Exhibit 10.17

                             BUSINESS LOAN AGREEMENT

         This Agreement  dated as of February 28, 2003, is among Bank of America
N.A. (the "Bank"),  California  Water Service Group  ("Borrower 1"), CWS Utility
Services ("Borrower 2"), and New Mexico Water Service Company ("Borrower 3"). In
this Agreement,  all of the Borrowers are sometimes  referred to collectively as
the "Borrower."

1.       FACILITY NO. 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
         "Facility No. 1 Commitment") is Ten Million Dollars ($10,000,000).

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

(c)      The Borrower agrees not to permit the principal balance  outstanding to
         exceed the Facility  No. 1  Commitment.  If the  Borrower  exceeds this
         limit,  the Borrower will  immediately  pay the excess to the Bank upon
         the Bank's demand.


1.2      Availability  Period.  The line of credit is available between the date
of this  Agreement and April 30, 2005, or such earlier date as the  availability
may  terminate as provided in this  Agreement  (the  "Facility  No. 1 Expiration
Date"). It is provided,  however, that this line of credit will not be available
to Borrower 3 until  Borrower 3 (a) has completed  that certain water  treatment
plant project in New Mexico (the "NM Project")  that Borrower 3 is engaged in as
of the date of this  Agreement  and (b) has  provided  to the Bank,  in form and
content  acceptable  to the Bank, a guaranty of the  indebtedness  of California
Water  Service  Company  to the  Bank.  It is  further  provided  that  upon the
satisfaction of the foregoing  conditions and so long as no event of default has
occurred and is then continuing  under this Agreement,  this line of credit will
be made  available to Borrower 3 only if (i) Borrower 3 uses the proceeds of the
first  advance  it  requests  hereunder  to  repay  in  full  all  amounts  then
outstanding  under any and all credit facilities that Borrower 3 had obtained to
finance the NM Project and  thereupon  terminates  all such  facilities  or (ii)
provides  the Bank with  evidence  acceptable  to the Bank that all such  credit
facilities have been repaid in full and terminated.

1.3      Repayment Terms.

(a)      The  Borrower  will pay  interest  on March 31,  2003 and then  monthly
         thereafter  until  payment in full of any principal  outstanding  under
         this line of credit.  Any interest period for an optional interest rate
         (as  described  below)  shall  expire no later than the  Facility No. 1
         Expiration Date.

(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 Facility No. 1 Expiration Date.

1.4      Interest Rate.

(a)      The  interest  rate is a rate per year equal to the  Bank's  Prime Rate
         minus the Applicable Margin (as defined below).

(b)      The Prime Rate is the rate of interest publicly  announced from time to
         time by the Bank as its Prime  Rate.  The Prime 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 Prime Rate.  Any change in the Prime
         Rate shall take effect at the opening of business on the day  specified
         in the public announcement of a change in the Bank's Prime Rate.

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1.5      Optional Interest Rates. Instead of the interest rate based on the rate
stated in the paragraph  entitled  "Interest Rate" above, the Borrower may elect
the optional interest rates listed below for this Facility No. 1 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)      The LIBOR Rate plus the Applicable Margin as defined below.

1.6      Applicable Margin. The Applicable Margin shall be the following amounts
per annum,  based upon the Debt to  Capitalization  Ratio (as defined  below) as
calculated  on a  consolidated  basis from  Borrower  1's most recent  financial
statements received by the Bank as required in the Covenants section;  provided,
however,  that  until the Bank  receives  the first  financial  statement,  such
amounts shall be those indicated for pricing level 2 set forth below:


                                                     Applicable Margin
 Pricing                                     (in percentage points per annum)
  Level                 Ratio               Prime Rate -          LIBOR Rate +
----------- ----------------------------- ------------------ -------------------
   1        less than 0.50:1.00                 0.75                1.00
   2        equal to or greater than            0.50                1.25
            0.50:1.00 and
            less than 0.60:1.00
   3        equal to or greater than            0.25                1.50
            0.60:1.00

"Debt to Capitalization  Ratio" means the ratio of Funded Debt to the sum of Net
Worth plus Funded Debt.  "Funded  Debt" means all  outstanding  liabilities  for
borrowed money and other  interest-bearing  liabilities of Borrower 1, including
current and  long-term  debt.  "Net Worth" means the value of Borrower 1's total
assets  (including  leaseholds and leasehold  improvements  and reserves against
assets)  less its total  liabilities,  including  but not limited to accrued and
deferred income taxes.

The Applicable Margin shall be in effect from the date the most recent financial
statement is received by the Bank until the date the next financial statement is
received;  provided,  however,  that if the Borrower fails to timely deliver the
next financial  statement,  the  Applicable  Margin from the date such financial
statement  was due until the date such  financial  statement  is received by the
Bank shall be the highest pricing level set forth above.

1.7      Letters of Credit.  This line of credit may be used for financing:


(a)      standby  letters of credit with a maximum  maturity of 365 days but not
         to extend more than 180 days beyond the Facility No. 1 Expiration Date.
         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.

(h)      The  amount  of the  letters  of  credit  outstanding  at any one  time
         (including the drawn and unreimbursed amounts of the letters of credit)
         may not exceed Five Million Dollars ($5,000,000).

(c)      In calculating the principal amount  outstanding under the Facility No.
         1 Commitment,  the calculation  shall include the amount of any letters
         of credit outstanding, including amounts drawn on any letters of credit
         and not yet reimbursed.

(d)      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.

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<PAGE>

         (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
                  Commercial  Letter of Credit or Application  and Agreement for
                  Standby Letter of Credit, as applicable.

         (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 any Borrower.

         (vi)     to  allow  the Bank to  automatically  charge  any  Borrower's
                  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 month during the interest  period.
At the end of any interest  period,  the  interest  rate will revert to the rate
stated in the paragraph(s)  entitled "Interest Rate" above,  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      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 or two 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 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 One Hundred
         Thousand Dollars ($100,000).

(c)      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 average per annum
                  interest rate at which U.S.  dollar  deposits would be offered
                  for the  applicable  interest  period  by  major  banks in the
                  London  inter-bank  market, as shown on the Telerate Page 3750
                  (or any successor  page) at  approximately  11:00 a.m.  London
                  time two (2) London  Banking Days before the  commencement  of
                  the  interest  period.  If such  rate  does not  appear on the
                  Telerate Page 3750 (or any successor  page), the rate for that
                  interest period will be determined by such alternate method as
                  reasonably  selected by the Bank. A "London  Banking Day" is a
                  day on which  the  Bank's  London  Banking  Center 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

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<PAGE>

                  Liabilities, as defined in Federal Reserve Board Regulation D,
                  rounded  upward  to the  nearest  1/100  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 Pacific 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.

(f)      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.

(g)      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.

(h)      The prepayment  fee shall be in an amount  sufficient to compensate the
         Bank for any loss,  cost or expense  incurred  by it as a result of the
         prepayment,  including any loss of anticipated  profits and any loss or
         expense  arising from the liquidation or reemployment of funds obtained
         by it to maintain  such Portion or from fees  payable to terminate  the
         deposits from which such funds were  obtained.  The Borrower shall also
         pay any customary administrative fees charged by the Bank in connection
         with the foregoing.  For purposes of this paragraph,  the Bank shall be
         deemed to have  funded  each  Portion  by a  matching  deposit or other
         borrowing  in the  applicable  interbank  market,  whether  or not such
         Portion was in fact so funded. 3. FEES AND EXPENSES

3.1      Fees.

(a)      Late Fee. To the extent  permitted by law, the Borrower agrees to pay a
         late fee in an amount not to exceed  four  percent  (4%) of any payment
         that is more than fifteen (15) days late. The imposition and payment of
         a late fee shall not  constitute  a waiver of the  Bank's  rights  with
         respect to the default.

(b)      Unused  Commitment  Fee.  The  Borrower  agrees  to  pay a fee  on  any
         difference  between the  Facility  No. 1  Commitment  and the amount of
         credit it actually uses,  determined by the average of the daily amount
         of credit  outstanding  during the  specified  period.  The fee will be
         calculated at the following percentage points per annum, based upon the
         Debt to Capitalization  Ratio (as defined in Paragraph 1.6 above).  The
         calculation of credit  outstanding  shall include the undrawn amount of
         letters of credit. The Debt to Capitalization  Ratio will be calculated
         in the manner described in Paragraph 1.6; provided, however, that until
         the  Bank  receives  the  first  financial  statement,  the fee will be
         calculated at the percentage points indicated for fee level 2 set forth
         below:

                                                       Applicable Fee
   Fee Level             Ratio                 (in percentage points per annum)
---------------- ---------------------- ----------------------------------------
       1         less than 0.50:1.00                      .125
       2         equal to or greater than
                 0.50:1.00 but                            .250
                 less than 0.60:1.00
       3         equal to or greater than
                 0.60:1.00                                .375

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<PAGE>

         This  fee is due on  April  1,  2003,  and  on the  first  day of  each
         following quarter until the expiration of the availability period.

         The  Applicable  Fee shall be in effect  from the date the most  recent
         financial  statement  is  received  by the Bank until the date the next
         financial  statement  is  received;  provided,  however,  that  if  the
         Borrower  fails to timely  deliver the next  financial  statement,  the
         Applicable Fee from the date such financial statement was due until the
         date such  financial  statement  is  received  by the Bank shall be the
         highest fee level set forth above.

3.2      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.

3.3      Reimbursement  Costs. 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 to the extent permitted by applicable law.

4.       DISBURSEMENTS, PAYMENTS AND COSTS

4.1      Disbursements and Payments.

(a)      Each  payment by the  Borrower  will be made in  immediately  available
         funds by direct  debit to a deposit  account as  specified  below or by
         mail to the address shown on the Borrower's  statement or at one of the
         Bank's banking centers in the United States.

(b)      Each  disbursement by the Bank and each payment by the Borrower will be
         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.

4.2      Telephone and Telefax Authorization.

(a)      The Bank may honor  telephone or telefax  instructions  for advances or
         repayments  or for the  designation  of  optional  interest  rates  and
         telefax  requests  for the  issuance  of  letters of credit  given,  or
         purported to be 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
         account  number  14878-03863  owned by Borrower 1, or such other of the
         Borrower's  accounts  with the Bank as  designated  in  writing  by the
         Borrower.

(i)      The  Borrower  will  indemnify  and  hold the  Bank  harmless  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  paragraph  will survive this  Agreement's  termination,  and will
         benefit the Bank and its officers, employees, and agents.

4.3      Direct Debit (Pre-Billing).

(a)      The Borrower  agrees that the Bank will debit  deposit  account  number
         14878-03863  owned  by  Borrower  1, or such  other  of the  Borrower's
         accounts  with the Bank as  designated  in writing by the Borrower (the
         "Designated  Account")  on the  date  each  payment  of  principal  and
         interest and any fees from the Borrower becomes due (the "Due Date").

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<PAGE>

(b)      Prior to each Due Date,  the Bank will mail to the Borrower a statement
         of the amounts that will be due on that Due Date (the "Billed Amount").
         The bill will be mailed a specified  number of  calendar  days prior to
         the Due Date, which number of days will be mutually agreed from time to
         time by the Bank and the Borrower. The calculations in the bill will be
         made on the  assumption  that no new  extensions  of credit or payments
         will be made  between  the date of the  billing  statement  and the Due
         Date,  and that there will be no  changes  in the  applicable  interest
         rate.

(c)      The Bank will  debit the  Designated  Account  for the  Billed  Amount,
         regardless  of  the  actual  amount  due on  that  date  (the  "Accrued
         Amount").  If the  Billed  Amount  debited  to the  Designated  Account
         differs from the Accrued  Amount,  the  discrepancy  will be treated as
         follows:

         (i)      If the  Billed  Amount is less than the  Accrued  Amount,  the
                  Billed  Amount for the following Due Date will be increased by
                  the amount of the  discrepancy.  The  Borrower  will not be in
                  default by reason of any such discrepancy.

         (ii)     If the  Billed  Amount is more than the  Accrued  Amount,  the
                  Billed  Amount for the following Due Date will be decreased by
                  the amount of the discrepancy.

         Regardless  of any such  discrepancy,  interest will continue to accrue
         based  on  the  actual   amount  of   principal   outstanding   without
         compounding.  The  Bank  will  not pay  the  Borrower  interest  on any
         overpayment.

(d)      The Borrower will maintain  sufficient funds in the Designated  Account
         to cover each debit. If there are insufficient  funds in the Designated
         Account  on the date the  Bank  enters  any  debit  authorized  by this
         Agreement, the Bank may reverse the debit.

(e)      The Borrower may terminate this direct debit arrangement at any time by
         sending written notice to the Bank at the address  specified at the end
         of this Agreement.  If the Borrower  terminates this arrangement,  then
         the  principal  amount  outstanding  under this  Agreement  will at the
         option  of the Bank  bear  interest  at a rate per  annum  which is 0.5
         percentage  point higher than the rate of interest  otherwise  provided
         under this Agreement.

4.4      Banking Days.  Unless otherwise  provided in this Agreement,  a banking
day is a day other  than a  Saturday,  Sunday  or other day on which  commercial
banks are  authorized  to close,  or are in fact closed,  in the state where the
Bank's  lending office is located,  and, if such day relates to amounts  bearing
interest at an offshore rate (if any),  means any such day on which  dealings in
dollar  deposits  are  conducted  among banks in the offshore  dollar  interbank
market. 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.

4.5      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.

4.6      Default Rate.  Upon the occurrence of any default under this Agreement,
all amounts outstanding under this Agreement,  including any interest,  fees, or
costs which are not paid when due,  will at the option of the Bank bear interest
at a rate  which is 2.0  percentage  points  higher  than  the rate of  interest
otherwise  provided  under this  Agreement.  This may result in  compounding  of
interest. This will not constitute a waiver of any default.

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      Conditions to First Extension of Credit.  Before the first extension of
         credit:

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<PAGE>

(a)      Authorizations. If any Borrower or any guarantor is anything other than
         a natural person, evidence that the execution, delivery and performance
         by such  Borrower  and/or  such  guarantor  of this  Agreement  and any
         instrument or agreement  required  under this  Agreement have been duly
         authorized.

(b)      Governing Documents. If required by the Bank, a copy of each Borrower's
         organizational documents.

(c)      Payment of Fees. Payment of all accrued and unpaid expenses incurred by
         the Bank as required by the paragraph entitled "Reimbursement Costs."

(d)      Good Standing. Certificates of good standing for each Borrower from its
         state of formation  and from any other state in which such  Borrower is
         required to qualify to conduct its business.

(e)      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 renewal of these  representations  and
warranties as of the date of the request:

6.1      Formation.  Each Borrower is 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.

6.6      Financial  Information.  All financial and other  information  that has
been or will be supplied to the Bank is  sufficiently  complete to give the Bank
accurate knowledge of the Borrower's (and any guarantor's)  financial condition,
including all material contingent liabilities. Since the date of the most recent
financial  statement  provided to the Bank,  there has been no material  adverse
change  in  the  business  condition   (financial  or  otherwise),   operations,
properties or prospects of any Borrower (or any guarantor).

6.7      Lawsuits.  There is no lawsuit,  tax claim or other dispute  pending or
threatened  against any Borrower  which,  if lost,  would impair such 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, except as have been disclosed in
writing to the Bank.

6.10     Tax Matters.  No Borrower has any knowledge of any pending  assessments
or  adjustments of its income tax for any year and all taxes due have been paid,
except as have been disclosed in writing to the Bank.

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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     Insurance.  The Borrower has obtained,  and  maintained in effect,  the
insurance coverage required in the "Covenants" section of this Agreement.

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  Facility  No.  1 only for  working  capital,
permitted acquisitions, general corporate purposes including issuance of standby
letters of credit, and to bridge capital expenditures.

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 fiscal year end,  Borrower  1's annual  financial
         statements. These financial statements must be audited (with an opinion
         satisfactory to the Bank) by a Certified Public  Accountant  acceptable
         to the Bank.  The statements  shall be prepared on a  consolidated  and
         consolidating basis.

(b)      Within 60 days of the period's end,  Borrower 1's  quarterly  financial
         statements  certified  and dated by an  authorized  financial  officer.
         These  financial  statements  may be  company-prepared.  The statements
         shall be prepared on a consolidated and consolidating basis.

(c)      Copies of the Form 10-K Annual Report,  Form 10-Q Quarterly Report, and
         Form 8-K Current Report for Borrower 1 within 10 days after the date of
         filing with the Securities and Exchange Commission.

(d)      Borrower  1's  annual  financial  projections  covering  a time  period
         acceptable to the Bank and specifying the assumptions  used in creating
         the projections. The projections shall be provided to the Bank by April
         30th of each fiscal year beginning fiscal year 2004.

(e)      Borrower 2's narrative  business plan by April 30th of each fiscal year
         beginning fiscal year 2004.

(f)      Within 90 days of the fiscal year end, the annual financial  statements
         of California Water Service Company. These financial statements must be
         audited  (with an  opinion  satisfactory  to the  Bank) by a  Certified
         Public  Accountant  acceptable  to the Bank.  The  statements  shall be
         prepared on an unconsolidated basis.

(g)      Within 60 days of the period's end, the quarterly financial  statements
         of  California  Water  Service  Company,  certified  and  dated  by  an
         authorized  financial  officer.   These  financial  statements  may  be
         company-prepared. The statements shall be prepared on an unconsolidated
         basis.

(h)      The annual  financial  projections of California  Water Service Company
         covering  a time  period  acceptable  to the  Bank and  specifying  the
         assumptions used in creating the projections.  The projections shall be
         provided to the Bank by April 30th of each fiscal year beginning fiscal
         year 2004.

(i)      Within  the  period(s)  provided  in (a) and (b)  above,  a  compliance
         certificate of the Borrower signed by an authorized  financial  officer
         of the Borrower  setting forth (i) the  computation  (on a consolidated
         basis) of the Debt to Capitalization Ratio (as defined in Paragraph 1.6
         above) at the end of the  period  covered by the  financial  statements
         then being  furnished  and (ii) whether there existed as of the date of
         such  financial  statements  and whether there exists as of the date of
         the  certificate,  any default  under this  Agreement  and, if any such
         default  exists,  specifying  the  nature  thereof  and the  action the
         Borrower is taking and proposes to take with respect thereto.

7.3      Out of Debt  Period.  To repay in full the advances  outstanding  under
         Facility No. 1 for a period of at least thirty (30) consecutive days in
         each Line-Year.  "Line-Year"  means the period between the date of this
         Agreement and December 31, 2003, and each  subsequent  one-year  period
         (if any). For purposes of this  paragraph,  "advances" does not include
         undrawn amounts of outstanding letters of credit.

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7.4      Other Debts.  Not to have outstanding or incur any direct or contingent
         liabilities  or lease  obligations  (other than those to the Bank),  or
         become liable for the liabilities of others, without the Bank's written
         consent. 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,  lines of credit  and leases in  existence  on the date of
         this Agreement disclosed in writing to the Bank.

(e)      Additional  debts and lease  obligations  for the  acquisition of fixed
         assets, to the extent permitted under Paragraph 7.5(d) below.

(f)      Additional  debts assumed in  connection  with  acquisitions  permitted
         under Paragraph 7.8(b) below.

(g)      Additional  obligations  of any Borrower  consisting of first  mortgage
         bonds or unsecured senior notes  substantially  similar in structure to
         those certain first mortgage bonds and unsecured  senior notes that are
         obligations of California  Water Service Company and are outstanding as
         of the date of this Agreement.

7.5      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)      Liens and security interests 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)      Additional  purchase money security  interests in assets acquired after
         the date of this  Agreement,  if the  total  principal  amount of debts
         secured by such liens does not exceed Two Million Five Hundred Thousand
         Dollars  ($2,500,000)  in the  aggregate  at any one  time  for all the
         Borrowers.

(e)      Liens  securing  first  mortgage  bonds  permitted  under the preceding
         paragraph.

7.6      Maintenance of Assets.

(a)      Not to sell, assign,  lease,  transfer or otherwise dispose of any part
         of any  Borrower's  business  or any  Borrower's  assets  except in the
         ordinary course of such Borrower's business.  It is provided,  however,
         that this negative  covenant  shall not be deemed to prohibit  sales by
         Borrower  2 of  those  certain  parcels  of  real  property  previously
         transferred or sold to Borrower 2 by California  Water Service  Company
         because  such  parcels  were  not  essential  to  the  regulated  water
         operations of California Water Service Company.

(b)      Not to sell, assign, lease, transfer or otherwise dispose of any assets
         for less than fair market value, or enter into any agreement to do so.

(c)      Not to enter into any sale and leaseback  agreement covering any of its
         fixed assets.

(d)      To maintain and preserve all rights,  privileges,  and franchises  each
         Borrower now has.

(e)      To make any repairs,  renewals, or replacements to keep each Borrower's
         properties in good working condition.

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7.7      Loans. Not to make any loans, advances or other extensions of credit to
         any individual or entity, except for:

(a)      Existing extensions of credit disclosed to the Bank in writing.

(b)      Extensions of credit to any Borrower's current subsidiaries.

(c)      Extensions  of credit in the  nature of  accounts  receivable  or notes
         receivable  arising  from the sale or lease of goods or services in the
         ordinary course of business to non-affiliated entities.

7.8      Additional  Negative  Covenants.  Not to,  without  the Bank's  written
         consent:

(a)      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.

(b)      Acquire or  purchase a business  or its  assets,  for a  consideration,
         including  assumption of direct or  contingent  debt, in excess of Five
         Million Dollars ($5,000,000) in the aggregate. It is provided, however,
         that this  negative  covenant  does not apply to Borrower  1's proposed
         acquisition  of  Kaanapali  Water   Corporation  for  a  consideration,
         including  assumption  of direct or contingent  debt,  not in excess of
         Eight Million Dollars  ($8,000,000),  to which acquisition the Bank has
         already consented.

(c)      Engage in any  business  activities  substantially  different  from any
         Borrower's present business.

(d)      Liquidate or dissolve any Borrower's business.

(e)      Voluntarily suspend any Borrower's business for more than 7 days in any
         365-day period.

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

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

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

(c)      Any event of default  under this  Agreement,  or any event which,  with
         notice or lapse of time or both, would constitute an event of default.

(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.

(f)      Any actual  contingent  liabilities of any Borrower (or any guarantor),
         and any such contingent  liabilities which are reasonably  foreseeable,
         where  such   liabilities   are  in  excess  of  One  Million   Dollars
         ($1,000,000) in the aggregate.

7.10     General Business  Insurance.  To maintain insurance as is usual for the
         business each Borrower is in.

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

7.12     ERISA  Plans.   Promptly  during  each  year,  to  pay  and  cause  any
subsidiaries to pay contributions  adequate to meet at least the minimum funding
standards  under  ERISA with  respect to each and every  Plan;  file each annual
report  required to be filed pursuant to ERISA in connection  with each Plan for
each year;  and notify the Bank  within ten (10) days of the  occurrence  of any
Reportable  Event that might  constitute  grounds for termination of any capital
Plan by the Pension Benefit  Guaranty  Corporation or for the appointment by the
appropriate  United States  District

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Court of a trustee to administer any Plan. "ERISA" means the Employee Retirement
Income Security Act of 1974, as amended from time to time.  Capitalized terms in
this paragraph shall have the meanings defined within ERISA.

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

7.14     Audits.  To allow the Bank and its  agents to  inspect  any  Borrower's
properties  and  examine,  audit,  and make  copies of books and  records at any
reasonable  time. If any of any Borrower's  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.

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

7.16     Mandatory  Prepayment;  Early  Termination.  To  immediately  repay the
entire  principal  balance of this Agreement,  together with interest,  any fees
(including  any prepayment  fees) and any other amounts due  hereunder,  and not
obtain any further credit hereunder, upon the occurrence of the following event:
Facility No. 1 of the Business Loan Agreement dated  __________,  ____,  between
California  Water Service Company and the Bank, as now in effect or as hereafter
renewed,  amended or restated (the "Other Credit Facility"),  terminates for any
reason, including, without limitation,  termination of the Other Credit Facility
at the request of California Water Service Company,  termination  resulting from
failure  by the Bank to renew the  Other  Credit  Facility,  or  termination  as
otherwise provided under the Other Credit Facility.

8.       DEFAULT AND REMEDIES

If any of the following events of default 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 entire
debt immediately and without prior notice. In addition,  if any event of default
occurs, the Bank shall have all rights,  powers and remedies available under any
instruments  and  agreements  required by or executed  in  connection  with this
Agreement,  as well as all rights and remedies available at law or in equity. 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.  The  Borrower  fails  to make a  payment  under  this
         Agreement when due.

8.2      Other Bank  Agreements.  Any  Borrower  (or any  Obligor) or any of any
Borrower's  related  entities or affiliates  fails to meet the conditions of, or
fails to perform any obligation  under any other  agreement any Borrower (or any
Obligor) or any of any Borrower's  related entities or affiliates,  has with the
Bank or any  affiliate of the Bank.  For purposes of this  Agreement,  "Obligor"
shall mean any guarantor or any party pledging collateral to the Bank.

8.3      Cross-default.  Any default  occurs under any  agreement in  connection
with any credit any Borrower (or any Obligor) or any of any  Borrower's  related
entities or  affiliates  has obtained from anyone else or which any Borrower (or
any  Obligor)  or any of any  Borrower's  related  entities  or  affiliates  has
guaranteed,  or any default  occurs under that certain  Business Loan  Agreement
dated as of the date  hereof  between  the Bank  and  California  Water  Service
Company,  as now in  effect  and  as  hereafter  amended  restated  renewed,  or
superseded.

8.4      False Information. Any Borrower or any Obligor has given the Bank false
or misleading information or representations.

8.5      Bankruptcy.  Any Borrower,  any Obligor,  or any general partner of any
Borrower or of any Obligor files a bankruptcy petition, a bankruptcy petition is
filed against any of the foregoing parties, or any Borrower, any Obligor, or any
general partner of any Borrower or of any Obligor makes a general assignment for
the benefit of creditors.

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8.6      Receivers.   A  receiver  or  similar   official  is  appointed  for  a
substantial portion of any Borrower's or any Obligor's business, or the business
is terminated,  or, if any Obligor is anything other than a natural person, such
Obligor is liquidated or dissolved.

8.7      Lawsuits.  Any lawsuit or  lawsuits  are filed on behalf of one or more
trade  creditors  against any Borrower or any Obligor in an aggregate  amount of
One Million Dollars ($1,000,000) or more in excess of any insurance coverage.

8.8      Judgments.  Any judgments or arbitration awards are entered against any
Borrower  or any  Obligor,  or any  Borrower  or any  Obligor  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.

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

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

8.11     Default under Related Documents. Any default occurs under any guaranty,
subordination agreement,  security agreement,  deed of trust, mortgage, or other
document  required by or delivered in connection with this Agreement or any such
document is no longer in effect, or any guarantor  purports to revoke or disavow
the guaranty.

8.12     ERISA  Plans.  Any one or  more of the  following  events  occurs  with
respect to a Plan of any Borrower  subject to Title IV of ERISA,  provided  such
event or events could  reasonably  be expected,  in the judgment of the Bank, to
subject any Borrower to any tax, penalty or liability (or any combination of the
foregoing) which, in the aggregate,  could have a material adverse effect on the
financial condition of any Borrower:

(a)      A  reportable  event shall occur  under  Section  4043(c) of ERISA with
         respect to a Plan.

(b)      Any Plan  termination  (or  commencement  of proceedings to terminate a
         Plan) or the full or partial  withdrawal from a Plan by the Borrower or
         any ERISA Affiliate.

8.13     Debt  Ratings.  California  Water Service  Company's  Debt Ratings with
Moody's  shall be lower than Baa3 or with S&P shall be lower  than  BBB-.  "Debt
Rating"  means,  as of any date of  determination,  the rating as  determined by
either Moody's or S&P  (collectively,  the "Debt  Ratings") of California  Water
Service Company's non-credit-enhanced, senior unsecured long-term debt.

8.14     Restrictive  Covenant.  Borrower 1 directly or indirectly agrees to any
arrangement  whereby  the ability of  California  Water  Service  Company to pay
dividends to Borrower 1 is restricted.

8.15     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.

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<PAGE>

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 and Waiver of Jury Trial

(a)      This paragraph  concerns the resolution of any  controversies or claims
         between the parties,  whether arising in contract,  tort or by statute,
         including but not limited to  controversies or claims that arise out of
         or relate to: (i) this Agreement (including any renewals, extensions or
         modifications);   or  (ii)  any  document  related  to  this  Agreement
         (collectively  a  "Claim").   For  the  purposes  of  this  arbitration
         provision   only,   the  term   "parties"   shall  include  any  parent
         corporation,  subsidiary  or  affiliate  of the  Bank  involved  in the
         servicing,  management or administration of any obligation described or
         evidenced by this Agreement.

(b)      At the  request  of any party to this  Agreement,  any  Claim  shall be
         resolved  by  binding   arbitration  in  accordance  with  the  Federal
         Arbitration  Act (Title 9, U. S. Code) (the "Act").  The Act will apply
         even though this Agreement provides that it is governed by the law of a
         specified state.

(c)      Arbitration proceedings will be determined in accordance with the Act,
         the applicable rules and procedures for the arbitration of disputes of
         JAMS or any successor thereof ("JAMS"), and the terms of this
         paragraph. In the event of any inconsistency, the terms of this
         paragraph shall control.

(j)

(d)      The arbitration  shall be  administered  by JAMS and conducted,  unless
         otherwise  required  by law,  in any U. S. state where real or tangible
         personal property  collateral for this credit is located or if there is
         no such collateral, in the state specified in the governing law section
         of this  Agreement.  All Claims shall be determined by one  arbitrator;
         however, if Claims exceed Five Million Dollars  ($5,000,000),  upon the
         request of any party, the Claims shall be decided by three arbitrators.
         All arbitration  hearings shall commence within ninety (90) days of the
         demand  for   arbitration   and  close  within   ninety  (90)  days  of
         commencement and the award of the arbitrator(s)  shall be issued within
         thirty  (30)  days  of  the  close  of  the   hearing.   However,   the
         arbitrator(s),   upon  a  showing  of  good   cause,   may  extend  the
         commencement  of the hearing for up to an  additional  sixty (60) days.
         The arbitrator(s)  shall provide a concise written statement of reasons
         for the award.  The  arbitration  award may be  submitted  to any court
         having jurisdiction to be confirmed and enforced.

(e)      The  arbitrator(s)  will have the authority to decide whether any Claim
         is barred by the  statute of  limitations  and,  if so, to dismiss  the
         arbitration  on that  basis.  For  purposes of the  application  of the
         statute of limitations, the service on JAMS under applicable JAMS rules
         of a notice of Claim is the equivalent of the filing of a lawsuit.  Any
         dispute  concerning  this  arbitration  provision or whether a Claim is
         arbitrable shall be determined by the arbitrator(s).  The arbitrator(s)
         shall have the power to award legal fees  pursuant to the terms of this
         Agreement.

(f)      This  paragraph  does not limit the right of any party to: (i) exercise
         self-help  remedies,  such as but not limited to, setoff; (ii) initiate
         judicial  or  non-judicial  foreclosure  against  any real or  personal
         property  collateral;  (iii)  exercise  any  judicial  or power of sale
         rights, or (iv) act in a court of law to obtain an interim remedy, such
         as but  not  limited  to,  injunctive  relief,  writ of  possession  or
         appointment of a receiver, or additional or supplementary remedies.

(g)      The procedure  described above will not apply if the Claim, at the time
         of the proposed submission to arbitration, arises from or relates to an
         obligation to the Bank secured by real  property.  In this case, all of
         the parties to this  Agreement  must consent to submission of the Claim
         to  arbitration.  If both  parties do not consent to  arbitration,  the
         Claim will be resolved as follows: The parties will designate a referee
         (or a panel of  referees)  selected  under the  auspices of JAMS in the
         same  manner  as   arbitrators   are  selected  in  JAMS   administered
         proceedings.  The designated referee(s) will be appointed by a court as
         provided  in  California  Code of Civil  Procedure  Section 638 and the
         following  related  sections.  The referee (or presiding referee of the
         panel) will be an active  attorney or a retired  judge.  The award that
         results  from the  decision  of the

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         referee(s)  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.

(k)      The filing of a court action is not intended to  constitute a waiver of
         the right of any  party,  including  the  suing  party,  thereafter  to
         require submittal of the Claim to arbitration.

(i)      By  agreeing  to  binding  arbitration,  the  parties  irrevocably  and
         voluntarily waive any right they may have to a trial by jury in respect
         of any Claim.  Furthermore,  without intending in any way to limit this
         Agreement to arbitrate, to the extent any Claim is not arbitrated,  the
         parties  irrevocably and voluntarily waive any right they may have to a
         trial by jury in respect of such Claim.  This  provision  is a material
         inducement for the parties entering into this Agreement.

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      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 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
Borrower under the Bankruptcy Code (Title 11, 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.

9.7      Joint and Several Liability.  This paragraph shall apply if two or more
Borrowers sign this Agreement:


(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).  Each obligation,  promise,  covenant,  representation and
         warranty in this Agreement shall be deemed to have been made by, and be
         binding upon, each Borrower,  unless this Agreement  expressly provides
         otherwise.  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  waives any defense by reason of any other  Borrower's or
         any other person's defense,  disability, or release from liability. The
         Bank can exercise its rights  against each  Borrower  even if any other
         Borrower or any other  person no longer is liable  because of a statute
         of limitations or for other reasons.

(e)      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).

(f)      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

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         indebtedness  by any other Borrower and all rights to any other notices
         to any party liable on any of the credit extended under this Agreement.

(g)      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.

(h)      Until  all  obligations  of  the  Borrowers  to  the  Bank  under  this
         Agreementhave  been  paid in full  and any  commitments  of the Bank or
         facilities  provided  by  the  Bank  under  this  Agreement  have  been
         terminated,   each  Borrower  (a)  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 11, 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;  (b) 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.

(i)      Each Borrower  waives any right to require the Bank to proceed  against
         any other Borrower or any other person;  proceed against or exhaust any
         security;  or pursue any other remedy.  Further, each Borrower consents
         to the taking of, or failure  to take,  any action  which  might in any
         manner or to any  extent  vary the  risks of the  Borrower  under  this
         Agreement  or  which,  but  for  this  provision,  might  operate  as a
         discharge of the Borrower.

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;

(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.  Any reference in any
related document to a "promissory note" or a "note" executed by the Borrower and
dated  as of the  date of this  Agreement  shall  be  deemed  to  refer  to this
Agreement, as now in effect or as hereafter amended, renewed, or restated.

9.9      Indemnification. The Borrower will indemnify and hold the Bank harmless
from any loss, liability,  damages, judgments, and costs of any kind relating to
or arising  directly or  indirectly  out of (a) this  Agreement  or any document
required  hereunder,  (b) any credit  extended or  committed  by the Bank to the
Borrower  hereunder,  and (c) any litigation or proceeding related to or arising
out of this  Agreement,  any such document,  or any such credit.  This indemnity
includes but is not limited to attorneys'  fees (including the allocated cost of
in-house counsel). This indemnity extends to the Bank, its parent,  subsidiaries
and all of their directors, officers, employees, agents, successors,  attorneys,
and assigns. This indemnity will survive repayment of the Borrower's obligations
to the Bank.  All sums due to the Bank  hereunder  shall be  obligations  of the
Borrower, due and payable immediately without demand.

9.10     Notices.  Unless  otherwise  provided in this  Agreement  or in another
agreement  between the Bank and the Borrower,  all notices  required  under this
Agreement  shall be  personally  delivered or sent by first class mail,  postage
prepaid, or by overnight courier, to the addresses on the signature page of this
Agreement, or sent by facsimile to the fax numbers listed on the signature page,
or to such other addresses as the Bank and the Borrower may specify from time to
time in writing.  Notices and other  communications  shall be  effective  (i) if
mailed,  upon the earlier of receipt or five (5) days after  deposit in the U.S.
mail, first class,  postage prepaid,  (ii) if telecopied,  when

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<PAGE>

transmitted,  or (iii) if  hand-delivered,  by courier or  otherwise  (including
telegram, lettergram or mailgram), when delivered.

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


<TABLE>
<CAPTION>
<S>                                                                  <C>
Borrower:                                                            Bank:

California Water Service Group                                       Bank of America, N.A.


By:                                                                  By:
---------------------------------------------------------------      ---------------------------------------------------------------

Gerald F. Feeney, Vice President/CFO                                 John C. Plecque, Senior Vice President
---------------------------------------------------------------      ---------------------------------------------------------------



CWS Utility Services


By:                                                                  By:
---------------------------------------------------------------      ---------------------------------------------------------------

Gerald F. Feeney, Vice President/CFO                                 Chris P. Giannotti, Senior Vice President
---------------------------------------------------------------      ---------------------------------------------------------------




New Mexico Water Service Company

By:
---------------------------------------------------------------

Gerald F. Feeney, Vice President/CFO
---------------------------------------------------------------


1.
                                                                     Address where notices to the Bank are to be sent:
2. ADDRESS WHERE NOTICES TO THE BORROWER ARE TO BE SENT:
                                                                     Bay Area Commercial Banking Office #1473
                                                                     315 Montgomery Street, 13th Floor
                                                                     San Francisco, CA 94104
1720 North First Street                                              ---------------------------------------------------------------
San Jose, CA 95112
---------------------------------------------------------------

</TABLE>
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