California Water Service Group Purchases Water Systems in Washington, Becomes Largest Investor-Owned Water Utility in State.

SAN JOSE, Calif.--(BUSINESS WIRE)--Sept. 30, 1999--

Announces Formation of New Operating Subsidiary,

Washington Water Service Company--

Customer Rates Unaffected

California Water Service Group (NYSE:CWT) today announced that the Washington Utilities and Transportation Commission (WUTC) has approved the application it submitted on August 24, 1999, to purchase Harbor Water Company in Gig Harbor, Washington.

This marks California Water Service Group's first acquisition outside of California. California Water Service Group (Group) has also signed a definitive agreement to purchase South Sound Utility Company in Olympia, Wash., and expects a decision from the WUTC on that transaction within the next 45 days. In connection with the expansion into Washington, Group announced the formation of a new operating subsidiary, Washington Water Service Company (WWSC), to serve its new customers and support future growth in Washington State. The acquisition of Harbor Water Company and South Sound Utility Company, which together serve over 14,000 customers, will make WWSC the largest investor-owned water utility in the State of Washington.

"These acquisitions mark a significant advancement toward our previously-announced strategic goal of expanding operations beyond California by means of acquisitions and operating agreements. We are confident that the transactions will provide additional value to our shareholders, and we 're looking forward to providing our new customers with the high-caliber water utility services we have provided to Californians since 1926," said Robert W. Foy, Chairman of the Board of California Water Service Group.

The transactions will be completed through a tax-free exchange of stock and accounted for as a pooling of interests. Approximately 315,000 shares of California Water Service Group common stock will be issued in exchange for all of the shares of the two Washington companies, valued at $8.5 million. Debt of $3.0 million will also be assumed, for a total transaction value of $11.5 million. As a result of the transaction, Group revenues will increase by $3.4 million. These mergers are projected to be immediately accretive.

Washington Water Service Company will offer positions to all of those currently employed by Harbor Water Company and South Sound Utility Company. Customer rates will not increase as a result of the merger.

"This really is a win-win situation for all concerned," said Peter C. Nelson, President and CEO of California Water Service Group. "Our customers will continue to receive high quality water services from the local people they know and trust, our shareholders will benefit from additional revenues and growth opportunities, and our new employees will become part of an organization that is known for its excellent employee relationships.

"This is a landmark in our company's history, and we're excited by the many benefits to be derived from expanding outside of California. The bottom line is, it reinforces our position as the leading consolidator in the West," Nelson said.

Earlier this year, Group announced its intention to merge with Dominguez Services Corporation, a water utility holding company serving 140,000 people in the California Counties of Los Angeles, Kern, Sonoma, and Lake. Group expects to receive a decision on the Dominguez merger from the California Public Utilities Commission in early 2000. California Water Service Group is the parent of CWS Utility Services, California Water Service Company, and Washington Water Service Company. Group's subsidiaries provide water utility services to 1.5 million people in over 60 communities in California and Washington.