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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

☒~~10-K~~ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


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

For the fiscal year ended December 31, ~~2019~~2020


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

For the transition period from to

Commission file No. 1-13883

CALIFORNIA WATER SERVICE GROUP

(Exact name of registrant as specified in its charter)



Delaware		77-0448994
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
1720 North First Street
San Jose,	California	95112
(Address of Principal Executive Offices)		(Zip Code)

(~~408~~) (408) 367-8200

(Registrant's Telephone Number, including Area Code)

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

Title of Each Class:

Trading Symbol(s)

Name of Each Exchange on Which Registered:

Common Stock, $0.01 par value per share

CWT

New York Stock Exchange

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

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

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act. Yes o☐ No x☒

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 x☒ No o☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232,405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x☒ No o☐

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



Large accelerated Filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

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

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant was ~~$2,437~~$2,356 million on June ~~28, 2019,~~30, 2020, the last business day of the registrant's most recently completed second fiscal quarter. The valuation is based on the closing price of the registrant's common stock as traded on the New York Stock Exchange.

The Common stock outstanding at February ~~10, 2020~~8, 2021 was ~~48,536,524~~50,348,013 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required to be disclosed in Part III of this report is incorporated by reference from the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be held on or about May ~~27, 2020.~~26, 2021. The proxy statement is expected to be filed no later than 120 days after the end of the fiscal year covered by this report.

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TABLE OF CONTENTS



				Page
PART I
Item 1.			Business	4
			Forward-Looking Statements	4
			Overview	5
			Regulated Business	5
			Non-Regulated Activities	6
			Operating Segment	7
			Growth	7
			Geographical Service Areas and Number of Customer Connections at Year-end	7
			Rates and Regulation	8
			Water Supply	1413
			Seasonal Fluctuations	16
			Utility Plant Construction	1716
			Energy Reliability	1716
			~~Impact of Climate Change Legislation~~	17
	Security at Company Facilities	1816
			~~Quality of Water Supply~~Competition and Condemnation	1817
			~~Competition and Condemnation~~Government Regulations	1817
			~~Environmental Matters~~Human Capital Resources	18
			~~Employees~~	19
	Executive Officers of the Registrant	19
Item 1A.			Risk Factors	2120
Item 1B.			Unresolved Staff Comments	32
Item 2.			Properties	3233
Item 3.			Legal Proceedings	3233
Item 4.			Mine Safety Disclosures	3233
PART II
Item 5.			Market for Registrant's Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	3233
Item 6.			Selected Financial Data	3334
Item 7.			Management's Discussion and Analysis of Financial Condition and Results of Operations	35
			Overview	35
			Critical Accounting Policies and Estimates	35
			Results of Operations	38
			Rates and Regulation	4041
			Water Supply	41
			Liquidity and Capital Resources	4142
Item 7A.			Quantitative and Qualitative Disclosures About Market Risk	4547
Item 8.			Financial Statements and Supplementary Data	4647
Item 9.			Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	9385
Item 9A.			Controls and Procedures	9386
Item 9B.			Other Information	9386



	~~Page~~
~~PART III~~
PART III
Item 10.		Directors and Executive Officers and Corporate Governance	9486

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PART I

Item 1. Business.

Forward-Looking Statements

This annual report, including all documents incorporated by reference, contains forward-looking statements within the meaning established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this annual 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," "targets," "forecasts," "should," "could," "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:

•the impact of the ongoing COVID-19 pandemic and related public health measures;

•our ability to invest or apply the proceeds from the issuance of common stock in an accretive manner;

•governmental and regulatory commissions' decisions, including decisions on proper disposition of property;

•consequences of eminent domain actions relating to our water systems;

•changes in regulatory commissions' policies and procedures;

•the outcome and timeliness of regulatory commissions' actions concerning rate relief and other actions;

•increased risk of inverse condemnation losses as a result of climate conditions;

~~inability~~•our ability to renew leases to operate water systems owned by others on beneficial terms;

•changes in California State Water Resources Control Board water quality standards;

•changes in environmental compliance and water quality requirements;

•electric power interruptions, especially as a result of Public Safety Power Shutoff (PSPS) programs;

•housing and customer growth;

•the impact of opposition to rate increases;

•our ability to recover costs;

•availability of water supplies;

•issues with the implementation, maintenance or security of our information technology systems;

•civil disturbances or terrorist threats or acts;

•the adequacy of our efforts to mitigate physical and cyber security risks and threats;

•the ability of our enterprise risk management processes to identify or address risks adequately;

•labor relations matters as we negotiate with the unions;

•changes in customer water use patterns and the effects of conservation;

•our ability to complete, successfully integrate, and achieve anticipated benefits from announced acquisitions;

•the impact of weather, climate, natural disasters, and ~~epidemic~~actual or ~~pandemic diseases~~threatened public health emergencies, including disease outbreaks, on our operations, water quality, water availability, water sales and operating results and the adequacy of our emergency preparedness;

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•restrictive covenants in or changes to the credit ratings on our current or future debt that could increase our financing costs or affect our ability to borrow, make payments on debt or pay dividends; and

•the risks set forth in "Risk Factors" included elsewhere in this annual 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 annual report or as of the date of any document incorporated by reference in

this annual report, as applicable. When considering forward-looking statements, investors should keep in mind the cautionary statements in this annual 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.

Overview

California Water Service Group is a holding company ~~incorporated in Delaware in 1999~~ with six operating subsidiaries: California Water Service Company (Cal Water), New Mexico Water Service Company (New Mexico Water), Washington Water Service Company (Washington Water), Hawaii Water Service Company, Inc. (Hawaii Water), and CWS Utility Services and HWS Utility Services LLC (CWS Utility Services and HWS Utility Services LLC being referred to collectively in this annual report as Utility Services). Cal Water, New Mexico Water, Washington Water, and Hawaii Water are regulated public utilities. The regulated utility entities also provide some non-regulated services. Utility Services holds non-utility property and provides non-regulated services to private companies and municipalities outside of California. Cal Water was the original operating company and began operations in 1926.

Our business is conducted through our operating subsidiaries and we provide utility services to approximately two million people. The bulk of the business consists of the production, purchase, storage, treatment, testing, distribution and sale of water for domestic, industrial, public and irrigation uses, and for fire protection. In some areas, we provide wastewater ~~collections~~collection and treatment services, including treatment which allows water recycling. We also provide non-regulated water-related services under agreements with municipalities and other private companies. The non-regulated services include full water system operation, billing and meter reading services. Non-regulated operations also include the lease of communication antenna sites, lab services and promotion of other non-regulated services.

During the year ended December 31, ~~2019,~~2020, there were no significant changes in the kind of products produced or services rendered by our operating subsidiaries, or in the markets or methods of distribution.

Our mailing address and contact information is:

California Water Service Group

1720 North First Street

San Jose, California 95112-4598

~~telephone~~Telephone number: 408-367-8200

www.calwatergroup.com

Annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports are available free of charge through our website at www.calwatergroup.com. The reports are available on our website as soon as reasonably practicable after such reports are filed with the SEC.

The content on any website referred to in this annual report is not incorporated by reference in this annual report unless expressly noted.

Regulated Business

California water operations are conducted by Cal Water, which provides service to approximately ~~489,600~~492,600 customer connections in approximately 100 California communities through 21 separate districts, which are subject to regulation by the California Public Utilities Commission (CPUC). ~~Cal Water operates two leased water systems, the City of Hawthorne and the City of Commerce, which are governed through their respective city councils and are outside of the CPUC's jurisdiction.~~ California water operations accounted for approximately ~~94.0%~~90.7% of our total customer connections and 93.8% of our total consolidated operating revenue.

We operate the City of Hawthorne and the City of Commerce water systems under lease agreements. In accordance with the lease agreements, we receive all revenues from operating the systems and are responsible for paying the operating costs. The City of Hawthorne and the City of Commerce lease revenues are governed through their respective city councils and are considered non-regulated because they are outside of the CPUC's jurisdiction. We report revenue and expenses for the City of Hawthorne and City of Commerce leases in operating revenue and operating expenses because we are entitled to retain all customer billings and are responsible for all operating expenses. These leases are considered "nontariffed products and services" (NTPS) by the CPUC and require a 10% revenue sharing with regulated customers.

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In October of 2011, an agreement was negotiated with the City of Hawthorne to lease and operate its water system. The system, which is located near the Hermosa Redondo district, serves about half of Hawthorne's population. The capital lease agreement required an up-front $8.1 million lease deposit to the city that is being amortized over the lease term. Additionally, annual lease payments will be adjusted based on changes in rates charged to customers. Under the lease, we are responsible for all aspects of system operation and capital improvements, although title to the system and system improvements reside with the city. Capital improvements are recorded as depreciable plant and equipment and depreciated per the asset lives set forth in the agreement. In exchange, we receive all revenue from the water system, which was $10.5 million, $9.5 million and $10.1 million in 2020, 2019, and 2018, respectively. At the end of the lease, the city is required to reimburse us for the unamortized value of capital improvements made during the term of the lease. The City of Hawthorne capital lease is a 15-year lease and expires in 2026.

In April of 2018, a renewal agreement was negotiated with the City of Commerce for us to continue to lease and to operate its water system for 15 years. Under the agreement, the operating lease requires us to pay $0.8 million per year in monthly installments. We have operated the City of Commerce water system since 1985 and are responsible for all operations, maintenance, water quality assurance, customer service programs, and financing capital improvements to provide a reliable supply of water that meets federal and state standards to customers served by the City of Commerce system. The City of Commerce will retain title to the system and system improvements and remain responsible for setting its customers’ water rates. We bear the risks of operation and collection of amounts billed to customers. In exchange, we receive all revenue from the water system, which was $2.9 million, $2.9 million, and $3.0 million in 2020, 2019, and 2018, respectively. The agreement allows us to request a rate change annually in order to recover costs.

Hawaii Water provides service to approximately ~~5,000~~5,300 water and wastewater customer connections on the islands of Maui, Oahu, and Hawaii, including several large resorts and condominium complexes. Hawaii Water's regulated customer connections are subject to the jurisdiction of the Hawaii Public Utilities Commission (HPUC). Hawaii Water accounts for 1.0% of our total customer connections and approximately ~~3.8%~~3.3% of our total consolidated operating revenue.

Washington Water provides domestic water service to approximately ~~17,700~~36,600 customer connections in the Tacoma, Olympia, Graham, Spanaway, Puyallup, and ~~Olympia~~Gig Harbor areas. Washington Water's utility operations are regulated by the Washington Utilities and Transportation Commission. Washington Water accounts for approximately ~~3.4%~~6.7% of our total customer connections and approximately ~~1.8%~~2.3% of our total consolidated operating revenue.

New Mexico Water provides service to approximately ~~8,300~~8,500 water and wastewater customer connections in the Belen, Los Lunas, Indian Hills, and Elephant Butte areas in New Mexico. New Mexico's regulated operations are subject to the jurisdiction of the New Mexico Public Regulation Commission. New Mexico Water accounts for approximately 1.6% of our total customer connections and 0.6% of our total consolidated operating revenue.

The state regulatory bodies governing our regulated operations are referred to as the Commissions in this annual report. Rates and operations for regulated customers are subject to the jurisdiction of the respective state's regulatory Commission. The Commissions require that water and wastewater rates for each regulated district be independently determined based on the cost of service, except in Washington, which has a statewide tariff. The Commissions are expected to authorize rates sufficient to recover normal operating expenses and allow the utility to earn a fair and reasonable return on invested capital.

We distribute and treat water and treat wastewater in accordance with accepted water utility methods. Where applicable, we hold franchises and permits in the cities and communities where we operate. The franchises and permits allow us to operate and maintain facilities in public streets and right-of-ways as necessary.

In October of 2011, an agreement was negotiated with the City of Hawthorne to lease and operate its water system. The system, which is located near the Hermosa Redondo district, serves about half of Hawthorne's population. The capital lease agreement required an up-front $8.1 million lease deposit to the city that is being amortized over the lease term. Additionally, annual lease payments will be adjusted based on changes in rates charged to customers. Under the lease, we are responsible for all aspects of system operation and capital improvements, although title to the system and system improvements reside with the city. Capital improvements are recorded as depreciable plant and equipment and depreciated per the asset lives set forth in the agreement. In exchange, we receive all revenue from the water system, which was $9.5 million, $10.1 million and $10.0 million in 2019, 2018, and 2017, respectively. At the end of the lease, the city is required to reimburse us for the unamortized value of capital improvements made during the term of the lease. The City of Hawthorne capital lease is a 15-year lease and expires in 2026.

In April of 2018, a renewal agreement was negotiated with the City of Commerce for us to continue to lease and to operate its water system for 15 years. Under the agreement, the operating lease requires us to pay $0.8 million per year in monthly installments. We have operated the City of Commerce water system since 1985 and are responsible for all operations, maintenance, water quality assurance, customer service programs, and financing capital improvements to provide a reliable supply of water that meets federal and state standards to customers served by the City of Commerce system. The City of Commerce will retain title to the system and system improvements and remain responsible for setting its customers’ water rates. We bear the risks of operation and collection of amounts billed to customers. In exchange, we receive all revenue from the water system, which was $2.9 million, $3.0 million, and $3.4 million in 2019, 2018, and 2017, respectively. The agreement allows us to request a rate change annually in order to recover costs.

Non-Regulated Activities

Fees for non-regulated activities are based on contracts negotiated between the parties. Under our non-regulated contract arrangements, we operate municipally owned water systems and privately owned water and recycled water distribution systems, but are not responsible for all operating costs. Non-regulated revenue received from non-leased water system operations is generally determined on a fee-per-customer basis.

Non-regulated revenue and expenses consist primarily of the operation of water systems that are owned by other entities under lease agreements, leasing of communication antenna sites on our properties, billing of optional third-party insurance programs to our residential customers, and unrealized gains or losses on benefit plan investments.

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Effective June 30, 2011, the CPUC adopted new rules related to the provision of non-regulated services using utility assets and employees. As a result, nearly all California non-regulated activities are now considered NTPS. The prescribed accounting for these NTPS is incremental cost allocation plus revenue sharing with regulated customers. Non-regulated services determined to be "active activities" require a 10% revenue sharing, and "passive activities" require a 30% revenue sharing. The amount of non-regulated revenues subject to revenue sharing is the total billed revenues less any authorized pass-through costs. Some examples of CPUC authorized pass-through costs are purchased water, purchased power, and pump taxes. All of our non-regulated services,

except for leasing communication antenna sites on our properties, are "active activities" subject to a 10% revenue sharing. Leasing communication antenna sites on our properties are "passive activities" subject to a 30% revenue sharing. Cal Water's annual revenue sharing with regulated customers was $2.5 million, $2.7 million, and $2.6 million in 2020, 2019, and ~~$2.2 million in 2019,~~ 2018, ~~and 2017,~~ respectively.

Operating Segment

We operate in one reportable segment, the supply and distribution of water and providing water-related utility services. For information about revenue from external customers, net income and total assets, see "Item 8. Financial Statements and Supplementary Data."

Growth

We intend to continue exploring opportunities to expand our regulated and non-regulated water and wastewater activities, particularly in the western United States. The opportunities could include system acquisitions, lease arrangements similar to the City of Hawthorne and City of Commerce contracts, full service system operation and maintenance agreements, meter reading, billing contracts and other utility-related services.

Geographical Service Areas and Number of Customer Connections at Year-end

Our principal markets are users of water within our service areas. The approximate number of customer connections served in each regulated district, the City of Hawthorne and the City of Commerce, at December 31 is as follows:


(rounded to the nearest hundred)	2020	2019
SAN FRANCISCO BAY AREA/NORTH COAST
Bay Area Region (serving South San Francisco, Colma, Broadmoor, San Mateo, San Carlos, Lucerne, Duncans Mills, Guerneville, Dillon Beach, Noel Heights and portions of Santa Rosa)	56,000	55,900
Bear Gulch (serving portions of Menlo Park, Atherton, Woodside and Portola Valley)	19,000	18,900
Los Altos (including portions of Cupertino, Los Altos Hills, Mountain View and Sunnyvale)	19,000	19,000
Livermore	18,900	18,900
	112,900	112,700
SACRAMENTO VALLEY
Chico (including Hamilton City)	30,800	30,500
Oroville	3,700	3,600
Marysville	3,800	3,800
Dixon	3,100	3,000
Willows	2,400	2,400
	43,800	43,300
SALINAS VALLEY
Salinas Valley Region (including Salinas and King City)	31,600	31,500
	31,600	31,500
SAN JOAQUIN VALLEY
Bakersfield	73,500	72,700
Stockton	44,800	44,400
Visalia	46,700	46,000
Selma	6,500	6,500
Kern River Valley	4,000	4,000

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(rounded to the nearest hundred) 2019 2018
SAN FRANCISCO BAY AREA/NORTH COAST

Bay Area Region (serving South San Francisco, Colma, Broadmoor, San Mateo, San Carlos, Lucerne, Duncans Mills, Guerneville, Dillon Beach, Noel Heights and portions of Santa Rosa) 55,900
55,800
Bear Gulch (serving portions of Menlo Park, Atherton, Woodside and Portola Valley) 18,900
18,900
Los Altos (including portions of Cupertino, Los Altos Hills, Mountain View and Sunnyvale) 19,000
19,000
Livermore 18,900
18,800
112,700
112,500
SACRAMENTO VALLEY

Chico (including Hamilton City) 30,500
30,100
Oroville 3,600
3,600
Marysville 3,800
3,800
Dixon 3,000
3,000
Willows 2,400
2,400
43,300
42,900
SALINAS VALLEY

Monterey Region (including Salinas and King City) 31,500
31,400
31,500
31,400
SAN JOAQUIN VALLEY

Bakersfield 72,700
71,900
Stockton 44,400
44,200
Visalia 46,000
45,300
Selma 6,500
6,500
Kern River Valley 4,000
3,900
173,600
171,800


(rounded to the nearest hundred)	2020	2019
	175,500	173,600
LOS ANGELES AREA
East Los Angeles	26,900	26,800
Hermosa Redondo (serving Hermosa Beach, Redondo Beach and a portion of Torrance)	27,100	27,100
Dominguez (Carson and portions of Compton, Harbor City, Long Beach, Los Angeles and Torrance)	34,300	34,200
Los Angeles County Region (including Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills Estates, Rolling Hills, Fremont Valley, Lake Hughes, Lancaster and Leona Valley)	25,700	25,700
Westlake (a portion of Thousand Oaks)	7,100	7,100
Hawthorne and Commerce (leased municipal systems)	7,700	7,600
	128,800	128,500
CALIFORNIA TOTAL	492,600	489,600
HAWAII	5,300	5,000
NEW MEXICO	8,500	8,300
WASHINGTON	36,600	17,700
COMPANY TOTAL	543,000	520,600

(rounded to the nearest hundred) 2019 2018
LOS ANGELES AREA
East Los Angeles 26,800
26,800
Hermosa Redondo (serving Hermosa Beach, Redondo Beach and a portion of Torrance) 27,100
27,000
Dominguez (Carson and portions of Compton, Harbor City, Long Beach, Los Angeles and Torrance) 34,200
34,200
Los Angeles County Region (including Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills Estates, Rolling Hills, Fremont Valley, Lake Hughes, Lancaster and Leona Valley) 25,700
25,600
Westlake (a portion of Thousand Oaks) 7,100
7,100
Hawthorne and Commerce (leased municipal systems) 7,600
7,600
128,500
128,300
CALIFORNIA TOTAL 489,600
486,900
HAWAII 5,000
4,800
NEW MEXICO 8,300
8,200
WASHINGTON 17,700
17,600
COMPANY TOTAL 520,600
517,500

Rates and Regulation

The Commissions have plenary powers setting both rates and operating standards. As such, the Commissions' decisions significantly impact the Company's revenues, earnings, and cash flows. The amounts discussed herein are generally annual amounts, unless otherwise 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. Certain filings, such as General Rate Case (GRC) filings, escalation rate increase filings, and offset filings, may result in rate changes that generally remain in place until the next GRC. As explained below, surcharges and surcredits to recover balancing and memorandum accounts as well as GRC interim rate relief are temporary rate changes which have specific time frames for recovery.

The CPUC follows a rate case plan which requires Cal Water to file a GRC for each of its 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. The CPUC is generally required to issue its GRC decision prior to the first day of the test year or authorize interim rates. In accordance with the rate case plan, Cal Water ~~filed~~will file its ~~most recent~~next GRC application in July of 2018 requesting rate changes effective January 1, 2020. As discussed in greater detail below, Cal Water's 2018 GRC decision has been delayed and Cal Water has been granted interim rate relief beginning January 1, 2020.2021.

Between GRC filings, Cal Water may file escalation rate increases, which allow Cal Water to recover cost increases, primarily from inflation and incremental investments, during the second and third years of the rate case cycle. However, escalation rate increases are district specific and subject to an earnings test. The CPUC may reduce a district’s escalation rate increase if, in the most recent 13-month period, the earnings test reflects earnings in excess of what was authorized for that district.

In addition, California water utilities are entitled to make offset requests via advice letter. Offsets may be requested to adjust revenues for construction projects authorized in GRCs when those capital projects go into service (these filings are referred to as "rate base offsets"), or for rate changes charged to Cal Water for purchased water, purchased power, and pump taxes (which are referred to as "expense offsets"). Rate changes approved in offset requests remain in effect until the next GRC is approved.

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In pursuit of the State of California's water conservation goals, the CPUC decoupled Cal Water's revenue requirement from customer consumption levels in 2008 by authorizing a Water Revenue Adjustment Mechanism (WRAM) and Modified Cost Balancing Account (MCBA) for each district. The WRAM and MCBA ensure that Cal Water recovers revenues authorized by the CPUC regardless of customer consumption. This has removed the historical disincentive against promoting lower water usage among customers. Through an annual advice letter filing, Cal Water recovers any under-collected metered revenue amounts authorized, or refunds over-collected quantity revenues, via surcharges and surcredits. The advice letters are filed between February and April of each year and address the net WRAM and MCBA balances recorded for the previous calendar year. The majority of WRAM and MCBA balances are collected or refunded through surcharges/surcredits over 12 and 18 months. The WRAM and MCBA amounts are cumulative, so if they are not amortized in a given calendar year, the balance is

carried forward and included with the following year balance. Cal Water has ~~had~~ a Sales Reconciliation Mechanism (SRM) in place for ~~2018~~2021 and ~~2019~~2022 (the second and third years of its ~~2015~~2018 GRC), that ~~had allowed~~allows the company to adjust its adopted sales forecast if actual sales vary from adopted sales by more than 5.0% in the prior year. The SRM moderates the growth of the net WRAM and MCBA balances until the next GRC.

Regulatory Activity - California

~~2015 GRC Filing~~

On December 15, 2016, the CPUC voted to approve Cal Water's 2015 GRC settlement agreement. The approved decision, which was proposed by the presiding Administrative Law Judge in November of 2016, authorized Cal Water to increase gross revenue by approximately $45.0 million starting on January 1, 2017, up to $17.2 million in 2018, up to $16.3 million in 2019, and up to $30.0 million upon completion and approval of the Company’s advice letter projects. The 2018 and 2019 revenue increases were subject to the CPUC’s earning test protocol.

The CPUC’s decision also authorized Cal Water to invest $658.8 million in water system improvements throughout California over the three-year period of 2016-2018 in order to continue to provide safe and reliable water to its customers. This figure included $197.3 million of water system infrastructure improvements that was subject to the CPUC’s advice letter procedure.

2018 GRC Filing

On July 2, 2018, Cal Water filed a GRC requesting new water infrastructure investments of $828.5 million in accordance with the rate case plan for all of its regulated operating districts for the years 2019, 2020, and 2021. The CPUC ~~will evaluate~~evaluated the new water infrastructure improvement investments along with operating budgets to establish water rates that reflect the actual cost of service. The required filing began an approximately 18-month review process, with any changes in customer rates scheduled to become effective on January 1, 2020.

On October 8, 2019, Cal Water jointly filed a formal settlement agreement for its 2018 GRC with the Public Advocates Office of the CPUC covering the majority of open matters in the case. The following issues are being litigated and were not included in the settlement: continuation of the WRAM and SRM, balancing accounts for pension and health care expenses, depreciation rates, working capital, allowance for funds used during construction (AFUDC), and capital projects related to advanced metering. We can give no assurance that these litigated issues will be decided in our favor. The largest component of the GRC is Cal Water’s Infrastructure Improvement Plan for 2019-2021. The settlement details investment plans that Cal Water and the Public Advocates Office agree should be made to Cal Water’s water infrastructure to continue providing safe, reliable water service to Cal Water customers and communities. The CPUC will consider, but is not required to adopt, the settlement agreement. If the CPUC approves the settlement agreement, Cal Water would be authorized to include in rates $609.0 million to $628.0 million of new projects throughout the state in 2019 to 2021, along with approximately $200.0 million for completion of additional projects begun in 2018 and prior periods. Included in these figures are $148.0 million of advice letter authorizations, which would not be included in rates until related projects are completed. Cal Water anticipates that if the settlement were adopted, it would plan to make capital investments of approximately $809.0 million to $828.0 million in the 2019-2021 period. The settlement proposes, in part, an average water main replacement rate of 0.76% annually company-wide by 2021, with higher replacement rates in some areas. A final decision on the case had been expected in late 2019, with new rates going into effect on January 1, 2020. IfOn December 19, 2019, the ~~settlement is not approved or is approved on terms less favorable~~CPUC extended its statutory deadline to ~~us, or~~complete the litigated issues described above are not decided in our favor, this could have a material adverse impact on our revenue, operating results and earnings per share. Even if the settlement is approved on its terms, but the case is materially delayed, it could have a material adverse impact on our revenue, operating results, and earnings per share on an interim basis but would be reversed at the time of a final decision through recognition of interim rate recovery.

proceeding by six months, to July 1, 2020. The assigned Administrative Law Judge granted Cal Water’s request that final approved rates be treated as effective on January 1, 2020 in the event a delay in the final decision were to preclude implementation of new rates on January 1, 2020.

On ~~December 19, 2019,~~October 14, 2020, an ALJ with the CPUC ~~extended~~issued a proposed decision for Cal Water's 2018 GRC filing, which was approved by the CPUC on December 4, 2020. The CPUC decision approved the settlement reached in October of 2019 by Cal Water and the CPUC’s Public Advocates Office, allowed Cal Water to continue its ~~statutory deadline~~decoupling balancing accounts through 2022, and allowed Cal Water to ~~complete~~retain its Pension Cost Balancing Account (PCBA) and Health Cost Balancing Account (HCBA). Cal Water is authorized to invest $828 million in its districts through 2021 in order to continue providing safe, reliable water service to its customers throughout California. This includes $148 million of water system infrastructure upgrades that would be recovered via the ~~proceeding~~CPUC’s advice letter procedure after those projects are completed. The decision also authorized total revenue of up to $696.5 million for 2020. The new rates were implemented on February 1, 2021.

Low-Income Water Affordability Proceeding

On August 27, 2020, by ~~six months,~~a 4-1 vote, the CPUC approved a decision which applies to ~~July 1, 2020. On December 31, 2019,~~Cal Water, and other Class A water companies (Joint Parties). The decision precludes the Joint Parties from proposing full decoupling Water Revenue Adjustment Mechanisms in their next GRC filing. Cal Water expects it will be required to comply with the order in its 2021 GRC filing, with rates effective in 2023. Beginning in 2023, Cal Water expects it will experience more revenue volatility and that necessary changes to rate design to mitigate this volatility may dampen conservation price signals, potentially reducing customers’ incentives to pursue water efficiency measures. Cal Water will pursue legal and procedural appeal options to overturn this decision, which Cal Water believes will damage the state’s policy goals for water use efficiency based on an incomplete and insufficient analysis.

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Interim Rates Memorandum Account (IRMA)

As a result of the delay in the approval of the 2018 GRC, Cal Water requested ~~a memorandum account~~an IRMA that was approved by the CPUC on November 7, 2019 to record the difference between ~~the current~~ rates that ~~would continue to be~~were billed starting January 1, 2020 (considered to be interim rates), and the rates ~~that will eventually be~~ approved in the ~~case~~GRC (final rates). ~~After a~~The 2018 GRC ~~decision is adopted~~was approved in December of 2020 and final rates ~~are~~for the 2018 GRC were not implemented ~~the balance~~ in ~~the memorandum account will be reviewed,~~2020; as a result, Cal Water calculated and ~~customer bills will be adjusted~~recorded a regulatory asset of $53.2 million and a corresponding increase to ~~account~~revenue for the difference between final rates and interim rates and final rates back to January 1, 2020. If the litigated issues described above are not resolved during the first quarter of 2020, then the delay in the resolution could significantly impact operating results for ~~the first quarter~~all of 2020.

~~City of Hawthorne GRC filing~~

Cal Water ~~operates the City~~also recorded a regulatory liability of ~~Hawthorne’s water system under~~$1.6 million and a ~~lease agreement~~corresponding decrease to regulatory assets for Low-Income Rate Assistance (LIRA) and Rate Support Fund (RSF) program credits that ~~was originally entered into on August 9, 2011. As part of the agreement, Cal Water can request rate increases but requires city council approval for any rate request~~would have been given to take effect. Cal Water has not increased rates since 2017 and Cal Water has seen significant increases in costs since then. Cal Water requested rate increases of 11.7% in 2020, 11.6% in 2021, and 11.6% in 2022. On August 27, 2019,customers had the rate ~~increases were~~case been approved ~~via resolution 8123. The first rate increase became effective~~ on ~~January 1, 2020.~~

~~2017 Cost of Capital Application~~

In April of 2017, Cal Water, along with three other water utilities, filed an application to adopt a new cost of capital and capital structure for 2018. On March 22, 2018, the CPUC adopted a revised decision in the cost of capital proceeding for Cal Water and three other water utilities for the years 2018, 2019, and 2020, establishing for Cal Water a 9.20% return on equity and a 5.51% cost of debt, with a capital structure of 46.60% long-term debt and 53.40% common equity, and an authorized return on rate base of 7.48%, compared with Cal Water’s prior return on equity of 9.43%, cost of debt of 6.24%, and authorized return on rate base of 7.94%. The adopted capital structure did not change. The adopted returns on debt and equity reduced Cal Water’s 2018 adopted revenue by approximately $6.9 million. The CPUC also authorized continuation of the water cost of capital adjustment mechanism, which provides for an adjustment in the return on equity if the cost of long-term debt as defined by an index of utility debt rates varies from the most recent index by 100 basis points or more in 2019 and 2020.

On March 30, 2018, Cal Water submitted an advice letter that established the Cost of Capital Memorandum Account (CoC MA) to track the difference between current rates and rates based upon the new cost of capital adopted by the CPUC as if the new cost of capital had been in effect beginning January 1, 2018.

In May of 2018, Cal Water submitted an advice letter to adopt the new cost of capital and capital structure for 2018 in customer rates. The annual adopted gross revenue reduction associated with the May 2018 filing was $6.9 million. The new rates became effective on July 1, 2018.

In 2018, Cal Water recorded a $3.0 million regulatory liability due to the CoC MA. The regulatory liability was for the revenue reduction that Cal Water recorded for the first six months of 2018 during which the new cost of capital and capital structure were yet to be adopted in customer rates. In April of 2019, Cal Water submitted an advice letter to refund the full balance of the cost of capital memorandum account of $3.0 million. The new rates became effective April 15, 2019.time.

2020 Cost of Capital Application

By order of the CPUC in its rate case plan for water utilities, Cal Water and three other large water companies ~~are~~were required to request a review of their cost of capital for 2021 through 2023 by May 1, 2020. On January 22, 2020, Cal Water and the three other scheduled companies requested that the CPUC allow a one-year extension to file their Cost of Capital applications by May 1, 2021, rather than May 1, 2020. As part of the request, the companies proposed that there be no changes to their respective costs of capital during the one-year extension. This condition ~~mirrors~~mirrored the condition included in the CPUC’s previous approvals of the water companies’ requests for cost of capital extensions. The companies indicated that postponing the filing one year will alleviate administrative processing costs and provide relief for both CPUC and company resources already strained by numerous CPUC proceedings. ~~As of February 27,~~On March 11, 2020, ~~there has been no response or order from~~ the CPUC ~~in response~~granted Cal Water and three other large water companies an extension to May 1, 2021 to file their cost of capital application. Cal Water plans to file the ~~request.~~cost of capital application by May 1, 2021.

2018 Tax Accounting Memorandum Account (TAMA)

On December 22, 2017, the CPUC sent a letter to All Class A and B Water and Sewer Utilities on the subject of “Changes in Federal Tax Rates for 2018.” The CPUC required Cal Water to establish a memorandum account to track the impact of the TCJA on Cal Water. The TAMA will track the revenue requirement impact of the TCJA not otherwise reflected in rates from January 1, 2018 until current rates are modified to reflect all impacts of the TCJA. The Hawaii Water, Washington Water, and New Mexico Water Commissions have similar requirements to track the impact of the changes to the federal tax law. In 2018, the Company recorded a $5.4 million regulatory liability due to the changes required by the TCJA. The regulatory liability was for the revenue reduction that the Company recorded for the first six months of 2018 during which the new federal corporate income tax rate was yet to be adopted in customer rates.

In May of 2018, Cal Water submitted an advice letter to adopt the new federal corporate income tax rate in customer rates. The annual adopted gross revenue reduction associated with the May 2018 filing was $11.1 million. The new rates became effective on July 1, 2018.

In April of 2019, Cal Water submitted an advice letter to refund $5.0 million of the tax accounting memorandum account's balance associated with the decrease in the federal corporate income tax rate for Cal Water for the first six months of 2018. The

new rates became effective April 15, 2019. ~~The memorandum account remains open~~

In December of 2020, Cal Water submitted an advice letter to ~~allow~~refund net credits of $15.4 million that resulted from the ~~Commissions to review other~~re-measurement of deferred income taxes (both plant and non-plant components) as mandated by the TCJA. They represent revenue changes totracked in the TAMA for January 1, 2018 through December 31, 2019, after which Cal Water’s ~~revenue requirements such as property taxes and excess deferred income taxes.~~new base rates reflect the changes from TCJA. In the advice letter, Cal Water requested the 12 month refund to become effective on April 15, 2021.

Escalation Increase Requests

As a part of the decision on the ~~2015~~2018 GRC, Cal Water was authorized to request annual escalation rate increases for ~~2018 and 2019~~2021 for those districts that passed the earnings test. In ~~November~~December of ~~2018,~~2020, Cal Water requested escalation rate increases for ~~2019~~2021 in ~~all~~13 of its regulated districts. The annual adopted gross revenue associated with the ~~November 2018~~December 2020 filing was ~~$16.2~~$8.2 million. The new rates ~~became effective~~were implemented on ~~January~~February 1, ~~2019.~~2021.

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Expense Offset Requests

Expense offsets are dollar-for-dollar increases in revenue to match increased expenses, and therefore do not affect net operating income. In November of 2018, Cal Water submitted advice letters to request offsets for increases in purchased water costs in five of its regulated districts totaling $2.0 million. The new rates became effective on January 1, 2019.

In June and July of 2019, Cal Water submitted advice letters to request offsets for increases in purchased water costs and pump taxes in five of its regulated districts totaling $3.9 million. The new rates became effective on July 15, 2019.

In December of 2019, Cal Water submitted advice letters to request offsets for increases in purchased water costs in six of its regulated districts totaling $2.5 million. The new rates became effective on February 1, 2020.

In December of 2020, Cal Water submitted an advice letter to request offsets for increases in purchased water costs and pump taxes in seven of its regulated districts totaling $5.5 million. The new rates became effective on February 1, 2021.

Rate Base Offset Requests

For construction projects authorized in GRCs as advice letter projects, Cal Water is allowed to request rate base offsets to increase revenues after the project goes into service. In November of 2018, Cal Water submitted advice letters to recover $0.2 million of annual revenue increases for rate base offsets in four of its regulated districts. The new rates became effective on April 15, 2019.

In August of 2019, Cal Water submitted an advice letter to recover $0.4 million of annual revenue increase for a rate base offset in one of its regulated districts. The new rates became effective on November 1, 2019.

In the fourth quarter of 2019, Cal Water submitted advice letters to recover $2.5 million of annual revenue increases for rate base offsets in all of its regulated districts. The new rates became effective on February 1, 2020.

~~WRAM/MCBA Filings~~

In ~~April~~July of ~~2019,~~2020, Cal Water submitted an advice letter to recover $9.0 million of annual revenue increase for a rate base offset in one of its regulated districts. The new rates were implemented on February 1, 2021.

WRAM/MCBA Filings

In March and April of 2020, Cal Water submitted advice letters to true up the revenue under-collections for the ~~2018~~2019 annual WRAMs/MCBAs of its regulated districts. A net under-collection of ~~$29.2~~$27.1 million is being recovered from customers in the form of 12 and 18 ~~and greater-than-18-month surcharges and 12~~ month ~~surcredits.~~surcharges. Due to the COVID 19 pandemic, Cal Water elected to adjust the 2019 WRAM filing so that the new rates would only be implemented in districts where overall customer bills would not be increased. As a result, approximately $18.8 million of the $45.9 million of net WRAM/MCBA additions from 2019 were deferred to 2021. The new rates incorporate net WRAM/MCBA balances that were previously approved for recovery, and became effective onin April ~~15, 2019. These surcharges/surcredits are in addition to surcharges/surcredits authorized in prior years which have not yet expired.~~of 2020.

Polyfluoroalkyl Substances Memorandum Account (PFAS MA)

Public ~~Safety Power Shut-off Memorandum Account (PSPS MA)~~

~~The recent wildfires~~water systems have been ordered by the State Water Resources Control Board to detect, monitor, and report perfluorooctanoic and perfluorooctanesulfonic acid in ~~California have focused regulatory efforts to reduce the incidence~~drinking water. Cal Water has begun sampling its wells for these contaminants, and severity of these types of devastating events. The increased number of wildfire events are due to a number of factors such as extended drought, climate changes including warmer summer temperatures, increased fuel for fires, and other extreme weather events. In addition, energized power lines can exacerbate wildfire conditions. These lines carry the potential to start or worsen an existing wildfire. Given this, the CPUC has been examining issues related to wildfires and other emergencies in several proceedings. One of the proceedings, Rulemaking 18-12-005, is focused on proactively shutting off electric poweranticipates incurring substantial costs in order to ~~protect public safety through~~comply. In the PSPS program, or de-energization. During a PSPS event, power will be cut off to electric lines that may fail in certain weather conditions in order to reduce the likelihood that electric utility infrastructure could cause or contribute to a wildfire.

The CPUC’s rulemaking is divided into two phases. In Phase 1, the CPUC examined and adopted PSPS guidelines, focusing primarily on notification, communication and outreach. In Phase 2, the CPUC will address issues that were outsidefirst quarter of the scope of Phase 1 and will revisit some Phase 1 issues for further refinement. In Phase 2, which has been divided into two tracks, the CPUC will take a more comprehensive look at de-energization practices, including mitigation, additional coordination across agencies, further refinements to findings in Phase 1, re-energization practices, and other matters. The first track will cover issues that may need to be addressed to inform PSPS events as soon as possible. The second track will cover issues that require an in depth analysis.

Electric utilities are expected to declare PSPS events during periods of high fire danger and where there is specific risk of electrical facilities causing a fire. As a public safety partner, Cal Water receives priority notification of such events. According to communications with Cal Water’s main electric providers, Southern California Edison and Pacific Gas and Electric, PSPS events may last up to 5 days which could significantly impact facilities within Cal Water's water systems. Additionally, power loss events can occur in major earthquakes, non-electric utility caused wildfires, tsunami, or other natural and man-made disasters. Cal Water must be ready and equipped to maintain water service to the extent possible during these events. In response, Cal Water has performed a draft risk assessment which outlines recommended improvements necessary to prepare its water systems for power loss events. The PSPS program requires either an increase in backup power generation or the development of an alternate means of providing reliable supply within Cal Water’s water distribution systems. Depending upon the course of action, this can increase the need for generator fuel commensurate with the expected duration of power shutoffs. In most cases where a generator was not already installed, Cal Water leased generators for the most critical facilities to prepare for the 2019 wildfire season, in anticipation of installing more permanent facilities in the long term. There was also a necessary increase in generator and electrical equipment maintenance activities to improve reliability of the auxiliary power sources for a power loss event. To this end, Cal Water requested a memorandum account from the CPUC to track the incremental costs associated with the preparation and installation of facilities to address public safety needs in the event of power losses. For 2019, the PSPS MA incremental costs were $1.6 million of which $0.1 million was spent on capital.

~~Drought Memorandum Account~~

~~In March of 2018,~~2020, Cal Water submitted an advice letter to request recovery of 2016 and 2017 incremental drought expenses of $3.3 million. On January 10, 2019, the CPUC approved Cal Water's request for recovery of the $3.3 million of incremental expenses; subsequently, Cal Water submitted an advice letter on January 15, 2019 to implementestablish a ~~surcharge to recover the incremental expenses from customers. The new rates became effective on April 15, 2019.~~

~~Travis Air Force Base (TAFB)~~

On September 29, 2016, Cal Water entered into a 50-year agreement with the U.S. Department of Defense to acquire the water distribution assets of and distribute water to most of TAFB beginning in 2018. On May 31, 2017, Cal Water submitted an application to the CPUC seeking approval to distribute water service to most of the base and to establish rates for its service. On December 13, 2018, the CPUC conditionally approved Cal Water’s request to own and operate the TAFB water system as a regulated water utility district. The decision enables Cal Water to acquire the water distribution assets of TAFB from the U.S. Department of Defense and provide water utility service to the base for a term of 50 years. Approval was conditioned upon modifying the contract between Cal Water and the Department of Defense to more clearly assert the CPUC’s jurisdiction over a new Travis District. On January 17, 2019, Cal Water fulfilled the condition with the submission of a contract amendmentPFAS MA that ~~was approved by the CPUC.~~

On January 18, 2019, the Public Advocates Office filed an application for rehearing of the decision approving Cal Water’s application, and a motion to stay the decision pending resolution of the rehearing application. Cal Water submitted responses opposing both filings. The CPUC has not ruled on either the application for rehearing or the motion to stay the decision.

In the meantime, subject to the terms of the contract with the Department of Defense and the CPUC decision, Cal Water began serving TAFB’s more than 15,000 active and reserve personnel and civilians on July 1, 2019. The rates for TAFB are scheduled to be updated in 2020 with the CPUC's resolution of the 2018 GRC.

~~1,2,3 Trichloropropane (TCP) Memorandum Account~~

Established in December 2009, the TCP memorandum account tracks the costs incurred and proceeds received and applied with respect to litigation against manufacturers and distributors referred to as potentially responsible parties (PRPs) that manufactured and distributed products that contained TCP in California. Cal Water incurred incremental internal and external costs to support its litigation effort. The TCP memorandum account also tracks litigation awards and settlement proceeds. Finally, the TCP memorandum account will track the application of funds received towards remediation costs, including TCP water treatment expenses and the costs of investments in replacement and treatment property.

~~On December 20, 2017, Cal Water entered into an $85.0 million settlement agreement and release of claims with the PRPs, in~~ ~~California Water Service Company and City of Bakersfield v. The Dow Chemical Company, et al., Civil Case No. CIV-470999~~ ~~(TCP Action). The TCP Action seeks damages and other relief related to the PRPs’ alleged contamination of drinking water supply and water wells with the chemical TCP.~~

The proceeds from the settlement, after payment of the legal fees, was $56.0 million and will be used to reimburse a portion of the capital costs associated with Cal Water’s remediation efforts related to such alleged TCP contamination. As of December 31, 2019, Cal Water has used $47.6 million of the proceeds on remediation efforts related to the alleged TCP contamination. Under the terms of the Agreement, the PRPs are released from all claims regarding 47 of the 57 total claimed

wells, and Cal Water agrees to file a dismissal with prejudice of the TCP Action. The PRPs are also released from future claims regarding TCP contamination of any other wells, unless and until Cal Water has installed granular activated carbon filtration systems or other then-approved State treatment technology for TCP on, or replaced, 36 wells due to TCP contamination.

~~Lead Service Line Memorandum Account (LSL MA)~~

On September 27, 2016, the Governor signed Senate Bill No. 1398 (SB 1398) which added Section 116885 to the Health and Safety Code. The new section stipulates that water systems compile an inventory of known lead service lines used in their distribution systems and identify areas that may have lead service lines used in its distribution system by July 1, 2018. After completing the inventory, the bill also requires water systems provide a timeline for replacement of those known lead service lines to the State Water Resources Control Board (SWRCB). For those that may have lead service lines, the bill requires water systems to either determine the existence or absence thereof by July 1, 2020, and provide that information to the SWRCB or provide a replacement timeline for those service lines whose lead content cannot be determined. Approval of the timeline rests with the SWRCB. Cal Water met the July 1, 2018 reporting deadline where it described 52% of its service lines were identified as not containing lead and the remaining 48% unknown. In order to meet the July 1, 2020 deadline, Cal Water needs to determine if the remaining 48% of service lines contain lead. If the absence of lead cannot be determined, plans must be made to replace the line pursuant to the requirements in SB 1398. A significant amount of field research is needed to meet the 2020 reporting deadline. To that end, in December of 2018, Cal Water submitted an advice letter that established the LSL MA, which giveswould give Cal Water the opportunity to track and recover incremental costs related to compliance with the order. In the third quarter of 2020, the CPUC approved by resolution a modified PFAS MA effective March 4, 2020. The approved PFAS MA allows for cost recovery of certain incremental PFAS-related expense, but not capital costs, due to the current lack of a maximum contaminant level.

2019 California Financing Authorization

On November 5, 2020, the CPUC approved Cal Water’s request for an additional $700 million of authorization for debt and equity financing to fund its capital improvement program. The authorization is expected to allow enough financing to fund these improvements through 2025.

Palos Verdes Peninsula Water Reliability Project (Project)

In 2002, Cal Water commissioned a Water System Master Plan (Master Plan) for the Palos Verdes water system. The Master Plan identified the high-priority need to augment the existing potable water system with new transmission mains and a new pump station to improve the capacity and reliability of the water system. This resulted in the development of a capital project known as the Project. Before the Project, a single pipeline that is over 60 years old delivered potable water to approximately 90 percent of the Peninsula, and a second pipeline of the same age delivered water to the remaining 10 percent. Both of these pipelines were approaching the end of their useful lives.

The CPUC authorized Cal Water to recover revenue associated with ~~this effort. Granted by~~costs up to a cap of $96.1 million after the ~~CPUC~~Project is in service, subject to the CPUC’s reasonableness review. In 2020, the Project was completed and an Advice Letter 2387 asking for authority to increase rates reflecting the Project costs up to the cap, with an effective date of August 27, 2020 was filed. The advice letter was approved on January 29, 2021. New rates were implemented on February 1, 2021, with the revenue requirement being effective as of August 27, 2020.

Due to the complexity of the project, Cal Water estimates total project costs significantly exceeded the advice letter cap of $96.1 million. Cal Water is in the process of reviewing and validating the final project costs. Once final costs are validated, Cal Water is expecting to recover the exceedance in Cal Water's next GRC.

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City of Hawthorne GRC filing

Cal Water operates the City of Hawthorne’s water system under a lease agreement that was originally entered into on August 9, 2011. As part of the agreement, Cal Water can request rate increases but requires city council approval for any rate request to take effect. Cal Water requested rate increases of 11.7% in 2020, 11.6% in 2021, and 11.6% in 2022. On August 27, 2019, the ~~LSL MA will track all incremental expenses associated with studying~~rate increases were approved via resolution 8123. The first rate increase became effective on January 1, 2020 and ~~potentially replacing lead service lines for~~ the ~~benefit of Cal Water’s customers. As of December 31, 2019, Cal Water has tracked $0.5 million of expenses for this memorandum account.~~second rate increase became effective on January 1, 2021.

Regulatory Activity - Other States

~~2019 Kona (Hawaii~~Rainier View Water Company (Washington Water) ~~GRC Filing~~

~~In February~~On March 27, 2020, the Washington Utilities and Transportation Commission (WUTC) approved Washington Water's application for the sale and transfer of ~~2019, Hawaii~~assets of Rainier View Water ~~filed a GRC application requesting an additional $0.6 million in annual revenues for its Kona~~Company. Washington Water ~~and Wastewater systems with~~took control of the ~~Hawaii Public Utilities Commission. The GRC seeks recovery of capital investments in the Kona~~ water ~~and wastewater systems as well as increases in operational expenses since the previous rate case. If approved, the Company anticipates rates would become effective in the first quarter of~~system on June 1, 2020.

~~2017 Waikoloa (Hawaii Water) GRC Filings~~

In December of 2017, Hawaii Water filed GRC applications requesting an additional $3.8 million in annual revenues for its Waikoloa Village and Resort Systems with the Hawaii Public Utilities Commission. The GRCs seek recovery of capital investments in the Waikoloa Village and Waikoloa Resort Systems as well as increases in operating expenses since the previous rate case. On January 1, 2019, the HPUC authorized Waikoloa Village rate increases of $0.8 million for 2019 and $0.1 million for 2020. On January 7, 2019, the HPUC authorized Waikoloa Resort rate increases of $0.8 million for 2019, $0.8 million for 2020, and $0.1 million for 2021.

~~Kalaeloa Water Company (Hawaii Water)~~

In March of 2019, Hawaii Water and Hunt Kalaeloa Water LLC entered into a Membership Interest Purchase Agreement to acquire water and wastewater assets. The Kalaeloa service area is located on the Island of Oahu on the former Barbers Point Naval Air Station. On July 3, 2019, the parties submitted a change of control application to the Hawaii Public Utilities Commission requesting approval for the purchase. If approved, Hawaii Water would be authorized to provide water and wastewater service in the Kalaeloa service area.

~~Kapalua Water Company, LTD and Kapalua Waste Treatment Company, LTD.~~Keauhou Community Services, Inc (Hawaii Water)

In December of ~~2019,~~2020, Hawaii Water ~~and Maui Land and Pineapple Company, Inc.~~ entered into an ~~asset purchase~~ agreement with Keauhou Community Services, Inc (KCSI) to acquire ~~water~~its wastewater system assets and provide wastewater ~~assets. The Kapalua~~utility service ~~area is~~to its customers in Keauhou on the ~~Island~~island of ~~Maui.~~Hawaii. The ~~transaction~~purchase is subject to ~~certain conditions including~~ due diligence and approval by the Hawaii Public Utilities ~~Commission.~~Commission (HPUC).

~~Rainier View~~KCSI serves more than 1,500 residential, hotel, and commercial customers, along with the Keauhou Bay Facility and Kahaluu Beach Park, and provides effluent to Kona Country Club, Inc. for golf course irrigation. Hawaii Water has already been operating the Keauhou system since 2018 through an operation and maintenance contract.

Kalaeloa Water Company ~~(Washington~~(Hawaii Water)

On September 25, 2020, the HPUC approved Hawaii Water's application for the purchase of the Membership Interests of Kalaeloa Water Company, LLC. Hawaii Water took control of the water system on November 6,2, 2020.

Kapalua Water Company and Kapalua Waste Treatment (Hawaii Water)

On June 4, 2020, Hawaii Water filed an application with the HPUC for approval to acquire the assets of Kapalua Water Company, LTD. and Kapalua Waste Treatment Company, LTD in connection with the December 2019 ~~Washington Water entered into an~~asset purchase agreement with ~~Rainier View~~Maui Land and Pineapple Company. The application is pending a final decision by the HPUC.

COVID-19 Deferred Accounting Treatment of COVID-related costs (Hawaii Water)

Decision and Order No. 37291, issued on August 31, 2020 in Docket No. 2020-0091, authorized the Hawaii Water ~~Company~~Companies’ request to utilize deferred accounting treatment to accrue and record expenses associated with the COVID-19 Pandemic, incurred from March 4, 2020, through December 31, 2020, subject to certain conditions. Decision and Order No. 37510, issued on December 24, 2020 in Docket No. 2020-0091, authorized Hawaii Water Companies' request to utilize deferred accounting treatment to accrue and record lost gross margins associated with the COVID-19 Pandemic, incurred from March 4, 2020, though December 31, 2020 for their Ka'anapali Division, subject to certain conditions.

Animas Valley Land and Water Co., LLC (New Mexico Water)

In October of 2020, New Mexico Water signed a purchase agreement with Animas Valley Land and Water Co., LLC (AV Water) and court-appointed receiver C. Randel Lewis to acquire ~~its water system~~the Morning Star Water System assets of AV Water and to provide regulated water utility service to its ~~18,000 service~~approximately 2,000 customer connections in northwest New Mexico. The purchase is subject to ~~certain~~customary closing conditions, including approvals of the San Juan County Court and the New Mexico Public Regulation Commission, as well as successful completion of ~~diligence and Washington Utilities and Transportation Commission (WUTC) approval. On February 6, 2020,~~AV Water’s pending rate case. If approved, the ~~companies jointly filed a change~~transaction is expected to close in early 2021.

Table of ~~control application with the WUTC.~~Contents

Rainier View Water Company owns and operates 27 water systems that serve about 35,000 people in parts of Graham, Spanaway, Puyallup, Gig Harbor, and other nearby areas. Washington Water plans to retain Rainier View Water Company’s current employees and continue to provide its customers with a reliable supply of safe, high-quality water.

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.

Historically, approximately half of our annual water supply is pumped from wells. State groundwater management agencies operate differently in each state. Some of our wells extract ground water from water basins under state ordinances. These are adjudicated groundwater basins, in which a court has settled the dispute between landowners or other parties over how much annual groundwater can be extracted by each party. All of our adjudicated groundwater basins are located in the State of California. Our annual groundwater extraction from adjudicated groundwater basins approximates ~~6.4~~5.8 billion gallons or ~~13.5%~~12.3% of our total annual water supply pumped from wells. Historically, we have extracted less than 100% of our annual adjudicated groundwater rights and have the right to carry forward up to 20% of the unused amount to the next annual period. All of our remaining wells extract ground water from managed or unmanaged water basins. There are no set limits for the ground water extracted from these water basins. Our annual groundwater extraction from managed groundwater basins approximates ~~28.1~~27.5 billion gallons or ~~59.2%~~58.0% of our total annual water supply pumped from wells. Our annual groundwater extraction from unmanaged groundwater basins approximates ~~12.9~~14.1 billion gallons or ~~27.3%~~29.7% of our total annual water supply pumped from wells. Most of the managed groundwater basins we extract water from have groundwater recharge facilities. We are required to pay well pump taxes to financially support these groundwater recharge facilities. Our well pump taxes for 2020, 2019, and 2018 ~~and 2017~~ were $12.6 million, $11.5 million, ~~$14.7 million,~~ and ~~$13.9~~$14.7 million, respectively. In 2014, the State of California enacted the Sustainable Groundwater Management Act of 2014. The law and its implementing regulations require most basins to select a sustainability agency by 2017, develop a sustainability plan by 2022, and show progress toward sustainability by 2027. We expect that after the act's provisions are fully implemented, substantially all the Company's California groundwater will be produced from sustainably managed and adjudicated basins.

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 in California replenish underground water aquifers and fill reservoirs, providing the water supply for subsequent delivery to customers. As of December ~~31, 2019,~~30, 2020, the State of California snowpack water content during the ~~2019-2020~~2020-2021 water year is ~~81%~~54% of long-term averages (per the California Department of Water Resources, Northern Sierra Precipitation Accumulation report). The northern Sierra region is the most important for the state’s urban water supplies. The central and southern portions of the Sierras have recorded ~~94%~~59% and ~~109%~~35%, respectively, of long-term averages. Management believes that, notwithstanding lower-than-average snowpack water content, supply pumped from underground aquifers and purchased from wholesale suppliers will be adequate to meet customer demand during ~~2020~~2021 and beyond. 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~~currently available treatment processes.

On May 31, 2018, California's Governor ~~Brown~~ signed two bills (Assembly Bill 1668 and Senate Bill 606) into law that will establish long-term standards for water use efficiency. The bills revise and expand the existing urban water management plan requirements to include five year drought risk assessments, water shortage contingency plans, and annual water supply/demand assessments. By June 30, 2022, the California State Water Resources Control Board, in conjunction with the California Department of Water Resources, ~~will~~is expected to establish long-term water use standards for indoor residential use, outdoor residential use, water losses and other uses. Cal Water will also be required to calculate and report on urban water use target by November 1, 2023 and each November 1 thereafter that compares actual urban water use to the target. Management believes that Cal Water is well-positioned to comply with all regulations required of utilities.

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The following table shows the estimated quantity of water purchased and the percentage of purchased water to total water production in each California operating district that purchased water in ~~2019.~~2020. Other than noted below, all other districts receive 100% of their water supply from wells.


District	Water Purchased (MG)	Percentage of Total Water Production		Source of Purchased Supply	District	Water Purchased (MG)	Percentage of Total Water Production		Source of Purchased Supply
SAN FRANCISCO BAY AREA/NORTH COAST					SAN FRANCISCO BAY AREA/NORTH COAST
Bay Area Region*	6,896	99	%	San Francisco Public Utilities Commission and Yolo County Flood Control & Water Conservation District	Bay Area Region*	7,012	100	%	San Francisco Public Utilities Commission and Yolo County Flood Control & Water Conservation District
Bear Gulch	3,562	93	%	San Francisco Public Utilities Commission	Bear Gulch	4,270	100	%	San Francisco Public Utilities Commission
Los Altos	3,135	80	%	Santa Clara Valley Water District	Los Altos	3,443	79	%	Santa Clara Valley Water District
Livermore	2,689	89	%	Alameda County Flood Control and Water Conservation District, Zone 7	Livermore	2,721	87	%	Alameda County Flood Control and Water Conservation District, Zone 7
SACRAMENTO VALLEY					SACRAMENTO VALLEY
Oroville	710	94	%	Pacific Gas and Electric Co. and County of Butte	Oroville	895	100	%	Pacific Gas and Electric Co. and County of Butte
SAN JOAQUIN VALLEY					SAN JOAQUIN VALLEY
Bakersfield	10,539	54	%	Kern County Water Agency and City of Bakersfield	Bakersfield	11,056	54	%	Kern County Water Agency and City of Bakersfield
Stockton	7,321	96	%	Stockton East Water District	Stockton	7,402	94	%	Stockton East Water District
LOS ANGELES AREA					LOS ANGELES AREA
East Los Angeles	1,495	33	%	Central Basin Municipal Water District	East Los Angeles	1,291	28	%	Central Basin Municipal Water District
Dominguez	9,411	84	%	West Basin Municipal Water District and City of Torrance	Dominguez	9,184	87	%	West Basin Municipal Water District and City of Torrance
City of Commerce	103	16	%	Central Basin Municipal Water District	City of Commerce	443	66	%	Central Basin Municipal Water District
City of Hawthorne	1,031	80	%	West Basin Municipal Water District	City of Hawthorne	1,125	88	%	West Basin Municipal Water District
Hermosa Redondo	3,477	100	%	West Basin Municipal Water District	Hermosa Redondo	3,469	96	%	West Basin Municipal Water District
Los Angeles County Region**	5,493	97	%	West Basin Municipal Water District and Antelope Valley-East Kern Water Agency	Los Angeles County Region**	5,942	97	%	West Basin Municipal Water District and Antelope Valley-East Kern Water Agency
Westlake	2,243	100	%	Calleguas Municipal Water District and Triunfo Water and Sanitation District	Westlake	2,449	100	%	Calleguas Municipal Water District and Triunfo Water and Sanitation District
Kern River Valley	50	21	%	City of Bakersfield	Kern River Valley	59	23	%	City of Bakersfield

MG = million gallons

* Bay Area Region includes Bayshore and Redwood Valley

** Los Angeles County Region includes Palos Verdes and Antelope Valley

The Bear Gulch district obtains a portion of its water supply from surface runoff from the local watershed. The Oroville district in the Sacramento Valley, the Bakersfield district in the San Joaquin Valley, and the Kern River Valley district in the Los Angeles Area purchase water from a surface supply. Surface sources are processed through our water treatment plants before being delivered to the distribution system. The Bakersfield district also purchases treated water as a component of its water supply.

The Chico, Marysville, Dixon, and Willows districts in the Sacramento Valley, the ~~Monterey~~Salinas Valley Region district in the Salinas Valley, the Selma and Visalia districts in the San Joaquin Valley, and the TAFB in Solano County obtain their entire supply from wells.

Purchases for the Los Altos, Livermore, Oroville, Redwood Valley, Stockton, and Bakersfield districts are pursuant to long-term contracts expiring on various dates after ~~2019.~~2020. The water supplies purchased for the Dominguez, East Los Angeles, Hermosa Redondo, Palos Verdes, and Westlake districts as well as the Hawthorne and Commerce systems are provided by public agencies pursuant to a statutory obligation of continued non-preferential service to purveyors within the agencies' boundaries. Purchases for the Bayshore and Bear Gulch districts are in accordance with long-term contracts with the San Francisco Public Utilities Commission (SFPUC) until June 30, 2034.

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Management anticipates water supply contracts will be renewed as they expire though the price of wholesale water purchases is anticipated to increase in the future.

Shown below are wholesaler price rates and increases that became effective in ~~2019~~2020 and estimated wholesaler price rates and percent changes for ~~2020.~~2021. In ~~2019,~~2020, several districts experienced purchased water rate increases, resulting in the filing of several purchased water offsets.

2019

2020

2021

Effective

Month

Percent

Change

Effective

Month

Percent

Change

Effective
Month

Percent
Change

Effective
Month

Percent
Change

District

Unit Cost

District

Unit Cost

Antelope

January

$602.00 /af

7.5

January

$648.00 /af

7.6

Antelope

January

$648.00 /af

7.6

January

$665.00 /af

2.6

Bakersfield(1)

July

$173.00 /af

2.4

July

$173.00 /af

—

Bakersfield(1)

July

$179.00 /af

3.5

July

$179.00 /af

—

Bear Gulch

July

$4.10 /ccf

—

July

$4.10 /ccf

—

Bear Gulch

July

$4.10 /ccf

—

July

$4.10 /ccf

—

Commerce(2)

July

$1,240.00 /af

7.8

January

$1,268.00 /af

2.3

Commerce(2)

January

$1,268.00 /af

2.3

January

$1,302.00 /af

2.7

Dominguez(2)

July

$1,385.00 /af

2.3

January

$1,405.00 /af

1.4

Dominguez(2)

January

$1,405.00 /af

1.4

January

$1,441.00 /af

2.6

East Los Angeles(2)

July

$1,240.00 /af

7.8

January

$1,268.00 /af

2.3

East Los Angeles(2)

January

$1,268.00 /af

2.3

January

$1,302.00 /af

2.7

Hawthorne(2)

July

$1,385.00 /af

2.3

January

$1,405.00 /af

1.4

Hawthorne(2)

January

$1,405.00 /af

1.4

January

$1,441.00 /af

2.6

Hermosa Redondo(2)

July

$1,385.00 /af

2.3

January

$1,405.00 /af

1.4

Hermosa Redondo(2)

January

$1,405.00 /af

1.4

January

$1,441.00 /af

2.6

Livermore

January

$2.01 /ccf

(1.5

January

$2.10 /ccf

4.5

Livermore

January

$2.10 /ccf

4.5

January

$2.10 /ccf

—

Los Altos

July

$1,474.00 /af

6.1

July

$1,474.00 /af

—

Los Altos

January

$1,474.00 /af

—

July

$1,474.00 /af

—

Oroville(2)

April

$181,547.04 /yr

1.5

April

$181,547.04 /yr

—

Oroville(2)

April

$185,079.44 /yr

1.9

April

$185,079.44 /yr

—

Palos Verdes(2)

July

$1,385.00 /af

2.3

January

$1,405.00 /af

1.4

Palos Verdes(2)

January

$1,385.00 /af

1.4

January

$1,441.00 /af

2.6

Mid-Peninsula

July

$4.10 /ccf

—

July

$4.10 /ccf

—

Mid-Peninsula

July

$4.10 /ccf

—

July

$4.10 /ccf

—

Redwood Valley

April

$65.94 /af

—

April

$65.94 /af

—

Redwood Valley

April

$69.24 /af

5.0

April

$69.24 /af

—

South San Francisco

July

$4.10 /ccf

—

July

$4.10 /ccf

—

South San Francisco

July

$4.10 /ccf

—

July

$4.10 /ccf

—

Stockton

April

$1,040,943.22 /mo

(0.7

April

$1,040,943.22 /mo

—

Stockton

April

$1,452,239.35 /mo

37.0

April

$1,452,239.35 /mo

—

Westlake

January

$1,423.00 /af

3.5

January

$1,472.00 /af

3.4

Westlake

January

$1,423.00 /af

3.4

January

$1,507.00 /af

2.4

af = acre foot;

ccf = hundred cubic feet;

yr = fixed annual cost;

mo = fixed monthly cost


~~(1)~~	~~untreated water~~


~~(2)~~	~~wholesaler price changes occur every six months~~

(1)untreated water

(2)wholesaler price changes occur every six months

We work with all local suppliers and agencies responsible for water supply to ~~insure~~enable adequate, long-term supply for each system.

See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Water Supply" for more information on adequacy of supplies.

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Seasonal Fluctuations

In California, our customers' consumption pattern of water varies with the weather, in terms of rainfall and temperature. In the WRAM and MCBA design, the CPUC considers the historical pattern in determining the adopted sales and production costs. With a majority of our sales being subject to the WRAM and production costs being covered by the MCBA, fluctuations in financial results have been minimized. However, cash flows from operations and short-term borrowings on our credit facilities can be significantly impacted by seasonal fluctuations including recovery of the WRAM and MCBA.

Our water business is seasonal in nature. Weather conditions can have a material effect on customer usage. Customer demand for water generally is lower during the cooler and rainy winter months. Demand increases in the spring when warmer weather returns and the rains end, and customers use more water for outdoor purposes such as landscape irrigation. Warm temperatures during the generally dry summer months result in increased demand. Water usage declines during the late fall as temperatures

decrease and the rainy season begins. During years in which precipitation is especially heavy or extends beyond the spring into the early summer, customer demand can decrease from historic normal levels, generally due to reduced outdoor water usage. Likewise, an early start to the rainy season during the fall can cause a decline in customer usage. As a result, seasonality of water usage has a significant impact on our cash flows from operations and borrowing on our short-term facilities.

Utility Plant Construction

We have continually extended, enlarged, and replaced our facilities as required to meet increasing demands and to maintain the water systems. We obtain construction financing using funds from operations, short-term bank borrowings, long-term financing, advances for construction and contributions in aid of construction that are funded by developers. Advances for construction are cash deposits from developers for construction of water facilities or water facilities deeded from developers. These advances are generally refundable without interest over a period of 40 years in equal annual payment amounts and developer installed facilities are exempt from corporate income taxes. Contributions in aid of construction consist of nonrefundable cash deposits or facilities transferred from developers, primarily for fire protection and relocation projects. We cannot control the amounts received from developers. This amount fluctuates from year-to-year as the level of construction activity carried on by developers varies. This activity is impacted by the demand for housing, commercial development, and general business conditions, including interest rates.

See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" for additional information.

Energy Reliability

We continue to use power efficiently to minimize the power expenses passed on to our customers, and maintain backup power systems to continue water service to our customers if the power companies' supplies are interrupted. Many of our well sites are equipped with emergency electric generators designed to produce electricity to keep the wells operating during power outages. Storage tanks also provide customers with water during blackout periods.

During 2020 and 2019, we leased additional emergency generators to respond to potential PSPSs, a new electric utility operating paradigm approved by the CPUC.

Security at Company Facilities

Due to terrorism and other risks, we have heightened security at our facilities and have taken added precautions to protect our employees and the water delivered to customers. In 2002, federal legislation was enacted that resulted in new regulations concerning security of water facilities, including submitting vulnerability assessment studies to the federal government. We have complied with regulations issued by the U.S. Environmental Protection Agency (EPA) pursuant to federal legislation concerning vulnerability assessments and have made filings to the EPA as required. In addition, communication plans have been developed as a component of our procedures. While we do not make public comments on our security programs, we have been in contact with federal, state, and local law enforcement agencies to coordinate and improve our water delivery systems' security.

On October 23, 2018, America’s Water Infrastructure Act (AWIA) became law. We must now conduct additional risk and resilience assessments and develop emergency response plans for each of our water systems. These assessments and plans include natural hazards as well as malevolent acts. The first such assessments were filed in 2020. They will be reviewed and resubmitted every five years.

While we do not make public comments on our security programs, we have been in contact with federal, state, and local law enforcement agencies to coordinate and improve our water delivery systems' security

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Competition and Condemnation

Our principal operations are regulated by the Commission of each state. Under state laws, no privately owned public utility may compete within any service territory that we already serve without first obtaining a certificate of public convenience and necessity from the applicable Commission. Issuance of such a certificate would only be made upon finding that our service is deficient. To management's knowledge, no application to provide service to an area served by us has been made.

State law provides that whenever a public agency constructs facilities to extend a utility system into the service area of a privately owned public utility, such an act constitutes the taking of property and requires reimbursement to the utility for its loss. State statutes allow municipalities, water districts and other public agencies to own and operate water systems. These agencies are empowered to condemn properties already operated by privately owned public utilities. The agencies are also authorized to issue bonds, including revenue bonds, for the purpose of acquiring or constructing water systems. However, if a public agency were to acquire utility property by eminent domain action, the utility would be entitled to just compensation for its loss. In Washington, annexation was approved in February 2008 for property served by us on Orcas Island; however, we continue to serve the customers in the annexed area and do not expect the annexation to impact our operations. To management's knowledge, other than the Orcas Island property, no municipality, water district, or other public agency is contemplating or has any action pending to acquire or condemn any of our systems.

Government Regulations

Environmental Matters

Our operations are subject to environmental regulation by various governmental authorities. Environmental health and safety programs have been designed to provide compliance with water discharge regulations, underground and aboveground fuel storage tank regulations, hazardous materials management plans, hazardous waste regulations, air quality permitting requirements, wastewater discharge limitations and employee safety issues related to hazardous materials. Also, we actively investigate alternative technologies for meeting environmental regulations and continue the traditional practices of meeting environmental regulations.

For a description of the material effects that compliance with environmental regulations may have on us, see Item 1A. "Risk Factors—Risks Related to Our Regulatory Environment." We expect environmental regulation to increase, resulting in higher operating costs in the future, and there can be no assurance that the Commissions would approve rate increases to enable us to recover these additional compliance costs.

Quality of Water Supply

Our operating practices are designed to produce potable water in accordance with accepted water utility practices. Water entering the distribution systems from surface sources is treated in compliance with federal and state Safe Drinking Water Act (SDWA) standards. Most well supplies are chlorinated or chloraminated for disinfection. Water samples from each water system are analyzed on a regular, scheduled basis in compliance with regulatory requirements. We operate a state-certified water quality laboratory at the San Jose Customer Support Services Office that provides testing for most of our California operations. Certain tests in California are contracted with independent certified labs qualified under the Environmental Laboratory Accreditation Program. Local independent state certified labs provide water sample testing for the Washington, New Mexico and Hawaii operations.

In recent years, federal and state water quality regulations have resulted in increased water sampling requirements. The SDWA continues to be used to monitor and regulate additional potential contaminants to address public health concerns. The State of California has continued to adopt new water quality regulations which may be in addition to those adopted by the EPA. We monitor water quality standard changes and upgrade our treatment capabilities to maintain compliance with the various regulations.

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Impact of Climate Change Legislation and Regulation

Our operations depend on power provided by other public utilities and, in emergencies, power generated by our portable and fixed generators. If future legislation limits emissions from the power generation process, our cost of power may increase. Any increase in the cost of power will be passed along to our California customers through the MCBA or included in our cost of service paid by our customers as requested in our GRC filings.

We maintain a fleet of vehicles to provide service to our customers, including a number of heavy duty diesel vehicles that were retrofitted to meet California emission standards. If future legislation further impacts the cost to operate the fleet or the fleet acquisition cost in order to meet certain emission standards, it will increase our cost of service and our rate base. Any increase in fleet operating costs associated with meeting emission standards will be included in our cost of service paid by our customers as requested in our GRC filings. While recovery of these costs is not guaranteed, we would expect recovery in the regulatory process.

Under the California Environmental Quality Act (CEQA), all capital projects of a certain type (primarily wells, tanks, major pipelines and treatment facilities) require mitigation of greenhouse gas emissions. The cost to prepare the CEQA documentation and permit will be included in our capital cost and added to our rate base, which will be requested to be paid for by our customers. Any increase in the operating cost of the facilities will also be included in our cost of service paid by our customers as requested in our GRC filings. While recovery of these costs is not guaranteed, we would expect recovery in the regulatory process.

Cap and trade regulations were implemented in 2012 with the goal of reducing emissions to 1990 levels by the year 2020. These regulations have not impacted water utilities at this time. In the future, if we are required to comply with these regulations, any increase in operating costs associated with meeting these standards will be included in our cost of service paid by our customers as requested in our GRC filings. While recovery of these costs is not guaranteed, we would expect recovery in the regulatory process.

~~Security at Company Facilities~~Human Capital Resources

~~Due to terrorism and other risks, we have heightened security at our facilities and have taken added precautions to protect~~We believe our employees are our most important resources and are critical to our continued success. We focus significant attention on attracting and retaining talented and experienced individuals to manage and support our operations. We offer our employees a broad range of company-paid benefits, and we believe our compensation package and benefits are competitive with others in our industry. Additional information about our employee benefit plans is included in Note 12.

We are committed to hiring, developing and supporting a diverse and inclusive workplace. Our employees are expected to exhibit and promote honest, ethical, and respectful conduct in the water delivered to customers. In 2002, federal legislation was enacted that resulted in new regulations concerning security of water facilities, including submitting vulnerability assessment studies to the federal government. We have complied with regulations issued by the U.S. Environmental Protection Agency (EPA) pursuant to federal legislation concerning vulnerability assessments and have made filings to the EPA as required. In addition, communication plans have been developed as a componentworkplace. All of our ~~procedures. While we do not make public comments~~employees must adhere to a code of conduct that sets standards for appropriate behavior and includes required internal training on ~~our security programs, we have been in contact with federal, state,~~preventing, identifying, reporting and ~~local law enforcement agencies to coordinate and improve our water delivery systems' security.~~stopping any type of discrimination.

On October 23, 2018, America’s Water Infrastructure Act (AWIA) became law. We must now conduct additional risk and resilience assessments and develop emergency response plans for each of our water systems. These assessments and plans include natural hazards as well as malevolent acts. The first such assessments are due in 2020. They will be reviewed and resubmitted every five years.

~~Quality of Water Supply~~

~~Competition and Condemnation~~

~~Environmental Matters~~

~~Our operations are subject to environmental regulation by various governmental authorities. Environmental~~Employee health and safety programs have been designed to provide compliance with water discharge regulations, underground and aboveground fuel storage tank regulations, hazardous materials management plans, hazardous waste regulations, air quality permitting requirements, wastewater discharge limitations and employee safety issues related to hazardous materials. Also, we actively investigate alternative technologies for meeting environmental regulations and continuein the ~~traditional practices of meeting environmental regulations.~~

~~For a description~~workplace is one of the ~~material effects~~Company’s core values. Safety efforts are led by the Corporate Safety Committee and supported by safety committees that compliance with environmental regulations may have on us, see Item 1A. "Risk Factors—Risks Related to Our Regulatory Environment." We expect environmental regulation to increase, resulting in higher operating costsoperate at the local level. Hazards in the ~~future,~~workplace are actively identified and ~~there~~management tracks incidents so remedial actions can be ~~no assurance~~taken to improve workplace safety. The COVID-19 pandemic has underscored for us the importance of keeping our employees safe and healthy. In response to the pandemic, the Company has taken actions aligned with the World Health Organization and the Centers for Disease Control and Prevention to protect its workforce so they can more safely and effectively perform their work.

Our management team supports a culture of developing future leaders from our existing workforce, enabling us to promote from within for many leadership positions. We believe this provides long-term focus and continuity to our operations while also providing opportunities for the growth and advancement of our employees. Our focus on retention is evident in the length of service of our management team. The average tenure of our management team is over 15 years.

Employee levels are managed to align with the pace of business and management believes it has sufficient human capital to operate its business successfully. Management believes that the ~~Commissions would approve rate increases to enable us to recover these additional compliance costs.~~

~~Employees~~

Company's employee relations are favorable. At December 31, ~~2019,~~2020, we had ~~1,207~~1,192 employees, including 5378 at Washington Water, 4643 at Hawaii Water, and 15 at New Mexico Water. In California, ~~most non-supervisory employees are represented by~~ the Utility Workers Union of America, AFL-CIO ~~except certain engineering and laboratory employees who are represented by the~~represents most non-exempt employees. The International Federation of Professional and Technical Engineers, ~~AFL-CIO.~~AFL-CIO represents our professional and technical engineering and laboratory employees.

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As of December 31, ~~2019,~~2020, we had ~~768~~743 union employees. In January 2015, the Company negotiated a six-year contract. ~~Wage increases for both unions in 2015, 2016, and 2017 was 3.25%, 2.75%, and 2.75%, respectively.~~ For ~~2018,~~ 2019 and 2020, union wage changes were tied to the changes in the Consumer Price Index (CPI) for Los Angeles, Riverside, and Orange County. In the event an annual wage increase is determined to be greater than 3.25% or less that 2.0%, either party may request to re-open negotiations for wages only. Such notice must be served on the other party no later than 60 days after the publication of such CPI data. In 2018, the applicable CPI was 3.1%. Union wages were increased 3.1% for all union employees. The applicable CPI published in October of 2018 was 3.9%. The union requested to re-open wage negotiations due to increases in the 2018 CPI index above 3.25%. The Company and both unions negotiated an agreement for the 2019 and 2020 wage increases whereby the base pay for all employees was increased by 3.4% (the CPI for the Western US) effective January 1, 2019. In addition, the agreement established three regions for pay purposes (Region 1, Region 2, and Region 3). ~~Employees~~In 2020, employees in Region 1 received an increase in base pay of 2.9%, employees in Region 2 ~~will receive the 3.4%~~received an increase in base pay of 2.9%, plus a regional differential of ~~0.5%~~0.9% added to their pay (based on the CPI for the Los Angeles area) ~~Employees~~, and employees in Region 3 ~~will receive the 3.4%~~received an increase in base pay of 2.9%, plus a ~~0.9%~~1.1% regional differential (based on the CPI for the San Francisco area). ~~For 2020, we will follow this same methodology to determine the base pay increase for all union positions (i.e. Region 1), plus the applicable regional differential for Region 2 and Region 3.~~ The current agreement with the unions iswas effective through 2020. We are currently negotiating a new contract. Management ~~believes that it maintains~~works hard with its two unions to maintain good ~~relationships with the unions.~~labor-management relations.

Employees at Hawaii Water, Washington Water and New Mexico Water are not represented by unions.

Information About Our Executive Officers



Name	Positions and Offices with California Water Service Group		Age
Martin A. Kropelnicki (1)	President and Chief Executive Officer since September 1, 2013. Formerly, President and Chief Operating Officer (2012-2013), Chief Financial Officer and Treasurer (2006-2012), served as Chief Financial Officer of Power Light Corporation (2005-2006), Chief Financial Officer and Executive Vice President of Corporate Services of Hall Kinion and Associates (1997-2004), Deloitte & Touche Consulting (1996-1997), held various positions with Pacific Gas & Electric (1989-1996).		5354
Thomas F. Smegal III (2)	Vice President, Chief Financial Officer and Treasurer since October 1, 2012. Formerly, Vice President, Regulatory Matters and Corporate Relations (2008-2012), Manager of Rates (2002-2008), Regulatory Analyst (1997-2002), served as Utilities Engineer at the California Public Utilities Commission (1990-1997).		5253
Paul G. Townsley (2)	Vice President of Corporate Development and Chief Regulatory Matters Officer effective January 1, 2019. Formerly Vice President of Rates and Regulatory Matters (2013-2018), Divisional Vice President, Operations and Engineering for EPCOR Water USA (2012-2013), served as President of American Water Works Company subsidiaries in Arizona, New Mexico, and Hawaii (2007-2012), served as American Water Works Company's President, Western Region (2002-2007), held various other positions with Citizens Utilities Company (1982-2002).		6263
Robert J. Kuta (2)	Vice President of Engineering and Chief Water Quality and Environmental Compliance Officer effective January 1, 2019. Formerly Vice President of Engineering (2015-2018), Senior Vice President of Operations Management Services, Water, Environmental and Nuclear markets for CH2M Hill (2006 to 2015), served as Western Region Vice President of Service Delivery and President of Arizona American Water Company (2001 to 2005), and held various management positions at Citizens Water Resource Company, Chaparral City Water Company, and Spring Creek Utilities (1993 to 2001).	55


			56
~~Name~~	~~Positions and Offices with California Water Service Group~~	~~Age~~
Michael B. Luu (2)		Vice President of Information Technology and Chief Risk Officer since January 1, 2021. Formerly Vice President of Customer Service and Chief Information Officer ~~since January 1, 2017. Formerly~~(2017-2020), Vice President of Customer Service and Information Technology (2013-2016), Acting California Water Service Company District Manager, Los Altos (2012-2013), Director of Information Technology (2008-2012), CIS Development Manager (2005-2008), held various other positions with California Water Service Company since 1999.		4041
Ronald D. Webb (2)		Vice President of Human Resources since August 11, 2014. Formerly Managing Director, Human Resources Partner for United Airlines (2006-2014), served as Vice President of Human Resources for Black & Decker Corporation (1995-2005), Human Resource Manager for General Electric Company (1990-1994), and held various labor relations positions for National Steel and Shipbuilding Company (1982-1989).		6364
Lynne P. McGhee (2)		Vice President and General Counsel since January 1, 2015. Formerly Corporate Secretary (2007-2014), Associate Corporate Counsel (2003-2014), and served as a Commissioner legal advisor and staff counsel at the California Public Utilities Commission (1998-2003).		5556
David B. Healey (2)		Vice President, Corporate Controller and Assistant Treasurer since January 1, 2015. Formerly Corporate Controller and Assistant Treasurer (2012-2014), Director of Financial Reporting (2009-2012), served as Subsidiary Controller for SunPower Corporation (2005-2009), Corporate Controller for Hall, Kinion & Associates, Inc. (1997-2005), held various other positions with Pacific Gas & Electric Company (1985-1997).		6364

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Name	Positions and Offices with California Water Service Group	Age
Shannon C. Dean (2)	Vice President of Customer Service and Chief Citizenship Officer since January 1, 2021. Formerly Vice President of Corporate Communications & Community Affairs ~~since January 1, 2015. Formerly~~(2015-2020), Director of Corporate Communications (2000-2014), held various corporate communications, government and community relations for Dominguez Water Company (1991-1999).	5253
Gerald A. Simon (2)(3)	Vice President, Chief Safety, Security, and Emergency Preparedness Officer effective January 1, 2019. Formerly Chief Safety and Emergency Preparedness Officer (2016-2018), Director of Safety and Emergency Services (2015), Emergency Services Manager (2014), Emergency Services Coordinator (2013), served as Fire Chief for Oakland, CA (2008-2011) and (1999-2004), Fire Chief for Fort Lauderdale, FL (2006-2007), Fire Chief for Union City, CA (2005-2006), Fire Chief for Santa Clara, CA (1993-1999) held various other positions at Santa Clara Fire Department (1976-1999), and Fire Services Consultant (1985-2015).	6566
Michelle R. Mortensen (2)	Vice President, Corporate Secretary since January 1, ~~2015.~~2021. Formerly Corporate Secretary (2015-2020), Assistant Corporate Secretary (2014), Treasury Manager (2012-2013), Assistant to the Chief Financial Officer (2011), Regulatory Accounting Manager (2008-2010), held various accounting positions at Piller Data Systems (2006-2007), Hitachi Global Storage (2005), Abbot Laboratories (1998-2004), and Symantec (1998-2001).	4546
Elissa Y. Ouyang (2)	Chief Procurement and Lead Continuous Improvement Officer since March 1, 2016. Formerly, Interim Procurement Director (2013-2016), Acting District Manager - Los Altos (2013), Interim Vice President of Information Technology (2012-2013), Director of Information Technology - Architecture and Security (2008-2012), Business Application Manager (2003-2007), Project Lead/Senior Developer (2001-2003), held various business consulting positions at KPMG Consulting/BearingPoint (1998-2001), and RR Donnelley (1996-1998).	51

52
~~(1)~~Michael S. Mares, Jr (2)			~~Holds the same position with~~Vice President of Operations since January 1, 2021. Formerly, Vice President, California Operations (2019-2020), California Water Service Company ~~CWS Utility Services,~~District Manager, Bakersfield (2017-2018), Hawaii Water Service Company ~~Inc.~~General Manager (2014-2016), ~~and New Mexico~~Hawaii Water Service ~~Company; Chief Executive Officer of Washington Water Service Company.~~


~~(2)~~	~~Holds the same position with~~Company Local Manager, Big Island (2012-2014), California Water Service Company, ~~CWS Utility Services, Hawaii~~held various Superintendent positions in the Chico district (2002-2012), California Water Service Company, ~~Inc., New Mexico Water Service Company, and Washington Water Service Company.~~held various union positions in the Chico district (1992-2002).				54

(1)Holds the same position with California Water Service Company, CWS Utility Services, Hawaii Water Service Company, Inc., and New Mexico Water Service Company; Chief Executive Officer of Washington Water Service Company.

(2)Holds the same position with California Water Service Company, CWS Utility Services, Hawaii Water Service Company, Inc., New Mexico Water Service Company, and Washington Water Service Company.

(3)Scheduled to retire in Q2 of 2021.

Item 1A. Risk Factors.

IfIn evaluating our business, you should carefully consider the following discussion of material risks, events and uncertainties that make an investment in us speculative or risky in addition to the other information in this Annual Report on Form 10-K. A manifestation of any of the following risks ~~actually occur, our financial condition~~ and ~~results of operations~~uncertainties could, in circumstances we may or may not be able to accurately predict, materially and adversely ~~affected.~~affect our business, growth, reputation, prospects, operating and financial results, financial condition, cash flows, liquidity and stock price. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. It is not possible to predict or identify all such factors; our operations could also be affected by factors, events or uncertainties that are not presently known to us or that we currently do not consider to present significant risks to our operations. Therefore, you should not consider the following risks to be a complete statement of all the potential risks or uncertainties that we face.

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Risks Related to Our Regulatory Environment

Our business is heavily regulated by state and federal regulatory agencies and our financial viability depends upon our ability to recover costs from our customers through rates that must be approved by state public utility commissions.

California Water Service Company, New Mexico Water Service Company, Washington Water Service Company and Hawaii Water Service Company, Inc., are regulated public utilities which provide water and water-related service to our customers. The rates that we charge our water customers are subject to the jurisdiction of the regulatory commissions in the states in which we operate. These Commissions may set water and water-related rates for each operating district independently because the systems are not interconnected. The Commissions authorize us to charge rates that they consider to be sufficient to recover normal operating expenses, to provide funds for adding new or replacing water infrastructure, and to allow us to earn what the Commissions consider to be a fair and reasonable return on invested capital.

Our revenues and consequently our ability to meet our financial objectives are dependent upon the rates we are authorized to charge our customers by the Commissions and our ability to recover our costs in these rates. Our management uses forecasts, models and estimates in order to set rates that will provide a fair and reasonable return on our invested capital. While our rates must be approved by the Commissions, no assurance can be given that our forecasts, models and estimates will be correct or that the Commissions will agree with our forecasts, models and estimates. If our rates are set too low, our revenues may be insufficient to cover our operating expenses, capital expenditure requirements and desired dividend levels.

We periodically file rate increase applications with the Commissions. The ensuing administrative and hearing process may be lengthy and costly. The decisions of the Commissions are beyond our control and we can provide no assurances that our rate increase requests will be granted by the Commissions. Even if approved, there is no guarantee that approval will be given in a timely manner or at a sufficient level to cover our expenses and provide a reasonable return on our investment. If the rate increase decisions are delayed, our earnings may be adversely affected.

~~Specifically,~~ For example, the ~~formal settlement agreement filed for~~CPUC did not issue its decision on our 2018 GRC ~~with~~until December 2020, approximately one year later than expected, which caused some financial and operating uncertainty for the Public Advocates Office of the CPUC is still pending, and the following issues are being litigated and were not included in the settlement: continuation of the WRAM and SRM, balancing accounts for pension and health care expenses, depreciation rates, working capital, AFUDC, and capital projects related to advanced metering. We can give no assurance that these litigated issues will be decided in our favor. Additionally, the CPUC will consider, but is not required to adopt, the settlement agreement. A final decision on the case had been expected in late 2019, with new rates going into effect on January 1,Company during 2020. On December 19, 2019, the CPUC extended its statutory deadline to complete the proceeding by six months, to July 1, 2020. The CPUC will allow recovery of the difference between current rates and final rates adopted in the proceeding back to January 1, 2020. If the settlement is not approved or is approved on terms less favorable to us, or the litigated issues described above are not decided in our favor, this could have a material adverse impact on our revenue, operating results and earnings per share. Even if the settlement is approved on its terms, but the case is materially delayed, it could have a material adverse impact on our revenue, operating results, and earnings per share on an interim basis but would be reversed at the time of a final decision through recognition of interim rate recovery.

Our evaluation of the probability of recovery of regulatory assets is subject to adjustment by regulatory agencies and any such adjustment could adversely affect our results of operations and financial condition.

Regulatory decisions may also impact prospective revenues and earnings, affect the timing of the recognition of revenues and expenses and may overturn past decisions used in determining our revenues and expenses. Our management continually evaluates the anticipated recovery of regulatory assets and revenues subject to refund and provides for allowances and/or reserves as deemed necessary. Current accounting procedures allow us to defer certain costs if we believe it is probable that we will be allowed to recover those costs through future rate increases. If the Commissions determined that a portion of our assets were not recoverable in customer rates, we may suffer an asset impairment which would require a write down in such asset's valuation which would be recorded through operations.

If our assessment as to the probability of recovery through the ratemaking process is incorrect, the associated regulatory asset would be adjusted to reflect the change in our assessment or any regulatory disallowances. A change in our evaluation of the probability of recovery of regulatory assets or a regulatory disallowance of all or a portion of our cost could have a material adverse effect on our financial results.

Regulatory agencies may disagree with our valuation and characterization of certain of our assets.

If we determine that assets are no longer used or useful for utility operations, we may remove them from our rate base and subsequently sell those assets with any gain on sales accruing to the stockholders, subject to certain conditions. If the Commissions disagree with our characterization, there is a risk that the Commissions could determine that realized appreciation in property value should be awarded to customers rather than our stockholders.

Changes in laws, rules and policies of ~~regulatory agencies~~our regulators or operating jurisdictions can significantly affect our business.

Regulatory agencies may change their rules and policies for various reasons, including changes in the local political environment. Regulators are elected by popular vote or are appointed by elected officials, and the results of elections may change the long-established rules and policies of an agency dramatically. For example, in ~~2001~~2020 regulation regarding ~~recovery of increases in electrical rates~~full decoupling WRAMs changed in California. ~~For over 20 years prior to 2001,~~Since 2008, the CPUC allowed ~~recovery of electric rate increases under its operating rules.~~full decoupling WRAMs. However, in ~~2003,~~2020, the CPUC ~~reinstated its policy to allow utilities to adjust~~precluded companies from proposing full decoupling WRAMs in their ~~rates for rate changes by the power companies.~~next GRC filings. The ~~original~~ decision by the CPUC to change its policy ~~as well as its subsequent decision to reinstate that policy, affected~~will affect our ~~business.~~business beginning in 2023.

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We rely on policies and regulations promulgated by the various state commissions in order to recover capital expenditures, maintain favorable treatment on gains from the sale of real property, offset certain production and operating costs, recover the cost of debt, maintain an optimal equity structure without over-leveraging, and have financial and operational flexibility to engage in non-regulated operations. If any of the Commissions with jurisdiction over us implements policies and regulations that do not allow us to accomplish some or all of the items listed above, our future operating results may be adversely affected.

In addition, legislatures may repeal, relax or tighten existing laws, or enact new laws that impact the regulatory agencies with jurisdiction over our business or affect our business directly. If changes in existing laws or the implementation of new laws limit our ability to accomplish some of our business objectives, our future operating results may be adversely affected.

Finally, local jurisdictions may impose new ordinances, laws, fees, and regulations that could increase costs or limit our operations in ways which impact future operating results. Cities may impose or amend franchise requirements, impose conditions on underground construction or land use, impose various taxes and fees, or restrict our hours for construction, among other things. In the last decade, more cities have imposed excavation moratoria or paving rules which has required more costly construction than anticipated.

We expect environmental health and safety regulation to increase, resulting in higher operating costs in the ~~future.~~future and the potential that the company fails to meet these regulatory standards.

Our water and wastewater services are governed by various federal and state environmental protection, health and safety laws and regulations. These provisions establish criteria for drinking water and for discharges of water, wastewater and airborne substances. The EPA, state water quality regulators, and other state regulatory authorities promulgate numerous nationally and locally applicable standards, including maximum contaminant levels (MCLs) for drinking water. We believe we are currently in compliance with all of the MCLs promulgated to date. Although we have a rigorous water quality assurance program in place, we cannot guarantee that we will continue to comply with all standards. If we violate any federal or state regulations or laws governing health and safety, we could be subject to substantial fines or otherwise ~~sanctioned.~~sanctioned, subject to potential civil liability for damages, and our customers' trust in our operations ability could be eroded.

Environmental health and safety laws are complex and change frequently. They tend to become more stringent over time. As new or stricter standards are introduced, they could increase our operating costs. Although we would likely seek permission to recover these costs through rate increases, we can give no assurance that the Commissions would approve rate increases to enable us to recover these additional compliance costs.

We are required to test our water quality for certain chemicals and potential contaminants on a regular basis. If the test results indicate that our water exceeds allowable limits, we may be required either to commence treatment to remove the contaminant or to develop an alternate water source. Either of these results may be costly. Although we would likely seek permission to recover these through rate increases, there can be no assurance that the Commissions would approve rate increases to enable us to recover these additional compliance costs.

Recent events in the utility sector, including those in Flint, Michigan and related to Pacific Gas and Electric Company in California, show that failure to meet one or more water quality, environmental, or safety standards can have severe effects on customer trust, regulatory treatment, or civil and criminal liability.

New and/or more stringent water quality regulations could increase our operating costs.

We are subject to water quality standards set by federal, state and local authorities that have the power to issue new regulations. Compliance with new regulations that are more stringent than current regulations could increase our operating costs.

In August of 2009, the Office of Environmental Health Hazard Assessment within the California Environmental Protection Agency changed the water quality standard for TCP in our water supply. The new standard requires us to have 0.0007 parts per billion or less of TCP in our California water supply. We have incurred costs associated with the compliance of the new TCP standard and expect to continue to incur costs in the future. In 2018, we received proceeds from a TCP settlement (see note 1415 in the Notes to the Consolidated Financial Statements) that has been used to offset some of the compliance costs that we have incurred. Although we would likely seek permission to these additional costs through the GRC process, we can give no assurance that the CPUC would approve the recovery of these additional compliance costs.

Perfluorooctane sulfonate (PFOS) and perfluorooctanoic acid (PFOA) are two water contaminants of emerging concern. Although a water quality standard has yet to be set by federal or state regulators, preliminary testing and guidance from ~~Cal EPA~~

the California Environmental Protection Agency has affected our operations of some wells in California. We expect that a water quality standard will be set in the future and that we will incur costs to comply with the water quality standard. ~~We would likely request~~Cal Water has requested and been approved to use a memorandum account to track the incremental compliance costs in the future and we would likely seek permission to recover additional costs of compliance through rate increases; however, we can give no assurance that the CPUC would approve rate increases to enable us to recover these additional compliance costs.

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Legislation and regulation designed to mitigate or adapt to climate change may impact our operations.

Future legislation or regulation regarding climate change may restrict our operations or impose new costs on our business. Our operations depend on power provided by other public utilities and, in emergencies, power generated by our portable and fixed generators. If future legislation or regulation limits emissions from the power generation process, our cost of power may increase. Any increase in the cost of power will be passed along to our California customers through the MCBA or included in our cost of service paid by our customers as requested in our GRC filings in California.

Starting January 1, 2010, under the CEQA, all capital projects of a certain type (primarily wells, tanks, major pipelines and treatment facilities) require mitigation of greenhouse gas emissions. The cost to prepare the CEQA documentation and permit will add an estimated ten thousand dollars to such capital projects. This cost will be included in our capital cost and added to our rate base, which will be requested to be paid for by our customers. Any increase in the operating cost of the facilities will also be included in our cost of service paid by our customers as requested in our GRC filings. Although we would likely seek permission to recover these costs through rate increases, we can give no assurance that the CPUC would approve rate increases to enable us to recover these additional compliance costs.

Cap and trade regulations were implemented in California in 2012 with the goal of reducing emissions to 1990 levels by the year 2020. Although we would likely seek permission to recover these costs through rate increases, we can give no assurance that the CPUC would approve rate increases to enable us to recover these additional compliance costs.

We have been and may in the future be party to environmental and product-related lawsuits which could result in us paying damages not covered by insurance.

We have been and may be in the future, party to water contamination lawsuits, which may not be fully covered by insurance.

The number of environmental and product-related lawsuits against other water utilities have increased in frequency in recent years. If we are subject to additional environmental or product-related lawsuits, we might incur significant legal costs and it is uncertain whether we would be able to recover the legal costs from customers or other third parties. In addition, if current California law regarding CPUC's preemptive jurisdiction over regulated public utilities for claims about compliance with California Department of Health Services and United States EPA water quality standards changes, our legal exposure may be significantly increased.

Risks Related to Our Business Operations

The Ongoing COVID-19 Pandemic May Adversely Affect Our Operations

Although the COVID-19 pandemic did not have a significant impact on our business in 2020, we are unable to accurately predict the full impact that the ongoing COVID-19 pandemic will have on our business, results of operations, financial condition or liquidity due to numerous uncertainties, including the duration and severity of the outbreak, potential resurgence and /or mutations of the virus, and the development, distribution and public acceptance of treatments and vaccines. As an “essential business” during times of emergencies pursuant to the U.S. Critical Infrastructures Protection Act of 2001, we are working to continue to provide high quality water and wastewater services to our two million customers. During the course of 2020, shelter-in-place and social distancing ordinances of varying durations and scope were implemented in all of the states in which we operate. Such governmental orders resulted in temporary closures of non-essential businesses and self-quarantining on non-essential workers. If we close any of our facilities due to a COVID-19 outbreak or if a critical number of our employees become too ill to work, our business operations could be materially adversely affected in a rapid manner. In addition, the COVID-19 pandemic has resulted in significant disruption to economic activity and the states in which the Company operates have experienced significant increases in unemployment claims and business closures. The Company has also ceased all shutoffs for nonpayment during the pandemic. If a significant number of customers are unable to pay utility bills for an extended period of time our business, results of operations, financial condition or liquidity may be materially adversely affected.

We may be at risk for litigation under the principle of inverse condemnation for activities in the normal course of business which have a damaging effect on private property.

The California constitution may allow compensation to property owners for a public utility taking or damaging private property, even when damage occurs through no fault of the utility and regardless of whether the damage could be foreseen by the utility. As a result, this doctrine, which is known as inverse condemnation and is routinely invoked in California, imposes strict liability for damages, including legal fees, as a result of the design, construction and maintenance of utility facilities. In addition to claims that our water or wastewater systems damaged property, Cal Water could be sued under inverse condemnation if its facilities or operations damage private property or if it is unable to timely deliver sufficient quantities of water for firefighting because of system capacity limitations or water supply disruptions, including as a result of action taken by an electric utility pursuant to a PSPS program or other loss of power. Although the imposition of liability is premised on the assumption that utilities have the ability to recover these costs from their customers, there is no assurance that the CPUC would allow Cal Water to recover any such damage awards from customers. For example, in December 2017, the CPUC denied recovery of costs that San Diego Gas & Electric Company incurred as a result of inverse condemnation, holding that the inverse condemnation principles of strict liability are not relevant to the CPUC’s prudent manager standard. ~~In October 2019 the U.S. Supreme Court denied a writ~~

Table of ~~certiorari to review this decision.~~Contents

The effects of natural disasters, attacks by third parties, pandemics, or poor water quality or contamination to our water supply may result in disruption in our services and litigation which could adversely affect our business, operating results and financial condition.

We operate in areas that are prone to earthquakes, fires, mudslides and other natural disasters. A significant seismic event or other natural disaster in California where our operations are concentrated could adversely impact our ability to deliver water

and adversely affect our costs of operations. A major disaster could damage or destroy substantial capital assets. The CPUC has historically allowed utilities to establish a catastrophic event memorandum account as another possible mechanism to recover costs. However, we can give no assurance that the CPUC or any other commission would allow any such cost recovery mechanism in the future.

Our water supplies are subject to contamination, including contamination from the development of naturally-occurring compounds, chemicals in groundwater systems, pollution resulting from man-made sources, such as TCP, sea water incursion and possible third-party attacks, including physical attacks, terrorist attacks, and cyber attacks. If our water supply is contaminated, we may have to interrupt the use of that water supply until we are able to substitute the flow of water from an uncontaminated water source. In addition, we may incur significant costs in order to treat the contaminated source through expansion of our current treatment facilities, or development of new treatment methods. If we are unable to substitute water supply from an uncontaminated water source, or to adequately treat the contaminated water source in a cost-effective manner, there may be an adverse effect on our revenues, operating results and financial condition. The costs we incur to decontaminate a water source or an underground water system could be significant and may not be recoverable in rates. We could also be held liable for consequences arising out of human exposure to hazardous substances in our water supplies or other environmental damage. For example, private plaintiffs have the right to bring personal injury or other toxic tort claims arising from the presence of hazardous substances in our drinking water supplies. Our insurance policies may not be sufficient to cover the costs of these claims.

We operate a dam. If the dam were to fail for any reason, we would lose a water supply and flooding likely would occur. Whether or not we were responsible for the dam's failure, we could be sued. We can give no assurance that we would be able to successfully defend such a suit.

~~In light of the threats to the nation's health and security ensuing in the wake of the September 11, 2001 terrorist attacks, we~~ have taken steps to increase security measures at our facilities and heighten employee awareness of threats to our water supply, to protect against third-party attacks, including physical attacks, terrorist attacks and cyber attacks. We have also tightened our security measures regarding the delivery and handling of certain chemicals used in our business. We have and will continue to bear increased costs for security precautions to protect our facilities, operations and supplies. These costs may be significant. Despite these tightened security measures, we may not be in a position to control the outcome of third-party attacks should they occur.

We depend upon our skilled and trained workforce to ensure water delivery. Were a pandemic to occur, we can give no assurance that we would be able to maintain sufficient human resources to ensure uninterrupted service in all of the districts that we serve.

If any of these catastrophic events were to occur, we can give no assurance that our emergency preparedness plans would be adequate and that we would respond effectively, which could result in public or employee harm.

Failure of critical elements of our infrastructure could result in interruption of service, damage to others, or injuries, and could adversely affect our business, operating results and financial condition.

We own physical infrastructure which was installed over a long period of time both underground and above-ground. This infrastructure is subject to potential failure due to age, operating conditions, or other unknown factors. Failure of any of our facilities could cause flooding, loss of service to our customers, contamination from chemicals we use in operations, or other damages.

We operate several water and wastewater treatment plants. If a major failure of these facilities were to occur, we would have an interruption in service, potential flooding, and could release potentially harmful material into the environment.

We operate over 7,000 miles of underground pipeline. Some failures of underground pipelines could release chemicals into the environment which have a negative impact on sensitive habitats.

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We rely on our information technology ("IT") and a number of complex business systems to assist with the management of our business and customer and supplier relationships, and a disruption of these systems could adversely affect our business.

Our IT systems are an integral part of our business, and a serious disruption of our IT systems could significantly limit our ability to manage and operate our business efficiently, which, in turn, could cause our business and competitive position to suffer and adversely affect our results of operations. We depend on our IT systems to bill customers, process orders, provide customer service, manage construction projects, manage our financial records, track assets, remotely monitor certain of our plants and facilities and manage human resources, inventory and accounts receivable collections. Our IT systems also enable us to purchase products from our suppliers and bill customers on a timely basis, maintain cost-effective operations and provide service to our customers. Some of our mission and business critical IT systems are older, such as our SCADA (Supervisory Control and Data Acquisition) system. ~~Although~~The steps we ~~do not believe that~~have taken to protect our IT systems ~~are at a materially greater risk of cyber security incidents than other similar organizations, our IT systems remain vulnerable~~may be insufficient to protect them from damage or interruption from:

•power loss, computer systems failures, and internet, telecommunications or data network failures;

•operator negligence or improper operation by, or supervision of, employees;

•physical and electronic loss of customer data due to security breaches, cyber attacks, misappropriation and similar events;

•computer viruses;

•intentional security breaches, hacking, denial of services actions, misappropriation of data, and similar ~~events;~~events, including intentional cyber security breaches aimed at disrupting and interfering with water treatment processes; and

•earthquakes, floods, fires, mudslides and other natural disasters or physical attacks.

These events may result in physical and/or electronic loss of customer or financial data, security breaches, misappropriation and other adverse consequences, including liability or regulatory penalties under data privacy laws and regulations. In addition, the lack of redundancy for certain of our IT systems, including billing systems, could exacerbate the impact of any of these events on us.

In addition, we may not be successful in developing or acquiring technology that is competitive and responsive to the needs of our business, and we might lack sufficient resources to make the necessary upgrades or replacements of our outdated existing technology to allow us to continue to operate at our current level of efficiency.

The adequacy of our water supplies depends upon a variety of factors beyond our control. Interruption in the water supply may adversely affect our reputation and earnings.

We depend on an adequate water supply to meet the present and future needs of our customers. Whether we have an adequate supply varies depending upon a variety of factors, many of which are partially or completely beyond our control, including:

•the amount of rainfall;

•the amount of water stored in reservoirs;

•underground water supply from which well water is pumped;

•availability from water wholesalers;

•changes in the amount of water used by our customers;

•water quality and availability of appropriate treatment technology;

•legal limitations on water use such as rationing restrictions during a drought;

•changes in prevailing weather patterns and climate; and

•population growth.

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We purchase our water supply from various governmental agencies and others. Water supply availability may be affected by weather conditions, funding and other political and environmental considerations. In addition, our ability to use surface water is subject to regulations regarding water quality and volume limitations. If new regulations are imposed or existing regulations are changed or given new interpretations, the availability of surface water may be materially reduced. A reduction in surface water could result in the need to procure more costly water from other sources, thereby increasing our water production costs and adversely affecting our operating results if not recovered in rates on a timely basis.

We have entered into long-term water supply agreements, which commit us to making certain minimum payments whether or not we purchase any water. Therefore, if demand is insufficient to use our required purchases we would have to pay for water we did not receive.

From time to time, we enter into water supply agreements with third parties and our business is dependent upon such agreements in order to meet regional demand. For example, we have entered into a water supply contract with the SFPUC that expires on June 30, 2034. We can give no assurance that the SFPUC, or any of the other parties from whom we purchase water, will renew our contracts upon expiration, or that we will not be subject to significant price increases under any such renewed contracts.

The parties from whom we purchase water maintain significant infrastructure and systems to deliver water to us. Maintenance of these facilities is beyond our control. If these facilities are not adequately maintained or if these parties otherwise default on their obligations to supply water to us, we may not have adequate water supplies to meet our customers' needs.

If we are unable to access adequate water supplies, we may be unable to satisfy all customer demand, which could result in rationing. Rationing may have an adverse effect on cash flow from operations. We can make no guarantee that we will always have access to an adequate supply of water that will meet all required quality standards. Water shortages may affect us in a variety of ways. For example, shortages could:

•adversely affect our supply mix by causing us to rely on more expensive purchased water;

•adversely affect operating costs;

•increase the risk of contamination to our systems due to our inability to maintain sufficient pressure; and

•increase capital expenditures for building pipelines to connect to alternative sources of supply, new wells to replace those that are no longer in service or are otherwise inadequate to meet the needs of our customers and reservoirs and other facilities to conserve or reclaim water.

We may or may not be able to recover increased operating and construction costs on a timely basis, or at all, for our regulated systems through the ratemaking process. Although we can give no assurance, we may be able to recover certain of these costs from third parties that may be responsible, or potentially responsible, for groundwater contamination.

Our water supplies and other aspects of our operations may be affected by climate change.

There is strong scientific consensus that human activity including carbon and methane emissions is impacting many planetary systems such as the heat-trapping capacity of the atmosphere; ocean temperature, circulation, acidity, and volume; weather patterns including the severity and frequency of severe weather events; ambient temperatures; and planetary ice cover. Because scientific investigations have been focused globally, there is tremendous uncertainty over the timing, extent, and types of impacts global climate change may have on our service areas and in our water supplies. Moreover, studies of tree ring data show long periods of drought conditions have occurred prior to significant human impacts in California and prior to our operation. Finally, in the last fifty years, California has experienced at least three severe multi-year droughts. Thus, we plan for water reliability and water shortages including projected and potential climate change risks in our water supply planning activities. Several anticipated impacts of climate change we consider in these plans which could impact our service areas are a greater percentage of state precipitation falling as rain rather than snow, changes in the frequency and volume of precipitation, hotter summer temperatures increasing demand for outdoor irrigation, and sea level rise increasing the likelihood of seawater intrusion into coastal aquifers. We also periodically review the climate change plans of our wholesalers to determine whether alternative supplies may be necessary in the future. However, we can give no assurance that replacement water supplies will be available at a reasonable cost or a cost acceptable to our customers and Commissions.

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Natural disasters, climate change, and other factors may change the population in our service areas.

In the event that some outside factor such as a wildfire, flood, changed climate pattern, actual or threatened public health emergency or change in the local economy reduces or eliminates our customer base in a service area, we could face unrecoverable costs. In those circumstances the remaining customers might not be able to pay for the operating costs or capital costs of the water system. The company may not be able to recover capital costs of property which is no longer used and useful in utility service. Although we would likely seek permission to recover these costs through rate increases on remaining customers or in statewide rates, we can give no assurance that the Commissions would approve rate increases to enable us to recover these costs.

Wastewater operations entail significant risks.

Wastewater collection and treatment involve many risks associated with damage to the environment, and we anticipate that wastewater collection and treatment will become an increasing significant part of our business. If collection or treatment systems fail or do not operate properly, untreated or partially treated wastewater could discharge onto property or into nearby streams and rivers, causing property damage or injury to aquatic life, or even human life. Liabilities resulting from such damage could materially and adversely affect our results of operations and financial condition.

Demand for our water is subject to various factors and is affected by seasonal fluctuations.

Demand for our water during the warmer, dry months is generally greater than during cooler or rainy months due primarily to additional requirements for water in connection with irrigation systems, swimming pools, cooling systems and other outside water use. Throughout the year, and particularly during typically warmer months, demand will vary with temperature and rainfall levels. If temperatures during the typically warmer months are cooler than normal, or if there is more rainfall than normal, the demand for our water may decrease. Under the WRAM mechanism, lower water usage in our California operations impacts our cash flows in the year of usage, but results in higher cash flows in the following years.

In addition, governmental restrictions on water usage during drought conditions may result in a decreased demand for our water, even if our water reserves are sufficient to serve our customers during these drought conditions. The Commissions may not allow surcharges to collect lost revenues caused by customers' conservation during a drought. Regardless of whether we may surcharge our customers during a conservation period, they may use less water even after a drought has passed because of conservation patterns developed during the drought. Furthermore, our customers may wish to use recycled water as a substitute for potable water. If rights are granted to others to serve our customers recycled water, there will likely be a decrease in demand for our water.

Finally, changes in prevailing weather patterns due to climate change may affect customer demand. If increased ambient temperatures affect our service areas, water used for irrigation and cooling may increase. If rainfall patterns change, our customers

may change their patterns of water use including the amount of outdoor irrigation and the type of landscape they install. Government agencies may also mandate changes to customer irrigation or landscape patterns in response to changes in weather and climate.

Changes in water supply costs impact our operations.

The cost to obtain water for delivery to our customers varies depending on the sources of supply, wholesale suppliers' prices, the quality of water required to be treated and the quantity of water produced to fulfill customer water demand. Our source of supply varies among our operating districts. Certain districts obtain all of their supply from wells; some districts purchase all of the supply from wholesale suppliers; and other districts obtain the 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. On average, slightly more than half of the water we deliver to our customers is pumped from wells or received from a surface supply with the remainder purchased from wholesale suppliers. Water purchased from suppliers usually costs us more than surface supplied or well pumped water. The cost of purchased water for delivery to customers represented ~~34.5%~~35.0% and ~~35.2%~~34.5% of our total operating costs in ~~2019~~2020 and ~~2018,~~2019, respectively. Water purchased from suppliers will require renewal of our contracts upon expiration and may result in significant price increases under any such renewed contracts.

Wholesale water suppliers may increase their prices for water delivered to us based on factors that affect their operating costs. Purchased water rate increases are beyond our control. In California, effective July 1, 2008, our ability to recover increases in the cost of purchased water changed with the adoption of the MCBA. With this change, actual purchased water costs are compared to authorized purchased water costs, with variances netted against the variances in purchased power, pump tax, and metered revenue, being recorded to revenue. The balance in the MCBA will be collected in the future by billing the net WRAM and MCBA accounts receivable balances over 12, 18, and 18+ month periods, which may have a short-term negative impact on cash flow.

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Dependency upon adequate supply of electricity, ~~and~~ certain chemicals, and third-party suppliers of parts and skilled labor could adversely affect our results of operations.

Purchased electrical power is required to operate the wells and pumps needed to supply water to our customers. Although there are back-up power generators to operate a number of wells and pumps in emergencies, an extended interruption in power could impact the ability to supply water. In the past, California has been subject to rolling power blackouts due to insufficient power supplies. There is no assurance we will not be subject to power blackouts in the future. Additionally, we require sufficient amounts of certain chemicals in order to treat the water we supply. There are multiple sources for these chemicals but an extended interruption of supply could adversely affect our ability to adequately treat our water.

Purchased power is a significant operating expense. During ~~2019~~2020 and ~~2018,~~2019, purchased power expense represented ~~5.1%~~5.2% and ~~5.3%~~5.1%, respectively, of our total operating costs. These costs are beyond our control and can change unpredictably and substantially as occurred in California during 2001 when rates paid for electricity increased 48%. As with purchased water, purchased power costs are included in the MCBA. Cash flows between rate filings may be adversely affected until the Commission authorizes a rate change, but earnings will be minimally impacted. Cost of chemicals used in the delivery of water is not an element of the MCBA, and therefore, variances in quantity or cost could impact the results of operations.

We rely on outside contractors to supply us with materials and parts critical to the operation of our systems. Should parts and material become unavailable, or should the cost of necessary supplies rise substantially, it could adversely affect our ability to operate or have financial impacts which are not recoverable through a regulatory process.

We also rely on outside contractors to complete large construction projects and provide emergency maintenance services. In the event these contractors are unavailable or cannot meet the demands imposed on them, we may face significantly lengthy interruptions of service or delays in constructing capital projects. We may face additional costs to acquire more resources to complete these activities.

Our business requires significant capital expenditures to replace or improve aging infrastructure that are dependent on our ability to secure appropriate funding. If we are unable to obtain sufficient capital or if the rates at which we borrow increase, there would be a negative impact on our results of operations.

The water utility business is capital-intensive. We invest significant funds to replace or improve aging infrastructure such as property, plant and equipment. In addition, water shortages may adversely affect us by causing us to rely on more purchased water. This could cause increases in capital expenditures needed to build pipelines to secure alternative water sources. In addition, we require capital to grow our business through acquisitions. We fund our short-term capital requirements from cash received from operations and funds received from developers. We also borrow funds from banks under short-term bank lending arrangements. We seek to meet our long-term capital needs by raising equity through common or preferred stock issues or issuing debt obligations. We cannot give any assurance that these sources will continue to be adequate or that the cost of funds will remain at levels permitting us to earn a reasonable rate of return. In the event we are unable to obtain sufficient capital, our expansion efforts could be curtailed, which may affect our growth and may affect our future results of operations.

Our ability to access the capital markets is affected by the ratings of certain of our debt securities. Standard & Poor's Rating Agency issues a rating on California Water Service Company's ability to repay certain debt obligations. The credit rating agency could downgrade our credit rating based on reviews of our financial performance and projections or upon the occurrence of other events that could impact our business outlook. Lower ratings by the agency could restrict our ability to access equity and debt capital. We can give no assurance that the rating agency will maintain ratings which allow us to borrow under advantageous conditions and at reasonable interest rates. A future downgrade by the agency could also increase our cost of capital by causing potential investors to require a higher interest rate due to a perceived risk related to our ability to repay outstanding debt obligations.

While the majority of our debt is long term at fixed rates, we do have interest rate exposure in our short-term borrowings which have variable interest rates. We are also subject to interest rate risks on new financings. However, if interest rates were to increase on a long-term basis, our management believes that customer rates would increase accordingly, subject to approval by the appropriate commission. We can give no assurance that the Commission would approve such an increase in customer rates.

We are obligated to comply with specified debt covenants under certain of our loan and debt agreements. Failure to maintain compliance with these covenants could limit future borrowing, and we could face increased borrowing costs, litigation, acceleration of maturity schedules, and cross default issues. Such actions by our creditors could have a material adverse effect on our financial condition and results of operations.

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Our inability to access the capital or financial markets could affect our ability to meet our liquidity needs at reasonable cost and our ability to meet long-term commitments. Changes in economic conditions in our markets could affect our customers' ability to pay for water services. Any of these could adversely affect our results of operations, cash flows and financial condition.

We rely on our current credit facilities to fund short-term liquidity needs if internal funds are not available from operations. Specifically, given the seasonal fluctuations in demand for our water we commonly draw on our credit facilities to meet our cash requirements at times in the year when demand is relatively low. We also may occasionally use letters of credit issued under our revolving credit facilities. Disruptions in the capital and credit markets could adversely affect our ability to draw on our credit facilities. Our access to funds under our credit facilities is dependent on the ability of our banks to meet their funding commitments.

Many of our customers and suppliers also have exposure to risks that could affect their ability to meet payment and supply commitments. We operate in geographic areas that may be particularly susceptible to declines in the price of real property, which could result in significant declines in demand for our products and services. In the event that any of our significant customers or suppliers, or a significant number of smaller customers and suppliers, are adversely affected by these risks, we may face disruptions in supply, significant reductions in demand for our products and services, inability of customers to pay invoices when due, and other adverse effects that could negatively affect our financial condition, results of operations and/or cash flows.

Our operations and certain contracts for water distribution and treatment depend on the financial capability of state and local governments, and other municipal entities such as water districts. Major disruptions in the financial strength or operations of such entities, such as liquidity limitations, bankruptcy or insolvency, could have an adverse effect on our ability to conduct our business and/or enforce our rights under contracts to which such entities are a party.

We are a holding company that depends on cash flow from our subsidiaries to meet our obligations and to pay dividends on our common stock.

As a holding company, we conduct substantially all of our operations through our subsidiaries and our only significant assets are investments in those subsidiaries. 93.8% of our revenues are derived from the operations of California Water Service Company. As a result, we are dependent on cash flow from our subsidiaries, and California Water Service Company in particular, to meet our obligations and to pay dividends on our common stock.

Our subsidiaries are separate and distinct legal entities and generally have no obligation to pay any amounts due on California Water Service Group's debt or to provide California Water Service Group with funds for dividends. Although there are no contractual or regulatory restrictions on the ability of our subsidiaries to transfer funds to us, the reasonableness of our capital structure is one of the factors considered by state and local regulatory agencies in their ratemaking determinations. Therefore, transfer of funds from our subsidiaries to us for the payment of our obligations or dividends may have an adverse effect on ratemaking determinations. Furthermore, our right to receive cash or other assets upon the liquidation or reorganization of a subsidiary is generally subject to the prior claims of creditors of that subsidiary. If we are unable to obtain funds from our subsidiaries in a timely manner, we may be unable to meet our obligations or pay dividends.

We can make dividend payments only from our surplus (the excess, if any, of our net assets over total paid-in capital) or if there is no surplus, the net profits for the current fiscal year or the fiscal year before which the dividend is declared. In addition, we can pay cash dividends only if after paying those dividends we would be able to pay our liabilities as they become due. Owners of our capital stock cannot force us to pay dividends and dividends will only be paid if and when declared by our board of directors. Our board of directors can elect at any time, and for an indefinite duration, not to declare dividends on our capital stock.

An important element of our growth strategy is the acquisition of water and wastewater systems. Risks associated with potential acquisitions, divestitures or restructurings may adversely affect us.

We may seek to acquire or invest in other companies, technologies, services or products that complement our business. The execution of our growth strategy may expose us to different risks than those associated with our utility operations. We can give no assurance that we will succeed in finding attractive acquisition candidates or investments, or that we would be able to reach mutually agreeable terms with such parties. In addition, as consolidation becomes more prevalent in the water and wastewater industries, the prices for suitable acquisition candidates may increase to unacceptable levels and limit our ability to grow through acquisitions. If we are unable to find acquisition candidates or investments, our ability to grow may be limited.

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Acquisition and investment transactions may result in the issuance of our equity securities that could be dilutive if the acquisition or business opportunity does not develop in accordance with our business plan. They may also result in significant write-offs and an increase in our debt. The occurrence of any of these events could have a material adverse effect on our business, financial condition and results of operations.

Any of these transactions could involve numerous additional risks, including one or more of the following:

•problems integrating the acquired operations, personnel, technologies, physical and cyber security processes, or products with our existing businesses and products;

•liabilities inherited from the acquired companies' prior business operations;

•diversion of management time and attention from our core business to the acquired business;

•failure to retain key technical, management, sales and other personnel of the acquired business;

•difficulty in retaining relationships with suppliers and customers of the acquired business; and

•difficulty in obtaining required regulatory approvals.

In addition, the businesses and other assets we acquire may not achieve the sales and profitability expected. The occurrence of one or more of these events may have a material adverse effect on our business. There can be no assurance that we will be successful in overcoming these or any other significant risks encountered.

We may not be able to increase or sustain our recent growth rate, and we may not be able to manage our future growth effectively.

We may be unable to continue to expand our business or manage future growth. To successfully manage our growth and handle the responsibilities of being a public company, we must effectively:

•hire, train, integrate and manage additional qualified engineers for engineering design and construction activities, new business personnel, and financial and information technology personnel;

•retain key management, augment our management team, and retain qualified and certified water and wastewater system operators;

•implement and improve additional and existing administrative, financial and operations systems, procedures and controls;

•expand our technological capabilities; and

•manage multiple relationships with our customers, regulators, suppliers and other third parties.

If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, satisfy customer requirements, execute our business plan or respond to competitive pressures.

We have a number of large-volume commercial and industrial customers and a significant decrease in consumption by one or more of these customers could have an adverse effect on our operating results and cash flows.

Our billed revenues and cash flows from operations will decrease if a significant business or industrial customer terminates or materially reduces its use of our water. Approximately ~~$161.1~~$154.9 million, or ~~24.2%~~22.2%, of our ~~2019~~2020 water utility revenues was derived from business and industrial customers. However, if any of our large business or industrial customers in California reduce or cease its consumption of our water, the impact to net operating income would be minimal to our operations due to the WRAM and MCBA, but could impact our cash flows. In Hawaii, we serve a number of large resorts which if their water usage was reduced or ceased could have a material impact to our Hawaii operation. The delay between such date and the effective date of the rate relief may be significant and could adversely affect our operating results and cash flows.

Our operating cost and costs of providing services may rise faster than our revenues.

Our ability to increase rates over time is dependent upon approval of such rate increases by the Commissions, or in the case of the City of Hawthorne and the City of Commerce, the City Council, which may be inclined, for political or other reasons, to limit rate increases. However, our costs, which are subject to market conditions and other factors, may increase significantly. The second largest component of our operating costs after water production is made up of salaries and wages. These costs are affected by the local supply and demand for qualified labor. Other large components of our costs are general insurance, workers compensation insurance, employee benefits and health insurance costs. These costs may increase disproportionately to rate increases authorized by the Commissions and may have a material adverse effect on our future results of operations.

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Demand for our stock may fluctuate due to circumstances beyond our control.

We believe that stockholders invest in public utility stocks, in part, because they seek reliable dividend payments. If there is an over-supply of stock of public utilities in the market relative to demand by such investors, the trading price of our securities could decrease. Additionally, if interest rates rise above the dividend yield offered by our equity securities, demand for our stock, and consequently its market price, may also decrease. A decline in demand for our stock may have a negative impact on our ability to finance capital projects.

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

A substantial number of our employees are covered by a defined benefit pension plan. At present, the pension plan is underfunded because our projected pension benefit obligation exceeds the aggregate fair value of plan assets. Under applicable law, we are required to make cash contributions to the extent necessary to comply with minimum funding levels imposed by regulatory requirements. The amount of such required cash contribution is based on an actuarial valuation of the plan. The funded status of the plan can be affected by investment returns on plan assets, discount rates, mortality rates of plan participants, pension reform legislation and a number of other factors. There can be no assurance that the value of our pension plan assets will be sufficient to cover future liabilities. Although we have made contributions to our pension plan in recent years, it is possible that we could incur a pension liability adjustment, or could be required to make additional cash contributions to our pension plan, which would reduce the cash available for business and other needs.

Labor relations matters could adversely affect our operating results.

At December 31, ~~2019, 768~~2020, 743 of our ~~1,207~~1,192 total employees were union employees. Most of our unionized employees are represented by the Utility Workers Union of America, AFL-CIO, except certain engineering and laboratory employees who are represented by the International Federation of Professional and Technical Engineers, AFL-CIO.

We believe our labor relations are good, but in light of rising costs for health care and pensions, our current contract negotiations and those in the future may be difficult. Furthermore, changes in applicable law or regulations could have an adverse effect on management's negotiating position with respect to our currently unionized employees and/or employees that decide to unionize in the future. We are subject to a risk of work stoppages and other labor relations matters as we negotiate with the unions to address these issues, which could affect our results of operations and financial condition. We can give no assurance that issues with our labor forces will be resolved favorably to us in the future or that we will not experience work stoppages.

~~We depend significantly on the services of the members of our management team, and the departure of any of those persons could cause our operating results to suffer.~~

Our success depends significantly on the continued individual and collective contributions of our management team. The loss of the services of any member of our management team could have an adverse effect on our business as our management team has knowledge of our industry and customers and would be difficult to replace.

Our operations are geographically concentrated in California and this lack of diversification may negatively impact our operations.

Although we own facilities in a number of states, over 93.8% of our operations are located in California. As a result, we are largely subject to weather, political, water supply, labor, energy cost, regulatory and economic risks affecting California.

We are also affected by the real property market in California. In order to grow our business, we may need to acquire additional real estate or rights to use real property owned by third parties, the cost of which tends to be higher and more volatile in California than in other states. The value of our assets in California may decline if there is a decline in the California real estate market which results in a significant decrease in real property values.

Municipalities, water districts and other public agencies may condemn our property by eminent domain action.

State statutes allow municipalities, water districts and other public agencies to own and operate water systems. These agencies are empowered to condemn water systems or real property owned by privately owned public utilities in certain circumstances and in compliance with California and federal law. Additionally, whenever a public agency constructs facilities to extend its utility system into the service area of a privately owned public utility, such an act may constitute the taking of property and require reimbursement to the public utility for its loss. If a public agency were to file an eminent domain lawsuit against us, we would incur substantial attorney’s fees, consultant and expert fees and other costs in considering a challenge to the right to take our utility property and/or its valuation for just compensation, as well as such fees and costs in any subsequent litigation if necessary. If the public agency prevailed and acquired our utility property, we would be entitled to just compensation for our loss, but we would no longer have access to the condemned property or water system. Neither would we be entitled to any portion of revenue generated from the use of such asset going forward.

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General Risk Factors

We depend significantly on the services of the members of our management team, and the departure of any of those persons could cause our operating results to suffer.

We retain certain risks not covered by our insurance policies.

We evaluate our risks and insurance coverage annually or more frequently if circumstances dictate. Our evaluation considers the costs, risks and benefits of retaining versus insuring various risks as well as the availability of certain types of insurance coverage. Furthermore, we are also affected by increases in prices for insurance coverage; in particular, we have been, and will continue to be, affected by rising health insurance costs. Retained risks are associated with deductible limits, partial self-insurance programs and insurance policy coverage ceilings. If we suffer an uninsured loss, we may be unable to pass all, or any portion, of the loss on to customers because our rates are regulated by regulatory commissions. Consequently, uninsured losses may negatively affect our financial condition, liquidity and results of operations. There can be no assurance that we will not face uninsured losses pertaining to the risks we have retained.

Our enterprise risk management processes may not be effective in identifying and mitigating the risks to which we are subject, or in reducing the potential for losses in connection with such risks.

Our enterprise risk management processes are designed to minimize or mitigate the risks to which we are subject, as well as any losses stemming from such risks. Although we seek to identify, measure, monitor, report, and control our exposure to such risks, and employ a broad and diversified set of risk monitoring and mitigation techniques in the process, those techniques are inherently limited in their ability to anticipate the existence or development of risks that are currently unknown and unanticipated. The ineffectiveness of our enterprise risk management processes in mitigating the impact of known risks or the emergence of previously unknown or unanticipated risks may result in our incurring losses in the future that could adversely impact our financial condition and results of operations.

The accuracy of our judgments and estimates about financial and accounting matters will impact our operating results and financial condition.

We make certain estimates and judgments in preparing our financial statements regarding, among others:

•the useful life of intangible rights;

•the number of years to depreciate certain assets;

•amounts to set aside for uncollectible accounts receivable, inventory obsolescence and uninsured losses;

•our legal exposure and the appropriate accrual for claims, including medical claims and workers' compensation claims;

•future costs and assumptions for pensions and other postretirement benefits;

•regulatory recovery of regulatory assets;

•possible tax uncertainties; and

•projected collections of WRAM and MCBA receivables.

The quality and accuracy of those estimates and judgments will have an impact on our operating results and financial condition.

In addition, we must estimate unbilled revenues and costs as of the end of each accounting period. If our estimates are not accurate, we will be required to make an adjustment in a future period. Accounting rules permit us to use expense balancing accounts and memorandum accounts that include cost changes to us that are different from amounts incorporated into the rates approved by the Commissions. These accounts result in expenses and revenues being recognized in periods other than in which they occurred.

~~Municipalities, water districts and other public agencies may condemn our property by eminent domain action.~~

Item 1B. Unresolved Staff Comments.

None.

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Item 2. Properties.

Our physical properties consist of offices and water facilities to accomplish the production, storage, treatment, and distribution of water. These properties are located in or near the geographic service areas listed above in Item 1, "Business—Geographical Service Areas and Number of Customer Connections at Year-end." Our headquarters, which houses accounting, engineering, information systems, human resources, purchasing, regulatory, water quality, and executive staff, is located in San Jose, California.

The real properties owned are held in fee simple title. Properties owned by Cal Water are subject to the lien of an Indenture of Mortgage and Deed of Trust dated June 11, 2019, March 16, 2016, October 13, 2015, November 22, 2010, and April 17, 2009 (the California Indenture), securing Cal Water's First Mortgage Bonds, of which ~~$801.2~~$780.0 million was outstanding at December 31, ~~2019.~~2020. The California Indenture contains certain restrictions common to such types of instruments regarding the disposition of property and includes various covenants and restrictions. At December 31, ~~2019,~~2020, our California utility was in compliance with the covenants of the California Indenture.

Cal Water owns ~~596~~601 wells and operates ~~eleven~~ten leased wells. There are ~~448~~449 owned storage tanks with a capacity of 295 million gallons, two leased storage tanks with a capacity of 0.4 million gallons, 30 managed storage tanks with a capacity of 32.4 million gallons, and three surface water reservoirs with a capacity of 220 million gallons. Cal Water owns and operates six surface water treatment plants with a combined capacity of 46 million gallons per day. There are ~~5,920~~6,657 miles of supply and distribution mains in the various owned and managed systems.

In the leased City of Hawthorne and City of Commerce systems or in systems that are operated under contract for municipalities or private companies, title to the various properties is held exclusively by the municipality or private company.

Hawaii Water owns 2223 wells and manages ~~two~~five irrigation wells. There are 2426 storage tanks with a storage capacity of ~~20.1~~22.1 million gallons. There are 80140 miles of supply and distribution lines. Hawaii Water operates five wastewater treatment facilities with a combined capacity to process approximately 2.1 million gallons per day. There are 2944 miles of sewer collection mains including force mains.

Washington Water owns ~~352~~440 wells and manages ~~seven~~five wells. There are ~~147~~202 owned storage tanks and ~~two~~five managed storage tanks with a storage capacity of ~~7.8~~22.5 million gallons. There are ~~406~~704 miles of supply and distribution lines.

New Mexico Water owns 2025 wells. There are 1718 storage tanks with a storage capacity of ~~3.8~~5.1 million gallons. There are 145 miles of supply and distribution lines. New Mexico operates two ~~waste water~~wastewater treatment facilities with a combined capacity to process 0.62 million gallons per day. There are eight life stations and 35 miles of sewer collection mains.

Washington Water has long-term bank loans that are secured primarily by utility plant owned by Washington Water.

Item 3. Legal Proceedings.

Information with respect to this item may be found under the subheading "Commitments and Contingencies" in Note 1415 to the consolidated Financial Statements in Item 8, which is incorporated herein by reference.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

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

Our common stock is traded on the New York Stock Exchange under the symbol "CWT." At December 31, ~~2019,~~2020, there were ~~48,532,199~~50,333,655 common shares outstanding. There were ~~1,922~~1,941 common stockholders of record as of February ~~10, 2020.~~8, 2021.

During 2020, we paid a cash dividend of $0.8500 per common share, or $0.2125 per quarter. During 2019, we paid a cash dividend of $0.7900 per common share, or $0.1975 per quarter. ~~During 2018, we paid a cash dividend of $0.7500 per common share, or $0.1875 per quarter.~~ On January ~~29, 2020,~~27, 2021, our Board of Directors declared a quarterly cash dividend of ~~$0.2125~~$0.2300 per common share payable on February ~~21, 2020,~~19, 2021, to stockholders of record on February ~~10, 2020.~~8, 2021. This

represents an indicated annual cash dividend of ~~$0.8500,~~$0.9200, and would be our ~~53nd~~54th consecutive year of increasing the annual dividend and marks the ~~300th~~304th consecutive quarterly dividend.

We presently intend to pay quarterly cash dividends in the future consistent with past practices, subject to our earnings and financial condition, restrictions set forth in our debt instruments, regulatory requirements and such other factors as our Board of Directors may deem relevant.

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Five-Year Performance Graph

The following performance graph compares the changes in the cumulative shareholder return on California Water Service Group's common stock with the cumulative total return on the Robert W. Baird Water Utility Index and the Standard & Poor's 500 Index during the last five years ended December 31, ~~2019.~~2020. The comparison assumes $100 was invested on December 31, ~~2014,~~2015, in California Water Service Group's common stock and in each of the forgoing indices and assumes reinvestment of dividends.

Performance Graph Data

The following descriptive data is supplied in accordance with Rule 304(d) of Regulations S-T:


	2014	2015	2016	2017	2018	2019		2015	2016	2017	2018	2019	2020
California Water Service Group	100	99	142	194	207	228	California Water Service Group	100	149	203	218	239	255
S&P 500	100	102	112	137	131	172	S&P 500	100	112	136	130	171	203
RW Baird Water Utility Index	100	114	137	173	175	236	RW Baird Water Utility Index	100	123	156	157	212	249

An initial $100 investment in the common stock of California Water Service Group on December 31, ~~2014~~2015 including reinvestment of dividends would be worth ~~$228~~$255 at the end of the 5-year period ending December 31, ~~2019.~~2020.

Item 6. Selected Financial Data.

The following selected consolidated financial data should be read in conjunction with our Consolidated Financial Statements and the Notes thereto and the information contained in Item 7, "Management's Discussion and AnalysisNone.

Table of ~~Financial Condition and Results of Operations."~~

~~Historical results are not necessarily indicative of future results.~~

~~FIVE YEAR FINANCIAL REVIEW~~Contents

2019 2018 2017 2016 2015
(Dollars in thousands, except per common share and other data)
Summary of Operations

Operating revenue 714,557
698,196
676,113
609,370
588,368
Total operating expenses (b) 615,145
587,656
569,030
526,734
506,803
Interest expense, other income and expenses, net (b) 36,296
44,956
34,143
33,961
36,548
Net income $ 63,116
$ 65,584
$ 72,940
$ 48,675
$ 45,017
Common Share Data

Earnings per share—diluted $ 1.31
$ 1.36
$ 1.52
$ 1.01
$ 0.94
Dividend paid 0.7900
0.7500
0.7200
0.6900
0.6700
Dividend payout ratio 60.31 % 55.15 % 47.37 % 68.32 % 71.28 %
Book value per share $ 16.07
$ 15.19
$ 14.56
$ 13.75
$ 13.41
Market price at year-end 51.56
47.66
45.35
33.90
23.27
Common shares outstanding at year-end (in thousands) 48,532
48,065
48,012
47,965
47,875
Return on average common stockholders' equity 8.36 % 9.18 % 10.73 % 7.50 % 7.10 %
Long-term debt interest coverage 3.10
3.57
4.58
3.45
3.67
Balance Sheet Data

Net utility plant $ 2,406,370
$ 2,232,723
$ 2,047,965
$ 1,859,277
$ 1,701,768
Total assets (a) 3,111,308
2,837,704
2,744,710
2,411,745
2,241,253
Long-term debt including current portion, net (a) 808,622
814,938
531,713
557,953
514,045
Capitalization ratios:

Common stockholders' equity (a) 49.10 % 47.30 % 56.80 % 54.20 % 55.50 %
Long-term debt (a) 50.90 % 52.70 % 43.20 % 45.80 % 44.50 %
Other Data

Estimated water production (million gallons)

Wells and surface supply 50,992
54,228
53,855
50,942
51,413
Purchased 53,743
53,361
51,131
48,154
47,486
Total estimated water production 104,735
107,589
104,986
99,096
98,899
Metered customers 498,900
494,600
490,100
485,200
477,300
Flat-rate customers 21,700
22,900
24,200
26,300
31,700
Customers at year-end (c) 520,600
517,500
514,300
511,500
509,000
New customers added 3,100
3,200
2,800
2,500
2,900
Revenue per customer $ 1,373
$ 1,349
$ 1,315
$ 1,191
$ 1,156
Utility plant per customer 6,820
6,240
5,775
5,312
4,925
Employees at year-end 1,207
1,184
1,176
1,163
1,155

(a) The five year financial review for 2015 reflects the retrospective adoption of ASU 2015-03, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company adopted this guidance effective January 1, 2016.

(b) The five year financial review for 2017, 2016, and 2015 reflect the retrospective adoption of ASU 2017-07, which requires employers to present the service cost component of the net periodic benefit cost as part of operating expenses. The other components of net benefit cost, including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and settlement and curtailment effects, are to be presented as non-regulated expenses. The Company adopted this guidance effective January 1, 2018.

~~(c) Includes customers of the City of Hawthorne and City of Commerce~~

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

The following sections include a discussion of results for fiscal ~~2019~~2020 compared to fiscal ~~2018~~2019 as well as certain ~~2017~~2018 results. The comparative results for fiscal ~~2018~~2019 with fiscal ~~2017~~2018 generally have not been included in this Form 10-K, but may be found in “Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Overview

Net Income

In ~~2019~~2020 and ~~2018,~~2019, net income was ~~$63.1~~$96.8 million and ~~$65.6~~$63.1 million, respectively. Earnings per diluted common share ~~decreased $0.05~~increased $0.66 to ~~$1.31~~$1.97 or ~~3.7%~~50.4% from ~~2018~~2019 to ~~2019.~~2020. The ~~$2.5~~$33.7 million ~~decrease~~increase in net income was driven primarily by the adoption of Cal Water’s 2018 GRC which increased operating revenue by $40.9 million and other general rate increases of ~~$7.8~~$11.5 million, ~~in administrative and general, $10.2 million in other operations, $5.4~~$4.5 million of which was related to increased water costs. In addition, net income increased $5.5 million due to an increase in income tax benefits from “repairs” deductions. These positive factors to net income were partially offset by increases in depreciation and amortization ~~$2.3~~expenses of $9.3 million, employee wages of ~~maintenance, $1.5~~$4.7 million, bad debt reserve expenses of ~~property~~$4.1 million, outside consulting service costs of $2.1 million, and ~~other taxes, and $3.4~~uninsured loss costs of $1.7 million which was partially offset by a decrease in travel costs of $1.6 million.

Additionally, certain factors outside the Company's immediate control decreased net ~~interest expense. In addition, a reduction in the~~ income, ~~tax benefit from repairs deductions resulted in~~including a $2.3 million reduction in accrued unbilled revenue and $0.8 million decrease in ~~2019 net income~~unrealized gain on certain benefit plan investments as compared to the prior year. ~~These cost increases were partially offset by general rate increases~~Seasonal weather patterns and the number of ~~$19.7 million, a reduction in business development expenses~~unbilled days are the primary influences of ~~$4.4 million, and an increase in~~ the ~~allowance for equity funds used during construction of $2.7 million.~~

Changes driven by factors outside the Company’s immediate control partially offset the decrease in 2019 net income. They included a $7.4 million unrealized gain from certain benefit plan investments due to market conditions, which was partially offset by a $2.2 million reduction in theaccrued unbilled revenue ~~accrual and a $1.6 million decrease in the benefits from Company-owned life insurance.~~value.

We plan to continue to seek rate relief to recover our operating cost increases and receive reasonable returns on invested capital. We expect to fund our long-term capital needs through a combination of debt, common stock offerings, and cash flow from operations.

COVID-19

During the course of 2020, as a result of the COVID-19 pandemic, shelter-in-place and social distancing ordinances of varying durations and scope were implemented in all of the states in which we operate. Such governmental orders resulted in temporary closures of non-essential businesses and self-quarantining on non-essential workers. As an “essential business” during times of emergencies pursuant to the U.S. Critical Infrastructures Protection Act of 2001, we are working to continue to provide high quality water and wastewater services to our two million customers. Although the COVID-19 pandemic did not have a significant impact on our business during 2020, we have increased our allowance for credit losses as we have ceased all shutoffs for non-payment during the pandemic and anticipate this situation will continue until further notice. We are expecting segments of our customer base to continue to experience employment layoffs and business closures that negatively impact their ability to pay utility bills. We have also incurred costs to promote the health and safety of our employees and facilities.

If we need to close any of our facilities due to outbreaks of COVID-19 or if a critical number of our employees become too ill to work, our business operations could be materially adversely affected in a rapid manner. The impact of the COVID-19 pandemic is fluid and continues to evolve, and therefore, we cannot predict the extent to which our business, results of operations, financial condition or liquidity will ultimately be impacted.

Critical Accounting Policies and Estimates

We maintain our accounting records in accordance with accounting principles generally accepted in the United States of America and as directed by the Commissions to which our operations are subject. The process of preparing financial statements requires the use of estimates on the part of management. The estimates used by management are based on historic experience and an understanding of current facts and circumstances. A summary of our significant accounting policies is listed in Note 2 of the Notes to Consolidated Financial Statements. The following sections describe those policies where the level of subjectivity, judgment, and variability of estimates could have a material impact on the financial condition, operating performance, and cash flows of the business.

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Revenue Recognition

Revenue from contracts with customers

The Company principally generates operating revenue from contracts with customers by providing regulated water and wastewater services at tariff-rates authorized by the Commissions in the states in which they operate and non-regulated water and wastewater services at rates authorized by contracts with government agencies. Revenue from contracts with customers reflects amounts billed for the volume of consumption at authorized per unit rates, for a service charge, and for other authorized charges.

The Company satisfies its performance obligation to provide water and wastewater services over time as services are rendered. The Company applies the invoice practical expedient and recognizes revenue from contracts with customers in the amount for which the Company has a right to invoice. The Company has a right to invoice for the volume of consumption, for the service charge, and for other authorized charges. The measurement of sales to customers is generally based on the reading of their meters, which occurs on a systematic basis throughout the month.

Contract terms are generally short-term and at will by customers and, as a result, no separate financing component is recognized for the Company's collections from customers, which generally require payment within 30 days of billing. The Company applies judgment, based principally on historical payment experience, in estimating its customers’ ability to pay.

Certain customers are not billed for volumetric consumption, but are instead billed a flat rate at the beginning of each monthly service period. The amount billed is initially deferred and subsequently recognized over the monthly service period, as the performance obligation is satisfied. The deferred revenue balance or contract liability, which is included in "other accrued liabilities" on the consolidated balance sheets, is inconsequential.

Regulatory balancing account revenue

The Company’s ability to recover revenue requirements authorized by the CPUC in its triennial GRC, is decoupled from the volume of the sales. Regulatory balancing account revenue is revenue related to rate mechanisms authorized in California by the CPUC, which allow the Company to recover the authorized revenue and are not considered contracts with customers. These mechanisms include the following:

The Water Revenue Adjustment Mechanism (WRAM) allows the Company to recognize the adopted level of volumetric revenues. The variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts is recorded as regulatory balancing account revenue.

Cost-recovery rates, such as the Modified Cost Balancing Account (MCBA), Conservation Balancing Account (CEBA), Pension Cost Balancing Account (PCBA), and Health Cost Balancing Account (HCBA), provide for recovery of the adopted levels of expenses for purchased water, purchased power, pump taxes, water conservation program costs, pension, and health care. Variances between adopted and actual costs are recorded as regulatory balancing account revenue.

As a result of the delay in the approval of the 2018 GRC, the CPUC authorized Cal Water to track the effect of the delay on customer billings in IRMA effective January 1, 2020. Variances between actual customer billings and those that would have been billed assuming the GRC had been effective January 1, 2020 are recorded as regulatory balancing account revenue. The 2018 GRC was approved in December of 2020 and final rates for the 2018 GRC were not implemented in 2020; as a result. Cal Water calculated and recorded this difference for all of 2020. In 2020, Cal Water determined that the IRMA met regulatory asset recognition criteria under accounting standards for regulated utilities.

Each district's WRAM and MCBA regulatory assets and liabilities are allowed to be netted against one another. The Company recognizes regulatory balancing account revenues that have been authorized for rate recovery, are objectively determinable and probable of recovery, and are expected to be collected within 24 months. To the extent that regulatory balancing account revenue is estimated to be collectible beyond 24 months, recognition is deferred.

Regulated Utility Accounting

Because we operate almost exclusively in a regulated business, we are subject to the accounting standards for regulated utilities. The Commissions in the states in which we operate establish rates that are designed to permit the recovery of the cost of service and a return on investment. We capitalize and record regulatory assets for costs that would otherwise be charged to expense if it is probable that the incurred costs will be recovered in future rates. Regulatory assets are amortized over the future periods that the costs are expected to be recovered. If costs expected to be incurred in the future are currently being recovered through rates, we record those expected future costs as regulatory liabilities. In addition, we record regulatory liabilities when the Commissions require a refund to be made to our customers over future periods.

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Determining probability requires significant judgment by management and includes, but is not limited to, consideration of testimony presented in regulatory hearings, proposed regulatory decisions, final regulatory orders, and the strength or status of applications for rehearing or state court appeals.

If we determine that a portion of our assets used in utility operations is not recoverable in customer rates, we would be required to recognize the loss of the assets disallowed.

Income Taxes

We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. We measure deferred tax assets and liabilities at enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We recognize the effect on the deferred tax assets and liabilities of a change in tax rate in the period that includes the enactment date. We also assess the likelihood that deferred tax assets will be recovered in future taxable income and, to the extent recovery is not probable, a valuation allowance would be recorded. In management's view, a valuation allowance was not required as of December 31, ~~2019~~2020 and December 31, ~~2018.~~2019.

We anticipate that future rate actions by the regulatory commissions will reflect revenue requirements for the tax effects of temporary differences recognized, which have previously been passed through to customers. The regulatory commissions have granted the Company permission to reflect the normalization of the tax benefits of the federal accelerated methods and available Investment Tax Credits (ITCs) for all assets placed in service after 1980. ITCs are deferred and amortized over the lives of the related properties for book purposes. The CPUC requires flow through accounting for state deferred taxes.

On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) was enacted. Based on ~~the~~ accounting principles generally accepted in the United States of America, the Company is required to re-measure deferred income taxes to reflect the corporate income tax rate change from 35 percent to 21 percent as of the date of enactment. The re-measurement of the deferred income taxes resulted in an estimated excess deferred income tax liability of ~~$121.0~~$105.0 million as of December 31, ~~2019.~~2020. The TCJA lowered ratepayers' rates ~~in 2018 and 2019~~ due to lower income tax expense recoveries and resulted in the quantification of excess deferred income tax balances collected from ratepayers. ~~The lower customer rates will be partially offset by the TCJA’s effect of increasing rate base in future years.~~ The Company is working with state regulators on the refund process for excess deferred income taxes collected from ratepayers in prior years that complies with the federal income tax normalization rules.

There are aspects to the TCJA that contain technical matters that require management to interpret the legislation and make judgments until further guidance becomes available. As a result, changes in management’s judgments could materially affect amounts recognized in the financial statements.

Pension and Postretirement Health Care Benefits

We incur costs associated with our pension and postretirement health care benefits plans. To measure the expense of these benefits, our management must estimate compensation increases, mortality rates, future health cost increases and discount rates used to value related liabilities and to determine appropriate funding. Different estimates used by our management could result in significant variances in the cost recognized for pension and postretirement health care benefit plans. The estimates used are based on historical experience, current facts, future expectations, and recommendations from independent advisors and actuaries. We use an investment advisor to provide advice in managing the plan's investments. We anticipate any increases in funding for the pension benefits plans will be recovered in future rate filings, thereby mitigating the financial impact. We believe it is probable that future costs will be recovered in future rates and therefore have recorded a regulatory asset in accordance with generally accepted accounting principles.

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Changes to the pension benefits actuarial assumptions can significantly affect pension costs, regulatory assets, and liabilities. The following table reflects the sensitivity of pension amounts reported for the year ended December 31, ~~2019,~~2020, to changes in actuarial assumptions:


	Increase/(Decrease) in Pension Benefits Actuarial Assumption		Increase/(Decrease) in 2020 Net Periodic Benefit Cost		Increase/(Decrease) in Projected Benefit Obligation as of December 31, 2020
			Dollars in thousands
Discount rate	(0.5)	%	$	9,173	$	83,741
Long-term rate of return on plan assets	(0.5)	%	3,035		—
Rate of compensation increases	(0.5)	%	(4,373)		(22,083)
Cost of living adjustment (1)	(0.1)	%	(1,477)		(9,772)
Discount rate	0.5	%	(7,796)		(72,998)
Long-term rate of return on plan assets	0.5	%	(3,035)		—
Rate of compensation increases	0.5	%	4,695		23,454
Cost of living adjustment	0.5	%	8,152		53,615

1.The cost of living adjustment was assumed to be 2.1% and has a floor of 2.0%.

Increase/(Decrease)
in Pension Benefits Actuarial Assumption Increase/(Decrease)
in 2019 Net Periodic
Benefit Cost Increase/(Decrease)
in Projected Benefit
Obligation as of
December 31, 2019
Dollars in thousands
Discount rate (0.5 )% $ 7,617
$ 86,772
Long-term rate of return on plan assets (0.5 )% 2,329
—
Rate of compensation increases (0.5 )% (3,248 ) (23,132 )
Cost of living adjustment (0.5 )% (6,156 ) (52,291 )
Discount rate 0.5 % (6,596 ) (75,156 )
Long-term rate of return on plan assets 0.5 % (2,330 ) —
Rate of compensation increases 0.5 % 3,492
24,773
Cost of living adjustment 0.5 % 6,691
56,917

Results of Operations

Operating Revenue

Operating revenue in 2020 was $794.3 million, an increase of $79.7 million, or 11.2%, over 2019. Operating revenue in 2019 was $714.6 million, an increase of $16.4 million, or 2.3%, over 2018. ~~Operating revenue in 2018 was $698.2 million, an increase of $22.1 million, or 3.3%, over 2017.~~ The sources of changes in operating revenue were:


	2020		2019
	Dollars in millions
Net change due to WRAM, service charges, usage, and other (1)	$	29.2	$	23.1
MCBA revenue (2)	46.8		(5.3)
Other balancing account revenue (3)	(1.0)		3.8
Deferral of revenue (4)	4.7		(5.2)
Net change	$	79.7	$	16.4

(1)In 2020, the net change due to rate changes, usage, and other in the above table was mainly driven by rate increases (the components of which are set forth in the table in Rates and Regulation section below) and a $5.0 million increase from the billings related to acquired customers from Rainier View Water Company. This was partially offset by a $2.3 million decrease in accrued unbilled revenue.

(2)MCBA revenue is the variance between adopted water production costs and actual water production costs. In 2020, we recognized $11.7 million of MCBA revenue as compared to a decrease to revenue of $35.1 million in 2019. The MCBA revenue increase in 2020 as compared to 2019 resulted from an increase in actual water production costs relative to adopted water production costs. The actual water production costs increased relative to adopted water production costs in 2020 as compared to 2019 due to a shift in water production mix from well water to purchased water in certain of our service territories. As required by the MCBA mechanism, the increase in actual water production costs relative to adopted water production costs in California also increased operating revenue for the same amount.

(3)The other balancing account revenue consists of the pension, conservation and health care balancing account revenues. Pension and conservation balancing account revenues are the differences between actual expenses and adopted rate recovery. Health care balancing account revenue is 85% of the difference between actual health care expenses and adopted rate recovery. In 2020, we recognized net revenue of $7.4 million for these balancing accounts as compared to a net $8.4 million of revenue in 2019. The decrease in revenue was mainly due to a decrease in actual conservation and health care expenses relative to adopted in 2020 as compared to 2019, which was partially offset by an increase in actual pension expenses relative to adopted in 2020 as compared to 2019.

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2019 2018
Dollars in millions
Net change in WRAM, service charges, usage, and other (1) $ 23.1
$ 9.3
MCBA revenue (2) (5.3 ) 3.5
Other balancing account revenue (3) 3.8
3.1
Deferral of revenue (4) (5.2 ) 6.2
Net change $ 16.4
$ 22.1
(4)The deferral of revenue consists of amounts that are expected to be collected from customers beyond 24 months following the end of the accounting period in which these revenues were recorded. The deferral decreased in 2020 as compared to 2019 due to a decrease in the balancing account revenue expected to be collected beyond 24 months.


~~(1)~~	In 2019, the operating revenue increase is due to rate increases, which increase WRAM and service charges (see table in Rates and Regulation section below), partially offset by a $2.2 million decrease in accrued unbilled revenue.


~~(2)~~	The MCBA revenue decrease in 2019 resulted from a decrease in actual water production costs relative to adopted water production costs in 2019 as compared to 2018. As required by the MCBA mechanism, the change in water production costs in California changes operating revenue in the same amount.

~~(3)~~

The other balancing accounts revenue consists of the pension cost, conservation and health cost balancing account revenues. Pension cost and conservation balancing account revenues are the differences between actual expenses and adopted rate recovery. Health cost balancing account revenue is 85% of the difference between actual health care expenses and adopted rate recovery. In 2019, the increase in other balancing account revenue was due to an increase in actual conservation expenses relative to adopted in 2019 as compared to 2018, which was partially offset by a decrease in actual pension expenses relative to adopted in 2019 as compared to 2018.


~~(4)~~	The deferral of revenue consists of amounts that are expected to be collected from customers beyond 24 months following the end of the accounting period in which these revenues were recorded. In 2019, the deferral increased as compared to 2018 due a decline in actual customer usage relative to adopted customer usage in 2019 as compared to 2018.

Water Production Expenses

Water production expenses, which consist of purchased water, purchased power, and pump taxes, comprise the largest segment of total operating expenses. Water production costs accounted for ~~41.5%~~42.1% and ~~43.0%~~41.5%, of total operating costs in ~~2019~~2020 and ~~2018,~~2019, respectively. The rates charged for wholesale water supplies, electricity, and pump taxes are established by various public agencies. As such, these rates are beyond our control.

The table below provides the change in water production expenses during the past 2 years:


	2019							2018							2020						2019
	Amount		Change			% Change		Amount		Change		% Change			Amount		Change		% Change		Amount		Change		% Change
	Dollars in millions														Dollars in millions
Purchased water	$	212.5	$	5.4		2.6	%	$	207.1	$	8.0	4.0	%	Purchased water	$	230.1	$	17.6	8.3	%	$	212.5	$	5.4	2.6	%
Purchased power	31.4		0.3			1.0	%	31.1		2.2		7.6	%	Purchased power	34.0		2.6		8.3	%	31.4		0.3		1.0	%
Pump taxes	11.5		(3.2		)	(21.8	)%	14.7		0.8		5.8	%	Pump taxes	12.6		1.1		9.6	%	11.5		(3.2)		(21.8)	%
Total water production expenses	$	255.4	$	2.5		1.0	%	$	252.9	$	11.0	4.5	%	Total water production expenses	$	276.7	$	21.3	8.3	%	$	255.4	$	2.5	4.5	%

The principal factors affecting water production expenses are the quantity, price and source of the water. Generally, water pumped from wells costs less than water purchased from wholesale suppliers.

The table below provides the amounts, percentage change, and source mix for the respective years:


	2019					2018						2020					2019
	MG	% of Total		% change from prior year		MG	% of Total		% change from prior year			MG	% of Total		% change from prior year		MG	% of Total		% change from prior year
	Millions of gallons (MG)											Millions of gallons (MG)
Source:											Source:
Wells	45,575	43.5	%	(7.6	)%	49,340	45.9	%	1.3	%	Wells	49,116	44.4	%	7.8	%	45,575	43.5	%	(7.6)	%
Purchased	53,743	51.3	%	0.7	%	53,361	49.6	%	4.4	%	Purchased	55,948	50.5	%	4.1	%	53,743	51.3	%	0.7	%
Surface	5,417	5.2	%	10.8	%	4,888	4.5	%	(4.6	)%	Surface	5,678	5.1	%	4.8	%	5,417	5.2	%	10.8	%
Total	104,735	100.0	%	(2.7	)%	107,589	100.0	%	2.5	%	Total	110,742	100.0	%	5.7	%	104,735	100.0	%	(2.7)	%

Purchased water expenses are affected by changes in quantities purchased, supplier prices, and cost differences between wholesale suppliers. The MCBA mechanism is designed to recover all incurred purchased water expenses.

For ~~2019,~~2020, the ~~$5.4~~$17.6 million increase in purchased water expenses is due to a ~~0.7%~~4.1% increase in purchased quantities and an overall blended water wholesaler rate increase of ~~1.9%~~4.0%.

Purchased power expenses are affected by the quantity of water pumped from wells and moved through the distribution system, rates charged by electric utility companies, and rate structures applied to usage during peak and non-peak times of the day or season. In ~~2019,~~2020, purchased power expenses increased ~~$0.3~~$2.6 million ~~or 1.0%,~~ mainly due to a ~~10.8%~~5.7% increase in ~~surface~~ water production.

Changes in climate change regulations could increase the cost of power which in turn would result in an increase in the rates our power suppliers charge us. Any change in pricing of our purchased power expenses in California would be recovered from our customers through the MCBA mechanism. Any change in power costs in other states would be requested to be recovered by the customers in those states. The impact of such legislation is dependent upon the enacted date, the factors that impact our suppliers' cost structure, and their ability to pass the costs to us in their approved tariffs. These items are not known at this time.

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Administrative and General Expenses

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

During ~~2019,~~2020, administrative and general ~~expenses~~expense increased ~~$7.8~~$8.4 million or 7.8%, as compared to ~~2018.~~2019. The increase was ~~mostly~~mainly due to employee ~~wage increases of $3.2 million, legal~~pension and ~~outside services fees~~retiree medical expense increase of ~~$3.1~~$7.2 million, employee wage increase of $2.9 million, outside service increase of $2.1 million, and uninsured ~~losses~~loss increase of ~~$1.2 million which~~$1.7 million. The increases were partially offset by a ~~$2.2 million~~$1.7 decrease in employee ~~pension~~healthcare costs and ~~retiree medical expenses. Also, 2018 expenses were partially offset by the recovery of $2.6~~$1.6 million ~~for 2016 and 2017 drought program incremental~~travel costs. Employee pension benefit expenses are fully recovered in rates and are tracked in the pension cost balancing account, such that revenues are recovered on a dollar-for-dollar basis up to the amounts authorized in the ~~2015~~2018 GRC. Employee and retiree medical expenses are recovered in rates through health cost balancing account authorized in the ~~2015~~2018 GRC, such that revenues are recovered up to 85% of the variance between adopted and recorded expenses.

Other Operations Expenses

The components of other operations expenses include payroll, material and supplies, and contract service costs of operating the regulated water systems, including the costs associated with water transmission and distribution, pumping, water quality, meter reading, billing, operations of district offices, and water conservation programs.

During ~~2019,~~2020, other operations expenses increased ~~$10.2~~$5.8 million, or ~~12.8%~~6.4%, compared to ~~2018.~~2019. The increase was mostly due to increases in ~~water conservation program expenses~~bad debt reserve expense of ~~$8.1 million, PSPS program costs of $1.5 million, software licensing fees of $1.3 million, employee wage increases of $0.7 million, property maintenance costs of $0.6 million, and a $0.4~~$4.1 million, increase ~~from the impairment of utility plant from the California GRC. These~~in cost ~~increases were partially offset by a decrease in costs~~ associated with the deferral of operating revenue of ~~$4.2 million. Also, 2018~~$3.9 million, increase in customer accounts expenses ~~were~~of $1.6 million, and an increase in employee wage cost of $1.0 million, which was partially offset by ~~the recovery~~$7.1 million of ~~$0.7 million for 2016 and 2017 drought~~water conservation program ~~incremental costs.~~expenses. Water conservation program expenses are fully recovered in rates and are tracked in the conservation balancing account if it is within the authorized amount, such that revenues are recovered on a dollar-for-dollar basis up to the amounts authorized in the ~~2015~~2018 GRC.

Maintenance

Maintenance expenses increased ~~$2.3~~$1.2 million, or ~~9.6%~~4.4%, in ~~2019,~~2020, compared to ~~2018~~2019 due to increased costs for repairs of ~~reservoirs, structures, and~~ transmission and distribution ~~mains.~~mains, and reservoirs and tanks.

Depreciation and Amortization

Depreciation and amortization increased ~~$5.4~~$9.3 million in ~~2019,~~2020, or ~~6.5%~~10.4%, primarily due to capital additions.

Income Taxes

For ~~2019,~~2020 income taxes decreased ~~$2.3~~$4.8 million, or ~~12.4%~~29.8%, to ~~$16.3~~$11.4 million as compared to ~~2018.~~2019. The decrease was primarily due to ~~a reduction in operating income which was partially offset by a $2.3 million decrease in~~ the tax benefit from the flow through method of ~~accounting~~repairs deductions for ~~"repairs" deductions on our corporate~~California state income tax ~~filings.~~partially offset by an increase in operating income. The Company’s effective combined income tax rate for ~~2019~~2020 was ~~21.9%~~11.04% as compared to ~~19.5%~~21.9% for ~~2018.~~2019.

Property and Other Taxes

For ~~2019,~~2020, property and other taxes increased ~~$1.5~~$1.2 million, or ~~5.5%~~4.3%, as compared to ~~2018.~~2019. The increase was due to an increase in our assessed property values for utility plant placed in service during the year.

Other Income and Expenses

In ~~2019,~~2020, net other income ~~increased $12.0~~decreased $2.9 million tofrom net other income of $4.9 million ~~as compared to a net other loss of $7.1 million~~ in ~~2018.~~2019. The ~~increase~~decrease was due primarily to a ~~$7.4~~$1.7 million ~~increase~~decrease in the allowance for equity funds used during construction and a $0.8 million decrease in unrealized gains from certain benefit plan investments due to market conditions, a $4.4 million decrease in business development expenses, and a $2.7 million increase in the allowance for equity funds used during construction, which was partially offset by wage increases of $0.7 million and a decrease in the benefits from Company-owned life insurance of $1.6 million.conditions.

Net Interest Expense

In ~~2019,~~2020, net interest expense increased ~~$3.4~~$0.6 million as compared to ~~2018.~~2019. The increase relates to an increase in average daily borrowings on the unsecured revolving credit ~~facilities, which were used to fund capital expenditures and general corporate purposes.~~facilities.

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Rates and Regulation

The following is a summary of ~~2019~~2020 rate filings. A description of the "Type of Filing" can be found in the "Item 1 - Rates and Regulation" section above. California decisions and resolutions may be found on the CPUC website at www.cpuc.ca.gov.

Type of Filing

Decision/Resolution

Effective Date

Increase

(Decrease)

Annual Revenue

CA District/

Subsidiary

GRC and Offset Filings

~~2019~~Cal Water 2018 GRC

D2012007

Jan 2020

$9.6 million

All Districts

2020 Expense Offset

AL ~~2319-2323~~2373

~~Jan 2019~~Feb 2020

$~~2.0~~2.5 million

56 Districts

~~2019 Escalation rate increases~~

~~AL 2324 and 2332~~

~~Jan 2019~~

~~$16.2 million~~

~~All Districts~~

~~Waikoloa GRC~~

~~Jan 2019~~

~~$1.6 million~~

~~Hawaii Water~~

~~2019~~2020 Rate Base Offset

AL ~~2325-2328~~2373

~~Apr 2019~~Feb 2020

$~~0.2~~2.5 million

4All Districts

~~2019 Expense Offset~~

~~AL 2345-2349~~

~~July 2019~~

~~$3.9 million~~

~~5 Districts~~

~~2019~~2020 Rate Base Offset

AL ~~2350~~2387

~~Nov 2019~~Aug 2020

$~~0.4~~9.0 million

1 ~~District~~Districts

The estimated impact of current and prior year rate changes on operating revenues compared to prior years is listed in the following table:


	2020		2019
	Dollars in millions
General Rate Case (GRC)	$	9.9	$	2.3
Escalation rate increases	0.5		16.2
Expense offset (purchased water/pump taxes)	4.5		5.7
Rate base offsets	6.0		1.2
Total rate increases	$	20.9	$	25.4

2019 2018
Dollars in millions
General Rate Case (GRC) (a) $ 3.5
$ 4.9
Escalation rate increases (b) 16.2
15.4
Expense offset (purchased water/pump taxes) (c) 5.7
5.8
Tax Cut Jobs Act (d) —
(10.7 )
Cost of capital (d) —
(6.3 )
Total rate increases $ 25.4
$ 9.1


~~(a)~~	Includes rate changes for the Cal Water 2015 GRC decision in 2017, rate base offsets in 2019, 2018 and 2017, Hawaii Water GRC decisions in 2019, 2018, and 2017 and Washington Water GRC decision in 2019 and 2018.


~~(b)~~	~~Includes rate changes for escalation rate increases in 2019 and 2018.~~


~~(c)~~	~~Includes purchased water and pump tax offsets for 2019, 2018 and 2017.~~


~~(d)~~	Customer rates were reduced beginning July 1, 2018 for the Tax Cuts Jobs Act and Cost of Capital decision in California. Includes revenue reduction recorded as regulatory liability for the first six months of 2018.

Water Supply

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. Management believes that supply pumped from underground aquifers and purchased from wholesale suppliers will be adequate to meet customer demand during ~~2020~~2021 and beyond. However, water rationing may be required in future periods, 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.

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Liquidity and Capital Resources

Cash flow from Operations

During ~~2019,~~2020, we generated cash flow from operations of ~~$168.8~~$117.9 million, compared to ~~$179.0~~$168.8 million during ~~2018.~~2019. The decrease in ~~2019~~2020 was primarily due to ~~an increase~~the recording of the IRMA receivable that resulted from the delay in ~~net WRAM~~the approval of the 2018 GRC and ~~MCBA receivable in 2019 as actual customer usage was below adopted.~~increased funding for pension and other post-retirement benefits during 2020.

The water business is seasonal. Billed revenue is 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 sufficient to cover operating and capital costs during the winter period. The increase in cash flow 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 flow 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 ~~2019, 2018,~~2020 and ~~2017,~~2019 we used ~~$273.8 million, $271.7~~$298.7 million and ~~$259.2~~$273.8 million, respectively, of cash for capital expenditures, both Company-funded and developer-funded. The ~~2019~~2020 capital expenditures exceeded the high end of the budgeted capital expenditures of ~~$260.0 million. Annual expenditures fluctuate~~$290.0 million due to favorable weather patterns at the end of the year that allowed construction activities to continue uninterrupted. Cash used in investing activities fluctuates each year largely due to the availability of construction resources and our ability to obtain construction permits in a timely manner. We also paid $40.5 million for the acquisitions of Rainier View Water Company and Kalealoa Water Company in 2020.

Financing Activities

During ~~2019,~~2020, we borrowed ~~$260.0~~$335.0 million, and paid down ~~$150.0~~$140.1 million on our unsecured revolving credit facilities to fund capital expenditures and for general corporate purposes. We also ~~added $27.8~~received $27.3 million of advances and contributions in aid of construction, which was reduced by refunds to developers of ~~$7.6~~$10.2 million. We issued $400.0 million of First Mortgage Bonds on June 11, 2019 in a private placement and used the net proceeds to pay down Cal Water's unsecured revolving credit facility and for general corporate purposes. We also repaid ~~$405.6~~$22.1 million of First Mortgage Bonds that matured ~~or were redeemed~~ in ~~2019~~2020 and other long-term debt obligations. In addition, we issued ~~$20.4~~$83.6 million of Company common stock through our at-the-market equity plan and our employee stock purchase ~~plan that went into effect on January 1, 2019 (see Note 6 in the Notes to Consolidated Financial Statements for additional information).~~plan.

On March 29, 2019, the Company and Cal Water entered into certain syndicated credit agreements, which provide for unsecured revolving credit facilities of up to an initial aggregate amount of $550.0 million for a term of five years. The revolving credit facilities amend, expand, and replace the Company’s and its subsidiaries’ prior credit facilities originally entered into on May 10, 2015. The new credit facilities extended the terms until March 29, 2024, and increased Cal Water’s unsecured revolving line of credit. The Company and subsidiaries that it designates may borrow up to $150.0 million under the Company’s revolving credit facility. Cal Water may borrow up to $400.0 million under its revolving credit facility. All borrowings must be repaid within 24 months unless a different period is required or authorized by the CPUC. Additionally, the credit facilities may be increased by up to an incremental $150.0 million under the Cal Water facility and $50.0 million under the Company facility, subject in each case to certain conditions. The proceeds from the revolving credit facilities may be used for working capital purposes, including the short-term financing of capital projects. Borrowings under the credit facilities typically have maturities varying between one and nine months and will bear interest annually at a rate equal to (i) the base rate or (ii) the Eurodollar rate, plus an applicable margin of 0.650% to 0.875%, depending on the Company and its subsidiaries’ consolidated total capitalization ratio.

The under-collected net WRAM and MCBA receivable balances were ~~$62.6 million, $56.1~~$67.8 million and ~~$69.1~~$62.6 million as of December 31, ~~2019, 2018,~~2020 and ~~2017,~~2019, respectively. The increase of ~~$6.5~~$5.2 million from December 31, ~~2018~~2019 to December 31, ~~2019~~2020 was primarily due to ~~actual customer usage being lower than adopted.~~a mix shift in water production from well water to purchased water in certain of our service territories. The under-collected net WRAM and MCBA receivable balances were primarily financed by Cal Water with short-term and long-term financing arrangements to meet operational cash requirements. Interest on the under-collected net WRAM and MCBA receivable balances, the interest recoverable from customers, is limited to the current 90-day commercial paper rate, which is significantly lower than Cal Water's short and long-term financing rates.

Bond principal and other long-term debt payments were $22.1 million during 2020 and $405.6 million during ~~2019, $16.5 million during 2018, and $26.8 million during 2017.~~2019.

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At the January ~~2020~~2021 meeting, the Board of Directors declared the quarterly dividend, increasing it for the ~~53nd~~54th consecutive year. The quarterly dividend was raised from ~~$0.1975~~$0.2125 to ~~$0.2125~~$0.2300 per common share. This represents an indicated annual rate of ~~$0.8500~~$0.9200 per common share. Dividends have been paid for 7475 consecutive years. The annual dividends paid per common share in 2020, 2019, and 2018 were $0.8500, $0.7900, and ~~2017 were $0.7900,~~ $0.7500, ~~and $0.7200,~~ respectively. Earnings not paid as dividends are reinvested in the business for the benefit of stockholders. The dividend payout ratio was 43.1% in 2020, 60.3% in 2019, and 55.2% in 2018 ~~and 47.4% in 2017~~ for an average of ~~54.3%~~52.9% over the 3-year period. Our long-term targeted dividend payout ratio is 60%.

Short-Term Financing

Short-term liquidity is provided by the bank lines of credit described above and by internally generated funds. As of December 31, ~~2019,~~2020, there were borrowings of ~~$175.1~~$370.0 million outstanding on our unsecured revolving lines of credit, compared to ~~$65.1~~$175.1 million outstanding on our unsecured revolving lines of credit as of December 31, ~~2018.~~2019.

Given our ability to access our lines of credit on a daily basis, cash balances are managed to levels required for daily cash needs and excess cash is invested in short-term or cash equivalent instruments. Minimal operating levels of cash are maintained for Washington Water, New Mexico Water, and Hawaii Water.

The Company and subsidiaries which it designates may borrow up to $150.0 million under its credit facility. Cal Water may borrow up to $400.0 million under its credit facility; however, all borrowings currently need to be repaid within 24 months unless otherwise authorized by the CPUC.

Both 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" not to exceed 66.7% and "interest coverage ratio" of three or more (each as defined in the respective credit agreements). As of December 31, ~~2019,~~2020, our consolidated total capitalization ratio was 58.4% and the interest coverage ratio was greater than five. In summary, as of such date, we met all of the covenant requirements and were eligible to use the full amounts of these credit agreements.

Long-Term Financing

Long-term financing is accomplished through the use of both debt and equity. Cal Water was authorized to issue ~~$350.0~~$700.0 million of debt and common stock to finance capital projects and operations by a CPUC decision dated ~~May 12, 2016.~~November 5, 2020. In addition, the decision retained ~~$146.0~~approximately $94.0 million of prior financing authority and determined that refinancing long-term debt did not count against the authorization. The CPUC requires that any loans from Cal Water to the Company be at arm’s length. This restriction did not materially impact the Company's ability to meet its cash obligations in ~~2019.~~2020. Management does not expect this restriction to have a material impact on the Company's ability to meet its cash obligations in ~~2020~~2021 and beyond.

On June 11, 2019, Cal Water issued $400.0 million of First Mortgage Bonds (see Note 8)9) in a private placement. Cal Water used the net proceeds from the sale of the bonds to pay down outstanding short-term borrowings and to redeem $300.0 million of First Mortgage Bond series UUU. Long-term financing, which includes First Mortgage Bonds, senior notes, 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 five 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.

Additional information regarding the bank borrowings and long-term debt is presented in Notes 78 and 89 in the Notes to Consolidated Financial Statements.

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Equity Issuance

Summarized Financial Information for Guarantors and the Issuer of Guaranteed Securities.

On April 17, 2009, Cal Water (Issuer) issued $100.0 million aggregate principal amount of 5.500% First Mortgage Bonds due 2040, all of which are fully and unconditionally guaranteed by the Company (Guarantor). Certain subsidiaries of the Company do not guarantee the security and are referred to as Non-guarantors. The Guarantor fully, absolutely, irrevocably and unconditionally guarantees the due and punctual payment when due, whether at stated maturity, by acceleration, by notice of prepayment or otherwise, of the principal of, premium, if any, and interest on the bonds. The bonds rank equally among Cal Water's other first mortgage bonds.

The following tables present summarized financial information of the Issuer subsidiaries and the Guarantor. All intercompany balances and transactions between subsidiaries under Issuer and Guarantor have been eliminated. The information presented below excludes eliminations necessary to arrive at the information on a consolidated basis. In presenting the summarized financial statements, the equity method of accounting has been applied to the Issuer interests in the Guarantor. The summarized information excludes financial information of the Non-guarantors, including earnings from and investments in these entities.


Summarized Statement of Operations
(in thousands)	2020				2019
	Issuer		Guarantor		Issuer		Guarantor
Net sales	$	745,034	$	—	$	669,769	$	—
Gross profit	$	477,915	$	—	$	423,915	$	—
Income from operations	$	130,761	$	331	$	92,911	$	411
Equity in earnings of guarantor			$	92,244			$	58,447
Net income	$	92,244	$	92,760	$	58,447	$	58,818


Summarized Balance Sheet Information
(in thousands)	As of December 31, 2020				As of December 31, 2019
	Issuer		Guarantor		Issuer		Guarantor
Current assets	$	227,030	$	20,075	$	164,712	$	3,186
Intercompany receivable from non-guarantor	$	4,905	$	20,022	$	3,621	$	25,803
Other assets	$	433,837	$	943,665	$	510,230	$	777,969
Long-term intercompany receivable from non-guarantor	$	—	$	37,985	$	—	$	30,060
Net utility plant	$	2,459,992	$	117	$	2,252,704	$	211
Total assets	$	3,125,764	$	1,021,864	$	2,931,267	$	837,229

Current liabilities	$	481,247	$	100,124	$	296,720	$	55,413
Intercompany payable to guarantor and non-guarantor	$	402			$	6,115
Long-term debt	$	780,790	$	—	$	786,310	$	—
Other liabilities	$	1,034,098	$	1,725	$	1,141,338	$	1,520
Total Liabilities	$	2,296,537	$	101,849	$	2,230,483	$	56,933

Off-Balance Sheet Transactions

We do not utilize off-balance-sheet financing or utilize special purpose entity arrangements for financing. We do not have equity ownership through joint ventures or partnership arrangements.

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Contractual Obligations

The contractual obligations presented in the table below represent our estimates of future payments under fixed contractual obligations and commitments. Changes in our business needs, cancellation provisions and changes in interest rates, as well as action by third parties and other factors, may cause these estimates to change. Therefore, our actual payments in future periods may vary from those presented in the table below.

The following table summarizes our contractual obligations as of December 31, ~~2019.~~2020.


	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		After 5 Years
	(In thousands)											Total		Less than1 Year		1-3 Years		3-5 Years		After 5 Years
Long-term debt (a)	$	807,429	$	21,693	$	9,909	$	1,658	$	774,169	Long-term debt (a)	$	785,512	$	4,914	$	6,199	$	70,730	$	703,669
Interest payments	793,673		38,308		72,579		71,736		611,050		Interest payments	755,341		36,411		72,016		71,714		575,200
Advances for construction	191,062		7,628		15,254		15,254		152,926		Advances for construction	195,625		8,576		17,152		17,152		152,745
Pension and postretirement benefits (b)	285,089		18,889		43,875		52,603		169,722		Pension and postretirement benefits (b)	300,486		20,331		46,771		55,634		177,750
Finance lease obligations (c)	7,051		986		1,974		2,446		1,645		Finance lease obligations (c)	6,065		987		2,493		1,880		705
Operating lease obligations	18,245		1,951		3,312		2,777		10,205		Operating lease obligations	20,230		2,302		3,779		3,202		10,947
Water supply contracts (d)	777,093		34,550		69,101		69,100		604,342		Water supply contracts (d)	775,676		37,911		75,825		75,821		586,119
TOTAL	$	2,879,642	$	124,005	$	216,004	$	215,574	$	2,324,059
Total contractual obligations											Total contractual obligations	$	2,838,935	$	111,432	$	224,235	$	296,133	$	2,207,135


~~(a)~~	~~Excludes finance lease obligations as reported below. Also, excludes unamortized debt issuance costs of $4.7 million.~~


~~(b)~~	~~Pension and postretirement benefits include $2.1 million of short-term pension obligations.~~


~~(c)~~	~~Finance lease obligations represent total cash payments to be made in the future and include interest expense of $1.2 million.~~


~~(d)~~	~~Estimated annual contractual obligations are based on the same payment levels as 2019.~~

a.Excludes finance lease obligations as reported below. Also, excludes unamortized debt issuance costs of $4.5 million.

b.Pension and postretirement benefits include $2.1 million of short-term pension obligations.

c.Finance lease obligations represent total cash payments to be made in the future and include interest expense of $0.9 million.

d.Estimated annual contractual obligations are based on the same payment levels as 2020.

For pension and postretirement benefits other than pensions obligations, see Note 1112 of the Notes to the Consolidated Financial Statements.

Long-term debt payments include annual sinking fund payments on First Mortgage Bonds, maturities of long-term debt, and annual payments on other long-term obligations.

Advances for construction represent annual contract refunds to developers for the cost of water systems paid for by the developers. The contracts are non-interest bearing, and refunds are generally on a straight-line basis over a 40-year period. System and facility leases include obligations associated with leasing water systems and rents for office space.

For finance and operating lease obligations, see Note 1415 of the Notes to the Consolidated Financial Statements.

Cal Water has water supply contracts with wholesale suppliers in 13 of its operating districts and for the two leased systems in Hawthorne and Commerce. For each contract, the cost of water is established by the wholesale supplier and is generally beyond our control. The amount paid annually to the wholesale suppliers is charged to purchased water expense on our statement of income. Most contracts do not require minimum annual payments and vary with the volume of water purchased. For more details related to water supply contracts, see Note 1115 of the Notes to the Consolidated Financial Statements.

Capital Requirements

Capital requirements consist primarily of new construction expenditures for expanding and replacing utility plant facilities and the acquisition of water systems. They also include refunds of advances for construction.

Company-funded and developer-funded utility plant expenditures were $298.7 million and $273.8 million ~~$271.7 million,~~in 2020 and ~~$259.2 million in~~ 2019, ~~2018, and 2017,~~ respectively. A majority of capital expenditures was associated with mains and water treatment equipment.

For ~~2020,~~2021, the Company is estimating its capital expenditures to be between ~~$260.0~~$270.0 million and ~~$290.0~~$300.0 million based on the ~~pending~~ 2018 GRC in California and normal capital needs in the other subsidiaries. ~~Capital expenditures in California are evaluated in the context of the pending GRC and may change as the case moves forward.~~ We expect our annual capital expenditure to increase during the next five years due to increasing needs to replace and maintain infrastructure.

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Management expects developer-funded expenditures in ~~2020.~~2021. These expenditures will be financed by developers through refundable advances for construction and non-refundable contributions in aid of construction. Developers are required to deposit the cost of a water construction project with us prior to our commencing construction work, or the developers may construct the facilities themselves and deed the completed facilities to us. Funds are generally received in advance of incurring costs for these projects. Advances are normally refunded over a 40-year period without interest. Future payments for advances received are listed

under contractual obligations above. Because non-Company-funded construction activity is solely at the discretion of developers, we cannot predict the level of future activity. The cash flow impact is expected to be minor due to the structure of the arrangements.

Capital Structure

Common stockholders' equity was $921.3 million at December 31, 2020, compared to $779.9 million at December 31, ~~2019, compared to $730.2 million at December 31, 2018.~~2019. The Company sold 1,710,779 and 381,105 shares of its common stock in 2020 and 2019 respectively through its at-the-market equity program.

Total capitalization, including the current portion of long-term debt, was $1,707.6 million at December 31, 2020 and $1,588.5 million at December 31, ~~2019~~2019. In 2020, Cal Water repaid $22.1 million for First Mortgage Bonds that matured in 2020 and ~~$1,545.1 million at December 31, 2018.~~other long-term debt obligations. In 2019, Cal Water issued $400.0 million of First Mortgage Bonds in a private placement and repaid $405.6 million for First Mortgage Bonds that matured or were redeemed in 2019 and other long-term debt obligations. In future periods, the Company intends to issue common stock and long-term debt to finance our operations. The capitalization ratios will vary depending upon the method we choose to finance our operations.

At December 31, capitalization ratios were:


	2019		2018			2020		2019
Common equity	49.1	%	47.3	%	Common equity	54.0	%	49.1	%
Long-term debt	50.9	%	52.7	%	Long-term debt	46.0	%	50.9	%

The return (from both regulated and non-regulated operations) on average common equity was 11.4% in 2020 compared to 8.36% in ~~2019 compared to 9.18% in 2018.~~2019. Cal Water does not include construction work in progress in its regulated rate base; instead, Cal Water was authorized to record AFUDC on construction work in progress, effective January 1, 2017. Construction work in progress for Cal Water was $156.6 million at December 31, 2020 and $231.1 million at December 31, ~~2019 and $199.1 million at December 31, 2018.~~2019.

Acquisitions

Refer to "Note 16 - Acquisitions" for 2020 acquisition activity. In 2019 ~~and 2018~~ there were no significant acquisitions.

Real Estate Program

We own real estate. From time to time, certain parcels are deemed no longer used or useful for water utility operations. Most surplus properties have a low cost basis. We developed a program to realize the value of certain surplus properties through sale or lease of those properties. The program will be ongoing for a period of several years. There were no significant sales in ~~2019~~2020 and ~~2018 and a pre-tax gain of $0.6 million in 2017.~~2019. As sales are dependent on real estate market conditions, future sales, if any, may or may not be at prior year levels.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

We do not participate in hedge arrangements, such as forward contracts, swap agreements, options, or other contractual agreements to mitigate the impact of market fluctuations on our assets, liabilities, production, or contractual commitments. We operate only in the United States and, therefore, are not subject to foreign currency exchange rate risks.

Interest Rate Risk

We are subject to interest rate risk, although this risk is lessened because we operate in a regulated industry. If interest rates were to increase, management believes customer rates would increase accordingly, subject to Commission approval in future GRC filings. The majority of our debt is long-term at a fixed rate. Interest rate risk does exist on short-term borrowings within our credit facilities, as these interest rates are variable. We also have interest rate risk on new financing, as higher interest cost may occur on new debt if interest rates increase.

Over the next 12 months, approximately ~~$21.9~~$5.1 million of the ~~$808.6~~$786.2 million of existing long-term debt instruments will mature or require sinking fund payments. Applying a hypothetical 10 percent increase in the rate of interest charged on those borrowings would not have a material effect on our earnings.

Item 8. Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of

California Water Service Group

San Jose, California

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of California Water Service Group and subsidiaries (the "Company") as of December 31, ~~2019~~2020 and ~~2018,~~2019, the related consolidated statements of income, common stockholders' equity, and cash flows, for each of the three years in the period ended December 31, ~~2019,~~2020, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, ~~2019,~~2020, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, ~~2019~~2020 and ~~2018,~~2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, ~~2019,~~2020, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2019,~~2020, based on criteria established in Internal Control -— Integrated Framework (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

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Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

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

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

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Impact of Rate Regulation on the Financial Statements - Refer to Note 2 to the financial statements

Critical Audit Matter Description

The Company is subject to rate regulation by the California Public Utilities Commission (“the Commission”), which has jurisdiction with respect to the rates of water and wastewater service companies in California. Management has determined it meets the requirements under accounting principles generally accepted in the United States of America to prepare its financial statements applying the specialized rules to account for the effects of cost-based rate regulation. Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, such as utility plant; regulatory assets and liabilities; operating ~~revenues; operation and maintenance expense;~~revenue; operating expenses; and depreciation expense.

The Commission establishes rates that are designed to permit the recovery of the cost of service and a return on investment. The Company’s rates are subject to regulatory rate-setting processes including a General Rate Case proceeding. The Company capitalizes and records regulatory assets for costs that would otherwise be charged to expense if it is probable that the incurred costs will be recovered in future rates. If costs expected to be incurred in the future are currently being recovered through rates, the Company records those expected future costs as regulatory liabilities. Determining probability requires significant judgment by management and includes, but is not limited to, consideration of testimony presented in regulatory hearings, proposed regulatory decisions, final regulatory orders, and the strength or status of applications for rehearing or state court appeals. If the Company determines that a portion of the assets used in utility operations are not recoverable in customer rates, the Company would be required to recognize the loss of the assets disallowed.

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We identified the impact of rate regulation as a critical audit matter due to the significant judgments that underlie the Company’s regulatory account balances and disclosures and the high degree of subjectivity involved in assessing the impact of regulatory decisions on the financial statements. Management judgments include interpreting the intent of the Commission’s decisions when appropriately measuring related regulatory assets or liabilities and assessing the probability of (1) recovery in future rates of incurred costs and (2) the requirement to refund to customers amounts collected prior to ~~customers.~~costs being incurred. Given that management’s accounting judgements are based on assumptions about the outcome of future regulatory decisions and interpretation of new or revised regulatory decisions, auditing these judgments required specialized knowledge of accounting for rate regulation and the rate setting process due its inherent complexities and pervasive impact on the financial statements.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the interpretation of new or revised regulatory decisions, and the uncertainty of future regulatory hearings, proposed regulatory decisions, final regulatory orders, and the strength or status of applications for rehearing or state court appeals included the following, among others:

•We tested the effectiveness of management’s controls over the determination of regulatory assets or liabilities and the evaluation of the likelihood of (1) the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets, and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities. We also tested the effectiveness of management’s controls over the initial recognition of amounts as utility plant; regulatory assets or liabilities; and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.

•We read regulatory orders issued by the Commission for the Company, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to evaluate management’s interpretation of the accounting impacts of any new or revised regulatory decisions and their impact on measuring related regulatory assets and liabilities. We evaluated the external information and compared it to management’s recorded regulatory asset and liability balances for completeness.

•We obtained supporting documentation (such as letters or memorandums) from management, ~~and internal and external legal counsel,~~ as appropriate, regarding probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery or a future reduction in rates.

•We obtained supporting documentation from management regarding their interpretation of the intent of Commission decisions and evaluated management’s assumptions and methodologies used in measuring regulatory assets and liabilities for compliance with the related orders. We reconciled the underlying data or inputs used in the measurement to rate decisions approved by the Commission and tested the mathematical accuracy of the calculations.

•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.

/s/ DELOITTE & TOUCHE LLP

San Francisco, California

February ~~27, 2020~~25, 2021

We have served as the Company's auditor since 2008.

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CALIFORNIA WATER SERVICE GROUP

Consolidated Balance Sheets


	December 31,							December 31,
	2019			2018				2020		2019
	(In thousands, except per share data)							(In thousands, except per share data)
ASSETS	ASSETS						ASSETS
Utility plant:							Utility plant:
Land	$	45,047		$	44,019		Land	$	45,672	$	45,047
Depreciable plant and equipment	3,235,415			2,950,424			Depreciable plant and equipment	3,645,770		3,235,415
Construction work in progress	245,169			210,260			Construction work in progress	171,414		245,169
Intangible assets	24,854			24,743			Intangible assets	27,567		24,854
Total utility plant	3,550,485			3,229,446			Total utility plant	3,890,423		3,550,485
Less accumulated depreciation and amortization	(1,144,115		)	(996,723		)	Less accumulated depreciation and amortization	(1,239,865)		(1,144,115)
Net utility plant	2,406,370			2,232,723			Net utility plant	2,650,558		2,406,370
Current assets:							Current assets:
Cash and cash equivalents	42,653			47,176			Cash and cash equivalents	44,555		42,653
Receivables: net of allowance for doubtful accounts of $771 and $757 in 2019 and 2018, respectively
Customers	32,058			30,037
Receivables:							Receivables:
Customers, net							Customers, net	44,025		32,058
Regulatory balancing accounts	38,225			42,394			Regulatory balancing accounts	96,241		38,225
Other	14,187			17,101
Unbilled revenue	34,879			33,427
Other, net							Other, net	20,331		14,187
Unbilled revenue, net							Unbilled revenue, net	34,069		34,879
Materials and supplies at weighted average cost	7,745			6,586			Materials and supplies at weighted average cost	8,831		7,745
Taxes, prepaid expenses, and other assets	14,965			11,981			Taxes, prepaid expenses, and other assets	17,964		14,965
Total current assets	184,712			188,702			Total current assets	266,016		184,712
Other assets:							Other assets:
Regulatory assets	433,322			353,569			Regulatory assets	325,376		433,322
Goodwill	2,615			2,615			Goodwill	31,842		2,615
Other	84,289			60,095			Other	120,456		84,289
Total other assets	520,226			416,279			Total other assets	477,674		520,226
TOTAL ASSETS	$	3,111,308		$	2,837,704		TOTAL ASSETS	$	3,394,248	$	3,111,308
CAPITALIZATION AND LIABILITIES	CAPITALIZATION AND LIABILITIES						CAPITALIZATION AND LIABILITIES
Capitalization:							Capitalization:
Common stock, $0.01 par value; 68,000 shares authorized, 48,532 and 48,065 outstanding in 2019 and 2018, respectively	$	485		$	481
Common stock, $0.01 par value; 68,000 shares authorized, 50,334 and 48,532 outstanding in 2020 and 2019, respectively							Common stock, $0.01 par value; 68,000 shares authorized, 50,334 and 48,532 outstanding in 2020 and 2019, respectively	$	503	$	485
Additional paid-in capital	362,275			337,623			Additional paid-in capital	448,632		362,275
Retained earnings	417,146			392,053			Retained earnings	472,209		417,146
Total common stockholders' equity	779,906			730,157			Total common stockholders' equity	921,344		779,906
Long-term debt, net	786,754			710,027			Long-term debt, net	781,100		786,754
Total capitalization	1,566,660			1,440,184			Total capitalization	1,702,444		1,566,660
Current liabilities:							Current liabilities:
Current maturities of long-term debt, net	21,868			104,911			Current maturities of long-term debt, net	5,127		21,868
Short-term borrowings	175,100			65,100			Short-term borrowings	370,000		175,100
Accounts payable	108,463			95,580			Accounts payable	131,725		108,463
Regulatory balancing accounts	4,462			12,213			Regulatory balancing accounts	34,636		4,462
Accrued other taxes	4,445			4,182			Accrued other taxes	4,477		4,445
Accrued interest	5,810			5,674			Accrued interest	6,178		5,810
Other accrued liabilities	38,573			33,506			Other accrued liabilities	36,563		38,573
Total current liabilities	358,721			321,166			Total current liabilities	588,706		358,721
Unamortized investment tax credits	1,575			1,649
Deferred income taxes	222,590			213,033			Deferred income taxes	276,032		222,590
Regulatory liabilities	211,413			211,275			Regulatory liabilities	180,718		211,413
Pension and postretirement benefits other than pensions	258,907			193,538			Pension and postretirement benefits other than pensions	115,581		258,907
Advances for construction	191,062			186,342			Advances for construction	195,625		191,062
Contributions in aid of construction	241,537			225,270			Contributions in aid of construction	268,050		241,537
Other long-term liabilities	58,843			45,247			Other long-term liabilities	67,092		60,418
Commitments and contingencies							Commitments and contingencies	0		0
TOTAL CAPITALIZATION AND LIABILITIES	$	3,111,308		$	2,837,704		TOTAL CAPITALIZATION AND LIABILITIES	$	3,394,248	$	3,111,308

See accompanying Notes to Consolidated Financial Statements.

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CALIFORNIA WATER SERVICE GROUP

Consolidated Statements of Income


	For the Years Ended December 31,										For the Years Ended December 31,
	2019			2018			2017				2020		2019		2018
	(In thousands, except per share data)										(In thousands, except per share data)
Operating revenue	$	714,557		$	698,196		$	676,113		Operating revenue	$	794,307	$	714,557	$	698,196
Operating expenses:										Operating expenses:
Operations:										Operations:
Purchased water	212,461			207,103			199,081			Purchased water	230,076		212,461		207,103
Purchased power	31,362			31,080			28,862			Purchased power	34,006		31,362		31,080
Pump taxes	11,518			14,664			13,924			Pump taxes	12,647		11,518		14,664
Administrative and general	108,617			100,781			93,326			Administrative and general	117,058		108,617		100,781
Other operations	90,061			79,868			74,448			Other operations	95,859		90,061		79,868
Maintenance	26,834			24,494			22,530			Maintenance	28,026		26,834		24,494
Depreciation and amortization	89,220			83,781			76,783			Depreciation and amortization	98,505		89,220		83,781
Income taxes	16,280			18,589			35,279			Income taxes	11,435		16,280		18,589
Property and other taxes	28,792			27,296			24,797			Property and other taxes	30,029		28,792		27,296
Total operating expenses	615,145			587,656			569,030			Total operating expenses	657,641		615,145		587,656
Net operating income	99,412			110,540			107,083			Net operating income	136,666		99,412		110,540
Other income and expenses:										Other income and expenses:
Non-regulated revenue	19,205			18,272			15,898			Non-regulated revenue	16,922		19,205		18,272
Non-regulated expenses	(13,869		)	(22,787		)	(9,390		)	Non-regulated expenses	(14,300)		(13,869)		(22,787)
Other components of net periodic benefit cost	(5,733		)	(9,308		)	(9,588		)	Other components of net periodic benefit cost	(4,988)		(5,733)		(9,308)
Allowance for equity funds used during construction	6,685			3,954			3,750			Allowance for equity funds used during construction	4,976		6,685		3,954
Gain on sale of non-utility property	28			50			663			Gain on sale of non-utility property	0		28		50
Income tax (expense) benefit on other income and expenses	(1,391		)	2,717			(1,548		)	Income tax (expense) benefit on other income and expenses	(583)		(1,391)		2,717
Net other income (loss)	4,925			(7,102		)	(215		)	Net other income (loss)	2,027		4,925		(7,102)
Interest expense:										Interest expense:
Interest expense	44,891			39,917			36,288			Interest expense	45,047		44,891		39,917
Allowance for borrowed funds used during construction	(3,670		)	(2,063		)	(2,360		)	Allowance for borrowed funds used during construction	(3,185)		(3,670)		(2,063)
Net interest expense	41,221			37,854			33,928			Net interest expense	41,862		41,221		37,854
Net income	$	63,116		$	65,584		$	72,940		Net income	$	96,831	$	63,116	$	65,584
Earnings per share:										Earnings per share:
Basic	$	1.31		$	1.36		$	1.52		Basic	$	1.97	$	1.31	$	1.36
Diluted	$	1.31		$	1.36		$	1.52		Diluted	$	1.97	$	1.31	$	1.36
Weighted average number of common shares outstanding:										Weighted average number of common shares outstanding:
Basic	48,168			48,060			48,009			Basic	49,274		48,168		48,060
Diluted	48,168			48,060			48,009			Diluted	49,274		48,168		48,060

See accompanying Notes to Consolidated Financial Statements.

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CALIFORNIA WATER SERVICE GROUP

Consolidated Statements of Common Stockholders' Equity

For the Years Ended December 31, 2020, 2019 ~~2018~~ and ~~2017~~2018


																		Common Stock					Additional Paid-in Capital				Retained Earnings				Total Stockholders' Equity
	Common Stock					Additional Paid-in Capital				Retained Earnings				Total Stockholders' Equity				Shares			Amount
	Shares		Amount										(In thousands)
	(In thousands)
Balance at December 31, 2016	47,965		$	480				$	334,856				$				324,135		$	659,471
Net income										72,940				72,940
Issuance of common stock	88		1			2,877								2,878
Repurchase of common stock	(41	)	(1		)	(1,504		)						(1,505		)
Dividends paid on common stock ($0.720 per share)										(34,563		)		(34,563		)
Balance at December 31, 2017	48,012		480			336,229				362,512				699,221			Balance at December 31, 2017	48,012			$	480			$	336,229			$	362,512			$	699,221
Net income										65,584				65,584			Net income										65,584				65,584
Issuance of common stock	95		1			3,039								3,040			Issuance of common stock	95			1		3,039								3,040
Repurchase of common stock	(42	)	—			(1,645		)						(1,645		)	Repurchase of common stock	(42)			0		(1,645)								(1,645)
Dividends paid on common stock ($0.750 per share)										(36,043		)		(36,043		)
Dividends paid on common stock ($0.7500 per share)																	Dividends paid on common stock ($0.7500 per share)										(36,043)				(36,043)
Balance at December 31, 2018	48,065		481			337,623				392,053				730,157			Balance at December 31, 2018	48,065			481		337,623				392,053				730,157
Net income										63,116				63,116			Net income										63,116				63,116
Issuance of common stock	515		5			27,148								27,153			Issuance of common stock	515			5		27,148								27,153
Repurchase of common stock	(48	)	(1		)	(2,496		)						(2,497		)	Repurchase of common stock	(48)			(1)		(2,496)								(2,497)
Dividends paid on common stock ($0.790 per share)										(38,023		)		(38,023		)
Dividends paid on common stock ($0.7900 per share)																	Dividends paid on common stock ($0.7900 per share)										(38,023)				(38,023)
Balance at December 31, 2019	48,532		$	485		$	362,275			$	417,146			$	779,906		Balance at December 31, 2019	48,532			485		362,275				417,146				779,906
Net income																	Net income										96,831				96,831
Issuance of common stock																	Issuance of common stock	1,836			18		88,036								88,054
Repurchase of common stock																	Repurchase of common stock	(34)			0		(1,679)								(1,679)
Dividends paid on common stock ($0.8500 per share)																	Dividends paid on common stock ($0.8500 per share)										(41,768)				(41,768)
Balance at December 31, 2020																	Balance at December 31, 2020	50,334			$	503	$	448,632			$	472,209			$	921,344

See accompanying Notes to Consolidated Financial Statements.

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CALIFORNIA WATER SERVICE GROUP

Consolidated Statements of Cash Flows


	For the Years Ended December 31,										For the Years Ended December 31,
	2019			2018			2017				2020		2019		2018
	(In thousands)										(In thousands)
Operating activities:										Operating activities:
Net income	$	63,116		$	65,584		$	72,940		Net income	$	96,831	$	63,116	$	65,584
Adjustments to reconcile net income to net cash provided by operating activities:										Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	91,288			85,707			78,592			Depreciation and amortization	100,935		91,288		85,707
Amortization of debt premium and expenses	744			1,099			920			Amortization of debt premium and expenses	412		744		1,099
Changes in normalized deferred income taxes	15,346			20,909			21,087			Changes in normalized deferred income taxes	34,440		15,346		20,909
Change in value of life insurance contracts	(5,104		)	2,334			(3,058		)	Change in value of life insurance contracts	(4,293)		(5,104)		2,334
Allowance for equity funds used during construction	(6,685		)	(3,954		)	(3,750		)	Allowance for equity funds used during construction	(4,976)		(6,685)		(3,954)
Stock-based compensation	6,731			3,141			3,118			Stock-based compensation	4,590		6,731		3,141
Gain on sale of non-utility properties	(28		)	(50		)	(663		)	Gain on sale of non-utility properties	0		(28)		(50)
Write-off of capital costs	698			410			1,293			Write-off of capital costs	0		698		410
Changes in operating assets and liabilities:										Changes in operating assets and liabilities:
Receivables	(4,580		)	20,422			(31,871		)	Receivables	(18,343)		(4,580)		20,422
Unbilled revenue	(1,452		)	(3,671		)	(4,528		)	Unbilled revenue	1,148		(1,452)		(3,671)
Taxes, prepaid expenses, and other assets	(3,545		)	(587		)	(3,718		)	Taxes, prepaid expenses, and other assets	(3,647)		(3,545)		(587)
Accounts payable	10,719			4,701			1,564			Accounts payable	373		10,719		4,701
Other current liabilities	1,282			(4,382		)	2,164			Other current liabilities	(6,097)		1,282		(4,382)
Other changes in noncurrent assets and liabilities	264			(12,644		)	13,752			Other changes in noncurrent assets and liabilities	(83,449)		264		(12,644)
Net cash provided by operating activities	168,794			179,019			147,842			Net cash provided by operating activities	117,924		168,794		179,019
Investing activities:										Investing activities:
Utility plant expenditures	(273,770		)	(271,707		)	(259,194		)	Utility plant expenditures	(298,651)		(273,770)		(271,707)
Proceeds from sale of non-utility assets	28			59			666			Proceeds from sale of non-utility assets	0		28		59
TCP settlement proceeds	—			—			56,004
Business Acquisition, net of cash acquired										Business Acquisition, net of cash acquired	(40,483)		0		0
Payment for investments										Payment for investments	(4,600)		0		0
Life insurance benefits	—			3,491			1,558			Life insurance benefits	0		0		3,491
Purchase of life insurance	(2,216		)	(4,925		)	(5,605		)	Purchase of life insurance	(2,335)		(2,216)		(4,925)
Net cash used in investing activities	(275,958		)	(273,082		)	(206,571		)	Net cash used in investing activities	(346,069)		(275,958)		(273,082)
Financing activities:										Financing activities:
Short-term borrowings	260,000			151,000			265,000			Short-term borrowings	335,000		260,000		151,000
Repayment of short-term borrowings	(150,000		)	(361,000		)	(87,000		)	Repayment of short-term borrowings	(140,100)		(150,000)		(361,000)
Issuance of long-term debt, net of debt issuance costs of $1,796 for 2019, $617 for 2018, $0 for 2017	398,204			299,383			—
Issuance of long-term debt, net of debt issuance costs of $0 for 2020, $1,796 for 2019, and $617 for 2018										Issuance of long-term debt, net of debt issuance costs of $0 for 2020, $1,796 for 2019, and $617 for 2018	0		398,204		299,383
Advances and contributions in aid of construction	27,774			18,612			21,369			Advances and contributions in aid of construction	27,292		27,774		18,612
Refunds of advances for construction	(7,566		)	(7,297		)	(8,378		)	Refunds of advances for construction	(10,203)		(7,566)		(7,297)
Retirement of long-term debt	(405,568		)	(16,532		)	(26,829		)	Retirement of long-term debt	(22,141)		(405,568)		(16,532)
Repurchase of common stock	(2,497		)	(1,645		)	(1,505		)	Repurchase of common stock	(1,679)		(2,497)		(1,645)
Issuance of common stock	20,423			—			—			Issuance of common stock	83,575		20,423		0
Dividends paid	(38,023		)	(36,043		)	(34,563		)	Dividends paid	(41,768)		(38,023)		(36,043)
Net cash provided by financing activities	102,747			46,478			128,094			Net cash provided by financing activities	229,976		102,747		46,478
Change in cash, cash equivalents, and restricted cash	(4,417		)	(47,585		)	69,365			Change in cash, cash equivalents, and restricted cash	1,831		(4,417)		(47,585)
Cash, cash equivalents, and restricted cash at beginning of year	47,715			95,300			25,935			Cash, cash equivalents, and restricted cash at beginning of year	43,298		47,715		95,300
Cash, cash equivalents, and restricted cash at end of year	$	43,298		$	47,715		$	95,300		Cash, cash equivalents, and restricted cash at end of year	$	45,129	$	43,298	$	47,715
Supplemental disclosures of cash flow information:										Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Cash paid during the year for:										Cash paid during the year for:
Interest (net of amounts capitalized)	$	40,980		$	35,941		$	32,223		Interest (net of amounts capitalized)	$	40,792	$	40,980	$	35,941
Income tax refunds	—			—			(1,697		)
Income taxes										Income taxes	4,700		0		0
Supplemental disclosure of investing and financing non-cash activities:										Supplemental disclosure of investing and financing non-cash activities:
Accrued payables for investments in utility plant	40,794			38,807			41,017			Accrued payables for investments in utility plant	54,987		40,794		38,807
Utility plant contributed by developers	16,288			20,609			19,898			Utility plant contributed by developers	28,672		16,288		20,609
Litigation proceeds for TCP and MTBE contamination reclassified from liability to depreciable plant and equipment	13,968			32,315			2,420			Litigation proceeds for TCP and MTBE contamination reclassified from liability to depreciable plant and equipment	445		13,968		32,315

See accompanying Notes to Consolidated Financial Statements.

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CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements

December 31, 2020, 2019, ~~2018,~~ and ~~2017~~2018

Dollar amounts in thousands unless otherwise stated

1 ORGANIZATION AND OPERATIONS

California Water Service Group (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 as the Commissions). CWS Utility Services and HWS Utility Services LLC provide non-regulated water utility and utility-related services.

The Company operates in 1 reportable segment, providing water and related utility services.

Basis of Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and include the Company's accounts and those of its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated from the consolidated financial statements. In the opinion of management, the consolidated financial statements reflect all adjustments that are necessary to provide a fair presentation of the results for the periods covered.

The preparation of the Company's 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 consolidated balance sheet dates and the reported amounts of revenues and expenses for the periods presented. These include, but are not limited to, estimates and assumptions used in determining the Company's regulatory asset and liability balances based upon probability assessments of regulatory recovery, utility plant useful lives, revenues earned but not yet billed, asset retirement obligations, allowance for doubtful accounts, pension and other employee benefit plan liabilities, and income tax-related assets and liabilities. Actual results could differ from these estimates.

~~Subsequent to the issuance~~

Table of the Company's Consolidated Financial Statements for the year ended December 31, 2017, the Company identified an immaterial computational error related to the amount of authorized revenue recorded pursuant to the Company's pension and health cost balancing accounts. The Company corrected the error in the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. For additional information regarding the error and its correction, please refer to Note 17 of the Contents

CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements ~~included~~(Continued)

December 31, 2020, 2019, and 2018

Dollar amounts in ~~that report.~~thousands unless otherwise stated

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Operating Revenue

The following table disaggregates the Company’s operating revenue by source for the years ended December 31, 2020, 2019, ~~2018,~~ and ~~2017:~~2018:

2019 2018 2017
Revenue from contracts with customers $ 664,358
$ 674,736
$ 622,474
Regulatory balancing account revenue 50,199
23,460
53,639
Total operating revenue $ 714,557
$ 698,196
$ 676,113


	2020		2019		2018
Revenue from contracts with customers	$	697,577	$	664,358	$	674,736
Regulatory balancing account revenue	96,730		50,199		23,460
Total operating revenue	$	794,307	$	714,557	$	698,196

Revenue from contracts with customers

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

~~2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)~~

The measurement of sales to customers is generally based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, the Company estimates consumption since the date of the last meter reading and a corresponding unbilled revenue is recognized. The estimate is based upon the number of unbilled days that month and the average daily customer billing rate from the previous month (which fluctuates based upon customer usage).

In the following table, revenue from contracts with customers is disaggregated by class of customers for the years ended December 31, 2020, 2019, ~~2018,~~ and ~~2017:~~2018:

2019 2018 2017
Residential $ 446,323
$ 450,062
$ 415,893
Business 129,223
130,041
118,279
Industrial 31,857
34,236
28,905
Public authorities 33,862
34,511
31,671
Other* 23,093
25,886
27,726
Total revenue from contracts with customers $ 664,358
$ 674,736
$ 622,474


	2020		2019		2018
Residential	$	486,065	$	446,323	$	450,062
Business	125,819		129,223		130,041
Industrial	29,088		31,857		34,236
Public authorities	35,776		33,862		34,511
Other*	20,829		23,093		25,886
Total revenue from contracts with customers	$	697,577	$	664,358	$	674,736

* Other includes accrued unbilled revenue

Table of Contents

CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, and 2018

Dollar amounts in thousands unless otherwise stated

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Regulatory balancing account revenue

The Company’s ability to recover revenue requirements authorized by the California Public Utilities Commission (CPUC) in its triennial ~~General Rate Case~~general rate case (GRC), is decoupled from the volume of the sales. Regulatory balancing account revenue is revenue related to rate mechanisms authorized in California by the CPUC, which allow the Company to recover the authorized revenue and are not considered contracts with customers. These mechanisms include the following:

Cost-recovery rates, such as the Modified Cost Balancing Account (MCBA), Conservation Expense Balancing Account (CEBA), Pension Cost Balancing Account (PCBA), and Health Cost Balancing Account (HCBA), generally provide for recovery of the adopted levels of expenses for purchased water, purchased power, pump taxes, water conservation program costs, pension, and health care. Variances between adopted and actual costs are recorded as regulatory balancing account revenue.

As a result of the delay in the approval of the 2018 GRC, the CPUC authorized Cal Water to track the effect of the delay on customer billings in an Interim Rates Memorandum Account (IRMA) effective January 1, 2020. Variances between actual customer billings and those that would have been billed assuming the GRC had been effective January 1, 2020 are recorded as regulatory balancing account revenue. The 2018 GRC was approved in December of 2020 and final rates for the 2018 GRC were not implemented in 2020; as a result, Cal Water calculated and recorded this difference for all of 2020. Cal Water determined that the IRMA met regulatory asset recognition criteria under accounting standards for regulated utilities.

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

~~2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)~~

Non-Regulated Revenue

The following tables disaggregate the Company’s non-regulated revenue by source for the years ended December 31, 2020, 2019, ~~2018,~~ and ~~2017:~~2018:

2019 2018 2017
Operating and maintenance revenue $ 12,655
$ 10,392
$ 8,621
Other non-regulated revenue 4,271
5,413
5,262
Non-regulated revenue from contracts with customers $ 16,926
$ 15,805
$ 13,883
Lease revenue 2,279
2,467
2,015
Total non-regulated revenue $ 19,205
$ 18,272
$ 15,898


	2020		2019		2018
Operating and maintenance revenue	$	11,481	$	12,655	$	10,392
Other non-regulated revenue	3,043		4,271		5,413
Non-regulated revenue from contracts with customers	$	14,524	$	16,926	$	15,805
Lease revenue	2,398		2,279		2,467
Total non-regulated revenue	$	16,922	$	19,205	$	18,272

Operating and maintenance services are provided for non-regulated water and wastewater systems owned by private companies and municipalities. The Company negotiates formal agreements with the customers, under which they provide operating, maintenance and customer billing services related to the customers’ water system. The formal agreements outline the fee schedule for the services provided. The agreements typically call for a fee-per-service or a flat-rate amount per month. The Company satisfies its performance obligation of providing operating and maintenance services over time as services are rendered; as a result, the Company employs the invoice practical expedient and recognizes revenue in the amount that it has the right to invoice. Contract terms are generally short-term and, as a result, no separate financing component is recognized for its collections from customers, which generally require payment within 30 days of billing.

Other non-regulated revenue primarily relates to services for the design and installation of water mains and other water infrastructure for customers outside the regulated service areas and insurance program administration.

Table of Contents

CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, and 2018

Dollar amounts in thousands unless otherwise stated

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Lease revenue is not considered revenue from contracts with customers and is recognized following operating lease standards. The Company is the lessor in operating lease agreements with telecommunications companies under which cellular phone antennas are placed on the Company's property. The Company provides the lessee the right to ingress and egress across lessor property to access the antennas. The minimum rents are recognized on a straight-line basis over the terms of the leases, which may span multiple years. The excess rents are recognized over amounts contractually due pursuant to the underlying leases and is included in a deferred receivable account in the accompanying balance sheet. The leases generally have terms of 5 to 10 years, with lessee options to extend the lease for up to 15 years. The exercise of lease renewal options is at the lessee’s sole discretion. Most of the Company’s lease agreements contain mutual termination options that require prior written notice by either lessee or lessor. A subset of the Company’s leases contains variable lease payments that depend on changes in the consumer price index (CPI).

The Company determines if an arrangement is a lease at inception. Generally, a lease agreement exists if the Company determines that the arrangement gives the lessee control over the use of an identified asset and obtains substantially all of the benefits from the identified asset.

Maturities of lease payments to be received are as follows:


Year Ending December 31,	Operating Leases
2021	$	2,779
2022	1,916
2023	1,438
2024	1,152
2025	688
Thereafter	319

Year Ending December 31, Operating Leases
2020 $ 2,772
2021 2,012
2022 1,211
2023 725
2024 411
Thereafter 585
Allowance for Credit Losses

The Company measures expected credit losses for Customer Receivables, Other Receivables, and Unbilled Revenue on an aggregated level. These receivables are generally trade receivables due in one year or less or expected to be billed and collected in one year or less. The expected credit losses for Other Receivables and Unbilled Revenue are inconsequential. Customer receivables include receivables for water and wastewater services provided to residential customers, business, industrial, public authorities, and other customers. The expected credit losses for business, industrial, public authorities, and other customers are inconsequential. The overall risks related to the Company’s receivables are low as water and wastewater services are seen as essential services. The estimate for the allowance for credit losses is based on a historical loss ratio, in conjunction with a qualitative assessment of elements that impact the collectability of receivables to determine if the allowance for credit losses should be further adjusted in accordance with the accounting guidance for credit losses. Management contemplates available current information such as changes in economic factors, regulatory matters, industry trends, payment options and programs available to customers, and the methods that the Company is able to utilize to ensure payment.

In 2020, the Company reviewed its allowance for credit losses utilizing a quantitative assessment, which included trend analysis of customer billing and collection, aging by customer class, and unemployment rates since the outbreak of COVID-19 in the first quarter of 2020. The Company also utilized a qualitative assessment, which considered the future collectability on customer outstanding balances, management's estimate of the cash recovery, and a general assessment of the economic conditions of the locations the Company serves due to the outbreak of COVID-19. The Company is complying with the CPUC requirements to suspend customer disconnections for non-payment and ceased agency collection activities, and anticipates this situation will continue until further notice. Based on the above assessments, the Company expects an increase in customer receivable write-offs as compared to historical experiences and adjusted its allowance for credit losses, accordingly.

Table of Contents

CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, ~~2018,~~ and ~~2017~~2018

Dollar amounts in thousands unless otherwise stated

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

~~Allowance for Doubtful Accounts~~

The Company provides an allowance for doubtful accounts receivable. The allowance is based upon specific identified accounts plus an estimate of uncollectible accounts based upon historical percentages. The balance of customer receivables is net offollowing table presents the ~~allowance for doubtful accounts of $0.8 million as of December 31, 2019, 2018 and 2017.~~

~~The activities~~activity in the allowance for ~~doubtful accounts were as follows:~~credit losses for the period ended December 31, 2020, 2019 and 2018.

2019 2018 2017
Beginning Balance $ 757
$ 773
$ 830
Provision for uncollectible accounts 1,664
1,703
1,570
Net write off of uncollectible accounts (1,650 ) (1,719 ) (1,627 )
Ending Balance $ 771
$ 757
$ 773


	2020		2019		2018
Beginning Balance	$	771	$	757	773
Provision for credit loss expense	5,716		1,664		$	1,703
Write-offs	(1,730)		(2,156)		$	(2,210)
Recoveries	489		506		$	491
Total ending allowance balance	$	5,246	$	771	$	757

Other Receivables

As of December 31, ~~2019~~2020 and ~~2018,~~2019, other receivables were:

2019 2018
Accounts receivable from developers $ 6,299
$ 9,633
Other 7,888
7,468
Total other receivables $ 14,187
$ 17,101


	2020		2019
Accounts receivables from developers	9,077		6,299
Income tax receivables	5,561		764
Other	5,693		7,124
Total other receivables	$	20,331	$	14,187

Utility Plant

Utility plant is carried at original cost when first constructed or purchased, or at fair value when acquired through acquisition. When depreciable plant is retired, the cost is eliminated from utility plant accounts and such costs are charged against accumulated depreciation. Maintenance of utility plant is charged to operating expenses as incurred. Maintenance projects are not accrued for in advance.

Intangible assets acquired as part of water systems purchased are recorded at fair value. All other intangibles have been recorded at cost and are amortized over their useful life.

The following table represents depreciable plant and equipment as of December 31:

2019 2018
Equipment $ 726,475
$ 643,581
Office buildings and other structures 281,462
267,948
Transmission and distribution plant 2,227,478
2,038,895
Total $ 3,235,415
$ 2,950,424


	2020		2019
Equipment	$	785,578	$	726,475
Office buildings and other structures	305,791		281,462
Transmission and distribution plant	2,554,401		2,227,478
Total	$	3,645,770	$	3,235,415

Depreciation of utility plant is computed on a straight-line basis over the assets' estimated useful lives including cost of removal of certain assets as follows:



			Useful Lives
Equipment			5 to 50 years
Transmission and distribution plant			40 to 65 years
Office Buildings and other structures			50 years

The provision for depreciation expressed as a percentage of the aggregate depreciable asset balances was 2.94% in 2020, 2.96% in 2019, and 3.02% in ~~2018, and 3.00% in 2017.~~2018.

Table of Contents

CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, ~~2018,~~ and ~~2017~~2018

Dollar amounts in thousands unless otherwise stated

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

~~AFUDC~~Allowance for funds used during construction (AFUDC)

The AFUDC represents the capitalized cost of funds used to finance the construction of the utility plant. In general, AFUDC is applied to Cal Water construction projects requiring more than one month to complete. No AFUDC is applied to projects funded by customer advances for construction, contributions in aid of construction, or applicable state-revolving fund loans. AFUDC includes the net cost of borrowed funds and a rate of return on other funds when used, and is recovered through water rates as the utility plant is depreciated.

The amount of AFUDC related to equity funds and to borrowed funds for 2020, 2019, ~~2018,~~ and ~~2017~~2018 are shown in the table below:

2019 2018 2017
Allowance for equity funds used during construction $ 6,685
$ 3,954
$ 3,750
Allowance for borrowed funds used during construction 3,670
2,063
2,360
Total $ 10,355
$ 6,017
$ 6,110


	2020		2019		2018
Allowance for equity funds used during construction	$	4,976	$	6,685	$	3,954
Allowance for borrowed funds used during construction	3,185		3,670		2,063
Total	$	8,161	$	10,355	$	6,017

Asset Retirement Obligation

The Company has a legal obligation to retire wells in accordance with State Water Resources Control Board regulations. In addition, upon decommission of a wastewater plant or lift station certain wastewater infrastructure would need to be retired in accordance with State Water Resources Control Board regulations. An asset retirement cost and corresponding retirement obligation is recorded when a well or waste water infrastructure is placed into service. As of December 31, ~~2019~~2020 and ~~2018,~~2019, the retirement obligation is estimated to be $27.8 million and $25.6 million, ~~and $24.3 million,~~ respectively. The retirement obligation is recorded as part of "Other long-term liabilities" within the Consolidated Balance Sheet. The change only impacted the consolidated balance sheets as the Company recognizes a regulatory asset or liability for the timing differences between the recognition of expenses and costs recovered through the ratemaking process.

Cash, Cash Equivalents, and Restricted Cash

Cash and cash equivalents include highly liquid investments with remaining maturities of three months or less at the time of acquisition. In ~~2019~~2020 and ~~2018,~~2019, restricted cash includes $0.6 million, ~~and $0.5 million, respectively,~~ of proceeds collected through a surcharge on certain customers' bills plus interest earned on the proceeds and is used to service California Safe Drinking Water Bond obligations.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash within the Consolidated Balance Sheets that total to the amounts shown on the Consolidated Statements of Cash Flows:


	December 31, 2020		December 31, 2019
Cash and cash equivalents	44,555		42,653
Restricted cash (included in "taxes, prepaid expenses, and other assets")	574		645
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows	$	45,129	$	43,298

December 31, 2019 December 31, 2018
Cash and cash equivalents 42,653
47,176
Restricted cash (included in "taxes, prepaid expenses, and other assets") 645
539
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows $ 43,298
$ 47,715

Table of Contents

CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, and 2018

Dollar amounts in thousands unless otherwise stated

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Regulatory Assets and Liabilities

Because the Company operates almost exclusively in a regulated business, the Company is subject to the accounting standards for regulated utilities. The Commissions in the states in which the Company operates establish rates that are designed to permit the recovery of the cost of service and a return on investment. The Company capitalizes and records regulatory assets for costs that would otherwise be charged to expense if it is probable that the incurred costs will be recovered in future rates. Regulatory assets are amortized over the future periods that the costs are expected to be recovered. If costs expected to be incurred in the future are currently being recovered through rates, the Company records those expected future costs as regulatory liabilities. In general, the Company does not earn a return on regulatory assets if the related costs do not accrue interest. Accordingly, the Company earns a return only on its regulatory assets for net WRAM and MCBA, ~~pension cost balancing account, health cost balancing account,~~PCBA, HCBA, and ~~interim rates receivable.~~IRMA receivables. In addition, the Company records regulatory liabilities when the Commissions require a refund to be made to the Company's customers over future periods.

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

~~2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)~~

If the Company determines that a portion of the Company's assets used in utility operations is not recoverable in customer rates, the Company would be required to recognize the loss of the assets disallowed.

~~Cal Water submitted its 2018 GRC with the CPUC in July of 2019. As of February 27, 2020, the GRC approval is still pending.~~

See Note 4 - Regulatory ~~assets~~Assets and ~~liabilities were comprised~~Liabilities for details of the ~~following as of December 31:~~

Recovery Period 2019 2018
Regulatory Assets

Pension and retiree group health Indefinitely $ 208,321
$ 156,947
Property-related temporary differences (tax benefits flowed through to customers) Indefinitely 104,931
99,376
Other accrued benefits Indefinitely 20,030
20,588
Net WRAM and MCBA long-term accounts receivable 1-2 years 25,465
17,134
Asset retirement obligations, net Indefinitely 19,567
18,197
Interim rates long-term accounts receivable 1 year 4,642
4,642
Tank coating 10 years 13,535
11,196
Recoverable property losses 10 years 5,000
1,275
Pension cost balancing account 1 year 21,465
16,494
Other components of net periodic benefit cost Indefinitely 5,145
3,221
Other regulatory assets Various 5,221
4,499
Total Regulatory Assets $ 433,322
$ 353,569
Regulatory Liabilities

Future tax benefits due to customers $ 194,501
$ 180,205
Health cost balancing account 4,271
3,516
Conservation program 2,742
6,880
Net WRAM and MCBA long-term payable 211
222
Tax accounting memorandum account 806
5,039
Cost of capital memorandum account 151
2,834
1,2,3 trichloropropane settlement proceeds 8,426
12,142
Other regulatory liabilities 305
437
Total Regulatory Liabilities $ 211,413
$ 211,275

~~The~~ Company's pension and postretirement health care benefits regulatory asset represents the unfunded obligation of the Company’s pension and postretirement benefit plans which the Company expects to recover from customers in the future for these plans. These plans are discussed in further detail in Note 11. The pension cost balancing account regulatory asset and the health cost balancing account regulatory liability represent incurred pension and healthcare costs that exceeded/was below the cost recovery in rates and is recoverable/refundable from/to customers. The other components of net periodic benefit cost regulatory asset are authorized by the Commissions and are probable for rate recovery through the capital program.

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

~~2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)~~

~~taxes. The regulatory asset will be recovered in rates in future periods as the tax effects of the temporary differences previously flowed-through to customers reverse.~~

The asset retirement obligation regulatory asset represents the difference between costs associated with asset retirement obligations and amounts collected in rates. Tank coating represents the maintenance costs for tank coating projects that are recoverable from customers.

The future tax benefits due to customers primarily resulted from federal tax law changes enacted by the federal Tax Cuts and Jobs Act (TCJA) on December 22, 2017. The TCJA reduced the federal corporate income tax rate from 35 percent to 21 percent beginning on January 1, 2018, and GAAP requires the Company to re-measure all existing deferred income tax assets and liabilities to reflect the reduction in the federal tax rate on the enactment date. The Company is working with state regulators to finalize the ratepayer refund process to ensure compliance with federal normalization rules.

~~The conservation program regulatory liability is for incurred conservation costs that were below the cost recovery in rates and is refundable to customers.~~

The tax accounting and cost of capital memorandum account regulatory liabilities are related to the estimated customer refunds due to changes in the federal income tax rate and to the March 22, 2018 cost of capital decision for Cal Water (see Item 1. Business - Rates and Regulation).

~~1,2,3 trichloropropane (TCP) settlement proceeds are discussed in Note 14.~~

~~Short-term~~ regulatory assets and liabilities are excluded from the above table. The short-term regulatory assets for 2019 and 2018 were $38.2 million and $42.4 million, respectively. The short-term regulatory assets, as of December 31, 2019 and 2018, primarily consist of net WRAM and MCBA receivables. The short-term portion of regulatory liabilities for 2019 and 2018 were $4.5 million and $12.2 million, respectively. The short-term regulatory liabilities as of December 31, 2019, primarily consist of TCP settlement proceeds, tax accounting memorandum account refunds, and cost of capital memorandum account refunds. As of December 31, 2018, the short-term regulatory liabilities primarily consist of TCP settlement proceeds and net WRAM and MCBA liability balances.liabilities.

~~Impairment~~0Impairment of Long-Lived Assets, Intangibles and Goodwill

The Company's long-lived assets include transmission and distribution plant, equipment, land, buildings, and intangible assets. Long-lived assets, other than land, are depreciated or amortized over their estimated useful lives, and are reviewed for impairment whenever changes in circumstances indicate the carrying value of the assets may not be recoverable. Such circumstances would include items such as a significant decrease in the market value of a long-lived asset, a significant adverse change in the manner in which the asset is being used or planned to be used or in its physical condition, or a history of operating or cash flow losses associated with the uses of the asset. In addition, changes in the expected useful life of these long-lived assets may also be an impairment indicator. When such events or changes occur, the Company estimates the fair value of the asset from future cash flows expected to result from the use and, if applicable, the eventual disposition of the assets, and compare that to the carrying value of the asset. If the carrying value is greater than the fair value, then an impairment loss is recognized equal to the amount by which the asset's carrying value exceeds its fair value. The key variables that must be estimated include assumptions regarding sales volume, rates, operating costs, labor and other benefit costs, capital additions, assumed discount rates and other economic factors. These variables require significant management judgment and include inherent uncertainties since they are forecasting future events. A variation in the assumptions used could lead to a different conclusion regarding the realizability of an asset and, thus could have a significant effect on the consolidated financial statements.

Goodwill is measured as the excess of the cost of an acquisition over the sum of the amounts assigned to identifiable assets acquired less liabilities assumed. Goodwill is not amortized but instead is reviewed annually at November 30th for impairment or more frequently if impairment indicators arise. The impairment test is performed at the reporting unit level using ~~a two- step,~~ fair-value based ~~approach. The first step determines~~approach in which the fair value of the reporting unit ~~and compares it~~is compared to the reporting unit's carrying value. If the fair value of the reporting unit is less than its carrying amount, ~~a second step is performed to measure the amount of impairment loss, if any. The second step allocates the fair value of the reporting unit to the Company's tangible and intangible~~

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

~~2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)~~

~~assets and liabilities. This derives an implied fair value for the reporting unit's goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill,~~then an impairment loss is recognized equal to the ~~excess.~~difference.

Long-Term Debt Premium, Discount and Expense

The premiums, discounts, and issuance expenses on long-term debt are amortized over the original lives of the related debt on a straight-line basis which approximates the effective interest method. Premiums paid on the early redemption of certain debt and the unamortized original issuance discount and expense are amortized over the life of new debt issued in conjunction with the early redemption. Amortization expense included in interest expense for 2020, 2019, and 2018 ~~and 2017~~ was $0.4 million, $0.7 million, and $1.1 million, respectively.

Table of Contents

CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, and ~~$0.9 million, respectively.~~2018

Dollar amounts in thousands unless otherwise stated

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Advances for Construction

Advances for construction consist of payments received from developers for installation of water production and distribution facilities to serve new developments. Advances are excluded from rate base for rate setting purposes. Annual refunds are made to developers without interest. Advances of ~~$191.1~~$195.6 million, and ~~$186.3~~$191.1 million at December 31, ~~2019~~2020 and ~~2018,~~2019, respectively, will be refunded primarily over a 40-year period in equal annual amounts. Estimated refunds of advances are shown in the table below.

Year Ending December 31, Refunds of Advances
2020 $ 7,628
2021 7,627
2022 7,627
2023 7,627
2024 7,627
Thereafter 152,926
Total refunds $ 191,062


Year Ending December 31,	Refunds of Advances
2021	$	8,935
2022	8,841
2023	8,791
2024	8,689
2025	8,434
Thereafter	151,935
Total refunds	$	195,625

Contributions in Aid of Construction

Contributions in aid of construction represent payments received from developers, primarily for fire protection purposes, which are not subject to refunds. Facilities funded by contributions are included in utility plant, but excluded from rate base. Depreciation related to assets acquired from contributions is charged to the Contributions in Aid of Construction account.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Measurement of the deferred tax assets and liabilities is at enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. The Company evaluates the need for a valuation allowance on deferred tax assets based on historical taxable income and projected taxable income for future tax years.

Historically the Commissions reduced revenue requirements for the tax effects of certain originating temporary differences and allowed recovery of these tax costs as the related temporary differences reverse. The Commissions have granted the Company rate increases to reflect the normalization of the tax benefits of the federal accelerated methods and available Investment Tax Credits (ITC) for all assets placed in service after 1980. ITCs are deferred and amortized over the lives of the related properties for book purposes. The CPUC sets rates utilizing the flow through method of accounting for state income taxes.

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

~~2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)~~

Subsequent to 1986, Advances for Construction and Contributions in Aid of Construction were taxable for federal income tax purposes. Subsequent to 1991, Advances for Construction and Contributions in Aid of Construction were subject to California income tax. Due to changes in the federal tax law in 1996 and the California tax law in 1997 only deposits for new services were taxable. In late 2000, federal regulations were further modified to exclude contributions of fire services from taxable income. With the enactment of the TCJA, ~~all Advances for Construction and~~ Contributions in Aid of Construction received from developers after December 22, 2017 became taxable for federal income tax purposes.

The accounting standards for accounting for uncertainty in income taxes allows the inclusion of interest and penalties related to uncertain tax positions as a component of income taxes. (see Note 1011 - Income Taxes).

Workers' Compensation

For workers' compensation, the Company estimates the liability associated with claims submitted and claims not yet submitted based on historical data. Expenses for workers compensation insurance are included in rates on a ~~pay-as- you-go~~pay-as-you-go basis. Therefore, a corresponding regulatory asset has been recorded.

Table of Contents

CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, and 2018

Dollar amounts in thousands unless otherwise stated

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Earnings per Share

The computations of basic and diluted earnings per share are noted below. Basic earnings per share are computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts were exercised or converted into common stock. Restricted Stock Awards (RSAs) are included in the common shares outstanding because the shares have all the same voting and dividend rights as issued and unrestricted common stock. Restricted Stock Unit Awards (RSUs) are not included in diluted shares for financial reporting until authorized by the Organization & Compensation Committee of the Board of Directors.

2019 2018 2017
(In thousands,
except per share data)
Net income available to common stockholders $ 63,116
$ 65,584
$ 72,940
Weighted average common shares, basic 48,168
48,060
48,009
Weighted average common shares, dilutive 48,168
48,060
48,009
Earnings per share—basic $ 1.31
$ 1.36
$ 1.52
Earnings per share—diluted $ 1.31
$ 1.36
$ 1.52


	2020		2019		2018
	(In thousands, except per share data)
Net income available to common stockholders	$	96,831	$	63,116	$	65,584
Weighted average common shares, basic	49,274		48,168		48,060
Weighted average common shares, dilutive	49,274		48,168		48,060
Earnings per share—basic	$	1.97	$	1.31	$	1.36
Earnings per share—diluted	$	1.97	$	1.31	$	1.36

Stock-based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award. The Company recognizes compensation expense on a straight-line basis over the requisite service period, which is the vesting period.

Comprehensive Income or Loss

Comprehensive income for all periods presented was the same as net income.

Accumulated Other Comprehensive Income

The Company did not have any accumulated other comprehensive income or loss transactions as of December 31, ~~2019~~2020 and ~~2018.~~2019.

Adoption of New Accounting Standards in ~~2019~~

In February of 2016, the Financial Accounting Standards Board (FASB) issued guidance on leases, with amendments in 2018. The guidance requires lessees to recognize an asset and liability on the balance sheet for all of their lease obligations. Operating leases were previously not recognized on the balance sheet.

The Company adopted the standard using the modified retrospective method for its existing leases and did not restate its comparative periods in the period of adoption. The Company completed its review of its lease portfolio including significant

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

~~2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)~~

leases and the Company designed and implemented new controls as part of the adoption of the new standard. The implementation increased lease assets and lease liabilities on the Consolidated Balance Sheet by $13.8 million as of January 1, 2019.

The Company elected certain practical expedients and carried forward historical conclusions related to (1) contracts that contain leases, (2) existing lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. The Company also applied the practical expedient that allowed the Company to elect, as an accounting policy, by asset class, to include both lease and non-lease components as a single component and account for it as a lease. The Company applied the short-term lease exception which allowed the Company to not have to apply the recognition requirements of the new leasing guidance for short-term leases and to recognize lease payments in net income on a straight-line basis over the lease term. Otherwise, the new standard did not have a material impact on the remaining consolidated financial statements.

~~New Accounting Standards Issued But Not Yet Adopted in 2019~~2020

In June of 2016, the FASB issued ASU 2016-13, Financial Instruments –- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changed the impairment model for certain financial assets that have a contractual right to receive cash, including trade and loan receivables. The new model required recognition based upon an estimation of expected credit losses rather than recognition of losses when it is probable that they have been incurred. ASU 2016-13 was effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted. The Company adopted the standard utilizing the modified retrospective method for its trade receivables, ~~and~~ unbilled revenue, and other receivables on January 1, 2020. Based on the composition of the Company’s trade receivables, ~~and~~ unbilled revenue, and other receivables and expected future losses, the adoption of ASU 2016-13 isdid not ~~expected to~~ have a material impact on its consolidated financial statements.

In January of 2017, the FASB issued ASU 2017-04,Intangibles –- Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminated the second step 2 of the goodwill impairment test ~~which~~that required a hypothetical purchase price allocation to measure goodwill impairment. Under the new guidance, a goodwill impairment loss will be measured at the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 was effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted for any impairment test performed on testing dates after January 1, 2017. The Company adopted the standard on January 1, 2020 and the adoption of the standard isdid not ~~expected to~~ have a material impact on its consolidated financial statements.

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CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, and 2018

Dollar amounts in thousands unless otherwise stated

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In August of 2018, the FASB issued ASU 2018-13, F~~Fair~~air Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure for Fair Value Measurement, which modified the disclosure requirements on fair value measurements. The modifications in this update eliminated, amended, and added disclosure requirements for fair value measurements. ASU 2018-13 was effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted. ~~As required by the standard, the~~The Company adopted the standard in part prospectively and in part retrospectively, ~~depending on~~in accordance with the requirements of ASU 2018-13, on January 1, 2020. Since the Company does not have level 3 fair value measurements or transfers between level 1 and level 2 fair value measurements, the ~~Company does not expect the~~ adoption of the standard todid not have a material impact on its footnote disclosures.

In August of 2018, the FASB issued ASU No. 2018-14, an amendment to ASC 715, Compensation - Retirement Benefits - General (subtopic 715-20) Disclosure Framework: Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosures required for defined benefit pension and other postretirement benefit plans. ASU 2018-14 ~~removes~~removed disclosures that are no longer considered cost-beneficial, ~~clarifies~~clarified the specific requirements of certain disclosures and ~~adds~~added new disclosure requirements identified as relevant. The guidance iswas effective for fiscal years ~~beginning~~ending after December 15, 2020, with early adoption permitted. ~~Upon adoption,~~The Company adopted the standard in 2020 and applied the amendments ~~will be applied~~to the footnote disclosures on a retrospective basis. The ~~Company is evaluating the requirements of the guidance to determine the~~amendments did not have material impact on the Company's ~~disclosures upon adoption.~~footnote disclosures.

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

3 OTHER INCOME AND EXPENSES

The Company conducts various non-regulated activities as reflected in the table below:

2019 2018 2017
Revenue Expense Revenue Expense Revenue Expense
Operating and maintenance $ 12,655
$ 13,791
$ 10,392
$ 11,895
$ 8,621
$ 8,847
Leases 2,279
35
2,467
135
2,015
182
Design and construction 1,745
1,612
1,273
1,202
1,918
1,635
Meter reading and billing 412
163
391
157
256
(6 )
Interest income 92
—
133
—
68
—
Change in value of life insurance contracts (gain) loss —
(5,104 ) —
2,340
—
(3,057 )
Other non-regulated income and expenses 2,022
3,372
3,616
7,058
3,020
1,789
Total $ 19,205
$ 13,869
$ 18,272
$ 22,787
$ 15,898
$ 9,390


	2020				2019				2018
	Revenue		Expense		Revenue		Expense		Revenue		Expense
Operating and maintenance	$	11,481	$	13,551	$	12,655	$	13,791	$	10,392	$	11,895
Leases	2,398		48		2,279		35		2,467		135
Design and construction	802		704		1,745		1,612		1,273		1,202
Meter reading and billing	458		109		412		163		391		157
Interest income	52		0		92		0		133		0
Change in value of life insurance contracts (gain) loss	0		(4,293)		0		(5,104)		0		2,340
Other non-regulated income and expenses	1,731		4,181		2,022		3,372		3,616		7,058
Total	$	16,922	$	14,300	$	19,205	$	13,869	$	18,272	$	22,787

Operating and maintenance services and meter reading and billing services are provided for water and wastewater systems owned by private companies and municipalities. The agreements typically call for a fee-per-service or a flat-rate amount per month. Leases have been entered into with telecommunications companies for cellular phone antennas placed on the Company's property. Design and construction services are for the design and installation of water mains and other water infrastructure for others outside the Company's regulated service areas. Third-party insurance program gains and losses are included in other non-regulated income and expenses. The 2018 other non-regulated income and expenses included $5.4 million of business development expenses.

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CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, and 2018

Dollar amounts in thousands unless otherwise stated

4 REGULATORY ASSETS AND LIABILITIES

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


	Recovery Period	2020		2019
Regulatory Assets
Pension and retiree group health	Indefinitely	$	59,588	$	208,321
Property-related temporary differences (tax benefits flowed through to customers)	Indefinitely	120,365		104,931
Other accrued benefits	Indefinitely	21,692		20,030
Net WRAM and MCBA long-term accounts receivable	1-2 years	33,136		25,465
Asset retirement obligations, net	Indefinitely	21,110		19,567
IRMA long-term accounts receivable	1-2 years	14,705		4,642
Tank coating	10 years	14,018		13,535
Recoverable property losses	9 years	4,531		5,000
PCBA	1 year	19,647		21,465
Other components of net periodic benefit cost	Indefinitely	6,736		5,145
General district balancing account receivable	1 year	1,830		425
Low-income rate assistance (LIRA) and Rate support fund (RSF) accounts receivable	1 year	5,310		787
Other regulatory assets	Various	2,708		4,009
Total Regulatory Assets		$	325,376	$	433,322
Regulatory Liabilities
Future tax benefits due to customers		$	151,011	$	194,501
Retiree group health		18,472		0
HCBA		5,320		4,271
Conservation program		3,837		2,742
Net WRAM and MCBA long-term payable		479		211
1,2,3 trichloropropane settlement proceeds		0		8,426
Other regulatory liabilities		1,599		1,262
Total Regulatory Liabilities		$	180,718	$	211,413

`The Company's pension and retiree group health regulatory asset represents the unfunded obligation of the Company’s pension and postretirement benefit plans which the Company expects to recover from customers in the future for these plans. The retiree group health regulatory liability represents the overfunded obligation of the Company’s postretirement benefit plans which the Company expects to refund to customers in the future. These plans are discussed in further detail in Note 12.

The PCBA regulatory asset and the HCBA regulatory liability represent incurred pension and healthcare costs that exceeded/was below the cost recovery in rates and is recoverable/refundable from/to customers. The other components of net periodic benefit cost regulatory asset are authorized by the Commissions and are probable for rate recovery through the capital program.

The property-related temporary differences are primarily due to: (i) the difference between book and federal income tax depreciation on utility plant that was placed in service before the regulatory Commissions adopted normalization for rate making purposes; and (ii) certain (state) deferred taxes for which flow through accounting continues to be applied to originating deferred taxes. The regulatory asset will be recovered in rates in future periods as the tax effects of the temporary differences previously flowed-through to customers reverse.

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CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, and 2018

Dollar amounts in thousands unless otherwise stated

4 REGULATORY ASSETS AND LIABILITIES (Continued)

Other accrued benefits are accrued benefits for vacation, self-insured workers' compensation, and directors' retirement benefits. The net WRAM and MCBA long-term accounts receivable is the under-collected portion of recorded revenues that are not expected to be collected from customers within 12 months. The IRMA long-term accounts receivables is the additional amount the Company would have billed customers in 2020 had the 2018 GRC been approved on time.

The LIRA and RSF are two programs offered by Cal Water that assist qualifying customers with their monthly water bill. The programs are funded by the customers who do not qualify for the assistance. The LIRA and RSF regulatory assets represent the amounts due from customers to fund the LIRA and RSF credits that were provided to assist qualifying customers.

The conservation program regulatory liability is for incurred conservation costs that were below the cost recovery in rates and is refundable to customers.

1,2,3 trichloropropane (TCP) settlement proceeds are discussed in Note 15.

Short-term regulatory assets and liabilities are excluded from the above table. The short-term regulatory assets for 2020 and 2019 were $96.2 million and $38.2 million, respectively. The short-term regulatory assets, as of December 31, 2020, primarily consist of net WRAM and MCBA, IRMA, and PCBA receivables. As of December 31, 2019, the short-term regulatory assets consisted of net WRAM and MCBA receivables.

The short-term portion of regulatory liabilities for 2020 and 2019 were $34.6 million and $4.5 million, respectively. The short-term regulatory liabilities as of December 31, 2020, primarily consist of TCJA and HCBA refunds and TCP settlement proceeds. As of December 31, 2019, the short-term regulatory liabilities primarily consist of TCP settlement proceeds, tax accounting memorandum account refunds, and cost of capital memorandum account refunds

5 INTANGIBLE ASSETS

As of December 31, ~~2019~~2020 and ~~2018,~~2019, intangible assets that will continue to be amortized and those not amortized were:

Weighted
Average
Amortization
Period
(years)
2019 2018
Gross
Carrying
Value Accumulated
Amortization Net
Carrying
Value Gross
Carrying
Value Accumulated
Amortization Net
Carrying
Value
Amortized intangible assets:

Water pumping rights usage $ 1,084
$ 116
$ 968
$ 1,084

$ 112
$ 972
Water planning studies 13 18,476
12,950
5,526
18,364

11,899
6,465
Leasehold improvements and other 17 1,519
889
630
1,519

882
637
Total $ 21,079
$ 13,955
$ 7,124
$ 20,967
$ 12,893
$ 8,074
Unamortized intangible assets:

Perpetual water rights and other $ 3,776
$ —
$ 3,776
$ 3,776

$ —

$ 3,776


	Weighted Average Amortization Period (years)	2020						2019
		Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Amortized intangible assets:
Water pumping rights	usage	$	1,084	$	122	$	962	$	1,084	$	116	$	968
Water planning studies	12	20,686		14,119		6,567		18,475		12,950		5,525
Leasehold improvements and other	21	1,930		1,206		724		1,519		889		630
Total		$	23,700	$	15,447	$	8,253	$	21,078	$	13,955	$	7,123
Unamortized intangible assets:
Perpetual water rights and other		$	3,867	$	—	$	3,867	$	3,776	$	—	$	3,776

Water pumping rights usage is the amount of water pumped from aquifers to be treated and distributed to customers.

For the year ended December 31, 2020, 2019, ~~2018,~~ and ~~2017,~~2018, amortization of intangible assets was $1.1 million, $1.5 million, $1.7 million, ~~$1.6 million,~~ respectively.

6365

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CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, ~~2018,~~ and ~~2017~~2018

Dollar amounts in thousands unless otherwise stated

45 INTANGIBLE ASSETS (Continued)

Estimated future amortization expense related to intangible assets are shown in the table below:

Year Ending December 31, Estimated Future Amortization Expense Related to Intangible Assets
2020 $ 958
2021 870
2022 747
2023 569
2024 446
Thereafter 3,534
Total $ 7,124


Year Ending December 31,	Estimated Future Amortization Expense Related to Intangible Assets
2021	$	1,168
2022	1,055
2023	867
2024	726
2025	599
Thereafter	3,838
Total	$	8,253

56 PREFERRED STOCK

On February 27, 2019, the Company filed with the Delaware Secretary of State a Certificate of Elimination of Series D Participating Preferred Stock, which returned the 221,000 shares that had previously been designated as Series D Preferred Stock but had never been issued to the status of preferred shares of the Company, without designation as to series.

The foregoing summary of the Certificate of Elimination is qualified in its entirety by reference to the full text of the Certificate of Elimination, a copy of which is attached as Exhibit 4.2.

67 COMMON STOCKHOLDERS' EQUITY

As of December 31, 2020 and 2019, ~~and 2018, 48,532,199~~50,333,655 shares and ~~48,064,707~~48,532,199 shares, respectively, of common stock were issued and outstanding.

Effective January 1, 2019, the Company implemented an Employee Stock Purchase Plan (ESPP). Under the ESPP, qualified employees are permitted to purchase the Company’s common stock at 90% of the market value of the common stock on the specified stock purchase date. The ESPP is deemed compensatory and compensation costs will be accounted for under ASC 718, Stock Compensation. Employees’ payroll deductions for common stock purchases may not exceed 10% of their salaries. Employees may purchase up to 2,000 shares per period provided that the value of the shares purchased in any calendar year may not exceed $25,000, as calculated pursuant to the ESPP. The Company's recorded expense was $0.2 million for ~~2019~~2020 and ~~the~~2019. The Company has issued 43,332 and 35,281 shares of common stock related to the ~~ESPP.~~ESPP in 2020 and 2019, respectively.

On October 31, 2019, the Company entered into an equity distribution agreement to sell shares of its common stock having an aggregate gross sales price of up to $300.0 million from time to time depending on market conditions through an at-the-market equity program over the next three years. The Company intends to use the net proceeds from these sales, after deducting commissions on such sales and offering expenses, for general corporate purposes, which may include working capital, construction and acquisition expenditures, investments and repurchases, and redemptions of securities. ~~From October 31, 2019 to December 31,~~In 2020, the Company sold 1,710,779 shares of common stock through the at-the-market equity program and raised proceeds of $81.8 million net of $0.8 million in commissions paid under the equity distribution agreement. In 2019, the Company sold 381,105 shares of common stock through the at-the-market equity program and raised proceeds of $19.3 million net of $0.2 million in commissions paid under the equity distribution agreement. The Company also incurred $0.1 million and $0.5 million of equity issuance ~~costs.~~costs in 2020 and 2019, respectively.

Dividend Reinvestment and Stock Repurchase Plan

The Company has a Dividend Reinvestment and Stock Purchase Plan (DRIP Plan). Under the DRIP Plan, stockholders may reinvest dividends to purchase additional Company common stock without commission fees. The DRIP Plan also allows existing stockholders and other interested investors to purchase Company common stock through the transfer agent up to certain limits. The Company's transfer agent operates the DRIP Plan and purchases shares on the open market to provide shares for the DRIP Plan.

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CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, ~~2019~~2020 and ~~2018~~2019

Dollar amounts in thousands unless otherwise stated

78 SHORT-TERM BORROWINGS

On March 29, 2019, the Company and Cal Water entered into certain syndicated credit agreements, which provide for unsecured revolving credit facilities of up to an initial aggregate amount of $550.0 million for a term of five years. The revolving credit facilities amend, expand, and replace the Company’s and its subsidiaries’ prior credit facilities originally entered into on May 10, 2015. The new credit facilities extended the terms until March 29, 2024, and increased Cal Water’s unsecured revolving line of credit. The Company and subsidiaries that it designates may borrow up to $150.0 million under the Company’s revolving credit facility. Cal Water may borrow up to $400.0 million under its revolving credit facility. All borrowings must be repaid within 24 months unless a different period is required or authorized by the CPUC. Additionally, the credit facilities may be increased by up to an incremental $150.0 million under the Cal Water facility and $50.0 million under the Company facility, subject in each case to certain conditions. The proceeds from the revolving credit facilities may be used for working capital purposes, including the short-term financing of capital projects. Borrowings under the credit facilities typically have maturities varying between one and six months and will bear interest annually at a rate equal to (i) the base rate or (ii) the Eurodollar rate, plus an applicable margin of 0.650% to 0.875%, depending on the Company and its subsidiaries’ consolidated total capitalization ratio.

The revolving credit facilities 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.

As of December 31, ~~2019~~2020 and ~~2018,~~2019, the outstanding borrowings on the Company lines of credit were $100.0 million and $55.1 ~~million.~~million, respectively. The borrowings on the Cal Water lines of credit was ~~$120.0~~$270.0 million and ~~$10.0~~$120.0 million as of December 31, ~~2019~~2020 and ~~2018,~~2019, respectively. The average borrowing rate for borrowings on the Company and Cal Water lines of credit during ~~2019~~2020 was ~~3.23%~~1.54% compared to ~~2.91%~~3.23% for the same period last year.

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CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, ~~2019~~2020 and ~~2018~~2019

Dollar amounts in thousands unless otherwise stated

9 LONG-TERM DEBT

As of December 31, ~~2019~~2020 and ~~2018,~~2019, long-term debt outstanding was:

Series Interest Rate Maturity Date 2019 2018
First Mortgage Bonds YYY 4.170 % 2059 $ 200,000
$ —
WWW 4.070 % 2049 100,000
—
VVV 3.400 % 2029 100,000
—
TTT 4.610 % 2056 10,000
10,000
SSS 4.410 % 2046 40,000
40,000
QQQ 3.330 % 2025 50,000
50,000
RRR 4.310 % 2045 50,000
50,000
PPP 5.500 % 2040 100,000
100,000
LL 5.875 % 2019 —
100,000
UUU 3-month LIBOR plus 70 basis points
2020 —
300,000
AAA 7.280 % 2025 20,000
20,000
BBB 6.770 % 2028 20,000
20,000
CCC 8.150 % 2030 20,000
20,000
DDD 7.130 % 2031 20,000
20,000
EEE 7.110 % 2032 20,000
20,000
GGG 5.290 % 2022 5,455
7,273
HHH 5.290 % 2022 5,455
7,273
III 5.540 % 2023 3,636
4,546
OOO 6.020 % 2031 20,000
20,000
CC 9.860 % 2020 16,700
16,800
Total First Mortgage Bonds
801,246
805,892
California Department of Water Resources Loans 3.0% to 7.0%
2019 - 39 5,604
5,830
Other long-term debt
6,465
6,978
Unamortized debt issuance costs (4,693 ) (3,762 )
Total long-term debt, net of unamortized debt issuance costs
808,622
814,938
Less current maturities of long-term debt, net
21,868
104,911
Long-term debt, net
$ 786,754
$ 710,027


	Series	Interest Rate		Maturity Date	2020		2019
First Mortgage Bonds	YYY	4.170	%	2059	$	200,000	$	200,000
	WWW	4.070	%	2049	100,000		100,000
	VVV	3.400	%	2029	100,000		100,000
	TTT	4.610	%	2056	10,000		10,000
	SSS	4.410	%	2046	40,000		40,000
	QQQ	3.330	%	2025	50,000		50,000
	RRR	4.310	%	2045	50,000		50,000
	PPP	5.500	%	2040	100,000		100,000
	AAA	7.280	%	2025	20,000		20,000
	BBB	6.770	%	2028	20,000		20,000
	CCC	8.150	%	2030	20,000		20,000
	DDD	7.130	%	2031	20,000		20,000
	EEE	7.110	%	2032	20,000		20,000
	GGG	5.290	%	2022	3,636		5,455
	HHH	5.290	%	2022	3,636		5,455
	III	5.540	%	2023	2,728		3,636
	OOO	6.020	%	2031	20,000		20,000
	CC	9.860	%	2020	0		16,700
Total First Mortgage Bonds					780,000		801,246
California Department of Water Resources Loans		3.0%		2027 - 2039	5,148		5,604
Other long-term debt					5,569		6,465
Unamortized debt issuance costs					(4,490)		(4,693)
Total long-term debt, net of unamortized debt issuance costs					786,227		808,622
Less current maturities of long-term debt, net					5,127		21,868
Long-term debt, net					$	781,100	$	786,754

On June 11, 2019, Cal Water completed the sale and issuance of $400.0 million in aggregate principal amount of First Mortgage Bonds (the bonds) in a private placement. The bonds consist of $100.0 million of 3.40% bonds, series VVV, maturing June 11, 2029; $100.0 million of 4.07% bonds, series WWW, maturing June 11, 2049; and $200.0 million of 4.17% bonds, series YYY, maturing June 11, 2059. Interest on the bonds will accrue semi-annually and be payable in arrears. The bonds will rank equally with all of Cal Water’s other First Mortgage Bonds and will be secured by liens on Cal Water’s properties, subject to certain exceptions and permitted liens. Cal Water used the net proceeds from the sale of the bonds to pay down outstanding short-term borrowings and to redeem $300.0 million of bond series UUU. The bonds were not registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

~~8 LONG-TERM DEBT (Continued)~~

On September 13, 2018, Cal Water sold $300.0 million of floating rate First Mortgage Bonds UUU due in September of 2020 in a private placement. The floating interest rate was set at three-month LIBOR plus 70 basis points, accrued quarterly, and was payable in arrears. The bonds were redeemed at par during the second quarter of 2019. In 2019, Cal Water also repaid $100.0 million of First Mortgage Bonds LL, which matured in 2019. In 2018, Cal Water repaid $10.9 million of First Mortgage Bonds JJJ and LLL, which matured in 2018.

On October 4, 2011, Cal Water entered into a capital lease arrangement with the City of Hawthorne to operate the City's water system for a 15-year period. The ~~$5.2~~$4.6 million and ~~$5.8~~$5.2 million capital lease liability as of December 31, 2020 and 2019, ~~and 2018~~respectively, is included in other long-term debt and current maturities set forth above.

~~9 OTHER ACCRUED LIABILITIES~~

~~As of December 31, 2019 and 2018, other accrued liabilities were:~~

2019 2018
Accrued and deferred compensation $ 22,543
$ 20,229
Accrued benefits and workers' compensation claims 6,241
5,896
Unearned revenue and customer deposit 2,024
1,915
Due to contracts and agencies 3,325
3,196
Current portion of operating lease 1,452
—
Other 2,988
2,270
Total other accrued liabilities $ 38,573
$ 33,506

~~10 INCOME TAXES~~

~~Income tax expense (benefit) consisted of the following:~~

Federal State Total
2019

Current $ —
$ 3
$ 3
Deferred 15,582
2,086
17,668
Total $ 15,582
$ 2,089
$ 17,671
2018

Current $ —
$ 3
$ 3
Deferred 15,995
(126 ) 15,869
Total $ 15,995
$ (123 ) $ 15,872
2017

Current $ —
$ 3
$ 3
Deferred 35,881
943
36,824
Total income tax $ 35,881
$ 946
$ 36,827

~~The Company's 2019, 2018 and 2017 qualified tax repairs and maintenance deductions totaled $70.0 million, $102.0 million, and $85.9 million, respectively.~~

The total federal NOL carry-forward was $57.3 million and the state of California NOL carry-forward was $95.2 million as of December 31, 2019. Management has concluded that the NOL carry-forward amounts are more likely than not to be recovered and therefore require 0 valuation allowance. The loss and credit carry-forward will begin to expire in 2027.

Table of Contents

CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, ~~2018,~~ and ~~2017~~2018

Dollar amounts in thousands unless otherwise stated

10 ~~INCOME TAXES (Continued)~~

OTHER ACCRUED LIABILITIES

As of December 31, 2020 and 2019, other accrued liabilities were:


	2020		2019
Accrued and deferred compensation	$	19,473	$	22,543
Accrued benefits and workers' compensation claims	5,733		6,241
Unearned revenue and customer deposits	2,172		2,024
Due to contracts and agencies	3,305		3,325
Current portion of operating lease	1,757		1,452
Other	4,123		2,988
Total other accrued liabilities	$	36,563	$	38,573

11 INCOME TAXES

Income tax expense (benefit) consisted of the following:


	Federal		State		Total
2020
Current	$	0	$	3	$	3
Deferred	14,692		(2,677)		12,015
Total income tax	$	14,692	$	(2,674)	$	12,018
2019
Current	$	0	$	3	$	3
Deferred	15,582		2,086		17,668
Total income tax	$	15,582	$	2,089	$	17,671
2018
Current	$	0	$	3	$	3
Deferred	15,995		(126)		15,869
Total income tax	$	15,995	$	(123)	$	15,872

The Company's 2020, 2019 and 2018 qualified tax repairs and maintenance deductions totaled $164.0 million, $70.0 million, and $102.0 million, respectively.

At December 31, 2020, the Company had U.S. federal and U.S. state tax net operating loss carryforwards of approximately $140.8 million and $181.3 million respectively. The U.S. federal and U.S. state net operating loss carryforwards will expire at various dates beginning in tax years 2027 and 2028, respectively.

As of December 31, 2020, the California Enterprise Zone (EZ) credit was $4.2 million net of federal tax benefit for qualified property purchased before January 1, 2015, and placed in service before January 1, 2016. The Company has carry-forward California EZ credits of $2.2 million net of ~~any unrecognized~~federal tax benefit. Unused State of California EZ credits can carry-forward until 2024.

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CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, and 2018

Dollar amounts in thousands unless otherwise stated

11 INCOME TAXES (Continued)

The difference between the recorded and the statutory income tax expense is reconciled in the table below:

2019 2018 2017
Statutory income tax $ 16,965
$ 17,105
$ 38,419
Increase (reduction) in taxes due to:

State income taxes net of federal tax benefit 5,639
5,685
6,017
Effect of regulatory treatment of fixed asset differences (3,696 ) (5,954 ) (4,584 )
Investment tax credits (74 ) (74 ) (74 )
AFUDC equity (1,870 ) (1,106 ) (1,528 )
Share base stock compensation 302
(278 ) (581 )
Other 405
494
(842 )
Total income tax $ 17,671
$ 15,872
$ 36,827


	2020		2019		2018
Statutory income tax	$	22,858	$	16,965	$	17,105
Increase (reduction) in taxes due to:
State income taxes net of federal tax benefit	7,598		5,639		5,685
Effect of regulatory treatment of fixed asset differences	(9,201)		(3,696)		(5,954)
Investment tax credits	(74)		(74)		(74)
AFUDC equity	(1,392)		(1,870)		(1,106)
Share based stock compensation	523		302		(278)
TCJA refund	(9,470)		0		0
Other	1,176		405		494
Total income tax	$	12,018	$	17,671	$	15,872

The effect of regulatory treatment of fixed asset differences includes estimated repair and maintenance deductions and asset related flow through items.

On December 22, 2017, the U.S. government enacted expansive tax legislation commonly referred to as the TCJA. Among other provisions, the TCJA reduces the federal income tax rate from 35 percent to 21 percent beginning on January 1, 2018 and eliminated bonus depreciation for utilities. The TCJA required the Company to re-measure all existing deferred income tax assets and liabilities to reflect the reduction in the federal tax rate. The Company adjusted and recorded the impacts of the TCJA in accordance with rules issued by the SEC in Staff Accounting Bulletin No. 118, for the re-measurement of deferred tax balances as of December 31, 2017.

A TCJA refund of $108.0 million was recorded ~~as a provisional estimate~~ on December 31, 2017.

During ~~the year of 2019,~~2020, the Company ~~further~~ analyzed its deferred tax balances, tax regulatory asset and tax regulatory ~~liability.~~liability based on 2018 GRC approved rates. As ~~a result,~~of December 31, 2020, the TCJA refund was ~~$121.0 million, with gross up $47.0 million, total regulatory liabilities for TCJA was $168.0 million as of December 31, 2019.~~$105.0 million. The Company continued working with other state regulators to finalize the ~~ratepayer net~~ refund ~~of $121.0 million~~ to ensure compliance with federal normalization rules. ~~Changes in interpretations, guidance on legislative intent, and any changes in accounting standards for income taxes in response to the TCJA could impact the recorded amounts.~~

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CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, ~~2018,~~ and ~~2017~~2018

Dollar amounts in thousands unless otherwise stated

1011 INCOME TAXES (Continued)

The deferred tax assets and deferred tax liabilities as of December 31, ~~2019~~2020 and ~~2018,~~2019, are presented in the following table:

2019 2018
Deferred tax assets:

Developer deposits for extension agreements and contributions in aid of construction $ 25,114
$ 39,074
Net operating loss carryforward and tax credits 11,029
8,257
Pension liability 10,095
8,725
Income tax regulatory liability 47,196
44,072
Operating leases liabilities 4,024
—
Other 2,975
4,273
Total deferred tax assets 100,433
104,401
Deferred tax liabilities:

Property related basis and depreciation differences 297,470
288,544
WRAM/MCBA and interim rates balancing accounts 17,771
26,348
Operating lease-right to use asset 4,030
—
Other 3,752
2,542
Total deferred tax liabilities 323,023
317,434
Net deferred tax liabilities $ 222,590
$ 213,033

The developer deposits for extension agreements and contributions in aid of construction (CIAC) decreased as compared to 2018 due to the method change in extension agreement tax treatment. For extension agreements, all developer deposits for service are taxable prior to 2019 for both federal and CA income tax purposes. The Company filed a method change with the IRS and received approval in 2019 to treat the extension agreement receipt from developer as a loan effective January 1, 2019. The state of California conformed with the IRS method change. For CIAC, all receipts from developers are taxable after TCJA for federal tax purpose. Only receipts for services are taxable for the state of California.


	2020		2019
Deferred tax assets:
Developer deposits for contributions in aid of construction	$	29,491	$	25,114
Net operating loss carryforward and tax credits	37,326		11,029
Pension liability	12,031		10,095
Income tax regulatory liability	41,151		47,196
Operating leases liabilities	4,372		4,024
Other	2,812		2,975
Total deferred tax assets	127,183		100,433
Deferred tax liabilities:
Property related basis and depreciation differences	350,923		297,470
WRAM/MCBA and interim rates balancing accounts	39,107		17,771
Operating lease-right to use asset	4,362		4,030
Other	8,823		3,752
Total deferred tax liabilities	403,215		323,023
Net deferred tax liabilities	$	276,032	$	222,590

A valuation allowance was not required at December 31, ~~2019~~2020 and ~~2018.~~2019. Based on historical taxable income and future taxable income projections over the period in which the deferred assets are deductible, management believes it is more likely than not that the Company will realize the benefits of the deductible differences.

The following table reconciles the changes in unrecognized tax benefits:

December 31, 2019 December 31, 2018 December 31, 2017
Balance at beginning of year $ 9,716
$ 11,058
$ 10,499
Additions for tax positions taken during current year 1,292
1,787
559
Reduction to prior year tax position —
(3,129 ) —
Balance at end of year $ 11,008
$ 9,716
$ 11,058


	December 31, 2020		December 31, 2019		December 31, 2018
Balance at beginning of year	$	11,008	$	9,716	$	11,058
Additions for tax positions taken during current year	2,952		1,292		1,787
Reduction to prior year tax position	0		0		(3,129)
Balance at end of year	$	13,960	$	11,008	$	9,716

The Company does not expect a material change in its unrecognized tax benefits within the next 12 months. The component of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of December 31, ~~2019,~~2020, was ~~$3.1~~$3.7 million, with the remaining balance representing the potential deferral of taxes to later years.

The Company's federal income tax years subject to an examination are from 2013 to ~~2019~~2020 and the state income tax years subject to an examination are from 2012 to ~~2019.~~

2020.

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CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, ~~2018,~~ and ~~2017~~2018

Dollar amounts in thousands unless otherwise stated

1112 EMPLOYEE BENEFIT PLANS

Savings Plan

The Company sponsors a 401(k) qualified defined contribution savings plan that allows participants to contribute up to 20% of pre-tax compensation. Effective January 1, 2010, the Company matches 75 cents for each dollar contributed by the employee up to a maximum Company match of 6.0% of base salary. Company contributions were $6.5 million ~~$6.0 million, and $5.6 million,~~ for the years 2020 and 2019, ~~2018,~~respectively, and ~~2017, respectively.~~$6.0 million for 2018.

Pension Plans

The Company provides a qualified, defined-benefit, non-contributory pension plan for substantially all employees. The accumulated benefit obligations of the pension plan are ~~$615.5~~$622.0 million and ~~$492.4~~$615.5 million as of December 31, ~~2019~~2020 and ~~2018,~~2019, respectively. The fair value of pension plan assets was ~~$573.6~~$716.8 million and ~~$469.8~~$573.6 million as of December 31, ~~2019~~2020 and ~~2018,~~2019, respectively.

Prior to 2010, pension payment obligations were generally funded by the purchase of an annuity from a life insurance company. Beginning in 2010, the pension plan trust pays monthly benefits to retirees, rather than the purchase of an annuity.

The Company also maintains an unfunded, non-qualified, supplemental executive retirement plan (SERP). The unfunded SERP accumulated benefit obligations were ~~$71.8~~$78.0 million and ~~$56.8~~$71.8 million as of December 31, ~~2019~~2020 and ~~2018,~~2019, respectively. Benefit payments under the supplemental executive retirement plan are paid currently.

Expected payments to be made for the pension and SERP plans are shown in the table below:


Year Ending December 31,	Pension		SERP		Total		Year Ending December 31,	Pension		SERP		Total
2020	$	13,765	$	2,086	$	15,851
2021	15,332		2,196		17,528		2021	$	15,115	$	2,057	$	17,172
2022	16,992		2,336		19,328		2022	16,694		2,192		18,886
2023	18,749		2,416		21,165		2023	18,337		2,339		20,676
2024	20,517		2,415		22,932		2024	20,008		2,514		22,522
2025-2029	130,341		12,907		143,248
2025							2025	21,729		2,706		24,435
2026-2030							2026-2030	134,864		17,001		151,865
Total payments	$	215,696	$	24,356	$	240,052	Total payments	$	226,747	$	28,809	$	255,556

The expected benefit payments are based upon the same assumptions used to measure the Company's benefit obligation at December 31, ~~2019,~~2020, and include estimated future employee service.

The costs of the pension and retirement plans are charged to expense and utility plant. The Company makes annual contributions to fund the amounts accrued for pension cost.

Other Postretirement Plan

The Company provides substantially all active, permanent employees with medical, dental, and vision benefits through a self-insured plan. Employees retiring at or after age 58, along with their spouses and dependents, continue participation in the plan by payment of a premium. Plan assets are invested in mutual funds, short-term money market instruments and commercial paper based upon a similar asset mix to the pension plan. Retired employees are also provided with a $10,000 dollar life insurance benefit.

The Company records the costs of postretirement benefits other than pensions (PBOP) during the employees' years of active service. Postretirement benefit expense recorded in 2020, 2019, and 2018, ~~and 2017,~~ was $5.2 million, $7.9 million, ~~$8.8 million,~~ and ~~$8.5~~$8.8 million, respectively. The remaining net periodic benefit cost was ~~$2.1~~$1.5 million at December 31, ~~2019,~~2020, and is being recovered through future customer rates and is recorded as a regulatory asset.

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CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, ~~2018,~~ and ~~2017~~2018

Dollar amounts in thousands unless otherwise stated

1112 EMPLOYEE BENEFIT PLANS (Continued)

The expected benefit payments, net of retiree premiums and Medicare Part D subsidies, are shown in the table below.


Year Ending December 31,	Expected Benefit Payments Before Medicare Part D Subsidy		Effect of Medicare Part D Subsidy on Expected Benefit Payments			Expected Benefit Payments Net of Medicare Part D Subsidy		Year Ending December 31,	Expected Benefit Payments Before Medicare Part D Subsidy		Effect of Medicare Part D Subsidy on Expected Benefit Payments		Expected Benefit Payments Net of Medicare Part D Subsidy
2020	$	3,305	$	(267	)	$	3,038
2021	3,645		(301		)	3,344		2021	$	3,462	$	(303)	$	3,159
2022	4,011		(336		)	3,675		2022	3,775		(337)		3,438
2023	4,417		(371		)	4,046		2023	4,140		(369)		3,771
2024	4,864		(404		)	4,460		2024	4,619		(399)		4,220
2025-2029	29,403		(2,656		)	26,747
2025								2025	4,896		(439)		4,457
2026-2030								2026-2030	28,681		(2,796)		25,885
Total payments	$	49,645	$	(4,335	)	$	45,310	Total payments	$	49,573	$	(4,643)	$	44,930

Benefit Plan Assets

The Company actively manages pensions and PBOP trust (Plan) assets. The Company's investment objectives are:

•Maximize the return on the assets, commensurate with the risk that the Company deems appropriate to meet the obligations of the Plans, minimize the volatility of the pension expense, and account for contingencies;

•Generate a rate of return for the total portfolio that equals or exceeds the actuarial investment rate assumption;

Additionally, the rate of return of the total fund is measured periodically against an index comprised of 35% of the Standard & Poor's Index, 15% of the Russell 2000 Index, 10% of the MSCI EAFE Index, and 40% of the Bloomberg Barclays U.S. Aggregate Bond Index. The index is consistent with the Company's rate of return objective and indicates the Company's long-term asset allocation objective.

The Company applies a risk management framework for managing the risks associated with employee benefit plan trust assets. The guiding principles of this risk management framework are the clear articulation of roles and responsibilities, appropriate delegation of authority, and proper accountability and documentation. Trust investment policies and investment manager guidelines include provisions to ensure prudent diversification, manage risk through appropriate use of physical direct asset holdings and derivative securities, and identify permitted and prohibited investments.

The Company's target asset allocation percentages for major categories of the pension plan are reflected in the table below:


	Minimum Exposure		Target		Maximum Exposure
Fixed Income	35	%	40	%	45	%
Total Domestic Equity:	40	%	50	%	60	%
Small/Mid Cap Stocks	10	%	15	%	20	%
Large Cap Stocks	30	%	35	%	45	%
Non-U.S. Equities	5	%	10	%	15	%

The fixed income category includes money market funds, short-term bond funds, and cash. The majority of fixed income investments range in maturities from less than 1 to 5 years.

The Company's target allocation percentages for the PBOP trust is similar to the pension plan.

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CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, ~~2018,~~ and ~~2017~~2018

Dollar amounts in thousands unless otherwise stated

1112 EMPLOYEE BENEFIT PLANS (Continued)

The Company uses the following criteria to select investment funds:

•Fund past performance;

•Fund meets criteria of Employee Retirements Income Security Act (ERISA);

•Timeliness and completeness of fund communications and reporting to investors;

•Stability of fund management company;

•Fund management fees; and

•Administrative costs incurred by the Plan.

Plan Fair Value Measurements

The fair value measurements standard establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under the standard are described below:

Level 1—Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access.

Level 2—Inputs to the valuation methodology include:

•Quoted market prices for similar assets or liabilities in active markets;

•Quoted prices for identical or similar assets or liabilities in inactive markets;

•Inputs other than quoted prices that are observable for the asset or liability; and

•Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

Level 3—Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

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CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, ~~2018,~~ and ~~2017~~2018

Dollar amounts in thousands unless otherwise stated

1112 EMPLOYEE BENEFIT PLANS (Continued)

The following tables present the fair value of plan assets by major asset category at December 31, ~~2019~~2020 and ~~2018:~~2019:


	December 31, 2020
	Pension Benefits								Other Benefits
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Fixed Income	$	108,695	$	0	$	0	$	108,695	$	54,731	$	0	$	0	$	54,731
Domestic Equity: Small/Mid Cap Stocks	57,201		0		0		57,201		0		0		0		0
Domestic Equity: Large Cap Stocks	195,497		0		0		195,497		92,326		0		0		92,326
Non U.S. Equities	44,342		0		0		44,342		0		0		0		0
Assets measured at net asset value (NAV)							311,059								0
Total Plan Assets	$	405,735	$	0	$	0	$	716,794	$	147,057	$	0	$	0	$	147,057

December 31,2019
Pension Benefits Other Benefits
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Fixed Income $ 91,231
$ —
$ —
$ 91,231
$ 50,277
$ —
$ —
$ 50,277
Domestic Equity: Small/Mid Cap Stocks 43,238
—
—
43,238
—
—
—
—
Domestic Equity: Large Cap Stocks 155,645
—
—
155,645
78,277
—
—
78,277
Non U.S. Equities 28,874
—
—
28,874
—
—
—
—
Assets measured at net asset value (NAV) 254,587
—
Total Plan Assets $ 318,988
$ —
$ —
$ 573,575
$ 128,554
$ —
$ —
$ 128,554

December 31,2018
Pension Benefits Other Benefits
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Fixed Income $ 188,934
$ —
$ —
$ 188,934
$ 45,446
$ —
$ —
$ 45,446
Domestic Equity: Small/Mid Cap Stocks 68,843
—
—
68,843
—
—
—
—
Domestic Equity: Large Cap Stocks 165,862
—
—
165,862
57,179
—
—
57,179
Non U.S. Equities 46,135
—
—
46,135
—
—
—

Assets measured at NAV —
—
Total Plan Assets $ 469,774
$ —
$ —
$ 469,774
$ 102,625
$ —
$ —
$ 102,625


	December 31, 2019
	Pension Benefits								Other Benefits
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Fixed Income	$	91,231	$	0	$	0	$	91,231	$	50,277	$	0	$	0	$	50,277
Domestic Equity: Small/Mid Cap Stocks	43,238		0		0		43,238		0		0		0		0
Domestic Equity: Large Cap Stocks	155,645		0		0		155,645		78,277		0		0		78,277
Non U.S. Equities	28,874		0		0		28,874		0		0		0
Assets measured at NAV							254,587								0
Total Plan Assets	$	318,988	$	0	$	0	$	573,575	$	128,554	$	0	$	0	$	128,554

The pension benefits fixed income category includes ~~$8.9~~$9.6 million and ~~$5.0~~$8.9 million of money market fund investments as of December 31, ~~2019~~2020 and ~~2018,~~2019, respectively. The other benefits fixed income category includes ~~$4.5~~$3.1 million and ~~$9.8~~$4.5 million of money market fund investments as of December 31, ~~2019~~2020 and ~~2018,~~2019, respectively.

Assets measured at NAV include investments in commingled funds that are comprised of fixed income and equity securities. These commingled funds are not publicly traded, and therefore no publicly quoted market price is readily available. The values of the commingled funds are measured at estimated fair value, which is determined based on the unit value of the funds and have not been classified in the fair value hierarchy tables above. There are no restrictions on the terms and conditions upon which the investments may be redeemed.

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CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, ~~2018,~~ and ~~2017~~2018

Dollar amounts in thousands unless otherwise stated

1112 EMPLOYEE BENEFIT PLANS (Continued)

Changes in Plan Assets, Benefits Obligations, and Funded Status

The following table reconciles the funded status of the plans with the accrued pension liability and the net postretirement benefit liability as of December 31, ~~2019~~2020 and ~~2018:~~2019:


	Pension Benefits						Other Benefits							Pension Benefits				Other Benefits
	2019			2018			2019			2018				2020		2019		2020		2019
Change in projected benefit obligation:													Change in projected benefit obligation:
Beginning of year	$	639,921		$	671,334		$	127,204		$	143,368		Beginning of year	$	812,029	$	639,921	$	150,515	$	127,204
Service cost	26,718			29,027			7,475			8,317			Service cost	36,002		26,718		7,945		7,475
Interest cost	26,966			23,994			5,441			4,873			Interest cost	25,741		26,966		4,305		5,441
Assumption change	122,779			(80,192		)	13,695			(21,672		)
Actuarial (gain) loss (1)													Actuarial (gain) loss (1)	(23,470)		133,230		(30,485)		11,701
Plan amendment	—			—			—			2,203			Plan amendment	(833)		0		0		0
Experience loss (gain)	10,451			8,523			(1,994		)	(8,226		)
Benefits paid, net of retiree premiums	(14,806		)	(12,765		)	(1,306		)	(1,659		)	Benefits paid, net of retiree premiums	(15,530)		(14,806)		(1,622)		(1,306)
End of year	$	812,029		$	639,921		$	150,515		$	127,204		End of year	$	833,939	$	812,029	$	130,658	$	150,515
Change in plan assets:													Change in plan assets:
Fair value of plan assets at beginning of year	$	469,774		$	460,878		$	102,625		$	100,563		Fair value of plan assets at beginning of year	$	573,575	$	469,774	$	128,554	$	102,625
Actual return on plan assets	97,811			(22,576		)	19,730			(4,320		)	Actual return on plan assets	121,751		97,811		13,272		19,730
Employer contributions	20,796			44,237			7,505			8,041			Employer contributions	36,998		20,796		6,853		7,505
Retiree contributions and Medicare part D subsidies	—			—			1,874			2,025			Retiree contributions and Medicare part D subsidies	0		0		2,075		1,874
Benefits paid	(14,806		)	(12,765		)	(3,180		)	(3,684		)	Benefits paid	(15,530)		(14,806)		(3,849)		(3,180)
Other adjustments													Other adjustments	0		0		152		0
Fair value of plan assets at end of year	$	573,575		$	469,774		$	128,554		$	102,625		Fair value of plan assets at end of year	$	716,794	$	573,575	$	147,057	$	128,554
Funded status(1)	$	(238,454	)	$	(170,147	)	$	(21,961	)	$	(24,579	)
Funded status (2)													Funded status (2)	$	(117,145)	$	(238,454)	$	16,399	$	(21,961)
Unrecognized actuarial loss	177,750			117,973			15,822			18,618			Unrecognized actuarial loss	52,816		177,750		(20,699)		15,822
Unrecognized prior service cost	10,242			15,290			2,129			2,326			Unrecognized prior service cost	5,181		10,242		1,932		2,129
Net amount recognized	$	(50,462	)	$	(36,884	)	$	(4,010	)	$	(3,635	)	Net amount recognized	$	(59,148)	$	(50,462)	$	(2,368)	$	(4,010)


~~(1)~~	The short-term portion of the pension benefits was $2.1 million as of December 31, 2019 and $1.9 million as of December 31, 2018 and is recorded as part of other accrued liabilities on the Company's 2019 and 2018 Consolidated Balance Sheets.

~~Amounts recognized on the balance sheet consist of:~~

Pension Benefits Other Benefits
2019 2018 2019 2018
Accrued benefit costs $ 62
$ 62
$ (2,441 ) $ (2,802 )
Accrued benefit liability (238,454 ) (170,147 ) (21,961 ) (24,579 )
Regulatory asset 187,930
133,201
20,392
23,746
Net amount recognized $ (50,462 ) $ (36,884 ) $ (4,010 ) $ (3,635 )

1.The actuarial gain for pension and other benefits in 2020 was due to a decrease in the cost of living adjustment, the use of an updated mortality assumption in determining the benefit obligation, and a reduction in anticipated health care trend (Other benefits only) partially offset by actuarial losses due to a lower discount rate and a higher rate of compensation increases (Pension benefits only) used in the calculation. The actuarial losses in 2019 for both pension and other benefits was due to a decrease in the discount rate used in determining the benefit obligation.

2.The short-term portion of the pension benefits was $2.1 million as of December 31, 2020 and December 31, 2019 and is recorded as part of other accrued liabilities on the Company's 2020 and 2019 Consolidated Balance Sheets.

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CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, ~~2018,~~ and ~~2017~~2018

Dollar amounts in thousands unless otherwise stated

1112 EMPLOYEE BENEFIT PLANS (Continued)

Amounts recognized on the balance sheet consist of:


	Pension Benefits				Other Benefits
	2020		2019		2020		2019
Noncurrent assets	$	0	$	0	$	16,399	$	0
Accrued benefit costs	(104)		62		(1,782)		(2,441)
Accrued benefit liability	(117,145)		(238,454)		0		(21,961)
Regulatory assets	58,101		187,930		1,487		20,392
Regulatory liabilities	0		0		(18,472)		0
Net amount recognized	$	(59,148)	$	(50,462)	$	(2,368)	$	(4,010)

Valuation Assumptions

Below are the actuarial assumptions used in determining the benefit obligation for the benefit plans:

Pension Benefits Other Benefits
2019 2018 2019 2018
Weighted average assumptions as of December 31:

Discount rate 3.20 % 4.20 % 3.25 % 4.25 %
Long-term rate of return on plan assets 6.25 % 6.50 % 5.50 % 5.50 %
Rate of compensation increases - pension plan 3.25 % 3.25 % —
—
Rate of compensation increases - SERP 3.75 % 3.75 % —
—
Cost of living adjustment 2.50 % 2.50 % —
—


	Pension Benefits				Other Benefits
	2020		2019		2020		2019
Weighted average assumptions as of December 31:
Discount rate - pension plan	3.08	%	3.20	%	3.03	%	3.25	%
Discount rate - SERP	2.97	%	3.20	%	0		0
Long-term rate of return on plan assets	6.50	%	6.25	%	6.00	%	5.50	%
Rate of compensation increases - pension plan	4.00	%	3.25	%	0		0
Rate of compensation increases - SERP	5.00	%	3.75	%	0		0
Cost of living adjustment	2.10	%	2.50	%	0		0

~~The~~For December 31, 2020 measurement purposes, the Company assumed a 5.5% annual rate of increase for 2020 in the per capita cost of covered benefits with rate decreasing to 5.0% by 2023, then gradually grading down to 3.8% over the next 40 years.

In 2020, the Company changed both the yield curve used to develop the discount rate ~~was derived from~~and the ~~FTSE Pension Discount Curve~~method used to estimate the service and interest cost components of net periodic pension cost. The new yield curve used a higher-yielding subset of bonds that the Company believes will better approximate the rate at which the obligations could be effectively settled, currently. The new method uses the spot rate approach to estimate the service and interest costs by applying the specific spot rates along the yield curve used to determine the benefit obligation to the relevant projected cash outflows. Previously, these cost components were determined using a single-weighted average discount rate. This change does not affect the ~~expected payouts~~measurement of the projected benefit obligation. The Company made this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot rates. The Company has accounted for ~~the plan.~~ this change as a change in accounting estimate and accordingly has accounted for it prospectively.

The long-term rate of return assumption is the expected rate of return on a balanced portfolio invested roughly 60% in equities and 40% in fixed income securities. Returns on equity investments were estimated based on estimates of dividend yield and real earnings added to a ~~2.50%~~2.10% long-term inflation rate. For the pension plans, the assumed returns were ~~7.25%~~8.18% for domestic equities and ~~8.56%~~9.17% for foreign equities. For the other benefits plan, the assumed returns was ~~6.88%~~7.86% for domestic equities. Returns on fixed-income investments were projected based on investment maturities and credit spreads added to a ~~2.50%~~2.10% long-term inflation rate. For the pension and other benefit plans, the assumed returns were ~~3.97%~~3.44% for fixed income investments and ~~2.34%~~2.57% for short-term cash investments. The average return for the pension and other benefit plans for the last 5 and 10 years was ~~7.60%~~11.90% and ~~8.60%~~9.40%, respectively. The Company is using a long-term rate of return of ~~6.25%~~6.50% for the pension plan and ~~5.50%~~6.00% for the other benefit plan, which is between the 25th and 75th percentile of expected results.

In ~~2019,~~2020, the Company used the Society of Actuaries' Pri-2012 Total Dataset Mortality Tables for private-sector retirement plans in the United States and Mortality Improvement Scale ~~(MP-2019)~~(MP-2020) with adjustments to long-term improvements for measuring retirement plan obligations.

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CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, and 2018

Dollar amounts in thousands unless otherwise stated

12 EMPLOYEE BENEFIT PLANS (Continued)

Components of Net Periodic Benefit Cost

Net periodic benefit costs for the pension and other postretirement plans for the years ended December 31, ~~2019~~2020 and ~~2018,~~2019, included the following components:

Pension Plan Other Benefits
2019 2018 2017 2019 2018 2017
Service cost $ 26,718
$ 29,027
$ 23,801
$ 7,475
$ 8,317
$ 7,152
Interest cost 26,966
23,994
23,256
5,441
4,873
4,988
Expected return on plan assets (30,285 ) (27,702 ) (24,119 ) (5,794 ) (5,639 ) (4,875 )
Net amortization and deferral 10,975
16,233
12,962
758
1,281
1,186
Net periodic benefit cost $ 34,374
$ 41,552
$ 35,900
$ 7,880
$ 8,832
$ 8,451


	Pension Plan						Other Benefits
	2020		2019		2018		2020		2019		2018
Service cost	$	36,002	$	26,718	$	29,027	$	7,945	$	7,475	$	8,317
Interest cost	25,741		26,966		23,994		4,305		5,441		4,873
Expected return on plan assets	(33,086)		(30,285)		(27,702)		(7,236)		(5,794)		(5,639)
Net amortization and deferral	17,027		10,975		16,233		197		758		1,281
Net periodic benefit cost	$	45,684	$	34,374	$	41,552	$	5,211	$	7,880	$	8,832

Service cost portion of the pension plan and other postretirement benefits is recognized in administrative and general within the Consolidated Statements of Income. Other components of net periodic benefit costs include interest costs, expected return on plan assets, amortization of prior service costs, and recognized net actuarial loss and are reported together as other components of net periodic benefit cost within the Consolidated Statements of Income.

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

~~11 EMPLOYEE BENEFIT PLANS (Continued)~~

Below are the actuarial assumptions used in determining the net periodic benefit costs for the benefit plans, which uses the end of the prior year as the measurement date:

Pension Benefits Other Benefits
2019 2018 2019 2018
Weighted average assumptions as of December 31:

Discount rate 4.20 % 3.60 % 4.25 % 3.65 %
Long-term rate of return on plan assets 6.50 % 6.50 % 5.50 % 5.50 %
Rate of compensation increases - pension plan 3.25 % 3.25 % —
—
Rate of compensation increases - SERP 3.75 % 3.75 % —
—
Cost of living adjustment 2.50 % 2.50 %


	Pension Benefits				Other Benefits
	2020		2019		2020		2019
Weighted average assumptions as of December 31:
Discount rate	3.20	%	4.20	%	3.25	%	4.25	%
Long-term rate of return on plan assets	6.25	%	6.50	%	5.50	%	5.50	%
Rate of compensation increases - pension plan	3.25	%	3.25	%	0		0
Rate of compensation increases - SERP	3.75	%	3.75	%	0		0
Cost of living adjustment	2.50	%	2.50	%

The health care cost trend rate assumption has a significant effect on the amounts reported. For ~~2019~~2020 measurement purposes, the Company assumed a ~~7.0%~~5.5% annual rate of increase in the per capita cost of covered benefits with the rate decreasing to ~~5.3%~~5.0% by ~~2022,~~2023, then gradually grading down to ~~4.3%~~4.0% over the next 5053 years. ~~A 1-percentage point change in assumed health care cost trends is estimated to have the following effect:~~

1-Percentage
Point Increase

1-Percentage
Point (Decrease)
Effect on total service and interest costs $ 3,610
$ (2,650 )
Effect on accumulated postretirement benefit obligation $ 33,945
$ (25,757 )

The Company intends to make annual contributions that meet the funding requirements of ERISA. The Company estimates in ~~2020~~2021 that the annual contribution to the pension plans will be ~~$38.0~~$23.5 million and the annual contribution to the other postretirement plan will be ~~$7.5~~$2.2 million.

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CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, and 2018

Dollar amounts in thousands unless otherwise stated

13 STOCK-BASED COMPENSATION PLANS

The Company's equity incentive plan was approved and amended by stockholders on April 27, 2005 and May 20, 2014. The Company is authorized to issue awards up to 2,000,000 shares of common stock.

~~The following table lists~~During 2020, the ~~number~~Company granted RSAs of ~~annual~~common stock to Officers and to the Board of Directors. An RSA share represents the right to receive a share of the Company's common stock and is valued based on the fair market value of the Company's common stock at the date of grant. RSAs granted ~~and canceled in 2019 and 2018:~~

2019 2018
RSAs granted 36,691
47,273
RSAs canceled 17,134
19,742

~~Officer RSAs granted in 2019 and 2018~~to Officers vest over 36 months with the first year cliff vesting. ~~Director~~In general, RSAs ~~generally~~granted to Board of Directors vest at the end of 12 months. ~~During 2019~~The RSAs are recognized as expense evenly over 36 months for the shares granted to Officers and ~~2018,~~12 months for the ~~RSAs~~shares granted ~~were valued at $52.83 and $35.40 per share, respectively, based upon the fair market value~~to Board of Directors. As of December 31, 2020, there was approximately $1.5 million of total unrecognized compensation cost related to RSAs. The cost is expected to be recognized over a weighted average period of 1.61 years.

A summary of the ~~Company's~~status of the outstanding RSAs as of December 31, 2020 is presented below:


	Number of RSA Shares	Weighted-Average Grant-Date Fair Value
RSAs at January 1, 2020	49,682	$	47.78
Granted	39,915	51.41
Vested	(38,036)	47.33
RSAs at December 31, 2020	51,561	$	50.92

During 2020, the Company granted performance-based RSUs of common stock ~~on the date of grant.~~

~~The following table lists the number of performance-based RSUs granted, issued, and canceled in 2019 and 2018:~~

2019 2018
RSUs granted 26,473
28,594
RSUs issued 62,726
48,753
RSUs canceled 31,177
24,009

to Officers. Each award reflects a target number shares of common ~~shares~~stock that may be issued to the award recipient. The ~~2019 and 2018~~2020 awards may be earned upon the completion of a 3-year performance period. Whether RSUs are earned at the end of the performance period will be determined based on the achievement of certain performance objectives set by the Board of ~~Director~~Directors Compensation

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

~~12 STOCK-BASED COMPENSATION PLANS (Continued)~~

Committee in connection with the issuance of the RSUs. The performance objectives are based on the Company's business plan covering the performance period. The performance objectives include achieving the budgeted return on equity, budgeted investment in utility plant, customer service standards, employee safety standards and water quality standards. Depending on the results achieved during the 3-year performance period, the actual number of shares that a grant recipient receives at the end of the performance period may range from 0% to 200% of the target shares granted, provided that the grantee is continuously employed by the Company through the vesting date. If prior to the vesting date employment is terminated by reason of death, disability or normal retirement, then a pro rata portion of this award will vest. RSUs are not included in diluted shares until earned. The RSUs are recognized as expense ratably over the ~~3 year~~3-year performance period using a fair market value of ~~$52.83 per~~the Company's common share ~~for~~at the ~~2019 RSUs~~date of grant and ~~$35.40 per share for the 2018 RSUs based on~~ an ~~estimate~~estimated number of RSUs earned during the performance period. As of December 31, 2020, there was approximately $1.8 million of total unrecognized compensation cost related to RSUs. The cost is expected to be recognized over a weighted average period of 1.21 years.

A summary of the status of the outstanding RSUs as of December 31, 2020 is presented below:


	Number of RSA Shares	Weighted-Average Grant-Date Fair Value
RSUs at January 1, 2020	86,456	$	41.23
Granted	32,720	51.41
Performance criteria adjustment	12,487	47.96
Vested	(41,731)	40.10
Forfeited	(2,145)	36.75
RSUs at December 31, 2020	87,787	$	46.62

The Company has recorded compensation costs for the RSAs and RSUs which are included in administrative and general operating expenses in the amount of $4.4 million for 2020 and $6.5 million for 2019.

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CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, and ~~$3.1 million for~~ 2018 ~~and 2017.~~

Dollar amounts in thousands unless otherwise stated

14 FAIR VALUE OF FINANCIAL INSTRUMENTS

The accounting guidance for fair value measurements and disclosures provides a single definition of fair value and requires certain disclosures about assets and liabilities measured at fair value. A ~~hierarchal~~hierarchical framework for disclosing the observability of the inputs utilized in measuring assets and liabilities at fair value is established by this guidance. The three levels in the hierarchy are described in Note 1112 - Employee Benefit Plans.

Specific valuation methods include the following:

Cash, Accounts receivable, and accounts payable carrying amounts approximated the fair value because of the short-term maturity of the instruments.

Long-term debt fair values were estimated using the published quoted market price, if available, or the discounted cash flow analysis, based on the current rates available using a risk-free rate (a U.S. Treasury securities yield curve) plus a risk premium of 1.83%.

~~Advances for construction fair values were estimated using broker quotes from companies that frequently purchase these investments.~~


	December 31, 2020
			Fair Value
	Cost		Level 1		Level 2		Level 3		Total
Long-term debt, including current maturities, net	$	786,227	$	0	$	944,447	$	0	$	944,447


	December 31, 2019
			Fair Value
	Cost		Level 1		Level 2		Level 3		Total
Long-term debt, including current maturities, net	$	808,622	$	0	$	873,454	$	0	$	873,454

December 31, 2019
Fair Value
Cost Level 1 Level 2 Level 3 Total
Long-term debt, including current maturities, net $ 808,622
$ —
$ 873,454
$ —
$ 873,454
Advances for construction 191,062
—
79,550
—
79,550
Total $ 999,684
$ —
$ 953,004
$ —
$ 953,004

December 31, 2018
Fair Value
Cost Level 1 Level 2 Level 3 Total
Long-term debt, including current maturities, net $ 814,938
$ —
$ 849,551
$ —
$ 849,551
Advances for construction 186,342
—
77,204
—
77,204
Total $ 1,001,280
$ —
$ 926,755
$ —
$ 926,755

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

1415 COMMITMENTS AND CONTINGENCIES

Commitments

Water Supply Contracts

The Company has long-term commitments to purchase water from water wholesalers. The commitments are noted in the table below.

Water Supply
Contracts*
2020 $ 34,550
2021 34,550
2022 34,551
2023 34,551
2024 34,549
Thereafter 604,342


	Water Supply Contracts*
2021	$	37,911
2022	37,913
2023	37,912
2024	37,911
2025	37,910
Thereafter	586,119

* Estimated annual contractual obligations are based on the same payment levels as ~~2019.~~2020.

Water Supply Contracts

The Company has a long-term contract with the Santa Clara Valley Water District that requires the Company to purchase minimum annual water quantities. Purchases are priced at the districts then-current wholesale water rate. The Company operates to purchase sufficient water to equal or exceed the minimum quantities under the contract. The total paid to Santa Clara Valley Water District was $15.2 million in 2020, $13.6 million in 2019, and $9.7 million in ~~2018,~~2018.

Table of Contents

CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, and ~~$9.1 million~~2018

Dollar amounts in ~~2017.~~thousands unless otherwise stated

15 COMMITMENTS AND CONTINGENCIES (Continued)

The Company also has a water supply contract with Stockton East Water District (SEWD) that requires a fixed monthly payment. Each year, the fixed monthly payment is adjusted for changes to SEWD's costs. The total paid under the contract was $14.3 million in 2020, $13.3 million in 2019, and $13.7 million in ~~2018, and $14.1 million in 2017.~~2018.

On September 21, 2005, the Company entered into an agreement with Kern County Water Agency (Agency) to obtain treated water for the Company's operations. The term of the agreement is to January 1, 2035, or until the repayment of the Agency's bonds (described hereafter) occurs. Under the terms of the agreement, the Company is obligated to purchase approximately 20,500 acre feet of treated water per year. The Company is obligated to pay the Capital Facilities Charge and the Treated Water Charge regardless of whether it can use the water in its operation, and is obligated for these charges even if the Agency cannot produce an adequate amount to supply the 20,500 acre feet in the year. This agreement supersedes a prior agreement with Kern County Water Agency for the supply of 11,500 acre feet of water per year.

NaN other parties, including the City of Bakersfield, are also obligated to purchase a total of 32,500 acre feet per year under separate agreements with the Agency. Further, the Agency has the right to proportionally reduce the water supply provided to all of the participants if it cannot produce adequate supplies. If any of the other parties does not use its allocation, that party is obligated to pay its contracted amount.

If any of the parties were to default on making payments of the Capital Facilities Charge, then the other parties are obligated to pay for the defaulting party's share on a pro-rata basis. If there is a payment default by a party and the remaining parties have to make payments, they are also entitled to a pro-rata share of the defaulting party's water allocation.

The Company expects to use all its entitled water in its operations every year. In addition, if the Company were to pay for and receive additional amounts of water due to a default of another participating party; the Company believes it could use this additional water in its operations without incurring substantial incremental cost increases. If additional treated water is available, all parties have an option to purchase this additional treated water, subject to the Agency's right to allocate the water among the parties.

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

~~14 COMMITMENTS AND CONTINGENCIES (Continued)~~

The total obligation of all parties, excluding the Company, is approximately $82.4 million to the Agency. Based on the credit worthiness of the other participants, which are government entities, it is believed to be highly unlikely that the Company would be required to assume any other parties' obligations under the contract due to their default.

The Company pays a capital facilities charge and charges related to treated water that together total ~~$9.1~~$9.8 million annually, which equates to ~~$442.88~~$476.83 dollars per acre foot. Total treated water charge for ~~2019~~2020 was ~~$3.6~~$3.7 million. As treated water is being delivered, the Company will also be obligated for the Company's portion of the operating costs; that portion is currently estimated to be ~~$22.05~~$55.8 dollars per acre foot. The actual amount will vary due to variations from estimates, inflation, and other changes in the cost structure. Our overall estimated cost of ~~$442.88~~$476.83 dollars per acre foot is less than the estimated cost of procuring untreated water (assuming water rights could be obtained) and then providing treatment.

Leases

The Company has operating and finance leases for water systems, offices, land easements, licenses, equipment, and other facilities. The leases generally have remaining lease terms of 1 year to 50 years, some of which include options to extend the lease for up to 25 years. The exercise of lease renewal options is at the Company’s sole discretion. Most of the Company’s lease agreements contain mutual termination options that require prior written notice by either lessee or lessor. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Certain leases include options to purchase the leased property. The depreciable life of the assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option that is reasonably certain of exercise. Leases with an initial term of 12 months or less are not recorded on the balance sheet as the Company applied the short-term lease exception allowed by the FASB guidance. Lease expense for these leases is recognized on a straight-line basis over the lease term. A subset of the Company’s leases contains variable lease payments that depend on changes in the CPI.

The Company determines if an arrangement is a lease at contract inception. Generally, a lease agreement exists if the Company determines that the arrangement gives the Company control over the use of an identified asset and obtains substantially all of the benefits from the identified asset.

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CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, and 2018

Dollar amounts in thousands unless otherwise stated

15 COMMITMENTS AND CONTINGENCIES (Continued)

The right-of-use (ROU) assets that are recorded represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s operating leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The ROU asset and lease liability may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Variable lease payments that are based on changes in CPI are included in the measurement of ROU asset and lease liability on the basis of the rate at lease commencement. Subsequent changes to the payments as a result of changes to the CPI rate are recognized in the period in which the obligation of these payments is incurred.

Supplemental balance sheet information related to leases was as follows:


	As of December 31, 2020			As of December 31, 2019
Operating leases
Other assets: Other	$	15,589		$	14,402

Other accrued liabilities	$	1,757		$	1,452
Other long-term liabilities	13,868			12,928
Total operating lease liabilities	$	15,625		$	14,380

Finance leases
Depreciable plant and equipment	$	18,207		$	18,207
Accumulated depreciation and amortization	(10,813)			(9,644)
Net utility plant	$	7,394		$	8,563

Current maturities of long-term debt, net	$	721		$	680
Long-term debt, net	4,483			5,205
Total finance lease liabilities	$	5,204		$	5,885

Weighted average remaining lease term
Operating leases	135 months			152 months
Finance leases	64 months			76 months

Weighted average discount rate
Operating leases	3.5		%	3.7		%
Finance leases	5.5		%	5.5		%

Table of Contents

CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, ~~2018,~~ and ~~2017~~2018

Dollar amounts in thousands unless otherwise stated

1415 COMMITMENTS AND CONTINGENCIES (Continued)

~~Supplemental balance sheet information related to leases was as follows:~~

As of December 31, 2019
Operating leases
Other assets: Other $ 14,402

Other accrued liabilities $ 1,452
Other long-term liabilities 12,928
Total operating lease liabilities $ 14,380

Finance leases
Depreciable plant and equipment $ 18,207
Accumulated depreciation and amortization (9,644 )
Net utility plant $ 8,563

Current maturities of long-term debt, net $ 680
Long-term debt, net 5,205
Total finance lease liabilities $ 5,885

Weighted average remaining lease term
Operating leases 152 months
Finance leases 76 months

Weighted average discount rate
Operating leases 3.7 %
Finance leases 5.5 %

The components of lease expense were as follows:

2019
Operating lease cost $ 1,874

Finance lease cost:
Amortization of right-of-use assets $ 1,210
Interest on lease liabilities 347
Total finance lease cost $ 1,557

Short-term lease cost $ 1,700
Variable lease cost 264
Total lease cost $ 5,395

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

~~14 COMMITMENTS AND CONTINGENCIES (Continued)~~

~~Supplemental cash flow information related to leases was as follows:~~

2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 1,820
Operating cash flows from finance leases 347
Financing cash flows from finance leases 672
Non-cash activities: right-of-use assets obtained in exchange for lease obligations:
Operating leases 2,109
Finance leases 672

~~Maturities of lease liabilities as of December 31, 2019 are as follows:~~

Year Ending December 31, Operating Leases Finance Leases
2020 $ 1,951
$ 986
2021 1,734
987
2022 1,578
987
2023 1,459
1,506
2024 1,318
940
Thereafter 10,205
1,645
Total lease payments $ 18,245
$ 7,051

Less imputed interest $ (3,865 ) $ (1,166 )
Total $ 14,380
$ 5,885

As previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 and under the previous lease accounting standard, minimum lease payments, as of December 31, 2018, under non-cancelable operating leases by period were expected to be as follows:

Operating Leases
2019 $ 1,771
2020 1,709
2021 1,485
2022 1,355
2023 1,261
Thereafter 10,538
Total $ 18,119


	2020		2019
Operating lease cost	$	2,284	$	1,874

Finance lease cost:
Amortization of right-of-use assets	$	1,169	$	1,210
Interest on lease liabilities	306		347
Total finance lease cost	$	1,475	$	1,557

Short-term lease cost	$	2,048	$	1,700
Variable lease cost	306		264
Total lease cost	$	6,113	$	5,395

Rent expense under the previous lease accounting standard for operating leases was $2.0 million in ~~2018~~2018.

Supplemental cash flow information related to leases was as follows:


	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,306	$	1,820
Operating cash flows from finance leases	306		347
Financing cash flows from finance leases	680		672
Non-cash activities: right-of-use assets obtained in exchange for lease obligations:
Operating leases	3,100		2,109
Finance leases	0		672

Maturities of lease liabilities as of December 31, 2020 are as follows:


Year Ending December 31,	Operating Leases		Finance Leases
2021	$	2,302	$	987
2022	2,012		987
2023	1,767		1,506
2024	1,631		940
2025	1,571		940
Thereafter	10,947		705
Total lease payments	$	20,230	$	6,065

Less imputed interest	$	(4,605)	$	(861)
Total	$	15,625	$	5,204

Table of Contents

CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, and ~~2017.~~2018

Dollar amounts in thousands unless otherwise stated

15 COMMITMENTS AND CONTINGENCIES (Continued)

Contingencies

Groundwater Contamination

The Company has undertaken 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. The CPUC's general policy requires all proceeds from contamination litigation to be used first to pay transactional expenses, then to make customers whole for water treatment costs to comply with the CPUC's water quality standards. The CPUC allows

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

~~14 COMMITMENTS AND CONTINGENCIES (Continued)~~

for a risk-based consideration of contamination proceeds which exceed the costs of the remediation described above and may result in some sharing of proceeds with the shareholder, determined on a case by case basis. The CPUC has authorized various memorandum accounts that allow the Company to track significant litigation costs to request recovery of these costs in future filings and uses of proceeds to comply with CPUC's general policy.

As previously reported, Cal Water has filed with the City of Bakersfield, in the Superior Court of California, a lawsuit that names potentially PRPs, who manufactured and distributed products containing TCP in California. TCP has been detected in the ground water. The lawsuit seeks to recover treatment costs necessary to remove TCP. On December 20, 2017, Cal Water entered into an $85.0 million settlement agreement and release of claims with the PRPs, in California Water Service Company and City of Bakersfield v. The Dow Chemical Company, et al., Civil Case No. CIV-470999 (TCP Action). The TCP Action seeks damages and other relief related to the PRPs’ alleged contamination of drinking water supply and water wells with the chemical TCP. The proceeds from the settlement, after payment of the legal fees, was $56.0 million and will be used to reimburse a portion of the capital costs associated with Cal Water’s remediation efforts related to such alleged TCP contamination. As of December 31, ~~2019,~~2020, Cal Water has used ~~$47.6~~$46.7 million of the proceeds on remediation efforts related to the alleged TCP contamination. Under the terms of the Agreement, the PRPs are released from all claims regarding 47 of the 57 total claimed wells, and Cal Water agrees to file a dismissal with prejudice of the TCP Action. The PRPs are also released from future claims regarding TCP contamination of any other wells, unless and until Cal Water has installed granular activated carbon filtration systems or other then-approved Sate treatment technology for TCP on, or replaced, 36 wells due to TCP contamination. As of December 31, ~~2019,~~2020, Cal Water believes the proceeds are non-taxable based upon its intent to reinvest them in qualifying assets.

Other Legal Matters

From time to time, the Company is involved in various disputes and litigation matters that arise in the ordinary course of business. The status of each significant matter is reviewed and assessed for 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, a liability is accrued 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 when taking into account existing reserves the ultimate resolution of these matters will materially affect the Company's financial position, results of operations, or cash flows. The Company has recognized a liability of ~~$2.5~~$2.6 million for all known legal matters as of December 31, ~~2019~~2020 primarily due to potable water main leaks and other work related legal matters. 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, dependent on the nature of the settlement.

16 Acquisitions

Rainier View Water Company

On March 27, 2020, the Company’s wholly owned subsidiary, Washington Water, received regulatory approval from the WUTC for Washington Water's application for the sale and transfer of assets of Rainier View Water Company. Washington Water paid $37.6 million in cash to take control of the water system on June 1, 2020. The acquisition of Rainier View Water doubles the size of Washington Water’s operations and solidifies the Company’s position as the largest investor-owned water company in the state of Washington, regulated by the WUTC. Rainier View Water serves approximately 35,000 people in parts of Graham, Spanaway, Puyallup, Gig Harbor, and other nearby areas through approximately 18,500 customer connections in 27 water systems.

Table of Contents

CALIFORNIA WATER SERVICE GROUP

Notes to Consolidated Financial Statements (Continued)

December 31, 2020, 2019, and 2018

Dollar amounts in thousands unless otherwise stated

~~15 QUARTERLY FINANCIAL DATA (UNAUDITED)~~16 Acquisitions (Continued)

Assets acquired were $32.6 million, including utility plant of $31.1 million, and liabilities of $23.5 million were assumed, including $21.3 million of contributions in aid of construction. Goodwill of $28.5 million was recorded and consists largely of the synergies expected from combining the operations of Rainier View Water Company and Washington Water.

The ~~Company's common stock~~Company expects all the goodwill from the acquisition to be deductible for tax purposes.

Condensed balance sheets and pro forma results of operations for this acquisition have not been presented since the impact of the acquisition was not material.

Kalaeloa Water Company

On September 25, 2020, the Hawaii Public Utilities Commission (HPUC) approved Hawaii Water's application for the purchase of the Membership Interests of Hunt in Kalaeloa Water Company, LLC. Hawaii Water paid $3.1 million in cash to control of the water system on November 1, 2020. Kalaeloa Water Company is ~~traded~~located in the growing Kapolei area of the City and County of Honolulu on Oahu, serves residential, commercial, and industrial customers in Kalaeloa, a 3,700-acre area located on the ~~New York Stock Exchange under~~former Barbers Point Naval Air Station. Hawaii Water will continue to invest in local system infrastructure to keep service reliable for customers’ every day and emergency needs, and work to provide customers with continued access to safe, high-quality water and excellent customer service.

Assets acquired were $2.8 million, including utility plant of $2.1 million, and liabilities of $0.4 million were assumed. Goodwill of $0.7 million was recorded and consists largely of the ~~symbol "CWT".~~

2019 First Second Third Fourth
Operating revenue $ 126,111
$ 179,031
$ 232,537
$ 176,878
Net operating income 476
27,013
51,567
20,356
Net (loss) income (7,640 ) 16,996
42,424
11,336
Diluted (loss) earnings per share (0.16 ) 0.35
0.88
0.24
Common stock market price range:
High 55.05
54.56
57.48
56.49
Low 44.60
48.00
49.52
48.78
Dividends paid per common share 0.1975
0.1975
0.1975
0.1975

2018 First Second Third Fourth
Operating revenue $ 134,553
$ 174,938
$ 221,288
$ 167,417
Net operating income 9,836
26,839
47,329
26,536
Net (loss) income (762 ) 14,805
36,173
15,368
Diluted (loss) earnings per share (0.02 ) 0.31
0.75
0.32
Common stock market price range:
High 45.85
41.65
42.95
49.07
Low 35.25
35.60
38.85
40.10
Dividends paid per common share 0.1875
0.1875
0.1875
0.1875

~~Table~~synergies expected from combining the operations of ~~Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018,~~Kalealoa Water Company and ~~2017~~

~~Amounts in thousands, except share and per share data or as otherwise stated~~

~~16 CONDENSED CONSOLIDATING FINANCIAL STATEMENTS~~

On November 17, 2010, Cal Water issued $100.0 million aggregate principal amount of 5.500% First Mortgage Bonds due 2040, all of which is fully and unconditionally guaranteed by the Company. As a result of this guarantee arrangement, the Company is required to present the following condensed consolidating financial information. The investments in affiliates are accounted for and presented using the “equity method” of accountingHawaii Water.

The ~~following tables present~~Company expects all the goodwill from the acquisition to be deductible for tax purposes.

Condensed ~~Consolidating Balance Sheets as~~balance sheets and pro forma results of ~~December 31, 2019 and 2018,~~operations for this acquisition have not been presented since the Condensed Consolidating Statements of Income for the years ended December 31, 2019, 2018, and 2017, and the Condensed Consolidating Statements of Cash Flows for the years ended December 31, 2019, 2018, and 2017, of (i) California Water Service Group, the guarantorimpact of the First Mortgage Bonds and the parent company; (ii) California Water Service Company, the issuer of the First Mortgage Bonds and a 100% owned consolidated subsidiary of California Water Service Group; and (iii) the other 100% owned non-guarantor consolidated subsidiaries of California Water Service Group. No other subsidiary of the Company guarantees the securities. The condensed consolidating statement of cash flows for the year ended December 31, 2017 reflects the retrospective adoption of ASU 2016-09, which affected California Water Service Company and the other subsidiaries. The Condensed Consolidating Statement of Income for the year ended December 31, 2017 reflects the retrospective adoption of ASU 2017-07, which affected California Water Service Company and the other subsidiaries.acquisition was not material.

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

~~16 CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~CONDENSED CONSOLIDATING BALANCE SHEET~~

~~As of December 31, 2019~~

Parent
Company Cal Water All Other
Subsidiaries Consolidating
Adjustments Consolidated
(In thousands)
ASSETS
Utility plant:

Utility plant $ 1,318
$ 3,332,331
$ 224,033
$ (7,197 ) $ 3,550,485
Less accumulated depreciation and amortization (1,107 ) (1,079,627 ) (65,561 ) 2,180
(1,144,115 )
Net utility plant 211
2,252,704
158,472
(5,017 ) 2,406,370
Current assets:

Cash and cash equivalents 3,096
29,098
10,459
—
42,653
Receivables and unbilled revenue —
114,999
4,350
—
119,349
Receivables from affiliates 25,803
3,621
209
(29,633 ) —
Other current assets 90
20,615
2,005
—
22,710
Total current assets 28,989
168,333
17,023
(29,633 ) 184,712
Other assets:

Regulatory assets —
428,639
4,683
—
433,322
Investments in affiliates 777,170
—
—
(777,170 ) —
Long-term affiliate notes receivable 30,060
—
—
(30,060 ) —
Other assets 409
81,591
5,125
(221 ) 86,904
Total other assets 807,639
510,230
9,808
(807,451 ) 520,226
TOTAL ASSETS $ 836,839
$ 2,931,267
$ 185,303
$ (842,101 ) $ 3,111,308
CAPITALIZATION AND LIABILITIES
Capitalization:

Common stockholders' equity $ 779,906
$ 700,784
$ 81,604
$ (782,388 ) $ 779,906
Affiliate long-term debt —
—
30,060
(30,060 ) —
Long-term debt, net —
786,310
444
—
786,754
Total capitalization 779,906
1,487,094
112,108
(812,448 ) 1,566,660
Current liabilities:

Current maturities of long-term debt, net —
21,732
136
—
21,868
Short-term borrowings 55,100
120,000
—
—
175,100
Payables to affiliates —
6,115
23,518
(29,633 ) —
Accounts payable —
104,419
4,044
—
108,463
Accrued expenses and other liabilities 313
50,569
2,408
—
53,290
Total current liabilities 55,413
302,835
30,106
(29,633 ) 358,721
Unamortized investment tax credits —
1,575
—
—
1,575
Deferred income taxes 1,520
217,847
3,243
(20 ) 222,590
Pension and postretirement benefits other than pensions —
258,907
—
—
258,907
Regulatory and other long-term liabilities —
262,859
7,397
—
270,256
Advances for construction —
190,568
494
—
191,062
Contributions in aid of construction —
209,582
31,955
—
241,537
TOTAL CAPITALIZATION AND LIABILITIES $ 836,839
$ 2,931,267
$ 185,303
$ (842,101 ) $ 3,111,308

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

~~16 CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~CONDENSED CONSOLIDATING BALANCE SHEET~~

~~As of December 31, 2018~~

Parent
Company Cal Water All Other
Subsidiaries Consolidating
Adjustments Consolidated
(In thousands)
ASSETS
Utility plant:

Utility plant $ 1,318
$ 3,021,437
$ 213,888
$ (7,197 ) $ 3,229,446
Less accumulated depreciation and amortization (1,013 ) (938,072 ) (59,735 ) 2,097
(996,723 )
Net utility plant 305
2,083,365
154,153
(5,100 ) 2,232,723
Current assets:
Cash and cash equivalents 3,779
33,763
9,634
—
47,176
Receivables and unbilled revenue 126
118,632
4,201
—
122,959
Receivables from affiliates 21,318
4,074
61
(25,453 ) —
Other current assets 80
16,907
1,580
—
18,567
Total current assets 25,303
173,376
15,476
(25,453 ) 188,702
Other assets:
Regulatory assets —
349,414
4,155
—
353,569
Investments in affiliates 733,156
—
—
(733,156 ) —
Long-term affiliate notes receivable 27,829
—
—
(27,829 ) —
Other assets 133
58,959
3,821
(203 ) 62,710
Total other assets 761,118
408,373
7,976
(761,188 ) 416,279
TOTAL ASSETS $ 786,726
$ 2,665,114
$ 177,605
$ (791,741 ) $ 2,837,704
CAPITALIZATION AND LIABILITIES
Capitalization:

Common stockholders' equity $ 730,157
$ 659,340
$ 79,093
$ (738,433 ) $ 730,157
Affiliate long-term debt —
—
27,828
(27,828 ) —
Long-term debt, net —
709,444
583
—
710,027
Total capitalization 730,157
1,368,784
107,504
(766,261 ) 1,440,184
Current liabilities:
Current maturities of long-term debt, net —
104,664
247
—
104,911
Short-term borrowings 55,100
10,000
—
—
65,100
Payables to affiliates 17
488
24,948
(25,453 ) —
Accounts payable —
92,310
3,270
—
95,580
Accrued expenses and other liabilities 107
53,655
1,813
—
55,575
Total current liabilities 55,224
261,117
30,278
(25,453 ) 321,166
Unamortized investment tax credits —
1,649
—
—
1,649
Deferred income taxes 1,376
210,052
1,648
(43 ) 213,033
Pension and postretirement benefits other than pensions —
193,538
—
—
193,538
Regulatory and other long-term liabilities (31 ) 250,720
5,817
16
256,522
Advances for construction —
185,843
499
—
186,342
Contributions in aid of construction —
193,411
31,859
—
225,270
TOTAL CAPITALIZATION AND LIABILITIES $ 786,726
$ 2,665,114
$ 177,605
$ (791,741 ) $ 2,837,704

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

~~16 CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~CONDENSED CONSOLIDATING STATEMENT OF INCOME~~

~~For the Year Ended December 31, 2019~~

Parent
Company Cal Water All Other
Subsidiaries Consolidating
Adjustments Consolidated
(In thousands)
Operating revenue $ —
$ 669,769
$ 44,788
$ —
$ 714,557
Operating expenses:

Operations:

Purchased water —
211,998
463
—
212,461
Purchased power —
22,338
9,024
—
31,362
Pump taxes —
11,518
—
—
11,518
Administrative and general 23
98,675
9,919
—
108,617
Other operations —
83,148
7,496
(583 ) 90,061
Maintenance —
25,720
1,114
—
26,834
Depreciation and amortization 94
83,183
6,025
(82 ) 89,220
Income tax (benefit) expense (528 ) 14,677
1,273
858
16,280
Property and other taxes —
25,601
3,191
—
28,792
Total operating (income) expenses (411 ) 576,858
38,505
193
615,145
Net operating income 411
92,911
6,283
(193 ) 99,412
Other income and expenses:

Non-regulated revenue 2,401
18,080
1,707
(2,983 ) 19,205
Non-regulated expenses —
(12,526 ) (1,343 ) —
(13,869 )
Other components of net periodic benefit cost —

(5,559 )
(174 )
—

(5,733 )
Allowance for equity funds used during construction —
6,685
—
—
6,685
Gain on non-utility properties —
28
—
—
28
Income tax expense on other income and expenses (672 ) (1,476 ) (78 ) 835
(1,391 )
Net other income 1,729
5,232
112
(2,148 ) 4,925
Interest:

Interest expense 1,769
43,104
2,419
(2,401 ) 44,891
Allowance for borrowed funds used during construction —
(3,408 ) (262 ) —
(3,670 )
Net interest expense 1,769
39,696
2,157
(2,401 ) 41,221
Equity earnings of subsidiaries 62,745
—
—
(62,745 ) —
Net income $ 63,116
$ 58,447
$ 4,238
$ (62,685 ) $ 63,116

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

~~16 CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~CONDENSED CONSOLIDATING STATEMENT OF INCOME~~

~~For the Year Ended December 31, 2018~~

Parent
Company Cal Water All Other
Subsidiaries Consolidating
Adjustments Consolidated
(In thousands)
Operating revenue $ —
$ 656,939
$ 41,257
$ —
$ 698,196
Operating expenses:
Operations:
Purchased water —
206,675
428
—
207,103
Purchased power —
22,460
8,620
—
31,080
Pump taxes —
14,664
—
—
14,664
Administrative and general —
90,563
10,218
—
100,781
Other operations —
73,521
6,930
(583 ) 79,868
Maintenance —
23,573
921
—
24,494
Depreciation and amortization 94
78,601
5,173
(87 ) 83,781
Income tax (benefit) expense (960 ) 17,678
948
923
18,589
Property and other taxes —
24,190
3,106
—
27,296
Total operating (income) expenses (866 ) 551,925
36,344
253
587,656
Net operating income 866
105,014
4,913
(253 ) 110,540
Other Income and Expenses:

Non-regulated revenue 2,333
17,658
1,197
(2,916 ) 18,272
Non-regulated expenses —
(22,122 ) (665 ) —
(22,787 )
Other components of net periodic benefit cost —
(8,886 ) (422 ) —
(9,308 )
Allowance for equity funds used during construction —
3,954
—
—
3,954
Gain on sale of non-utility properties —
50
—
—
50
Income tax (expense) benefit on other income and expenses (652 ) 2,616
(63 ) 816
2,717
Net other income (loss) 1,681
(6,730 ) 47
(2,100 ) (7,102 )
Interest:

Interest expense 1,711
38,288
2,251
(2,333 ) 39,917
Allowance for borrowed funds used during construction —
(1,909 ) (154 ) —
(2,063 )
Net interest expense 1,711
36,379
2,097
(2,333 ) 37,854
Equity earnings of subsidiaries 64,748
—
—
(64,748 ) —
Net income $ 65,584
$ 61,905
$ 2,863
$ (64,768 ) $ 65,584

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

~~16 CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~CONDENSED CONSOLIDATING STATEMENT OF INCOME~~

~~For the Year Ended December 31, 2017~~

Parent
Company Cal Water All Other
Subsidiaries Consolidating
Adjustments Consolidated
(In thousands)
Operating revenue $ —
$ 635,604
$ 40,509
$ —
$ 676,113
Operating expenses:

Operations:

Purchased water —
198,682
399
—
199,081
Purchased power —
21,021
7,841
—
28,862
Pump taxes —
13,924
—
—
13,924
Administrative and general —
83,163
10,163
—
93,326
Other operations —
67,069
7,903
(524 ) 74,448
Maintenance —
21,595
935
—
22,530
Depreciation and amortization 94
72,327
4,453
(91 ) 76,783
Income tax (benefit) expense (498 ) 33,313
1,405
1,059
35,279
Property and other taxes (4 ) 21,778
3,023
—
24,797
Total operating (income) expenses (408 ) 532,872
36,122
444
569,030
Net operating income 408
102,732
4,387
(444 ) 107,083
Other Income and Expenses:

Non-regulated revenue 1,985
14,608
1,814
(2,509 ) 15,898
Non-regulated expenses —
(8,139 ) (1,251 ) —
(9,390 )
Other components of net periodic benefit cost —

(9,032 )
(556 )
—

(9,588 )
Allowance for equity funds used during construction —
3,750
—
—
3,750
Gain on sale of non-utility properties —
663
—
—
663
Income tax expense on other income and expenses (809 ) (1,714 ) (47 ) 1,022
(1,548 )
Net other income (loss) 1,176
136
(40 ) (1,487 ) (215 )
Interest:

Interest expense 1,131
35,116
2,026
(1,985 ) 36,288
Allowance for borrowed funds used during construction —
(2,319 ) (41 ) —
(2,360 )
Net interest expense 1,131
32,797
1,985
(1,985 ) 33,928
Equity earnings of subsidiaries 72,487
—
—
(72,487 ) —
Net income $ 72,940
$ 70,071
$ 2,362
$ (72,433 ) $ 72,940

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

~~16 CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS~~

~~For the Year Ended December 31, 2019~~

Parent
Company Cal Water All Other
Subsidiaries Consolidating
Adjustments Consolidated
(In thousands)
Operating activities:

Net income $ 63,116
$ 58,447
$ 4,238
$ (62,685 ) $ 63,116
Adjustments to reconcile net income to net cash provided by operating activities:

Equity earnings of subsidiaries (62,745 ) —
—
62,745
—
Dividends received from Affiliates 38,023
—
—
(38,023 ) —
Depreciation and amortization 94
85,175
6,101
(82 ) 91,288
Change in value of life insurance contract —
(5,104 ) —
—
(5,104 )
Stock-based compensation —
—
6,731
—
6,731
Gain on sale of non-utility properties —
(28 ) —
—
(28 )
Changes in normalized deferred income taxes —
15,346
—
—
15,346
Allowance for equity funds used during construction —
(6,685 ) —
—
(6,685 )
Changes in operating assets and liabilities 321
1,883
220
—
2,424
Other changes in noncurrent assets and liabilities 6,632
(308 ) (4,640 ) 22
1,706
Net cash provided by operating activities 45,441
148,726
12,650
(38,023 ) 168,794
Investing activities:

Utility plant expenditures —
(262,500 ) (11,270 ) —
(273,770 )
Proceeds from sale of non-utility assets —
28
—
—
28
Investment in affiliates (19,294 ) —
—
19,294
—
Change in affiliate advances (4,379 ) 453
(174 ) 4,100
—
Issuance of affiliate short-term borrowings (4,300 ) —
—
4,300
—
Collection of affiliate long-term debt 1,963
—
—
(1,963 ) —
Purchase of life insurance —
(2,216 ) —
—
(2,216 )
Net cash used in investing activities (26,010 ) (264,235 ) (11,444 ) 25,731
(275,958 )
Financing Activities:

Short-term borrowings —
260,000
—
—
260,000
Repayment of short-term borrowings —
(150,000 ) —
—
(150,000 )
Investment from affiliates —
19,294
—
(19,294 ) —
Change in affiliate advances (17 ) 5,627
(1,510 ) (4,100 ) —
Proceeds from affiliate short-term borrowings —
—
4,300
(4,300 )

Repayment of affiliates long-term debt —

—

(1,963 )
1,963

—
Issuance of long-term debt, net of debt issuance costs —

398,204

—

—

398,204
Retirement of long-term debt —
(405,317 ) (251 ) —
(405,568 )
Advances and contribution in aid of construction —
27,005
769
—
27,774
Refunds of advances for construction —
(7,565 ) (1 ) —
(7,566 )
Issuance of common stock 20,423
—
—
—
20,423
Repurchase of common stock (2,497 ) —
—
—
(2,497 )
Dividends paid to non-affiliates (38,023 ) —
—
—
(38,023 )
Dividends paid to affiliates —
(36,297 ) (1,726 ) 38,023
—
Net cash (used in) provided by financing activities (20,114 ) 110,951
(382 ) 12,292
102,747
Change in cash, cash equivalents, and restricted cash (683 ) (4,558 ) 824
—
(4,417 )
Cash, cash equivalents, and restricted cash at beginning of period 3,779
34,239
9,697
—
47,715
Cash, cash equivalents, and restricted cash at end of year $ 3,096
$ 29,681
$ 10,521
$ —
$ 43,298

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

~~16 CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS~~

~~For the Year Ended December 31, 2018~~

Parent
Company Cal Water All Other
Subsidiaries Consolidating
Adjustments Consolidated
(In thousands)
Operating activities:

Net income $ 65,584
$ 61,905
$ 2,863
$ (64,768 ) $ 65,584
Adjustments to reconcile net income to net cash provided by operating activities:
Equity earnings of subsidiaries (64,748 ) —
—
64,748
—
Dividends received from Affiliates 36,043
—
—
(36,043 ) —
Depreciation and amortization 94
80,442
5,258
(87 ) 85,707
Change in value of life insurance contract —
2,334
—
—
2,334
Stock-based compensation 3,141
—
—
—
3,141
Gain on sale of non-utility properties —
(50 ) —
—
(50 )
Changes in normalized deferred income taxes —
20,909
—
—
20,909
Allowance for equity funds used during construction —
(3,954 ) —
—
(3,954 )
Changes in operating assets and liabilities (290 ) 16,943
(170 ) —
16,483
Other changes in noncurrent assets and liabilities (348 ) (12,284 ) 1,390
107
(11,135 )
Net cash provided by operating activities 39,476
166,245
9,341
(36,043 ) 179,019
Investing activities:

Utility plant expenditures —
(261,456 ) (10,251 ) —
(271,707 )
Proceeds from sale of non-utility assets —
59
—
—
59
Change in affiliate advances (689 ) 19
53
617
—
Issuance of affiliate short-term borrowings (23,700 ) —
—
23,700
—
Collection of affiliate short-term debt 20,000
—
—
(20,000 ) —
Collection of affiliate long-term debt 1,635
—
—
(1,635 ) —
Life insurance benefits —
3,491
—
—
3,491
Purchase of life insurance —
(4,925 ) —
—
(4,925 )
Net cash used in investing activities (2,754 ) (262,812 ) (10,198 ) 2,682
(273,082 )
Financing Activities:

Short-term borrowings 20,000
131,000
—
—
151,000
Repayment of short-term borrowings (20,000 ) (341,000 ) —
—
(361,000 )
Change in affiliate advances 17
(93 ) 693
(617 ) —
Proceeds from affiliate short-term borrowings 20,000
—
3,700
(23,700 ) —
Repayment of affiliates short-term debt (20,000 ) —
—
20,000
—
Repayment of affiliates long-term debt —
—
(1,635 ) 1,635
—
Issuance of long-term debt, net of debt issuance costs —
299,383
—
—
299,383
Retirement of long-term debt —
(16,200 ) (332 ) —
(16,532 )
Advances and contribution in aid of construction —
18,218
394
—
18,612
Refunds of advances for construction —
(7,279 ) (18 ) —
(7,297 )
Repurchase of common stock (1,645 ) —
—
—
(1,645 )
Dividends paid to non-affiliates (36,043 ) —
—
—
(36,043 )
Dividends paid to affiliates —
(34,624 ) (1,419 ) 36,043
—
Net cash (used in) provided by financing activities (37,671 ) 49,405
1,383
33,361
46,478
Change in cash, cash equivalents, and restricted cash (949 ) (47,162 ) 526
—
(47,585 )
Cash, cash equivalents, and restricted cash at beginning of period 4,728
81,401
9,171
—
95,300
Cash, cash equivalents, and restricted cash at end of year $ 3,779
$ 34,239
$ 9,697
$ —
$ 47,715

~~Table of Contents~~

~~CALIFORNIA WATER SERVICE GROUP~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~December 31, 2019, 2018, and 2017~~

~~Dollar amounts in thousands unless otherwise stated~~

~~16 CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)~~

~~California Water Service Group~~

~~CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS~~

~~For the Year Ended December 31, 2017~~

Parent
Company Cal Water All Other
Subsidiaries Consolidating
Adjustments Consolidated
(In thousands)
Operating activities:

Net income $ 72,940
$ 70,071
$ 2,362
$ (72,433 ) $ 72,940
Adjustments to reconcile net income to net cash provided by operating activities:

Equity earnings of subsidiaries (72,487 ) —
—
72,487
—
Dividends received from Affiliates 34,563
—
—
(34,563 ) —
Depreciation and amortization 94
74,041
4,548
(91 ) 78,592
Change in value of life insurance contract —
(3,058 ) —
—
(3,058 )
Stock-based compensation 3,118
—
—
—
3,118
Gain on sale of non-utility properties —
(663 ) —
—
(663 )
Changes in normalized deferred income taxes —
21,087
—
—
21,087
Allowance for equity funds used during construction —
(3,750 ) —
—
(3,750 )
Changes in operating assets and liabilities 184
(36,611 ) 38
—
(36,389 )
Other changes in noncurrent assets and liabilities 254
13,101
2,573
37
15,965
Net cash provided by operating activities 38,666
134,218
9,521
(34,563 ) 147,842
Investing activities:

Utility plant expenditures (4 ) (252,055 ) (7,135 ) —
(259,194 )
TCP settlement proceeds —
56,004
—
—
56,004
Proceeds from sale of non-utility assets —
666
—
—
666
Change in affiliate advances 172
(485 ) (50 ) 363
—
Issuance of affiliate short-term borrowings (2,610 ) —
—
2,610
—
Collection of affiliate long-term debt 1,356
—
—
(1,356 ) —
Life insurance benefits —
1,558
—
—
1,558
Purchase of life insurance —
(5,605 ) —
—
(5,605 )
Net cash used in investing activities (1,086 ) (199,917 ) (7,185 ) 1,617
(206,571 )
Financing Activities:

Short-term borrowings —
265,000
—
—
265,000
Repayment of short-term borrowings (2,000 ) (85,000 ) —
—
(87,000 )
Change in affiliate advances —
41
322
(363 ) —
Proceeds from affiliate short-term borrowings —
—
2,610
(2,610 ) —
Repayment of affiliates long-term debt —
—
(1,356 ) 1,356
—
Retirement of long-term debt —
(26,223 ) (606 ) —
(26,829 )
Advances and contribution in aid of construction —
21,075
294
—
21,369
Refunds of advances for construction —
(8,373 ) (5 ) —
(8,378 )
Repurchase of common stock (1,505 ) —
—
—
(1,505 )
Dividends paid to non-affiliates (34,563 ) —
—
—
(34,563 )
Dividends paid to affiliates —
(33,015 ) (1,548 ) 34,563
—
Net cash (used in) provided by financing activities (38,068 ) 133,505
(289 ) 32,946
128,094
Change in cash, cash equivalents, and restricted cash (488 ) 67,806
2,047
—
69,365
Cash, cash equivalents, and restricted cash at beginning of period 5,216
13,595
7,124
—
25,935
Cash, cash equivalents, and restricted cash at end of year $ 4,728
$ 81,401
$ 9,171
$ —
$ 95,300

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

None

Table of Contents

Item 9A. Controls and Procedures.

Management's Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, 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 Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, management, including the Chief Executive Officer and Chief Financial Officer, 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 Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, ~~2019.~~2020. Based on that evaluation, we concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

There was no change in our internal control over financial reporting during the quarter ended December 31, ~~2019,~~2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management's Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). Management assessed the effectiveness of our internal control over financial reporting as of December 31, ~~2019.~~2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in "Internal Control—Integrated Framework (2013)". Management has concluded that, as of December 31, ~~2019~~2020 our internal control over financial reporting is effective based on these criteria. Our independent registered public accounting firm, Deloitte & Touche LLP, has audited the effectiveness of our internal control over financial reporting as of December 31, ~~2019,~~2020, as stated in their report, which is included in Item 8 and incorporated herein.

Item 9B. Other Information.

None.

PART III

Item 10. Directors and Executive Officers and Corporate Governance.

The information required by this Item as to directors of the Company and the Company's Audit Committee is contained in the sections captioned "Board Structure," "Proposal No. 1—Election of Directors" and, as applicable, "Delinquent Section 16(a) Reports" of the definitive Proxy Statement for our Annual Meeting of Stockholders to be held on or about May ~~27, 2020~~26, 2021 (the ~~"2020~~"2021 Proxy Statement"), and is incorporated herein by reference.

Information required by this Item regarding executive officers is included in a separate section captioned "Information About Our Executive Officers" contained in Part I of this annual report.

We have adopted a code of ethics that applies to all of our directors, officers, and employees, including our principal executive, financial and accounting officers, or persons performing similar functions. Our Code of Ethics is posted on our corporate governance website located at http://www.calwatergroup.com. In addition, amendments to the Code of Ethics and any grant of a waiver from a provision of the Code of Ethics requiring disclosure under applicable SEC and NYSE rules will be disclosed at the same location as the Code of Ethics on our corporate governance website located at http://www.calwatergroup.com within four business days of such amendment or waiver.

Item 11. Executive Compensation.

The information required by this Item is contained under the captions "Compensation Discussion and Analysis," "Report of the Organization and Compensation Committee of the Board of Directors on Executive Compensation," and "Organization and Compensation Committee Interlocks and Insider Participation" of the ~~2020~~2021 Proxy Statement and is incorporated herein by reference.

Table of Contents

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

The information required by this Item regarding security ownership of certain beneficial owners and management is contained in the section captioned "Stock Ownership of Management and Certain Beneficial Owners" of the ~~2020~~2021 Proxy Statement and is incorporated herein by reference.

The following table represents securities authorized to be issued under our equity compensation plan:


Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Rights (a)	Weighted-Average Exercise Price of Outstanding Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plan (Excluding Securities Reflected in Column) (a)
Equity compensation plans approved by security holders	87,787	$	46.62	1,965,335
Equity compensation plans not approved by security holders	—	—		—
Total	87,787	$	46.62	1,965,335

Plan Category Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Rights
(a) Weighted-Average
Exercise Price of
Outstanding
Rights Number of
Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plan
(Excluding
Securities
Reflected in Column)
(a)
Equity compensation plans approved by security holders 86,456
$ 52.83
2,057,343
Equity compensation plans not approved by security holders —
—
—
Total 86,456
$ 52.83
2,057,343

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

The information required by this Item is contained in the sections captioned "Certain Related Persons Transactions" and "Board Structure" of the ~~2020~~2021 Proxy Statement and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services.

The information required by this Item is contained in the section captioned "Report of the Audit Committee" and "Relationship with the Independent Registered Public Accounting Firm" of the ~~2020~~2021 Proxy Statement and is incorporated herein by reference.

PART IV

Item 15. Exhibits, Financial Statement Schedules.


~~(a)~~	~~As part of this Form 10-K, the following documents are being filed:~~

(a)As part of this Form 10-K, the following documents are being filed:

1.Financial Statement: See "Index to Consolidated Financial Statements" in Part II, Item 8 of this Form 10-K.

2.Financial Statement Schedules: No financial statement schedules are being included since the information otherwise required is included in the financial statements and the notes thereto.

3.Exhibits: The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference.

~~Financial Statement:~~ ~~See "Index to Consolidated Financial Statements" in Part II, Item 8 of this Form 10-K.~~


2.	~~Financial Statement Schedules:~~ ~~No financial statement schedules are being included since the information otherwise required is included in the financial statements and the notes thereto.~~


3.	~~Exhibits:~~ ~~The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference.~~

EXHIBIT INDEX

Unless filed with this Form 10-K, the documents listed are incorporated by reference to the filings referred to:



Exhibit Number
1.1**1.1			Equity Distribution Agreement, dated as of October 31, 2019, between California Water Service Group and Morgan Stanley & Co. LLC, Robert W. Baird & Co. Incorporated, Blaylock Van, LLC, and Wells Fargo Securities, LLC. (Exhibit 1.1 to Annual Report on Form 10-K for the year ended December 31, 2019)
3.1			Certificate of Incorporation of California Water Service Group (Exhibit 3.1 to the Quarterly Report on Form 10-Q filed August 9, 2006)
3.2			Certificate of Amendment to Certificate of Incorporation of California Water Service Group (Exhibit 3.1 to the Current Report on Form 8-K filed June 10, 2011)
3.3			Amended and Restated Bylaws of California Water Service Group, as amended on ~~October 28, 2015~~September 30, 2020 (Exhibit 33.1 to the ~~Quarterly~~Current Report on Form ~~10-Q~~8-K filed October ~~29, 2015)~~5, 2020)
4.1			Certificate of Designations regarding Series D Participating Preferred Stock, as filed with Delaware Secretary of State on September 16, 1999 (Exhibit 4.2 to Annual Report on Form 10-K for the year ended December 31, 2003)

Table of Contents


Exhibit Number
4.2		Certificate of Elimination of the Series D Participating Preferred Stock, as filed with Delaware Secretary of State on February 27, 2019 (Exhibit 4.2 to Annual Report on Form 10-K for the year ended December 31, 2018)
4.3		Thirty-Ninth Supplemental Indenture dated as of April 17, 2009, between California Water Service Company and U.S. Bank National Association, as Trustee (Exhibit 4.1 to Current Report on Form 8-K filed April 21, 2009)
4.4		Fortieth Supplemental Indenture dated as of April 17, 2009, between California Water Service Company and U.S. Bank National Association, as Trustee, covering 9.86% First Mortgage Bonds due 2020, Series CC. (Exhibit 4.2 to Current Report on Form 8-K filed April 21, 2009)
~~4.5~~	Forty-First Supplemental Indenture dated as of April 17, 2009, between California Water Service Company and U.S. Bank National Association, as Trustee, covering 5.875% First Mortgage Bonds due 2019, Series LL. (Exhibit 4.3 to Current Report on Form 8-K filed April 21, 2009)
~~4.6~~	Forty-Third Supplemental Indenture dated as of April 17, 2009, between California Water Service Company and U.S. Bank National Association, as Trustee, covering 7.28% First Mortgage Bonds due 2025, Series AAA. (Exhibit 4.5 to Current Report on Form 8-K filed April 21, 2009)
~~4.7~~4.5		Forty-Fourth Supplemental Indenture dated as of April 17, 2009, between California Water Service Company and U.S. Bank National Association, as Trustee, covering 6.77% First Mortgage Bonds due 2028, Series BBB. (Exhibit 4.6 to Current Report on Form 8-K filed April 21, 2009)
~~4.8~~4.6		Forty-Fifth Supplemental Indenture dated as of April 17, 2009, between California Water Service Company and U.S. Bank National Association, as Trustee, covering 8.15% First Mortgage Bonds due 2030, Series CCC. (Exhibit 4.7 to Current Report on Form 8-K filed April 21, 2009)
~~4.9~~4.7		Forty-Sixth Supplemental Indenture dated as of April 17, 2009, between California Water Service Company and U.S. Bank National Association, as Trustee, covering 7.13% First Mortgage Bonds due 2031, Series DDD. (Exhibit 4.8 to Current Report on Form 8-K filed April 21, 2009)
~~4.10~~4.8		Forty-Seventh Supplemental Indenture dated as of April 17, 2009, between California Water Service Company and U.S. Bank National Association, as Trustee, covering 7.11% First Mortgage Bonds due 2032, Series EEE. (Exhibit 4.9 to Current Report on Form 8-K filed April 21, 2009)
~~4.11~~4.9		Forty-Ninth Supplemental Indenture dated as of April 17, 2009, between California Water Service Company and U.S. Bank National Association, as Trustee, covering 5.29% First Mortgage Bonds due 2022, Series GGG. (Exhibit 4.11 to Current Report on Form 8-K filed April 21, 2009)



~~Exhibit Number~~
~~4.12~~4.10	Fiftieth Supplemental Indenture dated as of April 17, 2009, between California Water Service Company and U.S. Bank National Association, as Trustee, covering 5.29% First Mortgage Bonds due 2022, Series HHH. (Exhibit 4.12 to Current Report on Form 8-K filed April 21, 2009)
~~4.13~~4.11		Fifty-First Supplemental Indenture dated as of April 17, 2009, between California Water Service Company and U.S. Bank National Association, as Trustee, covering 5.54% First Mortgage Bonds due 2023, Series III. (Exhibit 4.13 to Current Report on Form 8-K filed April 21, 2009)
~~4.14~~4.12		Fifty-Second Supplemental Indenture dated as of April 17, 2009, between California Water Service Company and U.S. Bank National Association, as Trustee, covering 5.44% First Mortgage Bonds due 2018, Series JJJ. (Exhibit 4.14 to Current Report on Form 8-K filed April 21, 2009)
~~4.15~~	Fifty-Fourth Supplemental Indenture dated as of April 17, 2009, between California Water Service Company and U.S. Bank National Association, as Trustee, covering 5.48% First Mortgage Bonds due 2018, Series LLL. (Exhibit 4.16 to Current Report on Form 8-K filed April 21, 2009)
~~4.16~~	Fifty-Seventh Supplemental Indenture dated as of April 17, 2009, between California Water Service Company and U.S. Bank National Association, as Trustee, covering 6.02% First Mortgage Bonds due 2031, Series OOO. (Exhibit 4.19 to Current Report on Form 8-K filed April 21, 2009)
~~4.17~~4.13		Fifty-Eighth Supplemental Indenture dated as of November 22, 2010, between California Water Service Company and U.S. Bank National Association, as Trustee, covering 5.50% First Mortgage Bonds due 2040, Series PPP. (Exhibit 4.1 to Current Report on form 8-K filed November 22, 2010).
~~4.18~~4.14		Sixty-First Supplemental Indenture dated as of September 13, 2018, between California Water Service Company and U.S. Bank National Association, as Trustee, covering Floating Rate First Mortgage Bonds due 2020, Series UUU. (Exhibit 4.1 to Quarterly Report on form 10-Q filed November 1, 2018).
~~4.19~~	Sixty-Second Supplemental Indenture dated as of June 11, 2019, between California Water Service Company and U.S. Bank National Association, as Trustee, covering 3.40% First Mortgage Bonds due 2029, Series VVV, 4.07% First Mortgage Bonds due 2049, Series WWW, and 4.17% First Mortgage Bonds due 2059, Series YYY (Exhibit 10.1 to the Current Report on Form 8-K filed June 18, 2019)
~~4.20~~4.15		The Company agrees to furnish upon request to the Securities and Exchange Commission a copy of each instrument defining the rights of holders of long-term debt of the Company.
~~4.21~~4.16		Description of ~~Securities.~~securities
10.1		Water Supply Contract between Cal Water and County of Butte relating to Cal Water's Oroville District; Water Supply Contract between Cal Water and the Kern County Water Agency relating to Cal Water's Bakersfield District; Water Supply Contract between Cal Water and Stockton East Water District relating to Cal Water's Stockton District. (Exhibits 5(g), 5(h), 5(i), 5(j), Registration Statement No. 2-53678, which exhibits are incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1974)
10.2		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. (Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ending September 30, 2009).
10.3		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. (Exhibit 10.4 to Quarterly Report on Form 10-Q for the quarter ending September 30, 2009).

Table of Contents


~~10.4~~Exhibit Number
10.4			Water Supply Contract dated January 27, 1981, between Cal Water and the Santa Clara Valley Water District relating to Cal Water's Los Altos District (Exhibit 10.3 to Annual Report on Form 10-K for the year ended December 31, 1992)
10.5			Amendments No. 3, 6 and 7 and Amendment dated June 17, 1980, to Water Supply Contract between Cal Water and the County of Butte relating to Cal Water's Oroville District. (Exhibit 10.5 to Annual Report on Form 10-K for the year ended December 31, 1992)
10.6			Amendment dated May 31, 1977, to Water Supply Contract between Cal Water and Stockton East Water District relating to Cal Water's Stockton District. (Exhibit 10.6 to Annual Report on Form 10-K for the year ended December 31, 1992)
10.7			Second Amended Contract dated September 25, 1987, among Stockton East Water District, California Water Service Company, the City of Stockton, the Lincoln Village Maintenance District, and the Colonial Heights Maintenance District Providing for the Sale of Treated Water. (Exhibit 10.7 to Annual Report on Form 10-K for the year ended December 31, 1987)
10.8			Water Supply Contract dated April 19, 1927, and Supplemental Agreement dated June 5, 1953, between Cal Water and Pacific Gas and Electric Company relating to Cal Water's Oroville District. (Exhibit 10.9 to Annual Report on Form 10-K for the year ended December 31, 1992)



~~Exhibit Number~~10.9
~~10.9~~	Water Supply Agreement dated September 25, 1996, between the City of Bakersfield and California Water Service Company. (Exhibit 10.18 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1996)
10.10		Water Supply Contract dated November 16, 1994, between California Water Service Company and Alameda County Flood Control and Water Conservation District relating to Cal Water's Livermore District (Exhibit 10.15 to Annual Report on Form 10-K for the year ended December 31, 1994)
10.11		California Water Service Group Directors' Retirement Plan (As amended and restated on February 22, 2006) (Exhibit 10.14 to the Annual Report on Form 10-K for the year ended December 31, 2005)
10.12		Credit Agreement dated as of March 29, 2019 among California Water Service Group and certain of its subsidiaries from time to time party thereto, as borrowers, Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as sole lead arranger and sole bookrunner, CoBank, ACB, and U.S. Bank National Association as co-syndication agents, Bank of China, Los Angeles Branch and Wells Fargo Bank, National Association as co-documentation agents, and the other lender parties thereto. (Exhibit 10.1 to the Current Report on Form 8-K filed March 29, 2019)
10.13		Credit Agreement dated as of March 29, 2019 among California Water Service Company as borrower, Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as sole lead arranger and sole bookrunner, CoBank, ACB, and U.S. Bank National Association as co-syndication agents, Bank of China, Los Angeles Branch and Wells Fargo Bank, National Association as co-documentation agents, and the other lender parties thereto. (Exhibit 10.2 to the Current Report on Form 8-K filed March 29, 2019)
10.14		Executive Severance Plan (Exhibit 10.24 to Annual Report on Form 10-K for the year ended December 31, 1998)*
10.15		California Water Service Group Deferred Compensation Plan effective January 1, 2001 (Exhibit 10.22 to Annual Report on Form 10-K for the year ended December 31, 2000)*
10.16		California Water Service Company Supplemental Executive Retirement Plan effective January 1, 2001 (Exhibit 10.23 to Annual Report on Form 10-K for the year ended December 31, 2000)*
10.17		Amendment No. 1 to California Water Service Company Supplemental Executive Retirement Plan effective January 1, 2001 (Exhibit 10.22 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2004)*
10.18		Water Supply Contract 99-73 between the City of Bakersfield and California Water Service Company, dated March 31, 1999 (Exhibit 10.25 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
10.19		Amendment No. 1 to Water Supply Contract between the City of Bakersfield and California Water Service Company, dated October 3, 2001 (Exhibit 10.26 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
10.20		Amendment No. 2 to California Water Service Company Supplemental Executive Retirement Plan effective January 1, 2001 (Exhibit 10.27 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2004)*
10.21		California Water Service Group Amended and Restated Equity Incentive Plan (filed as Appendix A of the California Water Service Group proxy statement dated April 8, 2014, for its Annual Meeting of Stockholders to be held on May 20, 2014, as filed with the SEC on April 8, 2014)*
10.22		The registrant's policy on option repricing under its Equity Incentive Plan (incorporated by reference to Item 8.01 Other Events in the registrant's Current Report on Form 8-K dated April 7, 2005)*
10.23		Water Supply Contract dated September 21, 2005, between Cal Water and the Kern County Water Agency. (Exhibit 10.1 to Current Report on Form 8-K filed on September 21, 2005)

Table of Contents


Exhibit Number
10.24			Form of Restricted Stock Award Grant Notice under the California Water Service Group Equity Incentive Plan. (Exhibit 10.36 to the Annual Report on Form 10-K for the year ended December 31, 2005)
10.25			Form of Restricted Stock Award Agreement under the California Water Service Group Equity Incentive Plan with Assignment Separate From Certificate and Joint Escrow Instructions. (Exhibit 10.38 to the Annual Report on Form 10-K for the year ended December 31, 2005)
10.26			Form of Indemnification Agreement to be entered between California Water Service Group and its directors and officers. (Exhibit 10.44 to the Annual Report on Form 10-K for the year ended December 31, 2006)
21.0			Subsidiaries of the Registrant
~~23.1~~22.1			List of Subsidiary Issuers and Guarantors
23.1			Consent of Independent Registered Public Accounting Firm
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
32.0			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



~~Exhibit Number~~101
~~101~~	The following materials from ~~California Water Service Group's~~this Annual Report on Form 10-K ~~for the year ended December 31, 2019~~ formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statements of Common Stockholders' Equity and (v) the Notes to the Consolidated Financial Statements.
104		The cover page from ~~California Water Service Group's~~this Annual Report on Form 10-K, ~~for the year ended December 31, 2019,~~ formatted in iXBRL (included as exhibit 101).


*	~~Management contract or compensatory plan or arrangement.~~


**	~~Refiled to correct non-substantive typographical and formatting errors.~~

* Management contract or compensatory plan or arrangement.

Item 16. Form 10-K Summary.

None.

SIGNATURES

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



	CALIFORNIA WATER SERVICE GROUP
	By	/s/ MARTIN A. KROPELNICKI
		MARTIN A. KROPELNICKI, President and Chief Executive Officer
Date: February ~~27, 2020~~25, 2021

Table of Contents

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



/s/ PETER C. NELSON	Chairman, Board of Directors	Date: February ~~27, 2020~~25, 2021
PETER C. NELSON

/s/ GREGORY E. ALIFF	Member, Board of Directors	Date: February ~~27, 2020~~25, 2021
GREGORY E. ALIFF

/s/ TERRY P. BAYER	Member, Board of Directors	Date: February ~~27, 2020~~25, 2021
TERRY P. BAYER

/s/ SHELLY M. ESQUE	Member, Board of Directors	Date: February ~~27, 2020~~25, 2021
SHELLY M. ESQUE

/s/ THOMAS M. KRUMMEL	Member, Board of Directors	Date: February ~~27, 2020~~25, 2021
THOMAS M. KRUMMEL, M.D.

/s/ RICHARD P. MAGNUSON	Member, Board of Directors	Date: February ~~27, 2020~~25, 2021
RICHARD P. MAGNUSON

/s/ SCOTT L. MORRIS	Member, Board of Directors	Date: February ~~27, 2020~~25, 2021
SCOTT L. MORRIS

/s/ CAROL M. POTTENGER	Member, Board of Directors	Date: February ~~27, 2020~~25, 2021
CAROL M. POTTENGER

/s/ LESTER A. SNOW	Member, Board of Directors	Date: February ~~27, 2020~~25, 2021
LESTER A. SNOW

/s/ PATRICIA K. WAGNER	Member, Board of Directors	Date: February ~~27, 2020~~25, 2021
PATRICIA K. WAGNER

/s/ MARTIN A. KROPELNICKI	President and Chief Executive Officer; Principal Executive Officer; Member, Board of Directors	Date: February ~~27, 2020~~25, 2021
MARTIN A. KROPELNICKI

/s/ THOMAS F. SMEGAL III	Vice President, Chief Financial Officer and Treasurer; Principal Financial Officer	Date: February ~~27, 2020~~25, 2021
THOMAS F. SMEGAL III

/s/ DAVID B. HEALEY	Vice President, Corporate Controller and Assistant Treasurer; Principal Accounting Officer	Date: February ~~27, 2020~~25, 2021
DAVID B. HEALEY


				Page
Item 11.			Executive Compensation	86
Item ~~11.~~12.			~~Executive Compensation~~	94
~~Item 12.~~	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	9487
Item 13.			Certain Relationships and Related Transactions and Director Independence	9487
Item 14.			Principal Accountant Fees and Services	9487
PART IV
Item 15.			Exhibits, Financial Statement Schedules	9587
			Exhibit Index	9587
Item 16.			Form 10-K Summary	9890
			Signatures	9890



	Increase/(Decrease) in Pension Benefits Actuarial Assumption		Increase/(Decrease) in 2019 Net Periodic Benefit Cost			Increase/(Decrease) in Projected Benefit Obligation as of December 31, 2019
			Dollars in thousands
Discount rate	(0.5	)%	$	7,617		$	86,772
Long-term rate of return on plan assets	(0.5	)%	2,329			—
Rate of compensation increases	(0.5	)%	(3,248		)	(23,132		)
Cost of living adjustment	(0.5	)%	(6,156		)	(52,291		)
Discount rate	0.5	%	(6,596		)	(75,156		)
Long-term rate of return on plan assets	0.5	%	(2,330		)	—
Rate of compensation increases	0.5	%	3,492			24,773
Cost of living adjustment	0.5	%	6,691			56,917



	2019		2018
Accounts receivable from developers	$	6,299	$	9,633
Other	7,888		7,468
Total other receivables	$	14,187	$	17,101



	December 31, 2019		December 31, 2018			December 31, 2017
Balance at beginning of year	$	9,716	$	11,058		$	10,499
Additions for tax positions taken during current year	1,292		1,787			559
Reduction to prior year tax position	—		(3,129		)	—
Balance at end of year	$	11,008	$	9,716		$	11,058



	December 31,2019
	Pension Benefits								Other Benefits
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Fixed Income	$	91,231	$	—	$	—	$	91,231	$	50,277	$	—	$	—	$	50,277
Domestic Equity: Small/Mid Cap Stocks	43,238		—		—		43,238		—		—		—		—
Domestic Equity: Large Cap Stocks	155,645		—		—		155,645		78,277		—		—		78,277
Non U.S. Equities	28,874		—		—		28,874		—		—		—		—
Assets measured at net asset value (NAV)							254,587								—
Total Plan Assets	$	318,988	$	—	$	—	$	573,575	$	128,554	$	—	$	—	$	128,554



	December 31,2018
	Pension Benefits								Other Benefits
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Fixed Income	$	188,934	$	—	$	—	$	188,934	$	45,446	$	—	$	—	$	45,446
Domestic Equity: Small/Mid Cap Stocks	68,843		—		—		68,843		—		—		—		—
Domestic Equity: Large Cap Stocks	165,862		—		—		165,862		57,179		—		—		57,179
Non U.S. Equities	46,135		—		—		46,135		—		—		—
Assets measured at NAV							—								—
Total Plan Assets	$	469,774	$	—	$	—	$	469,774	$	102,625	$	—	$	—	$	102,625



	1-Percentage Point Increase		1-Percentage Point (Decrease)
Effect on total service and interest costs	$	3,610	$	(2,650	)
Effect on accumulated postretirement benefit obligation	$	33,945	$	(25,757	)



	2019	2018
RSUs granted	26,473	28,594
RSUs issued	62,726	48,753
RSUs canceled	31,177	24,009



	Operating Leases
2019	$	1,771
2020	1,709
2021	1,485
2022	1,355
2023	1,261
Thereafter	10,538
Total	$	18,119



2019	First			Second		Third		Fourth
Operating revenue	$	126,111		$	179,031	$	232,537	$	176,878
Net operating income	476			27,013		51,567		20,356
Net (loss) income	(7,640		)	16,996		42,424		11,336
Diluted (loss) earnings per share	(0.16		)	0.35		0.88		0.24
Common stock market price range:
High	55.05			54.56		57.48		56.49
Low	44.60			48.00		49.52		48.78
Dividends paid per common share	0.1975			0.1975		0.1975		0.1975



	Parent Company			Cal Water			All Other Subsidiaries			Consolidating Adjustments			Consolidated
	(In thousands)
	ASSETS
Utility plant:
Utility plant	$	1,318		$	3,332,331		$	224,033		$	(7,197	)	$	3,550,485
Less accumulated depreciation and amortization	(1,107		)	(1,079,627		)	(65,561		)	2,180			(1,144,115		)
Net utility plant	211			2,252,704			158,472			(5,017		)	2,406,370
Current assets:
Cash and cash equivalents	3,096			29,098			10,459			—			42,653
Receivables and unbilled revenue	—			114,999			4,350			—			119,349
Receivables from affiliates	25,803			3,621			209			(29,633		)	—
Other current assets	90			20,615			2,005			—			22,710
Total current assets	28,989			168,333			17,023			(29,633		)	184,712
Other assets:
Regulatory assets	—			428,639			4,683			—			433,322
Investments in affiliates	777,170			—			—			(777,170		)	—
Long-term affiliate notes receivable	30,060			—			—			(30,060		)	—
Other assets	409			81,591			5,125			(221		)	86,904
Total other assets	807,639			510,230			9,808			(807,451		)	520,226
TOTAL ASSETS	$	836,839		$	2,931,267		$	185,303		$	(842,101	)	$	3,111,308
	CAPITALIZATION AND LIABILITIES
Capitalization:
Common stockholders' equity	$	779,906		$	700,784		$	81,604		$	(782,388	)	$	779,906
Affiliate long-term debt	—			—			30,060			(30,060		)	—
Long-term debt, net	—			786,310			444			—			786,754
Total capitalization	779,906			1,487,094			112,108			(812,448		)	1,566,660
Current liabilities:
Current maturities of long-term debt, net	—			21,732			136			—			21,868
Short-term borrowings	55,100			120,000			—			—			175,100
Payables to affiliates	—			6,115			23,518			(29,633		)	—
Accounts payable	—			104,419			4,044			—			108,463
Accrued expenses and other liabilities	313			50,569			2,408			—			53,290
Total current liabilities	55,413			302,835			30,106			(29,633		)	358,721
Unamortized investment tax credits	—			1,575			—			—			1,575
Deferred income taxes	1,520			217,847			3,243			(20		)	222,590
Pension and postretirement benefits other than pensions	—			258,907			—			—			258,907
Regulatory and other long-term liabilities	—			262,859			7,397			—			270,256
Advances for construction	—			190,568			494			—			191,062
Contributions in aid of construction	—			209,582			31,955			—			241,537
TOTAL CAPITALIZATION AND LIABILITIES	$	836,839		$	2,931,267		$	185,303		$	(842,101	)	$	3,111,308