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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 September 30, 2019
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 share |  | CWT |  | New 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. (Check one):

Large accelerated Filer | ☒ | Accelerated filer | ☐
Non-accelerated filer | ☐ | Smaller 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 x
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 September 30, 2019 — 48,145,000

Table of Contents
TABLE OF CONTENTS

| Page
PART I Financial Information | 3
Item 1 Financial Statements | 3
Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2019 and December 31, 2018 | 3
Condensed Consolidated Statements of Income (unaudited) For the Three Months Ended September 30, 2019 and 2018 | 4
Condensed Consolidated Statements of Income (unaudited) For the Nine Months Ended September 30, 2019 and 2018 | 5
Condensed Consolidated Statements of Cash Flows (unaudited) For the Nine Months Ended September 30, 2019 and 2018 | 6
Notes to Unaudited Condensed Consolidated Financial Statements | 7
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations | 33
Item 3 Quantitative and Qualitative Disclosure about Market Risk | 46
Item 4 Controls and Procedures | 46
PART II Other Information | 47
Item 1 Legal Proceedings | 47
Item 1A Risk Factors | 47
Item 5 Other Information | 47
Item 6 Exhibits | 48
Signatures | 49

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)

| September 30, 2019 |  | December 31, 2018
ASSETS |  |  |  |  |
Utility plant: |  |  |  |  |
Utility plant | $ | 3,411,219 |  |  | $ | 3,229,446 |
Less accumulated depreciation and amortization | (1,067,965 | ) |  | (996,723 | )
Net utility plant | 2,343,254 |  |  | 2,232,723 |
Current assets: |  |  |  |  |
Cash and cash equivalents | 51,257 |  |  | 47,176 |
Receivables: |  |  |  |  |
Customers | 45,624 |  |  | 30,037 |
Regulatory balancing accounts | 33,437 |  |  | 42,394 |
Other | 16,977 |  |  | 17,101 |
Unbilled revenue | 42,562 |  |  | 33,427 |
Materials and supplies at weighted average cost | 7,804 |  |  | 6,586 |
Taxes, prepaid expenses, and other assets | 14,395 |  |  | 11,981 |
Total current assets | 212,056 |  |  | 188,702 |
Other assets: |  |  |  |  |
Regulatory assets | 382,484 |  |  | 353,569 |
Goodwill | 2,615 |  |  | 2,615 |
Other assets | 82,845 |  |  | 60,095 |
Total other assets | 467,944 |  |  | 416,279 |
TOTAL ASSETS | $ | 3,023,254 |  |  | $ | 2,837,704 |
CAPITALIZATION AND LIABILITIES |  |  |  |  |
Capitalization: |  |  |  |  |
Common stock, $0.01 par value; 68,000 shares authorized, 48,145 and 48,065 outstanding in 2019 and 2018, respectively | $ | 481 |  |  | $ | 481 |
Additional paid-in capital | 341,988 |  |  | 337,623 |
Retained earnings | 415,326 |  |  | 392,053 |
Total common stockholders’ equity | 757,795 |  |  | 730,157 |
Long-term debt, net | 807,478 |  |  | 710,027 |
Total capitalization | 1,565,273 |  |  | 1,440,184 |
Current liabilities: |  |  |  |  |
Current maturities of long-term debt, net | 5,280 |  |  | 104,911 |
Short-term borrowings | 155,100 |  |  | 65,100 |
Accounts payable | 108,593 |  |  | 95,580 |
Regulatory balancing accounts | 6,887 |  |  | 12,213 |
Accrued interest | 14,410 |  |  | 5,674 |
Accrued expenses and other liabilities | 43,674 |  |  | 37,688 |
Total current liabilities | 333,944 |  |  | 321,166 |
Unamortized investment tax credits | 1,649 |  |  | 1,649 |
Deferred income taxes | 229,237 |  |  | 213,033 |
Pension and postretirement benefits other than pensions | 203,557 |  |  | 193,538 |
Regulatory liabilities and other | 260,812 |  |  | 256,522 |
Advances for construction | 190,272 |  |  | 186,342 |
Contributions in aid of construction | 238,510 |  |  | 225,270 |
Commitments and contingencies (Note 10) |  |  |  |  |
TOTAL CAPITALIZATION AND LIABILITIES | $ | 3,023,254 |  |  | $ | 2,837,704 |

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
3

Table of Contents
CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited (In thousands, except per share data)

For the three months ended |  | September 30, 2019 |  | September 30, 2018
Operating revenue |  | $ | 232,537 |  |  | $ | 221,288 |
Operating expenses: |  |  |  |  |  |
Operations: |  |  |  |  |  |
Water production costs |  | 80,568 |  |  | 78,818 |
Administrative and general |  | 26,779 |  |  | 26,493 |
Other operations |  | 24,550 |  |  | 21,943 |
Maintenance |  | 7,065 |  |  | 6,768 |
Depreciation and amortization |  | 22,273 |  |  | 21,009 |
Income taxes |  | 12,194 |  |  | 11,786 |
Property and other taxes |  | 7,541 |  |  | 7,142 |
Total operating expenses |  | 180,970 |  |  | 173,959 |
Net operating income |  | 51,567 |  |  | 47,329 |
Other income and expenses: |  |  |  |  |  |
Non-regulated revenue |  | 4,118 |  |  | 4,703 |
Non-regulated expenses |  | (4,351 | ) |  | (4,897 | )
Other components of net periodic benefit cost |  | (1,857 | ) |  | (1,975 | )
Allowance for equity funds used during construction |  | 1,868 |  |  | 1,023 |
Income tax benefit on other income and expenses |  | 330 |  |  | 305 |
Net other income (loss) |  | 108 |  |  | (841 | )
Interest expense: |  |  |  |  |  |
Interest expense |  | 10,279 |  |  | 10,875 |
Allowance for borrowed funds used during construction |  | (1,028 | ) |  | (560 | )
Net interest expense |  | 9,251 |  |  | 10,315 |
Net income |  | $ | 42,424 |  |  | $ | 36,173 |
Earnings per share: |  | 0 |  |  | — |
Basic |  | $ | 0.88 |  |  | $ | 0.75 |
Diluted |  | 0.88 |  |  | 0.75 |
Weighted average shares outstanding: |  |  |  |  |  |
Basic |  | 48,141 |  |  | 48,070 |
Diluted |  | 48,141 |  |  | 48,070 |

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited (In thousands, except per share data)

For the nine months ended |  | September 30, 2019 |  | September 30, 2018
Operating revenue |  | $ | 537,679 |  |  | $ | 530,779 |
Operating expenses: |  |  |  |  |  |
Operations: |  |  |  |  |  |
Water production costs |  | 190,795 |  |  | 191,797 |
Administrative and general |  | 81,310 |  |  | 77,195 |
Other operations |  | 64,913 |  |  | 60,307 |
Maintenance |  | 19,212 |  |  | 17,596 |
Depreciation and amortization |  | 66,967 |  |  | 62,677 |
Income taxes |  | 13,524 |  |  | 16,950 |
Property and other taxes |  | 21,902 |  |  | 20,253 |
Total operating expenses |  | 458,623 |  |  | 446,775 |
Net operating income |  | 79,056 |  |  | 84,004 |
Other income and expenses: |  |  |  |  |  |
Non-regulated revenue |  | 14,149 |  |  | 13,967 |
Non-regulated expenses |  | (10,470 | ) |  | (16,449 | )
Other components of net periodic benefit cost |  | (4,308 | ) |  | (6,984 | )
Allowance for equity funds used during construction |  | 5,087 |  |  | 2,644 |
Income tax (expense) benefit on other income and expenses |  | (985 | ) |  | 1,882 |
Net other income (loss) |  | 3,473 |  |  | (4,940 | )
Interest expense: |  |  |  |  |  |
Interest expense |  | 33,532 |  |  | 30,207 |
Allowance for borrowed funds used during construction |  | (2,783 | ) |  | (1,359 | )
Net interest expense |  | 30,749 |  |  | 28,848 |
Net income |  | $ | 51,780 |  |  | $ | 50,216 |
Earnings per share: |  |  |  |  |  |
Basic |  | $ | 1.08 |  |  | $ | 1.04 |
Diluted |  | 1.08 |  |  | 1.04 |
Weighted average shares outstanding: |  |  |  |  |  |
Basic |  | 48,121 |  |  | 48,058 |
Diluted |  | 48,121 |  |  | 48,058 |

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited (In thousands)

For the nine months ended: |  | September 30, 2019 |  | September 30, 2018
Operating activities: |  |  |  |  |  |
Net income |  | $ | 51,780 |  |  | $ | 50,216 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |
Depreciation and amortization |  | 68,522 |  |  | 64,131 |
Change in value of life insurance contracts |  | (3,433 | ) |  | 124 |
Allowance for equity funds used during construction |  | (5,087 | ) |  | (2,644 | )
Changes in operating assets and liabilities: |  |  |  |  |  |
Receivables and unbilled revenue |  | (29,436 | ) |  | (18,471 | )
Accounts payable |  | 16,735 |  |  | 18,133 |
Other current assets |  | (3,937 | ) |  | (1,392 | )
Other current liabilities |  | 11,597 |  |  | 8,762 |
Other changes in noncurrent assets and liabilities |  | 21,602 |  |  | 644 |
Net cash provided by operating activities |  | 128,343 |  |  | 119,503 |
Investing activities: |  |  |  |  |  |
Utility plant expenditures |  | (194,942 | ) |  | (212,856 | )
Life insurance proceeds |  | — |  |  | 3,491 |
Purchase of life insurance contracts |  | (2,216 | ) |  | (4,925 | )
Net cash used in investing activities |  | (197,158 | ) |  | (214,290 | )
Financing activities: |  |  |  |  |  |
Short-term borrowings |  | 210,000 |  |  | 141,000 |
Repayment of short-term borrowings |  | (120,000 | ) |  | (341,000 | )
Issuance of long-term debt, net of expenses of $1,569 for 2019 and $617 for 2018 |  | 398,431 |  |  | 299,383 |
Repayment of long-term debt |  | (401,630 | ) |  | (12,499 | )
Advances and contributions in aid of construction |  | 21,266 |  |  | 13,630 |
Refunds of advances for construction |  | (5,560 | ) |  | (5,462 | )
Repurchase of common stock |  | (2,355 | ) |  | (1,496 | )
Issuance of common stock |  | 1,278 |  |  | — |
Dividends paid |  | (28,507 | ) |  | (27,029 | )
Net cash provided by financing activities |  | 72,923 |  |  | 66,527 |
Change in cash, cash equivalents, and restricted cash |  | 4,108 |  |  | (28,260 | )
Cash, cash equivalents, and restricted cash at beginning of period |  | 47,715 |  |  | 95,352 |
Cash, cash equivalents, and restricted cash at end of period |  | $ | 51,823 |  |  | $ | 67,092 |
Supplemental information: |  |  |  |  |  |
Cash paid for interest (net of amounts capitalized) |  | $ | 22,060 |  |  | $ | 19,956 |
Supplemental disclosure of non-cash activities: |  |  |  |  |  |
Accrued payables for investments in utility plant |  | $ | 31,676 |  |  | $ | 32,328 |
Utility plant contribution by developers |  | $ | 23,955 |  |  | $ | 14,807 |

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
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CALIFORNIA WATER SERVICE GROUP
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2019
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 and Hawaii through its wholly-owned subsidiaries. California Water Service Company (Cal Water), Washington Water Service Company (Washington Water), New Mexico Water Service Company (New Mexico Water), and Hawaii Water Service Company, Inc. (Hawaii Water) provide regulated utility services under the rules and regulations of their respective state’s regulatory commissions (jointly referred to herein as the Commissions). CWS Utility Services and HWS Utility Services LLC provide non-regulated water utility and utility-related services.
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, 2018 as filed with the SEC on February 28, 2019.
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 doubtful accounts, 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.
Note 2. Summary of Significant Accounting Policies
Operating revenue
The following tables disaggregate the Company’s operating revenue by source for the three and nine months ended September 30, 2019 and 2018:

| Three Months Ended September 30
| 2019 |  | 2018
Revenue from contracts with customers | $ | 214,963 |  |  | $ | 209,541 |
Regulatory balancing account revenue | 17,574 |  |  | 11,747 |
Total operating revenue | $ | 232,537 |  |  | $ | 221,288 |

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| Nine Months Ended September 30
| 2019 |  | 2018
Revenue from contracts with customers | $ | 499,840 |  |  | $ | 515,567 |
Regulatory balancing account revenue | 37,839 |  |  | 15,212 |
Total operating revenue | $ | 537,679 |  |  | $ | 530,779 |

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 consolidated balance sheets, is inconsequential.
In the following tables, revenue from contracts with customers is disaggregated by class of customers for the three and nine months ended September 30, 2019 and 2018:

| Three Months Ended September 30
| 2019 |  | 2018
Residential | $ | 139,137 |  |  | $ | 138,939 |
Business | 38,247 |  |  | 38,538 |
Industrial | 9,077 |  |  | 8,987 |
Public authorities | 12,482 |  |  | 12,180 |
Other (a) | 16,020 |  |  | 10,897 |
Total revenue from contracts with customers | $ | 214,963 |  |  | $ | 209,541 |

| Nine Months Ended September 30
| 2019 |  | 2018
Residential | $ | 330,745 |  |  | $ | 340,107 |
Business | 95,433 |  |  | 97,720 |
Industrial | 23,866 |  |  | 24,507 |
Public authorities | 24,566 |  |  | 25,875 |
Other (a) | 25,230 |  |  | 27,358 |
Total revenue from contracts with customers | $ | 499,840 |  |  | $ | 515,567 |

(a) Other includes the accrued unbilled revenue.
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Regulatory balancing account revenue
The Company’s ability to recover revenue requirements authorized by the California Public Utilities Commission (CPUC) in its triennial General Rate Case (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.
The Water Revenue Adjustment Mechanism (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 Modified Cost Balancing Account (MCBA), 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.
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.
Non-regulated Revenue
The following tables disaggregate the Company’s non-regulated revenue by source for the three and nine months ended September 30, 2019 and 2018:

| Three Months Ended September 30
| 2019 |  | 2018
Operating and maintenance revenue | $ | 2,929 |  |  | $ | 2,816 |
Other non-regulated revenue | 626 |  |  | 1,328 |
Non-regulated revenue from contracts with customers | $ | 3,555 |  |  | $ | 4,144 |
Lease revenue | $ | 563 |  |  | $ | 559 |
Total non-regulated revenue | $ | 4,118 |  |  | $ | 4,703 |

| Nine Months Ended September 30
| 2019 |  | 2018
Operating and maintenance revenue | $ | 9,248 |  |  | $ | 8,278 |
Other non-regulated revenue | 3,189 |  |  | 4,053 |
Non-regulated revenue from contracts with customers | $ | 12,437 |  |  | $ | 12,331 |
Lease revenue | $ | 1,712 |  |  | $ | 1,636 |
Total non-regulated revenue | $ | 14,149 |  |  | $ | 13,967 |

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. The company provides the lessee the right to ingress and egress across lessor property to access the antennas. The minimum rents are recognized on a straight-line basis over the terms of the leases, which may span multiple years. The excess rents are recognized over amounts contractually due pursuant to the underlying leases and is included in a deferred receivable account in the accompanying balance sheet. The
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leases generally have terms of 5 to 10 years, with lessee options to extend the lease for up to 15 years. The exercise of lease renewal options is at the lessee’s sole discretion. Most of the Company’s lease agreements contain mutual termination options that require prior written notice by either lessee or lessor. A subset of the Company’s leases contains variable lease payments that depend on changes in the consumer price index (CPI).
The Company determines if an arrangement is a lease at inception. Generally, a lease agreement exists if the Company determines that the arrangement gives the lessee control over the use of an identified asset and obtains substantially all of the benefits from the identified asset.
Maturities of lease payments to be received are as follows:

Year Ending December 31, | Operating Leases
2019 | $ | 3,153 |
2020 | 2,587 |
2021 | 1,880 |
2022 | 1,078 |
2023 | 584 |
Thereafter | 871 |

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:

| September 30, 2019 |  | December 31, 2018
Cash and cash equivalents | 51,257 |  |  | 47,176 |
Restricted cash (included in "taxes, prepaid expenses and other assets") | 566 |  |  | 539 |
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows | $ | 51,823 |  |  | $ | 47,715 |

Adoption of New Accounting Standards
In February of 2016, the Financial Accounting Standards Board (FASB) issued guidance on leases, with amendments in 2018. The guidance requires lessees to recognize an asset and liability on the balance sheet for all of their lease obligations. Operating leases were previously not recognized on the balance sheet.
The Company adopted the standard using the modified retrospective method for its existing leases and did not restate its comparative periods in the period of adoption. The Company completed its review of its lease portfolio including significant leases and the Company designed and implemented new controls as part of the adoption of the new standard. The implementation increased lease assets and lease liabilities on the Consolidated Balance Sheets by $13.8 million as of January 1, 2019.
The Company elected certain practical expedients and carried forward historical conclusions related to (1) contracts that contain leases, (2) existing lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. The Company also applied the practical expedient that allows the Company to elect, as an accounting policy, by asset class, to include both lease and non-lease components as a single component and account for it as a lease. The Company applied the short-term lease exception which allowed the Company to not have to apply the recognition requirements of the new leasing guidance for short-term leases and to recognize lease payments in net income on a straight-line basis over the lease term. Otherwise, the new standard did not have a material impact on the remaining consolidated financial statements.
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Note 3. Stock-based Compensation
Equity Incentive Plan
The following table lists the number of annual Restricted Stock Awards (RSAs) granted and canceled during the three and nine months ended September 30, 2019 and 2018:

| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2019 |  | 2018 |  | 2019 |  | 2018
RSAs granted | — |  |  | 1,138 |  |  | 36,183 |  |  | 47,273 |
RSAs canceled | 2,739 |  |  | 3,214 |  |  | 14,394 |  |  | 16,520 |

During the first nine months of 2019 and 2018, the RSAs granted were valued at $52.83 and $35.40 per share, respectively, based upon the fair value of the Company’s common stock on the date of grant.
The following table lists the number of Restricted Stock Unit Awards (RSUs) granted, issued, and canceled during the three and nine months ended September 30, 2019 and 2018:

| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2019 |  | 2018 |  | 2019 |  | 2018
RSUs granted | — |  |  | — |  |  | 26,473 |  |  | 28,594 |
RSUs issued | — |  |  | — |  |  | 62,726 |  |  | 48,753 |
RSUs canceled | — |  |  | — |  |  | 31,177 |  |  | 24,009 |

The 2019 and 2018 awards may be earned upon completion of the three-year performance period and are recognized as expense ratably over the period using a fair value of $52.83 per share and $35.40 per share, respectively, and an estimate of RSUs earned during the period.
The Company has recorded compensation costs for the RSAs and RSUs in administrative and general operating expenses in the amount of $5.3 million and $2.3 million for the nine months ended September 30, 2019 and 2018, respectively. For the three months ended September 30, 2019 and 2018, the Company has recorded compensation costs for the RSAs and RSUs in the amount of $1.4 million and $0.8 million, respectively.
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Note 4. Equity
On October 31, 2019, the Company entered into an equity distribution agreement with Morgan Stanley & Co., LLC, Robert W. Baird & Co. Incorporated, Blaylock Van, LLC and Wells Fargo Securities, LLC to sell shares of its common stock having an aggregate gross sales price of up to $300.0 million from time to time depending on market conditions through an at-the-market equity program over the next three years. The Company intends to use the net proceeds from these sales, after deducting commissions on such sales and offering expenses, for general corporate purposes, which may include working capital, construction and acquisition expenditures, investments and repurchases, and redemptions of securities.
The Company’s changes in total common stockholders’ equity for the nine months ended September 30, 2019 and 2018 were as follows:

| Nine months ended September 30, 2019
| Common Stock |  | Additional Paid-in Capital |  | Retained Earnings |  | Total Stockholders' Equity
| Shares |  | Amount |  |  |
| (In thousands)
Balance at January 1, 2019 | 48,065 |  |  | $ | 481 |  |  | $ | 337,623 |  |  | $ | 392,053 |  |  | $ | 730,157 |
Net loss |  |  |  |  |  |  | (7,640 | ) |  | (7,640 | )
Issuance of common stock | 109 |  |  | — |  |  | 3,179 |  |  | — |  |  | 3,179 |
Repurchase of common stock | (40 | ) |  | — |  |  | (2,074 | ) |  | — |  |  | (2,074 | )
Dividends paid on common stock ($0.1975 per share) |  |  |  |  |  |  | (9,493 | ) |  | (9,493 | )
Balance at March 31, 2019 | 48,134 |  |  | 481 |  |  | 338,728 |  |  | 374,920 |  |  | 714,129 |
Net income |  |  |  |  |  |  | 16,996 |  |  | 16,996 |
Issuance of common stock | 8 |  |  | — |  |  | 1,675 |  |  | — |  |  | 1,675 |
Repurchase of common stock | (2 | ) |  | — |  |  | (129 | ) |  | — |  |  | (129 | )
Dividends paid on common stock ($0.1975 per share) |  |  |  |  |  |  | (9,507 | ) |  | (9,507 | )
Balance at June 30, 2019 | 48,140 |  |  | 481 |  |  | 340,274 |  |  | 382,409 |  |  | 723,164 |
Net income |  |  |  |  |  |  | 42,424 |  |  | 42,424 |
Issuance of common stock | 9 |  |  | — |  |  | 1,866 |  |  | — |  |  | 1,866 |
Repurchase of common stock | (4 | ) |  | — |  |  | (152 | ) |  | — |  |  | (152 | )
Dividends paid on common stock ($0.1975 per share) |  |  |  |  |  |  | (9,507 | ) |  | (9,507 | )
Balance at September 30, 2019 | 48,145 |  |  | 481 |  |  | 341,988 |  |  | 415,326 |  |  | 757,795 |

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| Nine months ended September 30, 2018
| Common Stock |  | Additional Paid-in Capital |  | Retained Earnings |  | Total Stockholders' Equity
| Shares |  | Amount |  |  |
| (In thousands)
Balance at January 1, 2018 | 48,012 |  |  | $ | 480 |  |  | $ | 336,229 |  |  | $ | 362,512 |  |  | $ | 699,221 |
Net loss |  |  |  |  |  |  | (762 | ) |  | (762 | )
Issuance of common stock | 95 |  |  | 1 |  |  | 635 |  |  | — |  |  | 636 |
Repurchase of common stock | (33 | ) |  | — |  |  | (1,239 | ) |  | — |  |  | (1,239 | )
Dividends paid on common stock ($0.1875 per share) |  |  |  |  |  |  | (9,003 | ) |  | (9,003 | )
Balance at March 31, 2018 | 48,074 |  |  | 481 |  |  | 335,625 |  |  | 352,747 |  |  | 688,853 |
Net income |  |  |  |  |  |  | 14,805 |  |  | 14,805 |
Issuance of common stock | — |  |  | — |  |  | 737 |  |  | — |  |  | 737 |
Repurchase of common stock | (4 | ) |  | — |  |  | (124 | ) |  | — |  |  | (124 | )
Dividends paid on common stock ($0.1875 per share) |  |  |  |  |  |  | (9,014 | ) |  | (9,014 | )
Balance at June 30, 2018 | 48,070 |  |  | 481 |  |  | 336,238 |  |  | 358,538 |  |  | 695,257 |
Net income |  |  |  |  |  |  | 36,173 |  |  | 36,173 |
Issuance of common stock | 1 |  |  | — |  |  | 853 |  |  | — |  |  | 853 |
Repurchase of common stock | (3 | ) |  | — |  |  | (131 | ) |  | — |  |  | (131 | )
Dividends paid on common stock ($0.1875 per share) |  |  |  |  |  |  | (9,012 | ) |  | (9,012 | )
Balance at September 30, 2018 | 48,068 |  |  | 481 |  |  | 336,960 |  |  | 385,699 |  |  | 723,140 |

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Note 5. Earnings Per Share
The computations of basic and diluted earnings per share are noted in the table below. Basic earnings per share are computed by dividing the net income available to common stockholders 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 diluted shares for financial reporting until authorized by the Organization & Compensation Committee of the Board of Directors.

| Three Months Ended September 30
| 2019 |  | 2018
| (In thousands, except per share data)
Net income available to common stockholders | $ | 42,424 |  |  | $ | 36,173 |
Weighted average common shares outstanding, basic | 48,141 |  |  | 48,070 |
Weighted average common shares outstanding, dilutive | 48,141 |  |  | 48,070 |
Earnings per share - basic | $ | 0.88 |  |  | $ | 0.75 |
Earnings per share - diluted | $ | 0.88 |  |  | $ | 0.75 |

| Nine Months Ended September 30
| 2019 |  | 2018
| (In thousands, except per share data)
Net income available to common stockholders | $ | 51,780 |  |  | $ | 50,216 |
Weighted average common shares outstanding, basic | 48,121 |  |  | 48,058 |
Weighted average common shares outstanding, dilutive | 48,121 |  |  | 48,058 |
Earnings per share - basic | $ | 1.08 |  |  | $ | 1.04 |
Earnings per share - diluted | $ | 1.08 |  |  | $ | 1.04 |

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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 related to the pension plans were $12.5 million and $42.3 million for the nine months ended September 30, 2019 and 2018, respectively. Cash contributions made by the Company related to the other postretirement benefit plans were $5.6 million and $8.0 million for the nine months ended September 30, 2019 and 2018, respectively. The total 2019 estimated cash contribution to the pension plans is $18.8 million and to the other postretirement benefit plans is $7.9 million.
The following tables list 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 September 30
| Pension Plan |  | Other Benefits
| 2019 |  | 2018 |  | 2019 |  | 2018
Service cost | $ | 6,910 |  |  | $ | 6,966 |  |  | $ | 2,082 |  |  | $ | 1,966 |
Interest cost | 6,941 |  |  | 6,007 |  |  | 1,407 |  |  | 1,183 |
Expected return on plan assets | (7,581 | ) |  | (7,052 | ) |  | (1,475 | ) |  | (1,397 | )
Amortization of prior service cost | 1,262 |  |  | 1,263 |  |  | 49 |  |  | 11 |
Recognized net actuarial loss | 1,821 |  |  | 2,791 |  |  | 214 |  |  | 242 |
Net periodic benefit cost | $ | 9,353 |  |  | $ | 9,975 |  |  | $ | 2,277 |  |  | $ | 2,005 |

| Nine Months Ended September 30
| Pension Plan |  | Other Benefits
| 2019 |  | 2018 |  | 2019 |  | 2018
Service cost | $ | 20,039 |  |  | $ | 21,770 |  |  | $ | 5,606 |  |  | $ | 7,066 |
Interest cost | 20,225 |  |  | 17,996 |  |  | 4,081 |  |  | 4,152 |
Expected return on plan assets | (22,714 | ) |  | (20,777 | ) |  | (4,346 | ) |  | (4,229 | )
Amortization of prior service cost | 3,786 |  |  | 3,789 |  |  | 148 |  |  | 32 |
Recognized net actuarial loss | 4,445 |  |  | 8,386 |  |  | 421 |  |  | 1,789 |
Net periodic benefit cost | $ | 25,781 |  |  | $ | 31,164 |  |  | $ | 5,910 |  |  | $ | 8,810 |

Service cost portion of the pension plan and other postretirement benefits is recognized in "administrative and general" expenses within the Condensed Consolidated Statements of Income. 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 Income.
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Note 7. Short-term and Long-term Borrowings
On June 11, 2019, Cal Water completed the sale and issuance of $400.0 million in aggregate principal amount of First Mortgage Bonds (the bonds) in a private placement. The bonds consist of $100.0 million of 3.40% bonds, series VVV, maturing June 11, 2029; $100.0 million of 4.07% bonds, series WWW, maturing June 11, 2049; and $200.0 million of 4.17% bonds, series YYY, maturing June 11, 2059. Interest on the bonds will accrue semi-annually and be payable in arrears. 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 pay down outstanding short-term borrowings and to redeem $300.0 million of bond series UUU. 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 revolving credit facilities amend, expand, and replace the Company’s and its subsidiaries’ prior credit facilities originally entered into on May 10, 2015. The new credit facilities extended the terms until March 29, 2024, and increased Cal Water’s unsecured revolving line of credit. 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. All borrowings must be repaid within 24 months unless a different period is required or authorized by the CPUC. 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 proceeds from the revolving credit facilities may be used for working capital purposes, including the short-term financing of capital projects. Borrowings under the credit facilities typically have maturities varying between one and six months and will bear interest annually at a rate equal to (i) the base rate or (ii) the Eurodollar rate, plus an applicable margin of 0.650% to 0.875%, depending on the Company and its subsidiaries’ consolidated total capitalization ratio.
Both short-term unsecured credit agreements 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 $55.1 million as of September 30, 2019 and December 31, 2018. There were $100.0 million and $10.0 million of borrowings on the Cal Water line of credit as of September 30, 2019 and December 31, 2018, respectively. The average borrowing rate for borrowings on the Company and Cal Water lines of credit during the nine months ended September 30, 2019 was 3.38% compared to 2.88% 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 tables below:

| Three Months Ended September 30
| 2019 |  | 2018
Income tax expense | $ | 11,864 |  |  | $ | 11,481 |

| Nine Months Ended September 30
| 2019 |  | 2018
Income tax expense | $ | 14,509 |  |  | $ | 15,068 |

The income tax expense increased $0.4 million to $11.9 million for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018. The increase is due to an increase in pre-tax net income of $6.6 million for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018.
The income tax expense decreased $0.6 million to $14.5 million for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018. The decrease is due to higher income tax benefit for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.
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The Company's 2019 effective tax rate, before discrete items, is estimated to be 22%.
For the year ended December 31, 2018, the Company recorded a re-measurement of its deferred tax balances (related mostly to timing differences for plant-related items). The final impact of the Tax Cuts and Jobs Act (TCJA) may differ from the recorded amounts, possibly materially, due to regulatory decisions that could differ from the Company’s determination of how the impact of the TCJA are allocated between customers and shareholders. In addition, changes in interpretations, guidance on legislative intent, and any changes in accounting standards for income taxes in response to the TCJA could also impact the recorded amounts.
The Company is continuing to work with state regulators to finalize the customer net refund of $107.0 million to ensure compliance with federal normalization rules and will record any adjustments based on state regulator's decisions.
The Company had unrecognized tax benefits of approximately $10.6 million and $9.7 million as of September 30, 2019 and 2018, respectively. Included in the balance of unrecognized tax benefits as of September 30, 2019 and 2018 are approximately $3.1 million and $2.9 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 September 30, 2019 and December 31, 2018:

| Recovery Period |  | September 30, 2019 |  | December 31, 2018
Regulatory Assets |  |  |  |  |  |  |
Pension and retiree group health | Indefinitely |  | $ | 156,453 |  |  | $ | 156,947 |
Property-related temporary differences (tax benefits flowed through to customers) | Indefinitely |  | 100,943 |  |  | 99,376 |
Other accrued benefits | Indefinitely |  | 21,183 |  |  | 20,588 |
Net WRAM and MCBA long-term accounts receivable | 1-2 years |  | 30,454 |  |  | 17,134 |
Asset retirement obligations, net | Indefinitely |  | 19,619 |  |  | 18,197 |
Interim rates long-term accounts receivable | 1 year |  | 4,642 |  |  | 4,642 |
Tank coating | 10 years |  | 13,745 |  |  | 11,196 |
Recoverable property losses | 10 years |  | 5,539 |  |  | 1,275 |
Pension balancing account | 1 year |  | 20,158 |  |  | 16,494 |
Other components of net periodic benefit cost | Indefinitely |  | 4,641 |  |  | 3,221 |
Other regulatory assets | Various |  | 5,107 |  |  | 4,499 |
Total Regulatory Assets |  |  | $ | 382,484 |  |  | $ | 353,569 |
Regulatory Liabilities |  |  |  |  |  |  |
Future tax benefits due to customers |  |  | $ | 180,207 |  |  | $ | 180,205 |
Health care balancing account |  |  | 4,315 |  |  | 3,516 |
Conservation program |  |  | 5,659 |  |  | 6,880 |
Net WRAM and MCBA long-term payable |  |  | 67 |  |  | 222 |
Tax accounting memorandum account |  |  | 785 |  |  | 5,039 |
Cost of capital memorandum account |  |  | 148 |  |  | 2,834 |
1,2,3 trichloropropane settlement proceeds |  |  | 9,204 |  |  | 12,142 |
Other regulatory liabilities |  |  | 272 |  |  | 437 |
Total Regulatory Liabilities |  |  | $ | 200,657 |  |  | $ | 211,275 |

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Short-term regulatory assets and liabilities are excluded from the above table.
The short-term regulatory assets were $33.4 million as of September 30, 2019 and $42.4 million as of December 31, 2018. As of September 30, 2019 and December 31, 2018, the short-term regulatory assets primarily consist of net WRAM and MCBA receivables.
The short-term portions of regulatory liabilities were $6.9 million as of September 30, 2019 and $12.2 million as of December 31, 2018. The short-term regulatory liabilities as of September 30, 2019, primarily consist of 1,2,3 trichloropropane (TCP) settlement proceeds, tax accounting memorandum account refunds, and cost of capital memorandum account refunds. As of December 31, 2018, the short-term regulatory liabilities primarily consist of TCP settlement proceeds and net WRAM and MCBA liability balances.
Note 10. Commitments and Contingencies
Commitments
The Company has significant commitments to purchase water from water wholesalers. These commitments are described in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.
Leases
The Company has operating and finance leases for water systems, offices, land easements, licenses, equipment, and other facilities. The leases generally have remaining lease terms of 1 year to 50 years, some of which include options to extend the lease for up to 25 years. The exercise of lease renewal options is at the Company’s sole discretion. Most of the Company’s lease agreements contain mutual termination options that require prior written notice by either lessee or lessor. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Certain leases include options to purchase the leased property. The depreciable life of the assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option that is reasonably certain of exercise. Leases with an initial term of 12 months or less are not recorded on the balance sheet as the Company applied the short-term lease exception allowed by the FASB guidance. Lease expense for these leases is recognized on a straight-line basis over the lease term. A subset of the Company’s leases contains variable lease payments that depend on changes in the CPI.
The Company determines if an arrangement is a lease at contract inception. Generally, a lease agreement exists if the Company determines that the arrangement gives the Company control over the use of an identified asset and obtains substantially all of the benefits from the identified asset.
The right-of-use (ROU) assets that are recorded represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s operating leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The ROU asset and lease liability may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Variable lease payments that are based on changes in CPI are included in the measurement of ROU asset and lease liability on the basis of the rate at lease commencement. Subsequent changes to the payments as a result of changes to the CPI rate are recognized in the period in which the obligation of these payments is incurred.
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Supplemental balance sheet information related to leases was as follows:

| As of September 30, 2019
Operating leases |
Other assets | $ | 14,349 |
Accrued expenses and other liabilities | $ | 1,421 |
Regulatory liabilities and other | 12,885 |
Total operating lease liabilities | $ | 14,306 |
Finance leases |
Utility plant | $ | 18,207 |
Accumulated depreciation and amortization | (9,352 | )
Net utility plant | $ | 8,855 |
Current maturities of long-term debt, net | $ | 670 |
Long-term debt, net | 5,378 |
Total finance lease liabilities | $ | 6,048 |
Weighted average remaining lease term |
Operating leases | 155 months |
Finance leases | 80 months |
Weighted average discount rate |
Operating leases | 3.7 | %
Finance leases | 5.5 | %

The components of lease expense were as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2019 |  |
Operating lease cost | $ | 490 |  |  | $ | 1,368 |
Finance lease cost: |  |  |
Amortization of right-of-use assets | $ | 292 |  |  | $ | 918 |
Interest on lease liabilities | 85 |  |  | 264 |
Total finance lease cost | $ | 377 |  |  | $ | 1,182 |
Short-term lease cost | $ | 543 |  |  | $ | 716 |
Variable lease cost | 66 |  |  | 198 |
Total lease cost | $ | 1,476 |  |  | $ | 3,464 |

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Supplemental cash flow information related to leases was as follows:

| Nine Months Ended September 30
| 2019
Cash paid for amounts included in the measurement of lease liabilities: |
Operating cash flows from operating leases | $ | 1,322 |
Operating cash flows from finance leases | 264 |
Financing cash flows from finance leases | 508 |
Non-cash activities: right-of-use assets obtained in exchange for lease obligations: |
Operating leases | 1,697 |
Finance leases | 672 |

Maturities of lease liabilities as of September 30, 2019 are as follows:

Year Ending December 31, | Operating Leases |  | Finance Leases
2019 (a) | $ | 451 |  |  | $ | 245 |
2020 | 1,892 |  |  | 986 |
2021 | 1,673 |  |  | 987 |
2022 | 1,516 |  |  | 987 |
2023 | 1,396 |  |  | 1,506 |
2024 | 1,253 |  |  | 940 |
Thereafter | 10,067 |  |  | 1,645 |
Total lease payments | $ | 18,248 |  |  | $ | 7,296 |
Less imputed interest | $ | (3,942 | ) |  | $ | (1,248 | )
Total | $ | 14,306 |  |  | $ | 6,048 |

(a) Excludes payments made for the first nine months of 2019.
As previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 and under the previous lease accounting standard, minimum lease payments, as of December 31, 2018, under non-cancelable operating leases by period were expected to be as follows:

2019 | $ | 1,771 |
2020 | 1,709 |
2021 | 1,485 |
2022 | 1,355 |
2023 | 1,261 |
Thereafter | 10,538 |
Total | $ | 18,119 |

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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 September 30, 2019 and December 31, 2018, the Company recognized a liability of $2.6 million and $2.3 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 Plan 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, 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 1.83%.
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Advances for construction fair values were estimated using broker quotes from companies that frequently purchase these investments.

| September 30, 2019
|  |  | Fair Value
| Cost |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Long-term debt, including current maturities, net | $ | 812,758 |  |  | — |  |  | $ | 912,402 |  |  | — |  |  | $ | 912,402 |
Advances for construction | 190,272 |  |  | — |  |  | 79,818 |  |  | — |  |  | 79,818 |
Total | $ | 1,003,030 |  |  | $ | — |  |  | $ | 992,220 |  |  | $ | — |  |  | $ | 992,220 |

| December 31, 2018
|  |  | Fair Value
| Cost |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Long-term debt, including current maturities, net | $ | 814,938 |  |  | $ | — |  |  | $ | 849,551 |  |  | $ | — |  |  | $ | 849,551 |
Advances for construction | 186,342 |  |  | — |  |  | 77,204 |  |  | — |  |  | 77,204 |
Total | $ | 1,001,280 |  |  | — |  |  | $ | 926,755 |  |  | $ | — |  |  | $ | 926,755 |

Note 12. Condensed Consolidating Financial Statements
On November 17, 2010, Cal Water issued $100.0 million aggregate principal amount of 5.500% First Mortgage Bonds due 2040, all of which is fully and unconditionally guaranteed by the Company. As a result of this guarantee arrangement, the Company is required to present the following condensed consolidating financial information. The investments in affiliates are accounted for and presented using the “equity method” of accounting.
The following tables present the Condensed Consolidating Balance Sheets as of September 30, 2019 and December 31, 2018, the Condensed Consolidating Statements of Income for the three and nine months ended September 30, 2019 and 2018, and the Condensed Consolidating Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 of (i) California Water Service Group, the guarantor of the First Mortgage Bonds and the parent company; (ii) California Water Service Company, the issuer of the First Mortgage Bonds and a 100% owned consolidated subsidiary of California Water Service Group; and (iii) the other 100% owned non-guarantor consolidated subsidiaries of California Water Service Group. No other subsidiary of the Company guarantees the securities.
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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING BALANCE SHEET
As of September 30, 2019
(In thousands)

| Parent Company |  | Cal Water |  | All Other Subsidiaries |  | Consolidating Adjustments |  | Consolidated
ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |  |
Utility plant: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Utility plant | $ | 1,318 |  |  | $ | 3,194,372 |  |  | $ | 222,726 |  |  | $ | (7,197 | ) |  | $ | 3,411,219 |
Less accumulated depreciation and amortization | (1,083 | ) |  | (1,004,387 | ) |  | (64,654 | ) |  | 2,159 |  |  | (1,067,965 | )
Net utility plant | 235 |  |  | 2,189,985 |  |  | 158,072 |  |  | (5,038 | ) |  | 2,343,254 |
Current assets: |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents | 2,408 |  |  | 39,187 |  |  | 9,662 |  |  | — |  |  | 51,257 |
Receivables and unbilled revenue | — |  |  | 133,281 |  |  | 5,319 |  |  | — |  |  | 138,600 |
Receivables from affiliates | 28,896 |  |  | 540 |  |  | 214 |  |  | (29,650 | ) |  | — |
Other current assets | 235 |  |  | 19,435 |  |  | 2,529 |  |  | — |  |  | 22,199 |
Total current assets | 31,539 |  |  | 192,443 |  |  | 17,724 |  |  | (29,650 | ) |  | 212,056 |
Other assets: |  |  |  |  |  |  |  |  |  |
Regulatory assets | — |  |  | 377,962 |  |  | 4,522 |  |  | — |  |  | 382,484 |
Investments in affiliates | 756,177 |  |  | — |  |  | — |  |  | (756,177 | ) |  | — |
Long-term affiliate notes receivable | 26,288 |  |  | — |  |  | — |  |  | (26,288 | ) |  | — |
Other assets | 460 |  |  | 80,480 |  |  | 4,692 |  |  | (214 | ) |  | 85,460 |
Total other assets | 782,925 |  |  | 458,442 |  |  | 9,214 |  |  | (782,679 | ) |  | 467,944 |
TOTAL ASSETS | $ | 814,699 |  |  | $ | 2,840,870 |  |  | $ | 185,010 |  |  | $ | (817,367 | ) |  | $ | 3,023,254 |
CAPITALIZATION AND LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |  |  |
Capitalization: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stockholders’ equity | $ | 757,795 |  |  | $ | 679,037 |  |  | $ | 82,366 |  |  | $ | (761,403 | ) |  | $ | 757,795 |
Affiliate long-term debt | — |  |  | — |  |  | 26,288 |  |  | (26,288 | ) |  | — |
Long-term debt, net | — |  |  | 807,019 |  |  | 459 |  |  | — |  |  | 807,478 |
Total capitalization | 757,795 |  |  | 1,486,056 |  |  | 109,113 |  |  | (787,691 | ) |  | 1,565,273 |
Current liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current maturities of long-term debt, net | — |  |  | 5,122 |  |  | 158 |  |  | — |  |  | 5,280 |
Short-term borrowings | 55,100 |  |  | 100,000 |  |  | — |  |  | — |  |  | 155,100 |
Payables to affiliates | — |  |  | 4,906 |  |  | 24,744 |  |  | (29,650 | ) |  | — |
Accounts payable | — |  |  | 103,748 |  |  | 4,845 |  |  | — |  |  | 108,593 |
Accrued expenses and other liabilities | 329 |  |  | 60,621 |  |  | 4,021 |  |  | — |  |  | 64,971 |
Total current liabilities | 55,429 |  |  | 274,397 |  |  | 33,768 |  |  | (29,650 | ) |  | 333,944 |
Unamortized investment tax credits | — |  |  | 1,649 |  |  | — |  |  | — |  |  | 1,649 |
Deferred income taxes | 1,475 |  |  | 224,549 |  |  | 3,213 |  |  | — |  |  | 229,237 |
Pension and postretirement benefits other than pensions | — |  |  | 203,557 |  |  | — |  |  | (26 | ) |  | 203,557 |
Regulatory liabilities and other | — |  |  | 253,843 |  |  | 6,953 |  |  | — |  |  | 260,812 |
Advances for construction | — |  |  | 189,781 |  |  | 491 |  |  | — |  |  | 190,272 |
Contributions in aid of construction | — |  |  | 207,038 |  |  | 31,472 |  |  | — |  |  | 238,510 |
TOTAL CAPITALIZATION AND LIABILITIES | $ | 814,699 |  |  | $ | 2,840,870 |  |  | $ | 185,010 |  |  | $ | (817,367 | ) |  | $ | 3,023,254 |

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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2018
(In thousands)

| Parent Company |  | Cal Water |  | All Other Subsidiaries |  | Consolidating Adjustments |  | Consolidated
ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |  |
Utility plant: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Utility plant | $ | 1,318 |  |  | $ | 3,021,437 |  |  | $ | 213,888 |  |  | $ | (7,197 | ) |  | $ | 3,229,446 |
Less accumulated depreciation and amortization | (1,013 | ) |  | (938,072 | ) |  | (59,735 | ) |  | 2,097 |  |  | (996,723 | )
Net utility plant | 305 |  |  | 2,083,365 |  |  | 154,153 |  |  | (5,100 | ) |  | 2,232,723 |
Current assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents | 3,779 |  |  | 33,763 |  |  | 9,634 |  |  | — |  |  | 47,176 |
Receivables and unbilled revenue | 126 |  |  | 118,632 |  |  | 4,201 |  |  | — |  |  | 122,959 |
Receivables from affiliates | 21,318 |  |  | 4,074 |  |  | 61 |  |  | (25,453 | ) |  | — |
Other current assets | 80 |  |  | 16,907 |  |  | 1,580 |  |  | — |  |  | 18,567 |
Total current assets | 25,303 |  |  | 173,376 |  |  | 15,476 |  |  | (25,453 | ) |  | 188,702 |
Other assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Regulatory assets | — |  |  | 349,414 |  |  | 4,155 |  |  | — |  |  | 353,569 |
Investments in affiliates | 733,156 |  |  | — |  |  | — |  |  | (733,156 | ) |  | — |
Long-term affiliate notes receivable | 27,829 |  |  | — |  |  | — |  |  | (27,829 | ) |  | — |
Other assets | 133 |  |  | 58,959 |  |  | 3,821 |  |  | (203 | ) |  | 62,710 |
Total other assets | 761,118 |  |  | 408,373 |  |  | 7,976 |  |  | (761,188 | ) |  | 416,279 |
TOTAL ASSETS | $ | 786,726 |  |  | $ | 2,665,114 |  |  | $ | 177,605 |  |  | $ | (791,741 | ) |  | $ | 2,837,704 |
CAPITALIZATION AND LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |  |  |
Capitalization: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stockholders’ equity | $ | 730,157 |  |  | $ | 659,340 |  |  | 79,093 |  |  | $ | (738,433 | ) |  | $ | 730,157 |
Affiliate long-term debt | — |  |  | — |  |  | 27,828 |  |  | (27,828 | ) |  | — |
Long-term debt, net | — |  |  | 709,444 |  |  | 583 |  |  | — |  |  | 710,027 |
Total capitalization | 730,157 |  |  | 1,368,784 |  |  | 107,504 |  |  | (766,261 | ) |  | 1,440,184 |
Current liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current maturities of long-term debt, net | — |  |  | 104,664 |  |  | 247 |  |  | — |  |  | 104,911 |
Short-term borrowings | 55,100 |  |  | 10,000 |  |  | — |  |  | — |  |  | 65,100 |
Payables to affiliates | 17 |  |  | 488 |  |  | 24,948 |  |  | (25,453 | ) |  | — |
Accounts payable | — |  |  | 92,310 |  |  | 3,270 |  |  | — |  |  | 95,580 |
Accrued expenses and other liabilities | 107 |  |  | 53,655 |  |  | 1,813 |  |  | — |  |  | 55,575 |
Total current liabilities | 55,224 |  |  | 261,117 |  |  | 30,278 |  |  | (25,453 | ) |  | 321,166 |
Unamortized investment tax credits | — |  |  | 1,649 |  |  | — |  |  | — |  |  | 1,649 |
Deferred income taxes | 1,376 |  |  | 210,052 |  |  | 1,648 |  |  | (43 | ) |  | 213,033 |
Pension and postretirement benefits other than pensions | — |  |  | 193,538 |  |  | — |  |  | — |  |  | 193,538 |
Regulatory and other liabilities | (31 | ) |  | 250,720 |  |  | 5,817 |  |  | 16 |  |  | 256,522 |
Advances for construction | — |  |  | 185,843 |  |  | 499 |  |  | — |  |  | 186,342 |
Contributions in aid of construction | — |  |  | 193,411 |  |  | 31,859 |  |  | — |  |  | 225,270 |
TOTAL CAPITALIZATION AND LIABILITIES | $ | 786,726 |  |  | $ | 2,665,114 |  |  | $ | 177,605 |  |  | $ | (791,741 | ) |  | $ | 2,837,704 |

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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended September 30, 2019
(In thousands)

| Parent Company |  | Cal Water |  | All Other Subsidiaries |  | Consolidating Adjustments |  | Consolidated
Operating revenue | $ | — |  |  | $ | 219,261 |  |  | $ | 13,276 |  |  | $ | — |  |  | $ | 232,537 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operations: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Water production costs | — |  |  | 78,048 |  |  | 2,520 |  |  | — |  |  | 80,568 |
Administrative and general | — |  |  | 24,498 |  |  | 2,281 |  |  | — |  |  | 26,779 |
Other operations | — |  |  | 22,872 |  |  | 1,825 |  |  | (147 | ) |  | 24,550 |
Maintenance | — |  |  | 6,823 |  |  | 242 |  |  | — |  |  | 7,065 |
Depreciation and amortization | 23 |  |  | 20,770 |  |  | 1,501 |  |  | (21 | ) |  | 22,273 |
Income tax (benefit) expense | (132 | ) |  | 11,332 |  |  | 779 |  |  | 215 |  |  | 12,194 |
Property and other taxes | — |  |  | 6,620 |  |  | 921 |  |  | — |  |  | 7,541 |
Total operating (income) expenses | (109 | ) |  | 170,963 |  |  | 10,069 |  |  | 47 |  |  | 180,970 |
Net operating income | 109 |  |  | 48,298 |  |  | 3,207 |  |  | (47 | ) |  | 51,567 |
Other income and expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-regulated revenue | 599 |  |  | 3,865 |  |  | 399 |  |  | (745 | ) |  | 4,118 |
Non-regulated expenses | — |  |  | (3,907 | ) |  | (444 | ) |  | — |  |  | (4,351 | )
Other components of net periodic benefit cost | — |  |  | (1,784 | ) |  | (73 | ) |  | — |  |  | (1,857 | )
Allowance for equity funds used during construction | — |  |  | 1,868 |  |  | — |  |  | — |  |  | 1,868 |
Income tax (expense) benefit on other income and expenses | (168 | ) |  | 268 |  |  | 22 |  |  | 208 |  |  | 330 |
Net other income (loss) | 431 |  |  | 310 |  |  | (96 | ) |  | (537 | ) |  | 108 |
Interest: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense | 450 |  |  | 9,820 |  |  | 608 |  |  | (599 | ) |  | 10,279 |
Allowance for borrowed funds used during construction | — |  |  | (954 | ) |  | (74 | ) |  | — |  |  | (1,028 | )
Net interest expense | 450 |  |  | 8,866 |  |  | 534 |  |  | (599 | ) |  | 9,251 |
Equity earnings of subsidiaries | 42,334 |  |  | — |  |  | — |  |  | (42,334 | ) |  | — |
Net income | $ | 42,424 |  |  | $ | 39,742 |  |  | $ | 2,577 |  |  | $ | (42,319 | ) |  | $ | 42,424 |

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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended September 30, 2018
(In thousands)

| Parent Company |  | Cal Water |  | All Other Subsidiaries |  | Consolidating Adjustments |  | Consolidated
Operating revenue | $ | — |  |  | $ | 208,695 |  |  | $ | 12,593 |  |  | $ | — |  |  | $ | 221,288 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operations: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Water production costs | — |  |  | 76,317 |  |  | 2,501 |  |  | — |  |  | 78,818 |
Administrative and general | — |  |  | 23,878 |  |  | 2,615 |  |  | — |  |  | 26,493 |
Other operations | — |  |  | 20,271 |  |  | 1,816 |  |  | (144 | ) |  | 21,943 |
Maintenance | — |  |  | 6,538 |  |  | 230 |  |  | — |  |  | 6,768 |
Depreciation and amortization | 23 |  |  | 19,632 |  |  | 1,376 |  |  | (22 | ) |  | 21,009 |
Income tax (benefit) expense | (142 | ) |  | 10,435 |  |  | 1,271 |  |  | 222 |  |  | 11,786 |
Property and other taxes | — |  |  | 6,205 |  |  | 937 |  |  | — |  |  | 7,142 |
Total operating (income) expenses | (119 | ) |  | 163,276 |  |  | 10,746 |  |  | 56 |  |  | 173,959 |
Net operating income | 119 |  |  | 45,419 |  |  | 1,847 |  |  | (56 | ) |  | 47,329 |
Other income and expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-regulated revenue | 628 |  |  | 4,589 |  |  | 259 |  |  | (773 | ) |  | 4,703 |
Non-regulated expenses | — |  |  | (4,675 | ) |  | (222 | ) |  | — |  |  | (4,897 | )
Other components of net periodic benefit cost | — |  |  | (1,834 | ) |  | (141 | ) |  | — |  |  | (1,975 | )
Allowance for equity funds used during construction | — |  |  | 1,023 |  |  | — |  |  | — |  |  | 1,023 |
Income tax (expense) benefit on other income and expenses | (176 | ) |  | 252 |  |  | 13 |  |  | 216 |  |  | 305 |
Net other income (loss) | 452 |  |  | (645 | ) |  | (91 | ) |  | (557 | ) |  | (841 | )
Interest: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense | 486 |  |  | 10,443 |  |  | 574 |  |  | (628 | ) |  | 10,875 |
Allowance for borrowed funds used during construction | — |  |  | (522 | ) |  | (38 | ) |  | — |  |  | (560 | )
Net interest expense | 486 |  |  | 9,921 |  |  | 536 |  |  | (628 | ) |  | 10,315 |
Equity earnings of subsidiaries | 36,088 |  |  | — |  |  | — |  |  | (36,088 | ) |  | — |
Net income | $ | 36,173 |  |  | $ | 34,853 |  |  | $ | 1,220 |  |  | $ | (36,073 | ) |  | $ | 36,173 |

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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the nine months ended September 30, 2019
(In thousands)

| Parent Company |  | Cal Water |  | All Other Subsidiaries |  | Consolidating Adjustments |  | Consolidated
Operating revenue | $ | — |  |  | $ | 502,785 |  |  | $ | 34,894 |  |  | $ | — |  |  | $ | 537,679 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operations: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Water production costs | — |  |  | 183,617 |  |  | 7,178 |  |  | — |  |  | 190,795 |
Administrative and general | 23 |  |  | 73,908 |  |  | 7,379 |  |  | — |  |  | 81,310 |
Other operations | — |  |  | 59,851 |  |  | 5,499 |  |  | (437 | ) |  | 64,913 |
Maintenance | — |  |  | 18,469 |  |  | 743 |  |  | — |  |  | 19,212 |
Depreciation and amortization | 70 |  |  | 62,471 |  |  | 4,488 |  |  | (62 | ) |  | 66,967 |
Income tax (benefit) expense | (411 | ) |  | 12,019 |  |  | 1,265 |  |  | 651 |  |  | 13,524 |
Property and other taxes | — |  |  | 19,431 |  |  | 2,471 |  |  | — |  |  | 21,902 |
Total operating (income) expenses | (318 | ) |  | 429,766 |  |  | 29,023 |  |  | 152 |  |  | 458,623 |
Net operating income | 318 |  |  | 73,019 |  |  | 5,871 |  |  | (152 | ) |  | 79,056 |
Other income and expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-regulated revenue | 1,826 |  |  | 13,374 |  |  | 1,212 |  |  | (2,263 | ) |  | 14,149 |
Non-regulated expenses | — |  |  | (9,610 | ) |  | (860 | ) |  | — |  |  | (10,470 | )
Other components of net periodic benefit cost | — |  |  | (4,177 | ) |  | (131 | ) |  | — |  |  | (4,308 | )
Allowance for equity funds used during construction | — |  |  | 5,087 |  |  | — |  |  | — |  |  | 5,087 |
Income tax expense on other income and expenses | (511 | ) |  | (1,028 | ) |  | (79 | ) |  | 633 |  |  | (985 | )
Net other income | 1,315 |  |  | 3,646 |  |  | 142 |  |  | (1,630 | ) |  | 3,473 |
Interest: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense | 1,376 |  |  | 32,141 |  |  | 1,841 |  |  | (1,826 | ) |  | 33,532 |
Allowance for borrowed funds used during construction | — |  |  | (2,592 | ) |  | (191 | ) |  | — |  |  | (2,783 | )
Net interest expense | 1,376 |  |  | 29,549 |  |  | 1,650 |  |  | (1,826 | ) |  | 30,749 |
Equity earnings of subsidiaries | 51,523 |  |  | — |  |  | — |  |  | (51,523 | ) |  | — |
Net income | $ | 51,780 |  |  | $ | 47,116 |  |  | $ | 4,363 |  |  | $ | (51,479 | ) |  | $ | 51,780 |

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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the nine months ended September 30, 2018
(In thousands)

| Parent Company |  | Cal Water |  | All Other Subsidiaries |  | Consolidating Adjustments |  | Consolidated
Operating revenue | $ | — |  |  | $ | 499,173 |  |  | $ | 31,606 |  |  | $ | — |  |  | $ | 530,779 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operations: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Water production costs | — |  |  | 185,149 |  |  | 6,648 |  |  | — |  |  | 191,797 |
Administrative and general | — |  |  | 69,531 |  |  | 7,664 |  |  | — |  |  | 77,195 |
Other operations | — |  |  | 55,626 |  |  | 5,117 |  |  | (436 | ) |  | 60,307 |
Maintenance | — |  |  | 16,974 |  |  | 622 |  |  | — |  |  | 17,596 |
Depreciation and amortization | 70 |  |  | 58,909 |  |  | 3,763 |  |  | (65 | ) |  | 62,677 |
Income tax (benefit) expense | (342 | ) |  | 15,081 |  |  | 1,591 |  |  | 620 |  |  | 16,950 |
Property and other taxes | — |  |  | 17,894 |  |  | 2,359 |  |  | — |  |  | 20,253 |
Total operating (income) expenses | (272 | ) |  | 419,164 |  |  | 27,764 |  |  | 119 |  |  | 446,775 |
Net operating income | 272 |  |  | 80,009 |  |  | 3,842 |  |  | (119 | ) |  | 84,004 |
Other income and expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-regulated revenue | 1,716 |  |  | 13,572 |  |  | 831 |  |  | (2,152 | ) |  | 13,967 |
Non-regulated expenses | — |  |  | (15,943 | ) |  | (506 | ) |  | — |  |  | (16,449 | )
Other components of net periodic benefit cost | — |  |  | (6,618 | ) |  | (366 | ) |  | — |  |  | (6,984 | )
Allowance for equity funds used during construction | — |  |  | 2,644 |  |  | — |  |  | — |  |  | 2,644 |
Income tax (expense) benefit on other income and expenses | (480 | ) |  | 1,776 |  |  | (16 | ) |  | 602 |  |  | 1,882 |
Net other income (loss) | 1,236 |  |  | (4,569 | ) |  | (57 | ) |  | (1,550 | ) |  | (4,940 | )
Interest: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense | 1,155 |  |  | 29,095 |  |  | 1,673 |  |  | (1,716 | ) |  | 30,207 |
Allowance for borrowed funds used during construction | — |  |  | (1,250 | ) |  | (109 | ) |  | — |  |  | (1,359 | )
Net interest expense | 1,155 |  |  | 27,845 |  |  | 1,564 |  |  | (1,716 | ) |  | 28,848 |
Equity earnings of subsidiaries | 49,863 |  |  | — |  |  | — |  |  | (49,863 | ) |  | — |
Net income | $ | 50,216 |  |  | $ | 47,595 |  |  | $ | 2,221 |  |  | $ | (49,816 | ) |  | $ | 50,216 |

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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2019
(In thousands)

| Parent Company |  | Cal Water |  | All Other Subsidiaries |  | Consolidating Adjustments |  | Consolidated
Operating activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income | $ | 51,780 |  |  | $ | 47,116 |  |  | $ | 4,363 |  |  | $ | (51,479 | ) |  | $ | 51,780 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity earnings of subsidiaries | (51,523 | ) |  | — |  |  | — |  |  | 51,523 |  |  | — |
Dividends received from affiliates | 28,507 |  |  | — |  |  | — |  |  | (28,507 | ) |  | — |
Depreciation and amortization | 70 |  |  | 63,975 |  |  | 4,539 |  |  | (62 | ) |  | 68,522 |
Changes in value of life insurance contracts | — |  |  | (3,433 | ) |  | — |  |  | — |  |  | (3,433 | )
Allowance for equity funds used during construction | — |  |  | (5,087 | ) |  | — |  |  | — |  |  | (5,087 | )
Changes in operating assets and liabilities | 194 |  |  | (6,744 | ) |  | 1,509 |  |  | — |  |  | (5,041 | )
Other changes in noncurrent assets and liabilities | 5,239 |  |  | 14,560 |  |  | 1,785 |  |  | 18 |  |  | 21,602 |
Net cash provided by operating activities | 34,267 |  |  | 110,387 |  |  | 12,196 |  |  | (28,507 | ) |  | 128,343 |
Investing activities: |  |  |  |  |  |  |  |  |  |
Utility plant expenditures | — |  |  | (185,883 | ) |  | (9,059 | ) |  | — |  |  | (194,942 | )
Changes in affiliate advances | (3,199 | ) |  | 3,534 |  |  | (320 | ) |  | (15 | ) |  | — |
Issuance of affiliate short-term borrowings | (4,300 | ) |  | — |  |  | — |  |  | 4,300 |  |  | — |
Reduction of affiliates long-term debt | 1,462 |  |  | — |  |  | — |  |  | (1,462 | ) |  | — |
Purchase of life insurance contracts | — |  |  | (2,216 | ) |  | — |  |  | — |  |  | (2,216 | )
Net cash used in investing activities | (6,037 | ) |  | (184,565 | ) |  | (9,379 | ) |  | 2,823 |  |  | (197,158 | )
Financing Activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Short-term borrowings | — |  |  | 210,000 |  |  | — |  |  | — |  |  | 210,000 |
Repayment of short-term borrowings | — |  |  | (120,000 | ) |  | — |  |  | — |  |  | (120,000 | )
Changes in affiliate advances | (17 | ) |  | 4,419 |  |  | (4,417 | ) |  | 15 |  |  | — |
Proceeds from affiliate short-term borrowings | — |  |  | — |  |  | 4,300 |  |  | (4,300 | ) |  | — |
Repayment of affiliates long-term borrowings | — |  |  | — |  |  | (1,462 | ) |  | 1,462 |  |  | — |
Issuance of long term debt, net of expenses | — |  |  | 398,431 |  |  | — |  |  | — |  |  | 398,431 |
Repayment of long-term debt | — |  |  | (401,417 | ) |  | (213 | ) |  | — |  |  | (401,630 | )
Advances and contributions in aid of construction | — |  |  | 21,176 |  |  | 90 |  |  | — |  |  | 21,266 |
Refunds of advances for construction | — |  |  | (5,560 | ) |  | — |  |  | — |  |  | (5,560 | )
Repurchase of common stock | (2,355 | ) |  | — |  |  | — |  |  | — |  |  | (2,355 | )
Issuance of common stock | 1,278 |  |  | — |  |  | — |  |  | — |  |  | 1,278 |
Dividends paid to non-affiliates | (28,507 | ) |  | — |  |  | — |  |  | — |  |  | (28,507 | )
Dividends paid to affiliates | — |  |  | (27,419 | ) |  | (1,088 | ) |  | 28,507 |  |  | — |
Net cash (used in) provided by financing activities | (29,601 | ) |  | 79,630 |  |  | (2,790 | ) |  | 25,684 |  |  | 72,923 |
Change in cash, cash equivalents, and restricted cash | (1,371 | ) |  | 5,452 |  |  | 27 |  |  | — |  |  | 4,108 |
Cash, cash equivalents, and restricted cash at beginning of period | 3,779 |  |  | 34,238 |  |  | 9,698 |  |  | — |  |  | 47,715 |
Cash, cash equivalents, and restricted cash at end of period | $ | 2,408 |  |  | $ | 39,690 |  |  | $ | 9,725 |  |  | — |  |  | $ | 51,823 |

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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2018
(In thousands)

| Parent Company |  | Cal Water |  | All Other Subsidiaries |  | Consolidating Adjustments |  | Consolidated
Operating activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income | $ | 50,216 |  |  | $ | 47,595 |  |  | $ | 2,221 |  |  | $ | (49,816 | ) |  | $ | 50,216 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity earnings of subsidiaries | (49,863 | ) |  | — |  |  | — |  |  | 49,863 |  |  | — |
Dividends received from affiliates | 27,029 |  |  | — |  |  | — |  |  | (27,029 | ) |  | — |
Depreciation and amortization | 70 |  |  | 60,298 |  |  | 3,828 |  |  | (65 | ) |  | 64,131 |
Changes in value of life insurance contracts | — |  |  | 124 |  |  | — |  |  | — |  |  | 124 |
Allowance for equity funds used during construction | — |  |  | (2,644 | ) |  | — |  |  | — |  |  | (2,644 | )
Changes in operating assets and liabilities | (281 | ) |  | 6,135 |  |  | 1,178 |  |  | — |  |  | 7,032 |
Other changes in noncurrent assets and liabilities | 2,518 |  |  | (3,881 | ) |  | 1,989 |  |  | 18 |  |  | 644 |
Net cash provided by operating activities | 29,689 |  |  | 107,627 |  |  | 9,216 |  |  | (27,029 | ) |  | 119,503 |
Investing activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Utility plant expenditures | 4 |  |  | (205,218 | ) |  | (7,642 | ) |  | — |  |  | (212,856 | )
Changes in affiliate advances | (975 | ) |  | 3,198 |  |  | (269 | ) |  | (1,954 | ) |  | — |
Issuance of affiliate short-term borrowings | (23,700 | ) |  | — |  |  | — |  |  | 23,700 |  |  | — |
Reduction of affiliates long-term debt | 1,224 |  |  | — |  |  | — |  |  | (1,224 | ) |  | — |
Life insurance proceeds | — |  |  | 3,491 |  |  | — |  |  | — |  |  | 3,491 |
Purchase of life insurance contracts | — |  |  | (4,925 | ) |  | — |  |  | — |  |  | (4,925 | )
Net cash used in investing activities | (23,447 | ) |  | (203,454 | ) |  | (7,911 | ) |  | 20,522 |  |  | (214,290 | )
Financing Activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Short-term borrowings | 20,000 |  |  | 121,000 |  |  | — |  |  | — |  |  | 141,000 |
Repayment of short-term borrowings | — |  |  | (341,000 | ) |  | — |  |  | — |  |  | (341,000 | )
Changes in affiliate advances | — |  |  | 1,129 |  |  | (3,083 | ) |  | 1,954 |  |  | — |
Proceeds from affiliate short-term borrowings | — |  |  | 20,000 |  |  | 3,700 |  |  | (23,700 | ) |  | — |
Repayment of affiliates long-term borrowings | — |  |  | — |  |  | (1,224 | ) |  | 1,224 |  |  | — |
Issuance of long-term debt, net of expenses | — |  |  | 299,383 |  |  | — |  |  | — |  |  | 299,383 |
Repayment of long-term debt | — |  |  | (12,299 | ) |  | (200 | ) |  | — |  |  | (12,499 | )
Advances and contributions in aid for construction | — |  |  | 13,288 |  |  | 342 |  |  | — |  |  | 13,630 |
Refunds of advances for construction | — |  |  | (5,452 | ) |  | (10 | ) |  | — |  |  | (5,462 | )
Repurchase of common stock | (1,496 | ) |  | — |  |  | — |  |  | — |  |  | (1,496 | )
Dividends paid to non-affiliates | (27,029 | ) |  | — |  |  | — |  |  | — |  |  | (27,029 | )
Dividends paid to affiliates | — |  |  | (25,959 | ) |  | (1,070 | ) |  | 27,029 |  |  | — |
Net cash (used in) provided by financing activities | (8,525 | ) |  | 70,090 |  |  | (1,545 | ) |  | 6,507 |  |  | 66,527 |
Change in cash, cash equivalents, and restricted cash | (2,283 | ) |  | (25,737 | ) |  | (240 | ) |  | — |  |  | (28,260 | )
Cash, cash equivalents, and restricted cash at beginning of period | 4,728 |  |  | 81,453 |  |  | 9,171 |  |  | — |  |  | 95,352 |
Cash, cash equivalents, and restricted cash at end of period | $ | 2,445 |  |  | $ | 55,716 |  |  | $ | 8,931 |  |  | — |  |  | $ | 67,092 |

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Note 13. Immaterial Restatement of Prior Period Financial Statements
Subsequent to the issuance of the Company's Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2018, the Company identified an immaterial computational error related to the amount of authorized revenue recorded pursuant to the Company's pension and health care cost recovery balancing accounts. In accordance with the 2015 GRC, the Company adjusts the revenue and corresponding balancing accounts quarterly to reflect actual pension and health care costs, subject to certain limitations prescribed by the 2015 GRC. The error does not impact the billings to customers or the cash collected from customers in this GRC period, which ends on December 31, 2019. As provided for in the 2015 GRC, the amounts included in the balancing account will be recovered from or refunded to customers during the next GRC period.
The Company corrected the error in the accompanying Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2018. The Company believes the correction of the error is immaterial to the previously issued Condensed Consolidated Financial Statements.
The corrections to the Company's Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2018 were as follows:
Condensed Consolidated Statements of Income

| For the three months ended September 30, 2018
| As Previously Reported |  | Corrections |  | As Corrected
| (In thousands, except per share data)
Operating revenue | $ | 218,983 |  |  | $ | 2,305 |  |  | $ | 221,288 |
Operating expenses: |  |  |  |  |  |  |  |
Income taxes | 11,262 |  |  | 524 |  |  | 11,786 |
Total operating expenses | 173,435 |  |  | 524 |  |  | 173,959 |
Net operating income | 45,548 |  |  | 1,781 |  |  | 47,329 |
Net income | $ | 34,392 |  |  | $ | 1,781 |  |  | $ | 36,173 |
Earnings per share: |  |  |  |  |  |  |  |
Basic | $ | 0.72 |  |  | $ | 0.03 |  |  | $ | 0.75 |
Diluted | $ | 0.72 |  |  | $ | 0.03 |  |  | $ | 0.75 |

| For the nine months ended September 30, 2018
| As Previously Reported |  | Corrections |  | As Corrected
| (In thousands, except per share data)
Operating revenue | $ | 523,862 |  |  | $ | 6,917 |  |  | $ | 530,779 |
Operating expenses: |  |  |  |  |  |  |  |
Income taxes | 15,380 |  |  | 1,570 |  |  | 16,950 |
Total operating expenses | 445,205 |  |  | 1,570 |  |  | 446,775 |
Net operating income | 78,657 |  |  | 5,347 |  |  | 84,004 |
Net income | $ | 44,869 |  |  | $ | 5,347 |  |  | $ | 50,216 |
Earnings per share: |  |  |  |  |  |  |
Basic | $ | 0.93 |  |  | $ | 0.11 |  |  | $ | 1.04 |
Diluted | $ | 0.93 |  |  | $ | 0.11 |  |  | $ | 1.04 |

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The corrections to the Company's retained earnings and total stockholders’ equity as of January 1, 2018, March 31, 2018, June 30, 2018, and September 30, 2018 were as follows:

| January 1, 2018
| As Previously Reported |  | Corrections |  | As Corrected
| (In thousands)
Retained earnings | $ | 356,753 |  |  | $ | 5,759 |  |  | $ | 362,512 |
Total common stockholders' equity | 693,462 |  |  | 5,759 |  |  | 699,221 |

| March 31, 2018
| As Previously Reported |  | Corrections |  | As Corrected
| (In thousands)
Retained earnings | $ | 345,205 |  |  | $ | 7,542 |  |  | $ | 352,747 |
Total common stockholders' equity | 681,311 |  |  | 7,542 |  |  | 688,853 |

| June 30, 2018
| As Previously Reported |  | Corrections |  | As Corrected
| (In thousands)
Retained earnings | $ | 349,213 |  |  | $ | 9,325 |  |  | $ | 358,538 |
Total common stockholders' equity | 685,932 |  |  | 9,325 |  |  | 695,257 |

| September 30, 2018
| As Previously Reported |  | Corrections |  | As Corrected
| (In thousands)
Retained earnings | $ | 374,593 |  |  | $ | 11,106 |  |  | $ | 385,699 |
Total common stockholders' equity | 712,034 |  |  | 11,106 |  |  | 723,140 |

The corrections to the Company's Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2018 were as follows:
Condensed Consolidated Statement of Cash Flows

| For the nine months ended September 30, 2018
| As Previously Reported |  | Corrections |  | As Corrected
| (In thousands)
Operating activities: |  |  |  |  |  |  |
Net income | $ | 44,869 |  |  | $ | 5,347 |  |  | $ | 50,216 |
Other changes in noncurrent assets and liabilities | 5,991 |  |  | (5,347 | ) |  | 644 |
Net cash provided by operating activities | $ | 119,503 |  |  | $ | — |  |  | $ | 119,503 |

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Note 14. Subsequent Event
California GRC filing
Subsequent to the issuance of the Company's Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2018, Cal Water jointly filed a formal settlement agreement in its 2018 GRC with the Public Advocates Office of the CPUC covering the majority of open matters in the case on October 8, 2019. The largest component of the GRC is Cal Water’s Infrastructure Improvement Plan for 2019-2021. The settlement details investment plans that Cal Water and the Public Advocates Office agree should be made to Cal Water’s water infrastructure to continue providing safe, reliable water service to Cal Water customers and communities. The CPUC will consider, but is not required to adopt, the settlement agreement. If the CPUC approves the settlement agreement, Cal Water would be authorized to include in rates $609.0 million to $628.0 million of new projects throughout the state in 2019 to 2021, along with approximately $200.0 million for completion of additional projects begun in 2018 and prior periods. Included in these figures are $148.0 million of advice letter authorizations, which would not be included in rates until related projects are completed. Cal Water anticipates that if the settlement were adopted, it would plan to make capital investments of approximately $809.0 million to $828.0 million in the 2019-2021 period. The settlement proposes, in part, an average water main replacement rate of 0.76% annually company-wide by 2021, with higher replacement rates in some areas. A final decision on the case is expected in late 2019, with new rates going into effect in January of 2020. Cal Water previously filed a request for interim rates beginning January 1, 2020 in the event a final decision is unexpectedly delayed.
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. 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:

• | 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;

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

• | increased risk of inverse condemnation losses as a result of climate conditions;

• | inability 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 for the 2019 fire season as we further develop approaches to manage that risk;

• | housing and customer growth trends;

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• | the impact of opposition to rate increases;

• | our ability to recover costs;

• | 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 risk and threats;

• | the ability of our enterprise risk management processes to identify or address risks adequately;

• | labor relations matters as we negotiate with unions;

• | changes in customer water use patterns and the effects of conservation;

• | the impact of weather, climate, natural disasters, and diseases on water quality, water availability, water sales and operating results and the adequacy of our emergency preparedness; 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, 2018.

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, 2018. They include:

• | revenue recognition;

• | regulated utility accounting;

• | income taxes;

• | pension and postretirement health care benefits;

For the nine months ended September 30, 2019, 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.
RESULTS OF THIRD QUARTER 2019 OPERATIONS
COMPARED TO THIRD QUARTER 2018 OPERATIONS
Dollar amounts in thousands unless otherwise stated
Overview
As discussed further in Note 13, the Company corrected an immaterial computational error that understated revenue for the three months ended September 30, 2018.
Net income for the three months ended September 30, 2019 was $42.4 million or $0.88 earnings per diluted common share, compared to net income of $36.2 million or $0.75 earnings per diluted common share for the three months ended September 30, 2018.
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The $6.2 million increase in net income was primarily due to general rate increases of $6.1 million, a $5.5 million increase in unbilled revenue accrual, a reduction of $1.3 million in business development expenses, and $0.8 million increase in allowance for equity funds used during construction. These factors were partially offset by increases in operating expenses of $1.3 million for depreciation and amortization, $1.0 million in employee wages, $0.8 million in costs attributable to electric utilities’ PSPS programs and wildfire management, and $0.4 million in property taxes.
Unbilled revenue accrual is outside the Company’s immediate control. The quarter’s increase in unbilled revenue mirrored the accrual reduction from the first two quarters of 2019. Also outside the Company’s control this quarter was a $0.4 million decrease in unrealized gain on certain benefit plan investments. The change in the Company’s unbilled revenue accrual was relatively consistent with the previous year.
Operating Revenue
Operating revenue increased $11.2 million, or 5.1%, to $232.5 million in the third quarter of 2019 as compared to the third quarter of 2018. The factors that impacted the operating revenue for the third quarter of 2019 as compared to the third quarter of 2018 are as follows:

Net change due to rate changes, usage, and other (1) | $ | 12,874 |
MCBA Revenue (2) | (395 | )
Other balancing account revenue (3) | 1,454 |
Deferral of revenue (4) | (2,684 | )
Net operating revenue increase | $ | 11,249 |

1. | The net change due to rate changes, usage, and other in the above table was mainly driven by rate increases and a $5.5 million increase in accrued unbilled revenue. The components of the rate increases are as follows:

General rate case | 761 |
Escalation rate increases | 5,218 |
Purchased water and pump tax offsets | 1,743 |
Rate base offsets | 162 |
Total increase in rates | $ | 7,884 |

2. | The MCBA revenue decrease resulted from a decrease in actual water production costs relative to adopted water production costs in the third quarter of 2019 as compared to the third quarter of 2018. The actual water production costs relative to adopted decreased as a result of a decrease in customer consumption in the third quarter of 2019 as compared to the third quarter of 2018. As required by the MCBA mechanism, the decrease in actual water production costs relative to adopted water production costs in California also decreased operating revenue for the same amount.

3. | 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. The increase in revenue was mainly due to an increase in actual conservation expenses relative to adopted in the third quarter of 2019 as compared to the third quarter of 2018, which was partially offset by a decrease in actual pension and health care expenses relative to adopted in the third quarter of 2019 as compared to the third quarter of 2018.

4. | 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 third quarter of 2019 as compared to the third quarter of 2018 due to a decline in actual customer usage relative to adopted customer usage in the third quarter of 2019 as compared to the third quarter of 2018.

Total Operating Expenses
Total operating expenses increased $7.0 million, or 4.0%, to $181.0 million in the third quarter of 2019, as compared to $174.0 million in the third quarter of 2018.
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Water production costs consists of purchased water, purchased power, and pump taxes. It represents the largest component of total operating expenses, accounting for approximately 44.5% of total operating expenses in the third quarter of 2019, as compared to 45.3% of total operating expenses in the third quarter of 2018. Water production costs increased 2.2% in the third quarter of 2019 as compared to the same period last year mainly due to increased 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 September 30
| 2019 |  | 2018
Well production | 44 | % |  | 47 | %
Purchased | 51 | % |  | 49 | %
Surface | 5 | % |  | 4 | %
Total | 100 | % |  | 100 | %

The components of water production costs are shown in the table below:

| Three Months Ended September 30
| 2019 |  | 2018 |  | Change
Purchased water | $ | 66,483 |  |  | $ | 64,578 |  |  | $ | 1,905 |
Purchased power | 10,633 |  |  | 10,488 |  |  | 145 |
Pump taxes | 3,452 |  |  | 3,752 |  |  | (300 | )
Total | $ | 80,568 |  |  | $ | 78,818 |  |  | $ | 1,750 |

Administrative and general and other operations expenses increased $2.9 million to $51.3 million in the third quarter of 2019, primarily due to increases of $2.2 million in conservation program costs, $0.9 million of outside services, $0.7 million of GRC settlement and asset impairment costs, $0.6 million in employee wages, and $0.5 million of costs attributable to electric utilities’ PSPS programs and wildfire management, which were partially offset by a $2.2 million deferral of costs associated with deferred revenues, and a $1.0 million decrease in health care costs. Changes in employee pension benefits and water conservation program costs for regulated California operations generally do not affect earnings, as the Company is allowed by the CPUC to record these costs in balancing accounts for future recovery, creating a corresponding change to revenue. Employee and retiree medical expenses are recovered in rates through a balancing account authorized in the 2015 GRC, such that revenues are recovered up to 85% of the variance between adopted and recorded expenses. At September 30, 2019, there were 1,198 employees and at September 30, 2018, there were 1,176 employees.
Maintenance expense increased $0.3 million, or 4.4%, to $7.1 million in the third quarter of 2019, as compared to $6.8 million in the third quarter of 2018, mostly due to increased costs of $0.3 million for wildfire management.
Depreciation and amortization expense increased $1.3 million, or 6.0%, to $22.3 million in the third quarter of 2019, as compared to $21.0 million in the third quarter of 2018, primarily due to capital additions.
Income taxes increased $0.4 million, or 3.5%, to $12.2 million in the third quarter of 2019, as compared to $11.8 million in the third quarter of 2018, due to an increase in operating income. The Company’s estimated combined effective income tax rate for 2019 is 22%.
Property and other taxes increased $0.4 million, or 5.6%, to $7.5 million in the third quarter of 2019, as compared to $7.1 million in the third quarter of 2018, mostly due to an increase in assessed property values.
Other Income and Expenses
Net other income increased $0.9 million in the third quarter of 2019, mostly due to a $1.3 million decrease in business development expenses and a $0.8 million increase in allowance for equity funds used during construction which was partially offset by the non-recurrence of a $0.5 million benefit from Company-owned life insurance which occurred in 2018 and a $0.4 million decrease in unrealized gain on certain benefit plan investments.
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Interest Expense
Net interest expense decreased $1.0 million, or 10.3%, to $9.3 million in the third quarter of 2019, as compared to $10.3 million in the third quarter of 2018. The decrease was due primarily to an increase in capitalized interest and reduced interest rates resulting from the refinancing of $300.0 million of first mortgage bonds in 2019.
RESULTS OF THE NINE MONTHS ENDED SEPTEMBER 30, 2019 OPERATIONS
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2018 OPERATIONS
Dollar amounts in thousands unless otherwise stated
Overview
As discussed further in Note 13, the Company corrected an immaterial computational error that understated revenue for the nine months ended September 30, 2018.
Net income for the nine months ended September 30, 2019 was $51.8 million or $1.08 earnings per diluted common share, compared to net income of $50.2 million or $1.04 earnings per diluted common share for the nine months ended September 30, 2018.
The $1.6 million increase in net income was driven primarily by $15.2 million of general rate increases, a $5.0 million reduction in business development expenses, a $3.6 million increase in unrealized income from certain benefit plan investments due to market conditions, and a $2.4 million increase in allowance for equity funds used during construction. These were partially offset by increased operating expenses of $11.8 million, increased net interest expenses of $1.9 million, $1.6 million decrease in benefit from Company owned life insurance, and a $1.4 million reduction in unbilled revenue accrual.
Operating expense changes included increases of $4.3 million in depreciation and amortization, $4.2 million in employee wages, $2.7 million in outside services, $1.6 million in property taxes, and $1.1 million of costs attributable to electric utilities’ PSPS programs and wildfire management.
Operating Revenue
Operating revenue increased $6.9 million, or 1.3%, to $537.7 million in the first nine months of 2019 as compared to the first nine months of 2018. The factors that impacted the operating revenue for the first nine months of 2019 as compared to 2018 are as follows:

Net change due to rate changes, usage, and other (1) | $ | 17,388 |
MCBA Revenue (2) | (7,313 | )
Other balancing account revenue (3) | 1,369 |
Deferral of revenue (4) | (4,544 | )
Net operating revenue increase | $ | 6,900 |

1. | The net change due to rate changes, usage, and other in the above table was mainly driven by rate increases, which was partially offset by a $1.4 million decrease in accrued unbilled revenue. The components of the rate increases are as follows:

General rate case | $ | 1,837 |
Escalation rate increases | 12,251 |
Purchased water and pump tax offsets | 4,302 |
Rate base offsets | 1,141 |
Total increase in rates | $ | 19,531 |

2. | The MCBA revenue decrease resulted from a decrease in actual water production costs relative to adopted water production costs in the first nine months of 2019 as compared to the first nine months of 2018. The actual water production costs decreased as a result of a decrease in customer consumption in the first nine months of 2019 as compared to the first nine months of 2018. As required by the MCBA mechanism, the decrease in actual water production costs relative to adopted water production costs in California also decreased operating revenue for the same amount.

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3. | 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. The increase in revenue was mainly due an increase in actual conservation expenses relative to adopted in the first nine months of 2019 as compared to the first nine months of 2018, which was partially offset by a decrease in actual pension expenses relative to adopted in the first nine months of 2019 as compared to the first nine months of 2018.

4. | 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 first nine months of 2019 as compared to the first nine months of 2018 due to a decline in actual customer usage relative to adopted customer usage in the first nine months of 2019 as compared to the first nine months of 2018.

Total Operating Expenses
Total operating expenses increased $11.8 million, or 2.7%, to $458.6 million in the first nine months of 2019, as compared to $446.8 million in the first nine months of 2018.
Water production costs consists of purchased water, purchased power, and pump taxes. It represents the largest component of total operating expenses, accounting for approximately 41.6% of total operating expenses in the first nine months of 2019, as compared to 42.9% of total operating expenses in the first nine months of 2018. Water production costs decreased 0.5% in the first nine months of 2019 as compared to the same period last year mainly due to a decrease in customer usage offset by increased rates from our purchased water wholesalers.
Sources of water as a percent of total water production are listed in the following table:

| Nine Months Ended September 30
| 2019 |  | 2018
Well production | 45 | % |  | 47 | %
Purchased | 50 | % |  | 49 | %
Surface | 5 | % |  | 4 | %
Total | 100 | % |  | 100 | %

The components of water production costs are shown in the table below:

| Nine Months Ended September 30
| 2019 |  | 2018 |  | Change
Purchased water | $ | 158,369 |  |  | $ | 157,062 |  |  | $ | 1,307 |
Purchased power | 23,734 |  |  | 23,830 |  |  | (96 | )
Pump taxes | 8,692 |  |  | 10,905 |  |  | (2,213 | )
Total | $ | 190,795 |  |  | $ | 191,797 |  |  | $ | (1,002 | )

Administrative and general and other operations expenses increased $8.7 million, or 6.3%, to $146.2 million in the first nine months of 2019, as compared to $137.5 million in the first nine months of 2018. The increase was due primarily to increases of $4.4 million in conservation program costs, $3.5 million in employee wages, $2.7 million of outside services, $1.3 million of software maintenance costs, $0.8 million of costs attributable to electric utilities’ PSPS programs and wildfire management, which were partially offset by a reduction of $3.8 million of costs associated with deferred revenue and a $1.6 million decrease in employee pension benefit and retiree medical costs. Changes in employee pension benefits and water conservation program costs for regulated California operations generally do not affect earnings, as the Company is allowed by the CPUC to record these costs in balancing accounts for future recovery, creating a corresponding change to revenue. Employee and retiree medical expenses are recovered in rates through a balancing account authorized in the 2015 GRC, such that revenues are recovered up to 85% of the variance between adopted and recorded expenses.
Maintenance expense increased $1.6 million, or 9.2%, to $19.2 million in the first nine months of 2019, as compared to $17.6 million in the first nine months of 2018, mostly due to repair cost increases in reservoirs, tanks, and structures and $0.3 million of costs for wildfire management.
Depreciation and amortization expense increased $4.3 million, or 6.8%, to $67.0 million in the first nine months of 2019, as compared to $62.7 million in the first nine months of 2018, mostly due to capital additions.
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Income taxes decreased $3.5 million, or 20.22%, to $13.5 million in the first nine months of 2019, as compared to $17.0 million in the first nine months of 2018. The decrease was mainly due to a decrease in operating income. The Company’s estimated combined effective income tax rate for 2019 is 22.0%.
Property and other taxes increased $1.6 million, or 8.1%, to $21.9 million in the first nine months of 2019, as compared to $20.3 million in the first nine months of 2018, due primarily to an increase in assessed property values.
Other Income and Expenses
Net other income increased $8.4 million to $3.5 million in the first nine months of 2019, as compared to a net other loss of $4.9 million in the first nine months of 2018, due primarily to a $5.0 million decrease of business development expenses, a $3.6 million increase in the unrealized gain from certain benefit plan investments due to market conditions, and a $2.4 million increase in allowance for equity funds used during construction, which was partially offset by a $1.6 million decrease in benefit from Company-owned life insurance.
Interest Expense
Net interest expense increased $1.9 million, or 6.6%, to $30.7 million in the first nine months of 2019, as compared to $28.8 million in the first nine months of 2018. The increase was due primarily to an increase in financing for capital investments and operations.
REGULATORY MATTERS
2019 California Regulatory Activity
California GRC filing
On October 8, 2019, Cal Water jointly filed a formal settlement agreement for its 2018 GRC with the Public Advocates Office of the CPUC covering the majority of open matters in the case. The largest component of the GRC is Cal Water’s Infrastructure Improvement Plan for 2019-2021. The settlement details investment plans that Cal Water and the Public Advocates Office agree should be made to Cal Water’s water infrastructure to continue providing safe, reliable water service to Cal Water customers and communities. The CPUC will consider, but is not required to adopt, the settlement agreement. If the CPUC approves the settlement agreement, Cal Water would be authorized to include in rates $609.0 million to $628.0 million of new projects throughout the state in 2019 to 2021, along with approximately $200.0 million for completion of additional projects begun in 2018 and prior periods. Included in these figures are $148.0 million of advice letter authorizations, which would not be included in rates until related projects are completed. Cal Water anticipates that if the settlement were adopted, it would plan to make capital investments of approximately $809.0 million to $828.0 million in the 2019-2021 period. The settlement proposes, in part, an average water main replacement rate of 0.76% annually company-wide by 2021, with higher replacement rates in some areas. A final decision on the case is expected in late 2019, with new rates going into effect in January of 2020. Cal Water previously filed a request for interim rates beginning January 1, 2020 in the event a final decision is unexpectedly delayed.
City of Hawthorne GRC filing
Cal Water operates the City of Hawthorne’s water system under a lease agreement that was originally entered into on August 9, 2011. As part of the agreement, Cal Water can request rate increases but requires city council approval for any rate request to take effect. Cal Water has not increased rates since 2017 and Cal Water has seen significant increases in costs since then. Cal Water requested rate increases of 11.7% in 2020, 11.6% in 2021, and 11.6% in 2022.
On August 27, 2019, the rate increases were approved via resolution 8123. The new rates will become effective on January 1, 2020 and January 1 st each year thereafter.
Cost of Capital Decision
In April of 2017, Cal Water, along with three other water utilities, filed an application to adopt a new cost of capital and capital structure for 2018. On March 22, 2018, the CPUC adopted a revised decision in the cost of capital proceeding for Cal Water and three other water utilities for the years 2018, 2019, and 2020, establishing for Cal Water a 9.20% return on equity and a 5.51% cost of debt, with a capital structure of 46.60% long-term debt and 53.40% common equity, and an authorized return on rate base of 7.48%, compared with Cal Water’s prior return on equity of 9.43%, cost of debt of 6.24%, and authorized return on rate base of 7.94%. The adopted capital structure did not change. The adopted returns on debt and equity reduced Cal Water’s 2018 adopted revenue by approximately $6.9 million. The CPUC also authorized continuation of the water cost of capital adjustment mechanism, which provides for an adjustment in the return on equity if the cost of
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long-term debt as defined by an index of utility debt rates varies from the most recent index by 100 basis points or more in 2019 and 2020.
On March 30, 2018, Cal Water submitted an advice letter that established the Cost of Capital Memorandum Account (CoC MA) to track the difference between current rates and rates based upon the new cost of capital adopted by the CPUC as if the new cost of capital had been in effect beginning January 1, 2018.
In May of 2018, Cal Water submitted an advice letter to adopt the new cost of capital and capital structure for 2018 in customer rates. The annual adopted gross revenue reduction associated with the May 2018 filing was $6.9 million. The new rates became effective on July 1, 2018.
In 2018, Cal Water recorded a $3.0 million regulatory liability due to the CoC MA. The regulatory liability was for the revenue reduction that Cal Water recorded for the first six months of 2018 during which the new cost of capital and capital structure were yet to be adopted in customer rates. In April of 2019, Cal Water submitted an advice letter to refund the full balance of the cost of capital memorandum account of $3.0 million. The new rates became effective April 15, 2019.
2018 Tax Accounting Memorandum Account (TAMA)
On December 22, 2017, the CPUC sent a letter to All Class A and B Water and Sewer Utilities on the subject of “Changes in Federal Tax Rates for 2018.” The CPUC required Cal Water to establish a memo account to track the impact of the TCJA on Cal Water. The TAMA will track the revenue requirement impact of the TCJA not otherwise reflected in rates from January 1, 2018 until current rates are modified to reflect all impacts of the TCJA. The Hawaii Water, Washington Water, and New Mexico Water Commissions have similar requirements to track the impact of the changes to the federal tax law. In 2018, the Company recorded a $5.4 million regulatory liability due to the changes required by the TCJA. The regulatory liability was for the revenue reduction that the Company recorded for the first six months of 2018 during which the new federal corporate income tax rate was yet to be adopted in customer rates.
In May of 2018, Cal Water submitted an advice letter to adopt the new federal corporate income tax rate in customer rates. The annual adopted gross revenue reduction associated with the May 2018 filing was $11.1 million. The new rates became effective on July 1, 2018.
In April of 2019, Cal Water submitted an advice letter to refund $5.0 million of the tax accounting memorandum account's balance associated with the decrease in the federal corporate income tax rate for Cal Water for the first six months of 2018. The new rates became effective April 15, 2019. The memorandum account remains open to allow the Commissions to review other changes to Cal Water’s revenue requirements such as property taxes and excess deferred income taxes.
Escalation increase requests
As a part of the decision on the 2015 GRC, Cal Water was authorized to request annual escalation rate increases for 2019 for those districts that passed the earnings test. In November of 2018, Cal Water requested escalation rate increases in all of its regulated districts. The annual adopted gross revenue associated with the November 2018 filing was $16.2 million. The new rates became effective on January 1, 2019.
WRAM and MCBA filings
In April of 2019, Cal Water submitted an advice letter to true up the revenue under-collections in the 2018 annual WRAMs/MCBAs of its regulated districts. A net under-collection of $29.2 million is being recovered from customers in the form of 12, 18, and greater-than-18-month surcharges and 12 month surcredits. The new rates became effective April 15, 2019. These surcharges/surcredits are in addition to surcharges/surcredits authorized in prior years which have not yet expired.
Expense Offset filings
Expense offsets are dollar-for-dollar increases in revenue to match increased expenses, and therefore do not affect net operating income. In November of 2018, Cal Water submitted advice letters to request offsets for increases in purchased water costs and pump taxes in five of its regulated districts totaling $2.0 million. The new rates became effective on January 1, 2019.
In June and July of 2019, Cal Water submitted advice letters to request offsets for increases in purchased water costs and pump taxes in five of its regulated districts totaling $3.9 million. The new rates became effective on July 15, 2019.
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Rate base Offset filings
For construction projects that are authorized in GRCs as advice letter projects, companies are allowed to file rate base offsets to increase revenues after the plant is placed into service. In November of 2018, Cal Water submitted advice letters to recover $0.2 million of annual revenue increase for rate base offsets in four of its regulated districts. The new rates became effective on April 15, 2019.
In August of 2019, Cal Water submitted an advice letter to recover $0.4 million of annual revenue increase for the rate base offset in one of its regulated districts. The new rates are expected to become effective in the fourth quarter of 2019.
In October of 2019, Cal Water submitted an advice letter to recover $0.3 million of annual revenue increase for the rate base offset in one of its regulated districts. The new rates are proposed to become effective on January 1, 2020.
California Drought Memorandum Account
In March of 2018, Cal Water submitted an advice letter to request recovery of 2016 and 2017 incremental drought expenses of $3.3 million. On January 10, 2019, the Commission approved Cal Water's request for recovery of the $3.3 million of incremental expenses; subsequently, Cal Water submitted an advice letter on January 15, 2019 to implement a surcharge to recover the incremental expenses from customers. The new rates became effective on April 15, 2019.
Travis Air Force Base
On September 29, 2016, Cal Water entered into a 50-year agreement with the U.S. Department of Defense to acquire the water distribution assets of and distribute water to most of Travis Air Force Base (TAFB) beginning in 2018. On May 31, 2017, Cal Water submitted an application to the CPUC seeking approval to distribute water service to most of the base and to establish rates for its service.
On December 13, 2018, the CPUC conditionally approved Cal Water’s request to own and operate the TAFB water system as a regulated water utility district. Approval was conditioned upon modifying the contract between Cal Water and the Department of Defense to more clearly assert the CPUC’s jurisdiction over a new Travis District. In January of 2019, Cal Water fulfilled the condition by submitting a contract amendment that was approved by the CPUC. The decision enables Cal Water to acquire the water distribution assets of TAFB from the U.S. Department of Defense and provide water utility service to the base for a term of 50 years. Subject to the terms of the contract with the Department of Defense and the CPUC decision, Cal Water began serving TAFB’s more than 15,000 active and reserve personnel and civilians on July 1, 2019. The rates for TAFB are scheduled to be updated in January of 2020 with the CPUC's resolution of the 2018 GRC.
Public Safety Power Shut-off Memorandum Account (PSPS MA).
The recent wildfires in California have focused regulatory efforts to reduce the incidence and severity of these types of devastating events. The increased number of wildfire events are due to a number of factors such as extended drought, increased fuel for fires, and other extreme weather events. In addition, energized power lines can exacerbate wildfire conditions. These lines carry the potential to start or worsen an existing wildfire. Given this, the Commission has been examining issues related to wildfires and other emergencies in several proceedings. One of the proceedings, Rulemaking 18-12-005, is focused on proactively shutting off electric power in order to protect public safety through the Public Safety Power Shut-Off (PSPS) program, or de-energization. During a PSPS event, power will be cut off to electric lines that may fail in certain weather conditions in order to reduce the likelihood that electric utility infrastructure could cause or contribute to a wildfire.
The Commission’s rulemaking is divided into two phases. In Phase 1, the Commission examined and adopted PSPS guidelines, focusing primarily on notification, communication and outreach. In Phase 2, the Commission will address issues that were outside of the scope of Phase 1 and will revisit some Phase 1 issues for further refinement. In Phase 2, which has been divided into two tracks, the Commission will take a more comprehensive look at de-energization practices, including mitigation, additional coordination across agencies, further refinements to findings in Phase 1, re-energization practices, and other matters. The first track will cover issues that may need to be addressed to inform PSPS events as soon as possible. The second track will cover issues that require an in depth analysis.
Electric utilities are expected to declare PSPS events during periods of high fire danger and where there is specific risk of electrical facilities causing a fire. As a public safety partner, Cal Water will receive priority notification of such events. According to communications with Cal Water’s main electric providers, Southern California Edison and Pacific Gas and Electric, PSPS events may last up to 5 days which could significantly impact facilities within Cal Water's water systems. Additionally, power loss events can occur in major earthquakes, non-electric utility caused wildfires, tsunami, or other natural and man-made disasters. Cal Water must be ready and equipped to maintain water service to the extent possible during these events. In response, Cal Water has performed a draft risk assessment which outlines recommended
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improvements necessary to prepare its water systems for power loss events. The PSPS program will require either an increase in backup power generation or the development of an alternate means of providing reliable supply within Cal Water’s water distribution systems. Depending upon the course of action, this can increase the need for generator fuel commensurate with the expected duration of power shutoffs. In most cases, Cal Water may need to lease generators for the most critical facilities to be prepared for the 2019 wildfire season, in anticipation of installing more permanent facilities in the long term. There will also be a necessary increase in generator and electrical equipment maintenance activities to improve reliability of the auxiliary power sources for a power loss event. To this end, Cal Water respectfully requested a memorandum account from the CPUC to track costs related to this effort. The memorandum account is pending approval by the CPUC. The PSPS MA will track the incremental costs associated with the preparation and installation of facilities to address public safety needs in the event of power losses. For the three and nine months ended September 30, 2019, the PSPS MA incremental costs were $0.5 million.
2019 Regulatory Activity—Other States
2019 Kona (Hawaii Water) GRC Filing
In February of 2019, Hawaii Water filed a GRC application requesting an additional $0.6 million in annual revenues for its Kona Water and Wastewater systems with the Hawaii Public Utilities Commission. The GRC seeks recovery of capital investments in the Kona water and wastewater systems as well as increases in operational expenses since the previous rate case. If approved, the Company anticipates rates would become effective the first quarter of 2020.
2017 Waikoloa (Hawaii Water) GRC Filings
In December of 2017, Hawaii Water filed GRC applications requesting an additional $3.8 million in annual revenues for its Waikoloa Village and Resort Systems with the Hawaii Public Utilities Commission. The GRCs seek recovery of capital investments in the Waikoloa Village and Waikoloa Resort Systems as well as increases in operating expenses since the previous rate case. On January 1, 2019, the HPUC authorized Waikoloa Village rate increases of $0.8 million for 2019 and $0.1 million for 2020. On January 7, 2019, the HPUC authorized Waikoloa Resort rate increases of $0.8 million for 2019, $0.8 million for 2020, and $0.1 million for 2021.
Kalaeloa Water Company (Hawaii Water)
In March 2019, Hawaii Water and Hunt Kalaeloa Water LLC entered into a Membership Interest Purchase Agreement to acquire water and wastewater assets. The Kalaeloa service area is located on the Island of Oahu on the former Barbers Point Naval Air Station. On July 3, 2019, the parties submitted a change of control application to the Hawaii Public Utilities Commission requesting approval for the purchase. If approved, Hawaii Water would be authorized to provide water and wastewater service in the Kalaeloa service area.
LIQUIDITY
Cash flow from Operations
Cash flow from operations for the first nine months of 2019 was $128.3 million compared to $119.5 million for the same period in 2018. Cash generated by operations varies during the year due to customer billings, and timing of collections and contributions to our benefit plans.
During the first nine months of 2019, we made contributions of $12.5 million to our employee pension plan compared to contributions of $42.3 million during the first nine months of 2018. During the first nine months of 2019, we made contributions of $5.6 million to the other postretirement benefit plans compared to contributions of $8.0 million during the first nine months of 2018. The total 2019 estimated cash contribution to the pension plans is $18.8 million and to the other postretirement benefit plans is $7.9 million.
The water business is seasonal. Billed revenue is lower in the cool, wet winter months when less water is used compared to the warm, dry summer months when water use is highest. This seasonality results in the possible need for short-term borrowings under the bank lines of credit in the event cash is not available to cover operating and utility plant costs during the winter period. The increase in cash flows during the summer allows short-term borrowings to be paid down. Customer water usage can be lower than normal in drought years and when more than normal precipitation falls in our service areas or temperatures are lower than normal, especially in the summer months.
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Investing Activities
During the first nine months of 2019 and 2018, we used $194.9 million and $212.9 million, respectively, of cash for Company-funded and developer-funded utility plant expenditures. Annual expenditures fluctuate each year due to the availability of construction resources and our ability to obtain construction permits in a timely manner. For 2019, we estimate utility plant expenditures to be between $250.0 million and $260.0 million with higher capital spending anticipated after approval of the 2018 GRC settlement (see note 14).
Financing Activities
Net cash provided by financing activities was $72.9 million during the first nine months of 2019 compared to $66.5 million of net cash provided by financing activities for the same period in 2018.
On October 31, 2019, the Company entered into an equity distribution agreement with Morgan Stanley & Co., LLC, Robert W. Baird & Co. Incorporated, Blaylock Van, LLC and Wells Fargo Securities, LLC to sell shares of its common stock having an aggregate gross sales price of up to $300.0 million from time to time depending on market conditions through an at-the-market equity program over the next three years. The Company intends to use the net proceeds from these sales, after deducting commissions on such sales and offering expenses, for general corporate purposes, which may include working capital, construction and acquisition expenditures, investments and repurchases, and redemptions of securities.
During the first nine months of 2019 and 2018, Cal Water issued $400.0 million of First Mortgage Bonds on June 11, 2019 in a private placement. Cal Water used the net proceeds from the sale of the bonds to pay down outstanding short-term borrowings and to redeem $300.0 million of First Mortgage Bond series UUU. Additionally, we borrowed $210.0 million and $141.0 million, respectively, on our unsecured revolving credit facilities during the first nine months of 2019 and 2018. Cal Water repaid $100.0 million of First Mortgage Bonds that matured during the first nine months of 2019. Also, we made a repayment on our unsecured revolving credit facilities borrowings of $120.0 million during the first nine months of 2019 compared to a repayment of $341.0 million for the same period in 2018.
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 revolving credit facilities amend, expand, and replace the Company’s and its subsidiaries’ prior credit facilities originally entered into on May 10, 2015. The new credit facilities extended the terms until March 29, 2024, and increased Cal Water’s unsecured revolving line of credit. 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. All borrowings must be repaid within 24 months unless a different period is required or authorized by the CPUC. 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 proceeds from the revolving credit facilities may be used for working capital purposes, including the short-term financing of capital projects. Borrowings under the credit facilities typically have maturities varying between one and nine months and will bear interest annually at a rate equal to (i) the base rate or (ii) the Eurodollar rate, plus an applicable margin of 0.650% to 0.875%, depending on the Company and its subsidiaries’ consolidated total capitalization ratio.
The undercollected net WRAM and MCBA receivable balances were $62.6 million and $60.0 million as of September 30, 2019 and 2018, respectively. The undercollected balances were primarily financed by Cal Water using short-term and long-term financing arrangements to meet operational cash requirements. Interest on the undercollected balances, the interest recoverable from customers, is limited to the current 90-day commercial paper rates which is significantly lower than Cal Water’s short and long-term financing rates.
Short-term and Long-Term Financing
During the first nine months of 2019, we utilized cash generated from operations, issuance of First Mortgage Bonds, and borrowings on the unsecured revolving credit facilities to fund operations and capital investments. We did not sell Company common stock during the first nine months of 2019 and 2018. We issued $1.3 million of Company common stock for the Company's employee stock purchase plan that went into effect on January 1, 2019.
On June 11, 2019, Cal Water issued $400.0 million of First Mortgage Bonds (see Note 7) in a private placement. Cal Water used the net proceeds from the sale of the bonds to pay down outstanding short-term borrowings and to redeem $300.0 million of First Mortgage Bond series UUU. Bond principal and other long-term debt payments were $401.6 million during the first nine months of 2019 and $12.5 million during the first nine months of 2018.
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In future periods, management anticipates funding our utility plant needs through a relatively balanced approach between debt and equity.
Short-term liquidity is provided by our unsecured revolving credit facilities and internally generated funds. Long-term financing is accomplished through the use of both debt and equity. 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; however, all borrowings must be repaid within 24 months unless a different period is required or authorized by the CPUC. The proceeds from the revolving credit facilities may be used for working capital purposes, including the short-term financing of utility plant projects.
As of September 30, 2019 and December 31, 2018, there were short-term borrowings of $155.1 million and $65.1 million, respectively, outstanding on the unsecured revolving credit facilities.
Given our ability to access our lines of credit on a daily basis, cash balances are managed to levels required for daily cash needs and excess cash is invested in short-term or cash equivalent instruments. Minimal operating levels of cash are maintained for Washington Water, New Mexico Water, and Hawaii Water.
Both short-term credit agreements 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 not to exceed 66.7% and an interest coverage ratio of three or more. As of September 30, 2019, we are in compliance with all of the covenant requirements and are eligible to use the full amount of our credit facilities.
Long-term financing, which includes First Mortgage Bonds, other debt securities, and common stock, has typically been used to replace short-term borrowings and fund utility plant expenditures. Internally generated funds, after making dividend payments, provide positive cash flow, but have not been at a level to meet the needs of our utility plant expenditure requirements. Management expects this trend to continue given our utility plant expenditures plan for the next five years. Some utility plant expenditures are funded by payments received from developers for contributions in aid of construction or advances for construction. Funds received for contributions in aid of construction are non-refundable, whereas funds classified as advances in construction are generally refundable over 40 years. Management believes long-term financing is available to meet our cash flow needs through issuances in both debt and equity instruments.
On October 31, 2019, the Company entered into an equity distribution agreement with Morgan Stanley & Co., LLC, Robert W. Baird & Co. Incorporated, Blaylock Van, LLC and Wells Fargo Securities, LLC to sell shares of its common stock having an aggregate gross sales price of up to $300.0 million from time to time depending on market conditions through an at-the-market equity program over the next three years. The Company intends to use the net proceeds from these sales, after deducting commissions on such sales and offering expenses, for general corporate purposes, which may include working capital, construction and acquisition expenditures, investments and repurchases, and redemptions of securities.
Dividends
During the first nine months of 2019, our quarterly common stock dividend payments were $0.5925 per share compared to $0.5625 per share during the first nine months of 2018. For the full year 2018, the payout ratio was 55.2% of net income. On a long-term basis, our goal is to achieve a dividend payout ratio of 60% of net income accomplished through future earnings growth.
At the October 30, 2019 meeting, the Company's Board of Directors declared the fourth quarter dividend of $0.1975 per share payable on November 22, 2019, to stockholders of record on November 11, 2019. This was our 299th consecutive quarterly dividend.
2019 Financing Plan
We intend to fund our utility plant needs in future periods through a relatively balanced approach between long-term debt and equity. The Company and Cal Water have a syndicated unsecured revolving line of credit of $150.0 million and $400.0 million, respectively, for short-term borrowings. As of September 30, 2019, the Company’s and Cal Water’s availability on these unsecured revolving lines of credit was $94.9 million and $300.0 million, respectively.
Book Value and Stockholders of Record
Book value per common share was $15.74 at September 30, 2019 compared to $15.19 at December 31, 2018. There were approximately 1,925 stockholders of record for our common stock as of August 12, 2019.
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Utility Plant Expenditures
During the first nine months of 2019, utility plant expenditures totaled $194.9 million for Company-funded and developer-funded projects. For 2019, we estimate utility plant expenditures to be between $250.0 million and $260.0 million with higher capital spending anticipated after approval of the 2018 GRC settlement (see note 14). We do not control third-party-funded utility plant expenditures and therefore are unable to estimate the amount of such projects for 2019.
As of September 30, 2019, construction work in progress was $266.0 million. Construction work in progress includes projects that are under construction but not yet complete and placed in service.
WATER SUPPLY
Our source of supply varies among our 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 supply from a combination of wells and wholesale suppliers. A small portion of supply comes from surface sources and is processed through Company-owned water treatment plants. To the best of management's knowledge, we are meeting water quality, environmental, and other regulatory standards for all Company-owned systems.
Historically, approximately half of our annual water supply is pumped from wells. State groundwater management agencies operate differently in each state. Some of our wells extract ground water from water basins under state ordinances. These are adjudicated groundwater basins, in which a court has settled the dispute between landowners or other parties over how much annual groundwater can be extracted by each party. All of our adjudicated groundwater basins are located in the State of California. Our annual groundwater extraction from adjudicated groundwater basins approximates 6.8 billion gallons or 14.0% of our total annual water supply pumped from wells. Historically, we have extracted less than 100% of our annual adjudicated groundwater rights and have the right to carry forward up to 20% of the unused amount to the next annual period. All of our remaining wells extract ground water from managed or unmanaged water basins. There are no set limits for the ground water extracted from these water basins. Our annual groundwater extraction from managed groundwater basins approximates 29.1 billion gallons or 59.4% of our total annual water supply pumped from wells. Our annual groundwater extraction from unmanaged groundwater basins approximates 13.1 billion gallons or 26.6% of our total annual water supply pumped from wells. Most of the managed groundwater basins we extract water from have groundwater recharge facilities. We are required to pay well pump taxes to financially support these groundwater recharge facilities. Well pump taxes were $3.5 million and $3.8 million for the three months ended September 30, 2019 and 2018, respectively. For the nine months ended September 30, 2019 and 2018, well pump taxes were $8.7 million and $10.9 million, respectively. In 2014, the State of California enacted the Sustainable Groundwater Management Act of 2014. The law and its implementing regulations require most basins to select a sustainability agency by 2017, develop a sustainability plan by 2022, and show progress toward sustainability by 2027. We expect that in the future, groundwater will be produced mainly from managed and adjudicated basins.
California's normal weather pattern yields little precipitation between mid-spring and mid-fall. The Washington Water service areas receive precipitation in all seasons, with the heaviest amounts during the winter. New Mexico Water's rainfall is heaviest in the summer monsoon season. Hawaii Water receives precipitation throughout the year, with the largest amounts in the winter months. Water usage in all service areas is highest during the warm and dry summers and declines in the cool winter months. Rain and snow during the winter months in California replenish underground water aquifers and fill reservoirs, providing the water supply for subsequent delivery to customers. As of June 27, 2019, the State of California snowpack water content during the 2019-2020 water year is 80% of long-term averages (per the California Department of Water Resources, Daily Drought Information Summary). The northern Sierra region is the most important for the state’s urban water supplies. The central and southern portions of the Sierras also have recorded 91% and 59%, respectively, of long-term averages. Management believes that supply pumped from underground aquifers and purchased from wholesale suppliers will be adequate to meet customer demand during 2019 and beyond. Long-term water supply plans are developed for each of our districts to help assure an adequate water supply under various operating and supply conditions. Some districts have unique challenges in meeting water quality standards, but management believes that supplies will meet current standards using current treatment processes.
On May 31, 2018, California's Governor Brown signed two bills (Assembly Bill 1668 and Senate Bill 606) into law that will establish long-term standards for water use efficiency. The bills revise and expand the existing urban water management plan requirements to include five year drought risk assessments, water shortage contingency plans, and annual water supply/demand assessments. By June 30, 2022, the California State Water Resources Control Board, in conjunction with the California Department of Water Resources, will establish long-term water use standards for indoor residential use, outdoor residential use, water losses and other uses. Cal Water will also be required to calculate and report
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on urban water use target by November 1, 2023 and each November 1 thereafter that compares actual urban water use to the target. Management believes that Cal Water is well-positioned to comply with all regulations required of utilities.
CONTRACTUAL OBLIGATIONS
During the nine months ended September 30, 2019, there were no material changes in contractual obligations outside the normal course of business.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not hold, trade in or issue derivative financial instruments and therefore are not exposed to risks these instruments present. Our market risk to interest rate exposure is limited because the cost of long-term financing and short-term bank borrowings, including interest costs, is covered in consumer water rates as approved by the Commissions. We do not have foreign operations; therefore, we do not have a foreign currency exchange risk. Our business is sensitive to commodity prices and is most affected by changes in purchased water and purchased power costs.
Historically, the CPUC’s balancing account or offsettable expense procedures allowed for increases in purchased water, pump tax, and purchased power costs to be flowed through to consumers. Traditionally, a significant percentage of our net income and cash flows come from California regulated operations; therefore the CPUC’s actions have a significant impact on our business. See Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Regulatory Matters.”
Item 4.
CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures, management, including the Chief Executive Officer and Chief Financial Officer, recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Accordingly, our disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2019. Based on that evaluation and the changes made to our internal control over financial reporting in the first nine months of 2019 noted below, we concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
(b) Changes to Internal Control over Financial Reporting
To remediate the material weakness in internal control over financial reporting as of December 31, 2018 disclosed in Part I, Item 9A of our Annual Report on Form 10-K for the year-ended December 31, 2018, management made the following changes during the first nine months of 2019:
•Management revised the design of the monthly regulatory balancing account control for the health cost balancing account (HCBA) and pension cost balancing account (PCBA). Monthly detailed calculations are prepared for these balancing accounts, which are reviewed by accounting and rates management who approve the calculations. The monthly review and approval process validates all assumptions and inputs used to determine the monthly balancing account revenue and related balance sheet account adjustments for HCBA and PCBA. This control was implemented
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in the first quarter of 2019 and internal audit tested the design and operating effectiveness of the resulting control and concluded that it is operating effectively as of September 30, 2019.
•Management designed a new control over regulatory orders, GRC settlements or other decisions made by the Commissions impacting the Company. As required by the control, accounting and rates management review and document the financial impacts of the provisions, events, and requirements of any such regulatory orders, GRC settlements, or decisions made by the Commissions. This control was implemented in the third quarter of 2019 and internal audit tested the design and operating effectiveness of the resulting control and concluded that it is operating effectively as of September 30, 2019.
PART II OTHER INFORMATION
Item 1.
LEGAL PROCEEDINGS
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. In the future, we may be involved in disputes and litigation related to a wide range of matters, including employment, construction, environmental issues and operations. Litigation can be time-consuming and expensive and could divert management’s time and attention from our business. In addition, if we are subject to additional lawsuits or disputes, we might incur significant legal costs and it is uncertain whether we would be able to recover the legal costs from customers or other third parties. For more information refer to note 10.
Item 1A.
RISK FACTORS
There have been no material changes to the Company’s risk factors set forth in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year-ended December 31, 2018 filed with the SEC on February 28, 2019.
Item 5.
OTHER INFORMATION
On October 31, 2019, we entered into an equity distribution agreement (the Equity Distribution Agreement) with Morgan Stanley & Co. LLC, Robert W. Baird & Co. Incorporated, Blaylock Van, LLC, and Wells Fargo Securities, LLC (the Managers). Pursuant to the terms of the Equity Distribution Agreement, we may, from time to time through an at-the-market equity program, sell shares of our common stock, par value $0.01 per share, having an aggregate gross sales price of up to $300.0 million (the Shares) through the Managers, acting as our agents (the ATM Offering). We will pay the Managers a commission equal to 1.0% of the gross offering proceeds from the sale of Shares pursuant to the ATM Offering. In the Equity Distribution Agreement, the Company agrees to indemnify the Managers against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the Securities Act) or to contribute payments that the Managers may be required to make because of such liabilities. We or the Managers may suspend the offering of Shares at any time and from time to time by notifying the other party.
We intend to use the net proceeds from these sales, after deducting commissions on such sales and offering expenses, for general corporate purposes, which may include working capital, construction and acquisition expenditures, investments and repurchases, and redemptions of securities.
The Managers and their affiliates have, from time to time, provided, and may in the future provide, various investment banking, commercial banking and/or other financial services for us and our affiliates in the ordinary course of business, for which services they have and may in the future receive customary fees. Affiliates of certain of the Managers are lenders under certain of our and our affiliates’ credit facilities.
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The Shares will be issued pursuant to our automatically effective shelf registration statement on Form S-3 that is currently on file (Registration No. 333-234389), the base prospectus contained therein, and a prospectus supplement that was filed with the Securities and Exchange Commission on October 31, 2019.
A copy of the Equity Distribution Agreement is attached as Exhibit 1.1 to this quarterly report. The foregoing description of the Equity Distribution Agreement does not purport to be complete and is qualified in its entirety by reference to Exhibit 1.1.
A copy of the opinion of Gibson, Dunn & Crutcher LLP relating to the validity of the securities issued in the ATM Offering is filed as Exhibit 5.1 to this quarterly report.
Item 6.
EXHIBITS

Exhibit |  | Description
1.1 |  |  | Equity Distribution Agreement, dated as of October 31, 2019, between California Water Service Group and Morgan Stanley & Co. LLC, Robert W. Baird & Co. Incorporated, Blaylock Van, LLC, and Wells Fargo Securities, LLC
4.0 |  |  | The Company agrees to furnish upon request to the Securities and Exchange Commission a copy of each instrument defining the rights of holders of long-term debt of the Company
4.1 |  |  | Sixty-Second Supplemental Indenture dated as of June 11, 2019, between California Water Service Company and U.S. Bank National Association, as Trustee, covering 3.40% First Mortgage Bonds due 2029, Series VVV, 4.07% First Mortgage Bonds due 2049, Series WWW, and 4.17% First Mortgage Bonds due 2059, Series YYY (Exhibit 10.1 to the Current Report on Form 8-K filed June 18, 2019)
5.1 |  |  | Opinion of Gibson, Dunn & Crutcher LLP
10.1 |  |  | Credit Agreement dated as of March 29, 2019 among California Water Service Group and certain of its subsidiaries from time to time party thereto, as borrowers, Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as sole lead arranger and sole bookrunner, CoBank, ACB, and U.S. Bank National Association as co-syndication agents, Bank of China, Los Angeles Branch and Wells Fargo Bank, National Association as co-documentation agents, and the other lender parties thereto (Exhibit 10.1 to the Current Report on Form 8-K filed March 29, 2019).
10.2 |  |  | Credit Agreement dated as of March 29, 2019 among California Water Service Company as borrower, Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as sole lead arranger and sole bookrunner, CoBank, ACB, and U.S. Bank National Association as co-syndication agents, Bank of China, Los Angeles Branch and Wells Fargo Bank, National Association as co-documentation agents, and the other lender parties thereto (Exhibit 10.2 to the Current Report on Form 8-K filed March 29, 2019).
23.1 |  |  | Consent of Gibson, Dunn & Crutcher LLP (contained in Exhibit 5.1)
31.1 |  |  | Chief Executive Officer certification of financial statements pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
31.2 |  |  | Chief Financial Officer certification of financial statements pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
32 |  |  | Chief Executive Officer and Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002
101 |  |  | The following materials from California Water Service Group's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of (Loss) Income, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to the Condensed Consolidated Financial Statements.
104 |  |  | The cover page from California Water Service Group's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in iXBRL (included as exhibit 101)

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SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| CALIFORNIA WATER SERVICE GROUP
| Registrant
October 31, 2019 | By: | /s/ Thomas F. Smegal III
|  | Thomas F. Smegal III
|  | Vice President,
|  | Chief Financial Officer and Treasurer

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