UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, ~~2021~~2022


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

For the transition period from to

Commission File Number 1-13883

CALIFORNIA WATER SERVICE GROUP

(Exact name of registrant as specified in its charter)


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

1720 North First Street

San Jose, California 95112

(Address of principal executive offices)

408-367-8200

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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

Title of Each Class:

Trading Symbol(s)

Name of Each Exchange on Which Registered:

Common Stock, $0.01 par value per 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 accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


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

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

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

As of September 30, ~~2021~~2022 — there were approximately ~~52,608,000~~54,824,000 shares of common stock outstanding.

Table of Contents

TABLE OF CONTENTS


			Page
PART I Financial Information			3
Item 1 Financial Statements			3
Condensed Consolidated Balance Sheets (unaudited) as of September 30, ~~2021~~2022 and December 31, ~~2020~~2021			3
Condensed Consolidated Statements of Operations (unaudited) For the Three Months Ended ~~September~~Septembe r 30, ~~2021~~2022 and ~~2020~~2021			4
Condensed Consolidated Statements of Operations (unaudited) For the Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021			5
Condensed Consolidated Statements of Cash Flows (unaudited) For the Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021			6
Notes to Unaudited Condensed Consolidated Financial Statements			7
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3 Quantitative and Qualitative Disclosure about Market Risk			3334
Item 4 Controls and Procedures			3335
PART II Other Information			3435
Item 1 Legal Proceedings			3435
Item 1A Risk Factors			3435
Item 6 Exhibits			3436
Signatures			3537

Table of Contents

PART I FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

The condensed consolidated financial statements presented in this filing on Form 10-Q have been prepared by management and are unaudited.

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited (In thousands, except per share data)


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Utility plant:	Utility plant:					Utility plant:
Utility plant	Utility plant	$	4,124,024	$	3,890,423	Utility plant	$	4,422,312	$	4,197,344
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	(1,327,655)		(1,239,865)		Less accumulated depreciation and amortization	(1,434,700)		(1,350,482)
Net utility plant	Net utility plant	2,796,369		2,650,558		Net utility plant	2,987,612		2,846,862
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	140,368		44,555		Cash and cash equivalents	90,458		78,380
Restricted cash						Restricted cash	22,984		2,273
Receivables:	Receivables:					Receivables:
Customers, net	Customers, net	67,807		44,025		Customers, net	79,239		60,785
Regulatory balancing accounts	Regulatory balancing accounts	85,027		96,241		Regulatory balancing accounts	54,654		78,597
Other, net	Other, net	20,448		20,331		Other, net	22,496		18,452
Unbilled revenue, net	Unbilled revenue, net	54,129		34,069		Unbilled revenue, net	43,417		32,760
Materials and supplies at weighted average cost	Materials and supplies at weighted average cost	9,383		8,831		Materials and supplies at weighted average cost	10,994		9,511
Taxes, prepaid expenses, and other assets	Taxes, prepaid expenses, and other assets	16,246		17,964		Taxes, prepaid expenses, and other assets	14,923		19,700
Total current assets	Total current assets	393,408		266,016		Total current assets	339,165		300,458
Other assets:	Other assets:					Other assets:
Regulatory assets	Regulatory assets	328,505		325,376		Regulatory assets	298,362		285,692
Goodwill	Goodwill	36,815		31,842		Goodwill	36,814		36,814
Other assets	Other assets	124,592		120,456		Other assets	144,445		153,445
Total other assets	Total other assets	489,912		477,674		Total other assets	479,621		475,951
TOTAL ASSETS	TOTAL ASSETS	$	3,679,689	$	3,394,248	TOTAL ASSETS	$	3,806,398	$	3,623,271
CAPITALIZATION AND LIABILITIES	CAPITALIZATION AND LIABILITIES					CAPITALIZATION AND LIABILITIES
Capitalization:	Capitalization:					Capitalization:
Common stock, $0.01 par value; 68,000 shares authorized, 52,608 and 50,334 outstanding in 2021 and 2020, respectively		$	526	$	503
Common stock, $0.01 par value; 136,000 shares authorized, 54,824 and 53,716 outstanding in 2022 and 2021, respectively						Common stock, $0.01 par value; 136,000 shares authorized, 54,824 and 53,716 outstanding in 2022 and 2021, respectively	$	548	$	537
Additional paid-in capital	Additional paid-in capital	580,760		448,632		Additional paid-in capital	711,004		651,121
Retained earnings	Retained earnings	534,685		472,209		Retained earnings	561,907		525,936
Noncontrolling interests	Noncontrolling interests	4,689		—		Noncontrolling interests	4,873		5,386
Total equity	Total equity	1,120,660		921,344		Total equity	1,278,332		1,182,980
Long-term debt, net	Long-term debt, net	1,059,724		781,100		Long-term debt, net	1,053,944		1,055,794
Total capitalization	Total capitalization	2,180,384		1,702,444		Total capitalization	2,332,276		2,238,774
Current liabilities:	Current liabilities:					Current liabilities:
Current maturities of long-term debt, net	Current maturities of long-term debt, net	5,180		5,127		Current maturities of long-term debt, net	5,790		5,192
Short-term borrowings	Short-term borrowings	120,000		370,000		Short-term borrowings	70,000		35,000
Accounts payable	Accounts payable	148,415		131,725		Accounts payable	157,911		144,369
Regulatory balancing accounts	Regulatory balancing accounts	19,273		34,636		Regulatory balancing accounts	9,684		17,547
Accrued interest	Accrued interest	17,170		6,178		Accrued interest	17,338		6,542
Accrued expenses and other liabilities	Accrued expenses and other liabilities	50,900		41,040		Accrued expenses and other liabilities	61,824		47,926
Total current liabilities	Total current liabilities	360,938		588,706		Total current liabilities	322,547		256,576
Deferred income taxes	Deferred income taxes	284,193		276,032		Deferred income taxes	312,193		298,945
Pension and postretirement benefits other than pensions		114,192		115,581
Pension						Pension	96,063		92,287
Regulatory liabilities and other	Regulatory liabilities and other	257,108		247,810		Regulatory liabilities and other	256,611		252,938
Advances for construction	Advances for construction	198,344		195,625		Advances for construction	199,277		198,086
Contributions in aid of construction	Contributions in aid of construction	284,530		268,050		Contributions in aid of construction	287,431		285,665
Commitments and contingencies (Note 10)	Commitments and contingencies (Note 10)	0		0		Commitments and contingencies (Note 10)
TOTAL CAPITALIZATION AND LIABILITIES	TOTAL CAPITALIZATION AND LIABILITIES	$	3,679,689	$	3,394,248	TOTAL CAPITALIZATION AND LIABILITIES	$	3,806,398	$	3,623,271

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited (In thousands, except per share data)


For the three months ended	For the three months ended	September 30, 2021		September 30, 2020		For the three months ended	September 30, 2022		September 30, 2021
Operating revenue	Operating revenue	$	256,723	$	304,108	Operating revenue	$	266,307	$	256,723
Operating expenses:	Operating expenses:					Operating expenses:
Operations:	Operations:					Operations:
Water production costs	Water production costs	84,951		85,344		Water production costs	88,750		84,951
Administrative and general	Administrative and general	30,712		29,208		Administrative and general	33,328		30,712
Other operations	Other operations	24,686		29,746		Other operations	26,676		24,686
Maintenance	Maintenance	7,739		7,129		Maintenance	8,433		7,739
Depreciation and amortization	Depreciation and amortization	27,232		24,699		Depreciation and amortization	28,844		27,232
Income taxes	Income taxes	1,705		13,804		Income taxes	5,890		1,705
Property and other taxes	Property and other taxes	8,546		8,116		Property and other taxes	9,440		8,546
Total operating expenses	Total operating expenses	185,571		198,046		Total operating expenses	201,361		185,571
Net operating income	Net operating income	71,152		106,062		Net operating income	64,946		71,152
Other income and expenses:	Other income and expenses:					Other income and expenses:
Non-regulated revenue	Non-regulated revenue	5,813		3,934		Non-regulated revenue	4,573		5,813
Non-regulated expenses	Non-regulated expenses	(5,779)		(2,865)		Non-regulated expenses	(6,905)		(5,779)
Other components of net periodic benefit credit (cost)		1,853		(1,008)
Other components of net periodic benefit credit						Other components of net periodic benefit credit	3,737		1,853
Allowance for equity funds used during construction	Allowance for equity funds used during construction	898		973		Allowance for equity funds used during construction	1,004		898
Income tax expense on other income and expenses	Income tax expense on other income and expenses	(207)		(245)		Income tax expense on other income and expenses	(353)		(207)
Net other income	Net other income	2,578		789		Net other income	2,056		2,578
Interest expense:	Interest expense:					Interest expense:
Interest expense	Interest expense	11,737		11,162		Interest expense	11,891		11,737
Allowance for borrowed funds used during construction	Allowance for borrowed funds used during construction	(506)		(671)		Allowance for borrowed funds used during construction	(572)		(506)
Net interest expense	Net interest expense	11,231		10,491		Net interest expense	11,319		11,231
Net income	Net income	62,499		96,360		Net income	55,683		62,499
Net income attributable to noncontrolling interests		70		—
Net (loss) income attributable to noncontrolling interests						Net (loss) income attributable to noncontrolling interests	(189)		70
Net income attributable to California Water Service Group	Net income attributable to California Water Service Group	$	62,429	$	96,360	Net income attributable to California Water Service Group	$	55,872	$	62,429
Earnings per share of common stock:	Earnings per share of common stock:					Earnings per share of common stock:
Basic	Basic	$	1.20	$	1.94	Basic	$	1.03	$	1.20
Diluted	Diluted	1.20		1.94		Diluted	$	1.03	$	1.20
Weighted average shares outstanding:	Weighted average shares outstanding:					Weighted average shares outstanding:
Basic	Basic	51,823		49,576		Basic	54,007		51,823
Diluted	Diluted	51,823		49,576		Diluted	54,042		51,823

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited (In thousands, except per share data)


For the nine months ended	For the nine months ended	September 30, 2021		September 30, 2020		For the nine months ended	September 30, 2022		September 30, 2021
Operating revenue	Operating revenue	$	617,583	$	605,155	Operating revenue	$	645,494	$	617,583
Operating expenses:	Operating expenses:					Operating expenses:
Operations:	Operations:					Operations:
Water production costs	Water production costs	214,688		210,462		Water production costs	221,195		214,688
Administrative and general	Administrative and general	92,837		85,827		Administrative and general	99,425		92,837
Other operations	Other operations	63,318		69,618		Other operations	81,945		63,318
Maintenance	Maintenance	21,118		20,924		Maintenance	23,389		21,118
Depreciation and amortization	Depreciation and amortization	81,516		73,733		Depreciation and amortization	86,387		81,516
Income taxes	Income taxes	3,576		10,489		Income taxes	5,927		3,576
Property and other taxes	Property and other taxes	24,213		22,470		Property and other taxes	25,853		24,213
Total operating expenses	Total operating expenses	501,266		493,523		Total operating expenses	544,121		501,266
Net operating income	Net operating income	116,317		111,632		Net operating income	101,373		116,317
Other income and expenses:	Other income and expenses:					Other income and expenses:
Non-regulated revenue	Non-regulated revenue	16,759		11,969		Non-regulated revenue	16,772		16,759
Non-regulated expenses	Non-regulated expenses	(12,354)		(11,811)		Non-regulated expenses	(22,432)		(12,354)
Other components of net periodic benefit credit (cost)		7,520		(3,770)
Other components of net periodic benefit credit						Other components of net periodic benefit credit	11,516		7,520
Allowance for equity funds used during construction	Allowance for equity funds used during construction	2,290		4,292		Allowance for equity funds used during construction	3,021		2,290
Income tax expense on other income and expenses	Income tax expense on other income and expenses	(1,077)		(152)		Income tax expense on other income and expenses	(1,210)		(1,077)
Net other income	Net other income	13,138		528		Net other income	7,667		13,138
Interest expense:	Interest expense:					Interest expense:
Interest expense	Interest expense	33,165		33,573		Interest expense	34,972		33,165
Allowance for borrowed funds used during construction	Allowance for borrowed funds used during construction	(1,253)		(2,747)		Allowance for borrowed funds used during construction	(1,724)		(1,253)
Net interest expense	Net interest expense	31,912		30,826		Net interest expense	33,248		31,912
Net income	Net income	97,543		81,334		Net income	75,792		97,543
Net loss attributable to noncontrolling interests	Net loss attributable to noncontrolling interests	(79)		—		Net loss attributable to noncontrolling interests	(650)		(79)
Net income attributable to California Water Service Group	Net income attributable to California Water Service Group	$	97,622	$	81,334	Net income attributable to California Water Service Group	$	76,442	$	97,622
Earnings per share of common stock:	Earnings per share of common stock:					Earnings per share of common stock:
Basic	Basic	$	1.91	$	1.66	Basic	$	1.41	$	1.91
Diluted	Diluted	1.91		1.66		Diluted	$	1.41	$	1.91
Weighted average shares outstanding:	Weighted average shares outstanding:					Weighted average shares outstanding:
Basic	Basic	51,119		49,034		Basic	54,063		51,119
Diluted	Diluted	51,119		49,034		Diluted	54,104		51,119

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited (In thousands)


For the nine months ended	For the nine months ended	September 30, 2021		September 30, 2020		For the nine months ended	September 30, 2022		September 30, 2021
Operating activities:	Operating activities:					Operating activities:
Net income	Net income	$	97,543	$	81,334	Net income	$	75,792	$	97,543
Adjustments to reconcile net income to net cash provided by operating activities:	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	Depreciation and amortization	83,673		75,550		Depreciation and amortization	88,488		83,673
Change in value of life insurance contracts	Change in value of life insurance contracts	(2,097)		(621)		Change in value of life insurance contracts	9,319		(2,097)
Allowance for equity funds used during construction	Allowance for equity funds used during construction	(2,290)		(4,292)		Allowance for equity funds used during construction	(3,021)		(2,290)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Receivables and unbilled revenue	Receivables and unbilled revenue	(43,220)		(41,374)		Receivables and unbilled revenue	(67,277)		(43,220)
Water Arrearages Payment Program cash received						Water Arrearages Payment Program cash received	20,836		—
Water Arrearages Payment Program cash returned						Water Arrearages Payment Program cash returned	(3,609)		—
Accounts payable	Accounts payable	(2,914)		7,199		Accounts payable	1,055		(2,914)
Other current assets	Other current assets	1,654		(536)		Other current assets	3,293		1,654
Other current liabilities	Other current liabilities	16,541		16,304		Other current liabilities	22,447		16,541
Other changes in noncurrent assets and liabilities	Other changes in noncurrent assets and liabilities	30,268		(36,900)		Other changes in noncurrent assets and liabilities	52,518		30,268
Net cash provided by operating activities	Net cash provided by operating activities	179,158		96,664		Net cash provided by operating activities	199,841		179,158
Investing activities:	Investing activities:					Investing activities:
Utility plant expenditures	Utility plant expenditures	(207,748)		(221,261)		Utility plant expenditures	(222,088)		(207,748)
Life insurance proceeds						Life insurance proceeds	6,688		—
Purchase of life insurance contracts	Purchase of life insurance contracts	(2,335)		(2,335)		Purchase of life insurance contracts	(6,688)		(2,335)
Business acquisition, net of cash acquired	Business acquisition, net of cash acquired	(6,451)		(39,544)		Business acquisition, net of cash acquired	—		(6,451)
Asset acquisition						Asset acquisition	(6,319)		—
Return of investment	Return of investment	1,000		—		Return of investment	—		1,000
Net cash used in investing activities	Net cash used in investing activities	(215,534)		(263,140)		Net cash used in investing activities	(228,407)		(215,534)
Financing activities:	Financing activities:					Financing activities:
Short-term borrowings	Short-term borrowings	180,000		270,000		Short-term borrowings	95,000		180,000
Repayment of short-term borrowings	Repayment of short-term borrowings	(430,000)		(70,000)		Repayment of short-term borrowings	(60,000)		(430,000)
Issuance of long-term debt, net of debt issuance costs of $1,064 for 2021 and $0 for 2020		278,936		—
Issuance of long-term debt, net of debt issuance costs of $0 for 2022 and $1,064 for 2021						Issuance of long-term debt, net of debt issuance costs of $0 for 2022 and $1,064 for 2021	—		278,936
Repayment of long-term debt	Repayment of long-term debt	(1,522)		(1,535)		Repayment of long-term debt	(1,575)		(1,522)
Advances and contributions in aid of construction	Advances and contributions in aid of construction	21,663		19,862		Advances and contributions in aid of construction	18,785		21,663
Refunds of advances for construction	Refunds of advances for construction	(8,204)		(7,017)		Refunds of advances for construction	(6,854)		(8,204)
Repurchase of common stock	Repurchase of common stock	(1,593)		(1,578)		Repurchase of common stock	(1,891)		(1,593)
Issuance of common stock		128,507		58,573
Issuance of common stock, net						Issuance of common stock, net	58,709		128,507
Dividends paid	Dividends paid	(35,146)		(31,177)		Dividends paid	(40,471)		(35,146)
Distribution to noncontrolling interest						Distribution to noncontrolling interest	(348)		—
Net cash provided by financing activities	Net cash provided by financing activities	132,641		237,128		Net cash provided by financing activities	61,355		132,641
Change in cash, cash equivalents, and restricted cash	Change in cash, cash equivalents, and restricted cash	96,265		70,652		Change in cash, cash equivalents, and restricted cash	32,789		96,265
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	45,129		43,298		Cash, cash equivalents, and restricted cash at beginning of period	80,653		45,129
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	141,394	$	113,950	Cash, cash equivalents, and restricted cash at end of period	$	113,442	$	141,394
Supplemental information:	Supplemental information:					Supplemental information:
Cash paid for interest (net of amounts capitalized)	Cash paid for interest (net of amounts capitalized)	$	20,162	$	21,862	Cash paid for interest (net of amounts capitalized)	$	19,178	$	20,162
Supplemental disclosure of non-cash activities:	Supplemental disclosure of non-cash activities:					Supplemental disclosure of non-cash activities:
Accrued payables for investments in utility plant	Accrued payables for investments in utility plant	$	63,047	$	47,015	Accrued payables for investments in utility plant	$	61,944	$	63,047
Utility plant contribution by developers	Utility plant contribution by developers	$	22,666	$	22,762	Utility plant contribution by developers	$	15,476	$	22,666

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents

CALIFORNIA WATER SERVICE GROUP

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, ~~2021~~2022

Dollar amounts in thousands unless otherwise stated

Note 1. Organization and Operations and Basis of Presentation

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

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

Basis of Presentation

The unaudited condensed consolidated interim financial ~~information has~~statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (SEC) and therefore do not contain all of the information and footnotes required by GAAP and the SEC for annual financial statements. Interim financial information includes the Company's accounts and those of its wholly and non-wholly owned subsidiaries. The non-wholly owned subsidiary was consolidated using the voting interest model as the Company owns a majority of the voting interests in the non-wholly owned subsidiary and includes the Company's accounts and those of its wholly and non-wholly owned subsidiaries. The interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 as filed with the SEC on February ~~25, 2021.~~24, 2022.

The preparation of the Company’s unaudited condensed consolidated interim financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses for the periods presented. These include, but are not limited to, estimates and assumptions used in determining the Company’s regulatory asset and liability balances based upon probability assessments of regulatory recovery, revenues earned but not yet billed, asset retirement obligations, allowance for 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.

Noncontrolling Interests

Noncontrolling interests in the Company’s condensed consolidated financial statements represents ~~a 30.20%~~an 8.3% interest not owned by Texas Water in a consolidated subsidiary. Texas Water obtained control over the subsidiary on May 1, 2021. Since the Company controls this subsidiary, its financial statements are consolidated with those of the Company, and the noncontrolling owner’s ~~30.20%~~8.3% share of the subsidiary’s net assets and results of operations is deducted and reported as noncontrolling interests on the condensed consolidated balance sheet and as net income or loss attributable to noncontrolling interests in the condensed consolidated statement of operations. The Company reports noncontrolling interests in consolidated entities as a component of equity separate from the Company’s equity. The Company’s net income attributable to California Water Service Group excludes a net (loss) income attributable to the noncontrolling interests.

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Note 2. Summary of Significant Accounting Policies

Operating revenue

The following tables disaggregate the Company’s operating revenue by source for the three and nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


		Three Months Ended September 30					Three Months Ended September 30
		2021		2020			2022		2021
Revenue from contracts with customers	Revenue from contracts with customers	$	238,352	$	222,474	Revenue from contracts with customers	$	238,268	$	238,352
Regulatory balancing account revenue ~~(a)~~	Regulatory balancing account revenue ~~(a)~~	18,371		81,634		Regulatory balancing account revenue ~~(a)~~	28,039		18,371
Total operating revenue	Total operating revenue	$	256,723	$	304,108	Total operating revenue	$	266,307	$	256,723

Nine Months Ended September 30
2021 2020
Revenue from contracts with customers $ 597,337 $ 529,804
Regulatory balancing account revenue (a) 20,246 75,351
Total operating revenue $ 617,583 $ 605,155

(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 nine months ended September 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.


	Nine Months Ended September 30
	2022		2021
Revenue from contracts with customers	$	595,860	$	597,337
Regulatory balancing account revenue	49,634		20,246
Total operating revenue	$	645,494	$	617,583

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 unaudited condensed consolidated balance sheets, is inconsequential.

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In the following tables, revenue from contracts with customers is disaggregated by class of customers for the three and nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:

Three Months Ended September 30
2021 2020
Residential $ 164,311 $ 151,938
Business 43,450 36,951
Industrial 7,347 7,496
Public authorities 14,126 12,862
Other (a) 9,118 13,227
Total revenue from contracts with customers $ 238,352 $ 222,474
Nine Months Ended September 30
2021 2020
Residential $ 400,653 $ 360,935
Business 106,902 93,175
Industrial 19,409 21,996
Public authorities 30,886 26,470
Other (a) 39,487 27,228
Total revenue from contracts with customers $ 597,337 $ 529,804


	Three Months Ended September 30
	2022		2021
Residential	$	140,585	$	147,407
Business	44,031		43,450
Multiple residential	17,333		16,904
Industrial	8,086		7,347
Public authorities	13,441		14,126
Other (a)	14,792		9,118
Total revenue from contracts with customers	$	238,268	$	238,352


	Nine Months Ended September 30
	2022		2021
Residential	$	348,965	$	354,971
Business	115,472		106,902
Multiple residential	48,343		45,682
Industrial	20,174		19,409
Public authorities	31,310		30,886
Other (a)	31,596		39,487
Total revenue from contracts with customers	$	595,860	$	597,337

(a) Other includes accrued unbilled revenue.

Regulatory balancing account revenue

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

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

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

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 interim rates memorandum account (IRMA) effective January 1, 2020. Variances between actual customer billings and those that would have been billed assuming the GRC had been effective January 1, 2020 are recorded as regulatory balancing account revenue. Rates for the 2018 GRC were implemented on February 1, 2021; as a result, Cal Water recorded an IRMA regulatory asset for all of 2020 and for January of 2021.

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.

The CPUC issued a decision effective August 27, 2020 requiring that Class A companies submitting GRC filings after the effective date to be (i) precluded from proposing the use of a full decoupling WRAM in their next GRCs and (ii) allowed the use of Monterey-Style Water Revenue Adjustment Mechanisms (MWRAM). Incremental Cost Balancing Accounts (ICBA), which are authorized by statute, would replace the MCBA. The MWRAM tracks the difference between the revenue received for actual metered sales through the tiered volumetric rate and the revenue that would have been received with the same actual metered sales if a uniform rate would have been in effect. The ICBA tracks differences between the authorized per-unit prices of water production costs and actual per-unit prices of water production costs. Cal Water has complied with this decision in its recent 2021 GRC filing.

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Non-regulated Revenue

The following tables disaggregate the Company’s non-regulated revenue by source for the three and nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


		Three Months Ended September 30					Three Months Ended September 30
		2021		2020			2022		2021
Operating and maintenance revenue	Operating and maintenance revenue	$	4,110	$	2,680	Operating and maintenance revenue	$	3,184	$	4,110
Other non-regulated revenue	Other non-regulated revenue	894		625		Other non-regulated revenue	720		894
Non-regulated revenue from contracts with customers	Non-regulated revenue from contracts with customers	5,004		3,305		Non-regulated revenue from contracts with customers	3,904		5,004
Lease revenue	Lease revenue	809		629		Lease revenue	669		809
Total non-regulated revenue	Total non-regulated revenue	$	5,813	$	3,934	Total non-regulated revenue	$	4,573	$	5,813


		Nine Months Ended September 30					Nine Months Ended September 30
		2021		2020			2022		2021
Operating and maintenance revenue	Operating and maintenance revenue	$	12,122	$	7,969	Operating and maintenance revenue	$	9,822	$	12,122
Other non-regulated revenue	Other non-regulated revenue	2,550		2,223		Other non-regulated revenue	4,951		2,550
Non-regulated revenue from contracts with customers	Non-regulated revenue from contracts with customers	14,672		10,192		Non-regulated revenue from contracts with customers	14,773		14,672
Lease revenue	Lease revenue	2,087		1,777		Lease revenue	1,999		2,087
Total non-regulated revenue	Total non-regulated revenue	$	16,759	$	11,969	Total non-regulated revenue	$	16,772	$	16,759

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. During the first nine months of 2022, the Company recorded a gain of $2.7 million related to company owned life insurance.

Lease revenue is not considered revenue from contracts with customers and is recognized following operating lease standards. The Company is the lessor in operating lease agreements with telecommunications companies under which cellular phone antennas are placed on the Company's property.

Allowance for credit losses

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

The Company reviewed its allowance for credit losses utilizing a quantitative assessment, which included trend analysis of customer billing and collection, aging by customer class, and unemployment ~~rates.~~rates since the outbreak of COVID-19 in the first quarter of 2020. The Company also utilized a qualitative assessment, which considered the future collectability on customer outstanding balances, management's estimate of the cash recovery, and a general assessment of the economic conditions inof the ~~states in which~~locations the Company ~~operates.~~serves due to the outbreak of COVID-19. The Company ~~is also complying with the CPUC requirements to suspend customer disconnections~~has resumed shutoffs for ~~non-payment and ceased agency collection activities, and anticipates this situation will continue until further notice.~~

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non-payment in all of the Company's regulated utilities. The Company also received and applied funds to customer accounts from the California Water and Wastewater Arrearage Payment Program (Program). The Program was created by the California Legislature, is administered by the State Water Resources Control Board and provided relief to community water and wastewater systems for unpaid bills – arrearages – related to the COVID-19 pandemic. Based on the above assessments, the Company adjusted its allowance for credit losses accordingly.

The following table presents the activity in the allowance for credit losses for the 9-month period ended September 30, ~~2021~~2022 and 12-month period ended December 31, ~~2020:~~2021:


Allowance for credit losses	Allowance for credit losses	September 30, 2021		December 31, 2020		Allowance for credit losses	September 30, 2022		December 31, 2021
Beginning balance	Beginning balance	$	5,246	$	771	Beginning balance	$	3,743	$	5,246
Provision for credit loss expense	Provision for credit loss expense	(723)		5,716		Provision for credit loss expense	3,725		1,088
Write-offs	Write-offs	(2,118)		(1,730)		Write-offs	(2,253)		(3,113)
Recoveries	Recoveries	408		489		Recoveries	295		522
Total ending allowance balance	Total ending allowance balance	$	2,813	$	5,246	Total ending allowance balance	$	5,510	$	3,743

Cash, Cash Equivalents, and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown on the Condensed Consolidated Statements of Cash ~~Flows:~~Flows (see Note 10 for further details on restricted cash):


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
Cash and cash equivalents	Cash and cash equivalents	$	140,368	$	44,555	Cash and cash equivalents	$	90,458	$	78,380
Restricted cash (included in "taxes, prepaid expenses and other assets")		1,026		574
Restricted cash						Restricted cash	22,984		2,273
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows	Total cash, cash equivalents, and restricted cash shown in the statements of cash flows	$	141,394	$	45,129	Total cash, cash equivalents, and restricted cash shown in the statements of cash flows	$	113,442	$	80,653

~~Adoption of New~~ Accounting Standards Issued But Not Yet Adopted

In ~~December 2019,~~October of 2021, the Financial Accounting Standards Board ~~(FASB)~~ issued Accounting Standards Update (ASU) ~~2019-12,~~ ~~Simplifying the~~2021-08, Business Combinations (Topic 805): Accounting for ~~Income Taxes (Topic 740)~~.Contract Assets and Contract Liabilities from Contracts with Customers. In a business combination, an acquirer generally recognizes assets acquired and liabilities assumed, including contract assets and contract liabilities, at their respective fair value on the acquisition date. ASU ~~2019-12 simplifies the accounting for income taxes by removing certain exceptions for performing intraperiod tax allocations, recognizing deferred taxes for investments,~~2021-08 requires that in a business combination, an acquirer should recognize and ~~calculating income taxes~~measure contract assets acquired and contract liabilities assumed in ~~interim periods.~~a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The guidance ~~also simplifies the accounting~~provides certain practical expedients for ~~franchise taxes, transactions that result~~acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts with customers in a ~~step-up in~~business combination. The guidance is effective for annual reporting periods beginning after December 15, 2022, including interim periods within those fiscal years. ASU 2021-08 should be applied prospectively for acquisitions occurring on or after the ~~tax basis~~effective date of ~~goodwill,~~the amendments, and ~~the effect of enacted changes in tax laws or rates in interim periods.~~early adoption is permitted. The Company ~~adopted ASU 2019-12 in~~will adopt the ~~first quarter of 2021~~standard prospectively and does not expect that the ~~adoption did not~~guidance will have a material impact toon the ~~Company’s Condensed Consolidated Financial Statements.~~

Company's financial statements and footnote disclosures upon adoption.

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Note 3. Stock-based Compensation

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

During the first nine months of ~~2021,~~2022, the Company granted Restricted Stock Awards (RSAs) to Officers and to members of the Board of Directors. An RSA share represents a restricted share of the Company's common stock and is valued based on the fair market value of the Company's common stock at the date of grant. RSAs granted to Officers vest over 36 months with the first year cliff vesting. In general, RSAs granted to Board members vest at the end of 12 months. The RSAs are recognized as expense evenly over 36 months for the shares granted to Officers and 12 months for the shares granted to Board members. As of September 30, ~~2021,~~2022, there was approximately ~~$2.3~~$2.2 million of total unrecognized compensation cost related to RSAs. The cost is expected to be recognized over a weighted average period of ~~1.5~~1.7 years.

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A summary of the status of the outstanding RSAs as of September 30, ~~2021~~2022 is presented below:


		Number of RSA Shares	Weighted-Average Grant-Date Fair Value			Number of RSA Shares	Weighted-Average Grant-Date Fair Value
RSAs at January 1, 2021		51,561	$	50.92
RSAs at January 1, 2022					RSAs at January 1, 2022	62,691	$	53.49
Granted	Granted	50,981	53.92		Granted	42,057	56.42
Vested	Vested	(36,039)	50.57		Vested	(47,137)	53.55
Forfeited	Forfeited	—	—		Forfeited	(1,650)	56.42
RSAs at September 30, 2021		66,503	$	53.41
RSAs at September 30, 2022					RSAs at September 30, 2022	55,961	$	55.56

During the first nine months of ~~2021,~~2022, the Company granted performance-based Restricted Stock Units (RSUs) to Officers. An RSU represents the right to receive a share of the Company's common stock. Each award reflects a target number shares of common stock that may be issued to the award recipient. The ~~2021~~2022 awards may be earned upon the completion of a 3-year performance period. Whether RSUs are earned at the end of the performance period will be determined based on the achievement of certain performance objectives set by the Organization and Compensation Committee of the Board of Directors in connection with the issuance of the RSUs. The performance objectives are based on the Company's business plan covering the performance period. The performance objectives include achieving the budgeted return on equity, budgeted investment in utility plant, customer service standards, employee safety standards and water quality standards. Depending on the results achieved during the 3-year performance period, the actual number of shares that a grant recipient receives at the end of the performance period may range from 0% to 200% of the target shares granted, provided that the grantee is continuously employed by the Company through the vesting date. If prior to the vesting date employment is terminated by reason of death, disability or normal retirement, then a pro rata portion of this award will vest. ~~RSUs are not included in diluted shares until earned.~~ The RSUs are recognized as expense ratably over the 3-year performance period using a fair market value of the Company's common share at the date of grant and an estimated number of RSUs earned during the performance period. As of September 30, ~~2021,~~2022, there was approximately ~~$2.4~~$2.7 million of total unrecognized compensation cost related to RSUs. The cost is expected to be recognized over a weighted average period of 1.5 years.

A summary of the status of the outstanding RSUs as of September 30, ~~2021~~2022 is presented below:


		Number of RSU Shares	Weighted-Average Grant-Date Fair Value			Number of RSU Shares	Weighted-Average Grant-Date Fair Value
RSUs at January 1, 2021		87,787	$	46.62
RSUs at January 1, 2022					RSUs at January 1, 2022	90,942	$	52.71
Granted	Granted	31,749	53.96		Granted	35,911	56.42
Performance criteria adjustment	Performance criteria adjustment	12,257	52.96		Performance criteria adjustment	12,173	58.63
Vested	Vested	(38,897)	52.96		Vested	(32,913)	58.63
Forfeited	Forfeited	(1,954)	35.40		Forfeited	(5,733)	52.83
RSUs at September 30, 2021		90,942	$	52.71
RSUs at September 30, 2022					RSUs at September 30, 2022	100,380	$	54.01

The Company has recorded compensation costs for the RSAs and RSUs that are included in administrative and general operating expenses in the amount of ~~$1.9~~$1.6 million and ~~$1.8~~$1.9 million for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. For the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, the Company has recorded compensation costs for the RSAs and RSUs in the amount of ~~$4.5~~$3.5 million and ~~$3.1~~$4.5 million, respectively.

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Note 4. Equity

On April 29, 2022, the Company entered into an equity distribution agreement to sell shares of its common stock having an aggregate gross sales price of up to $350.0 million from time to time depending on market conditions through an at-the-market equity program over the next three years. The Company intends to use the net proceeds from these sales, after deducting commissions on such sales and offering expenses, for general corporate purposes, which may include working capital, construction and acquisition expenditures, investments and repurchases, and redemptions of securities. The Company sold ~~1,064,957~~461,034 shares of common stock through its at-the-market equity program and raised proceeds of ~~$65.4~~$26.9 million net of ~~$0.7~~$0.3 million in commissions paid under the equity distribution agreement during the three months ended September 30, ~~2021.~~2022. During the ~~three~~nine months ended September 30, ~~2020,~~2022, the Company sold ~~432,420~~1,035,668 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 equity distribution agreement.~~

The Company sold 2,185,873 shares of common stock through its at-the-market equity program and raised proceeds of $127.0 million net of $1.3 million in commissions paid under the equity distribution agreement during the nine months ended September 30, 2021. During the nine months ended September 30, 2020, the Company sold 1,225,572 shares of common stock through its at-the-market equity program and raised proceeds of $57.3$57.1 million net of $0.6 million in commissions paid under the equity distribution agreement. The Company also incurred $0.1 million of equity issuance costs during the nine months ended September 30, 2022.

As approved by the Company's stockholders at the 2022 Annual Meeting, effective July 26, 2022, the aggregate number of common shares of stock which the corporation shall have authority to issue was increased from 68.0 million common shares to 136.0 million common shares. All of said 136.0 million common shares shall be of one and the same series, namely common shares with par value of $0.01 per common share.

The Company’s changes in total equity for the nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 were as follows:

Nine months ended September 30, 2021
Common Stock Additional
Paid-in
Capital Retained
Earnings Noncontrolling Interests Total Equity
Shares Amount
(In thousands)
Balance at January 1, 2021 50,334 $ 503 $ 448,632 $ 472,209 $ — $ 921,344
Net loss (3,032) — (3,032)
Issuance of common stock 528 5 24,481 24,486
Repurchase of common stock (27) — (1,415) (1,415)
Dividends paid on common stock ($0.2300 per share) (11,581) — (11,581)
Balance at March 31, 2021 50,835 508 471,698 457,596 — 929,802
Net loss attributable to noncontrolling interests — (149) (149)
Net income attributable to California Water Service Group 38,225 — 38,225
Issuance of common stock 702 7 40,895 40,902
Repurchase of common stock (2) — (109) (109)
Dividends paid on common stock ($0.2300 per share) (11,702) — (11,702)
Acquisition of business with noncontrolling interest — — 5,294 5,294
Balance at June 30, 2021 51,535 515 512,484 484,119 5,145 1,002,263
Net income attributable to noncontrolling interests — 70 70
Net income 62,429 62,429
Issuance of common stock 1,075 11 67,819 67,830
Repurchase of common stock (2) — (69) (69)
Dividends paid on common stock ($0.2300 per share) (11,863) (11,863)
Investment in business with noncontrolling interest 526 (526) —
Balance at September 30, 2021 52,608 $ 526 $ 580,760 $ 534,685 $ 4,689 $ 1,120,660


	Nine months ended September 30, 2022
	Common Stock			Additional Paid-in Capital		Retained Earnings		Noncontrolling Interests		Total Equity
	Shares	Amount
	(In thousands)
Balance at January 1, 2022	53,716	$	537	$	651,121	$	525,936	$	5,386	$	1,182,980
Net income (loss)						1,086		(192)		894
Issuance of common stock	85	1		1,106		—				1,107
Repurchase of common stock	(28)	—		(1,674)		—				(1,674)
Dividends paid on common stock ($0.2500 per share)						(13,429)		—		(13,429)
Investment in business with noncontrolling interest				(54)		—		54		—
Balance at March 31, 2022	53,773	538		650,499		513,593		5,248		1,169,878
Net income (loss)						19,484		(269)		19,215
Issuance of common stock	585	6		32,118						32,124
Repurchase of common stock	(2)	—		(111)						(111)
Dividends paid on common stock ($0.2500 per share)						(13,452)				(13,452)
Investment in business with noncontrolling interest				(153)				153		—
Distribution to noncontrolling interest								(348)		(348)
Balance at June 30, 2022	54,356	544		682,353		519,625		4,784		1,207,306
Net income (loss)						55,872		(189)		55,683
Issuance of common stock	470	4		29,034						29,038
Repurchase of common stock	(2)	—		(105)						(105)
Dividends paid on common stock ($0.2500 per share)						(13,590)				(13,590)
Investment in business with noncontrolling interest				(278)				278		—
Balance at September 30, 2022	54,824	$	548	$	711,004	$	561,907	$	4,873	$	1,278,332

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		Nine months ended September 30, 2020															Nine months ended September 30, 2021
		Common Stock			Additional Paid-in Capital				Retained Earnings					Total Equity			Common Stock				Additional Paid-in Capital				Retained Earnings				Noncontrolling Interests				Total Equity
		Shares	Amount										Shares					Amount
		(In thousands)															(In thousands)
Balance at January 1, 2020		48,532	$	485			$	362,275			$	417,146					$	779,906
Balance at January 1, 2021																Balance at January 1, 2021	50,334		$	503			$	448,632			$	472,209			$	—			$	921,344
Net loss	Net loss								(20,307)					(20,307)		Net loss									(3,032)				—				(3,032)
Issuance of common stock	Issuance of common stock	210	2		7,227									7,229		Issuance of common stock	528		5		24,481												24,486
Repurchase of common stock	Repurchase of common stock	(28)	—		(1,373)									(1,373)		Repurchase of common stock	(27)		—		(1,415)												(1,415)
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
Dividends paid on common stock ($0.2300 per share)																Dividends paid on common stock ($0.2300 per share)									(11,581)				—				(11,581)
Balance at March 31, 2021																Balance at March 31, 2021	50,835		508		471,698				457,596				—				929,802
Net income (loss)																Net income (loss)									38,225				(149)				38,076
Issuance of common stock																Issuance of common stock	702		7		40,895												40,902
Repurchase of common stock																Repurchase of common stock	(2)		—		(109)												(109)
Dividends paid on common stock ($0.2300 per share)																Dividends paid on common stock ($0.2300 per share)									(11,702)				—				(11,702)
Acquisition of business with noncontrolling interest																Acquisition of business with noncontrolling interest					—				—				5,294				5,294
Balance at June 30, 2021																Balance at June 30, 2021	51,535		515		512,484				484,119				5,145				1,002,263
Net income	Net income								5,281					5,281		Net income									62,429				70				62,499
Issuance of common stock	Issuance of common stock	686	7		32,056									32,063		Issuance of common stock	1,075		11		67,819												67,830
Repurchase of common stock	Repurchase of common stock	(2)	—		(105)									(105)		Repurchase of common stock	(2)		—		(69)												(69)
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
Dividends paid on common stock ($0.2300 per share)																Dividends paid on common stock ($0.2300 per share)									(11,863)								(11,863)
Investment in business with noncontrolling interest																Investment in business with noncontrolling interest					526								(526)				—
Balance at September 30, 2021																Balance at September 30, 2021	52,608		$	526	$	580,760			$	534,685			$	4,689			$	1,120,660

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Note 5. Earnings Per Share of Common Stock

The computations of basic and diluted earnings per share of common stock are noted in the table below. Basic earnings per share of common stock is computed by dividing the net income attributable to California Water Service Group 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 the basic and diluted shares calculation for financial reporting until authorized by the Organization & Compensation Committee~~


	Three Months Ended September 30
	2022		2021
	(In thousands, except per share data)
Net income	$	55,683	$	62,499
Net (loss) income attributable to noncontrolling interests	$	(189)	$	70
Net income attributable to California Water Service Group	$	55,872	$	62,429
Weighted average common shares outstanding, basic	54,007		51,823
Weighted average common shares outstanding, dilutive	54,042		51,823
Earnings per share of common stock - basic	$	1.03	$	1.20
Earnings per share of common stock - diluted	$	1.03	$	1.20


	Nine Months Ended September 30
	2022		2021
	(In thousands, except per share data)
Net income	$	75,792	$	97,543
Net loss attributable to noncontrolling interests	$	(650)	$	(79)
Net income attributable to California Water Service Group	$	76,442	$	97,622
Weighted average common shares outstanding, basic	54,063		51,119
Weighted average common shares outstanding, dilutive	54,104		51,119
Earnings per share of common stock - basic	$	1.41	$	1.91
Earnings per share of common stock - diluted	$	1.41	$	1.91

Table of ~~the Board of Directors.~~Contents

Three Months Ended September 30
2021 2020
(In thousands, except per share data)
Net income $ 62,499 $ 96,360
Net income attributable to noncontrolling interests 70 —
Net income attributable to California Water Service Group $ 62,429 $ 96,360
Weighted average common shares outstanding, basic 51,823 49,576
Weighted average common shares outstanding, dilutive 51,823 49,576
Earnings per share of common stock - basic $ 1.20 $ 1.94
Earnings per share of common stock - diluted $ 1.20 $ 1.94

Nine Months Ended September 30
2021 2020
(In thousands, except per share data)
Net income $ 97,543 $ 81,334
Net loss attributable to noncontrolling interests (79) —
Net income attributable to California Water Service Group $ 97,622 $ 81,334
Weighted average common shares outstanding, basic 51,119 49,034
Weighted average common shares outstanding, dilutive 51,119 49,034
Earnings per share of common stock - basic $ 1.91 $ 1.66
Earnings per share of common stock - diluted $ 1.91 $ 1.66

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 to the pension plans were ~~$18.9~~$12.4 million and ~~$25.8~~$18.9 million for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Cash contributions made by the Company to the other postretirement benefit plans were ~~$1.9~~$0.5 million and ~~$5.7~~$1.9 million for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The total ~~2021~~2022 estimated cash contribution to the pension plans and other postretirement benefits plans are expected to be approximately ~~$23.5~~$16.1 million and ~~$2.2~~$0.7 million, respectively.

~~Table of Contents~~

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.


		Three Months Ended September 30									Three Months Ended September 30
		Pension Plan				Other Benefits					Pension Plan				Other Benefits
		2021		2020		2021		2020			2022		2021		2022		2021
Service cost	Service cost	$	8,308	$	9,378	$	1,332	$	1,746	Service cost	$	9,235	$	8,308	$	1,683	$	1,332
Interest cost	Interest cost	5,608		6,440		802		808		Interest cost	6,329		5,608		1,008		802
Expected return on plan assets	Expected return on plan assets	(9,873)		(8,284)		(2,194)		(1,804)		Expected return on plan assets	(11,307)		(9,873)		(2,482)		(2,194)
Amortization of prior service cost	Amortization of prior service cost	248		1,058		48		50		Amortization of prior service cost	242		248		39		48
Recognized net actuarial loss	Recognized net actuarial loss	2,881		3,208		(145)		(27)		Recognized net actuarial loss	999		2,881		(228)		(145)
Net periodic benefit cost	Net periodic benefit cost	$	7,172	$	11,800	$	(157)	$	773	Net periodic benefit cost	$	5,498	$	7,172	$	20	$	(157)


		Nine Months Ended September 30									Nine Months Ended September 30
		Pension Plan				Other Benefits					Pension Plan				Other Benefits
		2021		2020		2021		2020			2022		2021		2022		2021
Service cost	Service cost	$	26,329	$	27,002	$	4,554	$	5,959	Service cost	$	27,704	$	26,329	$	5,048	$	4,554
Interest cost	Interest cost	16,245		19,306		2,413		3,229		Interest cost	18,986		16,245		3,024		2,413
Expected return on plan assets	Expected return on plan assets	(29,605)		(24,815)		(6,577)		(5,427)		Expected return on plan assets	(33,920)		(29,605)		(7,445)		(6,577)
Amortization of prior service cost	Amortization of prior service cost	755		3,172		145		148		Amortization of prior service cost	727		755		117		145
Recognized net actuarial loss	Recognized net actuarial loss	6,729		9,599		(365)		—		Recognized net actuarial loss	2,997		6,729		(685)		(365)
Net periodic benefit cost	Net periodic benefit cost	$	20,453	$	34,264	$	170	$	3,909	Net periodic benefit cost	$	16,494	$	20,453	$	59	$	170

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

Note 7. Short-term and Long-term Borrowings

On May 11, 2021, Cal Water completed the sale and issuance of $280.0 million in aggregate principal amount of First Mortgage Bonds (the Bonds) in a private placement. The Bonds consist of $130.0 million of 2.87% bonds, series ZZZ, maturing May 11, 2051, and $150.0 million of 3.02% bonds, series 1, maturing May 11, 2061. Interest on the bonds will accrue semi-annually and be payable in arrears on May 11 and November 11 of each year, commencing on November 11, 2021. 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 refinance existing indebtedness and for general corporate purposes. The Bonds were not registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

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

~~Table~~ As of ~~Contents~~

September 30, 2022, the Company is in compliance with all of the covenant requirements and is eligible to use the full amount of the undrawn portion of the Company's unsecured revolving credit facilities.

The outstanding borrowings on the Company line of credit were ~~$90.0~~$70.0 million and ~~$100.0~~$35.0 million as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. There were ~~$30.0 million and $270.0 million of~~no borrowings on the Cal Water line of credit as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The average borrowing rate for borrowings on the Company and Cal Water lines of credit during the nine months ended September 30, ~~2021~~2022 was ~~0.98%~~2.18% compared to ~~1.74%~~0.98% 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
2021 2020
Income tax expense $ 1,913 $ 14,049


	Three Months Ended September 30
	2022		2021
Income tax expense	$	6,243	$	1,913

Nine Months Ended September 30
2021 2020
Income tax expense $ 4,654 $ 10,641


	Nine Months Ended September 30
	2022		2021
Income tax expense	$	7,137	$	4,654

Income tax expense ~~decreased $12.1~~increased $4.3 million to ~~$1.9~~$6.2 million in the third quarter of ~~2021 as compared to $14.0 million in the third quarter of 2020. The decrease was~~2022 primarily due to ~~decreases~~a decrease in ~~pre-tax net operating income and effective tax rate. The effective tax rate decrease resulted from an increase of $7.5 million in~~the refunds of ~~2017~~ excess deferred income ~~taxes partially offset by a reduction in state tax benefits from repairs deductions.~~taxes.

Income tax expense ~~decreased $5.9~~increased $2.5 million to ~~$4.7~~$7.1 million in the first nine months of ~~2021 as compared to $10.6 million in the first nine months of 2020. The decrease was~~2022 primarily due to a decrease in the ~~effective tax rate from an increase of $7.5 million in~~ refunds of ~~2017~~ excess ~~federal~~ deferred income ~~taxes partially offset by a reduction in state tax benefits from repairs deductions.~~taxes.

The Company’s effective tax rate was ~~4.3%~~11.4% before discrete items as of September 30, ~~2021~~2022 and ~~11.6%~~4.3% as of September 30, ~~2020.~~2021. The ~~decrease~~increase in the effective tax rate was ~~primary~~primarily due to ~~an increase~~a decrease in the refunds of ~~2017~~ excess deferred income ~~taxes partially offset by a reduction in state tax benefits from repairs deductions.~~taxes.

The Company had unrecognized tax benefits of approximately ~~$14.9~~$16.9 million and ~~$12.9~~$14.9 million as of September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Included in the balance of unrecognized tax benefits as of September 30, 2022 and 2021, ~~and 2020,~~ is ~~$3.9~~$4.2 million and ~~$3.5~~$3.9 million, respectively, of tax benefits that, if recognized, would result in an adjustment to the Company’s effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly within the next 12 months.

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Note 9. Regulatory Assets and Liabilities

Regulatory assets and liabilities were comprised of the following as of September 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


		Recovery Period	September 30, 2021		December 31, 2020			Recovery Period	September 30, 2022		December 31, 2021
Regulatory Assets	Regulatory Assets						Regulatory Assets
Pension and retiree group health	Pension and retiree group health	Indefinitely	$	59,094	$	59,588	Pension and retiree group health	Indefinitely	$	17,114	$	17,607
Property-related temporary differences (tax benefits flowed through to customers)	Property-related temporary differences (tax benefits flowed through to customers)	Indefinitely	124,854		120,365		Property-related temporary differences (tax benefits flowed through to customers)	Indefinitely	132,843		130,565
Other accrued benefits	Other accrued benefits	Indefinitely	22,744		21,692		Other accrued benefits	Indefinitely	24,094		23,280
Net WRAM and MCBA long-term accounts receivable	Net WRAM and MCBA long-term accounts receivable	1 - 2 years	34,606		33,136		Net WRAM and MCBA long-term accounts receivable	1 - 2 years	46,037		29,789
Asset retirement obligations, net	Asset retirement obligations, net	Indefinitely	22,668		21,110		Asset retirement obligations, net	Indefinitely	24,568		22,935
IRMA long-term accounts receivable		1 - 3 years	11,614		14,705
Interim rates memorandum account (IRMA) long-term accounts receivable							Interim rates memorandum account (IRMA) long-term accounts receivable	1 - 3 years	7,539		9,032
Tank coating	Tank coating	10 years	13,513		14,018		Tank coating	10 years	16,494		13,680
Recoverable property losses	Recoverable property losses	9 years	4,018		4,531		Recoverable property losses	Various	3,313		3,843
PCBA	PCBA	1 year	21,178		19,647		PCBA	1 year	19,762		21,500
Other components of net periodic benefit cost	Other components of net periodic benefit cost	Indefinitely	4,255		6,736		Other components of net periodic benefit cost	Indefinitely	—		3,342
General district balancing account receivable	General district balancing account receivable	1 year	511		1,830		General district balancing account receivable	1 year	365		568
Low-income rate assistance (LIRA) and Rate support fund (RSF) accounts receivable		1 year	5,803		5,310
Customer assistance program (CAP) and Rate support fund (RSF) accounts receivable							Customer assistance program (CAP) and Rate support fund (RSF) accounts receivable	1 year	2,843		5,991
Other regulatory assets	Other regulatory assets	Various	3,647		2,708		Other regulatory assets	Various	3,390		3,560
Total Regulatory Assets	Total Regulatory Assets		$	328,505	$	325,376	Total Regulatory Assets		$	298,362	$	285,692

Regulatory Liabilities	Regulatory Liabilities						Regulatory Liabilities
Future tax benefits due to customers	Future tax benefits due to customers		$	152,204	$	151,011	Future tax benefits due to customers		$	134,856	$	135,027
Retiree group health	Retiree group health		18,472		18,472		Retiree group health		27,294		27,294
HCBA	HCBA		8,733		5,320		HCBA		13,918		9,687
CEBA	CEBA		6,210		3,837		CEBA		8,002		7,206
Net WRAM and MCBA long-term payable	Net WRAM and MCBA long-term payable		118		479		Net WRAM and MCBA long-term payable		230		143
Other components of net periodic benefit cost							Other components of net periodic benefit cost		1,190		354
Other regulatory liabilities	Other regulatory liabilities		1,092		1,599		Other regulatory liabilities		721		717
Total Regulatory Liabilities	Total Regulatory Liabilities		$	186,829	$	180,718	Total Regulatory Liabilities		$	186,211	$	180,428

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

The short-term regulatory assets were ~~$85.0~~$54.7 million as of September 30, ~~2021~~2022 and ~~$96.2~~$78.6 million as of December 31, ~~2020. These~~2021. The short-term regulatory assets as of September 30, 2022 and December 31, 2021 primarily consist of net WRAM and MCBA, IRMA, and PCBA receivables.

The short-term portions of regulatory liabilities were ~~$19.3~~$9.7 million as of September 30, ~~2021~~2022 and ~~$34.6~~$17.5 million as of December 31, ~~2020.~~2021. The short-term regulatory liabilities as of September 30, ~~2021 and~~2022 primarily consist of TCJA liabilities. As of December 31, ~~2020~~2021, short-term regulatory liabilities primarily consist of TCJA and HCBA ~~refunds and TCP settlement proceeds.~~liabilities.

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Note 10. Commitments and Contingencies

Commitments

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, ~~2020.~~2021.

On August 16, 2022, BVRT Utility Holding Company (BVRT), a majority owned subsidiary of Texas Water, entered into a long-term water supply agreement with the Guadalupe Blanco River Authority (GBRA) through its wholly owned subsidiary, Camino Real Utility (Camino Real). The Company has provided a limited guarantee to GBRA for the agreed upon obligations. GBRA is a water conservation and reclamation district established by the Texas Legislature that oversees water resources for 10 counties. Under the terms of the agreement with GBRA, Camino Real will receive up to 2,419 acre-feet of potable water annually. The GBRA agreement involves four off-takers, including Camino Real, and GBRA plans to extend a potable water pipeline from the City of Lockhart to the City of Mustang Ridge and surrounding areas. Camino Real will be the utility service provider in this fast-growing area of the Austin metropolitan region and will provide potable water, recycled water, and wastewater services to portions of the City of Mustang Ridge and surrounding areas. Camino Real expects to invest over $40 million in capital in the first phase of the water supply pipeline project as one of four off-takers. In the third quarter of 2022, Camino Real committed $21.5 million for the pipeline project. As of September 30, ~~2021, there were no significant changes~~2022, this committed cash has not been transferred to GBRA and is classified as part of restricted cash on the Condensed Consolidated Balance Sheets. The Company currently expects this committed cash to be transferred to GBRA in ~~these commitments from December 31, 2020.~~the fourth quarter of 2022.

Contingencies

Groundwater Contamination

The Company has undertaken litigation against third parties to recover past and anticipated costs related to groundwater contamination in our service areas. The cost of litigation is expensed as incurred and any settlement is first offset against such costs. The CPUC’s general policy requires all proceeds from groundwater contamination litigation to be used first to pay transactional expenses, then to make 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.

Other Legal Matters

From time to time, the Company is involved in various disputes and litigation matters that arise in the ordinary course of business. The status of each significant matter is reviewed and assessed for potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount of the range of loss can be estimated, a liability is accrued for the estimated loss in accordance with the accounting standards for contingencies. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on the best information available at the time. While the outcome of these disputes and litigation matters cannot be predicted with any certainty, management does not believe when taking into account existing reserves the ultimate resolution of these matters will materially affect the Company’s financial position, results of operations, or cash flows. As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company recognized a liability of ~~$2.2~~$6.0 million and ~~$2.6~~$3.5 million, respectively, for known legal matters. The cost of litigation is expensed as incurred and any settlement is first offset against such costs. Any settlement in excess of the cost to litigate is accounted for on a case by case basis, dependent on the nature of the settlement.

Note 11. Fair Value of Financial Assets and Liabilities

The accounting guidance for fair value measurements and disclosures provides a single definition of fair value and requires certain disclosures about assets and liabilities measured at fair value. A hierarchical framework for disclosing the observability of the inputs utilized in measuring assets and liabilities at fair value is established by this guidance. The three levels in the hierarchy are as follows:

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

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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.

~~Table of Contents~~

Specific valuation methods include the following:

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

Long-term debt fair values were estimated using the published quoted market price of similar securities, if available, or the discounted cash flow analysis, based on the current rates available using a risk-free rate (a U.S. Treasury securities yield curve) plus a risk premium of 0.60%.

September 30, 2021
Fair Value
Cost Level 1 Level 2 Level 3 Total
Long-term debt, including current maturities, net $ 1,064,904 — $ 1,323,114 — $ 1,323,114


	September 30, 2022
			Fair Value
	Cost		Level 1	Level 2		Level 3	Total
Long-term debt, including current maturities, net	$	1,059,734	—	$	1,001,637	—	$	1,001,637

December 31, 2020
Fair Value
Cost Level 1 Level 2 Level 3 Total
Long-term debt, including current maturities, net $ 786,227 $ — $ 944,447 $ — $ 944,447


	December 31, 2021
			Fair Value
	Cost		Level 1		Level 2		Level 3		Total
Long-term debt, including current maturities, net	$	1,060,986	$	—	$	1,338,831	$	—	$	1,338,831

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

~~FORWARD LOOKING~~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.~~1995 (Act). The forward-looking statements are intended to qualify under provisions of the federal securities laws for "safe harbor" treatment established by the Act. Forward-looking statements in this quarterly report are based on currently available information, expectations, estimates, assumptions and projections, and our management’s beliefs, assumptions, judgments and expectations about us, the water utility industry and general economic ~~conditions, including statements regarding the anticipated impact on our business of the ongoing COVID-19 pandemic and related public health measures.~~conditions. These statements are not statements of historical fact. When used in our documents, statements that are not historical in nature, including words like "will," "would," “expects,” “intends,” “plans,” “believes,” “may,” “estimates,” “assumes,” “anticipates,” “projects,” "progress," “predicts,” "hopes," "targets," “forecasts,” “should,” “seeks,” or variations of these words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not guarantees of future performance. They are based on numerous assumptions that we believe are reasonable, but they are open to a wide range of uncertainties and business risks. Consequently, actual results may vary materially from what is contained in a forward-looking statement.

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

•the impact of the ongoing COVID-19 pandemic and related public health ~~measures, including our receipt of state and federal COVID-19 financial relief funds in a timely manner;~~measures;

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

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

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

•changes in regulatory commissions' policies and procedures, such as the CPUC’s decision in 2020 to preclude companies from proposing fully decoupled WRAMs in their next GRC filing (which impacted our 2021 GRC filing related to our operations commencing in 2023);

•the outcome and timeliness of regulatory commissions' actions concerning rate relief and other ~~actions;~~matters, including with respect to our 2021 GRC filing and our Cost of Capital filing;

•increased risk of inverse condemnation losses as a result of climate ~~conditions;~~change and drought;

•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;

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•changes in environmental compliance and water quality requirements;

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

•housing and customer growth;

•the impact of opposition to rate increases;

•our ability to recover costs;

•availability of water supplies;

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

•civil disturbances or terrorist threats or acts;

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

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

•labor relations matters as we negotiate with the unions;

•changes in customer water use patterns and the effects of ~~conservation;~~conservation, including as a result of drought conditions;

•our ability to complete, in a timely manner or at all, successfully integrate, and achieve anticipated benefits from announced acquisitions;

•the impact of weather, climate change, natural disasters, and 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;

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

•risks associated with expanding our business and operations geographically;

•the impact of stagnating or worsening business and economic conditions, including inflationary pressures, general economic slowdown or a recession, increasing interest rates, and changes in monetary policy;

•the impact of market conditions and volatility on unrealized gains or losses on our non-qualified benefit plan investments and our operating results;

•the impact of weather and timing of meter reads on our accrued unbilled revenue; 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, ~~2020.~~2021.

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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~~ESTIMATES

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, ~~2020.~~2021. They include:

•revenue recognition;

•regulated utility accounting;

•income taxes; and

•pension and postretirement health care ~~benefits;~~benefits.

For the nine months ended September 30, ~~2021,~~2022, there were no changes in the methodology for computing critical accounting estimates, no additional accounting estimates met the standards for critical accounting policies, and there were no material changes to the important assumptions underlying the critical accounting estimates.

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~~CAL WATER'S 2018 GRC~~

On October 14, 2020, an administrative law judge (ALJ) with the CPUC issued a proposed decision for Cal Water's 2018 GRC filing. As of November 6, 2020, the proposed decision was 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 had 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. The proposed decision was approved as proposed by the CPUC on December 4, 2020.

We determined that the proposed decision provided additional evidence about conditions that existed as of September 30, 2020. As of November 6, 2020, we concluded it was probable that the proposed decision would 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.

COVID-19

During ~~the course of 2020 and continuing into the first nine months of~~ 2021 as a result of the COVID-19 pandemic, shelter-in-place and social distancing ordinances of varying durations and scope were implemented in all of the states in which we operate. Such governmental orders resulted in temporary closures of non-essential businesses and self-quarantining on non-essential workers. As an “essential business” during times of emergencies pursuant to the U.S. Critical Infrastructures Protection Act of 2001, we are working to continue to provide high quality water and wastewater services to our two million customers. During 2020 and for the nine months ended September 30, ~~2021~~2022 and through October ~~28, 2021,~~27, 2022, the COVID-19 pandemic has not had a significant impact on our business or operations. We have ~~ceased all~~resumed shutoffs for non-payment ~~during the pandemic and anticipate this situation will continue until further notice. We are expecting segments~~in all 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.regulated utilities.

If we need to close any of our facilities due to outbreaks of COVID-19 or if a critical number of our employees become too ill to work, our business operations could be materially adversely affected in a rapid manner. Company employees have returned to the office full-time. We continue to be vigilant for employee and customer safety, we encourage and incentivize vaccination, and we follow local masking rules as applicable. The impact of the COVID-19 pandemic is fluid and continues to evolve, and therefore, we cannot predict the extent to which our business, results of operations, financial condition or liquidity will ultimately be impacted.

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RESULTS OF THIRD QUARTER ~~2021~~2022 OPERATIONS

COMPARED TO THIRD QUARTER ~~2020~~2021 OPERATIONS

Dollar amounts in thousands unless otherwise stated

Overview

Net Income Attributable to California Water Service Group

Net income attributable to California Water Service Group for the third quarter of ~~2021~~2022 was ~~$62.4~~$55.9 million or ~~$1.20~~$1.03 earnings per diluted common share, compared to net income attributable to California Water Service Group of ~~$96.4~~$62.4 million or ~~$1.94~~$1.20 earnings per diluted common share for the third quarter of ~~2020.~~2021.

The ~~$34.0~~$6.5 million decrease in net income was primarily due to an increase in total operating expenses of $15.8 million, driven mostly by increases in water production costs of $3.8 million, administrative and general expenses of $2.6 million, other operations expenses of $2.0 million, depreciation and amortization expense of $1.6 million, and income taxes of $4.2 million. Additionally, there was a $2.0 million decrease in unrealized gains on non-qualified benefit plan investments during the ~~Company recording nine months~~third quarter of 2022 compared to the third quarter of 2021. The expense increases were partially offset by an increase in operating revenue of $9.6 million, driven primarily by rate ~~relief~~increases of $12.3 million and accrued unbilled revenue increase of $3.4 million, which was partially offset by decreases from changes in regulatory ~~balancing~~balance account revenue of $4.7 million and changes in deferred revenue of $3.8 million.

The change in accrued unbilled revenue was driven by weather and timing of when meter reads were completed during the month of September 2022 compared to September 2021. The change to unrealized gains on non-qualified benefit plan investments was caused by unfavorable market conditions, which is a factor outside our immediate control. Our net income and net other income in future periods are expected to continue to be similarly affected, potentially significantly, by increases or decreases in unrealized gains or losses on non-qualified benefit plan investments, particularly during periods of significant market volatility or significantly favorable or unfavorable market conditions.

Operating revenue increased $9.6 million, or 3.7%, to $266.3 million in the third quarter of 2020 because of a delayed decision on the 2018 GRC. In the third quarter of 2020, 2018 GRC interim rate relief revenue was $37.6 million and regulatory balancing account net revenue was $37.0 million ($18.9 million and $11.5 million, respectively, related to the third quarter of 2020). In the third quarter of 2021, there was also a $5.8 million decrease in accrued unbilled revenue, an increase in depreciation expense of $2.5 million, and a $1.7 million decrease in the unrealized gain from non-qualified benefit plan investments.

~~These decreases were partially offset by a $3.6 million decrease in administrative and general and other operations expenses in the third quarter of 2021~~2022 as compared to the third quarter of ~~2020.~~

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~~Operating Revenue~~

~~Operating revenue decreased $47.4 million, or 15.6%, to $256.7 million in the third quarter of~~ 2021, ~~as compared to the third quarter of 2020,~~ with such change attributed to the following:


Net change due to WRAM, ~~IRMA,~~ rate changes, usage, and other (1)	$	~~(23,171)~~18,097
MCBA Revenue (2)	~~(12,742)~~(3,929)
Other balancing account revenue (3)	~~(7,752)~~(799)
Deferral of revenue (4)	~~(3,720)~~(3,785)
Net operating revenue ~~decrease~~increase	$	~~(47,385)~~9,584

1.The net change due to WRAM, ~~IRMA~~ rate changes, usage, and other in the above table was primarily driven by the delay in the resolution of the 2018 GRC. As a result of the delay, 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. In addition, accrued unbilled revenue decreased $5.8 million. The decreases from the IRMA and accrued unbilled revenue were partially offset by rate increases, the components of which are set forth in the table ~~below.~~below, and a $3.4 million increase in accrued unbilled revenue.


~~General rate case~~	$	18
Escalation rate increases	~~2,597~~7,187
Purchased water and pump tax offsets	~~1,620~~5,028
Rate base offsets	~~1,839~~112
Total increase in rates	$	~~6,074~~12,327

2.MCBA revenue is the variance between adopted water production costs and actual water production costs. For the third quarter of ~~2021,~~2022, we ~~recognized~~recorded a decrease to revenue of ~~$0.9~~$4.8 million ~~of MCBA revenue~~ as compared to ~~an increase~~a decrease to revenue of ~~$11.8~~$0.9 million for the third quarter ~~2020.~~2021. The MCBA revenue decrease in the third quarter of ~~2021~~2022 as compared to the third quarter of ~~2020~~2021 resulted from ~~the delay~~a decrease in ~~the resolution of the 2018 GRC. In October of 2020, Cal Water received a proposed decision that authorized the continuation of MCBA effective January 1, 2020; as a result,~~actual water production costs relative to adopted water production costs in the third quarter of ~~2020, we recorded~~2022 due to 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.~~8.9% decrease in purchased water production.

3.The other balancing account revenue consists of the pension, conservation and health care balancing account revenues. Pension and conservation balancing account revenues are the differences between actual expenses and adopted rate recovery. Health care balancing account revenue is 85% of the difference between actual health care expenses and adopted rate recovery. For the third quarter of ~~2021,~~2022, we recognized a ~~$0.9~~net decrease to revenue of $1.7 million ~~decrease in revenue~~ for these balancing accounts as ~~actual conservation and health care costs were lower than adopted conservation and health care costs, while actual pension costs were lower than adopted pension costs. For~~compared to a net decrease to revenue of $0.9 million for the third quarter of 2020, we recognized a $6.8 million increase in revenue for these balancing accounts as actual pension costs were higher than adopted pension costs, while actual conservation and health care costs were lower than adopted conservation and health care costs. The decrease in revenue in the third quarter2021.

Table of ~~2021 as compared to the third quarter of 2020 was primarily du~~Contentse to the delay in the resolution of the 2018 GRC. In October of 2020, Cal Water received a proposed decision that authorized the continuation of the PCBA and HCBA effective January 1, 2020; as a result, in the third quarter of 2020, we recorded an increase to revenue of $2.0 million and $8.2 for the three and nine months ended September 30, 2020, respectively, for the PCBA an HCBA.

4.The deferral of revenue consists of amounts that are expected to be collected from customers beyond 24 months following the end of the accounting period in which these revenues were recorded. The deferral increased in the third quarter of ~~2021~~2022 as compared to the third quarter of ~~2020~~2021 due to an increase in the balancing account revenue expected to be collected beyond 24 months.

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Total Operating Expenses

Total operating expenses ~~decreased $12.6~~increased $15.8 million, or ~~6.4%~~8.5%, to $201.4 million in the third quarter of 2022, as compared to $185.6 million in the third quarter of ~~2021, as compared to $198.0 million in the third quarter of 2020.~~2021.

Water production cost consists of purchased water, purchased power, and pump taxes. It represents the largest component of total operating expenses, accounting for approximately 44.1% of total operating expenses for the third quarter of 2022, as compared to 45.8% of total operating expenses for the third quarter of ~~2021, as compared to 43.1% of total operating expenses for the third quarter of 2020.~~2021. Water production costs ~~decreased 0.5%~~increased 4.5% in the third quarter of ~~2021~~2022 as compared to the same period last year primarily due to ~~decreases~~an increase in purchased water ~~quantities offset by an increase in rates from our purchased water wholesalers.~~and power rates.

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
		2021		2020			2022		2021
Well production	Well production	49	%	47	%	Well production	50	%	49	%
Purchased	Purchased	48	%	48	%	Purchased	46	%	48	%
Surface	Surface	3	%	5	%	Surface	4	%	3	%
Total	Total	100	%	100	%	Total	100	%	100	%

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


		Three Months Ended September 30							Three Months Ended September 30
		2021		2020		Change			2022		2021		Change
Purchased water	Purchased water	$	67,604	$	70,398	$	(2,794)	Purchased water	$	69,931	$	67,604	$	2,327
Purchased power	Purchased power	13,122		11,983		1,139		Purchased power	15,088		13,122		1,966
Pump taxes	Pump taxes	4,225		2,963		1,262		Pump taxes	3,731		4,225		(494)
Total	Total	$	84,951	$	85,344	$	(393)	Total	$	88,750	$	84,951	$	3,799

Administrative and general ~~and other operations expenses decreased $3.6~~expense increased $2.6 million, or ~~6.0%~~8.5%, to ~~$55.4~~$33.3 million in the third quarter of ~~2021,~~2022, as compared to ~~$59.0~~$30.7 million in the third quarter of ~~2020.~~2021. The ~~decrease~~increase was primarily due to ~~decreases~~increases of $1.5 million in ~~bad debt~~uninsured loss costs ~~of $4.2~~and $1.0 million ~~and costs associated with deferred WRAM revenue of $3.1 million partially offset by increases~~ in employee ~~and retiree medical costs of $1.1 million, water and waste water treatment costs of $1.6 million, and write off capital costs of $0.5 million.~~labor costs. Changes in ~~conservation program expense,~~ employee pension benefits and employee and retiree medical costs for regulated California operations generally do not affect net income, as the Company has been allowed by the CPUC to record these costs in balancing accounts for future recovery, creating a corresponding change to revenue.

~~Maintenance expense~~Other operations expenses increased ~~$0.6~~$2.0 million, or ~~8.6%~~8.1%, to ~~$7.7~~$26.7 million in the third quarter of ~~2021, as compared to $7.1 million in the third quarter of 2020, mostly due to an increase in repairs of services and meters.~~

~~Depreciation and amortization expense increased $2.5 million, or 10.3%, to $27.2 million in the third quarter of 2021,~~2022, as compared to $24.7 million in the third quarter of ~~2020,~~2021. The increase was primarily due to increases of $2.5 million in bad debt costs, $0.8 million in conservation program expenses, and $0.5 million of employee labor costs, which was partially offset by a reduction in costs associated with deferred WRAM and MCBA operating revenue. Changes in conservation program expense for regulated California operations generally do not affect net income, as the Company has been allowed by the CPUC to record these costs in balancing accounts for future recovery, creating a corresponding change to revenue.

Maintenance expense increased $0.7 million, or 9.0%, to $8.4 million in the third quarter of 2022, as compared to $7.7 million in the third quarter of 2021, due to repairs of mains.

Depreciation and amortization expense increased $1.6 million, or 5.9%, to $28.8 million in the third quarter of 2022, as compared to $27.2 million in the third quarter of 2021, mostly due to utility plant placed in service in ~~2020.~~2021.

Income tax expense ~~decreased $12.1~~increased $4.2 million to $5.9 million in the third quarter of 2022, as compared to $1.7 million in the third quarter of ~~2021,~~2021. The increase was primarily due to a $4.0 million decrease in TCJA refunds to ratepayers in the third quarter of 2022 as compared to ~~$13.8~~the prior year.

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Property and other taxes increased $0.9 million to $9.4 million in the third quarter of 2020. The decrease was primarily due to decreases in pre-tax net operating income and the effective tax rate. The decrease in the effective tax rate resulted from a $7.5 million increase in refunds of excess 2017 deferred federal income taxes partially offset by a reduction in state tax benefits from repairs deductions in the third quarter of 20212022, as compared to ~~the third quarter of 2020.~~

~~Property and other taxes increased $0.4 million to~~ $8.5 ~~million in the third quarter of 2021, as compared to $8.1~~ million in the same period of ~~2020,~~2021, mostly due to an increase in assessed property values for utility plant ~~place~~ in service.

Other Income and Expenses

Net other income ~~increased $1.8~~decreased $0.5 million to $2.1 million in the third quarter of 2022, as compared to a net other income of $2.6 million in the third quarter of 2021, ~~as compared to a net other income of $0.8 million in the third quarter of 2020,~~ due primarily to a ~~$2.9~~$2.0 million decrease in unrealized gains on certain non-qualified benefit plan investments, which was partially offset by a $1.9 million increase in other components of net periodic benefit ~~cost partially offset by a $1.7 million decrease in the unrealized gain from non-qualified benefit plan investments.~~

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credit.

Interest Expense

Net interest expense increased ~~$0.7~~$0.1 million, or ~~7.1%~~0.8%, to $11.3 million in the third quarter of 2022, as compared to $11.2 million in the third quarter of ~~2021, as compared to $10.5 million in the third quarter of 2020.~~2021. The increase was due primarily to an increase in ~~financing to support the capital investment program from the 2018 GRC.~~interest rates.

RESULTS OF THE NINE MONTHS ENDED SEPTEMBER 30, ~~2021~~2022 OPERATIONS

COMPARED THE NINE MONTHS ENDED SEPTEMBER 30, ~~2020~~2021 OPERATIONS

Dollar amounts in thousands unless otherwise stated

Overview

Net Income Attributable to California Water Service Group

Net income attributable to California Water Service Group for the first nine months of ~~2021~~2022 was ~~$97.6~~$76.4 million or ~~$1.91~~$1.41 earnings per diluted common share, compared to net income attributable to California Water Service Group of ~~$81.3~~$97.6 million or ~~$1.66~~$1.91 earnings per diluted common share for the first nine months of ~~2020.~~2021.

The ~~$16.3~~$21.2 million ~~increase~~decrease in net income was primarily due to ~~rate relief~~a decrease of ~~$16.3~~$11.4 million ~~accrued unbilled revenue increase of $8.7 million, and an increase~~ in ~~the~~ unrealized ~~gain from~~gains on certain non-qualified benefit plan investments, a decrease of ~~$1.5~~$9.4 million ~~which~~in accrued unbilled revenue, and an increase of $1.3 million of financing costs. Additionally, there was an increase in operating expenses of $42.8 million that was driven primarily by increases in water production costs of $6.5 million, administrative and general expenses of $6.6 million, other operations expenses of $18.6 million, maintenance expenses of $2.3 million, depreciation and amortization expense of $4.9 million, income taxes of $2.3 million, and property and other taxes of $1.7 million. These operating expense increases were partially offset by rate increases of $24.5 million, an increase of $10.8 million in ~~depreciation expense~~operating revenue from a change in deferred revenue, and a $2.7 million gain from company-owned life insurance.

The change in accrued unbilled revenue was driven by weather and timing of ~~$7.8~~when meter reads were completed during the month of September 2022 compared to September 2021. In the first nine months of 2022, accrued unbilled revenue added $10.7 million to revenue compared to $20.1 million in the same period last year. We expect the difference between 2022 and ~~property taxes~~2021 annual accrued unbilled revenue to be less than $2.0 million by the end of ~~$1.7 million.~~the year.Changes to unrealized gains on certain benefit plan investments were caused by unfavorable market conditions, which is a factor outside our immediate control. Our net income and net other income in future periods are expected to continue to be similarly affected, potentially significantly, by increases or decreases in unrealized gains or losses on non-qualified benefit plan investments, particularly during periods of significant market volatility or significantly favorable or unfavorable market conditions

Operating Revenue

Operating revenue increased ~~$12.4~~$27.9 million, or ~~2.1%~~4.5%, to ~~$617.6~~$645.5 million for the first nine months of ~~2021~~2022 as compared to the first nine months of ~~2020,~~2021, with such change attributed to the following:


Net change due to WRAM, ~~IRMA,~~ rate changes, usage, and other (1)	$	~~32,396~~24,867
MCBA Revenue (2)	~~(1,708)~~(6,985)
Other balancing account revenue (3)	~~(9,997)~~(728)
Deferral of revenue (4)	~~(8,263)~~10,757
Net operating revenue increase	$	~~12,428~~27,911

1.The net change due to WRAM, ~~IRMA,~~ rate changes, usage, and other in the above table was primarily driven by rate increases, the components of which are set forth in the table below and a ~~2.5%~~$4.7 million increase in Hawaii Water due to an increase in customer ~~usage, and an $8.7~~usage. The increase was partially offset by a $9.4 million ~~increase~~decrease in accrued unbilled revenue.

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~~General rate case~~	$	42
Escalation rate increases	~~6,136~~16,180
Purchased water and pump tax offsets	~~4,263~~8,063
Rate base offsets	~~5,858~~207
Total increase in rates	$	~~16,299~~24,450

2.MCBA revenue is the variance between adopted water production costs and actual water production costs. For the first nine months of ~~2021,~~2022, we recognized ~~$10.1~~$3.1 million of MCBA revenue as compared to ~~$11.8~~$10.1 million of MCBA revenue for the first nine months of ~~2020.~~2021. The MCBA revenue decrease in the first nine months of ~~2021~~2022 as compared to the first nine months of ~~2020~~2021 resulted from a decrease in actual water production costs relative to adopted water production ~~costs. Actual water production~~ costs ~~decreased relative to adopted water production costs in the first nine months of 2021 as compared to the first nine months of 2020~~ due to a ~~shift~~7.5% decrease in ~~water production mix from~~ purchased water ~~to well water in certain of our service territories.~~production.

3.The other balancing account revenue consists of the pension, conservation and health care balancing account revenues. Pension and conservation balancing account revenues are the differences between actual expenses and adopted rate recovery. Health care balancing account revenue is 85% of the difference between actual health care expenses and adopted rate recovery. For the first nine months of 2022 and 2021, we recognized a net decrease to revenue of ~~$4.8~~$5.5 million for these balancing accounts as compared to a net ~~increase~~decrease of ~~$5.2~~$4.8 million ~~of revenue~~ for the first nine months of ~~2020.~~2021. The decrease in revenue was primarily due to a decrease in actual pension expenses relative to adopted in the first nine months of ~~2021~~2022 as compared to the first nine months of ~~2020.~~2021 partially offset by increase in actual conservation expenses relative to adopted.

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4.The deferral of revenue consists of amounts that are expected to be collected from customers beyond 24 months following the end of the accounting period in which these revenues were recorded. The deferral ~~increased~~decreased in the first nine months of ~~2021~~2022 as compared to the first nine months of ~~2020~~2021 due to ~~an increase~~a decrease in the balancing account revenue expected to be collected beyond 24 months.

Total Operating Expenses

Total operating expenses increased ~~$7.8~~$42.8 million, or ~~1.6%~~8.5%, to $544.1 million for the first nine months of 2022, as compared to $501.3 million for the first nine months of ~~2021, as compared to $493.5 million for the first nine months of 2020.~~2021.

Water production costs consists of purchased water, purchased power, and pump taxes. It represents the largest component of total operating expenses, accounting for approximately 40.7% of total operating expenses in the first nine months of 2022, as compared to 42.8% of total operating expenses in the first nine months of ~~2021, as compared to 42.6% of total operating expenses~~2021. Water production costs increased 3.0% in the first nine months of ~~2020. Water production costs increased 2.0% in the first nine months of 2021~~2022 as compared to the same period last year primarily due to ~~a 2.8% increase in~~increased purchased water ~~production.~~and power rates.

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


		Nine Months Ended September 30					Nine Months Ended September 30
		2021		2020			2022		2021
Well production	Well production	48	%	45	%	Well production	49	%	48	%
Purchased	Purchased	48	%	50	%	Purchased	47	%	48	%
Surface	Surface	4	%	5	%	Surface	4	%	4	%
Total	Total	100	%	100	%	Total	100	%	100	%

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


		Nine Months Ended September 30							Nine Months Ended September 30
		2021		2020		Change			2022		2021		Change
Purchased water	Purchased water	$	174,508	$	175,485	$	(977)	Purchased water	$	174,653	$	174,508	$	145
Purchased power	Purchased power	28,796		25,887		2,909		Purchased power	34,630		28,796		5,834
Pump taxes	Pump taxes	11,384		9,090		2,294		Pump taxes	11,912		11,384		528
Total	Total	$	214,688	$	210,462	$	4,226	Total	$	221,195	$	214,688	$	6,507

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Administrative and general ~~and other operations~~ expenses increased ~~$0.8~~$6.6 million, or ~~0.5%~~7.1%, to ~~$156.2~~$99.4 million in the first nine months of ~~2021,~~2022, as compared to ~~$155.4~~$92.8 million in the first nine months of ~~2020.~~2021. The increase was primarily due to ~~a $3.4~~increases in outside legal and consulting service costs of $2.3 million, ~~increase in~~training and travel costs of $1.8 million, uninsured loss costs of $1.7 million, and employee ~~wages, $2.7 million increase in water and wastewater treatment cost, $1.4 million increase in uninsured losses, $0.9 million in district office expenses, $0.8 million increase in software maintenance~~labor costs ~~$0.7 million~~ of conservation program costs, and $0.5 million of write off of capital costs, which was partially offset by a $6.7 million decrease in costs associated with deferred WRAM revenue and $3.6 million decrease in bad debt costs.$1.5 million. Changes in employee pension benefits and ~~water conservation program~~employee and retiree medical costs for regulated California operations generally do not affect ~~earnings,~~net income, as the Company ishas been allowed by the CPUC to record these costs in balancing accounts for future recovery, creating a corresponding change to revenue. ~~Employee~~

Other operations expenses increased $18.6 million, or 29.4%, to $81.9 million in the first nine months of 2022, as compared to $63.3 million in the first nine months of 2021. The increase was primarily due to an increase in the costs associated with the reduction of deferred revenue of $8.8 million, credit losses of $2.8 million, conservation program expenses of $2.1 million, water and ~~retiree medical expenses are recovered up~~wastewater treatment costs of $1.3 million, and employee labor cost of $0.9 million. Changes in conservation program expense for regulated California operations generally do not affect net income, as the Company has been allowed by the CPUC to ~~85% of the variance between adopted and recorded expenses.~~record these costs in balancing accounts for future recovery, creating a corresponding change to revenue.

Maintenance expense increased ~~$0.2~~$2.3 million, or ~~0.9%~~10.8%, to $23.4 million in the first nine months of 2022, as compared to $21.1 million in the first nine months of 2021, ~~as compared to $20.9 million in the first nine months of 2020,~~ mostly due to an increase in repairs of ~~transmission and distribution mains,~~services, tanks, and ~~services.~~equipment.

Depreciation and amortization expense increased ~~$7.8~~$4.9 million, or ~~10.6%~~6.0%, to $86.4 million in the first nine months of 2022, as compared to $81.5 million in the first nine months of 2021, ~~as compared~~mostly due to ~~$73.7~~capital additions in 2021.

Income tax expense increased $2.3 million to $5.9 million in the first nine months of ~~2020, mostly due to capital additions in 2020.~~

~~Income tax expense decreased $6.9 million~~2022, as compared to $3.6 million in the first nine months of ~~2021, as compared to $10.5 million in the first nine months of 2020.~~2021. The ~~decrease~~increase was primarily due to a higher effective tax rate that resulted from a decrease in the ~~effective tax rate partially offset by an increase in pre-tax net operating income. The decrease in the effective tax rate for the first nine months of 2021 was due to a $7.5 million increase in~~ refunds of ~~2017~~ excess deferred federal income ~~taxes partially offset by a reduction in state tax benefits from repairs deductions.~~

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taxes.

Property and other taxes increased $1.7 million to ~~$24.2~~$25.9 million in the first nine months of ~~2021,~~2022, as compared to ~~$22.5~~$24.2 million in the same period of ~~2020,~~2021, mostly due to an increase in assessed property values.

Other Income and Expenses

Net other income ~~increased $12.6~~decreased $5.4 million to $7.7 million in the first nine months of 2022, as compared to net other income of $13.1 million in the first nine months of 2021, ~~as compared~~due primarily to a $11.4 million decrease in unrealized gains on non-qualified benefit plan investments, which was partially offset by a $2.7 million gain on company owned life insurance and $4.0 million increase in other components of net ~~other income of $0.5~~periodic benefit credit.

Interest Expense

Net interest expense increased $1.3 million, or 4.2%, to $33.2 million in the first nine months of 2020, due primarily to a $11.3 million decrease in other components of net periodic benefit cost and $1.5 million increase in unrealized gain from non-qualified benefit plan investments due to favorable market conditions partially offset by a $2.0 million decrease in allowance for equity funds used during construction.

~~Interest Expense~~

~~Net interest expense increased $1.1 million, or 3.5%, to $31.9 million in the first nine months of 2021,~~2022, as compared to ~~$30.8~~$31.9 million in the first nine months of 2021. The increase was due primarily to an increase in ~~financing to support the capital investment program from the 2018 GRC.~~interest rates.

REGULATORY MATTERS

~~2021~~ California Regulatory Activity

~~California~~2021 GRC Filing

~~On October 14, 2020, an ALJ~~California Public Advocates Office reviewed Cal Water's 2021 GRC filing and submitted its report in February 2022. Cal Water reviewed California Public Advocates Office recommendations, evaluated the validity of the underlying data, and composed and filed rebuttal testimony with the CPUC ~~issued a proposed decision for Cal Water's 2018 GRC filing,~~in April 2022. Settlement negotiations with the California Public Advocates Office and intervenors began in the second quarter of 2022 and evidentiary hearings were held in the second quarter of 2022. A partial settlement with the California Public Advocates Office primarily addressing non-revenue matters was submitted on September 2, 2022. One intervenor submitted comments on the settlement on September 30, 2022, to which ~~was approved by the CPUC on December 4, 2020. The new rates were implemented on February 1, 2021.~~

The CPUC follows a rate case plan, which requires Cal Water to file a GRC for each of its regulated operating districts (except Grand Oaks) 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.

~~On July 2, 2021,~~ Cal Water filed ~~its 2021 GRC requesting water infrastructure investments of $1.0 billion in accordance with the rate case plan for all of its regulated operating districts for the years 2022, 2023, and 2024.~~a response. The CPUC will evaluate the ~~water infrastructure improvement investments~~proposal along with ~~operating budgets to establish water rates that reflect~~proposals of other parties and, in accordance with the actual cost of service. The CPUC will also evaluate Cal Water's proposed rate design changes that would improve revenue stability and provide a discounted unit rate to the first six units of water per month for residential customers. In the proposal, this block of usageassigned Commissioner’s scoping ruling, would be ~~charged at 25%~~expected to issue a decision in the fourth quarter of 2022; however, the timing of the ~~average rate. The CPUC has recognized this six-unit block as essential for basic needs. The required filing begins an approximately 18-month review process, with any changes in~~final decision is uncertain. We anticipate partial interim rate increases will be authorized to be added to customer ~~rates expected to become~~billings effective in 2023. Cal Water has proposed to the CPUC to increase revenues by $80.5 million, or 11.1%, in 2023; $43.6 million, or 5.4%, in 2024; and $43.2 million, or 5.1%, in 2025 to support these investments. If approved as filed, we expect that this would cost the average residential customer less than an additional $5 per month across all of Cal Water’s service areas.

~~IRMA~~

The 2018 GRC was approved in December of 2020 and final rates for the 2018 GRC were implemented as of February 1, 2021; as a result, Cal Water calculated and recorded a regulatory asset of $55.7 million and a corresponding increase to revenue for the difference between final rates and interim rates for the 13-month period January 1, ~~2020 to January 31, 2021. Cal Water also recorded a regulatory liability~~2023.

Table of ~~$1.6 million and a corresponding decrease to regulatory assets for LIRA and RSF program credits that would have been given to customers had the rate case been approved on time.~~Contents

~~In April of~~ 2021 Cal Water submitted an advice letter to request amortization of the IRMA. The new rates were implemented on April 15, 2021. In May of 2021, Cal Water submitted an advice letter to adjust the rates that were implemented on April 15, 2021. The updated rates were implemented on June 15, 2021.

~~2020~~ Cost of Capital Application

On May 3, 2021, Cal Water filed its required application with the CPUC to review its cost of capital for 2022 through 2024. Cal Water currently has an approved return on equity of 9.2%, a cost of debt of 5.51%, and a 53.4% equity capital structure. Cal Water requested a return on equity of 10.35%, a cost of debt of 4.23%, and a 53.4% equity capital structure. The California Public Advocates Office recommends a return on equity of 7.81%, a cost of debt of 4.23%, and a 49.4% equity capital structure. Evidentiary hearings were held in May 2022 and the case was submitted to the CPUC at the end of the second quarter of 2022. The CPUC will evaluate the proposal along with proposals of other parties, and ~~according to~~in accordance with its standard process, is currently expected to issue a decision ~~early~~ in ~~2022.~~

~~Table~~the fourth quarter of ~~Contents~~

2022. We have not reserved for any potential outcome of the proceeding as we have determined that it is not probable that the proceeding will be approved retroactively to January 1, 2022. In the event that the CPUC adopts the cost of capital components retroactively to January 1, 2022, the reduced cost of debt, if adopted at our proposed equity capital structure, would reduce 2022 annual revenue by $11.0 million.

California Drought Memorandum Account (DRMA)

In June of 2021, Cal Water submitted advice letters to request a DRMA to track the incremental operational and administrative costs incurred to further implement updated Rule 14.1 for voluntary conservation measures and Schedule 14.1 for ~~mandatory rationing measures,~~implementation of our Water Shortage Contingency Plan, including activities related to enhanced conservation efforts, staffing, and capital expenditures to ensure a safe, reliable supply of water. The DRMA would also track monies paid by customers for fines, penalties, or other compliance measures associated with water use violations; and penalties paid by Cal Water to its water wholesalers. The ~~advice letters were~~DRMA was approved by the CPUC with an effective date of June 14, 2021. Cal Water has incurred $1.4 million of cumulative DRMA related costs, of which $0.8 million was incurred in the first nine months of 2022.

The California State Governor has issued a drought declaration for all California counties through a series of State of Emergency Proclamations with the most recent on March 28, 2022. Given these drought proclamations and current water usage levels in all of its service areas, Cal Water has activated Stage 2 of the “Water Use Restrictions of its Water Shortage Contingency Plan” of Schedule 14.1 in all of its service areas.

In Stage 1, irrigating ornamental landscape with potable water is prohibited during the hours of 8:00 a.m. and 6:00 p.m. For Stage 2, irrigating ornamental landscapes with potable water is limited to no more than three days per week as well as prohibited during the hours of 8:00 a.m. and 6:00 p.m. In addition this stage states that new connections may not install single-pass cooling systems for air conditioning or other cooling system applications unless required for health or safety reasons.

Escalation Increase Requests

As part of the decision on the 2018 GRC, Cal Water was authorized to request annual escalation rate increases for ~~2021~~2022 for those districts that passed the earnings test. In ~~December~~November of ~~2020,~~2021, Cal Water requested escalation rate increases for ~~2021~~2022 in 1319 of its regulated districts. The increase in annual adopted gross revenue associated with the ~~December 2020~~November 2021 filing was ~~$8.2~~$21.7 million. The new rates were implemented on ~~February~~January 1, ~~2021.~~2022.

Expense Offset Requests

Expense offsets are dollar-for-dollar increases in revenue to match increased expenses, and therefore do not affect net operating income. In December of ~~2020,~~2021, Cal Water submitted an advice letter to request offsets for increases in purchased water costs and pump taxes in seven of its regulated districts totaling ~~$5.5~~$5.2 million. The new rates were implemented on ~~February~~January 1, ~~2021.~~2022.

In ~~September~~June of ~~2021,~~2022, Cal Water submitted an advice letter to request offsets for increases in purchased water costs and pump taxes in ~~one~~four of its regulated districts totaling ~~$1.8~~$12.7 million. The new rates were implemented on ~~October~~August 1, ~~2021.~~2022.

Rate Base Offset Requests

For construction projects authorized in GRCs as advice letter projects, Cal Water is allowed to request rate base offsets to increase revenues after the project goes into service. In ~~July~~November of ~~2020,~~2021, Cal Water submitted an advice letter to recover ~~$9.0~~$0.2 million of annual revenue increase for a rate base offset in one of its regulated districts. The new rates were implemented on ~~February~~January 1, ~~2021.~~2022.

In March of 2022, Cal Water submitted an advice letter to recover $0.1 million of annual revenue increase for a rate base offset in one of its regulated districts. The new rates were implemented on April 15, 2022.

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WRAM/MCBA Filings

In April of ~~2021,~~2022, Cal Water submitted an advice letter to true up the revenue under-collections for the ~~2020~~2021 annual WRAMs/MCBAs of its regulated districts. A net under-collection of ~~$39.6~~$54.1 million is being recovered/refunded from/to customers in the form of 12, 18, and ~~greather-than-18-month~~greater-than-18-month surcharges ~~and 6~~ and 12 month surcredits. The new rates incorporate net WRAM/MCBA balances that were previously approved for recovery and were implemented on April 15, ~~2021.~~

~~2015 GRC PCBA and HCBA Filings~~

During the first six months of 2021, Cal Water submitted advice letters to amortize the PCBA and HCBA from the 2015 GRC that tracked the difference between adopted and actual costs for the period of 2017-2019. For the PCBA, $21.3 million is being recovered from customers in the form of 12 and 24 month surcharges as actual pension costs during 2017-2019 were higher than the adopted pension costs. For the HCBA, $4.3 million is being refunded to customers in the form of 12 month surcredits as actual health care costs during 2017-2019 were lower than the adopted health care costs. The new rates were implemented on June 15, 2021.2022.

Regulatory Activity - Other States

Kona Water Service Company GRC (Hawaii Water)

In May of 2021, Hawaii Water submitted a request for a private letter ruling (PLR) to the IRS ~~requesting a ruling~~ on the treatment of deferred taxes ~~as a result~~because of the TCJA. A favorable decision on the PLR ~~is expected later this year.~~

~~Kapalua Water Company~~was received on November 18, 2021. The Consumer Advocates and ~~Kapalua Waste Treatment (Hawaii Water)~~

~~In the first quarter of 2021,~~ Hawaii Water ~~Service received~~submitted a joint stipulation to the Hawaii Public Utility Commission (HPUC) incorporating the PLR into revised water rates on March 2, 2022. Hawaii Water is awaiting approval from the Hawaii Public Utilities Commission (HPUC) to acquire the assets of Kapalua Water Company and Kapalua Waste Treatment Company from Maui Land and Pineapple Company. Hawaii Water took control of the water and wastewater systems on May 1, 2021.

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HPUC.

HOH Utilities Company (Hawaii Water)

In June of 2021, Hawaii Water signed an agreement to acquire the assets of HOH Utilities Company, a wastewater utility located in the growing Poipu/Koloa area of Kauai County on the island of Kauai. The acquisition is subject to satisfaction of customary closing conditions, including approval by the HPUC.

Hawaii Water is expected to own and manage the wastewater utility, which currently serves almost 1,800 residential, commercial, and resort customers in Poipu and Koloa, including three hotels, condominiums, multi-family housing, a golf course, and single-family homes.

~~An application~~Hawaii Water received HPUC approval for ~~approval~~the acquisition in June of ~~the transaction was submitted to the HPUC in September of 2021.~~2022.

Kalaeloa Water Company GRC (Hawaii Water)

In August of 2021, a GRC application requesting an increase of revenues for Kalaeloa was submitted with the HPUC. IfIn June of 2022, Hawaii Water and the Consumer Advocate submitted a full settlement agreement to the HPUC for approval. The HPUC issued a decision approving the settlement agreement in September of 2022. The approved ~~the combined~~revenue increase for ~~water~~Kalaeloa is $0.15 million or 4.9%.

Animas Valley Land and ~~sewer service revenue is $0.3 million. A commission decision is expected in the third quarter of 2022.~~

~~BVRT Utility Holding Company (BVRT) (Texas~~Water Co., LLC (New Mexico Water)

In ~~May~~October of ~~2021, Texas~~2020, New Mexico Water ~~became~~signed a purchase agreement with Animas Valley Land and Water Co., LLC (AV Water) and court-appointed receiver C. Randel Lewis to acquire the majority owner of BVRT, a Texas-based utility development company owning and operating four wastewater utilities serving growing communities outside of Austin and San Antonio. Texas Water initially invested funds to enable BVRT to continue to build wastewater infrastructure and converted its investment to equity. BVRT’s four wastewater utilities currently serve or are under contract to serve over 4,000 connections, with an estimated potential total build-out of more than 61,000 connections.

~~2021 Washington Water GRC (Washington Water)~~

~~On July 15, 2021, Washington Water filed a GRC application with the Washington Utilities and Transportation Commission (WUTC) requesting a phased-in consolidation of its East Pierce~~Morning Star Water System ~~with~~assets of AV Water and provide regulated water utility service to its ~~legacy Washington~~approximately 2,000 customer connections in northwest New Mexico.

In April of 2022, New Mexico Water closed its purchase of the Morningstar Water system. The ~~requested annual revenue increase is $3.1 million~~New Mexico Public Regulation Commission granted approval of the transaction, and ~~is proposed to be phased-in over 3 years. The WUTC will evaluate~~ the ~~GRC application and is expected to issue a decision in~~utility commenced operation of the ~~first quarter~~water system as of April 14, 2022.

LIQUIDITY

Cash flow from Operations

Cash flow from operations for the first nine months of ~~2021~~2022 was ~~$179.2~~$199.8 million compared to ~~$96.7~~$179.2 million for the same period in ~~2020.~~2021. The increase in the first nine months of ~~2021~~2022 as compared to ~~2020~~2021 was primarily due to ~~billing~~net receipt of $17.2 million from the ~~2018 GRC rate relief for 2020 and 2021 in 2021.~~Water Arrearages Payment Program. Cash generated by operations varies during the year due to customer billings and timing of collections and contributions to our benefit plans.

During the first nine months of ~~2021,~~2022, we made contributions of ~~$18.9~~$12.4 million to our employee pension plan compared to contributions of ~~$25.8~~$18.9 million during the first nine months of ~~2020.~~2021. During the first nine months of ~~2021,~~2022, we made contributions of ~~$1.9~~$0.5 million to the other postretirement benefit plans compared to contributions of ~~$5.7~~$1.9 million during the first nine months of ~~2020.~~2021. The full-year ~~2021~~2022 estimated cash contribution to the pension plans and other postretirement benefits plans are expected to be approximately ~~$23.5~~$16.1 million and ~~$2.2~~$0.7 million, respectively.

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The water business is seasonal. Billed revenue is lower in the cool, wet winter months when less water is used compared to the warm, dry summer months when water use is highest. This seasonality results in the possible need for short-term borrowings under the unsecured revolving credit facilities in the event cash is not available to cover operating ~~and utility plant~~ costs during the winter period. The increase in cash flows during the summer allows short-term borrowings to be paid down. Customer water usage can be lower than normal in drought years and when greater-than-normal precipitation falls in our service areas or temperatures are lower than normal, especially in the summer months. Aged accounts receivable past due more than 60 days decreased from $26.2 million as of December 31, 2021 to $15.8 million as of September 30, 2022 mostly due to the application of $16.9 million of Water Arrearages Payment Program funds.

Investing Activities

During the first nine months of ~~2021~~2022 and ~~2020,~~2021, we used ~~$207.7~~$222.1 million and ~~$221.3~~$207.7 million, respectively, of cash for Company-funded and developer-funded utility plant expenditures. Annual expenditures fluctuate each year due to the availability of construction resources and our ability to obtain construction permits in a timely manner. For 2022, the Company's capital program will be dependent in part on the timing and nature of regulatory approvals in connection with Cal Water's 2021 ~~we estimate utility plant~~GRC filing. The Company proposed to the CPUC spending $1.0 billion on water infrastructure investments in 2022-2024. Capital expenditures ~~to be between $270.0 million~~in California are evaluated in the context of the pending GRC and ~~$300.0 million.~~

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may change as the case moves forward.

Financing Activities

Net cash provided by financing activities was ~~$132.6~~$61.4 million during the first nine months of ~~2021~~2022 compared to ~~$237.1~~$132.6 million of net cash provided by financing activities for the same period in ~~2020.~~2021. For 2022, this includes our issuance of $57.1 million of Company common stock through our at-the-market equity program and $1.6 million through our employee stock purchase plan. For 2021, this includes our issuance of $280.0 million of First Mortgage Bonds, $127.0 million of Company common stock through our at-the-market equity program, and $1.5 million through our employee stock purchase plan. ~~For 2020, this includes our issuance of $57.3 million of Company common stock through our at-the-market equity program and $1.3 million through our employee stock purchase plan.~~

During the first nine months of ~~2021~~2022 and ~~2020,~~2021, we borrowed ~~$180.0~~$95.0 million and ~~$270.0~~$180.0 million, respectively, on our unsecured revolving credit facilities. We made a repayment on our unsecured revolving credit facilities of ~~$430.0~~$60.0 million and ~~$70.0~~$430.0 million during the first nine months of ~~2021~~2022 and ~~2020,~~2021, respectively.

The net WRAM and MCBA receivable balances were $94.8 million and $72.7 million as of September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The receivable balances were primarily financed by Cal Water using short-term and long-term financing arrangements to meet operational cash requirements. Interest on the receivable balances, which represents the interest recoverable from customers, is limited to the then-current 90-day commercial paper rates which typically are significantly lower than Cal Water’s short and long-term financing rates.

~~Short-Term and Long-Term~~Long-term Financing

During the first nine months of ~~2021,~~2022, we utilized cash generated from operations, borrowings on the unsecured revolving credit facilities, ~~issuance of First Mortgage Bonds,~~ and cash received from the sale of Company common stock through our at-the-market equity program to fund operations and capital investments.

In future periods, management anticipates funding our utility plant needs through a relatively balanced approach between debt and equity.

Short-term liquidity is provided by our unsecured revolving credit facilities and internally generated funds. Long-term financing is accomplished through the use of both debt and equity. 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; however, all borrowings must be repaid within 24 months unless a different period is required or authorized by the CPUC. The proceeds from the unsecured revolving credit facilities may be used for working capital ~~purposes, including the short-term financing of utility plant projects.~~ purposes.

As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, there were short-term borrowings of ~~$120.0~~$70.0 million and ~~$370.0~~$35.0 million, respectively, outstanding on the unsecured revolving credit facilities.

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

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Both short-term credit agreements contain affirmative and negative covenants and events of default customary for credit facilities of this type including, among other things, limitations and prohibitions relating to additional indebtedness, liens, mergers, and asset sales. Also, these unsecured credit agreements contain financial covenants governing the Company and its subsidiaries’ consolidated total capitalization ratio not to exceed 66.7% and an interest coverage ratio of three or more. As of September 30, ~~2021,~~2022, we are in compliance with all of the covenant requirements and are eligible to use the full amount of the undrawn portion of our unsecured revolving credit facilities.

Long-term financing, which includes First Mortgage Bonds, other debt securities, and common stock, has typically been used to replace short-term borrowings and fund utility plant expenditures. Internally generated funds, after making dividend payments, provide positive cash flow, but have not been at a level to meet the needs of our utility plant expenditure requirements. Management expects this trend to continue given our planned utility plant expenditures for the next five years. Some utility plant expenditures are funded by payments received from developers for contributions in aid of construction or advances for construction. Funds received for contributions in aid of construction are non-refundable, whereas funds classified as advances in construction are generally refundable over 40 years. Management believes long-term financing is available to meet our cash flow needs through issuances in both debt and equity instruments.

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Equity Issuance

On ~~May 11, 2021, Cal Water completed~~April 29, 2022, we entered into an equity distribution agreement to sell shares of our common stock having an aggregate gross sales price of up to $350.0 million from time to time depending on market conditions through an at-the-market equity program over the sale and issuance of $280.0 million in aggregate principal amount of First Mortgage Bonds (the Bonds) in a private placement. The Bonds consist of $130.0 million of 2.87% bonds, series ZZZ, maturing May 11, 2051, and $150.0 million of 3.02% bonds, series 1, maturing May 11, 2061. Interest on the bonds will accrue semi-annually and be payable in arrears on May 11 and November 11 of each year, commencing on November 11, 2021. The Bonds rank equally with all of Cal Water’s other First Mortgage Bonds and are secured by liens on Cal Water’s properties, subjectnext three years. We intend to ~~certain exceptions and permitted liens. Cal Water used~~use the net proceeds from ~~the sale of the Bonds to refinance existing indebtedness~~these sales, after deducting commissions on such sales and offering expenses, for general corporate purposes, which may include working capital, construction and acquisition expenditures, investments and repurchases, and redemptions of securities.

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

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

The following tables present summarized financial information of the Issuer subsidiary and the Guarantor. The information presented below excludes eliminations necessary to arrive at the information on a consolidated basis. In presenting the summarized financial statements, the equity method of accounting has been applied to the Guarantor interests in the Issuer. The summarized information excludes financial information of the ~~Non-issuers,~~Non-guarantors, including earnings from and investments in these entities.


Summarized Statement of Operations	Summarized Statement of Operations									Summarized Statement of Operations
(in thousands)	(in thousands)	Nine Months Ended September 30, 2021				Twelve Months Ended December 31, 2020				(in thousands)	Nine Months Ended September 30, 2022				Twelve Months Ended December 31, 2021
		Issuer		Guarantor		Issuer		Guarantor			Issuer		Guarantor		Issuer		Guarantor
Net sales	Net sales	$	568,420	$	—	$	745,034	$	—	Net sales	$	591,105	$	—	$	727,149	$	—
Gross profit	Gross profit	$	363,136	$	—	$	477,915	$	—	Gross profit	$	382,559	$	—	$	462,301	$	—
Income from operations	Income from operations	$	110,303	$	118	$	130,761	$	331	Income from operations	$	98,679	$	179	$	121,231	$	181
Equity in earnings of guarantor	Equity in earnings of guarantor	$	—	$	96,686	$	—	$	92,244	Equity in earnings of guarantor			$	74,954	$	—	$	99,912
Net income	Net income	$	90,812	$	97,543	$	92,244	$	92,760	Net income	$	72,962	$	75,792	$	94,313	$	100,979

Summarized Balance Sheet Information
(in thousands) As of September 30, 2021 As of December 31, 2020
Issuer Guarantor Issuer Guarantor
Current assets $ 360,258 $ 3,293 $ 227,030 $ 20,075
Intercompany receivable from non-issuer and issuer subsidiaries $ 749 $ 44,036 $ 4,905 $ 20,022
Other assets $ 445,070 $ 1,114,548 $ 433,837 $ 943,665
Long-term intercompany receivable from non-issuer subsidiaries $ — $ 27,120 $ — $ 37,985
Net utility plant $ 2,578,907 $ 47 $ 2,459,992 $ 117
Total assets $ 3,384,984 $ 1,189,044 $ 3,125,764 $ 1,021,864
Current liabilities $ 259,313 $ 90,000 $ 481,247 $ 100,124
Intercompany payable to guarantor and non-issuer subsidiary $ 5,242 $ — $ 402 $ —
Long-term debt $ 1,059,468 $ — $ 780,790 $ —
Other liabilities $ 1,057,076 $ 2,064 $ 1,034,098 $ 1,725
Total Liabilities $ 2,381,099 $ 92,064 $ 2,296,537 $ 101,849

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Summarized Balance Sheet Information
(in thousands)	As of September 30, 2022				As of December 31, 2021
	Issuer		Guarantor		Issuer		Guarantor
Current assets	$	260,451	$	16,582	$	251,573	$	20,077
Intercompany receivable from Non-guarantors	$	1,211	$	43,319	$	3,810	$	31,449
Other assets	$	435,157	$	1,073,882	$	431,137	$	991,173
Long-term intercompany receivable from Non-issuers	$	—	$	32,970	$	—	$	34,216
Net utility plant	$	2,745,839	$	—	$	2,625,092	$	24
Total assets	$	3,442,658	$	1,166,753	$	3,311,612	$	1,076,939

Current liabilities	$	236,625	$	70,327	$	211,915	$	35,019
Intercompany payable to Non-guarantors and Guarantor	$	5,094	$	—	$	361	$	—
Long-term debt	$	1,053,445	$	—	$	1,055,538	$	—
Other liabilities	$	1,068,611	$	2,485	$	1,046,647	$	2,146
Total Liabilities	$	2,363,775	$	72,812	$	2,314,461	$	37,165

Dividends

During the first nine months of ~~2021,~~2022, our quarterly common stock dividend payments were ~~$0.6900~~$0.7500 per share compared to ~~$0.6375~~$0.6900 per share during the first nine months of ~~2020.~~2021. For the full year ~~2020,~~2021, the payout ratio was ~~43.1%~~46.9% of net income. On a long-term basis, our goal is to achieve a dividend payout ratio of 60% of net income accomplished through future earnings growth.

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At the October ~~27, 2021~~26, 2022 meeting, the Company's Board of Directors declared the ~~third~~fourth quarter dividend of ~~$0.2300~~$0.2500 per share payable on November ~~19, 2021,~~18, 2022, to stockholders of record on November ~~8, 2021.~~7, 2022. This was our ~~307th~~311th consecutive quarterly dividend.

~~2021~~2022 Financing Plan

We intend to fund our utility plant needs in future periods through a relatively balanced approach between long-term debt and equity. The Company and Cal Water have a syndicated unsecured revolving line of credit of $150.0 million and $400.0 million, respectively, for short-term borrowings. As of September 30, ~~2021,~~2022, the Company’s and Cal Water’s availability on these unsecured revolving lines of credit was ~~$60.0~~$80.0 million and ~~$370.0~~$400.0 million, respectively.

On May 11, 2021, Cal Water completed the sale and issuance of $280.0 million in aggregate principal amount of First Mortgage Bonds in a private placement and used the net proceeds from the sale to refinance existing indebtedness and for general corporate purposes.

Book Value and Stockholders of Record

Book value per common share was ~~$21.21~~$23.23 at September 30, ~~2021~~2022 compared to ~~$18.30~~$21.92 at December 31, ~~2020.~~2021. There were approximately ~~1,929~~1,886 stockholders of record for our common stock as of August ~~9, 2021.~~8, 2022.

Utility Plant Expenditures

During the first nine months of ~~2021,~~2022, utility plant expenditures totaled ~~$207.7~~$222.1 million for Company-funded and developer-funded projects. For 2022, the Company's capital program will be dependent in part on the timing and nature of regulatory approvals in connection with Cal Water's 2021 ~~we estimate utility plant~~GRC filing. The Company proposed to the CPUC spending $1.0 billion on water infrastructure investments in 2022-2024. Capital expenditures ~~to be between $270.0 million~~in California are evaluated in the context of the pending GRC and ~~$300.0 million. We do not control third-party-funded utility plant expenditures and therefore are unable to estimate~~may change as the ~~amount of such projects for 2021.~~case moves forward.

As of September 30, ~~2021,~~2022, construction work in progress was ~~$234.5~~$269.6 million. Construction work in progress includes projects that are under construction but not yet complete and placed in service.

WATER SUPPLY

Our source of supply varies among our operating districts. Certain districts obtain all of their supply from wells; some districts purchase all of their supply from wholesale suppliers; and other districts obtain supply from a combination of wells and wholesale suppliers. A small portion of supply comes from surface sources and is processed through Company-owned water treatment plants. To the best of management's knowledge, we are meeting water quality, environmental, and other regulatory standards for all Company-owned systems.

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Historically, approximately half of our annual water supply is pumped from wells. State groundwater management agencies operate differently in each state. Some of our wells extract ground water from water basins under state ordinances. These are adjudicated groundwater basins, in which a court has settled the dispute between landowners, or other parties over how much annual groundwater can be extracted by each party. All of our adjudicated groundwater basins are located in the State of California. Our annual groundwater extraction from adjudicated groundwater basins approximates ~~5.8~~5.4 billion gallons or ~~12.3%~~10.3% of our total annual water supply pumped from wells. Historically, we have extracted less than 100% of our annual adjudicated groundwater rights and have the right to carry forward up to 20% of the unused amount to the next annual period. All of our remaining wells extract ground water from managed or unmanaged water basins. There are no set limits for the ground water extracted from these water basins. Our annual groundwater extraction from managed groundwater basins approximates ~~27.5~~32.1 billion gallons or ~~58.0%~~61.1% of our total annual water supply pumped from wells. Our annual groundwater extraction from unmanaged groundwater basins approximates ~~14.1~~15.0 billion gallons or ~~29.7%~~28.6% of our total annual water supply pumped from wells. Most of the managed groundwater basins we extract water from have groundwater recharge facilities. We are required to ~~pay well pump taxes to~~ financially support these groundwater recharge ~~facilities.~~facilities by paying well pump taxes. Our well pump taxes were ~~$4.2~~$3.7 million and ~~$3.0~~$4.2 million for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. For the nine months ended September 30, ~~2021~~2022 and ~~2020~~2021, our well pump taxes were ~~$11.4~~$11.9 million and ~~$9.1~~$11.4 million, respectively. In 2014, the State of California enacted the Sustainable Groundwater Management Act of 2014. The law and its implementing regulations require most basins to select a sustainability agency by 2017, develop a sustainability plan by 2022, and show progress toward sustainability by 2027. We expect that after the act's provisions are fully implemented, substantially all the Company's California groundwater will be produced from sustainably managed and adjudicated basins.

California's normal weather pattern yields little precipitation between mid-spring and mid-fall. The Washington Water service areas receive precipitation in all seasons, with the heaviest amounts during the winter. New Mexico Water's rainfall is heaviest in the summer monsoon season. Hawaii Water receives precipitation throughout the year, with the largest amounts in the winter months. Water usage in all service areas is highest during the warm and dry summers and declines in

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the cool winter months. Rain and snow during the winter months in California replenish underground water aquifers and fill reservoirs, providing the water supply for subsequent delivery to customers. As of ~~August 31, 2021,~~June 13, 2022, the State of California snowpack water content during the ~~2021-2022~~2022-2023 water year is 0%16% of long-term averages (per the California Department of Water Resources, Northern Sierra Precipitation Accumulation report). The northern Sierra region is the most important for the state’s urban water supplies. The central and southern portions of the Sierras have recorded 0% ~~and 0%, respectively,~~ of long-term averages. Management believes that, notwithstanding lower-than-average snowpack water content, supply pumped from underground aquifers and purchased from wholesale suppliers will be adequate to meet customer demand ~~during 2021~~for the remainder of 2022 and ~~beyond.~~thereafter. Long-term water supply plans are developed for each of our districts to help assure an adequate water supply under various operating and supply conditions. Some districts have unique challenges in meeting water quality standards, but management believes that supplies will meet current standards using currently available treatment processes.

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

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CONTRACTUAL OBLIGATIONS

During the nine months ended September 30, ~~2021,~~2022, there were no material changes in contractual obligations outside the normal course of ~~business.~~business other than as set forth below.

On August 16, 2022, BVRT Utility Holding Company (BVRT), a majority owned subsidiary of Texas Water, entered into a long-term water supply agreement with the Guadalupe Blanco River Authority (GBRA) through its wholly owned subsidiary, Camino Real Utility (Camino Real). We have provided a limited guarantee to GBRA for the agreed upon obligations. GBRA is a water conservation and reclamation district established by the Texas Legislature that oversees water resources for 10 counties. Under the terms of the agreement with GBRA, Camino Real will receive up to 2,419 acre-feet of potable water annually. The GBRA agreement involves four off-takers, including Camino Real, and GBRA plans to extend a potable water pipeline from the City of Lockhart to the City of Mustang Ridge and surrounding areas. Camino Real will be the utility service provider in this fast-growing area of the Austin metropolitan region and will provide potable water, recycled water, and wastewater services to portions of the City of Mustang Ridge and surrounding areas. Camino Real expects to invest over $40 million in capital in the first phase of the water supply pipeline project as one of four off-takers. In the third quarter of 2022, Camino Real committed $21.5 million for the pipeline project. As of September 30, 2022, this committed cash has not been transferred to GBRA and is classified as part of restricted cash on the Condensed Consolidated Balance Sheets. We currently expect this committed cash to be transferred to GBRA in the fourth quarter of 2022.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We do not hold, trade in or issue derivative financial instruments and therefore are not exposed to risks these instruments present. Our market risk to interest rate exposure is limited because the cost of long-term financing and short-term bank borrowings, including interest costs, is covered in consumer water rates as approved by the Commissions. We do not have foreign operations; therefore, we do not have a foreign currency exchange risk. Our business is sensitive to commodity prices and is most affected by changes in purchased water and purchased power costs.

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

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Item 4.

CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, management, including the Chief Executive Officer and Chief Financial Officer, recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Accordingly, our disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives.

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Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, ~~2021.~~2022. Based on that evaluation, we concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

(b) Changes to Internal Control over Financial Reporting

There was no change in our internal controls over financial reporting that occurred during the quarter ended September 30, ~~2021,~~2022, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

From time to time, the Company is involved in various disputes and litigation matters that arise in the ordinary course of business. The status of each significant matter is reviewed and assessed for potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount of the range of loss can be reasonably estimated, a liability is accrued for the estimated loss in accordance with the accounting standards for contingencies. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on the best information available at the time. While the outcome of these disputes and litigation matters cannot be predicted with any certainty, management does not believe when taking into account existing reserves the ultimate resolution of these matters will materially affect the Company’s financial position, results of operations, or cash flows. In the future, we may be involved in disputes and litigation related to a wide range of matters, including employment, construction, environmental issues and operations. Litigation can be time-consuming and expensive and could divert management’s time and attention from our business. In addition, if we are subject to additional lawsuits or disputes, we might incur significant legal costs and it is uncertain whether we would be able to recover the legal costs from customers or other third parties. For more information refer to ~~note~~Note 10.

Item 1A.

RISK FACTORS

There have been no material changes to the Company’s risk factors set forth in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year-ended December 31, ~~2020~~2021 filed with the SEC on February ~~25, 2021.~~24, 2022.

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Item 6.

EXHIBITS


Exhibit						Description
3.1						Certificate of Incorporation of California Water Service Group (Exhibit 3.1 to the Quarterly Report on Form 10-Q filed August 9, 2006)

3.2						Certificate of Amendment to Certificate of Incorporation of California Water Service Group (Exhibit 3.1 to the Current Report on Form 8-K filed June 10, 2011)

3.3						Certificate of Amendment to Amended Certificate of Incorporation of California Water Service Group (Exhibit 3.3 to the Quarterly Report on Form 10-Q filed July 28, 2022)

3.4						Amended and Restated Bylaws of California Water Service Group (Exhibit 3.1 to the Current Report on Form 8-K filed September 29, 2021)

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.

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

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

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

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

104						The cover page from this Quarterly Report on Form 10-Q formatted in iXBRL (included as exhibit 101)

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SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	CALIFORNIA WATER SERVICE GROUP
	Registrant

October ~~28, 2021~~27, 2022	By:	/s/ Thomas F. Smegal III
		Thomas F. Smegal III
		Vice President,
		Chief Financial Officer and Treasurer
		(Principal Financial Officer)

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Summarized Balance Sheet Information
(in thousands)	As of September 30, 2021				As of December 31, 2020
	Issuer		Guarantor		Issuer		Guarantor
Current assets	$	360,258	$	3,293	$	227,030	$	20,075
Intercompany receivable from non-issuer and issuer subsidiaries	$	749	$	44,036	$	4,905	$	20,022
Other assets	$	445,070	$	1,114,548	$	433,837	$	943,665
Long-term intercompany receivable from non-issuer subsidiaries	$	—	$	27,120	$	—	$	37,985
Net utility plant	$	2,578,907	$	47	$	2,459,992	$	117
Total assets	$	3,384,984	$	1,189,044	$	3,125,764	$	1,021,864

Current liabilities	$	259,313	$	90,000	$	481,247	$	100,124
Intercompany payable to guarantor and non-issuer subsidiary	$	5,242	$	—	$	402	$	—
Long-term debt	$	1,059,468	$	—	$	780,790	$	—
Other liabilities	$	1,057,076	$	2,064	$	1,034,098	$	1,725
Total Liabilities	$	2,381,099	$	92,064	$	2,296,537	$	101,849