We remain committed to doing all we can to provide our stockholders a fair rate of return, and we will be relentless in pursuing every opportunity to increase stockholder value. Evidence of this commitment is born out by our track record. We have paid a dividend every year for the past 57 years; in 2001, it increased to $1.115 per share. The graph on page 8 reflects the long-term value of an investment in our company, showing that $100 invested in 1981 would be worth $1,902 today, assuming reinvestment of all dividends. Our growth strategy will be key in ensuring future success. In 2001, we continued to pursue growth opportunities that add to shareholders’ long-term value. As for regulated busi- ness, we purchased the assets of seven small systems in Washington, growing customer base  by 10%. We added 5,000 metered connections in California, including infrastructure needed to serve 120 new subdivisions. And in New Mexico, we continued to pursue new growth opportuni- ties while the New Mexico Public Regulation Commission considered our request to purchase the Rio Grande Utility Corporation. We expect to receive a decision on the Rio Grande purchase in the second quarter of 2002. On the non-regulated side, we signed five water system operation agreements in Washington and were selected to negotiate a 15-year lease agreement with the City of Commerce, California, whose 1,085-connection water system we are currently operating under a short-term agreement. We were also proud to be selected to provide utility billing services in the City of Stockton, California and water quality testing services to San Jose Water Company. In the coming year, we will continue to work diligently to ensure fair regulatory treat- ment, while we maintain our company-wide focus on operating efficiently and providing excel- lent service. We will also seek to expand the non-regulated side of the business by pursuing non-regulated service contracts, maximizing the value of our excess real estate, and leasing  portions of our properties to partners like cellular telephone service providers. Our stockholders will earn on a growing capital investment, as we plan to invest more in our infrastructure in 2002 than ever before. Much of the capital investment planned for 2002 is needed to enable us to meet increasingly strict water quality standards, including the funds invested in the construction of a $49 million water treatment plant begun in Bakersfield in 2001 and expected to be completed in 2003. A notable development in the water quality arena in 2001 was the adoption of a new federal standard of 10 parts per billion for arsenic, which will require significant capital investments by all water providers in the coming years. 10 Whatever else we do, our future success depends on our ability to provide excellent  customer service. And we have the right people to get the job done—people like Denise Diaz, a customer service representative who recently had the water turned on in 15 minutes for a neighboring family that came to her door one night; people like Nadia Watson, a collector who contacted local agencies to assist an elderly customer in need, and even made the customer a sandwich before she left; people like Al Welte, a pump operator who changed a customer’s flat tire one fall day so she could get her kids to school on time. We are fortunate to have such a caring and talented group of people on our team—people who cared so much about the victims of September 11 that they volunteered to forgo our annual Employee Celebration Day and instead send a significant employee contribution to help those in need...people who work hard every day, both individually and on teams, to ensure that we provide excellent service to our customers. There is no doubt about it, 2001 was a year fraught with challenges. But by focusing  on excelling at the things we do best, we are turning those challenges into opportunities. We believe that our proven ability to grow profitably, maintain our financial strength, make wise investments in our infrastructure, and provide excellent customer service positions us well for future success. We thank you for your investment in California Water Service Group and look forward to a bright and rewarding future. Sincerely, 11 < Far Left Peter C. Nelson President and CEO < Left Robert W. Foy Chairman of the Board Robert W. Foy Chairman of the Board Peter C. Nelson President and Chief Executive Officer