Credit Agencies Announce Review of Cal Water Debt Ratings.

Business Editors

SAN JOSE, Calif.--(BUSINESS WIRE)--Dec. 16, 2003

California Water Service Group (NYSE:CWT) today announced that Standard & Poor's (S&P) has changed its outlook on the company's largest subsidiary, California Water Service Company (Cal Water), from "stable" to "negative outlook," and Moody's Investors Services (Moody's) has placed the company's credit rating on review for possible downgrade, both citing continuing delays by the California Public Utilities Commission (Commission) in granting rate relief and higher capital investment requirements resulting from increasingly stringent water quality standards.

At this time, S&P is maintaining Cal Water's current investment-grade rating of A+, although it will be monitoring the company's performance to determine if current and anticipated rate relief adequately improves the company's financial condition. Moody's will also consider in the course of its review whether recently approved rate increases and anticipated rate increases will strengthen the company's financial profile to a level commensurate with its current rating.

According to California Water Service Group Chief Financial Officer Richard D. Nye, the announcements by the credit rating agencies are not unexpected given the company's financial performance year-to-date, which has been negatively impacted by continuing delays in rate decisions by the Commission.

"We have had a number of rate increases approved in the last few months and are just beginning to see the effects of these decisions on the bottom line. These approved increases in revenues will be collected over a period of time. In addition, we have a number of pending rate increase requests at the Commission," he said.

Recently authorized increases include $4.2 million in annual revenues related to the Bakersfield Treatment Plant; rate increases authorized in September 2003 expected to add $13 million in annual revenues and a one-time catch-up component of $5 million; and $4.6 million in annual revenues to be collected over two years, primarily to recover higher electricity costs incurred prior to November 2001. According to Nye, financial exposure due to future delays in rate decisions is expected to be reduced by the ultimate implementation by the Commission of California State Assembly Bill 2838, which permits interim rate increases for California-regulated water utilities if there is a delay in processing requests for rate increases. The bill applies to filings made after January 1, 2003, and it allows water companies to increase rates in an interim amount equal to the rate of inflation if the Commission has not acted on the request by the first day of the first test year. Such interim decisions will then be subject to adjustments when the Commission issues its decisions.

S&P and Moody's will also consider in their reviews the Company's capital expenditures, necessitated primarily by water quality regulations and infrastructure needs. The Company currently estimates its capital expenditures to be in the range of $60 million to $70 million per year over the next five years, and it expects to fund these capital expenditures through a combination of funds from operations, debt and equity. It is expected that expenses from external financing for these capital expenditures will be recovered through additional rate increases.

California Water Service Group is the parent company of California Water Service Company, Washington Water Service Company, New Mexico Water Service Company, Hawaii Water Service Company, Inc. and CWS Utility Services. Together these companies provide regulated and non-regulated water service to over 2 million people in 99 California, Washington, New Mexico and Hawaii communities. The Group's common stock trades on the New York Stock Exchange under the symbol "CWT."

This news release contains forward-looking statements within the meaning established by the Private Securities Litigation Reform Act of 1995 ("Act"). The forward-looking statements are intended to qualify under provisions of the federal securities laws for "safe harbor" treatment established by the Act. Forward-looking statements are based on currently available information, expectations, estimates, assumptions and projections, and management's judgment about the Company, the water utility industry and general economic conditions. Such words as "expects," "intends," "plans," "believes," "estimates," "assumes," "anticipates," "projects," "predicts," "forecasts" or variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not guarantees of future performance. They are subject to uncertainty and changes in circumstances. Actual results may vary materially from what is contained in a forward-looking statement. Factors that may cause a result different than expected or anticipated include: governmental and regulatory commissions' decisions; changes in regulatory commissions' policies and procedures; the timeliness of regulatory commissions' actions concerning rate relief; new legislation; electric power interruptions; increases in suppliers' prices and the availability of supplies, including water and power; fluctuations in interest rates; changes in environmental compliance and water quality requirements; acquisitions and our ability to successfully integrate acquired companies; the ability to successfully implement business plans; changes in customer water use patterns; the impact of weather on water sales and operating results; access to sufficient capital on satisfactory terms; civil disturbances or terrorist threats or acts, or apprehension about the possible future occurrences of acts of this type; the involvement of the United States in war or other hostilities; restrictive covenants in or changes to the credit ratings on our current or future debt that could increase our financing costs or affect our ability to borrow, make payments on debt or pay dividends; and other risks and unforeseen events. When considering forward-looking statements, you should keep in mind the cautionary statements included in this paragraph. The Company assumes no obligation to provide public updates of forward-looking statements.

Additional information is available at our Web site at www.calwater.com.