e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-13883

CALIFORNIA WATER SERVICE GROUP

(Exact name of registrant as specified in its charter)


Delaware		77-0448994

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer identification No.)

1720 North First Street, San Jose, CA.		95112

(Address of principal executive offices)		(Zip Code)

408-367-8200

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act) Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common shares outstanding as of August 1, 2008 — 20,716,702.

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands, except per share data)


	June 30,			December 31,
	2008			2007
ASSETS
Utility plant:
Utility plant	$	1,503,926		$	1,447,047
Less accumulated depreciation and amortization		(455,862	)		(436,851	)

Net utility plant		1,048,064			1,010,196

Current assets:
Cash and cash equivalents		6,129			6,734
Receivables:
Customers		24,195			18,600
Other		4,771			8,617
Unbilled revenue		16,948			12,911
Materials and supplies at average cost		4,671			4,744
Taxes, prepaid expenses and other assets		12,367			8,369

Total current assets		69,081			59,975

Other assets
Regulatory assets		90,894			90,908
Other assets		23,789			23,420

Total other assets		114,683			114,328

	$	1,231,828		$	1,184,499

CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock, $.01 par value	$	207		$	207
Additional paid-in capital		213,462			211,885
Retained earnings		171,728			173,617

Total common stockholders’ equity		385,397			385,709
Preferred stock		3,475			3,475
Long-term debt, less current maturities		288,281			289,220

Total capitalization		677,153			678,404

Current liabilities:
Current maturities of long-term debt		2,701			2,701
Short-term borrowings		23,000			—
Accounts payable		46,925			36,694
Accrued expenses and other liabilities		40,251			30,258

Total current liabilities		112,877			69,653

Unamortized investment tax credits		2,467			2,467
Deferred income taxes, net		67,536			69,712
Pension and postretirement benefits other than pensions		39,747			39,444
Regulatory and other liabilities		40,235			38,783
Advances for construction		173,221			168,024
Contributions in aid of construction		118,592			118,012
Commitments and contingencies		—			—

	$	1,231,828		$	1,184,499

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(In thousands, except per share data)


	June 30,			June 30,
For the three months ended:	2008			2007
Operating revenue	$	105,581		$	95,782

Operating expenses:
Water production costs		40,349			37,271
Administrative and general		13,835			14,264
Other operations		12,766			11,010
Maintenance		4,947			5,241
Depreciation and amortization		9,276			8,380
Income taxes		6,442			4,792
Property and other taxes		3,484			3,435

Total operating expenses		91,099			84,393

Net operating income		14,482			11,389


Other income and expenses:
Non-regulated revenue		1,696			3,423
Non-regulated expense		(1,132	)		(1,966	)
Gain (loss) on sale of non-utility property		7			(83	)
Less: income taxes on other income and expenses		(219	)		(560	)

Total other income and expenses		352			814


Interest expense:
Interest expense		5,157			4,926
Less: capitalized interest		(439	)		(450	)

Total interest expense		4,718			4,476


Net income	$	10,116		$	7,727

Earnings per share
Basic	$	0.48		$	0.37

Diluted	$	0.48		$	0.37

Weighted average shares outstanding
Basic		20,717			20,666

Diluted		20,741			20,690

Dividends per share of common stock	$	0.2925		$	0.2900

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(In thousands, except per share data)


	June 30,			June 30,
For the six months ended:	2008			2007
Operating revenue	$	178,502		$	167,352

Operating expenses:
Water production costs		65,707			63,084
Administrative and general		27,253			26,835
Other operations		24,831			22,095
Maintenance		9,060			9,750
Depreciation and amortization		18,498			16,781
Income taxes		6,616			5,336
Property and other taxes		7,223			6,840

Total operating expenses		159,188			150,721


Net operating income		19,314			16,631


Other income and expenses:
Non-regulated revenue		4,601			6,465
Non-regulated expenses		(4,168	)		(3,717	)
Gain (loss) on sale of non-utility property		7			(83	)
Less: income taxes on other income and expenses		(170	)		(1,086	)

Total other income and expenses		270			1,579


Interest expense:
Interest expense		10,171			9,852
Less: capitalized interest		(889	)		(950	)

Total interest expense		9,282			8,902


Net income	$	10,302		$	9,308


Earnings per share
Basic	$	0.49		$	0.45

Diluted	$	0.49		$	0.45

Weighted average shares outstanding
Basic		20,702			20,663

Diluted		20,726			20,687

Dividends per share of common stock	$	0.5850		$	0.5800

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)


	June 30,			June 30,
For the six months ended:	2008			2007
Operating activities
Net income	$	10,302		$	9,308

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		18,498			16,781
Deferred income taxes, investment tax credits, regulatory assets and liabilities, net and other		(184	)		394
(Gain) loss on sale of non-utility property		(7	)		83
Changes in operating assets and liabilities:
Receivables		(1,695	)		(2,937	)
Unbilled revenue		(4,036	)		(3,358	)
Taxes and other prepaid expenses		(3,999	)		(689	)
Accounts payable		2,317			6,535
Other current assets		73			(227	)
Other current liabilities		9,994			(2,814	)
Other changes, net		1,488			(1,840	)

Net adjustments		22,449			11,928

Net cash provided by operating activities		32,751			21,236


Investing activities:
Utility plant expenditures:
Company funded		(38,527	)		(39,368	)
Developer funded		(4,823	)		(11,903	)
Other		(1,366	)		(30	)

Net cash used in investing activities		(44,717	)		(51,301	)


Financing activities:
Net short-term borrowings		23,000			—
Net repayment of long-term debt		(939	)		(514	)
Advances for construction		1,108			11,362
Refunds of advances for construction		(3,675	)		(3,203	)
Contributions in aid of construction		4,058			3,842
Issuance of common stock		—			168
Dividends paid		(12,191	)		(12,060	)

Net cash provided by (used in) financing activities		11,361			(405	)


Change in cash and cash equivalents		(605	)		(30,470	)
Cash and cash equivalents at beginning of period		6,734			60,312

Cash and cash equivalents at end of period	$	6,129		$	29,842


Supplemental information:
Cash paid for interest	$	8,698		$	8,337
Cash paid for income taxes	$	16		$	945
Supplemental disclosure of non-cash activities:
Accrued payables for investments in utility plant	$	19,099		$	8,801
Purchase of intangible assets with company common stock	$	1,300		$	—
Utility plant contributed by developers	$	6,315		$	—

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

CALIFORNIA WATER SERVICE GROUP

Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2008
(Amounts in thousands, except share and per share amounts)

Note 1. Organization and Operations and Basis of Presentation

California Water Service Group (the Company) is a holding company that provides water utility and other related services in California, Washington, New Mexico and Hawaii through its wholly-owned subsidiaries. California Water Service Company (Cal Water), Washington Water Service Company (Washington Water), New Mexico Water Service Company (New Mexico Water), and Hawaii Water Service Company, Inc. (Hawaii Water) provide regulated utility services under the rules and regulations of their respective state’s regulatory commissions (jointly referred to herein as the Commissions). CWS Utility Services and HWS Utility Services LLC provide non-regulated water utility and utility-related services.

Basis of Presentation

The unaudited interim financial information has been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2007, included in its Form 10-K as filed with the Securities and Exchange Commission (SEC) on February 28, 2008.

The preparation of the Company’s condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the condensed consolidated balance sheet dates and the reported amounts of revenues and expenses for the periods presented. Actual results could differ from these estimates.

In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments that are necessary to provide a fair presentation of the results for the periods covered. The results for interim periods are not necessarily indicative of the results for any future period.

Due to the seasonal nature of the water business, the results for interim periods are not indicative of the results for a twelve-month period. Revenue and income are generally higher in the warm, dry summer months when water usage and sales are greater. Revenue and income are lower in the winter months when cooler temperatures and rainfall curtail water usage and sales.

The Company operates primarily in one business segment providing water and related utility services.

Note 2. Summary of Significant Accounting Policies

Revenue

Revenue consists of monthly cycle billings for regulated water and wastewater services at rates authorized by the Commissions and billings to certain non-regulated customers. Billings include a fee that is paid to the Commissions. This amount is recorded in revenue and other operations expense.

Fees paid to the Commissions for the three months ending June 30, 2008 and 2007, were $1,490 and $1,250, respectively, and for the six months ending June 30, 2008 and 2007 were $2,495 and $2,178, respectively.

Other Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements.” The statement defines fair value, establishes a framework for measuring fair values in generally accepted accounting principles, and expands disclosures about fair value measurements. The Company adopted SFAS No. 157 on January 1, 2008, and it did not have a material impact to the Company’s financial position, results of operations, cash flows, or related notes.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115.” The statement permits entities to elect to report certain financial assets and liabilities at fair value with changes in fair value recognized in earnings. The Company adopted SFAS No. 159 on January 1, 2008, but did not elect to report any financial assets or liabilities at fair value. The adoption of this statement did not have a material impact on the Company’s financial position, results of operations, or cash flows.

Note 3. Stock-based Compensation

Long-Term Incentive Plan

The Company had a stockholder-approved Long-Term Incentive Plan (which was replaced on April 27, 2005, by a stockholder-approved Equity Incentive Plan) that allowed granting of non-qualified stock options. The Company had accounted for options issued under the Long-Term Incentive Plan using the intrinsic value method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” All outstanding options (90,500 shares at June 30, 2008) have an exercise price equal to the market price on the date they were granted. The weighted average price of the options is $24.94. All options granted under the Long-Term Incentive Plan are fully vested. No compensation expense was recorded for the three-month and six-month periods ended June 30, 2008 and 2007 related to stock options issued under the Long-Term Incentive Plan.

Equity Incentive Plan

The Equity Incentive Plan, which was approved by shareholders in April 2005, is authorized to issue up to 1,000,000 shares of common stock. In the first six months of 2008 and 2007, the Company granted Restricted Stock Awards (RSAs) of 16,630 and 9,770 shares, respectively, of common stock both to officers and to directors of the Company. Employee options vest ratably over 48 months, while director options generally vest at the end of 12 months. The shares were valued at $37.60 and $38.11 per share, respectively, based upon the fair market value of the Company’s common stock on the date of grant.

In addition, in the first six months of 2008 and 2007, Stock Appreciation Rights (SARs) equivalent to 47,070 and 22,140 shares, respectively, were granted to officers, which vest ratably over 48 months and expire at the end of 10 years. The grant-date fair value for SARs was determined using the Black Scholes model, which arrived at a fair value of $6.03 and $10.36 per share, respectively. Upon exercise of a SAR, the appreciation is payable in common shares of the Company.

The assumptions utilized in calculation of the SAR fair value were:


	2008			2007
Expected dividend yield		3.11	%		2.99	%
Expected volatility		21.96	%		32.79	%
Risk-free interest rate		2.63	%		4.48	%
Expected holding period in years		5.2			5.2

The Company did not apply a forfeiture rate in the expense computation relating to RSAs and SARs issued to officers as they vest monthly and, as a result, the expense is recorded for actual vesting during the period. For outside directors the Company did not apply a forfeiture rate in the expense computation relating to RSAs, as the Company expects 100% to vest at the end of twelve months.

The table below reflects SARs activity under the Equity Incentive Plan, for the six months ended June 30, 2008.


			Weighted Average
	Shares		Exercise Price
Stock Appreciation Rights
Outstanding at December 31, 2007		61,640	$	38.59
Granted		47,070		37.60
Exercised		—		—
Cancelled		—		—

Outstanding at June 30, 2008		108,710	$	38.16

Exercisable at June 30, 2008		32,483	$	38.53

The Company has recorded compensation costs for the RSAs and SARs in Operating Expense in the amount of $186 and $93 for the quarters ending June 30, 2008 and 2007, respectively, and $277 and $168 for the six months ending June 30, 2008 and 2007, respectively.

Note 4. Earnings Per Share Calculations

The computations of basic and diluted earnings per share are noted below. RSAs are included in the weighted stock outstanding used to calculate basic earnings per share as the shares have all voting and dividend rights as issued and unrestricted common stock. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

The SARs outstanding of 108,710 and 59,640 as of June 30, 2008 and 2007, respectively are antidilutive for both the three and six months ended June 30, 2008 and 2007. All options are dilutive and the dilutive effect is shown in the table below.

(In thousands, except per share data)


	Three Months Ended June 30,
	2008		2007
Net income	$	10,116	$	7,727
Less preferred dividends		38		38

Net income available to common stockholders	$	10,078	$	7,689


Weighted average common shares, basic		20,717		20,666
Dilutive common stock options and SARs (treasury method)		24		24

Shares used for dilutive computation		20,741		20,690


Net income per share — basic	$	0.48	$	0.37

Net income per share — diluted	$	0.48	$	0.37


	Six Months Ended June 30,
	2008		2007
Net income	$	10,302	$	9,308
Less preferred dividends		76		76

Net income available to common stockholders	$	10,226	$	9,232


Weighted average common shares, basic		20,702		20,663
Dilutive common stock options and SARs (treasury method)		24		24

Shares used for dilutive computation		20,726		20,687


Net income per share — basic	$	0.49	$	0.45

Net income per share — diluted	$	0.49	$	0.45

Note 5. Pension Plan and Other Postretirement Benefits

The Company provides a qualified, defined-benefit, non-contributory pension plan for substantially all employees. The Company makes annual contributions to fund the amounts accrued for the qualified pension plan. The Company also maintains an unfunded, non-qualified, supplemental executive retirement plan. The costs of the plans are charged to expense and utility plant as appropriate.

The Company offers medical, dental, vision, and life insurance benefits for retirees and their spouses and dependents. Participants are required to pay a premium, which offsets a portion of the cost.

Cash payments by the Company related to pension plans and other postretirement benefits were $1,905 for the six months ended June 30, 2008. The estimated cash contribution to the pension plans for 2008 is $8,100. The estimated contribution to the other benefits plan for 2008 is $3,200.

The following table lists components of the pension plans and other postretirement benefits. The data listed under “pension plan” includes the qualified pension plan and the non-qualified executive supplemental retirement plan. The data listed under “other benefits” is for all other postretirement benefits.

(In thousands)


	Three Months Ended June 30,													Six Months Ended June 30,
	Pension Benefit						Other Benefits							Pension Benefit						Other Benefits
	2008			2007				2008			2007			2008			2007			2008			2007
Service cost	$	1,336		$	1,247			$	361		$	270		$	2,671		$	2,646		$	722		$	577
Interest cost		1,628			1,683				433			355			3,256			3,261			865			659
Expected return on plan assets		(1,578	)		(1,431	)			(156	)		(117	)		(3,155	)		(2,852	)		(312	)		(235	)
Recognized net initial APBO⁽¹⁾		N/A			N/A				69			69			N/A			N/A			138			138
Amortization of prior service cost		468			468				29			18			936			936			58			37
Recognized net actuarial loss		81			310				75			39			162			505			150			84

Net periodic benefit cost	$	1,935		$	2,277			$	811		$	634		$	3,870		$	4,496		$	1,621		$	1,260


(1)		APBO — Accumulated postretirement benefit obligation

In December 2006, Cal Water filed an application to allow it to recover additional funding associated with its postretirement benefit other than pensions (PBOP) or retiree healthcare plan. For the period 1993 through 2005, Cal Water funded and recognized as its PBOP expense at the Internal Revenue Code’s (IRC) maximum tax-deductible contribution level (Maximum Contribution Level) using an IRC 401(h) account as the funding mechanism. The excess expense between the Maximum Contribution Level and FAS 106 accrual during the employees’ expected service period was recorded as a regulatory asset. As of December 31, 2007, the regulatory asset was approximately $9.8 million.

In February 2007, the Division of Ratepayer Advocates (DRA) filed its protest to Cal Water’s PBOP application. In their protest, the DRA requested to dismiss the application with prejudice. In October 2007, the CPUC held evidentiary hearings. Subsequently, the parties fully briefed the issues, the evidentiary record was closed in December, and the matter was then submitted for a decision.

On March 13, 2008, the Commission issued D.08-03-021, which granted Cal Water’s request to amortize the $9.8 million regulatory asset over a fifteen year period. Cal Water instituted a rate surcharge on April 1, 2008 that is expected to collect $658 annually to recover the regulatory asset.

Note 6. Short-term Borrowings

At June 30, 2008, the Company maintained a bank line of credit providing unsecured borrowings of up to $20 million at the prime lending rate less 1.5 percentage points. Cal Water maintained a separate bank line of credit for an additional $55 million with the same interest rate provision as the Company. The line of credit agreements expire on April 30, 2012. The agreement with the Company requires a debt to capitalization ratio of less than 0.667:1.0 and an interest coverage ratio of at least 2.5:1.0. Both agreements contain other non-financial covenants. As of June 30, 2008, the Company and Cal Water were in compliance with the bank covenants in the loan agreements. At June 30, 2008, the outstanding borrowings on the Cal Water line of credit was $23,000.

Note 7. Commitment and Contingencies

Commitments

The Company has significant commitments to lease certain office spaces and water systems, and for the purchase of water from water wholesalers. These commitments are described in footnote 15 of the Annual Report on Form 10-K.

Contingencies

In 1995, the State of California’s Department of Toxic Substances Control (DTSC) named Cal Water as a potential responsible party for cleanup of toxic contamination plumes in the Chico groundwater. In December 2002, Cal Water was named along with other defendants in two lawsuits filed by DTSC for the cleanup of the plumes. The toxic spill occurred when cleaning solvents, which were discharged into the city’s sewer system by local dry cleaners, leaked into the underground water supply. The DTSC contends that Cal Water’s responsibility stems from it’s operation of wells in the surrounding vicinity that caused the contamination plumes to spread. While Cal Water is cooperating with the cleanup, we deny any responsibility for the contamination or the resulting cleanup.

In 2007, Cal Water entered into court-approved consent decrees (Consent Decrees). The Consent Decrees conditioned Cal Water’s performance upon many factors, including, but not limited to, water pumped and treated by the Company must meet regulatory standards so Cal Water may distribute to its customers. Pursuant to the terms of the Consent Decrees Cal Water will incur capital costs of $1.5 million and future operating costs with a present value of approximately $2.6 million. In its 2007 general rate case (GRC) decision, the Commission has allowed Cal Water to track all costs associated with the Consent Decrees, including legal costs to pursue insurance coverage, for potential future recovery in rates.

In connection with these suits, the Company’s insurance carrier has filed a separate lawsuit against us for reimbursement of past defense costs which approximate $1.5 million. The Company believes that the insurance carrier has a duty to defend and is not entitled to any defense cost reimbursement. Furthermore, management believes that insurance coverage exists for the Company’s claims. However, if the Company’s claim is ultimately found to be excludable under insurance policies, the Company may have to pay damages. The Company believes that recovery of costs associated with the Consent Decrees are probable of recovery from either its insurance carrier or through rate increases in the future. Furthermore, management believes that our insurance carrier had a duty to defend. Therefore, no reserve or contingency has been recorded for this matter.

As previously reported, the Company and a number of co-defendants were served on October 26, 2006, with a complaint in the Superior Court County of Los Angeles, Case No. BC360406, for personal injury allegedly caused by exposure to asbestos. The Plaintiff claimed to have worked for three of our contractors on pipeline projects during the period 1958-1999, including Palos Verdes Water Company, a water utility we acquired in 1970. The Plaintiff alleged that we and other defendants were responsible for his asbestos-related injuries. The Court has approved a confidential settlement between the Company, the Plaintiff and his heirs. The settlement was paid for by our contractor’s and our insurance policy carriers. There was no effect on our financial statements.

From time to time, the Company is involved in various disputes and litigation matters that arise in the ordinary course of business. We review the status of each significant matter and assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount of the range of loss can be estimated, we accrue a liability for the estimated loss in accordance with SFAS No 5, “Accounting of Contingencies.” Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on the best information available at the time. While the outcome of these disputes and litigation matters cannot be predicted with any certainty, management does not believe that the ultimate resolution of these matters will materially affect our financial position, results of operations, or cash flows.

The Company has been and is involved in litigation against third parties to recover past and future costs related to ground water contamination in our service areas. The cost of litigation is expensed as incurred and any settlement is first offset against such costs. Any settlement in excess of the cost to litigate is accounted for on a case by case basis based upon the nature of the settlement. It is anticipated that the majority of the settlement will be reflected as a benefit to the rate payers by offsetting future operating or capital costs.

Currently, the Company is involved in a lawsuit against major oil refineries regarding the contamination of the ground water as a result of the gas additive MTBE. We entered into a partial settlement with defendants in April 2008 that represent approximately 70% of the responsible parties (as determined by the Superior Court). Based on the most current allocation matrix, the Company will receive approximately $49.7 million prior to deducting attorneys’ fees and litigation expenses. The settlement is subject to final court approval scheduled on August 11, 2008. The Company anticipates the Court will find the settlement is in good faith; however, the Company anticipates that at least one non-settling defendant will appeal the Court’s findings; therefore the Company can not estimate when the settlement will be final. The Company is also in discussions with the CPUC on the treatment of the settlement and is therefore unable to predict the affect on our financial statements, results of operations, or cash flows. As such, no amounts have been recorded as of June 30, 2008.

As previously reported, Cal Water has filed with the City of Bakersfield, in the Superior Court of California, a lawsuit that names potentially responsible parties, who manufactured and distributed products containing 1,2,3 trichloropropane (TCP) in California. TCP has been detected in the ground water. The lawsuit seeks to recover treatment costs necessary to remove TCP. The Court has now coordinated our action with other water purveyor cases (TCP Cases JCCP 4435) in San Bernardino County. No trial date has been set.

Finally, the Company has filed in San Mateo County Superior Court a complaint (California Water Service Company v. The Dow Chemical Company, et al. CIV 473093) against potentially responsible

parties that manufactured and distributed products, which contained perchloroethylene, also know as tetrachloroethylene (PCE) in California, to recover the past, present and future treatment costs. No trial date has been set.

Note 8. Subsequent Event

On July 14, 2008, the Company announced that it was redeeming all 139,000 outstanding shares of its 4.4% Series C Preferred Stock at the redemption price of $26.75 per share on August 15, 2008. After completion of the redemption, there will not be any Series C preferred stock remaining outstanding.

On June 15, 2007, Cal Water and two consumer groups (the Commission’s Division of Ratepayer Advocates (DRA) and the Utility Reform Network (TURN) filed a settlement jointly proposing a program of tiered residential rates, a water revenue adjustment mechanism (WRAM), and a modified balancing account (MCBA) that includes changes in source mix. Tiered rates have varying charges depending on the overall monthly usage. They are intended to provide a conservation incentive, particularly in high-usage periods. Non-residential rate design under the settlement emphasizes variable charges over service charges. The WRAM and MCBA are intended to negate any impact from customer conservation on Cal Water’s earnings. On February 29, 2008, the Commission adopted the settlement. On July 1, 2008, Cal Water made its tiered rates, WRAM, and MCBA effective in compliance with the Commission’s administrative processing rules. Those rules allow filings in compliance with Commission orders to be made effective upon filing, subject to refund until approval by staff. Cal Water anticipates final approval in the third quarter with a July 1, 2008 effective date.

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

This quarterly report, including all documents incorporated by reference, contains forward-looking statements within the meaning established by the Private Securities Litigation Reform Act of 1995 (Act). Forward-looking statements in this quarterly report are based on currently available information, expectations, estimates, assumptions and projections, and our management’s beliefs, assumptions, judgments and expectations about us, the water utility industry and general economic conditions. These statements are not statements of historical fact. When used in our documents, statements that are not historical in nature, including words like “expects,” “intends,” “plans,” “believes,” “may,” “estimates,” “assumes,” “anticipates,” “projects,” “predicts,” “forecasts,” “should,” “seeks,” or variations of these words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not guarantees of future performance. They are based on numerous assumptions that we believe are reasonable, but they are open to a wide range of uncertainties and business risks. Consequently, actual results may vary materially from what is contained in a forward-looking statement.

Factors which may cause actual results to be different than those expected or anticipated include, but are not limited to:

	•		governmental and regulatory commissions’ decisions, including decisions on proper disposition of property;

	•		changes in regulatory commissions’ policies and procedures;

	•		the timeliness of regulatory commissions’ actions concerning rate relief;

	•		new legislation;

	•		changes in accounting valuations and estimates;

	•		the ability to satisfy requirements related to the Sarbanes-Oxley Act and other regulations on internal controls;

	•		electric power interruptions;

	•		increases in suppliers’ prices and the availability of supplies including water and power;

	•		fluctuations in interest rates;

	•		changes in environmental compliance and water quality requirements;

	•		acquisitions and the ability to successfully integrate acquired companies;

	•		the ability to successfully implement business plans;

	•		changes in customer water use patterns;

	•		the impact of weather on water sales and operating results;

	•		changes in the capital markets and access to sufficient capital on satisfactory terms;

	•		civil disturbances or terrorist threats or acts, or apprehension about the possible future occurrences of acts of this type;

	•		the involvement of the United States in war or other hostilities;

	•		our ability to attract and retain qualified employees;

	•		labor relations matters as we negotiate with the unions;

	•		implementation to new information technology systems;

	•		restrictive covenants in or changes to the credit ratings on current or future debt that could increase financing costs or affect the ability to borrow, make payments on debt, or pay dividends; and

	•		the risks set forth in “Risk Factors” included elsewhere in this quarterly report.

In light of these risks, uncertainties and assumptions, investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this quarterly report or as of the date of any document incorporated by reference in this report, as applicable. When considering forward-looking statements, investors should keep in mind the cautionary statements in this quarterly report and the documents incorporated by reference. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

CRITICAL ACCOUNTING POLICIES

We maintain our accounting records in accordance with accounting principles generally accepted in the United States of America (GAAP) and as directed by the regulatory commissions to which we are subject. The process of preparing financial statements in accordance with GAAP requires the use of estimates and assumptions on the part of management. The estimates and assumptions used by management are based on historical experience and our understanding of current facts and circumstances. Management believes that the following accounting policies are critical because they involve a higher degree of complexity and judgment, and can have a material impact on our results of operations and financial condition. These policies and their key characteristics are discussed in detail in the 2007 Form 10-K. They include:

Revenue Recognition

Revenue consists of monthly cycle customer billings for regulated water and wastewater services at rates authorized by regulatory commissions and billings to certain non-regulated customers at rates authorized by contract with government agencies.

Revenue from metered customers includes billings to customers based on monthly meter readings plus an estimate for water used between the customer’s last meter reading and the end of the accounting period. At June 30, 2008, our unbilled revenue amount was $16,948 and at December 31, 2007, the amount was $12,911. The unbilled revenue amount is generally higher during the summer months when water sales are higher. Flat rate customers are billed in advance at the beginning of the service period. The revenue is prorated so that the portion of revenue applicable to the current accounting period is included in that period’s revenue, with the balance recorded as unearned revenue on the balance sheet and recognized as revenue when earned in the subsequent accounting period. Our unearned revenue liability was $2,330 as of June 30, 2008, and $2,248 as of December 31, 2007. This liability is included in “accrued expenses and other liabilities” on our accompanying condensed consolidated balance sheets.

Effective July 1, 2008, Cal Water will operate under a Water Rate Adjustment Mechanism (WRAM) approved in February 2008 by the California Public Utilities Commission (CPUC). Under the WRAM, Cal Water will record the adopted level of revenues as established by the CPUC for most metered accounts. The adopted revenues are based upon the revenue requirement for consumption-based accounts. The variance between adopted revenues and actual billed revenues for metered accounts will

be recorded as a component of revenue. Based upon the actual consumption of water by metered accounts the amount may be positive or negative and represents amount that will be billed or refunded in the future. This will be reflected with an offsetting entry to a regulatory asset or liability account (tracked individually for each Cal Water district).

Also effective July 1, 2008, Cal Water will operate under a Modified Cost Balancing Account (MCBA). The Company will track authorized expense levels for purchased water, purchased power and pump taxes, as established by the CPUC. Variances (both rate and volume) between adopted and actual purchased water, purchased power, and pump taxes expenses will be recorded as a component of revenue, as the amount of such variances will be recovered from or refunded to Cal Water’s customers at a later date. Any recovery or refund of the MCBA would be included with any recovery or refund of the WRAM computed for the corresponding district.

The balances in the WRAM and MCBA regulatory assets and regulatory liabilities will fluctuate on a monthly basis depending upon the level of variance between adopted and actual results. When such accounts achieve pre-determined levels at the end of any calendar year (at least 2.5 percent over- or under-recovery of the approved revenue requirement of the corresponding district), Cal Water may seek approval from the CPUC to refund or collect the balance in the accounts. Account balances less than these levels may be refunded or collected in Cal Water’s general rate case proceedings.

Expense-Balancing and Memorandum Accounts

The Company has historically used Incremental Cost Balancing Accounts (ICBA) and memorandum accounts to track only suppliers’ rate changes for purchased water, purchased power, and pump taxes that are not included in customer water rates. The cost changes were referred to as “off-setable expenses” because under certain circumstances they were refundable from customers (or refunded to customers) in future rates designed to offset cost changes from suppliers. The balancing and memorandum accounts have not been recorded until the CPUC has authorized a change in customer rates and the customer has been billed. The cumulative net amount in the expense balancing accounts and memorandum accounts as of June 30, 2008, was approximately $1.8 million. This amount includes certain amounts that have been authorized for recovery through customer surcharges but which have not yet been collected and amounts that have not yet been filed for recovery. See “Rates and Regulations” below for descriptions of amounts included in this total that have been authorized for recovery.

Modified Cost Balancing Accounts

With the implementation of the WRAM, most of the existing ICBA expense balancing accounts will be replaced by the Modified Cost Balancing Accounts (MCBA) described above. The MCBA will be recorded on Cal Water’s books. Cal Water will continue to maintain ICBA accounts for recycled water in three districts.

Subsequent to June 30, 2008, the existing ICBA and the memorandum accounts will not be transferred to the WRAM/MCBA balances. Additions to these balances will end on July 1, 2008. However, interest will continue to accumulate on these balances until they are fully collected.

Washington Water, New Mexico Water, and Hawaii Water did not have material amounts in expense balancing or memorandum accounts.

Regulated Utility Accounting

Because we operate extensively in a regulated business, we are subject to the provisions of SFAS No. 71, “Accounting for the Effects of Certain Types of Regulation.” Regulators establish rates that are designed to permit the recovery of the cost of service and a return on investment. Based upon past practices and decisions by the Commissions, we asses the probability of future recovery from rate payers of certain items, including the probability of return of items to rate payers. If it is probable that rates will recover an item in the future, a regulatory asset will be reported. If it is probable that rates will reflect a reduction in future rates for an item, a regulatory liability will be reported. We assess the probability of recovery of the regulatory assets and regulatory liabilities in each reporting period. In addition, if a regulatory commission determined that a portion of our assets used in utility operations were not recoverable in customer rates, we would be required to determine if we had suffered an asset impairment that would require a write-down in the assets’ valuation. There have been no such asset impairments as of June 30, 2008 and December 31, 2007.

Income Taxes

We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We measure deferred tax assets and liabilities at enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We recognize the effect on the deferred tax assets and liabilities of a change in tax rate in the period that includes the enactment date. We must also assess the likelihood that deferred tax assets will be recovered in future taxable income and, to the extent recovery is unlikely, a valuation allowance would be recorded. If a valuation allowance were required, it could significantly increase income tax expense. In our management’s view, a valuation allowance was not required at June 30, 2008 or December 31, 2007.

We anticipate that future rate action by the regulatory commissions will reflect revenue requirements for the tax effects of temporary differences recognized, which have previously been passed through to customers. The regulatory commissions have granted us rate increases to reflect the normalization of the tax benefits of the federal accelerated methods and available Investment Tax Credits (ITCs) for all assets placed in service after 1980. ITCs are deferred and amortized over the lives of the related properties for book purposes.

Pension Benefits

We incur costs associated with our pension and postretirement health care benefits plans. To measure the expense of these benefits, our management must estimate compensation increases, mortality rates, future health cost increases and discount rates used to value related liabilities and to determine appropriate funding. Different estimates used by our management could result in significant variances in the cost recognized for pension benefit plans. The estimates used are based on historical experience, current facts, and future expectations. We anticipate any increase in funding for the pension and postretirement health care benefits plans will be recovered in future rate filings, thereby mitigating the financial impact. Funding of the plans is done in accordance with requirements set forth by ERISA and Internal Revenue Service.

RESULTS OF SECOND QUARTER 2008 OPERATIONS COMPARED TO SECOND QUARTER 2007 OPERATIONS

Overview

Second quarter net income was $10.1 million equivalent to $0.48 per common share on a diluted basis, compared to net income of $7.7 million or $0.37 per common share on a diluted basis in the second quarter of 2007. These positive results were primarily due to rate increases charged to our customers and increased water usage by our customers due to dryer weather when compared with the prior year.

Operating Revenue

Operating revenue increased $9.8 million or 10% to $105.6 million in the second quarter of 2008 compared to the second quarter of 2007. As disclosed in the following table, the increase was due to increases in rates, increased usage by existing customers and usage by new customers.

The factors that impacted the operating revenue for the second quarter of 2008 compared to 2007 are presented in the following table (amounts in thousands):


Rate increases	$	6,005
Increase in usage by existing customers		3,598
Usage by new customers		196

Net operating revenue increase	$	9,799

The components of the rate increases are listed in the following table (amounts in thousands):


General Rate Case (GRC) Increases	$	2,199
Step Rate Increase		1,428
Purchased Water Offset Increases		1,421
Balancing Account Adjustments		957

Total Increase in Rates	$	6,005

Total Operating Expenses

Total operating expenses were $91.1 million for the three months ended June 30, 2008, versus $84.4 million for the same period in 2007, an 8% increase.

Water production expense consists of purchased water, purchased power, and pump taxes. It represents the largest component of total operating expenses, accounting for approximately 44% of total operating expenses. Water production expenses increased 8% compared to the same period last year.

Sources of water as a percent of total water production are listed in the following table:


	Three Months Ended June 30
	2008			2007
Well production		50	%		48	%
Purchased		46	%		48	%
Surface		4	%		4	%

Total		100	%		100	%

Our wholly owned subsidiaries, Washington Water, New Mexico Water and Hawaii Water obtain all of their water supply from wells. The components of water production costs are shown in the table below:


	Three Months Ended June 30
	(amounts in thousands)
	2008		2007		Change
Purchased water	$	30,785	$	28,467	$	2,318
Purchased power		6,965		6,403		562
Pump taxes		2,599		2,401		198

Total	$	40,349	$	37,271	$	3,078

Purchased water costs increased primarily due to higher customer usage and higher wholesale water prices. Total water production measured in acre feet increased by 1% during the second quarter of 2008 as compared with the second quarter of 2007 due to the warmer weather and lack of precipitation, as compared to the same period in 2007.

Administrative and general expense and other operations expense increased 5% to $26.6 million. Payroll charged to operations increased 5%, including wage increases and an increase in the number of employees. At June 30, 2008, there were 922 employees and at June 30, 2007, there were 873 employees.

Maintenance expenses decreased by $0.3 million to $4.9 million in the second quarter of 2008 compared to $5.2 million in the second quarter of 2007. Depreciation and amortization expense increased $0.9 million, or 11%, because of 2007 capital additions.

Federal and state income taxes increased $1.6 million, or 34%, from $4.8 million in the second quarter of 2007 to $6.4 million in the second quarter of 2008, due to increased operating income compared to the same quarter as last year. The effective tax rate was 39.7% in the current quarter and 40.9% for the same quarter last year. We expect the effective tax rate to be between 39.5% and 40% for 2008.

Other Income and Expense

Non-regulated income, net of related expenses, was $0.6 million for the quarter ended June 30, 2008, compared to $1.5 million in the same period last year, which is a decrease of $0.9 million, driven primarily by a decrease in investment income on short-term cash and other investments. There were no significant property sales for the current quarter and for the same quarter of 2007.

Interest Expense

Net interest expense increased $0.2 million to $4.7 million. This increase of interest expense was primarily due to the increase in short-term borrowings.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 2008 COMPARED TO THE SIX MONTHS ENDED JUNE 2007

Overview

Net income for the six-month period ended June 30, 2008, was $10.3 million, or $0.49 per common share on a diluted basis, compared to net income of $9.3 million or $0.45 per share on a diluted basis, for the six months ended June 30, 2007. These positive results were primarily due to increased water rates charged to our customers.

Operating Revenue

Operating revenue increased $11.1 million, or 7%, to $178.5 million in the six-month period ended June 30, 2008. As disclosed in the following table, the increase was primarily due to increases in rates.

The factors that affected the operating revenue for the six-month period ending June 30, 2008 compared to 2007 are presented in the following table (amounts in thousands):


Rate increases	$	10,248
Increase in usage by new customers		584
Usage by existing customers		318

Net changes in operating revenue	$	11,150

The components of the rate increases are listed in the following table (amounts in thousands):


General Rate Case (GRC) Increase	$	3,694
Purchased Water Offset Increase		2,673
Step Rate Increase		2,294
Balancing Account Adjustments		1,587

Total increase in rates	$	10,248

Total Operating Expenses

Total operating expenses were $159.2 million for the six months ended June 30, 2008, versus $150.7 million for the same period in 2007, a 6% increase.

Water production expense consists of purchased water, purchased power and pump taxes. Water production expense represents the largest component of total operating expenses, accounting for approximately 41% of total operating expenses. Water production expenses increased $2.6 million in the six months ended June 30, 2008, or 4% compared to the same period last year.

Sources of water production as a percent of total water production are listed on the following table:


	Six Months Ended June 30
	2008			2007
Well production		46	%		45	%
Purchased		50	%		51	%
Surface		4	%		4	%

Total		100	%		100	%

Our wholly-owned operating subsidiaries, Washington Water, New Mexico Water and Hawaii Water, obtain all of their water supply from wells. The components of water production costs are shown in the table below:


	Six Months Ended June 30
	(amounts in thousands)
	2008		2007		Change
Purchased water	$	51,496	$	49,363	$	2,133
Purchased power		10,419		10,099		320
Pump taxes		3,792		3,622		169

Total	$	65,707	$	63,084	$	2,622

Purchased water cost increased due to higher prices from wholesalers. Included in purchased water are credits received from certain wholesale suppliers and the sale of unused water rights. The amounts of the credits were $0 and $734 for the six months ended June 30, 2008 and June 30, 2007, respectively. The increase in purchased power and pump taxes is primarily due to increased well production.

Administration and general and other operations expenses were $52.1 million, increasing $3.2 million, or 6%, for the six months ended June 30, 2008. Payroll charged to operating expense increased $775 for the six months ended June 30, 2008. Wages for union employees increased 4%, effective January 1, 2008. Overall payroll costs (expensed and capitalized) increased 7% for the six months ended June 30, 2008, due to increases in the number of employees and higher wage rates. At June 30, 2008, there were 922 employees and at June 30, 2007, there were 873 employees.

Maintenance expense was down for the six months ended June 30, 2008, decreasing $0.7 million, or 7%. Depreciation and amortization expense increased $1.7 million, or 10%, because of increased capital expenditures in 2007.

Federal and state income taxes increased $1.3 million, or 24%, for the six months ended June 30, 2008, due to the change in taxable income. We expect the effective tax rate to be between 39.5% and 40% for 2008.

Other Income and Expense

Other income was $0.3 million for the six months ended June 30, 2008, compared to $1.6 million for the first six-months of 2007. The change from the prior year is due to a reduction in cash available for investment which resulted in a decline in interest income of $864 compared with the prior period. In

addition, we recorded a reduction in cash surrender value of life insurance contracts associated with the deferred compensation and the supplemental executive retirement plans of $1,006. In the prior year we had a gain in the cash surrender value of $353 for the six month period. The cash surrender value is determined in part by the market of certain underlining funds, the value of which reflects changes in the stock market. Due to the decline in the stock market in the first six months of 2008, there was a corresponding impact to the cash surrender value of the life insurance contracts.

Interest Expense

Net interest expense increased $0.4 million to $9.3 million for the period ended June 30, 2008 compared to the six-month period ended June 30, 2007. This increase was primarily due to the increase in short-term borrowings of $23 million during the six months of 2008, resulting from capital expenditure activity.

REGULATORY MATTERS

Rates and Regulations

The state regulatory commissions have plenary powers setting rates and operating standards. As such, state commission decisions significantly impact our revenues, earnings, and cash flows. The amounts discussed herein are generally annual amounts, unless specifically stated, and the financial impact to recorded revenue is expected to occur over a 12-month period from the effective date of the decision. In California, water utilities are required to make several different types of filings. Most filings result in rate changes that remain in place until the next General Rate Case (GRC). As explained below, surcharges and surcredits to recover balancing and memorandum accounts as well as the catch-up are temporary rate changes, which have specific time frames for recovery.

GRCs, step rate increase filings, and offset filings change rates to amounts that will remain in effect until the next GRC. The CPUC follows a rate case plan, which requires Cal Water to file a GRC for each of its 24 regulated operating districts every three years. In a GRC proceeding, the CPUC not only considers the utility’s rate setting requests, but may also consider other issues that affect the utility’s rates and operations. Effective in 2004, Cal Water’s GRC schedule was shifted from a calendar year to a fiscal year with test years commencing on July 1st of each year. The CPUC is generally required to issue its GRC decision prior to the first day of the test year or authorize interim rates. As such, Cal Water’s GRC decisions, prior to 2005, were generally issued in the fourth quarter, but are now expected to be issued in the second quarter of each year until 2011, when the updated rate case plan takes effect. A decision on the eight GRCs filed in July of 2006 was delayed beyond July 1, 2007. As required by state law, the CPUC authorized interim rates incorporating the last twelve months change in CPI. A final decision on the 2006 GRC was made on December 20, 2007 with final rates billed effective on January 1, 2008. A provision in the final decision allows recovery of the revenue lost due to the delay over a twelve-month period beginning in the first quarter of 2008.

Between GRC filings utilities may file escalation rate increases, which allow the utility to recover cost increases, primarily from inflation and incremental investment, during the second and third years of the rate case cycle. However, escalation rate increases are subject to a weather-normalized earnings test. Under the earnings test, the CPUC may reduce the escalation rate increase to prevent the utility from earning in excess of the authorized rate of return for that district.

In addition, utilities are entitled to file offset filings. Offset filings may be filed to adjust revenues for construction projects authorized in GRCs when the plant is placed in service or for rate changes charged to the Company for purchased water, purchased power, and pump taxes (referred to as “offsettable expenses”). Such rate changes approved in offset filings remain in effect until a GRC is approved.

General surcharges and surcredits, which are usually effective for a twelve-month period, are authorized by the CPUC to recover the memorandum and incremental-cost balancing accounts under- and over- collections usually due to changes in offsettable expenses. However, significant under-collection may be authorized over multiple years. Typically, an expense difference occurs during the time period from when an offsettable expense rate changes and we are allowed to adjust its water rates. Expense changes for this regulatory lag period, which may exceed two months, are booked into memorandum and balancing accounts for later recovery. These accounts are subject to reasonableness reviews. Future recovery of balancing account balances will be addressed in general rate cases or by advice letter filings if the account balance is greater than 2% of revenues. As of December 31, 2007 and June 30, 2008, the amount in the balancing accounts was $3.1 million and $1.8 million, respectively.

Surcharges and surcredits to amortize balances in the WRAM and MCBA accounts will be made in March of each year based on the district balances for the last calendar year. Surcharges will be for twelve months. In the event the combined WRAM and MCBA balance for a district is less than 2.5% of revenue, the amount will not be amortized at that time. The WRAM and MCBA amounts are cumulative, so if they are not amortized in a given calendar year, the balance will be rolled forward and reviewed with the following year balance.

We do not record an asset (or liability) for the recovery (or refund) of incremental cost balancing accounts or memorandum accounts in our consolidated financial statements as revenue (refunds), nor as a receivable (or payable), until the CPUC and other regulators have authorized recovery and the customer is billed. Therefore, a timing difference may occur between when costs are recorded as an expense and the associated revenues are received (or refunds are made) and booked.

Remaining Unrecorded Balances from Previously Authorized Balancing Accounts Recoveries/Refunds

The total of unrecorded, under-collected memorandum and balancing accounts was approximately $1.8 million as of June 30, 2008. Included in this amount, Cal Water has amounts from districts that are pending further action when balances become large enough to warrant action of either recovery or refund.

Rate Case Plan

In December 2005, the CPUC issued the California Water Action Plan. The plan focuses on four key principles, among other things, including safe, high quality water; highly reliable water supplies; efficient use of water; and reasonable rates and viable utilities. In accordance with the Water Action Plan’s objective to streamline regulatory decision-making the CPUC issued R.06-12-016 in December 2006, to address streamlining of its water rate case plan. The CPUC issued D.07-05-062 on May 24, 2007 adopting a new rate case plan. As a result, Cal Water will be filing a company-wide general rate case every three years beginning in July 2009. Rates would be effective approximately 18 months from the filing date or January 1, 2011 in the first cycle. As an interim measure, the CPUC will allow Cal Water to incorporate general operations costs including company benefits in rates for all districts after a decision in its 2007 general rate case. In addition, for the sixteen districts that have a delayed effective

date, the CPUC will authorize interim rates from the authorized effective date under the old rate case plan. These interim rates will be subject to adjustment based on a final determination in the 2009 general rate case filing. In addition to general rate case processing, the RCP set a schedule for separate cost of capital applications. Under the RCP, Cal Water must file its cost of capital application every three years beginning May 1, 2008. Cal Water’s 2008 cost of capital application was consolidated with applications of two other multi-district Class A water utilities into a combined proceeding.

PBOP Application

On March 13, 2008, the Commission issued D.08-03-021, which granted Cal Water’s request to amortize the $9.8 million regulatory asset over a fifteen year period. Cal Water began a rate surcharge on April 1, 2008 which is expected to collect $658,000 annually to recover the regulatory asset. The annual amortization is included in the general allocated costs approved by the Commission in its D.08-07-008, replacing the prior adopted surcharge.

Conservation Application

Decision 06-08-011 directed Cal Water to file an application to implement conservation rates and a sales decoupling mechanism. On October 23, 2006, Cal Water filed Application 06-10-026 requesting a water revenue balancing account, a conservation memorandum account, and conservation rates. This request was consolidated with applications filed by other water companies in the CPUC’s Order Instituting Investigation 07-01-022.

On June 15, 2007, Cal Water and two consumer groups (the Commission’s Division of Ratepayer Advocates (DRA) and The Utility Reform Network (TURN)) filed a settlement jointly proposing a program of tiered residential rates, a water revenue adjustment mechanism (WRAM), and a modified balancing account (MCBA) that includes changes in source mix. Tiered rates have varying charges depending on the overall monthly usage. They are intended to provide a conservation incentive, particularly in high-usage periods. Non-residential rate design under the settlement emphasizes variable charges over service charges. The WRAM and MCBA are intended to negate any impact from customer conservation on Cal Water’s earnings.

On February 29, 2008, the Commission adopted the settlement. On July 1, 2008, Cal Water made its tiered rates, WRAM, and MCBA effective in compliance with the Commission’s administrative processing rules. Those rules allow filings in compliance with Commission orders to be made effective upon filing, subject to refund until approval by staff. As of July 31, 2008, final approval for these filings had not been received. Cal Water anticipates final approval in the third quarter with a July 1, 2008 effective date.

The conservation proceeding is still open to consider the potential effect these mechanisms may have on authorized return on equity and to examine the Commission’s non-rate-related conservation policies. We are unable to predict the outcome of the proceeding with respect to these matters at this time.

2007 GRC Filing

On July 3, 2007, Cal Water filed its 2007 GRC application covering eight districts and general office costs. On July 10, 2008, the CPUC approved a settlement between Cal Water and the Division of Ratepayer Advocates, and authorized annual rate increases for eight districts of $33.4 million. In its order, the CPUC allowed Cal Water to file immediately to recover its increased general costs in all other districts. As of July 15, 2008, Cal Water had made effective $13.7 million of additional rate increases in fifteen districts. The CPUC order also allows for additional rate increases, including “escalation” increases, which may be requested in 2009 and 2010, and offset increases after construction of certain large capital projects. In accordance with state law, Cal Water will also be allowed to recover the difference between interim rates authorized on July 1, 2008 and final rates approved on July 10, 2008.

Other 2008 Regulatory Activity

In December 2007, Cal Water received a decision on its 2006 general rate case filing. The decision allowed an increase of $7.8 million in rates for eight districts. This increase is inclusive of the $2.0 million in interim rates approved in July 2007. As a result, in December 2007 Cal Water filed advice letters to implement the adopted rates in January 2008. These advice letters were approved effective in January 2008 as requested.

In January 2008, Cal Water filed advice letters to offset $3.9 million of increased purchased water and pump tax rates in six of its regulated districts. These advice letters were approved effective in January 2008 as requested.

In February 2008, Cal Water filed an advice letter to recover $2.7 million in lost revenue resulting from the delayed effective date of a final decision in its 2006 GRC. Under CPUC advice letter processing rules, Cal Water charges the rates in compliance advice letters to its customers upon filing. These advice letters were approved effective in February 2008 as requested. The lost revenue will be recovered as a surcharge on customer bills for a twelve-month period beginning in February 2008.

In May 2008, Cal Water filed an application for its cost of capital requirements under the CPUC’s rate case plan. Cal Water requested an authorized return on common equity of 12.57%, which if adopted would result in rate increases of $14.9 million or 4.26%. This application, which is being considered alongside similar filings from Golden State Water Company and California-American Water Company, is the first stand-alone cost of capital filing under new rules. As such, Cal Water cannot predict whether or when this application would change rates, or the magnitude of any potential changes.

In July 2008, Cal Water made effective escalation increases for four districts totaling $1.1 million in compliance with the Commission’s administrative processing rules. Those rules allow filings in compliance with Commission orders to be made effective upon filing, subject to refund until approval by staff. As of July 25, 2008, final approval for these filings had not been received. Cal Water anticipates final approval in the third quarter with a July 1, 2008 effective date.

In July and August 2008, Cal Water filed, effective in August 2008, escalation rate increases for five districts totaling $0.6 million. In compliance with the Commission’s administrative processing rules, Cal

Water requested the rates be made effective five days after filing. Those rules allow filings in compliance with Commission orders to be made effective upon filing, subject to refund until approval by staff. As of July 31, 2008, final approval for these filings had not been received. Cal Water anticipates final approval in the third quarter with August effective dates as proposed.

In August 2008, Cal Water plans to file advice letters to offset expected increases in purchased water and pump tax charges in some districts. Cal Water cannot predict the exact timing or dollar amount of the changes. However, expense offsets are dollar-for-dollar increases in revenue to match increased expenses.

LIQUIDITY

Cash flow from Operations

Cash flow from operations were $32.8 million for the six months ended June 30, 2008. Cash flow from operations is primarily generated by net income, non-cash expenses for depreciation and amortization, and changes in our operating assets and liabilities. Cash generated by operations varies during the year due in part to the timing of payments to major suppliers and contractors.

The water business is seasonal. Revenue is lower in the cool, wet winter months when less water is used compared to the warm, dry summer months when water use is highest. This seasonality results in the possible need for short-term borrowings under the bank lines of credit in the event cash is not available during the winter period. The increase in cash flow during the summer allows short-term borrowings to be paid down. Customer water usage can be lower than normal in years when more than normal precipitation falls in our service areas or temperatures are lower than normal, especially in the summer months. The reduction in water usage reduces cash flow from operations and increases the need for short-term bank borrowings. In addition, short-term borrowings are used to finance capital expenditures until long-term financing is arranged.

Investing Activities

During the six months ended June 30, 2008, we had company-funded capital cash expenditures of $38.5 million. For 2008, our capital budget is approximately $90 million.

Financing Activities

During the six months ended June 30, 2008, there were no long-term debt or equity offerings. During the period we used funds borrowed on our short-term line of credit. We anticipate issuing long-term debt within the next six months to fund our additional capital expenditures and acquisitions. Dividend payments were higher than the prior year due to additional shares outstanding and a higher dividend rate in the current year.

Short-Term and Long-Term Debt

Short-term liquidity is provided by bank lines of credit and by internally generated funds. Long-term financing is accomplished through the use of both debt and equity. We had short-term bank borrowings of $23 million at June 30, 2008 and no borrowings at December 31, 2007. Cash and cash equivalents were $6.1 million at June 30, 2008, and $6.7 million at December 31, 2007.

Cal Water has a $55 million credit facility agreement that expires April 30, 2012. In addition to borrowings, the credit facility allows for letters of credit up to $10 million, which reduces the available amount to borrow when utilized. One letter of credit was outstanding at June 30, 2008, for $0.5 million related to an insurance policy. Interest is charged on a variable basis and fees are charged for unused amounts.

A separate credit facility for $20 million also exists for use by us and our subsidiaries, including Washington Water, New Mexico Water, and Hawaii Water. The agreement requires debt as a percent of total capitalization to be less than 67%, and an interest coverage ratio of at least 2.5:1.0. As of June 30, 2008, we have met all covenant requirements and are eligible to use the full amount of the commitment. In addition to borrowings, the credit facility allows for letters of credit up to $5 million, which would reduce the amount available to borrow. No letters of credit were outstanding at June 30, 2008. Interest is charged on a variable basis and fees are charged for unused amounts.

There were additions to long-term debt of $0.6 million in the six-month period ended June 30, 2008, and we made principal payments on our first mortgage bonds and other long-term debt payments of $1.6 million during the six-month period ended June 30, 2008.

Long-term financing, which includes senior notes, other debt securities, and common stock, has been used to replace short-term borrowings and fund capital expenditures. Internally generated funds, after making dividend payments, provide positive cash flow, but have not been at a level to meet the needs of our capital expenditure requirements. Management expects this trend to continue given our capital expenditures plan for the next 5 years. Some capital expenditures are funded by payments received from developers for contributions in aid of construction or advances for construction. Funds received for contributions in aid of construction are non-refundable, whereas funds classified as advances in construction are refundable. Management believes long-term financing will be available to meet our cash flow needs through issuances in both debt and equity markets.

In September 2004, the CPUC issued a decision granting Cal Water authority to complete up to $250 million of equity and debt financing through 2010, subject to certain restrictions.

During 2007, we raised approximately $103 million of capital. Of this amount, $20 million was raised through privately placed senior unsecured notes. The remaining approximately $83 million was raised through the issuance of 2,250,000 shares of common stock. In future periods, management anticipates funding our capital needs through a relatively balanced approach between long term debt and equity.

In September 2006, we filed a shelf registration statement with the SEC for up to $150 million in preferred stock and common stock in addition to our prior shelf permitting up to $35.6 million in preferred stock and common stock. On October 12, 2006, we completed an underwritten public offering of 2,250,000 shares of our common stock (including 250,000 shares pursuant to the exercise, in part, by the underwriters of their over-allotment option) at a price per share of $36.75 to the public, raising approximately $83 million in gross proceeds. For additional information please reference our Form 8-K, dated October 12, 2006 on file with the SEC. After issuance of these shares, we had approximately $101 million in remaining securities available for future issuance under our shelf registration.

On July 19, 2008, we announced that we will redeem all 139,000 shares of our 4.4% Series C Preferred Stock on or about August 15, 2008.

We do not utilize off-balance-sheet financing or utilize special purpose entity arrangements for financing. We do not have equity ownership through joint ventures or partnership arrangements.

Credit Ratings

Cal Water’s first mortgage bonds are rated by Standard & Poor’s (S&P). Previously, the major credit facility agreement contained a covenant related to these debt ratings. The current agreement does not contain such covenants. Since 2004, the credit rating agency maintained their rating of A+ and characterized us as stable. In the past, the agency has been concerned over the rate-setting process and decisions by the CPUC. Also, concerns were raised about our present level of capital expenditures, which will need to be partially financed through long-term borrowings or equity offerings. Management believes we would be able to meet financing needs even if the rating was downgraded, but a rating change could result in a higher interest rate on new debt.

Dividends, Book Value and Shareholders

The second quarter common stock dividend of $0.2925 per share was paid on May 16, 2008, compared to a quarterly dividend in the second quarter of 2007 of $0.2900. This was Cal Water’s 254^th consecutive quarterly dividend. Annualized, the 2008 dividend rate is $1.17 per common share, compared to $1.16 in 2007. Based on the previous 12-month earnings per share at June 30, 2008, the dividend payout ratio is 75%. For the full year 2007, the payout ratio was 86% of net income. On a long-term basis, our goal is to achieve a dividend payout ratio of 60% of net income accomplished through future earnings growth.

At its July 23, 2008 meeting, the Board declared the third quarter dividend of $0.2925 per share payable on August 15, 2008, to stockholders of record on August 4, 2008. This will be our 255^th consecutive quarterly dividend.

2008 Financing Plan

Cal Water is currently reviewing its financing needs for the remainder of 2008 and 2009. We may consider issuing equity or long-term debt to meet our financing needs. We intend to fund our capital needs in future periods through a relatively balanced approach between long-term debt and equity.

Book Value and Stockholders of Record

Book value per common share was $18.60 at June 30, 2008 compared to $18.66 at December 31, 2007.

There are approximately 2,813 stockholders of record for our common stock, as of the record date for our last shareholders meeting.

Utility Plant Expenditures

During the six months ended June 30, 2008, capital expenditures totaled $43.3 million; $38.5 million was from company-funded projects and $4.8 million was from third-party-funded projects. The planned 2008 company-funded capital expenditure budget is approximately $90 million. The actual amount may vary from the budget number due to timing of actual payments related to current year projects and prior year projects. We do not control third-party-funded capital expenditures and therefore is unable to estimate the amount of such projects for 2008.

At June 30, 2008, construction work in progress was $79.6 million compared to $43.6 million at December 31, 2007. Work in progress includes projects that are under construction and are not yet in service.

WATER SUPPLY

Based on information from water management agencies and internally developed data, we believe that our various sources of water supply are sufficient to meet customer demand for the remainder of the year. Historically, about half of the water is purchased from wholesale suppliers with the other half pumped from underground wells. A small portion is developed through three local surface treatment plants.

CONTRACTUAL OBLIGATIONS

During the six months ended June 30, 2008, there were no material changes in contractual obligations outside the normal course of business.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We do not hold, trade in or issue derivative financial instruments and therefore is not exposed to risks these instruments present. Our market risk to interest rate exposure is limited because the cost of long-term financing and short-term bank borrowings, including interest costs, is covered in consumer water rates as approved by the commissions. We do not have foreign operations; therefore, we do not have a foreign currency exchange risk. Our business is sensitive to commodity prices and is most affected by changes in purchased water and purchased power costs.

Historically, the CPUC’s balancing account or offsetable expense procedures allowed for increases in purchased water and purchased power costs to be passed on to consumers. Traditionally, a significant percentage of our net income and cash flows comes from California regulated operations; therefore the CPUC’s actions have a significant impact on our business. See Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies —Expense Balancing and Memorandum Accounts” and “Regulatory Matters”.

Item 4.

CONTROLS AND PROCEDURES

(a)		Evaluation of Disclosure Controls and Procedures

		We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our

		reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Security and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow for timely decisions regarding required disclosure.

		In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Accordingly, our disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives.

		Our management, with the participation of our CEO and our CFO, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2008. Based on that evaluation, we concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

(b)		Changes to Internal Control Over Financial Reporting

		There was no change in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

In 1995, the State of California’s Department of Toxic Substances Control (DTSC) named us as a potential responsible party for cleanup of a toxic contamination plumes in the Chico groundwater. In December 2002, we were named along with other defendants in two lawsuits filed by DTSC for the cleanup of the plumes. The toxic spill occurred when cleaning solvents, which were discharged into the city’s sewer system by local dry cleaners, leaked into the underground water supply. The DTSC contends that our responsibility stems from our operation of wells in the surrounding vicinity that caused the contamination plumes to spread. While we are cooperating with the clean up, we deny any responsibility for the contamination or the resulting cleanup.

In 2007, we entered into Court approved consent decrees (Consent Decrees). The Consent Decrees conditioned our performance upon many factors, including, but not limited to, water pumped and treated by us must meet regulatory standards so we may distribute to its customers. Pursuant to the terms of the Consent Decrees we will incur capital costs of $1.5 million and future operating costs with a present value of approximately $2.6 million. In its 2007 general rate case (GRC) settlement negotiations, Division of Ratepayer Advocates have tentatively agreed to track all costs associated with the Consent Decrees, including legal costs to pursue insurance coverage, for potential future recovery in rates.

In connection with these suits, our insurance carrier has filed a separate lawsuit against us for reimbursement of past defense costs which approximate $1.5 million. We believe that the insurance carrier has a duty to defend and is not entitled to any defense cost reimbursement. Furthermore, we believe that insurance coverage exists for the Company’s claims. However, if our claim is ultimately found to be excludable under insurance policies, we may have to pay damages. The Company believes that recovery of costs associated with the Consent Decrees are probable from either its insurance carrier or through rate increases in the future. Furthermore, we believe that our insurance carrier had a duty to defend. Therefore, no reserve or contingency has been recorded for this matter.

From time to time, we are involved in various disputes and litigation matters that arise in the ordinary course of business. We review the status of each significant matter and assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount of the range of loss can be estimated, we accrue a liability for the estimated loss in accordance with SFAS No 5, “Accounting of Contingencies.” Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on the best

information available at the time. While the outcome of these disputes and litigation matters cannot be predicted with any certainty, management does not believe that the ultimate resolution of these matters will materially affect our financial position, results of operations, or cash flows.

Currently, we are involved in a lawsuit against major oil refineries regarding the contamination of the ground water as a result of the gas additive MTBE. We entered into a partial settlement with defendants that represent approximately 70% of the responsible parties (as determined by the Superior Court). Based upon the most current allocation matrix, we will receive approximately $49.7 million prior to deducting attorneys’ fees and litigation expenses. The settlement is subject to final court approval scheduled on August 11, 2008. The Company anticipates the Court will find the settlement is in good faith; however, the Company anticipates that at least one non-settling defendant will appeal the Court’s findings, so the Company can not estimate when the settlement will be final. The Company is also in discussions with the CPUC on the treatment of the settlement and is therefore unable to predict the affect on our financial statements, results of operations, or cash flows. As such, no amounts have been recorded as of June 30, 2008.

As previously reported, we have filed with the City of Bakersfield, in the Superior Court of California, a lawsuit that names potentially responsible parties, who manufactured and distributed products containing 1,2,3 trichloropropane (TCP) in California. TCP has been detected in the ground water. The lawsuit seeks to recover treatment costs necessary to remove TCP. The Court has now coordinated our action with other water purveyor cases (TCP Cases JCCP 4435) in San Bernardino County. No trial date has been set.

Finally, the Company has filed in San Mateo County Superior Court a complaint (California Water Service Company v. The Dow Chemical Company, et al. CIV 473093) against potentially responsible parties that manufactured and distributed products, which contained perchloroethylene, also know as tetrachloroethylene (PCE) in California, to recover the past, present and future treatment costs. No trial date has been set.

Item 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The annual meeting of stockholders of California Water Service Group was held on May 27, 2008 at the headquarters office in San Jose, California.

(a)

At the Annual Meeting of Stockholders, a Board of Directors to serve for the ensuing year was elected. The following directors were elected as nominated:


		Douglas M. Brown		Robert W. Foy

		Edward D. Harris, Jr. M.D.		Richard P. Magnuson

		Linda R. Meier		Peter C. Nelson

		George A. Vera		Edwin A. Guiles

		Bonnie G. Hill

	(b)		One other proposal was voted on and approved by our stockholders at the meeting; the ratification of the selection of DELOITTE & TOUCHE LLP as our independent registered public accountant for 2008.

	(1)		Tabulation of the votes for the election of directors was:


	For		Abstain
Douglas M. Brown		18,170,992		190,482
Robert W. Foy		17,939,121		422,353
Edwin A. Guiles		18,188,164		173,310
Edward D. Harris, Jr. , M.D.		17,948,370		413,104
Bonnie G. Hill		18,170,775		210,699
Richard P. Magnuson		17,974,828		386,646
Linda R. Meier		17,922,268		439,207
Peter C. Nelson		17,961,399		400,135
George A. Vera		18,186,238		175,236

(2)

The stockholders ratified the Audit Committee’s selection of Deloitte & Touche LLP to serve as independent auditors for 2008. There were 18,212,940 votes in favor, 840,390 against, and 64,162 abstentions.


Exhibit		Description

31.1		Chief Executive Officer certification of financial statements pursuant to Section 302 of the Sarbanes- Oxley Act of 2002

31.2		Chief Financial Officer certification of financial statements pursuant to Section 302 of the Sarbanes- Oxley Act of 2002

32.		Chief Executive Officer and Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 202


	CALIFORNIA WATER SERVICE GROUP
	Registrant

August 6, 2008	By:	/s/ Martin A. Kropelnicki
		Martin A. Kropelnicki
		Vice President, Chief Financial Officer and Treasurer


Exhibit		Description

31.1		Chief Executive Officer certification of financial statements pursuant to Section 302 of the Sarbanes- Oxley Act of 2002

31.2		Chief Financial Officer certification of financial statements pursuant to Section 302 of the Sarbanes- Oxley Act of 2002

32		Chief Executive Officer and Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and



Date: August 6, 2008	By:	/s/ Peter C. Nelson
		Peter C. Nelson
		President and Chief Executive Officer

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		Page
PART I	Financial Information

Item 1	Financial Statements	3

	Condensed Consolidated Balance Sheets (unaudited) June 30, 2008 and December 31, 2007	4

	Condensed Consolidated Statements of Income (unaudited) For the Three Months Ended June 30, 2008 and 2007	5

	Condensed Consolidated Statements of Income (unaudited) For the Six Months Ended June 30, 2008 and 2007	6

	Condensed Consolidated Statements of Cash Flows (unaudited) For the Six Months Ended June 30, 2008 and 2007	7

	Notes to Unaudited Condensed Consolidated Financial Statements	8

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3	Quantitative and Qualitative Disclosure about Market Risk	32

Item 4	Controls and Procedures	33

PART II	Other Information

Item 1	Legal Proceedings	34

Item 4	Submission of Matters to a Vote of Security Holders	36

Item 6	Exhibits	37

	Signatures	38

	Index to Exhibits	39
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

1.		I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2008, of California Water Service Group;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: August 6, 2008		By: /s/ Peter C. Nelson
		PETER C. NELSON
		Chief Executive Officer California Water Service Group


Date: August 6, 2008		By: /s/ Martin A. Kropelnicki
		MARTIN A. KROPELNICKI
		Chief Financial Officer California Water Service Group