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Hyatt HotelsCalifornia Water Ser vice Group 1720 Nor th First Street San Jose, California 95112-4598 (408) 367-8200 www.calwatergroup.com NYSE: CWT Table of Contents Life’s Key Ingredient 2 Letter to Stockholders 20 Ser vice Area Maps 37 Eight-Year Financial Review 40 Board of Directors 42 Corporate Officers 44 C a l i f o r n i a W a t e r S e r v i c e G r o u p 2 0 0 9 A n n u a l R e p o r t What do you see? California Water Ser vice Group 2009 Annual Repor t California Water Ser vice Group (NYSE: CWT) is the third largest investor-owned water utility in the United States, providing high-quality water utility ser vices to approximately two million people in more than 100 communities through six subsidiaries: California Water Service Company (Cal Water), Hawaii Water Service Company, Inc. (Hawaii Water), New Mexico Water Service Company (New Mexico Water), Washington Water Ser vice Company (Washington Water), CWS Utility Ser vices (CWSUS), and HWS Utility Ser vices (HWSUS). Cal Water, Hawaii Water, New Mexico Water, and Washington Water provide regulated water and wastewater utility ser vices, while CWSUS and HWSUS conduct the Company’s non-regulated business, which includes providing billing, water quality testing, and water and wastewater system operations and management services to cities and other companies. 88276_CW_AR3_CVRS_R2.indd 1 3/13/10 7:31:30 AM California Water Ser vice Group 1720 Nor th First Street San Jose, California 95112-4598 (408) 367-8200 www.calwatergroup.com NYSE: CWT Table of Contents Life’s Key Ingredient 2 Letter to Stockholders 20 Ser vice Area Maps 37 Eight-Year Financial Review 40 Board of Directors 42 Corporate Officers 44 C a l i f o r n i a W a t e r S e r v i c e G r o u p 2 0 0 9 A n n u a l R e p o r t What do you see? California Water Ser vice Group 2009 Annual Repor t California Water Ser vice Group (NYSE: CWT) is the third largest investor-owned water utility in the United States, providing high-quality water utility ser vices to approximately two million people in more than 100 communities through six subsidiaries: California Water Service Company (Cal Water), Hawaii Water Service Company, Inc. (Hawaii Water), New Mexico Water Service Company (New Mexico Water), Washington Water Ser vice Company (Washington Water), CWS Utility Ser vices (CWSUS), and HWS Utility Ser vices (HWSUS). Cal Water, Hawaii Water, New Mexico Water, and Washington Water provide regulated water and wastewater utility ser vices, while CWSUS and HWSUS conduct the Company’s non-regulated business, which includes providing billing, water quality testing, and water and wastewater system operations and management services to cities and other companies. 88276_CW_AR3_CVRS_R2.indd 1 3/13/10 7:31:30 AM Financial Highlights Year ended December 31 2009 2008 2007 2006 2005 Revenues rose 10% to $449 million. Market price at year-end $ 36.82 $ 46.43 $ 37.02 $ 40.40 $ 38.23 Book value per share 20.26 19.44 18.66 18.31 15.98 Earnings per share (diluted) 1.95 1.90 1.50 1.34 1.47 Dividend per share 1.18 1.17 1.16 1.15 1.14 Revenue* 449,372 410,312 367,082 334,717 320,728 Net income increased 2% to $41 million. Earnings per share were up 3% to $1.95. Dividends were increased for the 42nd consecutive year and paid for the 259th consecutive quarter. Capital expenditures reached $111 million, up from $108 million in 2008. Net income* 40,554 39,805 31,159 25,580 27,223 Net utility plant rose from $1,112 million to $1,198 million. *Dollars in thousands Stock Transfer, Dividend Disbursing, and Reinvestment Agent American Stock Transfer & Trust Company 59 Maiden Lane New York, NY 10038 (800) 937-5449 To Transfer Stock A change of ownership of shares (such as when stock is sold or gifted or when owners are deleted from or added to stock certificates) requires a transfer of stock. To transfer stock, the owner must complete the assignment on the back of the certificate and sign it exactly as his or her name appears on the front. This signature must be guaranteed by an eligible guarantor institution (banks, stock brokers, savings and loan associations, and credit unions with membership in approved signature medallion programs) pursuant to SEC Rule 17Ad -15. A notary’s acknowledgement is not acceptable. This certificate should then be sent to American Stock Transfer & Trust Company, by registered or certified mail with complete transfer instructions. Alternatively, the Direct Registration System can be utilized, which allows electronic share transactions between your broker or dealer and American Stock Transfer & Trust Company. Bond Registrar US Bank Trust, N.A. One California Street San Francisco, CA 94111-5402 (415) 273-4580 Annual Meeting The Annual Meeting of Stockholders will be held on Tuesday, May 25, 2010, at 9:30 a.m. at the Company’s Executive Office, located at 1720 North First Street in San Jose, California. Details of the business to be transacted during the meet- ing will be contained in the proxy material, which will be mailed to stockholders on or about April 9, 2010. Anticipated Dividend Dates For 2010 Quarter Declaration Record Date Payment Date First January 27 February 8 February 19 Second April 28 May 10 May 21 Third July 28 August 9 August 20 Fourth October 27 November 8 November 19 Annual Report For 2009 On Form 10-K A copy of the Company’s report for 2009 filed with the Securities and Exchange Commission (SEC) on Form 10-K will be available in April 2010 and can be obtained by any stockholder at no charge upon written request to the address below. The Company’s filings with the SEC can be viewed via the link to the SEC’s EDGAR system on the Company’s web site. Executive Office and Stockholder Information California Water Service Group Attn: Stockholder Relations 1720 North First Street San Jose, CA 95112-4598 (408) 367-8200 or (800) 750-8200 http://www.calwatergroup.com The pages in this report are 10% post-consumer fiber, FSC- certified, and from the Domtar EarthChoice® family of paper. 88276_CW_AR3_CVRS.indd 2 3/3/10 3:46:51 PM Financial Highlights Year ended December 31 2009 2008 2007 2006 2005 Revenues rose 10% to $449 million. Market price at year-end $ 36.82 $ 46.43 $ 37.02 $ 40.40 $ 38.23 Book value per share 20.26 19.44 18.66 18.31 15.98 Earnings per share (diluted) 1.95 1.90 1.50 1.34 1.47 Dividend per share 1.18 1.17 1.16 1.15 1.14 Revenue* 449,372 410,312 367,082 334,717 320,728 Net income increased 2% to $41 million. Earnings per share were up 3% to $1.95. Dividends were increased for the 42nd consecutive year and paid for the 259th consecutive quarter. Capital expenditures reached $111 million, up from $108 million in 2008. Net income* 40,554 39,805 31,159 25,580 27,223 Net utility plant rose from $1,112 million to $1,198 million. *Dollars in thousands Stock Transfer, Dividend Disbursing, and Reinvestment Agent American Stock Transfer & Trust Company 59 Maiden Lane New York, NY 10038 (800) 937-5449 To Transfer Stock A change of ownership of shares (such as when stock is sold or gifted or when owners are deleted from or added to stock certificates) requires a transfer of stock. To transfer stock, the owner must complete the assignment on the back of the certificate and sign it exactly as his or her name appears on the front. This signature must be guaranteed by an eligible guarantor institution (banks, stock brokers, savings and loan associations, and credit unions with membership in approved signature medallion programs) pursuant to SEC Rule 17Ad -15. A notary’s acknowledgement is not acceptable. This certificate should then be sent to American Stock Transfer & Trust Company, by registered or certified mail with complete transfer instructions. Alternatively, the Direct Registration System can be utilized, which allows electronic share transactions between your broker or dealer and American Stock Transfer & Trust Company. Bond Registrar US Bank Trust, N.A. One California Street San Francisco, CA 94111-5402 (415) 273-4580 Annual Meeting The Annual Meeting of Stockholders will be held on Tuesday, May 25, 2010, at 9:30 a.m. at the Company’s Executive Office, located at 1720 North First Street in San Jose, California. Details of the business to be transacted during the meet- ing will be contained in the proxy material, which will be mailed to stockholders on or about April 9, 2010. Anticipated Dividend Dates For 2010 Quarter Declaration Record Date Payment Date First January 27 February 8 February 19 Second April 28 May 10 May 21 Third July 28 August 9 August 20 Fourth October 27 November 8 November 19 Annual Report For 2009 On Form 10-K A copy of the Company’s report for 2009 filed with the Securities and Exchange Commission (SEC) on Form 10-K will be available in April 2010 and can be obtained by any stockholder at no charge upon written request to the address below. The Company’s filings with the SEC can be viewed via the link to the SEC’s EDGAR system on the Company’s web site. Executive Office and Stockholder Information California Water Service Group Attn: Stockholder Relations 1720 North First Street San Jose, CA 95112-4598 (408) 367-8200 or (800) 750-8200 http://www.calwatergroup.com The pages in this report are 10% post-consumer fiber, FSC- certified, and from the Domtar EarthChoice® family of paper. 88276_CW_AR3_CVRS.indd 2 3/3/10 3:46:51 PM We see life’s key ingredient. Good, clean water. It is irreplaceable, and the only way to truly comprehend its value is to imagine life without it. 88276_CW_AR3_R1.indd 3 3/2/10 8:38:31 PM Imagine not having water to drink ... to grow and produce food ... to put out fires. It’s not only essential; it also enriches our daily lives. Think about it – can you imagine a life without hot showers, cold lemonade, and flourishing gardens? We can’t. That’s why we take our responsibility for delivering life’s key ingredient so seriously. From the source to the tap, and ever y step along the way, we work diligently to deliver the good, clean water that makes life possible. 88276_CW_AR3_R3.indd 6 3/9/10 9:59:25 PM AR 09 | 3 Guardians, caretakers, protectors, and defenders — we are all these things and more as we shepherd life’s key ingredient from the source to the tap. AR 09 | 4 The Source Our water sources can be as close as the ground beneath our feet or as far as 500 miles away from the communities we ser ve. Near or far, we are responsible for working cooperatively with other agencies to manage, protect, and maintain the watersheds, sur face supplies, and underground aquifers that provide water to meet our customers’ needs. Our commitment is evidenced in the extensive analysis in our 20 -year water supply master plans, vigilant oversight of water sources, careful monitoring of groundwater levels and quality, and aggressive pursuit of polluters. John A. Gomez, Production Superintendent 88276_CW_AR3_R1.indd 8 3/2/10 8:48:50 PM AR 09 | 6 Treatment & Storage Once secured, our water must be treated, and in some cases stored, until customers need it. We use the best available technologies to treat our water, depending upon its initial quality. In some cases, simple disinfection is adequate; in others, we use highly sophisticated filtration and ultraviolet treatment technologies. After treatment, some of the water is sent to storage tanks until it’s needed. Storage is key to reliability, and we take a methodical, comprehensive approach to maintaining our storage tanks, which have a combined storage capacity of nearly 500 million gallons – enough to give ever y person on ear th one 9-ounce glass of water. Frank R. Herrera, Jr., Treatment Plant Operator 88276_CW_AR3_R1.indd 10 3/2/10 8:50:25 PM AR 09 | 8 Monitoring & Testing Because protecting customer health and safety is our highest priority, water quality is of utmost impor tance. We rigorously monitor water quality both at the source and in the distribution system. In the field, our water professionals check facilities, monitor disinfection levels, and collect samples for testing. At our state - cer tified water quality laborator y in San Jose, California, our scientists conduct more than 300,000 water quality tests per year and analyze the water for more than 100 elements and compounds. Kristy S. Fournier, Microbiologist 88276_CW_AR3_R1.indd 12 3/2/10 8:52:09 PM AR 09 | 10 Distribution System Customers also rely on us to take care of the system of pumps, pipes, valves, and hydrants used to convey water to their homes and businesses. To ensure the integrity and reliability of our water distribution systems, we diligently maintain and upgrade our facilities; in fact, in 2010, we plan to replace about 100,000 feet of water main – a distance that is more than three times the altitude flown by the typical commercial jet. We also provide 24- hour emergency ser vice to ensure a reliable supply for customers and minimize water lost to leaks, use alternative energy where it makes sense to do so, and conduct water system repairs in a way that protects the surrounding environment. Matthew K. Rober tson, Cer tified Pump Operator 88276_CW_AR3_R1.indd 14 3/2/10 8:53:22 PM AR 09 | 12 Promoting Conser vation Par t of being a good steward of the precious natural resource we provide is educating the public about the impor tance of water conser vation. We star t early, taking our message to the classroom and instilling in our children an appreciation for the value and impor tance of water. For the grown- ups we ser ve, we offer traditional and innovative conser vation programs, including high-efficiency appliance rebates, water-use audits, plumbing retrofit kits, and direct - installation programs for low-income customers. Matthew T. Kang, Superintendent and Speakers Bureau Member 88276_CW_AR3_R1.indd 16 3/2/10 8:54:42 PM AR 09 | 14 The Customer With a simple turn of the wrist, it’s there. It’s there for her morning shower. It’s there for her cup of tea. It’s there for the fire hydrant in front of her home. She may not realize how many of us played a role in getting it there, but because we take our responsibility seriously ever y step of the way, she can simply rely on us to provide good, clean water whenever she needs it. Kristin De La Paz, Customer 88276_CW_AR3_R1.indd 18 3/2/10 8:55:40 PM 88276_CW_AR3_R1.indd 20 3/2/10 8:57:01 PM AR 09 | 17 Yes, we are guardians, caretakers, protectors, and defenders, responsible for shepherding water from the source to the tap. We are not just doing a job, we are fulfilling an impor tant mission: We deliver life’s key ingredient, and it is not only essential to life, it enhances life in so many ways. As we’ve said, we take our responsibility for delivering life’s key ingredient ver y seriously, and we are committed to being good stewards of this precious natural resource. But our responsibility goes beyond the water we provide; it extends to our stockholders, our employees, our communities, and the environment. 88276_CW_AR3_R2.indd 22 3/8/10 10:23:34 PM X-OVER Peter C. Nelson President and Chief Executive Officer (left) Robert W. Foy Chairman of the Board 88276_CW_AR3_R1.indd 23 X-OVER 3/2/10 9:09:16 PM AR 09 | 20 To Our Stockholders We hear it so often, but what exactly does the term “corporate responsibility” mean? For the California Water Service Group, it simply means “doing what’s right.” And while we applaud businesses that are producing sustainability repor ts, environmental scorecards, and corporate responsibility updates, we think what we do is more important than what we say. That’s why we are committed to doing what’s right – for our customers, our stockholders, our employees, our communities, and our environment. Doing What’s Right for Our Customers By doing what’s right for the customer from the source to the tap (as described on previous pages), we do the right thing for our stockholders. Why? Because to ser ve our customers well, we must invest in our infrastructure, operate efficiently, and earn customer loyalty by providing excellent ser vice and high-quality water. All these things benefit stockholders and provide long-term value. 88276_CW_AR3_R1.indd 24 3/2/10 9:10:40 PM Five -Year Net Utility Plant (Dollars in thousands) 1,198,077 09 1,112,367 08 1,010,196 07 941,475 06 862,731 05 88276_CW_AR3_R2.indd 25 3/8/10 12:49:49 AM Five-Year Dividend Growth 1.18 09 1.17 08 1.16 07 1.15 06 1.14 05 88276_CW_AR3_R2.indd 26 3/8/10 10:25:38 PM AR 09 | 23 Doing What’s Right for Our Stockholders Our 2009 results benefited from $50 million in rate relief and $11 million from sales to new customers. The Water Revenue Adjustment Mechanism (WRAM) and Modified Cost Balancing Account (MCBA) added $10 million, offsetting decreased sales to existing customers and higher production costs. These gains were reduced by higher expenses in nearly ever y categor y. Because 2010 is the third year of the three-year rate case cycle for California Water Ser vice Company, our largest subsidiar y, our ability to successfully manage expenses in the coming year will be critical. Successfully executing our business strategy will be equally critical, and we will continue to concentrate our efforts on prudent fiscal management, effective regulator y affairs management, disciplined growth, diligent investment in infrastructure, and excellent customer ser vice and water quality. One key element of prudent fiscal management is strong and transparent corporate governance, and we are proud to be among the highest - ranked water utilities by the Corporate Librar y. 88276_CW_AR3_R2.indd 27 3/8/10 1:25:34 AM X-OVER X-OVER $600 $500 $400 3 0 $300 $200 $100 2 0 1 0 0 0 9 9 8 9 7 9 9 6 95 94 93 2 9 1 09 99 8 88276_CW_AR3_R5.indd 28 3/10/10 3:28:12 PM X-OVER X-OVER X-OVER X-OVER AR 09 | 25 09 07 06 0 5 0 4 $700 08 $800 CWT 20 -Year Total Return on Investment (On stock purchased December 31, 1989, with dividends reinvested) X-OVER 88276_CW_AR3_R5.indd 29 X-OVER 3/10/10 3:14:37 PM AR 09 | 26 In 2009, we amended the Board of Directors’ Finance Committee Charter to include responsibility for risk management and formed an Enterprise Risk Management Committee consisting of five Officers to review and guide the risk management process. We also brought Washington Water Ser vice Company and New Mexico Water Ser vice Company onto the financial software platform used for California Water Ser vice Company, which improves internal controls and lowers our transaction and audit costs. In addition to strengthening internal controls and complying with Sarbanes- Oxley requirements, our management team achieved several key goals that reflect our commitment to prudent fiscal man- agement. First, we amended and restated our 1928 bond indenture, which enabled us to eliminate higher-cost bonds and reduce administrative costs. We also completed the largest debt offering in company history, issuing $100 million of AA- Standard & Poor’s-rated first mor tgage bonds at a lower interest rate than our average cost of debt. The new indenture reduces our compliance costs and gives us greater flexibility to respond to changing market conditions by broadening the type of debt we can issue. Finally, we put in place a $300 million 88276_CW_AR3_R2.indd 30 3/8/10 1:52:14 AM Five-Year Book Value 20.26 09 19.44 08 18.66 07 18.31 06 15.98 05 88276_CW_AR3_R2.indd 31 3/8/10 2:02:44 AM Five-Year Operating Revenue (Dollars in thousands) 449,372 09 410,312 08 367,082 07 334,717 06 320,728 05 88276_CW_AR3_R2.indd 32 3/8/10 10:42:57 AM AR 09 | 29 unsecured, syndicated line of credit, which provides us greater liquidity and allows us to continue to build our business. Another element of our business strategy is effective regulator y affairs management, and in 2009, we filed our first- ever statewide General Rate Case with the California Public Utilities Commission. The effort required to assemble a comprehensive and compelling case for ever y one of our California districts is monumental, and our team continues to work through the process in order to achieve a favorable outcome when the Commission issues a final decision and new rates become effective in 2011. As for growth, in 2009, we acquired two small water systems near our Bear Gulch District. We take a disciplined approach to growth through acquisitions and pursue opportunities that add value for stock- holders and customers. Beyond adding customers, we can increase stockholder value by investing in infrastructure upgrades that our states’ respective public utilities commissions agree are beneficial to customers. To that end, we invested $111 million in capital projects in 2009. 88276_CW_AR3_R1.indd 33 3/2/10 9:34:23 PM Another important facet of our business strategy is providing excellent customer ser vice and high-quality water, part of which is achieved by investing wisely in our water systems, and part of which is achieved by engaging our people in continuously improving the way we do business. In 2009, we provided customer service training to all field employees, began mobile-dispatching, and consolidated billing for our Hawaii customers, all of which enabled our employees to provide better customer ser vice. Doing What’s Right for Our Employees This brings us to another constituent to whom we are responsible–our employees. In addition to offering compensation packages that attract, retain, and motivate our employees, we provide health, dental, and vision care benefits and a 401(k) savings plan with a company - match component. We enjoy an excellent relationship with the unions that represent our employees, the Utility Workers Union of America, A.F.L. - C.I.O. and the International Federation of Professional and Technical Engineers, A.F.L.- C.I.O. In fact, to address the issue of increas- ing health care costs, we worked with the unions to form a Joint Health Care Committee, whose goal is to create the healthiest workforce in the industr y through education and a variety of health-related programs. 88276_CW_AR3_R1.indd 34 3/2/10 9:34:59 PM AR 09 | 31 In terms of training, we offer on-site professional development opportunities as well as a tuition reimbursement program. We also view our Continuous Improvement approach to the business as a valuable development tool. Through Continuous Improvement, every employee works on projects that improve efficiency or enhance customer ser vice. In the process, employees build analytical and public speaking skills as they formulate and present business cases to a panel of Officers and Department Heads. Doing What’s Right for Our Communities Our employees are dedicated professionals who live in the communities we ser ve, and they are instrumental in enabling us to do what is right for our communities and our environment. Many of them are actively involved in organiza- tions that provide community ser vices, from food banks to ser vice clubs to youth-enrichment programs. Fur ther, our stockholders contribute to 150 local charitable organizations throughout our ser vice areas, focusing on those that meet the unique needs of customers in each community we ser ve. 88276_CW_AR3_R1.indd 35 3/2/10 9:35:21 PM To assist customers in need more directly, we offer a Low-Income Ratepayer Assistance Program to all qualified California customers and a Rate Suppor t Fund to help customers in areas where water is more costly. We also make ever y effort to offer payment arrangements to customers having difficulty paying their bills, and are planning to pilot a Balanced Payment Plan option to allow customers to spread water costs evenly over a 12- month period to avoid higher bills during high-usage months. Beyond that, we directly market conser vation programs to low-income customers and offer a range of conser vation programs to all customers to help them reduce their water bills. Doing What’s Right for Our Environment Perhaps the most impor tant of all of our efforts to protect our environment and preser ve natural resources is our robust water conser vation program. We were the first to request and receive California Public Utilities Commission approval for a Water Revenue Adjustment Mechanism that removed previous financial disincentives for achieving conser vation targets, which means we can now promote conser vation without negatively impacting stockholders. To help our customers control their bills and conser ve water, we have doubled our spending on conser vation and 88276_CW_AR3_R1.indd 36 3/2/10 9:35:47 PM AR 09 | 33 are beginning to implement a range of programs designed to reduce customer usage in California by 20% by 2020. To further increase available water supplies for customers of today and tomorrow, we provide recycled water in our Dominguez, Hermosa-Redondo, and Westlake systems. In fact, we have been contracted to operate and maintain the entire distribution system of West Basin Municipal Water District’s recycled water plant in El Segundo, California, the largest water recycling plant of its kind in the United States. Overall, we provide about 2.25 billion gallons of recycled water per year to customers ser ved by these three water systems. We also supplement potable water supplies with recycled water from two of our 10 wastewater treatment plants, and two more will soon be upgraded and producing water for irriga- tion. And at all of our wastewater treatment plants, we are committed to meeting or surpassing all environmental regulations, 365 days per year, 24 hours per day, seven days per week. Because we provide a natural resource, we have many opportunities to positively impact our environment. From an operations standpoint, 88276_CW_AR3_R1.indd 37 3/2/10 9:36:11 PM AR 09 | 34 we have Best Management Practices in place to protect the environment, whether we are repairing a leak or testing a fire hydrant. We manage our watershed in Woodside, California, in a way that protects local wildlife, operate wells and pumps to maximize energy-use efficiency, and maintain our systems diligently to minimize water loss. We use solar power at some of our facilities, and are currently analyzing additional wind and solar power projects. In addition, similar to many other businesses, we are working to earn Leadership in Energy & Environmental Design (LEED) certification from the U.S. Green Building Council on new buildings, increasing our use of hybrid vehicles, and reducing our waste through recycling programs and our e-billing payment option for customers. It all comes down to doing the right thing for our customers, stockholders, employees, communities, and environment, and we feel ver y good about where we are and where we are going as a company … because we’re not just doing our jobs, we’re fulfilling a mission. We thank you for the role you play in enabling us to provide a life -sustaining natural resource and wish you the ver y best in 2010. 88276_CW_AR3_R1.indd 38 3/2/10 9:36:39 PM Peter C. Nelson President and Chief Executive Officer Rober t W. Foy Chairman of the Board 88276_CW_AR3_R1.indd 39 3/2/10 9:37:29 PM We operate 353 water systems and 10 wastewater systems ser ving approximately two million people in more than 100 California, Hawaii, New Mexico, and Washington communities. We continue to pursue quality water and wastewater systems that complement our core business and increase value for our stockholders. 88276_CW_AR3_R5.indd 40 3/15/10 12:45:01 PM Hawaii Operations/ Customer Centers AR 09 | 37 Washington Operations/ Customer Centers (Maui) Ka’anapali • (Hawaii) Waikoloa Ser ving the communities of Ka’anapali, Pukalani, Waimea, Waikoloa, Nor th Kona Coast, and Kohala Coast on the islands of Maui and Hawaii. Regulated Customer Connections 3,700* 08 4,200* 09 * Includes several large resor ts and condominium complexes. Olympia (S.W. Regional Office) • Gig Harbor (N.W. Regional Office and Customer Center) • Sequim • Issaquah • Orcas Island (Field Offices) Ser ving more than 425 neighborhoods and small communities in the counties of Clallam, Jefferson, Kitsap, Mason, Pierce, King, San Juan, and Thurston. Regulated Customer Connections 15,800 08 15,600 09 88276_CW_AR3_R2.indd 41 3/8/10 1:53:51 PM AR 09 | 38 California Districts Antelope Valley • Bakersfield • Bear Gulch • Chico • Commerce • Dixon • Dominguez • East Los Angeles • Hawthorne • Hermosa-Redondo • Kern River Valley • King City • Livermore • Los Altos • Mar ysville • Mid-Peninsula • Oroville • Palos Verdes • Redwood Valley • Salinas • Selma • South San Francisco • Stockton • Visalia • Westlake • Willows Customer Connections* 463,400 08 467,100 09 * Numbers include Hawthorne and Commerce lease agreements New Mexico Operations/ Customer Centers Elephant Butte • Belen • Cedar Crest Ser ving the communitites of Meadow Lake, Cypress Gardens, Rio Communities, Rio Del Oro, Elephant Butte, Sandia Knolls, and Cedar Crest in the counties of Sierra, Valencia, and Bernalillo. Regulated Customer Connections 7,600 08 7,800 09 88276_CW_AR3_R2.indd 42 3/8/10 1:55:44 PM California Districts & Communities 2009 2008 Antelope Valley • Fremont Valley, Lake Hughes, Lancaster & Leona Valley 1,400 1,400 Bakersfield 66,900 65,500 Bear Gulch • Ather ton, Woodside, Por tola Valley & a por tion of Menlo Park 18,600 18,100 Chico • Hamilton City 27,700 27,400 Commerce (lease agreement) 1,200 1,200 Dixon 2,800 2,800 Dominguez • Carson and por tions of Compton, Harbor City, Long Beach, Los Angeles County & Torrance 33,700 33,700 East Los Angeles • Por tions of Montebello, Commerce, Monterey Park & Vernon 26,600 26,700 Hawthorne (lease agreement) 6,200 6,200 Hermosa-Redondo • Hermosa Beach, Redondo Beach & a por tion of Torrance 26,500 26,500 Kern River Valley • Bodfish, Kernville, Lakeland, Mountain Shadows, Onyx, Squirrel Valley, South Lake & Wofford Heights 4,300 4,300 King City 2,500 2,500 Livermore 18,200 18,200 Los Altos • Por tions of Cuper tino, Los Altos Hills, Mountain View & Sunnyvale 18,700 18,600 Mar ysville 3,700 3,700 Mid-Peninsula • San Mateo & San Carlos 36,200 36,200 Oroville 3,600 3,600 Palos Verdes • Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills & Rolling Hills Estates 24,000 24,000 Redwood Valley • Lucerne & por tions of Duncans Mills, Guerneville, Dillon Beach, Noel Heights & Santa Rosa 2,000 1,900 Salinas 27,900 27,800 Selma 6,000 6,000 South San Francisco • Colma & Broadmoor 16,800 16,800 Stockton 42,400 41,500 Visalia 39,800 39,200 Westlake • Westlake Village & a por tion of Thousand Oaks 7,000 7,100 Willows 2,400 2,400 88276_CW_AR3_R1.indd 43 3/2/10 9:42:42 PM Eight-Year Financial Review (Dollars in thousands, except common share data) 2009 2008 2007 2006 2005 2004 2003 2002 Summar y of Operations Operating revenue 449,372 410,312 367,082 334,717 320,728 315,567 277,128 263,151 Operating expenses 391,253 352,843 322,912 294,411 278,903 273,488 244,167 230,301 Interest expense, other income and expenses, net 17,565 17,664 13,011 14,726 14,602 16,053 13,544 13,777 Net income $40,554 $39,805 $31,159 $25,580 $27,223 $26,026 $19,417 $19,073 Common Share Data Earnings per share - diluted $1.95 $1.90 $1.50 $1.34 $1.47 $1.46 $1.21 $1.25 Dividend declared 1.180 1.170 1.160 1.150 1.140 1.130 1.125 1.120 Dividend payout ratio 61% 62% 77% 86% 78% 77% 93% 90% Book value $20.26 $19.44 $18.66 $18.31 $15.98 $15.66 $14.44 $13.12 Market price at year-end 36.82 46.43 37.02 40.40 38.23 37.65 27.40 23.65 Common shares outstanding at year-end (in thousands) 20,765 20,723 20,666 20,657 18,390 18,367 16,932 15,182 Return on average common stockholders’ equity 9.8% 10.2% 8.1% 8.2% 9.3% 9.8% 9.1% 9.7% Long-term debt interest coverage 4.04 4.72 3.70 3.17 3.61 3.38 2.78 2.73 Balance Sheet Data Net utility plant $1,198,077 $1,112,367 $1,010,196 $941,475 $862,731 $800,305 $759,498 $696,988 Total assets 1,525,581 1,418,107 1,184,499 1,165,019 996,945 942,853 873,035 798,478 Long-term debt, including current portion 387,222 290,316 291,921 293,592 275,275 275,921 273,130 251,365 Capitalization ratios: Common stockholders’ equity 52.1% 58.1% 56.9% 51.4% 50.8% 47.0% 44.0% Preferred stock 0 % 0 % 0.5% 0.6% 0.6% 0.7% 0.7% 56.0% 0.5% Long-term debt 47.9% 41.9% 42.6% 43.5% 48.0% 48.6% 52.3% 55.3% Other Data Water production (million gallons) 131,558 137,757 141,238 132,414 129,453 139,039 131,680 132,225 Customers at year-end, including Hawthorne 494,700 490,500 487,600 483,893 479,001 473,155 466,422 458,988 New customers added 4,200 2,900 3,700 4,892 5,846 6,733 7,434 8,561 Revenue per customer $908 $837 $753 $692 $670 $667 $594 $579 Utility plant per customer 3,455 3,228 2,968 2,778 2,578 2,418 2,313 2,182 Employees at year-end 1,013 929 891 869 840 837 813 802 88276_CW_AR3_R1.indd 44 3/3/10 5:15:47 PM AR 09 | 41 Summar y of Operations Common Share Data Balance Sheet Data Capitalization ratios: Other Data (Dollars in thousands, except common share data) 2009 2008 2007 2006 2005 2004 2003 2002 Operating revenue 449,372 410,312 367,082 334,717 320,728 315,567 277,128 263,151 Operating expenses 391,253 352,843 322,912 294,411 278,903 273,488 244,167 230,301 Interest expense, other income and expenses, net 17,565 17,664 13,011 14,726 14,602 16,053 13,544 13,777 Net income $40,554 $39,805 $31,159 $25,580 $27,223 $26,026 $19,417 $19,073 Earnings per share - diluted $1.95 $1.90 $1.50 $1.34 $1.47 $1.46 $1.21 $1.25 Dividend declared 1.180 1.170 1.160 1.150 1.140 1.130 1.125 1.120 Dividend payout ratio 61% 62% 77% 86% 78% 77% 93% 90% Book value $20.26 $19.44 $18.66 $18.31 $15.98 $15.66 $14.44 $13.12 Market price at year-end 36.82 46.43 37.02 40.40 38.23 37.65 27.40 23.65 Common shares outstanding at year-end (in thousands) 20,765 20,723 20,666 20,657 18,390 18,367 16,932 15,182 Return on average common stockholders’ equity 9.8% 10.2% 8.1% 8.2% 9.3% 9.8% 9.1% 9.7% Long-term debt interest coverage 4.04 4.72 3.70 3.17 3.61 3.38 2.78 2.73 Net utility plant $1,198,077 $1,112,367 $1,010,196 $941,475 $862,731 $800,305 $759,498 $696,988 Total assets 1,525,581 1,418,107 1,184,499 1,165,019 996,945 942,853 873,035 798,478 Long-term debt, including current portion 387,222 290,316 291,921 293,592 275,275 275,921 273,130 251,365 Common stockholders’ equity 52.1% 58.1% 56.9% Preferred stock 0 % 0 % 0.5% 56.0% 0.5% 51.4% 50.8% 47.0% 44.0% 0.6% 0.6% 0.7% 0.7% Long-term debt 47.9% 41.9% 42.6% 43.5% 48.0% 48.6% 52.3% 55.3% Water production (million gallons) 131,558 137,757 141,238 132,414 129,453 139,039 131,680 132,225 Customers at year-end, including Hawthorne 494,700 490,500 487,600 483,893 479,001 473,155 466,422 458,988 New customers added 4,200 2,900 3,700 4,892 5,846 6,733 7,434 8,561 Revenue per customer $908 $837 $753 $692 $670 $667 $594 $579 Utility plant per customer 3,455 3,228 2,968 2,778 2,578 2,418 2,313 2,182 Employees at year-end 1,013 929 891 869 840 837 813 802 88276_CW_AR3_R1.indd 45 3/3/10 5:20:02 PM Board of Directors Peter C. Nelson President and Chief Executive Officer 14 Years ser ved as a Board Member. Member of the Executive Committee. Rober t W. Foy Chairman of the Board 33 Years ser ved as a Board Member. Member of the Executive Committee. Richard P. Magnuson Private Venture Capital Investor 14 Years ser ved as a Board Member. Member of the following Committees: Audit, Organization/Compensation, Executive, Finance/Risk Management, and Nominating/Corporate Governance. Edward D. Harris, Jr., M.D. Professor of Medicine, Emeritus, Stanford University Medical Center 17 Years ser ved as a Board Member. Member of the following Committees: Organization/Compensation, Executive, and Nominating/Corporate Governance. 88276_CW_AR3_R2.indd 46 3/9/10 4:28:48 AM AR 09 | 43 16 Years ser ved as a Board Member. Member of the following Committees: Audit, Executive, Organization/Compensation, and Nominating/Corporate Governance. Linda R. Meier Member of the National Board of the Institute of International Education 12 Years ser ved as a Board Member. Member of the following Committees: Audit, Finance/Risk Management, and Nominating/Corporate Governance. George A. Vera Vice President and Chief Financial Officer, the David and Lucile Packard Foundation 9 Years ser ved as a Board Member. Member of the following Committees: Audit, Executive, Finance/Risk Management, and Nominating/Corporate Governance. Douglas M. Brown Dean, Anderson School of Business, University of New Mexico 7 Years ser ved as a Board Member. Member of the following Committees: Organization/Compensation and Nominating/Corporate Governance. Bonnie G. Hill President of B. Hill Enterprises, L.L.C. 2 Years ser ved as a Board Member. Member of the following Committees: Organization/Compensation, Finance/ Risk Management, and Audit. Edwin A. Guiles Former Executive Vice President of Corporate Development, Sempra Energy 88276_CW_AR3_R2.indd 47 3/9/10 4:34:43 AM AR 09 | 44 Officers California Water Service Company Peter C. Nelson 1, 2, 3 President and Chief Executive Officer Paul G. Ekstrom Vice President, Customer Service, Human Resources, and Information Technology Francis S. Ferraro 2, 4 Vice President, Corporate Development Robert R. Guzzetta 2 Vice President, Operations Martin A. Kropelnicki 1, 2, 3 Vice President, Chief Financial Officer and Treasurer Christine L. McFarlane 3 Vice President, Chief Administrative Officer Michael J. Rossi 2, 3 Vice President, Engineering and Water Quality Thomas F. Smegal III 4 Vice President, Regulatory Matters and Corporate Relations Calvin L. Breed 1, 2, 3 Controller, Assistant Secretary and Assistant Treasurer Lynne P. McGhee 1, 2, 3 Corporate Secretary Washington Water Service Company Michael P. Ireland President 1 Holds the same position with California Water Service Group. 2 Also an officer of CWS Utility Services. 3 Also an officer of Washington Water Service Company, New Mexico Water Service Company, and Hawaii Water Service Company, Inc. 4 Holds the same position with New Mexico Water Service Company and Hawaii Water Service Company, Inc. 88276_CW_AR3_R1.indd 48 3/2/10 9:45:29 PM Financial Highlights Year ended December 31 2009 2008 2007 2006 2005 Revenues rose 10% to $449 million. Market price at year-end $ 36.82 $ 46.43 $ 37.02 $ 40.40 $ 38.23 Book value per share 20.26 19.44 18.66 18.31 15.98 Earnings per share (diluted) 1.95 1.90 1.50 1.34 1.47 Dividend per share 1.18 1.17 1.16 1.15 1.14 Revenue* 449,372 410,312 367,082 334,717 320,728 Net income increased 2% to $41 million. Earnings per share were up 3% to $1.95. Dividends were increased for the 42nd consecutive year and paid for the 259th consecutive quarter. Capital expenditures reached $111 million, up from $108 million in 2008. Net income* 40,554 39,805 31,159 25,580 27,223 Net utility plant rose from $1,112 million to $1,198 million. *Dollars in thousands Stock Transfer, Dividend Disbursing, and Reinvestment Agent American Stock Transfer & Trust Company 59 Maiden Lane New York, NY 10038 (800) 937-5449 To Transfer Stock A change of ownership of shares (such as when stock is sold or gifted or when owners are deleted from or added to stock certificates) requires a transfer of stock. To transfer stock, the owner must complete the assignment on the back of the certificate and sign it exactly as his or her name appears on the front. This signature must be guaranteed by an eligible guarantor institution (banks, stock brokers, savings and loan associations, and credit unions with membership in approved signature medallion programs) pursuant to SEC Rule 17Ad -15. A notary’s acknowledgement is not acceptable. This certificate should then be sent to American Stock Transfer & Trust Company, by registered or certified mail with complete transfer instructions. Alternatively, the Direct Registration System can be utilized, which allows electronic share transactions between your broker or dealer and American Stock Transfer & Trust Company. Bond Registrar US Bank Trust, N.A. One California Street San Francisco, CA 94111-5402 (415) 273-4580 Annual Meeting The Annual Meeting of Stockholders will be held on Tuesday, May 25, 2010, at 9:30 a.m. at the Company’s Executive Office, located at 1720 North First Street in San Jose, California. Details of the business to be transacted during the meet- ing will be contained in the proxy material, which will be mailed to stockholders on or about April 9, 2010. Anticipated Dividend Dates For 2010 Quarter Declaration Record Date Payment Date First January 27 February 8 February 19 Second April 28 May 10 May 21 Third July 28 August 9 August 20 Fourth October 27 November 8 November 19 Annual Report For 2009 On Form 10-K A copy of the Company’s report for 2009 filed with the Securities and Exchange Commission (SEC) on Form 10-K will be available in April 2010 and can be obtained by any stockholder at no charge upon written request to the address below. The Company’s filings with the SEC can be viewed via the link to the SEC’s EDGAR system on the Company’s web site. Executive Office and Stockholder Information California Water Service Group Attn: Stockholder Relations 1720 North First Street San Jose, CA 95112-4598 (408) 367-8200 or (800) 750-8200 http://www.calwatergroup.com The pages in this report are 10% post-consumer fiber, FSC- certified, and from the Domtar EarthChoice® family of paper. 88276_CW_AR3_CVRS.indd 2 3/3/10 3:46:51 PM California Water Ser vice Group 1720 Nor th First Street San Jose, California 95112-4598 (408) 367-8200 www.calwatergroup.com NYSE: CWT Table of Contents Life’s Key Ingredient 2 Letter to Stockholders 20 Ser vice Area Maps 37 Eight-Year Financial Review 40 Board of Directors 42 Corporate Officers 44 C a l i f o r n i a W a t e r S e r v i c e G r o u p 2 0 0 9 A n n u a l R e p o r t What do you see? California Water Ser vice Group 2009 Annual Repor t California Water Ser vice Group (NYSE: CWT) is the third largest investor-owned water utility in the United States, providing high-quality water utility ser vices to approximately two million people in more than 100 communities through six subsidiaries: California Water Service Company (Cal Water), Hawaii Water Service Company, Inc. (Hawaii Water), New Mexico Water Service Company (New Mexico Water), Washington Water Ser vice Company (Washington Water), CWS Utility Ser vices (CWSUS), and HWS Utility Ser vices (HWSUS). Cal Water, Hawaii Water, New Mexico Water, and Washington Water provide regulated water and wastewater utility ser vices, while CWSUS and HWSUS conduct the Company’s non-regulated business, which includes providing billing, water quality testing, and water and wastewater system operations and management services to cities and other companies. 88276_CW_AR3_CVRS_R2.indd 1 3/13/10 7:31:30 AM
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