0001035201FALSE--12-312021Q200010352012021-01-012021-06-30xbrli:shares00010352012021-06-30iso4217:USD00010352012020-12-31iso4217:USDxbrli:shares00010352012021-04-012021-06-3000010352012020-04-012020-06-3000010352012020-01-012020-06-3000010352012019-12-3100010352012020-06-30cwt:segmentxbrli:pure0001035201cwt:TexasWaterMember2021-06-300001035201cwt:RegulatedWaterandWasteWaterServicesMember2021-04-012021-06-300001035201cwt:RegulatedWaterandWasteWaterServicesMember2020-04-012020-06-300001035201cwt:RegulatedWaterandWasteWaterServicesMember2021-01-012021-06-300001035201cwt:RegulatedWaterandWasteWaterServicesMember2020-01-012020-06-300001035201cwt:ResidentialMember2021-04-012021-06-300001035201cwt:ResidentialMember2020-04-012020-06-300001035201cwt:BusinessMember2021-04-012021-06-300001035201cwt:BusinessMember2020-04-012020-06-300001035201cwt:IndustrialMember2021-04-012021-06-300001035201cwt:IndustrialMember2020-04-012020-06-300001035201cwt:PublicAuthoritiesMember2021-04-012021-06-300001035201cwt:PublicAuthoritiesMember2020-04-012020-06-300001035201us-gaap:ServiceOtherMember2021-04-012021-06-300001035201us-gaap:ServiceOtherMember2020-04-012020-06-300001035201cwt:ResidentialMember2021-01-012021-06-300001035201cwt:ResidentialMember2020-01-012020-06-300001035201cwt:BusinessMember2021-01-012021-06-300001035201cwt:BusinessMember2020-01-012020-06-300001035201cwt:IndustrialMember2021-01-012021-06-300001035201cwt:IndustrialMember2020-01-012020-06-300001035201cwt:PublicAuthoritiesMember2021-01-012021-06-300001035201cwt:PublicAuthoritiesMember2020-01-012020-06-300001035201us-gaap:ServiceOtherMember2021-01-012021-06-300001035201us-gaap:ServiceOtherMember2020-01-012020-06-300001035201cwt:OperatingAndMaintenanceMember2021-04-012021-06-300001035201cwt:OperatingAndMaintenanceMember2020-04-012020-06-300001035201cwt:OtherNonRegulatedServiceMember2021-04-012021-06-300001035201cwt:OtherNonRegulatedServiceMember2020-04-012020-06-300001035201cwt:NonRegulatedServicesMember2021-04-012021-06-300001035201cwt:NonRegulatedServicesMember2020-04-012020-06-300001035201cwt:OperatingAndMaintenanceMember2021-01-012021-06-300001035201cwt:OperatingAndMaintenanceMember2020-01-012020-06-300001035201cwt:OtherNonRegulatedServiceMember2021-01-012021-06-300001035201cwt:OtherNonRegulatedServiceMember2020-01-012020-06-300001035201cwt:NonRegulatedServicesMember2021-01-012021-06-300001035201cwt:NonRegulatedServicesMember2020-01-012020-06-3000010352012020-01-012020-12-310001035201srt:OfficerMemberus-gaap:RestrictedStockMember2021-01-012021-06-300001035201us-gaap:RestrictedStockMembersrt:DirectorMember2021-01-012021-06-300001035201us-gaap:RestrictedStockMember2021-06-300001035201us-gaap:RestrictedStockMember2021-01-012021-06-300001035201us-gaap:RestrictedStockMember2020-12-310001035201cwt:PerformanceBasedRestrictedStockUnitAwardsRSUsMember2021-01-012021-06-300001035201srt:MinimumMembercwt:PerformanceBasedRestrictedStockUnitAwardsRSUsMember2021-01-012021-06-300001035201srt:MaximumMembercwt:PerformanceBasedRestrictedStockUnitAwardsRSUsMember2021-01-012021-06-300001035201cwt:PerformanceBasedRestrictedStockUnitAwardsRSUsMember2021-06-300001035201us-gaap:RestrictedStockUnitsRSUMember2020-12-310001035201us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-06-300001035201us-gaap:RestrictedStockUnitsRSUMember2021-06-300001035201us-gaap:CommonStockMember2020-12-310001035201us-gaap:AdditionalPaidInCapitalMember2020-12-310001035201us-gaap:RetainedEarningsMember2020-12-310001035201us-gaap:NoncontrollingInterestMember2020-12-310001035201us-gaap:RetainedEarningsMember2021-01-012021-03-3100010352012021-01-012021-03-310001035201us-gaap:CommonStockMember2021-01-012021-03-310001035201us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-310001035201us-gaap:CommonStockMember2021-03-310001035201us-gaap:AdditionalPaidInCapitalMember2021-03-310001035201us-gaap:RetainedEarningsMember2021-03-310001035201us-gaap:NoncontrollingInterestMember2021-03-3100010352012021-03-310001035201us-gaap:NoncontrollingInterestMember2021-04-012021-06-300001035201us-gaap:RetainedEarningsMember2021-04-012021-06-300001035201us-gaap:CommonStockMember2021-04-012021-06-300001035201us-gaap:AdditionalPaidInCapitalMember2021-04-012021-06-300001035201us-gaap:CommonStockMember2021-06-300001035201us-gaap:AdditionalPaidInCapitalMember2021-06-300001035201us-gaap:RetainedEarningsMember2021-06-300001035201us-gaap:NoncontrollingInterestMember2021-06-300001035201us-gaap:CommonStockMember2019-12-310001035201us-gaap:AdditionalPaidInCapitalMember2019-12-310001035201us-gaap:RetainedEarningsMember2019-12-310001035201us-gaap:RetainedEarningsMember2020-01-012020-03-3100010352012020-01-012020-03-310001035201us-gaap:CommonStockMember2020-01-012020-03-310001035201us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-310001035201us-gaap:CommonStockMember2020-03-310001035201us-gaap:AdditionalPaidInCapitalMember2020-03-310001035201us-gaap:RetainedEarningsMember2020-03-3100010352012020-03-310001035201us-gaap:RetainedEarningsMember2020-04-012020-06-300001035201us-gaap:CommonStockMember2020-04-012020-06-300001035201us-gaap:AdditionalPaidInCapitalMember2020-04-012020-06-300001035201us-gaap:CommonStockMember2020-06-300001035201us-gaap:AdditionalPaidInCapitalMember2020-06-300001035201us-gaap:RetainedEarningsMember2020-06-300001035201us-gaap:PensionPlansDefinedBenefitMember2021-01-012021-06-300001035201us-gaap:PensionPlansDefinedBenefitMember2020-01-012020-06-300001035201us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2021-01-012021-06-300001035201us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2020-01-012020-06-300001035201us-gaap:PensionPlansDefinedBenefitMember2021-06-300001035201us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2021-06-300001035201us-gaap:PensionPlansDefinedBenefitMember2021-04-012021-06-300001035201us-gaap:PensionPlansDefinedBenefitMember2020-04-012020-06-300001035201us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2021-04-012021-06-300001035201us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2020-04-012020-06-300001035201us-gaap:SecuredDebtMember2021-05-110001035201cwt:SeriesZZZMortgageBondsMemberus-gaap:SecuredDebtMember2021-05-110001035201cwt:SeriesZZZMortgageBondsMemberus-gaap:SecuredDebtMember2021-05-112021-05-110001035201us-gaap:SecuredDebtMembercwt:Series1MortgageBondsMember2021-05-110001035201us-gaap:SecuredDebtMembercwt:Series1MortgageBondsMember2021-05-112021-05-110001035201us-gaap:RevolvingCreditFacilityMember2019-03-290001035201us-gaap:RevolvingCreditFacilityMember2019-03-292019-03-290001035201srt:ParentCompanyMemberus-gaap:RevolvingCreditFacilityMember2019-03-290001035201cwt:CalWaterMemberus-gaap:RevolvingCreditFacilityMember2019-03-290001035201srt:ParentCompanyMember2021-06-300001035201srt:ParentCompanyMember2020-12-310001035201cwt:CalWaterMember2021-06-300001035201cwt:CalWaterMember2020-12-310001035201us-gaap:RevolvingCreditFacilityMember2021-01-012021-06-300001035201us-gaap:RevolvingCreditFacilityMember2020-01-012020-06-300001035201cwt:PensionAndPostRetirementBenefitsMember2021-06-300001035201cwt:PensionAndPostRetirementBenefitsMember2020-12-310001035201us-gaap:DeferredIncomeTaxChargesMember2021-06-300001035201us-gaap:DeferredIncomeTaxChargesMember2020-12-310001035201cwt:OtherAccruedBenefitsMember2021-06-300001035201cwt:OtherAccruedBenefitsMember2020-12-310001035201cwt:AccountsReceivableNetWRAMAndMCBAAccountsReceivableMembersrt:MinimumMember2021-01-012021-06-300001035201cwt:AccountsReceivableNetWRAMAndMCBAAccountsReceivableMembersrt:MaximumMember2021-01-012021-06-300001035201cwt:AccountsReceivableNetWRAMAndMCBAAccountsReceivableMember2021-06-300001035201cwt:AccountsReceivableNetWRAMAndMCBAAccountsReceivableMember2020-12-310001035201us-gaap:AssetRetirementObligationCostsMember2021-06-300001035201us-gaap:AssetRetirementObligationCostsMember2020-12-310001035201cwt:InterimRatesLongTermAccountsReceivableMember2021-01-012021-06-300001035201cwt:InterimRatesLongTermAccountsReceivableMember2021-06-300001035201cwt:InterimRatesLongTermAccountsReceivableMember2020-12-310001035201cwt:TankCoatingMember2021-01-012021-06-300001035201cwt:TankCoatingMember2021-06-300001035201cwt:TankCoatingMember2020-12-310001035201cwt:RecoverablePropertyLossesMember2021-01-012021-06-300001035201cwt:RecoverablePropertyLossesMember2021-06-300001035201cwt:RecoverablePropertyLossesMember2020-12-310001035201cwt:PensionBalancingAccountMember2021-01-012021-06-300001035201cwt:PensionBalancingAccountMember2021-06-300001035201cwt:PensionBalancingAccountMember2020-12-310001035201us-gaap:PostretirementBenefitCostsMember2021-06-300001035201us-gaap:PostretirementBenefitCostsMember2020-12-310001035201cwt:GeneralDistrictBalanceAccountReceivableMember2021-01-012021-06-300001035201cwt:GeneralDistrictBalanceAccountReceivableMember2021-06-300001035201cwt:GeneralDistrictBalanceAccountReceivableMember2020-12-310001035201cwt:LowIncomeRateAssistanceAndRateSupportFundAccountsReceivableMember2021-01-012021-06-300001035201cwt:LowIncomeRateAssistanceAndRateSupportFundAccountsReceivableMember2021-06-300001035201cwt:LowIncomeRateAssistanceAndRateSupportFundAccountsReceivableMember2020-12-310001035201cwt:OtherRegulatoryAssetsMember2021-06-300001035201cwt:OtherRegulatoryAssetsMember2020-12-310001035201us-gaap:DeferredIncomeTaxChargesMember2021-06-300001035201us-gaap:DeferredIncomeTaxChargesMember2020-12-310001035201cwt:RetireeGroupHealthMember2021-06-300001035201cwt:RetireeGroupHealthMember2020-12-310001035201cwt:HealthCareBalancingAccount2015GRCMember2021-06-300001035201cwt:HealthCareBalancingAccount2015GRCMember2020-12-310001035201cwt:ConservationProgramLiabilityMember2021-06-300001035201cwt:ConservationProgramLiabilityMember2020-12-310001035201cwt:NetWRAMandMCBALongtermPayableMember2021-06-300001035201cwt:NetWRAMandMCBALongtermPayableMember2020-12-310001035201cwt:RegulatoryLiabilityOtherLiabilitiesMember2021-06-300001035201cwt:RegulatoryLiabilityOtherLiabilitiesMember2020-12-310001035201us-gaap:CarryingReportedAmountFairValueDisclosureMember2021-06-300001035201us-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2021-06-300001035201us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Member2021-06-300001035201us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Member2021-06-300001035201us-gaap:EstimateOfFairValueFairValueDisclosureMember2021-06-300001035201us-gaap:CarryingReportedAmountFairValueDisclosureMember2020-12-310001035201us-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2020-12-310001035201us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Member2020-12-310001035201us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Member2020-12-310001035201us-gaap:EstimateOfFairValueFairValueDisclosureMember2020-12-31
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
or
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 (I.R.S. Employer identification No.)
of incorporation or organization)  
1720 North First Street
San Jose, California 95112
(Address of principal executive offices)
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:Trading Symbol(s)Name of Each Exchange on Which Registered:
Common Stock, $0.01 par value per shareCWTNew York Stock Exchange
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 ý  No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit). Yes ý  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
 Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o  

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act) Yes   No 
 
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 June 30, 2021 — 51,535,000
1

Table of Contents
TABLE OF CONTENTS
 
 Page
2

Table of Contents
PART I FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTS
The condensed consolidated financial statements presented in this filing on Form 10-Q have been prepared by management and are unaudited.
CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited (In thousands, except per share data)
 June 30,
2021
December 31,
2020
ASSETS
Utility plant:
Utility plant$4,047,282 $3,890,423 
Less accumulated depreciation and amortization(1,300,676)(1,239,865)
Net utility plant2,746,606 2,650,558 
Current assets:
Cash and cash equivalents66,483 44,555 
Receivables:
Customers, net52,237 44,025 
Regulatory balancing accounts84,585 96,241 
Other, net19,469 20,331 
Unbilled revenue, net52,954 34,069 
Materials and supplies at weighted average cost9,589 8,831 
Taxes, prepaid expenses, and other assets20,269 17,964 
Total current assets305,586 266,016 
Other assets:
Regulatory assets337,132 325,376 
Goodwill36,841 31,842 
Other assets122,588 120,456 
Total other assets496,561 477,674 
TOTAL ASSETS$3,548,753 $3,394,248 
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock, $0.01 par value; 68,000 shares authorized, 51,535 and 50,334 outstanding in 2021 and 2020, respectively
$515 $503 
Additional paid-in capital512,484 448,632 
Retained earnings484,119 472,209 
Noncontrolling interests5,145  
Total equity1,002,263 921,344 
Long-term debt, net1,059,936 781,100 
Total capitalization2,062,199 1,702,444 
Current liabilities:
Current maturities of long-term debt, net5,173 5,127 
Short-term borrowings145,000 370,000 
Accounts payable132,972 131,725 
Regulatory balancing accounts24,839 34,636 
Accrued interest6,853 6,178 
Accrued expenses and other liabilities47,542 41,040 
Total current liabilities362,379 588,706 
Deferred income taxes278,957 276,032 
Pension and postretirement benefits other than pensions112,893 115,581 
Regulatory liabilities and other255,017 247,810 
Advances for construction197,687 195,625 
Contributions in aid of construction279,621 268,050 
Commitments and contingencies (Note 10)
TOTAL CAPITALIZATION AND LIABILITIES$3,548,753 $3,394,248 
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
3

Table of Contents
CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited (In thousands, except per share data)
For the three months endedJune 30,
2021
June 30,
2020
Operating revenue$213,123 $175,484 
Operating expenses:  
Operations:  
Water production costs74,911 71,142 
Administrative and general31,756 26,939 
Other operations20,720 25,898 
Maintenance6,610 6,722 
Depreciation and amortization27,237 24,542 
Income taxes1,972 622 
Property and other taxes7,671 7,126 
Total operating expenses170,877 162,991 
Net operating income42,246 12,493 
Other income and expenses:  
Non-regulated revenue5,374 4,208 
Non-regulated expenses(1,815)(492)
Other components of net periodic benefit credit (cost)2,688 (1,332)
Allowance for equity funds used during construction848 1,705 
Income tax expense on other income and expenses(512)(820)
Net other income6,583 3,269 
Interest expense:  
Interest expense11,206 11,613 
Allowance for borrowed funds used during construction(453)(1,132)
Net interest expense10,753 10,481 
Net income38,076 5,281 
Loss attributable to noncontrolling interests149  
Net income attributable to California Water Service Group$38,225 $5,281 
Earnings per share of common stock:
Basic$0.75 $0.11 
Diluted0.75 0.11 
Weighted average shares outstanding:  
Basic51,080 48,936 
Diluted51,080 48,936 
 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

4

Table of Contents
CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited (In thousands, except per share data)
For the six months endedJune 30,
2021
June 30,
2020
Operating revenue$360,860 $301,047 
Operating expenses:  
Operations:  
Water production costs129,737 125,118 
Administrative and general62,125 56,619 
Other operations38,632 39,872 
Maintenance13,379 13,795 
Depreciation and amortization54,284 49,034 
Income tax expense (benefit)1,871 (3,315)
Property and other taxes15,667 14,354 
Total operating expenses315,695 295,477 
Net operating income45,165 5,570 
Other income and expenses:  
Non-regulated revenue10,946 8,035 
Non-regulated expenses(6,575)(8,946)
Other components of net periodic benefit credit (cost)5,667 (2,762)
Allowance for equity funds used during construction1,392 3,319 
Income tax (expense) benefit on other income and expenses(870)93 
Net other income (loss)10,560 (261)
Interest expense:  
Interest expense21,428 22,411 
Allowance for borrowed funds used during construction(747)(2,076)
Net interest expense20,681 20,335 
Net income (loss)35,044 (15,026)
Loss attributable to noncontrolling interests149  
Net income (loss) attributable to California Water Service Group$35,193 $(15,026)
Earnings (loss) per share of common stock:  
Basic$0.69 $(0.31)
Diluted0.69 (0.31)
Weighted average shares outstanding:  
Basic50,762 48,759 
Diluted50,762 48,759 
 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

5

Table of Contents
CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited (In thousands)
For the six months endedJune 30,
2021
June 30,
2020
Operating activities:  
Net income (loss)$35,044 $(15,026)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:  
Depreciation and amortization55,733 50,251 
Change in value of life insurance contracts(2,275)872 
Allowance for equity funds used during construction(1,392)(3,319)
Changes in operating assets and liabilities:  
Receivables and unbilled revenue(23,187)(6,215)
Accounts payable(4,859)3,405 
Other current assets(2,581)(6,759)
Other current liabilities3,075 (970)
Other changes in noncurrent assets and liabilities8,092 (2,235)
Net cash provided by operating activities67,650 20,004 
Investing activities:  
Utility plant expenditures(138,522)(133,537)
Business acquisition, net of cash acquired(6,451)(37,655)
Return of investment1,000  
Net cash used in investing activities(143,973)(171,192)
Financing activities:  
Short-term borrowings125,000 270,000 
Repayment of short-term borrowings(350,000)(70,000)
Issuance of long-term debt, net of debt issuance costs of $1,064 for 2021 and $0 for 2020
278,936  
Repayment of long-term debt(1,272)(1,293)
Advances and contributions in aid of construction13,953 12,569 
Refunds of advances for construction(5,722)(4,341)
Repurchase of common stock(1,524)(1,479)
Issuance of common stock62,603 38,006 
Dividends paid(23,283)(20,671)
Net cash provided by financing activities98,691 222,791 
Change in cash, cash equivalents, and restricted cash22,368 71,603 
Cash, cash equivalents, and restricted cash at beginning of period45,129 43,298 
Cash, cash equivalents, and restricted cash at end of period$67,497 $114,901 
Supplemental information:  
Cash paid for interest (net of amounts capitalized)$19,554 $20,433 
Supplemental disclosure of non-cash activities:  
Accrued payables for investments in utility plant$53,325 $54,049 
Utility plant contribution by developers$13,563 $13,818 
 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

6

Table of Contents
CALIFORNIA WATER SERVICE GROUP
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2021
Dollar amounts in thousands unless otherwise stated
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, Hawaii, and Texas 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), Hawaii Water Service Company, Inc. (Hawaii Water), and TWSC, Inc. (Texas 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.
 
The Company operates in one reportable segment, providing water and related utility services.
 
Basis of Presentation
 
The unaudited condensed consolidated interim financial information has been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (SEC) and therefore do not contain all of the information and footnotes required by GAAP and the SEC for annual financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on February 25, 2021.
 
The preparation of the Company’s unaudited condensed consolidated interim 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 balance sheet dates and the reported amounts of revenues and expenses for the periods presented. These include, but are not limited to, estimates and assumptions used in determining the Company’s regulatory asset and liability balances based upon probability assessments of regulatory recovery, revenues earned but not yet billed, asset retirement obligations, allowance for credit losses, pension and other employee benefit plan liabilities, and income tax-related assets and liabilities. Actual results could differ from these estimates.
 
In the opinion of management, the accompanying unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of normal recurring transactions that are necessary to provide a fair presentation of the results for the periods covered.
Due to the seasonal nature of the water business, the results for interim periods are not indicative of the results for a 12-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 generally lower in the winter months when cooler temperatures and rainfall curtail water usage and sales.
Noncontrolling Interests
Noncontrolling interests in the Company’s condensed consolidated financial statements represents the 38.87% interest not owned by Texas Water in a consolidated subsidiary. Texas Water obtained control over the subsidiary on May 1, 2021. Since the Company controls this subsidiary, its financial statements are consolidated with those of the Company, and the noncontrolling owner’s 38.87% share of the subsidiary’s net assets and results of operations is deducted and reported as noncontrolling interests on the condensed consolidated balance sheet and as net loss attributable to noncontrolling interests in the condensed consolidated statement of operations.

7

Table of Contents
Note 2. Summary of Significant Accounting Policies
Operating revenue
The following tables disaggregate the Company’s operating revenue by source for the three and six months ended June 30, 2021 and 2020:
Three Months Ended June 30
20212020
Revenue from contracts with customers$212,457 $172,497 
Regulatory balancing account revenue (a)666 2,987 
Total operating revenue$213,123 $175,484 
Six Months Ended June 30
20212020
Revenue from contracts with customers$358,985 $307,330 
Regulatory balancing account revenue (a)1,875 (6,283)
Total operating revenue$360,860 $301,047 
(a) As further discussed below, no amounts were recorded for the Company’s Water Revenue Adjustment Mechanism (WRAM), Modified Cost Balancing Account (MCBA), Pension Cost Balancing Account (PCBA), and Health Cost Balancing Account (HCBA) for the three and six months ended June 30, 2020 due to the delay in the resolution of the 2018 General Rate Case (GRC).
Revenue from contracts with customers
The Company principally generates operating revenue from contracts with customers by providing regulated water and wastewater services at tariff-rates authorized by the Commissions in the states in which they operate and non-regulated water and wastewater services at rates authorized by contracts with government agencies. Revenue from contracts with customers reflects amounts billed for the volume of consumption at authorized per unit rates, for a service charge, and for other authorized charges.
The Company satisfies its performance obligation to provide water and wastewater services over time as services are rendered. The Company applies the invoice practical expedient and recognizes revenue from contracts with customers in the amount for which the Company has a right to invoice. The Company has a right to invoice for the volume of consumption, for the service charge, and for other authorized charges.
The measurement of sales to customers is generally based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, the Company estimates consumption since the date of the last meter reading and a corresponding unbilled revenue is recognized. The estimate is based upon the number of unbilled days that month and the average daily customer billing rate from the previous month (which fluctuates based upon customer usage).
Contract terms are generally short-term and at will by customers and, as a result, no separate financing component is recognized for the Company's collections from customers, which generally require payment within 30 days of billing. The Company applies judgment, based principally on historical payment experience, in estimating its customers’ ability to pay.
Certain customers are not billed for volumetric consumption, but are instead billed a flat rate at the beginning of each monthly service period. The amount billed is initially deferred and subsequently recognized over the monthly service period, as the performance obligation is satisfied. The deferred revenue balance or contract liability, which is included in "accrued expenses and other liabilities" on the unaudited condensed consolidated balance sheets, is inconsequential.





8

Table of Contents
In the following tables, revenue from contracts with customers is disaggregated by class of customers for the three and six months ended June 30, 2021 and 2020:
Three Months Ended June 30
20212020
Residential$134,971 $116,453 
Business35,730 28,531 
Industrial6,019 6,622 
Public authorities10,358 7,711 
Other (a)25,379 13,180 
Total revenue from contracts with customers$212,457 $172,497 
Six Months Ended June 30
20212020
Residential$236,342 $208,998 
Business63,452 56,223 
Industrial12,062 14,500 
Public authorities16,760 13,608 
Other (a)30,369 14,001 
Total revenue from contracts with customers$358,985 $307,330 
(a) Other includes accrued unbilled revenue.
Regulatory balancing account revenue
The Company’s ability to recover revenue requirements authorized by the California Public Utilities Commission (CPUC) in its triennial GRC is decoupled from the volume of the sales. Regulatory balancing account revenue is revenue related to rate mechanisms authorized in California by the CPUC, which allow the Company to recover the authorized revenue and are not considered contracts with customers. These mechanisms include the following:
The WRAM allows the Company to recognize the adopted level of volumetric revenues. The variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts is recorded as regulatory balancing account revenue.
Cost-recovery rates, such as the MCBA, Conservation Expense Balancing Account (CEBA), PCBA, and HCBA, generally provide for recovery of the adopted levels of expenses for purchased water, purchased power, pump taxes, water conservation program costs, pension, and health care. Variances between adopted and actual costs are recorded as regulatory balancing account revenue.
For 2021, the WRAM, MCBA, PCBA, and HCBA have all been authorized by the CPUC with the approval of the 2018 GRC in the fourth quarter of 2020. For 2020, the WRAM, MCBA, PCBA, and HCBA were being litigated in the 2018 GRC. As a result, the Company determined that the regulatory asset and liability recognition criteria under accounting standards for regulated entities was not met and the Company did not record regulatory assets or liabilities with respect to these mechanisms for the first six months of 2020. As the CEBA was not being litigated in the then-pending 2018 GRC, the Company recorded a regulatory liability for the CEBA for the first six months of 2020. The Company determined that the CEBA met the regulatory liability recognition criteria under accounting standards for regulated utilities.
Due to the delay in the resolution of the 2018 GRC, the CPUC authorized Cal Water to track the effect of the delay on customer billings in an interim rates memorandum account (IRMA) effective January 1, 2020. Variances between actual customer billings and those that would have been billed assuming the GRC had been effective January 1, 2020 are recorded as regulatory balancing account revenue. Rates for the 2018 GRC were implemented on February 1, 2021; as a result, Cal Water recorded an IRMA regulatory asset for January of 2021. For the first six months of 2020, the Company did not record a regulatory asset for the IRMA because the regulatory asset recognition criteria under accounting standards for regulated entities was not met as the 2018 GRC was still pending resolution as of the end of the quarter.
Each district's WRAM and MCBA regulatory assets and liabilities are allowed to be netted against one another. The Company recognizes regulatory balancing account revenues that have been authorized for rate recovery, are objectively determinable and probable of recovery, and are expected to be collected within 24 months. To the extent that regulatory balancing account revenue is estimated to be collectible beyond 24 months, recognition is deferred.
9

Table of Contents
Non-regulated Revenue
The following tables disaggregate the Company’s non-regulated revenue by source for the three and six months ended June 30, 2021 and 2020:
Three Months Ended June 30
20212020
Operating and maintenance revenue$3,925 $2,789 
Other non-regulated revenue796 834 
Non-regulated revenue from contracts with customers4,721 3,623 
Lease revenue653 585 
Total non-regulated revenue$5,374 $4,208 
Six Months Ended June 30
20212020
Operating and maintenance revenue$8,013 $5,288 
Other non-regulated revenue1,655 1,599 
Non-regulated revenue from contracts with customers9,668 6,887 
Lease revenue1,278 1,148 
Total non-regulated revenue$10,946 $8,035 
Operating and maintenance services are provided for non-regulated water and wastewater systems owned by private companies and municipalities. The Company negotiates formal agreements with the customers, under which they provide operating, maintenance and customer billing services related to the customers’ water system. The formal agreements outline the fee schedule for the services provided. The agreements typically call for a fee-per-service or a flat-rate amount per month. The Company satisfies its performance obligation of providing operating and maintenance services over time as services are rendered; as a result, the Company employs the invoice practical expedient and recognizes revenue in the amount that it has the right to invoice. Contract terms are generally short-term and, as a result, no separate financing component is recognized for its collections from customers, which generally require payment within 30 days of billing.
Other non-regulated revenue primarily relates to services for the design and installation of water mains and other water infrastructure for customers outside the regulated service areas and insurance program administration.
Lease revenue is not considered revenue from contracts with customers and is recognized following operating lease standards. The Company is the lessor in operating lease agreements with telecommunications companies under which cellular phone antennas are placed on the Company's property.
Allowance for credit losses
The Company measures expected credit losses for Customer Receivables, Other Receivables, and Unbilled Revenue on an aggregated level. These receivables are generally trade receivables due in one year or less or expected to be billed and collected in one year or less. The expected credit losses for Other Receivables and Unbilled Revenue are inconsequential. Customer receivables include receivables for water and wastewater services provided to residential customers, business, industrial, public authorities, and other customers. The expected credit losses for business, industrial, public authorities, and other customers are inconsequential. The overall risks related to the Company’s receivables are low as water and wastewater services are seen as essential services. The estimate for the allowance for credit losses is based on a historical loss ratio, in conjunction with a qualitative assessment of elements that impact the collectability of receivables to determine if the allowance for credit losses should be further adjusted in accordance with the accounting guidance for credit losses. Management contemplates available current information such as changes in economic factors, regulatory matters, industry trends, payment options and programs available to customers, and the methods that the Company is able to utilize to ensure payment.



10

Table of Contents
The Company reviewed its allowance for credit losses utilizing a quantitative assessment, which included trend analysis of customer billing and collection, aging by customer class, and unemployment rates since the outbreak of COVID-19 in the first quarter of 2020. The Company also utilized a qualitative assessment, which considered the future collectability on customer outstanding balances, management's estimate of the cash recovery, and a general assessment of the economic conditions of the locations the Company serves due to the outbreak of COVID-19. The Company is complying with the CPUC requirements to suspend customer disconnections for non-payment and ceased agency collection activities, and anticipates this situation will continue until further notice. Based on the above assessments, the Company expects an increase in customer receivable write-offs as compared to historical experiences and adjusted its allowance for credit losses, accordingly.
The following table presents the activity in the allowance for credit losses for the period ended June 30, 2021 and December 31, 2020:
Allowance for credit lossesJune 30, 2021December 31, 2020
Beginning balance5,246 771 
Provision for credit loss expense2,126 5,716 
Write-offs(1,283)(1,730)
Recoveries265 489 
Total ending allowance balance$6,354 $5,246 
Cash, Cash Equivalents, and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown on the Condensed Consolidated Statements of Cash Flows:
 June 30, 2021December 31, 2020
Cash and cash equivalents66,483 44,555 
Restricted cash (included in "taxes, prepaid expenses and other assets")1,014 574 
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows$67,497 $45,129 
Adoption of New Accounting Standards
In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions for performing intraperiod tax allocations, recognizing deferred taxes for investments, and calculating income taxes in interim periods. The guidance also simplifies the accounting for franchise taxes, transactions that result in a step-up in the tax basis of goodwill, and the effect of enacted changes in tax laws or rates in interim periods. The Company adopted ASU 2019-12 in the first quarter of 2021 and the adoption did not have a material impact to the Company’s Condensed Consolidated Financial Statements.
11

Table of Contents
Note 3. Stock-based Compensation
The Company's equity incentive plan was approved and amended by stockholders on April 27, 2005 and May 20, 2014. The Company is authorized to issue awards up to 2,000,000 shares of common stock.
During the first six months of 2021, the Company granted Restricted Stock Awards (RSAs) to Officers and to members of the Board of Directors. An RSA share represents a restricted share of the Company's common stock and is valued based on the fair market value of the Company's common stock at the date of grant. RSAs granted to Officers vest over 36 months with the first year cliff vesting. In general, RSAs granted to Board members vest at the end of 12 months. The RSAs are recognized as expense evenly over 36 months for the shares granted to Officers and 12 months for the shares granted to Board members. As of June 30, 2021, there was approximately $3.0 million of total unrecognized compensation cost related to RSAs. The cost is expected to be recognized over a weighted average period of 1.6 years.
A summary of the status of the outstanding RSAs as of June 30, 2021 is presented below:
Number of RSA SharesWeighted-Average Grant-Date Fair Value
RSAs at January 1, 202151,561 $50.92 
Granted50,981 53.92 
Vested(32,210)50.39 
Forfeited  
RSAs at June 30, 202170,332 $53.34 
During the first six months of 2021, the Company granted performance-based Restricted Stock Units (RSUs) to Officers. An RSU represents the right to receive a share of the Company's common stock. Each award reflects a target number shares of common stock that may be issued to the award recipient. The 2021 awards may be earned upon the completion of a 3-year performance period. Whether RSUs are earned at the end of the performance period will be determined based on the achievement of certain performance objectives set by the Organization and Compensation Committee of the Board of Directors in connection with the issuance of the RSUs. The performance objectives are based on the Company's business plan covering the performance period. The performance objectives include achieving the budgeted return on equity, budgeted investment in utility plant, customer service standards, employee safety standards and water quality standards. Depending on the results achieved during the 3-year performance period, the actual number of shares that a grant recipient receives at the end of the performance period may range from 0% to 200% of the target shares granted, provided that the grantee is continuously employed by the Company through the vesting date. If prior to the vesting date employment is terminated by reason of death, disability or normal retirement, then a pro rata portion of this award will vest. RSUs are not included in diluted shares until earned. The RSUs are recognized as expense ratably over the 3-year performance period using a fair market value of the Company's common share at the date of grant and an estimated number of RSUs earned during the performance period. As of June 30, 2021, there was approximately $2.8 million of total unrecognized compensation cost related to RSUs. The cost is expected to be recognized over a weighted average period of 1.7 years.
A summary of the status of the outstanding RSUs as of June 30, 2021 is presented below:
Number of RSU SharesWeighted-Average Grant-Date Fair Value
RSUs at January 1, 202187,787 $46.62 
Granted31,749  53.96
Performance criteria adjustment12,257  52.96
Vested(38,897) 52.96
Forfeited(1,954) 35.40
RSUs at June 30, 202190,942 $52.71 
The Company has recorded compensation costs for the RSAs and RSUs that are included in administrative and general operating expenses in the amount of $1.4 million and $0.5 million for the three months ended June 30, 2021 and 2020, respectively. For the six months ended June 30, 2021 and 2020, the Company has recorded compensation costs for the RSAs and RSUs in the amount of $2.7 million and $1.3 million, respectively.
12

Table of Contents
Note 4. Equity
The Company sold 691,855 shares of common stock through its at-the-market equity program and raised proceeds of $39.0 million net of $0.4 million in commissions paid under the equity distribution agreement during the three months ended June 30, 2021. During the three months ended June 30, 2020, the Company sold 677,318 shares of common stock through its at-the-market equity program and raised proceeds of $31.1 million net of $0.3 million in commissions paid under the equity distribution agreement.
The Company sold 1,120,916 shares of common stock through its at-the-market equity program and raised proceeds of $61.6 million net of $0.6 million in commissions paid under the equity distribution agreement during the six months ended June 30, 2021. During the six months ended June 30, 2020, the Company sold 793,152 shares of common stock through its at-the-market equity program and raised proceeds of $37.1 million net of $0.4 million in commissions paid under the equity distribution agreement.
The Company’s changes in total equity for the six months ended June 30, 2021 and 2020 were as follows:
Six months ended June 30, 2021
 Common StockAdditional
Paid-in
Capital
Retained
Earnings
Noncontrolling InterestsTotal Equity
 SharesAmount
 (In thousands)
Balance at January 1, 202150,334 $503 $448,632 $472,209 $ $921,344 
Net loss(3,032)— (3,032)
Issuance of common stock528 5 24,481 24,486 
Repurchase of common stock(27)— (1,415)(1,415)
Dividends paid on common stock ($0.2300 per share)
(11,581)— (11,581)
Balance at March 31, 202150,835 508 471,698 457,596  929,802 
Loss attributable to noncontrolling interests— (149)(149)
Net income attributable to California Water Service Group38,225 — 38,225 
Issuance of common stock702 7 40,895 40,902 
Repurchase of common stock(2)— (109)(109)
Dividends paid on common stock ($0.2300 per share)
(11,702)— (11,702)
Acquisition of business with noncontrolling interest
— — 5,294 5,294 
Balance at June 30, 202151,535 515 512,484 484,119 5,145 1,002,263 
13

Table of Contents
Six months ended June 30, 2020
 Common StockAdditional
Paid-in
Capital
Retained
Earnings
Total
Equity
 SharesAmount
 (In thousands)
Balance at January 1, 202048,532 $485 $362,275 $417,146 $779,906 
Net loss(20,307)(20,307)
Issuance of common stock210 2 7,227 7,229 
Repurchase of common stock(28)— (1,373)(1,373)
Dividends paid on common stock ($0.2125 per share)
(10,315)(10,315)
Balance at March 31, 202048,714 487 368,129 386,524 755,140 
Net income5,281 5,281 
Issuance of common stock686 7 32,056 32,063 
Repurchase of common stock(2)— (105)(105)
Dividends paid on common stock ($0.2125 per share)
(10,356)(10,356)
Balance at June 30, 202049,398 494 400,080 381,449 782,023 
Note 5. Earnings (Loss) Per Share of Common Stock
The computations of basic and diluted earnings per share of common stock are noted in the table below. Basic earnings per share of common stock is computed by dividing the net income attributable to California Water Service Group by the weighted average number of common shares outstanding during the period. RSAs are included in the weighted average common shares outstanding because the shares have all the same voting and dividend rights as issued and unrestricted common stock. RSUs are not included in the basic and diluted shares calculation for financial reporting until authorized by the Organization & Compensation Committee of the Board of Directors.
 Three Months Ended June 30
 20212020
(In thousands, except per share data)
Net income$38,076 $5,281 
Loss attributable to noncontrolling interests149  
Net income attributable to California Water Service Group$38,225 $5,281 
Weighted average common shares outstanding, basic51,080 48,936 
Weighted average common shares outstanding, dilutive51,080 48,936 
Earnings per share of common stock - basic$0.75 $0.11 
Earnings per share of common stock - diluted $0.75 $0.11 
 Six Months Ended June 30
 20212020
(In thousands, except per share data)
Net income (loss)$35,044 $(15,026)
Loss attributable to noncontrolling interests149  
Net income (loss) attributable to California Water Service Group$35,193 $(15,026)
Weighted average common shares outstanding, basic50,762 48,759 
Weighted average common shares outstanding, dilutive50,762 48,759 
Earnings (loss) per share of common stock - basic$0.69 $(0.31)
Earnings (loss) per share of common stock - diluted$0.69 $(0.31)
14

Table of Contents
Note 6. 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 in 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 or are capitalized in 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 contributions made by the Company to the pension plans were $14.1 million and $16.8 million for the six months ended June 30, 2021 and 2020, respectively. Cash contributions made by the Company to the other postretirement benefit plans were $1.5 million and $3.9 million for the six months ended June 30, 2021 and 2020, respectively. The total 2021 estimated cash contribution to the pension plans and other postretirement benefits plans are expected to be approximately $23.5 million and $2.2 million, respectively.

The following tables lists components of net periodic benefit costs for the pension plans and other postretirement benefits. The data listed under “pension plan” includes the qualified pension plan and the non-qualified supplemental executive retirement plan. The data listed under “other benefits” is for all other postretirement benefits.
 Three Months Ended June 30
 Pension PlanOther Benefits
 2021202020212020
Service cost$9,010 $8,811 $1,611 $2,106 
Interest cost5,319 6,433 805 1,210 
Expected return on plan assets(9,866)(8,265)(2,192)(1,811)
Amortization of prior service cost253 1,057 49 49 
Recognized net actuarial loss1,924 3,196 (110)14 
Net periodic benefit cost$6,640 $11,232 $163 $1,568 
 Six Months Ended June 30
 Pension PlanOther Benefits
 2021202020212020
Service cost$18,020 $17,622 $3,222 $4,212 
Interest cost10,638 12,866 1,611 2,420 
Expected return on plan assets(19,732)(16,530)(4,383)(3,622)
Amortization of prior service cost506 2,114 97 98 
Recognized net actuarial loss3,848 6,392 (220)28 
Net periodic benefit cost$13,280 $22,464 $327 $3,136 
Service cost portion of the pension plan and other postretirement benefits is recognized in "administrative and general" expenses within the Condensed Consolidated Statements of Operations. Other components of net periodic benefit costs include interest costs, expected return on plan assets, amortization of prior service costs, and recognized net actuarial loss and are reported together as "other components of net periodic benefit cost" within the Condensed Consolidated Statements of Operations.
15

Table of Contents
Note 7. Short-term and Long-term Borrowings
On May 11, 2021, Cal Water completed the sale and issuance of $280.0 million in aggregate principal amount of First Mortgage Bonds (the Bonds) in a private placement. The Bonds consist of $130.0 million of 2.87% bonds, series ZZZ, maturing May 11, 2051, and $150.0 million of 3.02% bonds, series 1, maturing May 11, 2061. Interest on the bonds will accrue semi-annually and be payable in arrears on May 11 and November 11 of each year, commencing on November 11, 2021. The Bonds will rank equally with all of Cal Water’s other First Mortgage Bonds and will be secured by liens on Cal Water’s properties, subject to certain exceptions and permitted liens. Cal Water used the net proceeds from the sale of the Bonds to refinance existing indebtedness and for general corporate purposes. The Bonds were not registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
On March 29, 2019, the Company and Cal Water entered into certain syndicated credit agreements, which provide for unsecured revolving credit facilities of up to an initial aggregate amount of $550.0 million for a term of five years. The Company and subsidiaries that it designates may borrow up to $150.0 million under the Company’s revolving credit facility. Cal Water may borrow up to $400.0 million under its revolving credit facility. Additionally, the credit facilities may be increased by up to an incremental $150.0 million under the Cal Water facility and $50.0 million under the Company facility, subject in each case to certain conditions.
The revolving credit facilities contain affirmative and negative covenants and events of default customary for credit facilities of this type including, among other things, limitations and prohibitions relating to additional indebtedness, liens, mergers, and asset sales. Also, these unsecured credit agreements contain financial covenants governing the Company and its subsidiaries' consolidated total capitalization ratio and interest coverage ratio.
The outstanding borrowings on the Company line of credit were $95.0 million and $100.0 million as of June 30, 2021 and December 31, 2020, respectively. There were $50.0 million and $270.0 million of borrowings on the Cal Water line of credit as of June 30, 2021 and December 31, 2020, respectively. The average borrowing rate for borrowings on the Company and Cal Water lines of credit during the six months ended June 30, 2021 was 0.99% compared to 2.13% for the same period last year.
Note 8. Income Taxes
The Company adjusts its effective tax rate each quarter to be consistent with the estimated annual effective tax rate. The Company also records the tax effect of unusual or infrequently occurring discrete items.
The provision for income taxes is shown in the table below:
 Three Months Ended June 30
 20212020
Income tax expense$2,484 $1,442 
 Six Months Ended June 30
 20212020
Income tax expense (benefit)$2,741 $(3,408)
The total income tax expense increased $1.0 million to $2.5 million in the second quarter of 2021 as compared to $1.4 million in the second quarter of 2020. The increase was mainly due to an increase in pre-tax earnings which was partially offset by reduction of tax repair deduction benefits and increase in refund of excess deferred income taxes in 2021 as compared to 2020.
The total income tax expense increased $6.1 million to $2.7 million in the first six months of 2021 as compared to $3.4 million income tax benefit in the first six months of 2020. The increase was mainly due to an increase in pre-tax earnings which was partially offset by reduction of tax repair deduction benefits and increase in refund of excess federal deferred income taxes in 2021 as compared to 2020.
The Company’s effective tax rate was 6.02% before discrete items in the second quarter of 2021 as compared to 18.5% in the second quarter of 2020. The decrease in effective income tax rate was primary due to an increase in refund of the excess federal deferred taxes in 2021 as compared to 2020.

16

Table of Contents
The Company had unrecognized tax benefits of approximately $14.2 million and $12.4 million as of June 30, 2021 and 2020, respectively. Included in the balance of unrecognized tax benefits as of June 30, 2021 and 2020, is $3.8 million and $3.0 million, respectively, of tax benefits that, if recognized, would result in an adjustment to the Company’s effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly within the next 12 months.
Note 9. Regulatory Assets and Liabilities
Regulatory assets and liabilities were comprised of the following as of June 30, 2021 and December 31, 2020:
 Recovery PeriodJune 30, 2021December 31, 2020
Regulatory Assets  
Pension and retiree group healthIndefinitely$59,259 $59,588 
Property-related temporary differences (tax benefits flowed through to customers)Indefinitely120,941 120,365 
Other accrued benefitsIndefinitely22,933 21,692 
Net WRAM and MCBA long-term accounts receivable
1 - 2 years
37,180 33,136 
Asset retirement obligations, netIndefinitely22,143 21,110 
IRMA long-term accounts receivable1 year22,197 14,705 
Tank coating10 years13,880 14,018 
Recoverable property losses9 years4,187 4,531 
PCBA1 year19,807 19,647 
Other components of net periodic benefit costIndefinitely4,965 6,736 
General district balancing account receivable1 year707 1,830 
Low-income rate assistance (LIRA) and Rate support fund (RSF) accounts receivable1 year6,232 5,310 
Other regulatory assetsVarious2,701 2,708 
Total Regulatory Assets$337,132 $325,376 
Regulatory Liabilities  
Future tax benefits due to customers$151,453 $151,011 
Retiree group health18,472 18,472 
HCBA7,708 5,320 
CEBA5,126 3,837 
Net WRAM and MCBA long-term payable828 479 
Other regulatory liabilities1,102 1,599 
Total Regulatory Liabilities$184,689 $180,718 
Short-term regulatory assets and liabilities are excluded from the above table.
The short-term regulatory assets were $84.6 million as of June 30, 2021 and $96.2 million as of December 31, 2020. These short-term regulatory assets primarily consist of net WRAM and MCBA, IRMA, and PCBA receivables
The short-term portions of regulatory liabilities were $24.8 million as of June 30, 2021 and $34.6 million as of December 31, 2020. The short-term regulatory liabilities as of June 30, 2021 and December 31, 2020 primarily consist of TCJA and HCBA refunds and TCP settlement proceeds
Note 10. Commitments and Contingencies
Commitments
The Company has significant commitments to purchase water from water wholesalers. The Company also has operating and finance leases for water systems, offices, land easements, licenses, equipment, and other facilities. These commitments and leases are described in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. 

17

Table of Contents
As of June 30, 2021, there were no significant changes in these commitments from December 31, 2020.
Contingencies
Groundwater Contamination
The Company has undertaken litigation against third parties to recover past and anticipated costs related to groundwater contamination in our service areas. The cost of litigation is expensed as incurred and any settlement is first offset against such costs. The CPUC’s general policy requires all proceeds from groundwater contamination litigation to be used first to pay transactional expenses, then to make customers whole for water treatment costs to comply with the CPUC’s water quality standards. The CPUC allows for a risk-based consideration of contamination proceeds which exceed the costs of the remediation described above and may result in some sharing of proceeds with the shareholder, determined on a case by case basis. The CPUC has authorized various memorandum accounts that allow the Company to track significant litigation costs and to request recovery of these costs in future filings.
Other Legal Matters
From time to time, the Company is involved in various disputes and litigation matters that arise in the ordinary course of business. The status of each significant matter is reviewed and assessed for 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, a liability is accrued for the estimated loss in accordance with the accounting standards for 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 when taking into account existing reserves the ultimate resolution of these matters will materially affect the Company’s financial position, results of operations, or cash flows. As of June 30, 2021 and December 31, 2020, the Company recognized a liability of $3.6 million and $2.6 million, respectively, for known legal matters. 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, dependent on the nature of the settlement.
Note 11. Fair Value of Financial Assets and Liabilities
The accounting guidance for fair value measurements and disclosures provides a single definition of fair value and requires certain disclosures about assets and liabilities measured at fair value. A hierarchical framework for disclosing the observability of the inputs utilized in measuring assets and liabilities at fair value is established by this guidance. The three levels in the hierarchy are as follows:
 
Level 1 - Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
 
Level 2 - Inputs to the valuation methodology include:
Quoted market prices for similar assets or liabilities in active markets;
Quoted prices for identical or similar assets or liabilities in inactive markets;
Inputs other than quoted prices that are observable for the asset or liability; and
Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
 
Specific valuation methods include the following:
 
Accounts receivable and accounts payable carrying amounts approximated the fair value because of the short-term maturity of the instruments.
 
Long-term debt fair values were estimated using the published quoted market price of similar securities, if available, or the discounted cash flow analysis, based on the current rates available using a risk-free rate (a U.S. Treasury securities yield curve) plus a risk premium of 0.60%.
18

Table of Contents
 June 30, 2021
  Fair Value
 CostLevel 1Level 2Level 3Total
Long-term debt, including current maturities, net$1,065,109  $1,323,208  $1,323,208 
 
 December 31, 2020
  Fair Value
 CostLevel 1Level 2Level 3Total
Long-term debt, including current maturities, net$786,227 $ $944,447 $ $944,447 
Item 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Dollar amounts in thousands unless otherwise stated
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. 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, including statements regarding the anticipated impact on our business of the ongoing COVID-19 pandemic and related public health measures. 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:
the impact of the ongoing COVID-19 pandemic and related public health measures;
our ability to invest or apply the proceeds from the issuance of common stock in an accretive manner;
governmental and regulatory commissions' decisions, including decisions on proper disposition of property;
consequences of eminent domain actions relating to our water systems;
changes in regulatory commissions' policies and procedures, such as the CPUC’s decision in 2020 to preclude companies from proposing fully decoupled WRAMs in their next GRC filing (which impacted our 2021 GRC filing related to our operations commencing in 2023);
the outcome and timeliness of regulatory commissions' actions concerning rate relief and other actions;
increased risk of inverse condemnation losses as a result of climate conditions;
our ability to renew leases to operate water systems owned by others on beneficial terms;
changes in California State Water Resources Control Board water quality standards;
changes in environmental compliance and water quality requirements;
electric power interruptions, especially as a result of Public Safety Power Shutoff (PSPS) programs;
housing and customer growth;
the impact of opposition to rate increases;
our ability to recover costs;
19

Table of Contents
availability of water supplies;
issues with the implementation, maintenance or security of our information technology systems;
civil disturbances or terrorist threats or acts;
the adequacy of our efforts to mitigate physical and cyber security risks and threats;
the ability of our enterprise risk management processes to identify or address risks adequately;
labor relations matters as we negotiate with the unions;
changes in customer water use patterns and the effects of conservation;
our ability to complete, successfully integrate and achieve anticipated benefits from announced acquisitions;
the impact of weather, climate, natural disasters, and actual or threatened public health emergencies, including disease outbreaks, on our operations, water quality, water availability, water sales and operating results and the adequacy of our emergency preparedness;
restrictive covenants in or changes to the credit ratings on our current or future debt that could increase our financing costs or affect our ability to borrow, make payments on debt or pay dividends;
risks associated with expanding our business and operations geographically; and
the risks set forth in “Risk Factors” included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.
 
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 GAAP and as directed by the Commissions to which our operations are subject. The process of preparing financial statements in accordance with GAAP requires the use of estimates on the part of management. The estimates used by management are based on historic experience and an 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, financial condition, and cash flows of the business. These policies and their key characteristics are discussed in detail in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. They include:
revenue recognition;
regulated utility accounting;
income taxes;
pension and postretirement health care benefits;
For the six months ended June 30, 2021, there were no changes in the methodology for computing critical accounting estimates, no additional accounting estimates met the standards for critical accounting policies, and there were no material changes to the important assumptions underlying the critical accounting estimates.
COVID-19
During the course of 2020 and continuing into the first six months of 2021, as a result of the COVID-19 pandemic, shelter-in-place and social distancing ordinances of varying durations and scope were implemented in all of the states in which we operate. Such governmental orders resulted in temporary closures of non-essential businesses and self-quarantining on non-essential workers. As an “essential business” during times of emergencies pursuant to the U.S. Critical Infrastructures Protection Act of 2001, we are working to continue to provide high quality water and wastewater services to our two million customers. During 2020 and for the six months ended June 30, 2021 and through July 29, 2021, the COVID-19 pandemic has not had a significant impact on our business or operations. We have, however, increased our allowance for
20

Table of Contents
credit losses as we have ceased all shutoffs for non-payment during the pandemic and anticipate this situation will continue until further notice. We are expecting segments of our customer base to continue to experience employment layoffs and business closures that negatively impact their ability to pay utility bills. We have also incurred costs to promote the health and safety of our employees and facilities.
If we need to close any of our facilities due to outbreaks of COVID-19 or if a critical number of our employees become too ill to work, our business operations could be materially adversely affected in a rapid manner. All company employees have returned to the office full-time. We continue to be vigilant for employee and customer safety, we encourage and incentivize vaccination, and we follow local masking rules as applicable. The impact of the COVID-19 pandemic is fluid and continues to evolve, and therefore, we cannot predict the extent to which our business, results of operations, financial condition or liquidity will ultimately be impacted.
RESULTS OF SECOND QUARTER 2021 OPERATIONS
COMPARED TO SECOND QUARTER 2020 OPERATIONS
Dollar amounts in thousands unless otherwise stated 
Overview
Net Income Attributable to California Water Service Group
Net income attributable to California Water Service Group for the second quarter of 2021 was $38.2 million or $0.75 earnings per diluted common share, compared to net income attributable to California Water Service Group of $5.3 million or $0.11 earnings per diluted common share for the second quarter of 2020.
The $32.9 million increase in net income attributable to California Water Service Group was primarily due to the December 2020 decision by the CPUC on Cal Water’s 2018 GRC. The decision authorized rate increases and the continuation of regulatory mechanisms that the Company had not recorded in the second quarter of 2020. Second quarter 2021 results included cumulative GRC rate relief of $7.9 million, representing 2020 and 2021 rate changes, and regulatory mechanism net revenue increases of $18.0 million in the second quarter of 2021 as compared to the second quarter of 2020. The increase in net income attributable to California Water Service Group resulting from the adoption of Cal Water's 2018 GRC was partially offset by increases in administrative and general expense of $4.8 million, depreciation and amortization expense of $2.7 million and property taxes of $0.6 million.
Additional factors outside the Company’s immediate control also significantly contributed to the increase in net income attributable to California Water Service Group, including a $10.9 million increase in accrued unbilled revenue partially offset by a $1.9 million decrease in unrealized gain on certain benefit plan investments. Seasonal weather patterns and the number of unbilled days are the primary drivers of accrued unbilled revenue.
Operating Revenue
Operating revenue increased $37.6 million, or 21.4%, to $213.1 million in the second quarter of 2021 as compared to the second quarter of 2020, with such change attributed to the following:
Net change due to rate changes, usage, and other (1) $37,533 
WRAM Revenue (2)1,477 
MCBA Revenue (3)6,978 
Other balancing account revenue (4)(793)
Deferral of revenue (5)(7,556)
Net operating revenue increase$37,639 
1.The net change due to rate changes, usage, and other in the above table was mainly driven by rate increases, the components of which are set forth in the table below, a 9.8% increase in customer usage and a $10.9 million increase in accrued unbilled revenue.
21

Table of Contents
General rate case$2,306 
Escalation rate increases1,970 
Purchased water and pump tax offsets1,376 
Rate base offsets2,273 
Total increase in rates$7,925 
2.WRAM revenue is the variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts. For the second quarter of 2021, we recognized $1.5 million of WRAM revenue. Actual volumetric revenue was lower than adopted volumetric billings due to a shift in customer usage from nonresidential to residential usage. Due to the delay in the resolution of the 2018 GRC, WRAM revenue was not recorded in the second quarter of 2020.
3.MCBA revenue is the variance between adopted water production costs and actual water production costs. For the second quarter of 2021, we recognized $7.0 million of MCBA revenue. Actual water production costs were higher than adopted production costs in the second quarter of 2021 due to a shift in water production mix from well water to purchased water in certain of our service territories. As required by the MCBA mechanism, the increase in actual water production costs relative to adopted water production costs in California also increased operating revenue for the same amount. Due to the delay in the resolution of the 2018 GRC, MCBA revenue was not recorded in the second quarter of 2020.
4.The other balancing account revenue consists of the pension, conservation and health care balancing account revenues. Pension and conservation balancing account revenues are the differences between actual expenses and adopted rate recovery. Health care balancing account revenue is 85% of the difference between actual health care expenses and adopted rate recovery. For the second quarter of 2021, we recognized a decrease to revenue of $0.8 million for these balancing accounts. The decrease in revenue was mainly due to a decrease in actual health care expenses relative to adopted in the second quarter of 2021. Due to the delay in the resolution of the 2018 GRC, PCBA and HCBA revenue were not recorded in the second quarter of 2020.
5.The deferral of revenue consists of amounts that are expected to be collected from customers beyond 24 months following the end of the accounting period in which these revenues were recorded. The deferral increased in the second quarter of 2021 as compared to the second quarter of 2020 due to an increase in the balancing account revenue expected to be collected beyond 24 months.
Total Operating Expenses
Total operating expenses increased $7.9 million, or 4.8%, to $170.9 million in the second quarter of 2021, as compared to $163.0 million in the second quarter of 2020.
Water production costs consists of purchased water, purchased power, and pump taxes. It represents the largest component of total operating expenses, accounting for approximately 43.8% of total operating expenses for the second quarter of 2021, as compared to 43.6% of total operating expenses for the second quarter of 2020. Water production costs increased 5.3% in the second quarter of 2021 as compared to the same period last year mainly due to increases in purchased water quantities and an increase in rates from our purchased water wholesalers.
Sources of water as a percent of total water production are listed in the following table:
 Three Months Ended June 30
 20212020
Well production47 %44 %
Purchased49 %50 %
Surface%%
Total100 %100 %



22

Table of Contents
The components of water production costs are shown in the table below:
 Three Months Ended June 30
 20212020