California Water Service Group Annual Report 2013

FY2013 Annual Report · California Water Service Group

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Safety First

‹

California Water Service Group 2013 Annual Report

We’re not daredevils
and we’re not risk-takers.

‹

California Water Service Group (NYSE: CWT) is the third largest investor-owned water utility
in the United States, providing high- quality utility services 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 Service Company (Washington
Water), CWS Utility Services (CWSUS), and HWS Utility Services (HWSUS). Cal Water, Hawaii
Water, New Mexico Water, and Washington Water provide regulated water and wastewater
utility services, 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.

Table of Contents

Safety First 1

Letter to Stockholders 8

Service Area Maps 24

Eight-Year Financial Review 27

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Board of Directors 29

Corporate Officers 30

Corporate Information 32

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At California Water Service Group,
we take the adage “Safety First”
to heart.

Sure, it might be exhilarating to barrel down the
road without a helmet or climb up the mountain
without a harness. But that’s not how we do
business. We consider safety in everything we do:
Is it a safe investment for our stockholders?
A safe water treatment process for our customers?
A safe workplace for our employees? A safe practice
for our environment? We’re not daredevils and
we’re not risk-takers. We recognize that “safety
first” might not be a thrill-a-minute, but it is what’s
best for our customers, employees, communities,
and stockholders.

‹

Safety First
1

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

Rock climbing may be risky,
but drinking your tap water shouldn’t be.

Our Customers

Although our customer may choose to take a chance on
the hot dog vendor outside her office building, she sure
doesn’t want to take a chance on the water she mixes
with her kids’ lemonade. That’s why we put safety first
when it comes to the quality of the water we deliver. We
have a rigorous water quality monitoring, testing, and
treatment program in place. The result: We conducted
more than 464,500 water quality tests and met every
health and safety standard for water quality in 2013.
We also ramped up our cross-connection control
program, which ensures that activities on individual
customers’ properties don’t contaminate the community’s
water supply. Because public health and safety is our
highest priority, our customers get the high- quality water
they need to keep their families healthy and happy.

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Safety First
2

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

‹

Like the safety-minded cyclist, our employees
wear protective head gear and eye wear.

Our Employees

It’s all there on paper — the Injury and Illness
Prevention Plan, the Code of Safe Practices, the
Individual Job Safety Analyses. But it takes more than
words to make a workplace safe. It takes regular
training. It takes personal protective equipment.
It takes individual commitment. It takes a culture
of safety. For us, the job isn’t done right unless it’s
done safely. So when our employee lowers himself
into a meter vault, he follows safe practices for
working in confined spaces. When he needs to
work in the street, he sets up the appropriate
traffic control. When he climbs to the top of a tank,
he uses a harness to protect himself from falling.
Because he knows that safety comes first.
Not just for customers, but for employees too.

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Safety First
3

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

‹

Unfortunately, Mother Nature doesn’t wear shoulder pads.
That’s why we make protecting her a priority.

Our Environment

As he taps down the soil around his newly planted
drought-tolerant garden, the customer may be unaware
of the part he is playing in our greatest environmental effort.
Sure, we can and do drive hybrid vehicles, use alternative
energy sources, recycle water and materials, and reduce
waste whenever possible. We even constructed a screen
and weir in our Bear Gulch District to help fish pass through
our facilities safely. But the most significant way we protect
the environment is by reducing the use of water, our most
precious natural resource. In California, our Conservation
Master Plans provide a roadmap for meeting the state-
mandated per capita water use reduction of 20% by 2020.
And our conservation program is working: Since 2007,
Cal Water customers have reduced their average
per capita water use by 15%.

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Safety First
4

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

‹

The mask and lame protect the fencer
from the tip of her opponent’s saber;
a well-maintained water system provides
protection from fire and from water outages.

Our Communities

The mayor has a lot on her mind. Are there enough
police on the streets? Do the libraries have sufficient
resources? Is the senior center providing the right
services? What’s not keeping her up at night: whether
her city has adequate fire protection and enough water
to meet the needs of local residents and businesses.
That’s because she can count on us. We recognize that
our communities need reliable water systems. That’s
why we invest in back-up power generation, multiple
sources of supply, adequate water storage facilities,
and strategic maintenance and replacement practices.
In 2013 alone, we installed five stand-by generators,
replaced 65,294 feet of water main, constructed two
back-up interconnections, and constructed six new
wells. Why do we put so much emphasis on ensuring
the integrity of our infrastructure and availability
of water supplies? Because the safety and
well-being of our communities depend on it.

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Safety First
5

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

‹

If only there were a chest protector and headgear
to protect the cautious investor. There isn’t, but the
next best thing is a conservative, fiscally responsible,
highly regulated business.

Our Stockholders

Before he decided to retire, this stockholder took a good
look at his investments. What he saw in California Water
Service Group was a company with a solid track record.
Granted, it wasn’t a company that had made him an
instant millionaire, but rather a company with a solid
balance sheet, a strong dividend growth history, and a
proven commitment to prudent fiscal management.
His investment in California Water Service Group
hadn’t made him part of the next “it” product, but it
had made him part of life’s most essential ingredient.
At this stage of the game, that’s what he wants.
No thrills, no excitement... just the feeling that comes
from knowing that his hard-earned dollars are invested
in a company that cares about keeping them safe.

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Safety First
6

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

Financial Highlights

Year ended December 31

2013

2012

2011

2010

2009

Market price at year-end

$ 23.07

$ 18.35

$ 18.26

$ 18.64

$ 18.41

Book value per share

12.54 11.30

10.76

10.45

10.13

Earnings per share (diluted)

1.02

1.17

0.90

0.98

Dividend per share

0.640

0.630

0.615

0.595

0.590

‹

Revenue*

Net income*

584,103

559,966

501,814

460,399

449,372

‹

47,254

48,828

37,712

37,656

40,554

*Dollars in thousands

Safety First
7

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

Letter to our Stockholders

‹

Martin A. Kropelnicki
President and
Chief Executive Officer

Peter C. Nelson
Chairman of the Board

Letter
8

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

Dear Fellow Stockholder:

You wouldn’t want to scale a sheer rock face without a protective harness or step up to the plate without a batting helmet.
Because as much as you might want the thrill of climbing or the excitement of being in the game, you wouldn’t want to
jeopardize your safety for it. At California Water Service Group, we understand how important safety is. That’s why
it comes first.

‹

What does that mean for our stockholders? It means that we work hard to safeguard their investment by seeking fair
regulatory treatment, investing diligently in our infrastructure and employees, managing our business responsibly, and
identifying and mitigating risks that could affect our long-term business continuity.

‹

Our 2013 results were in line with our expectations, given the fact that it was the third year in the three-year rate case
cycle for our largest subsidiary, California Water Service Company (Cal Water), when lagging cost recovery is at its most
extreme. Also tempering results was a reduction in our authorized return on equity resulting from the California Public
Utilities Commission’s cost of capital adjustment mechanism, which correlates return on investment to changes in
the Moody AA utility bond index. However, we met our internal budget goals and continued to invest in our water and
wastewater systems to optimize results and enhance our water system infrastructure.

In 2013, net income was $47.3 million and earnings per share was $1.02. Earnings were spread over a greater number
of shares of stock outstanding, given our issuance of 5.75 million shares in March 2013.

Letter
9

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

Five-Year Operating Revenue
(Dollars in thousands)

‹
‹

3
1
0

3 2
0
4,1
8
5

2
1
0

6 2
6
9,9
5
5

1
1
0

4 2
1
1,8
0
5

‹
‹

0
1
0

9 2
9
0,3
6
4

9
0
0

2 2
7
9,3
4
4

Safety First
Letter
10
10

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

We were gratified by the global interest in the equity offering, which was significantly over-subscribed. Revenues increased
to $584.1 million. In 2014, the annual dividend, paid for 69 consecutive years, increased to $0.65 per share.

The most significant development in 2013 was our ability to reach a settlement agreement on Cal Water’s 2012 General
Rate Case with the California Public Utilities Commission’s Office of Ratepayer Advocates staff and other parties to the case.
This was no small undertaking, but it was worth the effort, because fair and timely rate relief is foundational to our safety-
first approach, which benefits not only stockholders, but also customers, communities, our environment, and employees.

‹
‹

We don’t yet know if the Commission will approve the all-party settlement agreement as submitted, but if it does, Cal Water
will be authorized to invest $447 million in its water system infrastructure over three years throughout California in order to
continue providing a safe and reliable water supply to our customers.

‹
‹

Under the terms of the settlement, we would be authorized to increase rates by approximately $45 million in 2014,
$10 million in 2015, $10 million in 2016, and up to $19 million upon completion and approval of specific projects that
will be considered outside of the General Rate Case process. Although the Commission’s final decision has been
delayed, Cal Water will be allowed to recover additional revenues retroactively to January 1, 2014.

The settlement agreement also addresses the risks posed by increases in health care costs by establishing a health care
balancing account that will track changes in employee health care costs and allow for effective recovery of changes during
the three-year rate case cycle.

Safety First
Letter
11
11

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

As you may recall, in mid-2012, we completed an in-depth enterprise risk assessment to identify, prioritize,
and mitigate risks that could affect our long-term business continuity. In 2013, we continued to address risks
to our supplies, water systems, and water quality, investing more than $33 million in safety-related projects,
including seismic assessment of an earthen dam in our Bear Gulch District; seismic assessments and removal
or reinforcement of elevated water storage tanks in Stockton, King City, Hamilton City, Bakersfield, Visalia, Dixon,
Willows, Marysville, and Chico; programmatic pipeline replacements based upon risk and criticality; and updated
emergency response plans for many of our service areas.

Safety First for Customers

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‹

Clearly, in the context of safety, there is a great deal of overlap between customers and stockholders, both of whom
rely on us to operate our water systems in a safe and responsible manner. For customers, safety boils down to
reliability, quality, and affordability.

‹
‹

In nearly every service area, we deliver a reliable, high-quality water supply to our customers’ taps for
less than one penny per gallon; at that rate, it costs less than $1 for 100 gallons, or less than $2.39
for a ton of clean, fresh water.

Facing drought conditions in California, we are closely monitoring our supplies. Our long-range Water Supply Master
Plans include drought scenario planning, which in most cases involves increasing the diversity of our supplies. This
type of planning isn’t something we undertake when the rain stops falling; it is something we do on a regular basis to
plan and prepare for inevitable dry periods.

Letter
12

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

Five-Year Dividend Growth
(Dividend declared in dollars)

‹
‹

3
1
0

0 2
4
0.6

2
1
0

0 2
3
0.6

‹
‹

1
1
0

5 2
1
0.6

0
1
0

5 2
9
0.5

9
0
0

0 2
9
0.5

Safety First
Letter
13
13

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

For example, over the past few decades, we have worked to complement our groundwater supplies in Bakersfield with
surface water supplies from not one source, but two. And in service areas that rely on wholesale water supplies from outside
their districts, such as South San Francisco, Los Altos, East Los Angeles, and Carson, we have been working to construct
groundwater wells to lessen our dependence on purchased wholesale supplies. As a result of this preparation, we currently
anticipate having adequate supplies through 2014 without the need for mandatory rationing.

There’s nothing better than a hot shower after a long day, but by using one of our low-flow showerheads and
shortening daily showers by five minutes, the conscientious customer can save 5,475 gallons of water per year.

Having said that, water conservation is without question our most affordable source of supply, which means that it is far more
cost-effective to reduce water demand than to increase water supplies. That’s why we are encouraging our customers to
continue their water conservation efforts and reminding them of the wealth of conservation programs and rebates we offer.

‹

To review, in 2013, we:

• Distributed 2,580 conservation kits, including high-efficiency showerheads and shut-off hose nozzles, for an

annual savings of 11,352,000 gallons.

• Provided $383,875 in rebates on high-efficiency clothes washers, which will save 13,700,700 gallons per year.

• Distributed 57,402 sprinkler nozzles, for an annual savings of 59,812,884 gallons.

• Provided 12,869 high-efficiency toilets through our direct installation and rebate programs, which will conserve

156,648,295 gallons annually.

Letter
14

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

CWT 20-Year
Total Return on Investment
(On $100 stock purchase on December 31, 1993,
with dividends reinvested)

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‹

8
0
0
2

1
1
0
2

0
1
0
2

9
0
0
2

2
1
0
2

6
0
0
2

7
0
0
2

5
0
0
2

4
0
0
2

3
0
0
2

9
9
9
1

0
0
0
2

1
0
0
2

2
0
0
2

8
9
9
1

7
9
9
1

6
9
9
1

5
9
9
1

4
9
9
1

‹
‹

3
1
0
2

$600

$500

$400

$300

$200

$100

Safety First
Letter
15
15

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

We have invested millions of dollars in our conservation programs, which have helped our customers reduce their per capita
water usage by an average of 15% since 2007. Clearly, we are well on our way toward meeting the state mandate to reduce
per capita water use by 20% by 2020.

But really, when customers think of safety, they probably don’t even concern themselves with reliability, because they are so
accustomed to getting water every time they turn on their faucets. They do, however, think about water quality.

In our state-certified water quality laboratory, certain constituents can be detected at levels as low as one part per
trillion, which is equivalent to one grain of salt in an Olympic-size pool or one inch in 33 trips to the moon and back.

‹

“Safety first” is the highest priority for our water quality team, which consists of scientists, chemists, and water treatment
experts who are committed to meeting all water quality standards, every day, in every service area. The most obvious
indication of this commitment is the fact that in 2013, we met all water quality standards set to protect public health
and safety. We also ramped up our cross-connection control program, which helps ensure that public water supplies
are not contaminated by activities on individual customers’ properties. As a result of our efforts, more than 99% of the
cross-connection control devices in our systems were tested in 2013 and certified to be operating properly.

Our water quality team also made significant contributions to our efforts to keep water affordable for our customers.

Its first major 2013 endeavor relates to the new state standard for Chromium-6, which is expected to become effective
as early as April of 2014. California is the first state to set a standard for Chromium-6, a subset of Total Chromium already
regulated by both state and federal standards.

Letter
16

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

Five-Year Net Utility Plant
(Dollars in millions)

‹
‹

3
1
0

6 2
1
1,5

2
1
0

7 2
5
1,4

‹
‹

1
1
0

1 2
8
1,3

0
1
0

4 2
9
1,2

9
0
0

8 2
9
1,1

Safety First
Letter
17
17

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

Two of Cal Water’s districts, Willows and Dixon, will need additional treatment to meet the anticipated standard–treatment
that will impact water rates significantly. To reduce that rate impact, Cal Water’s water quality team is conducting two pilot
studies that are the first of their kind in the industry. The first will determine whether bicarbonate can be used to regenerate
the filter media, which would enable us to use a less costly treatment methodology. The second study tests hydraulic loading
levels to determine the amount of water that can be run through the treatment process without degrading removal; it will
establish the most cost-effective flow rate.

A second endeavor is more local in nature, and relates to the discharge at the Rancho Dominguez District’s treatment plant
in the city of Hawthorne. To bring the discharge water from the plant into environmental compliance without costly outside
engineering assistance, a local team engineered its own solution using repurposed materials already onsite. The result:
discharge water that meets all environmental standards at no additional cost to customers.

‹
‹

And a third: the water quality laboratory invested in a new gas chromatography – mass spectrometry system that will enable
our chemists to conduct additional water quality testing in-house, which is expected to result in an annual cost savings of
$100,000 in outside laboratory analysis fees.

Affordability was also a key issue in Cal Water’s General Rate Case. If the proposed settlement agreement between
Cal Water, the Commission staff, and other involved parties is approved, Cal Water will be allowed to increase the discount
that is currently provided to eligible customers as part of its Low-Income Rate Assistance program, as well as the discount
provided through Cal Water’s Rate Support Fund to customers residing in economically disadvantaged, higher-cost service
areas. The settlement agreement also allows Cal Water to set up a balanced payment program, which allows participating
customers to average their water rates throughout the year, eliminating highs and lows from seasonal usage variations.

Safety First
Lettert
18
18

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

Recognizing that life can throw a curve ball every now and then, we have also established the Cal Water Cares Customer
Grant program. Through the program, customers facing hardship will be eligible to receive one-time grants of up to $200 to
pay their water bills. We plan to begin accepting grant applications in the second quarter of 2014.

Safety First for Our Communities and Environment

‹
‹

Our philanthropy also provides a safety net for our communities. Throughout 2013, the Company made charitable
contributions of nearly $700,000 to a range of local organizations that provide critical – and in some cases, life-saving –
services, such as food banks, homeless shelters, public safety/first responder organizations, and youth programs. Even
our four-legged friends got a new “leash on life” through our partnership with the City of Selma, which brought a new dog
shelter to one of our properties in town. Not only do we contribute financial resources, we also give of our time. As an
example, Scott Bailey, our Visalia and Selma District Manager, wakes up at 4 a.m. every day to care for the dogs in the
Selma shelter before beginning his Cal Water work day.

‹
‹

Beyond contributing time and resources to make our communities safer, we also diligently upgrade and maintain
the water systems that our communities need for fire protection and uninterrupted water supplies. In 2013, we
invested $116 million in water system infrastructure, which included more than 12 miles of water mains, six new
wells, and two emergency interconnections, all of which increase reliability.

We partner with local fire agencies to ensure that fire hydrants in our districts are regularly maintained to
ensure that they are easily seen, readily accessible, and functioning properly at all times.

Letter
19

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

Five-Year Book Value
(Dollars per share)

‹
‹

3
1
0

4 2
2.5
1

‹
‹

2
1
0

0 2
1.3
1

1
1
0

6 2
0.7
1

0
1
0

5 2
0.4
1

9
0
0

3 2
0.1
1

Safety First
Letter
20
20

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

Fire protection is always a priority for us. In fact, in Los Altos, California, we are currently partnering with the Los Altos Hills
County Fire District to invest $1 million in water system improvements to enhance fire protection, including new, larger water
mains to improve flow, new boosters to increase pumping capacity, and auxiliary power sources. The bottom line is that our
community leaders don’t need to concern themselves about the integrity of the water system, which frees them up to focus
on other critical community services such as law enforcement, libraries, and parks. Our community leaders can also rest
assured that we operate our systems in an environmentally responsible manner.

Our watershed in San Mateo County is home to the largest standing redwood tree on the San Francisco Peninsula.
The mammoth“Methuselah” measures about 45-feet in circumference and is estimated to be 1,800 years old.

‹
‹

Of course, we strive to be environmentally conscious in everything we do. Beyond the typical efforts, such as recycling paper
and other materials, driving hybrid vehicles when possible, and using energy efficiently, we have undertaken a few unique
environmental efforts.

One is our collaboration with the California Department of Fish and Wildlife and the National Marine Fisheries Service on
fish protection projects in our Bear Gulch District. The first project includes a screen and concrete weir to enable steelhead
trout to safely pass a pumping system. We are now working on a fish ladder, which will consist of a series of ascending
pools to help the fish get safely past a diversion dam and into spawning areas.

Another is our Mobile Workforce Project, which enables our field crews to operate more efficiently and reduce fuel
consumption by receiving work orders on laptop computers in their vehicles. Customers can also reduce their fuel
consumption by taking advantage of our new web site portal, which allows them to conduct their business with us
online rather than in our Customer Centers.

Letter
21

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

And although we’ve said it before, it bears repeating: The greatest positive impact we can make on our environment is
helping our customers conserve water. That’s why we have developed an industry-leading conservation program that has
helped our customers save 1.7 billion gallons since 2011. Looking ahead, in 2014 and 2015, we will be updating our
Conservation Master Plans and will address challenges related to climate change.

Safety First for Our Employees

We rely on our employees to put the safety of our stockholders, customers, communities, and environment first. But we are
equally committed to protecting the safety of our employees.

‹
‹

In 2013, we conducted individual job safety analyses to identify potential hazards and ensure that employees have the
right tools and personal protective equipment to do their jobs safely. We also reviewed and updated our Injury and Illness
Prevention Plan, our Code of Safe Practices, and our Hazard Awareness Program. This updated information will be made
available to employees on our new, interactive intranet, which will enable employees to easily access and share safety-
related information. And, in 2014, we will be augmenting our monthly safety meetings and periodic cardiac pulmonary
resuscitation (CPR) training with additional safety training.

‹
‹

Further adding to our culture of safety, we have worked to ensure that workplaces are safe, using best ergonomic practices
and modifying Customer Centers to protect employees responsible for handling cash.

We believe our employees are our best ambassadors and our most important asset, and we strive to provide a safe,
fulfilling workplace and be the employer of choice in our industry; we are pleased that in 2013, for the second consecutive
year, our Bay Area employees voted us a Top Workplace as part of the Bay Area Newsgroup’s Top Workplace program.

Safety First
Letterst
22
22

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

Leading our highly valued team of employees is a well-rounded and experienced group of officers. Since our last report,
we said goodbye to two well-respected officers with the retirement of David R. Karraker and Christine L. McFarlane.
Although they will be dearly missed, we are fortunate to have added Timothy D. Treloar as Vice President of Operations and
Michael B. Luu as Vice President of Customer Service and Information Technology. In addition, officers Robert R. Guzzetta
and Michael J. Rossi have assumed new responsibilities--Guzzetta as Vice President of Engineering and Water Quality, and
Rossi as Vice President of Continuous Improvement. And, at the board level, we are pleased to welcome Terry P. Bayer,
Chief Operating Officer of Molina Healthcare, Inc. We believe that her experience as the top operating executive at a large
public company will serve us well, and we are confident that her unique understanding of health care management and the
importance of excellent customer service will be a valuable asset to the team.

‹
‹

We wish you the very best in the coming year and thank you for your
continued investment in California Water Service Group.

‹
‹

Martin A. Kropelnicki
President and
Chief Executive Officer

Peter C. Nelson
Chairman of the Board

Letter
23

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

Washington
Operations/Customer Centers

Olympia (S.W.Regional Office) •
Gig Harbor (N.W. Regional Office and
Customer Center) • Sequim • Issaquah •
Orcas Island (Field Offices)

Hawaii
Operations/Customer Centers

(Maui) Ka’anapali • (Hawaii) Waikoloa

‹
‹

Serving 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 2012
16,000 2013

‹
‹

Serving the communities of Ka’anapali,
Pukalani, Waikoloa, North Kona Coast,
and Kohala Coast on the islands of
Maui and Hawaii.

Regulated Customer Connections

4,200 2012
4,200 2013

Safety First
Area Maps
24
24

SAFETY FIRST

LETTER TO
STOCKHOLDERS

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MAPS

EIGHT-YEAR
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BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

New Mexico
Operations/Customer Centers

Elephant Butte • Rio Communities
• Cedar Crest

California
Districts

Antelope Valley • Bakersfield • Bayshore • Bear Gulch •
Chico • Commerce • Dixon • Dominguez • East Los Angeles
• Hawthorne • Hermosa-Redondo • Kern River Valley •
King City • Livermore • Los Altos • Marysville • Oroville
• Palos Verdes • Redwood Valley • Salinas • Selma •
Stockton • Visalia • Westlake • Willows

‹
‹

Serving the communities 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 2012
7,600 2013

Customer Connections*

‹
‹

473,100 2012
475,100 2013

* Numbers include Hawthorne
and Commerce lease agreements

Safety First
Area Maps
25
25

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

California Districts & Communities

2013

2012

‹
‹

Antelope Valley • Fremont Valley, Lake Hughes, Lancaster & Leona Valley
Bakersfield
Bayshore • South San Francisco, Colma, Broadmoor, San Mateo & San Carlos
Bear Gulch • Atherton, Woodside, Portola Valley & a portion of Menlo Park
Chico • Hamilton City
Commerce (lease agreement)
Dixon
Dominguez • Carson & portions of Compton, Harbor City, Long Beach,Los Angeles County & Torrance
East Los Angeles • Portions of Montebello, Commerce, Monterey Park & Vernon
Hawthorne (lease agreement)
Hermosa-Redondo • Hermosa Beach, Redondo Beach & a portion of Torrance
Kern River Valley • Bodfish, Kernville, Lakeland, Mountain Shadows, Onyx, Squirrel Valley,

South Lake & Wofford Heights

King City
Livermore
Los Altos • Portions of Cupertino, Los Altos Hills, Mountain View & Sunnyvale
Marysville
Oroville
Palos Verdes • Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills & Rolling Hills Estates
Redwood Valley • Lucerne & portions of Duncans Mills, Guerneville, Dillon Beach, Noel Heights & Santa Rosa
Salinas
Selma
Stockton
Visalia
Westlake • Westlake Village & a portion of Thousand Oaks
Willows

1,400
69,600
53,300
18,800
28,400
1,200
2,900
33,900
26,700
6,300
26,700

4,200
2,600
18,400
18,800
3,700
3,500
24,100
1,900
28,300
6,300
43,000
41,700
7,100
2,400

Safety First
Area Maps
26
26

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

‹
‹

1,400

69,100
53,200
18,800
28,100

1,200
2,900

33,900
26,700

6,200
26,700

4,200
2,500
18,800
18,400
3,700
3,500
24,100
2,000

28,300
6,200
42,700
41,200

7,000
2,400

CORPORATE
INFORMATION

Eight-Year Financial Review (Years 2010-2013)

(Dollars in thousands, except common share and other data)

2013

2012

2011

2010

Summary of Operations

Operating revenue

Operating expenses

Interest expense, other income and expenses, net

Net income

Common Share Data

Earnings per share - diluted

Dividend declared

Dividend payout ratio

Book value per share

Market price at year-end

Common shares outstanding at year-end (in thousands)

Return on average common stockholders’ equity

‹
‹

Long-term debt interest coverage

Balance Sheet Data

Net utility plant

Long-term debt, including current portion

Capitalization ratios:

Common stockholders’ equity

Preferred stock

Long-term debt

Other Data

Water production (million gallons)

Customers at year-end, including Hawthorne and Commerce

New customers added

Revenue per customer

Utility plant per customer

Employees at year-end

$584,103

$510,098

$26,751

$47,254

$1.02

$0.640

63%

$12.54

$23.07

47,741

8.8%

3.42

$559,966

$486,123

$25,015

$48,828

$1.17

$ 0.630

54%

$11.30

$18.35

41,908

10.6%

3.45

$501,814

$434,647

$29,455

$37,712

$0.90

$0.615

68%

$10.76

$18.26

41,817

8.5%

3.11

$460,399

$398,586

$24,157

$37,656

$0.90

$0.595

66%

$10.45

$18.64

41,667

9.0%

3.59

‹
‹

$1,515,831

$434,050

$1,457,056

$481,250

$1,381,119

$488,165

$1,294,297

$481,561

58.0%

0 .0%

42.0%

126,363

502,900

2,200

$1,161

4,401

1,125

49.6%

0.0 %

50.4%

125,892

500,700

1,200

$1,118

4,187

1,131

48.0%

0.0%

52.0%

120,353

499,500

1,600

$1,005

3,925

1,132

47.5%

0.0%

52.5%

121,942

497,900

3,200

$925

3,706

1,127

Safety First
8-Year Review
27
27

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

Eight-Year Financial Review (Years 2006-2009)

(Dollars in thousands, except common share and other data)

2013

2009

2008

2007

2006

Summary of Operations

Operating revenue

Operating expenses

Interest expense, other income and expenses, net

Net income

Common Share Data

Earnings per share - diluted

Dividend declared

Dividend payout ratio

Book value per share

Market price at year-end

Common shares outstanding at year-end (in thousands)

Return on average common stockholders’ equity

Long-term debt interest coverage

‹

Balance Sheet Data

Net utility plant

Long-term debt, including current portion

Capitalization ratios:

Common stockholders’ equity

Preferred stock

Long-term debt

Other Data

Water production (million gallons)

Customers at year-end, including Hawthorne and Commerce

New customers added

Revenue per customer

Utility plant per customer

Employees at year-end

$584,103

$510,098

$26,751

$47,254

$1.02

$0.640

63%

$12.54

$23.07

47,741

8.8%

3.42

$449,372

$391,253

$17,565

$40,554

$0.98

$0.590

61%

$10.13

$18.41

41,531

9.8%

4.04

$410,312

$352,843

$17,664

$39,805

$0.95

$0.585

62%

$9.72

$23.22

41,446

10.2%

4.72

$367,082

$322,912

$13,011

$31,159

$0.75

$0.580

77%

$9.33

$18.51

41,332

8.1%

3.70

$334,717

$294,411

$14,726

$25,580

$0.67

$0.575

86%

$9.16

$ 20.20

41,314

8.2%

3.17

$1,515,831

$434,050

$1,198,077

$387,222

$1,112,367

$290,316

$1,010,196

$291,921

$941,475

$293,592

‹

58.0%

0 .0%

42.0%

126,363

502,900

2,200

$1,161

4,401

1,125

52.1%

0.0%

47.9%

131,558

494,700

4,207

$908

3,455

1,013

58.1%

0.0%

41.9%

137,757

490,493

2,938

$837

3,228

929

56.9%

56.0%

0.5%

42.6%

141,238

487,555

3,662

$753

2,968

891

0.5%

43.5%

132,414

483,893

4,892

$692

2,778

869

8-Year Review
28

SAFETY FIRST

LETTER TO
STOCKHOLDERS

SERVICE AREA
MAPS

EIGHT-YEAR
FINANCIAL REVIEW

BOARD OF
DIRECTORS

CORPORATE
OFFICERS

CORPORATE
INFORMATION

Board of Directors

Martin A. Kropelnicki
President and Chief
Executive Officer

7 months served
as a Board Member.

Bonnie G. Hill
President of
B. Hill Enterprises, L.L.C.

11 years served
as a Board Member.
Member of the
following Committees:
Organization/Compensation
and Nominating/
Corporate Governance.

Peter C. Nelson
Chairman of the Board

18 years served
as a Board Member.

Richard P. Magnuson
Lead Director and Private
Venture Capital Investor

18 years served
as a Board Member.
Member of the following
Committees: Audit, Finance/
Risk Management,
and Nominating/
Corporate Governance.

‹

George A. Vera
Former Vice President
and Chief Financial
Officer, the David
and Lucile Packard
Foundation

16 years served
as a Board Member.
Member of the
following
Committees:
Audit, Finance/
Risk Management,
and Nominating/
Corporate Governance.

Lester A. Snow
Former Director
of the California
Department of
Water Resources

3 years served
as a Board Member.
Member of the
following Committees:
Organization/
Compensation,
Finance/Risk
Management.

Edwin A. Guiles
Former Executive
Vice President
of Corporate
Development,
Sempra Energy

6 years served
as a Board Member.
Member of the
following Committees:
Organization/
Compensation, Finance/
Risk Management,
and Audit.

Linda R. Meier
Member of the National
Board of the Institute of
International Education

20 years served
as a Board Member.
Member of the following
Committees: Audit,
Organization/Compensation,
and Nominating/
Corporate Governance.

Thomas M. Krummel, M.D.
Professor and Chair,
Surgery Department,
Stanford University
School of Medicine

4 years served
as a Board Member.
Member of the
following Committees:
Nominating/Corporate
Governance and Organization/
Compensation.

The Board
29

SAFETY FIRST

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EIGHT-YEAR
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BOARD OF
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OFFICERS

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INFORMATION

Corporate Officers

Listed from left to right

Martin A. Kropelnicki
President and
Chief Executive Officer
1, 2, 3

Lynne P. McGhee
Corporate Secretary
1, 2, 3

Thomas F. Smegal III
Vice President,
Chief Financial Officer
and Treasurer
1, 2, 3

Timothy D. Treloar
Vice President,
Operations
1, 2

Michael B. Luu
Vice President,
Customer Service
and Information
Technology
1, 2

‹

David B. Healey
Controller and
Assistant Treasurer
1, 2, 3

Helen R. Del Grosso
Vice President,
Human Resources
1, 2, 3

Michael J. Rossi
Vice President,
Continuous
Improvement
1, 2

Francis S. Ferraro
Vice President,
Corporate
Development
1, 2, 3

Robert R. Guzzetta
Vice President,
Engineering and
Water Quality
1, 2

Paul G. Townsley
Vice President,
Regulatory Matters
and Corporate
Relations
1, 2, 3

‹

1 Holds the same position with California Water Service Company.

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.

The Officers
30

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‹

Information
31

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OFFICERS

CORPORATE
INFORMATION

‹

Stock Transfer, Dividend Disbursing,
and Reinvestment Agent
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, NY 11219
(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, stockbrokers, savings and loan
associations, and credit unions with membership in approved
signature medallion programs) pursuant to SEC Rule 17Ad-15.
A notary’s acknowledgment 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 20, 2014, 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 meeting
will be contained in the proxy material, which will be mailed to
stockholders on or about April 14, 2014.

Anticipated Dividend Dates For 2014
Quarter

Declaration Record Date

Payment Date

First

Second

Third

Fourth

January 29

February 10

February 21

April 30

July 30

May 12

May 23

August 11

August 22

October 29

November 10

November 21

Annual Report For 2013 On Form 10-K
A copy of the Company’s report for 2013 filed with the Securities
and Exchange Commission (SEC) on Form 10-K is available 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

Information
32

SAFETY FIRST

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OFFICERS

CORPORATE
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California Water Service Group

‹
‹
‹

1720 North First Street

San Jose, California 95112-4598

(408) 367-8200

www.calwatergroup.com

NYSE: CWT

‹
‹

Safety First
Information
33
33

SAFETY FIRST

LETTER TO
STOCKHOLDERS

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MAPS

EIGHT-YEAR
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BOARD OF
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CORPORATE
OFFICERS

CORPORATE
INFORMATION