Exhibit 10.18

                      Amendment to Business Loan Agreements

                              (a) Bank of America

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                                                                        Business
Loan Agreement

This Agreement  dated as of May 3, 1999 is among Bank of America  National Trust
and Savings Association (the "Bank"),  California Water Service Group ("Borrower
1") and CWS Utility  Services  ("Borrower  2")  (Borrower  1 and  Borrower 2 are
sometimes  referred to collectively  as the "Borrowers" and  individually as the
"Borrower").

1.       LINE OF CREDIT AMOUNT AND TERMS

1.1      Line of Credit Amount.

(a)      During the availability period described below, the Bank will provide a
         line of credit to the Borrowers.  The amount of the line of credit (the
         "Commitment") is Twenty Million and 00/1 00 Dollars ($20,000,000.00).

(b)      This is a revolving  line of credit  providing  for cash  advances  and
         letters of credit.  During the availability  period,  the Borrowers may
         repay principal amounts and reborrow them.

(c)      The Borrowers agree not to permit the outstanding  principal balance of
         advances under the line of credit plus the  outstanding  amounts of any
         letters of credit, including amounts drawn on letters of credit and not
         yet reimbursed, to exceed the Commitment.

1.2      Availability  Period.  The line of credit is available between the date
         of this Agreement and April 30, 2001 (the "Expiration Date") unless any
         Borrower is in default.

1.3      Interest Rate.

(a)      The interest  rate is the Bank's  Reference  Rate minus 0.5  percentage
         points.

(b)      The Reference Rate is the rate of interest publicly announced from time
         to time by the  Bank in San  Francisco,  California,  as its  Reference
         Rate. The Reference  Rate is set by the Bank based on various  factors,
         including  the  Bank's  costs  and  desired  return,  general  economic
         conditions  and other  factors,  and is used as a  reference  point for
         pricing  some  loans.  The Bank may price  loans to its  customers  at,
         above,  or below the Reference  Rate.  Any change in the Reference Rate
         shall take effect at the opening of  business on the day  specified  in
         the public announcement of a change in the Bank's Reference Rate.

1.4      Repayment Terms.

(a)      The  Borrowers  will pay  interest  on June 1, 1999,  and then  monthly
         thereafter  until  payment in full of any principal  outstanding  under
         this line of credit.

(b)      The Borrowers will repay in full all principal and any unpaid  interest
         or other  charges  outstanding  under this line of credit no later than
         the Expiration Date. Any interest period for an optional  interest rate
         (as described below) shall expire no later than the Expiration Date.

1.5 Optional  Interest  Rates.  Instead of the interest rate based on the Bank's
Reference Rate, the Borrowers may elect the optional interest rates listed below
during  interest  periods agreed to by the Bank and the Borrowers.  The optional
interest rates shall be subject to the terms and conditions  described


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later in this Agreement.  Any principal  amount bearing  interest at an optional
rate under this Agreement is referred to as a "Portion." The following  optional
interest rates are available:

(a)      Fixed Rates.

(b)      the LIBOR Rate plus 1.25 percentage points.

1.6      Letters of Credit.

(a)      This line of credit may be used for financing:

         (i)      standby letters of credit with a maximum  maturity of 365 days
                  but not to  extend  beyond  December  31,  2001.  The  standby
                  letters of credit may include a provision  providing  that the
                  maturity date will be automatically  extended each year for an
                  additional  year unless the Bank gives  written  notice to the
                  contrary;  provided,  however, that each letter of credit must
                  include a final  maturity  date  which  will not be subject to
                  automatic extension.
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         (ii)   The  amount of  letters  of credit  outstanding  at any one time
                (including  amounts  drawn  on  letters  of  credit  and not yet
                reimbursed)  may not exceed Ten  Million and 00/1 00 Dollars ($1
                0,000,000.00).

(b)      Each Borrower agrees:

         (i)    any sum drawn under a letter of credit may, at the option of the
                Bank, be added to the principal  amount  outstanding  under this
                Agreement. The amount will bear interest and be due as described
                elsewhere in this Agreement.

         (ii)   if there is a  default  under  this  Agreement,  to  immediately
                prepay  and make the Bank whole for any  outstanding  letters of
                credit.

         (iii)  the  issuance  of any  letter of credit and any  amendment  to a
                letter of credit is subject to the Bank's  written  approval and
                must be in form  and  content  satisfactory  to the  Bank and in
                favor of a beneficiary acceptable to the Bank.

         (iv)   to sign the Bank's form  Application  and  Agreement for Standby
                Letter of Credit.

         (v)    to pay any issuance and/or other fees that the Bank notifies the
                Borrowers will be charged for issuing and processing  letters of
                credit for the Borrowers.

         (vi)   to allow the Bank to  automatically  charge its checking account
                for applicable fees, discounts, and other charges.

2.       OPTIONAL INTEREST RATES

2.1      Optional  Rates.  Each  optional  interest  rate  is a rate  per  year.
Interest will be paid on the last day of each interest period,  and on the first
day of each month during the interest period. At the end of any interest period,
the interest  rate will revert to the rate based on the Reference  Rate,  unless
the Borrowers have designated another optional interest rate for the Portion. No
Portion  will be converted to a different  interest  rate during the  applicable
interest  period.  Upon  the  occurrence  of an  event  of  default  under  this
Agreement,  the Bank may terminate the  availability of optional  interest rates
for interest periods commencing after the default occurs.

2.2      Fixed  Rate.  The  election  of Fixed  Rates  shall be  subject  to the
         following terms and requirements:

(a)      The  "Fixed  Rate"  means  the  fixed  interest  rate  the Bank and the
         Borrowers  agree  will  apply  to the  Portion  during  the  applicable
         interest period.

(b)      The interest  period during which the Fixed Rate will be in effect will
         be one year or less.

(c)      Each  Fixed  Rate  Portion  will be for an  amount  not  less  than the
         following:


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         (i)      for  interest  periods  of 91 days  or  longer,  Five  Hundred
                  Thousand Dollars ($500,000).

         (ii)     for  interest  periods  of  between  30 days and 90 days,  One
                  Million Dollars ($1,000,000).

         (iii)    for interest  periods of between 2 days and 29 days, an amount
                  which, when multiplied by the number of days in the applicable
                  interest period, is not less than thirty million  (30,000,000)
                  dollar-days.

         (iv)     for  interest  periods  of  1  day,  Fifteen  Million  Dollars
                  ($15,000,000).

(d)      Each prepayment of a Fixed Rate Portion,  whether voluntary,  by reason
         of  acceleration  or otherwise,  will be  accompanied  by the amount of
         accrued  interest  on  the  amount  prepaid,  and a  prepayment  fee as
         described  below.  A  "prepayment"  is a payment of an amount on a date
         earlier than the scheduled  payment date for such amount as required by
         this  Agreement.  The  prepayment  fee shall be equal to the amount (if
         any) by which:

         (i)      the  additional  interest which would have been payable during
                  the  interest  period on the  amount  prepaid  had it not been
                  prepaid, exceeds

         (ii)     the interest which would have been  recoverable by the Bank by
                  placing  the  amount   prepaid  on  deposit  in  the  domestic
                  certificate of deposit market,  the eurodollar deposit market,
                  or other  appropriate  money market selected by the Bank for a
                  period starting on the date on which it was prepaid and ending
                  on the last day of the  interest  period for such  Portion (or
                  the  scheduled  payment  date  for  the  amount  prepaid,   if
                  earlier).


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2.3      LIBOR  Rate.  The  election  of LIBOR  Rates  shall be  subject  to the
         following terms and requirements:

(a)      The interest  period during which the LIBOR Rate will be in effect will
         be one, two or three weeks, or one, two, three, four, five, six, seven,
         eight,  nine,  ten,  eleven,  or  twelve  months.  The first day of the
         interest  period  must be a day other  than a  Saturday  or a Sunday on
         which the Bank is open for business in California,  New York and London
         and dealing in offshore  dollars (a "LIBOR Banking Day").  The last day
         of the  interest  period  and the  actual  number  of days  during  the
         interest  period will be  determined by the Bank using the practices of
         the London inter-bank market.

(b)      Each  LIBOR  Rate  Portion  will be for an  amount  not  less  than the
         following:

         (i)      for  interest  periods of four months or longer,  Five Hundred
                  Thousand Dollars ($500,000).

         (ii)     for interest periods of one, two or three months,  One Million
                  Dollars ($1,000,000).

         (iii)    for interest  periods of one,  two or three  weeks,  an amount
                  which, when multiplied by the number of days in the applicable
                  interest period, is not less than thirty million  (30,000,000)
                  dollar-days.

(c)      The "LIBOR Rate" means the interest  rate  determined  by the following
         formula,  rounded  upward to the nearest 1 /1 00 of one  percent.  (All
         amounts in the  calculation  will be  determined  by the Bank as of the
         first day of the interest period.)

                           LIBOR Rate = London Inter-Bank Offered Rate
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                                               (1.00 - Reserve Percentage)

         Where,

         (i)      "London  Inter-Bank  Offered  Rate" means the interest rate at
                  which the Bank's London Branch,  London, Great Britain,  would
                  offer U.S. dollar deposits for the applicable  interest period
                  to  other  major  banks in the  London  inter-bank  market  at
                  approximately  1 1:00 a.m.  London time two (2) London Banking
                  Days before the commencement of the interest period. A "London
                  Banking  Day" is a day on which the  Bank's  London  Branch is
                  open for business and dealing in offshore dollars.

         (ii)     "Reserve  Percentage"  means the total of the maximum  reserve
                  percentages  for  determining the reserves to be maintained by
                  member banks of the Federal  Reserve  System for  Eurocurrency
                  Liabilities, as defined in Federal Reserve Board Regulation D,
                  rounded  upward  to the  nearest 1 /1 00 of one  percent.  The
                  percentage  will be expressed as a decimal,  and will include,
                  but not be  limited  to,  marginal,  emergency,  supplemental,
                  special, and other reserve percentages.

(d)      The Borrowers shall  irrevocably  request a LIBOR Rate Portion no later
         than 12:00 noon San  Francisco  time on the LIBOR Banking Day preceding
         the day on which the London  Inter-Bank  Offered  Rate will be set,  as
         specified above. For example,  if there are no intervening  holidays or
         weekend days in any of the relevant locations, the request must be made
         at least three days before the LIBOR Rate takes effect.

(e)      The  Borrowers may not elect a LIBOR Rate with respect to any principal
         amount  which is  scheduled  to be  repaid  before  the last day of the
         applicable interest period.

Each  prepayment  of a LIBOR  Rate  Portion,  whether  voluntary,  by  reason of
acceleration or otherwise, will be accompanied by the amount of accrued interest
on the amount prepaid and a prepayment fee as described below. A "prepayment" is
a payment of an amount on a date  earlier  than the  scheduled  payment date for
such amount as required by this Agreement.  The prepayment fee shall be equal to
the amount (if any) by which:

         (i)      the  additional  interest which would have been payable during
                  the  interest  period on the  amount  prepaid  had it not been
                  prepaid, exceeds


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        (ii)   the  interest  which would have been  recoverable  by the Bank by
               placing the amount prepaid on deposit in the domestic certificate
               of  deposit  market,  the  eurodollar  deposit  market,  or other
               appropriate  money  market  selected  by the  Bank,  for a period
               starting  on the date on which it was  prepaid  and ending on the
               last  day of  the  interest  period  for  such  Portion  (or  the
               scheduled payment date for the amount prepaid, if earlier).

(g)     The Bank will have no  obligation to accept an election for a LIBOR Rate
        Portion if any of the  following  described  events has  occurred and is
        continuing:

        (i)    Dollar deposits in the principal amount, and for periods equal to
               the interest period, of a LIBOR Rate Portion are not available in
               the London inter-bank market; or

3.      EXPENSES

3.1     Expenses. The Borrowers agree to immediately repay the Bank for expenses
        that include, but are not limited to, filing, recording and search fees,
        appraisal fees, title report fees and documentation fees.

3.2     Reimbursement Costs.

(a)     The Borrowers  agree to reimburse the Bank for any expenses it incurs in
        the  preparation  of this  Agreement  and any  agreement  or  instrument
        required by this Agreement.  Expenses  include,  but are not limited to,
        reasonable  aftorneys'fees,  including any allocated costs of the Bank's
        in-house counsel.

4.      DISBURSEMENTS, PAYMENTS AND COSTS

4.1     Requests  for Credit; Equal Access by all Borrowers.  Any Borrower (or a
person or persons  authorized by any one of the  Borrowers),  acting alone,  can
borrow up to the full  amount of credit  provided  under  this  Agreement.  Each
Borrower will be liable for all  extensions of credit made under this  Agreement
to any other  Borrower.  Each request for an extension of credit will be made in
writing in a manner  acceptable to the Bank,  or by another means  acceptable to
the Bank.

4.2     Disbursements  and  Payments.  Each  disbursement  by the  Bank and each
        payment by the Borrowers will be:

(a)     made at the Bank's branch (or other location)  selected by the Bank from
        time to time;

(b)     made for the account of the Bank's branch selected by the Bank from time
        to time;

(c)     made in  immediately  available  funds,  or  such  other  type of  funds
        selected by the Bank;

(d)     evidenced by records kept by the Bank. In addition, the Bank may, at its
        discretion, require the Borrowers to sign one or more promissory notes.

4.3     Telephone and Telefax Authorization.

(a)     The Bank may honor  telephone  or telefax  instructions  for advances or
        repayments  given by any one of the individuals  authorized to sign loan
        agreements  on  behalf  of  each  Borrower,   or  any  other  individual
        designated by any one of such authorized signers.

(b)     Advances  will be deposited  in and  repayments  will be withdrawn  from
        Borrower l's account number 14878-03863, or such other accounts with the
        Bank as designated in writing by the Borrowers.

(c)     The  Borrowers  indemnify and excuse the Bank  (including  its officers,
        employees, and agents) from all liability, loss, and costs in connection
        with any act resulting from telephone or telefax  instructions  the Bank
        reasonably  believes  are  made  by  any  individual  authorized  by the
        Borrowers  to give such  instructions.  This  indemnity  and excuse will
        survive this Agreement's termination.


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4.4      Direct Debit.

(a)      The  Borrowers  agree  that  interest  and any  fees  will be  deducted
         automatically   on  the  due  date  from  Borrower  `s  account  number
         14878-03863,  or such other of the Borrowers' accounts with the Bank as
         designated in writing by the Borrowers.

(b)      The Bank will debit the account on the dates the  payments  become due.
         If a due date does not fall on a banking  day,  the Bank will debit the
         account on the first banking day following the due date.

(c)      The  Borrowers  will  maintain  sufficient  funds in the account on the
         dates the Bank enters debits authorized by this Agreement. If there are
         insufficient funds in the account on the date the Bank enters any debit
         authorized by this Agreement, the debit will be reversed.

4.5      Banking Days.  Unless otherwise  provided in this Agreement,  a banking
day is a day  other  than a  Saturday  or a Sunday on which the Bank is open for
business in California.  All payments and disbursements  which would be due on a
day which is not a banking day will be due on the next banking day. All payments
received  on a day which is not a banking  day will be  applied to the credit on
the next banking day.

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4.6      Taxes.  If any payments to the Bank under this  Agreement are made from
outside the United States,  the Borrowers will not deduct any foreign taxes from
any  payments  they  make to the Bank.  If any such  taxes  are  imposed  on any
payments made by the Borrowers  (including  payments under this paragraph),  the
Borrowers will pay the taxes and will also pay to the Bank, at the time interest
is paid, any additional amount which the Bank specifies as necessary to preserve
the  after-tax  yield the Bank  would have  received  if such taxes had not been
imposed.  The Borrowers will confirm that they have paid the taxes by giving the
Bank  official tax receipts (or notarized  copies)  within 30 days after the due
date.

4.7      Additional  Costs. The Borrowers will pay the Bank, on demand,  for the
Bank's costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory  agency which is applicable to all national banks or
a class of all  national  banks.  The costs and losses will be  allocated to the
loan in a manner determined by the Bank, using any reasonable  method. The costs
include the following:

(a)      any reserve or deposit requirements; and

(b)      any capital requirements  relating to the Bank's assets and commitments
         for credit.

4.8      Interest Calculation. Except as otherwise stated in this Agreement, all
interest and fees,  if any,  will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest or a higher fee
than if a 365-day year is used.  Installments  of  principal  which are not paid
when due under this Agreement shall continue to bear interest until paid.

4.9      Default Rate.  Upon the occurrence and during the  continuation  of any
default under this Agreement, principal amounts outstanding under this Agreement
will at the option of the Bank bear  interest  at a rate  which is 2  percentage
point(s)  higher  than  the  rate of  interest  otherwise  provided  under  this
Agreement. This will not constitute a waiver of any default.

4.10     Interest Compounding.  At the Bank's sole option in each instance,  any
interest,  fees or costs which are not paid when due under this Agreement  shall
bear  interest  from  the due  date at the  Bank's  Reference  Rate  minus  0.05
percentage points. This may result in compounding of interest.

5.       CONDITIONS

The Bank must receive the following items, in form and content acceptable to the
Bank,  before it is  required to extend any credit to the  Borrowers  under this
Agreement:

5.1      Authorizations.  Evidence that the execution,  delivery and performance
by each  Borrower and each  guarantor of this  Agreement  and any  instrument or
agreement required under this Agreement have been duly authorized.

5.2      Governing   Documents.   A  copy  of  each   Borrower's   articles   of
incorporation.


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5.3      Other Items.  Any other items that the Bank reasonably requires.

6.       REPRESENTATIONS AND WARRANTIES

When the Borrowers  sign this  Agreement,  and until the Bank is repaid in full,
each Borrower makes the following  representations and warranties.  Each request
for an extension of credit constitutes a renewed representation:

6.1      Organization of Borrowers.  Each Borrower is a corporation  duly formed
and existing under the laws of the state where organized.

6.2      Authorization. This Agreement, and any instrument or agreement required
hereunder, are within each Borrower's powers, have been duly authorized,  and do
not conflict with any of its organizational papers.

6.3      Enforceable  Agreement.  This  Agreement is a legal,  valid and binding
agreement of each Borrower, enforceable against each Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.

6.4      Good Standing.  In each state in which each Borrower does business,  it
is properly licensed, in good standing,  and, where required, in compliance with
fictitious name statutes.

6.5      No Conflicts. This Agreement does not conflict with any law, agreement,
or obligation by which any Borrower is bound.

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6.6      Financial  Information.  All financial and other  information  that has
been or will be supplied to the Bank is:

(a)      sufficiently  complete  to give  the  Bank  accurate  knowledge  of the
         Borrowers' (and any  guarantor's)  financial  condition,  including all
         material contingent liabilities.

(b)      in compliance with all government regulations that apply.

6.7      Lawsuits.  There is no lawsuit,  tax claim or other dispute  pending or
         threatened  against the  Borrowers  or any one of them which,  if lost,
         would impair the  Borrowers' or any Borrower's  financial  condition or
         ability to repay the loan,  except as have been disclosed in writing to
         the Bank.

6.8      Permits, Franchises. Each Borrower possesses all permits,  memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights,  patent  rights and  fictitious  name rights  necessary  to enable it to
conduct the business in which it is now engaged.

6.9      Other  Obligations.  No  Borrower is in default on any  obligation  for
borrowed  money,  any purchase  money  obligation or any other  material  lease,
commitment, contract, instrument or obligation.

6.10     Income Tax  Matters.  No  Borrower  has any  knowledge  of any  pending
assessments or adjustments of its income tax for any year.

6.11     No Event of  Default.  There is no event  which is,  or with  notice or
lapse of time or both would be, a default under this Agreement.

6.12     Location of Borrowers.  Each  Borrower's  place of business (or, if any
Borrower has more than one place of  business,  its chief  executive  office) is
located at the address listed under the Borrowers' signature on this Agreement.


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6.13     Year 2000  Compliance.  Each  Borrower  has  conducted a  comprehensive
review and assessment of its systems and equipment applications and made inquiry
of such  Borrower's  key  suppliers,  vendors and customers  with respect to the
loyear 2000 problem"  (that is, the inability of computers,  as well as embedded
microchips  in  non-computing   devices,  to  properly  perform   date-sensitive
functions  with respect to certain dates prior to and after  December 31, 1999).
Based on that review and inquiry,  none of the Borrowers  believes the year 2000
problem,  including  costs of  remediation,  will  result in a material  adverse
change  in  its  business  condition   (financial  or  otherwise),   operations,
properties  or  prospects,  or ability to repay the credit.  Each  Borrower  has
developed  adequate  contingency  plans to ensure  uninterrupted  and unimpaired
business  operation  in the  event of a  failure  of its own or a third  party's
systems or equipment due to the year 2000 problem,  including  those of vendors,
customers, and suppliers, as well as a general failure of or interruption in its
communications and delivery infrastructure.

7.       COVENANTS

The Borrowers  agree,  so long as credit is available  under this  Agreement and
until the Bank is repaid in full:

7.1      Use of Proceeds.  To use the proceeds of the credit only for short term
operating capital, bridge financing for capital expenditures and issuing standby
letters of credit.

7.2      Financial  Information.  To provide the following financial information
and statements in form and content  acceptable to the Bank, and such  additional
information as requested by the Bank from time to time:

(a)      Within 90 days of  Borrower  1's fiscal year end,  Borrower  1's annual
         financial statements.  These financial statements must be audited (with
         an  unqualified  opinion)  by a  Certified  Public  Accountant  ("CPA")
         acceptable  to  the  Bank.  The  statements  shall  be  prepared  on  a
         consolidated basis.

(b)      Within 60 days of the period's end,  Borrower 1's  quarterly  financial
         statements including supplemental schedules. These financial statements
         may be  Borrower  prepared.  The  statements  shall  be  prepared  on a
         consolidated and consolidating basis.

(c)      Within 90 days of its fiscal year end, copies of Borrower 1's Form 1O-K
         Annual Report and Form 8-K Current Report (if applicable).

(d)      Within 60 days of the  period's  end,  copies of Borrower 1's Form 10-Q
         Quarterly Report and Form 8-K Current Report.

(e)      Within 90 days of its fiscal year end,  Borrower  2's annual  financial
         statements. These financial statements may be company prepared.
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(f)      Within 60 days of the period's end,  Borrower 2's  quarterly  financial
         statements. These financial statements may be company prepared.

(g)      By April 30 of each year, Borrower 2's narrative business plan.

(h)      Within 90 days of the  Borrower's  fiscal  year end,  California  Water
         Company's annual financial statements.  These financial statements must
         be  audited  (with  an  unqualified  opinion)  by  a  Certified  Public
         Accountant ("CPA") acceptable to the Bank.

(i)      Within  60  days  of  the  period's  end,  California  Water  Company's
         quarterly  financial  statements.  These  financial  statements  may be
         Borrower prepared.

7.3      Other Debts.  Not to have outstanding or incur any direct or contingent
liabilities (other than those to the Bank), or become liable for the liabilities
of others,  without the Bank's written  consent,  which will not be unreasonably
withheld, This does not prohibit:

(a)      Acquiring goods, supplies, or merchandise on normal trade credit.

(b)      Endorsing  negotiable  instruments  received  in the  usual  course  of
         business.

(c)      Obtaining surety bonds in the usual course of business.


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(d)      Liabilities  in  existence on the date of this  Agreement  disclosed in
         writing to the Bank.

(e)      First  mortgage   bonds  and/or   unsecured   senior  notes   currently
         outstanding or subsequently issued.

7.4      Other Liens. Not to create,  assume,  or allow any security interest or
lien  (including  judicial  liens) on property  any  Borrower now or later owns,
except:

(a)      Deeds of trust and security agreements in favor of the Bank.

(b)      Liens for taxes not yet due.

(c)      Liens outstanding on the date of this Agreement disclosed in writing to
         the Bank.

(d)      Liens  securing  first   mortgage   bonds   currently   outstanding  or
         subsequently issued.

7.5      Out of Debt Period.  To repay any advances in full, and not to draw any
additional advances on the Borrowers'  revolving line of credit, for a period of
at least 30 consecutive  days in each  line-year.  "Line-year"  means the period
between the date of this  Agreement and December 31, 1999,  and each  subsequent
one-year  period (if any). For the purposes of this  paragraph,  "advances" does
not include undrawn amounts of outstanding letters of credit.

7.6      Notices to Bank.  To promptly notify the Bank in writing of:

(a)      any lawsuit over One Million  Dollars  ($1,000,000)  against any one or
         more of the Borrowers (or any guarantor).

(b)      any substantial dispute between any Borrower (or any guarantor) and any
         government authority.

(c)      any failure to comply with this Agreement.

(d)      any material  adverse  change in any  Borrower's  (or any  guarantor's)
         business condition (financial or otherwise),  operations, properties or
         prospects, or ability to repay the credit.

(e)      any change in any Borrower's name, legal structure,  place of business,
         or chief  executive  office if such Borrower has more than one place of
         business.

7.7      Books and Records.  To maintain adequate books and records.

7.8      Audits.  To allow the Bank and its  agents to  inspect  the  Borrowers'
properties  and  examine,  audit,  and make  copies of books and  records at any
reasonable  time. If any of the Borrowers'  properties,  books or records are in
the  possession of a third party,  the Borrowers  authorize  that third party to
permit the Bank or its agents to have  access to perform  inspections  or audits
and  to  respond  to  the  Bank's  requests  for  information   concerning  such
properties, books and records.

7.9      Compliance with Laws. To comply with the laws (including any fictitious
name statute),  regulations,  and orders of any  government  body with authority
over each Borrower's business.

--------------------------------------------------------------------------------
7.10     Preservation   of  Rights.   To  maintain   and  preserve  all  rights,
privileges, and franchises each Borrower now has.

7.11     Maintenance  of  Properties.   To  make  any  repairs,   renewals,   or
replacements to keep each Borrower's properties in good working condition.

7.12     Cooperation.  To take any action  reasonably  requested  by the Bank to
carry out the intent of this Agreement.

7.13     General Business  Insurance.  To maintain insurance as is usual for the
business the Borrowers are in.

7.14     Additional  Negative  Covenants.  Not to,  without  the Bank's  written
consent, which will not be unreasonably withheld:


11

<PAGE>

(a)      engage in any  business  activities  substantially  different  from the
         Borrowers' or any Borrower's present business.

(b)      liquidate or dissolve the Borrowers' or any Borrower's business.

(c)      enter into any consolidation, merger, or other combination, or become a
         partner in a partnership, a member of a joint venture, or a member of a
         limited  liability  company  where any single  transaction  exceeds Two
         Million Five Hundred Thousand Dollars ($2,500,000).

(d)      sell,  assign,  lease,  transfer or otherwise dispose of any assets for
         less than fair market value, or enter into any agreement to do so.

(e)      sell,  assign,  lease,  transfer  or  otherwise  dispose  of  all  or a
         substantial part of the Borrower's business or the Borrower's assets.

(f)      enter into any sale and leaseback  agreement covering the Borrowers' or
         any Borrower's fixed assets.

(g)      acquire  or  purchase a  business  or its  assets for a  consideration,
         including  assumption  of direct or contingent  debt,  where any single
         transaction   exceeds  Two  Million  Five  Hundred   Thousand   Dollars
         ($2,500,000).

(h)      with respect to Borrower 1, not to enter into any agreement  that would
         restrict  California Water Service Company's ability to declare and pay
         dividends to Borrower 1.

8.       DEFAULT

If any of the  following  events  occurs,  the  Bank  may do one or  more of the
following:  declare the Borrowers in default,  stop making any additional credit
available to the Borrowers, and require the Borrowers to repay their entire debt
immediately  and without prior notice.  If an event of default  occurs under the
paragraph entitled  "Bankruptcy," below, with respect to any Borrower,  then the
entire  debt  outstanding  under  this  Agreement  will   automatically  be  due
immediately.

8.1      Failure  to Pay.  Any  Borrower  fails  to make a  payment  under  this
Agreement when due.

8.2      False  Information.  Any Borrower (or any guarantor) has given the Bank
false or misleading information or representations.

8.3      Bankruptcy.   Any  Borrower  (or  any  guarantor)  files  a  bankruptcy
petition, a bankruptcy petition is filed against any Borrower (or any guarantor)
or any Borrower (or any guarantor) makes a general assignment for the benefit of
creditors.

8.4      Receivers.  A  receiver  or  similar  official  is  appointed  for  any
Borrower's (or any guarantor's) business, or the business is terminated.

8.5      Lawsuits.  Any lawsuit or lawsuits are filed against any one or more of
the Borrowers (or any guarantor) in an aggregate  amount of One Million  Dollars
($1,000,000) or more in excess of any insurance coverage.

8.6      Judgments.  Any judgments or arbitration awards are entered against any
one or  more of the  Borrowers  (or  any  guarantor),  or any one or more of the
Borrowers (or any guarantor) enters into any settlement  agreements with respect
to any litigation or arbitration,  in an aggregate amount of One Million Dollars
($1,000,000) or more in excess of any insurance coverage.

8.7      Government Action. Any government  authority takes action that the Bank
believes  materially  adversely  affects  any  Borrower's  (or any  guarantor's)
financial condition or ability to repay.
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
8.8      Material  Adverse  Change.  A material  adverse  change  occurs,  or is
reasonably  likely to occur,  in any  Borrower's (or any  guarantor's)  business
condition  (financial or  otherwise),  operations,  properties or prospects,  or
ability to repay the credit.


12

<PAGE>

8.9      Cross-default.  Any default  occurs under any  agreement in  connection
with any credit any Borrower (or any guarantor) or any of the Borrower's related
entities or  affiliates  has obtained from anyone else or which the Borrower (or
any  guarantor) or any of the  Borrower's  related  entities or  affiliates  has
guaranteed,  if the default  consists  of failing to make a payment  when due or
gives the other lender the right to accelerate the obligation.

8.10     Default under Related Documents. Any guaranty, subordination agreement,
security agreement,  deed of trust, or other document required by this Agreement
is violated or no longer in effect.

8.11     Other Bank  Agreements.  Any Borrower (or any guarantor)  fails to meet
the conditions of, or fails to perform any obligation  under any other agreement
any Borrower (or any guarantor) has with the Bank or any affiliate of the Bank.

8.12     Other Breach Under Agreement. Any Borrower fails to meet the conditions
of, or fails to perform any  obligation  under,  any term of this  Agreement not
specifically  referred  to  in  this  Article.  This  includes  any  failure  or
anticipated  failure by any Borrower to comply with any financial  covenants set
forth  in this  Agreement,  whether  such  failure  is  evidenced  by  financial
statements  delivered to the Bank or is  otherwise  known to any Borrower or the
Bank.

9.       ENFORCING THIS AGREEMENT; MISCELLANEOUS

9.1      GAAP.  Except as  otherwise  stated in this  Agreement,  all  financial
information  provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.

9.2      California Law.  This Agreement is governed by California law.

9.3      Successors and Assigns.  This Agreement is binding on the Borrowers'and
the Bank's  successors  and  assignees.  The  Borrowers  agree that they may not
assign  this  Agreement  without  the Bank's  prior  consent.  The Bank may sell
participations  in or assign this loan, and may exchange  financial  information
about the Borrowers  with actual or potential  participants  or assignees.  If a
participation is sold or the loan is assigned, the purchaser will have the right
of set-off against the Borrowers.

9.4      Arbitration.

(a)      This paragraph  concerns the resolution of any  controversies or claims
         between any one or more of the  Borrowers  and the Bank,  including but
         not limited to those that arise from:

(i)      This Agreement (including any renewals,  extensions or modifications of
         this Agreement);

(ii)     Any  document,  agreement  or  procedure  related  to or  delivered  in
         connection with this Agreement;

(iii)    Any violation of this Agreement; or

(iv)     Any claims for damages  resulting from any business  conducted  between
         any one or more of the  Borrowers  and the Bank,  including  claims for
         injury to persons, property or business interests (torts).

(b)      At the request of any Borrower or the Bank, any such  controversies  or
         claims will be settled by  arbitration  in  accordance  with the United
         States  Arbitration  Act. The United States  Arbitration Act will apply
         even though this  Agreement  provides that it is governed by California
         law.

(c)      Arbitration   proceedings   will  be   administered   by  the  American
         Arbitration  Association and will be subject to its commercial rules of
         arbitration.

(d)      For  purposes of the  application  of the statute of  limitations,  the
         filing of an  arbitration  pursuant to this paragraph is the equivalent
         of the filing of a lawsuit,  and any claim or controversy  which may be
         arbitrated under this paragraph is subject to any applicable statute of
         limitations.  The arbitrators


13

<PAGE>

         will have the authority to decide whether any such claim or controversy
         is barred by the  statute of  limitations  and,  if so, to dismiss  the
         arbitration on that basis.

(e)      If there is a  dispute  as to  whether  an  issue  is  arbitrable,  the
         arbitrators  will have the authority to resolve any such  dispute.  The
         decision that results from an  arbitration  proceeding may be submitted
         to any authorized court of law to be confirmed and enforced.

--------------------------------------------------------------------------------
(g)      The  procedure  described  above will not apply if the  controversy  or
         claim, at the time of the proposed  submission to  arbitration,  arises
         from or relates to an  obligation  to the Bank secured by real property
         located in  California.  In this case,  both the Borrowers and the Bank
         must consent to submission of the claim or controversy to  arbitration.
         If all parties do not consent to arbitration,  the controversy or claim
         will be settled as follows:

(i)      The  Borrowers  and the Bank will  designate  a referee  (or a panel of
         referees)  selected  under the  auspices  of the  American  Arbitration
         Association  in  the  same  manner  as  arbitrators   are  selected  in
         Association-sponsored proceedings;

(ii)     The designated  referee (or the panel of referees) will be appointed by
         a court as provided in California Code of Civil  Procedure  Section 638
         and the following related sections;

(iii)    The referee (or the  presiding  referee of the panel) will be an active
         attorney or a retired judge; and

(iv)     The award that  results from the decision of the referee (or the panel)
         will be entered as a judgment in the court that  appointed the referee,
         in accordance with the provisions of California Code of Civil Procedure
         Sections 644 and 645.

(h)      This  provision  does not limit the right of the  Borrowers or the Bank
         to:

         (i)      exercise self-help remedies such as setoff;

         (ii)     foreclose  against  or  sell  any  real or  personal  property
                  collateral; or

         (iii)    act in a court of law, before, during or after the arbitration
                  proceeding to obtain:

                  (A)      an interim remedy; and/or

                  (B)      additional or supplementary remedies.

(i)      The  pursuit of or a  successful  action  for  interim,  additional  or
         supplementary  remedies,  or the  filing  of a court  action,  does not
         constitute  a  waiver  of the  right  of  the  Borrowers  or the  Bank,
         including  the suing  party,  to  submit  the  controversy  or claim to
         arbitration  if the other party contests the lawsuit.  However,  if the
         controversy  or claim  arises from or relates to an  obligation  to the
         Bank which is secured by real  property  located in  California  at the
         time of the proposed  submission to arbitration,  this right is limited
         according  to the  provision  above  requiring  the consent of both the
         Borrowers and the Bank to seek resolution through arbitration.

(o)      If  the  Bank  forecloses  against  any  real  property  securing  this
         Agreement,  the Bank has the option to exercise the power of sale under
         the deed of trust or mortgage, or to proceed by judicial foreclosure.

9.5      Severability;   Waivers.   If  any  part  of  this   Agreement  is  not
enforceable,  the rest of the  Agreement  may be enforced.  The Bank retains all
rights,  even if it makes a loan after default. If the Bank waives a default, it
may enforce a later default.  Any consent or waiver under this Agreement must be
in writing.

9.6      Administration  Costs.  The  Borrowers  shall  pay  the  Bank  for  all
reasonable  costs  incurred by the Bank in connection  with  administering  this
Agreement.

9.7      Attorneys'  Fees.  The  Borrowers  shall  reimburse  the  Bank  for any
reasonable costs and attorneys'fees  incurred by the Bank in connection with the
enforcement or  preservation  of any rights or remedies under this Agreement and
any  other  documents  executed  in  connection  with  this  Agreement,  and  in
connection with any amendment,  waiver,  "workout" or  restructuring  under this
Agreement. In the event of


14

<PAGE>

a lawsuit or arbitration proceeding, the prevailing party is entitled to recover
costs and reasonable  attorneys' fees incurred in connection with the lawsuit or
arbitration proceeding,  as determined by the court or arbitrator.  In the event
that  any  case is  commenced  by or  against  any of the  Borrowers  under  the
Bankruptcy  Code (Title 1 1,  United  States  Code) or any similar or  successor
statute,  the Bank is entitled to recover costs and reasonable  attorneys'  fees
incurred by the Bank related to the preservation,  protection, or enforcement of
any rights of the Bank in such a case.  As used in this  paragraph,  "attorneys'
fees" includes the allocated costs of the Bank's in-house counsel.

9.8     Joint and Several Liability.

(a)     Each Borrower agrees that it is jointly and severally liable to the Bank
        for the payment of all  obligations  arising under this  Agreement,  and
        that such  liability  is  independent  of the  obligations  of the other
        Borrower(s).  The Bank may bring an action against any Borrower, whether
        an action is brought against the other Borrower(s).

(b)     Each Borrower  agrees that any release which may be given by the Bank to
        the other  Borrower(s)  or any guarantor  will not release such Borrower
        from its obligations under this Agreement.

--------------------------------------------------------------------------------
(c)     Each Borrower  waives any right to assert  against the Bank any defense,
        setoff, counterclaim, or claims which such Borrower may have against the
        other  Borrower(s)  or any  other  party  liable  to the  Bank  for  the
        obligations of the Borrowers under this Agreement.

(d)     Each Borrower  agrees that it is solely  responsible  for keeping itself
        informed as to the financial  condition of the other  Borrower(s) and of
        all circumstances which bear upon the risk of nonpayment.  Each Borrower
        waives any right it may have to  require  the Bank to  disclose  to such
        Borrower any  information  which the Bank may now or  hereafter  acquire
        concerning the financial condition of the other Borrower(s).

(e)     Each Borrower waives all rights to notices of default or  nonperformance
        by any other Borrower under this Agreement. Each Borrower further waives
        all  rights  to  notices  of  the  existence  or  the  creation  of  new
        indebtedness by any other Borrower.

        The  Borrowers  represent  and warrant to the Bank that each will derive
        benefit, directly and indirectly, from the collective administration and
        availability  of credit under this  Agreement.  The Borrowers agree that
        the Bank will not be  required to inquire as to the  disposition  by any
        Borrower  of  funds  disbursed  in  accordance  with  the  terms of this
        Agreement.

(g)     Until all  obligations of the Borrowers to the Bank under this Agreement
        have been paid in full,  each Borrower  waives any right of subrogation,
        reimbursement,  indemnification and contribution (contractual, statutory
        or  otherwise),  including  without  limitation,  any  claim or right of
        subrogation under the Bankruptcy Code (Title 1 1, United States Code) or
        any successor  statute,  which such  Borrower may now or hereafter  have
        against any other  Borrower  with respect to the  indebtedness  incurred
        under this  Agreement.  Each  Borrower  waives any right to enforce  any
        remedy  which the Bank now has or may  hereafter  have against any other
        Borrower,  and waives any benefit of, and any right to  participate  in,
        any security now or hereafter held by the Bank.

9.9      One  Agreement.  This  Agreement  and any  related  security  or  other
agreements required by this Agreement, collectively:

(a)     represent the sum of the  understandings and agreements between the Bank
        and the Borrowers concerning this credit;

(b)     replace  any prior oral or written  agreements  between the Bank and the
        Borrowers concerning this credit; and

(c)     are intended by the Bank and the  Borrowers  as the final,  complete and
        exclusive statement of the terms agreed to by them.

In the event of any conflict  between this  Agreement  and any other  agreements
required by this Agreement, this Agreement will prevail.


15

<PAGE>

9.10     Notices.  All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid,  to the addresses on the
signature page of this Agreement, or to such other addresses as the Bank and the
Borrowers may specify from time to time in writing.

9.11     Headings.  Article and paragraph  headings are for  reference  only and
shall not  affect  the  interpretation  or  meaning  of any  provisions  of this
Agreement.

9.12     Counterparts. This Agreement may be executed in as many counterparts as
necessary or convenient,  and bythe different  parties on separate  counterparts
each of  which,  when so  executed,  shall be deemed  an  original  but all such
counterparts shall constitute but one and the same agreement.

9.13     Prior Agreement Superseded. This Agreement supersedes the Business Loan
Agreement  entered into as of March 16, 1998 between the Bank and the Borrowers,
and any credit  outstanding  thereunder shall be deemed to be outstanding  under
this Agreement.

--------------------------------------------------------------------------------
<TABLE>
This Agreement is executed as of the date stated at the top of the first page.
<CAPTION>
<S>                                                           <C>
Bank of America                                               California Water Service Group
National Trust and Savings Association

                                                              By: Gerald F. Feeney, Vice President,
By: Jeffrey Perkins, Vice President                           C.F.O. and Treasurer

Address where notices to the Bank are to be sent:             Address for Notices:

San Jose Commercial Banking Office #01487                     1720 North First Street
1 01 Park Center Plaza                                        San Jose, CA 95112
San Jose, CA 95113

                                                              CWS Utility Services

                                                              By: Gerald F. Feeney, Vice President,
                                                              C.F.O. and Treasurer

                                                              Address for Notices:

                                                              1720 North First Street
                                                              San Jose, CA 95112
</TABLE>

16

<PAGE>

Bank of America

================================================================================
                                                         Business Loan Agreement

This Agreement dated as of May 3, 1999 is between Bank of America National Trust
and Savings  Association  (the "Bank") and California Water Service Company (the
"Borrower").

1.       LINE OF CREDIT AMOUNT AND TERMS

1.1      Line of Credit Amount.

(a)      During the availability period described below, the Bank will provide a
         line of credit to the  Borrower.  The amount of the line of credit (the
         "Commitment") is Thirty Million and 00/1 00 Dollars ($30,000,000.00).

(b)      This is a revolving  line of credit  providing  for cash  advances  and
         letters of credit.  During the  availability  period,  the Borrower may
         repay principal amounts and reborrow them.

(c)      The Borrower agrees not to permit the outstanding  principal balance of
         advances under the line of credit plus the  outstanding  amounts of any
         letters of credit, including amounts drawn on letters of credit and not
         yet reimbursed, to exceed the Commitment.

1.2      Availability  Period.  The line of credit is available between the date
of this Agreement and April 30, 2001 (the "Expiration Date") unless the Borrower
is in default.

1.3      Interest Rate.

(a)      Unless the  Borrower  elects an  optional  interest  rate as  described
         below,  the  interest  rate is the  Bank's  Reference  Rate  minus  0.5
         percentage points.

(b)      The Reference Rate is the rate of interest publicly announced from time
         to time by the  Bank in San  Francisco,  California,  as its  Reference
         Rate. The Reference  Rate is set by the Bank based on various  factors,
         including  the  Bank's  costs  and  desired  return,  general  economic
         conditions  and other  factors,  and is used as a  reference  point for
         pricing  some  loans.  The Bank may price  loans to its  customers  at,
         above,  or below the Reference  Rate.  Any change in the Reference Rate
         shall take effect at the opening of  business on the day  specified  in
         the public announcement of a change in the Bank's Reference Rate.

1.4      Repayment Terms.

(a)      The  Borrower  will pay  interest  on June 1,  1999,  and then  monthly
         thereafter  until  payment in full of any principal  outstanding  under
         this line of credit.

(b)      The Borrower will repay in full all  principal and any unpaid  interest
         or other  charges  outstanding  under this line of credit no later than
         the Expiration Date. Any interest period for an optional  interest rate
         (as described below) shall expire no later than the Expiration Date.

1.5      Optional  Interest  Rates.  Instead of the  interest  rate based on the
Bank's Reference Rate, the Borrower may elect the optional interest rates listed
below  during  interest  periods  agreed  to by the Bank and the  Borrower.  The
optional  interest rates shall be subject to the terms and conditions  described
later in this Agreement.  Any principal  amount bearing  interest at an optional
rate under this Agreement is referred to as a "Portion." The following  optional
interest rates are available:

(a)      Fixed Rates.

(b)      the LIBOR Rate plus 1.25 percentage points.

1.6      Letters of Credit.


17

<PAGE>

(a)      This line of credit may be used for financing:

         (i)      standby letters of credit with a maximum  maturity of 365 days
                  but not to  extend  beyond  December  31,  2001.  The  standby
                  letters of credit may include a provision  providing  that the
                  maturity date will be automatically  extended each year for an
                  additional  year unless the Bank gives  written  notice to the
                  contrary;  provided,  however, that each letter of credit must
                  include a final  maturity  date  which  will not be subject to
                  automatic extension.
--------------------------------------------------------------------------------

         (ii)     The amount of letters  of credit  outstanding  at any one time
                  (including  amounts  drawn on  letters  of credit  and not yet
                  reimbursed) may not exceed Ten Million and 00/1 00 Dollars ($1
                  0,000,000.00).

         (iii)    The following  letters of credit are outstanding from the Bank
                  for the account of the


                  Borrower:

               Letter of Credit Number Amount 124609 $1,785,486.00

         As of the date of this  Agreement,  these  letters  of credit  shall be
         deemed to be outstanding under this Agreement,  and shall be subject to
         all the terms and conditions stated in this Agreement.

(b)      The Borrower agrees:

         (i)      any sum drawn  under a letter of credit  may, at the option of
                  the Bank, be added to the principal amount  outstanding  under
                  this  Agreement.  The amount will bear  interest and be due as
                  described elsewhere in this Agreement.

         (ii)     if there is a default  under this  Agreement,  to  immediately
                  prepay and make the Bank whole for any outstanding  letters of
                  credit.

         (iii)    the  issuance of any letter of credit and any  amendment  to a
                  letter of credit is subject to the Bank's written approval and
                  must be in form and  content  satisfactory  to the Bank and in
                  favor of a beneficiary acceptable to the Bank.

         (iv)     to sign the Bank's form  Application and Agreement for Standby
                  Letter of Credit.

         (v)      to pay any issuance  and/or other fees that the Bank  notifies
                  the  Borrower  will be  charged  for  issuing  and  processing
                  letters of credit for the Borrower.

         (vi)     to allow the Bank to automatically charge its checking account
                  for applicable fees, discounts, and other charges.


2.       OPTIONAL INTEREST RATES

2.1      Optional  Rates.  Each  optional  interest  rate  is a rate  per  year.
Interest will be paid on the last day of each interest period,  and on the first
day of each month during the interest period. At the end of any interest period,
the interest  rate will revert to the rate based on the Reference  Rate,  unless
the Borrower has designated  another optional interest rate for the Portion.  No
Portion  will be converted to a different  interest  rate during the  applicable
interest  period.  Upon  the  occurrence  of an  event  of  default  under  this
Agreement,  the Bank may terminate the  availability of optional  interest rates
for interest periods commencing after the default occurs.

2.2      Fixed  Rate.  The  election  of Fixed  Rates  shall be  subject  to the
following terms and requirements:

(a)      The  "Fixed  Rate"  means  the  fixed  interest  rate  the Bank and the
         Borrower agree will apply during the applicable interest period.

(b)      The interest  period during which the Fixed Rate will be in effect will
         be one year or less.


18

<PAGE>

(c)      Each  Fixed  Rate  Portion  will be for an  amount  not  less  than the
         following:

         (i)      for  interest  periods  of 91 days  or  longer,  Five  Hundred
                  Thousand Dollars ($500,000).

         (ii)     for  interest  periods  of  between  30 days and 90 days,  One
                  Million Dollars ($1,000,000).

         (iii)    for interest  periods of between 2 days and 29 days, an amount
                  which, when multiplied by the number of days in the applicable
                  interest period, is not less than thirty million  (30,000,000)
                  dollar-days.

         (iv)     for  interest  periods  of  1  day,  Fifteen  Million  Dollars
                  ($15,000,000).

(d)      Each prepayment of a Fixed Rate Portion,  whether voluntary,  by reason
         of  acceleration  or otherwise,  will be  accompanied  by the amount of
         accrued  interest  on  the  amount  prepaid,  and a  prepayment  fee as
         described  below.  A  "prepayment"  is a payment of an amount on a date
         earlier than the scheduled  payment date for such amount as required by
         this  Agreement.  The  prepayment  fee shall be equal to the amount (if
         any) by which:

--------------------------------------------------------------------------------
         (i)      the  additional  interest which would have been payable during
                  the  interest  period on the  amount  prepaid  had it not been
                  prepaid, exceeds

         (ii)     the interest which would have been  recoverable by the Bank by
                  placing  the  amount   prepaid  on  deposit  in  the  domestic
                  certificate of deposit market,  the eurodollar deposit market,
                  or other  appropriate  money market selected by the Bank for a
                  period starting on the date on which it was prepaid and ending
                  on the last day of' the  interest  period for such Portion (or
                  the  scheduled  payment  date  for  the  amount  prepaid,   if
                  earlier).

2.3      LIBOR  Rate.  The  election  of LIBOR  Rates  shall be  subject  to the
         following terms and requirements:

(a)      The interest  period during which the LIBOR Rate will be in effect will
         be one, two or three weeks, or one, two, three, four, five, six, seven,
         eight,  nine,  ten,  eleven,  or  twelve  months.  The first day of the
         interest  period  must be a day other  than a  Saturday  or a Sunday on
         which the Bank is open for business in California,  New York and London
         and dealing in offshore  dollars (a "LIBOR Banking Day").  The last day
         of the  interest  period  and the  actual  number  of days  during  the
         interest  period will be  determined by the Bank using the practices of
         the London inter-bank market.

(b)      Each  LIBOR  Rate  Portion  will be for an  amount  not  less  than the
         following:

         (i)      for  interest  periods of four months or longer,  Five Hundred
                  Thousand Dollars ($500,000).

         (ii)     for interest periods of one, two or three months,  One Million
                  Dollars ($1,000,000).

         (iii)    for interest  periods of one,  two or three  weeks,  an amount
                  which, when multiplied by the number of days in the applicable
                  interest period, is not less than thirty million  (30,000,000)
                  dollar-days.

                  The "LIBOR Rate" means the  interest  rate  determined  by the
                  following formula,  rounded upward to the nearest 1/100 of one
                  percent. (All amounts in the calculation will be determined by
                  the Bank as of the first day of the interest' period.)

                           LIBOR Rate = London Inter-Bank Offered Rate
                                        ------------------------------
                                               (1.00 - Reserve Percentage)

         Where,

         (i)      "London  Inter-Bank  Offered  Rate" means the interest rate at
                  which the Bank's London Branch,  London, Great Britain,  would
                  offer U.S. dollar deposits for the applicable  interest period
                  to  other  major  banks in the  London  inter-bank  market  at
                  approximately  11:00 a.m.  London time two (2) London Banking
                  Days before the commencement of the interest


19

<PAGE>

                  period.  A "London  Banking  Day" is a day on which the Bank's
                  London  Branch is open for  business  and  dealing in offshore
                  dollars.

         (ii)     "Reserve  Percentage"  means the total of the maximum  reserve
                  percentages  for  determining the reserves to be maintained by
                  member banks of the Federal  Reserve  System for  Eurocurrency
                  Liabilities, as defined in Federal Reserve Board Regulation D,
                  rounded  upward  to the  nearest 1 /1 00 of one  percent.  The
                  percentage  will be expressed as a decimal,  and will include,
                  but not be  limited  to,  marginal,  emergency,  supplemental,
                  special, and other reserve percentages.

(d)      The Borrower  shall  irrevocably  request a LIBOR Rate Portion no later
         than 12:00 noon San  Francisco  time on the LIBOR Banking Day preceding
         the day on which the London  Inter-Bank  Offered  Rate will be set,  as
         specified above. For example,  if there are no intervening  holidays or
         weekend days in any of the relevant locations, the request must be made
         at least three days before the LIBOR Rate takes effect.

(e)      The Borrower  may not elect a LIBOR Rate with respect to any  principal
         amount  which is  scheduled  to be  repaid  before  the last day of the
         applicable interest period.

Each  prepayment  of a LIBOR  Rate  Portion,  whether  voluntary,  by  reason of
acceleration or otherwise, will be accompanied by the amount of accrued interest
on the amount prepaid and a prepayment fee as described below. A "prepayment" is
a payment of an amount on a date  earlier  than the  scheduled  payment date for
such amount as required by this Agreement.  The prepayment fee shall be equal to
the amount (if any) by which:

         (i)    the additional interest which would have been payable during the
                interest  period on the amount  prepaid had it not been prepaid,
                exceeds

         (ii)   the interest  which would have been  recoverable  by the Bank by
                placing   the  amount   prepaid  on  deposit  in  the   domestic
                certificate of deposit market, the eurodollar deposit market, or
                other  appropriate  money  market  selected  by the Bank,  for a
                period  starting  on the date on which it was prepaid and ending
                on the last day of the interest  period for such Portion (or the
                scheduled payment date for the amount prepaid, if earlier).

--------------------------------------------------------------------------------
(g)      The Bank will have no obligation to accept an election for a LIBOR Rate
         Portion if any of the  following  described  events has occurred and is
         continuing:

         (i)      Dollar deposits in the principal amount, and for periods equal
                  to the  interest  period,  of a  LIBOR  Rate  Portion  are not
                  available in the London inter-bank market; or

        (ii)      the LIBOR Rate does not accurately reflect the cost of a LIBOR
                  Rate Portion.

3.      EXPENSES

3.1      Expenses.  The  Borrower  agrees  to  immediately  repay  the  Bank for
expenses  that  include,  but are not limited to,  filing,  recording and search
fees, appraisal fees, title report fees and documentation fees.

3.2      Reimbursement Costs.

(a)      The Borrower agrees to reimburse the Bank for any expenses it incurs in
         the  preparation  of this  Agreement  and any  agreement or  instrument
         required by this Agreement.  Expenses include,  but are not limited to,
         reasonable attorneys' fees, including any allocated costs of the Bank's
         in-house counsel.

4.       DISBURSEMENTS, PAYMENTS AND COSTS

4.1      Requests  for Credit.  Each  request for an extension of credit will be
made in  writing  in a  manner  acceptable  to the  Bank,  or by  another  means
acceptable to the Bank.


20

<PAGE>

4.2      Disbursements  and  Payments.  Each  disbursement  by the Bank and each
         payment by the Borrower will be:

(a)      made at the Bank's branch (or other location) selected by the Bank from
         time to time;

(b)      made for the  account of the Bank's  branch  selected  by the Bank from
         time to time;

(c)      made in  immediately  available  funds,  or such  other  type of  funds
         selected by the Bank;

(d)      evidenced  by records kept by the Bank.  In addition,  the Bank may, at
         its  discretion,  require the  Borrower to sign one or more  promissory
         notes.

4.3      Telephone and Telefax Authorization.

(a)      The Bank may honor  telephone or telefax  instructions  for advances or
         repayments given by any one of the individuals  authorized to sign loan
         agreements  on  behalf  of  the  Borrower,   or  any  other  individual
         designated by any one of such authorized signers.

(b)      Advances will be deposited in and repayments will be withdrawn from the
         Borrower's account number 14872-00230,  or such other of the Borrower's
         accounts with the Bank as designated in writing by the Borrower.

(c)      The Borrower  indemnifies and excuses the Bank (including its officers,
         employees,  and  agents)  from  all  liability,   loss,  and  costs  in
         connection   with  any  act   resulting   from   telephone  or  telefax
         instructions  the Bank  reasonably  believes are made by any individual
         authorized by the Borrower to give such  instructions.  This  indemnity
         and excuse will survive this Agreement's termination.

4.4      Direct Debit.

(a)     The  Borrower  agrees  that  interest  and any  fees  will  be  deducted
        automatically  on the  due  date  from  the  Borrower's  account  number
        14872-00230,  or such other of the Borrower's  accounts with the Bank as
        designated in writing by the Borrower.

(b)     The Bank will debit the account on the dates the payments become due. If
        a due date  does not fall on a  banking  day,  the Bank  will  debit the
        account on the first banking day following the due date.

(c)     The Borrower will maintain  sufficient funds in the account on the dates
        the Bank  enters  debits  authorized  by this  Agreement.  If there  are
        insufficient  funds in the account on the date the Bank enters any debit
        authorized by this Agreement, the debit will be reversed.

--------------------------------------------------------------------------------

4.5      Banking Days.  Unless otherwise  provided in this Agreement,  a banking
day is a day  other  than a  Saturday  or a Sunday on which the Bank is open for
business in California.  All payments and disbursements  which would be due on a
day which is not a banking day will be due on the next banking day. All payments
received  on a day which is not a banking  day will be  applied to the credit on
the next banking day.

4.6      Taxes.  If any payments to the Bank under this  Agreement are made from
outside the United  States,  the Borrower will not deduct any foreign taxes from
any payments it makes to the Bank. If any such taxes are imposed on any payments
made by the Borrower  (including  payments under this  paragraph),  the Borrower
will pay the taxes and will also pay to the Bank,  at the time interest is paid,
any  additional  amount  which the Bank  specifies  as necessary to preserve the
after-tax yield the Bank would have received if such taxes had not been imposed.
The Borrower will confirm that it has paid the taxes by giving the Bank official
tax receipts (or notarized copies) within 30 days after the due date.

4.7      Additional  Costs.  The Borrower will pay the Bank, on demand,  for the
Bank's costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory  agency which is applicable to all national banks or
a


21

<PAGE>

class of  all  national  banks.  The  costs and losses will be  allocated to the
loan in a manner determined by the Bank, using any reasonable  method. The costs
include the following:

(a)      any reserve or deposit requirements; and

(b)      any capital requirements  relating to the Bank's assets and commitments
         for credit.

4.8      Interest Calculation. Except as otherwise stated in this Agreement, all
interest and fees,  if any,  will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest or a higher fee
than if a 365-day year is used.  Installments  of  principal  which are not paid
when due under this Agreement shall continue to bear interest until paid.

4.9      Default Rate.  Upon the occurrence and during the  continuation  of any
default under this Agreement, principal amounts outstanding under this Agreement
will at the option of the Bank bear  interest  at a rate  which is 2  percentage
point(s)  higher  than  the  rate of  interest  otherwise  provided  under  this
Agreement. This will not constitute a waiver of any default.

4.10     Interest Compounding.  At the Bank's sole option in each instance,  any
interest,  fees or costs which are not paid when due under this Agreement  shall
bear  interest  from  the due  date  at the  Bank's  Reference  Rate  minus  0.5
percentage points. This may result in compounding of interest.

5.       CONDITIONS

The Bank must receive the following items, in form and content acceptable to the
Bank,  before it is  required  to extend any credit to the  Borrower  under this
Agreement:

5.1      Authorizations.  Evidence that the execution,  delivery and performance
by the  Borrower and each  guarantor of this  Agreement  and any  instrument  or
agreement required under this Agreement have been duly authorized.

5.2      Governing   Documents.   A  copy   of  the   Borrower's   articles   of
incorporation.

5.3      Guaranty.  A guaranty  signed by California  Water Service Group in the
amount of Thirty Million Dollars ($30,000,000).

5.4      Other Items.  Any other items that the Bank reasonably requires.

6.       REPRESENTATIONS AND WARRANTIES

When the Borrower  signs this  Agreement,  and until the Bank is repaid in full,
the Borrower makes the following  representations  and warranties.  Each request
for an extension of credit constitutes a renewed representation:

6.1      Organization of Borrower. The Borrower is a corporation duly formed and
existing under the laws of the state where organized.

6.2      Authorization. This Agreement, and any instrument or agreement required
hereunder,  are within the Borrower's powers, have been duly authorized,  and do
not conflict with any of its organizational papers.

6.3      Enforceable  Agreement.  This  Agreement is a legal,  valid and binding
agreement of the Borrower,  enforceable  against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.
--------------------------------------------------------------------------------

6.4      Good Standing. In each state in which the Borrower does business, it is
properly  licensed,  in good standing,  and, where required,  in compliance with
fictitious name statutes.

6.5      No Conflicts. This Agreement does not conflict with any law, agreement,
or obligation by which the Borrower is bound.


22

<PAGE>

6.6      Financial  Information.  All financial and other  information  that has
been or will be supplied to the Bank is:

(a)     sufficiently  complete  to  give  the  Bank  accurate  knowledge  of the
        Borrower's  (and any  guarantor's)  financial  condition,  including all
        material contingent liabilities.

(b)     in compliance with all government regulations that apply.

6.7      Lawsuits.  There is no lawsuit,  tax claim or other dispute  pending or
threatened  against the Borrower  which,  if lost,  would impair the  Borrower's
financial  condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.

6.8      Permits,  Franchises. The Borrower possesses all permits,  memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights,  patent  rights and  fictitious  name rights  necessary  to enable it to
conduct the business in which it is now engaged.

6.9      Other Obligations. The Borrower is not in default on any obligation for
borrowed  money,  any purchase  money  obligation or any other  material  lease,
commitment, contract, instrument or obligation.

6.10     Income Tax  Matters.  The  Borrower  has no  knowledge  of any  pending
assessments or adjustments of its income tax for any year.

6.11     No Event of  Default.  There is no event  which is,  or with  notice or
lapse of time or both would be, a default under this Agreement.

6.12     Location of  Borrower.  The  Borrower's  place of business  (or, if the
Borrower has more than one place of  business,  its chief  executive  office) is
located at the address listed under the Borrower's signature on this Agreement.

6.13     Year 2000 Compliance. The Borrower has conducted a comprehensive review
and assessment of the  Borrower's  systems and equipment  applications  and made
inquiry of the Borrower's  key suppliers,  vendors and customers with respect to
the "year  2000  problem"  (that is,  the  inability  of  computers,  as well as
embedded microchips in non-computing devices, to properly perform date-sensitive
functions  with respect to certain dates prior to and after  December 31, 1999).
Based on that review and inquiry,  the  Borrower  does not believe the year 2000
problem,  including  costs of  remediation,  will  result in a material  adverse
change  in  the  Borrower's   business   condition   (financial  or  otherwise),
operations,  properties  or  prospects,  or  ability  to repay the  credit.  The
Borrower has developed  adequate  contingency plans to ensure  uninterrupted and
unimpaired  business  operation  in the event of a failure of its own or a third
party's  systems or equipment due to the year 2000 problem,  including  those of
vendors,  customers,  and  suppliers,  as  well  as  a  general  failure  of  or
interruption in its communications and delivery infrastructure.

7.       COVENANTS

The Borrower  agrees,  so long as credit is available  under this  Agreement and
until the Bank is repaid in full:

7.1      Use of Proceeds.  To use the proceeds of the credit only for short term
operating capital, bridge financing for capital expenditures and issuing standby
letters of credit.

7.2      Financial  Information.  To provide the following financial information
and statements in form and content  acceptable to the Bank, and such  additional
information as requested by the Bank from time to time:

(a)      Within 90 days of the Borrower's fiscal year end, the Borrower's annual
         financial statements.  These financial statements must be audited (with
         an  unqualified  opinion)  by a  Certified  Public  Accountant  ("CPA")
         acceptable to the Bank.

(b)      Within 60 days of the period's end, the Borrower's  quarterly financial
         statements. These financial statements may be Borrower prepared.

(c)      Within 90 days of its fiscal year end, California Water Service Group's
         annual financial


23

<PAGE>

         statements.  These  financial  statements  must  be  audited  (with  an
         unqualified  opinion) by a CPA  acceptable to the Bank.  The statements
         shall be prepared on a consolidated basis.

--------------------------------------------------------------------------------
(f)      Within 60 days of the period's end,  California  Water Service  Group's
         quarterly financial statements including supplemental schedules.  These
         financial  statements may be company prepared.  The statements shall be
         prepared on a consolidated and consolidating basis.

(e)      Within 90 days of its  fiscal  year end,  copies  of  California  Water
         Service  Group's Form 1 O-K Annual  Report and Form 8-K Current  Report
         (if applicable).

(f)      Within 60 days of the period's end, copies of California  Water Service
         Group's Form 10-Q Quarterly Report and Form 8-K Current Report.

(g)      Within 90 days of its fiscal  year end,  CWS Utility  Services'  annual
         financial  statements.   These  financial  statements  may  be  company
         prepared.

(h)      Within 60 days of the  period's  end, CWS Utility  Services'  quarterly
         financial  statements.   These  financial  statements  may  be  company
         prepared.

(i)      By April 30 of each year,  CWS  Utility  Services'  narrative  business
         plan.

7.3      Other Debts.  Not to have outstanding or incur any direct or contingent
liabilities (other than those to the Bank), or become liable for the liabilities
of others,  without the Bank's written  consent,  which will not be unreasonably
withheld. This does not prohibit:

(a)      Acquiring goods, supplies, or merchandise on normal trade credit.

(b)      Endorsing  negotiable  instruments  received  in the  usual  course  of
         business.

(c)      Obtaining surety bonds in the usual course of business.

(d)      Liabilities  in  existence on the date of this  Agreement  disclosed in
         writing to the Bank.

(e)      First  mortgage   bonds  and/or   unsecured   senior  notes   currently
         outstanding or subsequently issued.

7.4      Other Liens. Not to create,  assume,  or allow any security interest or
lien  (including  judicial  liens) on property  the  Borrower now or later owns,
except:

(a)      Deeds of trust and security agreements in favor of the Bank.

(b)      Liens for taxes not yet due. ,

(c)      Liens outstanding on the date of this Agreement disclosed in writing to
         the Bank.

(d)      Liens  securing  first   mortgage   bonds   currently   outstanding  or
         subsequently issued.

7.5      Out of Debt Period.  To repay any advances in full, and not to draw any
additional advances on its revolving line of credit, for a period of at least 30
consecutive  days in each  line-year.  "Line-year"  means the period between the
date of this  Agreement  and  December 31, 1999,  and each  subsequent  one-year
period (if any). For the purposes of this paragraph, "advances" does not include
undrawn amounts of outstanding letters of credit.

7.6      Notices to Bank.  To promptly notify the Bank in writing of:

(a)      any lawsuit over One Million Dollars  ($1,000,000) against the Borrower
         (or any guarantor).

(b)      any substantial dispute between the Borrower (or any guarantor) and any
         government authority.

(c)      any failure to comply with this Agreement.


24

<PAGE>

(d)      any material  adverse  change in the  Borrower's  (or any  guarantor's)
         business condition (financial or otherwise),  operations, properties or
         prospects, or ability to repay the credit.

(e)      any change in the Borrower's name, legal structure,  place of business,
         or chief  executive  office if the  Borrower has more than one place of
         business.

7.7      Books and Records.  To maintain adequate books and records.

--------------------------------------------------------------------------------
7.8      Audits.  To allow the Bank and its  agents to  inspect  the  Borrower's
properties  and  examine,  audit,  and make  copies of books and  records at any
reasonable time. If any of the Borrowees properties, books or records are in the
possession of a third party, the Borrower  authorizes that third party to permit
the Bank or its agents to have  access to perform  inspections  or audits and to
respond to the Bank's requests for information concerning such properties, books
and records.

7.9      Compliance with Laws. To comply with the laws (including any fictitious
name statute),  regulations,  and orders of any  government  body with authority
over the Borrower's business.

7.10     Preservation   of  Rights.   To  maintain   and  preserve  all  rights,
privileges, and franchises the Borrower now has.

7.11     Maintenance  of  Properties.   To  make  any  repairs,   renewals,   or
replacements to keep the Borrower's properties in good working condition.

7.12     Cooperation.  To take any action  reasonably  requested  by the Bank to
carry out the intent of this Agreement.

7.13     General Business  Insurance.  To maintain insurance as is usual for the
business it is in.

7.14     Additional  Negative  Covenants.  Not to,  without  the Bank's  written
consent, which will not be unreasonably withheld:

(a)      engage in any  business  activities  substantially  different  from the
         Borrower's present business.

(b)      liquidate or dissolve the Borrower's business.

(c)      enter into any consolidation, merger, or other combination, or become a
         partner in a partnership, a member of a joint venture, or a member of a
         limited  liability  company  where any single  transaction  exceeds Two
         Million Five Hundred Thousand Dollars ($2,500,000).

(d)      sell,  assign,  lease,  transfer or otherwise dispose of any assets for
         less than fair market value, or enter into any agreement to do so.

(e)      sell,  assign,  lease,  transfer  or  otherwise  dispose  of  all  or a
         substantial part of the Borrower's business or the Borrower's assets.

         enter into any sale and leaseback  agreement  covering any of its fixed
         assets.

(g)      acquire  or  purchase a  business  or its  assets for a  consideration,
         including  assumption  of direct or contingent  debt,  where any single
         transaction   exceeds  Two  Million  Five  Hundred   Thousand   Dollars
         ($2,500,000).

7.15     Bond Rating.  To maintain an investment  grade bond rating on its rated
securities as defined by Moody's Investors  Service,  Inc. and Standard & Poor's
Rating Group.

8. DEFAULT

If any of the  following  events  occurs,  the  Bank  may do one or  more of the
following:  declare the Borrower in default,  stop making any additional  credit
available  to the  Borrower,  and require the  Borrower to repay its


25

<PAGE>

entire debt immediately and without prior notice.  If an event of default occurs
under the paragraph entitled  "Bankruptcy," below, with respect to the Borrower,
then the entire debt outstanding under this Agreement will  automatically be due
immediately.

8.1      Failure  to Pay.  The  Borrower  fails  to make a  payment  under  this
Agreement when due.

8.2      False  Information.  The Borrower (or any guarantor) has given the Bank
false or misleading information or representations.

8.3      Bankruptcy.   The  Borrower  (or  any  guarantor)  files  a  bankruptcy
petition, a bankruptcy petition is filed against the Borrower (or any guarantor)
or the Borrower (or any guarantor) makes a general assignment for the benefit of
creditors.

8.4      Receivers.  A  receiver  or  similar  official  is  appointed  for  the
Borrower's (or any guarantor's) business, or the business is terminated.

8.5      Lawsuits.  Any lawsuit or lawsuits  are filed  against the Borrower (or
any guarantor) in an aggregate  amount of One Million  Dollars  ($1,000,000)  or
more in excess of any insurance coverage.

--------------------------------------------------------------------------------
8.6      Judgments.  Any judgments or arbitration awards are entered against the
Borrower (or any guarantor),  or the Borrower (or any guarantor) enters into any
settlement  agreements  with respect to any  litigation  or  arbitration,  in an
aggregate  amount of One Million  Dollars  ($1,000,000) or more in excess of any
insurance coverage.

8.7      Government Action. Any government  authority takes action that the Bank
believes  materially  adversely  affects  the  Borrower's  (or any  guarantor's)
financial condition or ability to repay.

8.8      Material  Adverse  Change.  A material  adverse  change  occurs,  or is
reasonably  likely to occur,  in the  Borrower's (or any  guarantor's)  business
condition  (financial or  otherwise),  operations,  properties or prospects,  or
ability to repay the credit.

8.9      Cross-default.  Any default  occurs under any  agreement in  connection
with any credit the Borrower (or any guarantor) or any of the Borrower's related
entities or  affiliates  has obtained from anyone else or which the Borrower (or
any  guarantor) or any of the  Borrower's  related  entities or  affiliates  has
guaranteed,  if the default  consists  of failing to make a payment  when due or
gives other lender the right to accelerate the obligations.

8.10     Default under Related Documents. Any guaranty, subordination agreement,
security agreement,  deed of trust, or other document required by this Agreement
is violated or no longer in effect.

8.11     Other Bank  Agreements.  The Borrower (or any guarantor)  fails to meet
the conditions of, or fails to perform any obligation  under any other agreement
the Borrower (or any guarantor) has with the Bank or any affiliate of the Bank.

8.12     Other Breach Under Agreement. The Borrower fails to meet the conditions
of, or fails to perform any  obligation  under,  any term of this  Agreement not
specifically  referred  to  in  this  Article.  This  includes  any  failure  or
anticipated  failure by the Borrower to comply with any financial  covenants set
forth  in this  Agreement,  whether  such  failure  is  evidenced  by  financial
statements  delivered to the Bank or is  otherwise  known to the Borrower or the
Bank.

8.13     Guarantor's  Covenant.  California  Water Service Group fails to comply
with the following covenant:

(a)      Dividends.  Not to enter into any  agreement  which would  restrict the
         Borrower's  ability to declare and pay  dividends to  California  Water
         Service Group, without the Bank's written consent.


26

<PAGE>

9.      ENFORCING THIS AGREEMENT; MISCELLANEOUS

9.1      GAAP.  Except as  otherwise  stated in this  Agreement,  all  financial
information  provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.

9.2      California Law.  This Agreement is governed by California law.

9.3      Successors and Assigns. This Agreement is binding on the Borrower's and
the Bank's successors and assignees.  The Borrower agrees that it may not assign
this   Agreement   without  the  Bank's  prior   consent.   The  Bank  may  sell
participations  in or assign this loan, and may exchange  financial  information
about the Borrower  with actual or potential  participants  or  assignees.  If a
participation is sold or the loan is assigned, the purchaser will have the right
of set-off against the Borrower.

9.4     Arbitration.

(a)     This paragraph  concerns the resolution of any  controversies  or claims
        between the  Borrower and the Bank,  including  but not limited to those
        that arise from:

        (i)    This   Agreement   (including   any   renewals,   extensions   or
               modifications of this Agreement);

        (ii)   Any document,  agreement or procedure  related to or delivered in
               connection with this Agreement;

        (iii)  Any violation of this Agreement; or

        (iv)   Any claims for  damages  resulting  from any  business  conducted
               between the Borrower and the Bank, including claims for injury to
               persons, property or business interests (torts).

(b)     At the request of the Borrower or the Bank,  any such  controversies  or
        claims  will be settled by  arbitration  in  accordance  with the United
        States  Arbitration  Act. The United States  Arbitration  Act will apply
        even though this  Agreement  provides  that it is governed by California
        law.

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(c)     Arbitration proceedings will be administered by the American Arbitration
        Association and will be subject to its commercial rules of arbitration.

(d)     For  purposes  of the  application  of the statute of  limitations,  the
        filing of an arbitration pursuant to this paragraph is the equivalent of
        the  filing  of a  lawsuit,  and any claim or  controversy  which may be
        arbitrated under this paragraph is subject to any applicable  statute of
        limitations.  The arbitrators  will have the authority to decide whether
        any such claim or  controversy  is barred by the statute of  limitations
        and, if so, to dismiss the arbitration on that basis.

(e)      If there is a  dispute  as to  whether  an  issue  is  arbitrable,  the
         arbitrators will have the authority to resolve, any such dispute.

The decision that results from an arbitration proceeding may be submitted to any
authorized court of law to be confirmed and enforced.

(g)      The  procedure  described  above will not apply if the  controversy  or
         claim, at the time of the proposed  submission to  arbitration,  arises
         from or relates to an  obligation  to the Bank secured by real property
         located in  California.  In this case,  both the  Borrower and the Bank
         must consent to submission of the claim or controversy to  arbitration.
         If both parties do not consent to arbitration, the controversy or claim
         will be settled as follows:

         (i)      The Borrower and the Bank will designate a referee (or a panel
                  of  referees)  selected  under the  auspices  of the  American
                  Arbitration  Association in the same manner as arbitrators are
                  selected in Association-sponsored proceedings;

         (ii)     The  designated  referee  (or the panel of  referees)  will be
                  appointed by a court as provided in  California  Code of Civil
                  ]Procedure Section 638 and the following related sections;


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<PAGE>

         (iii)    The referee (or the presiding referee of the panel) will be an
                  active attorney or a retired judge; and

         (iv)     The award that  results  from the  decision of the referee (or
                  the panel)  will be  entered  as a judgment  in the court that
                  appointed the referee,  in accordance  with the  provisions of
                  California Code of Civil Procedure Sections 644 and 645.

(h)      This provision does not limit the right of the Borrower or the Bank to:

         (i)      exercise self-help remedies such as setoff;

         (ii)     foreclose  against  or  sell  any  real or  personal  property
                  collateral; or

         (iii)    act in a court of law, before, during or after the arbitration
                  proceeding to obtain:

                  (A)      an interim remedy; and/or

                  (B)      additional or supplementary remedies.

(i)      The  pursuit of or a  successful  action  for  interim,  additional  or
         supplementary  remedies,  or the  filing  of a court  action,  does not
         constitute a waiver of the right of the Borrower or the Bank, including
         the suing party,  to submit the  controversy or claim to arbitration if
         the other party contests the lawsuit.  However,  if the  controversy or
         claim  arises  from or  relates to an  obligation  to the Bank which is
         secured  by real  property  located  in  California  at the time of the
         proposed submission to arbitration,  this right is limited according to
         the provision  above requiring the consent of both the Borrower and the
         Bank to seek resolution through arbitration.

(0)      If  the  Bank  forecloses  against  any  real  property  securing  this
         Agreement,  the Bank has the option to exercise the power of sale under
         the deed of trust or mortgage, or to proceed by judicial foreclosure.

9.5      Severability;   Waivers.   If  any  part  of  this   Agreement  is  not
enforceable,  the rest of the  Agreement  may be enforced.  The Bank retains all
rights,  even if it makes a loan after default. If the Bank waives a default, it
may enforce a later default.  Any consent or waiver under this Agreement must be
in writing.

9.6      Administration   Costs.  The  Borrower  shall  pay  the  Bank  for  all
reasonable  costs  incurred by the Bank in connection  with  administering  this
Agreement.

9.7      Attorneys'  Fees.  The  Borrower  shall  reimburse  the  Bank  for  any
reasonable costs and attorneys' fees incurred by the Bank in connection with the
enforcement or  preservation  of any rights or remedies under this Agreement and
any  other  documents  executed  in  connection  with  this  Agreement,  and  in
connection with any amendment,  waiver,  "workout" or  restructuring  under this
Agreement. In the event of a lawsuit or arbitration  proceeding,  the prevailing
party is entitled to
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recover costs and  reasonable  attorneys'  fees incurred in connection  with the
lawsuit or arbitration proceeding,  as determined by the court or arbitrator. In
the event  that any case is  commenced  by or  against  the  Borrower  under the
Bankruptcy  Code (Title 1 1,  United  States  Code) or any similar or  successor
statute,  the Bank is entitled to recover costs and reasonable  attorneys'  fees
incurred by the Bank related to the preservation,  protection, or enforcement of
any rights of the Bank in such a case.  As used in this  paragraph,  "attorneys'
fees" includes the allocated costs of the Bank's in-house counsel.

9.8      One  Agreement.  This  Agreement  and any  related  security  or  other
agreements required by this Agreement, collectively:

(a)      represent the sum of the understandings and agreements between the Bank
         and the Borrower concerning this credit;


28

<PAGE>

(b)      replace any prior oral or written  agreements  between the Bank and the
         Borrower concerning this credit; and

(c)      are  intended by the Bank and the  Borrower as the final,  complete and
         exclusive statement of the terms agreed to by them.

In the event of any conflict  between this  Agreement  and any other  agreements
required by this Agreement, this Agreement will prevail.

9.9      Notices.  All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid,  to the addresses on the
signature page of this Agreement, or to such other addresses as the Bank and the
Borrower may specify from time to time in writing.

9.10     Headings.  Article and paragraph  headings are for  reference  only and
shall not  affect  the  interpretation  or  meaning  of any  provisions  of this
Agreement.

9.11     Counterparts. This Agreement may be executed in as many counterparts as
necessary or convenient, and by the

different  parties on separate  counterparts  each of which,  when so  executed,
shall be deemed an original but all such  counterparts  shall constitute but one
and the same agreement.

9.12 Prior  Agreement  Superseded.  This Agreement  supersedes the Business Loan
Agreement  entered into as of April 4, 1997,  between the Bank and the Borrower,
and any credit  outstanding  thereunder shall be deemed to be outstanding  under
this Agreement.

This Agreement is executed as of the date stated at the top of the first page.

Bank of America
National Trust and Savings Association          California Water Service Company
By: Jeffrey Perkins, Vice President             By: Gerald F. Feeney,
                                                    Vice President, CFO and
                                                         Treasurer

Address where notices to the Bank are to be sent:   Address for Notices:

San Jose Commercial Banking Office #01487
101 Park Center Plaza                                    P.O. Box 1150
San Jose, CA 95113                                       San Jose, CA 95108


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