SJW Group

NYSE:SJW

Earnings Call Transcript 2021-Q4

[Operator]

Good day and thank you for standing by and welcome to the SJW Group Q4 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that this call is being recorded. [Operator Instructions] I would now like to hand the conference over to your host today, Jim Lynch, Chief Accounting Officer. Please begin.

[James Lynch, Chief Accounting Officer]

Thank you, operator. Welcome to the 2021 fourth quarter and annual financial results conference call for SJW Group. I will be presenting today with Eric Thornburg, Chairman of the Board, President and Chief Executive Officer; and Andrew Walters, Chief Financial Officer and Treasurer. For those who would like to follow along, slides accompanying our remarks are available on our website at www.sjwgroup.com. Before we begin today, I would like to remind you that this presentation and related materials posted on our website may contain forward-looking statements. These statements are based on estimates and assumptions made by the company in light of it's experience, historical trends, current conditions and expected future developments as well as other factors that the company believes are appropriate under the circumstances. Many factors could cause the company's actual results and performance to differ materially from those expressed or implied by the forward-looking statements. For a description of some of the factors that could cause actual results to be different from statements in this presentation, we refer you to the financial results press release and to our most recent Forms 10-K 10-Q and 8-K filed with the Securities and Exchange Commission, copies of which may be obtained on our website. All forward-looking statements are made as of today and SJW Group disclaims any duty to update or revise such statements. You will have the opportunity to ask questions at the end of the presentation. As a reminder, this webcast is being recorded and an archive of the webcast will be available until April 25, 2022. You can access the press release and the website at our corporate website. I will now turn the call over to Eric Thornburg. Eric?

[Eric Thornburg, Chairman, President & Chief Executive Officer]

Welcome, everyone and thank you for joining us. I'm Eric Thornburg and it is my honor to serve as Chair, President and CEO of SJW Group. It is my pleasure to be joined on this call by Jim Lynch, Chief Accounting Officer; and Andrew Walters, Chief Financial Officer. I'm pleased to report that 2021 was a strong year for SJW Group. Our talented and passionate employees and leaders rose to the challenges and positioned us well for 2022 and coming years. We were solid in the key areas of our long-term growth strategy, delivering a reliable supply of high-quality water and world-class service to customers, investing in drinking water and wastewater systems to serve customers and communities and seeking a return of and on that investment, focusing on drinking water and wastewater continuing to acquire water and wastewater utilities, maintaining constructive relationships with our stakeholders and adding shareholder value through prudent growth. In 2021, we delivered earnings of $2.03 per share, invested more than $230 million in our water and wastewater systems, successfully processed our general rate case in Connecticut, obtained approval for a step one of a multiyear rate plan for the new water treatment facility in Maine and grew our customer base in our Texas operation by 20% through acquisitions and organic growth. In January of 2022, we reached a constructive settlement agreement with the Public Advocates Office and our California general rate case. Our success has it's roots in our culture of teamwork and service and the commitment to excellence in environmental, social and governance strategies. Our teams collaborate across our national footprint and are passionate about serving customers efficiently and sustainably. We view all aspects of our operations, planning and construction through an ESG lens. In 2021, we had an emphasis on supporting the drive of our people who understand our social and environmental responsibilities and want to be a positive force for good in the communities where we live, work and serve. We intend to emphasize this even more in 2022. Our accomplishments have been recognized with prime status by ISS ESG. Among our U.S. water utility peers, SJW Group is tied for the lead in overall social score from ISS and tied for second in the overall environmental score. The company has the best overall governance score possibly. SJW Group's 2021 corporate sustainability report which is now available on our website, demonstrates how ESG is reflected throughout our organization, our diversity equity inclusion efforts are a good example. SJW Group has signed on to the CEO Action for Diversity and Inclusion. By signing on to this commitment, SJW Group has pledged to take action to cultivate a workplace where diverse perspectives and experiences are welcomed and respected and employees feel encouraged to discuss diversity and inclusion. We embrace each person's unique background traits and personality so that they will bring their true selves to our teams. We have a commitment to supplier diversity. Our efforts in California were recognized by the Public Utilities Commission. And U.S. Veterans Magazine honored SJW as one of the nation's top supplier diversity programs in 2020. With California as the model, programs have been implemented and supplier diversity goals established for our operations in other states. SJW Group also adopted a vendor code of conduct that applies our values across the supply chain. Likewise, we've been committed to being responsible stewards of the environment by sustainably managing and protecting water resources which is critical to maintaining adequate supplies of high-quality water. We know that focusing on water resources is no longer enough. That is why we've committed to reducing greenhouse gas emissions, 50% by 2030 when compared with a 2019 baseline, a science-based target that aligns with the Paris Agreement to limit the warming of the planet. It's the right thing to do and we will report on our progress. We're seeing extreme weather across our operations. A year ago, our Texas operation experienced ice and prolonged temperatures below freezing causing widespread power and water outages. In Connecticut this summer, we saw tropical storms and record rainfall. In California, we experienced extreme dry conditions into last fall and the early part of 2022. Precipitation in California has since we saw between above average and below average. We plan to issue 2022 guidance after the rainy season has concluded on our first quarter financial results call. There was enough precipitation in late 2021 to bring our Montevina drinking water treatment facility back online in mid-December 2021. we're hopeful that California's reservoirs continue to replenish through the rainy season. Our customers are still under a mandatory conservation order that requires a 15% reduction in water usage compared with 2019. We will continue to promote water conservation aggressively in our California operations as long as necessary. Water Conservation Memorandum and water conservation expense memorandum accounts have been established that allow for the potential future recovery of the revenue and expense impacts of such water use reductions. We offer and actively promote financial assistance programs to customers in need. Our utilities work with customers experiencing onetime or ongoing financial hardships through bill forgiveness, flexible payment arrangements and in California and Connecticut through our Water Rate Assistance Programs that provides a 15% reduction on water bills for income eligible customers. SJW Group is also committed to ensuring that our customers are aware of state and federal assistance programs such as the federally funded Low Income Household Water Assistance Program. In California, we applied for funds on behalf of our customers in need and received a check for almost $10 million from the California Water and Wastewater Arrearage Payment Program that will provide immediate relief for our customers who have been in arrears. We believe that customer assistance programs and innovative rate-making are at the core of water equity. Artificially keeping rates low by deferring investment is shortsighted and it's unsustainable and does not really serve customers who all deserve quality water and service for the long term. Our subsidiaries will continue to make investments in infrastructure so that customers at all income levels will have access to the high-quality and reliable water service they deserve. Through prudent planning and rate-making, such as the low income rates, the cost and rate impacts of these investments will be incurred gradually so they could be managed more easily by the utility and customers. Building and retaining our workforce of water professionals is also critical. We invest in the training and development of our people so they can have rewarding careers at SJW Group utilities. They are the foundation. Our success is built on. We strive to provide a safe and productive work environment, support the training and development of our teams and measure employee satisfaction and engagement through independent surveys. Earlier this month, Connecticut Water was recognized as a top workplace in the United States, one of just 1,100 companies across the country to achieve that distinction. I'll now turn the call over to Jim, who will review our financial results. And after Jim's remarks, we will address regulatory and other business matters. Jim?

[James Lynch, Chief Accounting Officer]

Thank you, Eric. Our 2021 operating results benefited from authorized rate increases in each of our four operating utilities. These increases were offset by a decrease in customer usage, most notably in our California utility as a result of the drought emergency declarations by the State Governor and Valley Water, our local wholesale water agency as well as a decrease in the availability of surface water supplies in our California surface area. In addition, we experienced higher general and administrative expenses due primarily to rate case activity in three of our four water utilities and increases in other operating costs. Also, in the fourth quarter of 2021, we benefited from property sales in California and recorded a long-lived asset impairment in Texas that together provided a net benefit to our reported results. Diversification, coupled with our strong local operations and supported by our national framework, enable us to provide high-quality water and reliable water service to our customers and communities, protect our employees and deliver solid results for our shareholders. Fourth quarter revenue was $139.7 million, a $4 million increase over reported fourth quarter 2020 revenue. Net income for the quarter was $18 million or $0.60 per diluted share. This compares with net income of $13.3 million or $0.46 per diluted share for the fourth quarter of 2020. Diluted earnings per share for the quarter was primarily driven by cumulative rate increases of $0.34 per share, decreased production cost due to lower customer usage of $0.30 per share, the sale of nonutility property of $0.29 per share and recognition of the impact of our California Water Conservation Memorandum Account, or our WCMA, of $0.12 per share. These increases were offset by a decrease in customer usage of $0.40 per share, an increase in per unit production cost of $0.20 per share and the impairment of a long-lived asset of $0.09 per share. In addition, in the fourth quarter of 2020, we recorded a tax benefit of $0.14 per share related to flow-through items and the impact of such items on lower fourth quarter pretax earnings. No similar rate impact occurred in 2021 due to higher fourth quarter pretax income. Turning to our comparative analysis for the quarter. The $4 million increase in revenue was primarily due to $10 million in cumulative rate increases and $3.4 million in the recognition of balancing and memorandum accounts in California which includes $3.2 million attributable to the WCMA. These increases were partially offset by a $10.5 million decrease in customer usage. The cumulative rate increases include the impact of final decisions on our general rate case and reconsideration proceeding in Connecticut which we received at the end of July and November of 2021, respectively. While these decisions occurred later in the year than we anticipated, when coupled with our WICA, or our WICA filing, that was approved by PURA in December of 2021. Our Connecticut utility will benefit from an increase in our annual revenue requirement by approximately $9.9 million beginning January of 2022. Water production expense decreased $1.8 million compared to the fourth quarter of 2020. The decrease included $7.8 million due to lower customer usage partially offset by $5.3 million in higher average per unit water production cost. Other operating expenses decreased $1.5 million during the quarter, primarily due to a gain on the sale of nonutility property of $7.5 million, partially offset by increased general and administrative expenses of $1.6 million and the recognition of an impairment on a long-lived asset of $2.2 million. The increase in general and administrative expenses was primarily due to the cost of rate case proceedings in the three of our four operating utilities as well as higher compensation, consulting and insurance costs. The effective income tax rate for the fourth quarter was 15% compared to net negative 7% for the fourth quarter of 2020. The higher effective tax rate in 2021 was primarily due to the impact of flow-through items on the change in profit before income taxes as compared to 2020. On November 17, 2021, SJW Group entered into an equity distribution agreement whereby the company may offer the sale of shares of it's common stock from time-to-time in at-the-market offerings. SJW Group sold and issued approximately 355,000 shares of common stock with a weighted average price of $70.4 per share and received approximately $24 million in net proceeds under the agreement in 2021. Proceeds from the sale of the shares were used to finance the acquisitions of Kendall West and Bandera East Water utilities in Texas which closed on December 17, 2021. On December 1, 2021, San Jose Water Company issued $50 million in it's Series senior notes. The notes are unsecured, accrue interest at 3% and mature 30 years from the issue date. In addition, on December 1, Connecticut Water Company issued $50 million of it's Series 2021 B senior notes. These notes are also unsecured, accrue interest at 3.10% and mature 30 years from the issue date. Turning to our annual results. 2021 revenue was $573.7 million, a $9.2 million increase over the prior year. Net income in 2021 was $60.5 million or $2.03 per diluted share compared to $61.5 million or $2.14 per diluted share in 2020. The change in diluted earnings per share for the year was due to many of the same factors noted for the quarter. Cumulative rate increases contributed $0.86 per share, decreased production costs due to lower customer usage added $0.51 per share and the sale of nonutility property contributed $0.28 per share. In addition, various regulatory mechanisms and balancing and memorandum accounts added $0.21 per share and the recognition of the California WCMA contributed $0.12 per share. These increases were offset by a decrease in customer usage of $0.93 per share, a production cost price increase of $0.44 per share and an increase in administrative and general expenses of $0.25 per share. In addition, depreciation expense increased $0.20 per share. California surface water production resulted in a decrease of $0.15 per share and the long-lived asset impairment in Texas decreased earnings by $0.08 per share. The 2021 increase in revenue was primarily due to $25.2 million in cumulative rate increases, $2.5 million in the net recognition of certain regulatory mechanisms in Connecticut and Maine and $3.9 million in the recognition of balancing and memorandum accounts in California, including $3.2 million attributable to the WCMA and $2.9 million in revenue from new customers. These increases were partially offset by $24.7 million in decreased customer usage. Water production expenses increased $3.3 million in 2021. The increase was primarily due to $11 million -- $11.6 million in higher average per unit water production cost, $3.9 million due to a decrease in surface water supply production and a $1.3 million increase in California cost recovery balancing and memorandum accounts. These increases were partially offset by $13.5 million in lower customer water usage. Other operating expenses increased $12.4 million in 2021, primarily due to $7.6 million in higher general and administrative expenses, $5.1 million in increased depreciation and amortization expenses and $3.9 million in higher maintenance costs. As noted earlier, in the fourth quarter of 2021, we recognized an impairment on a long-lived asset of $2.2 million and a gain on the sale of nonutility property of $7.5 million. The change in other income and expense for the year was primarily the result of the $3 million TWA holdback amount which I discussed during our second quarter earnings call. Turning to our capital expenditure program. We added approximately $64.1 million in company-funded utility plant in the fourth quarter of 2021, bringing total company-funded additions to $233.9 million for the year. Our 2021 cash flow from operations increased approximately $26 million over the same period in 2020. The increase was primarily due to an increase in collections of previously billed and accrued receivables of $13 million, an increase in general working capital and net income adjusted for noncash items of $6.8 million and a $5.2 million decrease in the payment of amounts previously invoiced and accrued due to lower fourth quarter activity. In addition, in 2020, we made a $5 million upfront service payment related to a concession agreement amendment that did not recur in 2021. These increases were partially offset by an increase in the crude water production costs of $4 million. At the end of 2021, we had $197 million available on our bank lines of credit for short-term financing of utility plant additions and operating activities. The average borrowing rate on our 2021 line of credit advances was approximately 1.32%. With that, I will stop and turn the call back over to Eric.

[Eric Thornburg, Chairman, President & Chief Executive Officer]

Thank you, Jim. SJW Group continues to deliver on our core growth strategy of investing in high-quality water systems to provide high-quality water and reliable service to customers and communities and earn a fair return on those investments. In 2022, SJW Group's subsidiaries plan to invest $223 million in infrastructure improvements to serve our customers in California, Connecticut, Maine and Texas, more than $1.3 billion in infrastructure investments as planned across the organization over the next five years. Connecticut Water's 2021 GRC concluded in the fourth quarter in San Jose Water and the California Public Advocates Office have reached a settlement agreement that was filed with the California Public Utilities Commission last month. Andrew Walters will discuss the results of the Connecticut case, the highlights of the settlement agreement in California and rate cases in Maine and our Texas growth story and provide an update on our California water supply. Andrew?

[Andrew Walters, Chief Financial Officer & Treasurer]

Thank you, Eric. Our Board has authorized a $223 million capital spending plan for 2022. Nearly half of it is allocated to pipeline replacement projects. The plan includes budgeted investments of $115.1 million in California, $61.4 million in Connecticut, $21.8 million in Maine and $24.5 million in Texas. The WICA and WISC infrastructure recovery mechanisms in Connecticut and Maine, respectively and California's forward-looking capital spending authorization as well as the growth in customers in Texas minimize regulatory lag on these infrastructure investments. San Jose Water Company's 2021 GRC application for new rates in 2022 through 2024 is pending before the CPUC. The application seeks an increase of nearly $88 million in the revenue requirement over the three year period, authorization of a $435 million capital budget over the three years and recovery of $18.5 million from balancing and memorandum accounts. SJWC filed for interim rates to be effective on January 1, 2022. The settlement recognizes the need for continued investments in the water system to deliver high-quality and reliable service for customers and communities served. Additionally, it further aligns authorized and capital -- authorized and actual consumption, particularly for business customers, addresses our water supply mix challenge and provides greater revenue recovery in the fixed charge. A final decision is anticipated in the second quarter of 2022. The 2022 through 2024 cost of capital proceeding for all Class A utilities is pending before the CPUC. The application requests an increase in revenue to support a return on equity of 10.3%, an adjustment on the proposed capital structure of 54.55% equity and 45.45% debt, partially offset by a decrease in the cost of debt to 5.48%. The decision is expected in the third quarter of 2022. San Jose Water's advanced metering infrastructure application is pending before the CPUC, An all-party settlement agreement was submitted to the CPUC for adoption that would authorize infrastructure investment of $100 million over four years, outside of the capital budget requested in the GRC to deployment of AMI. A final decision is anticipated in the second quarter of 2022. In Connecticut, the Connecticut Public Utility Regulatory Authority issued a final decision in November of Connecticut Water Company's request for reconsideration which was the last outstanding piece of the company's 2021 GRC. The final decision allows CWC to increase annual revenues by an additional $2.1 million above the $5.2 million originally authorized in the July 28, 2021 GRC decision for a total of $7.3 million authorized through the GRC. PURA also authorized a WICA of 2.44% effective on January 1, 2022. The increase was for more than 2020 -- was more than $22 million in completed WICA projects, many of which were not considered by PURA in the GRC because of the deadline and the GRC proceeding for pro forma capital additions. The new WICA is expected to generate $2.6 million in additional revenue. Between July 2021 and January 22, the authorized revenue for CWC increased to $9.9 million through the GRC, request for reconsideration and the WICA filings. Maine Water Company's previously received approval from the Maine Public Utilities Commission for an innovative REITs moving mechanism that provides a more gradual ramp to new rates driven by the $60 million project to replace a 138-year-old treatment plant in the Biddeford/Saco division. A supplemental rate application for $6.9 million is pending with the MPUC which would be the second step in a multiyear rate plan for the project. MWC has entered settlement discussions with the Office of Public Advocates on this application and a decision is expected in the second quarter of 2022. A third step filing associated with the new treatment facility is expected in the second half of 2022 following the completion of a new Saco River drinking water treatment facility. Maine Water received MPUC approval for a 3% increase in WISC, effective January 1, 2022, for a $1.9 million infrastructure project in the Skowhegan division. The company also expects that by March 1, 2022, it will have filed rate case applications in four of it's divisions as required as a condition of settlement agreements for the 2019 Tax Cuts and Jobs Act order. We continue to see a pipeline of growth opportunities at SJWTX, our Texas Water and Wastewater Utility. In the fourth quarter, SJWTX closed on the acquisition of Kendall West and Bandera East Water and Wastewater Utilities. The company also closed on the acquisition of Texas Country Water in January of 2022. Combined, these completed acquisitions added nearly 1,800 service connections and expanded SJWTX's service area. Overall, the company serves more than 24,000 service connections between Austin and San Antonio and three of the five fastest-growing counties in the United States which include Comal, Hays and Kendall Counties. SJWTX has more than tripled it's customer base over the past 15 years, providing service to about 70,000 people today. With a diverse portfolio of water supplies, a growing wastewater business and continued additions to the customer base through organic growth and acquisitions, we remain optimistic about the prospects for SJWTX and it's increased contributions to consolidated earnings. Surface water supply in California improved in the fourth quarter. As shown on the chart, we have experienced a significant increase in levels at our Elsman reservoir in the Santa Cruz Mountains due to higher-than-average rainfall in October and December which allowed San Jose Water to put Montevina Water Treatment Plant back online in mid-December, as Eric mentioned earlier. The current level at Elsman will support approximately 1.3 billion to 1.4 billion gallons in production during the balance of 2022. For production year-to-date, water produced from San Jose Water Company's surface water supplies was approximately 350 million gallons which was generally from runoff until recently supplemented by releases from Elsman. While there has not been significant rainfall since December, the traditional rainy season continues through the end of March which could positively impact the runoff and storage in 2022. With that, I will turn the call back over to Eric.

[Eric Thornburg, Chairman, President & Chief Executive Officer]

Thank you, Andrew. The prudent management of our business and financial resources continues to be fundamental with growth and our ability to return capital to shareholders, demonstrating the company's strong commitment to our shareholders. In January of 2022, the Board authorized a 5.9% increase in SJW Group's 2022 dividend to $1.44 per share as compared with the total dividends paid in 2021. We're proud to have continuously paid a dividend for over 78 years and have increased the annual dividend in each of the last 54 years, delivering value to our shareholders. We would like to extend a warm welcome to the California Public Utilities Commission President, Alice Busching Reynolds; and Commissioner John Reynolds and to express our appreciation to outgoing commissioner, Martha Guzman Aceves and President Marybel Batjer, for their service. We look forward to working with the new commissioners and their staff to address the water-related issues facing California's regulated water utilities. And lastly, I'm pleased to welcome Becky Armendariz Klein to the STW Group Board of Directors. She has an impressive background of service and extensive experience with water and utilities. Becky is the principal of an energy and water consulting company in Austin and past Chair of the Public Utilities Commission of Texas. With that, I'd like to turn the call back to the operator for questions.

[Operator]

[Operator Instructions] And our first question comes from Angie Storozynski from Seaport. Your line is now open.

[Angie Storozynski, Seaport]

Thank you. Okay. So I wanted to just clarify one thing I heard from Andrew about the water production volumes. The 1.3 billion gallons you mentioned, is it inclusive of the 350 million year-to-date you mentioned around 350 million? .

[Andrew Walters, Chief Financial Officer & Treasurer]

No, it's exclusive; so it does not include that. 350 million is produced and the 1.3 billion to 1.4 billion is based off the storage that you see in the chart that we presented.

[Angie Storozynski, Seaport]

Okay. That's great. And then -- so we're waiting for the guidance to be issued on the first quarter earnings call. Hopefully, by then, we will have a commission's decision on new settlement but we won't have any visibility into the cost of capital proceeding, I guess, unless it's settled by then. So could you give us a sense, especially given what we've heard from the consumer advocate on the cost of capital side, how that could -- what will basically translate into your future earnings power and any potential sensitivity associated with the changes in the cost of capital?

[Eric Thornburg, Chairman, President & Chief Executive Officer]

Yes. Angie, thanks for joining us today. I appreciate your questions. I really don't have too much to add here. I don't want to speculate necessarily on the outcome. But if you do look at our proposal that if it's approved as filed, does result in a very modest $1.50 per month per customer increase. And so that reflects sharing the reduction in debt expenses that we've created through our innovative financing and yet still achieving a higher authorized return on equity. So we're just going to have to play it out and continue to put forth the best evidence that we have available to us. I don't know Andrew or Jim, would you have anything to add to that?

[Andrew Walters, Chief Financial Officer & Treasurer]

No. Eric, that sums it up perfectly.

[James Lynch, Chief Accounting Officer]

Yes. I think that's right. Go ahead, Angie.

[Angie Storozynski, Seaport]

No. Please go ahead.

[James Lynch, Chief Accounting Officer]

No. No, no. That -- everything that Eric said is -- that is our approach. We have gotten a testimony from interveners now. So the process is moving forward but we still got a ways to go.

[Angie Storozynski, Seaport]

Okay. And then moving back to GRC. Again, it does seem like you would be issuing guidance before the settlement is approved. But given your current expectations of water production volumes, would you be roughly in those stated quotas that the GRC includes for this year at least?

[Eric Thornburg, Chairman, President & Chief Executive Officer]

Thanks, Angie. Yes, it's -- looking at the settlement agreement itself, it reduces the amount of company-produced surface water from the 2.65 billion gallons, down to 1.8 billion. So that's a real win for customers and for the company if that is approved. It certainly is very reassuring to us that, right now, looking at the surface water picture through 2022, we're going to be right in that general vicinity as well. So I'm really pleased for that because I think helps as well, get the settlement ultimately approved by the commission. So we should be in a pretty good place, even though we won't necessarily know if the commission has approved the settlement agreement. But we're hopeful that they will and particularly given the strong approach taken as we work with the public advocate, I think it's a very compelling settlement for customers and for the company. So I think it's all good.

[Angie Storozynski, Seaport]

Okay. And lastly, just looking at your core earnings, excluding those -- that one-off transaction that happened last year, can you give us a sense of what percentage of those ongoing earnings came from Texas? Like roughly?

[Eric Thornburg, Chairman, President & Chief Executive Officer]

Jim, earnings from Texas? Would you want to run at that?

[James Lynch, Chief Accounting Officer]

I believe -- I'd have to get back to you on that, Angie. I don't have it broken down by subsidiary at this moment. So why don't I circle back with you? I know that they typically are right around 10% but I'd like to confirm that before I lock and load on it.

[Angie Storozynski, Seaport]

Thank you.

[Eric Thornburg, Chairman, President & Chief Executive Officer]

Thank you, Angie.

[Operator]

Thank you. [Operator Instructions] And our next question comes from Jonathan Reeder from Wells Fargo. Your line is now open.

[Jonathan Reeder, Wells Fargo]

Hey, good morning, team. Angie stole some of the -- a couple of my questions there. The only one that I have remaining, the cost of capital, what do you think a final decision would be realistic if it is fully litigated? Just given the track record in California, the case backlog and like that.

[Eric Thornburg, Chairman, President & Chief Executive Officer]

Yes. Jonathan, fair question. We continue to be hopeful that we'll get something by the third quarter but we'll have to watch that. We don't control it but we'll manage with it. So best we can tell.

[Jonathan Reeder, Wells Fargo]

Okay. Well, great luck in the months ahead as you got some very important proceedings coming to a head. So looking forward to some good outcomes.

[Eric Thornburg, Chairman, President & Chief Executive Officer]

Yes. I appreciate the comment there, Jonathan. I think if you look back over the last -- this past year. We worked through very successfully navigating the majority of our regulatory calendar. So with the settlement agreement in place, we're optimistic for the GRC's outcome in California, then the Maine rate case looking good. And so just get through the cost of capital proceeding and we'll be on our way. So appreciate your questions.

[Operator]

And our next question comes from Richard Sunderland from JPMorgan. Your line is now open.

[Richard Sunderland, JPMorgan]

Hi, good morning. Thanks for taking my question today. Just thinking about the 4Q water backdrop in California relative to the overall water challenges in the State. Could you frame a little bit of the progress made with the rainfall last quarter and just how to think about the water -- the State's water situation in the next year or so?

[Eric Thornburg, Chairman, President & Chief Executive Officer]

Yes. I'll go ahead and start on that and I'll see if my colleagues have anything to add that I missed. Well, I'll tell you what the December was really an extraordinary month of rainfall for us. You can see on the chart that Andrew shared. How that we just took off in December and that was set up by a very favorable October where we were able to get some ground saturation in our watershed up in the mountains. So that when we had the significant precipitation levels in December, we didn't have any -- that was going to recharging the groundwater if you will. It just ran off and we were able to capture that in the reservoir. So -- and yes, just as strong as December was January was the opposite. It was the -- I believe the all-time record, essentially 0 precipitation in San Jose in the month of January. So our joy was a little bit reduced because we thought, wow, we're really on a roll here. When you look around the State, the major reservoirs around the State definitely received some significant increases in their overall supply and the snowpack was also quite significant. But as we move into February and March year, normally, we'd expect to see even more precipitation. So you know what, right now, I would say, thank goodness for December. It certainly relieved some of the anxiety we were all feeling around overall water supply. And -- but we're still needing a significant amount of precipitation to put this thing to an end on a State-wide basis. So we're not out of the woods by any means but we certainly got to [ retrieve ] for 2022. Andrew or Jim, anything to add?

[Andrew Walters, Chief Financial Officer & Treasurer]

Yes. I would just add that if you take a look at the California data exchange center under the Department of Water Resources that gives you a good overview of where the reservoirs are and they're still below the historic average for this date in almost all cases. So as Eric highlighted, we still got some room to go in the overall State picture but certainly relieve where our local picture goes and that's the key about the weather patterns and specifically our own water is it's very much a micro climate.

[James Lynch, Chief Accounting Officer]

Yes. I don't have anything else I don't have anything else to add to that. Great December. It's been pretty dry since then. We were well above average at that point and the reservoirs were lining up quite well at that point. But since then, we've kind of worked to -- below our average numbers for this time of year. So looking forward to some continued rain, potentially a miracle March, who knows. But we're sitting pretty well with regards to our own resources as we move through the year.

[Richard Sunderland, JPMorgan]

Understood. Thanks for the color and that's all I had for that. Thanks.

[Eric Thornburg, Chairman, President & Chief Executive Officer]

Thanks, Richard.

[Operator]

And we have a follow-up question from Jonathan Reeder from Wells Fargo. Your line is open.

[Jonathan Reeder, Wells Fargo]

Just figured I'd ask, anything additional kind of circulating on the M&A front, should we be expecting any future deals to be concentrated in Texas? Or are there some other states either existing or new that we should be looking at?

[Eric Thornburg, Chairman, President & Chief Executive Officer]

Thanks for the follow-up. Andrew, do you want to address that?

[Andrew Walters, Chief Financial Officer & Treasurer]

Sure. We continue to remain focused on Texas, where we have seen a good transaction activity with our two most recently announced transactions. As it relates to future activity, we remain open on finding good acquisition targets. Texas will remain an area that will feature heavily in that. But as we also look beyond Texas, as those opportunities come about. We will evaluate those. And I think the key that we always do is we focus on those acquisitions which will be accretive to our shareholders and improve the diversification for our company and benefit our customers. So those are the things we'll continue to evaluate. And obviously, we can't comment on things that we're specifically working on right now but we will remain focused on the areas we have.

[Jonathan Reeder, Wells Fargo]

Great. Appreciate you taking the follow-up.

[Eric Thornburg, Chairman, President & Chief Executive Officer]

Of course. Thank you, Jonathan.

[Operator]

Thank you. I'm showing no further questions. I would now like to turn the call back over to Eric Thornburg, Chief Executive Officer, for closing remarks.

[Eric Thornburg, Chairman, President & Chief Executive Officer]

Great, thank you. On behalf of the executive leadership team at SJW Group, thank you for your interest and your support of our company, built on our growth strategy of CapEx investment and acquisitions and a core commitment to ESG, the SJW Group and it's 154-year track record make for a compelling investment and growth story. Thank you very much.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.

[Eric Thornburg, Chairman, President & Chief Executive Officer]

Thank you, team. Well done.