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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.          )

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California Water Service Group

California Water Service Company, Hawaii Water Service Company,
New Mexico Water Service Company, Washington Water Service
Company, CWS Utility Services, and HWS Utility Services

1720 North First Street
San Jose, CA 95112-4598
(408) 367-8200

April 12, 20138, 2014

Dear Fellow Stockholder:

        You are cordially invited to attend our Annual Meeting of Stockholders at 9:30 a.m. on May 21, 2013,20, 2014, at the executive offices of California Water Service Group, located at 1720 North First Street in San Jose, California.

        Enclosed are a notice of matters to be voted on at the meeting, our Proxy Statement, a proxy card and our 20122013 Annual Report.

        Whether or not you plan to attend, your vote is important. Please vote your shares, as soon as possible, in one of three ways: Internet, telephone, or mail. Instructions regarding Internet and telephone voting are included on the proxy card or voting instruction card. If you choose to vote by mail, please follow the instructions on the proxy card or voting instruction card.

        In a continuing effort to reduce costs and conserve natural resources and reduce costs, we produced a summary annual report again this year, opting not to duplicate the financial information that continues to be provided in our Form 10-K filed with the Securities and Exchange Commission. We care about what you think of the report. Please send your feedback to annualreport@calwater.com.

        Thank you for your investment in the California Water Service Group.

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20132014 ANNUAL MEETING OF STOCKHOLDERS

NOTICE OF ANNUAL MEETING AND PROXY STATEMENT

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        This Proxy Statement, dated April 12, 2013,8, 2014, relates to the solicitation of proxies by the Board of Directors of California Water Service Group (Group) for use at our 20132014 Annual Meeting of Stockholders, which is scheduled to be held on May 21, 2013.20, 2014. We expect to begin mailing this Proxy Statement to stockholders on or about April 12, 2013.8, 2014.

        For directions to the Annual Meeting, please refer to page 4662 of this Proxy Statement.

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CALIFORNIA WATER SERVICE GROUP

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

        The 20132014 Annual Meeting of Stockholders (Annual Meeting) of California Water Service Group (Group) will be held on Tuesday, May 21, 2013,20, 2014, at 9:30 a.m., at the executive offices of California Water Service Group, located at 1720 North First Street in San Jose, California. At the meeting, stockholders will consider and vote on the following matters:

1.

Election of the eightten directors named in the proxy statement;



2.

An advisory vote to approve executive compensation;



3.

Ratification of the selection of Deloitte & Touche LLP as the Group's independent registered public accounting firm for 2013;2014;



4.

Approval of the Group's Amended and Restated Equity Incentive Plan; and



4.5.

Such other business as may properly come before the meeting.

        The Board of Directors has fixed the close of business on March 28, 2013,25, 2014, as the record date for the determination of holders of common stock entitled to notice of and to vote at the Annual Meeting.

        Please submit a proxy as soon as possible so that your shares can be voted at the meeting in accordance with your instructions. You may submit your proxy: (a) by Internet, (b) by telephone, or (c) by USPSU.S. Postal Service mail. You may revoke your proxy at any time prior to the vote at the Annual Meeting. Of course, in lieu of submitting a proxy, you may vote in person at the Annual Meeting; provided, however, that if you hold your shares in street name, you must request a legal proxy from your stockbroker in order to do so. For specific instructions, please refer to "Questions and Answers About the Proxy Materials and the Annual Meeting" in this Proxy Statement and the instructions on the proxy card.

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IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
STOCKHOLDERS MEETING TO BE HELD ON MAY 21, 201320, 2014

        Electronic copies of the Group's Form 10-K, including exhibits, and this Proxy Statement will be available on the Group's website at:at http://www.calwatergroup.com.

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING

What am I voting on?

•

Election of the eightten directors named in the proxy statement to serve until the 20142015 Annual Meeting;



•

An advisory vote to approve executive compensation;



•

Ratification of the selection of Deloitte & Touche LLP as the Group's independent registered public accounting firm for 2013.2014;



•

Approval of the Group's Amended and Restated Equity Incentive Plan.

Who may attend the Annual Meeting?

        All stockholders of the Group may attend.

Who is entitled to vote?

        Stockholders of record on the record date. The Board has fixed March 28, 201325, 2014 as the record date (Record Date) for stockholders entitled to notice of, and to vote at, the Annual Meeting.

How many votes do I get?

        Each share of common stock is entitled to one vote.

What constitutes a quorum?

        A majority of the outstanding shares—present at the Annual Meeting or represented by persons holding valid proxies—constitutes a quorum. If you submit a valid proxy card, your shares will be considered in determining whether a quorum is present.

        Without a quorum, no business may be transacted at the Annual Meeting. However, whether or not a quorum exists, a majority of the voting power of those present at the Annual Meeting may adjourn the Annual Meeting to another date, time and place.

        At the Record Date, there were 2,3272,253 stockholders of record. There were 47,729,28347,809,225 shares of our common stock outstanding and entitled to vote at the Annual Meeting.

Can I still use cumulative voting for the election of directors?

        No. Stockholders previously approved an amendment to the Group's Certificate of Incorporation to eliminate cumulative voting in order to adopt majority voting in uncontested director elections.

How are the directors elected?

        Our bylaws provide for a majority voting standard for the election of directors in uncontested elections. Under this majority voting standard, each director must be elected by the affirmative vote of a majority of the votes cast with respect to the director. A majority of the votes cast means that the number of votes cast "FOR" a candidate for director exceeds the number of votes cast "AGAINST" that candidate for director. As a result, abstentions will not be counted in determining which nominees receive a majority of votes cast since abstentions do not represent votes cast for or against a candidate. If you hold your

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shares through a stockbroker (or other nominee), the stockbroker does not have authority to vote your shares in the election of directors without instructions from you. Shares that your stockbroker does not vote ("broker non-votes") are not considered votes cast for or against a candidate, and they will not be counted in determining which nominees receive a majority of votes cast. In accordance with our director resignation policy, the Nominating/Corporate Governance Committee has established procedures for an incumbent candidate for director who does not receive the required votes for re-election to tender his or her resignation. The Nominating/Corporate Governance Committee will recommend to the Board whether to accept or reject the offer, or whether other action should be taken. The Board will act on the Nominating/Corporate Governance Committee's recommendation within 90 days after certification of the election results. We will promptly publicly disclose the Board's decision regarding the resignation offer, including the rationale for rejecting the resignation offer, if applicable.

Who are the Board's nominees?

        The nominees are Terry P. Bayer, Edwin A. Guiles, Bonnie G. Hill, Martin A. Kropelnicki, Thomas M. Krummel, M.D., Richard P. Magnuson, Linda R. Meier, Peter C. Nelson, Lester A. Snow, and George A. Vera. All the nominees are current Board members. See "Proposal No. 1—Election of Directors" for biographical information and qualifications, including the nominees' current directorships in other publicly held companies. Douglas M. Brown will not stand for re-election at the Annual Meeting, in accordance with the Group's mandatory retirement age for directors. The Board has reduced the number of directors to eight effective immediately prior to the commencement of the Annual Meeting.qualifications.

What are the Board's voting recommendations?

        "FOR" each of the nominees to the Board (Proposal No. 1);

        "FOR" the proposal regarding an advisory vote to approve executive compensation (Proposal No. 2);

        "FOR" the ratification of the selection of Deloitte & Touche LLP as the Group's independent registered public accounting firm for 20132014 (Proposal No. 3);

        "FOR" the approval of the Group's Amended and Restated Equity Incentive Plan (Proposal No. 4).

How do I vote?

        If you are a stockholder of record (that is, you hold your shares in your own name), you may vote on the Internet, by telephone, by mail, or in person at the meeting. Different rules apply if your stockbroker or another nominee holds your shares for you (see below).

You may vote on the Internet.

        You do this by following the "Vote by Internet" instructions on the proxy card. If you vote on the Internet, you do not have to mail in your proxy card.

You may vote by telephone.

        You do this by following the "Vote by Telephone"Phone" instructions on the proxy card. If you vote by telephone, you do not have to mail in your proxy card. You must have a Touch-Tone phone to vote by telephone.

You may vote by mail.

        You do this by signing the proxy card and mailing it in the enclosed, prepaid and addressed envelope. If you mark your voting instructions on the proxy card, your shares will be voted as you instruct.

        If you return a signed card but do not provide voting instructions, your shares will be voted:

•

For the eightten named director nominees;



•

For the advisory vote to approve executive compensation;

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•

For the advisory vote to approve executive compensation;



•

For the ratification of the selection of Deloitte & Touche LLP as the Group's independent registered public accounting firm for 2013.2014;



•

For the approval of the Group's Amended and Restated Equity Incentive Plan.

You may vote in person at the meeting.

        We will hand out written ballots to anyone who wants to vote at the meeting. If you hold your shares in street name, you must request a legal proxy from your stockbroker in order to vote at the meeting.

        We have been advised by legal counsel that these Internet and telephone voting procedures comply with Delaware law.

What if I change my mind after I return my proxy?

        You may revoke your proxy and/or change your vote at any time before the polls close at the Annual Meeting. You may do this by:

•

Signing another proxy with a later date;



•

Voting on the Internet or by telephone (your latest Internet or telephone proxy is counted);



•

Voting again at the meeting; or



•

Notifying the Corporate Secretary, in writing, that you wish to revoke your previous proxy. We must receive your notice prior to the vote at the Annual Meeting.

Will my shares be voted if I do not return my proxy?

        If you are a stockholder of record, and you do not return your proxy, your shares will not be voted unless you attend the meeting and vote in person.

What happens if my shares are held by my stockbroker (or other nominee)?

        If your shares are held by a stockbroker (or other nominee), you will receive a voting instruction card so that you can instruct your stockbroker on how to vote your shares. If you do not return your voting instruction card, then your stockbroker, under certain circumstances, may vote your shares.

        Specifically, stockbrokers have authority under exchange regulations to vote your uninstructed shares on certain "routine" matters. For "non-routine" matters, no votes will be cast on your behalf if you do not instruct your stockbroker on how to vote. If you wish to change the voting instructions that you gave to your stockbroker, you must ask your stockbroker how to do so.

        If you do not give your stockbroker voting instructions, the stockbroker may either:

•

Proceed to vote your shares on routine matters and refrain from voting on non-routine matters; or



•

Leave your shares entirely unvoted.

        Shares that your stockbroker does not vote (broker non-votes) will count towards the quorum only. We encourage you to provide your voting instructions to your stockbroker. This ensures that your shares will be voted at the meeting.

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As to my stockbroker voting, which proposals are considered "routine" or "non-routine"?

        The ratification of the selection of Deloitte & Touche LLP as the Group's independent registered public accounting firm for 20132014 (Proposal No. 3) is routine. A stockbroker may generally vote on routine matters if the stockbroker has not received voting instructions from you with respect to such matters.

        The election of directors (Proposal No. 1) and, the advisory vote to approve executive compensation (Proposal No. 2) and the approval of the Group's Amended and Restated Equity Incentive Plan (Proposal No. 4) are matters considered "non-routine" under applicable rules. A stockbroker cannot vote without your instructions on non-routine matters.

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What is the voting requirement to approve each of the proposals?

How are broker non-votes and abstentions treated?

        Broker non-votes and abstentions are counted for purposes of determining whether a quorum is present. Only "FOR" and "AGAINST" votes are counted for purposes of determining the votes received in connection with the proposal relating to the election of directors (Proposal No. 1), and therefore broker non-votes and abstentions have no effect on that proposal. Stockbrokers may not vote your shares on Proposal No. 1without instructions from you. The affirmative vote of the majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting is required to approve Proposal No. 2, Proposal No. 3 and Proposal No. 3.4. In addition, the New York Stock Exchange listing standards contain separate approval requirements with respect to the Group's Amended and Restated Equity Incentive Plan (Proposal No. 4). Under the New York Stock Exchange Listing Standards, approval of Proposal No. 4 requires the affirmative vote of the majority of votes cast. Abstentions have the effect of a vote "AGAINST" bothon all three of these proposals. Stockbrokers may vote your shares on Proposal No. 3 (but not on ProposalProposals No. 2)2 and No. 4) without instructions from you. Shares resulting in broker non-votes, if any, are not entitled to vote and will have no effect on the outcome of these proposals.

Who will count the vote?

        Representatives of Broadridge Financial Services, Proxy Services, will serve as the inspector of elections and count the votes.

What does it mean if I get more than one proxy card?

        It means that you have multiple accounts at the transfer agent and/or with stockbrokers. Please sign and return all proxy cards to ensure that all your shares are voted.

What percentage of stock do the directors and executive officers own?

        Together, directors and officers own approximately one percent1.5% of our common stock. See "Stock Ownership of Management and Certain Beneficial Owners" for more details elsewhere in this Proxy Statement.

Who are the largest common stockholders?

        As of December 31, 2012,2013, the largest stockholder was Lazard Asset Management LLC, which beneficially owned 2,893,8853,490,552 shares of common stock, representing 6.91%7.31% of our aggregate outstanding stock. BlackRock, Inc. beneficially owned 2,556,3342,926,402 shares of common stock, representing 6.10% of our

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aggregate outstanding stock as of such date. The Vanguard Group, Inc. beneficially owned 2,253,4952,675,616 shares of common stock, representing 5.37%5.60% of our aggregate outstanding stock as of such date. To the best of our knowledge, no other stockholders held overmore than 5% of our common shares as of such date.

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What is the deadline for submitting stockholder proposals for the Group's proxy materials for next year's Annual Meeting?

        Any proposals that stockholders intend to submit for inclusion in the Group's 20142015 proxy materials must be received by the Corporate Secretary of the Group by December 12, 2013.9, 2014. A proposal and any supporting statement together may not exceed 500 words. Please submit the proposal to the Corporate Secretary, California Water Service Group, 1720 North First Street, San Jose, California 95112-4598.

How can a stockholder propose a nominee for the Board or other business for consideration at a stockholders' meeting?

        Any stockholder of record who is entitled to vote at a stockholders' meeting may propose a nominee for the Board or propose other business for consideration at the meeting. The bylaws contain the requirements for doing so. The bylaws are posted on the Group's website at http://www.calwatergroup.com. Physical copies of these documents are also available upon request to the Corporate Secretary, California Water Service Group, 1720 North First Street, San Jose, CA 95112-4598. Briefly, a stockholder must give timely prior notice of the matter to the Group. The notice must be received by the Corporate Secretary at the Group's principal place of business by the 150th day before the first anniversary of the prior year's Annual Meeting. For the 20142015 Annual Meeting, to be timely, notice must be received by the Corporate Secretary bynot later than the close of business on December 12, 2013.21, 2014. If we move the date of the meeting by more than thirty days before or more than sixty days after the date of the previous meeting, notice is due bynot later than the close of business on the later of the 150th day before the Annual Meeting or the 10th day after we publicly announce the holding of the meeting. If the Group's Corporate Secretary receives notice of a matter after the applicable deadline, the notice will be considered untimely, anduntimely. In that case, or where notice is timely but the stockholder fails to satisfy the requirements of Rule 14a-4 under the Securities Exchange of 1934, the persons named as proxies may exercise their discretion in voting with respect to the matter when and if it is raised at the meeting.

        The bylaws specify what the notice must contain. Stockholders must comply with applicable law with respect to matters submitted in accordance with the bylaws. The bylaws do not affect any stockholder's right to request inclusion of proposals in the Group's Proxy Statement under the rules of the Securities and Exchange Commission (SEC).

How can a stockholder or other interested party contact the independent directors, the director who chairs the Board's executive sessions or the full Board?

        Stockholders or other interested parties may address inquiries to any of the Group's directors, to the lead director (who chairs the Board's executive sessions), or to the full Board, by email to stockholdercommunication@calwater.com or by writing to them in care of the Corporate Secretary, California Water Service Group, 1720 North First Street, San Jose, California 95112-4598. All such communications are sent directly to the intended recipient.

Can I make comments and/or ask questions during the Annual Meeting?

        Yes. Stockholders wishing to address the meeting are welcome to do so by adhering to the following guidelines:

1.

Stockholders may address the meeting when recognized by the Chairman andor President & Chief Executive Officer (CEO) or President and Chief Operating Officer (COO).



2.

Each stockholder, when recognized, should stand and identify himself or herself.

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3.

Stockholder remarks must be limited to matters before the meeting and may not exceed two minutes in duration per speaker.

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        No cameras, video or recording equipment will be permitted at the meeting. Many cellular phones have built-in digital cameras, and while these phones may be brought into the meeting, the camera function may not be used at any time.

Where and when will I be able to find the results of the voting?

        Preliminary results will be announced at the Annual Meeting. We will publish the final results in a current report on Form 8-K to be filed with the SEC within four business days of the Annual Meeting.

BOARD STRUCTURE

        This section briefly describes the structure of the Board and the functions of the principal committees of the Board. The Board has adopted Corporate Governance Guidelines that, along with the charters of the Board committees, provide a framework for the governance of the Group. The Corporate Governance Guidelines and the charters for the Audit, Organization and Compensation, Finance and Risk Management, and Nominating/Corporate Governance and Executive committees are posted on the Group's website at http://www.calwatergroup.com. Physical copies of these documents are also available upon request to the Corporate Secretary, California Water Service Group, 1720 North First Street, San Jose, California 95112-4598.

        The Group's policy is that all directors must be able to devote the required time to carry out director responsibilities and should attend all meetings of the Board and of committees on which they sit.

Leadership Structure

        TheUpon the retirement of Peter C. Nelson as CEO, the roles of chairmanChairman of the Board and CEO were combined uponseparated. Martin A. Kropelnicki was appointed President & CEO effective September 1, 2013, and Mr. Nelson has continued in his role as Chairman of the retirement of former Chairman Robert W. Foy atBoard. At that time, the 2012 Annual Meeting. The Board has determined that having a single leader to serve as chairmanseparating the roles of Chairman of the Board and CEO is currently the most appropriate leadership structure for the Group, taking into account numerous factors bearing upon the issue, including the Board's historical practice (which has predominantly been to separate the roles), its assessment of the Group's leadership the robust nature of the lead director's role and the Board's view that this role has been effective in providing independent leadership for the Board, and the Group's current and anticipated needs. The Board believes that one reason for the historical success of its leadership model is that the Chairman of the Board has had significant experience as part of the Group's senior management. The Board believes that Mr. Nelson's 17-plus years of service as the former President & CEO of the Group and his additional background in the public utilities industry make him best positioned to lead the Board as it oversees and monitors implementation of the Group's business strategy, considers risks related to strategy and business decisions, and performs its oversight function with respect to the Group's operations.

        The Board also has established the position of lead director because the Board believes that strong,supports having an independent Boarddirector in a board leadership is a critical aspect of effective corporate governance.position at all times. The lead director is an independent director who is elected by the independent directors to serve for a period of at least one year. Mr. Douglas M. Brown has served as lead director for the past several years but will not stand for re-election at the Annual Meeting, in accordance with the Group's policy regarding the mandatory retirement age for directors. Mr. Richard P. Magnuson has been elected to replace Mr. Browncurrently serves as lead director effective as of the date of the Annual Meeting.director. As set forth in the Corporate Governance Guidelines, the lead director's responsibilities and authority include:

•

Presiding over executive sessions of the non-management and independent directors and having the authority to call executive sessions;



•

Presiding at meetings of the Board in the absence of the Chairman of the Board;



•

Approving Board meeting agendas and schedules;



•

Approving information sent to the Board;



•

Serving as liaison between the Chairman of the Board and the independent directors; and

Appreciation Rights (SARs) nor the Restricted Stock Award (RSA)RSA grants to date have included this option.





•

No Tax Gross-Ups on Perquisites:  None of the executive officersexecutives are entitled to tax gross-ups for perquisites or other personal benefits.



•

Limited Perquisites:  As detailed below, the Group provides the executive officersexecutives with only limited perquisites consisting of a company car and related excess liability insurance.



•

Stock Ownership Requirements:  Stock ownership requirements for all directors and officers were adopted to promote a long-term perspective in managing the Group and to help align the interests of our stockholders, officers, and directors.



•

No Hedging and Pledging:  Our directors and executive officers are prohibited from hedging their ownership of Group stock, including trading in options, puts, calls, or other derivative instruments related to Group stock or debt, in accordance with an anti-hedging prohibition in our insider trading policy

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adopted in 2012. Our directors and officers are also prohibited from pledging their ownership of Group stock in accordance with an anti-pledging provision in our insider trading policy.



•

Executive Compensation Recovery ("Clawback") Policy:  The Board has adopted an executive compensation recovery or "clawback,""clawback" policy requiring the reimbursement of excess incentive-based compensation provided to the Group's officers in the event of certain restatements of the Company's financial statements.



•

Use of Independent Compensation Consultant:  An independent compensation consultant is retained by and reports directly to the Committee.

Elements of Compensation

        The material elements of the Group's executive compensation program include:for 2013 included:

•

Salary;



•

Performance and Time-Based Equity Compensation;



•

Basic and Supplemental Pension Plan Benefits;



•

Deferred Compensation Plan Benefits; and



•

Limited Perquisites.

        Historically,In addition to the Group has not usedabove, effective January 1, 2014, we have introduced annual bonuses as a compensation mechanism and did not use annualcash incentive bonuses for officers as part of the 2012 fiscal year.Group's 2014 executive compensation program. The Committee believes that our executive compensation program will provide a good mix of short-term and long-term compensation that supports the business strategies and creates long-term stockholder value. The Committee will periodically re-evaluate the mix of fixed and variable compensation, including the proportions of incentive compensation awarded as cash-based and equity-based awards. Additionally, the Committee continues to monitor our program on an annual basis to ensure that the new structure will not incentivize excessive risk-taking.

        In determining compensation, the Committee is mindful that as a holding company for a California regulated utility, the Group's financial performance is substantially dependent upon the California Public Utilities Commission (CPUC) plus other factors, which to a large extent are beyond the control of the executives. Therefore, the Committee's decisions regarding overall compensation are determined largely by evaluation of factors that are within the executives' control and its comparisons with peer groups. As discussed below, the metrics used to determine the grantvesting of long-term performance equity compensation for executives are appropriate metrics that will drive executive performance in a manner beneficial to both stockholders and rate-payers.customers and not encourage imprudent risk-taking. In addition, for the reasons discussed below, we will use similar metrics to determine the annual cash incentive bonuses for our officers in 2014.

Salary

        The Group provides a significant portion of executive officers'executives' total compensation in the form of base salaries. Base salaries provide executive officers compensationthat compensate executives for performance of primary roles and responsibilities. The Committee reviews base salaries for executive officersexecutives annually and determines whether or not to recommend adjustments. To assist the Committee in this review, the Group's President & CEO provides an assessment of performance and makes recommendations regarding base salary adjustments to

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the Committee for each of the executive officersexecutives other than himself based on the competitive data and the other factors described below under "Determining Executive Compensation."

        As noted below under "Determining Executive Compensation," the Committee targets base salaries for each executive that are appropriate for the skills, capabilities, and performance each individual

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contributes for the executive's position as established by reference to the competitive data described below. As noted above, the Group doesdid not payuse annual cash incentive compensation.bonuses for 2013. However, because annual incentives are a common component of executive compensation in the surveys included in the competitive data, for 2013 the Group comparescompared base salary levels for theits executives to the actual target total cash compensation (base salary plus actual target bonus) for similar positions within the competitive data (rather than comparing the executive's base salaries to the base salaries within the competitive data). Each of the executive's base salaries for 20122013 were within the competitive range (defined as plus or minus 20% from the median compensation level) of actual target total cash compensation, except Mr. Ferraro whose base salary was above the competitive range for his position because of his long tenure with the Group, his unique expertise and continued contributions in regulatory matters, and his corporate development responsibilities, each of which is greater than those usually afforded to executives in his position with other investor-owned public utilities.

        Each year officers of the Group, including the NEOs, establish a number of corporate goals and objectives for the Group.Group that promote the interests of customers, employees, and stockholders. The objectives chosen are communicated internally within the Group and monitored quarterly. The compensation of theour current President & CEO and the NEOs is based on progress against certain of these key corporate goals by the Group. For 2012,2013, the following corporate goals of the Group were used to evaluate 20132014 compensation for theour current President & CEO and the NEOs:

        1.     Group Operating Result and Stockholder Value—Value—Achieve planned operating results as defined in the 20122013 Corporate Goals and Objectives.

        Achieved Results for Group Operating Results—Manage the controllable elements of administration and general, other operations, and maintenance expenses within budget. During 2012,2013, the Company achieved the majority of its goals of maintaining operations while keeping controllable costs within budget. AdministrativeCompleted projects included a new capital budget process to reduce and general expenses experiencedmonitor costs, a large increase primarily driven by increased pensionnew rate case filing plan with a longer planning horizon, and healthcare costs.revised electronic procurement with contractor authorizations to improve monthly invoice tracking and reporting.

        2.     Stockholder Value—The following major objectives wereobjective was set for 2012:2013:

•

Achieve budgeted earnings per share and authorized return of equity

        Achieved Results for Stockholder Value—For 2012,2013, the Group achieved the following resultsresult for the major objectivesobjective in this category:

•

Earnings per share of $1.17,$1.02, or 121% of target, which represents a return on equity of 10.6%8.81%

The Committee gave consideration to factors that affected the Group's operating results that are described in the Group's annual report on Form 10-K.

        2.3.     Regulation—RegulationFile comprehensive—Successfully conclude 2012 General Rate Case for California, including enhancement to regulatory treatment of health care, maintenance and other key expenses and capital programs.California.

        Achieved Results for Regulation—TheOn October 30, 2013, an all-party settlement was filed in the 2012 General Rate Case Application for California, timely filed July 5, 2012, included requests forCalifornia. If approved by the CPUC, the settlement authorizes increases in rates by approximately $45 million in 2014, $10 million in 2015, $10 million in 2016, and up to $19 million upon completion and regulatory approval of "advice letter" capital projects. The settlement includes a health care balancing account a "sales reconciliation mechanism" to adjust sales forecaststhat provides protection from uncertainties arising from continuing changes in medical costs and insurance along with increases in maintenance expenses to reflect our enhanced maintenance and capital programs.

        3.4.     Capital Program Management—Improve the capital project management process, including enhancements to manage individual projects to be on time,Successfully Transition Change in CEO and within scope and budget.

        Achieved Results for the Capital Program Management ProcessOther Executive Positions—Total capital expenditures exceeded target for 2012 with $127.7 million in spending, of which $118 million was company-funded. During theFacilitate new CEO transition and officer succession.

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year significant improvements were implemented        Achieved Results for Successful Transition—Martin A. Kropelnicki, formerly President & COO, was elected President & CEO effective September 1, 2013. The following are changes in several capital areas, suchofficer positions for 2013:

•

Paul G. Townsley was hired as clarified responsibilitiesVice-President, Regulatory Matters and Corporate Relations, effective March 1, 2013. Mr. Townsley is a former divisional Vice-President of EPCOR Water USA and served as President of American Water Works Company subsidiaries.



•

Timothy D. Treloar, formerly Director of Water Quality and former Bakersfield District Manager for project managers, engineeringthe Group's largest subsidiary, California Water Service Company, was promoted to Vice-President, Operations effective August 1, 2013.



•

Robert R. Guzzetta, formerly Vice-President, Operations, became Vice-President, Engineering and district operations, as well as our ratesWater Quality, effective August 1, 2013.



•

Michael B. Luu, formerly Director of Information Technology for California Water Service Company, was promoted to Vice-President, Customer Service and accounting departments. Other process improvements included the full implementation of our financial planning & analysis (FP&A) department function to support operations, monitoring of regulatory advice letter filings to recover project costs in rates and additional training for all construction superintendants and conclusion of the Hyperion Planning software rollout.

Information Technology, effective August 1, 2013.

        4.5.     Excellent Customer Service—Strategic Projects—Provide every customer with excellentImplement key strategic projects in operations and customer service and support. Continue to invest in technology that improves the efficiency of operations and enhances service delivery.areas.

        Achieved Results for Excellent Customer ServiceStrategic Projects—During 2012,2013, the Group metcompleted key strategic projects in the goals forareas of operations and customer service, including the following key initiatives:including:

•

Completed pilot in our Bakersfield District forFull implementation of new website/customer service portal enhancements with full company implementation anticipated in 2013.for California. Portal enhancements include on-line bill payment, on-line requests for new service and automated service turn on/off requests.



•

Conducted customer preferences survey, which included social media usageExpanded mobile workforce pilot with automated dispatch of service work orders to five California service areas that resulted in significant increases in productivity and customer preferences for bill payment and receiving information. Completed our Facebook page and YouTube videos for customers.



•

Automated emergency customer notification system fully deployed and awarded 2012 management innovation award by the National Association of Water Companies.other efficiencies.

        Once the Committee assesses the business results for each goal, the Committee then reviews and discusses the overall performance of each executive and the competitive data provided by Towers Watson.the independent consultant retained by the Committee. Once reviewed and overall agreed upon, the Committee recommends to the full Board of Directors the base salaries for the executive officersexecutives (including the CEO). The following table shows the base salaries for each executive for 2011, 2012, 2013 and 2013:2014:

        Included in the chart above are the base salary increases for 2011, 2012 and 2013 for senior management approved by the Committee.        These increases are intended to compensate the individuals for job performance and overall leadership while being within the "competitive range" of the market data for similar positions (which "competitive range" is described in more detail below). Mr. Kropelnicki's salary reflects his final base salary rate for 2013 based on his promotion to President & CEO. His actual salary earned for 2013 is set forth in the Summary Compensation Table.

Performance and Time-Based Equity Compensation

        The purpose of the Group's long-term equity incentive compensation program has beenis to align executive compensation with stockholderthe interests of both stockholders and customers, to create incentives for executive

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recruiting and retention, to encourage long-term performance by the Group's executive officers,executives, and to promote stock ownership and therefore alignment with stockholder interests. Historically, the Committee has not used equity awards as a significant portion of executive compensation. Risk is taken into account in determining the aggregate amount of incentive compensation and performance criteria, including assessment of risk management and risk mitigation.

As with base salaries, the Committee reviewsreviewed the competitive range of long-term equity compensation and total direct compensation (long-term equity compensation plus base salary and annual bonus) for similar positions within the competitive data in making decisions regarding long-term equity compensation awards for 2012.2013. However, the Committee also believes that, in the interest of fostering the Group's "One-Team" approach for the officer team, which strengthens teamwork and collaboration within the executive team, the annual equity incentive awards granted to each of the Group's executive officersexecutives (other than the CEO and President/COO)President & CEO) should be the same for each. The

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Committee recommended awarding the President & COO and CEO (now retired) a greater value of equity awards in 20122013 than the other executive officers because of histheir substantially greater level of responsibility and ability to influence the Group's operational results. The new President & CEO, appointed effective September 1, 2013, received an increase in equity for 2013 from his 2013 President & COO equity award. In addition, for both theour former CEO, and the other executives, the grant valuesvalue for 2012 were2013 was greater than the grant values for 20112012, as a result of the Committee's review of the competitive data and its desire to bring long-term equity incentive compensation values within the competitive range for similar positions.

        Each year the Committee reviews market data from the independent consultant (as described in more detail below) and establishes the total value of the equity compensation awards to be granted to the CEO and the other executive officers.executives. For 2012,2013, these values were $400,000$500,000 (former CEO), $310,000 (President & COO) and $90,000, respectively, vesting over four years,$120,000 for other executives. The new President & CEO, effective September 1, 2013, was granted a one-time $45,000 equity award in addition to his $310,000 President & COO 2013 equity award. All equity awards were 50% in the form of RSAs.time-based RSAs vesting over three years and 50% in the form of performance-based RSUs with a three-year performance period.

Changes to Equity Compensation for 2013

        Beginning in 2013, 50% of long-term equity awards granted to our executives will beare in the form of RSUs subject to performance-based vesting criteria and 50% will beare in the form of time-based RSAs. The performance-based RSUs will provide for a three-year performance period and provide for vesting based solely upon the achievement of objective performance criteria. The shares will be awarded at the end of a three-year performance period, subject to the executive's continued employment through such date, only to the extent the performance criteria will beare met over that period. The performance criteria are tied to the following performance metrics:metrics.

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Total 2013 RSU achievement = (200%+75%+25%+100%)/4 = 100%

•

Return on equity:WATER QUALITY:  The return on equity authorizedThis metric is based only upon performance of the Group's largest subsidiary, California Water Service Company (Cal Water). Cal Water is regulated by the CPUCU.S. Environmental Protection Agency (EPA) and the California Department of Public Health, which also enforces EPA drinking water standards. A primary drinking water standard violation is the target for this metric. Returnrelated to public health, either acute or long-term. A secondary drinking water standard violation is related to taste or aesthetics, such as excessive iron and manganese, and can generate customer complaints. Performance is evaluated based on equity is defined using net income divided by average common stockholders' equity.number of violations of primary and secondary drinking water standards.



•

Plant additions:  The Board approved capital expenditures budget is the target for this metric.



•

Customer service:CUSTOMER SERVICE:  A combination of CPUC standards and internal company performance indicators, including answering phone calls within 30 seconds, responding to customer complaints, reading meters and billing accuracy, comprise the target for this metric.metric applicable only to Cal Water. The nine CPUC customer service standards are found in the CPUC's General Order 103-A. The metric is evaluated each quarter for the California service areas. Performance is evaluated based on compliance with CPUC standards, with additional credit given for achievement in our more stringent internal goals.



•

Water quality:PLANT ADDITIONS:  PrimaryThe annual Board-approved capital expenditures budget is the target for this metric. Investment in plant is a driver of stockholder return and a key component of providing reliable, high-quality water service to customers. This metric is updated each year to reflect the annual approved capital program and budget for the Group and its subsidiaries.



•

RETURN ON EQUITY (ROE):  The return on equity authorized by the CPUC is the target for this metric. Return on equity is defined using net income divided by average common stockholders' equity. This metric measures the effectiveness of the Group's financial management and regulatory strategy. It provides for a substantial increase in the award for performance above the authorized ROE (20% increase for a 5 basis points (bps) increase in ROE) and a more graduated downside measure (20% decrease in award for a 50 bps decrease in ROE) due to the regulatory mechanisms in place which limit the possibility of achieving high returns on equity.

Achievement of 2013 Performance Objectives

        The Committee certified that the following RSU performance goals for 2013 were achieved:

        WATER QUALITY:    Cal Water did not record any violations of primary or secondary drinking water standards with zero violationsin 2013.

        Achieved:    200%

        CUSTOMER SERVICE:    Cal Water achieved CPUC standard customer service performance in its service areas in 98% of a primary standard and two or fewer violations of a secondary standard, comprise themeasurements. No additional credit was given for meeting Cal Water internal targets. The target for this metric.metric was 99% of performance.

        Achieved:    75%

        UTILITY PLANT:    The Group invested more than $115 million in utility plant. The target for this metric was the Board approved capital spending of $130 million for 2013. Spending was slowed due to resources allocated to support the California general rate case process.

        Achieved:    25%

        RETURN ON EQUITY:    The Group achieved an 8.81% return on average common equity in 2013. However, the Committee noted that common equity in part supports construction work in progress (CWIP), which is subject to interest during construction (IDC) in lieu of a return on equity in most

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regulatory jurisdictions. Excluding the equity-funded CWIP, the Group earned 9.77% on average common equity. Without one-time tax items, the Group would have earned 8.59% on average common equity net of CWIP. In light of these circumstances, the Committee approved 100%.

        Achieved with adjustment:    100%

2014 Compensation

Incentive Equity Awards for 2014

        In November of 2012,2013, the Committee, after reviewing competitive data for each executive, approved the total value of the equity compensation awards, in the form of restricted stock and RSUs, to be granted to theour current President & CEO the new President/COO and the other executive officersexecutives for 2013.2014. These values were $500,000 (CEO), $310,000 (President/COO)(President & CEO) and $120,000 (other executive officers)executives), vesting over three years respectively, with 50% subject to the achievement of performance metrics and 50% subject only to continued employment.

        On March 6, 2013,4, 2014, the Committee granted to theour current President & CEO 25,00810,923 shares the President/COO 15,506 shares; and each of the other executive officers 6,002executives 2,622 shares in the form of 50% RSAs and 50% RSUs.

Annual Performance-Based Cash Bonuses for 2014

        As noted above, effective January 1, 2014, we introduced a short-term performance-based cash incentive compensation program for officers, with targeted payouts dependent upon achievement of certain performance-objectives. The Committee believes that a mix of short-term and long-term incentive compensation will reward and motivate near-term performance, while at the same time providing significant incentives to keep executives focused on longer-term corporate goals that support both stockholders and customers.

Basic and Supplemental Pension Plan Benefits

        In addition to the tax-qualified defined benefit plan that covers all permanent employees, the Group provides supplemental retirement benefits to executive officers under the Supplemental Executive Retirement Plan (SERP). The SERP is structured such that benefits are paid to executives on a "pay as you go" basis. The SERP is an unfunded, unsecured obligation of the Group and is designed to assist in attracting and retaining key executives while providing a competitive, total compensation program. The current portion of the SERP expense is also fully recoverable in customer rates, including changes in SERP valuation due to market interest rate changes, meaning the cost of the SERP expense is not borne by our stockholders. Furthermore, the plan is designed primarily to make up for limitations imposed by the Internal Revenue Code (Code) on allocations and benefits that may be paid to executives under the Group's tax-qualified plan. Because the tax code restricts benefits under the tax-qualified plan, executives otherwise would not be eligible to receive the retirement benefits that are proportional to the benefits received by our employees that generally are based on compensation.

Deferred Compensation Plan

        The Group maintains a deferred compensation plan for its directors, officers, and qualified managers. The plan is intended to promote retention by providing eligible employees, including the executive officers, with a long-term savings opportunity on an income tax-deferred basis. This plan is voluntary and funded by the individuals who elect to participate in the program. There are no company-matching contributions.

401(k) Plan

        All employees satisfying the eligibility requirements are entitled to participate in our 401(k) plan and receive matching contributions from the Group. Pursuant to the plan, executive officers are entitled to contribute up to the statutory limit set by the Internal Revenue Service and the Group matches 75% for

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each dollar contributed up to a maximum company match of six percent of each such executive officer's base salary.

Limited Perquisites

        As part of the Group's automobile policy, the Group's officers have the use of a company-owned automobile, including excess liability insurance. The Committee believes that the provision of a company-owned automobile allows the officers to work more efficiently because many of the geographic areas served by the Group are most effectively reached by automobile as opposed to other forms of transportation, such as airlines. Any personal mileage incurred by the executive is taxed as additional compensation in accordance with IRS regulations. Other than this automobile benefit, the Committee's general philosophy is not to provide perquisites and other personal benefits of substantial value to the officers.

Severance Arrangements

        None of the executive officers is a party to an individual employment agreement with the Group that provides for severance benefits. In addition, we do not provide executive officers with single-triggered change in control benefits.

        Consistent with the Group's compensation philosophy, the Committee believes that the interests of stockholders are best served if the interests of senior management are aligned with those of the Group's stockholders. To this end, the Group provides change in control severance benefits to executive officers under the Group's Executive Severance Plan to reduce any reluctance of the executive officers to pursue or support potential change in control transactions that would be beneficial to stockholders. The Group adopted the plan in 1998, and its purpose is to promote the continued employment and dedication of executives without distraction in the face of a potential change in control transaction. The Executive Severance Plan provides severance pay equal to three times base salary to each of the executive officers if their employment is terminated without good cause or they resign for good reason during the two-year period following a change in control.

        In the event of a termination not in connection with a change in control, each executive officer is covered by the Group's general severance policy stating that each non-union employee of Group whose employment is terminated without cause is entitled to severance pay of either one week's pay after completing two years of service or two weeks' pay after completing five or more years of service, provided in each case that at least two weeks' notice is given. Under the Group's policies, all officers are entitled to a pay-out of six weeks of vacation time upon termination of employment.

Determining Executive Compensation

        Each year the Committee reviews, assesses, and recommends to the Board all compensation for executives after determining that the compensation for these individuals is competitive relative to companies of comparable size, complexity, location and business nature (see below for additional discussion of this comparison). In addition, the Committee approves the retention, fees, and termination of any compensation consultant or compensation consulting firm used to assist in the evaluation of director and executive compensation. With respect to 2013 compensation decisions, the Committee retained the services of an independent compensation consultant, Towers Watson, for investigation into and advice on compensation for executive officers. The Committee believes that having an independent evaluation of compensation is a valuable tool for the Committee, the Group and stockholders. Towers Watson is not engaged to perform any additional work for the Group. The Committee retained Towers Watson for a number of purposes, including:

•

Constructing and reviewing compensation comparisons from readily available published survey and public filings data; and

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•

Performing a competitive assessment of the Group's compensation programs, practices, and levels for its directors, executive officers and other senior officers.

        The Committee made a number of compensation recommendations, including those pertaining to the executives that were based on the competitive assessments provided by and through consultation with Towers Watson. The Committee's recommendations were made, however, entirely by the Committee, using its sole discretion.

        Total compensation level for executives is based on one or more of the following factors:

•

The individual's duties and responsibilities within the Group;



•

The individual's experience and expertise;



•

The compensation levels for the individual's peers within the Group;



•

Compensation levels for similar positions based on a review of published compensation surveys; and



•

The levels of compensation necessary to recruit, retain, and motivate executives.

        In order to determine competitive compensation practices for 2013, the Committee relied, in part, on published compensation data from the following sources:

•

Towers Watson Data Services—2012 Top Management Database;



•

Towers Watson 2012 Compensation Data Bank—Energy Services Industry; and



•

Mercer Human Resources Consulting—2012 Executive Benchmark Database.

        The Committee also reviewed proxy data for individual companies in making compensation decisions. The individual companies are referred to in this proxy statement as the "Peer Group." The 11 companies comprising the Peer Group are generally either gas, water, or multi-utility-based organizations that are one-half to two times the annual revenue size of the Company. On September 26, 2012, the Committee approved the following companies for inclusion in the Peer Group for 2013 for determining competitive compensation levels:

        Towers Watson utilized the data from these sources (competitive data) to compile the competitive pay information comparing each officer's compensation to market levels for the executive's position.

        After consideration of the competitive data, the Committee makes decisions regarding each individual executive's target total compensation opportunities based on the Group and individual performance and the need to attract, motivate, and retain an experienced and effective management team. The Committee examined the relationship of each executive's base salary, long-term equity incentives and total compensation (base salary plus long-term equity incentives) to the competitive data from several perspectives by reviewing the following:

•

The competitive data without any adjustments;



•

Annual incentive or bonus valued at 50% of the median of the market competitive data;



•

The lower range of minus 20% from the median of the market competitive data;

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•

Target total direct compensation reduced by 20% from the median of the market competitive data; and



•

Actual cash compensation reduced by 20% from the median of the market competitive data.

        In making compensation recommendations for the 2013 fiscal year for the executives, the Committee's general objective was to set total compensation within a "competitive range" for each executive's position based on the competitive data. The Committee considers the "competitive range" to mean that compensation levels are within plus or minus 20% of the median compensation levels as determined by reference to the competitive data. Actual compensation decisions for the executive officers were, however, influenced by a variety of additional factors, including considerations of each individual's experience, expertise, performance and leadership, the Group's performance, and internal equity among the executive officers. With respect to 2014 compensation planning, the Committee retained the services of Meridian Compensation Partners as the independent compensation consultant.

Other Compensation Policies

Stock Ownership Requirements

        In 2012, the Board adopted requirements for our CEO, President/COO, other executive officers, and members of our Board to own shares of our stock to further align their interests with those of our stockholders. The requirements were adopted to promote a long-term perspective in managing the Group and to help align the interests of our stockholders, executives, and directors. Each officer and non-employee director must directly own Group stock having a market or intrinsic value (i.e., paper gain for vested, unexercised stock options), whichever is higher, equal to:

•

For our CEO, five times his annual base salary;



•

For our President/COO, three times his annual salary;



•

For all other officers, one and one-half times his or her annual base salary; and

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•

For each non-employee director, five times his or her annual cash retainer (requirements do not apply to uncompensated non-employee directors).

        Individuals subject to these requirements are required to achieve the relevant ownership threshold within five years following adoption of the requirements or five years after commencing service, when service begins after the requirements are adopted.whichever is later. For executive officers, the Organization and Compensation Committee will review compliance with these requirements on an annual basis. The Nominating/Corporate Governance Committee will review compliance with these requirements for non-employee directors on annual basis.

Anti-hedging and No Pledging Policy

        In 2012, the Board adopted an insider trading policy that prohibits our officers and directors from participating in put or call options transactions, hedging and pledging transactions or other inherently speculative transactions with respect to Group stock. We adopted this policy as a matter of good corporate governance, and because by prohibiting such transactions for executives, the compensatory value of equity awards on both the upside and the downside remains strong.

Executive Compensation Recovery ("Clawback") Policy

        In 2012, the Board also adopted an executive compensation recovery, or "clawback," policy requiring the reimbursement of excess incentive-based compensation provided to the Group's officers in the event of certain restatements of the company's financial statements. The policy allows the Company to clawback incentive-based compensation from executive officers who were actually involved in the fraud or misconduct that triggered the accounting restatement to the extent that the compensation was in excess of what would have been paid under the accounting restatement. This policy is applicable to all incentive-based

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compensation paid after implementation of the policy, and it covers the three-year period preceding the date on which the company is required to prepare the accounting restatement.

BasicTax and Supplemental Pension Plan Benefits162(m) Implications

        In addition to the tax-qualified defined benefit plan that covers virtually all union and non-union employees, Group provides supplemental retirement benefits to executive officers under the Supplemental Executive Retirement Plan (SERP). The SERP is structured such that benefits are paid to executives on a "pay as you go" basis. The SERP is an unfunded, unsecured obligation of the Group and is designed to assist in attracting and retaining key executives while providing a competitive, total compensation program. Since Group does not provide a significant amount of total compensation in the form of equity incentives, SERP benefits provide executive officers with retirement security. The current portion of the SERP expense is also fully recoverable in customer rates, including changes in SERP valuation due to market interest rates, meaning the cost of the SERP expense is not born by our stockholders. Furthermore, the plan is designed, in part, to make up for limitations imposed by the Internal Revenue Code on allocations and benefits that may be paid to executive officers under the Group's tax-qualified plan. Because the tax code restricts benefits under the tax-qualified plan, executives otherwise would not be eligible to receive the retirement benefits that are proportional to the benefits received by our employees that generally are based on compensation.

Deferred Compensation Plan

        The Group maintains a deferred compensation plan for its directors, officers, and qualified managers. The plan is intended to promote retention by providing eligible employees, including the executive officers, with a long-term savings opportunity on an income tax-deferred basis. This plan is voluntary and funded by the individuals who elect to participate in the program. There are no company-matching contributions.

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401(k) Plan

        All employees satisfying the eligibility requirements are entitled to participate in our 401(k) plan and receive matching contributions from the Group. Pursuant to the plan, executive officers are entitled to contribute up to the statutory limit set by the Internal Revenue Service and the Group matches 75 percent for each dollar contributed up to a maximum company match of six percent of each such executive officer's base salary.

Limited Perquisites

        As part of the Group's automobile policy, the Group's executive officers have the use of a company-owned automobile, including excess liability insurance. The Committee believes that the provision of a company-owned automobile allows the executive officers to work more efficiently because many of the geographic areas served by the Group are most effectively reached by automobile as opposed to other forms of transportation, such as airlines. Any personal mileage incurred by the executive is taxed as additional compensation in accordance with IRS regulations. Other than this automobile benefit, the Committee's general philosophy is not to provide perquisites and other personal benefits of substantial value to the executive officers.

Severance Arrangements

        None of the executive officers is a party to an individual employment agreement with the Group that provides for severance benefits. In addition, we do not provide executive officers with single-triggered change in control benefits.

        Consistent with the Group's compensation philosophy, the Committee believes that the interests of stockholders are best served if the interests of senior management are aligned with those of the Group's stockholders. To this end, the Group provides change in control severance benefits to executive officers under the Group's Executive Severance Plan to reduce any reluctance of the executive officers to pursue or support potential change in control transactions that would be beneficial to stockholders. Group adopted the plan in 1998, and its purpose is to promote the continued employment and dedication of executives without distraction in the face of a potential change in control transaction. The Executive Severance Plan provides severance pay equal to three times base salary to each of the executive officers if their employment is terminated without good cause or they resign for good reason during the two-year period following a change in control.

        In the event of a termination not in connection with a change in control, each executive officer is covered by the Group's general severance policy stating that each non-union employee of Group whose employment is terminated without cause is entitled to severance pay of either one week's pay after completing two years of service or two weeks' pay after completing five or more years of service, provided in each case that at least two weeks' notice is given. Under the Group's policies, all executive officers are entitled to a pay-out of six weeks of vacation time upon termination of employment.

Determining Executive Compensation

        Each year the Committee reviews, assesses, and recommends to the Board of Directors all compensation for executive officers after determining that the compensation for these individuals is competitive relative to companies of comparable size, complexity, location and business nature (see below for additional discussion of this comparison). In addition, the Committee approves the retention, fees, and termination of any compensation consultant or compensation consulting firm used to assist in the evaluation of director and executive compensation. With respect to 2012 compensation decisions, the Committee retained the services of an independent compensation consultant, Towers Watson, for investigation into and advice on compensation for executive officers. The Committee believes that having

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an independent evaluation of compensation is a valuable tool for the Committee, the Group and stockholders. Towers Watson is not engaged to perform any additional work for the Group.

        The Committee retained Towers Watson for a number of purposes, including:

•

Constructing and reviewing compensation comparisons from readily available published survey and public filings data; and



•

Performing a competitive assessment of the Group's compensation programs, practices, and levels for its directors, executive officers and other senior officers.

        The Committee made a number of compensation recommendations, including those pertaining to the executive officers that were based on the competitive assessments provided by and through consultation with Towers Watson. The Committee's recommendations were made, however, entirely by the Committee, using its sole discretion.

        Total compensation level for executives is based on one or more of the following factors:

•

The individual's duties and responsibilities within the Group;



•

The individual's experience and expertise;



•

The compensation levels for the individual's peers within the Group;



•

Compensation levels for similar positions based on a review of published compensation surveys; and



•

The levels of compensation necessary to recruit, retain, and motivate executives.

        In order to determine competitive compensation practices for 2012, the Committee relied, in part, on published compensation data from the following sources:

•

Towers Watson Data Services—2010/2011 Top Management Database;



•

Towers Watson Compensation Data Bank—Utility/Energy Industry; and



•

Mercer Human Resources Consulting—2011 Executive Benchmark Database.

        The Committee also reviewed proxy data for individual companies in making compensation decisions. The individual companies are referred to in this proxy statement as the "Peer Group." The 11 companies comprising the Peer Group are generally either gas, water, or multi-utility-based organizations that are one-half to two times the annual revenue size of the Company. On September 28, 2011, the Committee approved the following companies for inclusion in the Peer Group for fiscal 2012 for determining competitive compensation levels:

        Towers Watson utilized the data from these sources (competitive data) to compile the competitive pay information comparing each officer's compensation to market levels for the executive officer's position.

        After consideration of the competitive data, the Committee makes decisions regarding each individual executive's target total compensation opportunities based on Group and individual performance and the need to attract, motivate, and retain an experienced and effective management team. The Committee examined the relationship of each executive's base salary, long-term equity incentives and total

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compensation (base salary plus long-term equity incentives) to the competitive data from several perspectives by reviewing the following:

•

The competitive data without any adjustments;



•

Annual incentive or bonus valued at 50% of the target market values (adjusted competitive data);



•

The lower range of minus 20% from the median of the adjusted competitive data;



•

Target total direct compensation reduced by 20% from the median of the adjusted competitive data; and



•

Actual cash compensation reduced by 20% from the median of the adjusted competitive data.

        In making compensation recommendations for the 2012 fiscal year for the executive officers, the Committee's general objective was to set total compensation within a "competitive range" for each executive's position based on the competitive data. The Committee considers the "competitive range" to mean that compensation levels are within plus or minus 20% of the median compensation levels as determined by reference to the competitive data. Actual compensation decisions for the executive officers were, however, influenced by a variety of additional factors, including considerations of each individual's experience, expertise, performance and leadership, the Group's performance, and internal equity among the executive officers. With respect to 2013 compensation planning, the Committee has retained the services of Meridian Compensation Partners LLC as independent compensation consultant.

Tax and Other Compensation Policies

        When designing compensation policies and setting compensation levels, the Group considers the potential tax treatment of the compensation, but the primary factor influencing program design is the support of business objectives. The Committee has reviewed the Group's compensation structure in light of Section 162(m) of the Internal Revenue Code (Section 162(m)), which limits the amount of compensation that the Group may deduct for federal income tax purposes for any year to $1,000,000 for our CEO and each of our next four highest compensated officers.executives. There are certain exceptions to this limit, one of which is for "performance-based compensation," as defined under Section 162(m). RSAs granted by the Group do not qualify as "performance-based"performance- based compensation," and thus do count against the $1,000,000 deductibility limit. In 2011,2013, no executive officer's compensation exceeded the limitation set by Section 162(m) except for theour former CEO (now retired), whose compensation was $1,111,950.$1,094,011. Except to the extent that the former CEO's compensation exceeded $1,000,000, all compensation paid to the non-CEO executive officersexecutives in 20122013 was intended to be tax-deductible.

        In designing our executive compensation decisions for 2013,2014, we carefully consider the effect of Section 162(m) together with our factors relevant to our business needs. As we implement the performance basedperformance-based awards into our compensation program, we will generally intend our performance-based awards to be eligible to qualify as tax-deductible to the Group, but we have the flexibility to pay the non-deductible compensation when necessary to achieve our executive compensation objectives.

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Summary Compensation Table

        The table below summarizes the total compensation paid or earned by our current President & CEO, now retired CEO, CFO, and the three most highly compensated executive officers of the Group for the fiscal year ended December 31, 2013, 2012 2011 and 2010.2011.