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EX-32 - EX-32 - CALIFORNIA WATER SERVICE GROUPf53985exv32.htm
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EX-10.3 - EX-10.3 - CALIFORNIA WATER SERVICE GROUPf53985exv10w3.htm
EX-31.2 - EX-31.2 - CALIFORNIA WATER SERVICE GROUPf53985exv31w2.htm
EX-31.1 - EX-31.1 - CALIFORNIA WATER SERVICE GROUPf53985exv31w1.htm
Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
OR
     
o   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 1-13883
CALIFORNIA WATER SERVICE GROUP
 
(Exact name of registrant as specified in its charter)
     
Delaware   77-0448994
 
(State or other jurisdiction   (I.R.S. Employer identification No.)
of incorporation or organization)    
     
1720 North First Street, San Jose, CA.   95112
 
(Address of principal executive offices)   (Zip Code)
408-367-8200
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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 þ   No o
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o   No o
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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o 
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act) Yes o   No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common shares outstanding as of November 2, 2009 — 20,744,952
 
 

 


 

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 EX-10.3
 EX-10.4
 EX-31.1
 EX-31.2
 EX-32

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PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements presented in this filing on Form 10-Q have been prepared by management and are unaudited.
CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands, except per share data)
                 
    September 30,     December 31,  
    2009     2008  
ASSETS
               
Utility plant:
               
Utility plant
  $ 1,676,287     $ 1,583,079  
Less accumulated depreciation and amortization
    (501,704 )     (470,712 )
 
           
Net utility plant
    1,174,583       1,112,367  
 
           
Current assets:
               
Cash and cash equivalents
    47,581       13,869  
Receivables:
               
Customers
    31,722       22,786  
Regulatory balancing accounts
    15,592       4,629  
Other
    10,752       7,442  
Unbilled revenue
    21,352       13,112  
Materials and supplies at weighted average cost
    5,457       5,070  
Taxes, prepaid expenses and other assets
    7,922       12,890  
 
           
Total current assets
    140,378       79,798  
 
           
Other assets:
               
Regulatory assets
    201,442       198,293  
Goodwill
    2,615       3,906  
Other assets
    30,456       23,743  
 
           
Total other assets
    234,513       225,942  
 
           
 
  $ 1,549,474     $ 1,418,107  
 
           
CAPITALIZATION AND LIABILITIES
               
Capitalization:
               
Common stock, $.01 par value
  $ 207     $ 207  
Additional paid-in capital
    214,715       213,922  
Retained earnings
    204,570       188,820  
 
           
Total common stockholders’ equity
    419,492       402,949  
Long-term debt, less current maturities
    373,541       287,498  
 
           
Total capitalization
    793,033       690,447  
 
           
Current liabilities:
               
Current maturities of long-term debt
    12,424       2,818  
Short-term borrowings
    12,000       40,000  
Accounts payable:
               
Trade and other
    46,894       39,187  
Regulatory balancing accounts
    7,486       2,585  
Accrued interest
    9,096       3,295  
Accrued expenses and other liabilities
    42,938       35,311  
 
           
Total current liabilities
    130,838       123,196  
 
           
Unamortized investment tax credits
    2,392       2,392  
Deferred income taxes, net
    83,512       72,344  
Pension and postretirement benefits other than pensions
    152,467       152,685  
Regulatory and other liabilities
    83,357       83,312  
Advances for construction
    182,763       176,163  
Contributions in aid of construction
    121,112       117,568  
Commitments and contingencies
           
 
           
 
  $ 1,549,474     $ 1,418,107  
 
           
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(In thousands, except per share data)
                 
    September 30,     September 30,  
For the three months ended   2009     2008  
 
               
Operating revenue
  $ 139,167     $ 131,702  
 
           
Operating expenses:
               
Operations:
               
Water production costs
    48,898       46,455  
Administrative and general
    19,084       14,995  
Other operations
    14,639       12,935  
Maintenance
    4,405       3,824  
Depreciation and amortization
    10,259       9,281  
Income taxes
    13,417       13,510  
Property and other taxes
    4,371       3,940  
 
           
Total operating expenses
    115,073       104,940  
 
           
Net operating income
    24,094       26,762  
 
           
 
               
Other income and expenses:
               
Non-regulated revenue
    5,194       3,805  
Non-regulated expenses, net
    (3,464 )     (4,501 )
Income taxes (expense) benefit on other income and expenses
    (702 )     288  
 
           
Net other income and expenses
    1,028       (408 )
 
           
 
               
Interest expense:
               
Interest expense
    6,480       5,233  
Less: capitalized interest
    (950 )     (1,065 )
 
           
Net interest expense
    5,530       4,168  
 
           
 
               
Net income
  $ 19,592     $ 22,186  
 
           
 
               
Earnings per share
               
Basic
  $ 0.94     $ 1.06  
 
           
Diluted
  $ 0.94     $ 1.06  
 
           
 
               
Weighted average shares outstanding
               
Basic
    20,745       20,717  
 
           
Diluted
    20,767       20,740  
 
           
 
               
Dividends declared per share of common stock
  $ 0.2950     $ 0.2925  
 
           
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(In thousands, except per share data)
                 
    September 30,     September 30,  
For the nine months ended   2009     2008  
 
               
Operating revenue
  $ 342,447     $ 310,204  
 
           
 
               
Operating expenses:
               
Operations:
               
Water production costs
    119,468       112,162  
Administrative and general
    57,331       42,248  
Other operations
    41,425       37,766  
Maintenance
    13,352       12,884  
Depreciation and amortization
    30,739       27,779  
Income taxes
    21,438       20,127  
Property and other taxes
    12,371       11,163  
 
           
Total operating expenses
    296,124       264,129  
 
           
Net operating income
    46,323       46,075  
 
           
 
               
Other income and expenses:
               
Non-regulated revenue
    11,173       9,452  
Non-regulated expenses, net
    (6,826 )     (9,715 )
Gain on sale of non-utility property
    675       7  
Income taxes (expense) benefit on other income and expenses
    (2,032 )     118  
 
           
Net other income and expense
    2,990       (138 )
 
           
 
               
Interest expense:
               
Interest expense
    17,480       15,405  
Less: capitalized interest
    (2,270 )     (1,955 )
 
           
Net interest expense
    15,210       13,450  
 
           
 
Net income
  $ 34,103     $ 32,487  
 
           
 
               
Earnings per share
               
Basic
  $ 1.64     $ 1.55  
 
           
Diluted
  $ 1.64     $ 1.55  
 
           
 
               
Weighted average shares outstanding
               
Basic
    20,740       20,707  
 
           
Diluted
    20,765       20,731  
 
           
 
               
Dividends declared per share of common stock
  $ 0.8850     $ 0.8775  
 
           
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
                 
    September 30,     September 30,  
For the nine months ended:   2009     2008  
 
               
Operating activities
               
Net income
  $ 34,103     $ 32,487  
 
           
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    32,178       29,722  
Gain on sale of non-utility property
    (675 )     (7 )
Change in value of life insurance contracts
    (3,555 )     2,198  
Other changes in noncurrent assets and liabilities
    11,975       1,990  
Changes in operating assets and liabilities:
               
Receivables
    (31,449 )     (18,659 )
Accounts payable
    15,561       6,659  
Other current assets
    4,572       (647 )
Other current liabilities
    13,689       26,683  
Other changes, net
    764       589  
 
           
Net adjustments
    43,060       48,528  
 
           
Net cash provided by operating activities
    77,163       81,015  
 
           
 
               
Investing activities:
               
Utility plant expenditures:
               
Company funded
    (82,862 )     (74,603 )
Developer funded
    (3,548 )     (6,020 )
Acquisitions
          (14,341 )
Purchase of life insurance
    (1,711 )     (1,366 )
Proceeds on sale of non-utility property
    750        
 
           
Net cash used in investing activities
    (87,371 )     (96,330 )
 
           
 
               
Financing activities:
               
Short-term borrowings
    20,000       40,000  
Repayment of short-term borrowing
    (48,000 )      
Advances and contributions in aid of construction
    3,642       6,548  
Refunds of advances for construction
    (4,354 )     (5,383 )
Dividends paid
    (18,353 )     (18,289 )
Proceeds from long-term debt, net of issuance cost of $3,390
    96,706       693  
Repayment of long-term debt
    (5,751 )     (1,861 )
Issuance of common stock
    30        
Redemption of preferred stock
          (3,718 )
 
           
Net cash provided by financing activities
    43,920       17,990  
 
           
Change in cash and cash equivalents
    33,712       2,675  
Cash and cash equivalents at beginning of period
    13,869       6,734  
 
           
Cash and cash equivalents at end of period
  $ 47,581     $ 9,409  
 
           
 
               
Supplemental information
               
Cash paid for interest, net of interest capitalized
  $ 8,717     $ 9,225  
Cash paid for income taxes
  $ 717     $ 6,586  
 
               
Supplemental disclosure of non-cash activities:
               
Accrued payables for investments in utility plant
  $ 8,013     $ 10,248  
Purchase of intangible assets with company common stock
        $ 1,300  
Utility plant contribution by developers
  $ 13,940     $ 11,519  
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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CALIFORNIA WATER SERVICE GROUP
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2009
(Amounts in thousands, except share and per share amounts)
Note 1. Organization and Operations and Basis of Presentation
California Water Service Group (the Company) is a holding company that provides water utility and other related services in California, Washington, New Mexico and Hawaii through its wholly-owned subsidiaries. California Water Service Company (Cal Water), Washington Water Service Company (Washington Water), New Mexico Water Service Company (New Mexico Water), and Hawaii Water Service Company, Inc. (Hawaii Water) provide regulated utility services under the rules and regulations of their respective state’s regulatory commissions (jointly referred to herein as the Commissions). CWS Utility Services and HWS Utility Services LLC provide non-regulated water utility and utility-related services.
Basis of Presentation
The unaudited interim financial information has been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (SEC) and therefore do not contain all of the information and footnotes required by GAAP and the SEC for annual financial statements. The condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2008, included in its current report on Form 8-K as filed with the SEC on April 7, 2009.
The preparation of the Company’s condensed consolidated financial statements in accordance with GAAP 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 balance sheet dates and the reported amounts of revenues and expenses for the periods presented. Actual results could differ from these estimates.
In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments that are necessary to provide a fair presentation of the results for the periods covered. The results for interim periods are not necessarily indicative of the results for any future period.
Due to the seasonal nature of the water business, the results for interim periods are not indicative of the results for a twelve-month period. Revenue and income are generally higher in the warm, dry summer months when water usage and sales are greater. Revenue and income are lower in the winter months when cooler temperatures and rainfall curtail water usage and sales.
The Company operates primarily in one business segment providing water and related utility services.
Note 2. Summary of Significant Accounting Policies
Revenue
Revenue includes monthly cycle customer billings for regulated water and wastewater services at rates authorized by regulatory commissions and billings to certain non-regulated customers. In addition, effective July 1, 2008 with the adoption of the Water Revenue Adjustment Mechanism (WRAM) and the Modified Cost Balancing Account (MCBA), Cal Water records the difference between what is billed to its regulated customers and that which is authorized by the California Public Utilities Commission (CPUC).
Under the WRAM, Cal Water records the adopted level of volumetric revenues as authorized by the CPUC for metered accounts (adopted volumetric revenues). In addition to volumetric-based revenues, the revenue requirements approved by the CPUC include service charges, flat rate charges, and other items that are not subject to the WRAM. The adopted volumetric revenue considers the seasonality of consumption of water based upon historical averages. The variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts is recorded as a component of revenue with an offsetting entry to a current asset or liability balancing account (tracked individually for each Cal Water district). The variance amount may be positive or negative and represents amounts that will be billed or refunded to customers in the future.

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Under the MCBA, Cal Water tracks adopted expense levels for purchased water, purchased power, and pump taxes, as established by the CPUC. Variances (which include the effects of changes in both rate and volume) between adopted and actual purchased water, purchased power, and pump tax expenses are recorded as a component of revenue, as the amount of such variances will be recovered from or refunded to the Company’s customers at a later date. This is reflected with an offsetting entry to a current asset or liability regulatory balancing account (tracked individually for each Cal Water district).
The balances in the WRAM and MCBA asset and liability accounts fluctuate on a monthly basis depending upon the variance between adopted and actual results. The recovery or refund of the WRAM is netted against the MCBA over- or under-recovery for the corresponding district and is interest bearing at the current 90-day commercial paper rate. When the net amount for any district achieves a pre-determined level at the end of any calendar year (i.e., at least 2.5 percent over- or under-recovery of the approved revenue requirement), Cal Water will file with the CPUC to refund or collect the balance in the accounts. Account balances less than those levels may be refunded or collected in Cal Water’s general rate case proceedings or aggregated with future calendar year balances for comparison with the recovery level. As of September 30, 2009 and December 31, 2008, the aggregated asset in regulatory balancing accounts was $15,592 and $4,629, respectively, and the aggregate liability in regulatory balancing accounts was $7,486 and $2,585, respectively.
Recent Accounting Pronouncements Adopted
In December 2007, the Financial Accounting Standards Board (FASB) issued accounting standards for business combinations. The new standards apply prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Among the more significant changes, it expands the definition of a business and a business combination; requires the acquirer to recognize the assets acquired, liabilities assumed and noncontrolling interests (including goodwill), measured at fair value at the acquisition date; requires acquisition-related expenses and restructuring costs to be recognized separately from the business combination and requires assets acquired and liabilities assumed from contractual and non-contractual contingencies to be recognized at their acquisition date fair values with subsequent changes recognized in earnings. Also, it requires that an entity record, generally through income tax expense, adjustments made after the measurement period (and adjustments during the measurement period that relate to facts and circumstances that did not exist as of the acquisition date) to (1) valuation allowances for acquired deferred tax assets and (2) acquired tax uncertainties. The Company adopted the new accounting standards for business combinations effective January 1, 2009.
In December 2007, the FASB issued accounting standards for noncontrolling interests in consolidated financial statements. The new standards establish accounting and reporting standards for the noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. The statement is effective for years beginning after December 15, 2008. The Company adopted the new accounting standards for noncontrolling interests in consolidated financial statements effective January 1, 2009, and it did not have a material impact on the Company’s financial position, results of operation, or cash flows.
In May 2008, the FASB issued new standards to compute earnings per share with the assumption that instruments granted in shared-based payment transactions are participating securities. It requires unvested share-based payments that entitle employees to receive nonrefundable dividends to also be considered participating securities. The Company currently grants certain unvested share-based payments awards that include rights to dividends similar to common stockholders. The Company adopted the new standards effective January 1, 2009, and it did not have a material impact to its computation of earnings per share.
In April 2009, the FASB issued new accounting standards for interim disclosures about fair value of financial instruments. It requires interim financial reporting to require disclosures about the fair value of financial instruments for interim reporting periods that were previously only required for annual reporting periods. An entity is required to disclose the fair value of financial assets and liabilities together with the related carrying amount and where the carrying amount is classified in the Condensed Consolidated Balance Sheets. It is effective prospectively for interim reporting periods after June 15, 2009. The Company adopted the new disclosure, interim disclosures about fair value of financial instruments. See Note 9.
In May 2009, the FASB issued new accounting standards for subsequent events. It does not significantly change the prior accounting practice for subsequent events except for the requirement to disclose the date through which an entity has evaluated subsequent events and the basis for that date. The Company adopted the new disclosure requirements for the period ended September 30, 2009, and evaluated subsequent events through the time the financial statements were issued on November 9, 2009. All significant events and transactions that occurred after the balance sheet date and before the issuance of the financial statements are detailed in Note 10.
In June 2009, the FASB issued new accounting standards for the accounting standards codification and the hierarchy of generally accepted accounting principles (codification). The Codification is a reorganization and compilation of all existing authoritative U.S. GAAP recognized by the FASB to be applied to nongovernmental entities. Rules and interpretive releases of the SEC under

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authority of federal securities law are also sources of authoritative GAAP for SEC registrants. On the effective date of this statement, the Codification superseded all then-existing non-SEC accounting and reporting standards. This new accounting standard is effective for financial statements issued for interim and annual periods ended after September 15, 2009. The Company adopted the codification effective September 30, 2009.
Accounting Pronouncements Issued But Not Yet Adopted
In December 2008, the FASB issued new accounting standards for employers’ disclosures about postretirement benefit plan assets. An entity is required to provide qualitative disclosures about how investment allocation decisions are made, the inputs and valuation techniques used to measure the fair value of plan assets, and the concentration of risk within plan assets. Additionally, quantitative disclosures are required showing the fair value of each major category of plan assets, the levels in which each asset is classified within the fair value hierarchy, and a reconciliation for the period of plan assets which are measured using significant unobservable inputs. The new disclosure requirement is effective prospectively for fiscal years ending after December 15, 2009. The Company will include the expanded disclosure requirement in the consolidated financial statements for the annual period ending December 31, 2009.
Note 3. Stock-based Compensation
Long-Term Incentive Plan
The Company had a stockholder-approved Long-Term Incentive Plan (which was replaced on April 27, 2005, by a stockholder-approved Equity Incentive Plan) that allowed granting of non-qualified stock options. The Company had accounted for options using the intrinsic value method. All outstanding options (83,250 shares at September 30, 2009) have an exercise price equal to the market price on the date they were granted. The weighted average price of the options is $24.90. All options granted under the Long-Term Incentive Plan are fully vested. No compensation expense was recorded for the three or nine-month periods ended September 30, 2009 and 2008 related to stock options issued under the Long-Term Incentive Plan.
Equity Incentive Plan
Under the Company’s Equity Incentive Plan, which was approved by shareholders in April 2005, the Company is authorized to issue up to 1,000,000 shares of common stock. In the nine-months ended September 30, 2009 and 2008, the Company granted Restricted Stock Awards (RSAs) of 21,000 and 16,630 shares, respectively, of common stock both to officers and to directors of the Company. Employee options vest ratably over 48 months, while director options vest at the end of 12 months. The shares were valued at $38.38 and $37.60 per share, respectively, based upon the fair market value of the Company’s common stock on the date of grant.
In addition, in the nine-months ended September 30, 2009 and 2008, Stock Appreciation Rights (SARs) equivalent to 71,500 and 47,070 shares, respectively, were granted to officers, which vest ratably over 48 months and expire at the end of 10 years. The grant-date fair value for SARs was determined using the Black Scholes model, which arrived at a fair value of $10.50 and $6.03 per share, respectively. Upon exercise of a SAR, the appreciation is payable in common shares of the Company.
     The assumptions utilized in calculation of the SAR fair value were:
                 
    2009   2008
Expected dividend yield
    3.06 %     3.11 %
Expected volatility
    36.97 %     21.96 %
Risk-free interest rate
    1.89 %     2.63 %
Expected holding period in years
    6.0       5.2  
The Company did not apply a forfeiture rate in the expense computation relating to RSAs and SARs issued to officers as they vest monthly and, as a result, the expense is recorded for actual vesting during the period. For outside directors the Company did not apply a forfeiture rate in the expense computation relating to RSAs, as the Company expects 100% to vest at the end of twelve months.

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The table below reflects SARs activity under the Equity Incentive Plan for the nine-months ended September 30, 2009.
                 
            Weighted Average  
    Shares     Exercise Price  
 
               
Stock Appreciation Rights:
               
Outstanding at December 31, 2008
    108,710     $ 38.16  
Granted
    71,500       38.38  
Exercised
           
Cancelled
           
 
           
Outstanding at September 30, 2009
    180,210     $ 38.25  
 
           
Exercisable at September 30, 2009
    75,622     $ 38.34  
 
           
The Company has recorded compensation costs for the RSAs and SARs in Operating Expense in the amount of $263 and $134 for the quarters ended September 30, 2009 and September 30, 2008, respectively, and $768 and $412 for the nine-months ended September 30, 2009 and 2008, respectively.
Note 4. Earnings Per Share Calculations
The computations of basic and diluted earnings per share are noted below. RSAs are included in the weighted stock outstanding as the shares have all the same voting and dividend rights as issued and unrestricted common stock. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
The SARs outstanding of 180,210 and 108,710 were anti-dilutive for the third quarter and dilutive for the nine-months ended September 30, 2009 and 2008. All options are dilutive and the dilutive effect is shown in the table below.
     (In thousands, except per share data)
                 
    Three Months Ended September 30  
    2009     2008  
Net income
  $ 19,592     $ 22,186  
Less preferred dividends
          289  
 
           
Net income available to common stockholders
  $ 19,592     $ 21,897  
 
           
Weighted average common shares, basic
    20,745       20,717  
Dilutive common stock options (treasury method)
    22       24  
 
           
Shares used for dilutive computation
    20,767       20,741  
 
           
Net income per share — basic
  $ 0.94     $ 1.06  
 
           
Net income per share — diluted
  $ 0.94     $ 1.06  
 
           
                 
    Nine-months ended September 30  
    2009     2008  
Net income
  $ 34,103     $ 32,487  
Less preferred dividends
          366  
 
           
Net income available to common stockholders
  $ 34,103     $ 32,121  
 
           
Weighted average common shares, basic
    20,740       20,707  
Dilutive common stock options (treasury method)
    25       24  
 
           
Shares used for dilutive computation
    20,765       20,731  
 
           
Net income per share — basic
  $ 1.64     $ 1.55  
 
           
Net income per share — diluted
  $ 1.64     $ 1.55  
 
           
Note 5. Pension Plan and Other Postretirement Benefits
The Company provides a qualified, defined-benefit, non-contributory pension plan for substantially all employees. The Company makes annual contributions to fund the amounts accrued for the qualified pension plan. The Company also maintains an unfunded, non-qualified, supplemental executive retirement plan. The costs of the plans are charged to expense or are capitalized in utility plant as appropriate.
The Company offers medical, dental, vision, and life insurance benefits for retirees and their spouses and dependents. Participants are required to pay a premium, which offsets a portion of the cost.

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Cash payments by the Company related to pension plans and other postretirement benefits were $23,690 for the nine-months ended September 30, 2009. The estimated cash contribution to the pension plans during 2009 is $29,600. The estimated contribution to the other benefits plan during 2009 is $10,020.
The following table lists components of the pension plans and other postretirement benefits. The data listed under “pension plan” includes the qualified pension plan and the non-qualified supplemental executive retirement plan. The data listed under “other benefits” is for all other postretirement benefits.
                                                                 
    Three Months Ended September 30     Nine Months Ended September 30  
    Pension Plan     Other Benefits     Pension Plan     Other Benefits  
    2009     2008     2009     2008     2009     2008     2009     2008  
Service cost
  $ 2,279     $ 1,862     $ 728     $ 361     $ 6,839     $ 4,533     $ 2,186     $ 1,083  
Interest cost
    3,088       2,869       703       433       9,264       6,125       2,111       1,298  
Expected return on plan assets
    (1,788 )     (1,436 )     (196 )     (156 )     (5,366 )     (4,591 )     (589 )     (468 )
Recognized net initial APBO (1)
    N/A       N/A       69       69       N/A       N/A       207       207  
Amortization of prior service cost
    1,533       1,524       29       29       4,599       2,460       87       87  
Recognized net actuarial loss
    482       178       406       75       1,448       340       1,217       225  
 
                                               
Net periodic benefit cost
  $ 5,594     $ 4,997     $ 1,739     $ 811     $ 16,784     $ 8,867     $ 5,219     $ 2,432  
 
                                               
 
(1)   APBO — Accumulated postretirement benefit obligation
Note 6. Short-term Borrowings
The Company maintained a bank line of credit providing unsecured borrowings of up to $20 million and Cal Water maintained a separate bank line of credit for an additional $55 million. On April 17, 2009, the Company’s and Cal Water’s loan agreements with Bank of America, N.A. were amended so that the interest rate payable on outstanding borrowings is equal to the bank’s prime rate minus 0.75 percentage points or the LIBOR rate plus 1.0 percentage point. Additionally, the Company and Cal Water agreed to a fee of 0.15% based upon any unused commitment. The amendment also changed the expiration date to April 16, 2010. The agreement with the Company requires a debt to capitalization ratio of less than 0.667:1.0 and an interest coverage ratio of at least 2.5:1.0. As of September 30, 2009, the Company and Cal Water were in compliance with the bank covenants in the loan agreements. At September 30, 2009, there were no outstanding borrowings on the Cal Water line of credit and the outstanding borrowings on the Company line of credit was $12 million. On October 27, 2009, the Company and Cal Water entered into unsecured credit agreements that replaced and expanded their lines of credit. See Note 10.
Note 7. Long-Term Debt
On April 17, 2009, Cal Water completed the sale and issuance of $100 million aggregate principal amount of its 5.875% First Mortgage Bonds due 2019, which are fully and unconditionally guaranteed by the Company. Pursuant to the note purchase agreements and supplements thereto under which Cal Water’s outstanding unsecured senior notes had been issued, Cal Water was required to issue a new series of First Mortgage Bonds in exchange for each outstanding series of unsecured senior notes with a like aggregate principal amount. The offering triggered this exchange provision. Accordingly, upon the closing of the offering, Cal Water was required to issue an additional series of First Mortgage Bonds under the mortgage indenture with a like aggregate principal amount to the holders of each series of its outstanding unsecured senior notes in exchange for each such series of notes.
In connection with the offering, Cal Water exercised its option to redeem the remaining $3.0 million of 8.86% Series J First Mortgage Bonds due 2023, which Cal Water assumed in connection with its acquisition of Dominguez Water Corporation in 2000. The redemption was effected pursuant to the terms of the indenture and supplemental indentures governing the Series J bonds. The Series J bonds were redeemed at a redemption price equal to 100% of the outstanding principal amount of the Series J bonds plus a make-whole premium of $1.0 million, and accrued and unpaid interest to the date of redemption.
Note 8. Commitments and Contingencies
Commitments
The Company has significant commitments to lease certain office spaces and water systems, and for the purchase of water from water wholesalers. These commitments are described in footnote 15 of the current report on Form 8-K dated April 7, 2009.

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Contingencies
Chico Groundwater/Wausau Insurance Matter
In 1995, the State of California’s Department of Toxic Substances Control (DTSC) named us as a potential responsible party for cleanup of toxic contamination plumes, which contain perchloroethylene, also know as tetrachloroethylene (PCE) in the Chico groundwater. In December 2002, we were named along with other defendants in two lawsuits filed by DTSC for the cleanup of the plumes. In 2007, we entered into Court approved consent decrees (Consent Decrees). The Consent Decrees conditioned our performance upon many factors, including, but not limited to, water pumped and treated by us must meet regulatory standards so we may distribute to its customers. Pursuant to the terms of the Consent Decrees, we will incur capital costs of $1.5 million and future operating costs with a present value of approximately $2.6 million. In our 2007 general rate case (GRC) settlement negotiations, Division of Ratepayer Advocates have tentatively agreed to track all costs associated with the Consent Decrees, including legal costs to pursue insurance coverage, for potential future recovery in rates.
In connection with these suits, our insurance carrier, Employers Insurance of Wausau (Wausau) filed a separate lawsuit against us for reimbursement of past defense costs which approximate $1.5 million and a declaratory determination of coverage. On January 23, 2008, the Court heard various parties’ motions and on September 25, 2008 issued its rulings that Wausau had a duty to defend; therefore, the Company will not have to reimburse Wausau for previously incurred defense costs. The Court did not find Wausau’s actions were intended to harm the Company, so punitive damages will not be recoverable by the Company. However, the Court also found that the issue of policy coverage would be determined at trial. Trial commenced on June 1, 2009. During trial, the parties entered into a confidential settlement agreement which did not have a significant impact to the Company’s results of operations. The confidential settlement was fully executed on June 23, 2009, and the lawsuit was dismissed with prejudice by the court during the month of October 2009.
     Other Groundwater Contamination
The Company has been and is involved in litigation against third parties to recover past and future costs related to ground water contamination in our service areas. The cost of litigation is expensed as incurred and any settlement is first offset against such costs. Any settlement in excess of the cost to litigate is accounted for on a case by case basis based upon the nature of the settlement. It is anticipated that the majority of the settlement will be reflected as a benefit to the rate payers by offsetting future operating or capital costs.
The Company is involved in a lawsuit against major oil refineries regarding the contamination of the ground water as a result of the gas additive MTBE. The Company entered into a partial settlement with the defendants in April of 2008 that represent approximately 70% of the responsible parties (as determined by the Superior Court). On October 22, 2008, the Company received $34.2 million after deducting attorneys’ fees and litigation expenses. The Company is aggressively pursuing legal action against the remaining responsible parties. The Company has filed with the Commission to determine the appropriate regulatory treatment of the proceeds. It anticipates that the proceeds will be used by the Company on infrastructure improvements. The Company has filed with the Internal Revenue Service a request for a private letter ruling regarding the taxability of the proceeds.
The Company believes the proceeds are non-taxable based upon its intent to reinvest them in qualifying assets. When an agreement is reached with the Commission regarding the regulatory treatment, or when the taxability is determined based upon proceedings with the Internal Revenue Service, the Company will adjust the accounting of the settlement accordingly.
As previously reported, Cal Water has filed with the City of Bakersfield, in the Superior Court of California, a lawsuit that names potentially responsible parties, who manufactured and distributed products containing 1,2,3 trichloropropane (TCP) in California. TCP has been detected in the ground water. The lawsuit seeks to recover treatment costs necessary to remove TCP. The Court has now coordinated our action with other water purveyor cases (TCP Cases JCCP 4435) in San Bernardino County. No trial date has yet been set.
The Company has filed in San Mateo County Superior Court a complaint (California Water Service Company v. The Dow Chemical Company, et al. CIV 473093) against potentially responsible parties that manufactured and distributed products, which contained perchloroethylene, also know as tetrachloroethylene (PCE) in California, to recover the past, present, and future treatment costs. No trial date has yet been set.

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     Other Legal Matters
On October 14, 2009, Victor Guerrero and Hortencia Guerrero filed a Complaint in Solano County Superior Court: Victor Guerrero and Hortencia Guerrero v. California Water Service Company, Case No. FCSo34481. The Complaint for wrongful death seeks damages for negligence for failure to maintain the water system, negligence for failure to warn, negligence and intentional concealment causes of actions. The Company does not believe it has any liability in this matter and tendered the lawsuit to its insurance carrier.
From time to time, the Company has been named as a co-defendant in several asbestos related lawsuits. The Company has been dismissed without prejudice in several of these cases. In other cases our contractors and our insurance policy carriers have settled the cases with no effect on the Company’s financial statements. As such the Company does not currently believe that there is any potential loss which is probable of occurring related to these matters and therefore no accrual or contingency has been recorded.
From time to time, the Company is involved in various disputes and litigation matters that arise in the ordinary course of business. We review the status of each significant matter and assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount of the range of loss can be estimated, the Company accrues a liability for the estimated loss in accordance with general accounting procedures for contingencies. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on the best information available at the time. While the outcome of these disputes and litigation matters cannot be predicted with any certainty, management does not believe that when taking into account existing reserves that the ultimate resolution of these matters will materially affect our financial position, results of operations, or cash flows.
Note 9. Fair Value of Financial Instruments
For those financial instruments for which it is practicable to estimate a fair value, the following methods and assumptions were used. For cash equivalents, accounts receivable and accounts payable, the carrying amount approximates the fair value because of the short-term maturity of the instruments. The fair value of the Company’s long-term debt is estimated at $396 million and $290 million as of September 30, 2009 and December 31, 2008, respectively, using the published quoted market price, if available, or the discounted cash flow analysis, based on the current rates available to the Company for debt of similar maturities and credit risk. The book value of the long-term debt is $374 million and $287 million as of September 30, 2009 and December 31, 2008, respectively. The fair value of advances for construction contracts is estimated at $67 million as of September 30, 2009, and $66 million as of December 31, 2008, based on discounted cash flows.
Note 10. Subsequent Event
On October 27, 2009, the Company and Cal Water entered into three-year syndicated unsecured revolving line of credit agreements with sixteen banks to provide an unsecured revolving line of credit of $50 million and $250 million, respectively. The base loan rate can vary from prime plus 50 basis points to prime plus 125 basis points depending on the Company’s total capitalization ration. Likewise, the unused commitment fee can vary from 25 basis points to 35 basis points based on the same ratio. Based on the Company’s planned capitalization during 2010 and future years, the Company expects its pricing to be prime plus 75 basis points with a 25 basis point unused commitment fee. California Water Service Group and subsidiaries which it designates may borrow under the facilities. Borrowings by California Water Service Company will be repaid within 12 months unless otherwise authorized by the CPUC. Bank of America was selected as lead bank and administrative agent, with CoBank and Bank of China as co-syndication agents.
These unsecured credit agreements contain affirmative and negative covenants and events of default customary for credit facilities of this type including, among other things, limitations and prohibitions relating to additional indebtedness, liens, mergers, and asset sales. Also, these unsecured credit agreements contain financial covenants governing the Company and its subsidiaries’ consolidated total capitalization ratio and interest coverage ratio.
Note 11. Condensed Consolidating Financial Statements
As discussed in Note 7, on April 17, 2009, Cal Water issued $100 million aggregate principal amount of 5.875% First Mortgage Bonds due 2019, which are fully and unconditionally guaranteed by California Water Service Group (Parent Company). The following tables present the condensed consolidating statements of income of California Water Service Group (Guarantor and Parent), Cal Water (issuer and wholly-owned consolidated subsidiary of California Water Service Group) and other wholly-owned subsidiaries of the Company for the three-month and nine-month periods ended September 30, 2009 and 2008, the condensed consolidating statements of cash flows for the nine-months ended September 30, 2009 and 2008, and the condensed consolidating balance sheets as of September 30, 2009, and December 31, 2008. The information is presented utilizing the equity method of accounting for investments in consolidating subsidiaries.

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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING BALANCE SHEET
As of September 30, 2009
(In thousands)
                                         
    Parent             All Other     Consolidating        
    Company     Cal Water     Subsidiaries     Adjustments     Consolidated  
ASSETS
                                       
 
                                       
Utility plant:
                                       
Utility plant
  $     $ 1,574,294     $ 109,192     $ (7,199 )   $ 1,676,287  
Less accumulated depreciation and amortization
          (480,330 )     (22,470 )     1,096       (501,704 )
 
                             
Net utility plant
          1,093,964       86,722       (6,103 )     1,174,583  
 
                             
 
                                       
Current assets:
                                       
Cash and cash equivalents
    891       43,342       3,348             47,581  
Receivables and unbilled revenue
    37       74,998       4,383             79,418  
Receivables from affiliates
    9,410       11,645       2,007       (23,062 )      
Other current assets
    63       12,505       811             13,379  
 
                             
Total current assets
    10,401       142,490       10,549       (23,062 )     140,378  
 
                             
 
                                       
Other assets:
                                       
Regulatory assets
          201,045       397             201,442  
Investments in affiliates
    422,011                   (422,011 )      
Long-term affiliate notes receivable
    11,560                   (11,560 )      
Other assets
          25,931       7,345       (205 )     33,071  
 
                             
Total other assets
    433,571       226,976       7,742       (433,776 )     234,513  
 
                             
 
  $ 443,972     $ 1,463,430     $ 105,013     $ (462,941 )   $ 1,549,474  
 
                             
 
                                       
CAPITALIZATION AND LIABILITIES
                                       
 
                                       
Capitalization:
                                       
Common stockholders’ equity
  $ 419,492     $ 389,579     $ 38,925     $ (428,504 )   $ 419,492  
Affiliate long-term debt
                11,560       (11,560 )      
Long-term debt, less current maturities
          369,949       3,592             373,541  
 
                             
Total capitalization
    419,492       759,528       54,077       (440,064 )     793,033  
 
                             
Current liabilities:
                                       
Current maturities of long-term debt
          11,918       506             12,424  
Short-term borrowings
    12,000                           12,000  
Payables to affiliates
    12,127       8       10,927       (23,062 )      
Accounts payable
          51,984       2,396             54,380  
Accrued expenses and other liabilities
    353       45,811       5,833       37       52,034  
 
                             
Total current liabilities
    24,480       109,721       19,662       (23,025 )     130,838  
Unamortized investment tax credits
          2,392                   2,392  
Deferred income taxes, net
          81,990       1,374       148       83,512  
Pension and postretirement benefits other than pensions
          152,467                   152,467  
Regulatory and other liabilities
          75,470       7,887             83,357  
Advances for construction
          181,230       1,533             182,763  
Contributions in aid of construction
          100,632       20,480             121,112  
 
                             
 
  $ 443,972     $ 1,463,430     $ 105,013     $ (462,941 )   $ 1,549,474  
 
                             

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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2008
(In thousands)
                                         
    Parent             All Other     Consolidating        
    Company     Cal Water     Subsidiaries     Adjustments     Consolidated  
ASSETS
                                       
Utility plant:
                                       
Utility plant
  $     $ 1,488,227     $ 102,051     $ (7,199 )   $ 1,583,079  
Less accumulated depreciation and amortization
          (451,350 )     (20,354 )     992       (470,712 )
 
                             
Net utility plant
          1,036,877       81,697       (6,207 )     1,112,367  
 
                             
 
                                       
Current assets:
                                       
Cash and cash equivalents
    427       3,025       10,417             13,869  
Receivables and unbilled revenue
    72       44,049       3,848             47,969  
Receivables from affiliates
    9,295       11,976       372       (21,643 )      
Other current assets
    142       17,877       (59 )           17,960  
 
                             
Total current assets
    9,936       76,927       14,578       (21,643 )     79,798  
 
                             
 
                                       
Other assets:
                                       
Regulatory assets
    905       196,990       398             198,293  
Investments in affiliates
    404,064                   (404,064 )      
Long-term affiliate notes receivable
    10,851                   (10,851 )      
Other assets
          20,242       7,612       (205 )     27,649  
 
                             
Total other assets
    415,820       217,232       8,010       (415,120 )     225,942  
 
                             
 
  $ 425,756     $ 1,331,036     $ 104,285     $ (442,970 )   $ 1,418,107  
 
                             
 
                                       
CAPITALIZATION AND LIABILITIES
                                       
 
                                       
Capitalization:
                                       
Common stockholders’ equity
  $ 402,949     $ 372,337     $ 38,139     $ (410,476 )   $ 402,949  
Affiliate long-term debt
                10,851       (10,851 )      
Long-term debt, less current maturities
          283,820       3,678             287,498  
 
                             
Total capitalization
    402,949       656,157       52,668       (421,327 )     690,447  
 
                             
 
                                       
Current liabilities:
                                       
Current maturities of long-term debt
          2,121       697             2,818  
Short-term borrowings
    12,000       28,000                   40,000  
Payables to affiliates
    9,642       201       11,800       (21,643 )      
Accounts payable
          38,003       3,769             41,772  
Accrued expenses and other liabilities
    1,165       34,563       2,878             38,606  
 
                             
Total current liabilities
    22,807       102,888       19,144       (21,643 )     123,196  
 
                                       
Unamortized investment tax credits
          2,392                   2,392  
Deferred income taxes, net
          70,003       2,341             72,344  
Pension and postretirement benefits other than pensions
          152,685                   152,685  
Regulatory and other liabilities
          75,362       7,950             83,312  
Advances for construction
          174,625       1,538             176,163  
Contributions in aid of construction
          96,924       20,644             117,568  
 
                             
 
  $ 425,756     $ 1,331,036     $ 104,285     $ (442,970 )   $ 1,418,107  
 
                             

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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended September 30, 2009
(In thousands)
                                         
    Parent             All Other     Consolidating        
    Company     Cal Water     Subsidiaries     Adjustments     Consolidated  
 
                                       
Operating revenue
  $     $ 130,659     $ 8,508     $     $ 139,167  
 
                             
 
                                       
Operating expenses:
                                       
Operations:
                                       
Water production costs
          46,626       2,272             48,898  
Administrative and general
          17,231       1,853             19,084  
Other operations
          12,815       1,939       (115 )     14,639  
Maintenance
          4,269       136             4,405  
Depreciation and amortization
          9,856       437       (34 )     10,259  
Income taxes (benefit)
    (64 )     12,824       480       177       13,417  
Property and other taxes
          3,893       478             4,371  
 
                             
Total operating expenses
    (64 )     107,514       7,595       28       115,073  
 
                             
Net operating income
    64       23,145       913       (28 )     24,094  
 
                             
 
                                       
Other Income and Expenses:
                                       
Non-regulated revenue
    233       4,231       1,140       (410 )     5,194  
Non-regulated expense, net
          (2,432 )     (1,032 )           (3,464 )
Gain on sale on non-utility property
                             
Income tax (expense) on other income and expense
    (94 )     (734 )     (37 )     163       (702 )
 
                             
Net other income and expense
    139       1,065       71       (247 )     1,028  
 
                             
 
                                       
Interest:
                                       
Interest expense
    118       6,294       363       (295 )     6,480  
Less: capitalized interest
          (728 )     (222 )           (950 )
 
                             
Net interest expense
    118       5,566       141       (295 )     5,530  
 
                             
Gross income
    85       18,644       843       20       19,592  
 
                             
 
                                       
Equity earnings of subsidiaries
    19,507                   (19,507 )      
 
                             
Net income
  $ 19,592     $ 18,644     $ 843     $ (19,487 )   $ 19,592  
 
                             

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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the nine months ended September 30, 2009
(In thousands)
                                         
    Parent             All Other     Consolidating        
    Company     Cal Water     Subsidiaries     Adjustments     Consolidated  
 
                                       
Operating revenue
  $     $ 320,732     $ 21,715     $     $ 342,447  
 
                             
 
                                       
Operating expenses:
                                       
Operations:
                                       
Water production costs
          113,685       5,783             119,468  
Administrative and general
          51,773       5,558             57,331  
Other operations
          36,232       5,536       (343 )     41,425  
Maintenance
          12,843       509             13,352  
Depreciation and amortization
          28,739       2,103       (103 )     30,739  
Income taxes (benefit)
    (129 )     20,956       121       490       21,438  
Property and other taxes
          10,846       1,525             12,371  
 
                             
Total operating expenses
    (129 )     275,074       21,135       44       296,124  
 
                             
Net operating income
    129       45,658       580       (44 )     46,323  
 
                             
 
                                       
Other Income and Expenses:
                                       
Non-regulated revenue
    585       8,175       3,436       (1,023 )     11,173  
Non-regulated expense, net
          (4,087 )     (2,739 )           (6,826 )
Gain on sale on non-utility property
          675                   675  
Income tax (expense) on other income and expense
    (238 )     (1,941 )     (301 )     448       (2,032 )
 
                             
Net other income and expense
    347       2,822       396       (575 )     2,990  
 
                             
 
                                       
Interest:
                                       
Interest expense
    277       17,022       861       (680 )     17,480  
Less: capitalized interest
          (1,778 )     (492 )           (2,270 )
 
                             
Net interest expense
    277       15,244       369       (680 )     15,210  
 
                             
Gross income
    199       33,236       607       61       34,103  
 
                             
 
                                       
Equity earnings of subsidiaries
    33,904                   (33,904 )      
 
                             
Net income
  $ 34,103     $ 33,236     $ 607     $ (33,843 )   $ 34,103  
 
                             

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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended September 30, 2008
(In thousands)
                                         
    Parent             All Other     Consolidating        
    Company     Cal Water     Subsidiaries     Adjustments     Consolidated  
 
                                       
Operating revenue
  $     $ 125,327     $ 6,375     $     $ 131,702  
 
                             
 
                                       
Operating expenses:
                                       
Operations:
                                       
Water production costs
          44,959       1,496             46,455  
Administrative and general
          13,716       1,279             14,995  
Other operations
          11,767       1,282       (114 )     12,935  
Maintenance
          3,705       119             3,824  
Depreciation and amortization
          8,800       518       (37 )     9,281  
Income taxes (benefit)
    (23 )     13,030       406       97       13,510  
Property and other taxes
          3,556       384             3,940  
 
                             
Total operating expenses
    (23 )     99,533       5,484       (54 )     104,940  
 
                             
Net operating income
    23       25,794       891       54       26,762  
 
                             
 
                                       
Other Income and Expenses:
                                       
Non-regulated revenue
    97       2,064       1,845       (201 )     3,805  
Non-regulated expense, net
          (2,481 )     (2,020 )           (4,501 )
Gain on sale of properties
                             
Income tax benefit (expense) on other income and expense
    (39 )     170       76       81       288  
 
                             
Net other income and expense
    58       (247 )     (99 )     (120 )     (408 )
 
                             
 
                                       
Interest:
                                       
Interest expense
    57       5,051       212       (87 )     5,233  
Less: capitalized interest
          (1,055 )     (10 )           (1,065 )
 
                             
Net interest expense
    57       3,996       202       (87 )     4,168  
 
                             
Gross income
    24       21,551       590       21       22,186  
 
                             
 
                                       
Equity earnings of subsidiaries
    22,162                   (22,162 )      
 
                             
Net income
  $ 22,186     $ 21,551     $ 590     $ (22,141 )   $ 22,186  
 
                             

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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the nine months ended September 30, 2008
(In thousands)
                                         
    Parent             All Other     Consolidating        
    Company     Cal Water     Subsidiaries     Adjustments     Consolidated  
 
                                       
Operating revenue
  $     $ 296,305     $ 13,899     $     $ 310,204  
 
                             
 
                                       
Operating expenses:
                                       
Operations:
                                       
Water production costs
          109,009       3,153             112,162  
Administrative and general
          38,898       3,350             42,248  
Other operations
          34,637       3,471       (342 )     37,766  
Maintenance
          12,590       294             12,884  
Depreciation and amortization
          26,402       1,486       (109 )     27,779  
Income taxes (benefit)
    (25 )     19,626       230       296       20,127  
Property and other taxes
          10,176       987             11,163  
 
                             
Total operating expenses
    (25 )     251,338       12,971       (155 )     264,129  
 
                             
Net operating income
    25       44,967       928       155       46,075  
 
                             
 
                                       
Other Income and Expenses:
                                       
Non-regulated revenue
    353       5,829       3,886       (616 )     9,452  
Non-regulated expense, net
          (6,264 )     (3,451 )           (9,715 )
Gain on sale of properties
          7                   7  
Income tax benefit (expense) on other income and expense
    (143 )     174       (163 )     250       118  
 
                             
Net other income and expense
    210       (254 )     272       (366 )     (138 )
 
                             
 
                                       
Interest:
                                       
Interest expense
    62       15,093       524       (274 )     15,405  
Less: capitalized interest
          (1,955 )                 (1,955 )
 
                             
Net interest expense
    62       13,138       524       (274 )     13,450  
 
                             
Gross income
    173       31,575       676       63       32,487  
 
                             
 
                                       
Equity earnings of subsidiaries
    32,314                   (32,314 )      
 
                             
Net income
  $ 32,487     $ 31,575     $ 676     $ (32,251 )   $ 32,487  
 
                             

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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2009
(In thousands)
                                         
    Parent             All Other     Consolidating        
    Company     Cal Water     Subsidiaries     Adjustments     Consolidated  
 
                                       
Operating activities:
                                       
Net income
  $ 34,103     $ 33,236     $ 607     $ (33,843 )   $ 34,103  
 
                             
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
                                       
Equity earnings of subsidiaries
    (33,904 )                 33,904        
Dividends received from affiliates
    18,353                   (18,353 )      
Depreciation and amortization
          30,043       2,238       (103 )     32,178  
Gain on sale of non-utility property
          (675 )                 (675 )
Change in value of life insurance contracts
          (3,555 )                 (3,555 )
Other changes in noncurrent assets and liabilities
    (1,490 )     12,564       896       5       11,975  
Changes in operating assets and liabilities:
                                       
Net increase (decrease) in advances to affiliates
    1,193       138       (1,331 )            
Other changes, net
    117       2,673       310       37       3,137  
 
                             
Net adjustments
    (15,731 )     41,188       2,113       15,490       43,060  
 
                             
Net cash provided by (used in) operating activities
    18,372       74,424       2,720       (18,353 )     77,163  
 
                             
 
                                       
Investing activities:
                                       
Utility plant expenditures:
                                       
Company funded
          (75,318 )     (7,544 )           (82,862 )
Developer funded
          (3,532 )     (16 )           (3,548 )
Sale of non-utility property
          750                   750  
Purchase of life insurance
          (1,711 )                 (1,711 )
Reduction of loans to affiliates
    415                   (415 )      
 
                             
Net cash provided by (used in) investing activities
    415       (79,811 )     (7,560 )     (415 )     (87,371 )
 
                             
 
                                       
Financing Activities:
                                       
Short-term borrowings
          20,000                   20,000  
Repayment of short-term borrowings
          (48,000 )                 (48,000 )
Reduction of affiliate notes receivable
                (415 )     415        
Proceeds from long-term debt, net of issuance cost of $3,390
          96,610       96             96,706  
Repayment of long-term debt
          (5,116 )     (635 )           (5,751 )
Advances and contributions in aid for construction
          3,347       295             3,642  
Refunds of advances for construction
          (4,263 )     (91 )           (4,354 )
Dividends paid to non-affiliates
    (18,353 )                       (18,353 )
Dividends paid to affiliates
          (16,874 )     (1,479 )     18,353        
Issuance of common stock
    30                         30  
 
                             
Net cash provided by (used in) financing activities
    (18,323 )     45,704       (2,229 )     18,768       43,920  
 
                             
Change in cash and cash equivalents
    464       40,317       (7,069 )           33,712  
Cash and cash equivalents at beginning of period
    427       3,025       10,417             13,869  
 
                             
Cash and cash equivalents at end of period
  $ 891     $ 43,342     $ 3,348     $     $ 47,581  
 
                             

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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2008
(In thousands)
                                         
    Parent             All Other     Consolidating        
    Company     Cal Water     Subsidiaries     Adjustments     Consolidated  
 
                                       
Operating activities:
                                       
Net income
  $ 32,487     $ 31,575     $ 676     $ (32,251 )   $ 32,487  
 
                             
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
                                       
Equity earnings of subsidiaries
    (32,314 )                 32,314        
Dividends received from affiliates
    18,289                   (18,289 )      
Depreciation and amortization
          27,590       2,241       (109 )     29,722  
Gain on sale of non-utility property
          (7 )                 (7 )
Change in value of life insurance contracts
          2,198                   2,198  
Other changes in noncurrent assets and liabilities
          759       1,231             1,990  
Changes in operating assets and liabilities:
                                       
Net increase (decrease) in advances to affiliates
    (14,561 )     (5,386 )     19,947              
Other changes, net
    (735 )     13,109       2,205       46       14,625  
 
                             
Net adjustments
    (29,321 )     38,263       25,624       13,962       48,528  
 
                             
Net cash provided by (used in) operating activities
    3,166       69,838       26,300       (18,289 )     81,015  
 
                             
 
                                       
Investing activities:
                                       
Utility plant expenditures:
                                       
Company funded
          (70,723 )     (3,880 )           (74,603 )
Developer funded
          (6,007 )     (13 )           (6,020 )
Purchase of life insurance and other
          (1,366 )                 (1,366 )
Acquisitions, net of cash acquired
                (14,341 )           (14,341 )
Loans to affiliates
    884                   (884 )      
Redemption of preferred stock
    3,718                   (3,718 )      
 
                             
Net cash provided by (used in) investing activities
    4,602       (78,096 )     (18,234 )     (4,602 )     (96,330 )
 
                             
 
                                       
Financing Activities:
                                       
Short-term borrowings
    12,000       28,000                   40,000  
Reduction of affiliate notes receivable
                (884 )     884        
Proceeds from long-term debt
          494       199             693  
Repayment of long-term debt
          (1,264 )     (597 )           (1,861 )
Advances and contributions in aid of construction
          5,634       914             6,548  
Refunds of advances for construction
          (5,171 )     (212 )           (5,383 )
Dividends paid to non-affiliates
    (18,289 )                       (18,289 )
Dividends paid to affiliates
          (17,615 )     (674 )     18,289        
Redemption of preferred stock
    (3,718 )     (3,718 )           3,718       (3,718 )
 
                             
Net cash provided by (used in) financing activities
    (10,007 )     6,360       (1,254 )     22,891       17,990  
 
                             
Change in cash and cash equivalents
    (2,239 )     (1,898 )     6,812             2,675  
Cash and cash equivalents at beginning of period
    2,718       2,631       1,385             6,734  
 
                             
Cash and cash equivalents at end of period
  $ 479     $ 733     $ 8,197     $     $ 9,409  
 
                             

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Item 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollar amounts in thousands, except where otherwise noted and per share amounts)
FORWARD LOOKING STATEMENTS
This quarterly report, including all documents incorporated by reference, contains forward-looking statements within the meaning established by the Private Securities Litigation Reform Act of 1995 (Act). Forward-looking statements in this quarterly report are based on currently available information, expectations, estimates, assumptions and projections, and our management’s beliefs, assumptions, judgments and expectations about us, the water utility industry and general economic conditions. These statements are not statements of historical fact. When used in our documents, statements that are not historical in nature, including words like “expects,” “intends,” “plans,” “believes,” “may,” “estimates,” “assumes,” “anticipates,” “projects,” “predicts,” “forecasts,” “should,” “seeks,” or variations of these words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not guarantees of future performance. They are based on numerous assumptions that we believe are reasonable, but they are open to a wide range of uncertainties and business risks. Consequently, actual results may vary materially from what is contained in a forward-looking statement.
Factors which may cause actual results to be different than those expected or anticipated include, but are not limited to:
    governmental and regulatory commissions’ decisions, including decisions on proper disposition of property;
 
    changes in regulatory commissions’ policies and procedures;
 
    the timeliness of regulatory commissions’ actions concerning rate relief;
 
    changes in the capital markets and access to sufficient capital on satisfactory terms;
 
    new legislation;
 
    changes in accounting valuations and estimates;
 
    changes in accounting treatment for regulated companies, including adoption of International Financial Reporting Standards, if required;
 
    electric power interruptions;
 
    increases in suppliers’ prices and the availability of supplies including water and power;
 
    fluctuations in interest rates;
 
    changes in environmental compliance and water quality requirements;
 
    acquisitions and the ability to successfully integrate acquired companies;
 
    the ability to successfully implement business plans;
 
    civil disturbances or terrorist threats or acts, or apprehension about the possible future occurrences of acts of this type;
 
    the involvement of the United States in war or other hostilities;
 
    our ability to attract and retain qualified employees;
 
    labor relations matters as we negotiate with the unions;

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    implementation of new information technology systems;
 
    restrictive covenants in or changes to the credit ratings on current or future debt that could increase financing costs or affect the ability to borrow, make payments on debt, or pay dividends;
 
    general economic conditions, including changes in customer growth patterns and our ability to collect billed revenue from customers;
 
    changes in customer water use patterns and the effects of conservation;
 
    the impact of weather on water sales and operating results;
 
    the ability to satisfy requirements related to the Sarbanes-Oxley Act and other regulations on internal controls; and
 
    the risks set forth in “Risk Factors” included elsewhere in this quarterly report.
In light of these risks, uncertainties and assumptions, investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this quarterly report or as of the date of any document incorporated by reference in this report, as applicable. When considering forward-looking statements, investors should keep in mind the cautionary statements in this quarterly report and the documents incorporated by reference. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.
CRITICAL ACCOUNTING POLICIES
We maintain our accounting records in accordance with accounting principles generally accepted in the United States of America (GAAP) and as directed by the regulatory commissions to which we are subject. The process of preparing financial statements in accordance with GAAP requires the use of estimates and assumptions on the part of management. The estimates and assumptions used by management are based on historical experience and our understanding of current facts and circumstances. Management believes that the following accounting policies are critical because they involve a higher degree of complexity and judgment, and can have a material impact on our results of operations and financial condition. These policies and their key characteristics are discussed in detail in the 2008 Form 10-K. They include:
    revenue recognition and the water revenue adjustment mechanism;
 
    expense balancing and memorandum accounts;
 
    modified cost balancing accounts;
 
    regulatory utility accounting;
 
    income taxes;
 
    pension benefits;
 
    workers’ compensation, general liability and other claims; and
 
    contingencies
For the period ended September 30, 2009, there were no changes in the methodology for computing critical accounting estimates, no additional accounting estimates met the standards for critical accounting policies, and there were no material changes to the important assumptions underlying the critical accounting estimates.

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RESULTS OF THIRD QUARTER 2009 OPERATIONS COMPARED TO
THIRD QUARTER 2008 OPERATIONS
Amounts in thousands except share data
Overview
Third quarter of 2009 net income was $19.6 million or $0.94 per diluted common share compared to net income of $22.2 million or $1.06 per diluted common share in the third quarter of 2008. The decrease in net income is primarily attributable to higher operating costs during the third quarter of 2009 compared to the prior year. The most significant operating expense increases were pension and other employee benefits, maintenance, depreciation, interest and legal expenses.
Operating Revenue
Operating revenue increased $7.5 million or 6% to $139.2 million in the third quarter of 2009. As disclosed in the following table, the increase was due to increases in rates and usage by new customers primarily from our acquisitions in Hawaii last year.
The factors that impacted the operating revenue for the third quarter of 2009 compared to 2008 are presented in the following table:
         
Rate increases
  $ 12,544  
Usage by new customers
    3,258  
Net change due to actual versus adopted results, usage, and other
    (8,338 )
 
     
Net operating revenue increase
  $ 7,464  
 
     
The net change due to actual versus adopted results, usage, and other in the above table refers to the revenue impact year over year of the change in revenue recognized by the Water Revenue Adjustment Mechanism (WRAM) and Modified Cost Balancing Account (MCBA). The WRAM is impacted by changes in consumption patterns from our historical trends as well as an increase in conservation efforts. The MCBA, which records the differences in production costs from the adopted costs, is recorded as an element of revenue as it represents pass through costs which are billed to customers. The MCBA is impacted by changes in total production quantities, the production mix of the source of water, the price paid for purchased water and power, and the amount of pump taxes paid.
The components of the rate increases are listed in the following table:
         
Purchased water offset increases
  $ 5,844  
Step-rate increases
    2,878  
General Rate Case (GRC) increases
    2,726  
Balancing account adjustments
    271  
Other
    825  
 
     
Total rate increases
  $ 12,544  
 
     
Total Operating Expenses
Total operating expenses were $115.1 million for the third quarter of 2009, versus $104.9 million for the same period in 2008, a 10% increase.
Water production expense consists of purchased water, purchased power, and pump taxes. It represents the largest component of total operating expenses, accounting for approximately 43% of total operating expenses in the third quarter of 2009. Water production expenses increased 5% compared to the same period last year due to increased cost of purchased water and purchased power, although usage was down. Our wholly-owned operating subsidiaries, Washington Water, New Mexico Water and Hawaii Water obtain all of their water supply from wells.

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Sources of water as a percent of total water production are listed in the following table:
                 
    Three Months Ended September 30
    2009   2008
Well production
    51 %     51 %
Purchased
    46 %     45 %
Surface
    3 %     4 %
 
               
Total
    100 %     100 %
 
               
The components of water production costs are shown in the table below:
                         
    Three Months Ended September 30  
    2009     2008     Change  
Purchased water
  $ 35,326     $ 33,858     $ 1,468  
Purchased power
    10,089       9,285       804  
Pump taxes
    3,483       3,312       171  
 
                 
Total
  $ 48,898     $ 46,455     $ 2,443  
 
                 
Purchased water costs increased due to price increases from water wholesalers. Total water production, measured in acre feet, decreased by 7% during the third quarter of 2009 as compared with the third quarter of 2008, due to lower customer usage primarily attributed to cooler weather and voluntary conservation.
Administrative and general expense and other operations expense increased 21% to $33.7 million. The primary increase was due to increased pension costs, other employee benefit costs, increased payroll expense from new employees, and increased legal expenses. On January 1, 2009, wage increases became effective and there was an increase in the number of employees. At September 30, 2009, there were 976 employees and at September 30, 2008, there were 936 employees.
Maintenance expenses increased by 15% to $4.4 million in the third quarter of 2009 compared to $3.8 million in the third quarter of 2008, due to an increase in main and service repairs. Depreciation and amortization expense increased $1.0 million, or 11%, because of 2008 capital additions.
Federal and state income taxes charged to operating expenses and other income and expenses increased $0.9 million, from a provision of $13.2 million in the third quarter of 2008 to $14.1 million in the third quarter of 2009, due to a change in the effective tax rate recognized in the third quarter due to revised estimated permanent differences. We expect the effective tax rate to be between 40% and 40.7% for fiscal year 2009.
Other Income and Expense
Non-regulated revenue, net of related expenses, reflected net income of $1.0 million for the third quarter of 2009 compared to a loss of $0.4 million in the same period last year, which is an increase of $1.4 million. The change from the prior year is due to a favorable change of the cash surrender value of the life insurance contracts associated with certain benefit plans.
Interest Expense
Total interest expense, net of interest capitalized, increased $1.4 million to $5.5 million for the third quarter of 2009 compared to the same period last year. This increase was attributable to the additional interest on the First Mortgage Bonds issued in April 2009.

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RESULTS OF THE NINE MONTHS ENDED SEPTEMBER 2009 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 2008 OPERATIONS
Amounts in thousands except per share data
Overview
Net income for the nine-month period ended September 30, 2009, was $34.1 million, or $1.64 per diluted common share compared to net income of $32.5 million or $1.55 per diluted common share for the nine-months ended September 30, 2008. The increase in net income is primarily attributable to the increase in non-regulated income and to an increase in net operating income due to the rate increases from the 2007 General Rate Case (GRC), effective July 1, 2008. This increase was partially offset by higher operating costs, the hiring of positions approved in the 2007 GRC, and an increase of interest expense attributable to the issuance of the First Mortgage Bonds in April 2009.
Operating Revenue
Operating revenue increased $32.2 million, or 10%, to $342.4 million in the nine-month period ended September 30, 2009. As disclosed in the following table, the increase was primarily due to increases in rates and usage by new customers primarily from our acquisitions in Hawaii last year. The decrease in usage by existing customers due to unfavorable weather and voluntary conservation efforts lowered operating revenue.
The factors that affected the operating revenue for the nine-month period ended September 30, 2009 compared to 2008 are presented in the following table:
         
Rate increases
  $ 43,330  
Increase in usage by new customers
    9,076  
Net change due to actual verses adopted results, usage, and other
    (20,163 )
 
     
Net changes in operating revenue
  $ 32,243  
 
     
The net change due to actual versus adopted results, usage, and other in the above table refers to the revenue impact year over year of the change in revenue recognized by the WRAM and MCBA. The WRAM is impacted by changes in consumption patterns from our historical trends as well as an increase in conservation efforts. The MCBA, which records the differences in production costs from the adopted costs, is recorded as an element of revenue as it is a pass through cost. The MCBA is impacted by changes in total production quantities, the production mix of the source of water, the price paid for purchased water and power, and the amount of pump taxes paid.
The components of the rate increases are listed in the following table:
         
General Rate Case (GRC) increase
  $ 25,841  
Purchased water offset increase
    12,300  
Step rate increase
    3,677  
Balancing account adjustments
    687  
Other
    825  
 
     
Total rate increases
  $ 43,330  
 
     
Total Operating Expenses
Total operating expenses were $296.1 million for the nine-months ended September 30, 2009, versus $264.1 million for the same period in 2008, a 12% increase.
Water production expense consists of purchased water, purchased power and pump taxes. Water production expense represents the largest component of total operating expenses, accounting for approximately 40% of total operating expenses. Water production expenses increased $7.3 million in the nine-months ended September 30, 2009, or 7%, compared to the same period last year due to increased cost of purchased water and purchased power. Our wholly-owned operating subsidiaries, Washington Water, New Mexico Water and Hawaii Water, obtain all of their water supply from wells.

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Sources of water production as a percent of total water production are listed on the following table:
                 
    Nine-months ended September 30
    2009   2008
Well production
    49 %     49 %
Purchased
    48 %     47 %
Surface
    3 %     4 %
 
               
Total
    100 %     100 %
 
               
     The components of water production costs are shown in the table below:
                         
    Nine-months ended September 30  
    2009     2008     Change  
Purchased water
  $ 89,920     $ 85,354     $ 4,566  
Purchased power
    22,216       19,704       2,512  
Pump taxes
    7,332       7,104       228  
 
                 
Total
  $ 119,468     $ 112,162     $ 7,306  
 
                 
Purchased water cost increased due to higher prices from wholesalers. Included in purchased water are leases of unused water rights of $1.8 million and $1.6 million during the nine-months ended September 30, 2009 and September 30, 2008, respectively. The increase in purchased power is primarily due to the acquisitions in Hawaii last year.
Administration and general and other operations expenses were $98.8 million, increasing $18.7 million, or 23%, for the nine-months ended September 30, 2009. The increase was primarily due to increased pension and postretirement benefit costs, other benefit costs, new employees, and outside legal services. Payroll charged to operating expense increased $1.6 million for the nine-months ended September 30, 2009. Wages for union employees increased 3.0%, effective January 1, 2009. Overall payroll costs (expensed and capitalized) increased 6.7% for the nine-months ended September 30, 2009, due to increases in the number of employees and higher wage rates. At September 30, 2009, there were 976 employees and at September 30, 2008, there were 936 employees.
Maintenance expense increased for the nine-months ended September 30, 2009, increasing $0.5 million, or 4%, due to an increase in main and service repairs. Depreciation and amortization expense increased $3.0 million, or 11%, because of increased capital expenditures in 2008.
Federal and state income taxes increased $1.3 million, or 7%, for the nine-months ended September 30, 2009, due to a change in the effective tax rate due to revised estimated permanent differences and change in taxable income. We expect the effective tax rate to be between 40% and 40.7% for 2009.
Other Income and Expense
Other income, net of related expenses, was $3.0 million for the nine-months ended September 30, 2009, compared to a loss of $0.1 million for the first nine-months of 2008. The change from the prior year is due to an increase in non-utility service revenues and a gain on the sale of non-utility property. In addition, other expense was reduced by a gain in cash surrender value of life insurance contracts associated with our benefit plans of $3.6 million in the nine-months ended September 30, 2009. In the prior year, we recorded a loss (reduction) in cash surrender value of life insurance contracts associated with our benefit plans of $2.2 million for the nine-month period ended September 30, 2008. The cash surrender value is determined in part by the market of certain underlining funds, the value of which reflects changes in the stock market. Due to a significant increase in the stock market in the first nine months of 2009, there was a corresponding increase to the cash surrender value of the life insurance contracts.
Interest Expense
Net interest expense increased $1.8 million to $15.2 million for the period ended September 30, 2009, compared to the nine-month period ended September 30, 2008. This increase was attributable to the additional interest on the First Mortgage Bonds issued in April 2009 less increased capitalized interest on construction activity.

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REGULATORY MATTERS
Rates and Regulations
The state regulatory commissions have plenary powers setting rates and operating standards. As such, state commission decisions significantly impact our revenues, earnings, and cash flows. The amounts discussed herein are generally annual amounts, unless specifically stated, and the financial impact to recorded revenue is expected to occur over a 12-month period from the effective date of the decision. In California, water utilities are required to make several different types of filings. Most filings result in rate changes that remain in place until the next General Rate Case (GRC). As explained below, surcharges and surcredits to recover balancing and memorandum accounts as well as interim rate true-ups are temporary rate changes, which have specific time frames for recovery.
GRCs, step rate increase filings, and offset filings change rates to amounts that will remain in effect until the next GRC. The CPUC follows a rate case plan, which requires Cal Water to file a GRC for each of its 24 regulated operating districts every three years. In a GRC proceeding, the CPUC not only considers the utility’s rate setting requests, but may also consider other issues that affect the utility’s rates and operations. Effective in 2004, Cal Water’s GRC schedule was shifted from a calendar year to a fiscal year with test years commencing on July 1st of each year. The CPUC is generally required to issue its GRC decision prior to the first day of the test year or authorize interim rates. As such, Cal Water’s GRC decisions, prior to 2005, were generally issued in the fourth quarter. Effective with the 2009 GRC, the processing time is scheduled for eighteen months with rates effective on January 1, 2011.
Between GRC filings utilities may file escalation rate increases, which allow the utility to recover cost increases, primarily from inflation and incremental investment, during the second and third years of the rate case cycle. However, escalation rate increases are subject to a weather-normalized earnings test. Under the earnings test, the CPUC may reduce the escalation rate increase to prevent the utility from earning in excess of the authorized rate of return for that district.
In addition, utilities are entitled to file offset filings. Offset filings may be filed to adjust revenues for construction projects authorized in GRCs when the plant is placed in service or for rate changes charged to the Company for purchased water, purchased power, and pump taxes (referred to as “offsettable expenses”). Such rate changes approved in offset filings remain in effect until a GRC is approved. Additional information on the Company’s regulatory process is described in its annual report on Form 10-K dated March 2, 2009.
Remaining Unrecorded Balances from Previously Authorized Balancing Accounts Recoveries/Refunds
The total of unrecorded, under-collected memorandum and balancing accounts was approximately $1.1 million as of September 30, 2009.
2009 Regulatory Activity to Date
Cost of Capital Application
On May 1, 2008, Cal Water filed an application in compliance with the Rate Case Plan to establish an allowable cost of capital for 2009, 2010, and 2011. The cost of capital evaluation includes such issues as the authorized return on equity, the cost of debt, and the equitable capital structure for Cal Water. This application, A.08-05-002, was considered along with similar applications from two other multi-district California water utilities. On May 7, 2009, the CPUC issued D.09-05-019 ruling on these issues and adopting a cost of capital for Cal Water for 2009. The CPUC authorized Cal Water a 10.20% return on equity, the same provision as had been last adopted by the CPUC for Cal Water in 2007 and 2008. The decision also allowed a capital structure of 53% equity and 47% debt. Finally, the decision also allowed a temporary interest rate balancing account to insulate the utilities and their ratepayers from volatile debt financing costs due to market uncertainty. The total effect of the decision was a rate decrease, of $1.8 million in annual revenues effective in June 2009.
On July 30, 2009, the CPUC issued its D.09-07-051, which adopted an all-party settlement for a cost of capital adjustment mechanism. Under the settlement, the authorized return on equity may be adjusted prospectively based on annual changes in a bond index. The mechanism has a threshold trigger of 100 basis points change in the index before any adjustment is made to Cal Water’s authorized return. Cal Water does not anticipate the mechanism will trigger in 2009.

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2009 California General Rate Case Filing
On July 2, 2009, Cal Water filed its required application for a general review of rates for all operating districts and general operations. The application, A.09-07-001, requests an annual increase in rates of $70.6 million on January 1, 2011, $24.8 million on January 1, 2012, and $24.8 million on January 1, 2013. The filing marks the beginning of an eighteen month review process. As a result, and based on past experience, Cal Water cannot predict at this time the ultimate rate change the Commission will order. The Commission is generally required under state law to allow Cal Water interim rates and an effective date of January 1, 2011 if a decision is not rendered in the proceeding by that date.
Request for MTBE regulatory treatment
On July 10, 2009, Cal Water filed an application requesting the CPUC adopt ratemaking treatment of proceeds from its partial settlement of MTBE contamination litigation. Cal Water has requested that all of the proceeds be reinvested in infrastructure to treat or replace MTBE-contaminated facilities. In addition, Cal Water has requested that 50% of the reinvestment be included in rate base upon which Cal Water could earn its authorized fair and reasonable rate of return. The remaining 50% of the settlement proceeds would be included in rate base as contributions in aid of construction which does not earn a return. Cal Water has also requested specific regulatory treatment of future settlement or litigation proceeds that may occur in the consolidated MTBE cases. The CPUC has also opened a “rulemaking” proceeding, R.09-03-014, to consider, among other things, whether it should adopt a standard policy for ratemaking treatment of litigation proceeds. This rulemaking is scheduled to be concluded in the second quarter of 2010. The CPUC has previously authorized a wide range of regulatory treatments of contamination litigation proceeds. Due to the open policy proceeding and the considerable variability in the CPUC’s past treatment of contamination litigation proceeds, Cal Water cannot predict the outcome or timing of a decision in this proceeding at this time.
Washington 2009 General Rate Case Filing
On May 12, 2009, Washington Water Service Company filed a general rate increase for its regulated operations with the Washington Utilities and Transportation Commission (WUTC). Washington Water requested increases of $1.9 million on an annual basis. On July 30, 2009, the WUTC approved increased rates and a revised revenue requirement adding $1.2 million in additional annual revenue.
Other 2009 Regulatory filings
In January and February 2009, Cal Water filed advice letters to offset increased purchased water and pump tax rates in eight of its regulated districts totaling $11.7 million in annual revenue. Under CPUC advice letter processing rules, Cal Water charges the rates to its customers upon filing of the expense offset advice letter. These rates were approved in late February 2009. However, expense offsets are dollar-for-dollar increases in revenue to match increased expenses and interact with the WRAM and MCBA mechanisms so that net operating income is not affected by an offset increase.
In January 2009 the City of Hawthorne approved Cal Water’s requested rate increase for its leased water system. The increase will take effect in phases, with a $0.8 million annual increase in February 2009, a $1.0 million annual increase in July 2009, and a $1.2 million annual increase in January 2010.
In January 2009 Cal Water filed an application to the CPUC for approvals and consents related to its secured debt offering, which was completed on April 17, 2009. The application included, among other things, requests for (i) a waiver of a CPUC policy, which would allow debt offerings by Cal Water of up to $100 million in principal amount be conducted through a single underwriter and (ii) clarification that complying with the terms of the indenture for the outstanding unsecured notes by granting the holders a first mortgage security interest upon the issuance of additional first mortgage debt does not use any of the Cal Water’s previously used financing authorization. This application was approved by the Commission in March 2009. On March 30, 2009, the CPUC issued decision 09-03-038 granting Cal Water (i) a competitive bidding rule exemption for the issuance of $100 million of First Mortgage Bonds to the extent that no one purchaser from Cal Water is permitted to acquire more than $20 million in debt in a calendar year, (ii) authority to exchange $260 million of its senior notes for First Mortgage Bonds without obtaining additional financing authority, and (iii) a competitive bidding rule exemption for an exchange of $260 million of senior notes for First Mortgage Bonds.
In April 2009, Cal Water filed advice letters to resolve most of the December 31, 2008 WRAM and MCBA balances. In May 2009, the CPUC authorized surcharges of $5.7 million and refunds of $3.8 million over a twelve month period beginning May 13, 2009.

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In June 2009, as allowed in the Commission’s 2007 Rate Case Plan, Cal Water filed advice letters for interim rate increases for eight districts effective in July 2009. These interim rates generate $2.4 million annually beginning July 1, 2009. Under the Commission’s prior rate case plan, these districts would have had rates effective in July 2009. The revenues collected are subject to refund or adjustment and will be trued up after a decision in the 2009 GRC. The rate change is an incremental addition to the adopted revenue requirement and will increase revenues until the next GRC.
In June 2009, Cal Water filed for escalation rate increases totaling $9.0 million effective in July for sixteen districts. These were approved effective in July 2009. The escalation rate increases were not reflected in the 2009 GRC filing. Therefore, the revenue obtained is a part of the requested 2009 GRC increase, not an addition to it. The rate change is an incremental addition to the adopted revenue requirement and will increase revenues until the next GRC.
In July 2009, Cal Water received approval for seven rate base offset advice letters totaling $0.7 million additional annual revenue. The rate base offset rate increases were not reflected in the 2009 GRC filing. Therefore, the revenue obtained is a part of the requested 2009 GRC increase, not an addition to it. The rate change is an incremental addition to the adopted revenue requirement and will increase revenues until the next GRC.
Throughout the calendar year, Cal Water plans to file advice letters to offset expected increases in purchased water and pump tax charges in some districts. Cal Water cannot predict the exact timing or dollar amount of the changes. However, expense offsets are dollar-for-dollar increases in revenue to match increased expenses and interact with the WRAM and MCBA mechanisms so that net operating income is not affected by an offset increase.
LIQUIDITY
Cash flows from Operations
Cash flows from operations were $77.2 million for the nine-months ended September 30, 2009. Cash flows from operations is primarily generated by net income and changes in our operating assets and liabilities. Cash generated by operations varies during the year which is dependent upon customer billings and timing of contributions to our benefit plans and estimated tax payments.
During the nine-months ended September 30, 2009, we made contributions to our pension and retiree health care plan of $23.7 million compared to $1.6 million paid during the nine-months ended September 30, 2008. The 2009 contributions were higher than the prior year because $11.7 million of the 2008 pension and retiree health care was paid during 2009. As approved in the 2007 General Rate Case, we increased the funding level of our pension and retiree health care plan from $16.4 million during 2008 to $27.9 million during 2009.
The water business is seasonal. Customer billings are lower in the cool, wet winter months when less water is used compared to the warm, dry summer months when water use is highest. This seasonality results in the possible need for short-term borrowings under the bank lines of credit in the event cash is not available during the winter period. The increase in cash flows during the summer allows short-term borrowings to be paid down. Customer water usage can be lower than normal in years when more than normal precipitation falls in our service areas or temperatures are lower than normal, especially in the summer months. The reduction in water usage reduces cash flows from operations and increases the need for short-term bank borrowings. In addition, short-term borrowings are used to finance capital expenditures until long-term financing is arranged.
Investing Activities
During the nine-months ended September 30, 2009, we had company-funded capital expenditures of $82.9 million. For 2009, our capital budget is approximately $100 to $120 million.
Financing Activities
During the nine-months ended September 30, 2009, there were no equity offerings. In April 2009, Cal Water issued $100 million of First Mortgage Bonds at the rate of 5.875% due in 2019, which are fully and unconditionally guaranteed by the Company. The first mortgage bond issuance costs were $3.4 million. Proceeds were used to pay down Cal Water’s short-term borrowings and will be added to Cal Water’s general funds to be used for capital expenditures and other corporate items. In connection with the offering, Cal Water exercised its option to redeem the remaining $3.0 million of 8.86% Series J First Mortgage Bonds due 2023, which Cal Water assumed in connection with its acquisition of Dominguez Water Corporation in 2000. The redemption was effected pursuant to the terms of the indenture and supplemental indentures governing the Series J bonds. The Series J bonds were

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redeemed at a redemption price equal to 100% of the outstanding principal amount of the Series J bonds plus a make-whole premium of $1.0 million, and accrued and unpaid interest to the date of redemption.
Dividend payments were higher than the prior year due to an increased dividend rate paid in the current year. Both advances for construction and contribution in aid of construction decreased $2.9 million during the first nine months of 2009 compared to the first nine months of 2008 primarily due to a decline in developer activity.
Short-Term and Long-Term Debt
Short-term liquidity is provided by bank lines of credit funds extended to us and certain of our subsidiaries and by internally generated funds. Long-term financing is accomplished through the use of both debt and equity. As of September 30, 2009, there were short-term borrowings of $12 million outstanding on the line of credit. There were short-term bank borrowings of $40 million at December 31, 2008. On October 27, 2009, the Company and Cal Water entered into three-year syndicated unsecured revolving line of credit agreements with sixteen banks to provide a revolving line of credit of $50 million and $250 million, respectively.
We made principal payments on our First Mortgage Bonds and other long-term debt payments of $5.8 million during the nine-months ended September 30, 2009. As noted above, we issued $100 million of First Mortgage Bonds. In connection with this issuance, Cal Water’s outstanding senior notes in the aggregate principal amount of $260 million were exchanged for First Mortgage Bonds with the same interest rate and maturities as the previously outstanding senior notes for which they were exchanged.
Bond series K in the amount of $10 million was reclassified to a short-term liability during the nine-months ended September 30, 2009 because the bond matures during calendar year 2010. Long-term financing, which includes First Mortgage Bonds and other debt securities, and common stock, has typically been used to replace short-term borrowings and fund capital expenditures. Internally generated funds, after making dividend payments, provide positive cash flow, but have not been at a level to meet the needs of our capital expenditure requirements. Management expects this trend to continue given our capital expenditures plan for the next 5 years. Some capital expenditures are funded by payments received from developers for contributions in aid of construction or advances for construction. Funds received for contributions in aid of construction are non-refundable, whereas funds classified as advances in construction are refundable. Management believes long-term financing is available to meet our cash flow needs through issuances in both debt and equity instruments.
Credit Ratings
Cal Water’s First Mortgage Bonds are rated by Standard & Poor’s (S&P). Since 2004, the credit rating agency has maintained their rating of A+ and characterized us as stable. On April 8, 2009, Standard & Poor’s issued a rating of AA- on the 5.875% $100 million First Mortgage Bonds issued in April. If rating were downgraded in the future, it may result in a higher interest rate on future debt.
Dividends, Book Value and Shareholders
The third quarter common stock dividend of $0.2950 per share was paid on August 21, 2009, compared to a quarterly dividend in the third quarter of 2008 of $0.2925. This was Cal Water’s 258th consecutive quarterly dividend. Annualized, the 2009 dividend rate is $1.18 per common share, compared to $1.17 in 2008. For the full year 2008, the payout ratio was 62% of net income. On a long-term basis, our goal is to achieve a dividend payout ratio of 60% of net income accomplished through future earnings growth.
At its October 28, 2009 meeting, the Board declared the third quarter dividend of $0.2950 per share payable on November 20, 2009, to stockholders of record on November 9, 2009. This will be our 259th consecutive quarterly dividend.
2009 Financing Plan
    Cal Water is currently reviewing its financing needs for 2010. On October 27, 2009, the Company and Cal Water entered into three-year syndicated unsecured revolving line of credit agreements with sixteen banks to provide a revolving line of credit of $50 million and $250 million, respectively. We intend to fund our capital needs in future periods through a relatively balanced approach between long-term debt and equity.

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Book Value and Stockholders of Record
Book value per common share was $20.22 at September 30, 2009 compared to $19.44 at December 31, 2008.
There were approximately 2,637 (not in thousands) stockholders of record for our common stock on October 29, 2009.
Utility Plant Expenditures
During the nine-months ended September 30, 2009, capital expenditures totaled $86.4 million; $82.9 million was from company-funded projects and $3.5 million was from third-party-funded projects. The planned 2009 company-funded capital expenditure budget is approximately $100 to $120 million. The actual amount may vary from the budget number due to timing of actual payments related to current year projects and prior year projects. We do not control third-party-funded capital expenditures and therefore are unable to estimate the amount of such projects for 2009.
At September 30, 2009, construction work in progress was $126.3 million compared to $80.6 million at December 31, 2008. Work in progress includes projects that are under construction but not yet complete and placed in service.
WATER SUPPLY
Our source of supply varies among our operating districts. Certain districts obtain all of their supply from wells; some districts purchase all of their supply from wholesale suppliers; and other districts obtain supply from a combination of wells and wholesale suppliers. A small portion of supply comes from surface sources and is processed through Company-owned water treatment plants. To the best of management’s knowledge, we are meeting water quality, environmental, and other regulatory standards for all company-owned systems.
In several of Cal Water’s operating districts, we have service contracts with and lease equipment from Basin Water, Inc. for the treatment of water from company-owned wells. The continued treatment of water from these wells is critical to Cal Water’s ability to meet customers’ demand in those districts. On July 17, 2009, Basin Water, Inc. filed for Chapter 11 bankruptcy and was seeking to sell some of its assets and assignment of certain of their contracts to a third party. The sale of the assets and assignments occurred during third quarter 2009 and did not impact our operations. We believe the performance of these contractual obligations and the availability of this equipment will be uninterrupted. Furthermore, if this equipment is no longer available, we believe there are additional suppliers that can supply the needed equipment and treatment process required in order for us to meet our water supply needs.
California’s normal weather pattern yields little precipitation between mid-spring and mid-fall. The Washington Water service areas receive precipitation in all seasons, with the heaviest amounts during the winter. New Mexico Water’s rainfall is heaviest in the summer monsoon season. Hawaii Water receives precipitation throughout the year, with the largest amounts in the winter months. Water usage in all service areas is highest during the warm and dry summers and declines in the cool winter months. Rain and snow during the winter months replenish underground water aquifers and fill reservoirs, providing the water supply for subsequent delivery to customers. Snowpack water content and rainfall accumulation during the 2008 — 2009 water year was 93% of normal (as of October 1, 2009 per the California Department of Water Resources). Precipitation in the prior year was below average. Management believes that supply pumped from underground aquifers and purchased from wholesale suppliers will be adequate to meet customer demand during 2009 and beyond. However, water rationing may be required if declared by the state or local jurisdictions. Long-term water supply plans are developed for each of our districts to help assure an adequate water supply under various operating and supply conditions. Some districts have unique challenges in meeting water quality standards, but management believes that supplies will meet current standards using current treatment processes.
CONTRACTUAL OBLIGATIONS
During the nine-months ended September 30, 2009, there were no material changes in contractual obligations outside the normal course of business.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not hold, trade in or issue derivative financial instruments and therefore are not exposed to risks these instruments present. Our market risk to interest rate exposure is limited because the cost of long-term financing and short-term bank borrowings, including interest costs, is covered in consumer water rates as approved by the commissions. We do not have foreign operations;

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therefore, we do not have a foreign currency exchange risk. Our business is sensitive to commodity prices and is most affected by changes in purchased water and purchased power costs.
Historically, the CPUC’s balancing account or offsetable expense procedures allowed for increases in purchased water and purchased power costs to be passed on to consumers. Traditionally, a significant percentage of our net income and cash flows comes from California regulated operations; therefore the CPUC’s actions have a significant impact on our business. See Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies -Expense Balancing and Memorandum Accounts” and “Regulatory Matters”.
Item 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(c) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow for timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Accordingly, our disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives.
Our management, with the participation of our CEO and our CFO, evaluated the effectiveness of our disclosure controls and procedures for the period ended September 30, 2009. Based on that evaluation, we concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
(b) Changes to Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Groundwater Contamination Matters
As previously reported, in 1995, the State of California’s Department of Toxic Substances Control (DTSC) named us as a potential responsible party for cleanup of toxic contamination plumes, which contain perchloroethylene, also know as tetrachloroethylene (PCE) in the Chico groundwater. In December 2002, we were named along with other defendants in two lawsuits filed by DTSC for the cleanup of the plumes. In 2007, we entered into Court approved consent decrees (Consent Decrees). In connection with these suits, our insurance carrier, Employers Insurance of Wausau (Wausau) filed a separate lawsuit against us for reimbursement of past defense costs which approximate $1.5 million and a declaratory determination of coverage. On June 23, 2009, we executed a confidential settlement with Wausau that did not significantly impact our financial statements.
Other Groundwater Contamination
The Company has been and is involved in litigation against third parties to recover past and future costs related to ground water contamination in our service areas. The cost of litigation is expensed as incurred and any settlement is first offset against such costs. Any settlement in excess of the cost to litigate is accounted for on a case by case basis, dependant upon the nature of the settlement.
The Company is involved in a lawsuit against major oil refineries regarding the contamination of the ground water as a result of the gas additive MTBE. The Company entered into a partial settlement with the defendants in April of 2008 that represent approximately 70% of the responsible parties (as determined by the Superior Court). On October 22, 2008, the Company received $34.2 million after deducting attorneys’ fees and litigation expenses. The Company is aggressively pursuing legal action against the remaining responsible parties. The Company has filed with the Commission to determine the appropriate regulatory treatment of the proceeds. It anticipates that the proceeds will have been used by the Company on MTBE capital investments. The Company has also filed with the Internal Revenue Service a request for a private letter ruling, regarding the taxability of the re-investment of proceeds. When an agreement is reached with the Commission regarding the regulatory treatment, or when the taxability is determined based upon proceedings with the Internal Revenue Service, the Company will adjust the accounting of the settlement, accordingly.
As previously reported, Company has filed with the City of Bakersfield, in the Superior Court of California, a lawsuit that names potentially responsible parties, who manufactured and distributed products containing 1,2,3 trichloropropane (TCP) in California. TCP has been detected in the ground water. The lawsuit seeks to recover treatment costs necessary to remove TCP. The Court has now coordinated our action with other water purveyor cases (TCP Cases JCCP 4435) in San Bernardino County. No trial date has yet been set. Company has entered into a settlement with one of the distributor defendants, FMC Corporation. Company will record the proceeds in a memorandum account until the Commission approves an allocation between ratepayers and shareholders.
The Company has filed in San Mateo County Superior Court a Complaint (California Water Service Company v. The Dow Chemical Company, et al. CIV 473093) against potentially responsible parties that manufactured and distributed products, which contained perchloroethylene, also know as tetrachloroethylene (PCE) in California, to recover the past, present, and future treatment costs. The case has not been consolidated with other PCE cases. Discovery is underway. No trial date has yet been set.
Other Legal Matters
On October 14, 2009, Victor Guerrero and Hortencia Guerrero filed a Complaint in Solano County Superior Court: Victor Guerrero and Hortencia Guerrero v. California Water Service Company, Case No. FCSo34481. The Complaint for wrongful death seeks damages for negligence for failure to maintain the water system, negligence for failure to warn, negligence and intentional concealment causes of actions. The Company does not believe it has any liability in this matter and tendered the lawsuit to its insurance carrier.
From time to time, the Company has been named as a co-defendant in several asbestos related lawsuits. The Company has been dismissed without prejudice in several of these cases. In other cases, our contractor’s and/or our insurance policy carriers have settled the cases with no significant impact on our financial statements.

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From time to time, the Company is involved in various disputes and litigation matters that arise in the ordinary course of business. We review the status of each significant matter and assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount of the range of loss can be estimated, we accrue a liability for the estimated loss in accordance with the accounting standards for contingencies. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on the best information available at the time. While the outcome of these disputes and litigation matters cannot be predicted with any certainty, management does not believe that when taking into account existing reserves that the ultimate resolution of these matters will materially affect our financial position, results of operations, or cash flows.

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Item 6. EXHIBITS
     
Exhibit   Description
10.1
  Unsecured Credit Agreement dated as of October 27, 2009 among California Water Service Group and certain of it subsidiaries from time to time, as borrowers, Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, Banc of America Securities LLC, as sole lead arranger and sole book manager, CoBank, ACB and Bank of China, Los Angeles Branch, as co-syndication agents, Compass Bank and U.S. Bank National Association, as co-documentation agents, and the other lender parties thereto (Exhibit 10.1 to the current report on Form 8-K of the registrant dated October 27, 2009).
 
   
10.2
  Unsecured Credit Agreement dated as of October 27, 2009 among California Water Service Company, as borrower, Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, Banc of America Securities LLC, as sole lead arranger and sole book manager, CoBank, ACB and Bank of China, Los Angeles Branch, as co-syndication agents, Compass Bank and U.S. Bank National Association, as co-documentation agents, and the other lender parties thereto (Exhibit 10.2 to the current report on Form 8-K of the registrant dated October 27, 2009).
 
   
10.3
  Water Supply Contract between the City and County of San Francisco and wholesale customers in Alameda County, San Mateo County and Santa Clara County for a term of twenty-five years beginning on July 1, 2009 and ending on June 30, 2034. The agreement was dated June 24, 2009.
 
   
10.4
  Water Supply Contract dated July 1, 2009 between the City and County of San Francisco and California Water Service Company to provide water to Bear Gulch and Bayshore service areas for a term of twenty-five years beginning July 1, 2009 and ending June 30, 2034.
 
   
31.1
  Chief Executive Officer certification of financial statements pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
 
   
31.2
  Chief Financial Officer certification of financial statements pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
 
   
32
  Chief Executive Officer and Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002

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SIGNATURES
Pursuant to the requirement 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.
         
November 9, 2009
 
CALIFORNIA WATER SERVICE GROUP
Registrant


 
 
  By:   /s/ Martin A. Kropelnicki    
    Martin A. Kropelnicki   
    Vice President, Chief Financial Officer and Treasurer   

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Exhibit Index
     
Exhibit   Description
10.1
  Unsecured Credit Agreement dated as of October 27, 2009 among California Water Service Group and certain of it subsidiaries from time to time, as borrowers, Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, Banc of America Securities LLC, as sole lead arranger and sole book manager, CoBank, ACB and Bank of China, Los Angeles Branch, as co-syndication agents, Compass Bank and U.S. Bank National Association, as co-documentation agents, and the other lender parties thereto (Exhibit 10.1 to the current report on Form 8-K of the registrant dated October 27, 2009).
 
   
10.2
  Unsecured Credit Agreement dated as of October 27, 2009 among California Water Service Company, as borrower, Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, Banc of America Securities LLC, as sole lead arranger and sole book manager, CoBank, ACB and Bank of China, Los Angeles Branch, as co-syndication agents, Compass Bank and U.S. Bank National Association, as co-documentation agents, and the other lender parties thereto (Exhibit 10.2 to the current report on Form 8-K of the registrant dated October 27, 2009).
 
   
10.3
  Water Supply Contract between the City and County of San Francisco and wholesale customers in Alameda County, San Mateo County and Santa Clara County for a term of twenty-five years beginning on July 1, 2009 and ending on June 30, 2034. The agreement was dated June 24, 2009.
 
   
10.4
  Water Supply Contract dated July 1, 2009 between the City and County of San Francisco and California Water Service Company to provide water to Bear Gulch and Bayshore service areas for a term of twenty-five years beginning July 1, 2009 and ending June 30, 2034.
 
   
31.1
  Chief Executive Officer certification of financial statements pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
 
   
31.2
  Chief Financial Officer certification of financial statements pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
 
   
32
  Chief Executive Officer and Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002

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