

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

(Address of principal executive offices)

(Registrant’s telephone number, including area code)

(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 share

CWT

New 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) 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 every Interactive Data File required to be submitted 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). 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~~“large accelerated filer,,” “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common shares outstanding as of September 30, ~~2019~~2020 — ~~48,145,000~~

PART I FINANCIAL INFORMATION

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

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

CALIFORNIA WATER SERVICE GROUP

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, ~~2019~~2020

Dollar amounts in thousands unless otherwise stated

Note 1. Organization and Operations and Basis of Presentation

California Water Service Group (the Company) is a holding company that provides water utility and other related services in California, Washington, New Mexico and Hawaii through its wholly-owned subsidiaries. California Water Service Company (Cal Water), Washington Water Service Company (Washington Water), New Mexico Water Service Company (New Mexico Water), and Hawaii Water Service Company, Inc. (Hawaii Water) provide regulated utility services under the rules and regulations of their respective state’s regulatory commissions (jointly referred to herein as the Commissions). CWS Utility Services and HWS Utility Services LLC provide non-regulated water utility and utility-related services.

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

Basis of Presentation

The unaudited condensed consolidated interim financial information has been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (SEC) and therefore do not contain all of the information and footnotes required by GAAP and the SEC for annual financial statements. The 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, ~~2018~~2019 as filed with the SEC on February ~~28, 2019.~~27, 2020.

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.

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.

Note 2. Summary of Significant Accounting Policies

The following tables disaggregate the Company’s operating revenue by source for the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended September 30
	2020		2019
Revenue from contracts with customers	$	222,474	$	214,963
Regulatory balancing account revenue (a)	81,634		17,574
Total operating revenue	$	304,108	$	232,537

Nine Months Ended September 30
2019 2018
Revenue from contracts with customers $ 499,840
$ 515,567
Regulatory balancing account revenue 37,839
15,212
Total operating revenue $ 537,679
$ 530,779

(a) The adjustments for the Company’s Water Revenue Adjustment Mechanism (WRAM), Modified Cost Balancing Account (MCBA), Pension Cost Balancing Account (PCBA), and Health Cost Balancing Account (HCBA) for the first six months ended June 30, 2020 were recorded in the three months ended September 30, 2020 as the Company received a proposed decision for its 2018 General Rate Case for Cal Water (2018 GRC) in October of 2020. The Company also recorded an adjustment for its interim rate memorandum account (IRMA) where it was authorized to track the effect of the delay in the resolution of the 2018 GRC on customer billings.

Revenue from contracts with customers

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

The Company satisfies its performance obligation to provide water and wastewater services over time as services are rendered. The Company applies the invoice practical expedient and recognizes revenue from contracts with customers in the amount for which the Company has a right to invoice. The Company has a right to invoice for the volume of consumption, for the service charge, and for other authorized charges.

The measurement of sales to customers is generally based on the reading of their meters, which occurs on a systematic basis throughout the month. 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 generally short-term and at will by customers and, as a result, no separate financing component is recognized for the Company's collections from customers, which generally require payment within 30 days of billing. The Company applies judgment, based principally on historical payment experience, in estimating its customers’ ability to pay.

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

In the following tables, revenue from contracts with customers is disaggregated by class of customers for the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended September 30
	2020		2019
Residential	$	151,938	$	139,137
Business	36,951		38,247
Industrial	7,496		9,077
Public authorities	12,862		12,482
Other (a)	13,227		16,020
Total revenue from contracts with customers	$	222,474	$	214,963

Three Months Ended September 30
2019 2018
Residential $ 139,137
$ 138,939
Business 38,247
38,538
Industrial 9,077
8,987
Public authorities 12,482
12,180
Other (a) 16,020
10,897
Total revenue from contracts with customers $ 214,963
$ 209,541

Nine Months Ended September 30
2019 2018
Residential $ 330,745
$ 340,107
Business 95,433
97,720
Industrial 23,866
24,507
Public authorities 24,566
25,875
Other (a) 25,230
27,358
Total revenue from contracts with customers $ 499,840
$ 515,567


	Nine Months Ended September 30
	2020		2019
Residential	$	360,935	$	330,745
Business	93,175		95,433
Industrial	21,996		23,866
Public authorities	26,470		24,566
Other (a)	27,228		25,230
Total revenue from contracts with customers	$	529,804	$	499,840

(a) Other includes the accrued unbilled revenue.

Regulatory balancing account revenue

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

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

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

Due to the delay in the resolution of the 2018 GRC, the CPUC authorized Cal Water to track the effect of the delay on customer billings in IRMA effective January 1, 2020. Variances between actual customer billings and those that would have been billed assuming the GRC had been effective January 1, 2020 are recorded as regulatory balancing account revenue. In the third quarter of 2020, Cal Water determined that the IRMA met regulatory asset recognition criteria under accounting standards for regulated utilities.

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

Non-regulated Revenue

The following tables disaggregate the Company’s non-regulated revenue by source for the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended September 30
	2020		2019
Operating and maintenance revenue	$	2,680	$	2,929
Other non-regulated revenue	625		626
Non-regulated revenue from contracts with customers	$	3,305	$	3,555
Lease revenue	$	629	$	563
Total non-regulated revenue	$	3,934	$	4,118

Three Months Ended September 30
2019 2018
Operating and maintenance revenue $ 2,929
$ 2,816
Other non-regulated revenue 626
1,328
Non-regulated revenue from contracts with customers $ 3,555
$ 4,144
Lease revenue $ 563
$ 559
Total non-regulated revenue $ 4,118
$ 4,703

Nine Months Ended September 30
2019 2018
Operating and maintenance revenue $ 9,248
$ 8,278
Other non-regulated revenue 3,189
4,053
Non-regulated revenue from contracts with customers $ 12,437
$ 12,331
Lease revenue $ 1,712
$ 1,636
Total non-regulated revenue $ 14,149
$ 13,967


	Nine Months Ended September 30
	2020		2019
Operating and maintenance revenue	$	7,969	$	9,248
Other non-regulated revenue	2,223		3,189
Non-regulated revenue from contracts with customers	$	10,192	$	12,437
Lease revenue	$	1,777	$	1,712
Total non-regulated revenue	$	11,969	$	14,149

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

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

Lease revenue is not considered revenue from contracts with customers and is recognized following operating lease standards. The Company is the lessor in operating lease agreements with telecommunications companies under which cellular phone antennas are placed on the Company's property. The company provides the lessee the right to ingress and egress across lessor property to access the antennas. The minimum rents are recognized on a straight-line basis over the terms of the leases, which may span multiple years. The excess rents are recognized over amounts contractually due pursuant to the underlying leases and is included in a deferred receivable account in the accompanying balance sheet. The

~~leases generally have terms of5 to 10 years, with lessee options to extend the lease~~Allowance for ~~up to~~15 years. The exercise of lease renewal options is at the lessee’s sole discretion. Most of the Company’s lease agreements contain mutual termination options that require prior written notice by either lessee or lessor. A subset of the Company’s leases contains variable lease payments that depend on changes in the consumer price index (CPI).credit losses

The Company ~~determines if~~measures expected credit losses for Customer Receivables, Other Receivables, and Unbilled Revenue on an ~~arrangement~~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 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 ~~lease at inception. Generally,~~historical loss ratio, in conjunction with a ~~lease agreement exists~~qualitative assessment of elements that impact the collectability of receivables to determine if the ~~Company determines~~allowance for credit losses should be further adjusted in accordance with the accounting guidance for credit losses. Management contemplates available current information such as changes in economic factors, regulatory matters, industry trends, payment options and programs available to customers, and the methods that the ~~arrangement gives~~Company is able to utilize to ensure payment.

During the ~~lessee control over~~third quarter of 2020, the ~~use~~Company reviewed its allowance for credit losses utilizing a quantitative assessment, which included trend analysis of ~~an identified asset~~customer billing and ~~obtains substantially all~~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 ~~benefits from~~cash recovery, and a general assessment of the ~~identified asset.~~economic conditions of the locations the Company serves due to the outbreak of COVID-19. The Company is complying with the CPUC requirements to suspend customer disconnections for non-payment and ceased agency collection activities, and anticipates this situation will continue until April 1, 2021. Based on the above assessments, the Company expects an increase in customer receivable write-offs as compared to historical experiences and adjusted its allowance for credit losses, accordingly.

~~Maturities of lease payments to be received are as follows:~~The following table presents the activity in the allowance for credit losses for the period ended September 30, 2020:

Year Ending December 31, Operating Leases
2019 $ 3,153
2020 2,587
2021 1,880
2022 1,078
2023 584
Thereafter 871


Allowance for credit losses	As of September 30, 2020
Beginning balance	771
Provision for credit loss expense	2,895
Write-offs	(1,317)
Recoveries	396
Total ending allowance balance	$	2,745

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 same such amounts shown on the Condensed Consolidated Statements of Cash Flows:

September 30, 2019 December 31, 2018
Cash and cash equivalents 51,257
47,176
Restricted cash (included in "taxes, prepaid expenses and other assets") 566
539
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows $ 51,823
$ 47,715


	September 30, 2020		December 31, 2019
Cash and cash equivalents	113,312		42,653
Restricted cash (included in "taxes, prepaid expenses and other assets")	638		645
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows	$	113,950	$	43,298

Adoption of New Accounting Standards

In ~~February~~June of 2016, the FASB issued ASU 2016-13, Financial ~~Accounting Standards Board (FASB) issued guidance~~Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on ~~leases,~~Financial Instruments, which changed the impairment model for certain financial assets that have a contractual right to receive cash, including trade and loan receivables. The new model required recognition based upon an estimation of expected credit losses rather than recognition of losses when it is probable that they have been incurred. ASU 2016-13 was effective for annual reporting periods beginning after December 15, 2019, with amendments in 2018. The guidance requires lessees to recognize an asset and liability on the balance sheet for all of their lease obligations. Operating leases were previously not recognized on the balance sheet.

early adoption permitted. The Company adopted the standard ~~using~~utilizing the modified retrospective method for its ~~existing leases~~trade receivables and ~~did not restate its comparative periods in~~unbilled revenue on January 1, 2020. Based on the ~~period~~composition of ~~adoption. The Company completed its review of its lease portfolio including significant leases~~the Company’s trade receivables and ~~the Company designed~~unbilled revenue, and ~~implemented new controls as part of~~expected future losses, the adoption of ASU 2016-13 did not have a material impact on its consolidated financial statements.

In January of 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminated the second step of the goodwill impairment test that required a hypothetical purchase price allocation to measure goodwill impairment. Under the new ~~standard. The implementation increased lease assets and lease liabilities~~guidance, a goodwill impairment loss will be measured at the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 was effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted for any impairment test performed on ~~the Consolidated Balance Sheets by $13.8 million as of~~testing dates after January 1, ~~2019.~~

2017. The Company ~~elected certain practical expedients~~adopted the standard on January 1, 2020 and carried forward historical conclusions related to (1) contracts that contain leases, (2) existing lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. The Company also applied the practical expedient that allows the Company to elect, as an accounting policy, by asset class, to include both lease and non-lease components as a single component and account for it as a lease. The Company applied the short-term lease exception which allowed the Company to not have to apply the recognition requirementsadoption of the ~~new leasing guidance for short-term leases and to recognize lease payments in net income on a straight-line basis over the lease term. Otherwise, the new~~ standard did not have a material impact on ~~the remaining~~its consolidated financial statements.

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

Note 3. Stock-based Compensation

Equity Incentive Plan

The following table lists the number of ~~annual~~ Restricted Stock Awards (RSAs) granted and canceled during the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:

During the first nine months of ~~2019~~2020 and ~~2018,~~2019, the RSAs granted were valued at ~~$52.83~~$51.41 and ~~$35.40~~$52.83 per share, respectively, based upon the fair value of the Company’s common stock on the date of grant. RSAs granted to officers vest over 36 months with the first year cliff vesting. RSAs granted to directors generally cliff vest at the end of 12 months.

The following table lists the number of performance-based Restricted Stock Unit Awards (RSUs) granted, issued, and canceled during the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended September 30		Nine Months Ended September 30
	2020	2019	2020	2019
RSUs granted	0	0	32,720	26,473
RSUs issued	0	0	41,731	62,726
RSUs canceled	0	0	22,936	31,177

Three Months Ended September 30 Nine Months Ended September 30
2019 2018 2019 2018
RSUs granted —
—
26,473
28,594
RSUs issued —
—
62,726
48,753
RSUs canceled —
—
31,177
24,009

~~The 2019 and 2018 awards~~Each RSU award reflects a target number of shares that may be ~~earned~~issued to the award recipient. The 2020 and 2019 RSUs granted may be issued upon completion of the three-year performance period and are recognized as expense ratably over the period using a fair value of ~~$52.83~~$51.41 per share and ~~$35.40~~$52.83 per share, respectively, and an estimate of RSUs earned during the period.

The Company has recorded compensation costs for the RSAs and RSUs in administrative and general operating expenses in the amount of ~~$5.3~~$1.8 million and ~~$2.3~~$1.4 million for the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, ~~2019~~2020 and ~~2018, respectively. For the three months ended September 30,~~ 2019, ~~and 2018,~~ the Company has recorded compensation costs for the RSAs and RSUs in the amount of ~~$1.4~~$3.1 million and ~~$0.8~~$5.3 million, respectively.

~~On October 31, 2019,~~The Company sold 432,420 shares of common stock through its at-the-market equity program and raised proceeds of $20.1 million net of $0.2 million in commissions paid under the ~~Company entered into an~~ equity distribution agreement ~~with Morgan Stanley & Co., LLC, Robert W. Baird & Co. Incorporated, Blaylock Van, LLC and Wells Fargo Securities, LLC to sell~~during the three months ended September 30, 2020. During the nine months ended September 30, 2020, the Company sold 1,225,572 shares of ~~its~~ common stock ~~having an aggregate gross sales price of up to $300.0 million from time to time depending on market conditions~~ through anits at-the-market equity program ~~over~~and raised proceeds of $57.3 million net of $0.6 million in commissions paid under 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 redemptionsequity distribution agreement.

The Company’s changes in total common stockholders’ equity for the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 were as follows:

Nine months ended September 30, 2019
Common Stock Additional
Paid-in
Capital Retained
Earnings Total
Stockholders'
Equity
Shares Amount
(In thousands)
Balance at January 1, 2019 48,065
$ 481
$ 337,623
$ 392,053
$ 730,157
Net loss (7,640 ) (7,640 )
Issuance of common stock 109
—
3,179
—
3,179
Repurchase of common stock (40 ) —
(2,074 ) —
(2,074 )
Dividends paid on common stock ($0.1975 per share) (9,493 ) (9,493 )
Balance at March 31, 2019 48,134
481
338,728
374,920
714,129
Net income 16,996
16,996
Issuance of common stock 8
—
1,675
—
1,675
Repurchase of common stock (2 ) —
(129 ) —
(129 )
Dividends paid on common stock ($0.1975 per share) (9,507 ) (9,507 )
Balance at June 30, 2019 48,140
481
340,274
382,409
723,164
Net income 42,424
42,424
Issuance of common stock 9
—
1,866
—
1,866
Repurchase of common stock (4 ) —
(152 ) —
(152 )
Dividends paid on common stock ($0.1975 per share) (9,507 ) (9,507 )
Balance at September 30, 2019 48,145
481
341,988
415,326
757,795


	Nine months ended September 30, 2020
	Common Stock			Additional Paid-in Capital		Retained Earnings		Total Stockholders' Equity
	Shares	Amount
	(In thousands)
Balance at January 1, 2020	48,532	$	485	$	362,275	$	417,146	$	779,906
Net loss						(20,307)		(20,307)
Issuance of common stock	210	2		7,227				7,229
Repurchase of common stock	(28)	—		(1,373)				(1,373)
Dividends paid on common stock ($0.2125 per share)						(10,315)		(10,315)
Balance at March 31, 2020	48,714	487		368,129		386,524		755,140
Net income						5,281		5,281
Issuance of common stock	686	7		32,056				32,063
Repurchase of common stock	(2)	—		(105)				(105)
Dividends paid on common stock ($0.2125 per share)						(10,356)		(10,356)
Balance at June 30, 2020	49,398	494		400,080		381,449		782,023
Net income						96,360		96,360
Issuance of common stock	444	4		22,410				22,414
Repurchase of common stock	(2)	—		(99)				(99)
Dividends paid on common stock ($0.2125 per share)						(10,506)		(10,506)
Balance at September 30, 2020	49,840	498		422,391		467,303		890,192


	Nine months ended September 30, 2019
	Common Stock			Additional Paid-in Capital		Retained Earnings		Total Stockholders' Equity
	Shares	Amount
	(In thousands)
Balance at January 1, 2019	48,065	$	481	$	337,623	$	392,053	$	730,157
Net loss						(7,640)		(7,640)
Issuance of common stock	109	—		3,179				3,179
Repurchase of common stock	(40)	—		(2,074)				(2,074)
Dividends paid on common stock ($0.1975 per share)						(9,493)		(9,493)
Balance at March 31, 2019	48,134	481		338,728		374,920		714,129
Net income						16,996		16,996
Issuance of common stock	8	—		1,675				1,675
Repurchase of common stock	(2)	—		(129)				(129)
Dividends paid on common stock ($0.1975 per share)						(9,507)		(9,507)
Balance at June 30, 2019	48,140	481		340,274		382,409		723,164
Net income						42,424		42,424
Issuance of common stock	9	—		1,866		—		1,866
Repurchase of common stock	(4)	—		(152)		—		(152)
Dividends paid on common stock ($0.1975 per share)						(9,507)		(9,507)
Balance at September 30, 2019	48,145	481		341,988		415,326		757,795

Nine months ended September 30, 2018
Common Stock Additional
Paid-in
Capital Retained
Earnings Total
Stockholders'
Equity
Shares Amount
(In thousands)
Balance at January 1, 2018 48,012
$ 480
$ 336,229
$ 362,512
$ 699,221
Net loss (762 ) (762 )
Issuance of common stock 95
1
635
—
636
Repurchase of common stock (33 ) —
(1,239 ) —
(1,239 )
Dividends paid on common stock ($0.1875 per share) (9,003 ) (9,003 )
Balance at March 31, 2018 48,074

481
335,625
352,747
688,853
Net income 14,805
14,805
Issuance of common stock —
—
737
—
737
Repurchase of common stock (4 ) —
(124 ) —
(124 )
Dividends paid on common stock ($0.1875 per share) (9,014 ) (9,014 )
Balance at June 30, 2018 48,070
481
336,238
358,538
695,257
Net income 36,173
36,173
Issuance of common stock 1
—
853
—
853
Repurchase of common stock (3 ) —
(131 ) —
(131 )
Dividends paid on common stock ($0.1875 per share) (9,012 ) (9,012 )
Balance at September 30, 2018 48,068
481
336,960
385,699
723,140

Table of Contents

Note 5. Earnings Per Share

The computations of basic and diluted earnings per share are noted in the table below. Basic earnings per share are computed by dividing the net income available to common stockholders by the weighted average number of common shares outstanding during the period. 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 Organization & Compensation Committee of the Board of Directors.


	Three Months Ended September 30
	2020		2019
	(In thousands, except per share data)
Net income available to common stockholders	$	96,360	$	42,424
Weighted average common shares outstanding, basic	49,576		48,141
Weighted average common shares outstanding, dilutive	49,576		48,141
Earnings per share - basic	$	1.94	$	0.88
Earnings per share - diluted	$	1.94	$	0.88


	Nine Months Ended September 30
	2020		2019
	(In thousands, except per share data)
Net income available to common stockholders	$	81,334	$	51,780
Weighted average common shares outstanding, basic	49,034		48,121
Weighted average common shares outstanding, dilutive	49,034		48,121
Earnings per share - basic	$	1.66	$	1.08
Earnings per share - diluted	$	1.66	$	1.08

Three Months Ended September 30
2019 2018
(In thousands, except per share data)
Net income available to common stockholders $ 42,424
$ 36,173
Weighted average common shares outstanding, basic 48,141
48,070
Weighted average common shares outstanding, dilutive 48,141
48,070
Earnings per share - basic $ 0.88
$ 0.75
Earnings per share - diluted $ 0.88
$ 0.75

Nine Months Ended September 30
2019 2018
(In thousands, except per share data)
Net income available to common stockholders $ 51,780
$ 50,216
Weighted average common shares outstanding, basic 48,121
48,058
Weighted average common shares outstanding, dilutive 48,121
48,058
Earnings per share - basic $ 1.08
$ 1.04
Earnings per share - diluted $ 1.08
$ 1.04

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 ~~$12.5~~$25.8 million and ~~$42.3~~$12.5 million for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Cash contributions made by the Company ~~related~~ to the other postretirement benefit plans were ~~$5.6~~$5.7 million and ~~$8.0~~$5.6 million for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The total ~~2019~~2020 estimated cash contribution to the pension plans ~~is $18.8~~and other postretirement benefits plans are expected to be approximately $38.0 million and ~~to the other postretirement benefit plans is $7.9 million.~~$7.5 million, respectively.

The following tables 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.

Nine Months Ended September 30
Pension Plan Other Benefits
2019 2018 2019 2018
Service cost $ 20,039
$ 21,770
$ 5,606
$ 7,066
Interest cost 20,225
17,996
4,081
4,152
Expected return on plan assets (22,714 ) (20,777 ) (4,346 ) (4,229 )
Amortization of prior service cost 3,786
3,789
148
32
Recognized net actuarial loss 4,445
8,386
421
1,789
Net periodic benefit cost $ 25,781
$ 31,164
$ 5,910
$ 8,810


	Nine Months Ended September 30
	Pension Plan				Other Benefits
	2020		2019		2020		2019
Service cost	$	27,002	$	20,039	$	5,959	$	5,606
Interest cost	19,306		20,225		3,229		4,081
Expected return on plan assets	(24,815)		(22,714)		(5,427)		(4,346)
Amortization of prior service cost	3,172		3,786		148		148
Recognized net actuarial loss	9,599		4,445		0		421
Net periodic benefit cost	$	34,264	$	25,781	$	3,909	$	5,910

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

Note 7. Short-term and Long-term Borrowings

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

On March 29, 2019, the Company and Cal Water entered into certain syndicated credit agreements, which provide for unsecured revolving credit facilities of up to an initial aggregate amount of $550.0 million for a term of five years. The revolving credit facilities amend, expand, and replace the Company’s and its subsidiaries’ prior credit facilities originally entered into on May 10, 2015. The new credit facilities extended the terms until March 29, 2024, and increased Cal Water’s unsecured revolving line of credit. The Company and subsidiaries that it designates may borrow up to $150.0 million under the Company’s revolving credit facility. Cal Water may borrow up to $400.0 million under its revolving credit facility. ~~All borrowings must be repaid within 24 months unless a different period is required or authorized by the CPUC.~~ Additionally, the credit facilities may be increased by up to an incremental $150.0 million under the Cal Water facility and $50.0 million under the Company facility, subject in each case to certain conditions.

The ~~proceeds from the~~ revolving credit facilities may be used for working capital purposes, including the short-term financing of capital projects. Borrowings under the credit facilities typically have maturities varying between one and six months and will bear interest annually at a rate equal to (i) the base rate or (ii) the Eurodollar rate, plus an applicable margin of 0.650% to 0.875%, depending on the Company and its subsidiaries’ consolidated total capitalization ratio.

~~Both short-term unsecured credit agreements~~ contain affirmative and negative covenants and events of default customary for credit facilities of this type including, among other things, limitations and prohibitions relating to additional indebtedness, liens, mergers, and asset sales. Also, these unsecured credit agreements contain financial covenants governing the Company and its ~~subsidiaries’~~subsidiaries' consolidated total capitalization ratio and interest coverage ratio.

The outstanding borrowings on the Company line of credit were $105.1 million and $55.1 million as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019, respectively. There were ~~$100.0~~$270.0 million and ~~$10.0~~$120.0 million of borrowings on the Cal Water line of credit as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The average borrowing rate for borrowings on the Company and Cal Water lines of credit during the nine months ended September 30, ~~2019~~2020 was ~~3.38%~~1.74% compared to ~~2.88%~~3.38% for the same period last year.

Note 8. Income Taxes

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 is shown in the tables below:


	Three Months Ended September 30
	2020		2019
Income tax expense	$	14,049	$	11,864

Three Months Ended September 30
2019 2018
Income tax expense $ 11,864
$ 11,481

Nine Months Ended September 30
2019 2018
Income tax expense $ 14,509
$ 15,068


	Nine Months Ended September 30
	2020		2019
Income tax expense	$	10,641	$	14,509

The income tax expense increased ~~$0.4~~$2.1 million to $14.0 million for the three months ended September 30, 2020 as compared to $11.9 million for the three months ended September 30, ~~2019 as compared to the three months ended September 30, 2018.~~2019. The increase iswas mainly due to an increase in ~~pre-tax net~~operating income, partially offset by tax repair benefit and amortization of ~~$6.6 million for~~excess deferred income tax as a result of the ~~three months ended September 30, 2019 as compared to~~Tax Cuts and Jobs Acts (TCJA) in the ~~three months ended September 30, 2018.~~2018 GRC proposed decision.

The income tax expense decreased ~~$0.6~~$3.9 million to $10.6 million for the nine months ended September 30, 2020 as compared to income tax expense of $14.5 million for the nine months ended September 30, ~~2019 as compared to the nine months ended September 30, 2018.~~2019. The decrease iswas mainly due to ~~higher~~tax repair benefit and amortization of excess deferred income tax ~~benefit~~as a result of TCJA in the 2018 GRC proposed decision.

The Company’s effective tax rate was 11.6% and 21.9% for the nine months ended September 30, 2020, and 2019, ~~as compared to~~respectively. The lower effective rate for the nine months ended September 30, ~~2018.~~2020, was primarily due to the amortization of the excess deferred taxes as a result of the TCJA in the proposed decision for the 2018 GRC.

The ~~Company's 2019 effective~~US federal income tax rate ~~before discrete items, is estimated~~was lowered by TCJA to ~~be 22%.~~

21% in 2018 from 35% in 2017. For the year ended December 31, 2018, the Company recorded a re-measurement of its deferred tax ~~balances (related mostly to timing differences for plant-related items).~~balances. The final impact ~~of the Tax Cuts and Jobs Act (TCJA)~~ may differ from the recorded amounts, possibly materially, due to regulatory decisions that could differ from the Company’s determination of how the ~~impact~~impacts of the TCJA are allocated between customers and shareholders. In addition, changes in interpretations, guidance on legislative intent, and any changes in accounting standards for income taxes in response to the TCJA could also impact the recorded amounts.

The Company is continuing to work with state regulators to finalize the ~~customer net refund of $107.0 million~~excess deferred tax to ensure compliance with federal normalization rules and will record any adjustments based on state regulator's decisions.

The Company had unrecognized tax benefits of approximately ~~$10.6~~$12.9 million and ~~$9.7~~$10.6 million as of September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Included in the balance of unrecognized tax benefits, ~~as of September 30, 2019 and 2018 are~~is approximately ~~$3.1~~$3.5 million and ~~$2.9~~$3.1 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.

During the nine months ended September 30, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act includes provisions relating to refundable payroll tax credits, deferral of certain payroll taxes, technical corrections to tax depreciation methods for qualified improvement property, net operating loss carryback periods, alternative minimum tax credit refunds and modifications to the net interest deduction limitations which are not expected to have a material impact to the Company’s consolidated financial statements. The Company evaluated the provisions of the CARES Act and determined that it did not have a material effect on the Company's consolidated financial statements as of September 30, 2020.

Note 9. Regulatory Assets and Liabilities

The CPUC follows a rate case plan which requires Cal Water to file a GRC for each of its regulated operating districts every three years. In a GRC proceeding, the CPUC not only considers the utility's rate setting requests, but may also consider other issues that affect the utility's rates and operations. The CPUC is generally required to issue its GRC decision prior to the first day of the test year or authorize interim rates. In accordance with the rate case plan, Cal Water filed its 2018 GRC application in July of 2018 requesting rate changes effective January 1, 2020. On October 8, 2019, Cal Water jointly filed a formal settlement agreement for its 2018 GRC with the Public Advocates Office of the CPUC covering the

majority of open matters in the case. The key matters not included in the settlement, and which were litigated, were continuation of the WRAM, MCBA, PCBA, and HCBA. On October 14, 2020, an Administrative Law Judge (ALJ) with the CPUC issued a proposed decision that is subject to adoption by the CPUC no earlier than the CPUC’s November 19, 2020 meeting. If adopted as proposed, the decision would approve the settlement reached in October of 2019 by Cal Water and the CPUC’s Public Advocates Office, allow Cal Water to continue its decoupling balancing accounts through 2022, and allow Cal Water to retain its PCBA and HCBA. Under this proposed decision, Cal Water would be authorized to invest $828.0 million in its districts throughout California through 2021. This includes $148 million of water system infrastructure upgrades that would be recovered via the CPUC’s advice letter procedure once those projects are completed. The proposed decision also authorizes total revenue of up to $698.7 million for 2020.

The Company determined that the proposed decision provides additional evidence about conditions that existed as of September 30, 2020. As of November 6, 2020, the Company believes it is probable the proposed decision will be adopted by the CPUC without any material variation and accordingly, the Company recorded regulatory assets and associated revenues resulting from the regulatory mechanisms approved in the proposed decision as of September 30, 2020. In the unlikely event that the CPUC does not approve the proposed decision as issued, the Company will need to adjust regulatory asset balances and revenues in the fourth quarter of 2020.

Regulatory assets and liabilities were comprised of the following as of September 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

Recovery Period September 30, 2019 December 31, 2018
Regulatory Assets

Pension and retiree group health Indefinitely $ 156,453
$ 156,947
Property-related temporary differences (tax benefits flowed through to customers) Indefinitely 100,943
99,376
Other accrued benefits Indefinitely 21,183
20,588
Net WRAM and MCBA long-term accounts receivable 1-2 years 30,454
17,134
Asset retirement obligations, net Indefinitely 19,619
18,197
Interim rates long-term accounts receivable 1 year 4,642
4,642
Tank coating 10 years 13,745
11,196
Recoverable property losses 10 years 5,539
1,275
Pension balancing account 1 year 20,158
16,494
Other components of net periodic benefit cost Indefinitely 4,641
3,221
Other regulatory assets Various 5,107
4,499
Total Regulatory Assets $ 382,484
$ 353,569

Regulatory Liabilities

Future tax benefits due to customers $ 180,207
$ 180,205
Health care balancing account 4,315
3,516
Conservation program 5,659
6,880
Net WRAM and MCBA long-term payable 67
222
Tax accounting memorandum account 785
5,039
Cost of capital memorandum account 148
2,834
1,2,3 trichloropropane settlement proceeds 9,204
12,142
Other regulatory liabilities 272
437
Total Regulatory Liabilities $ 200,657
$ 211,275


	Recovery Period	September 30, 2020		December 31, 2019
Regulatory Assets
Pension and retiree group health	Indefinitely	$	207,828	$	208,321
Property-related temporary differences (tax benefits flowed through to customers)	Indefinitely	107,962		104,931
Other accrued benefits	Indefinitely	21,434		20,030
Net WRAM and MCBA long-term accounts receivable	1 - 2 years	40,036		25,465
Asset retirement obligations, net	Indefinitely	21,018		19,567
Interim rates long-term accounts receivable	1 year	21,672		4,642
Tank coating	10 years	14,209		13,535
Recoverable property losses	10 years	4,775		5,000
PCBA	1 year	32,819		21,465
Other components of net periodic benefit cost	Indefinitely	6,316		5,145
Other regulatory assets	Various	6,366		5,221
Total Regulatory Assets		$	484,435	$	433,322

Regulatory Liabilities
Future tax benefits due to customers		$	173,048	$	194,501
HCBA		7,407		4,271
CEBA		2,926		2,742
Net WRAM and MCBA long-term payable		374		211
Tax accounting memorandum account		711		806
Cost of capital memorandum account		15		151
1,2,3 trichloropropane (TCP) settlement proceeds		9,084		8,426
Other regulatory liabilities		374		305
Total Regulatory Liabilities		$	193,939	$	211,413

Short-term regulatory assets and liabilities are excluded from the above table.

The short-term regulatory assets were ~~$33.4~~$54.4 million as of September 30, ~~2019~~2020 and ~~$42.4~~$38.2 million as of December 31, ~~2018.~~2019. As of September 30, ~~2019~~2020, the short-term regulatory assets primarily consist of net WRAM and MCBA receivables and IRMA receivables. As of December 31, ~~2018,~~2019, the short-term regulatory assets primarily consist of net WRAM and MCBA receivables.

The short-term portions of regulatory liabilities were ~~$6.9~~$11.0 million as of September 30, ~~2019~~2020 and ~~$12.2~~$4.5 million as of December 31, ~~2018.~~2019. The short-term regulatory liabilities as of September 30, ~~2019,~~2020, primarily consist of ~~1,2,3 trichloropropane (TCP)~~2015 GRC CEBA refunds and TCJA customer refunds. As of December 31, 2019, the short-term regulatory liabilities primarily consist of TCP settlement proceeds, tax accounting memorandum account refunds, and cost of capital memorandum account refunds. ~~As of December 31, 2018, the short-term regulatory liabilities primarily consist of TCP settlement proceeds and net WRAM and MCBA liability balances.~~

Note 10. Commitments and Contingencies

The Company has significant commitments 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, ~~2018.~~2019.

The Company has operating and finance leases for water systems, offices, land easements, licenses, equipment, and other facilities. The leases generally have remaining lease terms of 1 year to 50 years, some of which include options to extend the lease for up to 25 years. The exercise of lease renewal options is at the Company’s sole discretion. Most of the Company’s lease agreements contain mutual termination options that require prior written notice by either lessee or lessor. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Certain leases include options to purchase the leased property. The depreciable life of the assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option that is reasonably certain of exercise. Leases with an initial term of 12 months or less are not recorded on the balance sheet as the Company applied the short-term lease exception allowed by the FASB guidance. Lease expense for these leases is recognized on a straight-line basis over the lease term. A subset of the Company’s leases contains variable lease payments that depend on changes in the CPI.

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

The right-of-use (ROU) assets that are recorded represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s operating leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The ROU asset and lease liability may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Variable lease payments that are based on changes in CPI are included in the measurement of ROU asset and lease liability on the basis of the rate at lease commencement. Subsequent changes to the payments as a result of changes to the CPI rate are recognized in the period in which the obligation of these payments is incurred.

~~Supplemental balance sheet information related to leases was as follows:~~

As of September 30, 2019
Operating leases
Other assets $ 14,349

Accrued expenses and other liabilities $ 1,421
Regulatory liabilities and other 12,885
Total operating lease liabilities $ 14,306

Finance leases
Utility plant $ 18,207
Accumulated depreciation and amortization (9,352 )
Net utility plant $ 8,855

Current maturities of long-term debt, net $ 670
Long-term debt, net 5,378
Total finance lease liabilities $ 6,048

Weighted average remaining lease term
Operating leases 155 months
Finance leases 80 months

Weighted average discount rate
Operating leases 3.7 %
Finance leases 5.5 %

~~The components of lease expense were as follows:~~

Three Months Ended September 30 Nine Months Ended September 30
2019
Operating lease cost $ 490
$ 1,368

Finance lease cost:
Amortization of right-of-use assets $ 292
$ 918
Interest on lease liabilities 85
264
Total finance lease cost $ 377
$ 1,182

Short-term lease cost $ 543
$ 716
Variable lease cost 66
198
Total lease cost $ 1,476
$ 3,464

~~Supplemental cash flow information related to leases was as follows:~~

Nine Months Ended September 30
2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 1,322
Operating cash flows from finance leases 264
Financing cash flows from finance leases 508
Non-cash activities: right-of-use assets obtained in exchange for lease obligations:
Operating leases 1,697
Finance leases 672

~~Maturities of lease liabilities as~~As of September 30, ~~2019 are as follows:~~

Year Ending December 31, Operating Leases Finance Leases
2019 (a) $ 451
$ 245
2020 1,892
986
2021 1,673
987
2022 1,516
987
2023 1,396
1,506
2024 1,253
940
Thereafter 10,067
1,645
Total lease payments $ 18,248
$ 7,296

Less imputed interest $ (3,942 ) $ (1,248 )
Total $ 14,306
$ 6,048

~~(a) Excludes payments made for the first nine months of 2019.~~

~~As previously disclosed~~2020, there were no significant changes in ~~the Company's Annual Report on Form 10-K for the year ended~~these commitments from December 31, ~~2018 and under the previous lease accounting standard, minimum lease payments, as of December 31, 2018, under non-cancelable operating leases by period were expected to be as follows:~~

2019 $ 1,771
2020 1,709
2021 1,485
2022 1,355
2023 1,261
Thereafter 10,538
Total $ 18,119

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 customers 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.

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 September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company recognized a liability of ~~$2.6~~$2.4 million and ~~$2.3~~$2.5 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 ~~Plan~~Company 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.

Specific valuation methods include the following:

Accounts receivable and accounts payable carrying amounts approximated the fair value because of the short-term maturity of the instruments.

Long-term debt fair values were estimated using the published quoted market price 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 1.83%.

Advances for construction fair values were estimated using broker quotes from companies that frequently purchase these investments.

December 31, 2018
Fair Value
Cost Level 1 Level 2 Level 3 Total
Long-term debt, including current maturities, net $ 814,938
$ —
$ 849,551
$ —
$ 849,551
Advances for construction 186,342
—
77,204
—
77,204
Total $ 1,001,280
—
$ 926,755
$ —
$ 926,755


	December 31, 2019
			Fair Value
	Cost		Level 1		Level 2		Level 3		Total
Long-term debt, including current maturities, net	$	808,622	$	0	$	873,454	$	0	$	873,454
Advances for construction	191,062		0		79,550		0		79,550
Total	$	999,684	0		$	953,004	$	0	$	953,004

Note 12. Condensed Consolidating Financial Statements

On November 17, 2010, Cal Water issued $100.0 million aggregate principal amount of ~~5.500%~~5.50% First Mortgage Bonds due 2040, all of which is fully and unconditionally guaranteed by the Company. As a result of this guarantee arrangement, the Company is required to present the following condensed consolidating financial information. The investments in affiliates are accounted for and presented using the “equity method” of accounting.

The following tables present the Condensed Consolidating Balance Sheets as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Condensed Consolidating Statements of Income for the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, and the Condensed Consolidating Statements of Cash Flows for the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 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.

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING BALANCE SHEET

As of September 30, ~~2019~~2020


	Parent Company		Cal Water		All Other Subsidiaries		Consolidating Adjustments		Consolidated
ASSETS
Utility plant:
Utility plant	$	1,318	$	3,559,329	$	281,744	$	(7,197)	$	3,835,194
Less accumulated depreciation and amortization	(1,177)		(1,151,266)		(88,676)		2,239		(1,238,880)
Net utility plant	141		2,408,063		193,068		(4,958)		2,596,314
Current assets:
Cash and cash equivalents	16,679		85,877		10,756		0		113,312
Receivables and unbilled revenue, net	0		160,479		8,636		0		169,115
Receivables from affiliates	26,962		942		261		(28,165)		0
Other current assets	272		20,933		2,132		0		23,337
Total current assets	43,913		268,231		21,785		(28,165)		305,764
Other assets:
Regulatory assets	0		479,613		4,822		0		484,435
Investments in affiliates	917,901		0		0		(917,901)		0
Long-term affiliate notes receivable	32,659		0		0		(32,659)		0
Other assets	2,349		84,154		33,636		(218)		119,921
Total other assets	952,909		563,767		38,458		(950,778)		604,356
TOTAL ASSETS	$	996,963	$	3,240,061	$	253,311	$	(983,901)	$	3,506,434
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stockholders’ equity	$	890,192	$	805,444	$	117,633	$	(923,077)	$	890,192
Affiliate long-term debt	0		0		32,659		(32,659)		0
Long-term debt, net	0		784,715		340		0		785,055
Total capitalization	890,192		1,590,159		150,632		(955,736)		1,675,247
Current liabilities:
Current maturities of long-term debt, net	0		21,763		120		0		21,883
Short-term borrowings	105,100		270,000		0		0		375,100
Payables to affiliates	0		2,940		25,225		(28,165)		0
Accounts payable	0		123,129		4,029		0		127,158
Accrued expenses and other liabilities	31		73,913		5,738		0		79,682
Total current liabilities	105,131		491,745		35,112		(28,165)		603,823
Deferred income taxes	1,640		235,791		8,025		0		245,456
Pension and postretirement benefits other than pensions	0		261,081		0		0		261,081
Regulatory liabilities and other	0		251,230		5,824		0		257,054
Advances for construction	0		196,324		529		0		196,853
Contributions in aid of construction	0		213,731		53,189		0		266,920
TOTAL CAPITALIZATION AND LIABILITIES	$	996,963	$	3,240,061	$	253,311	$	(983,901)	$	3,506,434

Parent
Company
Cal Water
All Other
Subsidiaries

Consolidating
Adjustments
Consolidated
ASSETS

Utility plant:

Utility plant $ 1,318
$ 3,194,372
$ 222,726
$ (7,197 ) $ 3,411,219
Less accumulated depreciation and amortization (1,083 ) (1,004,387 ) (64,654 ) 2,159
(1,067,965 )
Net utility plant 235
2,189,985
158,072
(5,038 ) 2,343,254
Current assets:

Cash and cash equivalents 2,408
39,187
9,662
—
51,257
Receivables and unbilled revenue —
133,281
5,319
—
138,600
Receivables from affiliates 28,896
540
214
(29,650 ) —
Other current assets 235
19,435
2,529
—
22,199
Total current assets 31,539
192,443
17,724
(29,650 ) 212,056
Other assets:

Regulatory assets —
377,962
4,522
—
382,484
Investments in affiliates 756,177
—
—
(756,177 ) —
Long-term affiliate notes receivable 26,288
—
—
(26,288 ) —
Other assets 460
80,480
4,692
(214 ) 85,460
Total other assets 782,925
458,442
9,214
(782,679 ) 467,944
TOTAL ASSETS $ 814,699
$ 2,840,870
$ 185,010
$ (817,367 ) $ 3,023,254
CAPITALIZATION AND LIABILITIES

Capitalization:

Common stockholders’ equity $ 757,795
$ 679,037
$ 82,366
$ (761,403 ) $ 757,795
Affiliate long-term debt —
—
26,288
(26,288 ) —
Long-term debt, net —
807,019
459
—
807,478
Total capitalization 757,795
1,486,056
109,113
(787,691 ) 1,565,273
Current liabilities:

Current maturities of long-term debt, net —
5,122
158
—
5,280
Short-term borrowings 55,100
100,000
—
—
155,100
Payables to affiliates —
4,906
24,744
(29,650 ) —
Accounts payable —
103,748
4,845
—
108,593
Accrued expenses and other liabilities 329
60,621
4,021
—
64,971
Total current liabilities 55,429
274,397
33,768
(29,650 ) 333,944
Unamortized investment tax credits —
1,649
—
—
1,649
Deferred income taxes 1,475
224,549
3,213
—
229,237
Pension and postretirement benefits other than pensions —
203,557
—
(26 ) 203,557
Regulatory liabilities and other —
253,843
6,953
—
260,812
Advances for construction —
189,781
491
—
190,272
Contributions in aid of construction —
207,038
31,472
—
238,510
TOTAL CAPITALIZATION AND LIABILITIES $ 814,699
$ 2,840,870
$ 185,010
$ (817,367 ) $ 3,023,254

Table of Contents

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, ~~2018~~2019

(In thousands)

Parent
Company
Cal Water
All Other
Subsidiaries

Consolidating
Adjustments
Consolidated
ASSETS

Utility plant:

Utility plant $ 1,318
$ 3,021,437
$ 213,888
$ (7,197 ) $ 3,229,446
Less accumulated depreciation and amortization (1,013 ) (938,072 ) (59,735 ) 2,097
(996,723 )
Net utility plant 305
2,083,365
154,153
(5,100 ) 2,232,723
Current assets:

Cash and cash equivalents 3,779
33,763
9,634
—
47,176
Receivables and unbilled revenue 126
118,632
4,201
—
122,959
Receivables from affiliates 21,318
4,074
61
(25,453 ) —
Other current assets 80
16,907
1,580
—
18,567
Total current assets 25,303
173,376
15,476
(25,453 ) 188,702
Other assets:

Regulatory assets —
349,414
4,155
—
353,569
Investments in affiliates 733,156
—
—
(733,156 ) —
Long-term affiliate notes receivable 27,829
—
—
(27,829 ) —
Other assets 133
58,959
3,821
(203 ) 62,710
Total other assets 761,118
408,373
7,976
(761,188 ) 416,279
TOTAL ASSETS $ 786,726
$ 2,665,114
$ 177,605
$ (791,741 ) $ 2,837,704
CAPITALIZATION AND LIABILITIES

Capitalization:

Common stockholders’ equity $ 730,157
$ 659,340
79,093
$ (738,433 ) $ 730,157
Affiliate long-term debt —
—
27,828
(27,828 ) —
Long-term debt, net —
709,444
583
—
710,027
Total capitalization 730,157
1,368,784
107,504
(766,261 ) 1,440,184
Current liabilities:

Current maturities of long-term debt, net —
104,664
247
—
104,911
Short-term borrowings 55,100
10,000
—
—
65,100
Payables to affiliates 17
488
24,948
(25,453 ) —
Accounts payable —
92,310
3,270
—
95,580
Accrued expenses and other liabilities 107
53,655
1,813
—
55,575
Total current liabilities 55,224
261,117
30,278
(25,453 ) 321,166
Unamortized investment tax credits —
1,649
—
—
1,649
Deferred income taxes 1,376
210,052
1,648
(43 ) 213,033
Pension and postretirement benefits other than pensions —
193,538
—
—
193,538
Regulatory and other liabilities (31 ) 250,720
5,817
16
256,522
Advances for construction —
185,843
499
—
186,342
Contributions in aid of construction —
193,411
31,859
—
225,270
TOTAL CAPITALIZATION AND LIABILITIES $ 786,726
$ 2,665,114
$ 177,605
$ (791,741 ) $ 2,837,704

~~CALIFORNIA WATER SERVICE GROUP~~

~~CONDENSED CONSOLIDATING STATEMENT OF INCOME~~

~~For the three months ended September 30, 2019~~

~~(In thousands)~~


	Parent Company		Cal Water		All Other Subsidiaries		Consolidating Adjustments		Consolidated
ASSETS
Utility plant:
Utility plant	$	1,318	$	3,332,331	$	224,033	$	(7,197)	$	3,550,485
Less accumulated depreciation and amortization	(1,107)		(1,079,627)		(65,561)		2,180		(1,144,115)
Net utility plant	211		2,252,704		158,472		(5,017)		2,406,370
Current assets:
Cash and cash equivalents	3,096		29,098		10,459		0		42,653
Receivables and unbilled revenue, net	0		114,999		4,350		0		119,349
Receivables from affiliates	25,803		3,621		209		(29,633)		0
Other current assets	90		20,615		2,005		0		22,710
Total current assets	28,989		168,333		17,023		(29,633)		184,712
Other assets:
Regulatory assets	0		428,639		4,683		0		433,322
Investments in affiliates	777,170		0		0		(777,170)		0
Long-term affiliate notes receivable	30,060		0		0		(30,060)		0
Other assets	409		81,591		5,125		(221)		86,904
Total other assets	807,639		510,230		9,808		(807,451)		520,226
TOTAL ASSETS	$	836,839	$	2,931,267	$	185,303	$	(842,101)	$	3,111,308
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stockholders’ equity	$	779,906	$	700,784	81,604		$	(782,388)	$	779,906
Affiliate long-term debt	0		0		30,060		(30,060)		0
Long-term debt, net	0		786,310		444		0		786,754
Total capitalization	779,906		1,487,094		112,108		(812,448)		1,566,660
Current liabilities:
Current maturities of long-term debt, net	0		21,732		136		0		21,868
Short-term borrowings	55,100		120,000		0		0		175,100
Payables to affiliates	0		6,115		23,518		(29,633)		0
Accounts payable	0		104,419		4,044		0		108,463
Accrued expenses and other liabilities	313		50,569		2,408		0		53,290
Total current liabilities	55,413		302,835		30,106		(29,633)		358,721
Deferred income taxes	1,520		217,847		3,243		(20)		222,590
Pension and postretirement benefits other than pensions	0		258,907		0		0		258,907
Regulatory and other liabilities	0		264,434		7,397		0		271,831
Advances for construction	0		190,568		494		0		191,062
Contributions in aid of construction	0		209,582		31,955		0		241,537
TOTAL CAPITALIZATION AND LIABILITIES	$	836,839	$	2,931,267	$	185,303	$	(842,101)	$	3,111,308

Parent
Company
Cal Water
All Other
Subsidiaries

Consolidating
Adjustments
Consolidated
Operating revenue $ —
$ 219,261
$ 13,276
$ —
$ 232,537
Operating expenses:

Operations:

Water production costs —
78,048
2,520
—
80,568
Administrative and general —
24,498
2,281
—
26,779
Other operations —
22,872
1,825
(147 ) 24,550
Maintenance —
6,823
242
—
7,065
Depreciation and amortization 23
20,770
1,501
(21 ) 22,273
Income tax (benefit) expense (132 ) 11,332
779
215
12,194
Property and other taxes —
6,620
921
—
7,541
Total operating (income) expenses (109 ) 170,963
10,069
47
180,970
Net operating income 109
48,298
3,207
(47 ) 51,567
Other income and expenses:

Non-regulated revenue 599
3,865
399
(745 ) 4,118
Non-regulated expenses —
(3,907 ) (444 ) —
(4,351 )
Other components of net periodic benefit cost —
(1,784 ) (73 ) —
(1,857 )
Allowance for equity funds used during construction —
1,868
—
—
1,868
Income tax (expense) benefit on other income and expenses (168 ) 268
22
208
330
Net other income (loss) 431
310
(96 ) (537 ) 108
Interest:

Interest expense 450
9,820
608
(599 ) 10,279
Allowance for borrowed funds used during construction —
(954 ) (74 ) —
(1,028 )
Net interest expense 450
8,866
534
(599 ) 9,251
Equity earnings of subsidiaries 42,334
—
—
(42,334 ) —
Net income $ 42,424
$ 39,742
$ 2,577
$ (42,319 ) $ 42,424

Table of Contents

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the three months ended September 30, ~~2018~~2020

(In thousands)


	Parent Company		Cal Water		All Other Subsidiaries		Consolidating Adjustments		Consolidated
Operating revenue	$	0	$	287,820	$	16,288	$	0	$	304,108
Operating expenses:
Operations:
Water production costs	0		82,829		2,515		0		85,344
Administrative and general	0		25,802		3,406		0		29,208
Other operations	0		27,312		2,579		(145)		29,746
Maintenance	0		6,872		257		0		7,129
Depreciation and amortization	23		22,984		1,712		(20)		24,699
Income tax (benefit) expense	(113)		12,787		930		200		13,804
Property and other taxes	0		6,948		1,168		0		8,116
Total operating (income) expenses	(90)		185,534		12,567		35		198,046
Net operating income	90		102,286		3,721		(35)		106,062
Other income and expenses:
Non-regulated revenue	549		3,588		492		(695)		3,934
Non-regulated expenses	0		(2,321)		(544)		0		(2,865)
Other components of net periodic benefit cost	0		(1,016)		8		0		(1,008)
Allowance for equity funds used during construction	0		973		0		0		973
Income tax (expense) benefit on other income and expenses	(152)		(289)		2		194		(245)
Net other income (loss)	397		935		(42)		(501)		789
Interest:
Interest expense	393		10,762		556		(549)		11,162
Allowance for borrowed funds used during construction	0		(631)		(40)		0		(671)
Net interest expense	393		10,131		516		(549)		10,491
Equity earnings of subsidiaries	96,266		0		0		(96,266)		0
Net income	$	96,360	$	93,090	$	3,163	$	(96,253)	$	96,360

Parent
Company
Cal Water
All Other
Subsidiaries

Consolidating
Adjustments
Consolidated
Operating revenue $ —
$ 208,695
$ 12,593
$ —
$ 221,288
Operating expenses:

Operations:

Water production costs —
76,317
2,501
—
78,818
Administrative and general —
23,878
2,615
—
26,493
Other operations —
20,271
1,816
(144 ) 21,943
Maintenance —
6,538
230
—
6,768
Depreciation and amortization 23
19,632
1,376
(22 ) 21,009
Income tax (benefit) expense (142 ) 10,435
1,271
222
11,786
Property and other taxes —
6,205
937
—
7,142
Total operating (income) expenses (119 ) 163,276
10,746
56
173,959
Net operating income 119
45,419
1,847
(56 ) 47,329
Other income and expenses:

Non-regulated revenue 628
4,589
259
(773 ) 4,703
Non-regulated expenses —
(4,675 ) (222 ) —
(4,897 )
Other components of net periodic benefit cost —
(1,834 ) (141 ) —
(1,975 )
Allowance for equity funds used during construction —
1,023
—
—
1,023
Income tax (expense) benefit on other income and expenses (176 ) 252
13
216
305
Net other income (loss) 452
(645 ) (91 ) (557 ) (841 )
Interest:

Interest expense 486
10,443
574
(628 ) 10,875
Allowance for borrowed funds used during construction —
(522 ) (38 ) —
(560 )
Net interest expense 486
9,921
536
(628 ) 10,315
Equity earnings of subsidiaries 36,088
—
—
(36,088 ) —
Net income $ 36,173
$ 34,853
$ 1,220
$ (36,073 ) $ 36,173

Table of Contents

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the ~~nine~~three months ended September 30, 2019

(In thousands)


	Parent Company		Cal Water		All Other Subsidiaries		Consolidating Adjustments		Consolidated
Operating revenue	$	0	$	219,261	$	13,276	$	0	$	232,537
Operating expenses:
Operations:
Water production costs	0		78,048		2,520		0		80,568
Administrative and general	0		24,498		2,281		0		26,779
Other operations	0		22,872		1,825		(147)		24,550
Maintenance	0		6,823		242		0		7,065
Depreciation and amortization	23		20,770		1,501		(21)		22,273
Income tax (benefit) expense	(132)		11,332		779		215		12,194
Property and other taxes	0		6,620		921		0		7,541
Total operating (income) expenses	(109)		170,963		10,069		47		180,970
Net operating income	109		48,298		3,207		(47)		51,567
Other income and expenses:
Non-regulated revenue	599		3,865		399		(745)		4,118
Non-regulated expenses	0		(3,907)		(444)		0		(4,351)
Other components of net periodic benefit cost	0		(1,784)		(73)		0		(1,857)
Allowance for equity funds used during construction	0		1,868		0		0		1,868
Income tax (expense) benefit on other income and expenses	(168)		268		22		208		330
Net other income (loss)	431		310		(96)		(537)		108
Interest:
Interest expense	450		9,820		608		(599)		10,279
Allowance for borrowed funds used during construction	0		(954)		(74)		0		(1,028)
Net interest expense	450		8,866		534		(599)		9,251
Equity earnings of subsidiaries	42,334		0		0		(42,334)		0
Net income	$	42,424	$	39,742	$	2,577	$	(42,319)	$	42,424

Parent
Company
Cal Water
All Other
Subsidiaries

Consolidating
Adjustments
Consolidated
Operating revenue $ —
$ 502,785
$ 34,894
$ —
$ 537,679
Operating expenses:

Operations:

Water production costs —
183,617
7,178
—
190,795
Administrative and general 23
73,908
7,379
—
81,310
Other operations —
59,851
5,499
(437 ) 64,913
Maintenance —
18,469
743
—
19,212
Depreciation and amortization 70
62,471
4,488
(62 ) 66,967
Income tax (benefit) expense (411 ) 12,019
1,265
651
13,524
Property and other taxes —
19,431
2,471
—
21,902
Total operating (income) expenses (318 ) 429,766
29,023
152
458,623
Net operating income 318
73,019
5,871
(152 ) 79,056
Other income and expenses:

Non-regulated revenue 1,826
13,374
1,212
(2,263 ) 14,149
Non-regulated expenses —
(9,610 ) (860 ) —
(10,470 )
Other components of net periodic benefit cost —
(4,177 ) (131 ) —
(4,308 )
Allowance for equity funds used during construction —
5,087
—
—
5,087
Income tax expense on other income and expenses (511 ) (1,028 ) (79 ) 633
(985 )
Net other income 1,315
3,646
142
(1,630 ) 3,473
Interest:

Interest expense 1,376
32,141
1,841
(1,826 ) 33,532
Allowance for borrowed funds used during construction —
(2,592 ) (191 ) —
(2,783 )
Net interest expense 1,376
29,549
1,650
(1,826 ) 30,749
Equity earnings of subsidiaries 51,523
—
—
(51,523 ) —
Net income $ 51,780
$ 47,116
$ 4,363
$ (51,479 ) $ 51,780

Table of Contents

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the nine months ended September 30, ~~2018~~2020

(In thousands)


	Parent Company		Cal Water		All Other Subsidiaries		Consolidating Adjustments		Consolidated
Operating revenue	$	0	$	567,494	$	37,661	$	0	$	605,155
Operating expenses:
Operations:
Water production costs	0		203,485		6,977		0		210,462
Administrative and general	0		77,025		8,802		0		85,827
Other operations	0		63,427		6,628		(437)		69,618
Maintenance	0		19,980		944		0		20,924
Depreciation and amortization	70		68,886		4,836		(59)		73,733
Income tax (benefit) expense	(341)		9,054		1,176		600		10,489
Property and other taxes	0		19,618		2,852		0		22,470
Total operating (income) expenses	(271)		461,475		32,215		104		493,523
Net operating income	271		106,019		5,446		(104)		111,632
Other income and expenses:
Non-regulated revenue	1,648		11,102		1,304		(2,085)		11,969
Non-regulated expenses	0		(10,864)		(947)		0		(11,811)
Other components of net periodic benefit cost	0		(3,717)		(53)		0		(3,770)
Allowance for equity funds used during construction	0		4,292		0		0		4,292
Income tax expense on other income and expenses	(460)		(179)		(96)		583		(152)
Net other income	1,188		634		208		(1,502)		528
Interest:
Interest expense	1,161		32,402		1,658		(1,648)		33,573
Allowance for borrowed funds used during construction	0		(2,604)		(143)		0		(2,747)
Net interest expense	1,161		29,798		1,515		(1,648)		30,826
Equity earnings of subsidiaries	81,036		0		0		(81,036)		0
Net income	$	81,334	$	76,855	$	4,139	$	(80,994)	$	81,334

Parent
Company
Cal Water
All Other
Subsidiaries

Consolidating
Adjustments
Consolidated
Operating revenue $ —
$ 499,173
$ 31,606
$ —
$ 530,779
Operating expenses:

Operations:

Water production costs —
185,149
6,648
—
191,797
Administrative and general —
69,531
7,664
—
77,195
Other operations —
55,626
5,117
(436 ) 60,307
Maintenance —
16,974
622
—
17,596
Depreciation and amortization 70
58,909
3,763
(65 ) 62,677
Income tax (benefit) expense (342 ) 15,081
1,591
620
16,950
Property and other taxes —
17,894
2,359
—
20,253
Total operating (income) expenses (272 ) 419,164
27,764
119
446,775
Net operating income 272
80,009
3,842
(119 ) 84,004
Other income and expenses:

Non-regulated revenue 1,716
13,572
831
(2,152 ) 13,967
Non-regulated expenses —
(15,943 ) (506 ) —
(16,449 )
Other components of net periodic benefit cost —
(6,618 ) (366 ) —
(6,984 )
Allowance for equity funds used during construction —
2,644
—
—
2,644
Income tax (expense) benefit on other income and expenses (480 ) 1,776
(16 ) 602
1,882
Net other income (loss) 1,236
(4,569 ) (57 ) (1,550 ) (4,940 )
Interest:

Interest expense 1,155
29,095
1,673
(1,716 ) 30,207
Allowance for borrowed funds used during construction —
(1,250 ) (109 ) —
(1,359 )
Net interest expense 1,155
27,845
1,564
(1,716 ) 28,848
Equity earnings of subsidiaries 49,863
—
—
(49,863 ) —
Net income $ 50,216
$ 47,595
$ 2,221
$ (49,816 ) $ 50,216

Table of Contents

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF ~~CASH FLOWS~~INCOME

For the nine months ended September 30, 2019

(In thousands)


	Parent Company		Cal Water		All Other Subsidiaries		Consolidating Adjustments		Consolidated
Operating revenue	$	0	$	502,785	$	34,894	$	0	$	537,679
Operating expenses:
Operations:
Water production costs	0		183,617		7,178		0		190,795
Administrative and general	23		73,908		7,379		0		81,310
Other operations	0		59,851		5,499		(437)		64,913
Maintenance	0		18,469		743		0		19,212
Depreciation and amortization	70		62,471		4,488		(62)		66,967
Income tax (benefit) expense	(411)		12,019		1,265		651		13,524
Property and other taxes	0		19,431		2,471		0		21,902
Total operating (income) expenses	(318)		429,766		29,023		152		458,623
Net operating income	318		73,019		5,871		(152)		79,056
Other income and expenses:
Non-regulated revenue	1,826		13,374		1,212		(2,263)		14,149
Non-regulated expenses	0		(9,610)		(860)		0		(10,470)
Other components of net periodic benefit cost	0		(4,177)		(131)		0		(4,308)
Allowance for equity funds used during construction	0		5,087		0		0		5,087
Income tax expense on other income and expenses	(511)		(1,028)		(79)		633		(985)
Net other income	1,315		3,646		142		(1,630)		3,473
Interest:
Interest expense	1,376		32,141		1,841		(1,826)		33,532
Allowance for borrowed funds used during construction	0		(2,592)		(191)		0		(2,783)
Net interest expense	1,376		29,549		1,650		(1,826)		30,749
Equity earnings of subsidiaries	51,523		0		0		(51,523)		0
Net income	$	51,780	$	47,116	$	4,363	$	(51,479)	$	51,780

Parent
Company
Cal Water
All Other
Subsidiaries

Consolidating
Adjustments
Consolidated
Operating activities:

Net income $ 51,780
$ 47,116
$ 4,363
$ (51,479 ) $ 51,780
Adjustments to reconcile net income to net cash provided by operating activities:

Equity earnings of subsidiaries (51,523 ) —
—
51,523
—
Dividends received from affiliates 28,507
—
—
(28,507 ) —
Depreciation and amortization 70
63,975
4,539
(62 ) 68,522
Changes in value of life insurance contracts —
(3,433 ) —
—
(3,433 )
Allowance for equity funds used during construction —
(5,087 ) —
—
(5,087 )
Changes in operating assets and liabilities 194
(6,744 ) 1,509
—
(5,041 )
Other changes in noncurrent assets and liabilities 5,239
14,560
1,785
18
21,602
Net cash provided by operating activities 34,267
110,387
12,196
(28,507 ) 128,343
Investing activities:

Utility plant expenditures —
(185,883 ) (9,059 ) —
(194,942 )
Changes in affiliate advances (3,199 ) 3,534
(320 ) (15 ) —
Issuance of affiliate short-term borrowings (4,300 ) —
—
4,300
—
Reduction of affiliates long-term debt 1,462
—
—
(1,462 ) —
Purchase of life insurance contracts —
(2,216 ) —
—
(2,216 )
Net cash used in investing activities (6,037 ) (184,565 ) (9,379 ) 2,823
(197,158 )
Financing Activities:

Short-term borrowings —
210,000
—
—
210,000
Repayment of short-term borrowings —
(120,000 ) —
—
(120,000 )
Changes in affiliate advances (17 ) 4,419
(4,417 ) 15
—
Proceeds from affiliate short-term borrowings —
—
4,300
(4,300 ) —
Repayment of affiliates long-term borrowings —
—
(1,462 ) 1,462
—
Issuance of long term debt, net of expenses —
398,431
—
—
398,431
Repayment of long-term debt —
(401,417 ) (213 ) —
(401,630 )
Advances and contributions in aid of construction —
21,176
90
—
21,266
Refunds of advances for construction —
(5,560 ) —
—
(5,560 )
Repurchase of common stock (2,355 ) —
—
—
(2,355 )
Issuance of common stock 1,278
—
—
—
1,278
Dividends paid to non-affiliates (28,507 ) —
—
—
(28,507 )
Dividends paid to affiliates —
(27,419 ) (1,088 ) 28,507
—
Net cash (used in) provided by financing activities (29,601 ) 79,630
(2,790 ) 25,684
72,923
Change in cash, cash equivalents, and restricted cash (1,371 ) 5,452
27
—
4,108
Cash, cash equivalents, and restricted cash at beginning of period 3,779
34,238
9,698
—
47,715
Cash, cash equivalents, and restricted cash at end of period $ 2,408
$ 39,690
$ 9,725
—
$ 51,823

Table of Contents

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the nine months ended September 30, ~~2018~~2020

(In thousands)


	Parent Company		Cal Water		All Other Subsidiaries		Consolidating Adjustments		Consolidated
Operating activities:
Net income	$	81,334	$	76,855	$	4,139	$	(80,994)	$	81,334
Adjustments to reconcile net income to net cash provided by operating activities:
Equity earnings of subsidiaries	(81,036)		0		0		81,036		0
Dividends received from affiliates	31,177		0		0		(31,177)		0
Depreciation and amortization	70		70,604		4,935		(59)		75,550
Changes in value of life insurance contracts	0		(621)		0		0		(621)
Allowance for equity funds used during construction	0		(4,292)		0		0		(4,292)
Changes in operating assets and liabilities	(463)		(17,633)		(311)		0		(18,407)
Other changes in noncurrent assets and liabilities	3,262		(42,184)		2,005		17		(36,900)
Net cash provided by operating activities	34,344		82,729		10,768		(31,177)		96,664
Investing activities:
Utility plant expenditures	0		(212,288)		(8,973)		0		(221,261)
Business acquisition, net of cash acquired	(1,950)		0		(37,594)		0		(39,544)
Investment in affiliates	(90,871)		0		0		90,871		0
Changes in affiliate advances	2,238		2,679		(145)		(4,772)		0
Issuance of affiliate short-term borrowings	(3,500)		0		0		3,500		0
Issuance of affiliate long-term borrowings	(4,076)		0		0		4,076		0
Reduction of affiliates long-term debt	1,580		0		0		(1,580)		0
Purchase of life insurance contracts	0		(2,335)		0		0		(2,335)
Net cash used in investing activities	(96,579)		(211,944)		(46,712)		92,095		(263,140)
Financing Activities:
Short-term borrowings	50,000		220,000		0		0		270,000
Repayment of short-term borrowings	0		(70,000)		0		0		(70,000)
Investment from affiliates	0		57,266		33,605		(90,871)		0
Changes in affiliate advances	0		(3,175)		(1,597)		4,772		0
Proceeds from affiliate short-term borrowings	0		0		3,500		(3,500)		0
Proceeds from affiliate long-term borrowings	0		0		4,076		(4,076)		0
Repayment of affiliates long-term borrowings	0		0		(1,580)		1,580		0
Repayment of long-term debt	0		(1,415)		(120)		0		(1,535)
Advances and contributions in aid of construction	0		19,735		127		0		19,862
Refunds of advances for construction	0		(7,015)		(2)		0		(7,017)
Repurchase of common stock	(1,578)		0		0		0		(1,578)
Issuance of common stock	58,573		0		0		0		58,573
Dividends paid to non-affiliates	(31,177)		0		0		0		(31,177)
Dividends paid to affiliates	0		(29,461)		(1,716)		31,177		0
Net cash provided by financing activities	75,818		185,935		36,293		(60,918)		237,128
Change in cash, cash equivalents, and restricted cash	13,583		56,720		349		0		70,652
Cash, cash equivalents, and restricted cash at beginning of period	3,096		29,679		10,523		0		43,298
Cash, cash equivalents, and restricted cash at end of period	$	16,679	$	86,399	$	10,872	0		$	113,950

Parent
Company
Cal Water
All Other
Subsidiaries

Consolidating
Adjustments
Consolidated
Operating activities:

Net income $ 50,216
$ 47,595
$ 2,221
$ (49,816 ) $ 50,216
Adjustments to reconcile net income to net cash provided by operating activities:

Equity earnings of subsidiaries (49,863 ) —
—
49,863
—
Dividends received from affiliates 27,029
—
—
(27,029 ) —
Depreciation and amortization 70
60,298
3,828
(65 ) 64,131
Changes in value of life insurance contracts —
124
—
—
124
Allowance for equity funds used during construction —
(2,644 ) —
—
(2,644 )
Changes in operating assets and liabilities (281 ) 6,135
1,178
—
7,032
Other changes in noncurrent assets and liabilities 2,518
(3,881 ) 1,989
18
644
Net cash provided by operating activities 29,689
107,627
9,216
(27,029 ) 119,503
Investing activities:

Utility plant expenditures 4
(205,218 ) (7,642 ) —
(212,856 )
Changes in affiliate advances (975 ) 3,198
(269 ) (1,954 ) —
Issuance of affiliate short-term borrowings (23,700 ) —
—
23,700
—
Reduction of affiliates long-term debt 1,224
—
—
(1,224 ) —
Life insurance proceeds —
3,491
—
—
3,491
Purchase of life insurance contracts —
(4,925 ) —
—
(4,925 )
Net cash used in investing activities (23,447 ) (203,454 ) (7,911 ) 20,522
(214,290 )
Financing Activities:

Short-term borrowings 20,000
121,000
—
—
141,000
Repayment of short-term borrowings —
(341,000 ) —
—
(341,000 )
Changes in affiliate advances —
1,129
(3,083 ) 1,954
—
Proceeds from affiliate short-term borrowings —
20,000
3,700
(23,700 ) —
Repayment of affiliates long-term borrowings —
—
(1,224 ) 1,224
—
Issuance of long-term debt, net of expenses —
299,383
—
—
299,383
Repayment of long-term debt —
(12,299 ) (200 ) —
(12,499 )
Advances and contributions in aid for construction —
13,288
342
—
13,630
Refunds of advances for construction —
(5,452 ) (10 ) —
(5,462 )
Repurchase of common stock (1,496 ) —
—
—
(1,496 )
Dividends paid to non-affiliates (27,029 ) —
—
—
(27,029 )
Dividends paid to affiliates —
(25,959 ) (1,070 ) 27,029
—
Net cash (used in) provided by financing activities (8,525 ) 70,090
(1,545 ) 6,507
66,527
Change in cash, cash equivalents, and restricted cash (2,283 ) (25,737 ) (240 ) —
(28,260 )
Cash, cash equivalents, and restricted cash at beginning of period 4,728
81,453
9,171
—
95,352
Cash, cash equivalents, and restricted cash at end of period $ 2,445
$ 55,716
$ 8,931
—
$ 67,092

~~Note 13. Immaterial Restatement~~Table of ~~Prior Period Financial Statements~~

Subsequent to the issuance of the Company's Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2018, the Company identified an immaterial computational error related to the amount of authorized revenue recorded pursuant to the Company's pension and health care cost recovery balancing accounts. In accordance with the 2015 GRC, the Company adjusts the revenue and corresponding balancing accounts quarterly to reflect actual pension and health care costs, subject to certain limitations prescribed by the 2015 GRC. The error does not impact the billings to customers or the cash collected from customers in this GRC period, which ends on December 31, 2019. As provided for in the 2015 GRC, the amounts included in the balancing account will be recovered from or refunded to customers during the next GRC period.

The Company corrected the error in the accompanying Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2018. The Company believes the correction of the error is immaterial to the previously issued Condensed Consolidated Financial Statements.

~~The corrections to the Company's Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2018 were as follows:~~

~~Condensed Consolidated Statements of Income~~

Contents

For the three months ended September 30, 2018
As Previously Reported Corrections As Corrected
(In thousands, except per share data)
Operating revenue $ 218,983
$ 2,305
$ 221,288
Operating expenses:

Income taxes 11,262
524
11,786
Total operating expenses 173,435
524
173,959
Net operating income 45,548
1,781
47,329
Net income $ 34,392
$ 1,781
$ 36,173
Earnings per share:

Basic $ 0.72
$ 0.03
$ 0.75
Diluted $ 0.72
$ 0.03
$ 0.75
CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the nine months ended September 30, 2018
As Previously Reported Corrections As Corrected
(In thousands, except per share data)
Operating revenue $ 523,862
$ 6,917
$ 530,779
Operating expenses:

Income taxes 15,380
1,570
16,950
Total operating expenses 445,205
1,570
446,775
Net operating income 78,657
5,347
84,004
Net income $ 44,869
$ 5,347
$ 50,216
Earnings per share:

Basic $ 0.93
$ 0.11
$ 1.04
Diluted $ 0.93
$ 0.11
$ 1.04

~~The corrections to the Company's retained earnings and total stockholders’ equity as of January 1, 2018, March 31, 2018, June 30, 2018, and September 30, 2018 were as follows:~~

January 1, 2018
As Previously Reported Corrections As Corrected
(In thousands)
Retained earnings $ 356,753
$ 5,759
$ 362,512
Total common stockholders' equity 693,462
5,759
699,221

March 31, 2018
As Previously Reported Corrections As Corrected
(In thousands)
Retained earnings $ 345,205
$ 7,542
$ 352,747
Total common stockholders' equity 681,311
7,542
688,853

June 30, 2018
As Previously Reported Corrections As Corrected
(In thousands)
Retained earnings $ 349,213
$ 9,325
$ 358,538
Total common stockholders' equity 685,932
9,325
695,257

September 30, 2018
As Previously Reported Corrections As Corrected
(In thousands)
Retained earnings $ 374,593
$ 11,106
$ 385,699
Total common stockholders' equity 712,034
11,106
723,140

~~The corrections to the Company's Condensed Consolidated Statement of Cash Flows for~~For the nine months ended September 30, ~~2018~~2019

(In thousands)


	Parent Company		Cal Water		All Other Subsidiaries		Consolidating Adjustments		Consolidated
Operating activities:
Net income	$	51,780	$	47,116	$	4,363	$	(51,479)	$	51,780
Adjustments to reconcile net income to net cash provided by operating activities:
Equity earnings of subsidiaries	(51,523)		0		0		51,523		0
Dividends received from affiliates	28,507		0		0		(28,507)		0
Depreciation and amortization	70		63,975		4,539		(62)		68,522
Changes in value of life insurance contracts	0		(3,433)		0		0		(3,433)
Allowance for equity funds used during construction	0		(5,087)		0		0		(5,087)
Changes in operating assets and liabilities	194		(6,744)		1,509		0		(5,041)
Other changes in noncurrent assets and liabilities	5,239		14,560		1,785		18		21,602
Net cash provided by operating activities	34,267		110,387		12,196		(28,507)		128,343
Investing activities:
Utility plant expenditures	0		(185,883)		(9,059)		0		(194,942)
Changes in affiliate advances	(3,199)		3,534		(320)		(15)		0
Issuance of affiliate short-term borrowings	(4,300)		0		0		4,300		0
Reduction of affiliates long-term debt	1,462		0		0		(1,462)		0
Purchase of life insurance contracts	0		(2,216)		0		0		(2,216)
Net cash used in investing activities	(6,037)		(184,565)		(9,379)		2,823		(197,158)
Financing Activities:
Short-term borrowings	0		210,000		0		0		210,000
Repayment of short-term borrowings	0		(120,000)		0		0		(120,000)
Changes in affiliate advances	(17)		4,419		(4,417)		15		0
Proceeds from affiliate short-term borrowings	0		0		4,300		(4,300)		0
Repayment of affiliates long-term borrowings	0		0		(1,462)		1,462		0
Issuance of long-term debt, net of expenses	0		398,431		0		0		398,431
Repayment of long-term debt	0		(401,417)		(213)		0		(401,630)
Advances and contributions in aid for construction	0		21,176		90		0		21,266
Refunds of advances for construction	0		(5,560)		0		0		(5,560)
Repurchase of common stock	(2,355)		0		0		0		(2,355)
Issuance of common stock	1,278		0		0		0		1,278
Dividends paid to non-affiliates	(28,507)		0		0		0		(28,507)
Dividends paid to affiliates	0		(27,419)		(1,088)		28,507		0
Net cash (used in) provided by financing activities	(29,601)		79,630		(2,790)		25,684		72,923
Change in cash, cash equivalents, and restricted cash	(1,371)		5,452		27		0		4,108
Cash, cash equivalents, and restricted cash at beginning of period	3,779		34,238		9,698		0		47,715
Cash, cash equivalents, and restricted cash at end of period	$	2,408	$	39,690	$	9,725	0		$	51,823

Table of Contents

Note 13. Acquisition

On March 27, 2020, the Company’s wholly owned subsidiary, Washington Water, received regulatory approval from the Washington Utilities and Transportation Commission (WUTC) for Washington Water's application for the sale and transfer of assets of Rainier View Water Company. Washington Water paid $37.6 million in cash to take control of the water system on June 1, 2020. The acquisition of Rainier View Water doubles the size of Washington Water’s operations and solidifies the Company’s position as the largest investor-owned water company in the state of Washington, regulated by the WUTC. Rainier View Water serves approximately 35,000 people in parts of Graham, Spanaway, Puyallup, Gig Harbor, and other nearby areas through approximately 18,500 customer connections in 27 water systems.

Assets acquired were ~~as follows:~~$32.7 million, including utility plant of $31.1 million, and liabilities of $22.9 million were assumed, including $21.3 million of contributions in aid of construction. Goodwill of $27.7 million was recorded and consists largely of the synergies expected from combining the operations of Rainier View Water Company and Washington Water. In the third quarter of 2020, the Company finalized identifying the acquired assets and liabilities. The Company is still in the process of finalizing the valuation of certain intangible assets; therefore, the goodwill recorded is subject to further refinement upon completion.

The Company expects all the goodwill from the acquisition to be deductible for tax purposes.

Condensed ~~Consolidated Statement~~balance sheets and pro forma results of ~~Cash Flows~~

For the nine months ended September 30, 2018
As Previously Reported Corrections As Corrected
(In thousands)
Operating activities:

Net income $ 44,869
$ 5,347
$ 50,216
Other changes in noncurrent assets and liabilities 5,991
(5,347 ) 644
Net cash provided by operating activities $ 119,503
$ —
$ 119,503

~~Note 14. Subsequent Event~~

~~California GRC filing~~

~~Subsequent to~~operations for this acquisition have not been presented since the ~~issuance~~impact of the Company's Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2018, Cal Water jointly filed a formal settlement agreement in its 2018 GRC with the Public Advocates Office of the CPUC covering the majority of open matters in the case on October 8, 2019. The largest component of the GRC is Cal Water’s Infrastructure Improvement Plan for 2019-2021. The settlement details investment plans that Cal Water and the Public Advocates Office agree should be made to Cal Water’s water infrastructure to continue providing safe, reliable water service to Cal Water customers and communities. The CPUC will consider, but isacquisition was not required to adopt, the settlement agreement. If the CPUC approves the settlement agreement, Cal Water would be authorized to include in rates $609.0 million to $628.0 million of new projects throughout the state in 2019 to 2021, along with approximately $200.0 million for completion of additional projects begun in 2018 and prior periods. Included in these figures are $148.0 million of advice letter authorizations, which would not be included in rates until related projects are completed. Cal Water anticipates that if the settlement were adopted, it would plan to make capital investments of approximately $809.0 million to $828.0 million in the 2019-2021 period. The settlement proposes, in part, an average water main replacement rate of 0.76% annually company-wide by 2021, with higher replacement rates in some areas. A final decision on the case is expected in late 2019, with new rates going into effect in January of 2020. Cal Water previously filed a request for interim rates beginning January 1, 2020 in the event a final decision is unexpectedly delayed.material.

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Dollar amounts in thousands unless otherwise stated

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. 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 “expects,” “intends,” “plans,” “believes,” “may,” “estimates,” “assumes,” “anticipates,” “projects,” “predicts,” “forecasts,” “should,” “seeks,” or variations of these words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not guarantees of future performance. They are based on numerous assumptions that we believe are reasonable, but they are open to a wide range of uncertainties and business risks. Consequently, actual results may vary materially from what is contained in a forward-looking statement.

Factors which may cause actual results to be different than those expected or anticipated include, but are not limited to:

•the outcome of the CPUC's decision on the proposed decision issued by an ALJ with respect to the litigated balancing accounts for Cal Water's 2018 GRC filing. Failure of the CPUC to accept the proposed decision could have a material effect on our results of operations. If the CPUC were to change the ALJ's proposed decision and discontinue the litigated balancing accounts effective December 31, 2019, the impact to the Company would be a material decrease in the Company's 2020, 2021, and 2022 operating revenue and net operating income;

•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 relating to our water systems;

•changes in regulatory ~~commissions’~~commissions' policies and procedures;

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

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

~~inability~~

Table of Contents

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

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

•changes in environmental compliance and water quality requirements;

•electric power interruptions, especially as a result of Public Safety Power Shutoff (PSPS) ~~programs for the 2019 fire season as we further develop approaches to manage that risk;~~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;

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

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

•labor relations matters as we negotiate with the unions;

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

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

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

•the risks set forth in “Risk Factors” included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

In light of these risks, uncertainties and assumptions, investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this quarterly report or as of the date of any document incorporated by reference in this report, as applicable. When considering forward-looking statements, investors should keep in mind the cautionary statements in this quarterly report and the documents incorporated by reference. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

CRITICAL ACCOUNTING POLICIES

We maintain our accounting records in accordance with 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 Company's Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. They include:

•revenue recognition;

•regulated utility accounting;

•income taxes;

•pension and postretirement health care benefits;

For the nine months ended September 30, ~~2019,~~2020, there were no changes in the methodology for computing critical accounting estimates, no additional accounting estimates met the standards for critical accounting policies, and there were no material changes to the important assumptions underlying the critical accounting estimates.

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CAL WATER'S 2018 GRC

On October 14, 2020, an ALJ with the CPUC issued a proposed decision for Cal Water's 2018 GRC filing. The proposed decision is subject to adoption by the CPUC no earlier than the CPUC’s November 19, 2020 meeting. Both Cal Water and the CPUC's Public Advocates Office have an opportunity to provide their feedback on the proposed decision. If adopted as proposed, the decision would approve the settlement reached in October of 2019 by Cal Water and the CPUC’s Public Advocates Office, allow Cal Water to continue its decoupling balancing accounts through 2022, and allow Cal Water to retain its PCBA and HCBA.

We determined that the proposed decision provides additional evidence about conditions that existed as of September 30, 2020. As of November 6, 2020, we also believe that it is probable that the proposed decision will be adopted by the CPUC without any material variation and accordingly, we recorded regulatory assets and associated revenues resulting from the regulatory mechanisms approved in the proposed decision as of September 30, 2020. In the unlikely event that the CPUC does not approve the proposed decision as issued, we will need to adjust regulatory asset balances and revenues in the fourth quarter of 2020. Any such adjustment could result in a material decrease to our operating revenue and net operating income for full-year 2020.

COVID-19

At the end of 2019, a COVID-19 outbreak was reported to have surfaced in Wuhan, China, and has since spread to a large number of other countries, including the United States. In March of 2020, the World Health Organization characterized the outbreak as a pandemic. During the month of March, all of the states in which we operate enacted shelter-in-place and social distancing ordinances that resulted in temporary closures of non-essential businesses and self-quarantining of non-essential workers. Although such measures have been partially rescinded in certain areas, public health restrictions remain in place in all of the states in which we operate. As an “essential business” during times of emergencies pursuant to the U.S. Critical Infrastructures Protection Act of 2001, we are working to continue to provide high quality water and wastewater services to our two million customers. For the nine months ended September 30, 2020 and through November 6, 2020, the COVID-19 pandemic has not had a significant impact on our business or operations. We have, however, increased our allowance for credit losses as we have ceased all shutoffs for non-payment during the pandemic and anticipate this situation will continue until April 1, 2021. We are expecting segments of our customer base to continue to experience employment layoffs and business closures that negatively impact their ability to pay utility bills. We have also incurred costs to promote the health and safety of our employees and facilities.

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

RESULTS OF THIRD QUARTER ~~2019~~2020 OPERATIONS

COMPARED TO THIRD QUARTER ~~2018~~2019 OPERATIONS

Dollar amounts in thousands unless otherwise stated

Overview

~~As discussed further in Note 13, the Company corrected an immaterial computational error that understated revenue for the three months ended September 30, 2018.~~Net Income

Net income for the three months ended September 30, ~~2019~~2020 was ~~$42.4~~$96.4 million or ~~$0.88~~$1.94 earnings per diluted common share, compared to net income of ~~$36.2~~$42.4 million or ~~$0.75~~$0.88 earnings per diluted common share for the three months ended September 30, ~~2018.~~

2019.

The ~~$6.2~~$54.0 million increase in net income was primarily due to ~~general~~our determination that the October 14, 2020 proposed decision in the 2018 GRC was sufficient evidence to record regulatory assets and associated revenues for interim rate recovery as well as benefits balancing accounts and the decoupling mechanisms. In the third quarter of 2020, we recorded revenues of $37.6 million related to interim rate recovery regulatory assets, balancing account net revenue increases of ~~$6.1~~$37.0 million, ~~a $5.5~~and customer refunds for 2017 excess deferred federal income taxes (TCJA) of $7.1 million ~~increase~~for the nine months ended September 30, 2020. Included in ~~unbilled~~the amounts above, there were $18.9 million of interim rate recovery, $11.5 million of balancing account net revenue ~~accrual, a reduction~~increases, and $3.0 million of ~~$1.3 million in business development expenses, and $0.8 million increase in allowance~~customer refunds for ~~equity funds used during construction.~~TCJA for the three months ended September 30, 2020. These ~~factors~~increases were partially offset by increases in ~~operating expenses of $1.3 million for~~ depreciation and amortization ~~$1.0~~of $2.4 million, in employee wages ~~$0.8~~costs of $2.2 million, inincome taxes of $1.6 million, bad debt expenses of $0.9 million, and outside service costs ~~attributable to electric utilities’ PSPS programs and wildfire management, and $0.4 million in property taxes.~~of $0.7 million.

~~Unbilled revenue accrual is~~

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Additionally, certain factors outside the ~~Company’s~~Company's immediate ~~control. The quarter’s increase~~control decreased net income, including a $2.6 million reduction in accrued unbilled revenue, ~~mirrored the accrual reduction from the first two quarters of 2019. Also outside the Company’s control this quarter~~which was partially offset by a ~~$0.4~~$1.2 million ~~decrease~~increase in unrealized gain on certain benefit plan investments. ~~The change in the Company’s unbilled revenue accrual was relatively consistent with the previous year.~~

Operating Revenue

Operating revenue increased ~~$11.2~~$71.6 million, or ~~5.1%~~30.8%, to ~~$232.5~~$304.1 million in the third quarter of ~~2019~~2020 as compared to the third quarter of ~~2018. The factors that impacted the operating revenue for the third quarter of~~ 2019, ~~as compared~~with such change attributed to the ~~third quarter of 2018 are as follows:~~following:

Net change due to rate changes, usage, and other (1) $ 12,874
MCBA Revenue (2) (395 )
Other balancing account revenue (3) 1,454
Deferral of revenue (4) (2,684 )
Net operating revenue increase $ 11,249


1.	~~The net~~Net change due to rate changes, usage, and other ~~in the above table was mainly driven by rate increases and a $5.5 million~~(1)	$	1,724
WRAM Revenue (2)	(3,215)
MCBA Revenue (3)	24,484
IRMA Revenue (4)	37,623
Other balancing account revenue (5)	4,459
Deferral of revenue (6)	6,496
Net operating revenue increase ~~in accrued unbilled revenue. The components of the rate increases are as follows:~~	$	71,571

General rate case 761
Escalation rate increases 5,218
Purchased water and pump tax offsets 1,743
Rate base offsets 162
Total increase in rates $ 7,884
1.The net change due to rate changes, usage, and other in the above table was mainly driven by a $3.3 million increase in volumetric revenue due to a 6.0% increase in customer usage and rate increases, the components of which are set forth in the table below, partially offset by a $2.6 million decrease in accrued unbilled revenue.


2.General rate case			The MCBA revenue decrease resulted from a decrease in actual water production costs relative to adopted water production costs in the third quarter of 2019 as compared to the third quarter of 2018. The actual water production costs relative to adopted decreased as a result of a decrease in customer consumption in the third quarter of 2019 as compared to the third quarter of 2018. As required by the MCBA mechanism, the decrease in actual water production costs relative to adopted water production costs in California also decreased operating revenue for the same amount.

185
3.Purchased water and pump tax offsets			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 increase in revenue was mainly due to an increase in actual conservation expenses relative to adopted in the third quarter of 2019 as compared to the third quarter of 2018, which was partially offset by a decrease in actual pension and health care expenses relative to adopted in the third quarter of 2019 as compared to the third quarter of 2018.

1,208
4.Rate base offsets	~~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~~883
Total increase in which these revenues were recorded. The deferral increased in the third quarter of 2019 as compared to the third quarter of 2018 due to a decline in actual customer usage relative to adopted customer usage in the third quarter of 2019 as compared to the third quarter of 2018.rates	$	2,276

2.WRAM revenue is the variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts. In October of 2020, Cal Water received a proposed decision that authorizes the continuation of WRAM effective January 1, 2020; as a result, in the third quarter of 2020, we recorded an increase to revenue for the WRAM for the three and nine months ended September 30, 2020 of $8.4 million and $17.0 million, respectively. For the nine months ended September 30, 2020, actual billed volumetric revenue was lower than adopted volumetric revenue. In the third quarter of 2019, we recognized $20.2 million of WRAM revenue as actual billed volumetric revenue was lower than adopted volumetric revenue.

3.MCBA revenue is the variance between adopted water production costs and actual water production costs. In October of 2020, Cal Water received a proposed decision that authorizes the continuation of MCBA effective January 1, 2020; as a result, in the third quarter of 2020, we recorded an increase to revenue for the MCBA for the three and nine months ended September 30, 2020 of $1.1 million and $11.8 million, respectively. For the nine months ended September 30, 2020, actual water production costs were higher than adopted water production costs. In the third quarter of 2019, we recognized a $12.7 million decrease to revenue as actual water production costs were lower than adopted water production costs. As required by the MCBA mechanism, the difference in actual water production costs and adopted water production costs in California is recorded to operating revenue.

4.Due to the delay in the resolution of the 2018 GRC, the CPUC authorized Cal Water to track the effect of the delay on customer billings in an IRMA effective January 1, 2020. Variances between actual customer billings and those that would have been billed assuming the GRC had been effective January 1, 2020 are recorded as regulatory balancing account revenue. In October of 2020, Cal Water received a proposed decision on its 2018 GRC and was able to determine if the 2018 GRC had been resolved effective January 1, 2020, we would have billed customers an additional $18.9 million and $37.6 million for the three and nine months ended September 30, 2020.

5.The other balancing account revenue consists of the pension, conservation and health care balancing account revenues. Pension and conservation balancing account revenues are the differences between actual expenses and adopted rate recovery. Health care balancing account revenue is 85% of the difference between actual health care expenses and adopted rate recovery. In October of 2020, Cal Water received a proposed decision that authorizes the continuation of PCBA and HCBA effective January 1, 2020. We recorded an increase to revenue of $3.8 million and $11.4 million for the three and nine months ended September 30, 2020, respectively, for the PCBA and a decrease to revenue of $1.8 million and $3.1 million for the three and nine months ended September 30, 2020, respectively, for the HCBA in the third quarter of 2020. For the first nine months of 2020, actual pension costs were higher than adopted pension costs,

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while actual health care costs were lower than adopted health care costs. In the third quarter of 2019, actual pension costs were above the adopted pension costs, while actual health care costs were below the adopted health care costs. A net increase to revenue of $1.5 million was recognized for the differences. In addition, there was a decrease in actual conservation expenses relative to adopted costs in the third quarter of 2020 as compared to the third quarter 2019 of $2.3 million.

6.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 third quarter of 2020 as compared to the third quarter of 2019 due to a decrease in the balancing account revenue expected to be collected beyond 24 months.

Total Operating Expenses

Total operating expenses increased ~~$7.0~~$17.0 million, or ~~4.0%~~9.4%, to $198.0 million in the third quarter of 2020, as compared to $181.0 million in the third quarter of ~~2019, as compared to $174.0 million in the third quarter of 2018.~~2019.

Water production costs consists of purchased water, purchased power, and pump taxes. It represents the largest component of total operating expenses, accounting for approximately 43.1% of total operating expenses in the third quarter of 2020, as compared to 44.5% of total operating expenses in the third quarter of ~~2019, as compared to 45.3% of total operating expenses~~2019. Water production costs increased 5.8% in the third quarter of ~~2018. Water production costs increased 2.2% in the third quarter of 2019~~2020 as compared to the same period last year mainly due to increased rates from our purchased water ~~wholesalers.~~wholesalers, changes in water production mix in certain of our service territories, and an increase in customer usage.

Sources of water as a percent of total water production are listed in the following table:


	Three Months Ended September 30					Three Months Ended September 30
	2019		2018			2020		2019
Well production	44	%	47	%	Well production	47	%	44	%
Purchased	51	%	49	%	Purchased	48	%	51	%
Surface	5	%	4	%	Surface	5	%	5	%
Total	100	%	100	%	Total	100	%	100	%

The components of water production costs are shown in the table below:

Three Months Ended September 30
2019 2018 Change
Purchased water $ 66,483
$ 64,578
$ 1,905
Purchased power 10,633
10,488
145
Pump taxes 3,452
3,752
(300 )
Total $ 80,568
$ 78,818
$ 1,750


	Three Months Ended September 30
	2020		2019		Change
Purchased water	$	70,398	$	66,483	$	3,915
Purchased power	11,983		10,633		1,350
Pump taxes	2,963		3,452		(489)
Total	$	85,344	$	80,568	$	4,776

Administrative and general and other operations expenses increased ~~$2.9~~$7.7 million to ~~$51.3~~$59.0 million in the third quarter of ~~2019,~~2020, primarily due to ~~increases~~a $5.4 million increase of costs associated with deferred WRAM revenue, a $2.2 million ~~in conservation program costs, $0.9 million of outside services, $0.7 million of GRC settlement and asset impairment costs, $0.6 million~~increase in employee wages, ~~and $0.5~~a $1.3 million ofincrease in employee pension retirement benefit costs, ~~attributable to electric utilities’ PSPS programs and wildfire management,~~a $0.9 million increase in bad debt expense, $0.7 million increase in outside service costs which were partially offset by ~~a $2.2~~decreases of $2.0 million ~~deferral of costs associated with deferred revenues, and a $1.0 million decrease~~ in ~~health care~~water conservation program costs. Changes in employee pension benefits and water conservation program costs for regulated California operations generally do not affect earnings, as the Company is allowed by the CPUC to record these costs in balancing accounts for future recovery, creating a corresponding change to revenue. Employee and retiree medical expenses are recovered ~~in rates through a balancing account authorized in the 2015 GRC, such that revenues are recovered~~ up to 85% of the variance between adopted and recorded expenses. At September 30, ~~2019,~~2020, there were ~~1,198~~1,224 employees and at September 30, ~~2018,~~2019, there were ~~1,176~~1,194 employees.

Maintenance expense did not change in the third quarter of 2020 as compared to the third quarter of 2019.

Depreciation and amortization expense increased ~~$0.3~~$2.4 million, or ~~4.4%~~10.9%, to ~~$7.1~~$24.7 million in the third quarter of ~~2019,~~2020, as compared ~~to $6.8 million in the third quarter of 2018, mostly due to increased costs of $0.3 million for wildfire management.~~

~~Depreciation and amortization expense increased $1.3 million, or 6.0%,~~ to $22.3 million in the third quarter of 2019, ~~as compared~~due mostly to ~~$21.0~~capital additions in 2019.

Income taxes increased $1.6 million, or 13.2%, to $13.8 million in the third quarter of ~~2018, primarily due to capital additions.~~

~~Income taxes increased $0.4 million, or 3.5%,~~2020, as compared to $12.2 million in the third quarter of ~~2019,~~2019. The increase was due to an increase in operating income in the third quarter of 2020, partially offset by amortization of the excess deferred taxes as ~~compared~~a result of the TCJA in the proposed decision of the 2018 GRC.

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Property and other taxes increased $0.6 million to ~~$11.8~~$8.1 million in the third quarter of ~~2018, due to an increase in operating income. The Company’s estimated combined effective income tax rate for 2019 is 22%.~~

~~Property and other taxes increased $0.4 million, or 5.6%,~~2020, as compared to $7.5 million in the third quarter of 2019, ~~as compared to $7.1 million in the third quarter of 2018,~~ mostly due to an increase in assessed property values.

Other Income and Expenses

Net other income increased ~~$0.9~~$0.7 million in the third quarter of ~~2019,~~2020, mostly due to a ~~$1.3~~$1.2 million increase in unrealized gain on certain benefit plan investments and $0.8 million decrease in ~~business development expenses and~~other components of net periodic benefit costs which was partially offset by a ~~$0.8~~$0.9 million ~~increase~~decrease in allowance for equity funds used during construction which was partially offset by the non-recurrence of a $0.5 million benefit from Company-owned life insurance which occurred in 2018 and a $0.4 million decrease in unrealized gain on certain benefit plan investments.

construction.

Interest Expense

Net interest expense ~~decreased $1.0~~increased $1.2 million, or ~~10.3%~~13.4%, to $10.5 million in the third quarter of 2020, as compared to $9.3 million in the third quarter of ~~2019, as compared~~2019. The increase was due primarily to ~~$10.3 million~~increased average short term borrowing and decreased interest capitalized in the third quarter of ~~2018. The decrease was due primarily~~2020 as compared to ~~an increase in capitalized interest and reduced interest rates resulting from~~ the ~~refinancing~~third quarter of ~~$300.0 million of first mortgage bonds in~~ 2019.

RESULTS OF THE NINE MONTHS ENDED SEPTEMBER 30, ~~2019~~2020 OPERATIONS

COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, ~~2018~~2019 OPERATIONS

Dollar amounts in thousands unless otherwise stated

Overview

~~As discussed further in Note 13, the Company corrected an immaterial computational error that understated revenue for the nine months ended September 30, 2018.~~Net Income

Net income for the nine months ended September 30, ~~2019~~2020 was ~~$51.8~~$81.3 million or ~~$1.08 earnings~~$1.66 income per diluted common share, compared to net income of ~~$50.2~~$51.8 million or ~~$1.04~~$1.08 earnings per diluted common share for the nine months ended September 30, ~~2018.~~2019.

The ~~$1.6~~$29.5 million increase in net income was ~~driven primarily~~due to our determination that the October 14, 2020 proposed decision in the 2018 GRC was sufficient evidence to record regulatory assets and associated revenues for interim rate recovery. In the third quarter of 2020, we recorded revenues of $37.6 million related to interim rate recovery regulatory assets and customer refunds for TCJA of $7.1 million. These increases were partially offset by ~~$15.2~~increases in depreciation and amortization of $6.8 million, employee wages costs of ~~general rate increases,~~$1.8 million, maintenance expense of $1.7 million, bad debt expenses of $1.6 million, and outside service costs of $1.1 million.

Additionally, certain factors outside the Company's immediate control decreased net income, including a ~~$5.0~~$2.8 million ~~reduction in business development expenses, a $3.6 million increase~~decrease in unrealized ~~income from~~gain on certain benefit plan investments, ~~due to market conditions, and~~which was partially offset by a ~~$2.4~~$2.2 million increase in allowance for equity funds used during construction. These were partially offset by increased operating expenses of $11.8 million, increased net interest expenses of $1.9 million, $1.6 million decrease in benefit from Company owned life insurance, and a $1.4 million reduction inaccrued unbilled ~~revenue accrual.~~

Operating expense changes included increases of $4.3 million in depreciation and amortization, $4.2 million in employee wages, $2.7 million in outside services, $1.6 million in property taxes, and $1.1 million of costs attributable to electric utilities’ PSPS programs and wildfire management.revenue.

Operating Revenue

Operating revenue increased ~~$6.9~~$67.5 million, or ~~1.3%~~12.5%, to ~~$537.7~~$605.2 million in the first nine months of ~~2019~~2020 as compared to the first nine months of ~~2018. The factors that impacted~~2019, with such change attributed to the ~~operating revenue for the first nine months of 2019 as compared to 2018 are as follows:~~following:

Net change due to rate changes, usage, and other (1) $ 17,388
MCBA Revenue (2) (7,313 )
Other balancing account revenue (3) 1,369
Deferral of revenue (4) (4,544 )
Net operating revenue increase $ 6,900


1.	~~The net~~Net change due to rate changes, usage, and other ~~in the above table was mainly driven by rate increases, which was partially offset by a $1.4 million decrease in accrued unbilled revenue. The components~~(1)	$	31,154
WRAM Revenue (2)	(52,362)
MCBA Revenue (3)	47,146
IRMA Revenue (4)	37,623
Other balancing account revenue (5)	1,077
Deferral of ~~the rate increases are as follows:~~ revenue (6)	2,838
Net operating revenue increase	$	67,476

1.The net change due to rate changes, usage, and other in the above table was mainly driven by a $26.5 million increase in volumetric revenue due to a 6.0% increase in customer usage and rate increases, the components of which are set forth in the table below. In addition, there was a $2.2 million increase in accrued unbilled revenue.

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General rate case $ 1,837
Escalation rate increases 12,251
Purchased water and pump tax offsets 4,302
Rate base offsets 1,141
Total increase in rates $ 19,531


2.General rate case			The MCBA revenue decrease resulted from a decrease in actual water production costs relative to adopted water production costs in the first nine months of 2019 as compared to the first nine months of 2018. The actual water production costs decreased as a result of a decrease in customer consumption in the first nine months of 2019 as compared to the first nine months of 2018. As required by the MCBA mechanism, the decrease in actual water production costs relative to adopted water production costs in California also decreased operating revenue for the same amount.$

470
3.Escalation rate increases			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 increase in revenue was mainly due an increase in actual conservation expenses relative to adopted in the first nine months of 2019 as compared to the first nine months of 2018, which was partially offset by a decrease in actual pension expenses relative to adopted in the first nine months of 2019 as compared to the first nine months of 2018.

518
4.Purchased water and pump tax offsets	~~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~~3,847
Rate base offsets	2,023
Total increase in which these revenues were recorded. The deferral increased in the first nine months of 2019 as compared to the first nine months of 2018 due to a decline in actual customer usage relative to adopted customer usage in the first nine months of 2019 as compared to the first nine months of 2018.rates	$	6,858

2.WRAM revenue is the variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts. For the first nine months of 2020, we recognized $17.0 million of WRAM revenue as compared to $69.4 million for the first nine months of 2019. The WRAM revenue decrease in the first nine months of 2020 as compared to the first nine months of 2019 resulted from an increase in actual billed volumetric revenue relative to adopted volumetric revenues. Actual consumption was closer to adopted consumption in the first nine months of 2020 as compared to the first nine months of 2019.

3.MCBA revenue is the variance between adopted water production costs and actual water production costs. For the first nine months of 2020, we recognized $11.8 million of MCBA revenue as compared to a decrease to revenue of $35.4 million for the first nine months of 2019. The MCBA revenue increase in the first nine months of 2020 as compared to the first nine months of 2019 resulted from an increase in actual water production costs relative to adopted water production costs. The actual water production costs increased relative to adopted water production costs in the first nine months of 2020 as compared to the first nine months of 2019 due to a shift in water production mix from well water to purchased water in certain of our service territories. As required by the MCBA mechanism, the increase in actual water production costs relative to adopted water production costs in California also increased operating revenue for the same amount.

4.Due to the delay in the resolution of the 2018 GRC, the CPUC authorized Cal Water to track the effect of the delay on customer billings in an IRMA effective January 1, 2020. Variances between actual customer billings and those that would have been billed assuming the GRC had been effective January 1, 2020 are recorded as regulatory balancing account revenue. In October of 2020, Cal Water received a proposed decision on its 2018 GRC and was able to determine if the 2018 GRC had been resolved effective January 1, 2020, we would have billed customers an additional $37.6 million for the nine months ended September 30, 2020.

5.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 nine months of 2020, we recognized net revenue of $5.2 million for these balancing accounts as compared to a net $4.1 million of revenue for the first nine months of 2019. The increase in revenue was mainly due to an increase in actual pension expenses relative to adopted in the first nine months of 2020 as compared to the first nine months of 2019, which was partially offset by an decrease in actual conservation and health care expenses relative to adopted in the first nine months of 2020 as compared to the first nine months of 2019.

6.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 nine months of 2020 as compared to the first nine months of 2019 due to a decrease in the balancing account revenue expected to be collected beyond 24 months.

Total Operating Expenses

Total operating expenses increased ~~$11.8~~$34.9 million, or ~~2.7%~~7.6%, to $493.5 million in the first nine months of 2020, as compared to $458.6 million in the first nine months of ~~2019, as compared to $446.8 million in the first nine months of 2018.~~2019.

Water production costs consists of purchased water, purchased power, and pump taxes. It represents the largest component of total operating expenses, accounting for approximately 42.6% of total operating expenses in the first nine months of 2020, as compared to 41.6% of total operating expenses in the first nine months of ~~2019, as compared to 42.9% of total operating expenses~~2019. Water production costs increased 10.3% in the first nine months of ~~2018. Water production costs decreased 0.5% in the first nine months of 2019~~2020 as compared to the same period last year mainly due to ~~a decrease~~an increase in customer usage, ~~offset by increased~~changes in water production mix in certain of our service territories, and an increase in rates from our purchased water wholesalers.

Sources of water as a percent of total water production are listed in the following table:

The components of water production costs are shown in the table below:

Administrative and general and other operations expenses increased ~~$8.7~~$9.2 million, or 6.3%, to $155.4 million in the first nine months of 2020, as compared to $146.2 million in the first nine months of ~~2019, as compared to $137.5 million in the first nine months of 2018.~~2019. The increase was primarily due ~~primarily~~ to ~~increases of $4.4~~a $5.7 million increase in employee pension retirement benefit costs, $2.4 million increase in costs associated with deferred WRAM revenue, $1.8 million increase in employee wage cost, $1.6 million increase in bad debt expense, $1.1 million in ~~conservation program costs, $3.5~~outside service cost, $0.6 million increase in ~~employee wages, $2.7 million of outside services, $1.3 million of~~ software maintenance cost, $0.5 million increase in uninsured loss costs, ~~$0.8~~$0.5 million ofincrease in generator rent costs, ~~attributable to electric utilities’ PSPS programs and wildfire management,~~ which were partially offset by a ~~reduction of $3.8~~$3.6 million ofdecrease in water conservation program costs, ~~associated with deferred revenue and a $1.6~~$1.2 million decrease in employee ~~pension benefit~~healthcare costs, and ~~retiree medical~~$0.7 million decrease in travel costs. Changes in employee pension benefits and water conservation program costs for regulated California operations generally do not affect earnings, as the Company is allowed by the CPUC to record these costs in balancing accounts for future recovery, creating a corresponding change to revenue. Employee and retiree medical expenses are recovered ~~in rates through a balancing account authorized in the 2015 GRC, such that revenues are recovered~~ up to 85% of the variance between adopted and recorded expenses.

Maintenance expense increased ~~$1.6~~$1.7 million, or ~~9.2%~~8.9%, to $20.9 million in the first nine months of 2020, as compared to $19.2 million in the first nine months of 2019, ~~as compared~~mostly due to ~~$17.6~~repairs for services, mains, reservoirs, and tanks.

Depreciation and amortization expense increased $6.7 million, or 10.1%, to $73.7 million in the first nine months of ~~2018, mostly due to repair cost increases in reservoirs, tanks, and structures and $0.3 million of costs for wildfire management.~~

~~Depreciation and amortization expense increased $4.3 million, or 6.8%,~~2020, as compared to $67.0 million in the first nine months of 2019, ~~as compared~~mostly due to ~~$62.7~~capital additions in 2019.

Income taxes decreased $3.0 million, or 22.4%, to an income tax expense of $10.5 million in the first nine months of ~~2018, mostly due to capital additions.~~

~~Income taxes decreased $3.5 million, or 20.22%, to $13.5 million in the first nine months of 2019,~~2020, as compared to ~~$17.0~~income tax expense of $13.5 million in the first nine months of ~~2018.~~2019. The decrease was ~~mainly~~mostly due to tax repair benefit and amortization of the excess deferred taxes as a ~~decrease~~result of the TCJA in ~~operating income. The Company’s estimated combined effective income tax rate for 2019 is 22.0%.~~the proposed decision of the 2018 GRC.

Property and other taxes increased ~~$1.6~~$0.6 million ~~or 8.1%,~~to $22.5 million in the nine months of 2020, as compared to $21.9 million in the ~~first nine months~~same period of 2019, ~~as compared to $20.3 million in the first nine months of 2018,~~mostly due ~~primarily~~ to an increase in assessed property values.

Other Income and Expenses

Net other income ~~increased $8.4~~decreased $3.0 million to $0.5 million in the first nine months of 2020, as compared to a net other income of $3.5 million in the first nine months of 2019, ~~as compared to a net other loss of $4.9 million in the first nine months of 2018,~~ due primarily to a ~~$5.0~~$2.8 million decrease ~~of business development expenses, a $3.6 million increase in~~from the unrealized gain from certain benefit plan investments due to market conditions and ~~a $2.4~~$0.8 million ~~increase~~decrease in allowance for equity funds used during construction which was partially offset by a ~~$1.6~~$0.5 million decrease in other components of net periodic benefit ~~from Company-owned life insurance.~~costs.

Net interest expense increased ~~$1.9~~$0.1 million, or ~~6.6%~~0.3%, to $30.8 million in the first nine months of 2020, as compared to $30.7 million in the first nine months of ~~2019, as compared~~2019. The increase was due to ~~$28.8 million~~an increase in average short term borrowing which was offset by decreases in interest rates in the first nine months of ~~2018. The increase was due primarily~~2020 as compared to ~~an increase in financing for capital investments and operations.~~the same period last year.

~~2019~~2020 California Regulatory Activity

~~California~~2018 GRC ~~filing~~Filing

On October ~~8, 2019,~~14, 2020, an ALJ with the CPUC issued a proposed decision for Cal ~~Water jointly filed a formal settlement agreement for its~~Water's 2018 GRC ~~with the Public Advocates Office of~~filing. The proposed decision is subject to adoption by the CPUC ~~covering~~no earlier than the ~~majority~~CPUC’s November 19, 2020 meeting. If adopted as proposed, the decision would approve the settlement reached in October of ~~open matters in the case. The largest component of the GRC is Cal Water’s Infrastructure Improvement Plan for 2019-2021. The settlement details investment plans that~~2019 by Cal Water and the CPUC’s Public Advocates Office, ~~agree should be made to~~allow Cal ~~Water’s water infrastructure~~Water to continue ~~providing safe, reliable water service to~~its decoupling balancing accounts through 2022, and allow Cal Water ~~customers~~to retain its PCBA and ~~communities. The CPUC will consider, but is not required to adopt, the settlement agreement. If the CPUC approves the settlement agreement,~~HCBA. Under this proposed decision, Cal Water would be authorized to ~~include~~invest $828.0 million in ~~rates $609.0 million to $628.0~~its districts throughout California through 2021. This includes $148 million of ~~new projects throughout~~water system infrastructure upgrades that would be recovered via the ~~state in 2019 to 2021, along with approximately $200.0 million for completion of additional projects begun in 2018 and prior periods. Included in these figures are $148.0 million of~~CPUC’s advice letter ~~authorizations, which would not be included in rates until related~~procedure once those projects are completed. ~~Cal Water anticipates that if the settlement were adopted, it would plan~~The proposed decision also authorizes total revenue of up to ~~make capital investments of approximately $809.0~~$698.7 million to $828.0 million in the 2019-2021 period. The settlement proposes, in part, an average water main replacement rate of 0.76% annually company-wide by 2021, with higher replacement rates in some areas. A final decision on the case is expected in late 2019, with new rates going into effect in January offor 2020. ~~Cal Water previously filed a request for interim rates beginning January 1,~~

2020 ~~in the event a final decision is unexpectedly delayed.~~



Delaware						77-0448994
(State or other jurisdiction						(I.R.S. Employer identification No.)
of incorporation or organization)



		Page
PART I Financial Information		3
Item 1 Financial Statements		3
Condensed Consolidated Balance Sheets (unaudited) as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019		3
Condensed Consolidated Statements of Income (unaudited) For the Three Months Ended September 30, ~~2019~~20 20 and ~~2018~~201 9		4
Condensed Consolidated Statements of Income (unaudited) For the Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019		5
Condensed Consolidated Statements of Cash Flows (unaudited) For the Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019		6
Notes to Unaudited Condensed Consolidated Financial Statements		7
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		3328
Item 3 Quantitative and Qualitative Disclosure about Market Risk		4640
Item 4 Controls and Procedures		4640
PART II Other Information		4741
Item 1 Legal Proceedings		4741
Item 1A Risk Factors		4741
Item ~~5 Other Information~~6 Exhibits		4742
~~Item 6 Exhibits~~Signatures		4843
~~Signatures~~	49



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


	September 30, 2019			December 31, 2018				September 30, 2020		December 31, 2019
ASSETS							ASSETS
Utility plant:							Utility plant:
Utility plant	$	3,411,219		$	3,229,446		Utility plant	$	3,835,194	$	3,550,485
Less accumulated depreciation and amortization	(1,067,965		)	(996,723		)	Less accumulated depreciation and amortization	(1,238,880)		(1,144,115)
Net utility plant	2,343,254			2,232,723			Net utility plant	2,596,314		2,406,370
Current assets:							Current assets:
Cash and cash equivalents	51,257			47,176			Cash and cash equivalents	113,312		42,653
Receivables:							Receivables:
Customers	45,624			30,037
Customers, net							Customers, net	53,397		32,058
Regulatory balancing accounts	33,437			42,394			Regulatory balancing accounts	54,415		38,225
Other	16,977			17,101
Unbilled revenue	42,562			33,427
Other, net							Other, net	15,056		14,187
Unbilled revenue, net							Unbilled revenue, net	46,247		34,879
Materials and supplies at weighted average cost	7,804			6,586			Materials and supplies at weighted average cost	8,611		7,745
Taxes, prepaid expenses, and other assets	14,395			11,981			Taxes, prepaid expenses, and other assets	14,726		14,965
Total current assets	212,056			188,702			Total current assets	305,764		184,712
Other assets:							Other assets:
Regulatory assets	382,484			353,569			Regulatory assets	484,435		433,322
Goodwill	2,615			2,615			Goodwill	30,349		2,615
Other assets	82,845			60,095			Other assets	89,572		84,289
Total other assets	467,944			416,279			Total other assets	604,356		520,226
TOTAL ASSETS	$	3,023,254		$	2,837,704		TOTAL ASSETS	$	3,506,434	$	3,111,308
CAPITALIZATION AND LIABILITIES							CAPITALIZATION AND LIABILITIES
Capitalization:							Capitalization:
Common stock, $0.01 par value; 68,000 shares authorized, 48,145 and 48,065 outstanding in 2019 and 2018, respectively	$	481		$	481
Common stock, $0.01 par value; 68,000 shares authorized, 49,840 and 48,532 outstanding in 2020 and 2019, respectively							Common stock, $0.01 par value; 68,000 shares authorized, 49,840 and 48,532 outstanding in 2020 and 2019, respectively	$	498	$	485
Additional paid-in capital	341,988			337,623			Additional paid-in capital	422,391		362,275
Retained earnings	415,326			392,053			Retained earnings	467,303		417,146
Total common stockholders’ equity	757,795			730,157			Total common stockholders’ equity	890,192		779,906
Long-term debt, net	807,478			710,027			Long-term debt, net	785,055		786,754
Total capitalization	1,565,273			1,440,184			Total capitalization	1,675,247		1,566,660
Current liabilities:							Current liabilities:
Current maturities of long-term debt, net	5,280			104,911			Current maturities of long-term debt, net	21,883		21,868
Short-term borrowings	155,100			65,100			Short-term borrowings	375,100		175,100
Accounts payable	108,593			95,580			Accounts payable	127,158		108,463
Regulatory balancing accounts	6,887			12,213			Regulatory balancing accounts	11,003		4,462
Accrued interest	14,410			5,674			Accrued interest	14,233		5,810
Accrued expenses and other liabilities	43,674			37,688			Accrued expenses and other liabilities	54,446		43,018
Total current liabilities	333,944			321,166			Total current liabilities	603,823		358,721
Unamortized investment tax credits	1,649			1,649
Deferred income taxes	229,237			213,033			Deferred income taxes	245,456		222,590
Pension and postretirement benefits other than pensions	203,557			193,538			Pension and postretirement benefits other than pensions	261,081		258,907
Regulatory liabilities and other	260,812			256,522			Regulatory liabilities and other	257,054		271,831
Advances for construction	190,272			186,342			Advances for construction	196,853		191,062
Contributions in aid of construction	238,510			225,270			Contributions in aid of construction	266,920		241,537
Commitments and contingencies (Note 10)							Commitments and contingencies (Note 10)
TOTAL CAPITALIZATION AND LIABILITIES	$	3,023,254		$	2,837,704		TOTAL CAPITALIZATION AND LIABILITIES	$	3,506,434	$	3,111,308


For the three months ended	September 30, 2019			September 30, 2018			For the three months ended	September 30, 2020		September 30, 2019
Operating revenue	$	232,537		$	221,288		Operating revenue	$	304,108	$	232,537
Operating expenses:							Operating expenses:
Operations:							Operations:
Water production costs	80,568			78,818			Water production costs	85,344		80,568
Administrative and general	26,779			26,493			Administrative and general	29,208		26,779
Other operations	24,550			21,943			Other operations	29,746		24,550
Maintenance	7,065			6,768			Maintenance	7,129		7,065
Depreciation and amortization	22,273			21,009			Depreciation and amortization	24,699		22,273
Income taxes	12,194			11,786			Income taxes	13,804		12,194
Property and other taxes	7,541			7,142			Property and other taxes	8,116		7,541
Total operating expenses	180,970			173,959			Total operating expenses	198,046		180,970
Net operating income	51,567			47,329			Net operating income	106,062		51,567
Other income and expenses:							Other income and expenses:
Non-regulated revenue	4,118			4,703			Non-regulated revenue	3,934		4,118
Non-regulated expenses	(4,351		)	(4,897		)	Non-regulated expenses	(2,865)		(4,351)
Other components of net periodic benefit cost	(1,857		)	(1,975		)	Other components of net periodic benefit cost	(1,008)		(1,857)
Allowance for equity funds used during construction	1,868			1,023			Allowance for equity funds used during construction	973		1,868
Income tax benefit on other income and expenses	330			305
Net other income (loss)	108			(841		)
Income tax (expense) benefit on other income and expenses							Income tax (expense) benefit on other income and expenses	(245)		330
Net other income							Net other income	789		108
Interest expense:							Interest expense:
Interest expense	10,279			10,875			Interest expense	11,162		10,279
Allowance for borrowed funds used during construction	(1,028		)	(560		)	Allowance for borrowed funds used during construction	(671)		(1,028)
Net interest expense	9,251			10,315			Net interest expense	10,491		9,251
Net income	$	42,424		$	36,173		Net income	$	96,360	$	42,424
Earnings per share:	0			—			Earnings per share:
Basic	$	0.88		$	0.75		Basic	$	1.94	$	0.88
Diluted	0.88			0.75			Diluted	1.94		0.88
Weighted average shares outstanding:							Weighted average shares outstanding:
Basic	48,141			48,070			Basic	49,576		48,141
Diluted	48,141			48,070			Diluted	49,576		48,141


For the nine months ended	September 30, 2019			September 30, 2018			For the nine months ended	September 30, 2020		September 30, 2019
Operating revenue	$	537,679		$	530,779		Operating revenue	$	605,155	$	537,679
Operating expenses:							Operating expenses:
Operations:							Operations:
Water production costs	190,795			191,797			Water production costs	210,462		190,795
Administrative and general	81,310			77,195			Administrative and general	85,827		81,310
Other operations	64,913			60,307			Other operations	69,618		64,913
Maintenance	19,212			17,596			Maintenance	20,924		19,212
Depreciation and amortization	66,967			62,677			Depreciation and amortization	73,733		66,967
Income taxes	13,524			16,950			Income taxes	10,489		13,524
Property and other taxes	21,902			20,253			Property and other taxes	22,470		21,902
Total operating expenses	458,623			446,775			Total operating expenses	493,523		458,623
Net operating income	79,056			84,004			Net operating income	111,632		79,056
Other income and expenses:							Other income and expenses:
Non-regulated revenue	14,149			13,967			Non-regulated revenue	11,969		14,149
Non-regulated expenses	(10,470		)	(16,449		)	Non-regulated expenses	(11,811)		(10,470)
Other components of net periodic benefit cost	(4,308		)	(6,984		)	Other components of net periodic benefit cost	(3,770)		(4,308)
Allowance for equity funds used during construction	5,087			2,644			Allowance for equity funds used during construction	4,292		5,087
Income tax (expense) benefit on other income and expenses	(985		)	1,882
Net other income (loss)	3,473			(4,940		)
Income taxes on other income and expenses							Income taxes on other income and expenses	(152)		(985)
Net other income							Net other income	528		3,473
Interest expense:							Interest expense:
Interest expense	33,532			30,207			Interest expense	33,573		33,532
Allowance for borrowed funds used during construction	(2,783		)	(1,359		)	Allowance for borrowed funds used during construction	(2,747)		(2,783)
Net interest expense	30,749			28,848			Net interest expense	30,826		30,749
Net income	$	51,780		$	50,216		Net income	$	81,334	$	51,780
Earnings per share:							Earnings per share:
Basic	$	1.08		$	1.04		Basic	$	1.66	$	1.08
Diluted	1.08			1.04			Diluted	1.66		1.08
Weighted average shares outstanding:							Weighted average shares outstanding:
Basic	48,121			48,058			Basic	49,034		48,121
Diluted	48,121			48,058			Diluted	49,034		48,121


For the nine months ended:	September 30, 2019			September 30, 2018
For the nine months ended							For the nine months ended	September 30, 2020		September 30, 2019
Operating activities:							Operating activities:
Net income	$	51,780		$	50,216		Net income	$	81,334	$	51,780
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	68,522			64,131			Depreciation and amortization	75,550		68,522
Change in value of life insurance contracts	(3,433		)	124			Change in value of life insurance contracts	(621)		(3,433)
Allowance for equity funds used during construction	(5,087		)	(2,644		)	Allowance for equity funds used during construction	(4,292)		(5,087)
Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Receivables and unbilled revenue	(29,436		)	(18,471		)	Receivables and unbilled revenue	(41,374)		(29,436)
Accounts payable	16,735			18,133			Accounts payable	7,199		16,735
Other current assets	(3,937		)	(1,392		)	Other current assets	(536)		(3,937)
Other current liabilities	11,597			8,762			Other current liabilities	16,304		11,597
Other changes in noncurrent assets and liabilities	21,602			644			Other changes in noncurrent assets and liabilities	(36,900)		21,602
Net cash provided by operating activities	128,343			119,503			Net cash provided by operating activities	96,664		128,343
Investing activities:							Investing activities:
Utility plant expenditures	(194,942		)	(212,856		)	Utility plant expenditures	(221,261)		(194,942)
Life insurance proceeds	—			3,491
Purchase of life insurance contracts	(2,216		)	(4,925		)	Purchase of life insurance contracts	(2,335)		(2,216)
Business acquisition, net of cash acquired							Business acquisition, net of cash acquired	(39,544)		0
Net cash used in investing activities	(197,158		)	(214,290		)	Net cash used in investing activities	(263,140)		(197,158)
Financing activities:							Financing activities:
Short-term borrowings	210,000			141,000			Short-term borrowings	270,000		210,000
Repayment of short-term borrowings	(120,000		)	(341,000		)	Repayment of short-term borrowings	(70,000)		(120,000)
Issuance of long-term debt, net of expenses of $1,569 for 2019 and $617 for 2018	398,431			299,383
Issuance of long-term debt, net of expenses of $1,569 for 2019							Issuance of long-term debt, net of expenses of $1,569 for 2019	0		398,431
Repayment of long-term debt	(401,630		)	(12,499		)	Repayment of long-term debt	(1,535)		(401,630)
Advances and contributions in aid of construction	21,266			13,630			Advances and contributions in aid of construction	19,862		21,266
Refunds of advances for construction	(5,560		)	(5,462		)	Refunds of advances for construction	(7,017)		(5,560)
Repurchase of common stock	(2,355		)	(1,496		)	Repurchase of common stock	(1,578)		(2,355)
Issuance of common stock	1,278			—			Issuance of common stock	58,573		1,278
Dividends paid	(28,507		)	(27,029		)	Dividends paid	(31,177)		(28,507)
Net cash provided by financing activities	72,923			66,527			Net cash provided by financing activities	237,128		72,923
Change in cash, cash equivalents, and restricted cash	4,108			(28,260		)	Change in cash, cash equivalents, and restricted cash	70,652		4,108
Cash, cash equivalents, and restricted cash at beginning of period	47,715			95,352			Cash, cash equivalents, and restricted cash at beginning of period	43,298		47,715
Cash, cash equivalents, and restricted cash at end of period	$	51,823		$	67,092		Cash, cash equivalents, and restricted cash at end of period	$	113,950	$	51,823
Supplemental information:							Supplemental information:
Cash paid for interest (net of amounts capitalized)	$	22,060		$	19,956		Cash paid for interest (net of amounts capitalized)	$	21,862	$	22,060
Supplemental disclosure of non-cash activities:							Supplemental disclosure of non-cash activities:
Accrued payables for investments in utility plant	$	31,676		$	32,328		Accrued payables for investments in utility plant	$	47,015	$	31,676
Utility plant contribution by developers	$	23,955		$	14,807		Utility plant contribution by developers	$	22,762	$	23,955



Year Ending December 31,	Operating Leases
2019	$	3,153
2020	2,587
2021	1,880
2022	1,078
2023	584
Thereafter	871



	September 30, 2019		December 31, 2018
Cash and cash equivalents	51,257		47,176
Restricted cash (included in "taxes, prepaid expenses and other assets")	566		539
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows	$	51,823	$	47,715



	Nine months ended September 30, 2018
	Common Stock				Additional Paid-in Capital			Retained Earnings			Total Stockholders' Equity
	Shares		Amount		Additional Paid-in Capital			Retained Earnings			Total Stockholders' Equity
	(In thousands)
Balance at January 1, 2018	48,012		$	480	$	336,229		$	362,512		$	699,221
Net loss								(762		)	(762		)
Issuance of common stock	95		1		635			—			636
Repurchase of common stock	(33	)	—		(1,239		)	—			(1,239		)
Dividends paid on common stock ($0.1875 per share)								(9,003		)	(9,003		)
Balance at March 31, 2018	48,074		481		335,625			352,747			688,853
Net income								14,805			14,805
Issuance of common stock	—		—		737			—			737
Repurchase of common stock	(4	)	—		(124		)	—			(124		)
Dividends paid on common stock ($0.1875 per share)								(9,014		)	(9,014		)
Balance at June 30, 2018	48,070		481		336,238			358,538			695,257
Net income								36,173			36,173
Issuance of common stock	1		—		853			—			853
Repurchase of common stock	(3	)	—		(131		)	—			(131		)
Dividends paid on common stock ($0.1875 per share)								(9,012		)	(9,012		)
Balance at September 30, 2018	48,068		481		336,960			385,699			723,140



	As of September 30, 2019
Operating leases
Other assets	$	14,349

Accrued expenses and other liabilities	$	1,421
Regulatory liabilities and other	12,885
Total operating lease liabilities	$	14,306

Finance leases
Utility plant	$	18,207
Accumulated depreciation and amortization	(9,352		)
Net utility plant	$	8,855

Current maturities of long-term debt, net	$	670
Long-term debt, net	5,378
Total finance lease liabilities	$	6,048

Weighted average remaining lease term
Operating leases	155 months
Finance leases	80 months

Weighted average discount rate
Operating leases	3.7		%
Finance leases	5.5		%



	Nine Months Ended September 30
	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,322
Operating cash flows from finance leases	264
Financing cash flows from finance leases	508
Non-cash activities: right-of-use assets obtained in exchange for lease obligations:
Operating leases	1,697
Finance leases	672



2019	$	1,771
2020	1,709
2021	1,485
2022	1,355
2023	1,261
Thereafter	10,538
Total	$	18,119



	For the three months ended September 30, 2018
	As Previously Reported		Corrections		As Corrected
	(In thousands, except per share data)
Operating revenue	$	218,983	$	2,305	$	221,288
Operating expenses:
Income taxes	11,262		524		11,786
Total operating expenses	173,435		524		173,959
Net operating income	45,548		1,781		47,329
Net income	$	34,392	$	1,781	$	36,173
Earnings per share:
Basic	$	0.72	$	0.03	$	0.75
Diluted	$	0.72	$	0.03	$	0.75



	January 1, 2018
	As Previously Reported		Corrections		As Corrected
	(In thousands)
Retained earnings	$	356,753	$	5,759	$	362,512
Total common stockholders' equity	693,462		5,759		699,221



	March 31, 2018
	As Previously Reported		Corrections		As Corrected
	(In thousands)
Retained earnings	$	345,205	$	7,542	$	352,747
Total common stockholders' equity	681,311		7,542		688,853



	June 30, 2018
	As Previously Reported		Corrections		As Corrected
	(In thousands)
Retained earnings	$	349,213	$	9,325	$	358,538
Total common stockholders' equity	685,932		9,325		695,257



	September 30, 2018
	As Previously Reported		Corrections		As Corrected
	(In thousands)
Retained earnings	$	374,593	$	11,106	$	385,699
Total common stockholders' equity	712,034		11,106		723,140



Net change due to rate changes, usage, and other (1)	$	12,874
MCBA Revenue (2)	(395		)
Other balancing account revenue (3)	1,454
Deferral of revenue (4)	(2,684		)
Net operating revenue increase	$	11,249



General rate case	761
Escalation rate increases	5,218
Purchased water and pump tax offsets	1,743
Rate base offsets	162
Total increase in rates	$	7,884



Net change due to rate changes, usage, and other (1)	$	17,388
MCBA Revenue (2)	(7,313		)
Other balancing account revenue (3)	1,369
Deferral of revenue (4)	(4,544		)
Net operating revenue increase	$	6,900



General rate case	$	1,837
Escalation rate increases	12,251
Purchased water and pump tax offsets	4,302
Rate base offsets	1,141
Total increase in rates	$	19,531



Exhibit		Description
~~1.1~~3.3			~~Equity Distribution Agreement, dated as~~Amended and Restated Bylaws of ~~October 31, 2019, between~~ California Water Service Group, ~~and Morgan Stanley & Co. LLC, Robert W. Baird & Co. Incorporated, Blaylock Van, LLC, and Wells Fargo Securities, LLC~~as amended on September 30, 2020 (Exhibit 3.1 to the Current Report on Form 8-K filed October 5, 2020)

4.0				The Company agrees to furnish upon request to the Securities and Exchange Commission a copy of each instrument defining the rights of holders of long-term debt of the Company

~~4.1~~31.1			Sixty-Second Supplemental Indenture dated as of June 11, 2019, between California Water Service Company and U.S. Bank National Association, as Trustee, covering 3.40% First Mortgage Bonds due 2029, Series VVV, 4.07% First Mortgage Bonds due 2049, Series WWW, and 4.17% First Mortgage Bonds due 2059, Series YYY (Exhibit 10.1 to the Current Report on Form 8-K filed June 18, 2019)

~~5.1~~	~~Opinion of Gibson, Dunn & Crutcher LLP~~

~~10.1~~	Credit Agreement dated as of March 29, 2019 among California Water Service Group and certain of its subsidiaries from time to time party thereto, as borrowers, Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as sole lead arranger and sole bookrunner, CoBank, ACB, and U.S. Bank National Association as co-syndication agents, Bank of China, Los Angeles Branch and Wells Fargo Bank, National Association as co-documentation agents, and the other lender parties thereto (Exhibit 10.1 to the Current Report on Form 8-K filed March 29, 2019).

~~10.2~~	Credit Agreement dated as of March 29, 2019 among California Water Service Company as borrower, Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as sole lead arranger and sole bookrunner, CoBank, ACB, and U.S. Bank National Association as co-syndication agents, Bank of China, Los Angeles Branch and Wells Fargo Bank, National Association as co-documentation agents, and the other lender parties thereto (Exhibit 10.2 to the Current Report on Form 8-K filed March 29, 2019).

~~23.1~~	~~Consent of Gibson, Dunn & Crutcher LLP (contained in Exhibit 5.1)~~

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

31.2			Chief Financial Officer certification of financial statements pursuant to Section 302 of the Sarbanes- Oxley Act of 2002

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

101				The following materials from ~~California Water Service Group's~~this Quarterly Report on Form 10-Q ~~for the quarter ended September 30, 2019~~ formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of ~~(Loss)~~ Income, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to the Condensed Consolidated Financial Statements.
~~104~~
104		The cover page from ~~California Water Service Group's~~this Quarterly Report on Form 10-Q ~~for the quarter ended September 30, 2019,~~ formatted in iXBRL (included as exhibit 101)



	CALIFORNIA WATER SERVICE GROUP
	Registrant

~~October 31, 2019~~November 6, 2020	By:	/s/ Thomas F. Smegal III
		Thomas F. Smegal III
		Vice President,
		Chief Financial Officer and Treasurer