California Water Service Group
Annual Report 2016

Plain-text annual report

1720 North First Street San Jose, California 95112-4598 (408) 367-8200 www.calwatergroup.com NYSE: CWT Making Making Good Things Good Things Happen Happen CALIFORNIA WATER SERVICE GROUP 2016 SUMMARY ANNUAL REPORT Corporate information 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 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 Wednesday, May 24, 2017, 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 12, 2017. Anticipated dividend dates for 2017 Declaration Quarter Record Date Payment Date First Second Third Fourth January 25 April 26 July 26 October 25 February 6 May 8 August 7 November 6 February 17 May 19 August 18 November 17 Annual report For 2016 On form 10-K A copy of the Company’s report for 2016 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 website. 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 Table of Contents Go With the Flow My Journey to the Tap When I Finally Arrive, I Make Good Things Happen And I Owe it All to California Water Service Group They Make Good Things Happen Too Awards Financial Highlights 2016 Highlights Twenty-Year Total Return on Investment Letter to Our Stockholders Service Area Maps California Districts and Communities Eight-Year Financial Review Board of Directors Corporate Officers So Now You Know Corporate Information 2 4 6 8 14 16 18 19 20 22 32 34 36 38 40 42 43 California Water Service Group (NYSE: CWT) is the third-largest publicly traded 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 (Cal Water), Hawaii Water Service Company, Inc. (Hawaii Water), New Mexico Water Service Company (New Mexico Water), Washington Water Service Company, Inc. (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. Go with the Flow Hello! It’s me, Water. I’m the one who’s there for you whenever you need me, even though you tend to take me for granted. No hard feelings—I get it. After all, I’m just two parts hydrogen and one part oxygen. But humor me. Let me show you how I travel from the source to your tap. If you come along with me on this adventure, you’ll be amazed at all the places I go, and all the good things that happen when I get there! 2 3 I fall from the sky as snow or rain. I don’t even need a parachute– woo-hoo! My Journey to the tap Admit it: you turn on your faucet without giving it a second thought. Do you think the tap water fairy waves a wand and I magically appear? Au contraire! Depending upon where you live, I might travel hundreds of miles to get to you. And that’s only after jumping through all kinds of water quality hoops. It’s quite a journey, let me tell you. It all starts with me sitting in a cloud, waiting for the adventure to begin… When I land, I either make it to a lake or river, or I seep into the ground, where I end up in an aquifer deep under the Earth’s surface. 4  If I trickled through the ground to the aquifer, a groundwater well hauls me up as many as 1,000 feet to be treated. It’s quite a ride! If I’m in a lake or river, I relax for a while until I’m pulled out by pumps and taken to a water quality treatment plant. After I get cleaned up, I have to pass some really tough water quality tests. Most people don’t like taking tests, but I love it; it’s how I know I’m safe to drink. P hew! After all that, I’m sent with some of my friends to wait our turn in a water storage tank. l y , I t r a v e l Fi n a l t o m y de st i n at i o n t hr o u gh be l o w - g r o u n d p i pe s. One last water quality check before I go to the customer. 5  In C hico, C alifor nia, I go t o Sierra Nevada Brewer y. C heers! Not to brag or anything, but I’m kind of a big deal. Thanks to me, you can wake up to a nice hot shower and a delicious cup of coffee. And that’s just the beginning; the list goes on and on. Your food? Yep, I grew that. Your blue jeans? Me again! The tires on your car and the fuel that makes it go? You got it—I helped make them. I make everything from computer chips to potato chips. And who wants to imagine a world without potato chips? The fact is, I make good things happen pretty much everywhere I go. In Gig Harbor, Washington, I clean up the family dog. 6 In Waikoloa, Hawaii, I’m recycled and used to make golf courses green. Aloha! In Belen, New Mexico, I hang out here just waiting to fight fires— let me at ‘em! In South San Francisco, California, I’m part of the candy-making process at See’s—yum! In Visalia, California Dairies uses me to make milk. No cow tipping allowed! 7 8 To tell the truth, I couldn’t do the amazing things I do without California Water Service Group. It’s not that I’m lazy or anything, but if it were left up to me, I’d just kick back wherever I landed. I certainly wouldn’t be where you need me, I wouldn’t be clean, and I wouldn’t be able to make so many good things happen. So I have to give credit where credit is due—thanks for everything, California Water Service Group! 9 Here I am being cleaned. This scientist is getting up close and personal, but that’s OK! This gigantic pump pushes me up and down the Palos Verdes Peninsula. 10 Uh-oh: a leak in the water main! Thanks for the quick repair. 11 Here are some storage tanks being constructed– how awesome is that? 12 Once my job is done, I’m taken away to be cleaned so I can start the process all over again. 13 They make Good Things happen too It turns out, I’m not the only one who’s a big deal around here. In 2016, the people at California Water Service Group made good things happen in so many ways: they helped customers save 28 billion gallons of water. They invested $228.9 million to build and upgrade pipes, pumps, and water quality treatment plants. They analyzed nearly 58,000 water samples and conducted nearly 385,000 water quality tests. They answered 600,000 customer service calls. They taught elementary-school kids all about me, and even helped some high schoolers pay for college. And if all that wasn’t enough, their stockholders contributed $665,000 to charitable organizations in California, Washington, Hawaii, and New Mexico. Nice! 14 15 I may not get as much attention as i’d like, but California Water Service Group got a lot of recognition in 2016. Maybe next year, I’ll get some cool awards ,too (hint, hint). 16 For the first time ever, California Water Service Group was certified as a Great Place to Work® by the Great Place to Work® Institute. For the fifth year in a row, Cal Water was named a Top Workplace in the Bay Area by the Bay Area News Group. The Company received its first-ever patent for a device invented by our team to protect the environment in the event of a drinking water storage tank overflow. In J.D. Power’s inaugural Water Utility Residential Customer Satisfaction StudySM, Cal Water ranked “Highest in Customer Satisfaction among Water Utilities in the West.”* Cal Water was named Business of the Year by the City of Salinas for its dedication and involvement in the local community. *Cal Water received the highest numerical score among 24 water utilities in the West region in the J.D. Power 2016 Water Utility Residential Customer Satisfaction Study, based on 20,951 total responses, measuring experiences and perceptions of customers with their primary water provider surveyed March 2016. Your experiences may vary. Visit jdpower.com for more information. 17 Financial highlights Year ended December 31 2016 2015 2014 2013 2012 Market price at year-end $33.90 $23.27 $24.61 $23.07 $18.35 Book value per share 13.75 13.41 13.11 12.54 11.30 Earnings per share (diluted) 1.01 0.94 1.19 1.02 1.17 Dividend per share 0.690 0.670 0.650 0.640 0.630 Revenue* 609,370 588,368 597,499 584,103 559,966 Net Income* 48,675 45,017 56,738 47,254 48,828 *Dollars in thousands 18 2016 Highlights (Although there are too many to name!) Q1 Directors declare the 284th consecutive quarterly dividend and the 49th consecutive annual dividend increase. Customers tour the Bakersfield and Visalia Districts to meet employees and get a firsthand look at water system upgrades. Company wins its first ever U.S. Patent for a device developed by employees to dechlorinate drinking water in the event of a storage tank overflow. Q2 Sixth-grade students in Ms. Lenix’s class at Downtown Elementary School in Bakersfield learn they are the grand-prize winners of the Company’s H2O Challenge. Cal Water hosts appreciation events in Stockton and Willows to recognize customers’ excellent conservation performance. Cal Water is ranked highest in the west in J.D. Powers’ first-ever Residential Water Customer Satisfaction StudySM. Company is named a top workplace in the Bay Area for the fifth consecutive year. Q3 West Basin Municipal Water District extends Cal Water’s contract to maintain and operate recycled water system through 2021. Smokey Bear looks on as Cal Water presents a check for $42,000 from employees and stockholders to help victims of the Erskine Fire. Hawaii Water Service Company (Hawaii Water) receives approval on its 2015 Rate Case for Ka’anapali. Q4 Company awards $60,000 in college scholarships to students in California, Hawaii, and Washington. Hawaii Water launches a new website to provide convenient, user-friendly customer service. Company contributes $174,000 to local charities to help those in need during the holidays. Cal Water receives final decision on its 2015 General Rate Case. 19 Cwt 20-year total return on investment (On $100 stock purchase on December 31, 1996, with dividends reinvested) $63 $64 $47 $53 $53 $47 $77 $153 $166 $189 $173 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20 $558 $353 $341 $313 $254 $189 $202 $206 $218 2008 2009 2010 2011 2012 2013 2014 2015 2016 $600 $500 $400 $300 $200 $100 $0 21  2016— W hat a great year! Thank you! martin A. Kropelnicki President and Chief Executive Officer Peter C. Nelson Chairman of the Board 22 Letter to our Stockholders Dear fellow stockholder: If you thought Water’s adventure from the source to the tap was exciting, wait until you hear about our journey through 2016. It was definitely a year for making good things happen—for our customers, stockholders, communities, and employees. We anticipated it would be a tough year financially, given the continuing drought in California and the fact that 2016 was the third year of a three-year rate case cycle for California Water Service (Cal Water), our largest subsidiary. Despite these circumstances, we delivered strong results. Net income for the year was $48.7 million, compared to $45.0 million in 2015, and earnings per common share were $1.02, up from $0.94 in 2015. Total revenues were $609.4 million, an increase of 3.6% compared to the prior year. And, in January 2017, our Board declared our 289th consecutive quarterly dividend and increased the annual dividend for the 50th consecutive year. We invested a record $228.9 mil lion in water system infrastructure impr ovements! Even better, we reached two significant milestones that support our goal of building long-term stockholder value while providing high-quality water to customers at affordable rates. First, we invested a record $228.9 million in expanding and upgrading our water infrastructure. Second, we concluded our 2015 General Rate Case in California. Enhancing Stockholder Value Let’s begin with our capital investment program. By investing in infrastructure projects that provide critical customer benefits, such as quality and reliability, we also provide value to stockholders, who earn a return on this investment. In 2016, our investment in infrastructure included: $83.8 million in new water lines, which increases reliability for customers $4.9 million in water treatment plants and treatment plant upgrades, which enables us to provide high-quality water $34.3 million in wells, tanks, and pumps, which ensures that we can deliver water supplies where customers need them $13.2 million in information technology projects, which is key to providing excellent customer service 23 C ommi ssion aut hor ized ion l $658.8 mi f or i nfrastr uct ure pr ojects! l One of the many advantages of being served by a regulated utility is that all capital investments are reviewed and approved by state utility commissions as part of the rate-setting process. It was through this process that Cal Water received authorization in 2016 to begin two of its largest capital projects ever: a $60 million, seven-mile, large-diameter pipeline project in Southern California, and a $70 million project for water quality treatment at 38 wells to meet an imminent new water quality standard for 1,2,3-trichloropropane (TCP). When the projects are completed, Cal Water will be able to request expedited administrative approval to add them to rate base and begin earning a return on them. That brings us to the second important stockholder value story of 2016: after an extensive, 18-month review of rates, water system improvement plans, and costs, the California Public Utilities Commission (Commission) issued a favorable, on-time decision on Cal Water’s General Rate Case. This case was the largest in the company’s 90-year history, and the Commission’s approval of rate increases means that we can continue to make water system improvements that enable us to deliver a safe, reliable water supply. The decision authorizes Cal Water to invest a total of $658.8 million in infrastructure projects throughout California in 2016, 2017, and 2018. Included in the $658.8 million is $197.3 million for “advice letter” projects, which are projects that we will complete before we ask to include them in rates. It also increases revenue by an estimated $45.0 million in 2017, up to $17.2 million in 2018, up to $16.3 million in 2019, and up to $30.0 million upon completion and approval of the advice letter projects. Total Operating Revenue ($ in thousands) 559,966 584,103 597,499 588,368 609,370 2012 2013 2014 2015 2016 24 In a separate approval, the Commission authorized us to begin collecting $2.9 million in drought expenses incurred in 2014 and 2015. We continue to track drought expenses in 2016 and 2017 for future recovery. Finally, the Hawaii Public Utilities Commission approved a $1.1 million increase in revenues to recover the costs of several infrastructure improvements in Ka’anapali, including replacement of meters and service lines, recoating and reinforcement of a 1.5 million-gallon storage tank, two additional new storage tanks, and upgrades to the computer system used to monitor and control the water system. Here’s the bottom line: maintaining, expanding, and updating water infrastructure requires regular investment. While the nation’s overall water infrastructure gets a dismal D grade from the American Society of Civil Engineers, our systems continue to be in far superior condition. And that’s good news for our customers. Delivering High-Quality Drinking Water and Water for Reuse As new water quality standards are set and existing standards become increasingly stringent, water treatment will continue to make up a large part of our capital investment program. In 2015, we installed treatment units at nine well sites to meet a new state standard for chromium-6; in 2016, we turned our attention to new challenges. As previously mentioned, we began work on water quality treatment that will be required to meet a new state standard for TCP, which is expected to become effective in 2017. Although the California Public Utilities Commission has approved the TCP treatment for future rate recovery, we are hoping to mitigate the impact on customer rates by pursuing a lawsuit to recover these expenses and other damages from the companies responsible for TCP contamination. Lead was also a constituent of concern in 2016, due to the ongoing lead contamination crisis in Flint, Michigan. We are compliant with health and safety codes mandating the use of lead-free materials in water systems, and we test our water sources regularly to ensure that the water is not corrosive. (Corrosive water can cause lead from home plumbing to leach into the water.) So much more to share! 25 Even so, we went a step further in 2016, engaging an expert third party to ensure that our lead and copper compliance program was second to none. We also completed lead and copper monitoring as required by the United States Environmental Protection Agency (EPA) and collaborated with public health agencies on a plan to conduct additional testing in schools in 2017. We did all this while continuing our rigorous water quality testing and treatment program, analyzing nearly 58,000 samples and conducting almost 385,000 tests for 275 constituents. On the water reuse side of the business, our contract with the West Basin Municipal Water District (West Basin) was extended to 2021 by a unanimous vote of its Board of Directors. Pursuant to the contract, we will continue to maintain and operate the distribution system for the Edward C. Little Water Recycling Facility, the largest water recycling facility of its kind in the United States. We also continued to make significant upgrades to our wastewater treatment plants. In Hawaii, we replaced controls at sewer pump stations to improve wastewater spill prevention. In New Mexico, we replaced 3,600 feet of recycled water pipeline and upgraded the Rio Communities biological treatment aeration system. We also purchased 116 acres of land near the Rio Del Oro Wastewater Treatment Facility and installed irrigation systems to allow for the environmentally friendly spreading of high-quality, treated effluent. Annual Dividend ($ per share) 0.630 0.640 0.650 0.670 0.690 2012 2013 2014 2015 2016 26 Providing Affordable, Excellent Service As important as water system improvements and water quality testing are, they tend to go unseen by the customer. What is seen by the customer is our service, and when it comes to service, we strive to deliver both affordability and excellence. Keeping rates affordable is a challenge for all water providers, because the costs of providing water service are rising nationwide. As we’ve said, water systems need to be maintained and updated, and new water quality standards need to be met. That’s why efficient operations and innovative rate-making are key to keeping rates affordable. For example, Cal Water proposed in its 2015 General Rate Case to consolidate rates for some districts, spreading these costs over greater numbers of customers. The Commission ultimately approved consolidation of rates in seven service areas. Cal Water also sought approval to enhance its Low-Income Ratepayer Assistance program, which discounts bills for qualified low-income customers, and its Rate Support Fund, which discounts bills in districts where the costs of providing water service are highest. Despite rising costs, we continue to deliver a clean, reliable water supply right to the customer’s tap for less than a penny per gallon in nearly every community we serve. In addition to affordable rates, customers expect excellent service. To make sure that’s what they’re getting, we track key performance metrics. In 2016, we: Received nearly 50,000 calls per month, and answered 84% of them within 20 seconds Made an average of 2,100 two-hour appointment windows with customers each month, and arrived on time 97.8% of the time Produced and sent 5.5 million bills, achieving an accuracy rate of 99.2% We also introduced new, simplified bills and partnered with FranklinCovey© to develop a certification program for our customer service supervisors and managers. 27 In May, we celebrated our customers’ tremendous conservation efforts! We’re committed to fulfilling our promise to provide customers with quality, service, and value, and we were thrilled to be ranked highest in overall customer satisfaction among the 24 largest water utilities in the western United States in J.D. Power’s inaugural Water Utility Residential Customer Satisfaction Study (SM). The 2016 study measured performance in six areas: delivery (including reliability and quality), price, billing and payment, conservation, communications, and customer service. Even more extraordinary is the fact that we received this honor in the midst of a historic drought in California. We believe it validated our customer-first approach to drought response and our efforts to meet ambitious water-use reduction targets set by the State of California while maintaining excellent relationships with our customers and communities. It started back in April 2015, when the Governor declared a drought emergency and issued an Executive Order mandating a 25% reduction in urban water use. To achieve this target, the State Water Resources Control Board (the State Board) established water-use reduction requirements based upon communities’ respective residential per-capita water use. We responded by establishing an individual water budget for each customer and setting up a system for surcharges, appeals, and water banking. Then we pulled out all the stops to help our customers achieve their targets. In May 2016, the State Board did the unexpected: in response to improving drought conditions in parts of California, it allowed water providers to eliminate water-use reduction requirements if they could prove that they could meet their customers’ water demands for three years, assuming the continuation of severe drought conditions. After assessing our water supplies, we eliminated surcharges in all of our California service areas, but continued to ask customers to achieve modest water-use reduction targets. At year-end, our customers had achieved total water savings of 23.5% compared to 2013. 28 That’s where we stood when 2016 came to a close, but the story doesn’t end there. At the same time it changed course on emergency conservation actions, the State Board began collaborating with several state agencies on a plan to make conservation a way of life in California. The plan, released in early 2017, includes regulations intended to promote efficient water use, eliminate water waste, strengthen local drought resilience, and improve agricultural water-use efficiency and drought planning. We will partner with the State Board to implement these regulations between 2017 and 2020. Net Utility Plant ($ in millions) 1,457 1,516 1,590 1,702 1,859 2012 2013 2014 2015 2016 Building a Strong Reputation Our leadership during the drought emergency strengthened our brand with customers and regulators alike. After all, crisis response can make or break an organization’s reputation. Unfortunately, another opportunity to prove ourselves arose in June, when the catastrophic Erskine Fire destroyed 285 homes and charred 48,000 acres in our Kern River Valley service area. Power was knocked out immediately, so we brought people, supplies, and emergency generators from other parts of the Company to assist the community and help the local team keep water flowing. In the heartbreaking aftermath, employees distributed stockholder- funded gift cards so that customers who had lost everything could at least buy essentials. In addition to the gift cards, the Company matched employee donations to the local Salvation Army for relief efforts. Local Manager Chris Whitley received the prestigious Living Water Award from the National Association of Water Companies for his role in leading the Company’s emergency response efforts. 29 Our charitable giving reflects our purpose: to improve the quality of life for our customers, employees, communities, and stockholders. Some of our corporate contributions are made in response to tragedies like the Erskine Fire; others are made to support the day-to-day efforts of organizations that share our commitment to improving the quality of life in the communities we serve, such as food banks, homeless shelters, and agencies that assist youth, seniors, and veterans in need. We also fund a Company scholarship program that distributes $60,000 to students each year; this year’s two grand prizes of $10,000 scholarships went to students in Salinas and Rancho Palos Verdes. Altogether, we made $665,000 in charitable contributions in 2016. We are proud that our employees share our commitment to giving back. Throughout the Company, our people take the initiative to organize toy drives, clothing drives, and blood drives to help those in need. One Stockton employee even took it upon herself to spearhead an effort to raise $10,000 for a local family that lost its father in a tragic home accident in 2016. Book Value ($ per share) 11.30 12.54 13.11 13.41 13.75 2012 2013 2014 2015 2016 Employees as Best Advocates Obviously, our employees care about our customers and communities. And we care about them. So in addition to professional development opportunities, including customer service and leadership training, we doubled down on safety training in 2016. It’s pretty simple; we want our employees to be safe and healthy. We want them to be engaged. And we want them to have the tools they need to serve customers. Our focus on being an employer of choice seems to have paid off; in 2016, we were named a Great Place to Work® by the 30 Great Place to Work Institute® for the first time ever. We were also named one of the top 100 places to work in the greater San Francisco Bay Area by the Bay Area News Group for the fifth year in a row. In 2016, we welcomed two people to the officer team. Elissa Y. Ouyang was promoted to Chief Procurement Officer, and Gerald A. Simon was promoted to Chief Safety and Emergency Preparedness Officer. In addition, as a reflection of their expanded responsibilities and increasingly complex roles, we announced the promotion of Timothy B. Treloar to Vice President of Water Quality and Chief Utility Operations Officer and Michael B. Luu to Vice President of Customer Service and Chief Information Officer. On a bittersweet note, we said goodbye to the extraordinary Linda R. Meier, who retired from our Board of Directors after 22 years of service. Linda brought uncommon insight, intellect, and professionalism to her role, and we will miss her dearly. We wish her the very best in her retirement. While we’re at it, we’d like to wish you the best in the coming year. We thank you for your continued support and investment in California Water Service Group. martin A. Kropelnicki President and Chief Executive Officer Peter C. Nelson Chairman of the Board 31 Washington Hawaii Operations/Customer Centers Operations/Customer Centers Olympia (S.W. Regional Office) • Gig Harbor (N.W. Regional Office and Customer Center) • Sequim • Issaquah • Orcas Island (Field Offices) Ka’anapali (Maui) • Waikoloa (Hawaii) Serving more than 425 neighborhoods and small communities in the countries of Clallam, Jefferson, Kitsap, Mason, Pierce, King, San Juan, and Thurston. Serving the communities of Ka`anapali, Pukalani, Waikoloa, North Kona Coast, and Kohala Coast on the islands of Maui and Hawaii. Regulated Customer Connections Regulated Customer Connections 2016 16,700 2015 16,500 2016 4,400 2015 4,300 32 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 New Mexico Operations/Customer Centers Elephant Butte • Rio Communities • Cedar Crest Including Hawthorne and Commerce operation and maintenance agreements. Customer Connections 2016 482,400 2015 480,300 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 2016 8,000 2015 7,900 33 california districts & communities Number of Customer Accounts 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 Dixon Dominguez | Carson & portions of Compton, Harbor City, Long Beach, Los Angeles County & Torrance 2016 2015 1,400 71,100 53,600 18,900 29,400 2,900 34,100 1,400 70,800 53,600 18,900 29,000 2,900 34,000 East Los Angeles | Portions of Montebello, Commerce, 26,800 26,800 Monterey Park & Vernon Hawthorne & Commerce (lease agreements) 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 7,600 26,900 3,900 7,600 26,800 4,000 2,600 2,600 34 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 2016 2015 18,600 18,900 3,800 3,600 24,200 18,600 18,900 3,800 3,600 24,100 Redwood Valley | Lucerne & portions of Duncans Mills, Guerneville, 1,900 1,900 Dillon Beach, Noel Heights & Santa Rosa Salinas Selma Stockton Visalia Westlake | Westlake Village & a portion of Thousand Oaks Willows 28,500 6,400 43,800 44,000 7,100 2,400 28,500 6,300 43,600 43,100 7,100 2,400 35 Eight-year financial review (Dollars in thousands, except common share and other data) 2016 2015 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 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 Total assets* 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 *Years 2009-2015 reflect the retrospective adoption of ASU 2015-03 $609,370 $533,176 $27,519 $48,675 $588,368 $517,215 $26,136 $45,017 $1.01 $0.690 68% $13.75 $33.90 47,965 7.5% 3.45 $0.94 $0.670 71% $13.41 $23.27 47,875 7.1% 3.67 $1,859,277 $2,411,745 $557,953 $1,701,768 $2,241,253 $514,045 54.2% 0.0% 45.8% 99,096 511,500 2,500 $1,191 5,312 1,163 55.5% 0.0% 44.5% 98,899 509,000 2,900 $1,156 4,925 1,155 36 2014 2013 2012 2011 2010 2009 $597,499 $515,652 $25,109 $56,738 $584,103 $510,098 $26,751 $47,254 $559,966 $486,123 $25,015 $48,828 $501,814 $434,647 $29,455 $37,712 $460,399 $398,586 $24,157 $37,656 $449,372 $391,253 $17,565 $40,554 $1.19 $0.650 55% $13.11 $24.61 47,806 9.3% 4.29 $1.02 $0.640 63% $12.54 $23.07 47,741 8.8% 3.42 $1.17 $0.630 54% $11.30 $18.35 41,908 10.6% 3.45 $0.90 $0.615 68% $10.76 $18.26 41,817 8.5% 3.11 $0.90 $0.595 66% $10.45 $18.64 41,667 9.0% 3.59 $0.98 $0.590 61% $10.13 $18.41 41,531 9.8% 4.04 $1,590,431 $2,182,711 $421,200 $1,515,831 $1,954,741 $428,936 $1,457,056 $1,990,333 $475,659 $1,381,119 $1,848,517 $482,094 $1,294,297 $1,685,577 $475,072 $1,198,077 $1,520,826 $382,467 59.80% 0.0% 40.20% 118,282 506,100 3,200 $1,181 4,628 1,105 58.30% 0.0% 41.70% 126,363 502,900 2,200 $1,161 4,401 1,125 49.90% 0.0% 50.10% 125,892 500,700 1,200 $1,118 4,187 1,132 48.30% 0.0% 51.70% 120,353 499,500 1,600 $1,105 3,925 1,132 47.80% 0.0% 52.20% 121,942 497,900 3,200 $925 3,706 1,127 52.40% 0.0% 47.60% 131,558 494,700 4,207 $908 3,455 1,013 37 Gregory E. Aliff Former Vice Chairman and Senior Partner of U.S. Energy & Resources, Deloitte LLP. Director since 2015. Member of the following committees: Finance/Risk Management and Audit. Terry P. Bayer Chief Operating Officer, Molina Healthcare, Inc. Director since 2014. Member of the following committees: Organization/Compensation and Nominating/Corporate Governance. Thomas M. Krummel M.D. Professor and Chair Emeritus, Surgery Department, Stanford University School of Medicine. Director since 2010. Member of the following committees: Nominating/Corporate Governance and Organization/Compensation. Richard P. Magnuson Lead Director and Private Venture Capital Investor. Director since 1996. Member of the following committees: Audit, Finance/ Risk Management, and Nominating/ Corporate Governance. Peter C. Nelson Chairman of the Board. Director since 1996. 38 Edwin A. Guiles Former Chairman/CEO of San Diego Gas & Electric Company and Southern California Gas Company, Sempra Energy Utilities. Director since 2008. Member of the following committees: Organization/ Compensation, Finance/Risk Management, and Audit. Bonnie G. Hill President, B. Hill Enterprises, L.L.C. Director since 2003. Member of the following committees: Organization/Compensation and Nominating/Corporate Governance. Martin A. Kropelnicki President and Chief Executive Officer. Director since 2013. Lester A. Snow Former Director of the California Department of Water Resources. Director since 2011. Member of the following committees: Organization/Compensation and Finance/Risk Management. George A. Vera Former Vice President and Chief Financial Officer, the David and Lucile Packard Foundation. Director since 1998. Member of the following committees: Audit, Finance/ Risk Management, and Nominating/Corporate Governance. 39 Shannon C. Dean Vice President, Corporate Communications and Community Affairs David B. Healey Vice President, Controller Michelle R. Mortensen Corporate Secretary Gerald A. Simon Chief Safety and Emergency Preparedness Officer Elissa Y. Ouyang Chief Procurement Officer Thomas F. Smegal, III Vice President and Chief Financial Officer 40 Martin A. Kropelnicki President and Chief Executive Officer Michael B. Luu Vice President, Customer Service and Chief Information Officer Robert J. Kuta Vice President, Engineering Lynne P. McGhee Vice President, General Counsel Paul G. Townsley Vice President, Rates and Regulatory Matters Timothy D. Treloar Vice President, Water Quality and Chief Utility Operations Officer Ronald D. Webb Vice President, Human Resources 41 Next time you turn on your faucet, think about me. Think about all it took for me to get to you. And think about my friends at California Water Service Group, because, doggone it, we’re all making good things happen! 42 Corporate information 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 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 Wednesday, May 24, 2017, 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 12, 2017. Anticipated dividend dates for 2017 Declaration Quarter Record Date Payment Date First Second Third Fourth January 25 April 26 July 26 October 25 February 6 May 8 August 7 November 6 February 17 May 19 August 18 November 17 Annual report For 2016 On form 10-K A copy of the Company’s report for 2016 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 website. 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 1720 North First Street San Jose, California 95112-4598 (408) 367-8200 www.calwatergroup.com NYSE: CWT Making Making Good Things Good Things Happen Happen CALIFORNIA WATER SERVICE GROUP 2016 SUMMARY ANNUAL REPORT 

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