a large scale retrofit project. The resulting shutdown impacts the use of local run-off and surface water storage at Lake Elsman, thereby significantly restricting our use of Lake Elsman water. San Jose Water Company believes that its various sources of water supply will be sufficient to meet customer demand in 2017 after consideration of the retrofit project and implemented water restrictions and conservation activities in response to the recent drought.

In response to recent drought conditions in California, on November 13, 2015, Governor Edmund Brown Jr. issued Executive Order B-36-15 to bolster the state’s drought response. On November 24, 2015, the SCVWD extended their call for 30% conservation and restrictions on outdoor watering of ornamental landscapes two days a week through June 30, 2016. On February 2, 2016, the State Water Board adopted an extended and revised emergency regulation to ensure that urban water conservation continues through October 2016. On May 9, 2016, Governor Brown issued Executive Order B-37-16 to build on temporary statewide emergency water restrictions and to establish longer term water conservation measures, including permanent monthly water use reporting, new permanent water use standards in California communities and bans on clearly wasteful practices. On May 18, 2016, the State Water Board adopted a new approach to water conservation regulation and replaced its prior percentage reduction-based water conservation standard with a new approach designed to ensure at least a three year supply of available water based on local conditions. On June 14, 2016, the SCVWD reduced its conservation target from 30% to 20% and also increased the number of outdoor watering days from two to three effective July 1, 2016 through January 31, 2017. On January 24, 2017, the SCVWD maintained their call for 20% conservation and restrictions on outdoor watering for ornamental landscapes to no more than three days a week effective February 1, 2017.

Effective June 15, 2015, San Jose Water Company was authorized by the CPUC to activate Stage 3 of Tariff Rule 14.1 which is a water shortage contingency plan with mandatory water usage reductions and drought surcharges resulting from usage above customer allocations. Tariff Rule 14.1 focuses primarily on restrictions of outdoor water use which accounts for 50% of a typical customer’s water usage. On June 24, 2016, San Jose Water Company filed with the CPUC to amend its water shortage contingency plan with mandatory water usage reductions and drought surcharges to reflect the SCVWD’s changes. This request was approved by the CPUC with an effective date of July 1, 2016. The drought surcharges are not recorded as revenue. Rather, they are recorded in a regulatory liability account which has been authorized by the CPUC to track lost revenues from conservation. The amount recorded in the surcharge account is being used to offset future rate increases that would otherwise be necessary to recover lost revenue due to drought conservation efforts. As of December 31, 2016 , San Jose Water Company has a remaining balance of approximately $7.7 million in the drought surcharge account to offset future rate increases related to drought conservation efforts. In light of the improved water supply outlook, San Jose Water Company filed Advice Letter 505 with the CPUC to suspend its allocation program and all drought surcharges in Schedule 14.1, Water Shortage Contingency Plan with Staged Mandatory Reductions and Drought Surcharges. However, Schedule 14.1, and all of the water use restrictions defined therein, will remain in effect in light of the call for continued conservation by the SCVWD and the State Water Resources Control Board. The allocations and drought surcharges were suspended effective February 1, 2017. San Jose Water Company is continually working to remain in compliance with the various drought rules and regulations and is also working with local governments as well as the SCVWD to communicate consistent messages to the public about use restrictions and related matters associated with the recent drought.

California also faces long-term water supply challenges. San Jose Water Company actively works with SCVWD to meet the challenges by continuing to educate customers on responsible water use practices and conducting long-range water supply planning.

CLWSC’s water supply consists of groundwater from wells and purchased treated and raw water from the GBRA. CLWSC has long-term agreements with the GBRA, which expire in 2037, 2040, 2044 and 2050. The agreements, which are take-or-pay contracts, provide CLWSC with an aggregate of 6,900 acre-feet of water per year from Canyon Lake at prices that may be adjusted periodically by GBRA.

Please also see further discussion under Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Franchises

Franchises granted by local jurisdictions permit Water Utility Services to construct, maintain, and operate a water distribution system within the streets and other public properties of a given jurisdiction. San Jose Water Company holds the necessary franchises to provide water in portions of the cities of San Jose and Cupertino and in the cities of Campbell, Monte Sereno and Saratoga, the Town of Los Gatos and the unincorporated areas of Santa Clara County. None of the franchises have a termination date, other than the franchise for the unincorporated areas of Santa Clara County, which terminates in 2020.

CLWSC holds the franchises for water and wastewater services to the City of Bulverde and the City of Spring Branch, which terminates in 2029 and 2036, respectively. The unincorporated areas that CLWSC serves in Comal and Blanco Counties do not require water service providers to obtain franchises.

Seasonal Factors

Water sales are seasonal in nature and influenced by weather conditions. The timing of precipitation and climatic conditions can cause seasonal water consumption by customers to vary significantly. Demand for water is generally lower during the cooler and rainy winter months. Demand increases in the spring when the temperature rises and rain diminishes.

Competition

San Jose Water Company and CLWSC are public utilities regulated by the CPUC and PUCT, respectively, and operate within a service area approved by the regulators. The statutory laws provide that no other investor-owned public utility may operate in the public utilities’ service areas without first obtaining from the regulator a certificate of public convenience and necessity. Past experience shows such a certificate will be issued only after demonstrating that service in such area is inadequate.

California law also provides that whenever a public agency constructs facilities to extend utility service to the service area of a privately-owned public utility, like San Jose Water Company, such an act constitutes the taking of property and is conditioned upon payment of just compensation to the private utility.

Under the California law, municipalities, water districts and other public agencies have been authorized to engage in the ownership and operation of water systems. Such agencies are empowered to condemn properties operated by privately-owned public utilities upon payment of just compensation and are further authorized to issue bonds (including revenue bonds) for the purpose of acquiring or constructing water systems. To the Company’s knowledge, no municipality, water district or other public agency has pending any proceeding to condemn any part of its water systems.

Environmental Matters

Water Utility Services’ produces potable water in accordance with all applicable county, state and federal environmental rules and regulations. Additionally, public utilities are subject to environmental regulation by various other state and local governmental authorities.

Water Utility Services is currently in compliance with all of the United States Environmental Protection Agency’s (the “EPA”) surface water treatment performance standards, drinking water standards for disinfection by-products and primary maximum contaminant levels. These standards have been adopted and are enforced by the California State Water Board, Division of Drinking Water and the TCEQ for San Jose Water Company and CLWSC, respectively.

Other state and local environmental regulations apply to our Water Utility Services’ operations and facilities. These regulations relate primarily to the handling, storage and disposal of hazardous materials and discharges to the environment. In 2008, as part of routine replacement of infrastructure, San Jose Water Company identified legacy equipment containing elemental mercury which was released into the surrounding soil. San Jose Water Company has determined the release posed no risk of contamination to the water supply, notified the appropriate authorities and remediated the affected area. San Jose Water Company also identified 10 other potentially affected sites. Seven of these sites have been remediated and San Jose Water Company is continuing its assessment of the remaining sites in conjunction with its infrastructure replacement program. SJW Group believes there will be no material financial impact related to this matter. In 2016, San Jose Water Company has begun performing hazardous materials site assessments and remediation prior to the construction phase of capital projects. The site assessments are performed to remove any legacy materials and to obtain site closures from the Santa Clara County Department of Environmental Health under its Voluntary Cleanup Program.

San Jose Water Company is currently in compliance with all state and local regulations governing hazardous materials, point and non-point source discharges and the warning provisions of the California Safe Drinking Water and Toxic

Enforcement Act of 1986. Please also see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Employees

As of December 31, 2016 , SJW Group had 406 full-time employees, of whom 362 were San Jose Water Company employees and 44 were CLWSC employees. At San Jose Water Company, 133 were executive, administrative or supervisory personnel, and 229 were members of unions. On December 1, 2016 and November 8, 2016, San Jose Water Company reached three-year collective bargaining agreements with the Utility Workers of America, representing the majority of all employees, and the International Union of Operating Engineers, representing certain employees in the engineering department, respectively, covering the period from January 1, 2017 through December 31, 2019. The agreements include a 3.5% wage increase in 2017, 3% in 2018 and 4% in 2019 for union workers. As of December 31, 2016 , CLWSC had 44 employees, of whom 8 were exempt and 36 were non-exempt employees. Non-exempt employees are subject to overtime but are not represented by a union.

Officers of the Registrant



Name	Age	Offices and Experience
D.R. Drysdale	61	San Jose Water Company—Vice President, Information Systems. Mr. Drysdale has served as Vice President of Information Systems since 2000. From 1998 to 1999, Mr. Drysdale was Director of Information Systems. From 1994 to 1998, Mr. Drysdale was Data Processing Manager. Mr. Drysdale joined San Jose Water Company in 1992.
A.R. Gere	50	San Jose Water Company—President and Chief Operating Officer. Mr. Gere has served as President and Chief Operating Officer since March 2016 and as Chief Operating Officer since April 2015. From 2013 to April 2015, Mr. Gere was Vice President of Operations. From 2008 to 2013, Mr. Gere was Chief of Operations. From 2006 to 2008, Mr. Gere was Director of Maintenance. From 2005 to 2006, Mr. Gere was Director of Operations and Water Quality. From 2003 to 2005, Mr. Gere was Manager of Operations and Water Quality. Mr. Gere has been with San Jose Water Company since 1995.
C.S. Giordano	60	San Jose Water Company—Vice President, Engineering. Mr. Giordano has served as Vice President of Engineering since April 2013. From June 2007 to April 2013, Mr. Giordano was Chief Engineer. From August 2000 to June 2007, Mr. Giordano was Director of Engineering and Construction. From January 1994 to August 2000, Mr. Giordano was Assistant Chief Engineer. Mr. Giordano has been with San Jose Water Company since 1994.
P. L. Jensen	57	San Jose Water Company—Senior Vice President, Regulatory Affairs. Mr. Jensen has served as Senior Vice President of Regulatory Affairs of San Jose Water Company since October 2011 and as Senior Vice President of Regulatory Affairs for SJWTX, Inc. since September 2015. From July 2007 to October 2011, Mr. Jensen was Vice President of Regulatory Affairs. From 1995 to July 2007, Mr. Jensen was Director of Regulatory Affairs. Mr. Jensen has been with San Jose Water Company since 1995.
D.M. Leal	52	San Jose Water Company—Vice President, Human Resources. Ms. Leal has served as Vice President of Human Resources since 2013. From 2001 to 2013, Ms. Leal was Director of Human Resources. From 2000 to 2001, Ms. Leal was employed as a Human Resources Manager at Micrel Semiconductor, Inc. From 1989 to 2000, Ms. Leal worked in various capacities for San Jose Water Company.
J.P. Lynch	57	SJW Group—Chief Financial Officer and Treasurer. Mr. Lynch has served as Chief Financial Officer and Treasurer since October 2010. He is also Chief Financial Officer and Treasurer of San Jose Water Company, SJW Land Company, SJWTX, Inc. and Texas Water Alliance Limited. Prior to joining the Corporation, Mr. Lynch was an Audit Partner with KPMG LLP. Mr. Lynch was with KPMG LLP for 26 years. Mr. Lynch is a certified public accountant.
S. Papazian	41	SJW Group—General Counsel and Corporate Secretary. Ms. Papazian has served as General Counsel and Corporate Secretary for SJW Group and San Jose Water Company since April 2014. From February 2005 to April 2014, Ms. Papazian was Corporate Secretary and Attorney. She is also Corporate Secretary of SJW Land Company, SJWTX, Inc. and Texas Water Alliance Limited. She was admitted to the California State Bar in January 2000 and thereafter was an Associate Attorney at The Corporate Law Group from March 2000 until February 2005.
C.A. Rayer	47	San Jose Water Company—Vice President, Operations. Mr. Rayer has served as Vice President of Operations since March 2016 and as Director of Operations from 2014 until March 2016. From 2006 to 2014, Mr. Rayer was the Manager of Operations and from 2001 to 2006 he served as the Operations Superintendent. From 1993 to 2001, Mr. Rayer worked in various capacities for San Jose Water Company.
W.R. Roth	64	SJW Group—President, Chief Executive Officer and Chairman of the Board of Directors of SJW Group, SJW Land Company and Texas Water Alliance Limited. Mr. Roth is also Chief Executive Officer and Chairman of the Board of Directors of San Jose Water Company and SJWTX, Inc. Mr. Roth was appointed Chief Executive Officer of SJW Group in 1999 and President in 1996. Mr. Roth has been with San Jose Water Company since 1990.
J.B. Tang	46	San Jose Water Company—Vice President, Government Relations and Corporate Communications. Mr. Tang has served as Vice President of Government Relations and Corporate Communications since October 2014. From 2012 to October 2014, Mr. Tang was Director of Government Relations and Corporate Communications. From 2009 to 2011, Mr. Tang was Manager of Government Relations and Corporate Communications.
W.L. Avila-Walker	53	SJW Group—Controller. Ms. Avila-Walker has served as Controller of San Jose Water Company since September 2009. Ms. Avila-Walker is also Controller of SJW Group since October 2014. From August 2008 to September 2009, Ms. Avila-Walker served as Director of Compliance. From May 2005 to May 2008, Ms. Avila-Walker served as Director of Reporting and Finance.

Officers of the Registrant (Continued)



Name	Age	Offices and Experience
A.F. Walters	46	San Jose Water Company—Chief Administrative Officer. Mr. Walters has served as Chief Administrative Officer since January 31, 2014. Prior to joining San Jose Water Company, Mr. Walters was a managing director and a senior acquisitions officer in the Infrastructure Investments Group of JP Morgan Asset Management from January 2009 to June 2013.

Mr. Gere, Mr. Jensen, Mr. Lynch, Ms. Papazian, Mr. Roth, and Mr. Walters are considered “ Executive Officers ” as defined under the Securities Exchange Act of 1934, as amended.

Financial Information about Foreign and Domestic Operations and Export Sales

SJW Group’s revenue and expense are derived substantially from Water Utility Services’ operations located in the County of Santa Clara in the State of California and Comal and Blanco Counties in the State of Texas.

Available Information

SJW Group’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, are made available free of charge through SJW Group’s website at http://www.sjwgroup.com , as soon as reasonably practicable, after SJW Group electronically files such material with, or furnish such material to, the SEC. The content of SJW Group’s website is not incorporated by reference to or part of this report.

You may also obtain a copy of any of these reports directly from the SEC. You may read and copy any material we file or furnish with the SEC at their Public Reference Room, located at 100 F Street N.E., Washington, D.C. 20549. The phone number for information about the operation of the Public Reference Room is 1-800-732-0330. Because we electronically file our reports, you may also obtain this information from the SEC internet website at http://www.sec.gov .


Item 1A.	Risk Factors

Investors should carefully consider the following risk factors and warnings before making an investment decision. The risks described below are not the only ones facing SJW Group. Additional risks that SJW Group does not yet know of or that it currently thinks are immaterial may also impair its business operations. If any of the following risks actually occur, SJW Group’s business, operating results or financial condition could be materially harmed. In such case, the trading price of SJW Group’s common stock could decline and you may lose part or all of your investment. Investors should also refer to the other information set forth in this Form 10-K, including the consolidated financial statements and the notes thereto.

Our business is regulated and may be adversely affected by changes to the regulatory environment.

San Jose Water Company and CLWSC are regulated public utilities. The operating revenue of San Jose Water Company and CLWSC is generated primarily from the sale of water at rates authorized by the CPUC and the PUCT, respectively. The CPUC and PUCT set rates that are intended to provide revenues sufficient to recover normal operating expenses, provide funds for replacement of water infrastructure and produce a fair and reasonable return on stockholder common equity. Please refer to Part I, Item 1, “Regulation and Rates” for a discussion of the most recent regulatory proceedings affecting the rates of San Jose Water Company and CLWSC. Consequently, our revenue and operating results depend upon the rates which the CPUC and PUCT authorize.

In our applications for rate approvals, we rely upon estimates and forecasts to propose rates for approval by the CPUC or PUCT. No assurance can be given that our estimates and forecasts will be accurate or that the CPUC or PUCT will agree with our estimates and forecasts and approve our proposed rates. To the extent our authorized rates may be too low, revenues may be insufficient to cover Water Utility Services’ operating expenses, capital requirements and SJW Group’s historical dividend rate. In addition, delays in approving rate increases may negatively affect our operating results and our operating cash flows.

In addition, policies and regulations promulgated by the regulators govern the recovery of capital expenditures, the treatment of gains from the sale of real utility property, the offset of production and operating costs, the recovery of the cost of debt, the optimal equity structure, and the financial and operational flexibility to engage in non-tariffed operations. If the regulators implement policies and regulations that will not allow San Jose Water Company and CLWSC to accomplish some or all of the items listed above, Water Utility Services’ future operating results may be adversely affected. Further, from time to time, the commissioners at the CPUC and the PUCT may change. Such changes could lead to changes in policies and regulations and there can be no assurance that the resulting changes in policies and regulation, if any, will not adversely affect our operating results or financial condition.

Recovery of regulatory assets is subject to adjustment by the regulatory agency and could impact the operating results of Water Utility Services.

Generally accepted accounting principles for water utilities include the recognition of regulatory assets and liabilities as permitted by FASB ASC Topic 980—“Regulated Operations.” In accordance with ASC Topic 980, Water Utility Services record deferred costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that these costs and credits will be recovered in the ratemaking process in a period different from when the costs and credits were incurred. Please refer to Note 1 of the “Notes to Consolidated Financial Statements” for a summary of net regulatory assets. If the assessment of the probability of recovery in the ratemaking process is incorrect and the applicable ratemaking body determines that a deferred cost is not recoverable through future rate increases, the regulatory assets or liabilities would need to be adjusted, which could have an adverse effect on our results of operations and financial condition.

Changes in water supply, water supply costs or the mix of water supply could adversely affect the operating results and business of Water Utility Services.

San Jose Water Company’s supply of water primarily relies upon three main sources: water purchased from SCVWD, surface water from its Santa Cruz Mountains watershed, and pumped underground water. Changes and variations in quantities from each of these three sources affect the overall mix of the water supply, thereby affecting the cost of the water supply. Surface water is the least costly source of water. If there is an adverse change to the mix of water supply and San Jose Water Company is not allowed by the CPUC to recover the additional or increased water supply costs, its operating results may be adversely affected.

SCVWD receives an allotment of water from state and federal water projects. If San Jose Water Company has difficulties obtaining a high quality water supply from SCVWD due to availability, environmental, legal or other restrictions (see also Part I, Item 1, “Water Supply”), it may not be able to fully satisfy customer demand in its service area and its operating results and business may be adversely affected. Additionally, the availability of water from San Jose Water Company’s Santa Cruz Mountains watershed depends on the weather and fluctuates with each season. In a normal year, surface water supply provides 6% to 8% of the total water supply of the system. In a season with little rainfall, such as the record drought conditions in 2014, 2015 and most of 2016, water supply from surface water sources may be low, thereby causing San Jose Water Company to increase the amount of water purchased from outside sources at a higher cost than surface water, thus increasing water production expenses. When drought conditions occur, we may be required to rely more heavily on purchased water than surface water, which would increase our costs and adversely affect our results of operations.

In addition, San Jose Water Company’s ability to use surface water is subject to regulations regarding water quality and volume limitations. If new regulations are imposed or existing regulations are changed or given new interpretations, the availability of surface water may be materially reduced. A reduction in surface water could result in the need to procure more costly water from other sources, thereby increasing overall water production expenses and adversely affecting our operating results.

Because the extraction of water from the groundwater basin and the operation of the water distribution system require a significant amount of energy, increases in energy prices could increase operating expenses of San Jose Water Company. The cost of energy is beyond our control and can change unpredictably and substantially based on load supply and demand. Therefore, San Jose Water Company cannot be certain that it will be able to contain energy costs into the future.

San Jose Water Company continues to utilize Pacific Gas & Electric’s time of use rate schedules to minimize its overall energy costs primarily for groundwater pumping. Optimization and energy management efficiency is achieved through the implementation of software applications that control pumps based on demand and cost of energy. An increase in demand or a reduction in the availability of surface water or import water could result in the need to pump more water during peak hours which may adversely affect the operating results of San Jose Water Company.

San Jose Water Company has been granted certain balancing accounts by the CPUC to track various water supply expenses and revenues. There is no assurance that the CPUC will allow recovery or refund of these balances when submitted by San Jose Water Company.

CLWSC’s primary water supply is 6,900 acre-feet of water which is pumped from Canyon Lake at three lake intakes or delivered as treated water from GBRA’s Western Canyon Pipeline, in accordance with the terms of its contracts with the GBRA, which are long-term take-or-pay contracts. This supply is supplemented by groundwater pumped from wells. While the contract provides a committed long-term water supply for future demand, CLWSC customers currently do not use the volume of water allowed under the contracts which increases the cost of water for existing customers, and there is no assurance that future demands up to the committed supply volume will occur. Texas faces long-term water supply constraints similar to California as described above. (See also Part I, Item 1, “Water Supply”).

Fluctuations in customer demand for water due to seasonality, restrictions of use, weather, and lifestyle can adversely affect operating results.

Water Utility Services’ operations are seasonal, thus quarterly fluctuation in results of operations may be significant. Rainfall and other weather conditions also affect the operations of Water Utility Services. Water consumption typically increases during the third quarter of each year when weather tends to be warm and dry. In periods of drought, if customers are encouraged or required to conserve water due to a shortage of water supply or restriction of use, revenue tends to be lower. Similarly, in unusually wet periods, water supply tends to be higher and customer demand tends to be lower, again resulting in lower revenues. Furthermore, certain lifestyle choices made by customers can affect demand for water. For example, a significant portion of residential water use is for outside irrigation of lawns and landscaping. If there is a decreased desire by customers to maintain landscaping for their homes or restrictions are placed on outside irrigation, residential water demand would decrease, which would result in lower revenues.

Conservation efforts and construction codes, which require the use of low-flow plumbing fixtures, could diminish water consumption and result in reduced revenue. In addition, in time of drought, water conservation may become a regulatory requirement that impacts the water usage of our customers. For example, in response to the recent severe drought in California, on November 13, 2015, Governor Edmund Brown Jr. issued Executive Order B-36-15 to bolster the state’s drought response. On November 24, 2015, the SCVWD extended their call for 30% conservation and restrictions on outdoor watering of ornamental landscapes two days a week through June 30, 2016. On February 2, 2016, the State Water Board adopted an extended and revised emergency regulation to ensure that urban water conservation continues through October 2016. On May 9, 2016, Governor Brown issued an executive order to build on temporary statewide emergency water restrictions and to establish longer term water conservation measures, including permanent monthly water use reporting, new permanent water use standards in California communities and bans on clearly wasteful practices. On May 18, 2016, the State Water Board adopted a new approach to water conservation regulation and replaced its prior percentage reduction-based water conservation standard with a new approach designed to ensure at least a three year supply of available water based on local conditions. On June 14, 2016, the SCVWD reduced its conservation target from 30% to 20% and also increased the number of outdoor watering days from two to three effective July 1, 2016 through January 31, 2017. On January 24, 2017, the SCVWD maintained their call for 20% conservation and restrictions on outdoor watering for ornamental landscapes to no more than three days a week, effective February 1, 2017. (See also Part I, Item 1, “Water Supply”).

The implementation of mandatory conservation measures has resulted and is expected to result in lower water usage by our customers which may adversely affect our results of operation. If the drought and the related conservation measures continue, we may experience fluctuations in the timing of or a reduction in customer revenue. Furthermore, while the CPUC approved WCMA memorandum accounts which would allow us to recover revenue reductions due to water conservation activities and certain conservation related costs, such memorandum accounts are subject to a review and approval process by the CPUC, which can be lengthy, and there is no assurance that we will be able to recover in a timely manner all or some of the revenue and costs recorded in the memorandum accounts. If drought conditions ease and the State Water Resources Control Board and the SCVWD no longer mandate water conservation, the Company may no longer be allowed to recover revenue lost due to continued conservation activities under the WCMA account and would therefore be exposed to differences between actual and authorized usage. This could result in lower revenues.

A contamination event or other decline in source water quality could affect the water supply of Water Utility Services and therefore adversely affect our business and operating results.

Water Utility Services is required under environmental regulations to comply with water quality requirements. Through water quality compliance programs, Water Utility Services continually monitors for contamination and pollution of its sources of water. In addition, a watershed management program provides a proactive approach to minimize potential contamination activities. There can be no assurance that Water Utility Services will continue to comply with all applicable water quality requirements. In the event a contamination is detected, Water Utility Services must either commence treatment to remove the contaminant or procure water from an alternative source. Either of these results may be costly, may increase future capital expenditures and there can be no assurance that the regulators would approve a rate increase to enable us to recover the costs arising from such remedies. In addition, we could be held liable for consequences arising from hazardous substances in our water supplies or other environmental damages. Our insurance policies may not cover or may not be sufficient to cover the costs of these claims.

Water Utility Services is subject to litigation risks concerning water quality and contamination.

Although Water Utility Services has not been and is not a party to any environmental and product-related lawsuits, such lawsuits against other water utilities have increased in frequency in recent years. If Water Utility Services is subject to an environmental or product-related lawsuit, they might incur significant legal costs and it is uncertain whether it would be able to recover the legal costs from ratepayers or other third parties. Although Water Utility Services has liability insurance coverage for bodily injury and property damage, pollution liability is excluded from this coverage and our excess liability coverage.

A pollution liability policy is in place, but is subject to exclusions and limitations. Costs for defense are included within the limit of insurance on the pollution liability policy. In addition, any complaints or lawsuits against us based on water quality and contamination may receive negative publicity that can damage our reputation and adversely affect our business and trading price of our common stock.

New or more stringent environmental regulations could increase Water Utility Services’ operating costs and affect its business.

New or more stringent environmental and water quality regulations could increase Water Utility Services’ water quality compliance costs, hamper Water Utility Services’ available water supplies, and increase future capital expenditure.

Under the federal Safe Drinking Water Act, Water Utility Services is subject to regulation by the EPA relating to the quality of water it sells and treatment techniques it uses to make the water potable. The EPA promulgates nationally applicable standards, including maximum contaminant levels for drinking water. Water Utility Services is currently in compliance with all of the primary maximum contaminant levels promulgated to date. Additional or more stringent requirements may be adopted by each state. There can be no assurance that Water Utility Services will be able to continue to comply with all water quality requirements.

Water Utility Services has implemented monitoring activities and installed specific water treatment improvements in order to comply with existing maximum contaminant levels and plan for compliance with future drinking water regulations. However, the EPA and the respective state agencies have continuing authority to issue additional regulations under the Safe Drinking Water Act. New or more stringent environmental standards could be imposed that will raise Water Utility Services’ operating costs, including requirements for increased monitoring, additional treatment of underground water supplies, fluoridation of all supplies, more stringent performance standards for treatment plants and procedures to further reduce levels of disinfection by-products. There are currently limited regulatory mechanisms and procedures available to the Company for the recovery of such costs and there can be no assurance that such costs will be fully recovered.

Water Utility Services rely on information technology and systems that are key to business operations. A system malfunction, security breach, cyber attacks or other disruptions could compromise our information and expose us to liability, which could adversely affect business operations.

Information technology is key to the operation of Water Utility Services, including but not limited to payroll, general ledger activities, outsourced bill preparation and remittance processing, providing customer service and the use of Supervisory Control and Data Acquisition systems to operate our distribution system. Among other things, system malfunctions and security breaches could prevent us from operating or monitoring our facilities, billing and collecting cash accurately and timely analysis of financial results. In addition, we collect, process, and store sensitive data from our customers and employees, including personally identifiable information, on our networks. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen which could result in legal claims or proceedings, violation of privacy laws or damage to our reputation and customer relationships. Our profitability and cash flow could be affected negatively in the event these systems do not operate effectively or are breached.

The water utility business requires significant capital expenditures that are dependent on our ability to secure appropriate funding. If SJW Group is unable to generate sufficient operating cash flows and obtain sufficient capital or if the rates at which we borrow increase, there would be a negative impact on our results of operations.

The water utility business is capital-intensive. Expenditure levels for renewal and modernization of the system will grow at an increasing rate as components reach the end of their useful lives. SJW Group funds capital expenditures through a variety of sources, including cash received from operations, funds received from developers as contributions or advances, borrowings through the lines of credit, and equity or debt financing. We cannot provide any assurance that the historical sources of funds for capital expenditures will continue to be adequate or that the cost of funds will remain at levels permitting us to earn a reasonable rate of return. A significant change in any of the funding sources could impair the ability of Water Utility Services to fund its capital expenditures, which could impact our ability to grow our utility asset base and earnings. Any increase in the cost of capital through higher interest rates or otherwise could adversely affect our results of operations.

Our ability to raise capital through equity or debt may be affected by the economy and condition of the debt and equity markets. Disruptions in the capital and credit markets or deteriorations in the strength of financial institutions could adversely affect SJW Group’s ability to draw on its line of credit, issue long-term debt or sell its equity. In addition, government policies, the state of the credit markets and other factors could result in increased interest rates, which would increase SJW Group’s cost

of capital. Furthermore, equity financings may result in dilution to our existing stockholders and debt financings may contain covenants that restrict the actions of SJW Group and its subsidiaries. The Company ’ s senior note borrowings include certain affirmative covenants regarding a maximum debt to equity ratio and an interest coverage requirement. In the event the Company exceeds the maximum debt to equity ratio or interest coverage requirement, we may be restricted from issuing future debt. In addition, the pollution control revenue bonds issued on behalf of the Company contain affirmative and negative covenants customary for a loan agreement relating to revenue bonds, including, among other things, certain disclosure obligations, the tax exempt status of the interest on the bonds, and limitations and prohibitions on the transfer of projects funded by the loan proceeds and assignment of the loan agreement. In the event the Company violates any of these covenants, an event of default may occur and all amounts due under such bonds may be called by the Trustee, which would have an adverse effect on our business operations and financial conditions.

We operate in areas subject to natural disasters or that may be the target of terrorist activities.

We operate in areas that are prone to earthquakes, fires and other natural disasters. A significant seismic event in northern California, where the majority of our operations are concentrated, or other natural disaster in northern California or Texas could adversely impact our ability to deliver water to our customers and our costs of operations. A major disaster could damage or destroy substantial capital assets. Our California and Texas based regulators have historically allowed utilities to establish catastrophic event memorandum accounts as a possible mechanism to recover costs. However, we can give no assurance that our regulators, or any other commission would allow any such cost recovery mechanism in the future.

In light of the potential threats to the nation’s health and security due to terrorist attacks, we have taken steps to increase security measures at our facilities and heighten employee awareness of threats to our water supply. We have also tightened our security measures regarding the delivery and handling of certain chemicals used in our business. We have and will continue to bear increased costs for security precautions to protect our facilities, operations and supplies. These costs may be significant. While some of these costs are likely to be recovered in the form of higher rates, there can be no assurance that the CPUC and PUCT will approve a rate increase to recover all or part of such costs and, as a result, the Company’s operating results and business may be adversely affected. Further, despite these tightened security measures, we may not be in a position to control the outcome of terrorist events should they occur.

A failure of our reservoirs, storage tanks, mains or distribution networks could result in losses and damages that may adversely affect our financial condition and reputation.

We distribute water through an extensive network of mains and store water in reservoirs and storage tanks located across our service areas. A substantial portion of Water Utility Services distribution system was constructed during the period from 1945 to 1980. A failure of major mains, reservoirs, or tanks could result in injuries and damage to residential and/or commercial property for which we may be responsible, in whole or in part. The failure of major mains, reservoirs or tanks may also result in the need to shut down some facilities or parts of our water distribution network in order to conduct repairs. Such failures and shutdowns may limit our ability to supply water in sufficient quantities to our customers and to meet the water delivery requirements prescribed by governmental regulators, which could adversely affect our financial condition, results of operations, cash flow, liquidity and reputation. Any business interruption or other losses might not be covered by insurance policies or be recoverable in rates, and such losses may make it difficult for us to secure insurance in the future at acceptable rates.

SJW Land Company has real estate holdings that are subject to various business and investment risks.

SJW Land Company owns real estate in two states. The risks in investing directly in real estate vary depending on the investment strategy and investment objective and include the following:


•	Liquidity risk—real estate investments are illiquid. The lag time to build or reduce the real estate portfolio is long.


•	Obsolescence risk—real estate property is location specific. Location obsolescence can occur due to a decline of a particular sub-market or neighborhood. Functional obsolescence can also occur from physical depreciation, wear and tear, and other architectural and physical features which could be curable or incurable.

•

Market and general economic risks—real estate investment is tied to overall domestic economic growth and, therefore, carries market risk which cannot be eliminated by diversification. Generally, all property types benefit from national economic growth, though the benefits range according to local factors, such as local supply and demand and job creation. Because real estate leases are typically staggered and last for multiple years, there is generally a delayed effect in the performance of real estate in relation to the overall economy. This delayed effect can insulate or deteriorate the financial impact to SJW Land Company in a downturn or an improved economic environment.

Vacancy rates can climb and market rents can be impacted and weakened by general economic forces, therefore affecting income to SJW Land Company.

The value of real estate can drop materially due to a deflationary market, decline in rental income, market cycle of supply and demand, long lag time in real estate development, legislative and governmental actions, environmental concerns, increases in rates of returns demanded by investors, and fluctuation of interest rates, eroding any unrealized capital appreciation and, potentially, invested capital.

A drop in the value of a real estate property or increase in vacancy could result in reduced future cash flows to amounts below the property’s current carrying value and could result in an impairment charge.


•	Concentration/Credit risk—the risk of a tenant declaring bankruptcy and seeking relief from its contractual rental obligation could affect the income and the financial results of SJW Land Company. Diversification of many tenants across many properties may mitigate the risk, but can never eliminate it. This risk is most prevalent in a recessionary environment.

The success of SJW Land Company’s real estate investment strategy depends largely on ongoing local, state and federal land use development activities and regulations, future economic conditions, the development and fluctuations in the sale of the undeveloped properties, the ability to identify the developer/potential buyer of the available-for-sale real estate, the timing of the transaction, favorable tax law, and the ability to maintain and manage portfolio properties. There is no guarantee that we will be able to execute the strategy successfully and failure to do so may aversely affect our operating results and financial condition.

There can be no assurance that we will continue to pay dividends in the future or, if dividends are paid, that they will be in amounts similar to past dividends.

Dividends on our common stock will only be paid if and when declared by our Board of Directors. Our earnings, financial condition, capital requirements, applicable regulations and other factors, including the timeliness and adequacy of rate increases, will determine both our ability to pay dividends on common stock and the amount of the dividends declared by our Board of Directors. There can be no assurance that we will continue to pay dividends in the future or, if dividends are paid, that they will be in amounts similar to past dividends.

The price of our common stock may be volatile and may be affected by market conditions beyond our control.

The trading price of our common stock may fluctuate in the future based on a variety of factors, many of which are beyond our control. Factors that could cause fluctuations in the trading price of our common stock include volatility of the stock market, regulatory developments, general economic conditions and trends, actual or anticipated changes or fluctuations in our results of operations, actual or anticipated changes in the expectations of investors or securities analysts, actual or anticipated developments in our competitors’ businesses or the competitive landscape generally, litigation involving us or our industry, and major catastrophic events or sales of large blocks of our stock.

Equity markets in general can experience extreme price and volume fluctuations which may adversely affect the market price of our common stock for reasons unrelated to our business or operating results.

Our business strategy, which includes acquiring water systems and expanding non-tariffed services, will expose us to new risks which could have a material adverse effect on our business.

Our business strategy focuses on the following:

(1) Regional regulated water utility operations;


(2)	Regional non-tariffed water utility related services provided in accordance with the guidelines established by the CPUC in California and the PUCT in Texas; and

(3) Out-of-region water and utility related services.

As part of our pursuit of the above three strategic areas, we consider from time to time opportunities to acquire businesses and assets. However, we cannot be certain we will be successful in identifying and consummating any strategic business combination or acquisitions relating to such opportunities. In addition, the execution of our business strategy will expose us to different risks than those associated with the current utility operations. We expect to incur costs in connection with the execution of this strategy and any integration of an acquired business could involve significant costs, the assumption of certain known and unknown liabilities related to the acquired assets, the diversion of management’s time and resources, the potential for a negative impact on SJW Group’s financial position and operating results, entering markets in which SJW Group has no or limited direct prior experience and the potential loss of key employees of any acquired company. Any future strategic combination or acquisition we decide to undertake may also impact our ability to finance our business, affect our compliance with regulatory requirements, and impose additional burdens on our operations. Any businesses we acquire may not achieve sales, customer growth and projected profitability that would justify the investment. Any difficulties we encounter in the

integration process, including the integration of controls necessary for internal control and financial reporting, could interfere with our operations, reduce our operating margins and adversely affect our internal controls. SJW Group cannot be certain that any transaction will be successful or that it will not materially harm its operating results or financial condition.

We entered into an agreement to sell all of our equity interests in TWA, and there is no guarantee that we will be able to close the sale in a timely manner or at all.

On February 22, 2016, SJW Group entered into a purchase and sale agreement with the GBRA, a conservation and reclamation district and political subdivision of the State of Texas, pursuant to which SJW Group agreed to sell all of its equity interests in TWA to GBRA for $31 million in cash. Pursuant to the purchase and sale agreement, (i) upon closing of the transaction, GBRA will hold back $3 million in the payment of the total purchase price and (ii) such holdback amount, subject to reductions under certain circumstances, shall be paid to SJW Group four years following the closing. The purchase and sale agreement is subject to specified closing conditions, including without limitation, the completion of a financing by GBRA to fund the purchase price. There is no guarantee that all of the closing conditions will be satisfied in a timely manner, or at all. If we are not able to close the sale of TWA timely, or at all, it may adversely affect our business and financial condition.

Adverse investment returns and other factors may increase our pension costs and pension plan funding requirements.

A substantial number of our employees are covered by a defined benefit pension plan. Our pension costs and the funded status of the plan are affected by a number of factors including the discount rate, mortality rates of plan participants, investment returns on plan assets, and pension reform legislation. Any change in such factors could result in an increase in future pension costs and an increase in our pension liability, requiring an increase in plan contributions which may adversely affect our financial conditions and results of operations.

Work stoppages and other labor relations matters could adversely affect our business and operating results.

As of December 31, 2016 , 229 of our 406 total employees were union employees. Most of our unionized employees are represented by the Utility Workers of America, except certain employees in the engineering department who are represented by the International Union of Operating Engineers.

We may experience difficulties and delays in the collective bargaining process to reach suitable agreements with union employees, particularly in light of increasing healthcare and pension costs. In addition, changes in applicable law and regulations could have an adverse effect on management’s negotiating position with the unions. Labor actions, work stoppages or the threat of work stoppages, and our failure to obtain favorable labor contract terms during future negotiations may adversely affect our business, financial condition, results of operations, cash flows and liquidity.

Our charter documents and Delaware law could prevent a takeover that stockholders consider favorable and could also make it more difficult for stockholders to influence our policies or may reduce the rights of stockholders.

In November 2016, SJW Group changed its state of incorporation from California and Delaware. SJW Group ’s Certificate of Incorporation and Bylaws contain provisions that could delay or prevent a change in control of SJW Group. These provisions could also make it more difficult for our stockholders to elect directors and take other corporate actions. These provisions include but are not limited to the following:


•	Authorizing Board of Directors to issue “blank check” preferred stock;


•	Prohibiting cumulative voting in the election of directors;


•	Limiting the ability of stockholders to call special meeting of stockholders to only stockholders holding not less than 20% of outstanding voting power; and


•	Requiring advance notification of stockholder nominations and proposals.

These provisions may frustrate or prevent any attempts by stockholders of SJW Group to replace or remove its current management by making it more difficult for stockholders to replace members of the Board of Directors, which is responsible for appointing the members of management. In addition, the provisions of Section 203 of the Delaware General Corporate Law (“DGCL”) govern SJW Group. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time without the consent of the Board of Directors.

Furthermore, SJW Group’s Certificate of Incorporation provides that a state or federal court located within Delaware is the sole and exclusive forum (unless the company consents in writing to the selection of an alternate forum) for (i) any derivative action or proceeding brought on behalf of SJW Group, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of SJW Group to the company or its stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, or (iv) any action asserting a claim governed by the internal affairs doctrine. Such “exclusive forum” provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with SJW Group or its directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees.


Item 1B.	Unresolved Staff Comments

None.


Item 2.	Properties

The properties of San Jose Water Company consist of a unified water production system located in the County of Santa Clara in the State of California. In general, the property is comprised of franchise rights, water rights, necessary rights-of-way, approximately 7,000 acres of land held in fee (which is primarily non-developable watershed), impounding reservoirs with a capacity of approximately 2.256 billion gallons, 2,470 miles of transmission and distribution mains, distribution storage of approximately 247 million gallons, wells, boosting facilities, diversions, surface water treatment plants, equipment, office buildings and other property necessary to supply its customers.

San Jose Water Company maintains all of its properties in good operating condition in accordance with customary practice for a water utility. San Jose Water Company’s groundwater pumping stations have a production capacity of approximately 194 million gallons per day and the present capacity for taking purchased water is approximately 90 million gallons per day. The surface water collection system has a physical delivery capacity of approximately 35 million gallons per day. During 2016, a maximum and average of 136 million gallons and 90 million gallons of water per day, respectively, were delivered to the system.

CLWSC maintains a service area that covers approximately 244 square miles located in the southern region of the Texas hill country in Comal and Blanco counties. Our service area surrounds an 8,200 surface acre reservoir (Canyon Lake). Production wells are located in a Comal Trinity Groundwater Conservation District regulated portion of the Trinity aquifer and have the ability to pump a combined 3.55 billion gallons annually. CLWSC has contracts for 2 billion gallons of untreated surface water and 235 million gallons of treated surface water from the GBRA annually. CLWSC owns and operates three surface water treatment plants with a combined production capacity of 9 million gallons per day. CLWSC has 599 miles of transmission and distribution mains and maintains 61 storage tanks with a total storage capacity of 7.4 million gallons. CLWSC owns and operates three wastewater treatment plants with a combined capacity of 60,000 gallons per day.

Water Utility Services hold all of its principal properties in fee simple, subject to current tax and assessment liens, rights-of-way, easements, and certain minor defects in title which do not materially affect their use.

As of December 31, 2016 , SJW Land Company owns approximately 55 acres of property in the state of Tennessee and approximately five undeveloped acres of land and two acres of land with two commercial properties primarily in the San Jose metropolitan area. SJW Land Company also had owned 11 acres of property in the state of Arizona. On October 13, 2016, title to the Arizona property transferred from SJW Land Company to the Arizona Department of Transportation as a result of the Arizona Department of Transportation exercising their powers of eminent domain. See also Note 1 of “Notes to Consolidated Financial Statements”. SJW Land Company also owns a 70% limited partnership interest in 444 West Santa Clara Street, L.P, which owns one of the two commercial properties located in California. SJW Land Company consolidates its limited partnership interest in 444 West Santa Clara Street, L.P. as a variable interest entity within the scope of ASC Topic 810. On January 10, 2017, 444 West Santa Clara Street, L.P. entered a purchase and sale agreement for the sale of all of its interests in the commercial building and land the partnership owns and operates for a purchase price of $11 million. The Company anticipates the sale to close in the first quarter of 2017.

The following table is a summary of SJW Land Company properties described previously:



				% for Year Ended December 31, 2016 of SJW Land Company
Description	Location	Acreage	Square Footage	Revenue		Expense
2 Commercial buildings	San Jose, California	2	28,000	11	%	11	%
Warehouse building *	Phoenix, Arizona	11	176,000	10	%	6	%
Warehouse building	Knoxville, Tennessee	30	361,500	33	%	29	%
Commercial building	Knoxville, Tennessee	15	135,000	46	%	54	%
Undeveloped land and parking lot	Knoxville, Tennessee	10	N/A	N/A		N/A
Undeveloped land	San Jose, California	5	N/A	N/A		N/A


*	On September 8, 2016, SJW Land Company sold the Arizona warehouse building. Revenue and expense amounts are through the sale closing date of October 13, 2016. Amounts presented for Arizona exclude the gain on sale of the property. See Note 1, “Real Estate Investments,” of Notes to the Consolidated Financial Statements for further information regarding the sales transaction.


Item 3.	Legal Proceedings

SJW Group and its subsidiaries is subject to ordinary routine litigation incidental to its business. There are no pending legal proceedings to which SJW Group or any of its subsidiaries is a party, or to which any of its properties is the subject, that are expected to have a material effect on SJW Group’s business, financial position, results of operations or cash flows.


Item 4.	Mine Safety Disclosures

None.

PART II


Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

SJW Group’s common stock is traded on the New York Stock Exchange under the symbol SJW. Information as to the high and low sales prices for SJW Group’s common stock for each quarter in the 2016 and 2015 fiscal years is contained in the section captioned “Market price range of stock” in the tables set forth in Note 15 of “Notes to Consolidated Financial Statements” in Part II, Item 8.

As of December 31, 2016 , there were 383 record holders of SJW Group’s common stock.

Dividends

Dividends have been paid on SJW Group’s and its predecessor’s common stock for 293 consecutive quarters and the annual dividend amount has increased in each of the last 49 years. Additional information as to the cash dividends paid on common stock in 2016 and 2015 is contained in the section captioned “Dividend per share” in the tables set forth in Note 15 of “Notes to Consolidated Financial Statements” in Part II, Item 8. Future dividends will be determined by the Board of Directors after consideration of various financial, economic and business factors.

Five-Year Performance Graph

The following performance graph compares the changes in the cumulative stockholder return on SJW Group’s common stock with the cumulative total return on a Water Utility Index and the Standard & Poor’s 500 Index during the last five years ended December 31, 2016 . The comparison assumes $100 was invested on December 31, 2011 in SJW Group’s common stock and in each of the foregoing indices and assumes reinvestment of dividends.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN

Among SJW Group, a Water Utility Index and the S&P 500 Index

The following descriptive data of the performance graph is supplied in accordance with Rule 304(d) of Regulation S-T (numbers represent U.S. dollars ($)):



	2011	2012	2013	2014	2015	2016
SJW Group	100	116	133	148	140	270
Water Utility Index	100	121	145	179	201	247
S&P 500 Index	100	116	154	175	177	198

The Water Utility Index is the 9 water company Water Utility Index prepared by Wells Fargo Securities, LLC. The above performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that the company specifically incorporates it by reference into such filing.


Item 6.	Selected Financial Data

FIVE YEAR FINANCIAL AND STATISTICAL REVIEW

SJW Group and Subsidiaries



	2016			2015		2014		2013		2012
CONSOLIDATED RESULTS OF OPERATIONS (in thousands)
Operating revenue	$	339,706		305,082		319,668		276,869		261,547
Operating expense:
Purchased water	72,971			61,089		47,280		63,225		66,106
Power	6,102			6,121		9,865		7,619		5,796
Groundwater extraction charges	32,088			31,240		53,678		37,927		23,940
Other production expenses	13,167			12,178		11,929		12,073		11,445
Administrative and general	48,038			47,131		40,573		43,714		42,812
Maintenance	17,476			14,956		14,474		13,548		13,350
Property taxes and other non-income taxes	12,123			11,667		11,086		10,317		9,703
Depreciation and amortization	44,625			40,740		37,905		35,039		33,098
Total operating expense	246,590			225,122		226,790		223,462		206,250
Operating income	93,116			79,960		92,878		53,407		55,297
Interest expense, other income and expense	(6,735		)	(18,806	)	(16,101	)	(16,888	)	(17,437	)
Income before income taxes	86,381			61,154		76,777		36,519		37,860
Provision for income taxes	33,542			23,272		24,971		14,135		15,542
Net income	52,839			37,882		51,806		22,384		22,318
Dividends paid	16,559			15,885		15,177		14,443		13,231
CONSOLIDATED PER SHARE DATA
Earnings per share - diluted	2.57			1.85		2.54		1.12		1.18
Dividends paid	0.81			0.78		0.75		0.73		0.71
Book value per common share	20.61			18.83		17.75		14.71		14.71
CONSOLIDATED BALANCE SHEET (in thousands)
Utility plant and intangible assets	$	1,666,381		1,524,422		1,413,151		1,314,191		1,216,235
Less accumulated depreciation and amortization	520,018			487,659		450,137		415,453		384,675
Net utility plant	1,146,363			1,036,763		963,014		898,738		831,560
Net real estate investment	50,459			61,434		62,201		67,819		65,187
Total assets	1,443,376			1,337,325		1,269,304		1,109,986		1,087,499
Capitalization:
Stockholders’ equity	421,646			383,783		360,155		321,175		274,604
Long-term debt, less current portion	433,335			377,187		384,365		334,997		335,598
Total capitalization	$	854,981		760,970		744,520		656,172		610,202
OTHER STATISTICS—WATER UTILITY SERVICES
Average revenue per connection	$	1,402		1,263		1,328		1,159		1,101
Investment in gross utility plant per connection	$	6,874		6,311		5,869		5,499		5,119
Connections at year-end	242,421			241,555		240,773		238,977		237,600
Miles of main at year-end	3,069			3,031		2,939		2,920		2,893
Water production (million gallons)	35,847			36,535		44,649		49,638		47,655
Maximum daily production (million gallons)	136			130		173		187		190
Population served (estimate)	1,092,600			1,089,000		1,085,000		1,077,000		1,071,000


Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Dollar amounts in thousands, except where otherwise noted)

Description of Business

SJW Group is a publicly traded company and is a holding company with four subsidiaries:

San Jose Water Company, a wholly owned subsidiary, is a public utility in the business of providing water service to approximately 229,000 connections that serve a population of approximately one million people in an area comprising approximately 138 square miles in the metropolitan San Jose, California area.

SJWTX, Inc., a wholly owned subsidiary of SJW Group, doing business as Canyon Lake Water Service Company, is a public utility in the business of providing water service to approximately 13,000 connections that serve approximately 39,000 people. CLWSC’s service area comprises more than 244 square miles in western Comal County and southern Blanco County in the growing region between San Antonio and Austin, Texas. SJWTX, Inc. has a 25% interest in Acequia Water Supply Corporation. Acequia has been determined to be a variable interest entity within the scope of ASC Topic 810 with SJWTX, Inc. as the primary beneficiary. As a result, Acequia has been consolidated with SJWTX, Inc.

SJW Land Company, a wholly owned subsidiary of SJW Group, owns undeveloped land in the states of California and Tennessee, owns and operates commercial buildings in the states of California and Tennessee and has a 70% limited partnership interest in 444 West Santa Clara Street, L.P. SJW Land Company also had owned a rental property in the state of Arizona. On October 13, 2016, title to the Arizona property transferred from SJW Land Company to the Arizona Department of Transportation as a result of the Arizona Department of Transportation exercising their powers of eminent domain. 444 West Santa Clara Street, L.P. has been determined to be a variable interest entity within the scope of ASC Topic 810 with SJW Land Company as the primary beneficiary. As a result, 444 West Santa Clara Street L.P. has been consolidated with SJW Land Company. On January 10, 2017, 444 West Santa Clara Street, L.P. entered a purchase and sale agreement for the sale of all of its interests in the commercial building and land the partnership owns and operates for a purchase price of $11,000. The Company anticipates the sale to close in the first quarter of 2017.

Texas Water Alliance Limited, a wholly owned subsidiary of SJW Group, is undertaking activities that are necessary to develop a water supply project in Texas. In connection with the project, TWA has water lease arrangements with certain landowners in Gonzales County, Texas and has obtained groundwater production and transportation permits from the groundwater district in Gonzales County. On February 22, 2016, SJW Group entered into an agreement with the GBRA, pursuant to which SJW Group agreed to sell all of its equity interest in TWA to GBRA for $31,000 in cash (the “TWA Agreement”). The TWA Agreement is subject to specified closing conditions, including the completion of a financing by GBRA to fund the purchase price. There is no guarantee that all of the closing conditions will be satisfied in a timely manner, or at all. If we are not able to close the sale of TWA timely, or at all, it may adversely affect our business and financial condition.

Business Strategy for Water Utility Services

SJW Group focuses its business initiatives in three strategic areas:


(1)	Regional regulated water utility operations;


(2)	Regional non-tariffed water utility related services provided in accordance with the guidelines established by the CPUC in California and the PUCT in Texas; and


(3)	Out-of-region water and utility related services.

Regional Regulated Activities

SJW Group’s regulated utility operation is conducted through San Jose Water Company and CLWSC. SJW Group plans and applies a diligent and disciplined approach to maintaining and improving its water system infrastructures. It also seeks to acquire regulated water systems adjacent to or near its existing service territory.

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

Regional Non-tariffed Activities

Operating in accordance with guidelines established by the CPUC, San Jose Water Company provides non-tariffed services, such as water system operations, maintenance agreements and antenna site leases under agreements with municipalities and other utilities. CLWSC provides non-tariffed wholesale water service to adjacent utilities.

San Jose Water Company also seeks appropriate non-tariffed business opportunities that complement its existing operations or that allow it to extend its core competencies beyond existing operations. San Jose Water Company seeks opportunities to fully utilize its capabilities and existing capacity by providing services to other regional water systems, which also will benefit its existing regional customers.

Out-of-Region Opportunities

SJW Group also from time to time pursues opportunities to participate in out-of-region water and utility related services, particularly regulated water businesses. SJW Group evaluates out-of-region and out-of-state opportunities that meet SJW Group’s risk and return profile.

The factors SJW Group considers in evaluating such opportunities include:


•	potential profitability;


•	regulatory environment;


•	additional growth opportunities within the region;


•	water supply, water quality and environmental issues;


•	capital requirements;


•	general economic conditions; and


•	synergy potential.

Real Estate Services

SJW Group’s real estate investment activity is conducted through SJW Land Company. SJW Land Company owns undeveloped land in the states of California and Tennessee and owns and operates a portfolio of commercial buildings in the states of California and Tennessee. SJW Land Company also owns a limited partnership interest in 444 West Santa Clara Street, L.P. The partnership owns a commercial building in San Jose, California. On January 10, 2017, 444 West Santa Clara Street, L.P. entered a purchase and sale agreement for the sale of all of its interests in the commercial building and land the partnership owns and operates for a purchase price of $11,000. The Company anticipates the sale to close in the first quarter of 2017. SJW Land Company manages its acquired income producing and other properties until such time a determination is made to reinvest proceeds from sale of such properties. SJW Land Company’s real estate investments diversify SJW Group’s asset base.

Critical Accounting Policies

SJW Group has identified accounting policies delineated below as the policies critical to its business operations and the understanding of the results of operations. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the reporting period. SJW Group bases its estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances. For a detailed discussion on the application of these and other accounting policies, see Note 1 of “Notes to Consolidated Financial Statements.” SJW Group’s critical accounting policies are as follows:

Revenue Recognition

SJW Group recognizes its regulated and non-tariffed revenue when services have been rendered, in accordance with FASB ASC Topic 605—“Revenue Recognition.”

Metered revenue of Water Utility Services includes billing to customers based on meter readings plus an estimate of water used between the customers’ last meter reading and the end of the accounting period. Water Utility Services read the majority of its customers’ meters on a bi-monthly basis and records its revenue based on its meter reading results. Unbilled revenue from the last meter reading date to the end of the accounting period is estimated based on the most recent usage patterns, production records and the effective tariff rates. Actual results could differ from those estimates, which may result in an adjustment to operating revenue in the period which the revision to Water Utility Services’ estimates is determined. San Jose Water Company also recognizes balancing and memorandum accounts in its revenue when it is probable that future recovery of previously incurred costs or future refunds that are to be credited to customers will occur through the ratemaking process as described below.

Revenues also include a surcharge collected from regulated customers that is paid to the CPUC. This surcharge is recorded both in operating revenues and administrative and general expenses.

SJW Group recognizes its non-tariffed revenue based on the nature of the non-tariffed business activities. Revenue from San Jose Water Company’s non-tariffed utility operations, maintenance agreements or antenna site leases are recognized when services have been rendered. Revenue from SJW Land Company properties is generally recognized ratably over the term of the leases.

Balancing and Memorandum Accounts

The purpose of a balancing account is to track the under-collection or over-collection associated with expense changes and the revenue authorized by the CPUC to offset those expense changes. Pursuant to Section 792.5 of the California Public Utilities Code, a balancing account must be maintained for expense items for which revenue offsets have been authorized.

Balancing accounts are currently being maintained for the following items: purchased water, purchased power, groundwater extraction charges, pensions, and general rate case true-up’s. The amount in the water production balancing accounts varies with the seasonality of the water utility business such that, during the summer months when the demand for water is at its peak, the account tends to reflect an under-collection, while during the winter months when demand for water is relatively lower, the account tends to reflect an over-collection. The pension balancing account is intended to capture the difference between actual pension expense and the amount approved in rates by the CPUC. The general rate case true-up accounts are a result of revenue shortfalls authorized for collection by the CPUC due to delayed rate case decisions.

The Company also maintains memorandum accounts to track revenue impacts due to catastrophic events, certain unforeseen water quality expenses related to new federal and state water quality standards, energy efficiency, WCMA, drought surcharges, Monterey Water Revenue Adjustment Mechanism, and other approved activities or as directed by the CPUC. The drought surcharge memorandum account tracks monies received from drought surcharges. The amount collected will offset future surcharges that would be necessary to recover lost revenue due to drought conservation efforts. The Monterey Water Revenue Adjustment Mechanism tracks the difference between the revenue received for actual metered sales through the tiered volumetric rate and the revenue that would have been received with the same actual metered sales if a uniform rate would have been in effect.

Balancing and memorandum accounts are recognized by San Jose Water Company when it is probable that future recovery of previously incurred costs or future refunds that are to be credited to customers will occur through the ratemaking process. In addition, in the case of special revenue programs such as the WCMA, San Jose Water Company follows the requirements of ASC Topic 980-605-25—“Alternative Revenue Programs” in determining revenue recognition, including the requirement that such revenues will be collected within 24 months of the year-end in which the revenue is recorded. A reserve is recorded for amounts SJW Group estimates will not be collected within the 24-month period. This reserve is based on an estimate of actual usage over the recovery period, offset by applicable drought surcharges. In assessing the probability criteria for balancing and memorandum accounts between general rate cases, San Jose Water Company considers evidence that may exist prior to CPUC authorization that would satisfy ASC Topic 980 subtopic 340-25 recognition criteria. Such evidence may include regulatory rules and decisions, past practices, and other facts and circumstances that would indicate that recovery or refund is probable. When such evidence provides sufficient support, the balances are recorded in SJW Group’s financial statements.

It is typical for the CPUC to incorporate any over-collected and/or under-collected balances in balancing or memorandum accounts into customer rates at the time rate decisions are made as part of the Company’s general rate case proceedings by assessing temporary surcredits and/or surcharges. In the case where the Company’s balancing or memorandum-type accounts that have been authorized by the CPUC reach certain thresholds or have termination dates, the Company can request the CPUC to recognize the amounts in customer rates prior to the next regular general rate case proceeding by filing an advice letter.

Recognition of Regulatory Assets and Liabilities

Generally accepted accounting principles for water utilities include the recognition of regulatory assets and liabilities as permitted by ASC Topic 980. In accordance with ASC Topic 980, Water Utility Services, to the extent applicable, records deferred costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that these costs and credits will be recognized in the ratemaking process in a period different from when the costs and credits are incurred. Accounting for such costs and credits is based on management’s judgment and prior historical ratemaking practices, and it occurs when management determines that it is probable that these costs and credits will be recognized in the future revenue of Water Utility Services through the ratemaking process. The regulatory assets and liabilities recorded by Water Utility Services, in particular, San Jose Water Company, primarily relate to the recognition of deferred income taxes for ratemaking versus tax accounting purposes, balancing and memorandum accounts, postretirement pension benefits, medical costs, accrued benefits for vacation and asset retirement obligations that have not been passed through in rates. The Company adjusts the related asset and liabilities for these items through its regulatory asset and liability accounts at year-end, except for certain postretirement benefit costs and balancing and memorandum accounts which are adjusted monthly. The disallowance of any asset in future ratemaking, including deferred regulatory assets, would require San Jose Water Company to immediately recognize the impact of the costs for financial reporting purposes. No disallowances were recognized during the years ending December 31, 2016 , 2015 or 2014 .

Pension Plan Accounting

San Jose Water Company offers a Pension Plan, Executive Supplemental Retirement Plan, Cash Balance Executive Supplemental Retirement Plan and certain postretirement benefits other than pensions to its employees. Accounting for pensions and other postretirement benefits requires assumptions about the discount rate applied to expected benefit obligations, expected return on plan assets, the rate of future compensation increases expected to be received by the employees, mortality, turnover and medical costs. Plan assets are marked to market at each reporting date. See assumptions and disclosures detailed in Note 10 of “Notes to Consolidated Financial Statements.”

Income Taxes

SJW Group estimates its federal and state income taxes as part of the process of preparing consolidated financial statements. The process involves estimating the actual current tax exposure together with assessing temporary differences resulting from different treatment of items for tax and accounting purposes, including the evaluation of the treatment acceptable in the water utility industry and regulatory environment. These differences result in deferred tax assets and liabilities, which are included on the balance sheet. If actual results, due to changes in the regulatory treatment, or significant changes in tax-related estimates or assumptions or changes in law, differ materially from these estimates, the provision for income taxes will be materially impacted.

Factors Affecting Our Results of Operations

SJW Group’s financial condition and results of operations are influenced by a variety of factors including the following:


•	economic utility regulation;


•	infrastructure investment;


•	compliance with environmental, health and safety standards;


•	production expenses;


•	customer growth;


•	water usage per customer; and


•	weather conditions, seasonality and sources of water supply.

Economic Utility Regulation

Water Utility Services is generally subject to economic regulation by CPUC and PUCT overseeing public utilities. Regulatory policies vary from state to state and may change over time. In addition, there may be regulatory lag between the time a capital investment is made, a consumption decrease occurs, or an operating expense increase and when those items are adjusted in utility rates.

San Jose Water Company employs a forward-looking test year and has been authorized to use several mechanisms to mitigate risks faced due to regulatory lag and new and changing legislation, policies and regulation. These include memorandum accounts to track revenue impacts due to catastrophic events, certain unforeseen water quality expenses related to new federal and state water quality standards, energy efficiency, WCMA, drought surcharges, Monterey Water Revenue Adjustment Mechanism, and other approved activities or as directed by the CPUC. Rate recovery for the balances in these memorandum accounts is generally allowed in a subsequent general rate case. San Jose Water Company also maintains

balancing accounts to track changes in purchased water, purchased power, groundwater extraction charges and pension costs for later rate recovery.

Regulatory risk is mitigated in California by use of a forward-looking test year which allows the return on and return of utility plant on a forecasted basis as it is placed in service, and in some cases interim rate relief is allowed in the event of regulatory lag.

Pursuant to Texas regulation, CLWSC employs a historical test year. Additionally, rate cases may be filed as necessary, provided there is no current rate case outstanding. Further, rate cases may not be filed more frequently than once every 12 months.

Infrastructure Investment

The water utility business is capital-intensive. In 2016 and 2015 , Company-funded capital improvements were $ 129,134 and $ 96,012 , respectively, for additions to, or replacements of, property, plant and equipment for our Water Utility Services. We plan to spend approximately $136,186 in 2017 and $662,962 over the next five years for capital improvements, subject to CPUC and PUCT approval. Included in this amount is approximately $20,900 remaining to be spent on upgrades to San Jose Water Company’s 40-year old Montevina Water Treatment Plant. SJW Group funds these expenditures through a variety of sources, including cash received from operations, debt and equity issuances and borrowings. SJW Group relies upon a line of credit, which will expire on June 1, 2021 , to fund capital expenditures in the short term and has historically issued long-term debt to refinance our short-term debt. While our ability to obtain financing will continue to be a key risk, we believe that based on our 2016 activities, we will have access to the external funding sources necessary to implement our on-going capital investment programs in the future.

Compliance with Environmental, Health and Safety Standards

Water Utility Services’ operations are subject to water quality and pollution control regulations issued by the EPA and environmental laws and regulations administered by the respective states and local regulatory agencies. Under the federal Safe Drinking Water Act, Water Utility Services is subject to regulation by the EPA of the quality of water it sells and treatment techniques it uses to make the water potable. The EPA promulgates nationally applicable standards, including maximum contaminant levels for drinking water. Water Utility Services has implemented monitoring activities and installed specific water treatment improvements enabling it to comply with existing maximum contaminant levels and plan for compliance with future drinking water regulations. However, the EPA and the respective state agencies have continuing authority to issue additional regulations under the Safe Drinking Water Act. We incur substantial costs associated with compliance with environmental, health and safety and water quality regulation to which our Water Utility Services is subject.

Environmental, health and safety and water quality regulations are complex and change frequently, and the overall trend has been that they have become more stringent over time. It is possible that new or more stringent environmental standards and water quality regulations could be imposed that will increase Water Utility Services’ water quality compliance costs, hamper Water Utility Services’ available water supplies, and increase future capital expenditures. Future drinking water regulations may require increased monitoring, additional treatment of underground water supplies, fluoridation of all supplies, more stringent performance standards for treatment plants and procedures to further reduce levels of disinfection by-products. In the past, Water Utility Services has generally been able to recover expenses associated with compliance related to environmental, health and safety standards, but future recoveries could be affected by regulatory lag and the corresponding uncertainties surrounding rate recovery.

Production Expenses

Water Utility Services’ operations require significant production inputs which result in substantial production expenses. These expenses include power, which is used to operate pumps and other equipment, purchased water and groundwater extraction charges. For 2016 , production expenses accounted for approximately 50% of our total operating expenses. Price increases associated with these production inputs would adversely impact our results of operations until rate relief is granted.

Customer Growth

Customer growth in our Water Utility Services is driven by: (i) organic population growth within our authorized service areas and (ii) the addition of new customers to our regulated customer base by acquiring regulated water systems adjacent to or near our existing service territories. During 2016 , 2015 and 2014 , we had cash outflows of $ 1,070 , $ 991 and $ 1,768 , respectively, for acquisitions and water rights which we believe will allow us to expand our regulated customer base. Before entering new regulated markets, we evaluate the regulatory environment to ensure that we will have the opportunity to achieve an appropriate rate of return on our investment while maintaining our high standards for quality, reliability and compliance with environmental, health and safety and water quality standards.

Water Usage Per Customer

Fluctuations in customer demand for water could be due to seasonality, restrictions of use, weather or lifestyle choices, all of which could affect Water Utility Services’ results of operations. San Jose Water Company residential usage decreased 3.2% and 22.6% from 2015 to 2016 and 2014 to 2015, respectively. San Jose Water Company business usage increased 3.1% and decreased 14.1% from 2015 to 2016 and 2014 to 2015, respectively. In addition, 2016 residential and business usage was 21.9% and 7.5%, respectively, lower than the amount authorized in our 2016-2018 general rate case. Residential usage and business usage in 2015 was 30.3% and 5.7%, respectively, lower than the amount authorized in our 2013-2015 general rate case. CLWSC residential and business usage increased 1.8% from 2015 to 2016 and decreased 9.8% from 2014 to 2015.

Weather Conditions, Seasonality and Sources of Water Supply

Our ability to meet the existing and future water demands of our customers depends on an adequate supply of water. Drought, governmental restrictions, overuse of sources of water, the protection of threatened species or habitats or other factors may limit the availability of ground and surface water. Also, customer usage of water is affected by weather conditions, in particular during the warmer months. Our water systems experience higher demand in the summer due to the warmer temperatures and increased usage by customers for outside irrigation of lawns and landscaping. In periods of drought, if customers are encouraged or required to conserve water due to a shortage of supply or restriction of use, revenue tends to be lower. Water use restrictions may be imposed at a regional or state level and may affect our service areas regardless of our readiness to meet unrestricted customer demands. Similarly, in unusually wet periods, water supply tends to be higher and customer demand tends to be lower, again resulting in lower revenues.

In response to the recent severe drought in California, on November 13, 2015, Governor Edmund Brown Jr. issued Executive Order B-36-15 to bolster the state’s drought response. On November 24, 2015, the SCVWD extended their call for 30% conservation and restrictions on outdoor watering of ornamental landscapes two days a week through June 30, 2016. On February 2, 2016, the State Water Board adopted an extended and revised emergency regulation to ensure that urban water conservation continues through October 2016. On May 9, 2016, Governor Brown issued an executive order to build on temporary statewide emergency water restrictions and to establish longer term water conservation measures, including permanent monthly water use reporting, new permanent water use standards in California communities and bans on clearly wasteful practices. On May 18, 2016, the State Water Board adopted a new approach to water conservation regulation and replaced its prior percentage reduction-based water conservation standard with a new approach designed to ensure at least a three year supply of available water based on local conditions. On June 14, 2016, the SCVWD reduced its conservation target from 30% to 20% and also increased the number of outdoor watering days from two to three effective July 1, 2016 through January 31, 2017. On January 24, 2017, the SCVWD maintained their call for 20% conservation and restrictions on outdoor watering for ornamental landscapes to no more than three days a week effective February 1, 2017.

Effective June 15, 2015, San Jose Water Company was authorized by the CPUC to activate Stage 3 of Tariff Rule 14.1 which is a water shortage contingency plan with mandatory water usage reductions and drought surcharges resulting from usage above customer allocations. Tariff Rule 14.1 focuses primarily on restrictions of outdoor water use which accounts for 50% of a typical customer’s water usage. On June 24, 2016, San Jose Water Company filed with the CPUC to amend its water shortage contingency plan with mandatory water usage reductions and drought surcharges to reflect the SCVWD’s changes. This request was approved by the CPUC with an effective date of July 1, 2016. The drought surcharges are not recorded as revenue. Rather, they are recorded in a regulatory liability account which has been authorized by the CPUC to track lost revenues from conservation. The amount recorded in the surcharge account is being used to offset future rate increases that would otherwise be necessary to recover lost revenue due to drought conservation efforts. As of December 31, 2016 , San Jose Water Company has a remaining balance of approximately $7.7 million in the drought surcharge account to offset future rate increases related to drought conservation efforts. In light of improved water supply outlook, San Jose Water Company filed Advice Letter 505 with the CPUC to suspend its allocation program and all drought surcharges in Schedule 14.1, Water Shortage Contingency Plan with Staged Mandatory Reductions and Drought Surcharges. However, Schedule 14.1, and all of the water use restrictions defined therein, will remain in effect in light of the continued calls for conservation by the SCVWD and the State Water Resources Control Board. The allocations and drought surcharges were suspended effective February 1, 2017.San Jose Water Company is continually working to remain in compliance with the various drought rules and regulations and is also working with local governments as well as the SCVWD to communicate consistent messages to the public about use restrictions and related matters associated with the recent drought.

San Jose Water Company believes that its various sources of water supply, which consists of groundwater from wells, surface water from watershed run-off and diversion, reclaimed water, and imported water purchased from the SCVWD, will be sufficient to meet customer demand for 2017 after consideration of implemented water restrictions and drought conservation activities. In addition, San Jose Water Company actively works with the SCVWD to address California’s long-term water supply challenges by continuing to educate customers on responsible water use practices and to conduct long-range water

supply planning. CLWSC believes that they will be able to meet customer demand for 2017 with their water supply which consists of groundwater from wells and purchased treated and raw water from the GBRA.

Results of Operations

Among other things, water sales are seasonal in nature and influenced by weather conditions. The timing of precipitation and climatic conditions can cause seasonal water consumption by customers to vary significantly. Revenue is generally higher in the warm, dry summer months when water usage and sales are greater and lower in the winter months when cooler temperatures and increased rainfall curtail water usage and sales.

See Item 1, “Business” for a discussion of the California drought and political and regulatory activities that have occurred in response to ongoing drought conditions.

Overview

SJW Group’s consolidated net income for the year ended December 31, 2016 was $52,839 , compared to $37,882 for the same period in 2015 . This represents an increase of $14,957 or 39%, from 2015 . The increase in net income was primarily due to an increase in operating revenue as a result of higher rates from the 2015 general rate case approval, partially offset by an increase in higher water production expenses due to price increases and depreciation expense due to increased depreciable assets. The increase in net income also includes an increase of $8,533 in the pre-tax gain on sale of nonutility property, primarily due to the sale of SJW Land Company’s Arizona property. In addition, the sale of 159,151 shares of California Water Service Group generated a $3,197 pre-tax gain. In addition to the higher rates from the 2015 general rate case approval, revenue increased during the year ended December 31, 2016 due to the net recognition of $6,830 in true-up revenue resulting from the 2012 & 2015 general rate case decisions, offset by a decrease in WCMA revenue recognition of $3,384 .

Operating Revenue

Operating revenue by segment was as follows:

Operating Revenue



	2016		2015	2014
Water Utility Services	$	332,989	298,094	312,649
Real Estate Services	6,717		6,988	7,019
	$	339,706	305,082	319,668

The change in consolidated operating revenues was due to the following factors:



	2016 vs. 2015 Increase/(decrease)					2015 vs. 2014 Increase/(decrease)
Water Utility Services:
Consumption changes	$	(184	)	—	%	$	(36,983	)	(11	)%
Increase in customers	628			—	%	1,226			—	%
Rate increases	28,561			10	%	37,818			12	%
Recycled	731			—	%	651			—	%
Balancing and memorandum accounts:
2012 & 2015 general rate case true-up	6,830			2	%	(44,519		)	(14	)%
Water Conservation Memorandum Account	(3,384		)	(1	)%	20,492			6	%
All other	1,713			1	%	6,760			2	%
Real Estate Services	(271		)	—	%	(31		)	—	%
	$	34,624		12	%	$	(14,586	)	(5	)%

2016 vs. 2015

The revenue increase consists of $34,895 from Water Utility Services offset by a decrease of $271 from Real Estate Services.

The revenue increase for Water Utility Services is primarily due to an increase in rates as approved in the 2015 general rate case decision which resulted in $28,561 of additional revenue. The Company also recognized a net increase of $6,830 in true-up revenue resulting from the 2012 general rate case decision recognized in 2015 offset by true-up revenue recorded in 2016 related to the 2015 general rate case decision. In addition, new customers, recycled water revenue and certain balancing and memorandum accounts also contributed to the increase. These increases were partially offset by a decrease in revenue recognized related to the WCMA and a decrease in usage.

The revenue decrease for Real Estate Services was primarily the result of lower rental income due to the sale of SJW Land Company’s Arizona property.

2015 vs. 2014

The revenue decrease consists of $14,555 from Water Utility Services and $31 from Real Estate Services.

The revenue decrease for Water Utility Services is primarily the result of the recognition of true-up revenue approved by the CPUC in September 2014 and a decrease in consumption primarily due to the record drought in California and associated conservation measures. These decreases were partially offset by an increase in rates as approved in the 2012 general rate case decision, an increase in the revenue recognized related to certain balancing and memorandum accounts, and an increase in customers. The Company also recognized 2014 and 2015 revenue shortfalls that were being tracked in the WCMA until the criteria of ASC Topic 980 subtopic 605-25 was met.

The revenue decrease for Real Estate Services was primarily the result of decreased rental income from our Tennessee property due to lower common area maintenance expense reimbursements.

Water Utility Services’ Operating Revenue and Customer Counts

The following tables present operating revenues and number of customers by customer group of Water Utility Services:

Operating Revenue by Customer Group



	2016		2015	2014
Residential and business	$	278,941	251,617	249,302
Industrial	1,519		1,446	1,492
Public authorities	13,422		11,764	11,766
Others	9,218		8,536	8,091
Balancing and memorandum accounts	29,889		24,731	41,998
	$	332,989	298,094	312,649

Number of Customers



	2016	2015	2014
Residential and business	236,689	235,883	235,179
Industrial	76	76	76
Public authorities	1,360	1,368	1,374
Others	4,296	4,228	4,144
	242,421	241,555	240,773

Operating Expense

Operating expense by segment was as follows:

Operating Expense



	2016		2015	2014
Water Utility Services	$	240,716	218,687	221,600
Real Estate Services	4,074		4,079	4,193
All Other	1,800		2,356	997
	$	246,590	225,122	226,790

The change in consolidated operating expenses was due to the following factors:



	2016 vs. 2015 Increase/(decrease)					2015 vs. 2014 Increase/(decrease)
Water production expenses:
Change in surface water supply	$	(2,512	)	(1	)%	$	(2,630	)	(1	)%
Change in usage and new customers	(830		)	—	%	(21,468		)	(9	)%
Purchased water and groundwater extraction charge and energy price increase	17,042			7	%	11,974			5	%
Total water production expenses	13,700			6	%	(12,124		)	(5	)%
Administrative and general	907			—	%	6,558			3	%
Maintenance	2,520			1	%	482			—	%
Property taxes and other non-income taxes	456			—	%	581			—	%
Depreciation and amortization	3,885			3	%	2,835			1	%
	$	21,468		10	%	$	(1,668	)	(1	)%

Sources of Water Supply

San Jose Water Company’s water supply consists of groundwater from wells, surface water from watershed run-off and diversion, reclaimed water, and imported water purchased from the SCVWD under the terms of a master contract with SCVWD expiring in 2051. Surface water is the least expensive source of water. Changes and variations in quantities from each of these sources affect the overall mix of the water supply, thereby affecting the cost of the water supply. In addition, the water rates for purchased water and the groundwater extraction charge may be increased by the SCVWD at any time. If an increase occurs, then San Jose Water Company would file an advice letter with the CPUC seeking authorization to increase revenues to offset the rate increase.

The following table presents the sources of water supply for Water Utility Services:



	Source of Water Supply
	2016		2015	2014
	(million gallons) (MG)
Purchased water	21,474		21,338	18,491
Groundwater	11,271		13,005	25,052
Surface water	2,465		1,553	421
Reclaimed water	637		639	685
	35,847		36,535	44,649
Average water production expense per MG	$	3,468	3,028	2,749

Water production in 2016 for Water Utility Services decreased 688 million gallons from 2015. Water production in 2015 for Water Utility Services decreased 8,114 million gallons from 2014. The changes are primarily attributable to changes in consumption by customers and are consistent with the changes in the related water production expenses.

The contract water rates for San Jose Water Company are determined by SCVWD. These rates are adjusted periodically and coincide with SCVWD’s fiscal year, which ends on June 30. The contract water rate for SCVWD’s fiscal years 2017, 2016 and 2015 was $3.6, $3.1 and $2.6 per million gallons, respectively. The contractual cost of the groundwater extraction charge for water pumped from the ground basin was $3.3, $2.7 and $2.3 per million gallons for SCVWD’s fiscal years 2017, 2016, and 2015, respectively.

Unaccounted-for water for 2016 and 2015 approximated 7.8% and 8.1%, respectively, as a percentage of production. The unaccounted-for water estimate is based on the results of past experience and the impact of lower flows through the system as a result of conservation activities, partially offset by Water Utility Services’ main replacements and lost water reduction programs.

The various components of operating expenses are discussed below.

Water production expenses

2016 vs. 2015

Water production expenses increased $17,042 due to higher per unit costs paid for purchased water, groundwater extraction and energy charges. These increases were offset by $2,512 due to an increase in the use of available surface water in 2016 compared to 2015 and $830 due to a decrease in customer usage. Effective July 2016, SCVWD increased the unit price of purchased water by approximately 18% and the groundwater extraction charge by approximately 20%.

2015 vs. 2014

Water production expenses decreased $21,468 due to a decrease in customer usage and $2,630 due to an increase in the use of available surface water in 2015 compared to 2014. These decreases were offset by a $11,974 increase due to higher per unit costs paid for purchased water, groundwater extraction and energy charges. Effective July 2015, SCVWD increased the unit price of purchased water by approximately 17% and the groundwater extraction charge by approximately 20%.

Administrative and General Expense

Administrative and general expenses include payroll related to administrative and general functions, all employee benefits charged to expense accounts, insurance expenses, legal fees, regulatory utility commissions’ expenses, expenses associated with being a public company, and general corporate expenses.

2016 vs. 2015

Administrative and general expense increased $907 in 2016, or 2%, in comparison to 2015. The increase consisted primarily of: (1) $517 due to an increase in contracted work primarily related to the recycled water retrofit program and information governance initiative, (2) $463 increase in software maintenance contracts, (3) $438 increase in salaries, and (4) $184 increase in miscellaneous expenses, offset by (5) $695 decrease in pension expense as a result of an increasing discount rate coupled with an increase in return on pension plan assets.

2015 vs. 2014

Administrative and general expense increased $6,558 in 2015, or 16%, in comparison to 2014. The increase consisted primarily of: (1) $3,368 due to a increase in pension expense as a result of a decreasing discount rate and updated mortality data to reflect increasing life expectancies in the United States, (2) $1,219 increase in legal fees primarily relating to lease amendments for our Texas water supply project, (3) $1,158 increase in salaries, (4) $419 increases in regulatory surcharges due to higher rates, and (5) $394 increase in miscellaneous expenses.

Maintenance Expense

Maintenance expense increased $2,520 in 2016, or 17%, in comparison to 2015, and increased $482 in 2015, or 3%, in comparison to 2014. The increase in 2016 consisted primarily of: (1) $1,515 increase in uninsured losses primarily related to a reserve for an obsolete workorder, (2) $562 increase in salaries and (3) $332 increase in contract work and paving costs for asphalt repair. The increase in 2015 consisted primarily of a $298 increase in paving expense due to a change in paving specifications required by City of San Jose.

Property Taxes and Other Non-income Taxes

Property taxes and other non-income taxes for 2016 and 2015 increased $456 and $581 from prior years, respectively. The increases were primarily a result of increased utility plant. SJW Group anticipates increases in 2017 for property taxes and other non-income taxes due to increases in utility plant.

Depreciation and Amortization

Depreciation and amortization expense increased $3,885 in 2016, or 10%, in comparison to 2015, and increased $2,835 in 2015, or 7%, in comparison to 2014. The increase in both years was due to increases in utility plant. SJW Group anticipates increases in 2017 for depreciation expense due to increases in utility plant.

Other Income and Expense

The change in other (expense) income in 2016 compared to 2015 was primarily due to a $9,981 gain on the sale of our SJW Land Company Arizona property compared to the gain on sale recorded in prior year of a portfolio of San Jose Water Company non-utility properties. In addition, the sale of 159,151 shares of common stock of California Water Service Group in 2016 also contributed $3,197 to the increase.

The change in other (expense) income in 2015 compared to 2014 was primarily due to a $2,017 gain from the sale of 125,969 shares of California Water Service Group stock in 2014 and an increase in interest on long-term debt due to the issuance of Series L senior note in 2014. This decrease was partially offset by an increase in the gain from the sale of a portfolio of San Jose Water Company non-utility properties in 2015 compared to the sale of our SJW Land Company Texas property and a California non-utility property recorded in prior year.

SJW Group’s consolidated weighted-average cost of long-term debt, including the mortgages and the amortization of debt issuance costs, was 6.0% for the year ended December 31, 2016 and 6.2% for the years ended December 31, 2015 and 2014 .

Provision for Income Taxes

Income tax expense for 2016 was $33,542 , compared to $23,272 in 2015 . The effective consolidated income tax rate was 39% for 2016 , 38% for 2015 and 33% for 2014 . The effective consolidated income tax rate for 2014 was low primarily due to a state income tax benefit of $4,482 recognized in 2014 related to the adoption of new Department of Treasury and Internal Revenue Service Tangible Property Regulations for 2013 and prior years. A similar event did not occur in 2015 or 2016. SJW Group is currently undergoing an income tax examination by The California Franchise Tax Board for refund claims for fiscal years 2008 through 2012. Please refer to Note 5, “Income Taxes,” of Notes to Consolidated Financial Statements for a reconciliation of actual to expected income tax expense.

Other Comprehensive (Loss) Income

Other comprehensive loss in 2016 was $787, net of tax, due to a change in the market value of our investment in California Water Service Group stock of $955 and the recognition of unrealized holding gains of $1,742 that was reclassified out of accumulated other comprehensive income due to the sale of California Water Service Group stock during the year. Other comprehensive loss in 2015 was $206, net of tax, due to a change in the market value of the investment in California Water Service Group.

Liquidity and Capital Resources

Water Utility Services’ business derives the majority of its revenue directly from residential and business customers. Water Utility Services bills the majority of its customers’ on a bi-monthly basis. Payments from customers are impacted by the general economic conditions in the areas where SJW Group operates. Payment delinquencies are mitigated by service interruptions due to non-payment. Because California is a high cost of living state, it is possible that Californians may migrate to other states with a lower cost-of-living. As of December 31, 2016 , the change in the number of customers has been minimal and write-offs for uncollectible accounts have been less than 1% of total revenue, unchanged from the prior year. Management believes it can continue to collect its accounts receivable balances at its historical collection rate.

Funds collected from Water Utility Services’ customers are used to pay for water production expenses, in addition to all costs associated with general operations. Funds were also generated from borrowings on the line of credit and sale of non-utility properties owned by San Jose Water Company. From these amounts, SJW Group paid cash dividends of approximately $ 16,559 and funded its 2016 working capital and capital expenditure program.

The condition of the capital and credit markets or the strength of financial institutions could impact SJW Group’s ability to draw on its line of credit, issue long-term debt or sell its equity. In addition, government policies, the state of the credit markets and other factors could result in increased interest rates, which would increase SJW Group’s cost of capital. While our ability to obtain financing will continue to be a key risk, we believe that based on our 2016 activities, we will have access to the external funding sources necessary to implement our on-going capital investment programs in the future.

In 2016 , the common dividends declared and paid on SJW Group’s common stock represented 31% of net income for 2016 . Dividends have been paid on SJW Group’s and its predecessor’s common stock for 293 consecutive quarters and the annual dividend amount has increased in each of the last 49 years. While historically SJW Group has generally paid dividends equal to approximately 50% to 60% of its net income, SJW Group cannot guarantee that this trend will continue in the future.

Cash Flow from Operations

In 2016, SJW Group generated cash flow from operations of approximately $114,100 compared to $97,200 in 2015 and $65,900 in 2014. Cash flow from operations is primarily generated by net income from revenue producing activities, adjusted for non-cash expenses for depreciation and amortization, deferred income taxes, gains on the sale of assets, and changes in working capital items. Cash flow from operations increased in 2016 by approximately $16,900. This increase was caused primarily by a combination of the following factors: (1) recognition and collection of the balancing and memorandum accounts of $17,900, (2) net collection of taxes receivable was $2,600 more than prior year, (3) general working capital and net income adjusted for non-cash items increased by $2,400, offset by (4) collections of previously billed and accrued receivables decreased by $6,100. In 2015, SJW Corp. generated cash flow from operations of approximately $97,200 compared to $65,900 in 2014. Cash flow from operations increased in 2015 by approximately $31,300. This increase was caused primarily by a combination of the following factors: (1) recognition in the prior year of true-up revenue resulting from the general rate case decision added $41,200 in the balancing and memorandum accounts, (2) net income adjusted for non-cash items and gains from asset activity decreased $19,400, and (3) all other items caused a $9,500 increase.

Cash Flow from Investing Activities

In 2016, SJW Group used approximately $129,100 of cash for Company funded capital expenditures, $13,100 for developer funded capital expenditures, $3,400 in utility plant retirement costs, $1,000 for acquisitions and rights to provide water service, and $300 for real estate investments related to the leasehold improvement additions for the properties located in Knoxville, Tennessee. These uses were offset by cash proceeds of $20,300 from the sale of real estate investments owned by SJW Land Company and San Jose Water Company, and $4,500 of cash proceeds from the sale of California Water Service Group stock. In 2015, SJW Group used approximately $96,000 of cash for Company funded capital expenditures, $10,800 for developer funded capital expenditures, $3,700 in utility plant retirement costs, $1,100 for real estate investments related to the leasehold improvement additions for the properties located in Knoxville, Tennessee, and $1,000 for acquisitions and rights to provide water service. These uses were offset by cash proceeds of $2,000 from the sale of non-utility properties owned by San Jose Water Company.

Water Utility Services budgeted capital expenditures for 2016, exclusive of capital expenditures financed by customer contributions and advances is as follows:



	Budgeted Capital Expenditures 2017
Water treatment	$	2,738	2	%
Source of supply	14,028		10	%
Reservoirs and tanks	10,226		8	%
Pump stations and equipment	15,054		11	%
Equipment and other	8,084		6	%
Montevina Water Treatment Plant	20,900		15	%
Recycled water, green and alternative energy projects	10,982		8	%
Distribution system	54,174		40	%
	$	136,186	100	%

The 2017 capital expenditures budget is concentrated in main replacements. Included in the distribution system budgeted capital expenditures of $54,174 is approximately $36,200 that is planned to be spent to replace Water Utility Services’ pipes and mains.

Water Utility Services’ capital expenditures are incurred in connection with normal upgrading and expansion of existing facilities and to comply with environmental regulations. Over the next five years, Water Utility Services expects to incur approximately $662,962 in capital expenditures, which includes replacement of pipes and mains, and maintaining water systems. A significant portion of this amount is subject to future CPUC and PUCT approval. Capital expenditures have the effect of increasing utility plant rate base on which Water Utility Services earns a return. Water Utility Services actual capital expenditures may vary from their projections due to changes in the expected demand for services, weather patterns, actions by governmental agencies and general economic conditions. Total additions to utility plant normally exceed Company-financed additions as a result of new facilities construction funded with advances from developers and contributions in aid of construction.

A substantial portion of San Jose Water Company’s distribution system was constructed during the period from 1945 to 1980. Expenditure levels for renewal and modernization of this part of the system will grow at an increasing rate as these components reach the end of their useful lives. In most cases, replacement cost will significantly exceed the original installation cost of the retired assets due to increases in the costs of goods and services and increased regulation.

Cash Flow from Financing Activities

Net cash provided by financing activities for the year ended December 31, 2016 increased by approximately $12,000 from the same period in the prior year, primarily as a result of an increase in long-term debt net borrowings from the 2016 California Pollution Control Financing Authority Revenue Bonds agreement and an increase in contributions in aid of construction in the current year partially offset by a decrease in the amount of net borrowings on our lines of credit, payments for debt issuance costs for new lines of credit, and long-term debt agreements, Safe Drinking Water State Revolving Fund (“SDWSRF”) loans, the Tennessee and Arizona mortgages. SJW Group’s cash management policy includes the issuance of long-term debt to pay down borrowings on the lines of credit. As such, when long-term borrowings are high, borrowings on the line of credit tend to be low and when long-term borrowings are low, borrowings on the line of credit tend to be high.

SJW Group, SJW Land Company, SJWTX, Inc. and San Jose Water Company have unsecured bank lines of credit totaling $145,000 as of December 31, 2016 . Our drawdowns on our lines of credit are restricted by our funded debt not exceeding a percent of total capitalization as defined in our debt covenants. SJW Group expects to periodically draw down on the lines of credit as dictated by our funding needs and subsequently repay such borrowings with cash from operations and issuance of long-term debt or equity. See also “Sources of Capital—Water Utility Services” below.

Sources of Capital

Water Utility Services

San Jose Water Company’s ability to finance future construction programs and sustain dividend payments depends on its ability to maintain or increase internally generated funds and attract external financing. The level of future earnings and the related cash flow from operations is dependent, in large part, upon the timing and outcome of regulatory proceedings.

San Jose Water Company’s financing activity is designed to achieve a capital structure consistent with regulatory guidelines of approximately 49% debt and 51% equity. As of December 31, 2016 , San Jose Water Company’s long-term debt and equity were approximately 48% and 52%, respectively. The average borrowing rate of San Jose Water Company’s long-term debt was 6.2% as of December 31, 2016 .

Funding for San Jose Water Company’s future capital expenditure program is expected to be provided primarily through internally-generated funds, the issuance of new long-term debt, the issuance of equity or the sale of all or part of our investment in California Water Service Group, all of which will be consistent with the regulator’s guidelines.

SJW Group has outstanding a $50,000 unsecured senior note as of December 31, 2016 . The senior note has terms and conditions that restrict SJW Group from issuing additional funded debt if: (1) the funded consolidated debt would exceed 66-2/3% of total capitalization; and (2) the minimum net worth of SJW Group becomes less than $175,000 plus 30% of Water Utility Services cumulative net income, since June 30, 2011. As of December 31, 2016 , SJW Group was not restricted from issuing future indebtedness as a result of these terms and conditions.

San Jose Water Company has outstanding $250,000 of unsecured senior notes as of December 31, 2016 . The senior note agreements of San Jose Water Company generally have terms and conditions that restrict San Jose Water Company from issuing additional funded debt if: (1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-calendar-month period would be less than 175% of interest charges. As of December 31, 2016 , San Jose Water Company’s funded debt was 48% of total capitalization and the net income available for interest charges was 435% of interest charges. As of December 31, 2016 , San Jose Water Company was not restricted from issuing future indebtedness as a result of these terms and conditions.

On December 15, 2016, San Jose Water Company entered into a loan agreement with the California Pollution Control Financing Authority (“CPCFA”). The CPCFA simultaneously entered into an indenture with The Bank of New York Mellon Trust Company, N.A. as trustee pursuant to which the CPCFA issued $70,000 in aggregate principal amount of its 4.75% fixed rate revenue bonds. The CPCFA loaned the proceeds of the bond issuance to San Jose Water Company pursuant to the loan agreement. The terms of the revenue bonds provide for interest only payments until maturity, which is November 1, 2046. As of December 31, 2016 , $19,001 in loan proceeds were being held as restricted cash by the trustee of the revenue bonds until certain conditions were met. On January 10, 2017, the conditions were met and trustee released the remaining loan proceeds to San Jose Water Company.

San Jose Water Company has obligations pursuant to loan agreements with the CPCFA supporting $120,000 in aggregate principal amount of CPCFA revenue bonds outstanding as of December 31, 2016 . The loan agreements contain affirmative and negative covenants customary for loan agreements relating to revenue bonds, containing, among other things, certain disclosure obligations, the tax exempt status of the interest on the bonds and limitations, and prohibitions on the transfer of projects funded by the loan proceeds and assignment of the loan agreements. As of December 31, 2016 , San Jose Water Company was in compliance with all such covenants.

SJWTX, Inc., doing business as Canyon Lake Water Service Company, has outstanding $15,000 of a senior note as of December 31, 2016 . The senior note agreement has terms and conditions that restrict SJWTX, Inc. from issuing additional funded debt if: (1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-calendar-month period would be less than 175% of interest charges. In addition, SJW Group is a guarantor of SJWTX, Inc.’s senior note which has terms and conditions that restrict SJW Group from issuing additional funded debt if: (1) the funded consolidated debt would exceed 66-2/3% of total capitalization, and (2) the minimum net worth of SJW Group becomes less than $125,000 plus 30% of Water Utility Services cumulative net income, since December 31, 2005. As of December 31, 2016 , SJWTX, Inc. and SJW Group were not restricted from issuing future indebtedness as a result of these terms and conditions.

Real Estate Services

As of December 31, 2016 , SJW Land Company’s variable interest entity, 444 West Santa Clara Street, L.P., had an outstanding mortgage loan in the amount of $2,717 . The mortgage loan is due in 2021 and is amortized over 20 years with an interest rate of 5.68%. The mortgage loan is secured by the partnership’s real property and is non-recourse to SJW Land Company.

As of December 31, 2016 , SJW Land Company no longer had outstanding balance of mortgages on its portfolio of properties.

SJW Group and its Subsidiaries

SJW Group and its subsidiaries consolidated long-term debt was 52% of total capitalization as of December 31, 2016 . Management believes that SJW Group is capable of obtaining future long-term capital to fund regulated and non-tariffed growth opportunities and capital expenditure requirements.

On June 1, 2016, San Jose Water Company entered into a $125,000 Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as the lender (the “Lender”). The Credit Agreement provides an unsecured credit facility with a letter of credit sublimit of $10,000 . Proceeds of borrowings under the Credit Agreement may be used to refinance existing debt, for working capital, and for general corporate purposes. The Credit Agreement has a maturity date of June 1, 2021.

The Credit Agreement contains customary representations, warranties and events of default, as well as certain restrictive covenants customary for facilities of this type, including restrictions on indebtedness, liens, acquisitions and investments, restricted payments, asset sales, and fundamental changes. The Credit Agreement also includes certain financial covenants that require the Company to maintain a maximum funded debt to capitalization ratio and a minimum interest coverage ratio.

On June 1, 2016, the company entered into a fourth amendment to San Jose Water Company’s existing $85,000 credit agreement, dated as of March 1, 2012, as amended from time to time (the “WF Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”) thereby reducing the maximum principal amount available under such line of credit to $3,060 . Pursuant to such amendment, no further borrowing was permitted under the WF Credit Agreement and the WF Credit Agreement remained outstanding for the sole purpose of reimbursing Wells Fargo for any draws against outstanding letters of credit for the California Department of Water Resources’ SDWSRF loans and related fees until such letters of credit were replaced or terminated. Under both the Credit Agreement and the WF Credit Agreement total borrowings could not exceed $125,000 . On June 29, 2016, San Jose Water Company paid off the SDWSRF loans’ remaining balance of $1,823 which had a maturity date in 2027 and the WF Credit Agreement and letters of credit were terminated on September 27, 2016.

On June 1, 2016, SJW Corp. and SJW Land Company (collectively, the “Borrowers”), entered into a $15,000 credit agreement with the Lender (the “SJW Corp. Credit Agreement”), which provides an unsecured credit facility to the Borrowers with a letter of credit sublimit of $5,000 . The SJW Corp. Credit Agreement matures on June 1, 2021. Borrowings under the SJW Corp. Credit Agreement bear interest under the same terms and conditions as those in the Credit Agreement. The SJW Corp. Credit Agreement replaced the then outstanding $15,000 credit agreement, dated March 1, 2012, as amended from time to time, between the Borrowers and Wells Fargo, which was paid off and terminated.

In addition, on June 1, 2016, SJW Corp., as guarantor, and SJWTX, Inc. (the “Borrower”), entered into a $5,000 credit agreement with the Lender (the “SJWTX Credit Agreement”), which provides an unsecured credit facility to the Borrower with a letter of credit sublimit of $1,000 . The SJWTX Credit Agreement matures on June 1, 2021.

As of December 31, 2016 , SJW Group. and its subsidiaries had unsecured bank lines of credit, allowing aggregate short-term borrowings of up to $145,000, of which $15,000 was available to SJW Group and SJW Land Company under a single line of credit, $5,000 was available to SJWTX, Inc. under a second line of credit, and $125,000 was available to San Jose Water Company under a third line of credit. At December 31, 2016 , SJW Corp. and its subsidiaries had available unused short-term bank lines of credit of $130,800 . These lines of credit bear interest at variable rates and expire on June 1, 2021. The cost of borrowing on SJW Group’s short-term credit facilities has averaged 1.5% as of December 31, 2016 . The SJW Group and SJWTX, Inc. unsecured bank lines of credit have the following affirmative covenants calculated with the financial statements of SJW Group, on a consolidated basis: (1) the funded debt cannot exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-calendar-month period cannot be less than 175% of interest charges. As of December 31, 2016 , SJW Group’s long-term debt was 52% of total capitalization and the net income available for interest charges was 496% of interest charges. As of December 31, 2016 , SJW Group and SJWTX, Inc. were in compliance with all covenants. San Jose Water Company’s unsecured bank lines of credit have the following affirmative covenants: (1) the funded debt cannot exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-calendar-month period cannot be less than 175% of interest charges. As of December 31, 2016 , San Jose Water Company was in compliance with all covenants.

On February 22, 2016, SJW Group entered into a Purchase and Sale Agreement with the GBRA pursuant to which SJW Group agreed to sell all of its equity interest in TWA to GBRA for $31,000 in cash (the “TWA Agreement”). Pursuant to the TWA Agreement, (i) upon closing of the transaction, GBRA will hold back $3,000 in the payment of the total purchase price and (ii) such holdback amount, subject to reductions under certain circumstances, shall be paid to SJW Group four years following the closing. The TWA Agreement is subject to specified closing conditions, including without limitation, the completion of a financing by GBRA to fund the purchase price. There is no guarantee that all of the closing conditions will be satisfied, and the failure to complete the sale of TWA may adversely affect the financial conditions and results of operations of SJW Group.

Off-Balance Sheet Arrangement/Contractual Obligations

SJW Group has no significant contractual obligations not fully recorded on its Consolidated Balance Sheet or not fully disclosed in the Notes to Consolidated Financial Statements.

SJW Group’s contractual obligations and commitments as of December 31, 2016 are as follows:



	Total		Contractual Obligations Due in
	Total		Less than 1 Year	1-3 Years	3-5 Years	After 5 Years
Senior notes, Water Utility Services	$	265,000	—	—	—	265,000
Advances for construction, San Jose Water Company*	67,881		2,726	5,452	5,452	54,251
444 West Santa Clara Street, L.P. long-term debt (non-recourse to SJW Land Company)	2,717		126	274	2,317	—
California Pollution Control Financing Authority Revenue Bonds, San Jose Water Company	120,000		—	—	—	120,000
Senior note, SJW Group	50,000		—	—	—	50,000
Total contractual cash obligation	$	505,598	2,852	5,726	7,769	489,251
Total interest on contractual obligations	$	434,113	25,635	51,248	48,947	308,283

* As of December 31, 2016 , advances for construction was $84,815 of which $16,934 was related to non-refundable advances for construction.

In addition to the obligations listed above, San Jose Water Company had issued two standby letters of credit with a commercial bank in the amounts of $3,000 in support of its SDWSRF loans which were funded in 2005 and 2008. The letters of credit had automatically renewed annually. As of June 29, 2016, the SDWSRF loans were paid off and on September 23, 2016 the letters of credit were terminated.

In regards to uncertain tax positions, we are unable to predict the timing of tax settlements as tax audits can involve complex issues and the resolution of those issues may span multiple years, particularly if subject to negotiation or litigation.

San Jose Water Company purchases water from SCVWD under terms of a master contract expiring in 2051. Delivery schedules for purchased water are based on a contract year beginning July 1, and are negotiated every three years under terms of the master contract with SCVWD. For the years ended December 31, 2016 , 2015 and 2014 , San Jose Water Company purchased from SCVWD 18,241 million gallons ( $61,645 ), 18,482 million gallons ( $52,553 ) and 17,782 million gallons ( $44,444 ), respectively, of contract water. In accordance with the reduction of treated water deliveries approved by the SCVWD Board of Directors on June 14, 2016, the contractual delivery schedule was reduced by 20% through January 31, 2017. On January 31, 2017, SCVWD Board of Directors approved treated water deliveries reflecting the contractual delivery schedule reduced by 10% through June 30, 2017. Based on current prices and estimated deliveries, San Jose Water Company committed to purchase from SCVWD a minimum of 90% of the reduced delivery schedule, or 19,404 million gallons ( $69,790 ) of water at the current contract water rate of $3.6 per million gallons during the year ending December 31, 2016. Additionally, San Jose Water Company purchases non-contract water from SCVWD on an “as needed” basis if the water supply is available. The contract water rates for San Jose Water Company are determined by SCVWD. These rates are adjusted periodically and coincide with SCVWD’s fiscal year, which ends on June 30. The contract water rate for SCVWD’s fiscal years 2017, 2016 and 2015 was $3.6, $3.1 and $2.6 per million gallons, respectively.

San Jose Water Company also pumps water from the local groundwater basin. There are no delivery schedules or contractual obligations associated with the purchase of groundwater. SCVWD determines the groundwater extraction charge and it is applied on a per unit basis. In addition to the SCVWD groundwater extraction charge, San Jose Water Company also incurs power costs to pump the groundwater from the basin.

San Jose Water Company sponsors a noncontributory defined benefit pension plan and provides health care and life insurance benefits for retired employees. In 2016 , San Jose Water Company contributed $8,421 and $793 to the pension plan and other postretirement benefit plan, respectively. In 2017 , San Jose Water Company expects to make required and discretionary cash contributions of up to $7,500 to the pension plan and other postretirement benefit plan. The amount of required contributions for years thereafter is not actuarially determinable.

San Jose Water Company’s other benefit obligations include employees’ and directors’ postretirement benefits, an Executive Supplemental Retirement Plan, Cash Balance Executive Supplemental Retirement Plan, Special Deferral Election

Plan and Deferral Election Program for non-employee directors. Under these benefit plans, San Jose Water Company is committed to pay approximately $808 annually to former officers and directors. Future payments may fluctuate depending on the life span of the retirees and as current officers and executives retire.

San Jose Water Company has remaining commitments of $20,900 with one vendor related to Phase 2 upgrades to the Montevina Water Treatment Plant. This amount is expected to be spent during 2017.

CLWSC purchases water from GBRA under terms of agreements expiring in 2037, 2040, 2044 and 2050. The agreements, which are take-or-pay contracts, provide CLWSC with 6,900 acre-feet per year of water supply from Canyon Lake. The water rate may be adjusted by GBRA at any time, provided they give CLWSC a 60-day written notice on the proposed adjustment.

TWA has entered into approximately 180 water leases with property owners for certain real property rights for the development, production, transportation and use of groundwater in and under their property. In accordance with the water leases, TWA is committed to pay between $1,100 and $1,300 per year from 2016 to 2020. TWA may terminate the water leases at any time during the pre-production phase, upon two years prior written notice.

444 West Santa Clara Street, L.P.

SJW Land Company owns a 70% limited partnership interest in 444 West Santa Clara Street, L.P., a real estate limited partnership. A real estate development firm owns the remaining 30% limited partnership interest. A commercial building was constructed on the property of 444 West Santa Clara Street, L.P. and is leased to an international real estate firm. The lease expires in August 2019. SJW Land Company consolidates its limited partnership interest in 444 West Santa Clara Street, L.P. as a variable interest entity within the scope of ASC Topic 810. On January 10, 2017, 444 West Santa Clara Street, L.P. entered a purchase and sale agreement for the sale of all of its interests in the commercial building and land the partnership owns and operates for a purchase price of $11,000. The Company anticipates the sale to close in the first quarter of 2017.

Impact of Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standard Update (“ASU”) 2014-09. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. When it becomes effective, the new standard will replace most existing revenue recognition guidance in generally accepted accounting principles. Since the issuance of ASU 2014-09, the FASB also has issued additional ASUs that clarify implementation guidance regarding principal versus agent considerations, licensing, and identifying performance obligations, as well as adding certain additional practical expedients. The new standard can be applied retrospectively to each prior period presented or on a modified retrospective basis with a cumulative effect adjustment to retained earnings on the date of adoption. SJW Group has not made a final decision on the transition method, but currently anticipates using the modified retrospective method. The Company does not anticipate the ASU will significantly impact the recognition of metered revenue, however consistent with others in the industry the Company is still evaluating the impact the ASU will have on its revenue classification and disclosures related to its alternative revenue programs and treatment of contributions in aid of construction. SJW Group will adopt the standard on January 1, 2018, its required effective date.

In February 2015, the FASB issued ASU 2015-02 which modifies the evaluation of whether limited partnerships and similar legal entities are variable or voting interest entities, eliminates the presumption that the general partner should consolidate a limited partnership, modifies the consolidation analysis for reporting entities that are involved in variable interest entities, particularly those that have fee arrangements and related party relationships, and provides a scope exception from consolidation guidance for reporting entities with interests in legal entities that operate as registered money market funds. ASU 2015-02 became effective for us in the first quarter of 2016 and the adoption did not have a material impact on our consolidated financial statements.

In April 2015, the FASB issued Accounting Standards Update ASU 2015-03, “Interest — Simplifying the Presentation of Debt Issuance Costs” which became effective for SJW Corp. during the first quarter of 2016. ASU 2015-03 changes the presentation of debt issuance costs for term debt on the balance sheet by requiring the debt issuance costs to be presented as a direct deduction from the related debt liability, rather than recorded as an asset. In August 2015, ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements,” was issued to provide clarification to ASU 2015-03. The standard specifies that the SEC would not object to an entity deferring and presenting line-of-credit issuance costs as an asset and subsequently amortizing deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings. This standard required application on a retrospective basis. Upon adoption of the standard on March 31, 2016, SJW Group reclassified its long-term debt issuance costs totaling $3,561 and $3,638 from other assets to long-term debt on the Consolidated Balance Sheets as of March 31, 2016

and December 31, 2015, respectively. There was no material impact from adopting the new standard on SJW Group’s Consolidated Statements of Comprehensive Income, Changes in Stockholders’ Equity, and Cash Flows.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall” which will significantly change the recognition of changes in fair value of financial liabilities when the fair value option is elected and require equity investments to be measured at fair value with changes in fair value recognized in net income instead of through other comprehensive income. The update is effective for SJW Corp. beginning in the first quarter of the fiscal year ending December 31, 2018. Management is currently evaluating the effect that the new standard will have on our consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which supersedes the lease requirements in “Leases (Topic 840).” This ASU requires a lessee to recognize a right-of-use asset and a lease payment liability for most leases in the Consolidated Statement of Financial Position. ASU 2016-02 also makes some changes to lessor accounting and aligns with the new revenue recognition guidance. This ASU will be effective for us in the first quarter of 2019 and earlier adoption is permitted. Management is currently evaluating the effect that the new standard will have on our consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” This ASU affects entities that issue share-based payment awards to their employees. ASU 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations. The update will become effective for SJW Group in the first quarter of fiscal 2017, and adoption is not expected to have a material impact on our consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory,” which modifies existing guidance and is intended to reduce diversity in practice with respect to the accounting for the income tax consequences of intra-entity transfers of assets. The ASU indicates that the current exception to income tax accounting that requires companies to defer the income tax effects of certain intercompany transactions would apply only to intercompany inventory transactions. Under the existing exception, income tax expense associated with intra-entity profits in an intercompany sale or transfer of assets is eliminated from earnings. Instead, that cost is deferred and recorded on the balance sheet until the assets leave the consolidated group. Similarly, the entity is prohibited from recognizing deferred tax assets for the increases in tax bases due to the intercompany sale or transfer. The update will become effective for SJW Group on January 1, 2018, with early adoption permitted as of January 1, 2017. The standard requires modified retrospective transition with a cumulative catch-up adjustment to opening retained earnings in the period of adoption.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash, a consensus of the FASB Emerging Issues Task Force,” which provides guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. ASU 2016-18 is effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. SJW Group early adopted this ASU during the quarter ended December 31, 2016. The adoption of the ASU did not have an impact on the consolidated financial statements in prior periods.


Item 7A.	Quantitative and Qualitative Disclosures About Market Risk

SJW Group is subject to market risks in the normal course of business, including changes in interest rates, pension plan asset values, and equity prices. The exposure to changes in interest rates can result from the issuance of debt and short-term funds obtained through the Company’s variable rate lines of credit. San Jose Water Company sponsors a noncontributory pension plan for its employees. Pension costs and the funded status of the plan are affected by a number of factors including the discount rate, mortality rates of plan participants, investment returns on plan assets, and pension reform legislation. SJW Group also owned 100,000 shares of common stock of California Water Service Group as of December 31, 2016 , which is listed on the New York Stock Exchange, and is therefore exposed to the risk of fluctuations and changes in equity prices.

SJW Group has no derivative financial instruments, financial instruments with significant off-balance sheet risks, or financial instruments with concentrations of credit risk.


Item 8.	Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

SJW Group:

We have audited the accompanying consolidated balance sheets of SJW Group and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2016. In connection with our audits of the consolidated financial statements, we have also audited the related financial statement schedule listed in Item 15. We also have audited SJW Group’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). SJW Group’s management is responsible for these consolidated financial statements, for the financial statement schedule and for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting appearing under item 9A. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule, and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SJW Group and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also in our opinion, SJW Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

/s/ KPMG LLP

Santa Clara, California

February 28, 2017

SJW Group and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)



	December 31,
	2016		2015
Assets
Utility plant:
Land	$	17,923	17,853
Depreciable plant and equipment	1,554,016		1,438,321
Construction in progress	70,453		45,573
Intangible assets	23,989		22,675
	1,666,381		1,524,422
Less accumulated depreciation and amortization	520,018		487,659
	1,146,363		1,036,763
Real estate investments	62,193		74,461
Less accumulated depreciation and amortization	11,734		13,027
	50,459		61,434
Current assets:
Cash and cash equivalents	6,349		5,239
Restricted cash	19,001		—
Accounts receivable:
Customers, net of allowances for uncollectible accounts of $200 in 2016 and 2015	16,361		16,390
Income tax	9,796		10,852
Other	3,383		2,192
Accrued unbilled utility revenue	24,255		17,417
Current regulatory assets, net	16,064		16,542
Other current assets	4,402		4,744
	99,611		73,376
Other assets:
Investment in California Water Service Group	3,390		6,030
Net regulatory assets, less current portion	135,709		152,021
Other	7,844		7,701
	146,943		165,752
	$	1,443,376	1,337,325

See Accompanying Notes to Consolidated Financial Statements.

SJW Group and Subsidiaries

CONSOLIDATED BALANCE SHEETS (Continued)

(in thousands, except share and per share data)



	December 31,
	2016		2015
Capitalization and Liabilities
Capitalization:
Stockholders’ equity:
Common stock, $0.001 par value; authorized 36,000,000 shares; issued and outstanding 20,456,225 shares in 2016 and 20,381,949 shares in 2015	$	21	21
Additional paid-in capital	81,715		79,231
Retained earnings	338,386		302,220
Accumulated other comprehensive income	1,524		2,311
Total stockholders’ equity	421,646		383,783
Long-term debt, less current portion	433,335		377,187
	854,981		760,970
Current liabilities:
Lines of credit	14,200		34,600
Current portion of long-term debt	125		3,491
Accrued groundwater extraction charges, purchased water and power	10,846		7,163
Accounts payable	18,739		16,196
Accrued interest	6,309		6,193
Accrued property taxes and other non-income taxes	1,681		1,622
Accrued payroll	4,696		4,203
Other current liabilities	6,977		6,155
	63,573		79,623
Deferred income taxes	205,203		198,775
Advances for construction	84,815		76,572
Contributions in aid of construction	151,576		141,194
Postretirement benefit plans	70,177		70,230
Other noncurrent liabilities	13,051		9,961
Commitments and contingencies	—		—
	$	1,443,376	1,337,325

See Accompanying Notes to Consolidated Financial Statements.

SJW Group and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years ended December 31 (in thousands, except share and per share data)



	2016			2015		2014
Operating revenue	$	339,706		305,082		319,668
Operating expense:
Production Expenses:
Purchased water	72,971			61,089		47,280
Power	6,102			6,121		9,865
Groundwater extraction charges	32,088			31,240		53,678
Other production expenses	13,167			12,178		11,929
Total production expenses	124,328			110,628		122,752
Administrative and general	48,038			47,131		40,573
Maintenance	17,476			14,956		14,474
Property taxes and other non-income taxes	12,123			11,667		11,086
Depreciation and amortization	44,625			40,740		37,905
Total operating expense	246,590			225,122		226,790
Operating income	93,116			79,960		92,878
Other (expense) income:
Interest on long-term debt	(20,205		)	(20,925	)	(19,423	)
Mortgage and other interest expense	(1,633		)	(1,261	)	(1,365	)
Gain on sale of California Water Service Group stock	3,197			—		2,017
Gain on sale of real estate investment	10,419			1,886		554
Dividend income	87			174		189
Other, net	1,400			1,320		1,927
Income before income taxes	86,381			61,154		76,777
Provision for income taxes	33,542			23,272		24,971
Net income	$	52,839		37,882		51,806
Other comprehensive (loss) income:
Unrealized (loss) income on investment, net of taxes of $657 in 2016, ($141) in 2015 and $208 in 2014	955			(206	)	301
Reclassification adjustment for gain realized on investment, net of taxes of $1,198 in 2016 and $805 in 2014	(1,742		)	—		(1,171	)
Comprehensive income	$	52,052		37,676		50,936
Earnings per share
—Basic	$	2.59		1.86		2.56
—Diluted	$	2.57		1.85		2.54
Weighted average shares outstanding
—Basic	20,439,957			20,360,663		20,227,297
—Diluted	20,588,973			20,515,643		20,416,734

See Accompanying Notes to Consolidated Financial Statements.

SJW Group and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share and per share data)



	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
	Number of Shares	Amount	Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
Balances, December 31, 2013	20,169,211	21	73,501		244,266		3,387		321,175
Net income	—	—	—		51,806		—		51,806
Unrealized income (loss) on investment, net of tax effect of $208	—	—	—		—		301		301
Reclassification adjustment for gain realized on investment, net of tax effect of $805	—	—	—		—		(1,171	)	(1,171	)
Share-based compensation	—	—	1,031		(122	)	—		909
Exercise of stock options and similar instruments	80,796	—	1,439		—		—		1,439
Employee stock purchase plan	35,682	—	839		—		—		839
Dividend reinvestment and stock purchase plan	1,151	—	34		—		—		34
Dividends paid ($0.75 per share)	—	—	—		(15,177	)	—		(15,177	)
Balances, December 31, 2014	20,286,840	21	76,844		280,773		2,517		360,155
Net income	—	—	—		37,882		—		37,882
Cumulative effect of change in accounting principle, net of tax effect of $300	—	—	—		(436	)	—		(436	)
Unrealized income (loss) on investment, net of tax effect of ($141)	—	—	—		—		(206	)	(206	)
Share-based compensation	—	—	1,603		(114	)	—		1,489
Issuance of restricted and deferred stock units	61,791	—	(111	)	—		—		(111	)
Employee stock purchase plan	33,318	—	895		—		—		895
Dividends paid ($0.78 per share)	—	—	—		(15,885	)	—		(15,885	)
Balances, December 31, 2015	20,381,949	21	79,231		302,220		2,311		383,783
Net income	—	—	—		52,839		—		52,839
Unrealized income (loss) on investment, net of tax effect of $657	—	—	—		—		955		955
Reclassification adjustment for gain realized on investment, net of tax effect of $1,198	—	—	—		—		(1,742	)	(1,742	)
Share-based compensation	—	—	1,691		(114	)	—		1,577
Issuance of restricted and deferred stock units	44,062	—	(161	)	—		—		(161	)
Employee stock purchase plan	30,214	—	954		—		—		954
Dividends paid ($0.81 per share)	—	—	—		(16,559	)	—		(16,559	)
Balances, December 31, 2016	20,456,225	21	81,715		338,386		1,524		421,646

See Accompanying Notes to Consolidated Financial Statements.

SJW Group and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31 (in thousands)



	2016			2015		2014
Operating activities:
Net income	$	52,839		37,882		51,806
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	46,295			42,330		39,491
Deferred income taxes	4,803			15,625		26,067
Share-based compensation	1,691			1,603		1,031
Gain on sale of real estate investment	(10,419		)	(1,886	)	(554	)
Gain on sale of California Water Service Group stock	(3,197		)	—		(2,017	)
Changes in operating assets and liabilities:
Accounts receivable and accrued unbilled utility revenue	(5,377		)	735		(1,276	)
Accounts payable and other current liabilities	(337		)	1,550		(403	)
Accrued groundwater extraction charges, purchased water and power	3,683			1,133		(1,751	)
Tax receivable and accrued taxes	(680		)	(3,297	)	(5,546	)
Postretirement benefits	(349		)	(117	)	(325	)
Regulatory asset related to balancing and memorandum accounts	19,297			1,429		(39,727	)
Other noncurrent assets and noncurrent liabilities	5,468			1,950		(2,001	)
Other changes, net	355			(1,680	)	1,116
Net cash provided by operating activities	114,072			97,257		65,911
Investing activities:
Additions to utility plant:
Company-funded	(129,134		)	(96,012	)	(91,846	)
Contributions in aid of construction	(13,086		)	(10,762	)	(10,090	)
Additions to real estate investment	(328		)	(1,097	)	(13	)
Payments for business/asset acquisition and water rights	(1,070		)	(991	)	(1,768	)
Cost to retire utility plant, net of salvage	(3,361		)	(3,673	)	(1,551	)
Proceeds from sale of real estate investment	20,341			1,925		4,572
Proceeds from sale of California Water Service Group stock	4,509			—		3,056
Net cash used in investing activities	(122,129		)	(110,610	)	(97,640	)
Financing activities:
Borrowings from lines of credit	62,075			97,000		57,200
Repayments of lines of credit	(82,475		)	(75,600	)	(66,400	)
Long-term borrowings	50,999			—		50,000
Long-term borrowings held as restricted cash	19,001			—		—
Repayments of long-term borrowings	(16,599		)	(633	)	(602	)
Debt issuance costs	(1,275		)	—		(528	)
Dividends paid	(16,559		)	(15,885	)	(15,177	)
Exercise of stock options and similar instruments	954			895		1,917
Tax benefits realized from share options exercised	203			634		462
Receipts of advances and contributions in aid of construction	14,366			12,266		7,569
Refunds of advances for construction	(2,522		)	(2,484	)	(2,612	)
Net cash provided by financing activities	28,168			16,193		31,829
Net change in cash, cash equivalents and restricted cash	20,111			2,840		100
Cash and cash equivalents, beginning of year	5,239			2,399		2,299
Cash, cash equivalents and restricted cash, end of year	$	25,350		5,239		2,399
Cash paid during the year for:
Interest	$	23,962		23,634		21,046
Income taxes	$	27,517		9,723		6,324
Supplemental disclosure of non-cash activities:
(Decrease) increase in accrued payables for construction costs capitalized	$	(3,696	)	7,540		(4,981	)
Utility property installed by developers	$	9,614		1,011		6,549

Reconciliation to Consolidated Balance Sheets:
Cash and cash equivalents	$	6,349		5,239		2,399
Restricted cash	$	19,001		—		—
Cash, cash equivalents and restricted cash, end of year	$	25,350		5,239		2,399

See Accompanying Notes to Consolidated Financial Statements.

SJW GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2016 , 2015 and 2014

(Dollars in thousands, except share and per share data)


Note 1.	Summary of Significant Accounting Policies

The accompanying consolidated financial statements include the accounts of SJW Group, its wholly owned subsidiaries, and two variable interest entities in which two SJW Group subsidiaries are the primary beneficiaries. All intercompany transactions and balances have been eliminated in consolidation.

On November 15, 2016, SJW Corp. changed its state of incorporation from the state of California to the state of Delaware and changed its name to SJW Group. The reincorporation was effected by means of a merger pursuant to the terms of the agreement and plan of merger, dated November 14, 2016, between SJW Corp. and SJW Group, Inc., a Delaware corporation and a wholly owned subsidiary of SJW Corp., which was formed solely for the purpose of effecting the reincorporation. Under the Merger Agreement, SJW Corp. merged with and into SJW Group, Inc., and SJW Corp. ceased to exist and SJW Group, Inc. became the surviving entity following the effectiveness of the merger. Concurrently with the consummation of the merger, SJW Group, Inc. changed its name to SJW Group. As part of the reincorporation, SJW Group changed its par value for common stock and preferred stock, SJW Group recast stockholder ’s equity in the Consolidated Balance Sheet as of December 31, 2015 and Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2015 and 2014 to reflect the reincorporation. There were no changes to the historical number of shares issued and outstanding or earnings per share as a result of the reincorporation. See also Note 2, “Capitalization.”

SJW Group’s principal subsidiary, San Jose Water Company, is a regulated California water utility providing water service to approximately one million people in the greater metropolitan San Jose area. San Jose Water Company’s accounting policies comply with the applicable uniform system of accounts prescribed by the California Public Utilities Commission (“CPUC”) and conform to generally accepted accounting principles for rate-regulated public utilities. Approximately 92% of San Jose Water Company’s revenues are derived from the sale of water to residential and business customers.

SJWTX, Inc., a wholly owned subsidiary of SJW Group, is incorporated in the State of Texas and is doing business as Canyon Lake Water Service Company (“CLWSC”). CLWSC is a public utility in the business of providing water service to approximately 39,000 people. CLWSC’s service area comprises more than 244 square miles in western Comal County and southern Blanco County in the growing region between San Antonio and Austin, Texas. SJWTX, Inc. has a 25% interest in Acequia Water Supply Corporation. Acequia has been determined to be a variable interest entity within the scope of ASC Topic 810 with SJWTX, Inc. as the primary beneficiary. As a result, Acequia has been consolidated with SJWTX, Inc.

SJW Land Company owns commercial properties, several undeveloped real estate properties, and warehouse properties in the states of California and Tennessee and holds a 70% limited partnership interest in 444 West Santa Clara Street, L.P. 444 West Santa Clara Street, L.P. has been determined to be a variable interest entity within the scope of ASC Topic 810 with SJW Land Company as the primary beneficiary. As a result, 444 West Santa Clara Street L.P. has been consolidated with SJW Land Company (see Note 9, “Partnership Interest”).

In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash, a consensus of the FASB Emerging Issues Task Force,” which provides guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. ASU 2016-18 is effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. SJW Group early adopted this ASU during the quarter ended December 31, 2016. The adoption of the ASU did not have an impact on the consolidated financial statements in prior periods.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of

assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Utility Plant

The cost of additions, replacements and betterments to utility plant is capitalized. The amount of interest capitalized in 2016 , 2015 and 2014 was $2,188 , $1,188 and $1,112 , respectively. Construction in progress was $ 70,453 and $ 45,573 at December 31, 2016 and 2015 , respectively.

The major components of depreciable plant and equipment as of December 31, 2016 and 2015 are as follows:



	2016		2015
Equipment	$	269,734	254,940
Transmission and distribution	1,204,520		1,108,659
Office buildings and other structures	79,762		74,722
Total depreciable plant and equipment	$	1,554,016	1,438,321

Depreciation is computed using the straight-line method over the estimated service lives of the assets, ranging from 5 to 75 years . The estimated service lives of depreciable plant and equipment are as follows:



	Useful Lives
Equipment	5 to 35 years
Transmission and distribution plant	35 to 75 years
Office buildings and other structures	7 to 50 years

For the years 2016 , 2015 and 2014 , depreciation expense as a percent of the beginning of the year balance of depreciable plant was approximately 3.5% , 3.4% and 3.4% , respectively. A portion of depreciation expense was allocated to administrative and general expense. For the years 2016 , 2015 and 2014 , the amounts allocated to administrative and general expense were $1,670 , $1,590 and $1,586 , respectively. Depreciation expense for utility plant for the years ended December 31, 2016 , 2015 and 2014 was $42,659 , $38,722 and $35,918 , respectively. The cost of utility plant retired, including retirement costs (less salvage), is charged to accumulated depreciation and no gain or loss is recognized.

Utility Plant Intangible Assets

All intangible assets are recorded at cost and are amortized using the straight-line method over the estimated useful life of the asset, ranging from 5 to 70 years (see Note 6, “Intangible Assets”).

In January 2014, the FASB issued ASU 2014-05 - “Service Concession Arrangements” which became effective for the Company during the first quarter of 2015. ASU 2014-05 specifies that an operating entity should not account for a service concession arrangement as a lease in accordance with FASB ASC Topic 840 - “Leases.” An operating entity should refer to other accounting guidance topics as applicable to account for various aspects of a service concession arrangement. ASU 2014-05 also specifies that infrastructure constructed by an operator in a service concession arrangement should not be recognized as property, plant, and equipment of the operator. ASU 2014-05 required application on a modified retrospective basis to service concession arrangements that existed at January 1, 2015. San Jose Water Company operates the City of Cupertino’s municipal water system under a service concession arrangement. Upon adoption of this standard, SJW Group reclassified $1,859 of Depreciable Plant and Equipment for infrastructure related to the Cupertino service concession arrangement to intangible assets and the related accumulated depreciation of $377 to accumulated amortization. In addition, the Company recognized a cumulative effect adjustment of $436 , net of tax, to the opening balance of retained earnings.

Real Estate Investments

Real estate investments are recorded at cost and consist primarily of land and buildings. Net gains and losses from the sale of real estate investments are recorded as a component of other (expense) income in the Consolidated Statements of Comprehensive Income. Nonutility property in Water Utility Services is also classified in real estate investments and not separately disclosed on the balance sheet based on the immateriality of the amount. Nonutility property is property that is neither used nor useful in providing water utility services to customers and is excluded from the rate base for rate-setting purposes. San Jose Water Company recognizes gain/loss on disposition of nonutility property in accordance with CPUC Code Section 790, whereby the net proceeds are reinvested back into property that is useful in providing water utility services to customers. There is no depreciation associated with nonutility property as it is all land. The major components of real estate investments as of December 31, 2016 and 2015 are as follows:



	2016		2015
Land	$	15,218	17,297
Buildings and improvements	46,826		57,015
Intangibles	149		149
Total real estate investment	$	62,193	74,461

Depreciation on real estate investments is computed using the straight-line method over the estimated useful lives of the assets, ranging from 7 to 39 years . The estimated service lives of depreciable real estate investments are as follows:



	Useful Lives
Buildings and improvements	7 to 39 years
Intangibles	7 to 12 years

In 2015, SJW Land Company was notified by the Arizona Department of Transportation that in order to achieve their goals of developing a new freeway extension, they, in conjunction with the Federal Highway Commission, would be exercising their powers of eminent domain for SJW Land Company’s warehouse building located in Phoenix, Arizona. On September 8, 2016, SJW Land Company sold the Arizona warehouse building and received a settlement value of $20,000 . Title to the property transferred on October 13, 2016 upon the recording of the court’s Final Order of Condemnation. SJW Group recognized a pre-tax gain on sale of real estate investments of $9,981 , after selling expenses of $112 .

On January 10, 2017, 444 West Santa Clara Street, L.P. entered a purchase and sale agreement for the sale of all of its interests in the commercial building and land the partnership owns and operates for a purchase price of $11,000 . The Company anticipates the sale to close in the first quarter of 2017.

On August 14, 2015, San Jose Water Company sold five nonutility properties located in San Jose, California for $2,015 . SJW Group recognized a pre-tax gain on the sale of real estate investments of $1,886 , after selling expenses of $91 .

On June 30, 2014, SJW Land Company sold its retail building located in El Paso, Texas for $4,450 . The Company recognized a pre-tax gain on the sale of real estate investment of $273 , after selling expenses of $169 .

Real estate investments include $61,179 and $73,658 as of December 31, 2016 and 2015 , respectively, of assets that are leased or available for lease. The following schedule shows the future minimum rental payments to be received from third parties under operating leases that have remaining noncancelable lease terms in excess of one year as of December 31, 2016 :



Year ending December 31:	Rental Revenue
2017	$	4,753
2018	3,924
2019	3,609
2020	3,302
2021	2,441
Thereafter	7,947

Impairment of Long-Lived Assets

In accordance with the requirements of FASB ASC Topic 360—“Property, Plant and Equipment,” the long-lived assets of SJW Group are reviewed for impairment when changes in circumstances or events require adjustments to the carrying values of the assets. When such changes in circumstances or events occur, the Company assesses recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows. To the extent an impairment exists, the asset is written down to its estimated fair value with a corresponding charge to operations in the period in which the impairment is identified. Long-lived assets consist primarily of utility plant in service, real estate investments, intangible assets, and regulatory assets. In addition, the Company tests unamortized intangible assets, which primarily relate to water rights, at least annually or more frequently if events or changes in circumstances indicate that the asset may be impaired. The Company first performs a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test. In assessing the qualitative factors, the Company considers the impact of these key factors: change in industry and competitive environment, financial performance, and other relevant Company-specific events. If the Company determines that as a result of the qualitative assessment it is more likely than not (> 50% likelihood) that the fair value is less than carrying amount, then a quantitative test is performed. No impairments occurred during 2016, 2015 or 2014.

Financial Instruments

The following instruments are not measured at fair value on the Company’s consolidated balance sheets but require disclosure of fair values: cash and cash equivalents, accounts receivable and accounts payable. The estimated fair value of such instruments approximates their carrying value as reported on the consolidated balance sheets. The fair value of such financial instruments are determined using the income approach based on the present value of estimated future cash flows. The fair value of these instruments would be categorized as Level 2 in the fair value hierarchy, with the exception of cash and cash equivalents, which would be categorized as Level 1. The fair value of long-term debt is discussed in Note 4, pension plan assets in Note 10 and investment in California Water Service Group Stock in Note 14.

Investment in California Water Service Group

SJW Group’s investment in California Water Service Group is accounted for under FASB ASC Topic 320—“Investments—Debt and Equity Securities,” as an available-for-sale marketable security. The investment is recorded on the Consolidated Balance Sheet at its quoted market price with the change in unrealized gain or loss reported, net of tax, as a component of other comprehensive income (loss) (see Note 14).

Regulatory Rate Filings

On January 5, 2015, San Jose Water Company filed General Rate Case Application No. 15-01-002 requesting authority for an increase of revenue of $34,928 , or 12.22% , in 2016, $9,954 , or 3.11% , in 2017 and $17,567 , or 5.36% , in 2018. On June 9, 2016, the CPUC issued Decision 16-06-004 approving two partial settlements, resolving disputed issues and adopting revenue requirements for San Jose Water Company. The decision authorizes an increase of 8.6% in authorized revenue requirement effective January 1, 2016. Updated rates were implemented on June 14, 2016. Rates and revenue for 2017 and 2018 are determined based on the forecasted change in the consumer price index from the preceding year. The decision also approved the requested recovery of the net under-collected balance of $3,776 accumulated in various balancing and memorandum accounts. This balance was previously recorded by the Company as revenue through the balancing and memorandum accounts in prior periods in accordance with San Jose Water Company’s revenue recognition policy. Since a decision was not reached by the end of 2015, the CPUC authorized San Jose Water Company to implement a surcharge to true-up the difference between interim rates for the period January 1, 2016 to the implementation date of updated rates on June 14, 2016. On June 28, 2016, San Jose Water Company filed Advice Letter 492 seeking recovery of $8,767 which was not collected over the period January 1, 2016 through June 13, 2016 due to the delayed decision. Subsequently, under the CPUC staff’s direction, this filing was amended to include previously uncollected revenue from the prior general rate case in the amount of $524 , for a total recovery of $9,291 . San Jose Water Company’s request was approved and a surcharge of $0.1832 per CCF was implemented effective July 9, 2016 to recover this balance.

On July 30, 2015, San Jose Water Company filed Application No. 15-07-027 with the CPUC seeking the authorization to implement a reincorporation of San Jose Water Company’s parent holding company, SJW Corp., from its present form as a California corporation to a Delaware corporation. On May 26, 2016, the CPUC issued Decision 16-05-037 authorizing the reincorporation.

On December 15, 2015, San Jose Water Company filed Advice Letter No. 481 with the CPUC requesting authorization to re-implement a previously existing surcharge of $0.0492 per CCF to amortize the remaining uncollected balancing account recovery authorized in General Rate Case Decision 14-08-006. In Decision No. 14-08-006 the CPUC authorized San Jose Water Company to recover the $2,599 under-collection in various balancing accounts over a 12-month period beginning in August of 2014. However, at the end of the 12-month period $590 of the originally authorized $2,599 remained uncollected. This under-collection is due primarily to actual sales being substantially lower than the commission authorized sales estimate which was used to calculate the surcharge level. The advice letter was approved and effective on January 15, 2016.

On February 5, 2016, San Jose Water Company filed Advice Letter No. 482 with the CPUC. With this advice letter, San Jose Water Company requested authorization to recover the $7,668 balance accumulated in the Water Conservation Memorandum Account (“WCMA”) during the period January 1, 2015 through December 31, 2015. The WCMA is used to track the revenue impact of mandatory conservation upon San Jose Water Company’s quantity revenue resulting from mandatory conservation instituted by the State of California and the SCVWD. The requested $7,668 recovery is the net amount of the total drought related revenue reduction calculated in the WCMA offset by the drought surcharges collected during 2015. On April 21, 2016, the CPUC passed Resolution W-5095 approving San Jose Water Company’s requested recovery. The under-collection will be recovered via a surcharge of $0.1441 per CCF on the existing quantity rate for a period of 12 months from the date of CPUC approval.

On February 25, 2016, the CPUC passed Resolution W-5074 which affirmed San Jose Water Company’s Water Shortage Contingency Plan in Schedule 14.1 with water allocations and drought surcharges. Schedule 14.1 is the tariff that includes the drought allocations and drought surcharges in effect for residential customers and for dedicated landscape services. San Jose Water Company originally implemented Schedule 14.1 in June 2015 in response to the Governor’s Executive Order

B-29-15, and by orders of the State Water Board and the CPUC. Subsequently, with the current improved water supply outlook, the allocation and drought surcharge program was suspended effective February 1, 2017.

On February 29, 2016, San Jose Water Company filed Advice Letter No. 483 with the CPUC. This advice letter requested authorization to increase revenue requirement by $1,659 via a rate base offset for 2015 calendar year plant additions related to the Montevina Water Treatment Plant Upgrade Project. With this increase, the bill for a residential customer using 15 CCF per month increased by $0.46 , or 0.55% per month. This requested increase was approved and became effective March 30, 2016.

On June 10, 2016, San Jose Water Company filed Advice Letter No. 490 with the CPUC requesting authorization to increase revenues by $21,439 , or approximately 6.72% . This increase is intended to recover increased costs for purchased water and ground water production charged by the SCVWD. As directed by the CPUC’s Water Division, the revenue increase is recovered via surcharges on the existing quantity rate. The request was authorized and effective on July 1, 2016.

Effective September 15, 2016, the Cupertino City Council authorized San Jose Water Company to implement a 8.6% general rate increase and a 2016 Interim Rate True-Up Surcharge of $0.1832 per CCF to be collected over a 12-month period from customers in the Cupertino leased water system San Jose Water Company operates. The new rates match those previously approved by the CPUC in San Jose Water Company’s most recent general rate case decision effective January 1, 2016.

On November 15, 2016, San Jose Water Company filed Advice Letter No. 498 with the CPUC requesting a revenue increase of $13,205 , or 3.8% , for the 2017 escalation year. This request was approved and the new rates became effective on January 1, 2017.

On January 6, 2017, San Jose Water Company filed Advice Letter No. 501 with the CPUC requesting authorization to implement a sales reconciliation mechanism to conform water forecasts authorized in the last general rate case to recorded consumption for the period of October 2015 through September 2016. The CPUC has ordered all Class A and B water utilities that have a five percent or greater divergence between authorized and actual sales during declared drought years to request a sales reconciliation mechanism to conform water forecasts authorized in the last general rate case to recorded consumption. If the CPUC authorizes this request, the resulting monthly bill for a typical residential customer using 15 CCF per month will increase by $3.66 , or 3.65% . If approved, the requested rate increase would be effective around March 15, 2017.

On February 17, 2017, San Jose Water Company filed Advice Letter No. 506 with the CPUC requesting authorization to increase its revenue requirement by $5,339 via a rate base offset for calendar year 2016 plant additions related to the Montevina Water Treatment Plant upgrade project. If approved, the bill for a residential customer using 15 CCF per month will increase by $1.52 , or 1.5% per month. San Jose Water Company has requested that the rate increase become effective on or about March 18, 2017.

Effective September 1, 2014, CLWSC became subject to the economic regulation of the Public Utilities Commission of Texas (“PUCT”). Prior to that time, CLWSC was subject to economic regulation by the Texas Commission on Environmental Quality (“TCEQ”). Both the PUCT and TCEQ authorize rate increases after the filing of an Application for a Rate/Tariff Change. Rate cases may be filed as they become necessary, provided there is no current rate case outstanding. Further, rate cases may not be filed more frequently than once every 12 months.

Balancing and Memorandum Accounts

For California, the CPUC has established a balancing account mechanism for the purpose of tracking the under-collection or over-collection associated with expense changes and the revenue authorized by the CPUC to offset those expense changes. The Company also maintains memorandum accounts to track revenue impacts due to catastrophic events, certain unforeseen water quality expenses related to new federal and state water quality standards, energy efficiency, WCMA, drought surcharges, Monterey Water Revenue Adjustment Mechanism, and other approved activities or as directed by the CPUC.

On June 28, 2016, San Jose Water Company filed Advice Letter 492 for a surcharge of $8,767 to true-up the difference between interim rates and 2015 General Rate Case authorized rates, which is expected to be collected during a 12-month recovery period once approved. The $8,767 of revenue was recorded in the 2015 General Rate Case true-up row for the year ended December 31, 2016 in the table below. This amount includes $185 related to water supply accounts that have previously been recorded and have been deducted from the appropriate row in the year ended December 31, 2016 in the table below.

Based on ASC Topic 980-605-25, San Jose Water Company recognized regulatory assets of $16,708 due to lost revenues accumulated in the 2016 WCMA account for year ended December 31, 2016 . These regulatory assets were offset by a regulatory liability in the amount of $16,708 for year ended December 31, 2016 created by Tariff Rule 14.1 drought surcharges collected during the same period as allowed for in Advice Letter 473A which was approved by the CPUC and became effective June 15, 2015. These amounts have been recorded in the 2016 WCMA row shown in the tables below.

On December 3, 2015, the CPUC approved a surcharge to recover lost revenues for the period of April 1, 2014 through December 31, 2014 related to the ongoing drought and the associated calls for water use reduction from the SCVWD. The resolution authorized San Jose Water Company to recover $4,259 of lost revenues tracked through the WCMA account over a twelve month period via a surcharge of $0.08 per CCF beginning December 9, 2015. A reserve was recorded of $1,278 for the estimated amount that may not be collected within 24 months of December 31, 2015, the year-end of the period in which the revenue is being recorded, in accordance with FASB ASC Topic 980-605-25—“Alternative Revenue Programs”. The reserve was determined based on the difference between authorized usage in the last general rate case decision and an estimate of actual usage over the recovery period, offset by applicable drought surcharges. The net amount of $2,981 had been recorded into the 2014 WCMA row in the table below for the year ended December 31, 2015 . As of December 31, 2016 , the reserve balance for the 2014 WCMA was $1,089 which has been netted from the balances below.

Based on FASB ASC Topic 980-605-25—“Alternative Revenue Programs,” San Jose Water Company also recognized in revenue $19,854 of lost revenues accumulated in the WCMA account for the year ended December 31, 2015 less a $2,343 reserve for the estimated amount that may not be collected within the 24 month period defined in the guidance. The regulatory asset was offset with the regulatory liability amount of $12,139 representing Tariff Rule 14.1 drought surcharges collected for the same period as allowed for in Advice Letter 473A which was approved by the CPUC and became effective June 15, 2015. The net amount of $5,372 had been recorded as a revenue addition in the 2015 WCMA row in the table below. As of December 31, 2016 , the reserve balance for the 2015 WCMA was $2,112 which has been netted from the balances below.

San Jose Water Company met the recognition requirements for certain of its balancing and memorandum accounts and certain amounts subject to balancing and memorandum accounts and recorded revenue and regulatory assets as follows:



	For the year ended December 31, 2016
	Beginning Balance			Revenue Increase (Reduction)		Refunds (Collections)		Surcharge Offset		Ending Balance

Memorandum accounts:
2014 WCMA	$	2,944		188		(3,132	)	—		—
2015 WCMA	5,372			211		(3,994	)	—		1,589
2016 WCMA	—			16,708		—		(16,708	)	—
All others	594			1,756		418		—		2,768
Total memorandum accounts	$	8,910		18,863		(6,708	)	(16,708	)	4,357

Balancing accounts:
Water supply costs	2,771			1,620		799		—		5,190
Drought surcharges	(359		)	—		(24,037	)	16,708		(7,688	)
Pension	(552		)	1,120		(2,577	)	—		(2,009	)
2012 General Rate Case true-up	33,070			—		(12,388	)	—		20,682
2015 General Rate Case true-up	—			8,767		(3,239	)	—		5,528
All others	1,366			(483	)	(1,034	)	—		(151	)
Total balancing accounts	$	36,296		11,024		(42,476	)	16,708		21,552

Total	$	45,206		29,887		(49,184	)	—		25,909



	For the year ended December 31, 2015
	Beginning Balance			Revenue Increase (Reduction)		Refunds (Collections)		Surcharge Offset		Ending Balance

Memorandum accounts:
2014 WCMA	$	—		2,981		(37	)	—		2,944
2015 WCMA	—			17,511		—		(12,139	)	5,372
All others	(1,377		)	1,494		477		—		594
Total memorandum accounts	$	(1,377	)	21,986		440		(12,139	)	8,910

Balancing accounts:
Water supply costs	890			2,025		(144	)	—		2,771
Drought surcharges	—			—		(12,498	)	12,139		(359	)
Pension	1,412			(924	)	(1,040	)	—		(552	)
2012 General Rate Case true-up	44,400			1,937		(13,267	)	—		33,070
All others	1,736			(293	)	(77	)	—		1,366
Total balancing accounts	$	48,438		2,745		(27,026	)	12,139		36,296

Total	$	47,061		24,731		(26,586	)	—		45,206



	For the year ended December 31, 2014
	Beginning Balance			Revenue Increase (Reduction)		Refunds (Collections)		Surcharge Offset	Ending Balance

Memorandum accounts:
All others	$	(1,896	)	341		178		—	(1,377	)
Total memorandum accounts	$	(1,896	)	341		178		—	(1,377	)

Balancing accounts:
Water supply costs	(2,378		)	3,353		(85	)	—	890
Pension	9,734			(7,705	)	(617	)	—	1,412
2012 General Rate Case true-up	—			46,456		(2,056	)	—	44,400
All others	2,229			(447	)	(46	)	—	1,736
Total balancing accounts	$	9,585		41,657		(2,804	)	—	48,438

Total	$	7,689		41,998		(2,626	)	—	47,061

As of December 31, 2016 , the total balance in San Jose Water Company’s balancing and memorandum accounts combined, including interest, that has not been recorded into the financial statements was a net under-collection of $3,173 . All balancing accounts and memorandum-type accounts not included for recovery or refund in the current general rate case will be reviewed by the CPUC in San Jose Water Company’s next general rate case or at the time an individual account reaches a threshold of 2% of authorized revenue, whichever occurs first.

Regulatory Assets and Liabilities

Generally accepted accounting principles for water utilities include the recognition of regulatory assets and liabilities as permitted by ASC Topic 980. In accordance with ASC Topic 980, Water Utility Services, to the extent applicable, records deferred costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that these costs and credits will be recognized in the ratemaking process in a period different from when the costs and credits are incurred. Accounting for such costs and credits is based on management’s judgment and prior historical ratemaking practices, and it occurs when management determines that it is probable that these costs and credits will be recognized in the future revenue of Water Utility Services through the ratemaking process. The regulatory assets and liabilities recorded by Water Utility Services, in particular, San Jose Water Company, primarily relate to the recognition of deferred income taxes for ratemaking versus tax accounting purposes, balancing and memorandum accounts, postretirement pension benefits, medical costs, accrued benefits for vacation and asset retirement obligations that have not yet been passed through in rates. The Company adjusts the related asset and liabilities for these items through its regulatory asset and liability accounts at year-end, except for certain postretirement benefit costs and balancing and memorandum accounts which are adjusted monthly. The Company expects to recover regulatory assets related to plant depreciation income tax temporary differences over the average lives of the plant assets of between 5 to 75 years.

Rate-regulated enterprises are required to charge a regulatory asset to earnings if and when that asset no longer meets the criteria for being recorded as a regulatory asset. San Jose Water Company continually evaluates the recoverability of regulatory assets by assessing whether the amortization of the balance over the remaining life can be recovered through expected and undiscounted future cash flows.

Regulatory assets and liabilities are comprised of the following as of December 31:



	2016		2015
Regulatory assets:
Income tax temporary differences, net	$	10,139	8,184
Postretirement pensions and other medical benefits	109,795		109,168
Balancing and memorandum accounts, net	25,909		45,206
Other, net	5,930		6,005
Total regulatory assets, net in Consolidated Balance Sheets	$	151,773	168,563
Less: current regulatory asset, net	16,064		16,542
Total regulatory assets, net, less current portion	$	135,709	152,021

Income Taxes

Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the effect of temporary differences between financial and tax reporting. Deferred tax assets and liabilities are measured using current tax rates in effect. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.

To the extent permitted by the CPUC, investment tax credits resulting from utility plant additions are deferred and amortized over the estimated useful lives of the related property.

Advances for Construction and Contributions in Aid of Construction

In California, advances for construction received after 1981 are refunded ratably over 40 years . Estimated refunds for the next five years and thereafter are shown below:



	Estimated Refunds
2017	$	2,726
2018	2,726
2019	2,726
2020	2,726
2021	2,726
Thereafter	54,251

As of December 31, 2016 , advances for construction was $84,815 of which $16,934 was related to non-refundable advances for construction.

Contributions in aid of construction represent funds received from developers that are not refundable under applicable regulations. Depreciation applicable to utility plant constructed with these contributions is charged to contributions in aid of construction.

Customer advances and contributions in aid of construction received subsequent to 1986 and prior to June 12, 1996 generally must be included in federal taxable income. Taxes paid relating to advances and contributions are recorded as deferred tax assets for financial reporting purposes and are amortized over 40 years for advances and over the tax depreciable life of the related asset for contributions. Receipts subsequent to June 12, 1996 are generally exempt from federal taxable income, unless specifically prescribed under treasury regulations.

Advances and contributions received subsequent to 1991 and prior to 1997 are included in California state taxable income.

Asset Retirement Obligation

SJW Group’s asset retirement obligation is recorded as a liability included in other non-current liabilities. It reflects principally the retirement costs of wells and other anticipated clean-up costs, which by law, must be remediated upon retirement. Retirement costs have historically been recovered through rates at the time of retirement. As a result, the liability is offset by a regulatory asset. For the years ended December 31, 2016 and 2015 , the asset retirement obligation is as follows:



	2016			2015
Retirement obligation	$	4,835		4,249
Discount rate	6		%	6	%
Present value, recorded as a liability	1,966			1,961
Deferred tax	1,352			1,348
Regulatory asset	$	3,318		3,309

Revenue

SJW Group recognizes its regulated and non-tariffed revenue when services have been rendered, in accordance with ASC Topic 605.

revenue from the last meter reading date to the end of the accounting period is estimated based on the most recent usage patterns, production records and the effective tariff rates. Actual results could differ from those estimates, which may result in an adjustment to the operating revenue in the period which the revision to Water Utility Services’ estimates is determined. San Jose Water Company also recognizes balancing and memorandum accounts in its revenue when it is probable that future recovery of previously incurred costs or future refunds that are to be credited to customers will occur through the ratemaking process. In assessing the probability criteria for balancing and memorandum accounts between general rate cases, San Jose Water Company considers evidence that may exist prior to CPUC authorization that would satisfy ASC Topic 980 subtopic 340-25 recognition criteria. Such evidence may include regulatory rules and decisions, past practices, and other facts and circumstances that would indicate that recovery or refund is probable. When such evidence provides sufficient support for balance recognition, the balances are recorded in SJW Group’s financial statements. In addition, in the case of special revenue programs such as the WCMA, San Jose Water Company follows the requirements of ASC Topic 980-605-25 in determining revenue recognition, including the requirement that such revenues will be collected within 24 months of the year-end the revenue is recorded. A reserve will be recorded for amounts which we estimate will not be collected within the 24 month criteria. This reserve will be based on an estimate of actual usage over the recovery period, offset by applicable drought surcharges.

Revenue also includes a surcharge collected from regulated customers that is paid to the CPUC. This surcharge is recorded both in operating revenues and administrative and general expenses. For the years ended December 31, 2016 , 2015 and 2014 , the surcharge was $3,807 , $4,605 and $3,872 , respectively.

Revenue from San Jose Water Company’s non-tariffed utility operations, maintenance agreements or antenna site leases are recognized when services have been rendered. Non-tariffed operating revenue in 2016 , 2015 and 2014 includes $6,451 , $6,145 and $6,175 , respectively, from the operation of the City of Cupertino municipal water system. Revenue from SJW Land Company properties is recognized ratably over the term of the related leases.

Share-Based Payment

SJW Group calculates the fair value of restricted stock awards based on the grant date fair market value of the company’s stock price reduced by the present value of the dividends expected to be declared on outstanding shares. In addition, SJW Group estimates forfeitures for share-based awards that are not expected to vest.

SJW Group utilizes the Monte Carlo valuation model, which requires the use of subjective assumptions, to compute the fair value of market-vesting restricted stock units.

The compensation cost charged to income is recognized on a straight-line basis over the requisite service period, which is the vesting period.

Maintenance Expense

Planned major maintenance projects are charged to expense as incurred.

Earnings per Share

Basic earnings per share is calculated using income available to common stockholders, divided by the weighted average number of shares outstanding during the year. The two-class method in computing basic earnings per share is not used because the number of participating securities as defined in FASB ASC Topic 260—“Earnings Per Share” is not significant. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security. Diluted earnings per share is calculated using income available to common stockholders divided by the weighted average number of shares of common stock including both shares outstanding and shares potentially issuable in connection with stock options, deferred restricted common stock awards under SJW Group’s Long-Term Incentive Plan and shares potentially issuable under the Employee Stock Purchase Plans. Restricted common stock units and stock options of 6,689 , 1,978 and 2,791 as of December 31, 2016 , 2015 and 2014 , respectively, were excluded from the dilutive earnings per share calculation as their effect would have been anti-dilutive.


Note 2.	Capitalization

SJW Group is authorized to issue 36,000,000 shares of common stock of $0.001 par value per share. Prior to the reincorporation on November 15, 2016, discussed in Note 1, “Summary of Significant Accounting Policies,” SJW Corp. was authorized to issue 36,000,000 shares of common stock of $0.521 par value per share. At December 31, 2016 and 2015 , 20,456,225 and 20,381,949 , respectively, shares of common stock were issued and outstanding. In connection with the change of SJW Group’s common stock par value, SJW Group has recast stockholder ’s equity in the Consolidated Balance Sheet as of December 31, 2015 and Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2015 and 2014 to reflect the reincorporation. There were no changes to the historical number of shares issued and outstanding or earnings per share as a result of the reincorporation.

At December 31, 2016 , 1,000,000 shares of preferred stock of $0.001 par value per share were authorized for SJW Group. Prior to reincorporation and merger on November 15, 2016, SJW Group had 176,407 authorized shares of preferred stock of $25 par value per share. At December 31, 2016 and 2015 , no shares of preferred stock were issued or outstanding.


Note 3.	Lines of Credit

On June 1, 2016, San Jose Water Company entered into a $125,000 credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as the lender (the “Lender”). The Credit Agreement provides an unsecured credit facility with a letter of credit sublimit of $10,000 . Proceeds of borrowings under the Credit Agreement may be used to refinance existing debt, for working capital, and for general corporate purposes. The Credit Agreement has a maturity date of June 1, 2021.

On June 1, 2016, the company entered into a fourth amendment to San Jose Water Company’s existing $85,000 credit agreement, dated as of March 1, 2012, as amended from time to time (the “WF Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”) thereby reducing the maximum principal amount available under such line of credit to $3,060 . Pursuant to such amendment, no further borrowing was permitted under the WF Credit Agreement and the WF Credit Agreement remained outstanding for the sole purpose of reimbursing Wells Fargo for any draws against outstanding letters of credit for the California Department of Water Resources’ Safe Drinking Water State Revolving Fund (“SDWSRF”) loans and related fees until such letters of credit were replaced or terminated. Under both the Credit Agreement and the WF Credit Agreement total borrowings could not exceed $125,000 . On June 29, 2016, San Jose Water Company paid off the SDWSRF loans’ remaining balance of $1,823 , which had a maturity date in 2027, and the WF Credit Agreement and letters of credit were terminated on September 27, 2016.

As of December 31, 2015 , SJW Group and its subsidiaries had unsecured bank lines of credit with Wells Fargo, allowing aggregate short-term borrowings of up to $100,000 , of which $15,000 was available to SJW Group and SJW Land Company under one line of credit and $85,000 was available to San Jose Water Company under another line of credit. San Jose Water Company issued two standby letters of credit with a commercial bank in the amount of $3,000 in support of its SDWSRF loans which were funded in 2005 and 2008. As of December 31, 2015 , $3,000 under the San Jose Water Company line of credit was set aside in the form of letters of credit for its SDWSRF loans.

As of December 31, 2016 and 2015 , SJW Group had outstanding balances on the lines of credit of $14,200 and $34,600 , respectively.

Cost of borrowing on the lines of credit averaged 1.48% and 1.31% as of December 31, 2016 and 2015 , respectively.

The SJW Corp. and SJWTX, Inc. unsecured bank lines of credit have the following affirmative covenants calculated with the financial statements of SJW Group, on a consolidated basis: (1) the funded debt cannot exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-calendar-month period cannot be less than 175% of interest charges. As of December 31, 2016 , SJW Group and SJWTX, Inc. were in compliance with all covenants. San Jose Water Company’s unsecured bank lines of credit have the following affirmative covenants: (1) the funded debt cannot exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-calendar-month period cannot be less than 175% of interest charges. As of December 31, 2016 , San Jose Water Company was in compliance with all covenants.


Note 4.	Long-Term Debt

In April 2015, the FASB issued Accounting Standards Update ASU 2015-03, “Interest — Simplifying the Presentation of Debt Issuance Costs” which became effective for SJW Group during the first quarter of 2016. ASU 2015-03 changed the presentation of debt issuance costs for term debt in the balance sheet by requiring the debt issuance costs to be presented as a direct deduction from the related debt liability, rather than recorded as an asset. In August 2015, ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements,” was issued to provide clarification to ASU 2015-03. The standard specified that the SEC would not object to an entity deferring and presenting debt issuance costs related to lines-of-credit as an asset and subsequently amortizing the costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings. This standard required application on a retrospective basis. Upon adoption of the standard, SJW Group reclassified its long-term debt issuance costs totaling $3,561 and $3,638 from other assets to long-term debt on the Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015, respectively. There was no material impact from adopting the new standard on SJW Group’s Consolidated Statements of Comprehensive Income, Changes in Stockholders’ Equity, and Cash Flows.

Long-term debt as of December 31 was as follows:



Description	Due Date	2016		2015
Senior notes, San Jose Water Company:
Series A 8.58%	2022	$	20,000	20,000
Series B 7.37%	2024	30,000		30,000
Series C 9.45%	2020	10,000		10,000
Series D 7.15%	2026	15,000		15,000
Series E 6.81%	2028	15,000		15,000
Series F 7.20%	2031	20,000		20,000
Series G 5.93%	2033	20,000		20,000
Series H 5.71%	2037	20,000		20,000
Series I 5.93%	2037	20,000		20,000
Series J 6.54%	2024	10,000		10,000
Series K 6.75%	2039	20,000		20,000
Series L 5.14%	2044	50,000		50,000
SJWTX, Inc. Series A 6.27%	2036	15,000		15,000
SJW Corp. Series A 4.35%	2021	50,000		50,000
Total senior notes		$	315,000	315,000
Mortgage loans 5.61% - 6.09%	2016	—		2,997
	2017	—		11,634
444 West Santa Clara Street, L.P. 5.68% (non-recourse to SJW Land Company)	2021	2,717		2,836
California Pollution Control Financing Authority Revenue Bonds 5.10%, San Jose Water Company	2040	50,000		50,000
California Pollution Control Financing Authority Revenue Bonds 4.75%, San Jose Water Company	2046	70,000		—
SDWSRF loans 2.39% and 2.60%, San Jose Water Company	2027	—		1,849
Total debt		$	437,717	384,316
Less:
Unamortized debt issuance costs related to debt above		4,257		3,638
Current portion		125		3,491
Total long-term debt, less current portion		$	433,335	377,187

Senior notes held by institutional investors are unsecured obligations of SJW Group, San Jose Water Company and SJWTX, Inc. and require interest-only payments until maturity. To minimize issuance costs, the companies’ debt has primarily been placed privately.

The senior note agreements of San Jose Water Company generally have terms and conditions that restrict the Company from issuing additional funded debt if: (1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-calendar-month period would be less than 175% of interest charges. As of December 31, 2016 , San Jose Water Company was not restricted from issuing future indebtedness as a result of these terms and conditions.

The senior note agreement of SJWTX, Inc. has terms and conditions that restrict SJWTX, Inc. from issuing additional funded debt if: (1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-calendar-month period would be less than 175% of interest charges. In addition, SJW Group is a guarantor of SJWTX, Inc.’s senior note which has terms and conditions that restrict SJW Group from issuing additional funded debt if: (1) the funded consolidated debt would exceed 66-2/3% of total capitalization, and (2) the minimum net worth of SJW Group becomes less than $125,000 plus 30% of Water Utility Services cumulative net income, since December 31, 2005. As of December 31, 2016 , SJWTX, Inc. and SJW Group were not restricted from issuing future indebtedness as a result of these terms and conditions.

The senior note agreement of SJW Group has terms and conditions that restrict SJW Group from issuing additional funded debt if: (1) the funded consolidated debt would exceed 66-2/3% of total capitalization, and (2) the minimum net worth of SJW Group becomes less than $175,000 plus 30% of Water Utility Services cumulative net income, since June 30, 2011. As of December 31, 2016 , SJW Group was not restricted from issuing future indebtedness as a result of these terms and conditions.

SJW Land Company had two mortgage loans, one for its Arizona property and one for its Tennessee property, that were due in 2016 and 2017 . These loans amortized over 10 years, were secured by two properties and carried a fixed interest rate with 120 monthly principal and interest payments. The loan agreements had restricted the Company from prepayment in the first three years and had required submission of periodic financial reports as part of the loan covenants. During the year ended December 31, 2016 , the two mortgage loans were paid off.

444 West Santa Clara Street, L.P., in which SJW Land Company owns a 70% limited partnership interest, has a mortgage loan in the outstanding amount of $2,717 as of December 31, 2016 . The mortgage loan is due in 2021 and is amortized over 20 years with an interest rate of 5.68% . The mortgage loan is secured by the partnership’s real property and is non-recourse to SJW Land Company. An amortization schedule of the mortgage loan with 444 West Santa Clara Street, L.P. is as follows:



	Amortization Schedule
Year	Total Payment	Interest	Principal
2017	276	150	126
2018	276	143	133
2019	276	135	141
2020	276	127	149
2021	2,208	40	2,168

On December 15, 2016, San Jose Water Company entered into a loan agreement with the California Pollution Control Financing Authority (“CPCFA”). The CPCFA had simultaneously entered into an indenture with The Bank of New York Mellon Trust Company, N.A. as trustee pursuant to which the CPCFA issued $70,000 in aggregate principal of its 4.75% fixed rate revenue bonds. The CPCFA loaned the proceeds of the bond issuance to San Jose Water Company pursuant to the loan agreement. The terms of the revenue bonds provide for interest only payments until maturity, which is November 1, 2046. As of December 31, 2016 , $19,001 in loan proceeds were being held as restricted cash by the trustee for the revenue bonds until certain conditions were met. On January 10, 2017, the conditions were met and the trustee released the remaining loan proceeds to San Jose Water Company.

San Jose Water Company has obligations pursuant to loan agreements with the CPCFA totaling $120,000 in aggregate principal amounts of CPCFA revenue bonds outstanding as of December 31, 2016 . The loan agreements contain affirmative and negative covenants customary for loan agreements relating to revenue bonds, containing, among other things, certain disclosure obligations, the tax exempt status of the interest on the bonds and limitations, and prohibitions on the transfer of projects funded by the loan proceeds and assignment of the loan agreements. As of December 31, 2016 , San Jose Water Company was in compliance with all such covenants.

San Jose Water Company had two loans from the SDWSRF at a rate of 2.39% and 2.60% . The two loans were paid off in June 2016. There were no outstanding balances on the loans as of December 31, 2016 . San Jose Water Company had issued standby letters of credit with a commercial bank in the amount of $3,000 in support of these loans. The letters of credit were automatically renewed for one year each December unless the issuing bank elected not to renew it. The letters of credit were terminated in conjunction with the payoff of the SDWSRF loans.

The fair value of long-term debt as of December 31, 2016 and 2015 was approximately $502,446 and $500,035 , respectively, and was determined using a discounted cash flow analysis, based on the current rates for similar financial instruments of the same duration and creditworthiness of the Company. The fair value of long-term debt would be categorized as Level 2 of the fair value hierarchy.


Note 5.	Income Taxes

The components of income tax expense were:



	2016			2015		2014
Current:
Federal	$	21,651		3,723		50
State	7,088			3,924		(1,146	)
Deferred:
Federal	6,119			16,109		28,493
State	(1,316		)	(484	)	(2,426	)
	$	33,542		23,272		24,971

The following table reconciles income tax expense to the amount computed by applying the federal statutory rate to income before income taxes of $86,381 , $61,154 and $76,777 in 2016 , 2015 and 2014 :



	2016			2015		2014
“Expected” federal income tax	$	30,233		21,404		26,872
Increase (decrease) in taxes attributable to:
State taxes, net of federal income tax benefit	4,874			3,332		4,155
Dividend received deduction	(21		)	(43	)	(46	)
Uncertain tax positions	16			3		—
Sales & Use Enterprise Zone Credit	(117		)	—		(880	)
Tangible Property Regulations	(1,184		)	(1,081	)	(5,127	)
Other items, net	(259		)	(343	)	(3	)
	$	33,542		23,272		24,971

The components of the net deferred tax liability as of December 31 was as follows:



	2016		2015
Deferred tax assets:
Advances and contributions	$	17,196	16,612
Unamortized investment tax credit	644		676
Pensions and postretirement benefits	3,927		4,094
California franchise tax	2,331		1,322
Other	4,802		3,410
Total deferred tax assets	$	28,900	26,114
Deferred tax liabilities:
Utility plant	$	177,338	165,293
Pension and postretirement benefits	44,737		44,482
Investment in stock	1,280		2,193
Deferred gain and other-property related	9,769		11,686
Debt reacquisition costs	347		397
Other	632		838
Total deferred tax liabilities	$	234,103	224,889
Net deferred tax liabilities	$	205,203	198,775

Management evaluates the realizability of deferred tax assets based on all available evidence, both positive and negative. The realization of deferred tax assets is dependent on our ability to generate sufficient future taxable income during periods in which the deferred tax assets are expected to reverse. Based on all available evidence, management believes it is more likely than not that SJW Group will realize the benefits of these deferred tax assets.

The total amount of unrecognized tax benefits, before the impact of deductions for state taxes, excluding interest and penalties was $1,184 and $795 as of December 31, 2016 and 2015 , respectively. The amount of tax benefits, net of any federal benefits for state taxes and inclusive of interest that would impact the effective rate, if recognized, is approximately $33 and $17 as of December 31, 2016 and 2015 , respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



Balance at December 31, 2015	$	755
Increase related to tax positions taken during a prior year, including interest	397
Reductions related to tax positions taken in a prior year, including interest	(20		)
Balance at December 31, 2016	$	1,132

SJW Group’s policy is to classify interest and penalties associated with unrecognized tax benefits, if any, in tax expense. Accrued interest expense, net of the benefit of tax deductions which would be available on the payment of such interest, is approximately $33 as of December 31, 2016 . SJW Group has not accrued any penalties for unrecognized tax benefits. The amount of interest recognized in 2016 was an expense of $16 .

SJW Group does not foresee material changes to its gross uncertain tax liability due to the lapse of the statute of limitations within the next 12 months following December 31, 2016 .

In the fourth quarter of 2016, SJW Group recorded $117 in State of California enterprise zone sales and use tax credits related to tax years 2013 and 2014. In the second quarter of 2014, SJW Group had recorded $880 in State of California enterprise zone sales and use tax credits related to tax years 2008 through 2012. SJW Group is currently undergoing an income tax examination by The California Franchise Tax Board for refund claims for fiscal years 2008 through 2012.

SJW Group applied for the accounting method changes required to comply with the Tangible Property Regulations with the 2014 tax returns. As of December 31, 2016 , the 2016 federal and state repairs and maintenance deduction under the new methodology was $20,611 , resulting in an estimated $7,214 federal deferred tax liability and a state income tax benefit of $1,184 .

As of December 31, 2015 , the 2015 federal and state repairs and maintenance deduction under the new methodology was $18,820 , resulting in an estimated $6,587 federal deferred tax liability and a state income tax benefit of $1,081 .

On September 13, 2013, the Department of Treasury and the Internal Revenue Service issued final tangible property regulations. These regulations broadly apply to amounts to acquire, produce or improve tangible property, as well as dispositions of such property and provide criteria for determining whether such amounts can be deducted or should be capitalized as part of the asset. The final regulations generally are effective for tax years beginning on or after January 1, 2014. To comply with the new regulations, SJW Group applied the accounting method change in the 2014 tax returns for the expensing of certain utility asset improvement costs for tax purposes as of December 31, 2013 that were previously being capitalized for book and tax purposes. As of December 31, 2014, the 2014 federal and state repairs and maintenance deduction under the new methodology was $11,221 , resulting in an estimated $3,927 federal deferred tax liability and a state income tax benefit of $645 . During the year ended December 31, 2014, SJW Group also completed a detailed analysis of the repairs and maintenance deduction related to 2013 and prior years, and recorded the estimated federal and state impact in the consolidated financial statements as of December 31, 2014. SJW Group’s Internal Revenue Code (“IRC”) §481(a) adjustment for Federal purposes was $35,912 and resulted in a $12,569 deferred tax liability as of December 31, 2014. SJW Group’s IRC §481(a) adjustment for state purposes was $77,999 and resulted in a $4,482 reduction to state income tax expense for the year ended December 31, 2014.

SJW Group files U.S. federal income tax returns and income tax returns in various states. The Company is no longer subject to tax examination for fiscal years prior to 2013 for federal purposes and 2010 for state purposes. The open tax years for the jurisdictions in which SJW Group files are as follows:



Jurisdiction	Years Open
Federal	2013 - 2015
California	2010 - 2015
Arizona	2012 - 2015
Connecticut	2013 - 2014
Tennessee	2013 - 2015
Texas	2012 - 2015


Note 6.	Intangible Assets

Intangible assets consist of a concession fee paid to the City of Cupertino of $6,800 for operating the City of Cupertino municipal water system and other intangibles of $17,189 . Other intangibles consists of $13,360 which was paid for service area and water rights related to our subsidiaries in Texas, $2,524 of Depreciable Plant and Equipment for infrastructure related to the Cupertino service concession arrangement (See Note 1 of “ Notes to Consolidated Financial Statements ” ), $1,040 incurred in conjunction with SCVWD water contracts related to the operation of San Jose Water Company and $265 in other miscellaneous intangibles. All intangible assets are recorded at cost and all, except for TWA water rights, are being amortized using the straight-line method over the legal or estimated economic life of the asset ranging from 5 to 70 years. TWA water rights are not being amortized as they have been determined to have an indefinite useful life.

Amortization expense for the intangible assets was $530 , $453 and $364 for the years ended December 31, 2016 , 2015 and 2014 , respectively. Amortization expense for 2017 through 2021 is anticipated to be $530 per year.

The costs of intangible assets as of December 31, 2016 and 2015 are as follows:



	2016		2015
Concession fees	$	6,800	6,800
Other intangibles	17,189		15,875
Intangible assets	23,989		22,675
Less: Accumulated amortization
Concession fees	5,236		4,964
Other intangibles	2,412		2,153
Net intangible assets	$	16,341	15,558


Note 7.	Commitments

San Jose Water Company purchases water from SCVWD under terms of a master contract expiring in 2051. Delivery schedules for purchased water are based on a contract year beginning July 1, and are negotiated every three years under terms of the master contract with SCVWD. For the years ended December 31, 2016 , 2015 and 2014 , San Jose Water Company purchased from SCVWD 18,241 million gallons ( $61,645 ), 18,482 million gallons ( $52,553 ) and 17,782 million gallons ( $44,444 ), respectively, of contract water. In accordance with the reduction of treated water deliveries approved by the SCVWD Board of Directors on June 14, 2016, the contractual delivery schedule was reduced by 20% through January 31, 2017. On January 31, 2017, SCVWD Board of Directors approved treated water deliveries reflecting the contractual delivery schedule reduced by 10% through June 30, 2017. Based on current prices and estimated deliveries, San Jose Water Company is committed to purchase from SCVWD a minimum of 90% of the reduced delivery schedule, or 19,404 million gallons ( $69,790 ) of water at the current contract water rate of $3.6 per million gallons in the year ending December 31, 2016. Additionally, San Jose Water Company purchases non-contract water from SCVWD on an “as needed” basis if the water supply is available.

In 1997, San Jose Water Company entered into a 25 -year contract agreement with the City of Cupertino to operate the City’s municipal water system. San Jose Water Company paid a one-time, upfront concession fee of $6,800 to the City of Cupertino which is amortized over the contract term. Under the terms of the contract agreement, San Jose Water Company assumed responsibility for all maintenance and operating costs, while receiving all payments for water service. Water service rates are generally subject to approval by the Cupertino City Council.

San Jose Water Company has remaining commitments of $20,900 with one vendor related to Phase 2 upgrades to the Montevina Water Treatment Plant. This amount is expected to be spent during 2017.

CLWSC has long-term contracts with the GBRA. The terms of the agreements expire in 2037, 2040, 2044 and 2050. The agreements, which are take-or-pay contracts, provide CLWSC with 6,900 acre-feet per year of water supply from Canyon Lake. The water rate may be adjusted by GBRA at any time, provided they give CLWSC a 60 -day written notice on the proposed adjustment.

TWA has entered into approximately 180 water leases with property owners for certain real property rights for the development, production, transportation and use of groundwater in and under their property. In accordance with the water leases, TWA is committed to pay between $1,100 and $1,300 per year from 2017 to 2019. TWA may terminate the water leases at any time during the pre-production phase, upon two years prior written notice.

As of December 31, 2016 , San Jose Water Company had 362 employees, of whom 133 were executive, administrative or supervisory personnel, and of whom 229 were members of unions. In November 2016, San Jose Water Company reached three -year collective bargaining agreements with the Utility Workers of America, representing the majority of all employees, and the International Union of Operating Engineers, representing certain employees in the engineering department, covering the period from January 1, 2017 through December 31, 2019. The agreements include a 3.5% wage increase in 2017, 3% in 2018 and 4% in 2019 for union workers as well as increases in medical co-pays and employee cost-sharing.


Note 8.	Contingencies

SJW Group is subject to ordinary routine litigation incidental to its business. There are no pending legal proceedings to which SJW Group or any of its subsidiaries is a party, or to which any of its properties is the subject, that are expected to have a material effect on SJW Group’s business, financial position, results of operations or cash flows.


Note 9.	Partnership Interest

In September 1999, SJW Land Company formed 444 West Santa Clara Street, L.P., a limited partnership, with a real estate development firm whereby SJW Land Company contributed real property in exchange for a 70% limited partnership interest. A commercial building was constructed on the partnership property and is leased to an unrelated international real estate firm under a long-term lease expiring in August 2019. On January 10, 2017, 444 West Santa Clara Street, L.P. entered a purchase and sale agreement for the sale of all of its interests in the commercial building and land the partnership owns and operates for a purchase price of $11,000 . The Company anticipates the sale to close in the first quarter of 2017.

The consolidated financial statements of SJW Group at December 31, 2016 and 2015 include the operating results of 444 West Santa Clara Street, L.P. Intercompany balances and transactions have been eliminated. Results of operations and balances of the non-controlling interest are not material to the consolidated financial statements.


Note 10.	Benefit Plans

Pension Plans

San Jose Water Company sponsors a noncontributory defined benefit pension plan (the “Pension Plan”) for its eligible employees. Employees hired before March 31, 2008 are entitled to receive retirement benefits using a formula based on the employee’s three highest years of compensation (whether or not consecutive). For employees hired on or after March 31, 2008, benefits are determined using a cash balance formula based upon compensation credits and interest credits for each employee.

The Pension Plan is administered by a committee that is composed of an equal number of company and union representatives (the “Committee”). The Committee has retained an investment consultant, Wells Fargo Advisors Financial Network, LLC, to assist it with, among other things, asset allocation strategy, investment policy advice, performance monitoring, and investment manager due diligence. Individual investment decisions have been delegated by the Committee to the investment managers who are monitored by the investment consultant. Investment guidelines provided in the Investment Policy Statement require that at least 25% of plan assets be invested in fixed income securities. As of December 31, 2016 , the plan assets consist of approximately 34% bonds, 8% cash equivalents, and 58% equities. Furthermore, equities are to be diversified by industry groups and selected to achieve a balance of long-term growth and income combined with a goal of long-term preservation of capital. Except as provided for in the prospectus of any co-mingled investments, investment managers may not invest in commodities and futures contracts, private placements, options, letter stock, speculative securities, nor may they hold more than 5% of assets of any one private corporation. Except as provided for in the prospectus of any co-mingled investments, fixed income assets may only be invested in bonds, commercial paper, and money market funds with acceptable ratings by Moody’s or Standard & Poor’s as defined by the Investment Policy Statement. The investment managers ’ performance is reviewed regularly by the investment consultant who provides semi-annual reports to the Committee for review.

Plan assets are marked to market at each measurement date, resulting in unrealized actuarial gains or losses. Unrealized actuarial gains and losses on pension assets are amortized over the expected future working lifetime of participants of 12.62 years for actuarial expense calculation purposes. Market losses in 2015 increased pension expense by approximately $898 in 2016 and market losses in 2014 increased pension expense by approximately $3 in 2015.

For the past 10 years, the plan has achieved a 5.41% return on its investments while the applicable benchmark was 5.47% for the same period. The applicable benchmark is a weighted-average of returns for those benchmarks shown in the table below. For the past five years, the investment managers, following the required investment guidelines, achieved a 8.37% return on their investments, while the applicable benchmark was 8.48% for the same period.

Generally, it is expected of the investment managers that the performance of the assets held in the Pension Plan, computed on a total annual rate of return basis, should meet or exceed specific performance standards over a three -to- five -year period and/or full market cycle. These standards include specific absolute and risk-adjusted performance standards over a three-to-five-year period and/or full market cycle.

San Jose Water Company calculates the market-related value of the defined benefit pension plan assets, which is defined under FASB ASC Topic 715—“Compensation—Retirement Benefits” as a balance used to calculate the expected return on plan assets, using fair value. The fair value is based on quoted prices in active markets for identical assets and significant observable inputs.

Officers hired before March 31, 2008 are eligible to receive additional retirement benefits under San Jose Water Company’s Executive Supplemental Retirement Plan, and officers hired on or after March 31, 2008 are eligible to receive additional retirement benefits under San Jose Water Company’s Cash Balance Executive Supplemental Retirement Plan. Both of the plans are non-qualified plans in which only officers and other designated members of management may participate. The annual cost of the plans has been included in the determination of the net periodic benefit cost shown below. The plans, which are unfunded, had a projected benefit obligation of $19,051 and $16,566 as of December 31, 2016 and 2015 , respectively, and net periodic pension cost of $1,729 , $1,542 and $1,300 for 2016 , 2015 and 2014 , respectively.

Other Postretirement Benefits

In addition to providing pension and savings benefits, San Jose Water Company also provides health care and life insurance benefits for retired employees under the San Jose Water Company Social Welfare Plan. The plan is a flat dollar plan which is unaffected by variations in health care costs.

Flexible Spending Plan

Effective February 1, 2004, San Jose Water Company established a Flexible Spending Account for its employees for the purpose of providing eligible employees with the opportunity to choose from among the fringe benefits available under the plan. The flexible spending plan is intended to qualify as a cafeteria plan under the provisions of the Internal Revenue Code

Section 125. The flexible spending plan allows employees to save pre-tax income in a Health Care Spending Account (“HCSA”) and/or a Dependent Care Spending Account (“DCSA”) to help defray the cost of out-of-pocket medical and dependent care expenses. The annual maximum limit under the HCSA and DCSA plans is $2.5 and $5 , respectively.

Deferral Plan

San Jose Water Company sponsors a salary deferral plan that allows employees to defer and contribute a portion of their earnings to the plan. Contributions, not to exceed set limits, are matched by San Jose Water Company. San Jose Water Company contributions were $1,242 , $1,149 and $1,101 in 2016 , 2015 and 2014 , respectively.

Special Deferral Election Plan and Deferral Election Program

SJW Group maintains a Special Deferral Election Plan allowing certain executives and a Deferral Election Program allowing non-employee directors to defer a portion of their earnings each year and to realize an investment return on those funds during the deferral period. Executives and non-employee directors have to make an election on the deferral and distribution method of the deferrals before services are rendered. Executives and non-employee directors had deferred $4,250 , $4,073 and $3,463 under the plans as of December 31, 2016 , 2015 and 2014 , respectively.

Assumptions Utilized on Actuarial Calculations

Net periodic cost for the defined benefit plans and other postretirement benefits was calculated using the following weighted-average assumptions:



	Pension Benefits			Other Benefits
	2016	2015	2014	2016	2015	2014
	%	%	%	%	%	%
Discount rate	4.24	3.88	4.82	4.10	3.80	4.70
Expected return on plan assets	7.00	7.00	7.00	7.00	7.00	7.00
Rate of compensation increase	4.00	4.00	4.00	N/A	N/A	N/A

The expected rate of return on plan assets was determined based on a review of historical returns, both for the Pension Plan and for medium- to large-sized defined benefit pension funds with similar asset allocations. This review generated separate expected returns for each asset class. These expected future returns were then blended based on the Pension Plan’s target asset allocation.

Benefit obligations for the defined benefit plans and other postretirement benefits were calculated using the following weighted-average assumptions as of December 31:



	Pension Benefits		Other Benefits
	2016	2015	2016	2015
	%	%	%	%
Discount rate	4.04	4.24	3.93	4.10
Rate of compensation increase	4.00	4.00	N/A	N/A

San Jose Water Company utilized each plan’s projected benefit stream in conjunction with the Citigroup Pension Discount Curve in determining the discount rate used in calculating the pension and other postretirement benefits liabilities at the measurement date.

In 2014, San Jose Water Company adopted the Society of Actuaries RP-2014 Total Dataset Mortality Table and MP-2014 Mortality Improvement Scale to determine mortality assumptions. The tables and scales reflected increasing life expectancies of participants in the United States. In 2016, San Jose Water Company adopted the newly issued MP-2016 Mortality Improvement Scale, which further refined future mortality assumptions. See also “Reconciliation of Funded Status” below.

Net Periodic Pension Costs

Net periodic costs for the defined benefit plans and other postretirement benefits for the years ended December 31 was as follows:



	Pension Benefits							Other Benefits
	2016			2015		2014		2016			2015		2014
Components of net periodic benefit cost
Service cost	$	4,447		5,072		3,938		$	527		379		284
Interest cost	6,830			6,342		6,098		655			504		508
Expected return on assets	(7,288		)	(6,984	)	(6,414	)	(292		)	(283	)	(268	)
Amortization of prior service cost	376			376		376		197			197		197
Recognized actuarial loss	3,527			4,005		1,879		316			188		59
Net periodic benefit cost	$	7,892		8,811		5,877		$	1,403		985		780

Reconciliation of Funded Status

For the defined benefit plans and other postretirement benefits, the benefit obligation is the projected benefit obligation and the accumulated benefit obligation, respectively. The projected benefit obligations and the funded status of San Jose Water Company’s defined benefit pension and other postretirement plans as of December 31 were as follows:



	Pension Benefits					Other Benefits
	2016			2015		2016			2015
Change in benefit obligation
Benefit obligation at beginning of year	$	164,268		165,304		$	16,420		13,714
Service cost	4,447			5,072		527			379
Interest cost	6,830			6,342		655			504
Actuarial (gain)/loss	3,967			(7,436	)	(528		)	2,231
Implicit rate subsidy	—			—		(179		)	—
Benefits paid	(5,415		)	(5,014	)	(434		)	(408	)
Benefit obligation at end of year	$	174,097		164,268		$	16,461		16,420
Change in plan assets
Fair value of assets at beginning of year	$	104,953		99,628		$	4,462		4,251
Actual return on plan assets	5,936			965		295			79
Employer contributions	8,421			9,374		793			468
Benefits paid	(5,415		)	(5,014	)	(184		)	(336	)
Fair value of plan assets at end of year	113,895			104,953		5,366			4,462
Funded status at end of year	$	(60,202	)	(59,315	)	$	(11,095	)	(11,958	)

The amounts recognized on the balance sheet as of December 31 were as follows:



	Pension Benefits			Other Benefits
	2016		2015	2016		2015
Current liabilities	$	1,032	957	$	87	86
Noncurrent liabilities	59,170		58,358	11,008		11,872
	$	60,202	59,315	$	11,095	11,958

San Jose Water Company recorded a regulatory asset, including a gross-up for taxes, on the projected benefit obligation of the postretirement benefit plans as follows:



	2016			2015
Funded status of obligation	$	71,297		71,273
Accrued benefit cost	(6,239		)	(6,587	)
Amount to be recovered in future rates	65,058			64,686
Tax gross-up	44,737			44,482
Regulatory asset	$	109,795		109,168

The estimated amortization for the year ended December 31, 2017 is as follows:

Plan Assets

Plan assets for the years ended December 31 were as follows:



	Pension Benefits					Other Benefits
	2016			2015		2016			2015
Fair value of assets at end of year:
Debt securities	$	38,887		37,088		$	1,627		1,527
	34		%	35	%	30		%	34	%
Equity securities	66,022			58,958		2,675			2,343
	58		%	56	%	50		%	53	%
Cash and equivalents	8,986			8,907		1,064			592
	8		%	8	%	20		%	13	%
Total	$	113,895		104,953		$	5,366		4,462

The following tables summarize the fair values of plan assets by major categories as of December 31, 2016 and 2015 :



				Fair Value Measurements at December 31, 2016
Asset Category	Benchmark	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents		$	10,050	$	10,050	$	—	$	—
Actively Managed (a):
All Cap Equity	Russell 3000 Value	5,290		5,266		24		—
U.S. Large Cap Equity	Russell 1000, Russell 1000 Growth, Russell 1000 Value	39,534		39,534		—		—
U.S. Mid Cap Equity	Russell Mid Cap, Russell Mid Cap Growth, Russell Mid Cap Value	7,021		7,021		—		—
U.S. Small Cap Equity	Russell 2000, Russell 2000 Growth, Russell 2000 Value, Russell 2500	6,357		6,357		—		—
Non-U.S. Large Cap Equity	MSCI EAFE	4,832		4,832		—		—
REIT	NAREIT—Equity REIT’s	5,663		—		5,663		—
Fixed Income (b)	(b)	40,514		—		40,514		—
Total		$	119,261	$	73,060	$	46,201	$	—

___________________________________

The Plan has a current target allocation of 55% invested in a diversified array of equity securities to provide long-term capital appreciation and 45% invested in a diversified array of fixed income securities to provide preservation of capital plus generation of income.


(a)	Actively managed portfolio of securities with the goal to exceed the stated benchmark performance.


(b)	Actively managed portfolio of fixed income securities with the goal to exceed the Barclays 1-5 Year Government/Credit, Barclays Intermediate Government/Credit, and Merrill Lynch Preferred Stock Fixed Rate.



				Fair Value Measurements at December 31, 2015
Asset Category	Benchmark	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents		$	9,500	$	9,500	$	—	$	—
Actively Managed (a):
All Cap Equity	Russell 3000 Value	4,067		4,041		26		—
U.S. Large Cap Equity	Russell 1000, Russell 1000 Growth, Russell 1000 Value	36,010		36,010		—		—
U.S. Mid Cap Equity	Russell Mid Cap, Russell Mid Cap Growth, Russell Mid Cap Value	5,886		5,886		—		—
U.S. Small Cap Equity	Russell 2000, Russell 2000 Growth, Russell 2000 Value	5,188		5,188		—		—
Non-U.S. Large Cap Equity	MSCI EAFE	4,804		4,804		—		—
REIT	NAREIT—Equity REIT’s	5,346		—		5,346		—
Fixed Income (b)	(b)	38,614		—		38,614		—
Total		$	109,415	$	65,429	$	43,986	$	—

___________________________________


(a)	Actively managed portfolio of securities with the goal to exceed the stated benchmark performance.


(b)	Actively managed portfolio of fixed income securities with the goal to exceed the Barclays 1-5 Year Government/Credit, Barclays Intermediate Government/Credit, and Merrill Lynch Preferred Stock Fixed Rate.

In 2017 , San Jose Water Company expects to make required and discretionary cash contributions of up to $7,500 to the pension plan and other postretirement benefit plan.

Benefits expected to be paid in the next five years and in the aggregate for the five years thereafter are:



	Pension Plan		Other Postretirement Benefit Plan
2017	$	6,356	$	721
2018	6,667		752
2019	6,799		777
2020	7,201		795
2021	7,556		842
2022 - 2026	41,653		4,818


Note 11.	Equity Plans

Common Stock

SJW Group has a Long-Term Stock Incentive Plan (the “Plan”), which has 1,800,000 shares of common stock reserved for issuance. The Plan was initially adopted by the Board of Directors on March 6, 2002. On January 30, 2013, the amended and restated Plan was adopted by the Board and became effective on April 24, 2013. The Plan was subsequently amended and the amended and restated Plan was adopted by the Board on July 29, 2015.

The Plan allows SJW Group to provide employees, non-employee Board members or the board of directors of any parent or subsidiary, consultants, and other independent advisors who provide services to the Company or any parent or subsidiary the opportunity to acquire an equity interest in SJW Group.

A participant in the Plan generally may not receive Plan awards covering an aggregate of more than 600,000 shares of common stock in any calendar year. Additionally, awards granted under the Plan may be conditioned upon the attainment of specified Company performance goals. The types of awards included in the Plan are restricted stock awards, restricted stock units, performance shares, or other share-based awards. In addition, shares are issued to employees under the Employee Stock Purchase Plan (“ESPP”). The last offering period under the ESPP ended on July 31, 2014. A 2014 Employee Stock Purchase Plan (“2014 ESPP”) was approved by Company stockholders in April 2014. The initial offering period under the 2014 ESPP commenced on August 1, 2014 with a January 30, 2015 purchase date. SJW Group also had a Dividend Reinvestment and Stock Purchase Plan (“DRSPP”) which allowed eligible participants to buy shares and reinvest cash dividends in SJW Group common stock. The DRSPP was terminated effective as of April 14, 2014.

As of December 31, 2016 , 2015 and 2014 , 576,074 , 516,956 and 429,352 shares have been issued pursuant to the Plan, and 229,972 , 245,976 and 296,831 shares are issuable upon the exercise of outstanding options, restricted stock units, and deferred restricted stock units for the years ended 2016 , 2015 and 2014 , respectively. The remaining shares available for issuance under the Plan are 993,954 as of December 31, 2016 . The compensation costs charged to income is recognized on a straight-line basis over the requisite service period.

A summary of compensation costs charged to income, proceeds from the exercise of stock options and similar instruments and the tax benefit realized from stock options and similar instruments exercised, that are recorded to additional paid-in capital and common stock, by award type, are presented below for the years ended December 31:



	2016		2015	2014
Compensation costs charged to income:
ESPP	$	168	158	148
Restricted stock and deferred restricted stock	1,523		1,445	883
Total compensation costs charged to income	$	1,691	1,603	1,031
Proceeds from the exercise of stock options and similar instruments:
Stock options	$	—	—	1,044
ESPP	954		895	839
DRSPP	—		—	34
Total proceeds from the exercise of stock options and similar instruments	$	954	895	1,917
Excess tax benefits realized from share options exercised and stock issuance:
Stock options	$	—	—	213
Restricted stock and deferred restricted stock	203		634	249
Total excess tax benefits realized from share options exercised and stock issuance	$	203	634	462

Stock Options

SJW Group applies FASB ASC Topic 718—“Compensation—Stock Compensation,” for all existing and new share-based compensation plans. To estimate the fair value of options at grant date as the basis for the share-based compensation awards, SJW Group utilizes the Black-Scholes option-pricing model, which requires the use of subjective assumptions. Further, as required under ASC Topic 718, SJW Group estimates forfeitures for the share-based awards that are not expected to vest. Changes in these inputs and assumptions can affect the measure of estimated fair value of our share-based compensation and the amount and timing of expense recognition.

Awards in the form of stock options under the Plan allowed executives to purchase common shares at a specified price. Options were granted at an exercise price that is not less than the per share market price on the date of the grant. Options vested at a 25% rate on each annual date over four years and had a contractual term of 10 years.

As of December 31, 2016 and 2015 , there were no outstanding options and no option award activity during the years ended December 31, 2016 and 2015 .

The total intrinsic value of options exercised during the year ended December 31, 2014 was $581 .

As of December 31, 2016 and 2015 , there are no unrecognized compensation costs related to stock options.

Restricted Stock and Deferred Restricted Stock

Under SJW Group’s Amended and Restated Deferred Restricted Stock Program (the “Deferred Restricted Stock Program”), SJW Group granted deferred restricted stock units to non-employee Board members. This program was amended effective January 1, 2008. As a result of that amendment, no new awards of deferred restricted stock units will be made under the Deferred Restricted Stock Program with respect to Board service after December 31, 2007.

On January 26, 2016 , certain officers of SJW Group were granted performance-based restricted stock units covering an aggregate target number of SJW Group’s shares of common stock equal to 12,473 that will vest based on the actual attainment of specified performance goals measured for the 2016 calendar year and continued service through December 31, 2016. The number of shares issuable under the awards, ranging between 0% to 150% of the target number of shares, is based on the level of actual attainment of specified performance goals. The units do not include dividend equivalent rights. The awards have no market conditions and the share-based compensation expense of $29.46 per unit, which is based on the award grant date fair value, is being recognized. As of December 31, 2016, the specified performance goals and service requirement were met and 150% of the target number of shares is expected to vest February 28, 2017 upon approval of the Executive Compensation Committee of the Board on February 27, 2017.

On April 27, 2016 , restricted stock units covering an aggregate of 7,656 shares of common stock of SJW Corp. were granted to the non-employee board members of SJW Corp. The units vest upon continuous board service through the day immediately preceding the date of the next annual shareholder meeting with no dividend equivalent rights. Share-based compensation expense of $35.79 per unit, which is based on the award grant date fair value, is being recognized over the service period beginning in 2016.

A summary of SJW Group’s restricted and deferred restricted stock awards as of December 31, 2016 , and changes during the year ended December 31, 2016 , are presented below:



	Units		Weighted- Average Grant- Date Fair Value
Outstanding as of January 1, 2016	209,237		$	21.49
Issued	40,398		$	29.83
Vested	(55,919	)	$	26.92
Forfeited or expired	(996	)	$	27.86
Outstanding as of December 31, 2016	192,720		$	21.69
Shares vested as of December 31, 2016	106,817		$	16.62

A summary of the status of SJW Group’s nonvested restricted and deferred restricted stock awards as of December 31, 2016 , and changes during the year ended December 31, 2016 , are presented below:



	Units		Weighted- Average Grant- Date Fair Value
Nonvested as of January 1, 2016	93,544		$	27.63
Granted	40,398		$	29.65
Vested	(47,043	)	$	28.71
Forfeited	(996	)	$	27.86
Nonvested as of December 31, 2016	85,903		$	28.00

As of December 31, 2016 , the total unrecognized compensation costs related to restricted and deferred restricted stock plans amounted to $902 . This cost is expected to be recognized over a weighted-average period of 0.60 years.

Dividend Equivalent Rights

Under the Plan, certain holders of options, restricted stock and deferred restricted stock awards may have the right to receive dividend equivalent rights (“DERs”) each time a dividend is paid on common stock after the grant date. Stock compensation on DERs is recognized as a liability and recorded against retained earnings on the date dividends are issued.

The Deferred Restricted Stock and Deferral Election Programs for non-employee Board members were amended effective January 1, 2008, to allow the DERs’ with respect to the deferred shares to remain in effect only through December 31, 2017. Accordingly, the last DERs’ conversion into deferred restricted stock units will occur on the first business day in January 2018. Previously, no such time limitation was placed in the Deferred Restricted Stock and Deferral Election Program.

As of December 31, 2016 , 2015 and 2014 , a cumulative of 74,403 , 70,691 and 66,458 dividend equivalent rights were converted, since inception, to deferred restricted stock awards, respectively. For the years ended December 31, 2016 , 2015 and 2014 , $114 , $114 and $122 , respectively, related to dividend equivalent rights were recorded against retained earnings and were accrued as a liability.

Employee Stock Purchase Plan

The 2014 ESPP allows eligible employees to purchase shares of SJW Group’s common stock at 85% of the fair value of shares on the purchase date. Under the 2014 ESPP, employees can designate up to a maximum of 10% of their base compensation for the purchase of shares of common stock, subject to certain restrictions. A total of 400,000 shares of SJW Group’s common stock have been reserved for issuance under the 2014 ESPP.

As of December 31, 2016 , the 2014 ESPP had four purchase intervals since its inception. As of December 31, 2016 and 2015, a total of 30,214 and 33,318 shares were issued under the 2014 ESPP, respectively. Prior to the inception of the 2014 ESPP plan, the ESPP had seventeen purchase intervals. As of December 31, 2014, a total of 35,682 shares were issued under the prior ESPP. Both plans have no look-back provisions. For the years ended December 31, 2016 , 2015 and 2014 , cash received from employees towards the 2014 ESPP and ESPP amounted to $1,060 , $916 and $854 , respectively.

After considering estimated employee terminations or withdrawals from the plan before the purchase date, for the years ended December 31, 2016 , 2015 and 2014 , SJW Group’s recorded expenses were $185 , $162 and $151 related to the 2014 ESPP and the prior ESPP.

The total unrecognized compensation costs related to the semi-annual offering period that ended January 31, 2017 for the 2014 ESPP is approximately $94 . This cost is expected to be recognized during the first quarter of 2017.

Dividend Reinvestment and Stock Purchase Plan

SJW Group adopted the DRSPP effective April 19, 2011 . The DRSPP offered stockholders the ability to reinvest cash dividends in SJW Group common stock and also purchase additional shares of SJW Group common stock. A total of 3,000,000 shares of common stock were reserved for issuance under the DRSPP. SJW Group terminated the DRSPP effective as of April 14, 2014. For the year ended December 31, 2014, 829 shares were issued under the DRSPP.


Note 12.	Segment and Non-Tariffed Businesses Reporting

SJW Group is a holding company with four subsidiaries: (i) San Jose Water Company, a water utility operation with both regulated and non-tariffed businesses, (ii) SJW Land Company and its consolidated variable interest entity, 444 West Santa Clara Street, L.P., operate commercial building rentals, (iii) SJWTX, Inc. which is doing business as Canyon Lake Water Service Company, a regulated water utility located in Canyon Lake, Texas, and its consolidated non-tariffed variable interest entity, Acequia Water Supply Corporation, and (iv) Texas Water Alliance Limited, a non-tariffed water utility operation which is undertaking activities that are necessary to develop a water supply project in Texas. In accordance with FASB ASC Topic 280—“Segment Reporting,” SJW Group has determined that it has two reportable business segments. The first segment is that of providing water utility and utility-related services to its customers through SJW Group’s subsidiaries, San Jose Water Company, Canyon Lake Water Service Company and Texas Water Alliance, together referred to as “Water Utility Services.” The second segment is property management and investment activity conducted by SJW Land Company, referred to as “Real Estate Services.”

SJW Group’s reportable segments have been determined based on information used by the chief operating decision maker. SJW Group’s chief operating decision maker includes the Chairman, President and Chief Executive Officer, and his senior staff. The senior staff reviews financial information presented on a consolidated basis that is accompanied by disaggregated information about operating revenue, net income and total assets, by subsidiaries.

The following tables set forth information relating to SJW Group’s reportable segments and distribution of regulated and non-tariffed business activities within the reportable segments. Certain allocated assets, revenue and expenses have been included in the reportable segment amounts. Other business activity of SJW Group not included in the reportable segments is included in the “All Other” category.



	For year ended December 31, 2016
	Water Utility Services		Real Estate Services	All Other (1)		SJW Group
	Regulated	Non- tariffed	Non- tariffed	Non- tariffed		Regulated	Non- tariffed	Total
Operating revenue	326,547	6,442	6,717	—		326,547	13,159	339,706
Operating expense	236,459	4,257	4,074	1,800		236,459	10,131	246,590
Operating income (loss)	90,088	2,185	2,643	(1,800	)	90,088	3,028	93,116
Net income (loss)	45,594	954	7,406	(1,115	)	45,594	7,245	52,839
Depreciation and amortization	42,709	480	1,436	—		42,709	1,916	44,625
Senior note, mortgage and other interest expense	18,667	—	912	2,259		18,667	3,171	21,838
Income tax expense (benefit) in net income	27,902	750	4,235	655		27,902	5,640	33,542
Assets	1,368,886	17,794	54,818	1,878		1,368,886	74,490	1,443,376



	For year ended December 31, 2015
	Water Utility Services		Real Estate Services	All Other (1)		SJW Group
	Regulated	Non- tariffed	Non- tariffed	Non- tariffed		Regulated	Non- tariffed		Total
Operating revenue	291,949	6,145	6,988	—		291,949	13,133		305,082
Operating expense	214,538	4,149	4,079	2,356		214,538	10,584		225,122
Operating income (loss)	77,411	1,996	2,909	(2,356	)	77,411	2,549		79,960
Net income (loss)	38,402	882	953	(2,355	)	38,402	(520	)	37,882
Depreciation and amortization	38,742	434	1,564	—		38,742	1,998		40,740
Senior note, mortgage and other interest expense	18,935	—	1,019	2,232		18,935	3,251		22,186
Income tax expense (benefit) in net income	23,802	730	513	(1,773	)	23,802	(530	)	23,272
Assets	1,250,552	18,106	65,571	3,096		1,250,552	86,773		1,337,325



	For year ended December 31, 2014
	Water Utility Services		Real Estate Services	All Other (1)		SJW Group
	Regulated	Non- tariffed	Non- tariffed	Non- tariffed		Regulated	Non- tariffed	Total
Operating revenue	306,474	6,175	7,019	—		306,474	13,194	319,668
Operating expense	216,914	4,686	4,193	997		216,914	9,876	226,790
Operating income (loss)	89,560	1,489	2,826	(997	)	89,560	3,318	92,878
Net income (loss)	50,612	668	1,050	(524	)	50,612	1,194	51,806
Depreciation and amortization	35,926	359	1,620	—		35,926	1,979	37,905
Senior note, mortgage and other interest expense	17,555	—	1,022	2,211		17,555	3,233	20,788
Income tax expense (benefit) in net income	24,210	471	542	(252	)	24,210	761	24,971
Assets	1,177,106	18,071	65,787	4,392		1,177,106	88,250	1,265,356

____________________

(1) The “All Other” category includes the accounts of SJW Group on a stand-alone basis.


Note 13.	Texas Water Alliance Limited

On February 22, 2016, SJW Group entered into a purchase and sale agreement with the GBRA, pursuant to which the Company agreed to sell all of its equity interests in its wholly-owned subsidiary Texas Water Alliance Limited to GBRA for $31,000 in cash. Pursuant to the purchase and sale agreement, (i) upon closing of the transaction, GBRA will hold back $3,000 in the payment of the total purchase price and (ii) such holdback amount, subject to reductions under certain circumstances, shall be paid to SJW Group four years following the closing. The purchase and sale agreement is subject to specified closing conditions, including without limitation the completion of a financing by GBRA to fund the purchase price.


Note 14.	California Water Service Group Stock

SJW Group classifies its investment in California Water Service Group as available-for-sale.

During the quarter ended June 30, 2016, SJW Group sold 159,151 shares of California Water Service Group for $4,510 , before fees of $20 . SJW Group recognized a gain on the sale of the stock of approximately $3,197 and tax expense of approximately $1,303 , for a net gain of $1,894 . The unrealized holding gain associated with the shares sold, that was reclassified out of accumulated other comprehensive income was $1,742 and was based on the fair value of the stock as of June 30, 2016. As of December 31, 2016 , SJW Group held 100,000 shares of California Water Service Group. The stock is carried

at quoted market price with changes in unrealized gain or loss reported, net of tax, as a component of other comprehensive income.

On June 30, 2014, SJW Group sold $125.969 shares of California Water Service Group for $3,056 , before fees of $10 . SJW Group recognized a gain on the sale of the stock of approximately $2,017 , tax expense of approximately $822 , for a net gain of $1,195 . The unrealized holding gain associated with the shares sold, that was reclassified out of accumulated other comprehensive income was $1,171 and was based on the fair value of the stock as of March 31, 2014.

As of December 31, 2016 and 2015 , fair value of the Company’s investment in California Water Service Group was $3,390 and $6,030 , respectively, and would be categorized as Level 1 of the fair value hierarchy.


Note 15.	Unaudited Quarterly Financial Data

Summarized quarterly financial data is as follows:



	2016 Quarter Ended
	March		June	September	December
Operating revenue	$	61,112	86,944	112,344	79,306
Operating income	10,581		29,800	36,346	16,389
Net income	3,378		16,775	18,959	13,727
Comprehensive income	3,908		15,520	18,790	13,834
Earnings per share:
—Basic	0.17		0.82	0.93	0.67
—Diluted	0.16		0.82	0.92	0.67
Market price range of stock:
—High	37.50		39.38	46.66	56.69
—Low	29.35		32.66	38.13	42.19
Dividend per share	0.20		0.20	0.20	0.20



	2015 Quarter Ended
	March		June	September	December
Operating revenue	$	62,112	72,402	82,955	87,613
Operating income	12,805		17,210	18,260	31,685
Net income	4,695		7,461	9,534	16,192
Comprehensive income	4,680		7,206	9,422	16,368
Earnings per share:
—Basic	0.23		0.37	0.47	0.79
—Diluted	0.23		0.36	0.46	0.79
Market price range of stock:
—High	35.60		31.68	31.36	33.68
—Low	30.09		28.68	27.73	27.64
Dividend per share	0.20		0.19	0.20	0.19

SJW Group

FINANCIAL STATEMENT SCHEDULE

Schedule II

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

Years ended December 31, 2016 , 2015 and 2014

(in thousands)



Description	2016			2015		2014
Allowance for doubtful accounts:
Balance, beginning of period	$	200		150		170
Charged to expense	504			392		321
Accounts written off	(681		)	(528	)	(489	)
Recoveries of accounts written off	177			186		148
Balance, end of period	$	200		200		150
Reserve for litigation and claims:
Balance, beginning of period	$	263		133		136
Charged to expense	357			213		71
Revision to accrual, due to settlements	(19		)	(16	)	(5	)
Payments	(325		)	(67	)	(69	)
Balance, end of period	$	276		263		133


Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.


Item 9A.	Controls and Procedures

Evaluation of Disclosure Control and Procedures

SJW Group’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of SJW Group’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, the “Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that SJW Group’s disclosure controls and procedures as of the end of the period covered by this report have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by SJW Group in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. SJW Group believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Management’s Report on Internal Control over Financial Reporting

SJW Group’s management is responsible for establishing and maintaining an adequate internal control structure over financial reporting and for an assessment of the effectiveness of internal control over financial reporting, as such items are defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act.

Management has utilized the criteria established in “Internal Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of internal control over financial reporting.

SJW Group’s management has performed an assessment of the effectiveness of internal control over financial reporting as of December 31, 2016 . Based on this assessment, management has concluded SJW Group’s internal control over financial reporting as of December 31, 2016 was effective.

Our independent registered public accounting firm, KPMG LLP, has issued an auditors ’ report on the effectiveness of our internal control over financial reporting, which is included in Item 8 of this report.

Changes in Internal Controls

There has been no change in internal control over financial reporting during the fourth fiscal quarter of 2016 that has materially affected, or is reasonably likely to materially affect, the internal controls over financial reporting of SJW Group.


Item 9B.	Other Information

SJW Group intends to post information about the operating and financial performance of SJW Group and its subsidiaries on its web sites at www.sjwater.com and www.sjwgroup.com from time to time. The content of SJW Group’s website is not incorporated by reference to or part of this report.

PART III


Item 10.	Directors, Executive Officers and Corporate Governance

The information required by this item is contained in part under the caption “Officers of the Registrant” in Part I, Item 1, of this report, and in SJW Group’s Proxy Statement for its 2017 Annual Meeting of Stockholders to be held on April 26, 2017 (the “2017 Proxy Statement”) under the captions “Proposal 1—Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance,” and is incorporated herein by reference.

Code of Ethics

SJW Group has adopted a code of ethics that applies to SJW Group’s Chief Executive Officer, Chief Financial Officer, Controller and all other officers. The text of the code of ethics is available, free of charge, at the Company’s website at http://www.sjwgroup.com . SJW Group intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or a waiver from, a provision of its code of ethics by posting such information on its website.

Corporate Governance Policies and Board Committee Charters

The Corporate Governance Policies and the charters for the board committees—the Audit Committee, Executive Compensation Committee, Real Estate Committee, and Nominating & Governance Committee—are available at the Company’s website at http://www.sjwgroup.com . Stockholders may also request a free hard copy of the Corporate Governance Policies and the charters from the following address and phone number:

SJW Group

110 West Taylor Street

San Jose, CA 95110

Attn: Corporate Secretary

Phone: 800-250-5147


Item 11.	Executive Compensation

The information required by this item is contained in the 2017 Proxy Statement under the captions “Compensation of Directors,” “Executive Compensation and Related Information,” “Compensation Committee Interlocks and Insider Participation,” and “Committee Reports” and is incorporated herein by reference.


Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is contained in the 2017 Proxy Statement under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance under Equity Compensation Plans” and is incorporated herein by reference.


Item 13.	Certain Relationships and Related Transactions, and Director Independence

The information required by this item is contained in the 2017 Proxy Statement under the caption “Certain Relationships and Related Transactions” and “Independent Directors” and is incorporated herein by reference.


Item 14.	Principal Accountant Fees and Services

The information required by this item is contained in the 2017 Proxy Statement under the caption “Principal Independent Accountants’ Fees and Services” and is incorporated herein by reference.

PART IV


Item 15.	Exhibits and Financial Statement Schedules



	Page
(a)(1) Financial Statements

Report of Independent Registered Public Accounting Firm	41

Consolidated Balance Sheets as of December 31, 2016 and 2015	42

Consolidated Statements of Comprehensive Income for the Years ended December 31, 2016, 2015 and 2014	44

Consolidated Statements of Changes in Stockholders’ Equity for the Years ended December 31, 2016, 2015 and 2014	45

Consolidated Statements of Cash Flows for the Years ended December 31, 2016, 2015 and 2014	46

Notes to Consolidated Financial Statements	47

(a)(2) Financial Statement Schedule

Valuation and Qualifying Accounts and Reserves, Years ended December 31, 2016, 2015 and 2014	75

All other schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.

(a)(3) Exhibits required to be filed by Item 601 of Regulation S-K.

See Exhibit Index located immediately following this Item 15.

The exhibits filed herewith are attached hereto (except as noted) and those indicated on the Exhibit Index, which are not filed herewith, were previously filed with the Securities and Exchange Commission as indicated.

EXHIBIT INDEX




Exhibit No.		Description

2		Agreement and Plan of Merger of SJW Group, Inc. and SJW Corp. Incorporated by reference to Exhibit 2.1 to Form 8-K filed on November 15, 2016.

3.1		Certificate of Incorporation of SJW Group. Incorporated by reference to Exhibit 3.1 to Form 8-K filed on November 15, 2016.

3.2		Certificate of Amendment of the Certificate of Incorporation of SJW Group. Incorporated by reference to Exhibit 3.3 to Form 8-K filed on November 15, 2016.

3.3		Bylaws of SJW Group. Incorporated by reference to Exhibit 3.2 to Form 8-K filed on November 15, 2016.

3.4		Amended and Restated Bylaws of SJW Group effective as of January 25, 2017. Incorporated by reference to Exhibit 3.1 to the Form 8-K filed on January 26, 2017.

4.1		Instruments Defining the Rights of Security Holders, including Indentures: No current issue of the registrant’s long-term debt exceeds 10 percent of its total assets. SJW Group hereby agrees to furnish upon request to the Commission a copy of each instrument defining the rights of holders of unregistered senior and subordinated debt of the Company.

4.2		Form of Common Stock Certificate of SJW Group. Incorporated by reference to Exhibit 4.1 to Form 8-K filed on November 15, 2016.

4.3		Indenture dated as of June 1, 2010 between San Jose Water Company and Wells Fargo Bank, National Association. Incorporated by reference to Exhibit 4.1 to Form 10-Q for the quarter ended June 30, 2010.

4.4		Indenture dated as of December 1, 2016, by and between California Pollution Control Financing Authority and The Bank of New York Mellon Trust Company, N.A. relating to the Bond. SJW Group agrees to furnish to the Commission upon request a copy of such agreement which it has elected not to file under the provisions of Regulation S-K 601(b)(4)(iii).

4.5		4.35% Senior Notes due June 30, 2021. SJW Group agrees to furnish a copy of such Senior Notes to the Commission upon request.

10.1		Water Supply Contract dated January 27, 1981, between San Jose Water Works and the Santa Clara Valley Water District, as amended. Incorporated by reference to Exhibit 10.1 to Form 10-K for the year ended December 31, 2001.

10.2		Limited Partnership Agreement of 444 West Santa Clara Street, L.P., entered into as of September 2, 1999, between SJW Land Company and Toeniskoetter & Breeding, Inc. Development. Incorporated by reference to Exhibit 10.18 to Form 10-Q for the quarter ended September 30, 1999.

10.3		Grantor Trust Agreement by and between San Jose Water Company and Wells Fargo Bank, National Association dated November 2, 2012. Incorporated by reference as Exhibit 10.4 to Form 10-K for the year ended December 31, 2012.

10.4		Fourth Amendment to Credit Agreement, dated June 1, 2016, between San Jose Water Company and Wells Fargo Bank, National Association. Incorporated by reference to Exhibit 10.2 to Form 8-K filed on June 3, 2016.

10.5		Credit Agreement, dated June 1, 2016, between San Jose Water Company and JPMorgan Chase Bank, N.A. Incorporated by reference to Exhibit 10.1 to Form 8-K filed on June 3, 2016.

10.6		Loan Agreement dated as of June 1, 2010 between the California Pollution Control Financing Authority and San Jose Water Company. Incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarter ended June 30, 2010.



10.7		Loan Agreement dated as of December 1, 2016 between the California Pollution Control Financing Authority and San Jose Water Company. (1)

10.8		Bond Purchase agreement dated June 9, 2010 among Goldman, Sachs & Co., the Treasurer of the State of California and the California Pollution Control Financing Authority and approved by San Jose Water Company. Incorporated by reference to Exhibit 10.4 to Form 10-Q for the quarter ended June 30, 2010.

10.9		Bond Purchase Contract dated December 15, 2016 among Morgan Stanley & Co. LLC, RBC Capital Markets, LLC, the Treasurer of the State of California and the California Pollution Control Financing Authority and approved by San Jose Water Company. (1)

10.10		Note Agreement between SJW Corp. and the Prudential Insurance Company of America, dated June 30, 2011. Incorporated by reference as Exhibit 10.3 to Form 8-K filed on July 7, 2011.

10.11		Note Agreement between San Jose Water Company and John Hancock Life Insurance Company (U.S.A.) and its affiliate, dated January 24, 2014. Incorporated by reference as Exhibit 10.1 to Form 8-K filed on January 29, 2014.

10.12		Form of Letter Amendment to SJW Corp. Director Pension Plan. Incorporated by reference as Exhibit 10.25 to Form 10-K for the year ended December 31, 2007. (2)

10.13		San Jose Water Company Executive Supplemental Retirement Plan, as amended and restated effective January 1, 2012. Incorporated by reference as Exhibit 10.20 to Form 10-K for the year ended December 31, 2011. (2)

10.14		The First Amendment to the Executive Supplemental Retirement Plan effective November 15, 2016. (1)(2)

10.15		San Jose Water Company Cash Balance Executive Supplemental Retirement Plan as amended and restated effective January 1, 2012. Incorporated by reference as Exhibit 10.23 to Form 10-K for the year ended December 31, 2011. (2)

10.16		First Amendment to San Jose Water Company’s Cash Balance Executive Supplemental Retirement Plan effective as of October 30, 2013. Incorporated by reference as Exhibit 10.15 to Form 10-K for the year ended December 31, 2013. (2)

10.17		Second Amendment to San Jose Water Company’s Cash Balance Executive Supplemental Retirement Plan effective as of January 31, 2014. Incorporated by reference as Exhibit 10.2 to Form 8-K filed on January 30, 2014. (2)

10.18		Third Amendment to the Cash Balance Executive Supplemental Retirement Plan effective November 15, 2016. (1)(2)

10.19		SJW Corp. Long-Term Incentive Plan, as amended and restated on January 30, 2013 effective as of April 24, 2013. Incorporated by reference as Exhibit 10.2 to Form 10-Q for the quarter ended June 30, 2013. (2)

10.20		SJW Corp. Long-Term Incentive Plan, as amended and restated on July 29, 2015. Incorporated by reference as Exhibit 10.1 to Form 10-Q filed for the quarter ended September 30, 2015. (2)

10.21		First Amendment to the Long-Term Incentive Plan dated November 15, 2016. (1)(2)

10.22		Chief Executive Officer Employment Agreement amended and restated, effective January 1, 2008. Incorporated by reference to Exhibit 10.9 to Form 10-K for the year ended December 31, 2008. (2)

10.23		First Amendment, effective as of January 1, 2010, to the Chief Executive Officer Employment Agreement amended and restated effective January 1, 2008. Incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 18, 2009. (2)

10.24		Second Amendment dated January 26, 2010 to the Chief Executive Officer Employment Agreement amended and restated effective January 1, 2008. Incorporated by reference to Exhibit 10.11 to Form 10-K for the year ended December 31, 2009. (2)



10.25		Amendment, effective as of July 30, 2014, to the Amended and Restated Employment Agreement of Mr. W. Richard Roth, together with Exhibit A (Form of Restricted Stock Unit Issuance Agreement - Service Award), Exhibit B (Form of Restricted Stock Unit Issuance Agreement - TSR Award), and Exhibit C (Form of Restricted Stock Unit Issuance Agreement - ROE Award). Incorporated by reference as Exhibit 10.1 to Form 8-K filed on August 1, 2014. (2)

10.26		Offer Letter to Mr. James P. Lynch dated September 22, 2010 and accepted September 27, 2010. Incorporated by reference to Exhibit 10.1 to Form 8-K filed on October 1, 2010. (2)

10.27		Offer Letter to Mr. Andrew F. Walters. Incorporated by reference as Exhibit 10.1 to Form 8-K filed on January 30, 2014. (2)

10.28		Offer Letter to Mr. Andrew R. Gere dated April 30, 2015. Incorporated by reference as Exhibit 10.1 to the Form 10-Q filed for the quarter ended June 30, 2015. (2)

10.29		Offer Letter to Mr. Andrew R. Gere dated March 14, 2016. Incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ending March 31, 2016. (2)

10.30		Standard Form of Stock Option Agreement, as adopted by the Board of Directors on April 29, 2003. Incorporated by reference to Exhibit 10.22 to Form 10-Q for the quarter ended June 30, 2003. (2)

10.31		Standard Form of SJW Group Stock Option Agreement (1)(2)

10.32		SJW Corp. Executive Officer Short-Term Incentive Plan, as amended and restated on January 30, 2013 effective as of April 24, 2013. Incorporated by reference as Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 2013. (2)

10.33		First Amendment to the Executive Officer Short-Term Incentive Plan dated November 15, 2016. (1)(2)

10.34		SJW Corp. Executive Severance Plan, as amended and restated, effective January 1, 2010 and amended effective October 26, 2010. Incorporated by reference as Exhibit 10.23 to Form 10-K for the year ended December 31, 2010. (2)

10.35		First Amendment to the Executive Severance Plan dated November 15, 2016. (1)(2)

10.36		San Jose Water Company Special Deferral Election Plan, as amended and restated, effective January 1, 2013. Incorporated by reference as Exhibit 10.36 to Form 10-K for the year ended December 31, 2012. (2)

10.37		First Amendment to the Special Deferral Election Plan effective November 15, 2016. (1)(2)

10.38		SJW Corp. Amended and Restated Deferred Restricted Stock Program, effective January 1, 2008. Incorporated by reference as Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 2008. (2)

10.39		First Amendment to the Amended and Restated Deferred Restricted Stock Program dated November 15, 2016. (1)(2)

10.40		SJW Corp. Deferral Election Program for Non-Employee Board Members, as amended and restated effective October 30, 2013. Incorporated by reference as Exhibit 10.32 to Form 10-K for the year ended December 31, 2013. (2)

10.41		First Amendment to the Deferral Election Program for Non-Employee Board Members dated November 15, 2016. (1)(2)

10.42		Form of Restricted Stock Unit Award Agreement for Non-Employee Board Members. Incorporated by reference as Exhibit 10.3 to Form 10-Q for the quarter ended June 30, 2013. (2)

10.43		Formulaic Equity Award Program for Non-Employee Board Members. Incorporated by reference as Exhibit 10.34 to Form 10-K for the year ended December 31, 2013. (2)

10.44		First Amendment to the Formulaic Equity Award Program for Non-Employee Board Members dated October 26, 2016. (1)(2)



10.45		Second Amendment to the Formulaic Equity Award Program for Non-Employee Board Members dated November 15, 2016. (1)(2)

10.46		SJW Corp. Director Compensation and Expense Reimbursement Policies, amended and restated effective January 1, 2014. Incorporated by reference as Exhibit 10.36 to Form 10-K for the year ended December 31, 2013. (2)

10.47		First Amendment to the Amended and Restated Director Compensation and Expense Reimbursement Policies dated November 15, 2016. (1)(2)

10.48		Deferred Restricted Stock Award Agreement, amended and restated, as of October 22, 2008 for Non-Employee Board Members. Incorporated by reference as Exhibit 10.21 to Form 10-K for the year ended December 31, 2008. (2)

10.49		Chief Executive Officer January 25, 2007 Restricted Stock Unit Issuance Agreement, amended and restated effective October 22, 2008. Incorporated by reference as Exhibit 10.25 to Form 10-K for the year ended December 31, 2008. (2)

10.50		Form of Chief Executive Officer Restricted Stock Unit Issuance Agreement. Incorporated by reference as Exhibit 10.49 to Form 10-K for the year ended December 31, 2011. (2)

10.51		Form of Restricted Stock Unit Issuance Agreement. Incorporated by reference as Exhibit 10.53 to Form 10-K for the year ended December 31, 2011. (2)

10.52		Form of SJW Group Restricted Stock Unit Issuance Agreement. (1)(2)

10.53		Form of Restricted Stock Unit Issuance Agreement (ROE Goal). Incorporated by reference as Exhibit 10.52 to Form 10-K filed for the year ended December 31, 2014. (2)

10.54		Form of SJW Group Restricted Stock Unit Issuance Agreement (ROE Goal). (1)(2)

10.55		Form of SJW Group Restricted Stock Unit Issuance Agreement (EPS Goal). (1)(2)

10.56		Performance Goals for the Chief Executive Officer 2014 Fiscal Year Bonus. Incorporated by reference as Exhibit 10.58 to Form 10-K for the year ended December 31, 2013. (2)

10.57		Performance Goals for the Chief Executive Officer 2015 Fiscal Year Bonus. Incorporated by reference as Exhibit 10.55 to Form 10-K for the fiscal year ended December 31, 2014. (2)

10.58		Performance Goals for the Chief Executive Officer 2016 Fiscal Year Bonus. Incorporated by reference as Exhibit 10.51 to Form 10-K for the fiscal year ended December 31, 2015. (2)

10.59		Performance Goals for the Chief Executive Officer 2017 Fiscal Year Bonus. (1)(2)

10.60		Form of Director and Officer Indemnification Agreement between SJW Group and its officers and Board members. Incorporated by reference to Exhibit 10.1 to Form 8-K filed on November 15, 2016. (2)

21.1		Subsidiaries of SJW Group (1)

23.1		Consent of Independent Registered Public Accounting Firm. (1)

31.1		Certification Pursuant to Rule 13a-14(a)/15d-14(a) by President and Chief Executive Officer. (1)

31.2		Certification Pursuant to Rule 13a-14(a)/15d-14(a) by Chief Financial Officer and Treasurer. (1)

32.1		Certification Pursuant to 18 U.S.C. Section 1350 by President and Chief Executive Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)

32.2		Certification Pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer and Treasurer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)





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

	(1) Filed currently herewith.

	(2) Management contract or compensatory plan or agreement.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		SJW Group

Date:	February 28, 2017	By	/s/ W. Richard Roth
			W. RICHARD ROTH, President, Chief Executive Officer and Chairman of the Board (Principal executive officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



Date:	February 28, 2017	By	/s/ W. Richard Roth
			W. RICHARD ROTH, President, Chief Executive Officer and Chairman of the Board (Principal executive officer)


Date:	February 28, 2017	By	/s/ James P. Lynch
			JAMES P. LYNCH, Chief Financial Officer and Treasurer (Principal financial officer)


Date:	February 28, 2017	By	/s/ Wendy Avila-Walker
			WENDY AVILA-WALKER, Controller (Principal accounting officer)



Date:	February 28, 2017	By	/s/ Katharine Armstrong
			KATHARINE ARMSTRONG, Member, Board of Directors
			KATHARINE ARMSTRONG, Member, Board of Directors

Date:	February 28, 2017	By	/s/ Walter J. Bishop
			WALTER J. BISHOP, Member, Board of Directors
			WALTER J. BISHOP, Member, Board of Directors

Date:	February 28, 2017	By	/s/ Douglas R. King
			DOUGLAS R. KING, Member, Board of Directors
			DOUGLAS R. KING, Member, Board of Directors

Date:	February 28, 2017	By	/s/ Gregory P. Landis
			GREGORY P. LANDIS, Member, Board of Directors
			GREGORY P. LANDIS, Member, Board of Directors

Date:	February 28, 2017	By	/s/ Debra Man
			DEBRA MAN, Member, Board of Directors
			DEBRA MAN, Member, Board of Directors

Date:	February 28, 2017	By	/s/ Daniel B. More
			DANIEL B. MORE, Member, Board of Directors
			DANIEL B. MORE, Member, Board of Directors

Date:	February 28, 2017	By	/s/ Ronald B. Moskovitz
			RONALD B. MOSKOVITZ, Member, Board of Directors
			RONALD B. MOSKOVITZ, Member, Board of Directors

Date:	February 28, 2017	By	/s/ George E. Moss
			GEORGE E. MOSS, Member, Board of Directors
			GEORGE E. MOSS, Member, Board of Directors

Date:	February 28, 2017	By	/s/ Robert A. Van Valer
			ROBERT A. VAN VALER, Member, Board of Directors
			ROBERT A. VAN VALER, Member, Board of Directors

Exhibit 10.7

EXECUTION COPY

LOAN AGREEMENT

between

CALIFORNIA POLLUTION CONTROL FINANCING AUTHORITY

and

SAN JOSE WATER COMPANY

Dated as of December 1, 2016

relating to

$70,000,000
California Pollution Control Financing Authority

Revenue Bonds

(San Jose Water Company Project)

Series 2016

LOAN AGREEMENT

THIS LOAN AGREEMENT, dated as of December 1, 2016 (this “Agreement”) between CALIFORNIA POLLUTION CONTROL FINANCING AUTHORITY, a public instrumentality and political subdivision of the State of California (the “Authority”), and SAN JOSE WATER COMPANY, a California corporation (the “Borrower”).

W I T N E S S E T H:

WHEREAS, the Authority is a public instrumentality and political subdivision of the State of California, created by the California Pollution Control Financing Authority Act (constituting Division 27 of the Health and Safety Code of the State of California as now in effect and as it may from time to time hereafter be amended or supplemented) (the “Act”) and authorized to finance the acquisition, construction, renovation, installation, improvement and equipping of water facilities constituting a “project” within the meaning of the Act, including those that will prevent the pollution of drinking water or improve the quality of water or ensure the safe handling, recycling or disposal of materials that might otherwise be improperly disposed of; and

WHEREAS, the Authority is further authorized to issue its bonds for the purpose of paying all or any part of the costs of a project, and for any other authorized purpose; to acquire and hold property, including funds, project agreements and other obligations of any kind, and pledge, encumber or assign the same, or the revenues therefrom or any portion of such revenues, or other rights, whether then owned or possessed, or thereafter acquired, for the benefit of the owners, and as security or additional security for any bonds or the performance of obligations under an indenture; to provide for the advance of bond proceeds and other funds pursuant to project agreements as necessary to pay or reimburse for project costs; and to enter into loan agreements; and

WHEREAS, the Borrower, has duly caused an application to be filed with the Authority for financial assistance to finance the acquisition, construction, renovation, installation, improvement and equipping of certain water facilities that will prevent the pollution and contamination of drinking water and improve the quality of water in portions of the Cities of San Jose and Cupertino, the Cities of Campbell, Monte Sereno, and Saratoga, the Town of Los Gatos and adjacent unincorporated territories in the County of Santa Clara, California, as more particularly described in Exhibit A hereto (the “Project”), which facilities qualify as a “project” under the Act; and

WHEREAS, the Authority after due deliberation has adopted its resolution approving said application and authorizing the making of a loan to the Borrower for the financing of the acquisition, construction, renovation, installation, improvement and equipping of the Project at such locations during the term of the Bonds (described below); and

WHEREAS, the Authority proposes to issue its California Pollution Control Financing Authority Revenue Bonds (San Jose Water Company Project) Series 2016 (the “Bonds”), in the aggregate principal amount of $70,000,000, to finance a portion of the cost of the acquisition, construction, renovation, installation, improvement and equipping of the Project upon the terms and conditions set forth herein; and

WHEREAS, the Authority will enter into an Indenture, dated as of December 1, 2016 (the “Indenture”), with The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), pursuant to which the Bonds will be issued;

NOW, THEREFORE, for and in consideration of the premises and the material covenants hereinafter contained, the parties hereto hereby formally covenant, agree and bind themselves as follows:

ARTICLE I
DEFINITIONS

SECTION 1.1. Definition of Terms . Unless the context otherwise requires, the terms used in this Loan Agreement shall have the meanings specified in Section 1.01 of the Indenture, as originally executed or as it may from time to time be supplemented or amended as provided therein.

SECTION 1.2. Number and Gender . The singular form of any word used herein, including the terms defined in Section 1.01 of the Indenture, shall include the plural, and vice versa. The use herein of a word of any gender shall include all genders.

SECTION 1.3. Articles, Sections, Etc . Unless otherwise specified, references to Articles, Sections and other subdivisions of this Loan Agreement are to the designated Articles, Sections and other subdivisions of this Loan Agreement as amended from time to time. The words “hereof,” “herein,” “hereby,” “hereunder” and words of similar import refer to this Loan Agreement as a whole. The headings or titles of the several articles and sections, and the table of contents appended to copies hereof, shall be solely for convenience of reference and shall not affect the meaning, construction or effect of the provisions hereof.

ARTICLE II
REPRESENTATIONS

SECTION 2.1. Findings of the Authority . The Authority makes the following findings:

(a) On March 24, 2010, as reinstated, extended and amended on August 16, 2016, the Authority gave its preliminary approval for the financing of the Project. On October 20, 2016, a public hearing with respect to the Bonds and the Project was held in accordance with the provisions of the Code. On December 6, 2016, the Authority adopted its resolution approving financing of the Project.

(b) (i) The Borrower is a “participating party” as such term is defined in the Act; (ii) the Project is a “project” as such term is defined in the Act; (iii) the loan to be made hereunder with the proceeds of the Bonds will promote the purposes of the Act by providing funds to finance the acquisition, construction, renovation, installation, improvement and equipping of the Project; (iv) said loan is in the public interest, serves the public purposes and meets the requirements of the Act; and (v) the portion of such loan allocable to the Costs of the Project does not exceed the total cost thereof as determined by the Borrower and approved by the Authority.

(c) No member of the Authority, or any officer or employee of the Authority who participated in the making of this Loan Agreement, is financially interested (within the meaning of Government Code Section 1090) in the Borrower or in this Loan Agreement or the Indenture.

SECTION 2.2. Representations of the Authority . The Authority makes the following representations as the basis for its undertakings herein contained:

(a) The Authority is a public instrumentality and political subdivision of the State of California. Under the provisions of the Act, the Authority has the power to enter into the transactions contemplated by this Loan Agreement and the Indenture and to carry out its obligations hereunder. By proper action, the Authority has duly authorized the execution and delivery of this Loan Agreement and the Indenture and the performance of its obligations thereunder.

(b) The representations of the Authority in the Tax Certificate are true and correct as of the date hereof (subject to the qualifications set forth, and in reliance upon the sources of information described, in the Tax Certificate).

(c) The Authority will issue the Bonds under, and the Bonds will be secured by, the Indenture, pursuant to which the Authority’s interest in this Loan Agreement (except the Retained Rights) will be pledged to the Trustee as security for payment of the principal of, premium, if any, and interest on the Bonds, as provided in the Indenture.

(d) The Authority has not pledged and will not pledge its interest in this Loan Agreement for any purpose other than as provided in the Indenture.

(e) The Authority is not in default under any of the provisions of the laws of the State of California, which default would affect its existence or its powers referred to in subsection (a) of this Section 2.2.

SECTION 2.3. Representations and Warranties of the Borrower . The Borrower makes the following representations and warranties as the basis for its undertakings herein contained:

(a) The Borrower is a corporation duly organized and existing under the laws of the State of California, is in good standing in the State of California, has duly authorized, by proper action, the execution and delivery of this Loan Agreement, the Tax Certificate and the Continuing Disclosure Agreement and all other documents contemplated hereby to be executed by the Borrower and has the power to enter into and consummate the transactions contemplated by this Loan Agreement, the Tax Certificate and the Continuing Disclosure Agreement and all other documents contemplated hereby to be executed by the Borrower. This Loan Agreement, the Tax Certificate and the Continuing Disclosure Agreement have been duly authorized, executed and delivered by the Borrower. This Loan Agreement, when assigned to the Trustee pursuant to the Indenture, will constitute the legal, valid and binding agreement of the Borrower enforceable against the Borrower by the Trustee in accordance with its terms for the benefit of the Holders of the Bonds, and any rights of the Authority and obligations of the Borrower not so assigned to the Trustee constitute the legal, valid, and binding agreement of the Borrower enforceable against the Borrower by the Authority in accordance with its terms; except in each case as enforcement may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors’ rights generally, by the application of equitable principles regardless of whether enforcement is sought in a proceeding at law or in equity and by public policy.

(b) Neither the execution and delivery of this Loan Agreement, the Tax Certificate and the Continuing Disclosure Agreement, the consummation of the transactions contemplated hereby and thereby, nor the fulfillment of or compliance with the terms and conditions

hereof and thereof, conflicts with or results in a breach of any of the terms, conditions or provisions of the Borrower’s Articles of Incorporation or Bylaws or of any material actions or of any material agreement or instrument to which the Borrower is now a party or by which it is bound, or constitutes a default (with due notice or the passage of time or both) under any of the foregoing.

(c) No consent or approval of any trustee or holder of any indebtedness of the Borrower or any guarantor of indebtedness of or other provider of credit or liquidity of the Borrower, and no consent, permission, authorization, order or license of, or filing or registration with, any governmental authority (except (i) with respect to any state securities or “blue sky” laws or (ii) for the construction, use or operation of the Project which are expected by the Borrower to be obtained prior to the construction, use or operation of the Project) is necessary in connection with the execution and delivery of this Loan Agreement, the Tax Certificate or the Continuing Disclosure Agreement or the consummation of any transaction herein or therein contemplated, or the fulfillment of or compliance with the terms and conditions hereof or thereof, except as have been obtained or made and as are in full force and effect.

(d) There is no action, suit, proceeding, inquiry or investigation, before or by any court or federal, state, municipal or other governmental authority, pending, or to the knowledge of the Borrower, after reasonable investigation, threatened, against or affecting the Borrower or the assets, properties or operations of the Borrower which, if determined adversely to the Borrower or its interests, would have a material adverse effect upon the consummation of the transactions contemplated by, or the validity of, this Loan Agreement, the Tax Certificate and the Continuing Disclosure Agreement, and the Borrower, to the best of its knowledge after reasonable inquiry, is not in default (and no event has occurred and is continuing which with the giving of notice or the passage of time or both could constitute a default) with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or other governmental authority, which default might have consequences that would materially and adversely affect the consummation of the transactions contemplated by this Loan Agreement, the Tax Certificate and the Continuing Disclosure Agreement. The Borrower enjoys the peaceful and undisturbed possession of all of the premises upon which it is operating the Project, subject only to such rights of way, easements or other interests as do no materially and adversely affect the Borrower’s operation and use thereof.

(e) The Costs of the Project are as set forth in the Tax Certificate dated the Date of Delivery and have been determined in accordance with standard engineering/construction and accounting principles. All the information and representations in the Tax Certificate are true and correct as of the date thereof.

(f) Upon completion, the Project will consist of various equipment and facilities described in Exhibit A .

(g) The Borrower has and will have title to or the right to use the property comprising the Project sufficient to carry out the purposes of this Loan Agreement.

(h) All certificates, approvals, permits and authorizations of applicable local governmental agencies, the State of California and the federal government which are necessary

prior to the commencement of the construction, use or operation of the Project either have been obtained and continue in force or are expected by the Borrower to be obtained prior to the construction, use or operation of the Project.

(i) No event has occurred and no condition exists which would constitute an Event of Default (as defined in the Indenture) or which, with the passage of time or with the giving of notice or both would become such an Event of Default.

(j) To the best of the knowledge of the Borrower, no member, officer, or other official of the Authority has any financial, ownership or managerial interest in the Borrower, any affiliate of the Borrower, this Loan Agreement or the Indenture or in the transactions contemplated by this Loan Agreement or the Indenture.

(k) The Borrower and all Persons anticipated by the Borrower to be an owner or operator of the Project or a portion thereof are engaged in operations within California that require financing pursuant to this Loan Agreement and the Act to aid and assist in the control, remediation or elimination of pollution of the environment of the State of California.

(l) The Project constitutes a “project” and the Borrower is a “participating party,” as such terms are defined in the Act.

(m) The Borrower is a “Small Business” as classified pursuant to Title 13 Code of Federal Regulations, Part 121 (1994 edition) or (together with its affiliates) employs no more than 500 employees.

(n) No disbursement to be paid or reimbursed from proceeds of the Bonds shall have been previously paid or reimbursed from the proceeds of any other Governmental Obligation, whether issued by the Authority or any other party.

(o) All information provided by the Borrower and all representations made by the Borrower in its applications to the Authority are true and correct in all material respects.

ARTICLE III
CONSTRUCTION OF THE PROJECT; ISSUANCE OF THE BONDS

SECTION 3.1. Agreement to Construct the Project; Modifications of the Project .

(a) The Borrower agrees that it will acquire, construct, renovate, improve, install and equip, or complete the acquisition, construction, renovation, improvement, installation and equipping of, the Project as it is described in Exhibit A hereto, and will acquire, construct, renovate, improve, install and equip all other facilities and real and personal property deemed necessary for the operation of the Project, in accordance with the description of the Project prepared by the Borrower and approved by the Authority, including any and all supplements, amendments and additions or deletions thereto or therefrom. The Borrower further agrees to proceed with due diligence to complete the Project within three years from the Date of Delivery. Except as otherwise permitted pursuant to this Section 3.1 or Section 5.2(a)(iv), the Borrower also agrees that it will

own the Project during the term of this Loan Agreement or, if shorter, the useful life of any component of the Project. The Borrower also agrees that it will operate the Project (except such portion that is transferred to a Person other than a Participating Affiliate in accordance with Section 5.2) during the term of this Loan Agreement or, if shorter, the useful life of any component of the Project.

(b) In the event that the Borrower desires to alter or change the Project described in Exhibit A hereto, the Borrower must first obtain the consent of the Authority to such changes. The Authority agrees that it will not unreasonably withhold consent to such changes if the revised elements of the Project are qualified under the Act, are consistent with the Borrower’s representations and warranties in Section 2.3 hereof and meet all other legal requirements of the Authority as if they were included in the description of the Project originally approved by the Authority. If the Authority consents to the proposed amendment or supplement, it will instruct the Trustee in writing to consent to, such amendment or supplement to Exhibit A as shall be required to reflect such alteration or change to the Project upon receipt of:

(i) a Certificate of the Borrower describing in detail the proposed changes and stating that they will not have the effect of disqualifying the Project as facilities that may be financed pursuant to the Act;

(ii) a copy of the form of amended or supplemented Exhibit A hereto approved by the Authority; and

(iii) an Approving Opinion with respect to such proposed changes.

SECTION 3.2. Disbursements from the Project Fund; Disbursements from the Costs of Issuance Fund .

(a) The Borrower will authorize and direct the Trustee, upon compliance with Section 3.03 of the Indenture, to disburse the moneys in the Project Fund to or on behalf of the Borrower only for the following purposes (and not for Costs of Issuance), subject to the provisions of Section 3.3 hereof:

(i) Payment to the Borrower of such amounts, if any, as shall be necessary to reimburse the Borrower in full for all advances and payments made by it, at any time prior to or after the delivery of the Bonds, in connection with (A) the preparation of plans and specifications for the Project (including any preliminary study or planning of the Project or any aspect thereof) and (B) subject to any limitation imposed by subsection (vi) hereof, the acquisition, construction, renovation, improvement, installation and equipping of the Project.

(ii) If the Project includes the construction or rehabilitation of a building, payment for labor, services, materials and supplies used by or furnished to the Borrower to improve the site and to acquire, construct, renovate, improve, install and equip the Project, as provided in the plans, specifications and work orders therefor; payment of the costs of acquiring, equipping, constructing, and installing utility services or other related facilities; payment of the costs of acquiring all real and personal property deemed necessary to construct the Project; insurance during

the construction period; and payment of the miscellaneous expenses incidental to any of the foregoing items.

(iii) Payment of the fees, if any, of architects, engineers, legal counsel and supervisors expended in connection with the acquisition, construction, renovation, improvement, installation and equipping of the Project.

(iv) If the Project includes the construction of a building, payment of taxes including property taxes, assessments and other charges, if any, that may become payable during the construction period with respect to the Project, or reimbursement thereof, if paid by the Borrower.

(v) Payment of expenses incurred in seeking to enforce any remedy against any contractor or subcontractor in respect of any default under a contract relating to the acquisition, construction, renovation, improvement, installation or equipping of the Project.

(vi) Payment of any other Costs of the Project permitted by the Tax Certificate and the Act (including, without limitation, interest accruing on the Bonds during the construction period of the Project and reimbursement to the Borrower of costs of financing the Costs of the Project, but not including any Costs of Issuance).

All moneys remaining in the Project Fund after the Completion Date and after payment or provision for payment of all other items provided for in the preceding subsections (i) to (vi), inclusive, of this Section, shall be used in accordance with Section 3.03 of the Indenture.

Each of the payments referred to in this Section 3.2(a) shall be made upon receipt by the Trustee of a written requisition in the form prescribed by Section 3.03 of the Indenture, signed by an Authorized Representative of the Borrower.

(b) The Borrower will authorize and direct the Trustee, upon compliance with Section 3.04 of the Indenture, to disburse the moneys in the Costs of Issuance Fund to or on behalf of the Borrower only for Costs of Issuance. Each of the payments referred to in this Section 3.2(b) shall be made upon receipt by the Trustee of a written requisition in the form prescribed by Section 3.04 of the Indenture, signed by an Authorized Representative of the Borrower.

(c) The Borrower acknowledges that it shall not submit any requisitions to the Trustee for the payment of Costs of the Project from the Project Fund or any account therein, or for the payment of Costs of Issuance from the Costs of Issuance Fund or any account therein, unless it attaches to such requisition invoices evidencing each item requested for payment therein. In any instance where the requisition is for payment to the Borrower for reimbursement of costs previously paid, the Borrower shall attach the original invoices and other documentation to describe the original expenditures which were paid. If the Project consists of elements, which are only partially financed by the Bonds, the invoice/description must specifically identify the costs eligible for the tax-exempt financings to be paid from the Bonds.

(d) Prior to the Completion Date, the Borrower may deliver a Request to the Authority to consent to the removal of a component of the Project that is no longer necessary for

inclusion within the Project and the reasons therefore. If the Authority does not act within 30 days after such Request is received, such consent shall be deemed to be given. Upon such consent, the Borrower shall provide a written instruction to the Trustee to transfer a proportionate amount of moneys in the Project Fund associated with such removed component to the Surplus Account to be applied as provided in Section 3.03 of the Indenture.

SECTION 3.3. Establishment of Completion Date; Obligation of Borrower to Complete . Upon the final disbursement from the Project Fund, an Authorized Representative of the Borrower, on behalf of the Borrower, shall evidence the Completion Date by providing a Final Project Completion Certificate, substantially in the form attached hereto as Exhibit C , to the Trustee and the Authority.

At the time such certificate is delivered to the Trustee, moneys remaining in the Project Fund (other than moneys relating to provisional payments permitted by Section 3.2), including any earnings resulting from the investment of such moneys, shall be used as provided in Section 3.03 of the Indenture.

In the event the moneys in the Project Fund available for payment of the Costs of the Project should be insufficient to pay the costs thereof in full, the Borrower agrees to pay directly, or to deposit in the Project Fund moneys sufficient to pay, any costs of completing the Project in excess of the moneys available for such purpose in such Project Fund. The Authority makes no express or implied warranty that the moneys deposited in the Project Fund and available for payment of the Costs of the Project, under the provisions of this Loan Agreement, will be sufficient to pay all the amounts which may be incurred for such Costs of the Project. The Borrower agrees that if, after exhaustion of the moneys in the Project Fund, the Borrower should pay, or deposit moneys in the Project Fund for the payment of, any portion of the Costs of the Project pursuant to the provisions of this Section, it shall not be entitled to any reimbursement therefor from the Authority, the Trustee or the Holders of any of the Bonds, nor shall it be entitled to any diminution of the amounts payable under Section 4.2 hereof.

SECTION 3.4. Investment of Moneys in Fund . Any moneys in any fund or account held by the Trustee shall, at the written request of an Authorized Representative of the Borrower, be invested or reinvested by the Trustee as provided in the Indenture. Such investments shall be held by the Trustee and shall be deemed at all times a part of the fund or account from which such investments were made, and the interest accruing thereon, and any profit or loss realized therefrom, shall be credited or charged to such fund or account.

ARTICLE IV
LOANS OF PROCEEDS; REPAYMENT PROVISIONS

SECTION 4.1. Loan of Bond Proceeds; Issuance of Bonds . The Authority covenants and agrees, upon the terms and conditions in this Loan Agreement, to make a loan to the Borrower of the proceeds of the Bonds (conditioned on the receipt thereof by the Authority) for the purpose of financing the Costs of the Project and the Costs of Issuance. The Authority further covenants and agrees that it shall take all actions within its authority to keep this Loan Agreement in effect in accordance with its terms. Pursuant to said covenants and agreements, the Authority will issue the

Bonds upon the terms and conditions contained in this Loan Agreement and the Indenture and will cause the Bond proceeds to be applied as provided in Article III of the Indenture.

SECTION 4.2. Repayment and Payment of Other Amounts Payable .

(a) On or before each Bond Payment Date, until the principal of, premium, if any, and interest on, the Bonds shall have been fully paid or provision for such payment shall have been made as provided in the Indenture, the Borrower covenants and agrees to pay to the Trustee as a repayment on the loan made to the Borrower from Bond proceeds pursuant to Section 4.1 hereof, a sum equal to the amount payable on the next Bond Payment Date as principal of (whether upon maturity, redemption, acceleration or otherwise) and premium, if any, and interest on, the Bonds as provided in the Indenture (“Loan Repayments”). Such Loan Repayments shall be made in federal funds or other funds immediately available at the Corporate Trust Office of the Trustee.

Each Loan Repayment shall at all times be sufficient to pay the total amount of interest and principal (whether at maturity, upon redemption or acceleration or otherwise) and premium, if any, becoming due and payable on the Bonds on each Bond Payment Date; provided that once per year, on the third Business Day following the Bond Payment Date of each November, any amount held by the Trustee in the Revenue Fund on the due date for a Loan Repayment hereunder shall be credited against the installment due on the next Bond Payment Date to the extent available for such purpose under the terms of the Indenture; and provided further that if at any time the amounts held by the Trustee in the Revenue Fund are sufficient to pay all of the principal of and interest and premium, if any, on, the Bonds as such payments become due, the Borrower shall be relieved of any obligation to make any further payments under the provisions of this Section. Notwithstanding the foregoing, if on any date the amount held by the Trustee in the Revenue Fund is insufficient to make any required payments of principal of (whether at maturity, upon redemption (including without limitation sinking fund redemption) or acceleration or otherwise) and interest and premium, if any, on, the Bonds as such payments become due, the Borrower shall forthwith pay such deficiency as a Loan Repayment hereunder.

(b) The Borrower also agrees to pay (i) the acceptance fee and the annual fee of the Trustee for its ordinary services rendered as trustee and its ordinary expenses incurred under the Indenture, as and when the same become due, (ii) the reasonable fees, charges and expenses (including reasonable legal fees and expenses) of the Trustee, as bond registrar and paying agent, the reasonable fees of any other paying agent on the Bonds as provided in the Indenture, as and when the same become due, (iii) the reasonable fees, charges and expenses of the Trustee for the necessary extraordinary services rendered by it and extraordinary expenses (including, but not limited to reasonable attorneys’ fees and expenses) incurred by it under the Indenture, as and when the same become due, (iv) the cost of printing any Bonds required to be furnished by the Authority at the expense of the Authority, (v) the cost of printing and typesetting any preliminary official statement, official statement or other offering circular utilized in connection with the sale or remarketing of any Bonds and any amendment or supplement thereto, (vi) the Authority’s Administrative Fee, and (vii) any amounts required to be deposited in the Rebate Fund to comply with the provisions of Section 5.10 hereof and Section 6.06 of the Indenture and the payment of

any rebate analyst. The Trustee’s compensation shall not be limited by any provision of law regarding the compensation of a Trustee of an express trust.

(c) The Borrower also agrees to pay, (i) as soon as practicable after receipt of request for payment thereof, all expenses required to be paid by the Borrower under the terms of the Bond Purchase Contract relating to the sale of the Bonds, executed by the Treasurer of the State, as agent for sale, the Authority and Morgan Stanley & Co. LLC and RBC Capital Markets, LLC, as underwriters of the Bonds, and the Borrower (the “Bond Purchase Contract”), which shall include all Costs of Issuance; and (ii) all reasonable expenses of the Authority related to the Project which are not otherwise required to be paid by the Borrower under the terms of this Loan Agreement; including, but not limited to, all Costs of Issuance, provided that the Authority shall have obtained the prior written approval of an Authorized Representative of the Borrower for any expenditures other than those provided for herein or in the Bond Purchase Contract.

(d) The Borrower also agrees to pay fees and expenses of independent certified public accountants necessary for the preparation of annual or other audits, reports or summaries thereof required by the Indenture or by the Authority, including a report of an independent certified public accountant with respect to any fund established under the Indenture; and reasonable expenses of the Authority pursuant to Sections 44525 and 44548 of the California Health and Safety Code, and any agency of the State of California or any other counsel selected by the Authority to act on its behalf in connection with the Bonds.

(e) In the event the Borrower should fail to make any of the payments required by subsections (a) through (d) of this Section, such payments shall continue as obligations of the Borrower until such amounts shall have been fully paid. The Borrower agrees to pay such amounts, together with interest thereon at the Default Rate, following a delinquency on the due date, in the event of payments required by subsection (a) of this Section, or of 30 days, in the event of payments required by subsections (b) through (d) of this Section, until such amount and all interest thereon have been paid in full. Interest on overdue payments required under subsection (a) above shall be applied as provided in Sections 2.03, 5.02 and 5.03 of the Indenture.

SECTION 4.3. Unconditional Obligation . The obligations of the Borrower to make the payments required by Section 4.2 hereof and to perform and observe the other agreements on its part contained herein shall be absolute and unconditional, irrespective of any defense or any rights of set-off, recoupment or counterclaim it might otherwise have against the Authority, and during the term of this Loan Agreement, the Borrower shall pay all Loan Repayments (which payments shall be net of any other obligations of the Borrower) as prescribed in Section 4.2 and all other payments required hereunder, free of any deductions and without abatement, diminution or set-off. Until such time as the principal of, premium, if any, sinking fund installments, if any, and interest on, the Bonds shall have been fully paid, or provision for the payment thereof shall have been made as required by the Indenture, the Borrower (i) will not suspend or discontinue any Loan Repayments; (ii) will perform and observe all of its other covenants contained in this Loan Agreement; and (iii) except as provided in Article VII hereof, will not terminate this Loan Agreement for any cause, including, without limitation, the occurrence of any act or circumstances that may constitute failure of consideration, destruction of or damage to all or a portion of those facilities or

equipment comprising the Project, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State of California or any political subdivision of either of these, or any failure of the Authority or the Trustee to perform and observe any covenant, whether express or implied, or any duty, liability or obligation arising out of or connected with this Loan Agreement or the Indenture, except to the extent permitted by this Loan Agreement.

SECTION 4.4. Assignment of Authority’s Rights . As security for the payment of the Bonds, the Authority will assign to the Trustee the Authority’s rights under this Loan Agreement, including the right to receive payments hereunder (except the Retained Rights), and the Authority hereby directs the Borrower to make the payments required hereunder (except such payments for expenses and indemnification) directly to the Trustee. The Borrower hereby assents to such assignment and agrees to make payments directly to the Trustee without defense or set-off by reason of any dispute between the Borrower and the Authority or the Trustee.

SECTION 4.5. Amounts Remaining in Funds . It is agreed by the parties hereto that after payment in full of (i) the Bonds, or after provision for such payment shall have been made as provided in the Indenture, (ii) the fees, charges and expenses of the Trustee and paying agents in accordance with the Indenture, and (iii) all other amounts required to be paid under this Loan Agreement and the Indenture, any amounts remaining in any fund held by the Trustee under the Indenture (excepting the Rebate Fund) shall be paid as provided in Section 10.01 of the Indenture.

ARTICLE V
SPECIAL COVENANTS AND AGREEMENTS

SECTION 5.1. Right of Access to the Project . The Borrower agrees that during the term of this Loan Agreement, the Authority, the Trustee and the duly authorized agents of any of them shall have the right at all reasonable times during normal business hours to enter upon the site of the Project to examine and inspect the Project; provided, however, that reasonable notice shall be given to the Borrower prior to such examination or inspection. The rights of access hereby reserved to the Authority and the Trustee may be exercised only after such agent shall have executed release of liability and secrecy agreements if requested by the Borrower in the form then currently used by the Borrower, and nothing contained in this Section or in any other provision of this Loan Agreement shall be construed to entitle the Authority or the Trustee to any information or inspection involving the confidential trade or proprietary knowledge, expertise or know-how of the Borrower.

SECTION 5.2. The Borrower’s Maintenance of its Existence; Assignments; Permitted Transfers of the Project .

(a) To the extent permitted by law, the Borrower covenants and agrees that during the term of this Loan Agreement it shall:

(i) maintain its existence as a corporation,

(ii) continue to maintain its status in good standing as either a California corporation or a foreign corporation qualified to do business in the State of California,

(iii) not dissolve, sell or otherwise dispose of all or substantially all of its assets, combine or consolidate with or merge into another entity, or permit one or more other entities to consolidate with or merge into it so that the Borrower is not the resulting or surviving entity, except if:

(A) (1) such resulting or surviving entity or transferee, as the case may be, is a Participating Affiliate or (2) five years shall have elapsed since the issuance of the Bonds;

(B) such resulting or surviving entity or transferee, as the case may be, has executed and delivered to the Authority and the Trustee an Assignment and Assumption Agreement which provides: (I) certifications and evidence that such resulting or surviving entity or transferee qualifies to do business in the State of California and is in good legal standing, (II) an agreement by the surviving or resulting entity to pay and perform all of the obligations of the Borrower hereunder and under the Tax Certificate, and (III) representations and warranties by the surviving or resulting entity identical to the representations and warranties set forth in Section 2.3 hereof;

(C) either (x) after giving effect to such transaction, such resulting or surviving entity or transferee, as the case may be, would be permitted to incur at least $1.00 of additional Funded Debt such that after giving effect to the issuance thereof and to the application of the proceeds thereof: (I) Consolidated Funded Debt shall not exceed 66-2/3% of Total Capitalization; and (II) Consolidated Net Income Available for Interest Charges for any period of 12 consecutive calendar months within the 15 consecutive calendar months immediately preceding the issuance of such Funded Debt shall be equal to or exceed 175% of Pro Forma Interest Charges; or (y) the credit rating on the Bonds, as determined by any Rating Agency then rating the Bonds, shall be no lower than the rating level of the Bonds immediately prior to the effective date of such dissolution, sale, disposition, combination, merger or consolidation; and

(D) the Authority shall have received an Approving Opinion with respect to such dissolution, sale, disposition, combination, merger or consolidation and an Opinion of Counsel to the effect that the surviving, resulting, or transferee Person is a “participating party” as defined in the Act.

(iv) not sell, transfer, lease or otherwise dispose of (including any operating arrangements), or permit the sale, transfer, lease or disposal of (including any operating arrangements), the Project or portion of the Project other than equipment that has reached the end of its useful life, except in accordance with any of the following subsections:

(A) The Borrower may sell, transfer, lease or otherwise dispose of (including any operating arrangements) any portion of the Project to a Participating Affiliate if the purchaser, transferee, lessee, operator or other recipient, as the case may be, has covenanted in a written instrument for the benefit of the Authority and the Borrower to

comply with the instructions of the Borrower issued for the purpose of assuring that the Project be operated in conformance with this Loan Agreement, the Act, the Tax Certificate and federal tax law; provided that nothing in the foregoing shall diminish the Borrower’s obligation to cause the Project to be operated in conformance with this Loan Agreement, the Act, the Tax Certificate and federal tax law, including without limitation, the operation of the sold, transferred, disposed or leased portion of the Project. Any lease pursuant to the foregoing shall not permit sublease or assignment by the lessee unless such sublease or assignment would otherwise satisfy the requirements of this subsection.

(B) The Borrower may sell, transfer or otherwise dispose of any portion of the Project that constitutes equipment if (1) such sale, transfer or disposition is to or with a Participating Affiliate or (2) such equipment is replaced by the Borrower or a Participating Affiliate with equipment of equal or greater value and utility that is used in the same manner and for the same purposes as the equipment so sold, transferred or otherwise disposed of, has a useful life at least equal to the remaining useful life of the equipment so sold, transferred or otherwise disposed of and is in the same location as the equipment so sold, transferred or disposed of, to the extent identified in Exhibit A hereto and the Authority shall have received an Approving Opinion with respect to such replacement.

(C) The Borrower may sell, transfer, lease or otherwise dispose of (including any operating arrangements) any portion of the Project to a Person other than a Participating Affiliate, if,

(1) the purchaser, transferee, lessee, operator or other recipient, as the case may be, has covenanted in a written instrument for the benefit of the Authority and the Borrower to comply with the instructions of the Borrower issued for the purpose of assuring that the Project be completed and operated in conformance with this Loan Agreement, the Act, the Tax Certificate and federal tax law; provided that nothing in the foregoing shall diminish the Borrower’s obligation to cause the Project to be completed and operated in conformance with this Loan Agreement, the Act, the Tax Certificate and federal tax law;

(2) the credit rating on the Bonds, as determined by any Rating Agency then rating the Bonds, shall be no lower than the rating level of the Bonds immediately prior to the effective date of such sale, transfer, lease or disposition (or operating arrangement); and

(3) the Authority shall have received (i) a certificate of good standing of the purchaser, transferee, lessee or operator, as the case may be, from the California Secretary of State and Franchise Tax Board, (ii) a copy of the document evidencing such sale, transfer, lease or disposition (or operating arrangement), (iii) an Approving Opinion with respect to such sale, transfer, lease or disposition (or operating arrangement), and (iv) an Opinion of Counsel to the effect that the surviving, resulting, or transferee Person is a “participating party” as defined in the Act.

(b) Within 10 days after the consummation of the merger or other transaction described in Section 5.2(a)(iii) or (a)(iv), the Borrower shall provide the Authority and the Trustee with (i) counterpart copies of the documents constituting the transaction, (ii) if required to be delivered hereunder, the items set forth in Section 5.2(a)(iii) or (a)(iv), as the case may be, and (iii) a certificate of the Borrower stating that the such transaction complies with the provisions of Section 5.2(a)(iii) or (a)(iv), as the case may be. The Borrower shall give the Authority at least 30 days’ written notice prior to the effective date of any merger or other transaction described above, together with drafts of the documents of assumption and such other instruments (other than good standing certificates) as would be required to be delivered in connection therewith. The Borrower agrees to provide such other information as the Authority may reasonably request in order to assure compliance with this Section 5.2(a).

(c) Notwithstanding any other provisions of Section 5.2(a), the Borrower need not comply with any of the provisions of Section 5.2(a) if, at the time of such merger, combination, sale or transfer of assets, dissolution or reorganization, the Bonds will be defeased or retired as provided in Article X of the Indenture or in the case of a sale of less than all of the assets acquired or constructed with proceeds of the Bonds, the Bonds will be defeased or retired in an amount proportional to the percentage of the original cost of such assets to the original net proceeds of the Bonds. The Borrower shall provide to the Authority a certificate of the Borrower setting forth the calculations evidencing that the amount of Bonds defeased or retired is proportional to the percentage of the original cost of such assets to the original net proceeds of the Bonds.

(d) The rights and obligations of the Borrower under this Loan Agreement may be assigned by the Borrower to any Person in whole or in part, subject, however, to each of the following conditions:

(i) No assignment other than pursuant to paragraph (a) of this Section shall relieve the Borrower from primary liability for any of its obligations hereunder, and in the event of any assignment not pursuant to paragraph (a) of this Section the Borrower shall continue to remain primarily liable for the payments specified in Section 4.2 hereof and for performance and observance of the other agreements herein provided to be performed and observed by it.

(ii) Any assignment from the Borrower under this subsection (d) shall retain for the Borrower such rights and interests as will permit it to perform its obligations under this Loan Agreement, if applicable, and any assignee from the Borrower shall assume in writing the obligations of the Borrower hereunder to the extent of the interest assigned.

(iii) The Borrower shall give the Authority 30 days’ prior written notice of any assignment under this subsection (d), and shall, within 30 days after delivery thereof, furnish or cause to be furnished to the Authority and the Trustee a true and complete copy of each such assignment together with an instrument of assumption and an Opinion of Counsel satisfactory to the Authority that the provisions of this Section 5.2(d) have been complied with.

Notwithstanding the foregoing, the Borrower may assign (without the consent of the Authority) its entire interest in this Loan Agreement without recourse and have no further liability for any obligations under this Loan Agreement if the consent of the Bondholders has been obtained

directly or constructively pursuant to the terms of this Loan Agreement or the Indenture, and the conditions of the foregoing subsection (d)(iii) are satisfied.

(e) The Borrower may undertake any transaction not expressly permitted by Section 5.2(a) or 5.2(d) if the Authority consents to such transaction in writing. The Borrower must request any such written consent prior to undertaking any such transaction and provide to the Authority such information, reports and documents relating to the transaction as the Authority may reasonably request. The Authority may respond to such request of the Borrower at any time within 45 days of such request. If the Authority has not responded to such request within the 45-day period, the Authority will be deemed to have consented to such transaction.

(f) If a merger, consolidation, sale or other transfer is effected as provided in this Section, all provisions of this Section shall continue in full force and effect and no further merger, consolidation, sale or transfer shall be effected except in accordance with the provisions of this Section.

SECTION 5.3. Records and Financial Statements of Borrower .

(a) The Borrower covenants and agrees at all times to keep, or cause to be kept, proper books of record and account, prepared in accordance with generally accepted accounting principles, in which complete and accurate entries shall be made of all transactions of or in relation to the business, properties and operations of the Borrower. Such books of record and account shall be available for inspection by the Authority, the Trustee and the duly authorized agents of any of them at reasonable hours, under reasonable circumstances and after reasonable prior notice to the Borrower.

(b) The Borrower further covenants and agrees, within 120 days after the end of each Fiscal Year, to furnish to the Authority and the Trustee a Certificate of the Borrower stating that its financial statements have been completed and that no event which constitutes a Loan Default Event or which with the giving of notice or the passage of time or both would constitute a Loan Default Event has occurred and is continuing as of the end of such Fiscal Year, or specifying the nature of such event and the actions taken and proposed to be taken by the Borrower to cure such default.

SECTION 5.4. Insurance . The Borrower agrees to insure the Project or cause the Project to be insured during the term of this Loan Agreement for such amounts and for such occurrences and subject to such deductibles and self-retentions, as are customary for similar facilities within the State of California, by means of policies issued by reputable insurance companies qualified to do business in the State of California or through self-insurance. The Borrower agrees to deliver, upon request, to the Authority and the Trustee memorandum copies of the insurance policies or certificates of insurance covering the Project, and the certification by an insurance consultant that the insurance on the Project meets the above requirements.

SECTION 5.5. Maintenance and Repair; Taxes; Utility and Other Charges . The Borrower agrees to maintain the Project, or cause the Project to be maintained, during the term of this Loan Agreement (i) in as reasonably safe condition as its operations shall permit, (ii) in good

repair and in good operating condition, ordinary wear and tear excepted, making from time to time all necessary repairs thereto and renewals and replacements thereof and (iii) in a manner consistent with State law, including, without limitation, the Act and all environmental laws.

The Borrower agrees to pay or cause to be paid during the term of this Loan Agreement all taxes, governmental charges of any kind lawfully assessed or levied upon the Project or any part thereof, including any taxes levied against any portion of the Project which, if not paid, will become a charge on the receipts from the Project prior to or on a parity with the charge thereon and the pledge or assignment thereof to be created therefrom or under this Loan Agreement, all utility and other charges incurred in the operation, maintenance, use, occupancy and upkeep of any portion of the Project and all assessments and charges lawfully made by any governmental body for public improvements that may be secured by a lien on the Project, provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the Borrower shall be obligated to pay only such installments as are required to be paid during the term of this Loan Agreement. The Borrower may, at the Borrower’s expense and in the Borrower’s name, in good faith, contest any such taxes, assessments and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during that period of such contest and any appeal therefrom unless by such nonpayment the Project or any part thereof will be subject to loss or forfeiture.

The Borrower agrees to maintain all certificates, approvals, permits and authorizations described in Section 2.3(h) necessary for the construction, as applicable, use or operation of the Project.

SECTION 5.6. Qualification in California . The Borrower agrees that throughout the term of this Loan Agreement it, or any successor or assignee as permitted by 5.2, will be qualified to do business in the State of California.

SECTION 5.7. General Tax Covenants . It is the intention of the parties hereto that interest on the Bonds shall be and remain Tax-exempt, and to that end the Borrower and the Authority covenant to comply with all of their respective requirements in the Tax Certificate, in this Section and in Section 5.8 which are for the benefit of the Trustee and each and every Holder of the Bonds. The Borrower’s obligations in the Tax Certificate are incorporated herein as if fully set forth herein.

SECTION 5.8. Special Arbitrage Certifications; Rebate . The Borrower acknowledges that it has read Sections 5.05 and 6.06 of the Indenture and that it will comply with the requirements of those sections as if they were set forth in full in this Loan Agreement. The Borrower shall calculate, or cause to be calculated, its rebate liability at such times as are required by Section 148(f) of the Code and any temporary, proposed or final Regulations as may be applicable to the Bonds from time to time. The Borrower shall provide to the Trustee a copy of each calculation of rebate liability prepared by or on behalf of the Borrower, which documentation shall be made available to the Authority upon request.

SECTION 5.9. Notice and Certificates To Trustee . (1) Unless waived in writing, in whole or in part, by the Authority, the Borrower hereby agrees to provide the Authority and the Trustee with the following:

(a) On or before June 15 and December 15 of each year during which any of the Bonds are Outstanding, commencing June 15, 2017, a Certificate of the Borrower that: (i) all payments required under this Loan Agreement have been made and (ii) any applicable third party credit support will continue in full force during the succeeding twelve months, or explaining why not;

(b) Within 120 days of the end of its fiscal year, a Certificate of the Borrower that it has complied with the requirements to make reports, including reports concerning financial statements pursuant to Section 5.3(b);

(c) Promptly upon knowledge of an Event of Default, a written notice of such Event of Default, such notice to include a description of the nature of such event and what steps are being taken to remedy such Event of Default; and

(d) On or before December 15 of each year during which any of the Bonds are Outstanding, (i) a written disclosure of any significant change known to the Borrower which would adversely impact the Trustee’s ability to perform its duties under the Indenture, or of any conflicts which may result because of other business dealings between the Trustee and the Borrower, and (ii) a representation of the Borrower that all certificates, approvals, permits and authorizations described in Section 2.3(h) that are necessary for the construction, as applicable, use or operation of the Project continue in full force and effect, provided that with respect to any such certificate, approval, permit or authorization that must issue without discretion on the part of the issuer thereof, the Borrower need only disclose the absence of such certificate, approval, permit or authorization and the Borrower’s plan to acquire it.

(2) The Borrower agrees to provide the Authority and the Trustee the certificate set forth in Exhibit D hereto on each June 15 commencing June 15, 2017.

(3) The Borrower agrees to provide the Authority and CDLAC with certifications of compliance with the terms and conditions set forth in that certain Resolution No. 13-111-09 adopted by the Authority on December 6, 2016 (the “Allocation Resolution”), when reasonably requested by the Authority or CDLAC.

SECTION 5.10. Financing and Continuation Statements . The Borrower hereby agrees to file all financing and continuation statements required to be filed, if any, relating to the Bonds and their security and provide copies of such filings to the Trustee. In addition, the Borrower, on demand, will execute and deliver one or more financing statements, chattel mortgages or other instruments, to evidence more effectively the security interest of Trustee and the Bondholders in the property subject to the lien of the Indenture.

SECTION 5.11. Continuing Disclosure . The Borrower hereby covenants and agrees to comply with the continuing disclosure requirements promulgated under S.E.C. Rule 15c2-12, as it may from time to time hereafter be amended or supplemented. Notwithstanding any other provision of this Loan Agreement, failure of the Borrower to comply with the requirements of S.E.C. Rule 15c2-12, as it may from time to time hereafter be amended or supplemented, shall not be considered a Loan Default Event; however, the Trustee at the written request of the Holders of at

least 25% aggregate principal amount of Outstanding Bonds, shall, but only to the extent indemnified to its satisfaction from and against any cost, liability or expense of any kind whatsoever related thereto, including, without limitation, fees and expenses of its attorneys and advisors and additional fees and expenses of the Trustee, or any Bondholder or beneficial owner of the Bonds, may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Borrower to comply with its obligations pursuant to this Section 5.11. The Borrower acknowledges and agrees that the Authority shall have no liability with respect to these obligations.

SECTION 5.12. Changes to the Project . The Borrower shall not make any changes to the Project or to the operation thereof which would affect the qualification of the Project under the Act or impair the exemption from federal income taxation of the interest on the Bonds.

ARTICLE VI
LOAN DEFAULT EVENTS AND REMEDIES

SECTION 6.1. Loan Default Events . Any one of the following which occurs and continues shall constitute a Loan Default Event:

(a) failure of the Borrower to make any payment required by Section 4.2(a) hereof when due; or

(b) failure of the Borrower to observe and perform any covenant, condition or agreement on its part required to be observed or performed by this Loan Agreement other than as provided in (a), which continues for a period of 30 days after written notice delivered to the Borrower, which notice shall specify such failure and request that it be remedied, given to the Borrower by the Authority or the Trustee, unless the Authority and the Trustee shall agree in writing to an extension of such time; provided, however, that if the failure stated in the notice cannot be corrected within such period, the Authority and the Trustee will not unreasonably withhold their consent to an extension of such time if corrective action is instituted within such period and diligently pursued until the default is corrected; and provided further, if any such failure obligates the Borrower to prepay Loan Repayments pursuant to Section 7.3(b) hereof, and such prepayment is in fact made by the Borrower and the Bonds are redeemed as provided in Section 4.01(3) of the Indenture, then such failure by the Borrower shall not constitute a Loan Default Event under this Loan Agreement; or

(d) any representation or warranty of the Borrower set forth in Section 2.3 of this Loan Agreement at the time made or deemed made is false in any material respect; provided however, if any such materially false representation or warranty obligates the Borrower to prepay Loan Repayments pursuant to Section 7.3(b) hereof, and such prepayment is in fact made by the Borrower and the Bonds are redeemed as provided in Section 4.01(3) of the Indenture, then such failure by the Borrower shall not constitute a Loan Default Event under this Loan Agreement.

The provisions of subsection (b) of this Section are subject to the limitation that the Borrower shall not be deemed in default if and so long as the Borrower is unable to carry out its agreements hereunder by reason of strikes, lockouts or other industrial disturbances; acts of public enemies; orders of any kind of the government of the United States or of the State of California or any of their departments, agencies, or officials, or any civil or military authority; insurrections, riots, epidemics, landslides; lightning; earthquake; fire; hurricanes; storms; floods; washouts; droughts; arrests; restraint of government and people; civil disturbances; wars; acts of terrorism; explosions; breakage or accident to machinery, transmission pipes or canals; partial or entire failure of utilities; or any other cause or event not reasonably within the control of the Borrower; it being agreed that the settlement of strikes, lockouts and other industrial disturbances shall be entirely within the discretion of the Borrower, and the Borrower shall not be required to make settlement of strikes, lockouts and other industrial disturbances by acceding to the demands of the opposing party or parties when such course is, in the judgment of the Borrower, unfavorable to the Borrower. This limitation shall not apply to any default under subsections (a), (c) or (d) of this Section.

SECTION 6.2. Remedies on Default . Subject to Section 6.1 hereof, whenever any Loan Default Event shall have occurred and shall be continuing,

(a) The Trustee, by written notice to the Authority and the Borrower, shall declare the unpaid balance of the loan payable under Section 4.2(a) of this Loan Agreement to be due and payable immediately, provided that concurrently with or prior to such notice the unpaid principal amount of the Bonds shall have been declared to be due and payable under the Indenture. Upon any such declaration such amount shall become and shall be immediately due and payable as determined in accordance with Section 7.01 of the Indenture.

(b) The Trustee may have access to and may inspect, examine and make copies of the books and records and any and all accounts, data and federal income tax and other tax returns of the Borrower; provided that the Trustee shall be obligated to protect the confidentiality of such information, except to the extent prohibited by State and federal law, and to prevent its disclosure to the public, except the Authority.

(c) The Authority or the Trustee may take whatever other action at law or in equity as may be necessary or desirable to collect the payments and other amounts then due and thereafter to become due or to enforce performance and observance of any obligation, agreement or covenant of the Borrower under this Loan Agreement, provided, however, that acceleration of the unpaid balance of the Loan Repayments is not a remedy available to the Authority.

In case the Trustee or the Authority shall have proceeded to enforce its rights under this Loan Agreement and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or the Authority, then, and in every such case, the Borrower, the Trustee and the Authority shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Borrower, the Trustee and the Authority shall continue as though no such action had been taken.

The Borrower covenants that, in case a Loan Default Event shall occur with respect to the payment of any Loan Repayment payable under Section 4.2(a) hereof, then, upon demand

of the Trustee, the Borrower will pay to the Trustee the whole amount that then shall have become due and payable under said Section, with interest on the amount then overdue at the Default Rate. The Default Rate shall be in effect following such due date and shall remain in effect until such overdue amount has been paid.

In case the Borrower shall fail forthwith to pay such amounts upon such demand, the Trustee shall be entitled and empowered to institute any action or proceeding at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Borrower and collect in the manner provided by law the moneys adjudged or decreed to be payable.

In case proceedings shall be pending for the bankruptcy or for the reorganization of the Borrower under the federal bankruptcy laws or any other applicable law, or in case a receiver or trustee shall have been appointed for the property of the Borrower or in the case of any other similar judicial proceedings relative to the Borrower, or the creditors or property of the Borrower, then the Trustee shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount owing and unpaid pursuant to this Loan Agreement and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee allowed in such judicial proceedings relative to the Borrower, its creditors or its property, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute such amounts as provided in the Indenture after the deduction of its reasonable charges and expenses to the extent permitted by the Indenture. Any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized to make such payments to the Trustee, and to pay to the Trustee any amount due it for reasonable compensation and expenses, including reasonable expenses and fees of counsel incurred by it up to the date of such distribution.

SECTION 6.3. Agreement to Pay Attorneys’ Fees and Expenses . In the event the Borrower should default under any of the provisions of this Loan Agreement and the Authority or the Trustee should employ attorneys or incur other expenses for the collection of the payments due under this Loan Agreement or the enforcement of performance or observance of any obligation or agreement on the part of the Borrower herein contained (other than litigation of disputes between the Authority and the Borrower), the Borrower agrees to pay and indemnify the Authority or the Trustee for the reasonable fees of such attorneys and such other reasonable expenses so incurred by the Authority or the Trustee.

SECTION 6.4. No Remedy Exclusive . No remedy herein conferred upon or reserved to the Authority or the Trustee is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Loan Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Authority or the Trustee to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, other than such notice as may be herein expressly required. The Trustee and the

Holders of the Bonds shall be considered third party beneficiaries for the purposes of enforcing the rights of the Authority and their own respective rights.

SECTION 6.5. No Additional Waiver Implied by One Waiver . In the event any agreement or covenant contained in this Loan Agreement should be breached by the Borrower and thereafter waived by the Authority or the Trustee, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder.

ARTICLE VII
PREPAYMENT

SECTION 7.1. Redemption of Bonds with Prepayment Moneys . By virtue of the assignment of the rights of the Authority under this Loan Agreement to the Trustee as is provided in Section 4.4 hereof, the Borrower agrees to and shall pay directly to the Trustee any amount permitted or required to be paid by it under this Article VII. The Trustee shall use the moneys so paid to it by the Borrower to redeem the Bonds on the date set for such redemption pursuant to Section 7.5 hereof. The Authority shall call Bonds for redemption as required by Article IV of the Indenture or as requested by the Borrower pursuant to the Indenture or this Loan Agreement.

SECTION 7.2. Option to Prepay Installments . The Borrower shall have the option to prepay in whole or in part the Loan Repayments required by Section 4.2(a) hereof by paying to the Trustee, for deposit in the Revenue Fund, the amount set forth in Section 7.4 hereof and to cause all or any part of the Bonds to be redeemed at the time and at the price set forth in Section 4.01(4) of the Indenture.

SECTION 7.3. Mandatory Prepayment . The Borrower shall have and hereby accepts the obligation to prepay in whole (or, as provided in Section 7.3(b), in part) the Loan Repayments required by Section 4.2(a) of this Loan Agreement, together with interest accrued, but unpaid, thereon, to be used to redeem all or a part of the Outstanding Bonds under any of the following circumstances:

(a) if and when as a result of any changes in the Constitution of the United States of America or the California Constitution or as a result of any legislative, judicial or administrative action, this Loan Agreement shall have become void or unenforceable or impossible of performance in accordance with the intention and purposes of the parties hereto, or shall have been declared unlawful;

(b) if, due to the untruth or inaccuracy of any representation made by the Borrower in this Loan Agreement or in connection with the offer and sale of the Bonds, or the breach of any covenant or warranty of the Borrower contained in this Loan Agreement or in the Tax Certificate, interest on the Bonds, or any of them, is determined not to be Tax-exempt to the Holders thereof. For purposes of the preceding sentence, Bonds are determined to not be Tax-exempt if there is either (i) an opinion of Bond Counsel, requested by the Borrower or the Authority and addressed to the Authority and the Trustee, to the effect that interest on the Bonds, or any of them, is not Tax-exempt or would not be Tax-exempt unless all or part of the Bonds are redeemed pursuant to Section 4.01(3) of the Indenture, (ii) a final administrative determination of the Internal Revenue

Service to that effect, (iii) a judicial decision of a court of competent jurisdiction to that effect in a proceeding of which the Borrower received notice and was afforded an opportunity to participate in to the full extent permitted by law, or (iv) a redemption of all or a portion of the Bonds is required under the terms of a closing agreement or other similar agreement with the Internal Revenue Service settling an issue raised in connection with an audit of the Bonds. A determination or decision will be considered final for this purpose when all periods for administrative and judicial review have expired; or

The amount payable by the Borrower in the event of a prepayment required by this Section shall be determined as set forth in Section 7.4 and shall be deposited in the Revenue Fund.

SECTION 7.4. Amount of Prepayment . In the case of a prepayment of the entire amount due hereunder pursuant to Section 7.2 or 7.3 hereof, the amount to be paid shall be a sum sufficient, together with other funds and the yield on any securities deposited with the Trustee and available for such purpose, to pay (1) the principal of all Bonds Outstanding on the redemption date specified in the notice of redemption, plus interest accrued and to accrue to the payment or redemption date of the Bonds, plus premium, if any, pursuant to the Indenture, (2) all reasonable and necessary fees and expenses of the Authority, the Trustee and any paying agent accrued and to accrue through final payment of the Bonds and (3) all other liabilities of the Borrower accrued and to accrue under this Loan Agreement.

In the case of partial prepayment of the Loan Repayments pursuant to Section 7.2 or 7.3 hereof, the amount payable shall be a sum sufficient, together with other funds deposited with the Trustee and available for such purpose, to pay the principal amount of and premium, if any, and accrued interest on the Bonds to be redeemed, as provided in the Indenture, and to pay expenses of redemption of such Bonds. All partial prepayments of the Loan Repayments shall be applied in inverse order of the due dates thereof.

SECTION 7.5. Notice of Prepayment . To exercise an option granted in or to perform an obligation required by this Article VII, the Borrower shall give written notice, at least 15 days prior to the last day by which the Trustee is permitted to give notice of redemption pursuant to Section 4.03 of the Indenture, to the Authority and the Trustee specifying the amount to be prepaid and the date upon which any prepayment will be made. If the Borrower fails to give such notice of a prepayment in connection with a mandatory redemption under this Loan Agreement, such notice may be given by the Authority, by the Trustee or by any Holder or Holders of 10% or more in aggregate principal amount of the Bonds Outstanding. The Authority and the Trustee, at the request of the Borrower or any such Bondholders, shall forthwith take all steps necessary under the applicable provisions of the Indenture (except that the Authority shall not be required to make payment of any money required for such redemption) to effect redemption of all or part of the then Outstanding Bonds, as the case may be, on the earliest practicable date thereafter on which such redemption may be made under applicable provisions of the Indenture.

ARTICLE VIII
NON-LIABILITY OF AUTHORITY; EXPENSES; INDEMNIFICATION

SECTION 8.1. Non-Liability of Authority . The Authority shall not be obligated to pay the principal of, or premium, if any, or interest on the Bonds, except from Revenues. The Borrower hereby acknowledges that the Authority’s sole source of moneys to repay the Bonds will be provided by the payments made by the Borrower pursuant to this Loan Agreement, together with other Revenues, including investment income on certain funds and accounts held by the Trustee under the Indenture, and hereby agrees that if the payments to be made hereunder shall ever prove insufficient to pay all principal of, and premium, if any, and interest on the Bonds as the same shall become due (whether by maturity, redemption, acceleration or otherwise), then upon notice from the Trustee, the Borrower shall pay such amounts as are required from time to time to prevent any deficiency or default in the payment of such principal, premium or interest, including, but not limited to, any deficiency caused by acts, omissions, nonfeasance or malfeasance on the part of the Trustee, the Borrower, the Authority or any third party, subject to any right of reimbursement by the Borrower from the Trustee, the Authority or any such third party, as the case may be.

SECTION 8.2. Expenses . The Borrower covenants and agrees to pay and to indemnify the Authority and the Trustee against all costs and charges, including reasonable fees and disbursements of attorneys, accountants, consultants and other experts, incurred in good faith in connection with this Loan Agreement, the Bonds or the Indenture.

SECTION 8.3. Indemnification . The Borrower releases the Authority and the Trustee from, and covenants and agrees that neither the Authority nor the Trustee shall be liable for, and covenants and agrees, to the extent permitted by law, to indemnify and hold harmless the Authority and the Trustee and their members, officers, employees and agents from and against, any and all losses, claims, damages, liabilities or expenses (including, without limitation, reasonable attorneys’ fees, litigation and court costs, amounts paid in settlement and amounts paid to discharge judgments), of every conceivable kind, character and nature whatsoever (including, without limitation, federal and state securities laws) arising out of, resulting from or in any way connected with (1) the Project, or the conditions, occupancy, use, possession, conduct or management of, or work done in or about the Project or the other facilities of the Borrower or its affiliates, or from the planning, design, acquisition, construction, rehabilitation, renovation, improvement, installation or equipping of the Project or any part thereof; (2) the issuance, sale or resale of any Bonds or any certifications or representations made in connection therewith, the execution and delivery of this Loan Agreement, the Indenture or the Tax Certificate or any amendment thereto and the carrying out of any of the transactions contemplated by the Bonds, the Indenture and this Loan Agreement; (3) the Trustee’s acceptance or administration of the trusts under the Indenture, or the exercise or performance of any of its powers or duties under the Indenture or this Loan Agreement; (4) any untrue statement or alleged untrue statement of any material fact or omission or alleged omission to state a material fact required to be stated or necessary to make the statements made, in light of the circumstances under which they were made, not misleading, in any official statement or other offering circular utilized by the Authority or any underwriter or placement agent in connection with the sale of any Bonds or in any disclosure made by Borrower to comply with the requirements of S.E.C. Rule 15c2-12 or in any continuing disclosure agreement or any other agreement relating to the Bonds;

(5) any violation of any Environmental Regulations or the release of any Hazardous Substance from, on or near the Project or any other facilities of the Borrower or its affiliates; (6) the defeasance and/or redemption, in whole or in part, of the Bonds; or (7) any declaration of taxability of interest on the Bonds, or allegations that interest on the Bonds is taxable or any regulatory audit or inquiry regarding whether interest in the Bonds is taxable; provided that with respect to indemnification of the Authority and its members, officers, employees and agents, such indemnity shall not be required for damages that result from the gross negligence or willful misconduct on the part of the party seeking such indemnity and with respect to any other indemnified party, such indemnity shall not be required for damages that result from the negligence or willful misconduct on the part of the party seeking such indemnity. The Borrower further covenants and agrees, to the extent permitted by law, to pay or to reimburse the Authority and the Trustee and their members, officers, employees and agents for any and all costs, reasonable attorneys fees and expenses, liabilities or other expenses incurred in connection with investigating, defending against or otherwise in connection with any such losses, claims, damages, liabilities, expenses or actions, except to the extent that the same arise out of the gross negligence or willful misconduct of the Authority and its members, officers, employees and agents claiming such payment or reimbursement or out of the negligence or willful misconduct of the Trustee and its members, officers, employees and agents claiming such payment or reimbursement. The provisions of this Section and Section 4.2(b) shall survive any resignation or removal of the Trustee, the retirement of the Bonds and the termination of this Loan Agreement.

ARTICLE IX
MISCELLANEOUS

SECTION 9.1. Notices . All notices, certificates or other communications shall be deemed sufficiently given on the second day following the day on which the same have been mailed by certified mail, postage prepaid, addressed to the Authority, the Borrower or the Trustee, as the case may be, as follows, and such communications shall also be deemed sufficiently given to the Trustee if sent by facsimile with confirmed receipt:



To the Authority:	California Pollution Control Financing Authority 915 Capitol Mall, 5 ^th Floor Sacramento, CA 95814 Attn: Executive Director Fax Number: (916) 657-4821
To the Borrower:	San Jose Water Company 110 West Taylor Street San Jose, CA 95110 Attn: Chief Financial Officer and Treasurer Fax Number: (408) 279-7934
To the Trustee:	The Bank of New York Mellon Trust Company, N.A. 100 Pine Street, Suite 3200 San Francisco, CA 94111 Attn: Corporate Trust Department Fax Number: (415) 399-1647

Any notice given to the Borrower as provided above shall be deemed to have been given to any affiliate of the Borrower affected by such notice.

A duplicate copy of each notice, certificate or other communication given hereunder by either the Authority or the Borrower to the other shall also be given to the Trustee. The Authority, the Borrower and the Trustee may, by notice given hereunder, designate any different addresses to which subsequent notices, certificates or other communications shall be sent.

SECTION 9.2. Severability . If any provision of this Loan Agreement shall be held or deemed to be, or shall in fact be, illegal, inoperative or unenforceable, the same shall not affect any other provision or provisions herein contained or render the same invalid, inoperative, or unenforceable to any extent whatever.

SECTION 9.3. Execution of Counterparts . This Loan Agreement may be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument; provided, however, that for purposes of perfecting a security interest in this Loan Agreement by the Trustee under Article 9 of the California Uniform Commercial Code, only the counterpart delivered, pledged, and assigned to the Trustee shall be deemed the original.

SECTION 9.4. Amendments, Changes and Modifications . Except as otherwise provided in this Loan Agreement or the Indenture, subsequent to the initial issuance of Bonds and prior to their payment in full, or provision for such payment having been made as provided in the Indenture, this Loan Agreement may not be effectively amended, changed, modified, altered or terminated without the written consent of the Trustee, given in accordance with Section 6.07(b) of the Indenture; provided, however, that Sections 5.3(b) and/or 5.9 hereof and Exhibit D hereto may be amended by the Authority without such written consent for the purpose of changing or otherwise deleting the Borrower’s requirements to deliver such certificates and statements described therein.

SECTION 9.5. Governing Law; Venue . This Loan Agreement shall be construed in accordance with and governed by the Constitution and laws of the State applicable to contracts made and performed in the State. This Loan Agreement shall be enforceable in the State, and any action arising out of this Loan Agreement shall be filed and maintained in the Sacramento County Superior Court, Sacramento, California, unless the Authority waives this requirement.

SECTION 9.6. Authorized Representative . Whenever under the provisions of this Loan Agreement the approval of the Borrower is required or the Borrower is required to take some action at the request of the Authority, such approval or such request shall be given on behalf of the Borrower by an Authorized Representative, and the Authority and the Trustee shall be authorized to act on any such approval or request and neither party hereto shall have any complaint against the other or against the Trustee as a result of any such action taken.

SECTION 9.7. Term of the Agreement . This Loan Agreement shall be in full force and effect from the date hereof and shall continue in effect as long as any of the Bonds is Outstanding or the Trustee holds any moneys under the Indenture, whichever is later. All representations and

certifications by the Borrower as to all matters affecting the Tax-exempt status of the Bonds shall survive the termination of this Loan Agreement.

SECTION 9.8. Binding Effect; Third Party Beneficiary . This Loan Agreement shall inure to the benefit of and shall be binding upon the Authority, the Borrower and their respective successors and assigns; subject, however, to the limitations contained in Section 5.2 hereof. The parties agree that CDLAC is a third party beneficiary of this Loan Agreement for purposes of enforcing the terms and conditions set forth in the Allocation Resolution.

SECTION 9.9. Survival of Fee Obligation; No Prevailing Party . The right of the Authority and the Trustee to receive any fees or be reimbursed for any expenses incurred pursuant to this Loan Agreement, and the right of the Authority and the Trustee to be protected from any liability as provided in this Loan Agreement, shall survive the retirement of the Bonds and the termination of this Loan Agreement. Nothing in this Loan Agreement shall be construed to provide for the award of attorney’s fees and costs to the Authority or the Borrower for the enforcement of this Loan Agreement, as described in Section 1717 of the California Civil Code. Nothing in this Section 9.9 affects the rights of the Trustee as provided herein or in the Indenture.

SECTION 9.10. Liability of Authority Limited to Revenues . Notwithstanding anything in this Loan Agreement or in the Bonds contained, the Authority shall not be required to advance any moneys derived from any source other than the Revenues and other assets pledged under the Indenture for any of the purposes in the Indenture mentioned, whether for the payment of the principal of or interest on the Bonds or for any other purpose of the Indenture. Nevertheless, the Authority may, but shall not be required to, advance for any of the purposes hereof any funds of the Authority which may be made available to it for such purposes. NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF OR ANY LOCAL AGENCY IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE BONDS. The Authority shall not be liable for any costs, expenses, losses, damages, claims or actions, of any conceivable kind on any conceivable theory, under or by reason of or in connection with this Loan Agreement, the Bonds or the Indenture, except only to the extent amounts are received for the payment thereof from the Borrower under this Loan Agreement; provided the Borrower shall not be required to pay the fees and expenses of the Authority’s counsel incurred in connection with the issuance of the Bonds.

The Borrower hereby acknowledges that the Authority’s sole source of moneys to repay the Bonds will be provided by the payments made by the Borrower to the Trustee pursuant to this Loan Agreement, together with investment income on certain funds and accounts held by the Trustee under the Indenture, and hereby agrees that if the payments to be made hereunder shall ever prove insufficient to pay all principal (or redemption price) and interest on the Bonds as the same shall become due (whether by maturity, redemption, acceleration or otherwise), then upon notice from the Trustee, the Borrower shall pay such amounts as are required from time to time to prevent any deficiency or default in the payment of such principal (or redemption price) or interest, including, but not limited to, any deficiency caused by acts, omissions, nonfeasance or malfeasance

on the part of the Trustee, the Borrower, the Authority or any third party, subject to any right of reimbursement from the Trustee, the Authority or any such third party, as the case may be, therefor.

SECTION 9.11. Waiver of Personal Liability . No member, officer, agent or employee of the Authority or any director, officer, agent or employee of the Borrower shall be individually or personally liable for the payment of any principal (or redemption price) or interest on the Bonds or any sum hereunder or under the Indenture or be subject to any personal liability or accountability by reason of the execution and delivery of this Loan Agreement; but nothing herein contained shall relieve any such member, director, officer, agent or employee from the performance of any official duty provided by law or by this Loan Agreement.

SECTION 9.12. Opinion of Bond Counsel . The Borrower acknowledges and agrees to comply with Section 11.14 of the Indenture.

SECTION 9.13. Complete Agreement . The parties agree that the terms and conditions of this Loan Agreement supersede those of all previous agreements between the parties relative to the Bonds, and that this Loan Agreement, together with the documents referred to in this Loan Agreement, contains the entire agreement relative to the Bonds between the parties hereto.

[REST OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the California Pollution Control Financing Authority has caused this Loan Agreement to be executed in its name and its seal to be hereunto affixed by its duly authorized representatives, and the Borrower has caused this Loan Agreement to be executed in its name all as of the date first above written.



	CALIFORNIA POLLUTION CONTROL FINANCING AUTHORITY
	BY:	John Chiang, Chairman


	BY:	/s/ Steve Juarez
		Deputy Treasurer

[SEAL]
	BY:	/s/ Reneé Webster-Hawkins
		Executive Director


	SAN JOSE WATER COMPANY

	BY:
	/s/ James P. Lynch
		Authorized Representative

S-1

EXHIBIT A

DESCRIPTION OF THE PROJECT

To the extent they will prevent the pollution and contamination of drinking water and improve the quality of water, the Project includes the financing of certain capital costs relating to (i) improvements to the structures and facilities that are integral to the supply of water throughout the Borrower’s water supply system (the “Water System”), including treatment plants, wells, reservoirs, tanks, pump stations and other functionally related structures and facilities, (ii) improvements to the distribution system, including construction of new mains and replacement of existing mains, (iii) the acquisition of equipment for the Water System and (iv) other capital projects functionally related and subordinate to such facilities (collectively, the “Project Facilities”). The Project Facilities are located in the service area of the Borrower in portions of the Cities of San Jose and Cupertino, the Cities of Campbell, Monte Sereno, and Saratoga, the Town of Los Gatos and adjacent unincorporated territories in the County of Santa Clara (the “Service Area”), in particular, the following:


•	Main replacements and tie-ins to water mains throughout the Service Area.


•	Replacement of wells and pumping equipment in stations located at McLaughlin, Pike, Almaden Valley, Cahalan and Cypress Stations, all in the City of San Jose, Town of Los Gatos and in other stations throughout the Service Area.


•	Implementation of major treatment plant process upgrades at the Montevina Water Treatment Plant at 18300 Highway 17 in the Town of Los Gatos.


•	Installation of recycled water pipes along the Alignments “A” and “R” from the City of San Jose Recycled Water Pipelines Project. Alignment A is located within the Golden Triangle on Zanker Road, Bering Drive, Karina Court and Component Drive. Alignment R is an area bordered by Highway 87, Highway 101, North First Street and Sonora Avenue, all in the City of San Jose.


•	(i) Replacement of meters, hydrants, appurtenances and service parts, (ii) replacement and installation of various components of storage tanks and reservoirs and (iii) purchase and implementation of hardware and software, all throughout the Service Area.


•	Construction of a new tank and station on McKean Road in San Jose as well as the associated transmission pipeline from the new station.


•	Replacement of necessary office, operational, maintenance and security equipment, computers, peripherals, vehicles, appurtenances, structures and non-specifics located primarily at 1265 South Bascom Avenue and 110 West Taylor Street, in the City of San Jose and throughout the Service Area.

A-1

EXHIBIT B

LEASES RELATING TO THE PROJECT

None.

B-1

EXHIBIT C

FINAL PROJECT COMPLETION CERTIFICATE



To:	The Bank of New York Mellon Trust Company, N.A. 100 Pine Street, Suite 3200 San Francisco, CA 94111 Attn: Corporate Trust Department	California Pollution Control Financing Authority (the “Authority”) 915 Capitol Mall, 5 ^th Floor Sacramento, CA 95814 Attn: Executive Director

RE: Final Project Completion Certification

This Final Project Completion Certificate is being provided to you pursuant to the requirements of the Loan Agreement between the Authority and the Borrower (as defined below) with respect to the Bonds (as defined below), whereon upon the final disbursement from the Project Fund relating to the below-referenced bonds, the Borrower shall have an Authorized Representative of the Borrower, on behalf of the Borrower, evidence the Completion Date of the project by providing a certificate to the Trustee and the Authority stating the Costs of the Project to the date of this Final Project Completion Certificate and the components of the Project as described in Exhibit A of the Loan Agreement (see attached). Such information is provided below.

BOND INFORMATION

Borrower Name (the “Borrower”): San Jose Water Company

Project Name(s): Please list.

Bond Name and Series: California Pollution Control Financing Authority Revenue Bonds (San Jose Water Company Project) Series 2016 (the “Bonds”)

Bond Closing Date: December 20, 2016

Bond Amount Issued: $70,000,000

PROJECT INFORMATION



Project Address: Project Commencement Date: Project Completion Deadline: Completion Date:	( From Exhibit A of the Loan Agreement) (Actual)

C-1



	BREAKDOWN OF EXPENDITURES OF BOND PROCEEDS			BREAKDOWN OF EXPENDITURE OF NON-BOND PROCEEDS
Project Cost by Item (From the Tax Certificate and Agreement		Amount		Amount

TOTAL:		$		$

Amount of Bond Proceeds remaining in the Project Fund			$

To the date hereof, the acquisition, construction, renovation, rehabilitation, improvement, installation and equipping have been conducted substantially in accordance with the plans, specifications and work orders therefor, and all labor, services, materials and supplies used in the acquisition, construction, renovation, rehabilitation, improvement, installation and equipping have been paid or provided for. To the date hereof, all other facilities necessary in connection with the Project have been acquired, constructed, renovated, rehabilitated, improved, installed and equipped in accordance with the plans and specifications and work orders therefor and all costs and expenses incurred in connection therewith have been paid or provided for.

The Borrower certifies that all proceeds of the Bonds were spent on the Project and/or on costs of issuance of the Bonds. The Project as described in Exhibit A included certain initial specifications, but contemplated variances of certain terms within specified parameters. Any such variances to the date hereof are described below:

PROJECT VARIANCES (If Any):

This certificate is given without prejudice to any rights of the Borrower against third parties for any claims or for the payment of any amount not then due and payable which obligation has been incurred at the date of this certificate or which may subsequently be incurred.

C-2

I represent and warrant that I have full authority to execute this Final Project Completion Certificate on behalf of the Borrower. I certify that the foregoing certification is true and correct.

SAN JOSE WATER COMPANY

__________________________________

Borrower’s Authorized Representative(s)

Attachments [Photos of completed project(s)]

C-3

EXHIBIT D

FORM OF ANNUAL BORROWER CERTIFICATE

The Bank of New York Mellon Trust Company, N.A.

100 Pine Street, Suite 3200

San Francisco, CA 94111

Attn: Corporate Trust Department

California Pollution Control Financing Authority
915 Capitol Mall, 5 ^th Floor
Sacramento, CA 95814
Attn: Executive Director



Description of Bond Issue California Pollution Control Financing Authority Revenue Bonds (San Jose Water Company Project) Series 2016	Principal Amount Issued $70,000,000

Borrower – San Jose Water Company

The following lists of items are required per the Loan Agreement for the above-referenced financing. Please signify compliance or, if an item has been waived by the Authority pursuant to the Loan Agreement so indicate, and send this notice to the above-referenced participants.

1. Per section 5.8 of the Loan Agreement, Borrower is required to calculate rebate liability. Section 5.8 reads, in part, as follows:

“…The Borrower shall calculate, or cause to be calculated, its rebate liability at such times as are required by Section 148(f) of the Code and any temporary, proposed or final Regulations as may be applicable to the Bonds from time to time. The Borrower shall provide to the Trustee a copy of each calculation of rebate liability prepared by or on behalf of the Borrower, which documentation shall be made available to the Authority upon request.”

Borrower o has complied o has not complied o is not yet required to comply o is no longer required to comply with this requirement.

2. Per section 5.9(a) of the Loan Agreement, the Borrower is required to send a Certificate of the Borrower to the Authority and the Trustee. Section 5.9(a) reads, in part, as follows:

“…On or before June 15 and December 15 of each year any of the Bonds are Outstanding, commencing June 15, 2017, a Certificate of the Borrower that: (i) all payments required under this Loan Agreement have been made and (ii) any applicable third party credit support will continue in full force during the succeeding twelve months, or explaining why not;”

Borrower o has o has not complied with this requirement.

D-1

3. Per section 5.3(b) of the Loan Agreement, Borrower agrees to keep financial statements, provide notice to the Authority and the Trustee certification they are completed and that no event which constitutes a loan default has occurred. Section 5.3(b) reads, in part, as follows:

“…The Borrower further covenants and agrees, within 120 days after the end of each Fiscal Year, to furnish to the Authority and the Trustee a Certificate of the Borrower stating that its financial statements have been completed and that no event which constitutes a Loan Default Event or which with the giving of notice or the passage of time or both would constitute a Loan Default Event has occurred and is continuing as of the end of such Fiscal Year, or specifying the nature of such event and the actions taken and proposed to be taken by the Borrower to cure such default.”

Borrower o has o has not complied with this requirement.

4. Per section 5.9(d) of the Loan Agreement, the Borrower is required to send a Certificate of the Borrower to the Authority and the Trustee. Section 5.9(d) reads, in part, as follows:

“…On or before December 15 of each year during which any of the Bonds are Outstanding, (i) a written disclosure of any significant change known to the Borrower which would adversely impact the Trustee’s ability to perform its duties under the Indenture, or of any conflicts which may result because of other business dealings between the Trustee and the Borrower, and (ii) a representation of the Borrower that all certificates, approvals, permits and authorizations described in the Section 2.3(h) that are necessary for the construction, as applicable, use or operation of the Project continue in full force and effect, provided that with respect to any such certificate, approval, permit or authorization that must issue without discretion on the part of the issuer thereof, the Borrower need only disclose the absence of such certificate, approval, permit or authorization and the Borrower’s plan to acquire it.”

Borrower o has o has not complied with this requirement.

If you answered "has not" to any of the above, please explain on a separate paper. If any of the above has been waived by the Authority pursuant to the Loan Agreement so indicate.

I represent and warrant that I have full authority to execute this certificate on behalf of the Borrower. I certify in my capacity as an Authorized Representative of the Borrower that the foregoing certificate for the above-referenced financing is true and correct.



By _______________________________ Authorized Borrower Representative Title _____________________________	Date __________________________ Phone No. _____________________

D-2

TABLE OF CONTENTS



		Page
ARTICLE I DEFINITIONS		2
	SECTION 1.1. Definition of Terms	2
	SECTION 1.2. Number and Gender	2
	SECTION 1.3. Articles, Sections, Etc .	2
ARTICLE II REPRESENTATIONS		2
	SECTION 2.1. Findings of the Authority	2
	SECTION 2.2. Representations of the Authority	3
	SECTION 2.3. Representations and Warranties of the Borrower	3
ARTICLE III CONSTRUCTION OF THE PROJECT; ISSUANCE OF THE BONDS		6
	SECTION 3.1. Agreement to Construct the Project; Modifications of the Project	6
	SECTION 3.2. Disbursements from the Project Fund; Disbursements from the Costs Of Issuance Fund.	6
	SECTION 3.3. Establishment of Completion Date; Obligation of Borrower to Complete	8
	SECTION 3.4. Investment of Moneys in Fund	8
ARTICLE IV LOANS OF PROCEEDS; REPAYMENT PROVISIONS		9
	SECTION 4.1. Loan of Bond Proceeds; Issuance of Bonds	9
	SECTION 4.2. Repayment And Payment of other Amounts Payable	9
	SECTION 4.3. Unconditional Obligation	10
	SECTION 4.4. Ass ignment of Authority’s Rights	11
	SECTION 4.5. Amounts Remaining in Funds	11
ARTICLE V SPECIAL COVENANTS AND AGREEMENTS		11
	SECTION 5.1. Right of Access to the Project	11
	SECTION 5.2. The Borrower’s Maintenance of its Existence; Assignments; Permitted Transfers of the Project	12
	SECTION 5.3. Records and Financial Statements of Borrower	15
	SECTION 5.4. Insurance	16
	SECTION 5.5. Maintenance and Repair; Taxes; Utility and Other Charges	16
	S ECTION 5.6. Qualification in California	16
	SECTI ON 5.7. General Tax Covenants	16
	SECTION 5. 8. Special Arbitrage Certifications; Rebate	17
	SECTION 5. 9. Notice and Certificates to Trustee	17
	SECTION 5.1 0. Financing and Continuation Statements	17
	SECTIO N 5.11. Continuing Disclosure	18



	SECTION 5.12. Changes to the Project	18
ARTICLE VI LOAN DEFAULT EVENTS AND REMEDIES		18
	SECTION 6.1. Loan Default Events	18
	SEC TION 6.2. Remedies on Default	19
	SECTION 6.3. Agreement to Pay Attorneys’ Fees and Expenses	20
	SECTI ON 6.4. No Remedy Exclusive	21
	SECTION 6.5. No Additional Waiver Implied By One Waiver	21
ARTICLE VII PREPAYMENT		21
	SECTION 7.1. Redemption of Bonds with Prepayment Moneys	21
	SECTION 7.2. Option to Prepay Installments	21
	SECTIO N 7.3. Mandatory Prepayment	21
	SECT ION 7.4. Amount of Prepayment	22
	SECT ION 7.5. Notice of Prepayment	22
ARTICLE VIII NON-LIABILITY OF AUTHORITY; EXPENSES; INDEMNIFICATION		23
	SECTION 8.1. Non-Liability of Authority	23
	SECTION 8.2. Expenses	23
	SECTION 8.3. Indemnification	23
ARTICLE IX MISCELLANEOUS		24
	SECTION 9.1. Notices	24
	SECTION 9.2. Severability	25
	SECTION 9.3. Execution of Counterparts	25
	SECTION 9.4. Amendments, Changes and Modifications	25
	SECTI ON 9.5. Governing Law; Venue	25
	SECTION 9.6. Authorized Representative	26
	SECTIO N 9.7. Term of the Agreement	26
	SECTION 9.8. Binding Effect.; Third Party Beneficiary	26
	SECTION 9.9. Survival of Fee Obligation; No Prevailing Party	26
	SECTION 9.10. Liability of Authority Limited to Revenues	26
	SECTION 9.11. Waiver of Personal Liability	27
	SECTION 9.12. Opinion of Bond Counsel	27
	SECTION 9.13. Complete Agreement	27
	EXHIBIT A DESCRIPTION OF THE PROJECT	A-1
	EXHIBIT B LEASES RELATING TO THE PROJECT	B-1
	EXHIBIT C FINAL PROJECT COMPLETION CERTIFICATE	C-1
	EXHIBIT D FORM OF ANNUAL BORROWER CERTIFICATE	D-1

Exhibit 10.9

EXECUTION VERSION

$70,000,000
CALIFORNIA POLLUTION CONTROL FINANCING AUTHORITY
REVENUE BONDS
(SAN JOSE WATER COMPANY PROJECT)
SERIES 2016

BOND PURCHASE CONTRACT

December 15, 2016

The Honorable John Chiang

Treasurer of the State of California

915 Capitol Mall, Room 261

Sacramento, California 95814

California Pollution Control Financing Authority

915 Capitol Mall, 5 ^th Floor

Sacramento, California 95814

Ladies and Gentlemen:

The undersigned, Morgan Stanley & Co. LLC and RBC Capital Markets, LLC, as underwriters (collectively, the “ Underwriters ”), hereby offer to enter into this Bond Purchase Contract, including the appendices hereto (the “ Purchase Contract ”) with you, the Honorable John Chiang, Treasurer of the State of California (the “ State Treasurer ”), as agent for sale, the California Pollution Control Financing Authority (the “ Authority ”) and San Jose Water Company (the “ Borrower ”), for the purchase by the Underwriters and the issuance and sale by the Authority of the Bonds specified below. This offer is made subject to acceptance by the State Treasurer, the Authority and the Borrower prior to 11:59 p.m., California time, on the date hereof, and upon such acceptance this Purchase Contract shall be in full force and effect in accordance with its terms and shall be binding upon the State Treasurer, the Authority, the Underwriters and the Borrower. Any capitalized term used herein and not otherwise defined shall have the meaning given such term as set forth in the Indenture hereinafter defined.

1. Purchase and Sale . Upon the terms and conditions and upon the basis of the representations set forth herein, each Underwriter hereby agrees, severally and not jointly, to purchase from the State Treasurer, as agent for sale on behalf of the Authority, and the State Treasurer, as agent for sale on behalf of the Authority, hereby agrees to deliver to the Underwriters, at a purchase price of 100% of the principal amount thereof, the percentage of aggregate principal amount of California Pollution Control Financing Authority Revenue Bonds (San Jose Water Company Project) Series 2016 (the “ Bonds ”) set forth opposite such Underwriter’s name in Schedule I hereto, to be dated as of the date of delivery thereof and as more fully described in the Indenture hereinafter defined. The purchase price for the Bonds shall be $70,000,000, representing the aggregate principal

DMEAST #27141426 v7

amount of the Bonds. Simultaneously with the delivery of the Bonds, a fee in the aggregate amount of $245,000 will be paid to the Underwriters in connection with the Underwriters’ offering and sale of the Bonds to the public.

2. The Bonds . The Bonds will be issued under the provisions of the California Pollution Control Financing Authority Act, commencing with Section 44500 of the California Health and Safety Code, as now in effect and as it may from time to time hereafter be amended or supplemented (the “ Act ”). The Bonds shall be substantially in the form and subject to redemption as described in, and shall be issued and secured under and pursuant to the provisions of, an Indenture, dated as of December 1, 2016 (the “ Indenture ”), by and between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “ Trustee ”). The Bonds are secured by payments made by the Borrower to the Authority pursuant to a Loan Agreement, dated as of December 1, 2016 (the “ Loan Agreement ”), by and between the Authority and the Borrower. The proceeds of sale of the Bonds will be loaned to the Borrower and applied to (a) finance the Project, and (b) pay certain costs associated with the issuance of the Bonds.

3. Official Statement . The Authority and the Borrower hereby ratify, confirm and approve of the use and distribution by the Underwriters prior to the date hereof of the Preliminary Official Statement relating to the Bonds (including the cover page and all appendices thereto), dated December 7, 2016, together with any supplements thereto (the “ Preliminary Official Statement ”). The Authority and the Borrower shall deliver or cause to be delivered to the Underwriters a reasonable number of copies of the final Official Statement, dated the date hereof, relating to the Bonds, together with any amendments and supplements thereto (the “ Official Statement ”), executed on behalf of the Authority by its Executive Director or its Deputy Executive Director, with the approval thereof by the Borrower. The Underwriters agree to: (a) provide the Authority with final pricing information on the Bonds on a timely basis; (b) disseminate copies of the Official Statement including any supplements prepared by the Authority and the Borrower, and (c) take any and all other actions necessary to comply with applicable Securities and Exchange Commission rules and Municipal Securities Rulemaking Board rules governing the offering, sale and delivery of the Bonds to ultimate purchasers. The Borrower will execute a certificate to provide continuing disclosure pursuant to an agreement to be dated the Closing Date (the “ Continuing Disclosure Agreement ”) in substantially the form attached as Exhibit D to the Official Statement.

4. Representations, Warranties and Agreements of the Authority . The Authority, subject to the limitations provided herein, warrants, represents to and agrees with the Underwriters with respect to the Bonds that:

(a) The Authority is a public instrumentality and political subdivision of the State of California authorized under the Act to issue the Bonds and to exercise all rights and powers permitted under the Act;

(b) The Authority has complied with the provisions of the Act and all other applicable laws, rules and regulations necessary, and has the requisite power and authority, to (i) execute and deliver this Purchase Contract, the Indenture and the Loan Agreement (collectively, the “ Legal Documents ”), (ii) issue and deliver the Bonds as provided in this Purchase Contract, and

DMEAST #27141426 v7

(iii) consummate the transactions on its part contemplated by, and perform its obligations under the Legal Documents;

(c) By the adoption of its resolution, dated December 6, 2016 (the “ Authorizing Resolution ”), the Authority has duly authorized the distribution of the Preliminary Official Statement and the Official Statement, and approved the execution and delivery of, and the due performance by the Authority of the obligations on its part contained in the Legal Documents and the Bonds and the consummation by the Authority of the transactions contemplated thereby and hereby;

(d) When executed and delivered on the Closing Date (as hereinafter defined) in accordance with the provisions of this Purchase Contract and assuming the due authorization, execution, and delivery by the other respective parties thereto, the Legal Documents and the Bonds will constitute valid and binding obligations of the Authority enforceable against the Authority in accordance with their respective terms, except as their enforceability may be limited by reasons of bankruptcy, insolvency, reorganization or other laws generally affecting creditors’ remedies; the application of equitable principles regardless of whether equitable remedies are sought; by provisions of California law governing claims against public agencies; and by matters of public policy;

(e) To the best knowledge of the Authority, the execution and delivery by the Authority of the Legal Documents and the Bonds and compliance with the terms thereof will not conflict with, or constitute a violation, breach of, or default under, any loan agreement, indenture, bond, note, resolution or any other agreement or instrument to which the Authority is a party or by which it is bound, or any law or any rule, regulation, order or decree of any court or governmental agency or body having jurisdiction over the Authority or any of its activities or properties, or result in the creation or imposition of any prohibited lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the Authority pledged to pay the principal of and interest on the Bonds, which conflict, violation, breach, default, lien, charge or encumbrance would materially and adversely affect the transactions contemplated hereby or which, in any way, would materially and adversely affect the validity of the Bonds or any of the Legal Documents; provided, however, that no representation is made regarding compliance with any federal or state securities or “blue sky” laws;

(f) There is no action, suit, or proceeding at law or in equity before or by any court, or any inquiry or investigation before or by any governmental agency, public board, or body, with respect to which service of process on the Authority has been completed or to the best knowledge of the Authority, without independent investigation, threatened against the Authority: (i) seeking to prohibit, restrain, or enjoin the execution and delivery of the Bonds by the Authority or the collection of revenues pledged or to be pledged to pay the principal of and interest on the Bonds; (ii) contesting or seeking to affect the validity or enforceability of the Bonds or the Legal Documents; or (iii) contesting the power of the Authority to enter into, adopt, or perform its obligations under any of the foregoing documents wherein an unfavorable decision, ruling, or finding would materially and adversely affect the transactions contemplated hereby, or which would materially and adversely affect the validity of the Bonds or the Legal Documents;

DMEAST #27141426 v7

(g) No consent, approval, authorization, or other action by any governmental or regulatory authority having jurisdiction over the Authority that has not been obtained is or will be required for the execution and delivery of the Bonds or the consummation by the Authority of the financing transactions on its part contemplated by this Purchase Contract, except as such may be required for the state securities or “blue sky” laws, for final filings or notice to the California Debt Limit Allocation Committee or the California Debt and Investment Advisory Commission, and for filings to be made to the Internal Revenue Service on Form 8038;

(h) To the best knowledge of the Authority, without independent investigation, (i) the Authority is not in breach of or in default under (A) any applicable law or administrative regulation of the State of California or the United States or any applicable judgment or decree, or (B) any loan agreement, indenture, bond, note, resolution, agreement, or other instrument to which the Authority is a party or is otherwise subject; and (ii) no event has occurred and is continuing which, with the passage of time or the giving of notice or both, would constitute an event of default under any such instrument, which breach or default would materially and adversely affect the transactions contemplated hereby and by the Official Statement or which, in any way would materially and adversely affect the validity of the Bonds or the Legal Documents; provided that no representation is made regarding compliance with any federal or state securities or “blue sky” laws;

(i) As of the date hereof, the statements and information contained in the Official Statement under the captions “THE AUTHORITY” and “ABSENCE OF MATERIAL LITIGATION,” (solely as it relates to the Authority) do not contain any untrue statement of a material fact or omit to state a material fact which is necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and

(j) The Authority agrees to cooperate with the Underwriters and their counsel in endeavoring to qualify the Bonds for offering and sale under the securities or blue sky laws of such jurisdictions of the United States as the Underwriters may request; provided, however, that the Authority will not be required to execute a consent to service of process or to qualify as a foreign corporation in connection with any such qualification in any jurisdiction in which it is not now so subject.

Any certificate signed by any officer of the Authority and delivered to the Underwriters shall be deemed a representation and warranty of the Authority to the Underwriters as to the statements made therein.

The execution and delivery of this Purchase Contract by the Authority shall constitute a representation by the Authority to the Underwriters that the representations and warranties contained in this Section 4 are true as of the date hereof; provided, however, that the Authority makes no representations or warranties as to the Borrower or any party to the agreements or instruments described herein other than the Authority and does not represent or warrant in any respect as to any of the statements, information (financial or otherwise), action taken or to be taken, representations or certifications furnished, or to be made and furnished, by the Borrower or any parties to the agreements or instruments described herein other than the Authority in connection with the execution and delivery of the Bonds or any such statements or information (financial or otherwise) contained in the Official Statement or the Legal Documents. Additionally, as to matters of law other than

DMEAST #27141426 v7

federal tax law the Authority is relying on the advice of counsel to the Authority; and as to matters of federal tax law the Authority is relying on the advice of Bond Counsel (as hereinafter defined).

No member of the governing body of the Authority, or any officer or employee of the Authority, shall be individually liable for the breach of any representation, warranty, or agreement contained herein.

5. Representations, Warranties and Agreements of Borrower . In order to induce the State Treasurer, the Authority and the Underwriters to enter into the Purchase Contract, the Borrower hereby represents, warrants, covenants and agrees with each of such parties, as follows:

(a) The Borrower is a corporation duly organized and in good standing under the laws of the State of California, and has full power and authority to enter into this Purchase Contract, the Loan Agreement, the Tax Certificate and the Continuing Disclosure Agreement (collectively, the “ Borrower Documents ”) and to approve the Indenture, the Preliminary Official Statement, and the Official Statement, and to carry out and consummate all transactions contemplated by the Borrower Documents, the Indenture and the Official Statement and by proper action has duly authorized the execution and delivery of the Borrower Documents and the approval of the Indenture, the Preliminary Official Statement and the Official Statement;

(b) Each officer of the Borrower executing the Borrower Documents and approving the Indenture and the Official Statement is duly and properly authorized to approve, execute, and deliver the same on behalf of the Borrower;

(c) All information provided by the Borrower and all representations made by the Borrower in its application to the Authority are true and correct as of the date hereof.

(d) The Indenture, the Preliminary Official Statement, and the Official Statement have been duly approved by the Borrower; this Purchase Contract has been duly authorized, executed, and delivered by the Borrower; the Loan Agreement, the Tax Certificate and the Continuing Disclosure Agreement have each been duly authorized and, at the Closing, will have been duly executed and delivered by the Borrower; and (i) the Loan Agreement, when assigned to the Trustee pursuant to the Indenture, will, to the extent of such assignment, constitute the valid and binding agreement of the Borrower with the Trustee enforceable against the Borrower in accordance with its terms for the benefit of the Owners of the Bonds, and (ii) the Borrower Documents, to the extent that any rights of the Authority and obligations of the Borrower thereunder are not so assigned to the Trustee, will constitute the valid and binding agreements of the Borrower enforceable against the Borrower in accordance with their respective terms; except as enforcement of each of the above-named documents may be limited by bankruptcy, insolvency, moratorium, and other laws affecting the enforcement of creditors’ remedies and by the application of such equitable principles, regardless of whether equitable remedies are sought;

(e) Except as disclosed in the Official Statement, to the best knowledge of the Borrower, after due inquiry, the Borrower is not in breach of or default under (i) any applicable law or administrative regulation of the State of California or the United States or any applicable judgment or decree or (ii) any loan agreement, indenture, bond, note, resolution, agreement or other instrument

DMEAST #27141426 v7

to which the Borrower is a party or is otherwise subject, and no event has occurred and is continuing which, with the passage of time or the giving of notice or both, would constitute an event of default under any such instrument, which breach or default or event of default could materially adversely affect the ability of the Borrower to repay the loan of the proceeds of the Bonds and perform its obligations under the Borrower Documents;

(f) The execution and delivery of this Purchase Contract; the approval of the Indenture, the Preliminary Official Statement, and the Official Statement; the execution and delivery of the Loan Agreement, the Tax Certificate and the Continuing Disclosure Agreement at the Closing; the consummation of the transactions contemplated by, and the fulfillment of or compliance with the terms and conditions of, the Borrower Documents will not conflict with or constitute a violation, breach of, or default (with due notice or the passage of time or both) under the Articles of Incorporation of the Borrower, its bylaws, or, after due inquiry, any applicable law or administrative rule or regulation, or any applicable court or administrative decree or order, or any indenture, mortgage, deed of trust, loan agreement, lease, contract or other agreement or instrument to which the Borrower is a party or by which it or its properties are otherwise subject or bound, or result in the creation or imposition of any prohibited lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the Borrower, which conflict, violation, breach, default, lien, charge or encumbrance might have consequences that would materially and adversely affect the consummation of the transactions contemplated by the Borrower Documents or the financial condition, assets, properties or operations of the Borrower;

(g) Except for certain consents, permissions, authorizations, discretionary permits, or licenses in connection with the acquisition and construction of the Project, which will be obtained on a timely basis and which have been disclosed in writing to the Authority and the Underwriters, no consent or approval of any trustee or holder of any indebtedness of the Borrower, and no consent, permission, authorization, order or license of, or filing or registration with, any governmental authority (except in connection with “blue sky” laws) is necessary in connection with (i) the execution and delivery of this Purchase Contract; (ii) the execution and delivery of the Loan Agreement, the Tax Certificate and the Continuing Disclosure Agreement at the Closing; (iii) the approval of the Indenture and the Official Statement; or (iv) the consummation of any transaction contemplated in the Borrower Documents, except as have been obtained or made and as are in full force and effect (or, in case of the Loan Agreement, the Tax Certificate or the Continuing Disclosure Agreement, will be obtained or made and will be in full force and effect at the Closing);

(h) Except as disclosed in the Official Statement, there is no action, suit, proceeding, inquiry, or investigation before or by any court or federal, state, municipal or other government authority pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or the assets, properties or operations of the Borrower which, if determined adversely to the Borrower or its interests, could have a material and adverse effect upon the consummation of the transactions contemplated by the performance of or the validity of this Purchase Contract, the Loan Agreement, the Tax Certificate, the Official Statement or the Continuing Disclosure Agreement, or the financial condition, assets, properties or operations of the Borrower;

DMEAST #27141426 v7

(i) The proceeds of the Bonds will be used in connection with the financing of a “project” as defined in the Act, and as of the date hereof, the Borrower together with its affiliates is a “small business,” as defined in Section 8020 of Title 4 of the California Code of Regulations, and the Borrower together with its Participating Affiliates is a “participating party” under the Act.

(j) The Borrower has all necessary power and authority to conduct the business now being conducted by it and as contemplated by the Borrower Documents and the Official Statement to approve the Indenture, the Preliminary Official Statement, and the Official Statement;

(k) The Borrower has obtained, or will obtain as soon as reasonably practicable, the necessary governmental agency approvals, all variances from applicable zoning ordinances and all building permits and easements or licenses required for the completion and equipping of the Project, and such governmental agency approvals, variances, permits, easements, and licenses constitute all approvals required to complete the Project, except as provided in the Official Statement. The Project is not subject to change by any administrative or judicial body so as to materially affect such completion;

(l) The Borrower has not incurred any material liability, direct or contingent, nor has there been any material adverse change in the financial position, results of operations or condition, financial or otherwise, of the Borrower from that shown in the Official Statement which has not heretofore been described in writing to the Authority, the State Treasurer and the Underwriters, whether or not arising from transactions in the ordinary course of business;

(m) As of the date hereof, the Official Statement (including any financial and statistical data contained in the Official Statement) as amended or supplemented pursuant to this Purchase Contract, if applicable, does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that no representation is made as to the statements and information concerning the book-entry only system and contained under the captions “THE AUTHORITY,” “ABSENCE OF MATERIAL LITIGATION (solely as it relates to the Authority), “UNDERWRITING,” and “TAX MATTERS”;

(n) The balance sheets of the Borrower as of December 31, 2015 and 2014 and the related statements of income and cash flows for each of the three years in the period ended December 31, 2015, included in Appendix A to the Official Statement, present fairly the financial position of the Borrower as of December 31, 2015 and 2014, and the results of operations and cash flows for each of the three years in the period ended December 31, 2015, and are in conformity with generally accepted accounting principles applied on a consistent basis, as required by generally accepted accounting principles;

(o) The Borrower agrees to indemnify and hold harmless each of the State Treasurer, the Authority and the Underwriters, and each person, if any, who controls (as such term is defined in Section 15 of the Securities Act of 1933, as amended) any of them and the trustees, officers, members, agents and employees of the Authority, the State Treasurer and the Underwriters (collectively, the “ Indemnitees ”) against any and all losses, claims, damages, liabilities and expenses arising out of any statement or information in the Preliminary Official Statement (other than the

DMEAST #27141426 v7

information contained under the captions “THE AUTHORITY” and “ABSENCE OF MATERIAL LITIGATION” (solely as it relates to the Authority) and, in the case of the Underwriters, other than the information contained under the caption “UNDERWRITING”) or in the Official Statement (other than the information contained under the captions “THE AUTHORITY” and “ABSENCE OF MATERIAL LITIGATION” (solely as it relates to the Authority) and, in the case of the Underwriters, other than the information contained under the caption “UNDERWRITING”) that is or is alleged to be untrue or incorrect in any material respect or the omission or alleged omission therefrom of any statement or information that should be stated therein or that is necessary to make the statements therein not misleading in any material respect or from the failure or alleged failure to register any security under the Securities Act of 1933, as amended, or to qualify any indenture under the Trust Indenture Act of 1939, as amended, in connection with the public offering and sale of the Bonds. In case any claim shall be made or action brought against any Indemnitee based upon the Official Statement for which indemnity may be sought against the Borrower, as provided above, such Indemnitee shall promptly notify the Borrower in writing setting forth the particulars of such claim or action and the Borrower shall assume the defense thereof, including the retaining of counsel acceptable to such Indemnitee and the payment of all expenses. Any Indemnitee shall have the right at any time to retain separate counsel in any such action and to participate in the defense thereof but shall bear the fees and expenses of such counsel unless (i) the Borrower shall have specifically authorized the retaining of such counsel, (ii) the Borrower has failed to assume the defense and employ counsel reasonably acceptable to the Indemnitee, (iii) the Attorney General of the State of California assumes the defense of the Authority or the State Treasurer or the trustees, officers, members, agents and employees of the Authority or the State Treasurer, or (iv) the parties to such suit include such Indemnitee and the Borrower, and such Indemnitee has been advised by such counsel that one or more legal defenses may be available to it which may not be available to the Borrower or that representation of such Indemnitee and the Borrower by the same counsel would be inappropriate under applicable standards of professional conduct due to actual or potential differing interests between them (in which case the Borrower shall not have the right to assume the defense of such action on behalf of the Indemnitee, but the Borrower shall not be liable for the fees and expenses of more than one counsel for each Indemnitee);

(p) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in Section 5(o) hereof is applicable but for any reason is held to be unavailable from the Borrower, the Borrower and the Underwriters shall contribute to the aggregate losses, claims, damages and liabilities (including any investigation, legal, and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claims asserted, to which the Borrower and the Underwriters may be subject, but after deducting any contribution received by the Borrower from persons who control the Borrower within the meaning of the Securities Act of 1933, as amended, or from the authorized representative of the Borrower who signed the Official Statement, who may also be liable for contribution) in such proportion that the Underwriters are jointly responsible for that portion represented by the percentage that the underwriting fee set forth in the Official Statement bears to the public offering price appearing thereon and the Borrower is responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act of 1933, as amended) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 5(p), each person,

DMEAST #27141426 v7

if any, who controls each of the Underwriters within the meaning of the Securities Act of 1933, as amended, shall have the same rights to contribution as the Underwriters and each person, if any, who controls the Borrower within the meaning of the Securities Act of 1933, as amended, and the authorized representative of the Borrower who shall have signed the Official Statement shall have the same rights to contribution as the Borrower. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this Section 5(p), notify such party or parties from whom contribution may be sought, but the omission to so notify such party from whom contribution may be sought shall not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have hereunder or otherwise than under this Section 5(p). No party shall be liable for contribution with respect to any action or claim settled without its consent;

(q) The Borrower confirms that the Preliminary Official Statement is “final” (except as permitted under Rule 15c2-12 under the Securities Exchange Act of 1934 (the “ Rule ”)) and the Official Statement is “complete” as of its date within the meaning of the Rule. The use of the Official Statement by the Underwriter is authorized by the Borrower; and

(r) The representations, warranties, agreements and indemnities herein shall survive the Closing Date under the Purchase Contract and any investigation made by or on behalf of any Indemnitee of any matters described in or related to the transactions contemplated by this Purchase Contract, the Official Statement, the Loan Agreement, the Indenture, the Tax Certificate or the Continuing Disclosure Agreement.

6. Closing . At 8:00 a.m., California time, on December 20, 2016, or at such other time or on such earlier or later date as the Authority, the Borrower and the Underwriters mutually agree upon (the “ Closing Date ”), the Authority will deliver or cause to be delivered to the Underwriters, who shall deliver or cause to be delivered to The Depository Trust Company in New York, New York (“ DTC ”) (or such other locations as may be designated by the Underwriters and approved by the Authority), the Bonds in book-entry form, duly executed and authenticated, and will deliver to the Underwriters at the Law Offices of Leslie M. Lava, 1 Blackfield Drive, #143, Tiburon, California 94920 (or such other location as may be designated by the Underwriters and approved by the Authority), the other documents herein mentioned. The Underwriters will pay the purchase price of the Bonds as set forth in Section 1 hereof by wire transfer to the order of the Trustee for the account of the Authority and will accept delivery of the Bonds as set forth below. This payment for and delivery of the Bonds, together with the delivery of the documents, is herein called the “ Closing ” or the “ Closing Date .” CUSIP identification numbers shall be printed on the Bonds; however, neither the failure to print CUSIP numbers on any Bond nor any error with respect thereto shall constitute cause for a failure or refusal by the Underwriters to accept delivery of and pay for the Bonds on the Closing in accordance with the terms of this Purchase Contract. The Bonds shall be made available to the Underwriters not less than one business day before the Closing for purposes of inspection and packaging.

The Bonds shall be registered in the name of Cede & Co., as nominee of DTC and shall be in the form of a single fully registered Bond for each maturity of the Bonds. The Authority

DMEAST #27141426 v7

acknowledges that the services of DTC will be used initially by the Underwriters in order to permit the issuance of the Bonds in book-entry form, and agrees to cooperate with the Underwriters in employing such services.

7. Underwriters’ Conditions to Closing . The Underwriters have entered into this Purchase Contract in reliance upon the representations and agreements of the Authority and the Borrower herein, the performance by the Authority and the Borrower of their respective obligations hereunder, both as of the date hereof and as of the Closing Date, and the opinions of counsel to the Authority and the Borrower. The Underwriters’ obligations under this Purchase Contract are and shall be subject to the following further conditions:

(a) At the time of Closing, this Purchase Contract, the Indenture, the Loan Agreement and the Continuing Disclosure Agreement shall each be in full force and effect as valid and binding agreements between or among the various parties thereto and said documents and the Official Statement shall not have been amended, modified or supplemented except as may have been agreed to in writing by the Underwriters and there shall be in full force and effect such resolutions as, in the opinion of Leslie M. Lava, Esq. (“ Bond Counsel ”), shall be necessary in connection with the transactions contemplated hereby;

(b) The Bonds shall have been duly authorized, executed and authenticated in accordance with the provisions of the Indenture;

(c) Between the date hereof and the Closing Date, the market price or marketability, at the initial offering price set forth in the Official Statement, of the Bonds shall not have been materially adversely affected, in the reasonable judgment of the Underwriters (evidenced by a written notice to the Authority, the State Treasurer and the Borrower, terminating the obligation of the Underwriters to accept delivery of and pay for the Bonds), after consultation with the Borrower, the Authority and the State Treasurer, by reason of any of the following:

(1) Legislation shall have been enacted by the Congress of the United States or the Legislature of the State of California or favorably reported thereto for passage by any committee to which such legislation has been referred for consideration or be pending before any such committee or shall have been recommended to the Congress of the United States for passage by the President of the United States or recommended to the Legislature of the State of California for passage by the Governor of the State of California, or a decision shall have been rendered by a court of the United States, including the Tax Court of the United States, or of the State of California, or a ruling or an official release shall have been made or a regulation shall have been proposed or made by the Treasury Department of the United States or the Internal Revenue Service or other federal or State of California authority having jurisdiction over tax matters, with respect to federal or State of California taxation upon revenues or other income of the Authority or the Borrower or upon interest on obligations of the general character of the Bonds, or other action or events shall have transpired that would, in the reasonable judgment of the Underwriters, have the purpose or effect, directly or indirectly, of changing the federal or State of California tax consequences of any of the transactions contemplated in connection herewith and that in the reasonable judgment of the Underwriters, affects materially and adversely (i) the market price or

DMEAST #27141426 v7

marketability of the Bonds or (ii) the ability of the Underwriters to enforce contracts for the sale of the Bonds;

(2) Legislation enacted in the Congress, or a decision rendered by a court established under Article III of the Constitution of the United States or by the Tax Court of the United States, or an order, ruling, regulation (final, temporary or proposed) or official statement issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, to the effect that obligations of the general character of the Bonds, or the Bonds, including any or all underlying arrangements, are not exempt from registration under the Securities Act of 1933, as amended, or that the Indenture is not exempt from qualification under the Trust Indenture Act of 1939, as amended, or suspending the use of the Official Statement or any amendment or supplement thereto or any proceeding for that purpose shall have been initiated or threatened in any such court or by any such authority;

(3) The outbreak or escalation of hostilities involving the United States, or the declaration by the United States of a national emergency or war, or the occurrence of any other national emergency or calamity relating to the effective operation of the government of or the financial community in the United States beyond that in effect at the date hereof;

(4) The declaration of a general banking moratorium by federal, New York or California authorities, or the general suspension of trading on any national securities exchange;

(5) The imposition by the New York Stock Exchange or other national securities exchange, or any governmental authority, of any material restrictions not now in force with respect to the Bonds or obligations of the general character of the Bonds or securities generally, or the material increase of any such restrictions now in force, including those relating to the extension of credit by, or the charge to the net capital requirements of, underwriters;

(6) An order, decree or injunction of any court of competent jurisdiction, or order, ruling, regulation or official statement by the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, issued or made to the effect that the issuance, offering or sale of obligations of the general character of the Bonds, or the issuance, offering or sale of the Bonds, including any or all underlying obligations, as contemplated hereby or by the Official Statement, is or would be in violation of the federal securities laws as amended and then in effect;

(7) The withdrawal or downgrading of the rating of the Bonds to less than “A” by Standard and Poor’s; or

(8) Any event occurring, or information becoming known which, in the reasonable judgment of the Underwriters, makes untrue in any material respect any statement or information contained in the Official Statement, or has the effect that the Official Statement

DMEAST #27141426 v7

contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;

(d) At or prior to the Closing, the Underwriters shall receive the following documents with respect to the Bonds, in each case satisfactory in form and substance to the Underwriters and Underwriters’ Counsel (as hereinafter defined):

(1) Certified copies of the Authorizing Resolution and any other resolutions adopted by the Authority which relate to the Bonds;

(2) The Indenture, the Loan Agreement and the Continuing Disclosure Agreement, each duly executed and delivered by the respective parties thereto, together with such amendments, modification or supplements as may have been agreed to in writing by the Underwriters;

(3) Copies of the Official Statement, executed by the Executive Director of the Authority or an authorized representative thereof, with the approval thereof executed on behalf of the Borrower by an authorized representative thereof;

(4) The unqualified approving opinion of Bond Counsel, dated the Closing Date and addressed to the Authority, in substantially the form attached as Appendix B to the Official Statement, together with a reliance letter addressed to the Underwriters;

(5) The supplemental opinion of Bond Counsel in a form acceptable to the Authority and the Underwriters and addressed to the Authority and the Underwriters, dated the Closing Date, to the effect that:

(A) The statements contained in the Official Statement, dated December 15, 2016 with respect to the Bonds (the “Official Statement”), under the captions “THE BONDS” (except for (i) the last two sentences contained in the first paragraph of the subsection thereunder entitled “General”, (ii) the second paragraph of the subsection thereunder entitled “Notice of Redemption” and (iii) the subsection thereunder entitled “DTC and the Book-Entry Only System”), “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS”, “THE LOAN AGREEMENT”, “THE INDENTURE” and “TAX MATTERS”, insofar as such statements expressly summarize certain provisions of the Bonds, the Indenture, the Loan Agreement or the opinion of Bond Counsel concerning certain federal tax matters relating to the Bonds, are accurate in all material respects;

(B) The Bonds are not subject to the registration requirements of the Securities Act of 1933, and the Indenture is exempt from qualification pursuant to the Trust Indenture Act of 1939; and

(C) The Purchase Contract has been duly authorized, executed and delivered by the Authority and, assuming due authorization, execution and

DMEAST #27141426 v7

delivery by and validity against each of the Underwriters and acceptance and agreement by the Borrower and the State Treasurer, is a valid and binding agreement of the Authority, subject to the laws relating to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against governmental entities in the State of California;

(6) The unqualified approving opinion of Special Tax Counsel, dated the Closing Date and addressed to the Authority, the Underwriters and Bond Counsel, in substantially the form attached as Appendix C to the Official Statement;

(7) The opinion of the Attorney General of the State of California, counsel to the Authority, addressed to the Authority, dated the Closing Date, in substantially the form attached hereto as Exhibit A;

(8) A certificate of the Authority, dated the Closing Date substantially in the form attached hereto as Exhibit B;

(9) Copies of the Articles of Incorporation of the Borrower and a good standing certificate of recent date, each certified by the Secretary of State; a good standing certificate of recent date for the Borrower certified by the Franchise Tax Board of the State and certified copies of the Borrower’s bylaws and resolutions or unanimous written consents of the Board of Directors of the Borrower authorizing the execution and delivery of the Loan Agreement, the Tax Certificate, the Continuing Disclosure Agreement and this Purchase Contract, approving the Indenture and the Official Statement (and distribution thereof) and authorizing the distribution of the Preliminary Official Statement;

(10) A certificate of an authorized representative of the Borrower acceptable to the Underwriters and the Authority, dated the Closing Date, to the effect that:

(A) No litigation is pending or, to the knowledge of such officer, threatened (i) to restrain or enjoin the issuance or delivery of any of the Bonds or the payments to be made by the Borrower under the Indenture or the Loan Agreement, (ii) in any way contesting or affecting the authority for the issuance or delivery of the Bonds or the validity of the Bonds, the Indenture, the Loan Agreement, the Tax Certificate, the Continuing Disclosure Agreement, the Official Statement or this Purchase Contract, or the resolutions of the Borrower relating to the Project and the Bonds, or (iii) in any way contesting the corporate existence or powers of the Borrower;

(B) No event has occurred since the date of the Official Statement which either makes untrue or incorrect in any material respect as of the Closing Date any statement or information contained in the Official Statement or is not reflected in the Official Statement but should be reflected therein in order to make the statements and information contained therein not misleading in any material respect;

DMEAST #27141426 v7

provided that no representation is made as to the statements and information concerning the book-entry only system and contained under the captions, “THE AUTHORITY,” “ABSENCE OF MATERIAL LITIGATION” (solely as it relates to the Authority), “UNDERWRITING,” and “TAX MATTERS”; and

(C) The representations and warranties of the Borrower contained in this Purchase Contract are true and correct as of the Closing Date as if made on and as of the Closing Date;

(11) The opinion of Ballard Spahr LLP, counsel to the Underwriters (“ Underwriters’ Counsel ”), dated the Closing Date and addressed to the Underwriters in form and substance satisfactory to the Underwriters;

(12) The opinion of counsel to the Borrower, addressed to the Authority, the Trustee, Bond Counsel and the Underwriters, dated the Closing Date, collectively to the effect that:

(A) The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California, with the corporate power and authority to own its properties and to conduct its current business as contemplated by the Official Statement; the Borrower together with its affiliates is a “small business,” as defined in Section 8020 of Title 4 of the California Code of Regulations; the Project is a “project” and the Borrower together with its Participating Affiliates is a “participating party” under the California Pollution Control Financing Authority Act, commencing with Section 44500 of the California Health and Safety Code, as now in effect;

(B) The Loan Agreement, the Tax Certificate, the Continuing Disclosure Agreement and this Purchase Contract have been duly authorized, executed and delivered by the Borrower and each is a valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, except as their enforceability may be limited by reasons of bankruptcy, insolvency, reorganization or other laws generally affecting creditors’ remedies or the application of equitable principles regardless of whether equitable remedies are sought, or matters of public policy;

(C) No authorization, approval, consent or license of any regulatory body or authority of the United States or the State of California not already obtained is required for the valid authorization, execution, delivery and performance of the Loan Agreement, the Tax Certificate, the Continuing Disclosure Agreement and this Purchase Contract. The execution and delivery of the Loan Agreement, the Tax Certificate, the Continuing Disclosure Agreement, the Official Statement and this Purchase Contract, and compliance therewith by the Borrower, will not result in (i) a violation of the Articles of Incorporation of the Borrower or bylaws of the Borrower, (ii) a breach or a default under any indenture, mortgage, deed of trust or other agreement or instrument to which the Borrower is a party or by which it or

DMEAST #27141426 v7

any of its property is bound, (iii) a violation of any law, rule or regulation of any administrative or governmental body having jurisdiction over the Borrower or its property or (iv) a violation of any judgment, order or decree of any court, government, or government agency or body having jurisdiction over the Borrower or any of its properties; and

(D) Except as disclosed in the Official Statement, (i) to our knowledge, there are no pending or threatened lawsuits or other proceedings against the Borrower (1) which seeks to restrain or enjoin the issuance or delivery of the Bonds, or the collection of the payments to be made pursuant to the Indenture or the Loan Agreement, (2) in any way contests or affects the authority for the issuance and delivery of the bonds or the validity of this Purchase Contract, the Bonds, the Indenture, the Loan Agreement, the Tax Certificate, the Continuing Disclosure Agreement, the Official Statement or the resolutions of the Borrower relating to the Project and the Bonds, (3) contests the corporate existence or powers of the Borrower, or (4) contests or affects the powers of the Borrower to enter into or perform its obligations or consummate the transactions contemplated under any of the foregoing; and (ii) to our knowledge, the Borrower is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or other governmental authority, which default would materially and adversely affect the consummation of the transactions contemplated by this Purchase Contract, the Bonds, the Indenture, the Loan Agreement, the Tax Certificate, the Continuing Disclosure Agreement or the financial condition, assets, properties or operations of the Borrower

(13) A letter from counsel to the Borrower addressed to the Authority, the Trustee, Bond Counsel and the Underwriters, dated the Closing Date, stating that nothing has come to the attention of counsel to the Borrower which would lead such counsel to believe that the statements and information contained in the Official Statement (except information concerning the book-entry only system and contained under the captions “THE AUTHORITY,” “ABSENCE OF MATERIAL LITIGATION” (solely as it relates to the Authority), “UNDERWRITING,” and “TAX MATTERS”) as of the date of the Official Statement and as of the Closing Date contained or contains any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading

(14) An opinion of counsel to the Trustee addressed to the Authority and the Underwriters, dated the Closing Date, to the effect that:

(A) The Trustee is a national banking association with trust powers, qualified to accept and administer funds, duly created and lawfully existing under the laws of the United States of America and has the authority to exercise trust powers in the State of California;

DMEAST #27141426 v7

(B) The Trustee has duly authorized by all necessary corporate action the execution, delivery, and performance of the Indenture;

(C) The Trustee has full power and corporate authority to accept the duties and obligations imposed on it by the Indenture and to authenticate the Bonds and the full legal power and authority to own its properties and to carry on its business;

(D) Upon execution and delivery of the Indenture, by a duly authorized officer of the Trustee, assuming due authorization, execution and delivery by the Authority, the Indenture will constitute the valid and binding agreement of the Trustee, enforceable against it in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, moratorium, and other laws affecting the enforcement of creditors’ remedies generally and by the application of equitable principles, regardless of whether equitable remedies are sought; and

(E) No authorization, consent or other order of any State of California or federal government authority or agency having jurisdiction in the matter is required to be obtained by the Trustee for the valid authorization, execution, delivery and performance by the Trustee of the Indenture;

(15) A certificate of the Trustee, dated the Closing Date, to the effect that:

(A) The Trustee is the Trustee under the Indenture, relative to the issuance and delivery of the Bonds;

(B) The Trustee is duly organized, validly existing, in good standing under the laws of the United States of America, has the authority to exercise trust powers in the State of California, and is empowered, authorized, and is duly qualified to serve as trustee and registrar pursuant to the Indenture and the other documents relating to the issuance of the Bonds;

(D) The Bonds have been duly authenticated and delivered by the Trustee, acting as registrar pursuant to the Indenture;

(E) The Trustee has received executed counterparts of the Indenture, the Loan Agreement, the Tax Certificate and the Continuing Disclosure Agreement;

(F) There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, governmental agency, public board or body, pending or to the best of the Trustee’s knowledge, threatened against the Trustee affecting the existence of the Trustee or the titles of its officers to their respective

DMEAST #27141426 v7

offices or seeking to prohibit, restrain or enjoin the authentication of the Bonds by the Trustee, or contesting the powers of the Trustee or its authority to perform its obligations under the Indenture or the Bonds.

(16) An agreed upon procedures letter from KPMG to the Underwriters in form and substance satisfactory to the Underwriters;

(17) The Tax Certificate executed by the Authority and the Borrower in form and substance satisfactory to Bond Counsel, Underwriters’ Counsel and the Underwriters;

(18) An executed copy of the DTC Blanket Letter of Representations;

(19) Evidence from Standard and Poor’s that the Bonds have been rated “A”;

(20) Evidence of required filings with the California Debt and Investment Advisory Commission and any other applicable governmental filings; and

(21) Such additional legal opinions, certificates, proceedings, instruments and other documents as Bond Counsel, Counsel to the Authority and Underwriters’ Counsel may reasonably request to evidence compliance by the Authority and the Borrower with legal requirements, the truth and accuracy, as of the time of Closing, of the representations contained herein and in the Official Statement and the due performance or satisfaction by the Authority and the Borrower, at or prior to such time, of all agreements then to be performed and all conditions then to be satisfied.

(e) All matters relating to this Purchase Contract, the Bonds and the offering and sale thereof, the Indenture, the Loan Agreement and the consummation of the transactions contemplated by this Purchase Contract shall have been approved or waived by the Underwriters.

8. Authority’s Conditions to Closing . The Authority’s obligations hereunder with respect to the Bonds shall be subject to the following conditions:

(a) The performance by the Borrower of its obligations, to be performed hereunder at or prior to the Closing; and

(b) No order, decree, injunction, ruling or regulation of any court, regulatory agency, public board or body shall have been issued, nor shall any legislation have been enacted, with the purpose or effect, directly or indirectly, of prohibiting the offering, sale or issuance of the Bonds as contemplated hereby or by the Official Statement.

(i) Executed counterparts of the Legal Documents;

DMEAST #27141426 v7

(ii) Duly executed originals or conformed copies, as may be determined by the Authority, of the letters, documents, certificates and opinions referred to in Section 7(d) hereof and such other certificates, opinions and documents reasonably required by the Authority; and

(iii) Evidence of payment or provision for payment of the fees of the Authority, the State Treasurer as agent for sale, and the California Debt Limit Allocation Committee.

In addition, not later than 10 days after the Closing, the Underwriters shall submit to the Authority the report(s) required by Section 1899.532 of Article 4 of Subchapter 4 of Chapter 4 of Division 2 of Title 2 of the California Code of Regulations, in substantially the form attached hereto as Exhibit C.

9. Supplements to Official Statement . Before the “End of Underwriting Period,” which will be deemed the Closing Date unless notified otherwise by the underwriter prior to closing and in no event longer than 25 days after the Closing Date, (a) the Authority will not adopt any amendment of or supplement to the Official Statement to which the Underwriters shall object in writing or which shall be disapproved by Underwriters’ Counsel and (b) if any event relating to or affecting the Authority or the Borrower shall occur as a result of which it is necessary, in the opinion of Underwriters’ Counsel, after consultation with the Authority, to amend or supplement the Official Statement in order to make the Official Statement not misleading in the light of the circumstances existing at the time it is delivered to the initial purchasers of the Bonds, the Authority and the Borrower will forthwith prepare and furnish to the Underwriters a reasonable number of copies of an amendment of or supplement to the Official Statement (in form and substance satisfactory to Underwriters’ Counsel, and at the expense of the Borrower) which will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Official Statement is delivered to the initial purchasers of the Bonds, not misleading. For the purposes of this section, the Authority and the Borrower will each furnish such information with respect to themselves as the Underwriters may from time to time request.

10. Expenses . (a) The Underwriters shall be under no obligation to pay, and the Borrower, pursuant to this Purchase Contract, shall pay all expenses and costs incident to the performance by the Authority of its obligations in connection with the authorization, issuance and delivery of the Bonds to the Underwriters. The Borrower shall pay all costs of issuance associated with the Bonds including the costs of preparing the Preliminary Official Statement and the Official Statement (and any amendment or supplement prepared pursuant to this Purchase Contract); and the fees and expenses of Underwriters’ Counsel and Counsel to the Authority any or all of which may be paid out of Bond proceeds; provided however that the Borrower’s obligations hereunder will not be limited by the availability of Bond proceeds.

(b) The Underwriters shall pay all expenses reasonably incurred by the Underwriters in connection with the offering and distribution of the Bonds, including but not limited to: (i) all advertising expenses in connection with the offering of the Bonds; (ii) all reasonable out-of-pocket disbursements and expenses incurred by the Underwriters in connection with the offering

DMEAST #27141426 v7

and distribution of the Bonds; (iii) the fees payable to the California Debt and Investment Advisory Committee; (iv) the costs of ordering CUSIP numbers and qualifying the Bonds with DTC and (v) all other expenses incurred by the Underwriters in connection with the offering and distribution of the Bonds.

11. Notices . Any notice or other communication to be given under this Purchase Contract:

(a) To the State Treasurer may be given by delivering the same in writing to the Treasurer of the State of California, 915 Capitol Mall, Room 261, Sacramento, California 95814;

(b) To the Authority may be given by delivering the same in writing to the California Pollution Control Financing Authority, 915 Capitol Mall, 5 ^th Floor, Sacramento, California 95814, Attention: Executive Director;

(c) To the Underwriters may be given by delivering the same in writing to Morgan Stanley & Co. LLC, 1585 Broadway, 16 ^th Floor, New York, New York 10036; and

(d) To the Borrower may be given by delivering the same in writing to San Jose Water Company, 110 West Taylor Street, San Jose, California 95110, Attention: Chief Financial Officer with copy to General Counsel.

All notices or communications hereunder by any party shall be given and served upon each other party. The approval of the Underwriters when required hereunder or the determination of satisfaction as to any document referred to herein shall be in writing signed by the Underwriters and delivered to the party requesting such approval or determination of satisfaction.

12. Parties In Interest; Survivability of Representations, Warranties and Agreements . This Purchase Contract shall be binding upon and inure solely to the benefit of each of the State Treasurer, the Authority, the Underwriters, and the Borrower and, to the extent set forth herein, persons controlling any of such parties, and their respective trustees, officers, members, employees, agents and personal representatives, successors and assigns, and no other person or firm shall acquire or have any right under or by virtue of this Purchase Contract. All representations, warranties and agreements of the Authority, the Underwriters, and the Borrower in this Purchase Contract shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Underwriters and shall survive the delivery of and payment for the Bonds.

13. Representations, Warranties and Agreements of Underwriters . The Underwriters represent and warrant to and agrees with the Authority and the State Treasurer that they are authorized to take any action under this Purchase Contract required to be taken by them and that this Purchase Contract is a binding contract of the Underwriters enforceable against the Underwriters in accordance with its terms. The Underwriters also represents that all information in the Official Statement under the heading “UNDERWRITING” was as of its date and is as of the date hereof true, accurate and correct.

DMEAST #27141426 v7

14. Arm’s Length Transaction . The State Treasurer, the Authority and the Underwriters acknowledge and agree that (i) the purchase and sale of the Bonds pursuant to this Purchase Contract is an arm’s-length, commercial transaction among the State Treasurer, the Authority and the Underwriters in which the Underwriters are acting solely as a principal and are not acting as an agent, advisor or fiduciary of the State Treasurer or the Authority, (ii) the Underwriters have not assumed any advisory or fiduciary responsibility to the State Treasurer or the Authority with respect to this Purchase Contract, the offering of the Bonds and the discussions, undertakings and procedures leading thereto (irrespective of whether the Underwriters, or any affiliate of the Underwriters, have provided other services or are currently providing other services to the State Treasurer or the Authority on other matters), (iii) the only contractual obligations the Underwriters have to the State Treasurer and the Authority with respect to the transactions contemplated hereby are those set forth in this Purchase Contract, (iv) the Underwriters have financial and other interests that differ from those of the State Treasurer and the Authority, and (v) the State Treasurer and the Authority have consulted with their own legal, accounting, tax, financial and other advisors, as applicable, to the extent they have deemed appropriate. Nothing in the foregoing paragraph is intended to limit the Underwriters’ obligations of fair dealing under MSRB Rule G-17.

15. Execution in Counterparts . This Purchase Contract may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.

16. Governing Law . This Purchase Contract shall be governed exclusively by and construed in accordance with the applicable laws of the State applicable to contracts made and performed in the State. This Purchase Contract shall be enforceable in the State and any action arising out of this Purchase Contract shall be filed with and maintained in Sacramento County Superior Court, Sacramento County, California, unless the Authority waives this requirement in writing.

The parties agree that the terms and conditions of this Purchase Contract supersede those of all previous agreements between the parties relating to the subject matter hereof, and that this Purchase Contract contains the entire agreement among the parties hereto relating to the subject matter hereof.

[Signature Page of Bond Purchase Contract Follows]

DMEAST #27141426 v7

IN WITNESS WHEREOF, this Purchase Contract has been executed as of the date first set forth above.

Very truly yours,

MORGAN STANLEY & CO. LLC

By: /s/ F. J. Sweeney

Name: F. J. Sweeney

Title: Managing Director

RBC CAPITAL MARKETS, LLC

By: /s/ Tim Williams

Name: Tim Williams

Title: Managing Director

Accepted and Agreed:

TREASURER OF THE STATE OF CALIFORNIA

By: /s/ Blake Fowler

Deputy Treasurer

For California State Treasurer John Chiang

CALIFORNIA POLLUTION CONTROL

FINANCING AUTHORITY

By: /s/ Reneé Webster-Hawkins

Executive Director

SAN JOSE WATER COMPANY, BORROWER

By: /s/ James P. Lynch

Authorized Representative

[Signature Page to Bond Purchase Contract for San Jose Water Company]

Schedule I



Underwriters		Percentage Liability
Morgan Stanley & Co. LLC..............................................................		60%
RBC Capital Markets, LLC...............................................................		40%

Total.................................................................................		100%

Sch. 1

EXHIBIT A

FORM OF OPINION OF COUNSEL TO THE AUTHORITY

December 20, 2016

California Pollution Control Financing Authority

801 Capitol Mall, Second Floor

Sacramento, CA 95814

$70,000,000

California Pollution Control Financing Authority

Revenue Bonds

(San Jose Water Company Project)

Series 2016

Ladies and Gentlemen:

This opinion is delivered to you in connection with the issuance of the above-referenced bonds (the “Bonds”) pursuant to Section 7(d)(7) of a bond purchase contract, dated December 15, 2016 (the “Purchase Contract”), among the California Pollution Control Financing Authority (the “Authority”), the Treasurer of the State of California, as agent for sale on behalf of the Authority, Morgan Stanley & Co. LLC and RBC Capital Markets, LLC , as underwriters , and approved by San Jose Water Company, as borrower (the “Borrower”).

The Bonds are being issued pursuant to the California Pollution Control Financing Authority Act, Division 27 of the Health and Safety Code (commencing with section 44500) (the “Act”) and an Indenture, dated as of December 1, 2016 (the “Indenture”), by and between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). The proceeds of the Bonds are being loaned by the Authority to the Borrower pursuant to a Loan Agreement, dated as of December 1, 2016 (the “Loan Agreement”), between the Authority and the Borrower. Capitalized terms used herein and not otherwise defined shall have the meanings given such terms in the Indenture.

The Authority’s only sources of payment for the principal of, premium, if any, or interest on the Bonds are Revenues from payments by the Borrower and certain other limited sources provided for and described in the Indenture. The Authority is not obligated to pay the principal of, premium, if any, or interest on the Bonds except from such Revenues and other limited sources provided for and described in the Indenture. Neither the faith and credit nor the taxing power of the State of California or any subdivision thereof, or any local agency, is pledged to the payment of the principal of, premium, if any, or interest on the Bonds. The Authority has no taxing power with which to provide for payment of the principal of, premium, if any, or interest on the Bonds, nor does it have the power to commit the faith and credit or the taxing power of the State of California

A-1

or any subdivision thereof, or any local agency, to payment of the principal of, premium, if any, or interest on the Bonds.

As to questions of fact material to this opinion, we have relied upon representations contained in the Indenture, the Loan Agreement and the Purchase Contract (“Authority Documents”) and in certain certificates, documents, records, statements, and opinions furnished by, or on behalf of, the Authority and the Borrower, without undertaking to verify such facts by independent investigation. We have reviewed the Authority Documents, certificates of the Authority and others, certain parts of the official statement relating to the Bonds dated December 15, 2016 (the “Official Statement”) under the headings, “THE AUTHORITY” and “ABSENCE OF MATERIAL LITIGATION” (solely as it relates to the Authority), and such other documents, opinions and matters to the extent deemed necessary to render the opinions set forth herein. In addition, we have assumed compliance with the covenants and agreements contained in the Authority Documents.

The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof, and we disclaim any obligation to update this opinion. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the Authority. We have not undertaken to verify independently, and have assumed, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the immediately preceding paragraph hereof.

We express no opinion as to whether interest on the Bonds is excluded from gross income for federal income tax purposes or exempt from State of California personal income taxes or as to any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. We express no opinion regarding the Tax Certificate (including as it may be referenced in any Authority Document). We take no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Bonds and express no opinion with respect thereto, except as expressly set forth in numbered paragraph 2 below.

Based upon and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the opinion that:

1. The Authority is a public instrumentality validly existing under the Constitution and laws of the State of California.

2. The Official Statement has been duly authorized, executed and delivered by the Authority, and the information contained in the Official Statement under the headings “THE AUTHORITY” and “ABSENCE OF MATERIAL LITIGATION” (solely as it relates to the Authority) is true and correct.

A-2

3. Resolution of the California Pollution Control Financing Authority Delegating Certain Powers and Authorizing Certain Actions Related to Bond Financings, adopted on January 19, 2016 and Final Resolution No. -- of the Authority, adopted on December 6, 2016, approving and authorizing the execution and delivery of the Authority Documents, the Bonds and the Official Statement, were duly adopted at meetings of the governing body of the Authority which were called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout.

4. There is no action, suit or proceeding pending (with service of process against the Authority having been accomplished) before any court, governmental agency, public board or body, or to our knowledge threatened, against the Authority to restrain or enjoin the issuance or delivery of the Bonds, the collection of Revenues pledged under the Indenture, the assignment of the Loan Agreement under the Indenture or the loaning of the proceeds of the Bonds to the Borrower under the Loan Agreement, or contesting any authority for the issuance of the Bonds, the validity of the Bonds, or the Authority Documents, or contesting the existence or powers of the Authority with respect to the issuance of the Bonds or the security therefor wherein an unfavorable decision, ruling or finding would have a material adverse effect on the transactions contemplated by the Authority Documents or the validity of the Bonds (it being understood that we have made no docket search of state or federal courts nor any other similar inquiry regarding such matters).

5. The execution and delivery of the Bonds and the Authority Documents by the Authority and the Authority’s compliance with the provisions thereof under the circumstances contemplated thereby do not and will not conflict with or constitute on the part of the Authority a breach of or default under any agreement or other instrument known to us to which the Authority is a party or by which it is bound, or under any existing law, regulation, court order or consent decree to which the Authority is subject, which conflict, breach or default would have a material adverse effect on the validity of the Bonds or the Authority Documents; provided that no representation is made regarding compliance with any federal or state securities or “blue sky” laws.

6. The Authority Documents have been duly authorized, executed, and delivered by the Authority and, assuming due authorization, execution and delivery by the other parties thereto, are valid and binding obligations of the Authority enforceable in accordance with their respective terms, and the Bonds have been duly authorized, executed and delivered by the Authority and, assuming due authentication by the Trustee, constitute the valid and binding limited obligations of the Authority, subject to the laws relating to receivership, bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws related to or affecting creditors’ remedies generally and to the application of equitable principles as the court having jurisdiction may impose, regardless of whether such enforceability is considered in a proceeding in equity or law, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against governmental entities in the State of California. We express no opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, non-exclusivity of remedies, severability, or waiver provisions contained in the Authority Documents.

A-3

7. The representations of the Authority set forth in Section 4 of the Purchase Contract are, as to all matters of law, true and accurate in all material respects at and as of the date hereof as though made on this date; and such representations are, as to all other matters, to our knowledge, true and accurate in all material respects at and as of the date hereof as though made on this date.

We are furnishing this letter to you as your counsel. It is being delivered to you as issuer of the Bonds, is solely for your benefit as such issuer, and is not to be used, circulated, quoted or otherwise referred to or relied upon for any other purpose or by any other person. This letter is not intended to, and may not, be relied upon by owners of the Bonds or by any other party to whom it is not specifically addressed.

Sincerely,

________________________

Deputy Attorney General

For KAMALA D. HARRIS

Attorney General

A-4

EXHIBIT B

FORM OF CERTIFICATE OF AUTHORITY

The undersigned STEVE JUAREZ, a Deputy Treasurer of the State of California, and RENEE’ WEBSTER-HAWKINS, Executive Director of the California Pollution Control Financing Authority (the “Authority”), a public instrumentality of the State of California, hereby certify to the following in connection with the issuance by the Authority on this date of the $70,000,000 California Pollution Control Financing Authority Revenue Bonds (San Jose Water Company Project) Series 2016 (the “Bonds”) and the loan of the proceeds therefrom to San Jose Water Company (the “Borrower”); however, as to all matters of law, the Authority is relying on the advice of counsel to the Authority.

1. Renee’ Webster-Hawkins is now, and at all times since at least the date shown opposite her name on the last page of this Certificate has been, the duly appointed and qualified officer of the Authority, holding the office of the Authority set forth below opposite her name. Steve Juarez is now, and at all times since at least the date shown opposite his name on the last page of this Certificate has been, a duly appointed and qualified deputy of the Treasurer of the State of California. Each of the undersigned by his or her signature confirms that the signature of the other undersigned is his or her genuine signature and that the signature of Blake Fowler set forth below is his genuine signature.

2. John Chiang, Treasurer of the State of California and Chairman of the Authority, was duly authorized by the Authority to execute the Bonds, and pursuant to such authority the Bonds have been executed by his facsimile signature, which signature on the specimen Bonds attached hereto as Exhibit A the undersigned Deputy Treasurer hereby confirms is genuine.

3. The seal printed upon the specimen Bonds attached hereto and impressed upon this Certificate below is the legally adopted and official seal of the Authority and such seal has been imprinted upon the Bonds. The specimen Bond attached hereto is identical in all respects with the Bonds this day delivered to the Trustee, on behalf of The Depository Trust Company, on behalf of Morgan Stanley & Co. LLC and RBC Capital Markets, LLC, as the underwriters of the Bonds, and the Bonds are substantially in the form prescribed by the Indenture (as hereinafter defined).

4. The following individuals are now, and at all times since at least December 6, 2016 have been, the duly appointed and qualified officers and members of the Authority and the persons holding the offices set forth opposite their respective names and all actions that have to be taken for such persons to qualify for such offices, including without limitation any and all filings, have been taken.

B-1



Name	Authority Position	Office

John Chiang	Chairman	Treasurer of the State of California

Betty T. Yee	Member	Controller of the State of California

Michael Cohen	Member	Director of Finance of the State of California

The following members of the Authority who, as of December 6, 2016, were state officials did, in accordance with Section 7.9 of the Government Code and Section 44515 of the Health and Safety Code of the State of California, duly designate the following persons to act for and represent said respective officials at the meeting of the Authority at which the Final Resolution (as hereinafter defined) was adopted:



Name	Authority Position	Representative

John Chiang	Chairman	Alan Gordon

Betty T. Yee	Member	Karen Greene-Ross

Michael Cohen	Member	Eraina Ortega

Steve Juarez, as Deputy Treasurer of the State of California, is authorized to act on behalf of the State Treasurer of the State of California as the Chairman of the Authority, including without limitation, the authority to execute and deliver the Authority Documents (as hereinafter defined).

5. The undersigned Executive Director certifies that:

(a) the resolution attached hereto as Exhibit B is a full, true and correct copy of Initial Resolution No. 10-04 (the “Initial Resolution”), which was duly adopted at a regular meeting of the Authority held on March 24, 2010, as reinstated, amended and extended on August 16, 2016, of which meetings all of the members of the Authority had due notice and at each of which meetings a quorum was present and voting throughout;

(b) the resolution attached hereto as Exhibit C is a full, true and correct copy of the resolution of the Authority entitled “Resolution of the California Pollution Control Financing Authority Delegating Certain Powers and Authorizing Certain Actions Related to Bond Financings” (the “Delegation Resolution”), which was duly adopted at a regular meeting of the Authority held on January 19, 2016, of which meeting all of the members of the Authority had due notice and at which meeting a quorum was present and voting throughout;

B-2

(c) the resolution attached hereto as Exhibit D is a full, true, complete and correct copy of Resolution No. 559, which was duly adopted at a regular meeting of the Authority held on December 6, 2016 (the “Final Resolution” and, together with the Delegation Resolution, collectively referred to herein as the “Resolutions”), of which meeting all of the members of the Authority had due notice and at which meeting a quorum was present and voting throughout;

(d) the Resolutions have not been amended, modified or rescinded in any manner except as set forth therein since the respective dates of their adoption and the same are now in full force and effect.

6. Pursuant to the Resolutions, John Chiang, as Treasurer of the State of California, the Chairman of the Authority, or any of his Deputies, and Renee’ Webster-Hawkins, Executive Director of the Authority, have been authorized to execute and deliver, on behalf of the Authority, the following documents except as otherwise set forth below; pursuant to such authority they have executed and delivered said documents or said documents have been executed and delivered on their behalf; and, assuming due authorization, execution and delivery by the other parties thereto, documents (a)-(f) below (collectively the “Authority Documents”) are in full force and effect:

(a) Indenture, dated as of December 1, 2016 (the “Indenture”), by and between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”);

(b) Loan Agreement, dated as of December 1, 2016 (the “Loan Agreement”), by and between the Authority and the Borrower;

(d) Bond Purchase Contract, dated December 15, 2016 (the “Purchase Contract”), by and among the Authority, the Treasurer of the State of California and the Underwriters, as approved by the Borrower (Renee’ Webster-Hawkins, Executive Director, is the only signatory on behalf of the Authority);

(e) Blanket Issuer Letter of Representations to The Depository Trust Company;

(f) Official Statement for the Bonds, dated December 15, 2016 (Renee’ Webster- Hawkins, Executive Director, is the only signatory on behalf of the Authority); and

(g) Internal Revenue Service Form 8038.

B-3

7. John Chiang, as Treasurer of the State of California and as agent for sale of the Bonds, has been authorized to execute and deliver the Purchase Contract as said agent for sale; pursuant to such authority, Blake Fowler, a duly appointed and qualified deputy of the Treasurer of the State of California, who is authorized to act on behalf of the Treasurer of the State of California, as agent for sale of the Bonds, executed and delivered the Purchase Contract.

8. The Bonds have been duly authorized, executed and delivered by the Authority and imprinted with the official seal of the Authority, and, assuming due authentication and delivery of the Bonds by the Trustee, are in full force and effect.

9. To the best knowledge of the undersigned after reasonable investigation, the Authority has fulfilled or performed each of its obligations contained in the Authority Documents required to be fulfilled or performed by it as of the date hereof.

10. The representations and warranties made by the Authority in the Indenture, the Loan Agreement and the Purchase Contract are true and correct in all material respects as of the date hereof, with the same effect as if made on, and with respect to the facts as of, the date hereof.

[REST OF PAGE INTENTIONALLY LEFT BLANK]

EXHIBIT C

UNDERWRITERS’ REPORT TO THE AUTHORITY

B-4

Exhibit 10.14

FIRST AMENDMENT
TO THE
SAN JOSE WATER COMPANY

EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
(Amended and Restated on January 25, 2012, Effective as of January 1, 2012)

WHEREAS , San Jose Water Company (the “Company”) maintains the San Jose Water Company Executive Supplement Retirement Plan (the “SERP”);

WHEREAS , SJW Corp., the corporate parent of the Company, will be merged with and into SJW Group, Inc., a Delaware corporation, which thereafter will change its name to SJW Group, for the purpose of changing the state of incorporation of SJW Corp. from California to Delaware (collectively, the “Merger”); and

WHEREAS , the Company wishes to amend the SERP to reflect the Merger.

NOW, THEREFORE, the SERP is hereby amended as follows to be effective upon consummation of the Merger:

1. All references to “SJW Corp.” in the SERP shall be replaced with references to “SJW Group”.

2. Section 1.31 is amended in its entirety to read as follows:

1.31 SJW Group . The term “SJW Group” means SJW Group, a Delaware corporation which is the corporate parent of the Company, or any successor to all or a major portion of the assets or business of the SJW Group.

2. Except as expressly modified by this First Amendment, all the terms and provisions of the SERP shall continue to remain in full force and effect.

[Signature Page Follows]

DB2/ 26294575.3

IN WITNESS WHEREOF, the Company has caused this First Amendment to be executed on this 26th day of October, 2016.



SAN JOSE WATER COMPANY


By:	/s/ W. Richard Roth
	W. Richard Roth, Chief Executive Officer and
	Chairman of the Board of Directors

[ Signature Page to the First Amendment to the SERP ]

DB2/ 26294575.3

Exhibit 10.18

THIRD AMENDMENT
TO THE
SAN JOSE WATER COMPANY CASH BALANCE

EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
(Amended and Restated on January 25, 2012, Effective as of January 1, 2012)

WHEREAS , San Jose Water Company (the “Company”) maintains the San Jose Water Company Cash Balance Executive Supplement Retirement Plan (the “Cash Balance SERP”);

WHEREAS , the Company wishes to amend the Cash Balance SERP to reflect the Merger.

NOW, THEREFORE, the Cash Balance SERP is hereby amended as follows to be effective upon consummation of the Merger:

1. All references to “SJW Corp.” in the Cash Balance SERP shall be replaced with references to “SJW Group”.

2. Section 1.27 is amended in its entirety to read as follows:

1.27 SJW Group The term “SJW Group” means SJW Group, a Delaware corporation which is the corporate parent of the Company, or any successor to all or a major portion of the assets or business of the SJW Group.

2. Except as expressly modified by this Third Amendment, all the terms and provisions of the Cash Balance SERP shall continue to remain in full force and effect.

[Signature Page Follows]

DB2/ 26294479.4

IN WITNESS WHEREOF, the Company has caused this Third Amendment to be executed on this 26th day of October, 2016.



SAN JOSE WATER COMPANY


By:	/s/ W. Richard Roth
	W. Richard Roth, Chief Executive Officer and
	Chairman of the Board of Directors



DB2/ 26294479.4	[ Signature Page to the Third Amendment to the Cash Balance SERP ]

Exhibit 10.21

FIRST AMENDMENT
TO THE
SJW CORP.

LONG-TERM INCENTIVE PLAN
(As Amended and Restated July 29, 2015)

WHEREAS , SJW Corp. (“SJW California”) maintained the SJW Corp. Long-Term Incentive Plan (the “Plan”);

WHEREAS , SJW California was merged with and into SJW Group, Inc., a Delaware corporation and wholly-owned subsidiary of SJW California (the “Company”);

WHEREAS , effective upon the merger of SJW California with and into the Company (the “Merger”), the Company changed its name to SJW Group;

WHEREAS , at the effective time of the Merger, the Company assumed the Plan; and

WHEREAS , the Company wishes to amend the Plan to reflect the assumption of the Plan by the Company at the effective time of the Merger.

NOW, THEREFORE , the Plan is hereby amended as follows to be effective upon consummation of the Merger:

1. The title of the Plan shall be revised to “SJW Group Long-Term Incentive Plan.”

2. The first paragraph of Section I of Article One is hereby amended in its entirety to read as follows:

“This Amended and Restated Long-Term Incentive Plan (the “Plan”) is intended to promote the interests of SJW Group, a Delaware corporation, by providing eligible persons in the Corporation’s service with the opportunity to participate in one or more cash or equity incentive compensation programs designed to encourage them to continue their service relationship with the Corporation.”

3. Section H of the Appendix is hereby amended in its entirety to read as follows:

“H. Corporation shall mean SJW Group, a Delaware corporation, and any corporate successor to all or substantially all of the assets or voting stock of SJW Group which has by appropriate action assumed the Plan and the outstanding Awards thereunder.”

4. All references to “SJW Corp.” in the Plan shall be replaced with references to “SJW Group”.

5. Except as expressly modified by this First Amendment, all the terms and provisions of the Plan shall continue to remain in full force and effect.

[Signature Page Follows]



DB2/ 26294487.3

IN WITNESS WHEREOF , the Company has caused this First Amendment to be executed on this 15th day of November, 2016.



SJW Group


By:	/s/ W. Richard Roth
	W. Richard Roth, President,
	Chief Executive Officer and
	Chairman of the Board of Directors

DB2/ 26294487.3

[ Signature Page to the First Amendment to the Long-Term Incentive Plan ]

Exhibit 10.31

SJW GROUP

STOCK OPTION AGREEMENT

RECITALS

A. The Board has adopted the Plan for the purpose of retaining the services of selected Employees and non-employee members of the Board (or the board of directors of any Parent or Subsidiary).

B. Optionee is to render valuable services to the Corporation, and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Corporation’s grant of an option to Optionee.

C. All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix.

NOW, THEREFORE , it is hereby agreed as follows:

1. Grant of Option . The Corporation hereby grants to Optionee, as of the Grant Date, an option to purchase up to the number of Option Shares specified in the Grant Notice at the Exercise Price. The Option Shares shall be purchasable from time to time during the option term specified in Paragraph 2, as set forth herein.

2. Option Term . This option shall have a maximum term of ten (10) years measured from the Grant Date and shall accordingly expire at the close of business on the Expiration Date, unless sooner terminated in accordance with Paragraph 5 or 6.

3. Limited Transferability . This option shall be neither transferable nor assignable by Optionee other than by will or the laws of descent and distribution following Optionee’s death and may be exercised, during Optionee’s lifetime, only by Optionee. However, Optionee may designate one or more persons as the beneficiary or beneficiaries of this option, and this option shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Optionee’s death while holding this option. Such beneficiary or beneficiaries shall take the transferred option subject to all the terms and conditions of this Agreement, including (without limitation) the limited time period during which this option may, pursuant to Paragraph 5, be exercised following Optionee’s death.

4. Dates of Exercise . This option shall vest and become exercisable for the Option Shares in one or more installments in accordance with the Vesting Schedule specified in the Grant Notice. As the option becomes exercisable for such installments, those installments shall accumulate, and the option shall remain exercisable for the accumulated installments until the Expiration Date or sooner termination of the option term under Paragraph 5 or 6.

1-PA/3708142.1

5. Cessation of Service . The option term specified in Paragraph 2 shall terminate (and this option shall cease to be outstanding) prior to the Expiration Date should any of the following provisions become applicable:

(a) Except as otherwise expressly provided in subparagraphs (b) through (e) of this Paragraph 5, should Optionee cease to remain in Service for any reason while this option is outstanding, then Optionee shall have a ninety (90)-day period measured from the date of such cessation of Service during which to exercise this option for any or all of the Option Shares for which this option is vested and exercisable at the time of Optionee’s cessation of Service, but in no event shall this option be exercisable at any time after the Expiration Date.

(b) Should Optionee’s Service terminate by reason of his or her death while this option is outstanding, then this option, to the extent not otherwise at that time vested and exercisable for all the Option Shares, shall immediately vest and become exercisable for all the Option Shares. Upon Optionee’s death (whether before or after termination of Service) this option may be exercised, for any or all of the Option Shares for which this option is vested and exercisable at the time of Optionee’s cessation of Service (including any Option Shares which vest on an accelerated basis should such cessation of Service occur by reason of Optionee’s death), by (i) the personal representative of Optionee’s estate or (ii) the person or persons to whom the option is transferred pursuant to Optionee’s will or the laws of inheritance following Optionee’s death. However, if Optionee dies while holding this option and has an effective beneficiary designation in effect for this option at the time of his or her death, then the designated beneficiary or beneficiaries shall have the exclusive right to exercise this option following Optionee’s death. Any such right to exercise this option shall lapse, and this option shall cease to be outstanding, upon the earlier of (i) the expiration of the four (4)-year period measured from the date of Optionee’s death or (ii) the Expiration Date. Upon the expiration of such limited exercise period or (if earlier) upon the Expiration Date, this option shall terminate and cease to be outstanding for any exercisable Option Shares for which the option has not otherwise been exercised.

(c) Should Optionee’s Service terminate by reason of Disability while this option is outstanding, then this option, to the extent not otherwise at that time vested and exercisable for all the Option Shares, shall immediately vest and become exercisable for all the Option Shares. Optionee shall have a four (4)-year period measured from the date of such cessation of Service during which to exercise this option for any or all the Option Shares. In no event, however, shall this option be exercisable at any time after the Expiration Date.

(d) Should Optionee cease Service by reason of Normal Retirement while this option is outstanding, then Optionee shall have a four (4)-year measured from the date of such cessation of Service during which to exercise this option for (i) any or all Option Shares for which this option is vested and exercisable at the time of such cessation of Service and (ii) any additional Option Shares for which this option vests and becomes exercisable during such four (4)-year period. In no event, however, shall this option be exercisable at any time after the Expiration Date. To the extent this option is not otherwise vested and exercisable for all of the Option Shares at the time of Optionee’s cessation of Service by reason of Normal Retirement, this option shall, during the limited

1-PA/3708142.1

period of post-Service exercisability following such cessation of Service, continue to vest and become exercisable for one or more additional Option Shares in accordance with the Vesting Schedule specified in the Grant Notice or the special vesting acceleration provisions of Paragraph 6, as if Optionee continued in Service throughout that limited exercise period. Upon the expiration of such limited exercise period or (if earlier) upon the Expiration Date, this option shall terminate and cease to be outstanding for any exercisable Option Shares for which the option has not otherwise been exercised.

(e) Should Optionee’s Service be terminated for Good Cause or should Optionee otherwise engage in any misconduct which could result in a termination for Good Cause while this option is outstanding, then this option shall terminate immediately and cease to remain outstanding.

(f) Except as otherwise expressly provided in the preceding subparagraphs of this Paragraph 5, during the limited period of post-Service exercisability, this option may not be exercised in the aggregate for more than the number of Option Shares for which this option is, at the time of Optionee’s cessation of Service, vested and exercisable pursuant to the Vesting Schedule specified in the Grant Notice or the special vesting acceleration provisions of Paragraph 6. Except as otherwise provided in this Paragraph 5 or except to the extent (if any) specifically authorized by the Plan Administrator pursuant to an express written agreement with the Optionee, this option shall not vest or become exercisable for any additional Option Shares, whether pursuant to the normal Vesting Schedule specified in the Grant Notice or the special vesting acceleration provisions of Paragraph 6, following the Optionee’s cessation of Service. Upon the expiration of such limited exercise period or (if earlier) upon the Expiration Date, this option shall terminate and cease to be outstanding for any exercisable Option Shares for which the option has not otherwise been exercised.

6. Special Acceleration of Option .

(a) This option, to the extent outstanding at the time of a Change in Control, but not otherwise fully exercisable, shall automatically accelerate so that this option shall, immediately prior to the effective date of such Change in Control, become exercisable for all of the Option Shares at the time subject to this option and may be exercised for any or all of those Option Shares as fully vested shares of Common Stock. However, this option shall not become exercisable on such an accelerated basis, if and to the extent: (i) this option is to be assumed by the successor corporation (or parent thereof) or is otherwise to be continued in full force and effect pursuant to the terms of the Change in Control transaction or (ii) this option is to be replaced with a cash retention program of the successor corporation which preserves the spread existing at the time of the Change in Control on any Option Shares for which this option is not otherwise at that time vested and exercisable (the excess of the Fair Market Value of those Option Shares over the aggregate Exercise Price payable for such shares) and provides for the subsequent vesting and payout of that spread, over Optionee’s period of continued Service, at the same time or times as this option would have vested and become exercisable for those Option Shares in accordance with the Vesting Schedule set forth in the Grant Notice.

1-PA/3708142.1

(b) Immediately following the Change in Control, this option shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) or otherwise continued in effect pursuant to the terms of the Change in Control transaction.

(c) If this option is assumed in connection with a Change in Control or otherwise continued in effect, then this option shall be appropriately adjusted, immediately after such Change in Control, to apply to the number and class of securities which would have been issuable to Optionee in consummation of such Change in Control had the option been exercised immediately prior to such Change in Control, and appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise Price shall remain the same. To the extent the actual holders of the Corporation’s outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation may, in connection with the assumption of this option, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in such Change in Control.

(d) This option, to the extent outstanding at the time of a Qualifying Termination but not otherwise fully exercisable, shall automatically accelerate so that this option shall become immediately exercisable for all the Option Shares at the time subject to the option and may be exercised for any or all of those Option Shares as fully vested shares. The option shall remain so exercisable until the expiration or sooner termination of the Option Term. Should this option be replaced with a cash retention program in accordance with Paragraph 6(a), then the balance credited to Optionee under that program at the time of his or her Qualifying Termination shall vest and be immediately paid to Optionee in a lump sum, subject to the Corporation’s collection of all applicable withholding taxes.

(e) This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

1-PA/3708142.1

7. Adjustment in Option Shares . Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares, spin-off transaction, extraordinary dividend or distribution or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration, or should the value of outstanding shares of Common Stock be substantially reduced as a result of a spin-off transaction or an extraordinary dividend or distribution, or should there occur any merger, consolidation or other reorganization, then equitable adjustments shall be made by the Plan Administrator to (i) the total number and/or class of securities subject to this option and (ii) the Exercise Price. The adjustments shall be made in such manner as the Plan Administrator deems appropriate in order to reflect such change, and those adjustments shall be final, binding and conclusive upon Optionee and any other person or persons having an interest in the option. In the event of any Change in Control transaction, the adjustment provisions of Paragraph 6(c) shall be controlling.

8. Shareholder Rights . The holder of this option shall not have any shareholder rights with respect to the Option Shares until such person shall have exercised the option and become a holder of record of the purchased shares.

9. Manner of Exercising Option .

(a) In order to exercise this option with respect to all or any part of the Option Shares for which this option is at the time exercisable, Optionee (or any other person or persons exercising the option) must take the following actions:

(i) Execute and deliver to the Corporation a Notice of Exercise for the Option Shares for which the option is exercised or comply with such other procedures as the Corporation may establish for notifying the Corporation of the exercise of this option for one or more Option Shares.

(ii) Pay the aggregate Exercise Price for the purchased shares in one or more of the following forms:

(A) cash or check made payable to the Corporation;

(B) shares of Common Stock (whether delivered in the form of actual stock certificates or through attestation of ownership in a manner reasonably satisfactory to the Corporation) held for the requisite period (if any) necessary to avoid any resulting charge to the Corporation’s earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date or

1-PA/3708142.1

to which Optionee (or any other person or persons exercising the option) shall concurrently provide irrevocable instructions (i) to a brokerage firm (reasonably satisfactory to the Corporation for purposes of administering such procedure in accordance with the Corporation’s pre-clearance/pre-notification policies) to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate Exercise Price payable for the purchased shares plus all applicable Withholding Taxes required to be withheld by the Corporation by reason of such exercise and (ii) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm on such settlement date in order to complete the sale.

Except to the extent the sale and remittance procedure is utilized in connection with the option exercise, payment of the Exercise Price must accompany the Notice of Exercise delivered to the Corporation in connection with the option exercise.

(iii) Furnish to the Corporation appropriate documentation that the person or persons exercising the option (if other than Optionee) have the right to exercise this option.

(iv) Make appropriate arrangements with the Corporation (or Parent or Subsidiary employing or retaining Optionee) for the satisfaction of all applicable Withholding Taxes.

(b) As soon as practical after the Exercise Date, the Corporation shall issue to or on behalf of Optionee (or any other person or persons exercising this option) a certificate for the purchased Option Shares, with the appropriate legends affixed thereto.

10. Compliance with Laws and Regulations .

(a) The exercise of this option and the issuance of the Option Shares upon such exercise shall be subject to compliance by the Corporation and Optionee with all applicable requirements of law relating thereto and with all applicable regulations of any Stock Exchange on which the Common Stock may be listed for trading at the time of such exercise and issuance.

(b) The inability of the Corporation to obtain approval from any regulatory body having authority deemed by the Corporation to be necessary to the lawful issuance and sale of any Common Stock pursuant to this option shall relieve the Corporation of any liability with respect to the non-issuance or sale of the Common Stock as to which such approval shall not have been obtained. The Corporation, however, shall use its best efforts to obtain all such approvals.

1-PA/3708142.1

11. Successors and Assigns . Except to the extent otherwise provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and Optionee, Optionee’s assigns, the legal representatives, heirs and legatees of Optionee’s estate and any beneficiaries of this option designated by Optionee.

12. Notices . Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal corporate offices. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated below Optionee’s signature line on the Grant Notice. All notices shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified.

13. Construction . This Agreement and the option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan. All decisions of the Plan Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in this option.

14. Governing Law . The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of California without resort to that State’s conflict-of-laws rules.

15. Excess Shares . If the Option Shares covered by this Agreement exceed, as of the Grant Date, the number of shares of Common Stock which may without shareholder approval be issued under the Plan, then this option shall be void with respect to those excess shares, unless shareholder approval of an amendment sufficiently increasing the number of shares of Common Stock issuable under the Plan is obtained in accordance with the provisions of the Plan.

16. Additional Terms Applicable to an Incentive Option . In the event this option is designated an Incentive Option in the Grant Notice, the following terms and conditions shall also apply to the grant:

(a) This option shall cease to qualify for favorable tax treatment as an Incentive Option if (and to the extent) this option is exercised for one or more Option Shares: (A) more than three (3) months after the date Optionee ceases to be an Employee for any reason other than death or Disability or (B) more than twelve (12) months after the date Optionee ceases to be an Employee by reason of Disability. The Optionee shall not be deemed to cease to be an Employee during a period of military leave, sick leave or other personal leave approved by the Corporation; provided , however , that for a leave which exceeds three (3) months, the Optionee shall be deemed, for purposes of determining the period within which this option may be exercised as an Incentive Option (if designated as such in the Grant Notice), to cease to be an Employee on the first day

1-PA/3708142.1

following the expiration of that three (3)-month period, unless the Optionee is provided with the right to return to Service as an Employee following such leave either by law or by contract.

(b) No installment under this option shall qualify for favorable tax treatment as an Incentive Option if (and to the extent) the aggregate Fair Market Value (determined at the Grant Date) of the Common Stock for which such installment first becomes exercisable hereunder would, when added to the aggregate value (determined as of the respective date or dates of grant) of the Common Stock or other securities for which this option or any other Incentive Options granted to Optionee prior to the Grant Date (whether under the Plan or any other option plan of the Corporation or any Parent or Subsidiary) first become exercisable during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the aggregate. Should such One Hundred Thousand Dollar ($100,000) limitation be exceeded in any calendar year, this option shall nevertheless become exercisable for the excess shares in such calendar year as a Non-Statutory Option.

(c) Should the exercisability of this option be accelerated upon a Change in Control, then this option shall qualify for favorable tax treatment as an Incentive Option only to the extent the aggregate Fair Market Value (determined at the Grant Date) of the Common Stock for which this option first becomes exercisable in the calendar year in which the Change in Control transaction occurs does not, when added to the aggregate value (determined as of the respective date or dates of grant) of the Common Stock or other securities for which this option or one or more other Incentive Options granted to Optionee prior to the Grant Date (whether under the Plan or any other option plan of the Corporation or any Parent or Subsidiary) first become exercisable during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the aggregate. Should the applicable One Hundred Thousand Dollar ($100,000) limitation be exceeded in the calendar year of such Change in Control, the option may nevertheless be exercised for the excess shares in such calendar year as a Non-Statutory Option.

(d) Should Optionee hold, in addition to this option, one or more other options to purchase Common Stock which become exercisable for the first time in the same calendar year as this option, then for purposes of the foregoing limitations on the exercisability of such options as Incentive Options, this option and each of those other options shall be deemed to become first exercisable in the calendar year in the same chronological order in which such options were granted, except to the extent otherwise provided under applicable law or regulation.

1-PA/3708142.1

EXHIBIT I

NOTICE OF EXERCISE

I hereby notify SJW Group (the “Corporation”) that I elect to purchase ______________ shares of the Corporation’s Common Stock (the “Purchased Shares”) at the option exercise price of $___________ per share (the “Exercise Price”) pursuant to that certain option (the “Option”) granted to me under the Corporation’s Long-Term Incentive Plan on ___________________, 200___.

Concurrently with the delivery of this Exercise Notice to the Corporation, I shall hereby pay to the Corporation the Exercise Price for the Purchased Shares in accordance with the provisions of my agreement with the Corporation (or other documents) evidencing the Option and shall deliver whatever additional documents may be required by such agreement as a condition for exercise. Alternatively, I may utilize the special broker-dealer sale and remittance procedure specified in my agreement to effect payment of the Exercise Price.

____________________, 20_______
Date




		Optionee

		Address:



Print name in exact manner it is to appear on the stock certificate:

Address to which certificate is to be sent, if different from address above:



Social Security Number:

SFRLIB1\CH2\6253022.01

1-PA/3708142.1

APPENDIX

The following definitions shall be in effect under the Agreement:

A. Agreement shall mean this Stock Option Agreement.

B. Board shall mean the Corporation’s Board of Directors.

C. Change in Control shall be deemed to take place on the occurrence of any of the following events:

(i) The acquisition, directly or indirectly by any person or related group of persons (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), but other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under, control with the Corporation or an employee benefit plan maintained by any such entity, of beneficial ownership (as defined in Rule 13d-3 of the Exchange Act) of securities of the Corporation that results in such person or related group of persons beneficially owning securities representing 30% or more of the combined voting power of the Corporation’s then-outstanding securities;

(ii) A merger, recapitalization, consolidation, or other similar transaction to which the Corporation is a party, unless securities representing at least 50% of the combined voting power of the then-outstanding securities of the surviving entity or a parent thereof are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Corporation’s outstanding voting securities immediately before the transaction;

(iii) A sale, transfer or disposition of all or substantially all of the Corporation’s assets, unless securities representing at least 50% of the combined voting power of the then-outstanding securities of the entity acquiring the Corporation’s assets or parent thereof are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Corporation’s outstanding voting securities immediately before the transaction,

(iv) A merger, recapitalization, consolidation, or other transaction to which the Corporation is a party or the sale, transfer, or other disposition of all or substantially all of the Corporation’s assets if, in either case, the directors of the Corporation immediately prior to consummation of the transaction do not, upon consummation of the transaction, constitute at least a majority of the board of directors of the surviving entity or the entity acquiring the Corporation’s assets, as the case may be, or a parent thereof (for this purpose, any change in director composition that is anticipated or pursuant to an understanding or agreement in connection with a transaction will be deemed to have occurred at the time of the transaction); or

A- 1

SFRLIB1\CH2\6253022.01

1-PA/3708142.1

(v) A change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases by reason of one or more contested elections for Board membership, to be comprised of individuals who either (a) have been Board members since the beginning of such period or (b) have been elected or nominated for election as Board members during such period by at least a majority of the Board members who were described in clause (a) or who were previously so elected or approved and who were still in office at the time the Board approved such election or nomination;

provided that no Change in Control shall occur if the result of the transaction is to give more ownership or control of the Corporation to any person or related group of persons who held securities representing more than thirty percent (30%) of the combined voting power of the Corporation's outstanding securities as of March 3, 2003.

D. Code shall mean the Internal Revenue Code of 1986, as amended.

E. Common Stock shall mean shares of the Corporation’s common stock.

F. Corporation shall mean SJW Group, a Delaware corporation, and any successor corporation to all or substantially all of the assets or voting stock of SJW Group which shall by appropriate action adopt the Plan.

G. Disability shall mean the permanent and total disability of an individual as determined pursuant to Section 22(e)(3) of the Code.

H. Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.

I. Exercise Date shall mean the date on which the option shall have been exercised in accordance with Paragraph 9 of the Agreement.

J. Exercise Price shall mean the exercise price per Option Share as specified in the Grant Notice.

K. Expiration Date shall mean the date on which the option expires as specified in the Grant Notice.

L. Fair Market Value per share of Common Stock on any relevant date shall be the closing selling price per share of Common Stock on that date on the New York Stock Exchange, as such price is officially quoted in the composite tape of transactions on such Stock Exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

A- 2

SFRLIB1\CH2\6253022.01

1-PA/3708142.1

M. Good Cause shall mean:

(i) Any act or omission by the Optionee that results in substantial harm to the business or property of the Corporation (or any Parent or Subsidiary) and that constitute dishonesty, intentional breach of fiduciary obligation or intentional wrongdoing,

(ii) the Optionee’s conviction of a criminal violation involving fraud or dishonesty, or

(iii) the Optionee’s intentional and knowing participation in the preparation or release of false or materially misleading financial statements relating to the Corporation’s operations and financial condition or the Optionee’s intentional and knowing submission of any false or erroneous certification required of him or her under the Sarbanes-Oxley Act of 2002 or any securities exchange on which the Common Stock is at the time listed for trading.

The foregoing definition shall not in any way preclude or restrict the right of the Corporation (or any Parent or Subsidiary) to discharge or dismiss Optionee or any other person in the Service of the Corporation (or any Parent or Subsidiary) for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of the Plan or this Agreement, to constitute grounds for termination for Good Cause.

N. Good Reason shall exist with respect to an Optionee, if and only if, without the Optionee's express written consent:

(i) there is a significant change in the nature or the scope of the Optionee's authority or in his or her overall working environment;

(ii) the Optionee is assigned duties materially inconsistent with his or her present duties, responsibilities and status;

(iii) there is a reduction in the sum of Optionee's rate of base salary and target bonus; or

(iv) the Corporation changes by fifty-five (55) miles or more the principal location in which the Optionee is required to perform services;

provided, however, that before the Optionee may resign for any Good Reason event, the Optionee must first provide written notice to the Corporation identifying such Good Reason event within ninety (90) days after the occurrence of such event and the Corporation shall have failed to cure such event within thirty (30) days after receipt of such written notice.

A- 3

SFRLIB1\CH2\6253022.01

1-PA/3708142.1

O. Grant Date shall mean the date of grant of the option as specified in the Grant Notice.

P. Grant Notice shall mean the Notice of Grant of Stock Option accompanying the Agreement, pursuant to which Optionee has been informed of the basic terms of the option evidenced hereby.

Q. Incentive Option shall mean an option which satisfies the requirements of Code Section 422.

R. Non-Statutory Option shall mean an option not intended to satisfy the requirements of Code Section 422.

S. Normal Retirement shall mean an Optionee’s termination of Service with the Corporation or an Affiliate under circumstances which make such Optionee eligible for an immediate pension benefit to be paid by the Corporation or an Affiliate or, in the case of an Optionee who is a non-employee Board member, any termination of Service, unless such termination is due to misconduct, as determined by the Plan Administrator in its sole discretion.

T. Notice of Exercise shall mean the notice of exercise in the form attached hereto as Exhibit I or in such other form as may be prescribed by the Corporation from time to time.

U. Option Shares shall mean the number of shares of Common Stock subject to the option as specified in the Grant Notice.

V. Optionee shall mean the person to whom the option is granted as specified in the Grant Notice.

W. Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

X. Plan shall mean the Corporation’s Long-Term Incentive Plan, as amended and restated.

Y. Plan Administrator shall mean either the Board or a committee of the Board acting in its capacity as administrator of the Plan.

Z. Qualifying Termination shall mean: (i) an involuntary termination of Optionee’s Service other than for Good Cause at any time during the period beginning with the execution of a definitive agreement to effect a Change in Control and ending with the earlier of (x) the termination of that agreement without the consummation of the Change in Control or (y) the expiration of the twenty‑four (24)-month period measured from the effective date of the Change

A- 4

SFRLIB1\CH2\6253022.01

1-PA/3708142.1

in Control contemplated by that agreement or (ii) a resignation from Service for Good Reason effected by the Optionee within twenty-four (24) months after the effective date of the Change in Control.

AA. Service shall mean the Optionee’s performance of services for the Corporation (or any Parent or Subsidiary, whether now existing or subsequently established) in the capacity of an Employee, a non-employee member of the board of directors or a consultant or independent advisor. However, Optionee shall be deemed to cease Service immediately upon the occurrence of either of the following events: (i) Optionee no longer performs services in any of the foregoing capacities for the Corporation or any Parent or Subsidiary or (ii) the entity for which Optionee is performing such services ceases to remain a Parent or Subsidiary of the Corporation, even though the Optionee may subsequently continue to perform services for that entity. Service shall not be deemed to cease during a period of military leave, sick leave or other personal leave approved by the Corporation. However, except to the extent otherwise required by law or expressly authorized by the Plan Administrator or by the Corporation’s written policy on leaves of absence, no Service credit shall be given for vesting purposes for any period the Optionee is on a leave of absence.

BB. Stock Exchange shall mean the American Stock Exchange, the New York Stock Exchange or the Nasdaq National Market.

CC. Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

DD. Vesting Schedule shall mean the schedule set forth in the Grant Notice pursuant to which the option is to vest and become exercisable for the Option Shares in a series of one or more installments over the period of Optionee’s continued Service.

EE. Withholding Taxes shall mean the federal, state and local income taxes and the employee portion of the federal, state and local employment taxes required to be withheld by the Corporation in connection with the exercise of the option.

A- 5

SFRLIB1\CH2\6253022.01

1-PA/3708142.1

Exhibit 10.33

FIRST AMENDMENT
TO THE
SJW CORP.

EXECUTIVE OFFICER SHORT-TERM INCENTIVE PLAN
(As Amended and Restated January 30, 2013)

WHEREAS , SJW Corp. (“SJW California”) maintained the SJW Corp. Executive Officer Short-Term Incentive Plan (the “Plan”);

WHEREAS , SJW California was merged with and into SJW Group, Inc., a Delaware corporation and wholly-owned subsidiary of SJW California (the “Company”);

WHEREAS , effective upon the merger of SJW California with and into the Company (the “Merger”), the Company changed its name to SJW Group;

WHEREAS , at the effective time of the Merger, the Company assumed the Plan; and

WHEREAS , the Company wishes to amend the Plan to reflect the assumption of the Plan by the Company at the effective time of the Merger.

NOW, THEREFORE , the Plan is hereby amended as follows to be effective upon consummation of the Merger:

1. The title of the Plan shall be revised to “SJW Group Executive Officer Short-Term Incentive Plan”.

2. All references to “SJW Corp.” in the Plan shall be replaced with references to “SJW Group”.

3. Except as expressly modified by this First Amendment, all the terms and provisions of the Plan shall continue to remain in full force and effect.

[Signature Page Follows ]

DB2/ 30717378.2

IN WITNESS WHEREOF , the Company has caused this First Amendment to be executed on this 15th day of November, 2016.



SJW Group


By:	/s/ W. Richard Roth
	W. Richard Roth, President,
	Chief Executive Officer and
	Chairman of the Board of Directors

DB2/ 30717378.2

[ Signature Page to the First Amendment to the

Executive Officer Short-Term Incentive Plan ]

Exhibit 10.35

FIRST AMENDMENT
TO THE
SJW CORP.

EXECUTIVE SEVERANCE PLAN
(As Amended and Restated January 1, 2010 and As Further Amended October 26, 2010)

WHEREAS , SJW Corp. (“SJW California”) maintained the SJW Corp. Executive Severance Plan (the “Plan”);

WHEREAS , SJW California was merged with and into SJW Group, Inc., a Delaware corporation and wholly-owned subsidiary of SJW California (the “Company”);

WHEREAS , effective upon the merger of SJW California with and into the Company (the “Merger”), the Company changed its name to SJW Group;

WHEREAS , at the effective time of the Merger, the Company assumed the Plan; and

WHEREAS , the Company wishes to amend the Plan to reflect the assumption of the Plan by the Company at the effective time of the Merger.

NOW, THEREFORE , the Plan is hereby amended as follows to be effective upon consummation of the Merger:

1. The title of the Plan shall be revised to “SJW Group Executive Severance Plan”.

2. All references to “SJW Corp.” in the Plan shall be replaced with references to “SJW Group”.

3. Except as expressly modified by this First Amendment, all the terms and provisions of the Plan shall continue to remain in full force and effect.

[Signature Page Follows]

DB2/ 30717359.2

IN WITNESS WHEREOF , the Company has caused this First Amendment to be executed on this 15th day of November, 2016.



SJW Group


By:	/s/ W. Richard Roth
	W. Richard Roth, President,
	Chief Executive Officer and
	Chairman of the Board of Directors

DB2/ 30717359.2

[ Signature Page to the First Amendment to the Executive Severance Plan ]

Exhibit 10.37

FIRST AMENDMENT
TO THE
SAN JOSE WATER COMPANY

SPECIAL DEFERRAL ELECTION PLAN
(October 23, 2012 Amendment and Restatement, Effective as of January 1, 2013)

WHEREAS , San Jose Water Company (the “Company”) maintains the San Jose Water Company Special Deferral Election Plan (the “Plan”);

WHEREAS , the Company wishes to amend the Plan to reflect the Merger.

NOW, THEREFORE, the Plan is hereby amended as follows to be effective upon consummation of the Merger:

1. All references to “SJW Corp.” in the Plan shall be replaced with references to “SJW Group”.

2. The first sentence of Section 3.04 is amended in its entirety to read as follows:

3.04 “ Change in Control ” shall mean a change in ownership or control of the Corporation or a change in ownership or control of SJW Group, a Delaware corporation (“SJW Group”) which occurs while SJW Group is the beneficial owner (as determined pursuant to Rule 13d-3 of the 1934 Act) of securities that possess more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding voting securities.

2. Except as expressly modified by this First Amendment, all the terms and provisions of the Plan shall continue to remain in full force and effect.

[Signature Page Follows]

DB2/ 26294567.3

IN WITNESS WHEREOF, the Company has caused this First Amendment to be executed on this 26th day of October, 2016.



SAN JOSE WATER COMPANY


By:	/s/ W. Richard Roth
	W. Richard Roth, Chief Executive Officer and
	Chairman of the Board of Directors

DB2/ 26294567.3

[ Signature Page to First Amendment to the Special Deferral Election Plan ]

Exhibit 10.39

FIRST AMENDMENT
TO THE
SJW CORP.

AMENDED AND RESTATED DEFERRED RESTRICTED STOCK PROGRAM
(As Amended and Restated on December 6, 2007)

WHEREAS , SJW Corp. (“SJW California”) maintains the SJW Corp. Amended and Restated Deferred Restricted Stock Program (the “Program”) under the SJW Corp. Long-Term Incentive Plan (the “LTIP”);

WHEREAS , SJW California was merged with and into SJW Group, Inc., a Delaware corporation and wholly-owned subsidiary of SJW California (the “Company”);

WHEREAS , effective upon the merger of SJW California with and into the Company (the “Merger”), the Company changed its name to SJW Group;

WHEREAS , at the effective time of the Merger, the Company assumed the LTIP and the Program; and

WHEREAS , the Company wishes to amend the Program to reflect the assumption of the Program by the Company at the effective time of the Merger.

NOW, THEREFORE , the Program is hereby amended as follows to be effective upon consummation of the Merger:

1. The title of the Program shall be revised to “SJW Group Deferred Restricted Stock Program”.

2. All references to “SJW Corp.” in the Program shall be replaced with references to “SJW Group”.

3. Except as expressly modified by this First Amendment, all the terms and provisions of the Program shall continue to remain in full force and effect.

[Signature Page Follows ]

DB2/ 30717291.2

IN WITNESS WHEREOF , the Company has caused this First Amendment to be executed on this 15th day of November, 2016.



SJW Group


By:	/s/ W. Richard Roth
	W. Richard Roth, President,
	Chief Executive Officer and
	Chairman of the Board of Directors

DB2/ 30717291.2

[ Signature Page to the First Amendment to the

Amended and Restated Deferred Restricted Stock Program ]

Exhibit 10.41

FIRST AMENDMENT
TO THE
SJW CORP.

DEFERRAL ELECTION PROGRAM FOR

NON-EMPLOYEE BOARD MEMBERS
(As Amended and Restated on January 30, 2006, and As Further Amended June 1, 2006, December 6, 2007 and October 30, 2013)

WHEREAS , SJW Corp. (“SJW California”) maintained the SJW Corp. Deferral Election Program for Non-Employee Board Members (the “Program”);

WHEREAS , SJW California was merged with and into SJW Group, Inc., a Delaware corporation and wholly-owned subsidiary of SJW California (the “Company”);

WHEREAS , effective upon the merger of SJW California with and into the Company (the “Merger”), the Company changed its name to SJW Group;

WHEREAS , at the effective time of the Merger, the Company assumed the Program; and

WHEREAS , the Company wishes to amend the Program to reflect the assumption of the Program by the Company at the effective time of the Merger.

NOW, THEREFORE , the Program is hereby amended as follows to be effective upon consummation of the Merger:

1. The title of the Program shall be revised to “SJW Group Deferral Election Program for Non-Employee Board Members”.

2. All references to “SJW Corp.” in the Program shall be replaced with references to “SJW Group”.

3. Except as expressly modified by this First Amendment, all the terms and provisions of the Program shall continue to remain in full force and effect.

[Signature Page Follows]

DB2/ 30717162.2

IN WITNESS WHEREOF , the Company has caused this First Amendment to be executed on this 15th day of November, 2016.



SJW Group


By:	/s/ W. Richard Roth
	W. Richard Roth, President,
	Chief Executive Officer and
	Chairman of the Board of Directors

DB2/ 30717162.2

[ Signature Page to the First Amendment to the

Deferral Election Program for Non-Employee Board Members ]

Exhibit 10.44

FORMULAIC EQUITY AWARD PROGRAM FOR

NON-EMPLOYEE BOARD MEMBERS

AMENDMENT NO. 1

SJW Corp.’s Formulaic Equity Award Program For Non-Employee Board Members

(the “Automatic Grant Program”), is hereby amended, effective with the 2017 Annual Meeting, subject to ratification by the Corporation’s Board of Directors on or prior to the close of business of such date.

1. Section II.A.2 of the Automatic Grant Program is hereby amended and restated in its entirety to read as follows:

“2. Commencing with the 2017 Annual Meeting, the Applicable Annual Amount shall be in the dollar amount of Sixty Thousand Dollars ($60,000.00) per non-employee Board member for the Awards to be made at each annual meeting of the Corporation’s shareholders. For Awards made at the Annual Meetings for 2014, 2015 and 2016, the Applicable Annual Amount was in the dollar amount of Thirty-Five Thousand Dollars ($35,000.00) per non-employee Board member.”

3. Except as modified by this Amendment No. 1, all the terms and provisions of the Automatic Grant Program shall continue in full force and effect.

IN WITNESS WHEREOF, SJW Corp. has caused this Amendment No. 1 to be executed on its behalf by its duly-authorized officer on this 26th day of October 2016.



SJW CORP.


By:	/s/ W. Richard Roth
	W. Richard Roth, President and
	Chief Executive Officer

DB2/ 30566588.1

Exhibit 10.45

SECOND AMENDMENT

TO THE

SJW CORP.

FORMULAIC EQUITY AWARD PROGRAM FOR

NON-EMPLOYEE BOARD MEMBERS

(As Amended by AMENDMENT NO. 1)

WHEREAS , SJW Corp. (“SJW California”) maintained the SJW Corp. Formulaic Equity Award Program for Non-Employee Board Members (the “Program”) under the SJW Corp. Long-Term Incentive Plan (the “LTIP”);

WHEREAS , SJW California was merged with and into SJW Group, Inc., a Delaware corporation and wholly-owned subsidiary of SJW California (the “Company”);

WHEREAS , effective upon the merger of SJW California with and into the Company (the “Merger”), the Company changed its name to SJW Group;

WHEREAS , at the effective time of the Merger, the Company assumed the LTIP and the Program; and

WHEREAS , the Company wishes to amend the Program to reflect the assumption of the Program by the Company at the effective time of the Merger.

NOW, THEREFORE , the Program is hereby amended as follows to be effective upon consummation of the Merger:

1. The title of the Program shall be revised to “SJW Group Formulaic Equity Award Program for Non-Employee Board Members”.

2. All references to “SJW Corp.” in the Program shall be replaced with references to “SJW Group”.

3. Except as expressly modified by this Second Amendment, all the terms and provisions of the Program shall continue to remain in full force and effect.

[Signature Page Follows]

DB2/ 30717331.2

IN WITNESS WHEREOF , the Company has caused this Second Amendment to be executed on this 15th day of November, 2016.



SJW Group


By:	/s/ W. Richard Roth
	W. Richard Roth, President,
	Chief Executive Officer and
	Chairman of the Board of Directors

DB2/ 30717331.2

[ Signature Page to the Second Amendment to the

Formulaic Equity Award Program for Non-Employee Board Members ]

Exhibit 10.47

FIRST AMENDMENT
TO THE
SJW CORP.

AMENDED AND RESTATED DIRECTOR COMPENSATION AND EXPENSE REIMBURSEMENT POLICIES

WHEREAS , SJW Corp. (“SJW California”) maintained the SJW Corp. Amended and Restated Director Compensation and Expense Reimbursement Policies (the “Policy”);

WHEREAS , SJW California was merged with and into SJW Group, Inc., a Delaware corporation and wholly-owned subsidiary of SJW California (the “Company”);

WHEREAS , effective upon the merger of SJW California with and into the Company (the “Merger”), the Company changed its name to SJW Group;

WHEREAS , at the effective time of the Merger, the Company assumed the Policy; and

WHEREAS , the Company wishes to amend the Policy to reflect the assumption of the Policy by the Company at the effective time of the Merger.

NOW, THEREFORE , the Policy is hereby amended as follows to be effective upon consummation of the Merger:

1. The title of the Policy shall be revised to “SJW Group Amended and Restated Director Compensation and Expense Reimbursement Policies”.

2. All references to “SJW Corp.” in the Policy shall be replaced with references to “SJW Group”.

3. Except as expressly modified by this First Amendment, all the terms and provisions of the Policy shall continue to remain in full force and effect.

[Signature Page Follows]

DB2/ 30717212.2

IN WITNESS WHEREOF , the Company has caused this First Amendment to be executed on this 15th day of November, 2016.



SJW Group


By:	/s/ W. Richard Roth
	W. Richard Roth, President,
	Chief Executive Officer and
	Chairman of the Board of Directors

DB2/ 30717212.2

[ Signature Page to the First Amendment to the

Amended and Restated Director Compensation and Expense Reimbursement Policies ]

Exhibit 10.52

SJW GROUP

RESTRICTED STOCK UNIT ISSUANCE AGREEMENT

RECITALS

A. The Board has adopted the Plan for the purpose of retaining the services of selected Employees of the Corporation (or any Parent or Subsidiary).

B. Participant is to render valuable services to the Corporation (or a Parent or Subsidiary), and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Corporation’s issuance of an equity incentive award under the Plan designed to retain Participant’s continued service.

C. All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix A.

NOW, THEREFORE , it is hereby agreed as follows:

1. Grant of Restricted Stock Units . The Corporation hereby awards to Participant, as of the Award Date, Restricted Stock Units under the Plan. Each Restricted Stock Unit which vests during Participant’s period of Service shall entitle Participant to receive one share of Common Stock on the applicable issuance date for that share. The number of shares of Common Stock subject to the awarded Restricted Stock Units, the applicable vesting schedule for those shares, the applicable date or dates on which those vested shares shall become issuable to Participant and the remaining terms and conditions governing the award (the “Award”) shall be as set forth in this Agreement.



Participant	__________________________
Award Date :	___________
Number of Shares Subject to Award :	________ shares of Common Stock (the “Shares”)
Vesting Schedule :	The Shares shall vest in a series of ____ (_) successive equal annual installments upon Participant’s completion of each year of Service over the ____ (_)-year period measured from the Award Date (the “Normal Vesting Schedule”). However, the Shares may be subject to accelerated vesting in accordance with the provisions of Paragraphs 4 and 6 below.

DB2/ 23559279.2



Issuance Schedule :	The Shares in which the Participant vests on an annual basis in accordance with the Normal Vesting Schedule shall be issued, subject to the Corporation’s collection of all applicable Withholding Taxes, on the applicable annual vesting date (the “Issuance Date”) or as soon thereafter as administratively practicable, but in no event later than the close of the calendar year in which such annual vesting date occurs or (if later) the fifteenth day of the third calendar month following such vesting date. The Shares which vest pursuant to Paragraph 4 or Paragraph 6 of this Agreement shall be issued in accordance with the provisions of the applicable Paragraph. The applicable Withholding Taxes are to be collected pursuant to the procedure set forth in Paragraph 8 of this Agreement.

2. Limited Transferability . Prior to actual receipt of the Shares which vest and become issuable hereunder, Participant may not transfer any interest in the Award or the underlying Shares. Any Shares which vest hereunder but which otherwise remain unissued at the time of Participant’s death may be transferred pursuant to the provisions of Participant’s will or the laws of inheritance or to Participant’s designated beneficiary or beneficiaries of this Award. Participant may also direct the Corporation to re-issue the stock certificates for any Shares which in fact vest and become issuable under the Award during his or her lifetime to one or more designated family members or a trust established for Participant and/or his or her family members. Participant may make such a beneficiary designation or certificate directive at any time by filing the appropriate form with the Plan Administrator or its designee.

3. Cessation of Service . Except as otherwise provided in Paragraph 4 or Paragraph 6 below, should Participant cease Service for any reason prior to vesting in one or more Shares subject to this Award, then the Award shall be immediately cancelled with respect to those unvested Shares, and the number of Restricted Stock Units will be reduced accordingly. Participant shall thereupon cease to have any right or entitlement to receive any Shares under those cancelled units.

4. Accelerated Vesting . Should Participant cease Employee status by reason of death or Disability, then all of the Shares at the time subject to this Award shall immediately vest and shall be issued on the date of the Participant’s Separation from Service due to such death or Disability or as soon as administratively practicable thereafter, subject to the Corporation’s collection of the applicable Withholding Taxes, but in no event later than the close of the calendar year in which such Separation from Service occurs or (if later) the fifteenth (15th) day of the third (3rd) calendar month following the date of such Separation from Service.

5. Stockholder Rights . Participant shall not have any stockholder rights, including voting, dividend or liquidation rights, with respect to the Shares subject to the Award until the Shares vest and Participant becomes the record holder of those Shares upon their actual issuance following the Company’s collection of the applicable Withholding Taxes.

DB2/ 23559279.2

6. Change in Control .

A. Any Restricted Stock Units subject to this Award at the time of a Change in Control may be assumed by the successor entity or otherwise continued in full force and effect or may be replaced with a cash retention program of the successor entity which preserves the Fair Market Value of the underlying Shares at the time of the Change in Control and provides for the subsequent vesting and payout of that value in accordance with the same vesting and payout provisions that would be applicable to those Shares in the absence of such Change in Control. In the event of such assumption or continuation of the Award or such replacement of the Award with a cash retention program, no accelerated vesting of the Restricted Stock Units shall occur at the time of the Change in Control.

B. In the event the Award is assumed or otherwise continued in effect, the Restricted Stock Units subject to the Award will be adjusted immediately after the consummation of the Change in Control so as to apply to the number and class of securities into which the Shares subject to those units immediately prior to the Change in Control would have been converted in consummation of that Change in Control had those Shares actually been issued and outstanding at that time. To the extent the actual holders of the outstanding Common Stock receive cash consideration for the Common Stock in consummation of the Change in Control, the successor corporation may, in connection with the assumption or continuation of the Restricted Stock Units subject to the Award at that time, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in the Change in Control transaction, provided such shares are registered under the federal securities laws and readily tradable on an established securities exchange.

C. Should either of the following events occur during the period commencing with the earlier of (i) the execution date of any definitive agreement for a Change in Control transaction or (ii) the actual occurrence of a Change in Control and ending with the earlier of (x) the expiration of the twenty-four (24)-month period measured from the effective date of the Change in Control or, to the extent applicable, (y) the date the definitive agreement for the Change in Control transaction is terminated or cancelled without the consummation of the contemplated Change in Control transaction:

(i) Participant’s Employee status is terminated other than for Good Cause, or

(ii) Participant resigns from Employee status for Good Reason,

then all of the Shares (or other securities or property) at the time subject to this Award shall immediately vest, and those vested Shares shall be issued on the date of the Participant’s Separation from Service in connection with such cessation of Employee status or as soon as administratively practicable thereafter, subject to the Corporation’s collection of the applicable Withholding Taxes, but in no event later than the close of the calendar year in which such Separation from Service occurs or (if later) the fifteenth (15th) day of the third (3rd) calendar

DB2/ 23559279.2

month following the date of such Separation from Service, unless a further deferral is required under Paragraph 9.

D. If the Restricted Stock Units subject to this Award at the time of the Change in Control are not assumed or otherwise continued in effect or replaced with a cash retention program in accordance with Paragraph 6.A above, then those units shall vest immediately prior to the closing of the Change in Control. The Shares subject to those vested units shall be converted into the right to receive the same consideration per share of Common Stock payable to the other stockholders of the Corporation in consummation of that Change in Control, and such consideration per Share shall be distributed to Participant upon the tenth (10th) business day following the earliest to occur of (i) the Issuance Date determined for that Share in accordance with the Normal Vesting Schedule, (ii) the date of Participant’s Separation from Service or (iii) the first date following a Qualifying Change in Control on which the distribution can be made without contravention of any applicable provisions of Code Section 409A. Such distribution shall be subject to the Corporation’s collection of the applicable Withholding Taxes pursuant to the provisions of Paragraph 8.

E. This Agreement shall not in any way affect the right of the Corporation to adjust, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

7. Adjustment in Shares . Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares, spin-off transaction, extraordinary dividend or distribution or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration, or should the value of outstanding shares of Common Stock be substantially reduced as a result of a spin-off transaction or an extraordinary dividend or distribution, or should there occur any merger, consolidation or other reorganization, then equitable adjustments shall be made by the Plan Administrator to the total number and/or class of securities issuable pursuant to this Award in order to reflect such change, and the determination of the Plan Administrator shall be final, binding and conclusive. In the event of a Change in Control, the adjustments (if any) shall be made in accordance with the provisions of Paragraph 6.

8. Issuance of Shares/Collection of Withholding Taxes .

A. On each applicable Issuance Date (or any earlier date on which the Shares are to be issued in accordance with the terms of this Agreement), the Corporation shall issue to or on behalf of the Participant a certificate (which may be in electronic form) for the applicable number of shares of Common Stock, subject, however, to the Corporation’s collection of the applicable Withholding Taxes.

B. The Corporation shall collect the applicable Withholding Taxes with respect to the Shares which vest and become issuable hereunder through an automatic share withholding procedure pursuant to which the Corporation will withhold, at the time of such issuance, a portion of the Shares with a Fair Market Value (measured as of the applicable issuance date) equal to the amount of those taxes; provided, however , that the amount of any Shares so withheld shall not exceed the amount necessary to satisfy the Corporation‘s required tax withholding obligations

DB2/ 23559279.2

using the minimum statutory withholding rates for federal and state tax purposes that are applicable to supplemental taxable income. In the event payment is to be made in a form other than the Shares, then the Corporation shall collect from the Participant the applicable Withholding Taxes pursuant to such procedures as the Corporation deems appropriate under the circumstances.

C. Notwithstanding the foregoing provisions of Paragraph 8.B, the employee portion of the federal, state and local employment taxes required to be withheld by the Corporation in connection with the vesting of the Shares or any other amounts hereunder (the “Employment Taxes”) shall in all events be collected from the Participant no later than the last business day of the calendar year in which the Shares or other amounts vest hereunder. Accordingly, to the extent one or more vested Shares are issued, or other amounts are distributed, in a year subsequent to the calendar year in which those Shares or other amounts vest, the Participant shall, on or before the last business day of the calendar year in which the Shares or other amounts vest, deliver to the Corporation a check payable to its order in the dollar amount equal to the Employment Taxes required to be withheld with respect to those Shares or other amounts. The provisions of this Paragraph 8.C shall be applicable only to the extent necessary to comply with the applicable tax withholding requirements of Code Section 3121(v).

D. Except as otherwise provided in Paragraph 6 and Paragraph 8.B, the settlement of all Restricted Stock Units which vest under the Award shall be made solely in shares of Common Stock. In no event, however, shall any fractional shares be issued. Accordingly, the total number of shares of Common Stock to be issued pursuant to this Award shall, to the extent necessary, be rounded down to the next whole share in order to avoid the issuance of a fractional share.

9. Deferred Issuance Date . Notwithstanding any provision to the contrary in this Agreement, no Shares or other amounts which become issuable or distributable by reason of Participant’s Separation from Service shall actually be issued or distributed to Participant prior to the earlier of (i) the first day of the seventh (7th) month following the date of such Separation from Service or (ii) the date of Participant’s death, if Participant is deemed at the time of such Separation from Service to be a specified employee under Section 1.409A-1(i) of the Treasury Regulations issued under Code Section 409A, as determined by the Plan Administrator in accordance with consistent and uniform standards applied to all other Code Section 409A arrangements of the Corporation, and such delayed commencement is otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2). The deferred Shares or other distributable amount shall be issued or distributed in a lump sum on the first day of the seventh (7th) month following the date of Participant’s Separation from Service or, if earlier, the first day of the month immediately following the date the Corporation receives proof of Participant’s death.

10. Benefit Limit. The benefit limitation of this Paragraph 10 shall apply only to the extent Participant is not otherwise entitled to a Code Section 4999 tax gross-up under the Corporation’s Executive Severance Plan (or any successor plan) with respect to the Shares that vest on an accelerated basis in connection with a Change in Control or subsequent cessation of Employee status:

DB2/ 23559279.2

In the event the vesting and issuance of the Shares subject to this Award would otherwise constitute a parachute payment under Code Section 280G, then the vesting and issuance of those Shares shall be subject to reduction to the extent necessary to assure that the number of Shares which vest and are issued under this Award will be limited to the greater of (i) the number of Shares which can vest and be issued without triggering a parachute payment under Code Section 280G or (ii) the maximum number of Shares which can vest and be issued under this Award so as to provide the Participant with the greatest after-tax amount of such vested and issued Shares after taking into account any excise tax the Participant may incur under Code Section 4999 with respect to those Shares and any other benefits or payments to which the Participant may be entitled in connection with any change in control or ownership of the Corporation or the subsequent termination of the Participant’s Service.

11. Compliance with Laws and Regulations . The issuance of shares of Common Stock pursuant to the Award shall be subject to compliance by the Corporation and Participant with all applicable requirements of law relating thereto and with all applicable regulations of any Stock Exchange on which the Common Stock may be listed for trading at the time of such issuance.

12. Notices . Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal corporate offices. Any notice required to be given or delivered to Participant shall be in writing and addressed to Participant at the address indicated below Participant’s signature line on this Agreement. All notices shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified.

13. Successors and Assigns . Except to the extent otherwise provided in this Agreement, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and Participant, Participant’s assigns, the legal representatives, heirs and legatees of Participant’s estate and any beneficiaries of the Award designated by Participant.

14. Construction . This Agreement and the Award evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan. All decisions of the Plan Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in the Award. To the extent there is any ambiguity as to whether any provision of this Agreement would otherwise contravene one or more applicable requirements or limitations of Code Section 409A and the Treasury Regulations thereunder, such provision shall be interpreted and applied in a manner that complies with the applicable requirements of Code Section 409A and the Treasury Regulations thereunder. For purposes of Code Section 409A, each installment distribution of Shares (or other installment distribution hereunder) shall be treated as a separate payment, and Participant’s right to receive each such installment of Shares (or other installment distribution hereunder) shall accordingly be treated as a right to receive a series of separate payments.

DB2/ 23559279.2

15. Governing Law . The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of California without resort to that State’s conflict-of-laws rules

16. Employment at Will . Nothing in this Agreement or in the Plan shall confer upon Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining Participant) or of Participant, which rights are hereby expressly reserved by each, to terminate Participant’s Service at any time for any reason, with or without cause.

IN WITNESS WHEREOF , the parties have executed this Restricted Stock Unit Issuance Agreement on the respective dates indicated below.



	SJW GROUP

By:			,

Dated:		,


	[NAME OF PARTICIPANT]

By:

Address:



Dated:		,

DB2/ 23559279.2

APPENDIX A

DEFINITIONS

The following definitions shall be in effect under the Agreement:

A. Agreement shall mean this Restricted Stock Unit Issuance Agreement.

B. Award shall mean the award of Restricted Stock Units made to Participant pursuant to the terms of the Agreement.

C. Award Date shall mean the date the Restricted Stock Units are awarded to Participant pursuant to the Agreement and shall be the date indicated in Paragraph 1 of the Agreement.

D. Board shall mean the Corporation’s Board of Directors.

E. Change in Control shall mean any change in control or ownership of the Corporation which occurs by reason of one or more of the following events:

(i) the acquisition, directly or indirectly by any person or related group of persons (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under control with, the Corporation or an employee benefit plan maintained by any such entity, of beneficial ownership (as defined in Rule 13d-3 of the Exchange Act) of securities of the Corporation that results in such person or related group of persons beneficially owning thirty percent (30%) or more of the total combined voting power of the Corporation’s then-outstanding securities;

(ii) a merger, recapitalization, consolidation, or other similar transaction to which the Corporation is a party, unless securities representing at least fifty percent (50%) of the combined voting power of the then-outstanding securities of the surviving entity or a parent thereof are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Corporation’s outstanding voting securities immediately before the transaction;

(iii) a sale, transfer or disposition of all or substantially all of the Corporation’s assets, unless securities representing at least fifty percent (50%) of the combined voting power of the then-outstanding securities of the entity acquiring the Corporation’s assets or parent thereof are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Corporation’s outstanding voting securities immediately before the transaction,

DB2/ 23559279.2

(iv) a merger, recapitalization, consolidation, or other transaction to which the Corporation is a party or the sale, transfer, or other disposition of all or substantially all of the Corporation’s assets if, in either case, the members of the Board immediately prior to consummation of the transaction do not, upon consummation of the transaction, constitute at least a majority of the board of directors of the surviving entity or the entity acquiring the Corporation’s assets, as the case may be, or a parent thereof (for this purpose, any change in the composition of the board of directors that is anticipated or pursuant to an understanding or agreement in connection with a transaction will be deemed to have occurred at the time of the transaction); or

(v) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases by reason of one or more contested elections for Board membership, to be comprised of individuals who either (a) have been Board members since the beginning of such period or (b) have been elected or nominated for election as Board members during such period by at least a majority of the Board members who were described in clause (a) or who were previously so elected or approved and who were still in office at the time the Board approved such election or nomination; provided, however, that solely for purposes of determining whether a permissible Section 409A distribution can be made under Paragraph 6.D in connection with such Change in Control event, the period for measuring a change in the composition of the Board shall be limited to a period of twelve (12) consecutive months or less;

provided, however , that no Change in Control shall occur if the result of the transaction is to give more ownership or control of the Corporation to any person or related group of persons who held securities representing more than thirty percent (30%) of the combined voting power of the Corporation's outstanding securities as of March 3, 2003.

F. Code shall mean the Internal Revenue Code of 1986, as amended.

G. Common Stock shall mean the shares of the Corporation’s common stock.

H. Corporation shall mean SJW Group., a Delaware corporation, and any successor corporation to all or substantially all of the assets or voting stock of SJW Group. which shall by appropriate action adopt the Plan and/or assume the Award.

I. Disability shall mean the Participant’s permanent and total disability as determined pursuant to Section 22(e)(3) of the Code.

J. Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance; provided, however, that

DB2/ 23559279.2

solely for purposes of determining whether Participant has incurred a Separation from Service, the term “Employee” shall have the meaning assigned to such term in the Separation from Service definition set forth in this Appendix.

K. Fair Market Value per share of Common Stock on any relevant date shall be the closing selling price per share on the date in question on the Stock Exchange on which the Common Stock is at that time primarily traded, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no reported sale of Common Stock on such Stock Exchange on the date in question, then the Fair Market Value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists.

L. Good Cause shall mean:

(i) Any act or omission by Participant that results in substantial harm to the business or property of the Corporation (or any Parent or Subsidiary) and that constitutes dishonesty, intentional breach of fiduciary obligation or intentional wrongdoing,

(ii) Participant’s conviction of a criminal violation involving fraud or dishonesty, or

(iii) Participant’s intentional and knowing participation in the preparation or release of false or materially misleading financial statements relating to the operations and financial condition of the Corporation (or any Parent or Subsidiary) or Participant’s intentional and knowing submission of any false or erroneous certification required of him or her under the Sarbanes-Oxley Act of 2002 or any securities exchange on which the Common Stock is at the time listed for trading.

The foregoing definition shall not in any way preclude or restrict the right of the Corporation (or any Parent or Subsidiary) to discharge or dismiss Participant or any other person in the Service of the Corporation (or any Parent or Subsidiary) for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of the Plan or this Agreement, to constitute grounds for termination for Good Cause.

M. Good Reason shall be deemed to exist with respect to Participant if and only if, without Participant’s express written consent:

(i) there is a significantly adverse change in the nature or the scope of Participant’s authority or in his or her overall working environment;

(ii) Participant is assigned duties materially inconsistent with his or her present duties, responsibilities and status;

(iii) there is a reduction in the sum of Participant’s rate of base salary and target bonus; or

DB2/ 23559279.2

(iv) the Corporation changes by fifty-five (55) miles or more the principal location in which Participant is required to perform services;

provided, however , that, before Participant may resign for any Good Reason event or transaction, Participant must first provide written notice to the Corporation (or the Parent or Subsidiary employing Participant) identifying such Good Reason event or transaction within ninety (90) days after the occurrence of such event or transaction and the Corporation (or the Parent or Subsidiary employing Participant) shall have failed to cure such event or transaction within thirty (30) days after receipt of such written notice.

N. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.

O. Participant shall mean the person to whom the Award is made pursuant to the Agreement.

P. Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

Q. Plan shall mean the Corporation’s Long-Term Incentive Plan.

R. Plan Administrator shall mean either the Board or a committee of the Board acting in its capacity as administrator of the Plan.

S. Qualifying Change in Control shall mean a transaction effecting a change in control or ownership of the Corporation that also qualifies as: (i) a change in the ownership of the Corporation, as determined in accordance with Section 1.409A-3(i)(5)(v) of the Treasury Regulations, (ii) a change in the effective control of the Corporation, as determined in accordance with Section 1.409A-3(i)(5)(vi) of the Treasury Regulations, or (iii) a change in the ownership of a substantial portion of the assets of the Corporation, as determined in accordance with Section 1.409A-3(i)(5)(vii) of the Treasury Regulations.

T. Restricted Stock Unit shall mean each unit subject to the Award which shall entitle Participant to receive one (1) share of Common Stock upon the vesting of that unit.

U. Separation from Service shall mean the Participant’s cessation of Employee status by reason of his or her death, retirement or termination of employment. The Participant shall be deemed to have terminated employment for such purpose at such time as the level of his or her bona fide services to be performed as an Employee (or as a consultant or independent contractor) permanently decreases to a level that is not more than twenty percent (20%) of the average level of services he or she rendered as an Employee during the immediately preceding thirty-six (36) months (or such shorter period for which he or she may have rendered such services). Solely for purposes of determining when a Separation from Service occurs, Participant will be deemed to continue in “Employee” status for so long as he or she remains in the employ of one or more members

DB2/ 23559279.2

of the Employer Group, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. “Employer Group” means the Corporation and any Parent or Subsidiary and any other corporation or business controlled by, controlling or under common control with, the Corporation, as determined in accordance with Sections 414(b) and (c) of the Code and the Treasury Regulations thereunder, except that in applying Sections 1563(1), (2) and (3) of the Code for purposes of determining the controlled group of corporations under Section 414(b), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in such sections and in applying Section 1.414(c)-2 of the Treasury Regulations for purposes of determining trades or businesses that are under common control for purposes of Section 414(c), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in Section 1.4.14(c)-2 of the Treasury Regulations. Any such determination as to Separation from Service, however, shall be made in accordance with the applicable standards of the Treasury Regulations issued under Section 409A of the Code.

V. Service shall mean Participant’s performance of services for the Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-employee member of the Board or a consultant or independent advisor. Participant shall be deemed to cease Service immediately upon the occurrence of either of the following events: (i) Participant no longer performs services in any of the foregoing capacities for the Corporation (or any Parent or Subsidiary) or (ii) the entity for which Participant performs such services ceases to remain a Parent or Subsidiary of the Corporation, even though Participant may subsequently continue to perform services for that entity. Service as an Employee shall not be deemed to cease during a period of military leave, sick leave or other personal leave approved by the Corporation; provided, however , that the following special provisions shall be in effect for any such leave:

(i) Should the period of such leave (other than a disability leave) exceed six (6) months, then Participant shall be deemed to cease Service and to incur a Separation from Service upon the expiration of the initial six (6) - month period of that leave, unless Participant retains a right to re-employment under applicable law or by contract with the Corporation (or any Parent or Subsidiary).

(ii) Should the period of a disability leave exceed twenty-nine (29) months, then Participant shall be deemed to cease Service and to incur a Separation from Service upon the expiration of the initial twenty-nine (29)-month period of that leave, unless Participant retains a right to re-employment under applicable law or by contract with the Corporation (or any Parent or Subsidiary). For such purpose, a disability leave shall be a leave of absence due to any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of not less than six (6) months and causes Participant to be unable to perform the duties of his or her position of employment with the Corporation (or any Parent or Subsidiary) or any substantially similar position of employment.

DB2/ 23559279.2

(iii) Except to the extent otherwise required by law or expressly authorized by the Plan Administrator or by the Corporation’s written policy on leaves of absence, no Service credit shall be given for vesting purposes for any period Participant is on a leave of absence.

W. Stock Exchange shall mean the American Stock Exchange, the Nasdaq Global or Global Select Market or the New York Stock Exchange.

X. Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

Y. Withholding Taxes shall mean (i) the employee portion of the federal, state and local employment taxes required to be withheld by the Corporation in connection with the vesting of the shares of Common Stock (or any other property) under the Award and (ii) the federal, state and local income taxes required to be withheld by the Corporation in connection with the issuance of those vested shares (or any other property).

DB2/ 23559279.2

Exhibit 10.54

ROE Goal

SJW GROUP

RESTRICTED STOCK UNIT ISSUANCE AGREEMENT

RECITALS

A. The Board has adopted the Plan for the purpose of retaining the services of selected Employees of the Corporation (or any Parent or Subsidiary).

C. All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix A.

NOW, THEREFORE, it is hereby agreed as follows:

1. Grant of Restricted Stock Units . The Corporation hereby awards to Participant, as of the Award Date, a performance based award (the “Award”) under the Plan entitling Participant to receive a number of shares of Common Stock based upon the attainment of a pre-established performance objective tied to return on equity measured over a specified period, provided Participant continues in Service through the completion date of that measurement period. The target number of shares of Common Stock used to determine Participant’s rights under the Award, the actual number of shares to which Participant may become entitled, the applicable performance target for the vesting of those shares, the alternative and special vesting provisions which may become applicable to such shares, the date or dates on which the vested shares shall become issuable to Participant and the remaining terms and conditions governing the Award shall be as set forth in this Agreement.



Participant:	(Name)
Award Date:	________________
Target Number of Shares:	_____ shares of Common Stock (the “Target Shares”). The actual number of shares of Common Stock that may become issuable pursuant to the Award shall be determined in accordance with the Vesting Schedule below.



Vesting Schedule:	The number of shares of Common Stock which may actually vest and become issuable pursuant to the Award shall be determined pursuant to a two-step process: (i) first the maximum number of shares of Common Stock in which Participant can vest under the Performance Vesting section below shall be calculated on the basis of the level at which the Performance Objective specified on attached Schedule I is actually attained and (ii) then the number of shares calculated under clause (i) in which Participant may actually vest shall be determined on the basis of his or her completion of the applicable Service vesting requirements set forth in Paragraph 3 of this Agreement. Performance Vesting : Attached Schedule I specifies the Performance Objective to be attained for the specified Measurement Period. No later than the last business day of February in the calendar year immediately following the end of the Measurement Period, the Plan Administrator shall determine and certify the actual level of attainment for the Performance Objective (the “Performance Certification Date”). On the basis of that certified level of attainment, the number of Target Shares will be multiplied by the applicable percentage (which may range from 0% to 150%) determined in accordance with the table set forth in Schedule I. The number of shares resulting from such calculation shall constitute the maximum number of shares of Common Stock in which Participant may vest under this Award and shall be designated the “Performance-Qualified Shares.” In no event may the number of such Performance-Qualified Shares exceed 150% of the number of Target Shares. Should the Performance Objective be attained at a level below the threshold level specified in attached Schedule I, the Award shall be forfeited and shall be immediately cancelled. Participant shall thereupon cease to have any further right, title or interest in the shares of Common Stock underlying the cancelled Award. Service Vesting. The number of Performance-Qualified Shares in which Participant actually vests shall be determined on the basis of Participant’s satisfaction of the Service vesting requirements set forth in Paragraph 3. Change in Control Vesting. The shares of Common Stock underlying the Award may also vest on an alternative basis in accordance with Paragraph 5 should a Change in Control occur prior to the completion of the Measurement Period.



Issuance Schedule:	The shares of Common Stock which actually vest and become issuable pursuant to the terms of this Agreement shall be issued in accordance with the provisions of this Agreement applicable to the particular circumstances under which such vesting occurs. The actual issuance of the shares shall be subject to the Corporation’s collection of all applicable Withholding Taxes as set forth in Paragraph 7 of this Agreement.

2. Limited Transferability . Prior to actual receipt of the shares of Common Stock which vest and become issuable hereunder, Participant may not transfer any interest in the Award or the underlying shares. Any shares which vest hereunder but which otherwise remain unissued at the time of Participant’s death may be transferred pursuant to the provisions of Participant’s will or the laws of inheritance or to Participant’s designated beneficiary or beneficiaries of this Award. Participant may also direct the Corporation to re-issue the stock certificates for any shares which in fact vest and become issuable under the Award during his lifetime to one or more designated family members or a trust established for Participant and/or his family members. Participant may make such a beneficiary designation or certificate directive at any time by filing the appropriate form with the Plan Administrator or its designee.

3. Service Requirement . The number of Performance-Qualified Shares calculated in accordance with the Performance-Vesting provisions of Paragraph 1 and attached Schedule I represent the maximum number of shares of Common Stock in which Participant can vest hereunder. The actual number of shares of Common Stock in which Participant shall vest shall be determined as follows:

- Participant shall vest in one hundred percent (100%) of the Performance-Qualified Shares on the Performance Certification Date provided Participant has remained in Service through __________.

- Except to the extent otherwise provided in Paragraph 5, should Participant’s cessation of Employee status occur prior to the completion of the Measurement Period by reason of Participant’s death or Permanent Disability, then Participant shall, following the completion of the Measurement Period, vest in that number of shares of Common Stock determined by multiplying the Performance-Qualified Shares in which Participant could vest based on the actual level of attainment of the Performance Objective certified by the Plan Administrator by a fraction, the numerator of which is the number of whole months of Service (rounded up to the next whole month) completed by Participant during the Measurement Period and the denominator of which is twelve (12) months.

- If Participant’s Service ceases for any other reason prior to the completion of the Measurement Period, then Participant shall not vest in any of the shares of Common Stock subject to the Award, and all of Participant’s right, title and interest to the Award shall immediately terminate; provided, however , that should a Change in Control occur prior to the completion of the Measurement Period, then the provisions of Paragraph 5 shall govern the vesting of the shares.

To the extent Participant so vests in one or more Performance-Qualified Shares pursuant to this Paragraph 3, the underlying shares that vest on the Performance Certification Date shall be issued

on the last business day of February in the calendar year immediately following the end of the Measurement Period (the “Issuance Date”), subject to the Corporation’s collection of the applicable Withholding Taxes, but in no event later than the close of the calendar year in which the Issuance Date occurs.

4. Stockholder Rights . Participant shall not have any stockholder rights, including voting, dividend or liquidation rights, with respect to the shares of Common Stock subject to the Award until the shares vest and Participant becomes the record holder of those shares upon their actual issuance following the Corporation’s collection of the applicable Withholding Taxes.

5. Change in Control .

A. In the event a Change of Control occurs during the Measurement Period and Participant remains in Service through the effective date of the Change of Control, then the number of Performance-Qualified Shares issuable under the Award shall be equal to the Target Shares.

B. The Award as so adjusted at the time of a Change in Control may be assumed by the successor entity or otherwise continued in full force and effect or may be replaced with a cash retention program of the successor entity which preserves the Fair Market Value of the underlying shares of Common Stock at the time of the Change in Control and provides for the subsequent vesting and payout of that value in accordance with the provisions of this Paragraph 5.B. In the event the Award is assumed or otherwise continued in effect, the following Service-based vesting schedule shall apply:

(i) The Award (whether in its assumed or continued form or as converted into a cash retention program) shall vest in full upon Participant’s continuation in Service through the completion date of the Measurement Period. Following the completion of such Service‑vesting period, the securities, cash or other property underlying the vested Award shall be issued on the Issuance Date or as soon as administratively practicable thereafter, subject to the Corporation’s collection of the applicable Withholding Taxes, but in no event later than March 15 following the end of the Measurement Period.

(ii) Should any of the following events occur after the effective date of such Change in Control but prior to the completion date of the Measurement Period: (A) Participant’s cessation of Employee status by reason of death or Permanent Disability, (B) Participant’s resignation from Employee status for Good Reason or (C) the Corporation’s termination of Participant’s Employee status other than for Good Cause, then the Award shall immediately vest in full with respect to the Performance-Qualified Shares determined under Paragraph 5.A, and the securities, cash or other property underlying such portion of the Award shall, subject to the Corporation’s collection of the applicable Withholding Taxes, be distributed on the earlier of (x) the Issuance Date or (y) the date of Participant’s Separation from Service, provided such Separation from Service occurs within twenty-four (24) months after a Qualifying Change in Control, or as soon as administratively practicable after the applicable distribution date, but in no event later than the close of the calendar year in which such distribution date occurs (subject to the delayed payment provisions of Paragraph 8).

have been converted in consummation of that Change in Control had those shares actually been issued and outstanding at that time. To the extent the actual holders of the outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation may, in connection with the assumption or continuation of the Award at that time, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in the Change in Control transaction, provided such shares are registered under the federal securities laws and readily tradable on an established securities exchange.

D. If the Award is not so assumed or otherwise continued in effect or replaced with a cash retention program under Paragraph 5.B, then the Award will vest immediately prior to the closing of the Change in Control with respect to the Performance-Qualified Shares determined under Paragraph 5.A. The shares subject to the vested Award shall be converted into the right to receive the same consideration per share of Common Stock payable to the other stockholders of the Corporation in consummation of that Change in Control, and such consideration shall be distributed to Participant on the tenth (10th) business day following the earliest to occur of (i) the Issuance Date, (ii) the date of Participant’s Separation from Service (subject to the delayed payment provisions of Paragraph 8), provided such Separation from Service occurs within twenty-four (24) months after a Qualifying Change in Control, or (iii) the first date following a Qualifying Change in Control on which the distribution can be made without contravention of any applicable provisions of Code Section 409A. Such distribution shall be subject to the Corporation’s collection of the applicable Withholding Taxes pursuant to the provisions of Paragraph 7.

E. This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

6. Adjustment in Shares . Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares, spin-off transaction, extraordinary dividend or distribution or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration, or should the value of outstanding shares of Common Stock be substantially reduced as a result of a spin-off transaction or an extraordinary dividend or distribution, or should there occur any merger, consolidation or other reorganization, then equitable adjustments shall be made by the Plan Administrator to the total number and/or class of securities issuable pursuant to this Award in order to reflect such change and the determination of the Plan Administrator shall be final, binding and conclusive. In the event of a Change in Control, the adjustments (if any) shall be made in accordance with the provisions of Paragraph 5.

7. Issuance of Shares/Collection of Withholding Taxes .

A. On the Issuance Date (or any earlier date on which the shares of Common Stock are to be issued in accordance with the terms of this Agreement), the Corporation shall issue to or on behalf of Participant a certificate (which may be in electronic form) for the applicable number of shares of Common Stock, subject, however, to the Corporation’s collection of the applicable Withholding Taxes.

B. The Corporation shall collect the applicable Withholding Taxes with respect to the shares of Common Stock which vest and become issuable hereunder through an automatic share withholding procedure pursuant to which the Corporation will withhold, at the time of such issuance, a portion of the shares with a Fair Market Value (measured as of the applicable issuance date) equal to the amount of those taxes; provided, however , that the amount of any shares so withheld shall not exceed the amount necessary to satisfy the Corporation‘s required tax withholding obligations using the minimum statutory withholding rates for federal and state tax purposes that are applicable to supplemental taxable income. In the event

payment is to be made in a form other than the shares, then the Corporation shall collect from Participant the applicable Withholding Taxes pursuant to such procedures as the Corporation deems appropriate under the circumstances.

C. Notwithstanding the foregoing provisions of Paragraph 7.B, the employee portion of the federal, state and local employment taxes required to be withheld by the Corporation in connection with the vesting of the shares of Common Stock or any other amounts hereunder (the “Employment Taxes”) shall in all events be collected from Participant no later than the last business day of the calendar year in which the shares or other amounts vest hereunder. Accordingly, to the extent the Issuance Date for one or more vested shares or the distribution date for such other amounts is to occur in a year subsequent to the calendar year in which those shares or other amounts vest, Participant shall, on or before the last business day of the calendar year in which the shares or other amounts vest, deliver to the Corporation a check payable to its order in the dollar amount equal to the Employment Taxes required to be withheld with respect to those shares or other amounts. The provisions of this Paragraph 7.C shall be applicable only to the extent necessary to comply with the applicable tax withholding requirements of Code Section 3121(v).

D. Except as otherwise provided in Paragraph 5 and Paragraph 7.B, the settlement of the vested Award shall be made solely in shares of Common Stock. In no event, however, shall any fractional shares be issued. Accordingly, the total number of shares of Common Stock to be issued pursuant to this Award shall, to the extent necessary, be rounded down to the next whole share in order to avoid the issuance of a fractional share.

8. Deferred Issuance Date . Notwithstanding any provision to the contrary in this Agreement, no shares of Common Stock or other amounts which become issuable or distributable by reason of Participant’s Separation from Service shall actually be issued or distributed to Participant prior to the earlier of (i) the first day of the seventh (7th) month following the date of such Separation from Service or (ii) the date of Participant’s death, if Participant is deemed at the time of such Separation from Service to be a specified employee under Section 1.409A-1(i) of the Treasury Regulations issued under Code Section 409A, as determined by the Plan Administrator in accordance with consistent and uniform standards applied to all other Code Section 409A arrangements of the Corporation, and such delayed commencement is otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2). The deferred shares or other distributable amount shall be issued or distributed in a lump sum on the first day of the seventh (7th) month following the date of Participant’s Separation from Service or, if earlier, the first day of the month immediately following the date the Corporation receives proof of Participant’s death.

9. Clawback . Notwithstanding anything to the contrary in this Agreement or the Plan, any shares, cash or other property issued to Participant pursuant to this Agreement shall be subject to reduction, recovery and/or recoupment to the extent required by any present or future law, government regulation or stock exchange listing requirement.

10. Benefit Limit .

A. In the event the vesting and issuance of the shares of Common Stock subject to this Award would otherwise constitute a parachute payment under Code Section 280G, then the vesting and issuance of those shares shall be subject to reduction to the extent necessary to assure that the number of shares which vest and are issued under this Award will be limited to the greater of (i) the number of shares of Common Stock which can vest and be issued without triggering a parachute payment under Code Section 280G or (ii) the maximum number of shares of Common Stock which can vest and be issued under this Award so as to provide Participant with the greatest after-tax amount of such vested and issued shares after taking into account any excise tax Participant may incur under Code Section 4999 with respect to those

shares and any other benefits or payments to which Participant may be entitled in connection with any change in control or ownership of the Corporation or the subsequent termination of Participant’s Service.

B. The benefit limitation of this Paragraph 10 shall apply only to the extent Participant is not otherwise entitled to a Code Section 4999 tax gross-up, pursuant to the terms of the Corporation’s Executive Severance Plan (or any successor plan), with respect to the shares that vest on an accelerated basis in connection with a Change in Control or subsequent cessation of Employee status.

12. Notices . Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal corporate offices. Any notice required to be given or delivered to Participant shall be in writing and addressed to Participant at the address indicated below Participant’s signature line on this Agreement. All notices shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified.

14. Construction . This Agreement and the Award evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan. All decisions of the Plan Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in the Award. To the extent there is any ambiguity as to whether any provision of this Agreement would otherwise contravene one or more applicable requirements or limitations of Code Section 409A and the Treasury Regulations thereunder, such provision shall be interpreted and applied in a manner that complies with the applicable requirements of Code Section 409A and the Treasury Regulations thereunder. For purposes of Code Section 409A, each installment distribution of shares of Common Stock (or other installment distribution hereunder) shall be treated as a separate payment, and Participant’s right to receive each such installment of shares (or other installment distribution hereunder) shall accordingly be treated as a right to receive a series of separate payments.

15. Governing Law . The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of California without resort to that State’s conflict-of-laws rules.

Signature page follows.

IN WITNESS WHEREOF , the parties have executed this Restricted Stock Unit Issuance Agreement on the respective dates indicated below.



SJW GROUP
By:	____________________________

Dated:	____________________, ____

(Name)
Signature:	____________________________
Dated:	____________________, ____

APPENDIX A

DEFINITIONS

The following definitions shall be in effect under the Agreement:

A. Agreement shall mean this Restricted Stock Unit Issuance Agreement.

B. Award shall mean the award made to Participant pursuant to the terms of the Agreement.

C. Award Date shall mean the date the Award is granted to Participant pursuant to the Agreement and shall be the date indicated in Paragraph 1 of the Agreement.

D. Board shall mean the Corporation’s Board of Directors.

E. Change in Control shall mean any change in control or ownership of the Corporation which occurs by reason of one or more of the following events:

(i) the acquisition, directly or indirectly by any person or related group of persons (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under control with, the Corporation or an employee benefit plan maintained by any such entity, of beneficial ownership (as defined in Rule 13d-3 of the Exchange Act) of securities of the Corporation that results in such person or related group owning thirty percent (30%) or more of the total combined voting power of the Corporation’s then-outstanding securities;

(ii) a merger, recapitalization, consolidation, or other similar transaction to which the Corporation is a party, unless securities representing at least 50% of the combined voting power of the then-outstanding securities of the surviving entity or a parent thereof are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Corporation’s outstanding voting securities immediately before the transaction;

(iii) a sale, transfer or disposition of all or substantially all of the Corporation’s assets, unless securities representing at least 50% of the combined voting power of the then-outstanding securities of the entity acquiring the Corporation’s assets or parent thereof are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Corporation’s outstanding voting securities immediately before the transaction;

(v) a change in the composition of the Board over a period of thirty-six 36) consecutive months or less such that a majority of the Board members ceases by reason of one or more contested elections for Board membership, to be comprised of individuals who either (a) have been Board members since the beginning of such period or (b) have been elected or nominated for election as Board members during such period by at least a majority of the Board members who were described in clause (a) or who were previously

A-1

so elected or approved and who were still in office at the time the Board approved such election or nomination; provided, however, that solely for purposes of determining whether a permissible Section 409A distribution can be made under Paragraph 5.C in connection with such Change in Control event, the period for measuring a change in the composition of the Board shall be limited to a period of twelve (12) consecutive months or less;

provided however, that no Change in Control shall occur if the result of the transaction is to give more ownership or control of the Corporation to any person or related group of persons who held securities representing more than thirty percent (30%) of the combined voting power of the Corporation's outstanding securities as of March 3, 2003.

F. Code shall mean the Internal Revenue Code of 1986, as amended.

G. Common Stock shall mean the shares of the Corporation’s common stock.

H. Corporation shall mean SJW Group, a Delaware corporation, and any successor corporation to all or substantially all of the assets or voting stock of SJW Group which shall by appropriate action adopt the Plan and/or assume the Award.

I. Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance; provided, however, that solely for purposes of determining whether Participant has incurred a Separation from Service, the term “Employee” shall have the meaning assigned to such term in the Separation from Service definition set forth in this Appendix.

J. Fair Market Value per share of Common Stock on any relevant date shall be the closing selling price per share on the date in question on the Stock Exchange on which the Common Stock is at that time primarily traded, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no reported sale of Common Stock on such Stock Exchange on the date in question, then the Fair Market Value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists.

K. Good Cause shall mean:

(ii) Participant’s conviction of a criminal violation involving fraud or dishonesty, or

A-2

L. Good Reason shall be deemed to exist with respect to Participant if and only if, without Participant’s express written consent:

(i) there is a significantly adverse change in the nature or the scope of Participant’s authority or in his or her overall working environment;

(ii) Participant is assigned duties materially inconsistent with his or her present duties, responsibilities and status;

(iii) there is a reduction in the sum of Participant’s rate of base salary and target bonus; or

(iv) the Corporation changes by fifty-five (55) miles or more the principal location in which Participant is required to perform services;

provided, however, that, before Participant may resign for any Good Reason event or transaction, Participant must first provide written notice to the Corporation (or the Parent or Subsidiary employing Participant) identifying such Good Reason event or transaction within ninety (90) days after the occurrence of such event or transaction and the Corporation (or the Parent or Subsidiary employing Participant) shall have failed to cure such event or transaction within thirty (30) days after receipt of such written notice.

M. Measurement Period shall mean the period specified on attached Schedule I over which the attainment of the Performance Objective is to be measured.

N. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.

O. Participant shall mean the person to whom the Award is made pursuant to the Agreement.

Q. Performance Objective shall mean the attainment of the return on equity objective set forth in attached Schedule I, as calculated over the Measurement Period.

R. Permanent Disability shall mean Participant’s inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more.

S. Plan shall mean the Corporation’s Long Term Incentive Plan.

T. Plan Administrator shall mean either the Board or a committee of the Board acting in its capacity as administrator of the Plan.

U. Qualifying Change in Control shall mean the date on which there occurs a Change in Control that also qualifies as: (i) a change in the ownership of the Corporation, as determined in accordance with Section 1.409A-3(i)((5)(v) of the Treasury Regulations, (ii) a change in the effective control of the Corporation, as determined in accordance with Section 1.409A-3(i)((5)(vi) of the Treasury Regulations, or

A-3

(iii) a change in the ownership of a substantial portion of the assets of the Corporation, as determined in accordance with Section 1.409A-3(i)((5)(vii) of the Treasury Regulations.

V. Separation from Service shall mean Participant’s cessation of Employee status by reason of his death, retirement or termination of employment. Participant shall be deemed to have terminated employment for such purpose at such time as the level of his bona fide services to be performed as an Employee (or as a consultant or independent contractor) permanently decreases to a level that is not more than twenty percent (20%) of the average level of services he rendered as an Employee during the immediately preceding thirty-six (36) months. Solely for purposes of determining when a Separation from Service occurs, Participant will be deemed to continue in “Employee” status for so long as he remains in the employ of one or more members of the Employer Group, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. “Employer Group” means the Corporation and any Parent or Subsidiary and any other corporation or business controlled by, controlling or under common control with, the Corporation, as determined in accordance with Sections 414(b) and (c) of the Code and the Treasury Regulations thereunder, except that in applying Sections 1563(1), (2) and (3) of the Code for purposes of determining the controlled group of corporations under Section 414(b), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in such sections and in applying Section 1.414(c)-2 of the Treasury Regulations for purposes of determining trades or businesses that are under common control for purposes of Section 414(c), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in Section 1.4.14(c)-2 of the Treasury Regulations. Any such determination as to Separation from Service, however, shall be made in accordance with the applicable standards of the Treasury Regulations issued under Section 409A of the Code.

W. Service shall mean Participant’s performance of services for the Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-employee member of the Board or a consultant or independent advisor. Participant shall be deemed to cease Service immediately upon the occurrence of either of the following events: (i) Participant no longer performs services in any of the foregoing capacities for the Corporation (or any Parent or Subsidiary) or (ii) the entity for which Participant performs such services ceases to remain a Parent or Subsidiary of the Corporation, even though Participant may subsequently continue to perform services for that entity. Service as an Employee shall not be deemed to cease during a period of military leave, sick leave or other personal leave approved by the Corporation; provided, however , that the following special provisions shall be in effect for any such leave:

(i) Should the period of such leave (other than a disability leave) exceed six (6) months, then Participant shall be deemed to cease Service and to incur a Separation from Service upon the expiration of the initial six (6)-month period of that leave, unless Participant retains a right to re‑employment under applicable law or by contract with the Corporation (or any Parent or Subsidiary).

(ii) Should the period of a disability leave exceed twenty-nine (29) months, then Participant shall be deemed to cease Service and to incur a Separation from Service upon the expiration of the initial twenty-nine (29)-month period of that leave, unless Participant retains a right to re-employment under applicable law or by contract with the Corporation (or any Parent or Subsidiary). For such purpose, a disability leave shall be a leave of absence due to any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of not less than six (6) months and causes Participant to be unable to perform the duties of his position of employment with the Corporation (or any Parent or Subsidiary) or any substantially similar position of employment.

A-4

X. Stock Exchange shall mean the American Stock Exchange, the Nasdaq Global or Global Select Market or the New York Stock Exchange.

Y. Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

Z. Target Shares shall mean number of shares specified in the Target Number of Shares section under Paragraph 1.

AA. Withholding Taxes shall mean (i) the employee portion of the federal, state and local employment taxes required to be withheld by the Corporation in connection with the vesting of the shares of Common Stock (or any other property) under the Award and (ii) the federal, state and local income taxes required to be withheld by the Corporation in connection with the issuance of those vested shares (or any other property).

A-5

SCHEDULE I

PERFORMANCE OBJECTIVE AND MEASUREMENT PERIOD

MEASUREMENT PERIOD

The Measurement Period shall be the period beginning ________ and ending __________.

PERFORMANCE OBJECTIVE

The Performance Objective which must be attained for the Award to vest shall be a certified return on equity to the Corporation’s shareholders over the Measurement Period. For such purpose, the return on equity (“ROE”) shall be determined pursuant to the following formula:



ROE =	Adjusted Net Income
	Adjusted Average Shareholders’ Equity

Where:

“Adjusted Net Income” means the Corporation’s net income (as measured in accordance with U.S. generally accepted accounting principles (“GAAP”)) for the Measurement Period, adjusted to exclude (i) gains or losses from sale of Texas Water Alliance Limited, (ii) compensation charges with respect to outstanding performance-based restricted stock unit awards and (iii) bonus or incentive compensation costs and expenses associated with awards to officers of the Corporation (or any Parent or Subsidiary) of cash-based awards made under the Plan, the Corporation’s Executive Officer Short-Term Incentive Plan, or other cash-paid bonus or incentive compensation plans or arrangements of the Corporation or any Parent or Subsidiary (such gains, losses, charges, costs and expenses, the “Excluded Amounts”).

“Adjusted Average Shareholders’ Equity” means an amount equal to one-half (1/2) of the sum of (i) the total shareholders’ equity as of the end of the most recent fiscal year of the Corporation ending prior to the commencement of the Measurement Period, as reported in the Corporation’s annual report filed with the U.S. Securities and Exchange Commission and adjusted to eliminate the effects of the Excluded Amounts for such fiscal year, plus (ii) the total shareholders’ equity as of the end of the Measurement Period (as measured in accordance with U.S. GAAP) and adjusted to eliminate the Excluded Amounts for the Measurement Period.

No later than the last business day of February in the calendar year immediately following the completion of the Measurement Period, the Plan Administrator shall certify the actual level at which the Performance Objective was attained during the Measurement Period. The actual number of shares of Common Stock which vest and become issuable pursuant to the Award as a result of such certification (the “Performance-Qualified Shares”) may range from 0% to 150% of the Target Shares based on the level of attainment of the Performance Objective as follows:



ROE	< ___%	Threshold ____%	Target ___%	Maximum ___%
% of Target Shares Paid	0%	50%	100%	150%

I-1

No payment will occur if ROE is less than the Threshold level. Payouts between Threshold and Target and between Target and Maximum are determined by straight line interpretation.

I-2

Exhibit 10.55

EPS Goal

SJW GROUP

RESTRICTED STOCK UNIT ISSUANCE AGREEMENT

RECITALS

A. The Board has adopted the Plan for the purpose of retaining the services of selected Employees of the Corporation (or any Parent or Subsidiary).

C. All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix A.

NOW, THEREFORE, it is hereby agreed as follows:

1. Grant of Restricted Stock Units . The Corporation hereby awards to Participant, as of the Award Date, a performance based award (the “Award”) under the Plan entitling Participant to receive a number of shares of Common Stock based upon the attainment of a pre-established performance objective tied to earnings per share measured over a specified period, provided Participant continues in Service through the completion date of that measurement period. The target number of shares of Common Stock used to determine Participant’s rights under the Award, the actual number of shares to which Participant may become entitled, the applicable performance target for the vesting of those shares, the alternative and special vesting provisions which may become applicable to such shares, the date or dates on which the vested shares shall become issuable to Participant and the remaining terms and conditions governing the Award shall be as set forth in this Agreement.



Participant:	(Name)
Award Date:	___________________
Target Number of Shares:	_____ shares of Common Stock (the “Target Shares”). The actual number of shares of Common Stock that may become issuable pursuant to the Award shall be determined in accordance with the Vesting Schedule below.



Vesting Schedule:	The number of shares of Common Stock which may actually vest and become issuable pursuant to the Award shall be determined pursuant to a two-step process: (i) first the maximum number of shares of Common Stock in which Participant can vest under the Performance Vesting section below shall be calculated on the basis of the level at which the Performance Objective specified on attached Schedule I is actually attained and (ii) then the number of shares calculated under clause (i) in which Participant may actually vest shall be determined on the basis of his or her completion of the applicable Service vesting requirements set forth in Paragraph 3 of this Agreement. Performance Vesting : Attached Schedule I specifies the Performance Objective to be attained for the specified Measurement Period. No later than the last business day of February in the calendar year immediately following the end of the Measurement Period, the Plan Administrator shall determine and certify the actual level of attainment for the Performance Objective (the “Performance Certification Date”). On the basis of that certified level of attainment, the number of Target Shares will be multiplied by the applicable percentage (which may range from 0% to 150%) determined in accordance with the table set forth in Schedule I. The number of shares resulting from such calculation shall constitute the maximum number of shares of Common Stock in which Participant may vest under this Award and shall be designated the “Performance-Qualified Shares.” In no event may the number of such Performance-Qualified Shares exceed 150% of the number of Target Shares. Should the Performance Objective be attained at a level below the threshold level specified in attached Schedule I, the Award shall be forfeited and shall be immediately cancelled. Participant shall thereupon cease to have any further right, title or interest in the shares of Common Stock underlying the cancelled Award. Service Vesting. The number of Performance-Qualified Shares in which Participant actually vests shall be determined on the basis of Participant’s satisfaction of the Service vesting requirements set forth in Paragraph 3. Change in Control Vesting. The shares of Common Stock underlying the Award may also vest on an alternative basis in accordance with Paragraph 5 should a Change in Control occur prior to the completion of the Measurement Period.



Issuance Schedule:	The shares of Common Stock which actually vest and become issuable pursuant to the terms of this Agreement shall be issued in accordance with the provisions of this Agreement applicable to the particular circumstances under which such vesting occurs. The actual issuance of the shares shall be subject to the Corporation’s collection of all applicable Withholding Taxes as set forth in Paragraph 7 of this Agreement.

- Participant shall vest in one hundred percent (100%) of the Performance-Qualified Shares on the Performance Certification Date provided Participant has remained in Service through ______.

- Except to the extent otherwise provided in Paragraph 5, should Participant’s cessation of Employee status occur prior to the completion of the Measurement Period by reason of (A) Participant’s cessation of Employee status by reason of death or Permanent Disability, (B) Participant’s resignation from Employee status for Good Reason or (C) the Corporation’s termination of Participant’s Employee status other than for Good Cause, then Participant shall, following the completion of the Measurement Period, vest in that number of shares of Common Stock determined by multiplying the Performance-Qualified Shares in which Participant could vest based on the actual level of attainment of the Performance Objective certified by the Plan Administrator by a fraction, the numerator of which is the number of whole months of Service (rounded up to the next whole month) completed by Participant during the Measurement Period and the denominator of which is thirty-six (36) months.

and interest to the Award shall immediately terminate; provided, however , that should a Change in Control occur prior to the completion of the Measurement Period, then the provisions of Paragraph 5 shall govern the vesting of the shares.

To the extent Participant so vests in one or more Performance-Qualified Shares pursuant to this Paragraph 3, the underlying shares that vest on the Performance Certification Date shall be issued on the last business day of February in the calendar year immediately following the end of the Measurement Period (the “Issuance Date”), subject to the Corporation’s collection of the applicable Withholding Taxes, but in no event later than the close of the calendar year in which the Issuance Date occurs.

5. Change in Control .

practicable after the applicable distribution date, but in no event later than the close of the calendar year in which such distribution date occurs (subject to the delayed payment provisions of Paragraph 8).

C. In the event the Award is assumed or otherwise continued in effect, the shares of Common Stock subject to the Award (as determined pursuant to Paragraph 5.A) will be adjusted immediately after the consummation of the Change in Control so as to apply to the number and class of securities into which the shares of Common Stock subject to the Award immediately prior to the Change in Control would have been converted in consummation of that Change in Control had those shares actually been issued and outstanding at that time. To the extent the actual holders of the outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation may, in connection with the assumption or continuation of the Award at that time, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in the Change in Control transaction, provided such shares are registered under the federal securities laws and readily tradable on an established securities exchange.

7. Issuance of Shares/Collection of Withholding Taxes .

10. Benefit Limit .

12. Notices . Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal corporate offices. Any notice required to be given or delivered to Participant shall be in writing and addressed to Participant at the address indicated below Participant’s signature line on this Agreement. All notices shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified.

14. Construction . This Agreement and the Award evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan. All decisions of the Plan Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in the Award. To the extent there is any ambiguity as to whether any provision of this Agreement would otherwise contravene one or more applicable requirements or limitations of Code Section 409A and the Treasury Regulations thereunder, such provision shall be interpreted and applied in a manner that complies with the applicable requirements of Code Section 409A and the Treasury Regulations thereunder. For purposes of Code Section 409A, each installment distribution of shares of Common Stock (or other installment distribution hereunder) shall be treated as a separate payment, and Participant’s right to receive each such installment of shares (or other installment distribution hereunder) shall accordingly be treated as a right to receive a series of separate payments.

15. Governing Law . The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of California without resort to that State’s conflict-of-laws rules.

any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining Participant) or of Participant, which rights are hereby expressly reserved by each, to terminate Participant’s Service at any time for any reason, with or without cause.

Signature page follows.

IN WITNESS WHEREOF , the parties have executed this Restricted Stock Unit Issuance Agreement on the respective dates indicated below.



SJW GROUP
By:	____________________________

Dated:	____________________, ____

(Name)
Signature:	____________________________
Dated:	____________________, ____