SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue

• Revenue

        Revenue generally includes monthly cycle customer billings for regulated water and wastewater services at rates authorized by regulatory commissions (plus an estimate for water used between the customer's last meter reading and the end of the accounting period) and billings to certain non-regulated customers at rates authorized by contract with government agencies.

        The Company's regulated water and waste water revenue requirements are authorized by the Commissions in the states in which we operate. The revenue requirements are intended to provide the Company a reasonable opportunity to recover its operating costs and earn a return on investments.

        For metered customers, Cal Water recognizes revenue from rates which are designed and authorized by the California Public Utilities Commission (CPUC). Under the Water Revenue Adjustment Mechanism (WRAM), Cal Water records the adopted level of volumetric revenues, which would include recovery of cost of service and a return on investments, as established by the CPUC for metered accounts (adopted volumetric revenues). In addition to volumetric-based revenues, the revenue requirements approved by the CPUC include service charges, flat rate charges, and other items not subject to the WRAM. The adopted volumetric revenue considers the seasonality of consumption of water based upon historical averages. The variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts is recorded as a component of revenue with an offsetting entry to a regulatory asset or liability balancing account (tracked individually for each Cal Water district) subject to certain criteria under the accounting for regulated operations being met. The variance amount may be positive or negative and represents amounts that will be billed or refunded to customers in the future.

        Cost-recovery rates are designed to permit full recovery of certain costs allowed to be recovered by the Commissions. Cost-recovery rates such as the Modified Cost Balancing Account (MCBA) provides for recovery of adopted expense levels for purchased water, purchased power and pump taxes, as established by the CPUC. In addition, cost-recovery rates include recovery of cost related to water conservation programs and certain other operating expenses adopted by the CPUC. Variances (which include the effects of changes in both rate and volume for the MCBA) between adopted and actual costs are recorded as a component of revenue, as the amount of such variances will be recovered from or refunded to our customers at a later date. There is no markup for return or profit for cost-recovery expenses and they are generally recognized when expenses are incurred.

        The balances in the WRAM and MCBA assets and liabilities accounts will fluctuate on a monthly basis depending upon the variance between adopted and actual results. The recovery or refund of the WRAM is netted against the MCBA over- or under-recovery for the corresponding district and is interest bearing at the current 90 day commercial paper rate. At the end of any calendar year, Cal Water files with the CPUC to refund or collect the balance in the accounts. Most undercollected net WRAM and MCBA receivable balances are collected over 12 and 18 months. Cal Water defers net WRAM and MCBA operating revenues and associated costs whenever the net receivable balances are estimated to be collected more than 24 months after the respective reporting periods in which it was recognized. The deferred net WRAM and MCBA revenues and associated costs were determined using forecasts of rate payer consumption trends in future reporting periods and the timing of when the CPUC will authorize Cal Water's filings to recover the undercollected balances. Deferred net WRAM and MCBA revenues and associated costs will be recognized as revenues and costs in future periods when collection is within twenty-four months of the respective reporting period.

        The change to net WRAM and MCBA deferred balances:

	Operating Revenues			Operating Costs			Income Before Income Taxes
Net WRAM and MCBA deferred balances as of December 31, 2011	$	12,864		$	10,492		$	2,372
Reversal of deferred amounts during 2012		(12,864	)		(10,492	)		(2,372	)
Deferred amounts added during 2012		882			719			163
Net WRAM and MCBA deferred balances as of December 31, 2012	$	882		$	719		$	163

        The net undercollected WRAM and MCBA receivable balances as of December 31, 2012 and 2011 were:

	2012		2011
Net short-term receivable	$	34,020	$	19,357
Net long-term receivable		12,051		30,268
Total receivable	$	46,071	$	49,625
Net short-term payable	$	371	$	543
Net long-term payable		119		145
Total payable	$	490	$	688

        Flat rate customers are billed in advance at the beginning of the service period. The revenue is prorated so that the portion of revenue applicable to the current period is included in that period's revenue, with the balance recorded as unearned revenue on the balance sheet and recognized as revenue when earned in the subsequent accounting period. Our unearned revenue liability was $1,708 and $1,871 as of December 31, 2012 and 2011, respectively. This liability is included in "other accrued liabilities" on our consolidated balance sheets.

Allowance for Doubtful Accounts

• Allowance for Doubtful Accounts

        The Company provides an allowance for doubtful accounts receivable. The allowance is based upon specific identified accounts plus an estimate of uncollectible accounts based upon historical percentages. The balance of customer receivables is net of the allowance for doubtful accounts at December 31, 2012 and 2011 of $714 and $669, respectively.

        The activities in the allowance for doubtful accounts are as follows:

	2012			2011			2010
Beginning Balance	$	669		$	804		$	847
Provision for uncollectible accounts		1,548			1,250			1,500
Net write off of uncollectible accounts		(1,503	)		(1,385	)		(1,543	)
Ending Balance	$	714		$	669		$	804

Non-Regulated Revenue

• Non-Regulated Revenue

        Revenues from non-regulated operations and maintenance agreements are recognized when services have been rendered to companies or municipalities under such agreements. For construction and design services, revenue is generally recognized on the completed contract method, as most projects are completed in less than three months. Other non-regulated revenue is recognized when title has transferred to the buyer, or ratably over the term of the lease.

Utility Plant

• Utility Plant

        Utility plant is carried at original cost when first constructed or purchased, or at fair value when acquired through acquisition. When depreciable plant is retired, the cost is eliminated from utility plant accounts and such costs are charged against accumulated depreciation. Maintenance of utility plant is charged to operating expenses as incurred. Maintenance projects are not accrued for in advance. Interest is capitalized on plant expenditures during the construction period and amounted to $3,401 in 2012, $2,741 in 2011, and $1,563 in 2010.

        Intangible assets acquired as part of water systems purchased are recorded at fair value. All other intangibles have been recorded at cost and are amortized over their useful life.

        The following table represents depreciable plant and equipment as of December 31:

	2012		2011
Equipment	$	400,610	$	382,195
Transmission and distribution plant		1,351,158		1,287,010
Office buildings and other structures		151,597		138,364
Total	$	1,903,365	$	1,807,569

        Depreciation of utility plant for financial statement purposes is computed on a straight-line basis over the assets' estimated useful lives including cost of removal of certain assets as follows:

	Useful Lives
Equipment	5 to 50 years
Transmission and distribution plant	40 to 65 years
Office Buildings and other structures	50 years

        The provision for depreciation expressed as a percentage of the aggregate depreciable asset balances was 3.1% in 2012, 3.0% in 2011, and 2.8% 2010. For income tax purposes, as applicable, the Company computes depreciation using the accelerated methods allowed by the respective taxing authorities.

Asset Retirement Obligation

• Asset Retirement Obligation

        The Company has a legal obligation to retire wells in accordance with Department of Public Health regulations. In addition, upon decommission of a wastewater plant or lift station certain wastewater infrastructure would need to be retired in accordance with Department of Public Health regulations. The Company has collected retirement obligation costs from ratepayers through depreciation expense. As of December 31, 2012 and 2011 the retirement obligation is estimated to be $16,105 and $14,049, respectively. The change only impacted the consolidated balance sheet.

Cash Equivalents

• Cash Equivalents

        Cash equivalents include highly liquid investments with remaining maturities of three months or less at the time of acquisition.

Restricted Cash

• Restricted Cash

        In 2012 restricted cash includes $1.0 million of Cal Water and a third party cash deposits for a capital project. It also includes $1.1 million of proceeds collected through a surcharge on certain customers' bills plus interest earned on the proceeds and is used to service California Safe Drinking Water Bond obligations. All restricted cash is included in prepaid expenses. At December 31, 2012 and 2011, restricted cash was $2,266 and $4,225, respectively.

Regulatory Assets and Liabilities

• Regulatory Assets and Liabilities

        Regulatory assets and liabilities were comprised of the following as of December 31:

	2012		2011
Regulatory Assets
Pension and retiree group health	$	223,153	$	213,819
Income tax temporary differences		56,991		34,664
Other accrued benefits		40,362		31,453
Net WRAM and MCBA long-term accounts receivable		12,051		30,268
Asset retirement obligations, net		11,862		9,694
Total Regulatory Assets	$	344,419	$	319,898
Regulatory Liabilities
Future tax benefits due ratepayers	$	24,932	$	16,978
Conservation program		6,538		4,328
Pension balancing account		—		1,936
Other liabilities		4,250		4,795
Total Regulatory Liabilities	$	35,720	$	28,037

        Short-term regulatory assets and liabilities are excluded from the above table. The short-term regulatory assets for 2012 and 2011 were $34,020 and $21,680, respectively. The short-term regulatory assets were primarily net WRAM/MCBA receivable balances. The short-term portion of regulatory liabilities for 2012 and 2011 were $5,018 and $2,655, respectively.

        The Company operates extensively in a regulated business, and as such is subject to the accounting standards for regulated utilities. Utility companies defer costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that those costs and credits will be recognized in the ratemaking process in a period different from the period in which they would have been reflected in income by an unregulated company. Regulatory assets other than WRAM represent deferral of costs that will be recovered in the future and do not include a return. In determining the probability of costs being recognized in other periods, the Company considers regulatory rules and decisions, past practices, and other facts or circumstances that would indicate if recovery is probable. In the event that a portion of the Company's operations were no longer subject to the accounting standards for regulated utilities, the Company would be required to write off related regulatory assets and liabilities. If a commission determined that a portion of the Company's assets were not recoverable in customer rates, the Company would be required to determine if the Company had suffered an asset impairment that would require a write-down in the assets' valuation.

        The Company's qualified, defined-benefit, non-contributory pension plan and other postretirement plan benefit (Retire Group Health) regulatory asset is the amount the Company expects to recover from ratepayers in the future for these plans at the end of the calendar year, which also includes amounts that otherwise would be recorded to accumulated other comprehensive loss in the Consolidated Balance Sheet.

        The income tax temporary differences relate primarily to the difference between book and federal income tax depreciation on utility plant that was placed in service before the regulatory Commissions adopted normalization for rate making purposes. Previously, the tax benefit of tax depreciation was passed on to customers (flow-through). For state income tax purposes, the Commission continues to use the flow-through method. As such timing differences reverse, the Company will be able to include the impact of such differences in customer rates. These federal tax differences will continue to reverse over the remaining book lives of the related assets.

        Other accrued benefits are accrued benefits for vacation, self-insured workers' compensation, and directors' retirement benefits. The net WRAM and MCBA long-term accounts receivable is the undercollected portion of recorded revenues that are not expected to be collected from ratepayers within 12 months. The asset retirement obligations is recorded net of depreciation which has been recorded and recognized through the regulatory process over the remaining useful life of the related asset.

        The future tax benefits regulatory liability are future benefits to ratepayers for tax deductions that will be allowed in the future. Regulatory liabilities also reflect timing differences provided at higher than the current tax rate, which will flow-through to future ratepayers. The conservation program regulatory liability is for cost recovery in rates that exceeded incurred costs and is refundable to ratepayers as of December 31, 2012.

Impairment of Long-Lived Assets, Intangibles and Goodwill

• Impairment of Long-Lived Assets, Intangibles and Goodwill

        The Company regularly reviews its long-lived assets, intangible assets and goodwill for impairment annually or when events or changes in business circumstances have occurred that indicate the carrying amount of such assets may not be fully realizable. Potential impairment of assets held for use is determined by comparing the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying value of the asset exceeds its fair value. In the 2010 Hawaii Water GRC for the Ka'anapali Water District, construction costs of $320 were removed from rate base and expensed as a non-regulated expense during 2011 and in the Cal Water 2009 GRC settlement, construction costs of $634 were removed from rate base and expensed to non-regulated expense during 2010.

        Goodwill is measured as the excess of the cost of an acquisition over the sum of the amounts assigned to identifiable assets acquired less liabilities assumed. Goodwill and other identifiable intangible assets are accounted for in accordance with generally accepted accounting principles. Goodwill is not amortized but instead is reviewed annually at November 30^th for impairment or more frequently if impairment indicators arise.

        The impairment test is performed at the reporting unit level using a two-step, fair-value based approach. The first step determines the fair value of the reporting unit and compares it to the reporting unit's carrying value. If the fair value of the reporting unit is less than its carrying amount, a second step is performed to measure the amount of impairment loss, if any. The second step allocates the fair value of the reporting unit to the Company's tangible and intangible assets and liabilities. This derives an implied fair value for the reporting unit's goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized equal to the excess.

        The recorded goodwill balance as of December 31, 2012 and 2011, relate to the Hawaii Water Service Company reporting unit. Based on our annual goodwill impairment test, no impairment was recorded in 2012 or 2011.

Long-Term Debt Premium, Discount and Expense

• Long-Term Debt Premium, Discount and Expense

        The discount and issuance expense on long-term debt is amortized over the original lives of the related debt on a straight-line basis which approximates the effective interest method. Premiums paid on the early redemption of certain debt and the unamortized original issuance discount and expense are amortized over the life of new debt issued in conjunction with the early redemption. Amortization expense included in interest expense was $1,107, $1,082, and $979 for 2012, 2011, and 2010, respectively.

Advances for Construction

• Advances for Construction

        Advances for Construction consist of payments received from developers for installation of water production and distribution facilities to serve new developments. Advances are excluded from rate base for rate setting purposes. Annual refunds are made to developers without interest. Advances of $186,753, and $185,902 at December 31, 2012 and 2011, respectively, will be refunded primarily over a 40-year period in equal annual amounts. In addition, other Advances for Construction totaling $831 and $1,376 at December 31, 2012, and 2011, respectively, are refundable based upon customer connections. Estimated refunds of advances for each succeeding year (2013 through 2017) are approximately $7,179, $7,178, $7,115, $7,098, $7,081 and $151,102 thereafter.

Contributions in Aid of Construction

• Contributions in Aid of Construction

        Contributions in Aid of Construction represent payments received from developers, primarily for fire protection purposes, which are not subject to refunds. Facilities funded by contributions are included in utility plant, but excluded from rate base. Depreciation related to assets acquired from contributions is charged to the Contributions in Aid of Construction account.

Income Taxes

• Income Taxes

        The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Measurement of the deferred tax assets and liabilities is at enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.

        Historically the Commissions have allowed revenue requirements for the tax effects of temporary differences recognized, which have previously been flowed through to customers. The Commissions have granted the Company rate increases to reflect the normalization of the tax benefits of the federal accelerated methods and available Investment Tax Credits (ITC) for all assets placed in service after 1980. ITCs are deferred and amortized over the lives of the related properties for book purposes.

        Advances for Construction and Contributions in Aid of Construction received from developers subsequent to 1986 were taxable for federal income tax purposes and subsequent to 1991 were subject to California income tax. In 1996, the federal tax law, and in 1997, the California tax law, changed and only deposits for new services were taxable. In late 2000, federal regulations were further modified to exclude contributions of fire services from taxable income.

        The accounting standards for accounting for uncertainty in income taxes also requires the inclusion of interest and penalties related to uncertain tax positions as a component of income taxes. See note 10 "Income Taxes".

Workers' Compensation, General Liability and Other Claims

• Workers' Compensation, General Liability and Other Claims

        For workers' compensation, the Company estimates the liability associated with claims submitted and claims not yet submitted based on historical data. Expenses for workers compensation insurance are included in rates on a pay-as-you-go basis. Therefore, a corresponding regulatory asset has been recorded. For general liability claims and other claims, the Company estimates the cost incurred but not yet paid using historical information.

Collective Bargaining Agreements

• Collective Bargaining Agreements

        As of December 31, 2012, the Company had 1,131 employees, including 734 non-supervisory employees who are represented by the Utility Workers Union of America, AFL-CIO, except certain engineering and laboratory employees who are represented by the International Federation of Professional and Technical Engineers, AFL-CIO. The union agreements expire at the end of 2014.

Earnings Per Share

• Earnings Per Share

        The computations of basic and diluted earnings per share are noted below. Basic earnings per share are computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts were exercised or converted into common stock. Restricted Stock Awards (RSAs) are included in the common shares outstanding because the shares have all the same voting and dividend rights as issued and unrestricted common stock.

        At December 31, 2012, there were no common stock options outstanding. The Company did not grant any Stock Appreciation Rights (SAR) in 2012, 2011, and 2010. SARs outstanding were 333,856 shares as of December 31, 2012 and 361,356 shares as of December 31, 2011 and 2010.

        All options are dilutive and the SARs are antidilutive. The dilutive effect is shown in the table below.

	2012		2011		2010
	(In thousands, except per share data)
Net income as reported and available to common stockholders	$	48,828	$	37,712	$	37,656
Weighted average common shares, basic		41,892		41,762		41,612
Dilutive common stock equivalents (treasury method)		—		10		26
Shares used for dilutive calculation		41,892		41,772		41,638
Earnings per share—basic	$	1.17	$	0.90	$	0.90
Earnings per share—diluted	$	1.17	$	0.90	$	0.90

Stock-based Compensation

• Stock-based Compensation

        The Company follows accounting standards for stock-based compensation. Compensation cost is measured at the grant date based on the fair value of the award. The Company recognizes compensation as expense on a straight-line basis over the requisite service period, which is the vesting period.

Comprehensive Income or Loss

• Comprehensive Income or Loss

        Comprehensive income for all periods presented was the same as net income.

Accumulated Other Comprehensive Income or Loss

• Accumulated Other Comprehensive Income or Loss

        The Company did not have any accumulated other comprehensive income or loss transactions for 2012, 2011, and 2010.