Exhibit 13.1

Regulated and Non-Regulated Customers page 12 NON DISTRICT NAME INCLUDING REGULATED REGULATED CALIFORNIA Bakersfield O&M contracts for the City of Bakersfield 56,700 24,900 and Spicer City and Rancho Verdugo MWC Bear Gulch Atherton, Woodside, Portola Valley, portions of Menlo Park and City of Menlo Park 17,500 4,000 service contract Chico+ Hamilton City 22,800 Dixon 2,800 East Los Angeles O&M contracts for cities of Commerce and 26,400 2,700 Montebello Hawthorne 15-year lease-- full service water operations 6,100 Hermosa-Redondo+ a portion of Torrance 25,400 King City+ 2,200 Livermore O&M contracts for Castlewood Country 16,500 400 Club and Crane Ridge MWC Los Altos portions of Cupertino, Los Altos Hills, 18,300 Mountain View and Sunnyvale Marysville+ 3,700 Mid-Peninsula San Mateo and San Carlos 35,700 Oroville 3,500 Palos Verdes+ Palos Verdes Estates, Rancho Palos Verdes, 23,700 Rolling Hills Estates and Rolling Hills Salinas O&M contracts for Country Meadows 25,600 300 MWC and Spreckels Water Co. Selma 5,100 South San Francisco Colma and Broadmoor 16,200 Stockton 41,600 Visalia+ four O&M contracts 28,600 1,100 Westlake a portion of Thousand Oaks 6,900 Willows+ 2,300 Subtotal 381,500 39,500 WASHINGTON Harbor numerous O&M contracts 9,300 1,700 South Sound numerous O&M contracts 2,700 1,100 Subtotal 12,000 2,800 Current Total 393,500 42,300 32 DOMINGUEZ* Antelope Valley Fremont Valley, Lake Hughes, Lancaster 1,300 300 and Leona Valley Dominguez Carson and portions of Compton, Harbor 32,500 City, Long Beach and Torrance Kern River Valley Bodfish, Kernville, Lakeland, Mountain 4,100 700 Shadows, Onyx, Squirrel Valley, South Lake and Wofford Heights Redwood Valley Lucerne, Duncans Mills and Guerneville 1,900 Subtotal 39,800 1,000 Total with Dominguez 433,300 43,300 Page 13 MAP OF SERVICE TERRITORIES This page is a map of the Western United States with Washington, California and New Mexico highlighted. The California Water Service Company, Washington Water Service Company and Dominguez Services Corporation service areas noted. In New Mexico, a contract operation is noted near Santa Fe. Page 14 Financial Section (INDEX) Ten-year Financial Review 15 Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Consolidated Balance Sheet 23 Consolidated Statement of Income 24 Consolidated Statement of Common Stockholders' Equity 25 Consolidated Statement of Cash Flows 26 Notes to Consolidated Financial Statements 27 Independent Auditors' Report 35 Corporate Information 36 33 Board of Directors inside back cover Officers inside back cover Ten-Year Financial Review Page 15 Dollars in thousands, except common share data 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Summary of Operations: Operating revenue Residential $150,326 $139,018 $146,246 $136,747 $122,275 $117,032 $113,445 $103,644 $ 89,108 $ 91,595 Business 34,219 31,591 32,916 30,924 28,230 27,023 25,247 23,670 20,759 20,910 Industrial 6,947 6,239 6,282 6,150 5,836 5,478 5,123 4,925 4,490 5,145 Public authorities 9,501 8,368 9,636 9,023 8,149 7,995 7,397 6,892 5,734 6,412 Other 5,447 4,443 3,267 2,709 3,126 2,087 2,475 2,525 8,676 1,782 Total op. revenue 206,440 189,659 198,347 185,553 167,616 159,615 153,687 141,656 128,767 125,844 Operating expenses 175,830 159,120 163,431 154,849 141,950 133,821 125,729 117,646 104,372 102,350 Interest expense, other income and expenses, net 10,691 11,603 11,180 11,285 10,651 11,091 12,386 11,276 10,204 8,963 Net income $ 19,919 $ 18,936 $ 23,736 $ 19,419 $ 15,015 $ 14,703 $ 15,572 $ 12,734 $ 14,191 $ 14,531 Common Share Data* Earnings per share $ 1.53 $ 1.45 $ 1.82 $ 1.49 $ 1.16 $ 1.21 $ 1.32 $ 1.08 $ 1.20 $ 1.23 Dividends declared $ 1.085 $ 1.07 $ 1.055 $ 1.04 $ 1.02 $ 0.99 $ 0.96 $ 0.93 $ 0.90 $ 0.87 Dividend payout ratio 71% 74% 58% 70% 88% 82% 73% 86% 75% 71% Book value $ 13.70 $ 13.27 $ 12.84 $ 12.10 $ 11.58 $ 11.36 $ 10.68 $ 10.31 $ 10.16 $ 9.83 Market price at year-end 30.31 31.31 29.53 21.00 16.38 16.00 20.00 16.50 14.00 13.38 Common shares outstanding at year- end (in thousands) 12,936 12,936 12,936 12,936 12,855 12,811 11,694 11,694 11,694 11,694 Return on average common stockholders' equity 11.4% 11.3% 14.7% 12.8% 10.3% 10.8% 12.3% 10.5% 11.8% 12.5% Long-term debt interest coverage 3.5 3.5 4.1 3.6 3.1 3.2 3.1 3.0 3.2 3.6 Balance Sheet Data Net utility plant $515,354 $489,017 $469,897 $452,441 $430,636 $415,747 $399,088 $381,683 $356,172 $331,352 Utility plant expenditures 44,493 35,878 33,931 36,820 28,409 29,117 29,445 36,275 34,994 27,402 Total assets 587,618 560,508 542,783 522,870 507,732 471,855 455,055 411,479 400,698 375,746 Long-term debt including current portion 159,223 141,401 142,013 143,840 147,062 130,983 131,199 123,445 104,494 105,948 Capitalization ratios: Common stockholders' equity 52.1% 54.2% 53.3% 51.5% 49.7% 52.0% 48.1% 48.7% 52.4% 51.3% Preferred stock 1.0% 1.1% 1.1% 1.1% 1.2% 1.2% 1.3% 1.4% 1.5% 1.5% Long-term debt 46.9% 44.7% 45.6% 47.4% 49.1% 46.8% 50.6% 49.9% 46.1% 47.2% Other Data Water production (million gallons) Wells 57,934 51,139 57,652 54,457 50,688 51,352 48,012 52,909 49,692 52,272 Purchased 52,340 49,436 53,190 51,700 49,068 49,300 48,089 40,426 36,686 45,431 Total water production 110,274 100,575 110,842 106,157 99,756 100,652 96,101 93,335 86,378 97,703 Metered customers 322,478 317,178 312,732 308,455 298,730 295,831 290,513 286,465 282,377 278,639 Flat-rate customers 77,091 77,340 77,649 77,961 78,099 79,103 81,360 82,566 82,979 81,721 Customers at year-end 399,569 394,518 390,381 386,416 376,829 374,934 371,873 369,031 365,356 360,360 New customers added 5,051 4,137 3,965 9,587 1,895 3,061 2,842 3,675 4,996 1,251 Revenue per customer $ 517 $ 481 $ 508 $ 480 $ 445 $ 426 $ 413 $ 384 $ 352 $ 349 34 Utility plant per customer 1,845 1,764 1,694 1,633 1,582 1,520 1,460 1,399 1,320 1,247 Employees at year-end 708 689 679 663 660 653 642 637 618 605 *Common share data is restated to reflect the effective two-for-one stock split on December 31, 1997.

Page 16 Management's Discussion and Analysis of Financial Condition and Results of Operations California Water Service Group (Company) is a holding company with three operating subsidiaries, California Water Service Company (Cal Water), CWS Utility Services (Services) and Washington Water Service Company (Washington Water). Cal Water and Washington Water are regulated public utilities. Their assets and operating revenues currently make up the majority of the Company's assets and revenues. Services provides non-regulated water operations and related services to other private companies and municipalities. The following discussion and analysis provides information regarding the Company and its assets, operations and financial condition. Forward-Looking Statements This annual report, including the Letter to Stockholders, Management's Discussion and Analysis and other sections, contains forward-looking statements within the meaning of the federal securities laws. Such statements are based on currently available information, expectations, estimates, assumptions and projections, and management's judgment about the Company, the water utility industry and general economic conditions. Such words as expects, intends, plans, believes, estimates, anticipates or variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not guarantees of future performance. Actual results may vary materially from what is contained in a forward-looking statement. Factors which may cause a result different than expected or anticipated include regulatory commission decisions, new legislation, increases in suppliers' prices, changes in environmental compliance requirements, acquisitions, changes in customer water use patterns and the impact of weather on operating results. The Company assumes no obligation to provide public updates on forward-looking statements. Business Cal Water is a public utility supplying water service to 387,600 customers in 60 California communities through 21 separate water systems or districts. Cal Water's 20 regulated systems, which are subject to regulation by the California Public Utilities Commission (CPUC), serve 381,500 customers as shown on the enclosed map. An additional 6,100 customers receive service through a lease of the City of Hawthorne's water system, which is not subject to CPUC regulation. Cal Water derives non-regulated income from contracts with other private companies and municipalities to operate water systems and provide billing services to 33,400 customers. It also leases communication antenna sites and operates two reclaimed water systems. Washington Water's utility operations are regulated by the Washington Utilities and Transportation Commission (WUTC). Washington Water provides domestic water service to 12,000 customers through two operating districts near Tacoma and Olympia. An additional 2,800 customers are served under operating agreements with private 35 owners. Refer to the separate section titled "Washington Acquisitions" for further information concerning Washington Water. Rates and operations for regulated customers are subject to the jurisdiction of the respective state's regulatory commission. The commissions require that water rates for each regulated district be independently determined. Rates for the City of Hawthorne system are established in accordance with an operating agreement and are subject to ratification by the City Council. Fees for other operating agreements are based on contracts negotiated among the parties. Results of Operation Restatement During 1999, the Company issued 316,472 shares of common stock in exchange for all of the outstanding shares of Harbor Water Company and South Sound Utility Company. Both acquisitions were accounted for as poolings of interests. Financial statements for the current and prior periods have been restated to include the accounts of both companies. Earnings and Dividends Net income in 1999 was $19,919,000, compared to $18,936,000 in 1998 and $23,736,000 in 1997. Earnings per common share were $1.53 in 1999, $1.45 in 1998 and $1.82 in 1997. Net income and earnings per share in 1997 were the highest levels ever achieved by the Company. The weighted average number of common shares outstanding in each of the three years was 12,936,000. At its January 1999 meeting, the Board of Directors increased the common stock dividend rate for the 32nd consecutive year. 1999 also marked the 55th consecutive year that a dividend had been paid on the Company's common stock. The annual dividend paid in 1999 was $1.085, an increase of 1.4% over the 1998 rate of $1.07 per share, which in turn was an increase of 1.4% from the 1997 dividend of $1.055 per share. The dividend increases were based on projections that the higher dividend could be sustained while still providing the Company with adequate financial flexibility. Earnings not paid as dividends are reinvested in the business. The dividend payout ratio was 71% in 1999, 74% in 1998 and 58% in 1997, an average of 67% for the three-year period. Page 17 Operating Revenue Operating revenue, including revenue from City of Hawthorne customers, was $206.4 million, $16.8 million or 9% more than the $189.7 million recorded last year. Revenue in 1997 was $198.3 million. Operating revenue exceeded $200 million for the first time in 1999. The source of changes in operating revenue were: dollars in millions 1999 1998 1997 Customer water usage $11.8 $(12.6) $ 3.9 General and step rate increases 3.0 1.9 6.4 Offset rate increases - water production costs 0.2 0.2 0.2 Usage by new customers 1.8 1.9 2.3 Net change $16.8 $ (8.6) $12.8 Average revenue per customer $ 517 $ 481 $ 508 36 Average metered customer usage (ccf) 305 284 315 New customers added 5,000 4,100 4,000 Weather in the first half of 1999 was normal, while in the prior year it was cool and wet; as a result, customer usage and revenue were higher this year. Third-quarter weather in both years was normal. Fourth-quarter 1999 weather was mild and drier than 1998, causing an increase in customer usage and an increase in revenue. The year-end customer count was 399,600, an increase of 1.3%. During the first half of 1998, weather in our service areas was wet and cool, very much the reverse of 1997's favorable weather pattern. Weather in the second half of 1998 returned to a more normal pattern. However, the wet, cool weather in the early part of the year resulted in an overall 9% decrease in 1998 water usage, negatively impacting revenue. The year-end customer count in 1998 was 394,500, a 1.1% increase. Rainfall for the 1996-97 season was concentrated in December 1996 and January 1997, then virtually ceased. Average consumption per metered account reached a record level due to dry and warm summer months. The customer count in 1997 increased 1.0% to 390,400. Operating and Interest Expenses Operating expenses, including those for the Hawthorne operation, were $175.8 million in 1999, $159.1 million in 1998 and $163.4 million in 1997. Wells provided 52.4% of water requirements in 1999 and purchased water provided 47.2%, with 0.4% obtained from a surface supply. In 1998, the corresponding percentages were 50.6%, 48.9% and 0.5%, and in 1997, 51.8%, 47.8% and 0.4%. The table below provides information regarding water production costs, which includes purchased water, purchased power and pump taxes: dollars in millions 1999 1998 1997 Purchased water $58.1 $50.4 $52.2 Purchased power 13.0 11.4 12.7 Pump taxes 4.5 3.8 4.3 Total water production costs $75.6 $65.6 $69.2 Change from prior year 15% (5)% 2% Water production (billion gallons) 110 101 111 Change from prior year 10% (9)% 5% The year-to-year water production cost changes were influenced by each year's predominant weather pattern. In each of the three years, purchased water expense, the largest component of annual operating expense, was affected by wholesale suppliers' rate increases. Water production costs in 1999 reflect an increase in customer usage and significant purchased water price increases for the San Francisco Peninsula districts, where the wholesale supplier's rates increased 37%. Page 18 Production levels in 1998 decreased from 1997 due to lower customer usage in response to weather conditions. Despite some wholesaler price increases, overall water 37 production expenses declined. Well production decreased due to the decline in water sales and because several wells were out of service for maintenance. With reduced well production, purchased power and pump tax expenses declined. In 1997, nonrecurring refunds totaling $2.5 million received from two wholesale water suppliers reduced purchased water expense. Well production increased 6% in 1997 because of increased demand, causing an increase in pump taxes and purchased power costs. Employee payroll and benefits charged to operations and maintenance expense was $38.4 million in 1999, $34.9 million in 1998 and $34.1 million in 1997. The increases in payroll and related benefits are attributable to wage increases effective at the start of each year and additional hours worked. At year-end 1999, 1998 and 1997, there were 708, 689 and 679 employees. Income tax expense was $12.2 million in 1999, $10.8 million in 1998 and $14.1 million in 1997. The changes in taxes are generally due to variations in taxable income. There is no state income tax in Washington. Long-term debt interest expense increased $1.0 million in 1999 because of the issuance of Series B, 6.77% senior notes in March. Long-term interest costs decreased $0.4 million in 1998 and $0.3 million in 1997 due to the retirement of Series K bonds in November 1996 and Series L bonds in November 1997, annual sinking fund payments each year and the absence of new long-term financing. Interest expense from short-term bank borrowings in 1999 decreased $0.4 million. Short-term borrowings were reduced after the issue of the Series B senior notes and by strong cash flow from operations. In 1998, short-term interest expense was $0.7 million greater than in 1997. In 1997, short-term interest expense was $0.3 million more than in the prior year. Interest coverage of long-term debt before income taxes was 3.5 times in 1999 and 1998, and 4.1 times in 1997. There was $13.5 million in short-term borrowings at the end of 1999, and $22.5 million at the end of 1998. Other Income Other income is derived from management contracts by which the Company operates private and municipally-owned water systems, agreements for operation of two reclaimed water systems, contracts for meter reading and billing services to various cities, leases of communication antenna sites, surplus property sales, other nonutility sources and interest on short-term investments. Total other income was $2.7 million in 1999, $1.3 million in 1998 and $1.4 million in 1997. During 1999, $1.3 million in pretax revenues were realized as part of the Real Estate Program that is described in more detail in "Liquidity and Capital Resources." Income from the various operating and billing contracts, excluding short-term interest income, was $2.5 million in 1999 and $1.3 million in 1998 and 1997. Rates and Regulation The Company's regulatory staff completed a review of 14 Cal Water districts that were eligible for general rate application filings in 1999. Based on current earnings levels, projected expense increases and expected capital expenditures, a determination was made that no general rate increase applications were necessary. During 2000, eligible districts will again be reviewed. It is anticipated that general rate application filings will be made in mid-year with CPUC decisions expected in late spring 2001. In May 1999, the CPUC authorized rate increases in four districts serving about 25% of Cal Water's total customers. The applications were filed in July 1998. 38 Subsequently, the Company and CPUC staff agreed to a stipulated settlement. The decision is estimated to generate $4,095,000 in new revenue during the twelve months following its mid-June effective date. The decision authorized a 9.55% return on equity, providing $1.9 million in additional revenue. In addition, the decision provided another $2.2 million in revenue for environmental compliance, specific capital budget expenditures and recovery of General Office expenses. The $2.2 million is not reflected in the 9.55% return on equity calculation. CPUC decisions were received in July 1998 for the general rate applications filed in July 1997. Additional annual revenue from these decisions is expected to total $299,000 in 1998, $267,000 in 1999 and $121,000 in the years 2000 and 2001. In a variance from its past practice, future rate increases for operating costs and capital requirements over the next five years in the Oroville and Selma districts are tied to changes in a price index. The decision maintained the ROE at 10.35%. In 1997, the CPUC's general rate application decisions granted an ROE of 10.35% and additional revenue of $2.4 million. No rate applications were filed for the Washington operations during 1999. The most recent authorized rate of return was 11.1%, granted in a 1998 decision. General rate application filings for both districts are expected in 2000. Water Supply Page 19 The Company's source of supply varies among its operating districts. Certain districts obtain all of their supply from wells, some districts purchase all of their supply from wholesale suppliers and other districts obtain their supply from a combination of wells and purchased sources. Historically, about half of the water is provided from wells and about half is purchased. Generally, between mid-spring and mid-fall, little precipitation falls in the California service areas. The Washington service areas receive precipitation in all seasons. Water demand is highest during the warm summers and lowest in the cool winters. Rain and snow during the winter months replenish underground water basins and fill reservoirs, providing the water supply for subsequent delivery to customers. To date, snow and rainfall accumulation during the 1999-2000 water year has been less than normal, but the prior four years exceeded normal levels. Water storage in state reservoirs at the end of 1999 exceeds historic amounts. The Company believes that its supply from both underground aquifers and purchased sources should be adequate to meet customer demand during 2000. Environmental Matters The Company is subject to regulations of the United States Environmental Protection Agency (EPA), state health service departments and various local health departments concerning water quality matters. It is also subject to the jurisdiction of various state and local regulatory agencies relating to environmental matters, including handling and disposal of hazardous materials. The Company believes it is in compliance with all requirements set forth by the various agencies. The Safe Drinking Water Act was amended in 1996 to provide a new process for the EPA to select and regulate waterborne contaminants. The EPA can now regulate only contaminants that are known or likely to occur at levels that would pose a risk to public 39 health when such regulation would provide a meaningful opportunity to reduce a health risk. New drinking water regulations will be based primarily on risk assessment and measurement of cost/benefit considerations for minimizing overall health risk. Over 90 contaminants for possible regulation have been listed by the EPA and the list must be updated every five years. Also, every five years the EPA must select at least five listed contaminants and determine if they should be regulated. The Company has an established water supply monitoring program to test for contaminants as mandated by the EPA. As necessary or required, water treatment is added to provide disinfection for water extracted from underground sources. The Company also owns and operates three surface water treatment plants. The cost of treatment is being recovered in customer rates as authorized by the regulatory authorities. Water purchased from wholesale suppliers is treated before delivery to the Company's systems. Enforcement of the EPA standards is the responsibility of individual states, which could impose more stringent regulation. In addition to the EPA's requirements, various regulatory agencies could require increased monitoring and possibly additional treatment of water supplies. The Company intends to request recovery for any additional treatment costs through the ratemaking process. Liquidity and Capital Resources Liquidity The Company's liquidity is provided by bank lines of credit and internally generated funds. The Company and Cal Water have a $50 million bank line of credit. The Company's portion is $20 million and Cal Water's portion is $30 million. The Company's $20 million portion may be drawn on for use by the Company, including funding operations of either of its two California subsidiaries. Cal Water's $30 million portion can be used solely for purposes of the regulated utility. Washington Water has loan commitments from two banks to meet its operating and capital equipment purchase requirements. Generally, short-term borrowings under the commitments are converted annually to long-term borrowings with repayment terms tied to system and equipment acquisitions. Additional information regarding the bank borrowings is presented in Note 6 to the Consolidated Financial Statements. Internally generated funds come from retention of earnings not paid out as dividends, depreciation and deferred income taxes. Because of the seasonal nature of the water business, the need for short-term borrowings under the line of credit generally increases during the first six months of the year when water sales are lower. With greater summer usage and increased billings comes increased cash flow from operations, allowing bank borrowings to be repaid. The Company believes that long-term financing is available to it through equity and debt markets. Standard & Poor's and Moody's have maintained their ratings of the Cal Water's first mortgage bonds at AA- and Aa3. Long-term financing, which includes common stock, first mortgage bonds, senior notes and other debt securities, has been used to replace short-term borrowings and fund construction. Developer contributions in aid of construction and refundable advances for construction are also sources of funds for various construction projects. Page 20 In March 1999, Cal Water completed its first long-term financing in four years when Series B, 6.77%, 30-year senior notes were issued. Prior to the Series B issue, 40 operating and capital requirements were met by borrowings under the bank short-term line of credit and by internally generated funds. In 1998, the Company introduced a Dividend Reinvestment and Stock Purchase Plan (Plan), replacing the existing plan. Under the Plan, stockholders may reinvest dividends to purchase additional Company common stock. The Plan also allows existing stockholders and other interested investors to purchase Company common stock through the transfer agent. Shares required for the Plan may be purchased on the open market or newly issued shares. Therefore, the Plan will provide the Company with an alternative means of developing additional equity if new shares are issued. During 1999 and 1998, shares required by the Plan were purchased on the open market. At this time, the Company intends to continue purchasing shares required for the Plan on the open market. However, if new shares were issued to satisfy future Plan requirements, the impact on earnings per share could be dilutive because of the added shares outstanding. Also, stockholders not participating in the Plan may experience dilution of their ownership percentage. Capital Requirements Capital requirements consist primarily of new construction expenditures for expanding and replacing the Company's utility plant facilities, and the acquisition of new water properties. They also include refunds of advances for construction and retirement of bonds. During 1999, total utility plant expenditures were $44.5 million. For 1998, utility plant expenditures totaled $35.9 million, compared to $33.9 million in 1997. Expenditures in 1999 included $31.5 million provided by Company funds and $13.0 million received from developers through contributions in aid of construction and refundable advances for construction. Company projects were funded by internally generated funds, borrowings under bank credit lines and commitments, and issuance of the $20 million Series B senior notes. The Company's 2000 construction program is authorized for $35.7 million. The funds for this program are expected to be provided by cash from operations, bank borrowings and long-term debt financing. New subdivision construction generally will be financed by developers' contributions and refundable advances. Company-funded construction budgets over the next five years are projected to be about $175 million. Capital Structure Common stockholders' equity increased by the amount of earnings not paid out for dividends. No new equity was issued in the past three years. The long-term debt portion of the capital structure increased due to the issuance of Series B senior notes. It was reduced by first mortgage bond sinking fund payments. The Company's total capitalization at December 31, 1999 was $337.2 million, compared to $313.9 million at the end of 1998. Capital ratios were: 1999 1998 Common equity 52.1% 54.2% Preferred stock 1.0% 1.1% Long-term debt 46.9% 44.7% 41 The 1999 return on average common equity was 11.4%, compared with 11.3% in 1998 and 14.7% in 1997. Refer to the discussion of authorized return on equity in the "Rates and Regulation" section. Real Estate Program The Company's subsidiaries own more than 900 real estate parcels. Certain parcels are not necessary for or used in water utility operations. A program has been developed to realize the value of certain surplus properties through sale or lease of those properties. Most surplus properties have a low cost basis. The program, which commenced in 1999, will be ongoing for a period of several years. During the next four years, the Company estimates that gross property transactions totaling over six million dollars could be completed. Stockholder Rights Plan As explained in Note 5 to the Consolidated Financial Statements, in January 1998, the Board of Directors adopted a Stockholder Rights Plan (Plan). In connection with the Plan, a dividend distribution of one right for each common share to purchase preferred stock under certain circumstances was also authorized. The Plan is designed to protect stockholders and maximize stockholder value in the event of an unsolicited takeover proposal by encouraging a prospective acquirer to negotiate with the Board. Dominguez Merger Page 21 On November 13, 1998, the boards of the Company and Dominguez Services Corporation (Dominguez) agreed to the merger of the two companies. The agreement was subsequently amended on March 22, 1999. Dominguez is a utility holding company whose subsidiaries provide water service to about 40,000 customers in 20 California communities. Its primary subsidiary, Dominguez Water Company, is a regulated water utility with its largest operation serving over 32,000 accounts in the South Bay area of Los Angeles County adjacent to Cal Water's Hermosa Redondo and Palos Verdes districts. Dominguez also has operations in Kern County east of Cal Water's Bakersfield district serving over 4,100 accounts, in the Antelope Valley area serving about 1,300 accounts and in an area north of San Francisco serving about 1,900 customers. Dominguez' 1998 operating revenue was $25.3 million. Its net utility plant was $44.8 million and it had total assets of $52.6 million. The amended agreement provides that each outstanding Dominguez common share will be exchanged for between 1.25 and 1.49 shares of Company common stock. The precise conversion ratio will depend upon the average closing price of Company common stock for a twenty-day period preceding the transaction's closing date. The conversion ratio is designed to yield Dominguez shareholders a $33.75 value for each Dominguez share. At December 31, 1998, there were 1,561,000 shares of Dominguez common stock outstanding. The Company also expects to assume approximately $12 million of outstanding Dominguez debt. Dominguez shareholders approved the merger at a meeting in May 1999. Necessary approvals from federal agencies, including the Securities and Exchange Commission and Federal Trade Commission, have been received. Final approval of the CPUC is now anticipated in March 2000. 42 Washington Acquisitions During the fourth quarter of 1999, the Company completed the acquisitions of Harbor Water Company near Tacoma and South Sound Utility Company near Olympia. The two companies, which serve 14,800 customers, were merged into a new subsidiary, Washington Water Service Company. The transactions were completed through tax-free exchanges of 316,472 Company common shares, valued at $8.5 million for all of the shares of the two companies. The Company also assumed $3 million in outstanding debt. Both transactions were accounted for on a pooling of interest basis. New Accounting Standard In 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." The statement establishes new accounting and reporting standards for derivative financial instruments and hedging activities. The Company expects to adopt the standard in 2000. Its adoption is not anticipated to have a material impact on the Company's results of operations or financial position. Year 2000 Update Readiness The Company successfully transitioned from 1999 to 2000 without technology or customer service disruptions as a result of preparation efforts by our employees in the districts and at the corporate office. A Year 2000 (Y2K) Transition Team was assembled to ensure the Company's Y2K preparedness. Computer applications are currently processed on a mainframe-based system and a local area network (LAN) computer system. Most billing applications are processed on the mainframe computer. The information systems department (IS) inventoried software programs and modified them to be Y2K ready. A Y2K compatible accounting, purchasing and human resources software package was installed and operated on the LAN during 1999 as scheduled. The Company identified non-computer equipment and operating systems that potentially contained embedded date-sensitive chips. Steps were taken to make the equipment and systems Y2K ready. The Company continues to monitor its computer-based systems for possible Y2K disruptions and is ready to respond in the event of a Y2K related problem. Suppliers and vendors with whom the Company has material business relationships were contacted throughout 1998 and 1999 to assess their Y2K preparedness. Those contacted included water wholesalers, power supply companies, chemical vendors, fuel suppliers, banks and the stock registrar. Operating units continue in 2000 to work with suppliers and vendors to assure availability of necessary products and supplies. The Company's water systems operate independent of each other. Each system is unique as to its operating requirements. Each operating district prepared a Y2K readiness and response plan. The plans were continually reviewed and updated as testing was completed and new information received that could affect the Y2K transition. Page 22 Costs The estimated remediation cost for Y2K preparedness was about $500,000. This includes the cost of an outside consultant, vendors and computer programming time. The costs of a new computer system and software package are not included since their 43 selection and installation were not Y2K driven. No IS projects were deferred as a result of the Y2K efforts. The Company did accelerate the acquisition of several portable boosters for use in moving water in the event of a power outage, with a capitalized cost of about $400,000. Risks In a worst case scenario, the Company could have been unable to deliver water to some or all of its customers if wholesale suppliers had not provided water or power supplies. Additionally, it could have been impossible to produce customer bills or maintain accounting functions if power sources were not available or computer billing programs did not properly function. Insurance coverage was reviewed and the Company and its broker believed that the policies afforded Y2K coverage. Contingency Plans Each district maintains an emergency response plan that is reviewed and updated on a regular basis. These plans are designed to provide for alternative operating plans and procedures in the event normal operations are interrupted. The emergency plans were the basis for developing separate Y2K service interruption preparedness and response plans. Fixed site and portable auxiliary power generators are located throughout the service territories. These generators are designed to produce electric power for wells and pumps to supply water to customers in the event power companies experience outages. Emergency water connections are maintained between the Company's water systems and those of adjacent purveyors to provide an emergency water supply. Each district has identified high-profile water users, such as hospitals, and developed contingency plans for continued service in the event of a service disruption. Detailed Y2K plans included the following: establishing a timeline to ascertain vendors' ability to provide crucial products and services; informing employees of Y2K efforts and responsibilities; scheduling maintenance so that water delivery facilities were on line at year-end; arranging for alternate water and power supplies; conducting "what if" exercises to develop responses to loss of water or power outages from normal sources and preparing for manual water system operations if necessary; identifying plans to provide water service to critical vendors, such as hospitals; assuring that measures were in place to maintain water quality and that water testing alternatives were available; arranging for equipment needs and supplies should Y2K problems develop; and scheduling employees to be on duty or available for duty as needed.

CONSOLIDATED BALANCE SHEET Page 23 December 31, 1999 and 1998 In thousands 1999 1998 ASSETS Utility plant: Land $ 9,424 $ 8,221 Depreciable plant and equipment 704,009 667,902 Construction work in progress 13,740 10,829 Intangible assets 10,179 8,807 44 Total utility plant 737,352 695,759 Less depreciation and amortization 221,998 206,742 Net utility plant 515,354 489,017 Current assets: Cash and cash equivalents 1,437 1,051 Receivables: Customers 12,533 10,700 Other 3,041 3,436 Unbilled revenue 7,145 5,958 Materials and supplies at average cost 2,229 2,235 Taxes and other prepaid expenses 4,437 4,512 Total current assets 30,822 27,892 Other assets: Regulatory assets 36,458 39,538 Unamortized debt premium and expense 3,503 3,556 Other 1,481 505 Total other assets 41,442 43,599 $587,618 $560,508 CAPITALIZATION AND LIABILITIES Capitalization: Common stock, $.01 par value; 25,000 share authorized, 12,936 shares outstanding $ 129 $ 129 Additional paid-in capital 44,881 44,881 Retained earnings 132,689 126,687 Accumulated other comprehensive loss (517) -- Total common stockholders' equity 177,182 171,697 Preferred stock without mandatory redemption provision, $25 par value; 380 shares authorized, 139 shares outstanding 3,475 3,475 Long-term debt, less current maturities 156,572 138,758 Total capitalization 337,229 313,930 Current liabilities: Current maturities of long-term debt 2,651 2,643 Short-term borrowings 13,599 22,500 Accounts payable 23,707 16,010 Accrued taxes 3,556 4,726 Accrued interest 2,092 1,944 Other accrued liabilities 9,906 9,428 Total current liabilities 55,511 57,251 Unamortized investment tax credits 2,842 2,937 Deferred income taxes 21,427 27,200 45 Regulatory and other liabilities 18,001 12,697 Advances for construction 99,991 95,917 Contributions in aid of construction 52,617 50,576 $587,618 $560,508 See accompanying notes to consolidated financial statements. 46

Consolidated Statement of Income Page 24 For the years ended December 31, 1999, 1998 and 1997

In thousands, except per share data 1999 1998 1997 Operating revenue $206,440 $189,659 $198,347 Operating expenses: Operations: Purchased water 58,132 50,378 52,155 Purchased power 13,033 11,389 12,679 Pump taxes 4,537 3,850 4,302 Administrative and general 27,987 25,418 24,566 Other 26,425 25,065 24,505 Maintenance 9,183 9,164 9,445 Depreciation and amortization 15,802 14,870 13,959 Income taxes 12,176 10,808 14,057 Property and other taxes 8,555 8,178 7,763 Total operating expenses 175,830 159,120 163,431 Net operating income 30,610 30,539 34,916 Other income and expenses, net 2,510 1,094 949 Income before interest expense 33,120 31,633 35,865 Interest expense: Long-term debt interest 12,144 11,259 11,405 Other interest 1,057 1,438 724 Total interest expense 13,201 12,697 12,129 Net income $ 19,919 $ 18,936 $ 23,736 Basic earnings per share of common stock $ 1.53 $ 1.45 $ 1.82 Average number of common shares outstanding 12,936 12,936 12,936 See accompanying notes to consolidated financial statements. 47

Consolidated Statement of Common Stockholders' Equity Page 25 For the years ended December 31, 1999, 1998 and 1997

In thousands Accumulated Additional Other Common Paid-in Retained Comprehensive Stock Capital Earnings Loss Total Balance at December 31, 1996 $129 $44,881 $111,137 $ -- $156,147 Net income 23,736 23,736 Dividends paid: Preferred stock 153 153 Common 13,313 13,313 Total dividends paid 13,466 13,466 Income reinvested in business 10,270 10,270 Balance at December 31, 1997 129 44,881 121,407 -- 166,417 Net income 18,936 18,936 Dividends paid: Preferred stock 153 153 Common stock 13,503 13,503 Total dividends paid 13,656 13,656 Income reinvested in business 5,280 5,280 Balance at December 31, 1998 129 44,881 126,687 -- 171,697 Net income 19,919 19,919 Dividends paid: Preferred stock 153 153 Common stock 13,764 13,764 Total dividends paid 13,917 13,917 Income reinvested in business 6,002 6,002 Comprehensive lo (517) (517) Balance at December 31, 1999 $129 $44,881 $132,689 $ (517) $177,182 See accompanying notes to consolidated financial statements. 48

Page 26

CONSOLIDATED STATEMENT OF CASH FLOWS For the years ended December 31, 1999, 1998 and 1997 In thousands 1999 1998 1997 Operating activities Net income $19,919 $18,936 $23,736 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 15,802 14,870 13,959 Deferred income taxes, investment tax credits, and regulatory assets and liabilities, net 1,056 273 1,072 Changes in operating assets and liabilities: Receivables (1,438) 1,013 (1,855) Unbilled revenue (1,187) (780) 399 Accounts payable 7,697 374 739 Other current liabilities (544) 2,726 365 Other changes, net 1,352 805 1,507 Net adjustments 22,738 19,281 16,186 Net cash provided by operating activities 42,657 38,217 39,922 Investing activities: Utility plant expenditures: Company funded (31,509) (30,780) (26,153) Developer advances and contributions in aid of construction (12,984) (5,098) (7,778) Net cash used in investing activities (44,493) (35,878) (33,931) Financing activities: Net short-term borrowings (8,901) 8,000 6,900 Issuance of long-term debt 20,062 -- -- Advances for construction 7,435 3,737 4,559 Refunds of advances for construction (3,902) (3,760) (3,701) Contributions in aid of construction 3,685 2,746 2,770 Retirement of long-term debt (2,240) (733) (2,324) Dividends paid (13,917) (13,656) (13,466) Net cash provided (used) in financing activities 2,222 (3,666) (5,262) Change in cash and cash equivalents 386 (1,327) 729 Cash and cash equivalents at beginning of year 1,051 2,378 1,649 Cash and cash equivalents at end of year $ 1,437 $ 1,051 $2,378 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest (net of amounts capitalized) $12,900 $11,319 $11,976 Income taxes 10,849 8,851 14,666 49 See accompanying notes to consolidated financial statements.

Notes To Consolidated Financial Statements Page 27 December 31, 1999, 1998, and 1997 Note 1. Organization And Operations California Water Service Group (Company) is a holding company and through its wholly owned subsidiaries provides water utility and other related services in California and Washington. During 1999, the Company reincorporated as a Delaware corporation. California Water Service Company and Washington Water Service Company provide regulated utility services under the rules and regulations of their respective regulatory commissions (jointly referred to as Commissions). CWS Utility Services provides non-regulated water utility and related utility services. The Company operates primarily in one business segment, providing water and related utility services. Note 2. Summary of Significant Accounting Policies The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The financial statements give retroactive effect to acquisitions, which were accounted for as poolings of interests. Intercompany transactions and balances have been eliminated. The accounting records of the Company are maintained in accordance with the uniform system of accounts prescribed by the Commissions. Certain prior years' amounts have been reclassified, where necessary, to conform to the current presentation. The preparation of financial statements in conformity with generally accepted accounting principles 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 date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Revenue consists of monthly cycle customer billings for regulated water service at rates authorized by the Commissions and billings to certain non-regulated customers. Revenue from metered accounts includes unbilled amounts based on the estimated usage from the latest meter reading to the end of the accounting period. Flat-rate accounts, which are billed at the beginning of the service period, are included in revenue on a pro rata basis for the portion applicable to the current accounting period. Utility Plant Utility plant is carried at original cost when first constructed or purchased, except for certain minor units of property recorded at estimated fair values at dates of acquisition. Cost of depreciable plant retired is eliminated from utility plant accounts and such costs are charged against accumulated depreciation. Maintenance of utility plant is charged primarily to operation expenses. Interest is capitalized on plant expenditures during the construction period and amounted to $324,000 in 1999, $224,000 in 1998, and $267,000 in 1997. Intangible assets acquired as part of water systems purchased are stated at amounts as prescribed by the Commissions. All other intangibles have been recorded at 50 cost. Included in intangible assets is $6,500,000 paid to the City of Hawthorne to lease the city's water system and associated water rights. The lease payment is being amortized on a straight-line basis over the 15-year life of the lease. The Company continually evaluates the recoverability of utility plant by assessing whether the amortization of the balance over the remaining life can be recovered through the expected and undiscounted future cash flows. Depreciation Depreciation of utility plant for financial statement purposes is computed on the straight-line remaining life method at rates based on the estimated useful lives of the assets, ranging from 5 to 65 years. The provision for depreciation expressed as a percentage of the aggregate depreciable asset balances was 2.6% in 1999, 1998, and 1997. For income tax purposes, as applicable, the Company computes depreciation using the accelerated methods allowed by the respective taxing authorities. Plant additions since June 1996 are depreciated on a straight-line basis for tax purposes. Cash Equivalents Cash equivalents include highly liquid investments, primarily U.S. Treasury and U.S. Government agency interest bearing securities, stated at cost with original maturities of three months or less. Page 28 Long-Term Debt Premium, Discount and Expense The discount and expense on long-term debt is being amortized over the original lives of the related debt issues. Premiums paid on the early redemption of certain debt issues and unamortized original issue discount and expense of such issues are amortized over the life of new debt issued in conjunction with the early redemption. Accumulated Other Comprehensive Loss The Company has an unfunded Supplemental Executive Retirement Plan. The unfunded accumulated benefit obligation of the plan exceeds the accrued benefit cost. This amount exceeds the unrecognized prior service cost, therefore accumulated other comprehensive loss has been recorded as a separate component of Stockholders' Equity. Advances for Construction Advances for Construction consist of payments received from developers for installation of water production and distribution facilities to serve new developments. Advances are excluded from rate base. Such payments are refundable to the developer without interest over a 20-year or 40-year period. Refund amounts under the 20-year contracts are based on annual revenues from the extensions. Unrefunded balances at the end of the contract period are credited to Contributions in Aid of Construction and are no longer refundable. Refunds on contracts entered into since 1982 are made in equal annual amounts over 40 years. At December 31, 1999, the amounts refundable under the 20-year contracts were $7,664,000 and under 40-year contracts $92,327,000. Estimated refunds for 2000 for all water main extension contracts are $4,100,000. Contributions in Aid of Construction Contributions in Aid of Construction represent payments received from developers, primarily for fire protection purposes, which are not 51 subject to refunds. Facilities funded by contributions are included in utility plant, but excluded from rate base. Depreciation related to contributions is charged to Contributions in Aid of Construction. Income Taxes The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Measurement of the deferred tax assets and liabilities is 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. It is anticipated that future rate action by the Commissions will reflect revenue requirements for the tax effects of temporary differences recognized, which have previously been flowed through to customers. The Commissions have granted the Company customer rate increases to reflect the normalization of the tax benefits of the federal accelerated methods and available investment tax credits (ITC) for all assets placed in service after 1980. ITC are deferred and amortized over the lives of the related properties for book purposes. Advances for Construction and Contributions in Aid of Construction received from developers subsequent to 1986 were taxable for federal income tax purposes and subsequent to 1991 were subject to California income tax. In 1996 the federal tax law, and in 1997 the California tax law, changed and the major portion of future advances and contributions are nontaxable. Earnings per Share Basic earnings per share (EPS) is calculated using income available to common stockholders divided by the weighted average shares outstanding during the year. The Company has no dilutive securities; accordingly, diluted EPS is not shown. Note 3. Acquisitions The Company acquired all of the outstanding stock of Harbor Water Company and South Sound Utility Company, which form the operations of Washington Water Service Company, serving 14,800 regulated and non-regulated customers. The acquisitions, which were completed in 1999, were accounted for as poolings of interests in exchange for 316,472 shares of Company stock and assumption of long-term debt of $2,959,000. The results of operations previously reported by the separate entities and included in the accompanying financial statements are not significant. Note 4. Preferred Stock Page 29 As of December 31, 1999 and 1998, 380,000 shares of preferred stock were authorized. Dividends on outstanding shares are payable quarterly at a fixed rate before any dividends can be paid on common stock. Preferred shares are entitled to sixteen votes, each with the right to cumulative votes at any election of directors. The outstanding 139,000 shares of $25 par value cumulative, 4.4% Series C preferred shares are not convertible to common stock. A premium of $243,250 would be 52 due upon voluntary liquidation of Series C. There is no premium in the event of an involuntary liquidation. Note 5. Common Stockholders' Equity The Company is authorized to issue 25,000,000 shares of $.01 par value common stock. As of December 31, 1999 and 1998, 12,935,612 shares of common stock were issued and outstanding. All shares of common stock are eligible to participate in the Company's dividend reinvestment plan. Approximately 10% of stockholders participate in the plan. Stockholder Rights Plan In January 1998, the Board of Directors adopted a Stockholder Rights Plan (the Plan) and authorized a dividend distribution of one right (Right) to purchase 1/100th share of Series D Preferred Stock for each outstanding share of Common Stock. The Rights became effective in February 1998 and expire in February 2008. The Plan is designed to provide stockholders protection and to maximize stockholder value by encouraging a prospective acquirer to negotiate with the Board. Each Right represents a right to purchase 1/100th share of Series D Preferred Stock at the price of $120, subject to adjustment (the Purchase Price). Each share of Series D Preferred Stock is entitled to receive a dividend equal to 100 times any dividend paid on common stock and 100 votes per share in any stockholder election. The Rights become exercisable upon occurrence of a Distribution Date. A Distribution Date event occurs if (a) any person accumulates 15% of the then outstanding Common Stock, (b) any person presents a tender offer which causes the person's ownership level to exceed 15% and the Board determines the tender offer not to be fair to the Company's stockholders, or (c) the Board determines that a stockholder maintaining a 10% interest in the Common Stock could have an adverse impact on the Company or could attempt to pressure the Company to repurchase the holder's shares at a premium. Until the occurrence of a Distribution Date, each Right trades with the Common Stock and is not separately transferable. When a Distribution Date occurs: (a) the Company would distribute separate Rights Certificates to Common Stockholders and the Rights would subsequently trade separate from the Common Stock; and (b) each holder of a Right, other than the Acquiring Person (whose Rights will thereafter be void), will have the right to receive upon exercise at its then current Purchase Price that number of shares of Common Stock having a market value of two times the Purchase Price of the Right. If the Company merges into the acquiring person or enters into any transaction that unfairly favors the acquiring person or disfavors the Company's other stockholders, the Right becomes a right to purchase Common Stock of the acquiring person having a market value of two times the Purchase Price. The Board may determine that in certain circumstances a proposal that would cause a distribution date is in the Company stockholders' best interest. Therefore, the Board may, at its option, redeem the Rights at a redemption price of $.001 per Right. Note 6. Short-Term Borrowings As of December 31, 1999, the Company maintained a bank line of credit providing unsecured borrowings of up to $20,000,000 at the prime lending rate or lower rates as quoted by the bank. Cal Water maintained a bank line of credit for an additional $30,000,000 on the same terms as the Company. The line of credit agreements, which 53 expire April 2001, do not require minimum or specific compensating balances. The following table represents borrowings under these bank lines of credit.

Dollars in Thousands 1999 1998 1997 Maximum short-term borrowings $24,000 $24,000 $14,500 Average amount outstanding 9,084 15,750 5,164 Weighted average interest rate 6.52% 7.09% 7.22% Interest rate at December 31 7.11% 6.97% 7.29% Note 7. Long-Term Debt Page 30 As of December 31, 1999 and 1998, long-term debt outstanding was: In Thousands 1999 1998 First Mortgage Bonds: Series P 7.875% due 2002 $ 2,595 $ 2,610 Series S 8.50% due 2003 2,610 2,625 Series BB 9.48% due 2008 14,940 16,650 Series CC 9.86% due 2020 18,700 18,800 Series DD 8.63% due 2022 19,300 19,400 Series EE 7.90% due 2023 19,400 19,500 Series FF 6.95% due 2023 19,400 19,500 Series GG 6.98% due 2023 19,400 19,500 116,345 118,585 Senior Notes: Series A 7.28% due 2025 20,000 20,000 Series B 6.77% due 2028 20,000 -- Other long-term debt 2,878 2,816 Total long-term debt 159,223 141,401 Less current maturities 2,651 2,643 $156,572 $138,758

The first mortgage bonds are held by institutional investors and secured by substantially all of Cal Water's utility plant. The senior notes are held by institutional investors and are unsecured and require interest-only payments until maturity. Other long-term debt is primarily equipment financing arrangements with other financial institutions. Aggregate maturities and sinking fund requirements for each of the succeeding five years (2000 through 2004) are $2,651,000, $2,613,000, $5,072,000, $5,265,000, and $2,373,000. 54 Note 8. Income Taxes Income tax expense consists of the following:

In Thousands Federal State Total 1999 Current $ 7,476 $ 2,351 $ 9,827 Deferred 2,524 (175) 2,349 Total $10,000 $ 2,176 $12,176 1998 Current $ 6,368 $ 2,281 $ 8,649 Deferred 2,515 (356) 2,159 Total $ 8,883 $ 1,925 $10,808 1997 Current $ 9,118 $ 2,894 $12,012 Deferred 2,239 (194) 2,045 Total $11,357 $ 2,700 $14,057 Page 31 Income tax expense computed by applying the current federal tax rate of 35% tax rate to pretax book income differs from the amount shown in the Consolidated Statement of Income. The difference is reconciled in the table below: In Thousands 1999 1998 1997 Computed "expected" tax expense $11,233 $10,410 $13,228 Increase (reduction) in taxes due to: State income taxes net of federal tax benefit 1,414 1,251 1,755 Investment tax credits (173) (156) (152) Other (298) (697) (774) Total income tax $12,176 $10,808 $14,057 The components of deferred income tax expense were: In Thousands 1999 1998 1997 Depreciation $ 2,629 $ 2,691 $ 2,457 Developer advances and contributions (749) (798) (334) Bond redemption premiums (62) (62) (62) Investment tax credits (94) (93) (93) Other 625 421 77 Total deferred income tax expense $ 2,349 $ 2,159 $ 2,045 The tax effects of differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1999 and 1998 are presented in the following table: 55 In Thousands 1999 1998 Deferred tax assets: Developer deposits for extension agreements and contributions in aid of construction $ 40,595 $42,251 Federal benefit of state tax deductions 6,040 2,524 Book plant cost reduction for future deferred ITC amortization 1,679 1,727 Insurance loss provisions 821 271 Other 2,856 1,365 Total deferred tax assets 51,991 48,138 Deferred tax liabilities: Utility plant, principally due to depreciation differences 72,327 74,186 Premium on early retirement of bonds 1,091 1,152 Total deferred tax liabilities 73,418 75,338 Net deferred tax liabilities $(21,427) $(27,200)

A valuation allowance was not required during 1999 and 1998. Based on historic taxable income and future taxable income projections over the period in which the deferred assets are deductible, management believes it is more likely than not that the Company will realize the benefits of the deductible differences. Note 9. Employee Benefit Plans Page 32 Pension Plan The Company provides a qualified defined benefit, non-contributory pension plan for substantially all employees. The cost of the plan was charged to expense and utility plant. The Company makes annual contributions to fund the amounts accrued for pension cost. Plan assets are invested in mutual funds, pooled equity, bonds and short-term investment accounts. The data below includes the unfunded, non-qualified, supplemental executive retirement plan. Savings Plan The Company sponsors a 401(k) qualified, defined contribution savings plan that allows participants to contribute up to 15% of pre-tax compensation. The Company matched fifty cents for each dollar contributed by the employee up to a maximum Company match of 4.0%. Company contributions were $1,126,000, $1,078,000, and $1,045,000, for the years 1999, 1998 and 1997. Other Postretirement Plans The Company provides substantially all active employees with medical, dental and vision benefits through a self-insured plan. Employees retiring at or after age 58 with 10 or more years of service are offered, along with their spouses and dependents, continued participation in the plan by payment of a premium. Retired employees are also provided with a $5,000 life insurance benefit. Plan assets are invested in a mutual fund, short-term money market instruments and commercial paper. The Company records the costs of postretirement benefits during the employees' years of active service. The Commissions have issued decisions that authorize rate recovery of tax deductible funding of postretirement benefits and permit recording of a regulatory asset for the portion of costs that will be recoverable in future rates. 56 The following table reconciles the funded status of the plans with the accrued pension liability and the net postretirement benefit liability as of December 31, 1999 and 1998:

In Thousands Pension Benefits Other Benefits 1999 1998 1999 1998 Change in benefit obligation: Beginning of year $ 49,934 $ 44,576 $ 9,221 $ 8,230 Service cost 2,339 1,899 456 370 Interest cost 3,149 3,011 646 577 Assumption change (6,669) 2,313 (929) 303 Plan amendment 744 -- -- 1,101 Experience (gain) or loss (2,378) 220 507 (872) Benefits paid (2,204) (2,085) (368) (488) End of year $ 44,915 $ 49,934 $ 9,533 $ 9,221 Change in plan assets: Fair value of plan assets at beginning of year $ 44,946 $ 42,390 $ 1,214 $ 936 Actual return on plan assets 5,110 2,433 136 131 Employer contributions 177 2,208 -- 635 Retiree contributions -- -- 343 357 Benefits paid (2,204) (2,085) (711) (845) Fair value of plan assets at end of year $ 48,029 $ 44,946 $ 982 $ 1,214 Funded status $ 3,114 $(4,988) $ (8,551) $ (8,007) Unrecognized actuarial (gain) or loss (12,332) (1,708) 964 1,485 Unrecognized prior service cost 4,828 4,758 959 1,030 Unrecognized transition obligation -- -- 3,228 3,476 Unrecognized net initial asset 572 858 -- -- Net amount recognized $ (3,818) $ (1,080) $ (3,400) $ (2,016) Page 33 Amounts recognized on the balance sheet consist of: In Thousands Pension Benefits Other Benefits 1999 1998 1999 1998 Accrued benefit costs $ (3,818) $ (1,080) $ (3,400) $ (2,016) Additional minimum liability (1,460) -- -- -- Intangible asset 943 -- -- -- Accumulated other comprehensive loss 517 -- -- -- Net amount recognized $ (3,818) $ (1,080) $ (3,400) $ (2,016) Pension Benefits Other Benefits 1999 1998 1999 1998 Weighted-average assumptions as of December 31: Discount rate 7.50% 6.75% 7.50% 6.75% 57 Long-term rate of return on plan assets 8.0% 8.0% 8.0% 8.0% Rate of compensation increases 4.5% 4.5% -- --

Net periodic benefit costs for the pension and other postretirement plans for the years ending December 31, 1999, 1998 and 1997 included the following components:

In Thousands Pension Plan Other Benefits 1999 1998 1997 1999 1998 1997 Service cost $2,339 $1,899 $1,545 $ 456 $ 370 $ 280 Interest cost 3,149 3,011 2,805 646 577 549 Expected return on plan assets (3,542) (3,320) (2,876) (107) (83) (52) Net amortization and deferral 969 823 768 389 346 338 Net periodic benefit cost $2,915 $2,413 $2,242 $1,384 $1,210 $1,115

Postretirement benefit expense recorded in 1999, 1998, and 1997 was $680,000, $635,000, and $581,000. $3,400,000, which is recoverable through future customer rates, is recorded as a regulatory asset. The Company intends to make annual contributions to the plan up to the amount deductible for tax purposes. For 1999 measurement purposes, a 5.5% annual rate of increase in the per capita cost of covered benefits was assumed; the rate was assumed to decrease gradually to 5% in the year 2000 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. A one-percentage point change in assumed health care cost trends would have the following effect: In Thousands 1-percentage 1-percentage Point Increase Point Decrease Effect on total service and interest costs $250 $(166) Effect on accumulated postretirement benefit obligation $1,378 $(1,121) Page 34 Note 10. Agreement Of Merger With Dominguez Services Corporation On November 13, 1998, the Boards of Directors of the Company and Dominguez Services Corporation (Dominguez) agreed to a merger of the two companies. Dominguez is a utility holding company whose wholly owned subsidiaries provide water service to about 40,000 accounts in 20 California communities. Dominguez' 1998 operating revenue was $25.3 million, net income was $0.9 million and basic earnings per share was $0.61. At December 31, 1998, its net utility plant was $44.8 million and its total assets were $52.6 million. The merger agreement provides that each outstanding Dominguez common share will be exchanged on a tax-free basis for Company common shares yielding an equivalent value of $33.75 per Dominguez share. At December 31, 1999, there were 58 1,506,512 shares of Dominguez common stock outstanding. The Company also expects to assume approximately $12.0 million of Dominguez' long-term debt. The transaction is expected to be accounted for as a pooling of interests. The only approval the Company has yet to receive is that of the CPUC. The CPUC's approval of the merger is expected in March of 2000. Note 11. Fair Value Of Financial Instruments For those financial instruments for which it is practicable to estimate a fair value the following methods and assumptions were used. For cash equivalents, the carrying amount approximates fair value because of the short-term maturity of the instruments. The fair value of the Company's long-term debt is estimated at $175,700,000 as of December 31, 1999, and $153,900,000 as of December 31, 1998, using a discounted cash flow analysis, based on the current rates available to the Company for debt of similar maturities. The fair value of advances for construction contracts is estimated at $31,000,000 as of December 31, 1999, and $30,000,000 as of December 31, 1998, based on data provided by brokers. Note 12. Quarterly Financial And Common Stock Market Data (Unaudited) The Company's common stock is traded on the New York Stock Exchange under the symbol "CWT." There were approximately 11,000 holders of common stock at December 31, 1999. Quarterly dividends have been paid on common stock for 220 consecutive quarters and the quarterly rate has been increased each year since 1968. 1999 - in thousands except per share amounts first second third fourth Operating revenue $39,853 $52,112 $64,021 $50,454 Net operating income 4,862 8,062 11,051 6,635 Net income 2,621 5,649 8,020 3,629 Basic earnings per share .20 .43 .62 .28 Common stock market price range: High 31.25 27.63 31.88 32.00 Low 23.38 22.69 25.88 24.13 Dividends paid .27125 .27125 .27125 .27125 1998 - in thousands except per share amounts first second third fourth Operating revenue $35,920 $45,275 $63,380 $45,084 Net operating income 4,598 6,660 12,273 7,008 Net income 1,709 3,638 9,662 3,927 Basic earnings per share .13 .28 .74 .30 Common stock market price range: High 33.75 30.19 27.69 33.13 Low 24.31 21.50 20.75 21.25 Dividends paid .2675 .2675 .2675 .2675 59 Page 35 Independent Auditors' Report The Stockholders and Board of Directors California Water Service Group: We have audited the accompanying consolidated balance sheet of California Water Service Group and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, common stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of California Water Service Group and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. KPMG (signature) Mountain View, California January 21, 2000 60 Corporate Information Page 36 Stock Transfer, Dividend Disbursing and Reinvestment Agent The First National Bank of Boston (Boston EquiServe) P.O. Box 644 Boston, MA 02102-0644 800.736.3001 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, stock brokers, 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 Boston EquiServe, Stockholder Services, by registered or certified mail with complete transfer instructions. Bond Registrar US Bank Trust, N.A. One California Street San Francisco, CA 94111-5402 415.273.4580 Executive Office California Water Service Group 1720 North First Street San Jose, CA 95112-4598 408.367.8200 Annual Meeting The Annual Meeting of Stockholders will be held on Wednesday, April 19, 2000 at 10 a.m. at the Company's Executive Office, located at 1720 North First Street in San Jose, California. Details of the business to be transacted during the meeting will be contained in the proxy material, which will be mailed to stockholders on or about March 17, 2000. Annual Report for1999 on Form 10-K A copy of the Company's report for 1999 filed with the Securities and Exchange Commission on Form 10-K will be available in April 2000 and can be obtained by any stockholder at no charge upon written request to the address below. Stockholder Information California Water Service Group Attn: Stockholder Relations 1720 North First Street San Jose, CA 95112-4598 61 408.367.8200 or 800.750.8200 http://www.calwater.com - ----------------------- 62 Inside Back Cover Board Of Directors California Water Service Group, California Water Service Company, CWS Utility Services (PHOTOGRAPHS: a picture of each director appears above the caption) Peter C. Nelson* President and Chief Executive Officer Robert W. Foy* Chairman of the Board C.H. Stump*++ Former Chairman of the Board and former CEO of California Water Service Company Linda R. Meier+++ Member, National Advisory Board, Haas Public Service Center; Member of the Board of Directors, Comerica Bank-California George A. Vera+ Chief Financial Officer, the David & Lucile Packard Foundation J.W. Weinhardt+* Chairman of SJW Corp. and Chairman of its subsidiary, San Jose Water Company Edward D. Harris, JR., M.D.+* George DeForest Barnett Professor of Medicine, Stanford University Medical Center Richard P. Magnuson++ Private Venture Capital Investor Robert K. Jaedicke+++ Professor Emeritus of Accounting and former Dean, Stanford Graduate School of Business Officers California Water Service Company Robert W. Foy (1,2,3) Chairman of the Board Peter C. Nelson (1,2,3) President and Chief Executive Officer 63 Gerald F. Feeney (1,2,3) Vice President, Chief Financial Officer and Treasurer Francis S. Ferraro Vice President, Regulatory Matters James L. Good (2) Vice President, Corporate Communications and Marketing Robert R. Guzzetta (2) Vice President, Engineering and Water Quality Christine L. McFarlane Vice President, Human Resources Raymond H. Taylor Vice President, Operations Raymond L. Worrell Vice President, Chief Information Officer Calvin L. Breed (1) Controller, Assistant Secretary and Assistant Treasurer Paul G. Ekstrom (1,2,3) Corporate Secretary John S. Simpson Assistant Secretary, Manager of New Business Washington Water Service Company Michael P. Ireland President + Member of the Audit Committee ++ Member of the Compensation Committee o Member of the Executive Committee o 1 Holds the same position with California Water Service Group o 2 Holds the same position with CWS Utility Services o 3 Also an officer of Washington Water Service Company 64 California Water Service Group (back cover) 1720 North First Street San Jose, California 95112-4598 408.367.8200 www.calwater.com Four company logos appear on the back cover: California Water Service Group California Water Service Company CWS Utility Services Washington Water Service Company 65