CA LI FORN IA WATER SERVICE G RO UP MAKING RECORDS S UM MA RY ANNUAL REPORT 2017 CALIFORNIA WATER SERVICE GROUP SUMMARY ANNUAL REPORT 2017 MAKING RECORDS HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS Table of Contents 01 Topping the Customer Service Charts 02 Striking a Chord in Our Communities 03 Laying Down the Best Tracks with Our Infrastructure Investment 04 Greatest Hits in Financial Performance 05 We’re with the Band 06 Fan Club and Gold Records 07 2017—Music to Our Ears 08 Financial Review 09 Board of Directors You drop the needle on your favorite record and the sound washes over you. You understand what author Pat Conroy meant when he said, “Without music, life is a journey through the desert.” It took scores of people to provide this soul elixir: writers, producers, sound engineers, musicians, and vocalists. There are the parts you think about, like the vocals and the instrumentals, and the parts you don’t, like the editing, balancing, mixing, and mastering. But the end result is something you savor. Water is a lot like music in this way. It is essential to living a good life, and it is more complex than many think. A one-man band doesn’t cut it. Instead, it takes an entire cast of people—some of whom are front and center, others of whom are behind the scenes—to deliver the quality, service, and value that our customers enjoy any time they choose. In 2017, not only did we hit all the right notes—we made records, too. 1 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP “Take a music bath once or twice a week for a few seasons. You will find it is to the soul what a water bath is to the body.” — Oliver Wendell Holmes 2 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS CHARTS01 TOPPING THE CUSTOMER SERVICE 3 CALIFORNIA WATER SERVICE GROUP Topping the Customer Service Charts W e want our customers to be our biggest fans, so we prioritize the things that are important to them: water quality, customer service, conservation, communication, and affordability. In 2017, we met all state and federal water quality standards in the 221 water systems we operate. That doesn’t happen by accident. It takes the dedication and commitment of professionals in the field and in the lab, working in concert to execute a rigorous water quality-assurance program. For our customer service professionals, we debuted a Leading Customer Loyalty training program to win the hearts of our customers by sharpening a variety of skills, including listening, generosity, and empathy. We also topped industry standards for first-call satisfaction, on-time performance, and accuracy in billing. And throughout the company, we hosted events for customers to learn about their water and take advantage of our many water conservation programs. In everything we do, we strive to be as efficient as possible to keep rates affordable. 4 There’s no doubt that the costs of providing a safe, reliable water supply are increasing for all water providers, and we are no exception. But we do offer a Low-Income Ratepayer Assistance (LIRA) program, a hardship grant program, and payment arrangements to help customers who are having difficulties making ends meet. And in the end, our customers pay less than a penny per gallon to have clean water delivered right where they need it. When you consider the enormous amount of effort that goes into obtaining, treating, testing, and transporting the water, that’s a pretty good value. “Country fans are extremely supportive. Once they’re with you, they’re with you for life.” — Faith Hill HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP NOTABLE NOTE S 470,000+ WATER QUALITY TESTS CONDUCTED ON 60,000+ SAMPLES 105,675 CUSTOMERS REACHED VIA EMAIL, TEXT, OR PHONE MESSAGE THROUGH CUSTOMER OUTREACH PORTAL 555 FACEBOOK POSTS ELICITING 74,779 REACTIONS $10+ million IN WATER BILL DISCOUNTS PROVIDED THROUGH LIRA PROGRAM R ECOR D ACHI EVE ME NTS 5 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP COMMUNITIES026 STRIKING A CHORD IN OUR HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP NOTABLE NOTE S $833,000 CONTRIBUTED TO 330 CHARITABLE ORGANIZATIONS 22 STUDENTS RECEIVED SCHOLARSHIPS, 6 OF WHOM ARE FIRST-GENERATION COLLEGE STUDENTS 2,500 TOYS COLLECTED BY OUR EAST LOS ANGELES DISTRICT FOR TOYS FOR TOTS 126 PINTS OF BLOOD COLLECTED IN OUR LIVERMORE DISTRICT, ENOUGH TO SAVE 378 LIVES 9,000+ POUNDS OF FOOD DELIVERED BY OUR HUMAN RESOURCES DEPARTMENT TO THE SECOND HARVEST FOOD BANK RECO RD ACH IEVE MENTS 7 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP “It doesn’t matter if you are a musician, a business leader, a president, or a student. We all have a responsibility to give back.” — Shakira Striking a Chord in Our Communities C ontributing to the well-being of our communities means working in concert with community leaders, regulators, and charitable organizations to prepare for emergencies, protect our environment, and help the most vulnerable among us. In 2017, we debuted Emergency Operation Center training exercises for first responders in the California communities of Oroville, Chico, Guerneville, and Lucerne, and we provided additional emergency response training to employees in every one of our service areas. Our commitment to the environment and sustainability was reflected in the completion of two key projects: our fish passage project in Woodside, California, and our new customer and operations center in San Mateo, California— 8 a Leadership in Energy and Environmental Design (LEED)-certified building that also makes an attractive addition to the neighborhood. Another record: Our stockholder-funded charitable contributions reached an all-time high, as we supported local organizations that provide shelter, food, and other services to those in need. Employees throughout the company also stepped up, collecting food, toys, school supplies, warm coats, and even blood to help their neighbors. The bottom line: When our communities need us, we are there. Take, for example, the time when tens of thousands of our customers were evacuated because of the California Department of Water Resources’ Oroville Dam spillway failure. Our CEO traveled to evacuation centers armed with boxes and boxes of chocolates to pass out on Valentine’s Day, and our community affairs team arranged for families to attend free movie showings at a local theater. Small gestures, to be sure, but ones that show how big our heart is for our communities. HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP INVESTMENT03 LAYING DOWN THE BEST TRACKS WITH OUR INFRASTRUCTURE 9 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP 10 CALIFORNIA WATER SERVICE GROUP NOTABLE NOTE S $259.2 million INVESTED IN OUR WATER SYSTEMS 16 EMERGENCY GENERATORS INSTALLED 21 TREATMENT PLANTS CONSTRUCTED IN A SINGLE YEAR TO MEET THE NEW WATER QUALITY STANDARD FOR TCP RECOR D ACHIEVEMENTS 10 Laying Down the Best Tracks with Our Infrastructure Investment C ommunities without access to clean, safe water cannot thrive. And just as a Grammy-winning band needs a variety of well-tuned instruments to make beautiful music, we need a variety of well-maintained wells, pumps, pipes, and treatment facilities to make beautiful water. In 2017, we invested a record $259.2 million in water system infrastructure in order to continue providing customers with the reliability and quality they expect and deserve. We replaced 128,700 feet of water pipeline, completed three additional large-diameter pipeline projects, and constructed five water storage tanks, five wells, and ten pump stations to increase supply and improve our delivery system. We also invested significant effort to meet the new limit of five parts per trillion for 1,2,3-trichloropropane (TCP) set by the California State Water Resources Control Board in July 2017. With only five months to the initial compliance deadline of January 2018, getting all of the treatment in place required nothing short of a virtuoso performance. And we completed all of this construction despite 2017 bringing us all of the rain we wished for in 2015 and 2016. Finally, we continued design, outreach, and initial work for the Palos Verdes Peninsula Water Reliability Project, which will be the largest capital investment in company history. HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP “The modern recording studio, with its well- trained engineers, 24-track machines, and shiny new consoles, encourages the artist to get involved with sound.” — John Landau 11 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS PERFORMANCE04 GREATEST HITS IN FINANCIAL 12 CALIFORNIA WATER SERVICE GROUP A t the symphony, the program usually recognizes Patrons of the Arts, who provide the financial support needed to keep the music coming. Our stockholders are like our very own Patrons of the Arts, contributing the capital required to keep the water flowing. With all of the other costs of providing water being passed through to customers on a dollar-for-dollar basis, our stockholder return comes from the capital invested in water system infrastructure. Because of the way we are regulated by our state utilities commissions, customers and stockholders alike benefit when we invest in our water systems, effectively manage our expenses, and minimize business risks. When it comes down to it, our customers’ and stockholders’ priorities are in sync, and when we perform well, we earn rave reviews from both. Greatest Hits in Financial Performance “No one can whistle a symphony. It takes an orchestra to play it.” — Halford E. Luccock 13 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP TOTAL OPERATING REVENUE ( $ i n th ousa nd s) $560 $584 $597 $588 $609 $667 $700 $650 $600 $550 $500 $450 2012 2013 2014 2015 2016 2017 ANNUAL DIVIDEND ( $ pe r sh are) $0.63 $0.64 $0.65 $0.67 $0.69 $0.72 $0.75 $0.70 $0.65 $0.60 $0.55 $0.50 2012 2013 2014 2015 2016 2017 NET UTILITY PLANT ( $ i n m i ll i ons) $1,457 $1,516 $1,590 $1,702 $1,859 $2,048 $2,200 $2,000 $1,800 $1,600 $1,400 $1,200 14 2012 2013 2014 2015 2016 2017 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP 05 WE’RE WITH THE BAND 15 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP “I just really love playing with this band. It’s just such a ridiculously good band...There’s a sense of pride in it... Every time we go out there, we want to be really great.” — Tom Petty We’re with the Band W e put on such a good show because our employees know that they are an important part of the band, regardless of the part they play. Whether behind the scenes or center stage, they work together to provide excellent service and make our communities a better place. We also implemented an enhanced Continuous Improvement program—we call it Continuous Improvement 2.0—a streamlined process that enables employees to make improvements to our business processes more quickly. It is our devotion to the band that has earned us the designation of Great Place to Work® and a Top 95 Workplace in the San Francisco Bay Area. In 2017, we made great strides to improve workplace safety by partnering with our unions, implementing best-in-class policies and procedures, and building a culture of safety. We also continued to promote professional development and provide employees with competitive salaries and benefits, encouraging elite utility professionals to spend their careers with us and establishing ourselves as an employer of choice in the industry. 16 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP NOTABLE NOTE S 17,560 HOURS OF EMPLOYEE TRAINING PROVIDED 14% REDUCTION IN WORKPLACE INJURIES 45 CRITICAL INCIDENT RESPONSE MANAGEMENT TEAM EMPLOYEES TRAINED TO SUPPORT FELLOW EMPLOYEES RECORD ACHIEVE ME N TS 17 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP 06 FAN CLUB AND GOLD RECORDS 18 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP “Doug is at my house right now trying to restore water to my place. My daughter is home alone, and he offered to bring by bottled water until the problem is resolved. I felt that he was helpful, kind, and going above his job description for this one. Not to mention, he is out there alone in this heat digging away.” — WASHINGTON WATER CUSTOMER “Thank you to the team that came out in the middle of the night. I got up around 1:30 a.m. to get a glass of water, but almost nothing was coming out. I knew something was wrong. A few minutes later, I heard some jackhammers, and I knew something was being done. By around 2:30 a.m., water was back. Great job! I bet most of the people affected did not even notice the work you guys do and the service you provide.” — CAL WATER BEAR GULCH DIST RICT CUSTO MER 19 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP “Thank you for the incredible, quick service. I sent in a web form around 9:30 p.m. expecting to get service the following day. Within less than 30 minutes, Alex arrived to help solve the issue. Super-friendly, amazingly fast service. Now we have water again for the morning. Thank you, Alex!!” — CAL WATER BAYSHORE DISTRICT C USTO ME R “I would like to recognize the Rio Communities Water District for the quality of water. I am also impressed with the friendly, courteous service that the meter reader, Mary, provides.” — NEW MEX I CO WAT ER CUSTO ME R “[Joey’s] approach was impeccable, and his desire to assist and to come back to find the problem [a water leak] while his job was reading meters impressed me to no end. Joey is a very fine example of what an employee should be. He represented Cal Water with class and so much professionalism that I just had to send in my congratulations.” — CAL WATER LIVERMORE DIST R I CT CUSTOM ER 20 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP WATER MANAGEMENT INNOVATION AWARD LARRY C. LARSON SAFETY AWARD GREAT PLACE TO WORK® CERTIFICATION SAN FRANCISCO BAY AREA TOP 95 WORKPLACE SUPPLIER DIVERSITY CHAMPION OF THE YEAR 2017 DISTINGUISHED SUPPLIER DIVERSITY AWARD WATER EFFICIENCY & CONSERVATION AWARD HERMES CREATIVE AWARD FOR CUSTOMER COMMUNICATIONS 21 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP 072017—MUSIC TO OUR EARS 22 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP Dear Stockholder: We couldn’t be more pleased with our performance in 2017, filled as it was with the record achievements detailed in this report. What strikes us as we review the year is the fact that we hit all the right notes—not only with our stockholders, but with our customers, communities, and employees, too. We continue to believe that our success relies on our ability to make fans of all of these constituents. Nobody likes a broken record, so we won’t repeat the information provided on the previous pages. We would note, however, that when awards are passed out, our Record of the Year should definitely be “Building and Improving Water Infrastructure.” Our investment of $259.2 million in our water systems is critical, because it enables us to provide our customers and communities with a reliable supply of high-quality water and our stockholders with a return on their investment. It’s important to note that the capital budget for our largest subsidiary, California Water Service, was set for 2016 through 2018 in our last rate decision, so we expect our level of capital investment to be somewhat lower in 2018 than the all-time highs reached in 2016 and 2017. We are now working on our proposal for water system improvement projects for the 2018 triennial California rate filing; we also continue efforts to educate the public on the criticality of water infrastructure investment to build support for our capital plan. A significant success that wasn’t highlighted on previous pages was our 2017 succession planning and recruitment. Several of our key players took a bow, with district and general managers in eight of our 25 operating areas celebrating retirements. Replacing this kind of talent is no small feat, particularly considering the fact that they had a combined 290 years of experience. But our succession planning and recruitment efforts were extremely effective, and we filled the positions with highly qualified, diverse replacements who have hit the ground running. As this report goes to print, we are focusing significant effort on regulatory matters. First, there is a Proposed Decision pending on our Cost of Capital filing in California that fails to balance the interests of customers and stockholders. If adopted, it would hinder our ability to make critical and necessary improvements to our water systems. Second, our regulatory commissions are considering how we will implement the new federal tax law. Our main focus now is participating in the regulatory process to advocate for fair and reasonable decisions in both of these matters, because they could have a significant impact on our earnings and cash flows, and ultimately lead to higher rates for customers. 23 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP Looking ahead, in order to continue to successfully execute our strategy, we will need to: • Balance the rising costs of providing water and improving water infrastructure with the importance of having affordable rates. • Make a compelling case to the California Public Utilities Commission in our 2018 rate filing to ensure that future water rates accurately reflect the costs of providing service. • Ensure that our customers and communities understand the many benefits of being served by our company. • Be ready and able to meet long-term regulations on the horizon in California that are intended to “Make Conservation a Way of Life.” • Continue to participate in developing the regulations and policies that affect our business. We have an excellent strategy, and working as one team, we can overcome any challenges the future holds and continue fulfilling our purpose: to enhance the quality of life for our customers, communities, employees, and stockholders. Before we play the final note, we would like to congratulate Bonnie G. Hill, who retired from our Board of Directors in May of 2017. She brought so much expertise, insight, and value to the Group; we thank her for her many contributions and wish her the best in retirement. We would also like to welcome retired three-star U.S. Navy Vice Admiral Carol M. Pottenger, who joined the Board in September. And finally, it is with heartfelt sorrow that we share the 2017 passing of former Chairman Robert W. Foy. Bob, the consummate gentleman and professional, left an indelible mark on all who knew him. He is dearly missed. With that, we wish you the best in 2018 and thank you for your continued investment in California Water Service Group. MARTIN A. KROPELNICKI PETER C. NELSON PRESIDENT AND CHIEF EXECUTIVE OFFICER CHAIRMAN OF THE BOARD 24 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP FINANCIAL REVIEW08 25 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP CWT 20-Year Total Return on Investment (On $100 stock purchase on December 31, 1997, with dividends reinvested) $100 100 $110 129 $112 156 $104 $103 141 125 $120 139 $99 97 $172 $180 $196 $185 139 145 168 178 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 LEGEND: CWT S&P 500 26 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP CWT 20-Year Total Return on Investment (On $100 stock purchase on December 31, 1997, with dividends reinvested) $609 401 $446 $307 $299 290 294 329 $280 255 $216 193 $240 $196 $205 $208 163 166 141 112 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 LEGEND: CWT S&P 500 27 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP Service Area Maps WASHINGTON Operations/Customer Centers • Olympia (S.W. Regional Office) • Gig Harbor (N.W. Regional Office and Customer Center) • Sequim • • Orcas Island (Field Offices) Issaquah 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 2017 2016 16,800 16,700 28 HAWAII Operations/Customer Centers • Ka`anapali (Maui) • Waikoloa (Hawaii) Serving the communities of Ka`anapali, Pukalani, Waikoloa, North Kona Coast, and Kohala Coast on the islands of Maui and Hawaii REGULATED CUSTOMER CONNECTIONS 2017 2016 4,500 4,400 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP NEW MEXICO Operations/Customer Centers • Elephant Butte • Rio Communities • Cedar Crest 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 2017 2016 8,100 8,000 CALIFORNIA Districts • Bakersfield • Bay Area Region • Bayshore • Redwood Valley • Bear Gulch • Chico • Commerce • Dixon • Dominguez • East Los Angeles • Hawthorne • Hermosa-Redondo • Kern River Valley • Livermore • Los Altos • Los Angeles County Region • Antelope Valley • Palos Verdes • Marysville • Monterey Region • King City • Salinas • Oroville • Selma • Stockton • Visalia • Westlake • Willows CUSTOMER CONNECTIONS* 2017 2016 484,900 482,400 * Inc luding Hawthorne and Co mmerce op eration a nd maintenance agreem e nts 29 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP California Districts & Communities: Number of Customer Accounts Bakersfield Bay Area Region South San Francisco, Colma, Broadmoor, San Mateo, San Carlos, Lucerne, Duncans Mills, Guerneville, Dillon Beach, Noel Heights, and portions of Santa Rosa Bear Gulch Atherton, Woodside, Portola Valley, and a portion of Menlo Park Chico Hamilton City Dixon Dominguez Carson and portions of Compton, Harbor City, Long Beach, Los Angeles County, and Torrance East Los Angeles Portions of Montebello, Commerce, Monterey Park, and Vernon Hawthorne and Commerce (Operation and maintenance agreements) Hermosa-Redondo Hermosa Beach, Redondo Beach, and a portion of Torrance Kern River Valley Bodfish, Kernville, Lakeland, Mountain Shadows, Onyx, Squirrel Valley, South Lake, and Wofford Heights 2016 71,100 2017 71,600 55,500 55,700 18,900 18,900 29,400 29,700 2,900 2,900 34,100 34,100 26,800 26,800 7,600 7,600 26,900 26,900 3,900 4,000 30 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP California Districts & Communities: Number of Customer Accounts Los Angeles County Region Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills, Rolling Hills Estates, Fremont Valley, Lake Hughes, Lancaster, and Leona Valley Livermore Los Altos Portions of Cupertino, Los Altos Hills, Mountain View, and Sunnyvale Marysville Monterey Region Salinas and King City Oroville Selma Stockton Visalia Westlake Westlake Village and a portion of Thousand Oaks Willows 31 2016 2017 25,600 25,600 18,600 18,800 18,900 19,000 3,800 31,100 3,600 6,400 3,800 31,300 3,600 6,400 43,800 44,000 44,000 44,700 7,100 7,100 2,400 2,400 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP Financial Highlights YEAR ENDED DECEMBER 31 2012 Market price at year end Book value per share Earnings per share (diluted) $18.35 $11.30 $1.17 2013 $23.07 $12.54 $1.02 2014 $24.61 $13.11 $1.19 2015 2016 2017 $23.27 $33.90 $45.35 $13.41 $0.94 $13.75 $1.01 $14.44 $1.40 Dividend per share $0.630 $0.640 $0.650 $0.670 $0.690 $0.720 Revenue* Net Income* *Dol l ars i n tho usand s $559,966 $584,103 $597,499 $588,368 $609,370 $666,890 $48,828 $47,254 $56,738 $45,017 $48,675 $67,181 32 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP Eight-Year Financial Review (Dollars in thousands, except common shares and other data) 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 Long-term debt 2017 2016 2015 2014 $666,890 $572,267 $27,442 $67,181 $ 609,370 $533,176 $27,519 $48,675 $588,368 $517,215 $26,136 $45,017 $597,499 $515,652 $25,109 $56,738 $1.40 $0.720 51% $14.44 $45.35 48,012 9.9% 4.28 $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 $1.19 $0.650 55% $13.11 $24.61 47,806 9.3% 4.29 $2,047,965 $2,740,375 $531,713 $1,859,277 $2,411,745 $557,953 $1,701,768 $2,241,253 $514,045 $1,590,431 $2,182,711 $421,200 56.6% 43.4% 54.2% 45.8% 55.5% 44.5% 59.80% 40.20% 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 104,986 514,300 2,800 $1,297 $5,775 1,176 99,096 511,500 2,500 $1,191 $5,312 1,163 98,899 509,000 2,900 $1,156 $4,925 1,155 118,282 506,100 3,200 $1,181 $4,628 1,105 33 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP Eight-Year Financial Review (Dollars in thousands, except common shares and other data) 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 Long-term debt 2017 2013 2012 2011 $666,890 $572,267 $27,442 $67,181 $584,103 $510,098 $26,751 $47,254 $559,966 $486,123 $25,015 $48,828 $501,814 $434,647 $29,455 $37,712 $1.40 $0.720 51% $14.44 $45.35 48,012 9.9% 4.28 $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 $2,047,965 $2,740,375 $531,713 $1,515,831 $1,954,741 $428,936 $1,457,056 $1,990,333 $475,659 56.6% 43.4% 58.30% 41.70% 49.90% 50.10% $0.90 $0.615 68% $10.76 $18.26 41,817 8.5% 3.11 $1,381,119 $1,848,517 $482,094 48.30% 51.70% 120,353 499,500 1,600 $1,105 $3,925 1,132 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 104,986 514,300 2,800 $1,297 $5,775 1,176 126,363 502,900 2,200 $1,161 $4,401 1,125 125,892 500,700 1,200 $1,118 $4,187 1,132 34 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORS DIRECTORS09 BOARD OF 35 CALIFORNIA WATER SERVICE GROUP Board of Directors Gregory E. Aliff Former Vice Chairman and Senior Partner of U.S. Energy & Resources, Deloitte LLP; director since 2015; member of the following committees: Audit and Finance/Risk Management Terry P. Bayer Former Chief Operating Officer, Molina Healthcare, Inc.; director since 2014; member of the following committees: Organization/Compensation and Nominating/Corporate Governance 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 Peter C. Nelson Chairman of the Board; director since 1996 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 36 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP Board of Directors Martin A. Kropelnicki President and Chief Executive Officer; director since 2013 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 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 Carol M. Pottenger Principal and owner of CMP Global, LLC , and retired U.S. Navy Vice Admiral; director since 2017 37 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 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP Corporate Officers Shannon C. Dean Vice President , Corporate Communications and Community Affairs David B. Healey Vice President , Controller Martin A. Kropelnicki President and Chief Executive Officer Michelle R. Mortensen Corporate Secretary Elissa Y. Ouyang Chief Procurement and Lead Continuous Improvement Officer Gerald A. Simon Chief Safety and Emergency Preparedness Officer 38 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP Corporate Officers Robert J. Kuta Vice President , Engineering and Environmental Affairs Michael B. Luu Vice President , Customer Service and Chief Information Officer Lynne P. McGhee Vice President , General Counsel Thomas F. Smegal, III Vice President and Chief Financial Officer Timothy D. Treloar Vice President , Water Quality and Chief Utility Operations Officer Paul G. Townsley Vice President , Rates and Regulatory Matters Ronald D. Webb Vice President , Human Resources 39 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP Corporate Information Computershare Investor Services 462 South 4th Street Suite 1600 Louisville, KY 40202 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 Computershare Investor Services (Computershare) 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 Computershare. Bond Registrar U.S. Bank Trust, N.A. One California Street San Francisco, CA 94111-5402 (415) 273-4580 40 HOME HIGHLIGHTS LETTER SERVICE AREAS FINANCIAL REVIEW DIRECTORSCALIFORNIA WATER SERVICE GROUP