Document:

Exhibit 4.18

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                        CALIFORNIA WATER SERVICE COMPANY

                       TENTH SUPPLEMENT TO NOTE AGREEMENT

                          Dated as of February 15, 2003

                   Re: $10,000,000 5.48% Series L Senior Notes
                                Due March 1, 2018

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                                      162
<PAGE>

                       TENTH SUPPLEMENT TO NOTE AGREEMENT

                                                                     Dated as of
                                                               February 15, 2003

To the Purchaser named in
Schedule A hereto

Ladies and Gentlemen:

         This  Tenth   Supplement  to  Note  Purchase   Agreement   (the  "Tenth
Supplement") is between  California  Water Service Company (the "Company") whose
address  is  1720  North  First  Street,  San  Jose,  California  95112  and the
institutional investor named on Schedule A attached hereto (the "Purchaser").

         Reference  is hereby made to that certain  Note  Agreement  dated as of
March 1, 1999 (the "Note  Agreement")  between the  Company  and the  purchasers
listed on Schedule I thereto. All capitalized terms not otherwise defined herein
shall have the same  meaning as specified  in the Note  Agreement.  Reference is
further made to Section 4.3 thereof which requires  that,  prior to the delivery
of any Additional Notes, the Company and each Additional Purchaser shall execute
and deliver a Supplement.

         The Company hereby agrees with the Purchaser named on Schedule A hereto
as follows:

         1. The  Company  has  authorized  the  issue  and  sale of  $10,000,000
aggregate  principal amount of its 5.48% Series L Senior Notes due March 1, 2018
(the  "Series L Notes").  The Series L Notes,  together  with the Series B Notes
initially  issued  pursuant  to the Note  Agreement,  the Series C Notes  issued
pursuant to the First  Supplement to Note Agreement dated as of October 1, 2000,
the Series D Notes issued  pursuant to the Second  Supplement to Note  Agreement
dated as of September 1, 2001,  the Series E Notes issued  pursuant to the Third
Supplement to Note Agreement  dated as of May 1, 2002, the Series F Notes issued
pursuant to the Fourth Supplement to Note Agreement dated as of August 15, 2002,
the Series G Notes issued  pursuant to the Fifth  Supplement  to Note  Agreement
dated as of November 15, 2002,  the Series H Notes issued  pursuant to the Sixth
Supplement to Note  Agreement  dated as of December 1, 2002,  the Series K Notes
being issued  pursuant to the Ninth  Supplement  to Note  Agreement  dated as of
February  15,  2003  concurrently  with these  Series L Notes and each Series of
Additional  Notes  which  may  from  time  to  time be  issued  pursuant  to the
provisions of Section 1.4 of the Note Agreement, are collectively referred to as
the "Notes" (such term shall also include any such notes issued in  substitution
therefor  pursuant  to Section  9.2 of the Note  Agreement).  The Series L Notes
shall be substantially in the form set out in Exhibit 1 hereto with such changes
therefrom, if any, as may be approved by the Purchaser and the Company.

         2. Subject to the terms and  conditions  hereof and as set forth in the
Note  Agreement  and  on  the  basis  of  the   representations  and  warranties
hereinafter set forth, the Company agrees

                                      163
<PAGE>

to issue and sell to the  Purchaser,  and the Purchaser  agrees to purchase from
the  Company,  Series L Notes in the  principal  amount set forth  opposite  the
Purchaser's name on Schedule A hereto at a price of 100% of the principal amount
thereof on the closing date hereafter mentioned.

         3. Delivery of the  $10,000,000  in aggregate  principal  amount of the
Series L Notes  will be made at the  offices  of Chapman  and  Cutler,  111 West
Monroe Street, Chicago,  Illinois 60603-4080 against payment therefor in Federal
Reserve or other funds current and immediately available at the principal office
of Bank of America,  ABA No. 121000358,  Account No. 14879-00161,  Account Name:
California  Water Service Company  Security Sales, in the amount of the purchase
price at 11:00 A.M.,  San  Francisco,  California  time, on February 28, 2003 or
such later date (not later than March 5, 2003) as shall  mutually be agreed upon
by the Company and the Purchaser of the Series L Notes (the "Closing Date").

         4. Prepayment of Notes.

         (a) Required  Prepayments.  No prepayments are required to be made with
respect to the Series L Notes prior to the expressed maturity date thereof other
than  prepayments  made in connection with an acceleration of the Series L Notes
pursuant to the provisions of Section 6.3 of the Note Agreement.

         (b) Optional Prepayment with Premium. Upon compliance with Section 4(d)
below the Company shall have the  privilege,  at any time and from time to time,
of prepaying  the  outstanding  Notes of any Series,  either in whole or in part
(but if in part then in a minimum  principal  amount of  $100,000) by payment of
the  principal  amount of the Notes of such  Series,  or  portion  thereof to be
prepaid,  and accrued interest thereon to the date of such prepayment,  together
with a premium equal to the  Make-Whole  Amount,  determined as of five Business
Days prior to the date of such prepayment pursuant to this Section 4(b).

         (c) Optional  Prepayment  at Par in the Event of  Condemnation.  In the
event a Material  Condemnation  shall have occurred with respect to any property
of the Company or a Restricted  Subsidiary,  then upon  compliance  with Section
4(d) below the Company  shall have the privilege of applying the proceeds of any
condemnation award received in connection with such Material Condemnation to the
prepayment of the principal amount of the Notes of any Series then  outstanding,
or any portion  thereof to the extent of such  proceeds,  together  with accrued
interest  thereon to the date of such prepayment.  Any optional  prepayment made
pursuant to this Section 4(c) shall be without premium.

         (d) Notice of Optional Prepayments. The Company will give notice of any
prepayment of the Notes pursuant to Section 4(b) or 4(c) to each Holder of Notes
to be prepaid  not less than 30 days nor more than 60 days before the date fixed
for such optional  prepayment  specifying (a) such date, (b) the Section of this
Tenth  Supplement  under which the  prepayment is to be made,  (c) the principal
amount of the Holder's  Notes to be prepaid on such date,  (d) whether a premium
may be payable,  (e) the date when the premium, if any, will be calculated,  (f)
the estimated premium,  together with a reasonably detailed  computation of such
estimated  premium,  and (g) the accrued interest  applicable to the prepayment.
Such notice of prepayment

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shall also certify all facts, if any, which are conditions precedent to any such
prepayment.  Notice of prepayment having been so given, the aggregate  principal
amount  of the Notes to be  prepaid  specified  in such  notice,  together  with
accrued interest  thereon and the premium,  if any, payable with respect thereto
shall become due and payable on the  prepayment  date  specified in said notice.
Not later than two Business Days prior to the prepayment  date specified in such
notice,  the Company shall  provide each Holder of a Note to be prepaid  written
notice of the premium,  if any,  payable in connection with such prepayment and,
whether or not any premium is payable, a reasonably detailed  computation of the
Make-Whole Amount.

         (e) Application of Prepayments.  In the case of each partial prepayment
of the Notes  pursuant to the  provisions of Section 4(b) or 4(c), the principal
amount of the Notes of the Series to be prepaid shall be allocated  among all of
the Notes of such Series at the time  outstanding  in  proportion,  as nearly as
practicable, to the respective unpaid principal amounts thereof.

         (f) Direct Payment.  Notwithstanding anything to the contrary contained
in the Note  Agreement,  this Tenth  Supplement or the Notes, in the case of any
Note owned by any Holder that is a Purchaser,  Additional Purchaser or any other
Institutional  Holder which has given written  notice to the Company  requesting
that  the  provisions  of this  Section  4(f)  shall  apply,  the  Company  will
punctually pay when due the principal thereof,  interest thereon and premium, if
any,  due with  respect to said  principal,  without  any  presentment  thereof,
directly to such Holder at its address set forth herein or such other address as
such Holder may from time to time  designate  in writing to the Company or, if a
bank account with a United  States bank is so  designated  for such Holder,  the
Company  will make such  payments in  immediately  available  funds to such bank
account,  marked for attention as indicated,  or in such other manner or to such
other  account in any United  States  bank as such  Holder may from time to time
direct in writing.

         (g) Make Whole Amount. The term "Make-Whole Amount" means, with respect
to any Series L Note, an amount equal to the excess,  if any, of the  Discounted
Value of the Remaining  Scheduled  Payments with respect to the Called Principal
of such  Note  over the  amount  of such  Called  Principal,  provided  that the
Make-Whole  Amount  may in no event  be less  than  zero.  For the  purposes  of
determining  the  Make-Whole  Amount,  the  following  terms have the  following
meanings:

                  "Called  Principal"  means, with respect to any Series L Note,
         the  principal  of such Note that is to be prepaid  pursuant to Section
         4(b) or has become or is  declared  to be  immediately  due and payable
         pursuant to Section 6.3 of the Note Agreement, as the context requires.

                  "Discounted Value" means, with respect to the Called Principal
         of any Series L Note, the amount  obtained by discounting all Remaining
         Scheduled  Payments  with respect to such Called  Principal  from their
         respective  scheduled due dates to the Settlement  Date with respect to
         such Called Principal,  in accordance with accepted  financial practice
         and at a discount factor (applied on the same periodic basis as that on
         which  interest  on  the  Series  L  Notes  is  payable)  equal  to the
         Reinvestment Yield with respect to such Called Principal.

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<PAGE>

                  "Reinvestment   Yield"  means,  with  respect  to  the  Called
         Principal  of any  Series L Note,  0.50%,  plus the  yield to  maturity
         implied by (i) the  yields  reported,  as of 10:00 A.M.  (New York City
         time) on the fifth  Business Day  preceding  the  Settlement  Date with
         respect to such Called Principal,  on the display page of the Bloomberg
         Financial Markets Services Screen PX1 or the equivalent screen provided
         by Bloomberg  Financial  Markets  Commodities  News for actively traded
         U.S.  Treasury  securities  having a  maturity  equal to the  Remaining
         Average Life of such Called  Principal as of such  Settlement  Date, or
         (ii) if such  yields  are not  reported  as of such time or the  yields
         reported as of such time are not  ascertainable,  the Treasury Constant
         Maturity  Series  Yields  reported,  for the  latest day for which such
         yields have been so reported as of the second  Business  Day  preceding
         the Settlement Date with respect to such Called  Principal,  in Federal
         Reserve  Statistical  Release H.15 (519) (or any  comparable  successor
         publication)  for actively  traded U.S.  Treasury  securities  having a
         constant  maturity  equal to the Remaining  Average Life of such Called
         Principal  as of such  Settlement  Date.  Such  implied  yield  will be
         determined,   if  necessary,  by  (a)  converting  U.S.  Treasury  bill
         quotations  to  bond-equivalent  yields  in  accordance  with  accepted
         financial  practice  and (b)  interpolating  linearly  between  (1) the
         actively traded U.S. Treasury security with the maturity closest to and
         greater than the  Remaining  Average  Life and (2) the actively  traded
         U.S.  Treasury  security with the maturity closest to and less than the
         Remaining Average Life.

                  "Remaining  Average  Life"  means,  with respect to any Called
         Principal,  the number of years (calculated to the nearest  one-twelfth
         year) obtained by dividing (i) such Called  Principal into (ii) the sum
         of the products obtained by multiplying (a) the principal  component of
         each Remaining  Scheduled Payment with respect to such Called Principal
         by (b) the number of years (calculated to the nearest one-twelfth year)
         that will  elapse  between  the  Settlement  Date with  respect to such
         Called Principal and the scheduled due date of such Remaining Scheduled
         Payment.

                  "Remaining  Scheduled  Payments"  means,  with  respect to the
         Called  Principal  of any Series L Note,  all  payments  of such Called
         Principal and interest  thereon that would be due after the  Settlement
         Date with respect to such Called Principal if no payment of such Called
         Principal  were made prior to its scheduled due date,  provided that if
         such Settlement  Date is not a date on which interest  payments are due
         to be made  under the terms of the  Series L Notes,  then the amount of
         the next succeeding  scheduled  interest payment will be reduced by the
         amount of interest  accrued to such  Settlement Date and required to be
         paid on such Settlement Date pursuant to Section 4(b) hereof or Section
         6.3 of the Note Agreement.

                  "Settlement  Date" means, with respect to the Called Principal
         of any Series L Note, the date on which such Called  Principal is to be
         prepaid pursuant to Section 4(b) hereof or has become or is declared to
         be  immediately  due and  payable  pursuant  to Section 6.3 of the Note
         Agreement, as the context requires.

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<PAGE>

         5. Closing Conditions.

         (a) Conditions. The obligation of the Purchaser to purchase the Series
L Notes on the Closing Date shall be subject to the performance by the Company
of its agreements hereunder which by the terms hereof are to be performed at or
prior to the time of delivery of the Series L Notes and to the following further
conditions precedent:

                  (i) Closing Certificate.  Such Purchaser shall have received a
         certificate  dated the Closing Date,  signed by the President or a Vice
         President  of the  Company,  the truth and accuracy of which shall be a
         condition to such Purchaser's obligation to purchase the Series L Notes
         proposed  to be sold to such  Purchaser  and to the effect that (1) the
         representations  and  warranties  of the Company set forth in Exhibit 2
         hereto are true and correct on and with  respect to the  Closing  Date,
         (2) the Company has performed all of its  obligations  hereunder  which
         are to be performed on or prior to the Closing Date, and (3) no Default
         or Event of Default has occurred and is continuing.

                  (ii)  Compliance   Certificate.   Such  Purchaser  shall  have
         received a  certificate  dated the Closing  Date,  signed by the Senior
         Financial Officer of the Company stating that such officer has reviewed
         the  provisions  of the Note  Agreement and this Tenth  Supplement  and
         setting forth the information  and  computation (in sufficient  detail)
         required in order to  establish  whether  the Company is in  compliance
         with Section 5.6 of the Note Agreement on the Closing Date.

                  (iii) Legal Opinions.  Such Purchaser shall have received from
         Bingham McCutchen LLP, counsel for the Company, and Chapman and Cutler,
         special  counsel for the  Purchaser,  their  opinions dated the Closing
         Date,  in  form  and  substance  satisfactory  to such  Purchaser,  and
         covering the matters set forth respectively in Exhibits 3 and 4 hereto.

                  (iv) Regulatory Approval. Prior to the Closing Date, the issue
         and sale of the  Series L Notes  shall  have  been duly  authorized  or
         approved by appropriate order of the Public Utilities Commission of the
         State of California (the  "Commission").  Such order shall be final and
         in full  force and  effect  and not  subject  to any  appeal,  hearing,
         rehearing or contest.  All conditions contained in any such order which
         are to be  fulfilled  on or prior to the issuance of the Series L Notes
         shall have been  fulfilled.  The Company  shall have  delivered  to the
         Purchaser  and its special  counsel a certified  copy of such order and
         the application therefor.

                  (v) Related  Transactions.  The Company shall have consummated
         the sale of the entire principal amount of the Series L Notes scheduled
         to be sold on the Closing Date pursuant to this Tenth Supplement.

                  (vi)  Satisfactory  Proceedings.   All  proceedings  taken  in
         connection with the transactions contemplated by this Tenth Supplement,
         and all  documents  necessary  to the  consummation  thereof,  shall be
         satisfactory in form and substance to such Purchaser and

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<PAGE>

                  such  Purchaser's  special  counsel,  and such Purchaser shall
         have received a copy (executed or certified as may be  appropriate)  of
         all  legal  documents  or  proceedings  taken  in  connection  with the
         consummation of said transactions.

                  (vii)  Purchase  Permitted by  Applicable  Law. On the Closing
         Date, the purchase of Series L Notes shall (a) be permitted by the laws
         and regulations of each jurisdiction to which the Purchaser is subject,
         without recourse to provisions  (such as Section  1405(a)(8) of the New
         York  Insurance  Law)  permitting  limited   investments  by  insurance
         companies  without  restriction  as to the character of the  particular
         investment,   (b)  not  violate  any   applicable   law  or  regulation
         (including,  without  limitation,  Regulation U, T or X of the Board of
         Governors  of the  Federal  Reserve  System)  and (c) not  subject  the
         Purchaser  to any tax,  penalty or  liability  under or pursuant to any
         applicable law or regulation, which law or regulation was not in effect
         on the date hereof. If requested by the Purchaser, such Purchaser shall
         have received an Officer's Certificate certifying as to such matters of
         fact as such Purchaser may  reasonably  specify to enable the Purchaser
         to determine whether such purchase is so permitted.

                  (viii) Payment of Special Counsel Fees. The Company shall have
         paid,   on  or  before  the  Closing  Date,   the  fees,   charges  and
         disbursements  of the Purchaser's  special counsel referred to in (iii)
         above, to the extent  reflected in a statement of such counsel rendered
         to the Company at least one Business Day prior to the Closing Date.

                  (ix) Private  Placement  Number.  A Private  Placement  Number
         issued by Standard & Poor's CUSIP Service Bureau (in  cooperation  with
         the  Securities   Valuation  Office  of  the  National  Association  of
         Insurance  Commissioners)  shall  have been  obtained  for the Series L
         Notes.

         (b) The  obligation  of the  Company  to  deliver  the  Series  L Notes
hereunder  is  subject  to the  conditions  that (i) the  Commission  shall have
authorized  the  issuance  and sale by the  Company of the Series L Notes at the
price herein provided and said  authorization  shall be in full force and effect
and (ii) the entire  principal amount of the Series L Notes scheduled to be sold
on the Closing Date pursuant to this Tenth  Supplement  shall have been tendered
by the Purchaser. If the condition specified in this Section 5(b) shall not have
been fulfilled  prior to or on the Closing Date,  this Tenth  Supplement and all
the obligations of the Company  hereunder,  except as provided in Section 9.4 of
the Note Agreement, may be cancelled by the Company.

         (c) If on the Closing Date the Company fails to tender to the Purchaser
the  Series  L Notes  to be  issued  to the  Purchaser  on  such  date or if the
conditions specified in Section 5(a) have not been fulfilled,  the Purchaser may
thereupon  elect to be  relieved  of all  further  obligations  under this Tenth
Supplement.  Without  limiting the  foregoing,  if the  conditions  specified in
Section 5(a) have not been fulfilled, such Purchaser may waive compliance by the
Company with any such condition to such extent as such Purchaser may in its sole
discretion determine.  Nothing in this Section 5(c) shall operate to relieve the
Company of any of its obligations  hereunder or to waive the Purchaser's  rights
against the Company.

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         6. The Purchaser  represents and warrants that the  representations and
warranties  set forth in Section 3.2 of the Note  Agreement are true and correct
on the  date  hereof  with  respect  to the  Series  L  Notes  purchased  by the
Purchaser.

         7. The Company and the Purchaser agree to be bound by and comply with
the terms and provisions of the Note Agreement as if such Purchaser were an
original signatory to the Note Agreement.

                                      169
<PAGE>

California Water Service Company
Tenth Supplement

         The execution  hereof shall  constitute a contract  between the Company
and the  Purchaser  for the uses and purposes  hereinabove  set forth,  and this
agreement  may  be  executed  in  any  number  of  counterparts,  each  executed
counterpart constituting an original but all together only one agreement.

                                   CALIFORNIA WATER SERVICE COMPANY

                                   By
                                   Name:    Gerald F. Feeney
                                   Title:   Vice President, Chief Financial
                                            Officer and Treasurer

                                      170
<PAGE>

California Water Service Company
Tenth Supplement

Accepted as of February 15, 2003
                                        AMERICAN GENERAL LIFE AND ACCIDENT
                                              INSURANCE COMPANY

                                              By: AIG Global Investment Corp.

                                              By
                                                 Name:  Sarah Helmich
                                                 Title:  Vice President

                                      171
<PAGE>

                      INFORMATION RELATING TO THE PURCHASER

                                                            PRINCIPAL AMOUNT OF
NAME AND ADDRESS OF PURCHASER                               SERIES G NOTES TO BE
                                                                PURCHASED

AMERICAN GENERAL LIFE AND ACCIDENT                             $10,000,000
INSURANCE COMPANY
c/o AIG Global Investment Corporation
P.O. Box 3247
Houston, Texas  77253-3247
Attention:  Private Placement Department, A36-04
Fax Number:  (713) 831-1072
Overnight Mailing Address:
2929 Allen Parkway, A36-04
Houston, Texas  77019-2155

Payments

All  payments  on or in  respect  of the  Notes to be by bank wire  transfer  of
Federal  or other  immediately  available  funds  (identifying  each  payment as
"California  Water Service Company,  5.48% Senior Notes,  Series L, due March 1,
2018, PPN 130789 P@ 3, principal or interest") to:

Notices

All notices of payment on or in respect of the Notes and written confirmation of
each such payment to:

         American General Life and Accident Insurance Company and PA 10
         c/o State Street Bank and Trust Company
         Insurance Services
         801 Pennsylvania
         Kansas City, Missouri  64105
         Facsimile Number:  (816) 691-3619

Duplicate  payment  notices and all other  correspondences  to be  addressed  to
American General Life and Accident Insurance Company and PA 10 as first provided
above with a copy to:

         AIG Global Investment Corporation
         Legal Department - Investment Management
         2929 Allen Parkway, Suite A36-01
         Houston, Texas  77019-2155
         Facsimile Number:  (713) 831-2328

Name of Nominee in which Notes are to be issued:  None
Taxpayer I.D. Number:  62-0306330

                                   SCHEDULE A
                                 (to Supplement)

<PAGE>

                             [FORM OF SERIES L NOTE]

This Note has not been  registered  with the Securities and Exchange  Commission
under the Securities Act of 1933, as amended, and any sale, transfer,  pledge or
other disposition thereof may be made only (1) in a transaction registered under
said Act or (2) if an exemption from registration under said Act is available.

                        CALIFORNIA WATER SERVICE COMPANY

                           5.48% Series L Senior Note
                                Due March 1, 2018

                                PPN: 130789 P@ 3
No.                                                            February 28, 2003

$

         California  Water  Service  Company,  a  California   corporation  (the
"Company"), for value received, hereby promises to pay to

                              or registered assigns
                        on the first day of March, 2018,
                             the principal amount of

                                                         Dollars ($____________)

and to pay interest  (computed  on the basis of a 360-day year of twelve  30-day
months) on the principal amount from time to time remaining unpaid hereon at the
rate  of  5.48%  per  annum  from  the  date  hereof  until  maturity,   payable
semiannually  on the  first  day of  each  March  and  September  in  each  year
(commencing  on the second of such dates after the date hereof) and at maturity.
The Company agrees to pay interest on overdue  principal  (including any overdue
required or optional  prepayment of principal) and premium,  if any, and (to the
extent legally enforceable) on any overdue installment of interest,  at the rate
of 7.48% per annum after the due date,  whether by  acceleration  or  otherwise,
until paid.  Both the  principal  hereof and interest  hereon are payable at the
principal  office of the Company in San Jose,  California in coin or currency of
the United  States of America which at the time of payment shall be legal tender
for the payment of public and private debts.

         This Note is one of a series of Notes (the "Notes")  issued pursuant to
the Tenth Supplement (the "Tenth  Supplement") to the Note Agreement dated as of
March  1,  1999  (as from  time to time  amended  and  supplemented,  the  "Note
Agreement"),  between the Company,  the Purchaser  named therein and  Additional
Purchasers of Notes from time to time issued  pursuant to any  Supplement to the
Note Agreement. This Note and the holder hereof are entitled equally and ratably
with the holders of all other Notes of all Series from time to time  outstanding
under

                                    EXHIBIT 1
                                 (to Supplement)

<PAGE>

         the Note Agreement to all the benefits provided for thereby or referred
to therein.  Each holder of this Note will be deemed, by its acceptance  hereof,
to have made the  representation set forth in Section 3.2 of the Note Agreement,
provided  that such holder may (in  reliance  upon  information  provided by the
Company,  which shall not be unreasonably withheld) make a representation to the
effect  that the  purchase  by such  holder  of any Note will not  constitute  a
non-exempt prohibited transaction under Section 406(a) of ERISA.

         This Note and the other Notes  outstanding under the Note Agreement may
be declared due prior to their expressed  maturity dates, all in the events,  on
the terms and in the manner and amounts as provided in the Note Agreement.

         The Notes are not subject to  prepayment or redemption at the option of
the Company  prior to their  expressed  maturity  dates  except on the terms and
conditions  and in the amounts and with the  premium,  if any,  set forth in the
Note  Agreement.  This Note is  registered  on the books of the  Company  and is
transferable  only by surrender  thereof at the principal  office of the Company
duly endorsed or accompanied  by a written  instrument of transfer duly executed
by the  registered  holder  of this  Note or its  attorney  duly  authorized  in
writing. Payment of or on account of principal, premium, if any, and interest on
this Note shall be made only to or upon the order in  writing of the  registered
holder.

         This Note shall be construed and enforced in accordance  with,  and the
rights of the parties  shall be governed by, the law of the State of  California
excluding  choice-of-law  principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.

                                      CALIFORNIA WATER SERVICE COMPANY

                                      By
                                               ---------------------------------
                                         Name:
                                                --------------------------------
                                         Title:
                                                   -----------------------------

                                     E-1-2
<PAGE>

                         REPRESENTATIONS AND WARRANTIES

         The Company represents and warrants to the Purchaser that:

         1. Corporate Organization,  Subsidiaries. The Company is duly organized
and existing and in good  standing  under and by virtue of the laws of the State
of  California  and is duly  authorized  and  empowered  to own and  operate its
properties  and to carry on its  business,  all as and in the places  where such
properties  are now owned and  operated  and such  business  is  conducted.  The
Company has no Subsidiaries.

         2.  Corporate  Authority.  The  Company  has full  corporate  power and
corporate  authority to sell and issue the Series L Notes. The issuance and sale
of the Series L Notes and the  execution  and  delivery of the Tenth  Supplement
will have been duly  authorized  by the Board of Directors of the Company and by
the Public  Utilities  Commission of the State of California (the  "Commission")
prior to the Closing  Date,  and no other action is required to be taken by, and
no consents or approvals are required to be obtained from, the  shareholders  of
the Company or any public body or bodies,  and no other corporate  action of the
Company is requisite to such issue and sale.

         3. Business and Property.  The Purchaser has heretofore  been furnished
with a copy of the Company  Information which generally sets forth the principal
properties  of the  Company  and  the  business  conducted  and  proposed  to be
conducted by the Company.

         4.  Indebtedness.  Annex A  attached  hereto  correctly  describes  all
Current Debt, Funded Debt and Capitalized  Leases of the Company  outstanding on
December 31, 2002.

         5.  Financial  Statements  and Reports.  The Company has  furnished the
Purchaser with a copy of its audited  financial  reports for 1999, 2000 and 2001
and a copy of its unaudited  financial  report for 2002  hereinafter  called the
"Company  Reports,"  and a copy of Form 10-K filed by  California  Water Service
Group  ("CWSG")  hereinafter  called  the "CWSG  10-K" with the  Securities  and
Exchange Commission for 2001, together with all reports or documents required to
be filed by CWSG pursuant to Section 13(a) or 15(d) of the  Securities  Exchange
Act of 1934, as amended, since the filing of the CWSG 10-K. The Company has also
furnished the Purchaser with an unaudited  quarterly financial statement for the
Company for the fiscal quarter ended September 30, 2002, and Forms 10-Q for CWSG
for the fiscal quarter ended September 30, 2002 (the "Quarterly  Reports").  The
financial  statements contained in the foregoing Company Reports, the CWSG 10-K,
the  Quarterly  Reports and such other  reports and  documents  were prepared in
accordance with generally accepted accounting principles upon a consistent basis
and are  complete and correct and the balance  sheets  included  therein  fairly
present the  financial  condition of the Company or CWSG, as the case may be, as
at  the  respective   dates  thereof  and  the  Statements  of  Income,   Common
Shareholders'  Equity and Cash Flows included therein fairly present the results
of the operations of the Company for the periods covered thereby, subject in the
case of unaudited statements to normal year-end adjustments.

                                    EXHIBIT 2
                                 (to supplement)

<PAGE>

         6.  Material  Contracts.  The Company has no contracts or  commitments,
whether  contingent  or other,  which are material to the Company and which were
not made in the ordinary course of business.  Certain material contracts related
to water  supply are listed in Annex B hereto.  The Company has no  contracts or
commitments,  contingent or other,  which  materially and adversely affect or in
the future may (so far as the  Company can  foresee)  materially  and  adversely
affect the Company or its business,  property,  assets, operations or condition,
financial or other. As of December 31, 2001, there were no material  liabilities
of the Company (other than those under contracts  entered into in the normal and
ordinary  course of business),  actual,  contingent  or accrued,  which were not
reflected  in the  Company  Reports and CWSG 10-K  except for (i)  liability  in
respect of uncompleted construction work under open contracts in connection with
the Company's  construction  program and (ii) the  obligations of the Company to
contribute  to a pension  plan,  an  employees'  savings  plan and a health  and
welfare plan.

         7. No  Material  Adverse  Change.  (a)  There has been no change in the
condition of the Company,  financial or other,  from that set forth or reflected
in the Company  Information,  other than changes  which may have occurred in the
ordinary course of business or by reason of ordinary  dividends paid or declared
or outstanding  First Mortgage Bonds redeemed by the Company in accordance  with
their terms,  and no such changes in the ordinary  course of business  have been
material adverse changes.

         (b)  Since  December  31,  2001,  neither  the  business,   operations,
properties  nor  assets of the  Company  have  been  adversely  affected  in any
material way by any casualties such as fire, windstorm, riot, strike, explosion,
accident, flood, earthquake,  lockout, sabotage, activities of armed forces, act
of God or the public enemy or  condemnation  of  properties by the United States
government or any municipal governmental agency, authority or body.

         8. Title to  Properties.  The  Company is engaged in the  business of a
public utility water company  serving all or a portion of the California  cities
and  communities  listed in the 2001 Company Report and paragraph 9 hereof.  The
Company  has  good  and  merchantable  title,  subject  only to the  lien of the
Mortgage  Indenture  and to current  tax and  assessment  liens,  rights-of-way,
easements  and certain  minor  liens,  encumbrances,  clouds or defects in title
which do not  materially  affect  the use  thereof,  to all the  material  water
distribution  facilities  (including,   without  limitation,   transmission  and
distribution  mains,  pump stations,  wells,  storage tanks and  reservoirs) and
other material units of property used in its business except as follows:

                  (a) some of the offices,  but not its principal office, are in
         leased premises and some wells, well sites and other minor distribution
         facilities are rented; and

                  (b) several  wells are  located on property  which the Company
         does not own but in which it has an easement  for the  location of such
         wells;

and except as to easements and  rights-of-way  and certain  parcels of land (not
exceeding for said parcels of land an aggregate book value of  $1,000,000)  with
respect to which there is a possibility of reverter if the property ceases to be
used for public utility  purposes,  and,  except that the greater portion of its
transmission and distribution  systems is located in public highways and streets
and in  rights-of-way  owned by the Company over lands of others,  the Company's
title

                                     E-2-2
<PAGE>

thereto is fee simple. Except for parcels of land having an aggregate book value
of not more than $1,000,000,  the Company has good and merchantable title to all
its other property and assets subject only to the lien of the Mortgage Indenture
and  the  lien  of the  Dominguez  Mortgage  Indenture  and to  current  tax and
assessment liens and minor liens and encumbrances which do not materially affect
the use thereof.  All of the  properties of the Company are located in the State
of California  and  substantially  all of the  properties of the Company used or
useful in its public utility business are subject to the Mortgage Indenture.  As
used herein, the term "Dominguez  Mortgage  Indenture" means the Trust Indenture
dated as of August 1,  1954,  as  supplemented  from time to time,  between  the
Company, as successor to Dominguez Water Company ("Dominguez") and U.S. Bank, as
Trustee,  which  provides a lien on  properties  owned by Dominguez  immediately
prior  to the  merger  described  in  paragraph  9  hereof  which  lien  secures
$9,000,000 in aggregate  principal  amount of Dominguez bonds which were assumed
by the Company upon the merger.

         9. Franchises.  The Company has, in its judgment,  adequate  franchises
and  permits  without  burdensome   restrictions  (other  than  those  typically
contained  in  franchises  and  permits  of this  type) to allow the  Company to
conduct the business in which it is engaged.

         The Company has two classes of  franchises to install and operate water
pipes and mains under public streets and highways:

                  (a) so-called  "constitutional"  franchises obtained by virtue
         of the  provisions  of  Article  XI,  Section  19,  of  the  California
         Constitution, as in effect prior to 1911; and

                  (b) franchises granted pursuant to statutory authority.

         The Company  believes,  based on the advice of counsel (which is itself
based upon the assumption of the accuracy of information obtained by the Company
from sources  believed to be reliable  that the  following  cities served by the
Company were all incorporated prior to 1911:

                  Bakersfield         Marysville        South San Francisco
                  Chico               Oroville          Stockton
                  Dixon               Redondo Beach     Visalia
                  Hermosa Beach       Salinas           Willows
                  King City           San Mateo
                  Livermore           Selma

that water  distribution  systems were constructed and service  furnished to the
inhabitants  of each by various  predecessors  of the Company prior to 1911, and
that there were no public water works owned or controlled by the municipality in
any of them prior to 1911), that the Company has a "constitutional" franchise in
each of the above cities and under such constitutional franchise has a perpetual
right which was not  repealed  by the repeal of Article  XI,  Section 19, of the
California  Constitution  to continue to occupy  public  streets of each of said
cities  with its pipes and mains and to lay down  additional  pipes and mains in
said streets for the supplying of water, subject to reasonable regulation by the
respective  municipalities.  The Company also  believes,  based on the advice of
counsel, that this right is not limited to streets in which pipes or

                                     E-2-3
<PAGE>

mains  were laid prior to 1911 but  extends at least to all  streets in the said
municipalities  as they  existed  at the date of  repeal  of the  constitutional
provision in 1911 and probably also extends to territory  incorporated into each
respective  city  after such  repeal,  although  this  latter  question  remains
somewhat in doubt in the absence of a final decision of the courts thereon.  The
Company  holds either by assignment or as original  grantee  franchises  granted
under  statutory  authority by the Counties of Kern,  Los Angeles,  San Joaquin,
Santa  Clara and  Monterey,  the  Cities  of  Montebello,  Torrance,  Cupertino,
Sunnyvale, Los Altos, Mountain View, Bakersfield,  Commerce, San Carlos, Rolling
Hills Estates and Thousand  Oaks, and the Towns of Los Altos Hills and Atherton.
Following  incorporation of the City of Rancho Palos Verdes in 1973, the Company
made franchise  payments to the City and the City accepted the same as successor
in interest to the grantor's  rights under the Company's  former  franchise from
the County of Los Angeles; the City has agreed that the Company may exercise its
rights in the City under its current  County  franchise  until the expiration of
that franchise in 2012. The Company's franchises from the Cities of Palos Verdes
Estates,   Menlo  Park  and  Woodside   terminated  in  1977,   1993  and  1994,
respectively.  While  none of the  Cities and the  Company  have  executed a new
franchise  agreement,  the Company has made and will continue to make  franchise
payments to each of the Cities in  accordance  with the  provisions of the prior
franchise. In other areas where the Company has no franchise, the Company or its
predecessors  have  distributed  water  for many  years  and,  to the  Company's
knowledge,  no  question  has ever  been  raised  as to the  right to make  such
distribution and to maintain all pipes and mains necessary therefor.

         On May 25,  2000,  Dominguez  Service  Corporation  was merged into the
Company and subsequently  Dominguez and its  subsidiaries  were also merged into
the Company (collectively,  the "merger"). The Company acquired in the Dominguez
merger  operations in the following  cities,  counties,  townships or localities
that Dominguez previously served:

         Bodfish                   Kern County          Los Angeles County
         Carson                    Kernville            Lucerne
         Compton                   Lake Hughes          Mountain Shadows
         Duncans Mills             Lakeland             Onyx
         Fremont Valley            Lancaster            Squirrel Valley
         Guerneville               Leona Valley         Torrance
         Harbor City               Long Beach           Wofford Heights

Water  distribution  systems  were  constructed  and  service  furnished  to the
inhabitants of the localities currently known as Carson,  Compton,  Harbor City,
Long Beach and Torrance by various predecessors of the Company prior to 1911 and
the Company  believes  that it has a prior  right to operate in these  locations
which right was not extinguished by the incorporation of these cities subsequent
to 1911.  Except as noted below,  Dominguez has no franchises  from these cities
and has made no franchise payments to them and, to the Company's  knowledge,  no
question has ever been raised as to the right to make water  distribution and to
maintain all pipes and mains necessary therefor.

         As  to  the  remaining  localities,   Dominguez  has  received  written
franchise  agreements  which  are in full  force  and  effect  and has  paid all
franchise fees to date, with the exception of Compton, as to which the franchise
expired without renewal in 1994. Dominguez continued to

                                     E-2-4
<PAGE>

         provide water  services to Compton  subsequent to the expiration of the
franchise, and to pay franchise fees, and to the Company's knowledge no question
has ever been raised as to the right to make such  distribution  and to maintain
all pipes and mains necessary therefor.

         10.  Condition  of Assets.  The  physical  assets of the Company are in
sound operating  condition,  there are no material arrears in the maintenance of
any such physical assets and the Company  believes that its sources of water are
adequate to meet its requirements for the foreseeable future.

         11. Pending Litigation, Proceedings. (a) There are no actions, suits or
proceedings  pending  at law or in equity or  before or by any  federal,  state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality,  domestic  or foreign,  or, to the  knowledge  of the  Company,
threatened  against or affecting the Company not adequately covered by insurance
or for  which  reserves  adequate  in  the  Company's  judgment  have  not  been
established  which  involve,  in  the  opinion  of  the  Company,  a  reasonable
possibility of judgments or liabilities  exceeding $500,000 in the aggregate net
of insurance, or which may, in the opinion of the Company result in any material
adverse change in the business or properties or in the  condition,  financial or
other, of the Company,  or the ability of the Company to perform its obligations
under the Tenth Supplement or the Series L Notes.

         (b) There  are no  proceedings  pending  or,  to the  knowledge  of the
Company,  threatened  against the  Company  before or by any  federal,  state or
municipal commission, board or other administrative agency, which materially and
adversely affect the water rates of the Company presently in effect.

         (c) The  Company is not in  default  with  respect to any order,  writ,
injunction  or  decree  of  any  court,  or  any  federal,  state  or  municipal
commission,  board or other  administrative  agency and the Company has complied
with all applicable statutes and regulations of the United States of America and
of any state,  municipality or agency of any thereof,  in respect of the conduct
of its business known or believed by the Company to be applicable  thereto,  the
failure to comply  with which  could  reasonably  be expected to have a material
adverse effect on the Company or its properties.

         12. No  Condemnation  Proceedings.  Since January 1, 1995, no elections
have  been  held  or  other  actions  taken   authorizing  the  commencement  of
proceedings for  condemnation of any of the properties of the Company.  However,
from time to time  there are  expressions  of  interest  made by public  bodies,
elected or appointed municipal officials,  persons seeking political position or
citizens groups urging acquisition of the Company's facilities in one or more of
the  communities  served by the  Company.  The Company does not believe that any
acquisition  by a city or  municipality  of its  properties by  condemnation  or
threat thereof would be adverse to the holder of the Series L Notes.

         13. No  Burdensome  Restrictions.  The  Company  is not  subject to any
burdensome corporate  restrictions in its Articles of Incorporation,  By-Laws or
otherwise, which materially and adversely affect or in the future may (so far as
the Company can foresee) materially and

                                     E-2-5
<PAGE>

adversely affect the Company or its business,  property,  assets,  operations or
condition, financial or other.

         14. Regulatory  Status,  Approval.  (a) The Company is not a registered
holding company or a subsidiary of a registered  holding company and the Company
is not  required to register  under the Public  Utility  Holding  Company Act of
1935, as amended. The Company is subject to the jurisdiction of the Commission.

         (b) No consent of, approval or authorization by, filing or registration
with, or notice to any  governmental  or public  authority or agency is required
for the  issuance,  sale or  delivery  of the  Series L Notes or the  execution,
delivery or performance of the Tenth Supplement, other than the authorization of
the Commission, which authorization has been duly obtained, is in full force and
effect and is not  subject to any appeal,  hearing,  rehearing  or contest.  All
conditions  contained in any such authorization which were to be fulfilled on or
prior to the issuance of the Series L Notes have been fulfilled. The Company has
furnished  to your special  counsel  true,  correct and complete  copies of said
authorization  and all  applications  heretofore  filed with or submitted to the
Commission in connection with its action to obtain said authorization.

         15. No Defaults,  Compliance with Other Instruments. The Company is not
in default under any outstanding  indentures,  contracts or agreements which are
material to the Company including,  without limitation,  the Mortgage Indenture;
and on the  Closing  Date there will not exist any  condition  which  would be a
default  under any such  indenture,  contract or  agreement.  The  execution and
delivery of the Tenth Supplement,  the consummation of the transactions  therein
provided for and compliance with the provisions of the Tenth  Supplement and the
Series L Notes by the  Company  will not  violate or result in any breach of the
terms,  conditions or provisions of, or constitute a default under, its Articles
of Incorporation,  By-Laws or any indenture,  mortgage, deed of trust, bank loan
or credit  agreement,  or other  material  agreement or  instrument to which the
Company  is a party or by which the  Company  may be  bound,  nor will such acts
result  in the  violation  of any  applicable  law,  rule,  regulation  or order
applicable  to the  Company  of  any  court  or  governmental  authority  having
jurisdiction  in the  premises  or in the  creation or  imposition  of any lien,
charge or encumbrance of any nature  whatsoever,  upon any property or assets of
the Company.

         16. Leases.  The Company has the right to, and does, enjoy peaceful and
undisturbed possession under all material leases to which it is a party or under
which it is operating.  All such leases are valid,  subsisting and in full force
and effect, and the Company is not in default under any thereof and no event has
occurred  and is  continuing,  and no  condition  exists  that,  after notice or
passage of time or both could become a material default under any such Lease.

         17. Use of Proceeds.  The Company will use the gross  proceeds  derived
from the sale of the  Series L Notes  under the Tenth  Supplement  to  refinance
existing   Indebtedness  and  for  general  corporate  purposes.   None  of  the
transactions contemplated in the Tenth Supplement (including, without limitation
thereof,  the use of the  proceeds  from  the sale of the  Series L Notes)  will
violate or result in a violation of Section 7 of the Securities  Exchange Act of
1934, as amended, or any regulations issued pursuant thereto,  including without
limitation,  Regulations  U, T and X of the Board of  Governors  of the  Federal
Reserve System, 12 C.F.R., Chapter II.

                                     E-2-6
<PAGE>

The  Company  does not own or intend to carry or  purchase  any  "margin  stock"
within the meaning of said  Regulation  U,  including  margin  stock  originally
issued by it. None of the  proceeds  from the sale of the Series L Notes will be
used to purchase or carry (or refinance any borrowing the proceeds of which were
used to purchase or carry) any margin stock.

         18. ERISA.  (a) The fair market value of all assets under all "employee
pension  benefit  plans" (as such term is  defined  in  Section  3(2) of ERISA),
maintained  by the  Company,  as from  time to time in  effect,  exceeded  as of
December 31, 2001, the last annual  valuation date, the actuarial  present value
of all benefits vested under the Plans by more than $10,898,000.

         (b) Neither any of the Plans nor any of the trusts created  thereunder,
nor  any  trustee  or  administrator  thereof,  has  engaged  in  a  "prohibited
transaction,"  as such term is defined in Section  4975 of the Code which  could
subject  the  Plans  or  any  of  them,  any  such  trust,  or  any  trustee  or
administrator  thereof,  or any disqualified person with respect to the Plans to
the tax or penalty on  prohibited  transactions  imposed by said  Section  4975,
except  that,  with  respect to any  actions  or  omissions  of  administrators,
trustees,  other fiduciaries,  parties in interest or disqualified persons of or
in respect to the Plans (other than  employees of the Company),  the Company has
no knowledge  that any of such persons has  committed a prohibited  transaction,
nor has the Company participated knowingly in or knowingly undertaken to conceal
a prohibited  transaction with or by any of such persons nor enabled any of them
to commit a prohibited transaction.

         (c)  Neither  any of the  Plans  subject  to Title IV of ERISA  nor any
trusts  related  to such  plans  have been  terminated,  nor have there been any
Reportable Events, as that term is defined in Section 4043 of ERISA (as modified
by the  regulations  thereunder),  in respect of those plans since the effective
date of ERISA.

         (d)  Neither any of the Plans which are subject to Section 302 of ERISA
nor any trusts  related to such plans have  incurred  any  "accumulated  funding
deficiency,"  as such  term is  defined  in said  Section  302  (whether  or not
waived), since the effective date of ERISA.

         (e) The  consummation  of the  transactions  provided  for in the Tenth
Supplement  and  compliance by the Company with the  provisions  thereof and the
Series L Notes issued  thereunder  will not involve any  prohibited  transaction
within the meaning of ERISA or Section 4975 of the Code.

         19. Taxes. All Federal,  state and local taxes and assessments due from
the Company have been (a) fully paid or adequately  provided for on the books of
the Company in accordance with generally accepted  accounting  principles or (b)
are being contested in good faith by the Company.  There has been no examination
of the Federal income tax returns of the Company by the Internal Revenue Service
subsequent to the examinations of the returns for tax years 1984-1991.

         20. Compliance with Laws. To the best of the Company's knowledge, after
due inquiry, the Company is in compliance with all applicable Federal, state, or
local laws, statutes, rules, regulations or ordinances relating to public heath,
safety or the environment, including,

                                     E-2-7
<PAGE>

without limitation, relating to releases, discharges,  emissions or disposals to
air,  water,  land or ground water, to the withdrawal or use of ground water, to
the use, handling or disposal of polychlorinated  biphenyls (PCB's), asbestos or
urea  formaldehyde,  to  the  treatment,  storage,  disposal  or  management  of
hazardous substances (including, without limitation, petroleum, its derivatives,
by-products or other hydrocarbons), and to exposure to hazardous substances, the
failure to comply  with which  could  reasonably  be expected to have a material
adverse  effect on the Company or its  properties.  Except as  disclosed  in the
"Environmental  Matters" section of Item 1 of the CWSG 10-K, the  "Environmental
Matters"  section of CWSG's  2001  Annual  Report  and the  "Legal  Proceedings"
section  of Item 3 of the CWSG  10-K  with  respect  to  matters  in  Chico  and
Marysville,  California,  the  Company  does  not know of any  liability  of the
Company  under  the  Comprehensive  Environmental  Response,   Compensation  and
Liability   Act  of  1980,   as  amended  by  the   Superfund   Amendments   and
Reauthorization Act of 1986 (42 U.S.C. Section 9601 et seq.) with respect to any
property now or heretofore owned or leased by the Company.

         21. Full Disclosure.  The financial statements referred to in the Tenth
Supplement do not, nor does the Tenth Supplement, the Company Information or any
written statement  (including without limitation the 2001 Company Report and the
2001  CWSG  Report)  furnished  by the  Company  to you in  connection  with the
negotiation of the sale of the Series L Notes, contain any untrue statement of a
material fact or, taken  together,  omit a material  fact  necessary to make the
statements  contained  therein or herein not misleading.  There is no fact which
the  Company  has not  disclosed  to you in  writing  which  materially  affects
adversely  nor, so far as the Company can now foresee,  will  materially  affect
adversely the properties,  business,  prospects, profits or condition (financial
or  otherwise)  of the  Company  or the  ability of the  Company to perform  its
obligations  under the Note  Agreement,  the Tenth  Supplement  or the  Series L
Notes.

         22. Private Offering.  Neither the Company, directly or indirectly, nor
any agent on its  behalf  has  offered  or will  offer the Series L Notes or any
similar Security or has solicited or will solicit an offer to acquire the Series
L Notes or any similar  Security from or has otherwise  approached or negotiated
or will  approach or  negotiate  in respect of the Series L Notes or any similar
Security  with any  Person  other than the  Purchaser  and not more than 1 other
institutional  investor,  who was  offered  a portion  of the  Series L Notes at
private sale for investment.  Neither the Company,  directly or indirectly,  nor
any agent on its  behalf  has  offered  or will  offer the Series L Notes or any
similar Security or has solicited or will solicit an offer to acquire the Series
L Notes or any similar  Security from any Person so as to cause the issuance and
sale of the Series L Notes not to be exempt from the  provisions of Section 5 of
the Securities Act of 1933, as amended.

                                     E-2-8
<PAGE>

                CURRENT DEBT, FUNDED DEBT AND CAPITALIZED LEASES
                             AS OF DECEMBER 31, 2002

1.       Current Debt

         $34,000,000 borrowed under the Company's bank short-term line of credit
         with Bank of America.

2.       Funded Debt

         $75,700,000 outstanding under the Company's various series of First
         Mortgage Bonds with due dates ranging from 2020 to 2023.

         $4,000,000 First Mortgage Bonds,  Series J due 2023 (formerly Dominguez
         Water Company).

         $5,000,000 First Mortgage Bonds,  Series K due 2012 (formerly Dominguez
         Water Company).

         $20,000,000 Series A Senior Notes due November 1, 2025.

         $20,000,000 Series B Senior Notes due November 1, 2028.

         $20,000,000 Series C Senior Notes due November 1, 2030.

         $20,000,000 Series D Senior Notes due November 1, 2031.

         $20,000,000 Series E Senior Notes due May 1, 2032.

         $20,000,000 Series F Senior Notes due November 1, 2017.

         $20,000,000 Series G Senior Notes due November 1, 2022.

         $20,000,000 Series H Senior Notes due December 1, 2022.

         $2,719,000 California Department of Water Resources Loans maturing 2011
         to 2032.

         $430,000 obligations due on water system acquisitions.

3.       Capitalized Leases

         None.

                                     ANNEX A
                                 (to Exhibit 2)

<PAGE>

                         MATERIAL WATER SUPPLY CONTRACTS

1.       Water  Supply  Contract  between  the  Company  and the County of Butte
         relating to the Company's Oroville District.

2.       Water Supply Contract  between the Company and Kern County Water Agency
         relating to the Company's Bakersfield District.

3.       Water  Supply  Contract  between the Company  and  Stockton  East Water
         District relating to the Company's Stockton District.

4.       Amended  Contract  between the Company and Stockton East Water District
         relating to the Company's Stockton District.

5.       Settlement  Agreement and Master Water Sales Contract  between the City
         and County of San Francisco and Certain Suburban Purchasers.

6.       Supplement  to  Settlement  Agreement  and Master Water Sales  Contract
         between the Company and the City and County of San  Francisco  relating
         to the Company's Bear Gulch District.

7.       Supplement  to  Settlement  Agreement  and Master Water Sales  Contract
         between the Company and the City and County of San  Francisco  relating
         to the Company's San Carlos District.

8.       Supplement  to  Settlement  Agreement  and Master Water Sales  Contract
         between the Company and the City and County of San  Francisco  relating
         to the Company's San Mateo District.

9.       Supplement  to  Settlement  Agreement  and Master Water Sales  Contract
         between the Company and the City and County of San  Francisco  relating
         to the Company's South San Francisco District.

10.      Water Supply Contract  between the Company and Santa Clara Valley Water
         District relating to the Company's Los Altos District.

11.      Water Supply Contract  between the Company and Pacific Gas and Electric
         Company related to the Company's Oroville District.

12.      Water  Supply  Contract  between the Company and Alameda  County  Flood
         Control  and  Water  Conservation  District  related  to the  Company's
         Livermore District.

13.      Water Supply Contract  between the Company,  ARCO Products  Company and
         West Basin Municipal Water District relating to recycled water.

                                     ANNEX B
                                 (to Exhibit 2)

<PAGE>

                         DESCRIPTION OF CLOSING OPINION
                            OF COUNSEL TO THE COMPANY

         The closing opinion of Bingham  McCutchen LLP, counsel for the Company,
which is called for by Section 5(a)(iii) of the Tenth Supplement, shall be dated
the Closing Date and addressed to the Purchaser,  shall be satisfactory in scope
and form to the Purchaser and shall be to the effect that:

                  1. The Company is a  corporation  duly  incorporated,  validly
         existing and in corporate good standing under the laws of California.

                  2. The  execution  and  delivery  by the  Company  of the Note
         Agreement,  the Tenth  Supplement and the Notes, and the performance by
         the  Company of its  obligations  under the Note  Agreement,  the Tenth
         Supplement and the Notes, are within the Company's corporate powers and
         have been duly authorized by all requisite corporate action on the part
         of the Company.  The Company has duly  executed and  delivered the Note
         Agreement, the Tenth Supplement and the Notes.

                  3. Each of the Note  Agreement,  the Tenth  Supplement and the
         Notes  constitutes  a  valid  and  binding  agreement  of the  Company,
         enforceable  against the Company in accordance with its terms. Based on
         Section 1646.5 of the California  Civil Code, a California  state court
         and a Federal court which applies the law of the State of California to
         the Note Agreement,  the Tenth Supplement and the Notes would recognize
         and give effect to the choice of law  provisions  set forth in the Note
         Agreement, the Tenth Supplement and the Notes.

                  4. The  execution  and  delivery  by the  Company  of the Note
         Documents,  and compliance by the Company with the  provisions  thereof
         (i) will  not,  to the best of our  knowledge,  result  in a breach  or
         default  (or give rise to any  right of  termination,  cancellation  or
         acceleration)  under the  Articles of  Incorporation  or By-Laws of the
         Company,  or the Mortgage  Indenture,  the Credit Agreement dated as of
         July  31,   2001,   between   the   Company  and  Bank  of  America  as
         Administrative  Agent,  or any  agreement or other  instrument  that is
         listed as a material  contract in CWSG's Annual Report on Form 10-K for
         the year ended  December 31,  2001.  To the best of our  knowledge,  no
         consent or approval  by, or any  notification  of or filing  with,  any
         court,  public body or authority of the State of California is required
         to be  obtained  or  effected  by the  Company in  connection  with the
         execution,  delivery  and  performance  by  the  Company  of  the  Note
         Documents  or the  issuance  or  sale  of the  Notes,  except  for  the
         authorization  of the  Commission,  which  authorization  has been duly
         obtained and is in full force and effect.

                  5.  Based upon the  representations  set forth in Section 6 of
         the Tenth  Supplement,  the accuracy of which we have not independently
         verified or investigated,  the issuance, sale and delivery of the Notes
         under the  circumstances  contemplated by the Tenth  Supplement do not,
         under  existing law,  require the  registration  of the Notes under the
         Securities Act of 1933, as amended,  or the  qualification of the Tenth
         Supplement  or an indenture  under the Trust  Indenture Act of 1939, as
         amended.

                                    EXHIBIT 3
                                 (to Supplement)
<PAGE>

                  6. Based upon the  assumption  of the accuracy of  information
         obtained  by the  Company  from  sources  believed by the Company to be
         reliable (a) that the  following  cities served by the Company were all
         incorporated prior to 1911:

                  Bakersfield             Marysville       South San Francisco
                  Chico                   Oroville         Stockton
                  Dixon                   Redondo Beach    Visalia
                  Hermosa Beach           Salinas          Willows
                  King City               San Mateo
                  Livermore               Selma

                  (b) that  water  distribution  systems  were  constructed  and
service  furnished to the  inhabitants  of each by various  predecessors  of the
Company prior to 1911; and

                  (c) that there were no public water works owned or  controlled
by the municipality in any of them prior to 1911;

                  in our opinion,

                  (i) the Company has a  "constitutional"  franchise  in each of
         the  above  cities  and under  such  "constitutional"  franchise  has a
         perpetual  right  which was not  repealed  by the repeal of Article XI,
         Section 19, of the California Constitution to continue to occupy public
         streets  of each of said  cities  with  pipes and mains and to lay down
         additional  pipes and mains in said streets for the supplying of water,
         subject to reasonable regulation by the respective municipalities;

                  (ii) this right is not  limited  to streets in which  pipes or
         mains  were laid prior to 1911 but  extends at least to all  streets in
         the said  municipalities  as they  existed at the date of repeal of the
         constitutional provision in 1911; and

                  (iii) the right  probably  also extends to  territory  annexed
         into each  respective  city after such  repeal,  although  this  latter
         question  is not  entirely  free from  doubt in the  absence of a final
         decision of the courts thereon.

                  7.   Dominguez   Services    Corporation   (along   with   its
         subsidiaries,  "Dominguez")  was merged into the Company  effective May
         25, 2000 and  Dominguez  Water Company was also merged into the Company
         effective  October 12,  2000.  In the  Dominguez  mergers,  the Company
         acquired the operations of Dominguez,  which to our knowledge  included
         service to the following cities, counties, townships or localities:

                  Bodfish                   Kernville         Mountain Shadows
                  Carson                    Lake Hughes       Onyx
                  Compton                   Lakeland          Torrance
                  Duncans Mills             Lancaster         Squirrel Valley
                  Fremont Valley            Leona Valley      Wofford Heights
                  Guerneville               Long Beach        Los Angeles County
                  Harbor City               Lucerne           Kern County

                                     E-3-2
<PAGE>

                  8. We note that the Officers'  Certificates state that: (a) to
         the Company's  knowledge,  water distribution  systems were constructed
         and service  furnished to the  inhabitants of the localities  currently
         known as Carson,  Compton,  Harbor  City,  Long Beach and  Torrance  by
         various  predecessors  of the  Company  prior to 1911;  (b) the Company
         believes that it has a prior right to operate in these  locations which
         right  was  not  extinguished  by the  incorporation  of  these  cities
         subsequent  to 1911;  (c)  except  as  noted  below,  to the  Company's
         knowledge Dominguez has no franchises from these cities and has made no
         franchise  payments to them;  and (d) to the  Company's  knowledge,  no
         question   has  ever  been  raised  as  to  the  right  to  make  water
         distribution and to maintain all pipes and mains necessary therefor.

                  9. We note that the Officers'  Certificates state that: (a) as
         to the  remaining  localities  listed in paragraph 7, to the  Company's
         knowledge,  Dominguez has received written  franchise  agreements which
         are in full force and effect and has paid all  franchise  fees to date,
         with the  exception  of  Compton,  as to which  the  franchise  expired
         without  renewal in 1994;  (b) to the  Company's  knowledge,  Dominguez
         continued  to  provide  water  services  to Compton  subsequent  to the
         expiration of the franchise,  and to pay franchise fees; and (c) to the
         Company's  knowledge,  no question has ever been raised as to the right
         to make such distribution and to maintain all pipes and mains necessary
         therefor.

         The opinion of Bingham  McCutchen  LLP shall  cover such other  matters
relating  to the  sale of the  Series L Notes as the  Purchaser  may  reasonably
request and shall  provide  that  Chapman and Cutler in  delivering  its opinion
under the Note Agreement may rely on the opinion of Bingham  McCutchen LLP as to
matters of California law. With respect to matters of fact on which such opinion
is based, such counsel shall be entitled to rely on appropriate  certificates of
public officials and officers of the Company.

                                     E-3-3
<PAGE>

                DESCRIPTION OF SPECIAL COUNSEL'S CLOSING OPINION

         The  closing  opinion of Chapman  and  Cutler,  special  counsel to the
Purchaser,  called for by Section  5(a)(iii) of the Tenth  Supplement,  shall be
dated the Closing Date and addressed to the Purchaser,  shall be satisfactory in
form and substance to the Purchaser and shall be to the effect that:

                  1. The Company is a corporation,  validly existing and in good
         standing  under  the  laws  of the  State  of  California  and  has the
         corporate power and the corporate  authority to execute and deliver the
         Tenth Supplement and to issue the Series L Notes.

                  2. The Note Agreement and the Tenth  Supplement have been duly
         authorized  by  all  necessary  corporate  action  on the  part  of the
         Company,  have been duly  executed  and  delivered  by the  Company and
         constitute  the  legal,  valid  and  binding  contract  of the  Company
         enforceable  in  accordance  with its  terms,  subject  to  bankruptcy,
         insolvency, fraudulent conveyance and similar laws affecting creditors'
         rights  generally,  and general  principles  of equity  (regardless  of
         whether  the   application  of  such  principles  is  considered  in  a
         proceeding in equity or at law).

                  3.  The  Series  L Notes  have  been  duly  authorized  by all
         necessary  corporate action on the part of the Company,  have been duly
         executed and delivered by the Company and constitute  the legal,  valid
         and binding  obligations of the Company  enforceable in accordance with
         their terms, subject to bankruptcy,  insolvency,  fraudulent conveyance
         and similar laws affecting  creditors'  rights  generally,  and general
         principles of equity  (regardless  of whether the  application  of such
         principles is considered in a proceeding in equity or at law).

                  4. The issuance, sale and delivery of the Series L Notes under
         the  circumstances  contemplated by the Tenth  Supplement do not, under
         existing law,  require the registration of the Series L Notes under the
         Securities  Act  of  1933,  as  amended,  or  the  qualification  of an
         indenture under the Trust Indenture Act of 1939, as amended.

         The  opinion of Chapman and Cutler may rely upon the opinion of Bingham
McCutchen LLP as to matters of California law. The opinion of Chapman and Cutler
shall also state that the opinion of Bingham  McCutchen LLP is  satisfactory  in
scope and form to Chapman and Cutler and that, in their  opinion,  the Purchaser
is justified in relying thereon.

         In rendering  the opinion set forth in  paragraph 1 above,  Chapman and
Cutler may rely,  as to matters  referred  to in  paragraph  1,  solely  upon an
examination of the Articles of Incorporation  certified by, and a certificate of
good  standing  of the  Company  from,  the  Secretary  of State of the State of
California,  the By-laws of the Company and the general business corporation law
of the State of California.

         With  respect to  matters  of fact upon  which  such  opinion is based,
Chapman and Cutler may rely on appropriate  certificates of public officials and
officers  of the  Company  and  upon  representations  of the  Company  and  the
Purchaser  delivered  in  connection  with the issuance and sale of the Series L
Notes.

                                    EXHIBIT 4
                                 (to Supplement)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.

                                      189
<PAGE>

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.

                                      190
<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

                                      191
<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

                                      192
<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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(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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(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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<PAGE>

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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<PAGE>

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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<PAGE>

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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<PAGE>

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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<PAGE>

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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<PAGE>

         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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<PAGE>

         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>
                                      204

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