1035201--3/14/2007--CALIFORNIA_WATER_SERVICE

related topics

{regulation, change, law}

{cost, regulation, environmental}

{acquisition, growth, future}

{gas, price, oil}

{operation, natural, condition}

{competitive, industry, competition}

{capital, credit, financial}

{condition, economic, financial}

{system, service, information}

{cost, operation, labor}

{personnel, key, retain}

{debt, indebtedness, cash}

{loan, real, estate}

{control, financial, internal}

{loss, insurance, financial}

{stock, price, operating}

Our evaluation of the probability of recovery of regulatory assets is subject to adjustment by regulatory agencies and any such adjustment could adversely affect our results of operations. Regulatory agencies may disagree with our valuation and characterization of certain of our assets. Changes in laws, rules and policies of regulatory agencies can significantly affect our business. We expect environmental regulation to increase, resulting in higher operating costs in the future. We are party to a toxic contamination lawsuit which could result in our paying damages not covered by insurance. Risks Related to Our Business Operations Wastewater operations entail significant risks. Demand for our water is subject to various factors and is affected by seasonal fluctuations. The adequacy of our water supplies depends upon a variety of factors beyond our control. Interruption in the water supply may adversely affect our earnings. Changes in water supply costs directly affect our earnings. We depend upon an adequate supply of electricity and certain chemicals for the delivery of our water. An interruption in the supply of these inputs or increases in their prices could adversely affect our results of operations. Our ability to generate new operating contracts is affected by local politics. Our business requires significant capital expenditures that are dependent on our ability to secure appropriate funding. If we are unable to obtain sufficient capital or if the rates at which we borrow increase, there would be a negative impact on our results of operations. We are a holding company that depends on cash flow from our subsidiaries to meet our obligations and to pay dividends on our preferred stock and common stock. An important element of our growth strategy is the acquisition of water and wastewater systems, including pursuant to operating agreements. Risks associated with potential acquisitions, divestitures or restructurings may adversely affect us. We may not be able to increase or sustain our recent growth rate, and we may not be able to manage our future growth effectively. We have a number of large-volume commercial and industrial customers and a significant decrease in consumption by one or more of these customers could have an adverse effect on our operating results and cash flows. Our operating cost and costs of providing services may rise faster than our revenues. Our non-regulated business operates in a competitive market. Demand for our stock may fluctuate due to circumstances beyond our control. Work stoppages and other labor relations matters could adversely affect our operating results. We depend significantly on the services of the members of our management team, and the departure of any of those persons could cause our operating results to suffer. Our operations are geographically concentrated in California and this lack of diversification may negatively impact our operations. The effects of natural disasters, terrorist activity, pandemics, or poor water quality or contamination to our water supply may result in disruption in our services and litigation which could adversely affect our business, operating results and financial condition. We retain certain risks not covered by our insurance policies. We rely on our information technology and a number of complex business systems that could malfunction and result in negative impacts on our profitability and cash flow. The accuracy of our judgments and estimates about financial and accounting matters will impact our operating results and financial condition. Our controls and procedures may fail or be circumvented.

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1035201--3/14/2007--CALIFORNIA_WATER_SERVICE_GROUP