Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)
 
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172022
or
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from               to              
Commission file numberFile Number 1-13883
CALIFORNIA WATER SERVICE GROUP
(Exact name of registrant as specified in its charter)
Delaware77-0448994
(State or other jurisdiction(I.R.S. Employer identificationIdentification No.)
of incorporation or organization)
1720 North First Street
1720 North First Street, San Jose, CA95112
(Address of principal executive offices)(Zip Code)
San Jose, California 95112
(Address of principal executive offices)
408-367-8200
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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 shareCWTNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d)15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý  No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)submit). Yes ý  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“emerging growth company"company” in Rule 12b-2 of the Exchange Act. (Check one):
Act:
Large accelerated Filer x
filer		☒
Accelerated filero
☐
Non-accelerated filero
☐
Smaller reporting companyo
☐
(Do not check if a smaller reporting company)
Emerging growth companyo
☐
 
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 is a shell company (as defined in rule 12b-2 of the Exchange Act) Yes o☐ No o☒
 
Indicate the numberAs of June 30, 2022 — there were approximately 54,356,000 shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date. Common shares outstanding as of September 30, 2017 — 48,015,140
outstanding.

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Table of Contents
TABLE OF CONTENTS
 
Page
3
3
Condensed Consolidated Balance Sheets (unaudited) as of SeptemberJune 30, 20172022 and December 31, 20162021
3
Condensed Consolidated Statements of IncomeOperations (unaudited) For the Three Months Ended SeptemberJune 30, 20172022 and 20162021
4
Condensed Consolidated Statements of IncomeOperations (unaudited) For the NineSix Months Ended SeptemberJune 30, 20172022 and 20162021
5
Condensed Consolidated Statements of Cash Flows (unaudited) For the NineSix Months Ended SeptemberJune 30, 20172022 and 20162021
6
Notes to Unaudited Condensed Consolidated Financial Statements
7
2519
3532
3632
3732
3732
3733
3833
3934
Index to Exhibits
40

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PART I FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTS
The condensed consolidated financial statements presented in this filing on Form 10-Q have been prepared by management and are unaudited.

CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited (In thousands, except per share data)
September 30,
2017		 December 31,
2016		 June 30,
2022		December 31,
2021
ASSETS 
  
ASSETS
Utility plant: 
  
Utility plant:
Utility plant$2,892,666
 $2,717,339
Utility plant$4,341,433 $4,197,344 
Less accumulated depreciation and amortization(910,742) (858,062)Less accumulated depreciation and amortization(1,406,757)(1,350,482)
Net utility plant1,981,924
 1,859,277
Net utility plant2,934,676 2,846,862 
Current assets: 
  
Current assets:
Cash and cash equivalents28,341
 25,492
Cash and cash equivalents61,749 78,380 
Receivables: 
  
Receivables:
Customers46,963
 30,305
Customers, netCustomers, net68,404 60,785 
Regulatory balancing accounts31,364
 30,332
Regulatory balancing accounts56,625 78,597 
Other16,438
 17,158
Unbilled revenue38,491
 25,228
Other, netOther, net19,803 18,452 
Unbilled revenue, netUnbilled revenue, net38,796 32,760 
Materials and supplies at weighted average cost6,344
 6,292
Materials and supplies at weighted average cost10,567 9,511 
Taxes, prepaid expenses, and other assets12,544
 7,262
Taxes, prepaid expenses, and other assets20,708 21,973 
Total current assets180,485
 142,069
Total current assets276,652 300,458 
Other assets: 
  
Other assets:
Regulatory assets379,884
 355,930
Regulatory assets287,625 285,692 
Goodwill2,615
 2,615
Goodwill36,814 36,814 
Other assets58,196
 51,854
Other assets146,985 153,445 
Total other assets440,695
 410,399
Total other assets471,424 475,951 
TOTAL ASSETS$2,603,104
 $2,411,745
TOTAL ASSETS$3,682,752 $3,623,271 
CAPITALIZATION AND LIABILITIES 
  
CAPITALIZATION AND LIABILITIES
Capitalization: 
  
Capitalization:
Common stock, $0.01 par value; 68,000 shares authorized, 48,015 and 47,965 outstanding in 2017 and 2016, respectively$480
 $480
Common stock, $0.01 par value; 68,000 shares authorized, 54,356 and 53,716 outstanding in 2022 and 2021, respectivelyCommon stock, $0.01 par value; 68,000 shares authorized, 54,356 and 53,716 outstanding in 2022 and 2021, respectively$544 $537 
Additional paid-in capital335,516
 334,856
Additional paid-in capital682,353 651,121 
Retained earnings351,727
 324,135
Retained earnings519,625 525,936 
Total common stockholders’ equity687,723
 659,471
Long-term debt, less current maturities519,700
 531,745
Noncontrolling interestsNoncontrolling interests4,784 5,386 
Total equityTotal equity1,207,306 1,182,980 
Long-term debt, netLong-term debt, net1,054,170 1,055,794 
Total capitalization1,207,423
 1,191,216
Total capitalization2,261,476 2,238,774 
Current liabilities: 
  
Current liabilities:
Current maturities of long-term debt36,015
 26,208
Current maturities of long-term debt, netCurrent maturities of long-term debt, net5,783 5,192 
Short-term borrowings195,100
 97,100
Short-term borrowings70,000 35,000 
Accounts payable89,394
 77,813
Accounts payable139,732 144,369 
Regulatory balancing accounts4,545
 4,759
Regulatory balancing accounts9,627 17,547 
Accrued interest12,763
 5,661
Accrued interest6,740 6,542 
Accrued expenses and other liabilities42,544
 38,689
Accrued expenses and other liabilities54,201 47,926 
Total current liabilities380,361
 250,230
Total current liabilities286,083 256,576 
Unamortized investment tax credits1,798
 1,798
Deferred income taxes329,506
 298,924
Deferred income taxes300,489 298,945 
Pension and postretirement benefits other than pensions227,819
 222,691
PensionPension94,796 92,287 
Regulatory liabilities and other91,006
 83,648
Regulatory liabilities and other254,109 252,938 
Advances for construction182,820
 182,448
Advances for construction198,674 198,086 
Contributions in aid of construction182,371
 180,790
Contributions in aid of construction287,125 285,665 
Commitments and contingencies (Note 10)

 

Commitments and contingencies (Note 10)00
TOTAL CAPITALIZATION AND LIABILITIES$2,603,104
 $2,411,745
TOTAL CAPITALIZATION AND LIABILITIES$3,682,752 $3,623,271 
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
Unaudited (In thousands, except per share data)
For the three months ended September 30,
2017		 September 30,
2016		For the three months endedJune 30,
2022		June 30,
2021
Operating revenue $211,731
 $184,268
Operating revenue$206,194 $213,123 
Operating expenses:  
  
Operating expenses:  
Operations:  
  
Operations:  
Water production costs 75,261
 70,175
Water production costs70,907 74,911 
Administrative and general 24,886
 23,844
Administrative and general32,686 31,756 
Other operations 21,208
 19,561
Other operations29,417 20,720 
Maintenance 6,057
 5,545
Maintenance7,615 6,610 
Depreciation and amortization 19,231
 15,884
Depreciation and amortization28,773 27,237 
Income taxes 17,348
 13,247
Income taxes1,454 1,972 
Property and other taxes 6,544
 5,957
Property and other taxes8,053 7,671 
Total operating expenses 170,535
 154,213
Total operating expenses178,905 170,877 
Net operating income 41,196
 30,055
Net operating income27,289 42,246 
Other income and expenses:  
  
Other income and expenses:  
Non-regulated revenue 3,542
 3,397
Non-regulated revenue7,002 5,374 
Non-regulated expenses (2,576) (2,517)Non-regulated expenses(8,541)(1,815)
Other components of net periodic benefit creditOther components of net periodic benefit credit3,765 2,688 
Allowance for equity funds used during construction 1,105
 —
Allowance for equity funds used during construction1,042 848 
Income tax expense on other income and expenses (841) (349)Income tax expense on other income and expenses(345)(512)
Net other income 1,230
 531
Net other income2,923 6,583 
Interest expense:  
  
Interest expense:  
Interest expense 9,284
 8,485
Interest expense11,586 11,206 
Allowance for borrowed funds used during construction (707) (774)Allowance for borrowed funds used during construction(589)(453)
Net interest expense 8,577
 7,711
Net interest expense10,997 10,753 
Net income $33,849
 $22,875
Net income19,215 38,076 
Earnings per share:  
  
Net loss attributable to noncontrolling interestsNet loss attributable to noncontrolling interests(269)(149)
Net income attributable to California Water Service GroupNet income attributable to California Water Service Group$19,484 $38,225 
Earnings per share of common stock:Earnings per share of common stock:
Basic $0.70
 $0.48
Basic$0.36 $0.75 
Diluted 0.70
 0.48
Diluted0.36 0.75 
Weighted average shares outstanding:  
  
Weighted average shares outstanding:  
Basic 48,017
 47,969
Basic54,007 51,080 
Diluted 48,017
 47,969
Diluted54,042 51,080 
Dividends declared per share of common stock $0.1800
 $0.1725
 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements




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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
Unaudited (In thousands, except per share data)
For the nine months ended September 30,
2017		 September 30,
2016
For the six months endedFor the six months endedJune 30,
2022		June 30,
2021
Operating revenue $504,899
 $458,440
Operating revenue$379,187 $360,860 
Operating expenses:  
  
Operating expenses:  
Operations:  
  
Operations:  
Water production costs 181,460
 168,833
Water production costs132,445 129,737 
Administrative and general 73,931
 75,037
Administrative and general66,097 62,125 
Other operations 55,660
 57,766
Other operations55,269 38,632 
Maintenance 16,877
 17,542
Maintenance14,956 13,379 
Depreciation and amortization 57,650
 47,772
Depreciation and amortization57,543 54,284 
Income taxes 26,099
 19,192
Income taxes37 1,871 
Property and other taxes 18,717
 17,439
Property and other taxes16,413 15,667 
Total operating expenses 430,394
 403,581
Total operating expenses342,760 315,695 
Net operating income 74,505
 54,859
Net operating income36,427 45,165 
Other income and expenses:  
  
Other income and expenses:  
Non-regulated revenue 10,743
 10,589
Non-regulated revenue12,199 10,946 
Non-regulated expenses (6,244) (8,306)Non-regulated expenses(15,527)(6,575)
Other components of net periodic benefit creditOther components of net periodic benefit credit7,779 5,667 
Allowance for equity funds used during construction 2,763
 —
Allowance for equity funds used during construction2,017 1,392 
Income tax expense on other income and expenses (2,947) (914)Income tax expense on other income and expenses(857)(870)
Net other income 4,315
 1,369
Net other income5,611 10,560 
Interest expense:  
  
Interest expense:  
Interest expense 27,073
 24,984
Interest expense23,081 21,428 
Allowance for borrowed funds used during construction (1,765) (2,341)Allowance for borrowed funds used during construction(1,152)(747)
Net interest expense 25,308
 22,643
Net interest expense21,929 20,681 
Net income $53,512
 $33,585
Net income20,109 35,044 
Earnings per share:  
  
Net loss attributable to noncontrolling interestsNet loss attributable to noncontrolling interests(461)(149)
Net income attributable to California Water Service GroupNet income attributable to California Water Service Group$20,570 $35,193 
Earnings per share of common stock:Earnings per share of common stock:  
Basic $1.11
 $0.70
Basic$0.38 $0.69 
Diluted 1.11
 0.70
Diluted0.38 0.69 
Weighted average shares outstanding:  
  
Weighted average shares outstanding:  
Basic 48,007
 47,949
Basic53,870 50,762 
Diluted 48,007
 47,952
Diluted53,918 50,762 
Dividends declared per share of common stock $0.5400
 $0.5175
 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements




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CALIFORNIA WATER SER VICESERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited (In thousands)
For the nine months ended: September 30,
2017		 September 30,
2016
For the six months endedFor the six months endedJune 30,
2022		June 30,
2021
Operating activities:  
  
Operating activities:  
Net income $53,512
 $33,585
Net income$20,109 $35,044 
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 59,016
 48,946
Depreciation and amortization58,932 55,733 
Change in value of life insurance contracts (1,871) (915)Change in value of life insurance contracts7,169 (2,275)
Allowance for equity funds used during construction (2,763) —
Allowance for equity funds used during construction(2,017)(1,392)
Changes in operating assets and liabilities:  
  
Changes in operating assets and liabilities:  
Receivables and unbilled revenue (52,951) (13,352)Receivables and unbilled revenue(31,513)(23,187)
Water Arrearages Payment ProgramWater Arrearages Payment Program20,836 — 
Accounts payable 6,712
 8,940
Accounts payable(11,116)(4,859)
Other current assets (4,643) (1,743)Other current assets418 (2,581)
Other current liabilities 10,939
 13,982
Other current liabilities316 3,075 
Other changes in noncurrent assets and liabilities 41,837
 34,386
Other changes in noncurrent assets and liabilities26,776 8,092 
Net cash provided by operating activities 109,788
 123,829
Net cash provided by operating activities89,910 67,650 
Investing activities:  
  
Investing activities:  
Utility plant expenditures (180,442) (166,406)Utility plant expenditures(144,588)(138,522)
Life insurance proceeds 1,558
 495
Life insurance proceeds6,688 — 
Purchase of life insurance contracts (3,948) (2,710)Purchase of life insurance contracts(6,688)— 
Change in restricted cash (679) (685)
Business acquisition, net of cash acquiredBusiness acquisition, net of cash acquired— (6,451)
Asset acquisitionAsset acquisition(6,319)— 
Return of investmentReturn of investment— 1,000 
Net cash used in investing activities (183,511) (169,306)Net cash used in investing activities(150,907)(143,973)
Financing activities:  
  
Financing activities:  
Short-term borrowings 185,000
 105,100
Short-term borrowings55,000 125,000 
Repayment of short-term borrowings (87,000) (81,615)Repayment of short-term borrowings(20,000)(350,000)
Proceeds from long-term debt, net of issuance costs of $0 for 2017 and $177 for 2016 —
 49,823
Issuance of long-term debt, net of debt issuance costs of $0 for 2022 and $1,064 for 2021Issuance of long-term debt, net of debt issuance costs of $0 for 2022 and $1,064 for 2021— 278,936 
Repayment of long-term debt (2,797) (2,865)Repayment of long-term debt(1,313)(1,272)
Advances and contributions in aid of construction 14,964
 18,186
Advances and contributions in aid of construction13,142 13,953 
Refunds of advances for construction (6,316) (5,194)Refunds of advances for construction(4,508)(5,722)
Repurchase of common stock (1,359) (637)Repurchase of common stock(1,786)(1,524)
Issuance of common stockIssuance of common stock31,268 62,603 
Dividends paid (25,920) (24,807)Dividends paid(26,881)(23,283)
Distribution to noncontrolling interestDistribution to noncontrolling interest(348)— 
Net cash provided by financing activities 76,572
 57,991
Net cash provided by financing activities44,574 98,691 
Change in cash and cash equivalents 2,849
 12,514
Cash and cash equivalents at beginning of period 25,492
 8,837
Cash and cash equivalents at end of period $28,341
 $21,351
Change in cash, cash equivalents, and restricted cashChange in cash, cash equivalents, and restricted cash(16,423)22,368 
Cash, cash equivalents, and restricted cash at beginning of periodCash, cash equivalents, and restricted cash at beginning of period80,653 45,129 
Cash, cash equivalents, and restricted cash at end of periodCash, cash equivalents, and restricted cash at end of period$64,230 $67,497 
Supplemental information:  
  
Supplemental information:  
Cash paid for interest (net of amounts capitalized) $17,287
 $13,889
Cash paid for interest (net of amounts capitalized)$18,618 $19,554 
Income tax refund $(1,697) $—
Supplemental disclosure of non-cash activities:  
  
Supplemental disclosure of non-cash activities:  
Accrued payables for investments in utility plant $31,750
 $26,767
Accrued payables for investments in utility plant$56,522 $53,325 
Utility plant contribution by developers 13,022
 12,104
Utility plant contribution by developers$9,866 $13,563 
 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements




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CALIFORNIA WATER SERVICE GROUP
Notes to Unaudited Condensed Consolidated Financial Statements
SeptemberJune 30, 20172022
Dollar amounts in thousands unless otherwise stated
Note 1. Organization and Operations and Basis of Presentation
 
California Water Service Group (the Company)(Company) is a holding company that provides water utility and other related services in California, Washington, New Mexico, Hawaii, and HawaiiTexas through its wholly-owned and non-wholly owned subsidiaries. California Water Service Company (Cal Water), Washington Water Service Company (Washington Water), New Mexico Water Service Company (New Mexico Water), and Hawaii Water Service Company, Inc. (Hawaii Water), provide regulated utility services under the rules and regulations of their respective state’s regulatory commissions (jointly referred to herein as the Commissions). CWS Utility Services and HWS Utility Services LLC provide non-regulated water utility and utility-related services. TWSC, Inc. (Texas Water) holds regulated and contracted wastewater utilities.
 
The Company operates in one1 reportable segment, providing water and related utility services.
 
Basis of Presentation
 
The unaudited condensed consolidated interim financial information hasstatements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (SEC) and therefore do not contain all of the information and footnotes required by GAAP and the SEC for annual financial statements. Interim financial information includes the Company's accounts and those of its wholly and non-wholly owned subsidiaries. The non-wholly owned subsidiary was consolidated using the voting interest model as the Company owns a majority of the voting interests in the non-wholly owned subsidiary and includes the Company's accounts and those of its wholly and non-wholly owned subsidiaries. The interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2016, included in its annual report on Form 10-K2021 as filed with the SEC on February 23, 2017.24, 2022.
 
The preparation of the Company’s unaudited condensed consolidated interim financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses for the periods presented. 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, revenues earned but not yet billed, asset retirement obligations, allowance for doubtful accounts,credit losses, pension and other employee benefit plan liabilities, and income tax-related assets and liabilities. Actual results could differ from these estimates.
 
In the opinion of management, the accompanying unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of normal recurring transactions that are necessary to provide a fair presentation of the results for the periods covered. The results for interim periods are not necessarily indicative of the results for any future period.
Due to the seasonal nature of the water business, the results for interim periods are not indicative of the results for a 12-month period. Revenue and income are generally higher in the warm, dry summer months when water usage and sales are greater. Revenue and income are generally lower in the winter months when cooler temperatures and rainfall curtail water usage and sales.
Noncontrolling Interests
Noncontrolling interests in the Company’s condensed consolidated financial statements represents a 15% interest not owned by Texas Water in a consolidated subsidiary. Texas Water obtained control over the subsidiary on May 1, 2021. Since the Company controls this subsidiary, its financial statements are consolidated with those of the Company, and the noncontrolling owner’s 15% share of the subsidiary’s net assets and results of operations is deducted and reported as noncontrolling interests on the condensed consolidated balance sheet and as net income or loss attributable to noncontrolling interests in the condensed consolidated statement of operations. The Company reports noncontrolling interests in consolidated entities as a component of equity separate from the Company’s equity. The Company’s net income attributable to California Water Service Group excludes a net loss attributable to the noncontrolling interests.

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Note 2. Summary of Significant Accounting Policies
Operating revenue
RevenueThe following tables disaggregate the Company’s operating revenue by source for the three and six months ended June 30, 2022 and 2021:
Three Months Ended June 30
20222021
Revenue from contracts with customers$198,660 $212,457 
Regulatory balancing account revenue7,534 666 
Total operating revenue$206,194 $213,123 
Six Months Ended June 30
20222021
Revenue from contracts with customers$357,592 $358,985 
Regulatory balancing account revenue21,595 1,875 
Total operating revenue$379,187 $360,860 
Revenue generally includes monthly cycle customer billings forfrom contracts with customers
The Company principally generates operating revenue from contracts with customers by providing regulated water and wastewater services at rates authorized by the Commissions (plus an estimate for water used between the customer's last meter reading and the end of the accounting period) and billings to certain non-regulated customers at rates authorized by contract with government agencies.
The Company’s regulated water and wastewater revenue requirements aretariff-rates authorized by the Commissions in the states in which they operate. 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 revenue requirements are intendedCompany satisfies its performance obligation to provide water and wastewater services over time as services are rendered. The Company applies the Company a reasonable opportunity to recover its operating costsinvoice practical expedient and earn a return on investments.
For metered customers, Cal Water recognizes revenue from ratescontracts 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. 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).
Contract terms are designedgenerally 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 "accrued expenses and other liabilities" on the unaudited condensed consolidated balance sheets, is inconsequential.







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In the following tables, revenue from contracts with customers is disaggregated by class of customers for the three and six months ended June 30, 2022 and 2021:
Three Months Ended June 30
20222021
Residential$132,831 $134,971 
Business39,278 35,730 
Industrial6,314 6,019 
Public authorities10,884 10,358 
Other (a)9,353 25,379 
Total revenue from contracts with customers$198,660 $212,457 
Six Months Ended June 30
20222021
Residential$239,390 $236,342 
Business71,441 63,452 
Industrial12,087 12,062 
Public authorities17,869 16,760 
Other (a)16,805 30,369 
Total revenue from contracts with customers$357,592 $358,985 
(a) Other includes accrued unbilled revenue.
Regulatory balancing account revenue
The Company’s ability to recover revenue requirements authorized by the California Public Utilities Commission (CPUC). Under in its triennial 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:
The Water Revenue Adjustment Mechanism (WRAM), Cal Water records allows the Company to recognize the adopted level of volumetric revenues, which would include recovery of cost of service and a return on investments, as


established by the CPUC for metered accounts. The adopted volumetric revenue considers the seasonality of consumption of water based upon historical averages.revenues. The variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts is recorded as a component of revenue with an offsetting entry to a regulatory asset or liability balancing account (tracked individually for each Cal Water district) subject to certain criteria under the accounting guidance for regulated operations. The variance amount represents amounts that will be billed or refunded to customers in the future. In addition to volumetric revenues, the revenue requirements approved by the CPUC include service charges, flat rate charges, and other items not subject to the WRAM.revenue.

Cost-recovery rates are designed to permit full recovery of certain costs allowed to be recovered by the Commissions. 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 expense levels of expenses for purchased water, purchased power, and pump taxes, as established by the CPUC. In addition, cost-recovery rates include recovery of costs related to water conservation programsprogram costs, pension, and certain other operating expenses adopted by the CPUC.health care. Variances (which include the effects of changes in both rates and volumes for the MCBA) between adopted and actual costs are recorded as a component of revenue, as the amount of such variances will be recovered from or refunded to customers in the future. Cost-recovery expenses are generally recognized when expenses are incurred with no markup for return on investments or profit.regulatory balancing account revenue.

The balances in theEach district's WRAM and MCBA regulatory assets and liabilities accounts will fluctuate on a monthly basis depending upon the variance between adopted and actual results. The recovery or refund of the WRAM isare allowed to be netted against one another. The Company recognizes regulatory balancing accountrevenues 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 MCBA over- or under-recovery for the corresponding district and the deferred net balances are interest bearing at the current 90 day commercial paper rate. Subsequent to calendar year-end, Cal Water files with the CPUC to refund or collect the balance in the accounts. The majority of under-collected net WRAM and MCBA receivable balances are collected over 12 or 18 months. Cal Water defers net WRAM and MCBA operating revenues and associated costs whenever the net receivable balances areextent that regulatory balancing accountrevenue is estimated to be collected more thancollectible beyond 24 months, recognition is deferred.
The CPUC issued a decision effective August 27, 2020 requiring that Class A companies submitting GRC filings after the respective reporting periodeffective date to be (i) precluded from proposing the use of a full decoupling WRAM in their next GRCs and (ii) allowed the use of Monterey-Style Water Revenue Adjustment Mechanisms (MWRAM). Incremental Cost Balancing Accounts (ICBA), which it was recorded.are authorized by statute, would replace the MCBA. The deferred net WRAM and MCBAMWRAM tracks the difference between the revenue and associated costs were determined using forecasts of customer consumption trends in future reporting periodsreceived for actual metered sales through the tiered volumetric rate and the estimated timing of when the CPUC will authorize Cal Water's filings to recover unbilled balances. Deferred revenues and associated costs are recorded in the periods when the collection is within 24 months of the respective reporting period.

Customers' meter reads occur on various business days throughout the month. As a result, there are unmetered or unbilled customer usage each month. The estimated unbilled revenue for monthly unmetered customer usage is recorded using the number of unbilled days for that month and average daily customer billing rate for the previous month. The average daily customer billing rate for the previous month fluctuates depending on customer usage. Estimated unbilled revenue is not included in the WRAM until it is billed.
Flat rate customers are billed in advance at the beginning of the service period. The revenue is prorated so that the portion of revenue applicable to the current period is included in that period’s revenue,would have been received with the balance recorded as unearned revenue onsame actual metered sales if a uniform rate would have been in effect. The ICBA tracks differences between the balance sheetauthorized per-unit prices of water production costs and recognized as revenue when earnedactual per-unit prices of water production costs. Cal Water has complied with this decision in the subsequent accounting period. The unearned revenue liability was $0.7 million and $0.8 million asits recent 2021 GRC filing.



9
Table of September 30, 2017 and December 31, 2016, respectively. This liability is included in “accrued expenses and other liabilities” on the condensed consolidated balance sheets.Contents

Allowance for Funds Used During Construction
Non-regulated Revenue
The allowance for funds used during construction (AFUDC) representsfollowing tables disaggregate 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 fundedCompany’s non-regulated revenue 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. Cal Water was authorized by the CPUC to record AFUDC on construction work in progress effective January 1, 2017. Prior to January 1, 2017, the CPUC authorized Cal Water to only record capitalized interest on borrowed funds. Cal Water previously reported the amounts authorized as capitalized interest and a reduction to interest expense. The amount of AFUDC related to equity funds and to borrowed fundssource for the three and nine month periodssix months ended SeptemberJune 30, 20172022 and 20162021:
Three Months Ended June 30
20222021
Operating and maintenance revenue$3,233 $3,925 
Other non-regulated revenue3,081 796 
Non-regulated revenue from contracts with customers6,314 4,721 
Lease revenue688 653 
Total non-regulated revenue$7,002 $5,374 
Six Months Ended June 30
20222021
Operating and maintenance revenue$6,638 $8,013 
Other non-regulated revenue4,231 1,655 
Non-regulated revenue from contracts with customers10,869 9,668 
Lease revenue1,330 1,278 
Total non-regulated revenue$12,199 $10,946 
Operating and maintenance services are shownprovided 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 tables below: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.


 Three Months Ended September 30
 2017 2016 Change
Allowance for equity funds used during construction$1,105
 $—
 $1,105
Allowance for borrowed funds used during construction707
 774
 (67)
Total$1,812
 $774
 $1,038

 Nine Months Ended September 30
 2017 2016 Change
Allowance for equity funds used during construction$2,763
 $—
 $2,763
Allowance for borrowed funds used during construction1,765
 2,341
 (576)
Total$4,528
 $2,341
 $2,187
CashOther non-regulated revenue primarily relates to services for the design and Cash Equivalents
Cash equivalents include highly liquid investments with maturitiesinstallation of three months or less. Cash and cash equivalents was $28.3 million and $25.5 million as of September 30, 2017 and December 31, 2016, respectively. Restricted cash was presented on the condensed consolidated balance sheet in “taxes, prepaid expenseswater mains and other assets”water infrastructure for customers outside the regulated service areas and was $1.1 million and $0.4 million asinsurance program administration. During the first six months of September 30, 2017 and December 31, 2016, respectively.
Adoption of New Accounting Standards
In March 2016, the Financial Accounting Standards Board (FASB) issued updated accounting guidance on simplifying the accounting for share-based payments (Accounting Standards Update (ASU) 2016-09), which includes the accounting for share-based payment transactions, the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted and implemented the changes to accounting for share-based payments on January 1, 2017 and applied the requirements retrospectively on the statement of cash flows for all periods presented. The Company's forfeiture policy did not change and the Company continues to account for forfeitures when they occur. For the nine month period ended September 30, 2017,2022, the Company recorded $0.5a gain of $2.7 million related to company owned life insurance.
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.
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 income tax benefitselements that impact the collectability of receivables to determine if the allowance for credit losses should be further adjusted in excess of compensation costsaccordance with the accounting guidance for share-based compensation which reduced the effective tax rate. The tax-related cash flows resulting from share-based payments were reportedcredit losses. Management contemplates available current information such as operating activitieschanges in economic factors, regulatory matters, industry trends, payment options and programs available to customers, and the associatedmethods that the Company is able to utilize to ensure payment.
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 paidrecovery, and a general assessment of the economic conditions of the locations the Company serves due to the outbreak of COVID-19. The Company has resumed the process
10
Table of Contents
for shutoffs for non-payment in all of the Company's regulated utilities. The Company received and applied funds to customer accounts from the California Water and Wastewater Arrearage Payment Program (Program). The Program was created by the companyCalifornia Legislature, is administered by the State Water Resources Control Board and provided relief to community water and wastewater systems for employee tax withholding transactions were reported as financing activitiesunpaid bills – arrearages – related to the COVID-19 pandemic. Based on the consolidated statement of cash flows.

above assessments, the Company adjusted its allowance for credit losses accordingly.
The following table showspresents the effectactivity in the allowance for credit losses for the 6-month period ended June 30, 2022 and 12-month period ended December 31, 2021:
Allowance for credit lossesJune 30, 2022December 31, 2021
Beginning balance$3,743 $5,246 
Provision for credit loss expense4,043 1,088 
Write-offs(1,260)(3,113)
Recoveries180 522 
Total ending allowance balance$6,706 $3,743 
Cash, Cash Equivalents, and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash within the Condensed Consolidated Balance Sheets that sum to the total of the accounting change tosame such amounts shown on the Condensed Consolidated Statements of Cash FlowsFlows:
 June 30, 2022December 31, 2021
Cash and cash equivalents$61,749 $78,380 
Restricted cash (included in "taxes, prepaid expenses and other assets")2,481 2,273 
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows$64,230 $80,653 
Accounting Standards Issued But Not Yet Adopted
In October of 2021, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. In a business combination, an acquirer generally recognizes assets acquired and liabilities assumed, including contract assets and contract liabilities, at their respective fair value on the nine month period ended September 30, 2016:
 Nine Months Ended September 30, 2016
Cash Flow ClassificationAs Reported on Form 10-Q Adjusted Balance on Form 10-Q Increase (Decrease) from Retrospective Adoption
Other changes in noncurrent assets and liabilities$33,749
 $34,386
 $637
Net cash provided by operating activities123,192
 123,829
 637
Repurchase of common stock—
 (637) (637)
Net cash provided by financing activities58,628
 57,991
 (637)

New Accounting Standards
In May 2014, the FASB issuedacquisition date. ASU 2014-09, 2021-08 requires that in a business combination, an acquirer should recognize and measure contract assets acquired and contract liabilities assumed in a business combination in accordance with Topic 606, Revenue from Contracts with Customers, which amends the existingCustomers. The guidance provides certain practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue recognition guidance.  In August 2015, the FASB deferred the effective date of this amendment for public companies by one year to January 1, 2018,contracts with early adoption permitted as of the original effective date of January 1, 2017.customers in a business combination. The Company has substantially completed an evaluation of the new revenue standard and intends to implement the standard using the modified retrospective method and does not expect ASU 2014-09 to materially impact the timing or recognition of revenue related to the sale and delivery of water to its customers, which is a significant percentage of the Company's revenue. The Company is in the process of finalizing its evaluation of the impact ASU 2014-09 has on its related revenue disclosures and internal controls.


In February 2016, the FASB issued ASU 2016-02, Leases. This update changes the accounting treatment of leases and related disclosure requirements. ASU 2016-02guidance is effective for annual reporting periods beginning after December 15, 20182022, including interim periods within those fiscal years. ASU 2021-08 should be applied prospectively for acquisitions occurring on or after the effective date of the amendments, and early adoption is permitted. The Company does not expect that the guidance will adopthave a material impact on the standard using the modified retrospective method for its existing leases and is currently evaluating the impact of adopting the new lease standard on its consolidatedCompany's financial statements and related disclosures.footnote disclosures upon adoption.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments. This update adds and clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017 and early adoption is permitted. The Company is currently evaluating the impact on its consolidated financial statements and related disclosures.

In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The update requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. 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-operating items. Employers will have to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement. The standard only allows the service cost component to be eligible for capitalization. ASU 2017-07 is effective for annual periods after December 15, 2017, and early adoption is permitted. The Company is currently evaluating the impact on its consolidated financial statements and related disclosures. The adoption of this guidance will change the Company's financial statement presentation of net benefit costs. However, based on current regulatory authorization, the changes required by the standard are not expected to materially impact the results of operations.

Note 3. Stock-based Compensation
Equity Incentive Plan
The Company's equity incentive plan was approved and amended by stockholders on April 27, 2005 and May 20, 2014, respectively. The Company is authorized to issue awards up to 2,000,000 shares of common stock.
During the ninefirst six months ended September 30, 2017 and 2016,of 2022, the Company granted annual Restricted Stock Awards (RSAs) of 48,717to Officers and 72,317, respectively, to officers and directorsmembers of the Company. During those same periods, 17,466Board of Directors. An RSA share represents a restricted share of the Company's common stock and 13,319 RSAs were canceled, respectively. Duringis valued based on the three months ended September 30, 2017 and 2016, no RSAs were granted and 3,280 and 2,719 RSAs were canceled, respectively. Employeefair market value of the Company's common stock at the date of grant. RSAs granted in 2017 and 2016to Officers vest over 36 months.  Directormonths with the first year cliff vesting. In general, RSAs generallygranted to Board members vest at the end of 12 months. The RSAs are recognized as expense evenly over 36 months for the shares granted to Officers and 12 months for the shares granted to Board members. As of June 30, 2022, there was approximately $2.9 million of total unrecognized compensation cost related to RSAs. The cost is expected to be recognized over a weighted average period of 1.8 years.


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A summary of the status of the outstanding RSAs as of June 30, 2022 is presented below:
Number of RSA SharesWeighted-Average Grant-Date Fair Value
RSAs at January 1, 202262,691 $53.49 
Granted42,057 56.42 
Vested(43,219)53.63 
RSAs at June 30, 202261,529 $55.40 
During the first ninesix months of 2017 and 2016, the RSAs granted were valued at $36.75 and $25.17 per share, respectively, based upon the fair value of the Company’s common stock on the date of grant.

During the nine months ended September 30, 2017 and 2016,2022, the Company granted 31,389 and 43,659 performance-based Restricted Stock Unit AwardsUnits (RSUs), respectively, to officers. During those same periods,Officers. An RSU represents the Company issued 38,709 and 28,424 RSUs, respectively, and canceled 19,735 and 6,602 RSUs, respectively.Duringright to receive a share of the three months ended September 30, 2017 and 2016, the Company did not grant, issue or cancel any RSUs.Company's common stock. Each RSU award reflects a target number shares of sharescommon stock that may be issued to the award recipient. The 2017 and 20162022 awards may be earned upon the completion of a 3-year performance period. Whether RSUs are earned at the three-yearend of the performance period will be determined based on the achievement of certain performance objectives set by the Organization and Compensation Committee of the Board of Directors 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. The RSUs are recognized as expense ratably over the 3-year performance period using a fair market value of $36.75 perthe Company's common share and $25.17 per share, respectively,at the date of grant and an estimateestimated number of RSUs earned during the performance period. As of June 30, 2022, there was approximately $3.1 million of total unrecognized compensation cost related to RSUs. The cost is expected to be recognized over a weighted average period of 1.7 years.
A summary of the status of the outstanding RSUs as of June 30, 2022 is presented below:
Number of RSU SharesWeighted-Average Grant-Date Fair Value
RSUs at January 1, 202290,942 $52.71 
Granted35,911 56.42 
Performance criteria adjustment12,173 58.63 
Vested(32,913)58.63 
Forfeited(5,733)52.83 
RSUs at June 30, 2022100,380 $54.01 
The Company has recorded compensation costs for the RSAs and RSUs that are included in administrative and general operating expenses in the amount of $2.3$1.5 million and $2.1$1.4 million for the ninethree months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. For the six months ended June 30, 2022 and 2021, the Company has recorded compensation costs for the RSAs and RSUs in the amount of $2.0 million and $2.7 million, respectively.
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Table of Contents
Note 4. Equity
On April 29, 2022, the Company entered into an equity distribution agreement to sell shares of its common stock having an aggregate gross sales price of up to $350.0 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. The Company sold 574,634 shares of common stock through its at-the-market equity program and raised proceeds of $30.2 million net of $0.3 million in commissions paid under the equity distribution agreement during the second quarter of 2022. The Company also incurred $0.1 million of equity issuance costs during the second quarter of 2022.
As approved by the Company's stockholders at the 2022 Annual Meeting, effective July 26, 2022, the aggregate number of common shares of stock which the corporation shall have authority to issue was increased from 68.0 million common shares to 136.0 million common shares. All of said 136.0 million common shares shall be of one and the same series, namely common shares with par value of  $0.01 per common share.
The Company’s changes in total common stockholders’ equity for the ninesix months ended SeptemberJune 30, 20172022 and 2021 were as follows:
Six months ended June 30, 2022
 Common StockAdditional
Paid-in
Capital		Retained
Earnings		Noncontrolling InterestsTotal Equity
 SharesAmount
 (In thousands)
Balance at January 1, 202253,716 $537 $651,121 $525,936 $5,386 $1,182,980 
Net income (loss)1,086 (192)894 
Issuance of common stock85 1 1,106 — 1,107 
Repurchase of common stock(28)— (1,674)— (1,674)
Dividends paid on common stock ($0.2500 per share)(13,429)— (13,429)
Investment in business with noncontrolling interest(54)— 54 — 
Balance at March 31, 202253,773 538 650,499 513,593 5,248 1,169,878 
Net income (loss)19,484 (269)19,215 
Issuance of common stock585 6 32,118 32,124 
Repurchase of common stock(2)— (111)(111)
Dividends paid on common stock ($0.2500 per share)(13,452)(13,452)
Investment in business with noncontrolling interest(153)153 — 
Distribution to noncontrolling interest(348)$(348)
Balance at June 30, 202254,356 544 682,353 519,625 4,784 1,207,306 
 
Total Common
Stockholders’ Equity
Balance at December 31, 2016$659,471
Common stock issued—
Share-based compensation expense660
Common stock dividends declared(25,920)
Net income53,512
Balance at September 30, 2017$687,723
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Six months ended June 30, 2021
 Common StockAdditional
Paid-in
Capital		Retained
Earnings		Noncontrolling InterestsTotal
Equity
 SharesAmount
 (In thousands)
Balance at January 1, 202150,334 $503 $448,632 $472,209 $— $921,344 
Net loss(3,032)— (3,032)
Issuance of common stock528 5 24,481 24,486 
Repurchase of common stock(27)— (1,415)(1,415)
Dividends paid on common stock ($0.2300 per share)(11,581)— (11,581)
Balance at March 31, 202150,835 508 471,698 457,596 — 929,802 
Net income (loss)38,225 (149)38,076 
Issuance of common stock702 7 40,895 40,902 
Repurchase of common stock(2)— (109)(109)
Dividends paid on common stock ($0.2300 per share)(11,702)— (11,702)
Acquisition of business with noncontrolling interest— — 5,294 5,294 
Balance at June 30, 202151,535 515 512,484 484,119 5,145 1,002,263 
Note 5. Earnings Per Share
of Common Stock
The computations of basic and diluted earnings per share of common stock are noted in the table below. Basic earnings per share of common stock is computed by dividing the net income availableattributable to common stockholdersCalifornia Water Service Group by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts were exercised or converted into common stock. RSAs are included in the weighted average common shares outstanding because the shares have all the same voting and dividend rights as issued and unrestricted common stock. RSUs are not included in diluted shares for financial reporting until authorized by the Compensation & Organization Committee
 Three Months Ended June 30
 20222021
(In thousands, except per share data)
Net income$19,215 $38,076 
Net loss attributable to noncontrolling interests$(269)$(149)
Net income attributable to California Water Service Group$19,484 $38,225 
Weighted average common shares outstanding, basic54,007 51,080 
Weighted average common shares outstanding, dilutive54,042 51,080 
Earnings per share of common stock - basic$0.36 $0.75 
Earnings per share of common stock - diluted$0.36 $0.75 
 Six Months Ended June 30
 20222021
(In thousands, except per share data)
Net income$20,109 $35,044 
Net loss attributable to noncontrolling interests$(461)$(149)
Net income attributable to California Water Service Group$20,570 $35,193 
Weighted average common shares outstanding, basic53,870 50,762 
Weighted average common shares outstanding, dilutive53,918 50,762 
Earnings per share of common stock - basic$0.38 $0.69 
Earnings per share of common stock - diluted$0.38 $0.69 
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Table of the Board of Directors.Contents
There were no shares of Stock Appreciation Rights (SARs) outstanding as of September 30, 2017 and 2016, respectively. All the SARs were dilutive when they were outstanding during the period, as shown in the tables below.
 Three Months Ended September 30
 2017 2016
 (In thousands, except per share data)
Net income available to common stockholders$33,849
 $22,875
Weighted average common shares outstanding, basic48,017
 47,969
Dilutive SARs (treasury method)—
 —
Weighted average common shares outstanding, dilutive48,017
 47,969
Earnings per share - basic$0.70
 $0.48
Earnings per share - diluted$0.70
 $0.48
 Nine Months Ended September 30
 2017 2016
 (In thousands, except per share data)
Net income available to common stockholders$53,512
 $33,585
Weighted average common shares outstanding, basic48,007
 47,949
Dilutive SARs (treasury method)—
 3
Weighted average common shares outstanding, dilutive48,007
 47,952
Earnings per share - basic$1.11
 $0.70
Earnings per share - diluted$1.11
 $0.70

Note 6. Pension Plan and Other Postretirement Benefits
The Company provides a qualified, defined-benefit, non-contributory pension plan for substantially all employees. The Company makes annual contributions to fund the amounts accrued for in the qualified pension plan. The Company also


maintains an unfunded, non-qualified, supplemental executive retirement plan. The costs of the plans are charged to expense or are capitalized in utility plant as appropriate.
 
The Company offers medical, dental, vision, and life insurance benefits for retirees and their spouses and dependents. Participants are required to pay a premium, which offsets a portion of the cost.
 
Cash contributions made by the Company related to the pension plans were $22.2$8.8 million and $20.6$14.1 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. Cash contributions made by the Company related to the other postretirement benefit plans were $2.3$0.3 million and $6.7$1.5 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. The total 20172022 estimated cash contribution to the pension plans is $29.8and other postretirement benefits plans are expected to be approximately $16.1 million and to the other postretirement benefit plans is $9.0 million.
$0.7 million, respectively.
The following table liststables list components of net periodic benefit costs for the pension plans and other postretirement benefits. The data listed under “pension plan” includes the qualified pension plan and the non-qualified supplemental executive retirement plan. The data listed under “other benefits” is for all other postretirement benefits.
 Three Months Ended June 30
 Pension PlanOther Benefits
 2022202120222021
Service cost$9,235 $9,010 $1,683 $1,611 
Interest cost6,329 5,319 1,008 805 
Expected return on plan assets(11,307)(9,866)(2,482)(2,192)
Amortization of prior service cost242 253 39 49 
Recognized net actuarial loss999 1,924 (228)(110)
Net periodic benefit cost$5,498 $6,640 $20 $163 
 Six Months Ended June 30
 Pension PlanOther Benefits
 2022202120222021
Service cost$18,470 $18,020 $3,366 $3,222 
Interest cost12,658 10,638 2,016 1,611 
Expected return on plan assets(22,614)(19,732)(4,964)(4,383)
Amortization of prior service cost484 506 78 97 
Recognized net actuarial loss1,998 3,848 (456)(220)
Net periodic benefit cost$10,996 $13,280 $40 $327 
 Three Months Ended September 30
 Pension Plan Other Benefits
 2017 2016 2017 2016
Service cost$6,122
 $5,594
 $2,169
 $1,045
Interest cost5,861
 5,764
 1,491
 625
Expected return on plan assets(6,031) (5,462) (1,218) (1,005)
Amortization of prior service cost1,445
 1,555
 11
 10
Recognized net actuarial loss1,881
 1,743
 649
 (482)
Net periodic benefit cost$9,278
 $9,194
 $3,102
 $193
Service cost portion of the pension plan and other postretirement benefits is recognized in "administrative and general" expenses within the Condensed Consolidated Statements of Operations. 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 Condensed Consolidated Statements of Operations.

 Nine Months Ended September 30
 Pension Plan Other Benefits
 2017 2016 2017 2016
Service cost$17,851
 $15,728
 $6,207
 $5,653
Interest cost17,442
 16,670
 4,472
 4,225
Expected return on plan assets(18,090) (16,370) (3,653) (3,097)
Amortization of prior service cost4,336
 4,664
 32
 32
Recognized net actuarial loss5,386
 4,329
 1,947
 2,041
Net periodic benefit cost$26,925
 $25,021
 $9,005
 $8,854





Note 7. Short-term and Long-term Borrowings
In March 2016,On May 11, 2021, Cal Water issued $50.0completed the sale and issuance of $280.0 million in aggregate principal amount of First Mortgage Bonds consisting(the Bonds) in a private placement. The Bonds consist of $40.0$130.0 million of 4.41%2.87% bonds, series SSSZZZ, maturing April 16, 2046May 11, 2051, and $10.0$150.0 million of 4.61%3.02% bonds, series TTT1, maturing April 14, 2056. Cash proceedsMay 11, 2061. Interest on the bonds will accrue semi-annually and be payable in arrears on May 11 and November 11 of approximately $49.7 million, neteach year, commencing on November 11, 2021. The Bonds will rank equally with all of $0.3 million debt issuance costs, were received.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 a portion of the net proceeds from the offeringsale of the Bonds to repay outstanding borrowings onrefinance existing indebtedness and for general corporate purposes. 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.
15
Table of Contents
On March 29, 2019, the Company and Cal Water linesentered 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 Company and subsidiaries that it designates may borrow up to $150.0 million under the Company’s revolving credit of $48.6 million.facility. Cal Water may borrow up to $400.0 million under its revolving credit facility. 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.

Both short-term unsecuredThe revolving credit agreementsfacilities 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’subsidiaries' consolidated total capitalization ratio and interest coverage ratio.
The outstanding borrowings on the Company linesline of credit were $55.1$40.0 million and $57.1$35.0 million as of SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively. There were $140.0$30.0 million and $40.0 million0 borrowings on the Cal Water linesline of credit as of SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively. The average borrowing rate for borrowings on the Company and Cal Water lines of credit during the ninesix months ended SeptemberJune 30, 20172022 was 1.97%1.35% compared to 1.30%0.99% for the same period last year.

Note 8. Income Taxes
The Company accounts for income taxes under the provisions of ASU 2009-06, Income Taxes (Topic 740). The Company adjusts its effective tax rate each quarter to be consistent with the estimated annual effective tax rate. The Company also records the tax effect of unusual or infrequently occurring discrete items.
The provision for income taxes consistsis shown in the tables below:
 Three Months Ended June 30
 20222021
Income tax expense$1,799 $2,484 
 Six Months Ended June 30
 20222021
Income tax expense894 2,741 
Income tax expense decreased $0.7 million to $1.8 million in the second quarter of 2022 mostly due to a reduction in net operating income.
Income tax expense decreased $1.8 million to $0.9 million in the following:
 Three Months Ended September 30
 2017 2016
Income tax provision$18,189
 $13,595
 Nine Months Ended September 30
 2017 2016
Income tax provision$29,046
 $20,105
six months of 2022 mostly due to a reduction in net operating income.
The $4.6 millionCompany’s effective tax rate was 11.5% before discrete items as of June 30, 2022 and 6.0% as of June 30, 2021. The increase in theeffective tax rate was primarily due to a decrease in TCJA refunds of excess deferred federal income tax provision for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 was due primarily to an increase in the Company’s operating income in 2017 as compared to 2016.

The $8.9 million increase in the income tax provision for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 was due primarily to an increase in the Company’s operating income in 2017 as compared to 2016,taxes which was partially offset by a $0.5 millionan increase in state tax benefit associated with the settlement of equity awards in 2017. The Company’s fiscal year 2017 effective tax rate is estimated to be 37%.
benefits from repairs.
The Company had unrecognized tax benefits of approximately $10.2$16.5 million and $10.5$14.2 million as of SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively. Included in the balance of unrecognized tax benefits as of SeptemberJune 30, 20172022 and December 31, 20162021, is approximately $1.9$4.2 million and $2.2$3.8 million, respectively, of tax benefits that, if recognized, would result in an adjustment to the Company’s effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly within the next 12 months.

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Note 9. Regulatory Assets and Liabilities
Regulatory assets and liabilities were comprised of the following as of SeptemberJune 30, 20172022 and December 31, 2016:2021:
September 30, 2017 December 31, 2016 Recovery PeriodJune 30, 2022December 31, 2021
Regulatory Assets 
  
Regulatory Assets  
Pension and retiree group health$188,386
 $188,880
Pension and retiree group healthIndefinitely$17,278 $17,607 
Property-related temporary differences (tax benefits flowed through to customers)94,144
 92,099
Property-related temporary differences (tax benefits flowed through to customers)Indefinitely130,565 130,565 
Other accrued benefits26,540
 27,503
Other accrued benefitsIndefinitely24,656 23,280 
Net WRAM and MCBA long-term accounts receivable34,735
 16,148
Net WRAM and MCBA long-term accounts receivable1 - 2 years37,581 29,789 
Asset retirement obligations, net16,832
 15,812
Asset retirement obligations, netIndefinitely24,005 22,935 
Interim rates long-term accounts receivable4,616
 4,605
Interim rates memorandum account (IRMA) long-term accounts receivableInterim rates memorandum account (IRMA) long-term accounts receivable1 - 3 years7,212 9,032 
Tank coating10,114
 8,452
Tank coating10 years14,986 13,680 
Health care balancing account412
 1,000
Pension balancing account1,684
 —
Recoverable property lossesRecoverable property lossesVarious3,489 3,843 
PCBAPCBA1 year20,040 21,500 
Other components of net periodic benefit costOther components of net periodic benefit costIndefinitely623 3,342 
General district balancing account receivableGeneral district balancing account receivable1 year358 568 
Customer assistance program (CAP) and Rate support fund (RSF) accounts receivableCustomer assistance program (CAP) and Rate support fund (RSF) accounts receivable1 year3,262 5,991 
Other regulatory assets2,421
 1,431
Other regulatory assetsVarious3,570 3,560 
Total Regulatory Assets$379,884
 $355,930
Total Regulatory Assets$287,625 $285,692 
   
Regulatory Liabilities 
  
Regulatory Liabilities  
Future tax benefits due to customers$33,375
 $33,231
Future tax benefits due to customers$134,378 $135,027 
Health care balancing account6,006
 —
Conservation program2,312
 584
Pension balancing account383
 695
Retiree group healthRetiree group health27,294 27,294 
HCBAHCBA12,713 9,687 
CEBACEBA7,684 7,206 
Net WRAM and MCBA long-term payable710
 611
Net WRAM and MCBA long-term payable479 143 
Other regulatory liabilities1,251
 3,614
Other regulatory liabilities1,039 1,071 
Total Regulatory Liabilities$44,037
 $38,735
Total Regulatory Liabilities$183,587 $180,428 
Short-term regulatory assets and liabilities are excluded from the above table.
The short-term regulatory assets were $31.4$56.6 million as of SeptemberJune 30, 20172022 and $30.3$78.6 million as of December 31, 2016. As of September 30, 2017, the2021. The short-term regulatory assets wereas of June 30, 2022 and December 31, 2021 primarily consist of net WRAM and MCBA, accounts receivable, 2012 General Rate Case (GRC) health cost balancing account receivable, 2014-2015 drought expense recovery,IRMA, and East Los Angeles Memorandum Account receivable. As of December 31, 2016, the short-term regulatory assets were primarily net WRAM and MCBA accounts receivable, 2012 GRC health cost balancing account receivable, 2014-2015 drought expense recovery, interim rate memorandum account receivable, and East Los Angeles Memorandum Account receivable.

PCBA receivables.
The short-term portions of regulatory liabilities were $4.5$9.6 million as of SeptemberJune 30, 20172022 and $4.8$17.5 million as of December 31, 2016. As of September 30, 2017, the2021. The short-term regulatory liabilities wereas of June 30, 2022 primarily net WRAM and MCBA liability balances, refund balance from an interim rates true up authorized prior to the 2009 GRC, and net refund balances to customers for the pension and conservation programs from the 2012 GRC.consist of TCJA liabilities. As of December 31, 2016, the2021, short-term regulatory liabilities were primarily net WRAMconsist of TCJA and MCBA liability balances and net refund balances to customers for the pension and conservation programs from the 2012 GRC.HCBA liabilities.

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Table of Contents
Note 10. Commitments and Contingencies
Commitments
The Company has significant commitments to lease certain office spaces and water systems and to purchase water from water wholesalers. The Company also has operating and finance leases for water systems, offices, land easements, licenses, equipment, and other facilities. These commitments and leases are described in the Company's Annual Report on Form 10-K for the year ended December 31, 2016. 2021. 
As of SeptemberJune 30, 2017,2022, there were no significant changes in these commitments from December 31, 2016.



2021.
Contingencies
Groundwater Contamination
The Company has undertaken litigation against third parties to recover past and anticipated costs related to groundwater 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 groundwater contamination litigation to be used first to pay transactional expenses, then to make ratepayerscustomers whole for water treatment costs to comply with the CPUC’s water quality standards. The CPUC allows 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 and to request recovery of these costs in future filings and uses of proceeds to comply with CPUC’s general policy.
filings.
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. As of SeptemberJune 30, 20172022 and December 31, 2016,2021, the Company recognized a liability of $6.1$6.3 million and $6.0$3.5 million, respectively, for known 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.

Note 11. Fair Value of Financial Assets and Liabilities
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 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 as follows:
 
Level 1 - Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the PlanCompany 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.
 



18
Table of Contents
Specific valuation methods include the following:
 
Cash, Accounts receivable, short-term borrowings, 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 of similar securities, 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 1.70%0.60%.
 June 30, 2022
  Fair Value
 CostLevel 1Level 2Level 3Total
Long-term debt, including current maturities, net$1,059,953 — $1,093,248 — $1,093,248 
Advances for construction fair values were estimated using broker quotes from companies that frequently purchase these investments.
 December 31, 2021
  Fair Value
 CostLevel 1Level 2Level 3Total
Long-term debt, including current maturities, net$1,060,986 $— $1,338,831 $— $1,338,831 
 September 30, 2017
   Fair Value
 Cost Level 1 Level 2 Level 3 Total
Long-term debt, including current maturities$555,715
 —
 $631,447
 —
 $631,447
Advances for construction182,820
 —
 75,717
 —
 75,717
Total$738,535
 $—
 $707,164
 $—
 $707,164
 December 31, 2016
   Fair Value
 Cost Level 1 Level 2 Level 3 Total
Long-term debt, including current maturities$557,953
 $—
 $630,510
 $—
 $630,510
Advances for construction182,448
 —
 74,460
 —
 74,460
Total$740,401
 —
 $704,970
 $—
 $704,970
Note 12. Condensed Consolidating Financial StatementsSubsequent Event
On April 17, 2009, Cal Water issued $100.0 million aggregate principal amount of 5.875% First Mortgage Bonds due 2019, and on November 17, 2010, Cal Water issued $100.0 million aggregate principal amount of 5.500% First Mortgage Bonds due 2040, all of which are fully and unconditionally guaranteedAs approved by the Company. As a resultCompany's stockholders at the 2022 Annual Meeting, effective July 26, 2022, the aggregate number of these guarantee arrangements,common shares of stock which the Company is requiredcorporation shall have authority to present the following condensed consolidating financial information. The investments in affiliates are accounted for and presented using the “equity method”issue was increased from 68.0 million common shares to 136.0 million common shares. All of accounting.
The following tables present the condensed consolidating balance sheets assaid 136.0 million common shares shall be of September 30, 2017 and December 31, 2016, the condensed consolidating statements of income for the three and nine months ended September 30, 2017 and 2016,one and the condensed consolidating statementssame series, namely common shares with par value of  cash flows for the nine months ended September 30, 2017 and 2016 of (i) California Water Service Group, the guarantor 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 nine months ended September 30, 2016 reflects the retrospective adoption of ASU 2016-09 (refer to Note 2 Summary of Significant Accounting Policies for more details).$0.01 per common share.



CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING BALANCE SHEET
As of September 30, 2017
(In thousands)
 
Parent
Company
 Cal Water 
All Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
ASSETS 
  
  
  
  
Utility plant: 
  
  
  
  
Utility plant$1,321
 $2,695,106
 $203,435
 $(7,196) $2,892,666
Less accumulated depreciation and amortization(896) (858,386) (53,448) 1,988
 (910,742)
Net utility plant425
 1,836,720
 149,987
 (5,208) 1,981,924
Current assets:     
    
Cash and cash equivalents2,722
 17,851
 7,768
 —
 28,341
Receivables and unbilled revenue—
 127,858
 5,398
 —
 133,256
Receivables from affiliates22,568
 703
 261
 (23,532) —
Other current assets184
 17,665
 1,039
 —
 18,888
Total current assets25,474
 164,077
 14,466
 (23,532) 180,485
Other assets:     
    
Regulatory assets—
 376,041
 3,843
 —
 379,884
Investments in affiliates693,766
 —
 —
 (693,766) —
Long-term affiliate notes receivable24,677
 —
 —
 (24,677) —
Other assets217
 56,886
 3,912
 (204) 60,811
Total other assets718,660
 432,927
 7,755
 (718,647) 440,695
TOTAL ASSETS$744,559
 $2,433,724
 $172,208
 $(747,387) $2,603,104
CAPITALIZATION AND LIABILITIES 
  
  
  
  
Capitalization: 
  
  
  
  
Common stockholders’ equity$687,723
 $620,892
 $78,143
 $(699,035) $687,723
Affiliate long-term debt—
 —
 24,677
 (24,677) —
Long-term debt, less current maturities—
 518,802
 898
 —
 519,700
Total capitalization687,723
 1,139,694
 103,718
 (723,712) 1,207,423
Current liabilities: 
  
  
  
  
Current maturities of long-term debt—
 35,606
 409
 —
 36,015
Short-term borrowings55,100
 140,000
 —
 —
 195,100
Payables to affiliates—
 1,257
 22,275
 (23,532) —
Accounts payable—
 86,374
 3,020
 —
 89,394
Accrued expenses and other liabilities154
 55,607
 4,091
 —
 59,852
Total current liabilities55,254
 318,844
 29,795
 (23,532) 380,361
Unamortized investment tax credits—
 1,798
 —
 —
 1,798
Deferred income taxes1,582
 325,619
 2,448
 (143) 329,506
Pension and postretirement benefits other than pensions—
 227,819
 —
 —
 227,819
Regulatory liabilities and other—
 87,714
 3,292
 —
 91,006
Advances for construction—
 182,298
 522
 —
 182,820
Contributions in aid of construction—
 149,938
 32,433
 —
 182,371
TOTAL CAPITALIZATION AND LIABILITIES$744,559
 $2,433,724
 $172,208
 $(747,387) $2,603,104


CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2016
(In thousands)
 
Parent
Company
 Cal Water 
All Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
ASSETS 
  
  
  
  
Utility plant: 
  
  
  
  
Utility plant$1,318
 $2,519,785
 $203,433
 $(7,197) $2,717,339
Less accumulated depreciation and amortization(826) (805,992) (53,163) 1,919
 (858,062)
Net utility plant492
 1,713,793
 150,270
 (5,278) 1,859,277
Current assets: 
  
  
  
  
Cash and cash equivalents5,216
 13,215
 7,061
 —
 25,492
Receivables and unbilled revenue—
 98,850
 4,173
 —
 103,023
Receivables from affiliates19,566
 3,608
 8
 (23,182) —
Other current assets80
 12,442
 1,032
 —
 13,554
Total current assets24,862
 128,115
 12,274
 (23,182) 142,069
Other assets: 
  
  
  
  
Regulatory assets—
 352,139
 3,791
 —
 355,930
Investments in affiliates666,525
 —
 —
 (666,525) —
Long-term affiliate notes receivable25,744
 —
 —
 (25,744) —
Other assets376
 50,361
 3,765
 (33) 54,469
Total other assets692,645
 402,500
 7,556
 (692,302) 410,399
TOTAL ASSETS$717,999
 $2,244,408
 $170,100
 $(720,762) $2,411,745
CAPITALIZATION AND LIABILITIES 
  
  
  
  
Capitalization: 
  
  
  
  
Common stockholders’ equity$659,471
 $595,003
 76,833
 $(671,836) $659,471
Affiliate long-term debt—
 —
 25,744
 (25,744) —
Long-term debt, less current maturities—
 530,850
 895
 —
 531,745
Total capitalization659,471
 1,125,853
 103,472
 (697,580) 1,191,216
Current liabilities: 
  
  
  
  
Current maturities of long-term debt—
 25,657
 551
 —
 26,208
Short-term borrowings57,100
 40,000
 —
 —
 97,100
Payables to affiliates—
 539
 22,643
 (23,182) —
Accounts payable—
 74,998
 2,815
 —
 77,813
Accrued expenses and other liabilities88
 47,232
 1,789
 —
 49,109
Total current liabilities57,188
 188,426
 27,798
 (23,182) 250,230
Unamortized investment tax credits—
 1,798
 —
 —
 1,798
Deferred income taxes1,340
 296,781
 803
 —
 298,924
Pension and postretirement benefits other than pensions—
 222,691
 —
 —
 222,691
Regulatory and other liabilities—
 80,518
 3,130
 —
 83,648
Advances for construction—
 181,907
 541
 —
 182,448
Contributions in aid of construction—
 146,434
 34,356
 —
 180,790
TOTAL CAPITALIZATION AND LIABILITIES$717,999
 $2,244,408
 $170,100
 $(720,762) $2,411,745



CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended September 30, 2017
(In thousands)
 
Parent
Company
 Cal Water 
All Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
Operating revenue$—
 $199,002
 $12,729
 $—
 $211,731
Operating expenses: 
  
  
  
  
Operations: 
  
  
  
  
Water production costs—
 73,061
 2,200
 —
 75,261
Administrative and general—
 22,362
 2,524
 —
 24,886
Other operations—
 18,979
 2,356
 (127) 21,208
Maintenance—
 5,729
 328
 —
 6,057
Depreciation and amortization21
 18,115
 1,117
 (22) 19,231
Income tax (benefit) expense(136) 16,190
 1,028
 266
 17,348
Property and other taxes—
 5,680
 864
 —
 6,544
Total operating (income) expenses(115) 160,116
 10,417
 117
 170,535
Net operating income115
 38,886
 2,312
 (117) 41,196
Other income and expenses: 
  
  
  
  
Non-regulated revenue505
 3,218
 450
 (631) 3,542
Non-regulated expenses—
 (2,151) (425) —
 (2,576)
Allowance for equity funds used during construction—
 1,105
 —
 —
 1,105
Income tax expense on other income and expenses(206) (885) (7) 257
 (841)
Total other income299
 1,287
 18
 (374) 1,230
Interest: 
  
  
  
  
Interest expense313
 8,951
 525
 (505) 9,284
Allowance for borrowed funds used during construction—
 (684) (23) —
 (707)
Net interest expense313
 8,267
 502
 (505) 8,577
Equity earnings of subsidiaries33,748
 —
 —
 (33,748) —
Net income$33,849
 $31,906
 $1,828
 $(33,734) $33,849


CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended September 30, 2016
(In thousands)
 
Parent
Company
 Cal Water 
All Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
Operating revenue$—
 $173,223
 $11,045
 $—
 $184,268
Operating expenses: 
  
  
  
  
Operations: 
  
  
  
  
Water production costs—
 68,045
 2,130
 —
 70,175
Administrative and general—
 21,679
 2,165
 —
 23,844
Other operations—
 18,037
 1,692
 (168) 19,561
Maintenance—
 5,322
 223
 —
 5,545
Depreciation and amortization57
 14,777
 1,074
 (24) 15,884
Income tax (benefit) expense(105) 12,165
 920
 267
 13,247
Property and other taxes—
 5,182
 775
 —
 5,957
Total operating (income) expenses(48) 145,207
 8,979
 75
 154,213
Net operating income48
 28,016
 2,066
 (75) 30,055
Other income and expenses: 
  
  
  
  
Non-regulated revenue464
 3,024
 541
 (632) 3,397
Non-regulated expenses—
 (2,170) (347) —
 (2,517)
Income tax expense on other income and expenses(189) (345) (73) 258
 (349)
Total other income275
 509
 121
 (374) 531
Interest: 
  
  
  
  
Interest expense201
 8,259
 488
 (463) 8,485
Less: capitalized interest—
 (759) (15) —
 (774)
Net interest expense201
 7,500
 473
 (463) 7,711
Equity earnings of subsidiaries22,753
 —
 —
 (22,753) —
Net income$22,875
 $21,025
 $1,714
 $(22,739) $22,875



CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the nine months ended September 30, 2017
(In thousands)
 
Parent
Company
 Cal Water 
All Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
Operating revenue$—
 $473,518
 $31,381
 $—
 $504,899
Operating expenses: 
  
  
  
  
Operations: 
  
  
  
  
Water production costs—
 175,339
 6,121
 —
 181,460
Administrative and general—
 65,985
 7,946
 —
 73,931
Other operations—
 50,108
 5,931
 (379) 55,660
Maintenance—
 16,144
 733
 —
 16,877
Depreciation and amortization70
 54,328
 3,320
 (68) 57,650
Income tax (benefit) expense(362) 24,344
 1,331
 786
 26,099
Property and other taxes(4) 16,407
 2,314
 —
 18,717
Total operating (income) expenses(296) 402,655
 27,696
 339
 430,394
Net operating income296
 70,863
 3,685
 (339) 74,505
Other income and expenses: 
  
  
  
  
Non-regulated revenue1,482
 9,822
 1,300
 (1,861) 10,743
Non-regulated expenses—
 (5,326) (918) —
 (6,244)
Allowance for equity funds used during construction—
 2,763
 —
 —
 2,763
Income tax expense on other income and expenses(604) (2,958) (143) 758
 (2,947)
Net other income878
 4,301
 239
 (1,103) 4,315
Interest: 
  
  
  
  
Interest expense823
 26,216
 1,516
 (1,482) 27,073
Allowance for borrowed funds used during construction—
 (1,702) (63) —
 (1,765)
Net interest expense823
 24,514
 1,453
 (1,482) 25,308
Equity earnings of subsidiaries53,161
 —
 —
 (53,161) —
Net income$53,512
 $50,650
 $2,471
 $(53,121) $53,512


CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the nine months ended September 30, 2016
(In thousands)
 
Parent
Company
 Cal Water 
All Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
Operating revenue$—
 $428,592
 $29,848
 $—
 $458,440
Operating expenses: 
  
  
  
  
Operations: 
  
  
  
  
Water production costs—
 162,933
 5,900
 —
 168,833
Administrative and general—
 67,289
 7,748
 —
 75,037
Other operations—
 53,128
 5,016
 (378) 57,766
Maintenance—
 16,854
 688
 —
 17,542
Depreciation and amortization171
 44,427
 3,246
 (72) 47,772
Income tax (benefit) expense(292) 17,356
 1,366
 762
 19,192
Property and other taxes—
 15,241
 2,198
 —
 17,439
Total operating (income) expenses(121) 377,228
 26,162
 312
 403,581
Net operating income121
 51,364
 3,686
 (312) 54,859
Other income and expenses: 
  
  
  
  
Non-regulated revenue1,390
 9,659
 1,338
 (1,798) 10,589
Non-regulated expenses—
 (7,422) (884) —
 (8,306)
Income tax expense on other income and expenses(566) (909) (172) 733
 (914)
Net other income824
 1,328
 282
 (1,065) 1,369
Interest: 
  
  
  
  
Interest expense547
 24,421
 1,435
 (1,419) 24,984
Less: capitalized interest—
 (2,293) (48) —
 (2,341)
Net interest expense547
 22,128
 1,387
 (1,419) 22,643
Equity earnings of subsidiaries33,187
 —
 —
 (33,187) —
Net income$33,585
 $30,564
 $2,581
 $(33,145) $33,585



CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2017
(In thousands)
 
Parent
Company
 Cal Water 
All Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
Operating activities: 
  
  
  
  
Net income$53,512
 $50,650
 $2,471
 $(53,121) $53,512
Adjustments to reconcile net income to net cash provided by operating activities: 
  
  
  
  
Equity earnings of subsidiaries(53,161) —
 —
 53,161
 —
Dividends received from affiliates25,920
 —
 —
 (25,920) —
Depreciation and amortization70
 55,623
 3,392
 (69) 59,016
Changes in value of life insurance contracts—
 (1,871) —
 —
 (1,871)
Allowance for equity funds used during construction—
 (2,763) —
 —
 (2,763)
Changes in operating assets and liabilities(38) (40,941) 1,036
 —
 (39,943)
Other changes in noncurrent assets and liabilities2,420
 37,125
 2,263
 29
 41,837
Net cash provided by operating activities28,723
 97,823
 9,162
 (25,920) 109,788
Investing activities:     
    
Utility plant expenditures(4) (175,234) (5,204) —
 (180,442)
Changes in affiliate advances(334) 2,905
 (287) (2,284) —
Issuance of affiliate short-term borrowings(2,610) —
 —
 2,610
 —
Reduction of affiliates long-term debt1,010
 —
 —
 (1,010) —
Life insurance proceeds—
 1,558
 —
 —
 1,558
Purchase of life insurance contracts—
 (3,948) —
 —
 (3,948)
Changes in restricted cash—
 (679) —
 —
 (679)
Net cash used in investing activities(1,938) (175,398) (5,491) (684) (183,511)
Financing Activities: 
  
  
  
  
Short-term borrowings—
 185,000
 —
 —
 185,000
Repayment of short-term borrowings(2,000) (85,000) —
 —
 (87,000)
Changes in affiliate advances—
 718
 (3,002) 2,284
 —
Proceeds from affiliate short-term borrowings—
 —
 2,610
 (2,610) —
Repayment of affiliates long-term borrowings—
 —
 (1,010) 1,010
 —
Repayment of long-term debt—
 (2,336) (461) —
 (2,797)
Advances and contributions in aid of construction—
 14,900
 64
 —
 14,964
Refunds of advances for construction—
 (6,311) (5) —
 (6,316)
Repurchase of common stock(1,359) —
 —
 —
 (1,359)
Dividends paid to non-affiliates(25,920) —
 —
 —
 (25,920)
Dividends paid to affiliates—
 (24,760) (1,160) 25,920
 —
Net cash (used in) provided by financing activities(29,279) 82,211
 (2,964) 26,604
 76,572
Change in cash and cash equivalents(2,494) 4,636
 707
 —
 2,849
Cash and cash equivalents at beginning of period5,216
 13,215
 7,061
 —
 25,492
Cash and cash equivalents at end of period$2,722
 $17,851
 $7,768
 $—
 $28,341


CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2016
(In thousands)
 
Parent
Company
 Cal Water 
All Other
Subsidiaries
 
Consolidating
Adjustments
 Consolidated
Operating activities: 
  
  
  
  
Net income$33,585
 $30,564
 $2,581
 $(33,145) $33,585
Adjustments to reconcile net income to net cash provided by operating activities: 
  
  
  
  
Equity earnings of subsidiaries(33,187) —
 —
 33,187
 —
Dividends received from affiliates24,807
 —
 —
 (24,807) —
Depreciation and amortization171
 45,466
 3,381
 (72) 48,946
Changes in value of life insurance contracts—
 (915) —
 —
 (915)
Changes in operating assets and liabilities1,844
 12,552
 (6,623) 54
 7,827
Other changes in noncurrent assets and liabilities387
 24,726
 9,297
 (24) 34,386
Net cash provided by operating activities27,607
 112,393
 8,636
 (24,807) 123,829
Investing activities: 
  
  
  
  
Utility plant expenditures—
 (163,179) (3,227) —
 (166,406)
Changes in affiliate advances(957) 4,419
 (319) (3,143) —
Reduction of affiliate short-term borrowings2,000
 42,100
 —
 (44,100) —
Issuance of affiliate short-term borrowings
(4,615) (20,600) —
 25,215
 —
Reduction of affiliates long-term debt829
 —
 —
 (829) —
Life insurance proceeds—
 495
 —
 —
 495
Purchase of life insurance contracts—
 (2,710) —
 —
 (2,710)
Changes in restricted cash—
 (685) —
 —
 (685)
Net cash used in investing activities(2,743) (140,160) (3,546) (22,857) (169,306)
Financing Activities: 
  
  
  
  
Short-term borrowings44,100
 61,000
 —
 —
 105,100
Repayment of short-term borrowings(20,615) (61,000) —
 —
 (81,615)
Changes in affiliate advances—
 1,367
 (4,510) 3,143
 —
Proceeds from affiliate short-term borrowings20,600
 —
 4,615
 (25,215) —
Repayment of affiliate short-term borrowings(42,100) —
 (2,000) 44,100
 —
Repayment of affiliates long-term borrowings—
 —
 (829) 829
 —
Proceeds from long-term debt, net of issuance costs—
 49,823
 —
 —
 49,823
Repayment of long-term debt—
 (2,516) (349) —
 (2,865)
Advances and contributions in aid for construction—
 18,096
 90
 —
 18,186
Refunds of advances for construction—
 (5,172) (22) —
 (5,194)
Repurchase of common stock(637) —
 —
 —
 (637)
Dividends paid to non-affiliates—
 (24,173) (634) —
 (24,807)
Dividends paid to affiliates(24,807) —
 —
 24,807
 —
Net cash (used in) provided by financing activities(23,459) 37,425
 (3,639) 47,664
 57,991
Change in cash and cash equivalents1,405
 9,658
 1,451
 —
 12,514
Cash and cash equivalents at beginning of period582
 4,270
 3,985
 —
 8,837
Cash and cash equivalents at end of period$1,987
 $13,928
 $5,436
 $—
 $21,351



Item 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Dollar amounts in thousands unless otherwise statedstated.
FORWARD LOOKING STATEMENTS
This quarterly report, including all documents incorporated by reference, contains forward-looking statements within the meaning established by the Private Securities Litigation Reform Act of 1995 (Act). The forward-looking statements are intended to qualify under provisions of the federal securities laws for "safe harbor" treatment established by the Act. Forward-looking statements in this quarterly report are based on currently available information, expectations, estimates, assumptions and projections, and our management’s beliefs, assumptions, judgments and expectations about us, the water utility industry and general economic conditions.conditions, including statements regarding the anticipated impact on our business of the ongoing COVID-19 pandemic and related public health measures. These statements are not statements of historical fact. When used in our documents, statements that are not historical in nature, including words like "will," "would," “expects,” “intends,” “plans,” “believes,” “may,” “estimates,” “assumes,” “anticipates,” “projects,” "progress," “predicts,” "hopes," "targets," “forecasts,” “should,” “seeks,” or variations of these words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not guarantees of future performance. They are based on numerous assumptions that we believe are reasonable, but they are open to a wide range of uncertainties and business risks. Consequently, actual results may vary materially from what is contained in a forward-looking statement.
Factors which may cause actual results to be different than those expected or anticipated include, but are not limited to:
•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’commissions' decisions, including decisions on proper disposition of property;
•consequences of eminent domain actions relationrelating to our water systems;
•changes in regulatory commissions’commissions' policies and procedures;procedures, such as the CPUC’s decision in 2020 to preclude companies from proposing fully decoupled WRAMs in their next GRC filing (which impacted our 2021 GRC filing related to our operations commencing in 2023);
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Table of Contents
•the outcome and timeliness of regulatory commissions’commissions' actions concerning rate relief;relief and other matters, including with respect to our 2021 GRC filing and our Cost of Capital filing;
inability•increased risk of inverse condemnation losses as a result of climate change and drought;
•our ability to renew leases to operate city 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;interruptions, especially as a result of Public Safety Power Shutoff (PSPS) programs;
•housing and customer growth trends;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,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 apprehension about the possible future occurrences of acts of this type;address risks adequately;
•labor relations matters as we negotiate with the unions;
restrictive covenants in or changes to the credit ratings on current or future debt that could increase financing costs or affect the ability to borrow, make payments on debt, or pay dividends;
•changes in customer water use patterns and the effects of conservation;
•our ability to complete, in a timely manner or at all, successfully integrate, and achieve anticipated benefits from announced acquisitions;
•the impact of weather, climate change, natural disasters, and diseasesactual or threatened public health emergencies, including disease outbreaks, on our operations, water quality, water availability, water sales and operating results;results and the adequacy of our emergency preparedness;
•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;
•risks associated with expanding our business and operations geographically;
•stagnating or worsening business and economic conditions, including inflationary pressures, general economic slowdown or a recession, increasing interest rates, and changes in monetary policy; and
•the risks set forth in “Risk Factors” included in the Company's annual reportAnnual Report on 2016 Form 10-K.
10-K for the year ended December 31, 2021.
In light of these risks, uncertainties and assumptions, investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this quarterly report or as of the date of any document incorporated by reference in this report, as applicable. When considering forward-looking statements, investors should keep in mind the cautionary statements in this quarterly report and the documents incorporated by reference. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

20

Table of Contents
CRITICAL ACCOUNTING POLICIES
ESTIMATES
We maintain our accounting records in accordance with accounting principles generally accepted in the United States of America (GAAP)GAAP and as directed by the Commissions to which our operations are subject. The process of preparing financial statements in accordance with GAAP 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. Management believes that the following accounting policies are critical because they involve a higher degree of complexity and judgment, and can have a material impact on our results of operations, financial condition, and cash flows of the business. These policies and their key characteristics are discussed in detail in the 2016Company's Annual Report on Form 10-K.10-K for the year ended December 31, 2021. They include:
•revenue recognition;
•regulated utility accounting;
•income taxes; and
•pension and postretirement health care benefits;

benefits.
For the nine month periodsix months ended SeptemberJune 30, 2017,2022, there were no changes in the methodology for computing critical accounting estimates, no additional accounting estimates met the standards for critical accounting policies, and there were no material changes to the important assumptions underlying the critical accounting estimates.

COVID-19
During 2021 and for the six months ended June 30, 2022 and through July 28, 2022, the COVID-19 pandemic has not had a significant impact on our business or operations. We have resumed the process for shutoffs for non-payment in all of our regulated utilities.
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. Company employees have returned to the office full-time. We continue to be vigilant for employee and customer safety, we encourage and incentivize vaccination, and we follow local masking rules as applicable. 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.
RESULTS OF THIRDSECOND QUARTER 20172022 OPERATIONS
COMPARED TO THIRDSECOND QUARTER 20162021 OPERATIONS
Dollar amounts in thousands unless otherwise stated
 
Overview
Net Income Attributable to California Water Service Group
Net income attributable to California Water Service Group for the three month period ended September 30, 2017,second quarter of 2022 was $33.8$19.5 million or $0.70$0.36 earnings per diluted common share, compared to net income attributable to California Water Service Group of $22.9$38.2 million or $0.48$0.75 earnings per diluted common share for the three month period ended September 30, 2016, an increasesecond quarter of $10.9 million. 2021.
The increase$18.7 million decrease in net income was primarily the resultdue to a reduction of rate increases authorized$15.2 million in Cal Water's 2015 General Rate Case (GRC). Also increasingaccrued unbilled revenue and a $6.2 million decrease in unrealized gains on non-qualified benefit plan investments. Increases of $8.7 million in other operations expense, $1.6 million in depreciation and amortization, and $1.0 million in maintenance expense also reduced net income. The decrease in net income was anpartially offset by general rate increases of $6.9 million, increase in operating revenue from a change in deferred revenue of $5.1 million, and a gain from company owned life insurance of $2.3 million. The $5.1 million change in deferred revenue offset $4.2 million of the increase in other operations expense.
The change in accrued unbilled revenue increases resulting fromwas mostly driven by the adoptiontiming of allowance for equity funds usedwhen meter reads were completed during construction (equity AFUDC) in 2017,the month of June 2022 as compared to June 2021 and a decrease in emergency drought incremental expenses overcustomer consumption. In the second quarter of 2022, accrued unbilled revenue added $3.8 million to revenue as compared to $19.0 million for the same period last year. These factors were partially offset by increases in administrative and general, other operations, maintenance, depreciation and amortization, and interest expenses. The increaseOver the past ten years, annual changes in accrued unbilled revenue resulted from higher water usage athave typically been less than $2.0 million. We expect the end of the quarter. This increase indifference between 2022 and 2021 annual accrued unbilled revenue is not included in the WRAM until it is billed. The WRAM account records changes in billed revenue. Accrued unbilled revenue is seasonal and the patternto be less than $2.0 million. Changes to unrealized gains on benefit plan investments were caused by unfavorable market conditions.


21
Table of accrued unbilled revenue changes can fluctuate on a year-to-year basis.Contents
Operating Revenue
Operating revenue increased $27.5decreased $6.9 million, or 14.9%3.3%, to $211.7$206.2 million in the thirdsecond quarter of 20172022 as compared to the thirdsecond quarter of 2016. The factors that impacted the operating revenue for the third quarter of 2017 as compared2021, with such change attributed to the third quarter of 2016 are as follows:following:
Net change due to rate changes, usage, and other (1)$20,703
MCBA Revenue (2)865
Other balancing account revenue (3)2,048
Deferral of revenue (4)3,847
Net operating revenue increase$27,463

1.The netNet change due to WRAM, rate changes, usage, and other in the above table was mainly driven by rate increases. There also was a $3.4 million increase in accrued unbilled revenue. The components(1)$(4,723)
MCBA Revenue (2)(7,292)
Other balancing account revenue (3)(31)
Deferral of the rate increases are as follows:revenue (4)5,117 
Net operating revenue decrease$(6,929)


1.The net change due to WRAM, rate changes, usage, and other in the above table was primarily driven by a $15.2 million decrease in accrued unbilled revenue, partially offset by rate increases, the components of which are set forth in the table below, and a $1.4 million increase in operating revenue in Hawaii due to an increase in customer usage and prior year acquisitions.
General rate case$10,900
Purchased water and pump tax offset increases2,359
Ratebase offset increases1,137
Total increase in rates$14,396

2.Escalation rate increasesThe MCBA revenue increase resulted from an increase in actual water production costs relative to adopted water production costs in the third quarter of 2017 as compared to the third quarter of 2016. The actual water production costs increased in 2017 as a result of an increase in customer consumption in the third quarter of 2017 as compared to the third quarter of 2016. 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.

5,140 
3.Purchased water and pump tax offsetsThe 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. The increase in revenue was mainly due to an increase in actual health care, pension, and conservation expenses relative to adopted in the third quarter of 2017 as compared to the third quarter of 2016.

1,722 
4.Rate base offsetsThe deferral of revenue consists of amounts that are expected to be collected from customers beyond 24 months following the end of the accounting period68 
Total increase in which these revenues were recorded. The deferral decreased in the third quarter of 2017 as compared to the third quarter of 2016 due to a decrease in the balancing account revenue expected to be collected beyond 24 months.rates$6,930 

2.MCBA revenue is the variance between adopted water production costs and actual water production costs. For the second quarter of 2022, we recorded a decrease to revenue of $0.3 million as compared to an increase to revenue of $7.0 million for the second quarter 2021. The MCBA revenue decrease in the second quarter of 2022 as compared to the second quarter of 2021 resulted from a decrease in actual water production costs relative to adopted water production costs in the second quarter of 2022, due to a 16.1% decrease in purchased water production.
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. For the second quarter of 2022 and 2021, we recognized a net decrease to revenue of $1.8 million for these balancing accounts primarily due to lower actual health care expenses relative to adopted.
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 the second quarter of 2022 as compared to the second quarter of 2021 due to a decrease in the balancing account revenue expected to be collected beyond 24 months.
Total Operating Expenses
Total operating expenses increased $16.3$8.0 million, or 10.6%4.7%, to $170.5$178.9 million in the thirdsecond quarter of 2017,2022, as compared to $154.2$170.9 million in the thirdsecond quarter of 2016.2021.
Water production cost consists of purchased water, purchased power, and pump taxes. It represents the largest component of total operating expenses, accounting for approximately 39.6% of total operating expenses for the second quarter of 2022, as compared to 43.8% of total operating expenses for the second quarter of 2021. Water production costs decreased 5.3% in the second quarter of 2022 as compared to the same period last year primarily due to a decrease in purchased water production.







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Table of Contents
Sources of water as a percent of total water production are listed in the following table:
 Three Months Ended June 30
 20222021
Well production49 %47 %
Purchased48 %49 %
Surface3 %4 %
Total100 %100 %
The components of water production costs are shown in the table below:
 Three Months Ended June 30
 20222021Change
Purchased water$55,929 $62,139 $(6,210)
Purchased power11,144 9,171 1,973 
Pump taxes3,834 3,601 233 
Total$70,907 $74,911 $(4,004)
Administrative and general expense increased $0.9 million, or 2.9%, to $32.7 million in the second quarter of 2022, as compared to $31.8 million in the second quarter of 2021. The increase was primarily due to increases in outside legal and consulting service costs of $0.8 million. Changes in employee pension benefits and employee and retiree medical costs for regulated California operations generally do not affect net income, as the Company has been allowed by the CPUC to record these costs in balancing accounts for future recovery, creating a corresponding change to revenue.
Other operations expenses increased $8.7 million, or 42.0%, to $29.4 million in the second quarter of 2022, as compared to $20.7 million in the second quarter of 2021. The increase was primarily due to an increase in the costs associated with the reduction of deferred revenue of $4.2 million, credit losses of $1.2 million, and conservation program expenses of $0.9 million. Changes in conservation program expense for regulated California operations generally do not affect net income, as the Company has been allowed by the CPUC to record these costs in balancing accounts for future recovery, creating a corresponding change to revenue.
Maintenance expense increased $1.0 million, or 15.2%, to $7.6 million in the second quarter of 2022, as compared to $6.6 million in the second quarter of 2021, due to repairs of services and equipment.
Depreciation and amortization expense increased $1.6 million, or 5.7%, to $28.8 million in the second quarter of 2022, as compared to $27.2 million in the second quarter of 2021, mostly due to utility plant placed in service in 2021.
Income tax expense decreased $0.5 million to $1.5 million in the second quarter of 2022 mostly due to a reduction in net operating income in the second quarter of 2022 as compared to prior year.
Property and other taxes increased $0.4 million to $8.1 million in the second quarter of 2022, as compared to $7.7 million in the same period of 2021, mostly due to an increase in assessed property values for utility plant in service.
Other Income and Expenses
Net other income decreased $3.7 million to $2.9 million in the second quarter of 2022, as compared to a net other income of $6.6 million in the second quarter of 2021, due primarily to a $6.2 million decrease in unrealized gains on non-qualified benefit plan investments, which was partially offset by a $2.3 million gain on company owned life insurance and $1.1 million increase in other components of net periodic benefit credit.
Interest Expense
Net interest expense increased $0.2 million, or 2.3%, to $11.0 million in the second quarter of 2022, as compared to $10.8 million in the second quarter of 2021. The increase was due primarily to an increase in interest rates.
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RESULTS OF THE SIX MONTHS ENDED JUNE 30, 2022 OPERATIONS
COMPARED THE SIX MONTHS ENDED JUNE 30, 2021 OPERATIONS
Dollar amounts in thousands unless otherwise stated 
Overview
Net Income Attributable to California Water Service Group
Net income attributable to California Water Service Group for the first six months of 2022 was $20.6 million or $0.38 earnings per diluted common share, compared to net income attributable to California Water Service Group of $35.2 million or $0.69 earnings per diluted common share for the first six months of 2021.
The $14.6 million decrease in net income was primarily due to a reduction of $12.8 million in accrued unbilled revenue and a $9.4 million decrease in unrealized gains on non-qualified benefit plan investments. Increases of $16.7 million in other operations expense, $4.0 million in administrative and general expense, $3.2 million in depreciation and amortization, $1.6 million in maintenance expense, and $1.2 million in net interest expense also reduced net income. The decrease in net income was partially offset by general rate increases of $12.1 million, increase in operating revenue from a change in deferred revenue of $14.5 million, gain from company owned life insurance of $2.7 million, increase in other components of net periodic benefit credit of $2.1 million, decrease in income tax expense of $1.8 million, and increase in non-regulated revenue of $1.3 million. The $14.5 million change in deferred revenue offset $11.9 million of the increase in other operations expense.
The change in accrued unbilled revenue was mostly driven by the timing of when meter reads were completed during the month of June 2022 as compared to June 2021 and a decrease in customer consumption. In the first six months of 2022, accrued unbilled revenue added $6.1 million to revenue as compared to $18.9 million for the same period last year. We expect the difference between 2022 and 2021 annual accrued unbilled revenue to be less than $2.0 million. Changes to unrealized gains on benefit plan investments were caused by unfavorable market conditions.
Operating Revenue
Operating revenue increased $18.3 million, or 5.1%, to $379.2 million for the first six months of 2022 as compared to the first six months of 2021, with such change attributed to the following:
Net change due to WRAM, rate changes, usage, and other (1)$6,771 
MCBA Revenue (2)(3,057)
Other balancing account revenue (3)71 
Deferral of revenue (4)14,542 
Net operating revenue increase$18,327 
1.The net change due to WRAM, rate changes, usage, and other in the above table was primarily driven by rate increases, the components of which are set forth in the table below and a $3.4 million increase in Hawaii Water due to an increase in customer usage and prior year acquisitions. The increase was partially offset by a $12.8 million decrease in accrued unbilled revenue.
Escalation rate increases8,993 
Purchased water and pump tax offsets3,035 
Rate base offsets95 
Total increase in rates$12,123 
2.MCBA revenue is the variance between adopted water production costs and actual water production costs. For the first six months of 2022, we recognized $8.0 million of MCBA revenue as compared to $11.0 million of MCBA revenue for the first six months of 2021. The MCBA revenue decrease in the first six months of 2022 as compared to the first six months of 2021 resulted from a decrease in actual water production costs relative to adopted water production costs due to a 6.4% decrease in purchased water production.
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. For the first six months of 2022 and 2021, we recognized a net decrease to revenue of $3.9
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million for these balancing accounts. The decrease in revenue for both 2022 and 2021 was primarily due to lower actual health care expenses relative to adopted.
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 the first six months of 2022 as compared to the first six months of 2021 due to a decrease in the balancing account revenue expected to be collected beyond 24 months.
Total Operating Expenses
Total operating expenses increased $27.1 million, or 8.6%, to $342.8 million for the first six months of 2022, as compared to $315.7 million for the first six months of 2021.
Water production costs consists of purchased water, purchased power, and pump taxes. It represents the largest component of total operating expenses, accounting for approximately 44.1%38.6% of total operating expenses in the third quarterfirst six months of 2017,2022, as compared to 45.5%41.1% of total operating expenses in the third quarterfirst six months of 2016.2021. Water production costs increased 7.3%2.1% in the first six months of 2022 as compared to the same period last year mainlyprimarily due to a 5.5% increase inincreased purchased water productionpower rates and an average increase of 0.8% in wholesale supplier rates.
well production.
Sources of water as a percent of total water production are listed in the following table:
Three Months Ended September 30 Six Months Ended June 30
2017 2016 20222021
Well production48% 48%Well production48 %47 %
Purchased48% 48%Purchased48 %49 %
Surface4% 4%Surface4 %4 %
Total100% 100%Total100 %100 %
The components of water production costs are shown in the table below:
Three Months Ended September 30 Six Months Ended June 30
2017 2016 Change 20222021Change
Purchased water$62,041
 $58,075
 $3,966
Purchased water$104,721 $106,905 $(2,184)
Purchased power9,658
 9,255
 403
Purchased power19,543 15,674 3,869 
Pump taxes3,562
 2,845
 717
Pump taxes8,181 7,158 1,023 
Total$75,261
 $70,175
 $5,086
Total$132,445 $129,737 $2,708 
Administrative and general and other operations expenses increased $2.7$4.0 million, or 6.4%, to $46.1$66.1 million in the third quarterfirst six months of 2017,2022, as compared to $43.4$62.1 million in the third quarterfirst six months of 2016.2021. The increase was mostlyprimarily due to an increaseincreases in expensesoutside legal and consulting service costs of $3.2$1.8 million, from the reversaltraining and travel costs of prior year deferred WRAM revenue$1.3 million, and associated deferred expenses, increases inemployee health care costs of $2.0 million, $1.1 million of costs previously capitalized, and uninsured loss expense of $0.3 million which


were partially offset by the write-off of $3.2 million of capital costs in the third quarter of 2016 and a decrease in incremental drought expense of $0.9$0.8 million. Changes in employee pension and other postretirement benefit costs,benefits and employee health careand retiree medical costs for regulated California operations generally do not affect net income, becauseas the Company trackshas been allowed by the CPUC to record these costs in balancing accounts for future recovery, which createscreating a corresponding change to operating revenue.  At September 30, 2017, there were 1,165 employees
Other operations expenses increased $16.7 million, or 43.1%, to $55.3 million in the first six months of 2022, as compared to $38.6 million in the first six months of 2021. The increase was primarily due to an increase in the costs associated with the reduction of deferred revenue of $11.9 million, water and at September 30, 2016, there were 1,157 employees. 

wastewater treatment costs of $1.5 million, and conservation program expenses of $1.2 million. Changes in conservation program expense for regulated California operations generally do not affect net income, as the Company has been allowed by the CPUC to record these costs in balancing accounts for future recovery, creating a corresponding change to revenue.
Maintenance expense increased $0.5$1.6 million, or 9.2%11.8%, to $6.1$15.0 million in the third quarterfirst six months of 2017,2022, as compared to $5.5$13.4 million in the third quarterfirst six months of 2016,2021, mostly due to increasesan increase in transmissionrepairs of services, tanks, and distribution mains repairs.
equipment.
Depreciation and amortization expense increased $3.3$3.2 million, or 21.1%6.0%, to $19.2$57.5 million in the third quarterfirst six months of 2017,2022, as compared to $15.9$54.3 million in the third quarterfirst six months of 2016,2021, mostly due to 2016 capital additions.additions in 2021.

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Income taxes increased $4.1tax expense decreased $1.8 million or 31.0%, to $17.3$0.04 million in the third quarterfirst six months of 2017,2022, as compared to $13.2$1.9 million in the third quarterfirst six months of 2016.2021. The increasedecrease was mainlyprimarily due to an increasea decrease in net operating income in the third quarterfirst six months of 20172022 as compared to the third quarter of 2016.

prior year.
Property and other taxes increased $0.6$0.7 million or 9.9%, to $6.5$16.4 million in the third quarterfirst six months of 2017,2022, as compared to $6.0$15.7 million in the third quartersame period of 2016,2021, mostly due to an increase in assessed property values in 2016 and increased local franchise taxes.

values.
Other Income and Expenses
Net other income and expenses increased $0.7decreased $5.0 million to $1.2$5.6 million in the third quarterfirst six months of 2017,2022, as compared to $0.5net other income of $10.6 million in the third quarterfirst six months of 2016, principally2021, due primarily to the implementationa $9.4 million decrease in unrealized gains on non-qualified benefit plan investments, which was partially offset by a $2.7 million gain on company owned life insurance and $2.1 million increase in other components of equity AFUDC in 2017.
net periodic benefit credit.
Interest Expense
Net interest expense increased $0.9$1.2 million, or 11.2%6%, to $8.6$21.9 million in the third quarterfirst six months of 2017,2022, as compared to $7.7$20.7 million in the third quarterfirst six months of 2016.2021. The increase was due primarily to an increase in short-term financing for capital investments as well as increased short-term interest rates.
RESULTS OF THE NINE MONTHS ENDED SEPTEMBER 30, 2017 OPERATIONS
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2016 OPERATIONS
Dollar amounts in thousands unless otherwise stated
Overview
Net income for the nine months ended September 30, 2017, was $53.5 million or $1.11 per diluted common share compared to a net income of $33.6 million or $0.70 per diluted common share for the nine months ended September 30, 2016, an increase of $19.9 million. The increase in net income was primarily the result of increased rates adopted in the recent California GRC and decreases in emergency drought incremental costs, and maintenance expenses, as well as increases resulting from the implementation of equity AFUDC in 2017 and unrealized gains on certain benefit plan investments. These factors were partially offset by increases in depreciation and amortization, interest, and employee wage expenses.

Operating Revenue
Operating revenue increased $46.5 million, or 10.1%, to $504.9 million in the first nine months of 2017 as compared to the first nine months of 2016. The factors that impacted the operating revenue for the first nine months of 2017 as compared to 2016 are as follows:
Net change due to rate changes, usage, and other (1)$52,025
MCBA Revenue (2)(4,757)
Other balancing account revenue (3)(578)
Deferral of revenue (4)(232)
Net operating revenue increase$46,458



1.The net change due to rate changes, usage, and other in the above table was mainly driven by rate increases. There also was a $2.7 million increase in accrued unbilled revenue. The components of the rate increases are as follows:
General rate case$31,720
Purchased water and pump tax offset increases10,015
Ratebase offset increases2,193
Total increase in rates$43,928

2.The MCBA revenue decrease resulted from an increase in adopted water production costs relative to actual water production costs in the first nine months of 2017 as compared to the first nine months of 2016. The adopted water production costs increased in 2017 as a result of Cal Water's 2015 GRC. As required by the MCBA mechanism, the increase in adopted water production costs relative to actual water production costs in California also decreased 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. The decrease in revenue was mainly due to a decrease in actual health care and conservation expenses relative to adopted in the first nine months of 2017 as compared to the first nine months of 2016. This was partially offset by an increase in actual pension expenses relative to adopted in the first nine months of 2017 as compared to the first nine months of 2016.

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 increased in the first nine months of 2017 as compared to the first nine months of 2016 due to an increase in the balancing account revenue expected to be collected beyond 24 months.

Total Operating Expenses
Total operating expenses increased $26.8 million, or 6.6%, to $430.4 million in the first nine months of 2017, as compared to $403.6 million in the first nine months of 2016.
Water production costs consists of purchased water, purchased power, and pump taxes. It represents the largest component of total operating expenses, accounting for approximately 42.2% of total operating expenses in the first nine months of 2017, as compared to 41.8% of total operating expenses in the first nine months of 2016. Water production costs increased 7.5% as compared to the same period last year mainly due to a blended 3.0% increase in purchased water wholesaler rates and an increase of 3.8% in purchased water production.
Sources of water as a percent of total water production are listed in the following table:
 Nine Months Ended September 30
 2017 2016
Well production48% 48%
Purchased48% 48%
Surface4% 4%
Total100% 100%











The components of water production costs are shown in the table below:
 Nine Months Ended September 30
 2017 2016 Change
Purchased water$149,731
 $139,514
 $10,217
Purchased power22,168
 21,123
 1,045
Pump taxes9,561
 8,196
 1,365
Total$181,460
 $168,833
 $12,627
Administrative and general and other operations expenses decreased $3.2 million, or 2.4%, to $129.6 million in the first nine months of 2017, as compared to $132.8 million in the first nine months of 2016. The decrease was due primarily to a decrease in California drought program incremental costs of $3.8 million, the write-off of $3.2 million of capital costs in the third quarter of 2016, decreases in health care benefit costs of $0.6 million and conservation program expenses of $0.9 million, and $0.4 million of insurance proceeds to recover 2016 wild fire damages in our southern California District, and a deferral of $0.4 million costs associated with the deferral of operating revenue. The decreases were partially offset by employee wage cost increase of $1.7 million, pension benefit cost increase of $1.1 million, $1.1 million of costs previously capitalized, a software maintenance and licensing cost increase of $1.0 million, and additional uninsured loss expenses of $0.8 million. Changes in employee pension and other postretirement benefit costs, water conservation program costs, and health care costs for regulated California operations do not affect net income, because the Company tracks these costs in balancing accounts for future recovery, which create corresponding changes to operating revenue. 
Maintenance expense decreased $0.7 million, or 3.8%, to $16.9 million in the first nine months of 2017, as compared to $17.5 million in the first nine months of 2016, mostly due to decreases in transmission and distribution mains repair costs.
Depreciation and amortization expense increased $9.9 million, or 20.7%, to $57.7 million in the first nine months of 2017, as compared to $47.8 million in the first nine months of 2016, mostly due to 2016 utility plant additions.

Income taxes increased $6.9 million, or 36.0%, to $26.1 million in the first nine months of 2017, as compared to $19.2 million in the first nine months of 2016. The increase was due primarily to an increase to operating income in the first nine months of 2017 as compared to the first nine months of 2016, which was partially offset by a $0.5 million tax benefit associated with the settlement of equity awards in 2017.
Property and other taxes increased $1.3 million, or 7.3%, to $18.7 million during the first nine months of 2017, as compared to $17.4 million in the first nine months of 2016, due primarily to an increase in assessed property values in 2016 and increased local franchise taxes.
Other Income and Expenses

Net other income increased $2.9 million to $4.3 million in the first nine months of 2017, as compared to $1.4 million in the first nine months of 2016, due primarily to the implementation of allowance for equity funds used during construction in 2017 and a $1.0 million increase in unrealized gains on certain benefit plan investments.
Interest Expense
Net interest expense increased $2.7 million, or 11.8%, to $25.3 million in the first nine months of 2017, as compared to $22.6 million in the first nine months of 2016. The increase was due primarily to an increase in short-term financing for capital investments as well as increased short-term interest rates.
REGULATORY MATTERS
20172021 California Regulatory Activity
2021 GRC Filing
California Public Advocates Office reviewed Cal Water's 2021 GRC filing
On December 15, 2016, and submitted its report in February 2022. Cal Water reviewed California Public Advocates Office recommendations, evaluated the validity of the underlying data, and composed and filed rebuttal testimony with the CPUC votedin April 2022. Settlement negotiations with the California Public Advocates Office and intervenors began in the second quarter of 2022 and evidentiary hearings were held in the second quarter of 2022. The timing of the final decision is uncertain. We anticipate partial interim rate increases will be authorized to approve Cal Water's 2015 GRC settlement agreement. The approved decision, which was proposed by the presiding Administrative Law Judge in November 2016, authorized Cal Waterbe added to increase gross revenue by approximately $45.0 million starting oncustomer billings effective January 1, 2017, up to $17.2 million in 2018, up to $16.3 million in2023.


2019, and up to $30.0 million upon completion and approval of the Company’s advice letter projects. The 2018 and 2019 revenue increases are subject to the CPUC’s earnings 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 includes $197.3 million of water system infrastructure improvements that will be subject to the CPUC’s advice letter procedure.

2021 Cost of Capital Application

In April of 2017,On May 3, 2021, Cal Water alongfiled its required application with three other water utilities, filed an applicationthe CPUC to adopt a newreview its cost of capital for 2022 through 2024. Cal Water currently has an approved return on equity of 9.2%, a cost of debt of 5.51%, and a 53.4% equity capital structure for 2018.structure. Cal Water requested a return on equity of 10.75%10.35%, a cost of debt of 4.23%, and a 53.4% equity capital structurestructure. The California Public Advocates Office recommends a return on equity of 7.81%, a cost of debt of 4.23%, and a 49.4% equity capital structure. Evidentiary hearings were held in May 2022 and the case was submitted to the CPUC at the end of the second quarter of 2022. The CPUC will evaluate the proposal along with proposals of other parties, and in accordance with its standard process, is currently expected to issue a decision in the latter half of 2022 We have not reserved for any potential outcome of the proceeding as well as a waterwe have determined that it is not probable that the proceeding will be approved retroactively to January 1, 2022. In the event that the CPUC adopts the cost of capital adjustment mechanism similarcomponents retroactively to that lastJanuary 1, 2022, the reduced cost of debt, if adopted for the company. The California Office of Ratepayer Advocates and other parties submitted testimony and the CPUC held evidentiary hearings in September 2017. The schedule for the application anticipates a decision on the matterat our proposed equity capital structure, would reduce 2022 annual revenue by the end of 2017.

School Lead Testing Memorandum Account (SLT MA)

In March of 2017, Cal Water submitted an advice letter that established the SLT MA, which gives Cal Water the opportunity to recover costs related to lead monitoring and testing required by the State Water Resources Control Board's Division of Drinking Water. The SLT MA will track all incremental expenses associated with lead testing conducted at the request of K-12 schools within Cal Water's service territory.

$11.0 million.
California Drought Memorandum Account (DRMA)

In June 2021, Cal Water submitted advice letters to request a DRMA to track the incremental operational and administrative costs incurred to further implement updated Rule 14.1 for voluntary conservation measures and Schedule 14.1 for implementation of our Water Shortage Contingency Plan, including activities related to enhanced conservation efforts, staffing, and capital expenditures to ensure a safe, reliable supply of water. The incremental costs tracked inDRMA would also track monies paid by customers for fines, penalties, or other compliance measures associated with water use violations; and penalties paid by Cal Water to its water wholesalers. The DRMA was approved by the drought memorandum account for the nine month period ended September 30, 2017 were $0.2CPUC with an effective date of June 14, 2021. Cal Water has incurred $1.2 million of which less than $0.1 million was spent on capital. For the nine month period ended September 30, 2016, incrementalcumulative DRMA related costs, were $4.6 million, of which $0.6 million was spentincurred in the first six months of 2022.
The California State Governor has issued a drought declaration for all California counties through five State of Emergency Proclamations with the most recent on capital. During the three months ended September 30, 2017, incremental costs were less than $0.1 million. During the three months ended September 30, 2016, incremental costs were $0.8 million,October 19, 2021. Given these drought proclamations and current water usage levels in all of which less than $0.1 million was spent on capital.

On December 15, 2016, the CPUC approved a resolution to allowits service areas, Cal Water has activated Stage 2 of the “Water Use Restrictions of its Water Shortage Contingency Plan” of Schedule 14.1 in all of its service areas.
In Stage 1, irrigating ornamental landscape with potable water is prohibited during the hours of 8:00 a.m. and 6:00 p.m. For Stage 2, irrigating ornamental landscapes with potable water is limited to begin recovering $2.9 millionno more than three days per week as well as
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Table of incremental costs related to 2015Contents
prohibited during the hours of 8:00 a.m. and 2014 through a surcharge which became effective6:00 p.m. In addition this stage states that new connections may not install single-pass cooling systems for air conditioning or other cooling system applications unless required for health or safety reasons.
Escalation Increase Requests
As part of the decision on January 1, 2017.


In 2017,the 2018 GRC, Cal Water expects to submit an advice letterwas authorized to request recoveryannual escalation rate increases for 2022 for those districts that passed the earnings test. In November of 2016 and 2017 incremental drought expenses.
WRAM and MCBA filings
In March of 2017,2021, Cal Water submitted an advice letter to true up the revenue over- and under-collectionsrequested escalation rate increases for 2022 in the 2016 annual WRAMs/MCBAs19 of its regulated districts. A net under-collection of $25.8 million is being recovered from customersThe increase in annual adopted gross revenue associated with the form of 12, 18, and greater-than-18-month surcharges/surcredits.November 2021 filing was $21.7 million. The new rates became effective April 15, 2017.  This surcharge/surcredit in some cases is in addition to surcharges/surcredits authorized in prior years which have not yet expired.

were implemented on January 1, 2022.
Expense Offset filings

Requests
Expense offsets are dollar-for-dollar increases in revenue to match increased expenses, and therefore do not affect net operating income. In OctoberDecember of 2016,2021, Cal Water submitted an advice lettersletter to offset increasedrequest offsets for increases in purchased water costs and pump taxes in seven of its regulated districts totaling $5.2 million. The new rates were implemented on January 1, 2022.
In June of 2022, Cal Water submitted an advice letter to request offsets for increases in purchased water costs and pump taxes in four of its regulated districts totaling $1.9$12.7 million. The new rates became effective on January 1, 2017.

In March of 2017, Cal Water submitted an advice letter to offset increased purchased water in one of its regulated districts, totaling $1.0 million. The new rates became effective on April 15, 2017.

In June of 2017, Cal Water submitted advice letters to offset increased purchased water and pump taxes in four of its regulated districts, totaling $2.7 million. The new rates became effective on July 1, 2017.

In July of 2017, Cal Water submitted an advice letter to offset increased purchased water and pump taxes in one of its regulated districts, totaling $0.2 million. The new rates became effectivewill be implemented on August 1, 2017.2022.



RatebaseRate Base Offset filings

Requests
For construction projects that are authorized in GRCs as advice letter projects, companies areCal Water is allowed to file ratebaserequest rate base offsets to increase revenues after the plant is placedproject goes into service. In November of 2016,2021, Cal Water submitted an advice letter to recover $2.6 million of annual revenue increase for ratebase offsets in five of its regulated districts. The new rates became effective on January 1, 2017.

In April of 2017, Cal Water submitted advice letters to recover $0.9 million of annual revenue increase for ratebase offsets in two of its regulated districts. The new rates became effective on April 15, 2017.

In May of 2017, Cal Water submitted an advice letter to recover $0.4$0.2 million of annual revenue increase for a ratebaserate base offset in one of its regulated districts. The new rates became effectivewere implemented on JulyJanuary 1, 2017.2022.

Travis Air Force Base

Cal Water has entered into a 50-year agreement with the U.S. DepartmentIn March of Defense to acquire the water distribution assets of, and to provide water utility service to, the Travis Air Force Base beginning in 2018. On May 31, 2017,2022, Cal Water submitted an applicationadvice letter to recover $0.1 million of annual revenue increase for a rate base offset in one of its regulated districts. The new rates were implemented on April 15, 2022.
WRAM/MCBA Filings
In April of 2022, Cal Water submitted an advice letter to true up the revenue under-collections for the 2021 annual WRAMs/MCBAs of its regulated districts. A net under-collection of $54.1 million is being recovered/refunded from/to customers in the form of 12, 18, and greater-than-18-month surcharges and 12 month surcredits. The new rates incorporate net WRAM/MCBA balances that were previously approved for recovery and were implemented on April 15, 2022.
Regulatory Activity - Other States
Kona Water Service Company GRC (Hawaii Water)
In May of 2021, Hawaii Water submitted a private letter ruling (PLR) to the CPUC seeking approval to provide water service to the base and to establish rates for its service.

The water system utilizes surface water treated atIRS requesting a water treatment plant and groundwater from five wells, and includes distribution piping, storage tanks, hydrants, and other appurtenances to serve about 15,280 active and reserve personnel and civiliansruling on the 6,400-acre base. If approved, Cal Water will make initial capital improvementstreatment of about $12.7 million, with an anticipated capital investment of about $52.0 million over the 50-year termdeferred taxes because of the utility service contract.

2017 Regulatory Activity—Other States
2016 Pukalani (Hawaii) GRC Filing

In December of 2016,TCJA. A favorable decision on the PLR was received on November 18, 2021. The Consumer Advocates and Hawaii water filedWater submitted a GRC for its Pukalani wastewater system requesting an additional $1.3 million in revenues on an annual basis. This revenue increase is proposedjoint stipulation to be implemented over five years. The application requested recovery for increases in operating expenses since the previous rate case. Additionally, the application requested recovery of the balance of the cost of the wastewater treatment plant that was not approved to be included in customer rates in the previous rate case among other capital investments. On September 15, 2017, the Hawaii Public Utility Commission (HPUC) incorporating the PLR into revised water rates on March 2, 2022. Hawaii Water is awaiting approval from the HPUC.
HOH Utilities Commission issuedCompany (Hawaii Water)
In June of 2021, Hawaii Water signed an agreement to acquire the assets of HOH Utilities Company, a proposed decision authorizingwastewater utility located in the growing Poipu/Koloa area of Kauai County on the island of Kauai. The acquisition is subject to satisfaction of customary closing conditions, including approval by the HPUC.
Hawaii Water is expected to own and manage the wastewater utility, which currently serves almost 1,800 residential, commercial, and resort customers in Poipu and Koloa, including three hotels, condominiums, multi-family housing, a $0.8 milliongolf course, and single-family homes.
Hawaii Water received HPUC approval for the acquisition in June of 2022.
Kalaeloa Water Company GRC (Hawaii Water)
In August of 2021, a GRC application requesting an increase inof revenues on an annual basis. Pursuant to a settlement agreement betweenfor Kalaeloa was submitted with the HPUC. In June of 2022, Hawaii Water and the Consumer Advocate submitted a full settlement agreement to the revenue increase will be phased-in over 4 years ($0.2 million per year). The first phaseHPUC for approval. A decision is expected in the third quarter of 2022.
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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 the Morning Star Water System assets of AV Water and provide regulated water utility service to its approximately 2,000 customer connections in northwest New Mexico.
In April of 2022, New Mexico Water closed its purchase of the increase was effective on October 18, 2017.Morningstar Water system. The New Mexico Public Regulation Commission granted approval of the transaction, and the utility commenced operation of the water system as of April 14, 2022.

LIQUIDITY
Cash flow from Operations
Cash flow from operations for the first ninesix months of 20172022 was $109.8$89.9 million compared to $123.2$67.7 million for the same period in 2016.2021. The increase in the first six months of 2022 as compared to 2021 was primarily due to receipt of $20.8 million from the Water Arrearages Payment Program. Cash generated by operations varies during the year due to customer billings and timing of collections and contributions to our benefit plans.
During the first ninesix months of 2017,2022, we made contributions of $22.2$8.8 million to our employee pension plan compared to contributions of $20.6$14.1 million made during the first ninesix months of 2016.2021. During the first ninesix months of 2017,2022, we made contributions of $2.3$0.3 million to the other postretirement benefit plans compared to contributions of $6.7$1.5 million during the first ninesix months of 2016.2021. The total 2017full-year 2022 estimated cash contribution to the pension plans is $29.8and other postretirement benefits plans are expected to be approximately $16.1 million and to the other postretirement benefit plans is $9.0 million.

Cal Water customer drought surcharges were discontinued on July 29, 2016. As such there were no drought surcharge billings during the first nine months of 2017 as compared to $26.1$0.7 million, in the first nine months of 2016.
respectively.
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 ofunsecured revolving credit facilities in the event cash is not available to cover operating and utility plant costs during the winter period. The increase in cash flows during the summer allows short-term borrowings to be paid down. Customer


water usage can be lower than normal in drought years and when more than normalgreater-than-normal precipitation falls in our service areas or temperatures are lower than normal, especially in the summer months. In addition, short-term borrowings are usedAged accounts receivable past due more than 60 days decreased from $26.2 million as of December 31, 2021 to finance utility plant expenditures until long-term financing is arranged.

$20.6 million as of June 30, 2022 mostly due to the application of $16.9 million of Water Arrearages Payment Program funds.
Investing Activities
During the first ninesix months of 20172022 and 2016,2021, we used $180.4$144.6 million and $166.4$138.5 million, respectively, of cash for company-fundedCompany-funded and developer-funded utility plant expenditures. The 2017 budget estimates utility plant expenditures to be between $200.0 and $220.0 million. Annual expenditures fluctuate each year due to the availability of construction resources and our ability to obtain construction permits in a timely manner.

For 2022, the Company's capital program will be dependent in part on the timing and nature of regulatory approvals in connection with Cal Water's 2021 GRC filing. The Company proposed to the CPUC spending $1.0 billion on water infrastructure investments in 2022-2024. Capital expenditures in California are evaluated in the context of the pending GRC and may change as the case moves forward.
Financing Activities
Net cash provided by financing activities was $76.6$44.6 million during the first ninesix months of 20172022 compared to $58.0$98.7 million of net cash provided by financing activities for the same period in 2016.
2021. For 2022, this includes our issuance of $30.2 million of Company common stock through our at-the-market equity program and $1.1 million through our employee stock purchase plan. For 2021, this includes our issuance of $280.0 million of First Mortgage Bonds, $61.6 million of Company common stock through our at-the-market equity program, and $1.0 million through our employee stock purchase plan.
During the first ninesix months of 20172022 and 2016,2021, we borrowed $185.0$55.0 million and $105.1$125.0 million, respectively, on our unsecured revolving credit facilities. Repayments ofWe made a repayment on our unsecured revolving credit facilities borrowingsof $20.0 million and $350.0 million during the first ninesix months of 2017 were $87.0 million2022 and $81.6 million for the same period in 2016.

2021, respectively.
The undercollected net WRAM and MCBA receivable balances were $61.6$77.4 million and $30.5$67.5 million as of SeptemberJune 30, 20172022 and September 30, 2016,2021, respectively. The undercollectedreceivable balances were primarily financed by Cal Water using short-term and long-term financing arrangements to meet operational cash requirements. Interest on the undercollectedreceivable balances, which represents the interest recoverable from ratepayers,customers, is limited to the currentthen-current 90-day commercial paper rates which istypically are significantly lower than Cal Water’s short and long-term financing rates.


Short-term
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Table of Contents
Short-Term and Long-Term Financing
During the first ninesix months of 2017,2022, we utilized cash generated from operations, and borrowings on the unsecured revolving credit facilities, and cash received from the sale of Company common stock through our at-the-market equity program to fund operations and capital investments. We did not sell Company common stock during the first nine months of 2017 and 2016.
In future periods, management anticipates funding our utility plant needs through a relatively balanced approach between long term debt and equity.

Short-term liquidity is provided by our unsecured revolving credit facilities and internally generated funds. Long-term financing is accomplished through the use of both debt and equity. On September 23, 2010, the CPUC authorized Cal Water to issue $350.0 million of debt and common stock to finance utility plant projects and operations.

On March 10, 2015, the Company and Cal Water entered into Syndicated Credit Agreements, which provided for unsecured revolving credit facilities of up to an initial aggregate amount of $450.0 million for a term of five years. The Syndicated Credit Facilities amended, expanded, and replaced the Company’s and its subsidiaries’ credit facilities originally entered into on September 29, 2011. The new credit facilities extended the terms until March 10, 2020 and increased the Company’s unsecured revolving line of credit. The credit facilities may each be expanded by up to $50.0 million subject to certain conditions. 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 $300.0$400.0 million under its revolving credit facility.  On May 13, 2016, the CPUC approved additional financing for Cal Water. As part of that decision, Cal Water is now allowed to use its revolving credit facilities for up tofacility; however, all borrowings must be repaid within 24 months. Previously, Cal Water had to pay down its credit facility every 12 months unless otherwisea different period is required or authorized by the CPUC. The proceeds from the unsecured revolving credit facilities may be used for working capital purposes, including the short-term financing of utility plant projects.  The base loan rate may vary from LIBOR plus 72.5 basis points to LIBOR plus 95 basis points, depending on the Company’s total capitalization ratio. Likewise, the unused commitment fee may vary from 8 basis points to 12.5 basis points based on the same ratio.
purposes.
As of SeptemberJune 30, 2017,2022 and December 31, 2021, there were short-term borrowings of $195.1$70.0 million and $35.0 million, respectively, outstanding on the unsecured revolving credit facilities compared to $57.1 million as of September 30, 2016. The increase in short-term borrowings during the first nine months of 2017 was mostly to fund general operations and capital investment.
facilities.
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, Hawaii Water and HawaiiTexas Water.


Both short-term 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 an interest coverage ratio of three or more. As of SeptemberJune 30, 2017,2022, we are in compliance with all of the covenant requirements and are eligible to use the full amount of the undrawn portion of our unsecured revolving credit facilities.

In March 2016, Cal Water issued $50.0 million of First Mortgage Bonds, consisting of $40.0 million of 4.41% series SSS maturing April 16, 2046 and $10.0 million of 4.61% series TTT maturing April 14, 2056. Cash proceeds of approximately $49.7 million, net of $0.3 million debt issuance costs, were received. Cal Water used a portion of the net proceeds from the offering to repay outstanding borrowings on the Company and Cal Water lines of credit of $48.6 million.

Bond principal and other long-term debt payments were $2.8 million during the first nine months of 2017 and $2.9 million during the first nine months of 2016.  In addition, Cal Water has $20.0 million of First Mortgage Bonds maturing during the fourth quarter of 2017.
Long-term financing, which includes senior notes,First Mortgage Bonds, other debt securities, and common stock, has typically been used to replace short-term borrowings and fund utility plant 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 utility plant expenditure requirements. Management expects this trend to continue given our planned utility plant expenditures plan for the next five years. Some utility plant 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.generally refundable over 40 years. Management believes long-term financing is available to meet our cash flow needs through issuances in both debt and equity instruments.
Equity Issuance
On April 29, 2022, we entered into an equity distribution agreement to sell shares of our common stock having an aggregate gross sales price of up to $350.0 million from time to time depending on market conditions through an at-the-market equity program over the next three years. We intend 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.
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 subsidiary and the Guarantor. 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 Guarantor interests in the Issuer. The summarized information excludes financial information of the Non-guarantors, including earnings from and investments in these entities.
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Table of Contents
Summarized Statement of Operations
(in thousands)Six Months Ended June 30,
2022		Twelve Months Ended December 31, 2021
 IssuerGuarantorIssuerGuarantor
Net sales$347,574 $— $727,149 $— 
Gross profit$222,967 $— $462,301 $— 
Income from operations$37,532 $53 $121,231 $181 
Equity in earnings of guarantor$— $19,403 $— $99,912 
Net income$20,765 $20,109 $94,313 $100,979 
Summarized Balance Sheet Information
(in thousands)As of June 30, 2022As of December 31, 2021
 IssuerGuarantorIssuerGuarantor
Current assets$239,364 $6,260 $251,573 $20,077 
Intercompany receivable from Non-guarantors$1,959 $39,707 $3,810 $31,449 
Other assets$426,322 $1,016,931 $431,137 $991,173 
Long-term intercompany receivable from Non-issuers$— $33,391 $— $34,216 
Net utility plant$2,696,912 $— $2,625,092 $24 
Total assets$3,364,557 $1,096,289 $3,311,612 $1,076,939 
Current liabilities$232,473 $40,115 $211,915 $35,019 
Intercompany payable to Non-guarantors and Guarantor$2,653 $— $361 $— 
Long-term debt$1,053,612 $— $1,055,538 $— 
Other liabilities$1,053,818 $2,420 $1,046,647 $2,146 
Total Liabilities$2,342,556 $42,535 $2,314,461 $37,165 
Dividends
During the first ninesix months of 2017,2022, our quarterly common stock dividend payments were $0.1800$0.5000 per share compared to $0.1725$0.4600 per share during the first ninesix months of 2016.2021. For the full year 2016,2021, the payout ratio was 68%46.9% of net income. On a long-term basis, our goal is to achieve a dividend payout ratio of 60% of net income accomplished through future earnings growth.
At the October 25, 2017July 27, 2022 meeting, the Company's Board of Directors declared the fourththird quarter dividend of $0.1800$0.2500 per share payable on November 17, 2017,August 19, 2022, to stockholders of record on November 6, 2017.August 8, 2022. This was our 291st310th consecutive quarterly dividend.

20172022 Financing Plan
We intend to fund our utility plant needs in future periods through a relatively balanced approach between long-term debt and equity. The Company and Cal Water have a syndicated unsecured revolving line of credit of $150.0 million and $300.0$400.0 million, respectively, for short-term borrowings. As of SeptemberJune 30, 2017,2022, the Company’s and Cal Water’s availability on these unsecured revolving lines of credit was $94.9$110.0 million and $160.0$370.0 million, respectively.
Book Value and Stockholders of Record
Book value per common share was $14.32$22.12 at SeptemberJune 30, 20172022 compared to $13.75$21.92 at December 31, 2016.2021. There were approximately 1,9281,905 stockholders of record for our common stock as of August 7, 2017.
May 9, 2022.
Utility Plant Expenditures

During the first ninesix months of 2017,2022, utility plant expenditures totaled $180.4$144.6 million for company-fundedCompany-funded and developer-funded projects. For 2022, the Company's capital program will be dependent in part on the timing and nature of regulatory approvals in connection with Cal Water's 2021 GRC filing. The 2017 budget estimates company-funded utility plantCompany proposed to the CPUC spending $1.0 billion on water infrastructure investments in 2022-2024. Capital expenditures to be between $200.0in California are evaluated in the context of the pending GRC and $220.0 million. The actual amount may vary fromchange as the budget number due to timingcase moves forward.
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Table of actual payments related to current year and prior year projects. We do not control third-party-funded utility plant expenditures and therefore are unable to estimate the amount of such projects for 2017.Contents
As of SeptemberJune 30, 2017,2022, construction work in progress was $195.3 million compared to $164.1 million as of September 30, 2016. Work$257.2 million. Construction work in progress includes projects that are under construction but not yet complete and placed in service.



WATER SUPPLY
Our source of supply varies among our operating districts. Certain districts obtain all of their supply from wells; some districts purchase all of their supply from wholesale suppliers; and other districts obtain supply from a combination of wells and wholesale suppliers. A small portion of supply comes from surface sources and is processed through Company-owned water treatment plants. To the best of management’smanagement's knowledge, we are meeting water quality, environmental, and other regulatory standards for all company-ownedCompany-owned systems.
Historically, approximately 49%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 6.85.4 billion gallons or 15%10.3% 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; however, the state or local water management agencies have the authority to regulate the groundwater extraction quantity whenever there are unforeseen large decreases to water basin levels.basins. Our annual groundwater extraction from managed groundwater basins approximates 28.132.1 billion gallons or 59%61.1% of our total annual water supply pumped from wells. Our annual groundwater extraction from unmanaged groundwater basins approximates 12.215.0 billion gallons or 26%28.6% 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.facilities by paying well pump taxes. Our well pump taxes were $9.6$3.8 million and $8.2 million for the nine months ended September 30, 2017 and 2016, respectively. Well pump taxes were $3.6 million and $2.8 million for the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. For the six months ended June 30, 2022 and 2021, our well pump taxes were $8.2 million and $7.2 million, respectively. In 2014, the State of California enacted the Sustainable Groundwater Management Act of 2014. The law and its implementing regulations will 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 inafter the future,act's provisions are fully implemented, substantially all the Company's California groundwater will be produced mainly from sustainably managed and adjudicated basins.
California’sCalifornia'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’sWater'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 September 30, 2017,June 13, 2022, the State of California snowpack water content and rainfall accumulation during the 2016 - 20172022-2023 water year was 189%is 16% of normallong-term averages (per the California Department of Water Resources, Northern Sierra Precipitation Accumulation report). In JanuaryThe northern Sierra region is the most important for the state’s urban water supplies. The central and southern portions of 2014, California's Governor Brown proclaimed a drought emergency and directed State officials to take all necessary actions to make water immediately available. On April 7, 2017, the Governor declared an end to the drought emergency in 54Sierras have recorded 0% of California’s 58 counties. Two of Cal Water's districts remain under a declared drought; these were areas where groundwater was impacted by five years of drought conditions.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 20172022 and beyond.thereafter. 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 currentcurrently available treatment processes.

On May 31, 2018, California's Governor 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. The California State Water Resources Control Board, in conjunction with the California Department of Water Resources, 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 such regulations.
CONTRACTUAL OBLIGATIONS
During the ninesix months ended SeptemberJune 30, 2017,2022, there were no material changes in contractual obligations outside the normal course of business.


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Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We do not hold, trade in or issue derivative financial instruments and therefore are not exposed to risks these instruments present. Our market risk to interest rate exposure is limited because the cost of long-term financing and short-term bank borrowings, including interest costs, is covered in consumer water rates as approved by the commissions.Commissions. We do not have


foreign operations; therefore, we do not have a foreign currency exchange risk. Our business is sensitive to commodity prices and is most affected by changes in purchased water and purchased power costs.

Historically, the CPUC’s balancing account or offsetableoffsettable expense procedures allowed for increases in purchased water, pump tax, and purchased power costs to be flowed through to consumers. Traditionally, a significant percentage of our net income and cash flows comescome from California regulated operations; therefore the CPUC’s actions have a significant impact on our business. See Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Regulatory Matters”.Matters.”


Item 4.
 
CONTROLS AND PROCEDURES
 
(a) Evaluation of Disclosure Controls and Procedures
 
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(c)15d-15(e) under the Securities Exchange Act)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’sCommission's rules and forms, and that such information is accumulated and communicated to our management, including our CEOChief Executive Officer and CFO,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 CEOChief Executive Officer and our CFO,Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of SeptemberJune 30, 2017.2022. Based on that evaluation, we concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
(b) Changes to Internal Control over Financial Reporting

There was no change in our internal controls over financial reporting that occurred during the quarter ended SeptemberJune 30, 2017,2022, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.




PART II OTHER INFORMATION
Item 1.
LEGAL PROCEEDINGS
 
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 reasonably 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. In the future, we may be involved in disputes and litigation related to a wide range of matters, including employment, construction, environmental issues and operations. Litigation can be time consumingtime-consuming and expensive and could divert management’s time and attention from our business. In addition, if we are subject to additional lawsuits or disputes, we
32
might incur significant legal costs and it is uncertain whether we would be able to recover the legal costs from ratepayerscustomers or other third parties. For more information refer to footnotenote 10.

Item 1A.
RISK FACTORS
There have been no material changes to the Company’s risk factors set forth in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year-ended December 31, 20162021 filed with the SEC on February 23, 2017.24, 2022.


Item 6.
EXHIBITS
ExhibitDescription
41.1
3.1
3.2
3.3
3.4
4.0The 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 CompanyCompany.
10.131.1

10.2
Credit Agreement dated as of March 10, 2015 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, and Bank of China, Los Angeles Branch, as documentation agent, and the other lender parties thereto (Exhibit 10.2 to the Current Report on Form 8-K filed March 11, 2015)

31.1
Chief Executive Officer certification of financial statements pursuant to Section 302 of the Sarbanes- OxleySarbanes-Oxley Act of 2002

31.2

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101.INS101
XBRL Instance DocumentThe following materials from this Quarterly Report on Form 10-Q formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to the Condensed Consolidated Financial Statements.

101.SCH104
XBRL Taxonomy Extension Schema Document

101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF
XBRL Taxonomy Extension Definition Linkbase Document

101.LAB
XBRL Taxonomy Extension Label Linkbase Document

101.PRE
XBRL Taxonomy Extension Presentation Linkbase DocumentThe cover page from this Quarterly Report on Form 10-Q formatted in iXBRL (included as exhibit 101)

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SIGNATURES
 
Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
CALIFORNIA WATER SERVICE GROUP
Registrant
October 26, 2017By:/s/ Thomas F. Smegal III
Thomas F. Smegal III
Vice President,
Chief Financial Officer and Treasurer



Exhibit Index
ExhibitDescriptionCALIFORNIA WATER SERVICE GROUP
4
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 CompanyRegistrant
10.1July 28, 2022
By:
Credit Agreement dated as of March 10, 2015 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, and Bank of China, Los Angeles Branch, as documentation agent, and the other lender parties thereto (Exhibit 10.1 to the Current Report on Form 8-K filed March 11, 2015)
/s/ Thomas F. Smegal III

Thomas F. Smegal III
10.2
Credit Agreement dated as of March 10, 2015 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, and Bank of China, Los Angeles Branch, as documentation agent, and the other lender parties thereto (Exhibit 10.2 to the Current Report on Form 8-K filed March 11, 2015)
Vice President,

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
and Treasurer

32
Chief Executive Officer and Chief(Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002

101.INS
XBRL Instance Document

101.SCH
XBRL Taxonomy Extension Schema Document

101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF
XBRL Taxonomy Extension Definition Linkbase Document

101.LAB
XBRL Taxonomy Extension Label Linkbase Document

101.PRE
XBRL Taxonomy Extension Presentation Linkbase DocumentOfficer)


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