1
val·ue [val-yoo] noun, verb, -ued, -u·ing.
noun 1. relative worth, merit, or importance; 2. monetary
or material worth; 3. the worth of something in terms of
the amount of other things for which it can be exchanged;
4. equivalent worth or return in money, material, services;
5. estimated or assigned worth; valuation
verb 1. to calculate or reckon the monetary value of; give
a specified material or financial value to; assess; appraise;
2. to consider with respect to worth, excellence, usefulness,
or importance; 3. to regard or esteem highly
Have you heard of “buzzword bingo” ?
It’s a game that pokes fun of the common business practice of using technical,
important-sounding words primarily to impress laypeople. Words like empowerment
and leverage and bandwidth and mindshare. Most people don’t know what they mean,
but they sound good. Think about it; everybody knows somebody who says things like,
“At the end of the day, we need to break through the clutter and think outside the box
in order to shift paradigms.” If your eyes just glazed over, you get the point.
So we at California Water Service Group wanted to check ourselves. We say
that we are committed to providing value to our stockholders, our customers,
and our employees, but what the heck does that mean? It turns out, the
answer to that question depends upon whom you ask…
Financial Highlights
Year ended December 31 2011 2010 2009 2008 2007
Market price at year-end $ 18.26 $ 18.64 $ 18.41 $ 23.22 $ 18.51
Book value per share 10.76 10.45 10.13 9.72
9.33
Earnings per share (diluted) 0.90 0.90 0.98 0.95 0.75
Dividend per share 0.615 0.595 0.590 0.585 0.580
Revenue* 501,814 460,399 449,372 410,312 367,082
Net income* 37,712 37,656 40,554 39,805 31,159
*Dollars in thousands
but regardless of how the Commission determines that WRAM and MCBA balances will be
amortized, we are confident that the amounts tracked in these mechanisms will continue
to be recoverable in customer rates.
As for 2012, our performance will be tied to our efforts at cost control. We expect to
receive inflation-type rate increases at best in California in 2012 and 2013 due to the
Commission’s three-year rate case cycle, which provides the majority of the rate relief
in year one, and interim, Commission- determined, inflation-type increases in years two and
three. That means we must aggressively tighten our budgets in order to produce good finan-
cial results, and employees throughout the Company are focused on achieving this goal.
Effective Management of Regulatory Matters Looking ahead, it’s clear that we need to
overcome three challenges in order to continue to meet our stockholders’ need for consis-
tent financial performance. First, we need the Commission to address the issue of timely
WRAM and MCBA balance collection. We are hopeful that this issue will be resolved favor-
ably in the first half of 2012.
Second, we need the Commission to set rates based on realistic, updated sales fore-
casts. This would not only minimize future WRAM and MCBA balances, but also minimize
the need for surcharges on customers’ bills. Sales in California in 2010 and 2011 were
well below those of prior years, but the Commission’s rules do not allow us to adjust
to this new reality until 2014. We must ensure that water rates reflect lower water use
throughout the state, because many of the costs associated with providing water service
are fixed and do not decrease when water usage decreases. We will seek realistic sales
forecasts in our 2012 GRC and work with other water utilities to propose new mechanisms
to address challenges in forecasting sales.
Third, we have an opportunity to submit our expenses and capital improvement proposals to
the Commission in our 2012 GRC. We have three new Commissioners on the five-member
California Public Utilities Commission, and the entire Commission is taking a hard look
at safety in all utility operations in the wake of a major accident in the gas utility industry.
For us, that’s not the challenge; we have always put safety first, and we continually
assess and address risks through an Enterprise Risk Management Program that involves
professionals from finance, operations, and engineering working together in risk analysis
and mitigation. Our challenge is continuing to make necessary investments in our infra-
structure while keeping water rates affordable. It’s a balancing act, and one that we take
very seriously as we prepare to file our 2012 GRC in July. Part of the issue is a continuing
need to educate the public on the value and relative low cost of having a clean, reliable
water supply available at all times. Many people labor under the misconception that water
should be free because it falls from the sky. We have worked to demonstrate that we do
not provide water in its natural state; rather, we capture it, test it, treat it, and deliver it
right to the customer’s tap. We hope to get help from other water utilities in 2012 as we
undertake a coordinated industry effort to publicize on a broader scale the value of water
and the range of services we provide that are largely unseen by the general public.
Stockholder Letter / 2011 AR
We will also complete our second state-of-the-art Membrane Bio-Reactor wastewater
treatment plant in Hawaii in 2012. Located on the Big Island at the Waikoloa Beach Resort,
the new plant will produce up to one million gallons of high-quality effluent per day that
will be used for irrigation. This plant, together with our Pukalani plant on the island of
Maui, earns us the distinction of producing the highest-quality effluent on the Islands.
On the water quality front, we continued our vigilant water quality assurance efforts. In
addition to our ongoing treatment and testing programs and compliance with new and
evolving regulations, we made significant improvements to our cross-connection control
program, which essentially ensures that protective devices are installed where neces-
sary to prevent anything on the customer’s side of the meter from contaminating our
water systems.
Data analysis and planning are critical to ensuring that we are prepared to meet new
water quality standards. In 2011, Cal Water was honored to be selected by the Water
Research Foundation as one of two water providers to participate in a national pilot study
to assess the best treatment technology for chromium - 6. We expect this major data col-
lection and analysis project to be a key consideration for regulators as they contemplate
setting a maximum contaminant level for the constituent. We are proud to have a part in
such an important undertaking, and believe that it will put us ahead of the curve in meet-
ing whatever standard is ultimately established to protect public health.
Another key to ensuring that we are prepared to meet new water quality standards is
investing in necessary equipment for our state-certified water quality laboratory. In 2011,
we added a new gas chromatograph-mass spectrophotometer-mass spectrophotometer
(you read that right – two mass spectrophotometers!), which uses a dual-detection system
in order to detect and identify constituents in the water at levels as low as two parts
per trillion.
In 2012, we will continue to evaluate existing treatment plant performance and investi-
gate new treatment technologies. We also have a task force that will be looking for ways
to optimize water quality in the distribution system, including identifying opportunities to
remove “dead -ends” in the system to improve circulation, repair system leaks that could
affect water quality, modify pump operations to maintain steady system pressures, and
make other improvements to ensure high quality from the water source to the customer’s
faucet.
Responsive Customer Service For us, quality isn’t limited to our water and our infrastruc-
ture; it extends to our service as well. In order to provide quality service, we have to be
responsive to customers and give them what they want. How do we know what they want?
We ask. In 2011, we completed two survey projects that will be critical to ensuring that
we are being responsive to changing customer expectations.
The first project took place in our Bakersfield District, where we have a lot of walk- in and
phone traffic at our Customer Center. Our objective was to learn why customers were
Stockholder Letter / 2011 AR
Value to our Employees
Contributions through Continuous Improvement Clearly, our employees are integral in
providing value to stockholders and customers. One clear way that they contribute to our
success is through our continuous improvement approach to the business. Through con-
tinuous improvement, employees take a leadership role in improving processes in order
to increase efficiency or enhance customer service. And while employees are improving
the way we do business, they are learning how to analyze data, make a solid business
case, and present their findings and recommendations to their peers and Officer review
teams.
Opportunities for Professional Development In addition to developing their skills by
continuously improving service and efficiency, our employees are encouraged to take
advantage of a variety of professional development opportunities, including a tuition
reimbursement program, Company- sponsored classes to prepare for state certification
examinations, and other job -specific seminars and classes. The goal is to help every
employee reach his or her full potential. One prime example of an employee who made
the most of the opportunities he was offered is Paul Ekstrom, who, during the course
of his 40 - year career, worked his way from an entry - level utility worker position to Vice
President of Customer Service, Human Resources, and Information Technology. Paul is
retiring in 2012, and we thank him for his many contributions to our success.
Effective May 1, 2012, David R. Karraker will assume the role of Vice President of Cus-
tomer Service and Information Technology. Like Paul, Dave has a strong operational back-
ground, having joined the Company as a Maintenance Operator in 1974. Dave currently
serves as Manager of our East Los Angeles District. Helen Del Grosso will succeed Paul
as Vice President of Human Resources. Prior to joining Cal Water as Director of Human
Resources in 2008, Helen held human resource management positions at the City of Palo
Alto and Santa Clara County. We are confident that Dave and Helen will bring considerable
value to our leadership team.
A Change in Board Leadership – A Personal Note from Pete After 35 years of distinguished
service, Bob Foy will retire from his role as Chairman of the Board of Directors. His re-
markable tenure will certainly be remembered not only for his tremendous leadership,
but also for his well-deserved reputation as being the consummate gentleman. Bob has
made an indelible mark on the water profession, the Company, and all the people who
work here. He will be dearly missed. Yet, I am confident we will keep him engaged in the
water business for years to come – he is simply too valuable for us to let him get away
completely. The Board has indicated that it plans to have me succeed Bob as Chairman.
His shoes will be difficult to fill, yet working so closely with him in partnership through
the years will be an asset to me going forward.
On behalf of both of us, I thank you for your continued confidence and investment in the
Company and wish you the very best in the coming year.
Stockholder Letter / 2011 AR
Our Service Areas
We serve nearly two million
people in 100 communities in California,
Washington, New Mexico, and Hawaii,
and each of them is unique.
We serve moms whose highest
priority is having confidence in the safety
of the water. We serve factory managers
whose highest priority is having enough
water to manufacture their product and
provide local jobs. We serve firefighters
whose highest priority is having an
uninterrupted water supply when
needed to protect the public.
Sure, every customer is different.
But no matter who they are, no matter
what they do, no matter where they live,
our customers value one thing above
all else: quality. Quality water. Quality
infrastructure. Quality service.
And that’s what we deliver.
California Districts & Communities
33
2011 2010
Antelope Valley • Fremont Valley, Lake Hughes, Lancaster & Leona Valley 1,400 1,400
Bakersfield 68,500 67,600
Bayshore • South San Francisco, Colma, Broadmoor, San Mateo & San Carlos 53,300 53,300
Bear Gulch • Atherton, Woodside, Portola Valley & a portion of Menlo Park 18,800 18,800
Chico • Hamilton City 28,000 27,900
Commerce (lease agreement) 1,200 1,200
Dixon 2,900 2,900
Dominguez • Carson & portions of Compton, Harbor City, Long Beach,
Los Angeles County & Torrance 33,800 33,800
East Los Angeles • Portions of Montebello, Commerce, Monterey Park & Vernon 26,700 26,700
Hawthorne (lease agreement) 6,200 6,200
Hermosa-Redondo • Hermosa Beach, Redondo Beach & a portion of Torrance 26,600 26,600
Kern River Valley • Bodfish, Kernville, Lakeland, Mountain Shadows, Onyx,
Squirrel Valley, South Lake & Wofford Heights 4,200 4,300
King City 2,600 2,500
Livermore 18,300 18,300
Los Altos • Portions of Cupertino, Los Altos Hills, Mountain View & Sunnyvale 18,800 18,700
Marysville 3,700 3,700
Oroville 3,600 3,600
Palos Verdes • Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills
& Rolling Hills Estates 24,100 24,100
Redwood Valley • Lucerne & portions of Duncans Mills, Guerneville,
Dillon Beach, Noel Heights & Santa Rosa 1,900 2,000
Salinas 28,200 28,000
Selma 6,100 6,100
Stockton 42,800 42,800
Visalia 40,700 40,300
Westlake • Westlake Village & a portion of Thousand Oaks 7,100 7,000
Willows 2,400 2,400
Eight-Year Financial Review
(Dollars in thousands, except common share and other data) 2011
2010
2009
2008
2007
2006
2005
2004
Summary of Operations
Operating revenue
$501,814 $460,399
$449,372 $410,312 $367,082
$334,717 $320,728 $315,567
Operating expenses
434,647 398,586
391,253 352,843 322,912
294,411 278,903 273,488
Interest expense, other income and expenses, net 29,455
24,157
17,565
17,664 13,011
14,726
14,602 16,053
Net income
$37,712 $37,656
$40,554 $39,805 $31,159
$25,580 $27,223 $26,026
Common Share Data
Earnings per share - diluted
$0.90
$0.90
$0.98
$0.95 $0.75
$0.67
$0.74 $0.73
Dividend declared
0.615
0.595
0.590
0.585 0.580
0.575
0.570
0.565
Dividend payout ratio
68%
66%
61%
62%
77%
86%
78%
77%
Book value
$10.76
$10.45
$10.13
$ 9.72 $ 9.33
$ 9.16
$ 7.99 $ 7.83
Market price at year-end 18.26
18.64
18.41
23.22 18.51
20.20
19.11 18.83
Common shares outstanding at year-end (in thousands)
41,817
41,667
41,531
41,446 41,332
41,314
36,780 36,734
Return on average common stockholders’ equity
8.5%
9.0%
9.8%
10.2%
8.1%
8.2%
9.3%
9.8%
Long-term debt interest coverage 3.11
3.59
4.04
4.72
3.70
3.17
3.61
3.38
Balance Sheet Data
Net utility plant $1,381,119 $1,294,297
$1,198,077 $1,112,367 $1,010,196
$941,475 $862,731 $800,305
Total assets
1,854,587 1,692,066
1,525,581 1,418,107 1,184,499
1,165,019 996,945 942,853
Long-term debt, including current portion 488,165 481,561
387,222 290,316 291,921
293,592 275,275 275,921
Capitalization ratios:
Common stockholders’ equity
48.0%
47.5%
52.1%
58.1%
56.9%
56.0%
51.4%
50.8%
Preferred stock 0 .0%
0.0 %
0.0%
0.0%
0.5%
0.5%
0.6%
0.6%
Long-term debt 52.0%
52.5%
47.9%
41.9%
42.6%
43.5%
48.0%
48.6%
Other Data
Water production (million gallons)
120,353 121,942
131,558 137,757 141,238
132,414 129,453 139,039
Customers at year-end, including Hawthorne and Commerce
499,500 497,900
494,700 490,493 487,555 483,893 479,001 473,155
New customers added
1,600
3,200
4,207
2,938 3,662
4,892
5,846 6,733
Revenue per customer
$1,005
$925
$908
$837 $753
$692
$670 $667
Utility plant per customer 3,925
3,706
3,455
3,228 2,968
2,778
2,578 2,418
Employees at year-end
1,132
1,127
1,013
929
891
869
840
837
35
Summary of Operations
Common Share Data
Balance Sheet Data
Capitalization ratios:
Other Data
(Dollars in thousands, except common share and other data) 2011
2010
2009
2008
2007
2006
2005
2004
Operating revenue
$501,814 $460,399
$449,372 $410,312 $367,082
$334,717 $320,728 $315,567
Operating expenses
434,647 398,586
391,253 352,843 322,912
294,411 278,903 273,488
Interest expense, other income and expenses, net 29,455
24,157
17,565
17,664 13,011
14,726
14,602 16,053
Net income
$37,712 $37,656
$40,554 $39,805 $31,159
$25,580 $27,223 $26,026
Earnings per share - diluted
$0.90
$0.90
$0.98
$0.95 $0.75
$0.67
$0.74 $0.73
Dividend declared
0.615
0.595
0.590
0.585 0.580
0.575
0.570
0.565
Dividend payout ratio
68%
66%
61%
62%
77%
86%
78%
77%
Book value
$10.76
$10.45
$10.13
$ 9.72 $ 9.33
$ 9.16
$ 7.99 $ 7.83
Market price at year-end 18.26
18.64
18.41
23.22 18.51
20.20
19.11 18.83
Common shares outstanding at year-end (in thousands)
41,817
41,667
41,531
41,446 41,332
41,314
36,780 36,734
Return on average common stockholders’ equity
8.5%
9.0%
9.8%
10.2%
8.1%
8.2%
9.3%
9.8%
Long-term debt interest coverage 3.11
3.59
4.04
4.72
3.70
3.17
3.61
3.38
Net utility plant $1,381,119 $1,294,297
$1,198,077 $1,112,367 $1,010,196
$941,475 $862,731 $800,305
Total assets
1,854,587 1,692,066
1,525,581 1,418,107 1,184,499
1,165,019 996,945 942,853
Long-term debt, including current portion 488,165 481,561
387,222 290,316 291,921
293,592 275,275 275,921
Common stockholders’ equity
48.0%
47.5%
52.1%
58.1%
56.9%
56.0%
51.4%
50.8%
Preferred stock 0 .0%
0.0 %
0.0%
0.0%
0.5%
0.5%
0.6%
0.6%
Long-term debt 52.0%
52.5%
47.9%
41.9%
42.6%
43.5%
48.0%
48.6%
Water production (million gallons)
120,353 121,942
131,558 137,757 141,238
132,414 129,453 139,039
Customers at year-end, including Hawthorne and Commerce
499,500 497,900
494,700 490,493 487,555 483,893 479,001 473,155
New customers added
1,600
3,200
4,207
2,938 3,662
4,892
5,846 6,733
Revenue per customer
$1,005
$925
$908
$837 $753
$692
$670 $667
Utility plant per customer 3,925
3,706
3,455
3,228 2,968
2,778
2,578 2,418
Employees at year-end
1,132
1,127
1,013
929
891
869
840
837
Board of Directors
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.