The Company is also working with regional water quality control boards and air quality dis- tricts to meet current and upcoming regulations.The focus of this work is to meet more stringent National Pollutant Discharge Elimination System requirements for water discharged from wells and for diesel exhaust emissions from operation of emergency generators. Liquidity. The Company’s short-term liquidity is provided by bank lines of credit and inter- nally generated funds. On a long-term basis, the Company obtains financing through its access to debt and equity markets. LIQUIDITY AND CAPITAL RESOURCES Short-term Financing. Negotiations to renew separate bank credit agreements for the Company and Cal Water that were scheduled to expire on April 30, 2003, have been completed.The new agreements, which replace a combined $60 million credit line, became effective on February 28, 2003, and expire on April 30, 2005. Under the new agreements the Company will have available a total of $65 million. Of the total, $55 million is designated for Cal Water and $10 million for the Company, including funding of its subsidiaries’ operations. Cal Water’s $55 million portion can be used solely for purposes of the regulated California utility. As of July 1, 2003, the credit facility available to Cal Water will be reduced to $45 million. The reduction will lower the commitment fee paid by Cal Water on the unused portion of the credit line.The prior agreements required a 30-day out-of-debt period for borrowings under the agreements in calendar year 2002. However, on September 23, 2002, the agreements were amended to extend the out-of-debt compliance period to between January 1, 2002 and April 30, 2003.The new agreements will also have a 30-day out-of- debt requirement that must be met by December 31, 2003. During 2002 and 2001, the Company had committed $7.6 million of the $10 million credit line to a contractor for construction of a customer and operation center.The Company has occupied the new facility where four of its southern California district operations were consolidated.The combined operations will provide for more efficient service to customers in the South Bay area of Los Angeles County.The tax-free exchange of seven surplus Company properties to the contractor for the new customer and operations center was completed on September 30, 2002. Because the transaction was structured as a property exchange, acquiring the new facility did not require a significant expenditure of cash. Under terms of the exchange agreement, during the construction period the Company had guaranteed the contractor’s bank loan.The  new facility, which is valued at over $7 million, served as security to the Company for the guarantee.When the property exchange was completed, the contractor paid off the bank loan, and the Company was released from its guarantee. Washington Water has loan commitments from two banks to meet its operating and capital equipment purchase requirements at interest rates negotiated with the banks. At December 31, 2002, nothing was outstanding under the short-term commitments. Generally, short-term borrowings under the commitments are converted annually to long-term borrowings with repayment terms tied to system and equipment acquisitions. New Mexico Water Company has a credit arrangement with a New Mexico bank that was renewed in January 2003 for a 16-month period.The interest rate for the agreement is based on prime rate plus 75 basis points. At December 31, 2002, the amount borrowed was $2,380,000.The renewal increased the amount available under the line to $2.9 million. The water business is seasonal. 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 higher and more revenue is  generated. During the winter period, the need for short-term borrowings under the bank lines of credit increases.The increase in cash flow during the summer allows short-term borrowings to be paid down. Short-term borrowings that remain outstanding more than one year have generally been converted to  long-term debt. In years when more than normal precipitation falls in the Company’s service areas or tem- peratures are lower than normal, especially in the summer months, customer water usage can be lower than normal.The reduction in water usage reduces cashflow from operations and increases the need for short-term bank borrowings. During 2002 and 2001, the need for short-term borrowings was greater due to an increase in construction expenditures primarily related to construction of the Bakersfield water treatment plant. Regulatory lag, which is the delay in receiving authorization to increase customer rates to cover capital expenditures and higher operating costs, resulted in the need for increased short-term bank borrowings in both 2002 and 2001. 29 CALIFORNIA WATER SERVICE GROUP