MEMORANDUM OF UNDERSTANDING BETWEEN GOLDEN STATE

WATER COMPANY AND CLAREMONT AFFORDABLE WATER

ADVOCATES
____________________________________________________________

TWENTY COMMITMENTS TO SAFEGUARD CLAREMONTS WATER SYSTEM,
LIMIT WATER RATES, ENHANCE PUBLIC INVOLVEMENT, AND
AVOID COSTLY EMINENT DOMAIN LITIGATION

I. Background Statement of Reasons and Intent

A. Since 1929, Golden State Water Company (Golden State Water) and its predecessors
have owned and operated the water system serving the City of Claremont. Since 2000, Golden
State Water has invested over $20 million in infrastructure upgrades to the Claremont water
system.

B. At various times over the past decade, officials in the City of Claremont have
expended public resources toward legal steps designed to seize the water system using the power
of eminent domain, and then convert the water system to a municipal utility that is controlled
(and possibly operated) by the City of Claremont. Since 2004, millions of dollars in public funds
have been spent on the Citys plan to seize the water system.

C. The most recent eminent domain effort began in late 2011 or early 2012. The Citys
eminent domain litigation attorneys commissioned an appraisal of the water system, and in
November, 2012, sent a formal offer under the eminent domain law to purchase the water
system from Golden State Water for the sum of $54,076,000. Claremont residents were not
given the opportunity to vote on whether to make such an offer, and there is no indication that
the City had available the funds to complete the transaction had Golden State Water accepted the
offer. Golden State Water rejected the offer, confirming that its water system was not for sale.

D. In December 2012, a study Golden State Water commissioned by Claremont water
economist Dr. Rodney Smith was released. The study found that a purchase of the water system
for $54 million by the City would cause water rates for Claremont residents to increase by
approximately 30 percent. All of the calculations on which the findings were based were set
forth in the study. The City of Claremont was provided with the full study, and to this date has
not provided any facts or analysis that call into question any of Dr. Smiths findings.

E. On October 3, 2013, the Citys eminent domain litigation attorneys sent a revised
eminent domain offer in which the City offered to purchase the water system from Golden
State Water for the sum of $55,094,000. As before, Claremont residents were not given the
opportunity to vote on whether to make such an offer, and there is no indication that the City had
available the funds to complete the transaction. Golden State again rejected the offer.

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F. On November 6, 2013, Claremonts eminent domain litigation attorneys made a
public Town Hall presentation concerning seizure of the water system. The City refused to
allow Golden State Water to participate. In the Town Hall presentation, the Citys attorneys
and consultants claimed that a feasibility study prepared at the direction of the attorneys
proved the City could purchase the water system for as much as $80 million without increasing
the water rates charged to Claremont residentsdirectly contrary to the findings stated in Dr.
Smiths report. However, the City did not reveal any calculations or data that would allow
examination of the differences between Dr. Smiths findings and the feasibility study findings.
Golden State Water therefore demanded under the Public Records Act that the City make the
feasibility study available for public review. The City refused, claiming the right to keep the
feasibility study secret. To this date, the City continues to refuse to provide the financial
calculations or feasibility information to residents, media or Golden State Water. Residents will
be asked to tax themselves to pay for massive municipal borrowing without any information
regarding the viability of the expenditure.

G. In the November 6, 2013, Town Hall meeting, Claremont City Manager Tony
Ramos stated I have no intention of establishing the City of Claremont water department. He
explained that after seizing the water system, Claremont would contract out the operation of the
system to some identified public or private operator. Claremont has entered into a MOU with
the City of LaVerne to conduct an operational study to determine if the City of LaVerne could
operate the Claremont system. Details surrounding this study and its findings are being withheld
from the public, and residents may only receive a summary of the review instead of full and
comprehensive details with which to make an independent evaluation.

H. On November 19, 2013, Golden State Water conducted its own public Town Hall
meeting. Dr. Smith spoke, reviewed the analysis in his report and invited any member of the
public to question him about the findings in his report; he offered everyone the opportunity to
ask questions during the meeting, or later at his private office at any time. Golden State Waters
manager Ben Lewis spoke and explained that the replacement cost of the Claremont water
system exceeds $200 million. Golden State Water Senior Vice President Denise Kruger
introduced the wide array of water service experts the company employs, and took questions
from the public on any topic.

I. On March 10, 2014, the City sent official notice that on March 25, 2014, the City
Council would vote on whether to adopt a Resolution of Necessity that would trigger the filing
of an eminent domain lawsuit against Golden State Water. If the Resolution were to be adopted,
the City would be required to file the eminent domain lawsuit against Golden State Water within
six months. However, a week before the March 25 hearing the City reversed course and
withdrew the Resolution from its agenda without explanation.

J. At its March 25, 2014 meeting, instead of considering adoption of a Resolution of
Necessity, the Claremont City Council instructed its staff to create the paperwork to allow the
City to borrow as much as $120 million to seize the water system by eminent domain. Further,
the City Council instructed that the public should be permitted to vote on only $40 million of the
new borrowing package. Under City staffs proposal, $80 million in borrowing is to take place
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without a vote of the people. There is no public information available to disclose whether or not
the City of Claremont would pursue an acquisition if the price were determined to be more than
$120 million, or how a price in excess of $120 million would be funded.

K. Golden State Water contends that the Citys effort to seize the water system is badly
misguided. The City has no current funding to prosecute an eminent domain lawsuit, no
experience or capability in operating a water system, and its plan to allow a vote on only a
portion of the necessary borrowing threatens to mislead residents. Moreover, because the City
would have to pay Golden State Water for the full value of the water system, in cash, an eminent
domain seizure would result in higher water rates in Claremont for at least 30 years. Golden
State Water also believes that the service it providesspecifically, a safe and reliable water
supplywould not be matched by some unidentified party that contracts with the City to operate
the system.

L. Claremont Affordable Water Advocates (CAWA) is a group of Claremont residents
who are deeply concerned about the Citys ongoing, expensive effort to seize the water system
through eminent domain. CAWA has conducted its own analysis of local water issues and
believes that cooperation and collaboration is better for residents than an eminent domain fight.
CAWA intends to advocate that the City abandon its plan to seize the water system, and instead
engage Golden State Water cooperatively to solve any issues regarding water supply or cost that
the community wishes to examine.

M. Golden State Water has been asked by CAWA to support its public outreach efforts,
and to set forth its own ideas about possible commitments that address the issues that City
officials have raised concerning Golden State Waters operation of the system and rates charged
to Claremont residents.

N. Golden State Water has worked cooperatively with CAWA to address water concerns
and the two partners jointly believe that there are a range of measures which could be undertaken
that represent a much stronger solution than any result of the City of Claremonts attempt to
seize the system through eminent domain and contract with a third-party entity for operations.

II. Twenty Proposed Commitments By Golden State Water to Claremont Residents

CAWA and Golden State Water have developed twenty commitments that Golden State
Water will strive to implement if the Claremont City Council abandons its efforts to seize the
water system by eminent domain. These commitments are designed to achieve the following
objectives:

Continued water quality, customer service, operational, finance and infrastructure
professionals available to serve Claremont.

Continued access to capital that will ensure any catastrophic or other unforeseen service
issues can be swiftly addressed.

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Continued development of ongoing immediate and long-range infrastructure plans to
protect and preserve the water system for current and future generations.

Conservation and community involvement to achieve measurable outcomes in terms of
lower reliance on imported water.

Transparency to customers in terms of financial information and water system
management.

Direct involvement by the City, CAWA and local stakeholders in the ratemaking process,
including the development of proposals and direct intervener status to ensure a higher
level of accountability than is provided through the municipal process and so-called
Proposition 218 protections.

No future tax increases or public borrowing to fund any part of the provision of water
service, freeing municipal funds for other community priorities.

The twenty specific commitments that Golden State Water will use its best efforts to
pursue if the City abandons its seizure effort, are as follows:

1. Lower water bills for residential customers. Golden State Water will propose a new
rate structure for residential customers in its upcoming rate filing scheduled for July, 2014.
The rate proposal, which includes a proposal to convert the existing three-tier rate structure
for residential customers to a four-tier rate structure, will result in lower monthly water bills
for residential customers in the Region III ratemaking area. In addition to the
implementation of a four-tier rate structure, Golden State Water will propose to segregate the
districts within Region III for the purposes of establishing the size of the tiers in the new
four-tier structure. Golden State Water shall support the continuation of this rate structure
unless otherwise agreed by the City of Claremont and subject to approval by the CPUC.

2. Funding of Feasibility Study and Potential Construction of Reclamation Plant.
Golden State Water will fund the preparation of a study concerning the feasibility of
constructing a water reclamation facility to serve the City of Claremont. In the event the
facility is deemed feasible, Golden State Water will include the plant in its Urban Water
Management Plan and seek approval from the CPUC.

3. Mitigation for water supply costs. Golden State Water will continue to apply a lower
water supply cost structure that reflects the Region as a whole, to the benefit of Claremont
customers. Currently, Region III rates reflect a 66 percent groundwater/34 percent imported
water usage, while Claremont alone was forecasted to use 47 percent groundwater/53 percent
imported water, and had an actual usage in 2013 of 41 percent groundwater/59 percent
imported water. This results in lower water supply costs for Claremont customers as
compared to Claremonts actual costs.

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4. Continuation of policy resulting in lower monthly service charges. In 2009,
Golden State Water implemented the tiered rate structure for residential customers. A key
aspect of that change in rate design was a reduction in the monthly service charges. That
change in rate design reduced monthly service charges by approximately 5 percent. (For
example, the monthly service charge in Region III for a 1 meter was reduced from $40.30 to
37.95, a decrease of 5.8%). In its upcoming 2014 General Rate Case filing (2014 GRC),
Golden State Waters proposed rate structure will continue the policy implemented in 2009
resulting in lower monthly service charges. This structure provides customers with the
greatest ability to control water bills based upon actual water usage.

5. Limitation on future revenue increases. Golden State Waters requested revenue
requirement increases in the 2014 GRC will not exceed three (3) percent annually for the
period 2016-18. Golden State Water will work with the City, CAWA and local stakeholders
on the General Rate Case filing for the 2019-21 years to maintain the same three (3) percent
requested revenue increase cap for the 2019-21 filing. The parties acknowledge, however,
that environmental, regulatory or other circumstances could arise that would prevent Golden
State Water from maintaining reliable quality water service at this revenue level.

6. Alternatives to the WRAM/MCBA. Golden State Water shall not object to or
obstruct any party from seeking to remove or modify the WRAM rate adjustment from rates
applicable to the City of Claremont within the context of the CPUC process so long as the
alternative ensures that Golden State Water can meet its fixed cost obligations, accounting
for water supply costs regardless of sales levels. Golden State Water reserves the right to
present evidence regarding the pros or cons of any such modification, and reserves the right
to advocate in favor of the existing WRAM if, in its opinion, no better alternative is
submitted. Further, Golden State Water will cooperate as necessary to timely provide data
and other information on the water system costs and revenue to any interested party through
the CPUCs ratemaking process to determine if there is an alternative mechanism that
rewards customers who meet agreed-upon per capita usage levels while at the same time
allowing the company to meet its revenue requirement and cover fixed costs.
7. Credit for grants or other outside supplementary funding for water service.
Customers shall continue to receive full benefit for any supplementary public funding,
disaster relief funding or other infrastructure grants made to the company applicable to the
term of the Agreement no matter when received.

8. Advocate for lowest possible imported water costs. Golden State Water will
actively represent Claremont customers in rate increase requests from Three Valleys
Municipal Water District and Metropolitan Water District of Southern California to minimize
pass through water supply costs that affect Golden State Water. Golden State Water will
support efforts by CAWA and the City of Claremont to join this effort to minimize external
potential rate increases arising from the cost of imported water. Golden State Water shall
inform CAWA and the City of the comment and / or participation period as such become
applicable, to the extent known by Golden State Water.
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9. Support for CAWA Intervener Status. Golden State Water shall support CAWAs
direct involvement in the ratemaking process. This includes the following:

o CAWA to determine who participates in its effort.

o Golden State Water will provide CAWA with references for expert legal counsel to
provide independent guidance and support to CAWAs involvement.

o Golden State Water will not oppose CAWAs request for reimbursement of CPUC
eligible expenses accrued as part of their good-faith efforts to impact the process in a
meaningful and consumer-focused way.

o CAWA will be empowered to address any proposed charges for ongoing service or
system improvements to ensure Claremont customers are protected.
10. Benefits of Regional Organization. By October 31, 2014, Golden State Water would
host a local meeting and provide a report and public presentation to residents detailing the
benefits to Claremont of being part of a regional structure. CAWA will maintain its ability to
protest this structure within the CPUC process as an intervener.

11. Collaboration in the Development of General Rate Case Filings. Consistent with
federal and state laws governing water utilities and federal Securities and Exchange Commission
regulations, Golden State Water will work with the City and CAWA on future rate case filings,
including development of Urban Water Management Plans (which contain long-term capital
investment summaries that affect water rates) and recommendations for future rate designs to
maximize the financial benefit to customers who are using water most efficiently.

12. Ongoing accounting of system improvements. Golden State Water shall provide to
CAWA, the City and post publicly online a report of all capital projects identified in a General
Rate Case or supplementary filing that have been constructed and included in customer rates.
The initial report will go back to January 1, 2000 and will be updated annually.

13. Information transparency. Golden State Water shall provide the City of Claremont and
CAWA with copies of any studies, reports or other documents with respect to Claremont agreed
to in the 2010-2012 or 2013-2015 General Rate Case, including settlement agreements, and all
future settlements and General Rate Case orders simultaneously with providing said documents
to the CPUC, Office of Ratepayer Advocates (ORA), The Utility Reform Network (TURN) or
other organizations identified on the service list.

14. City Participation in PVPA. The Pomona Valley Protective Association (PVPA)
controls over 600 acres of land in Claremont, including the spreading grounds for the Six Basin
aquifer that supplies approximately 60% of the water used in Claremont. Golden State Water
will invite City personnel to all PVPA meetings as its guest, and in the event of objection by any
PVPA member Golden State Water will collaborate with the City to respond in the most
effective manner to achieve the Citys attendance.

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15. Assistance and Access regarding CPUC Filings. Golden State Water will, at all
times, maintain in its San Dimas offices a full copy of the current rate case filings for public
inspection and photocopying. Golden State Water will provide on its website a link by which
any member of the public can make an appointment to view such documents, and will
designate a knowledgeable company representative to be available by prior appointment to
meet with residents to address questions about the contents of the filings. (Reasonable
restrictions as to duration and frequency of such appointments will be determined.)

16. Report to the community. Upon not less than 15 days notice, Golden State Water
will present an official report to the community at a publicly noticed City Council meeting, at
the City Councils discretion. Golden State Water will address all community and council
questions, directly at the meeting or within one month of the meeting. The responses will be
made public through Golden State Waters Claremont customer website.

17. Regular meetings and report to the Community. Golden State Water will organize
and facilitate periodic meetings with Claremont residents and CAWA as may be necessary to
implement the intent of this Agreement. These meetings will address all local concerns
including those raised during the report to the community. Golden State Waters District
Manager will lead the meeting, and appropriate company officers will also be directly
engaged in the process.

18. Conservation partnerships and programs. Golden State Water will work with the
City, CAWA and local stakeholders to create, fund and sustain water conservation programs.
The specific programs would be developed collaboratively, detailed in the General Rate Case
application and subject to final CPUC approval.

19. Development of a water conservation and STEM curriculum for use in
Claremont schools. Golden State Water will fund the development and maintenance of an
ongoing water conservation curriculum for use in the Claremont Unified School District,
subject to appropriate state academic standards, the Districts policy and CPUC approval.
Additionally, Golden State Water will support the Districts ongoing science, technology,
engineering and mathematics curriculum to encourage students to maximize these skills,
which are critical to water resource management and ongoing water service.

20. Dismissal of Litigation. Currently there are two pending lawsuits that arise from the
Citys preparartory steps to seize the Claremont water system from Golden State Water:

the Public Records Act lawsuit to compel the City to disclose its feasibility
study concerning the costs and projected water rates under the Citys seizure
plan (Golden State Water Co. v. City of Claremont and Tony Ramos, et al , Los
Angeles Sup. Ct. No. BS 146523); and

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the CEQA lawsuit alleging that the Citys purported environmental review of the
seizure plan is faulty and premature without a clear commitment as to what entity
would operate the Claremont water system if it is taken by the City (Golden State
Water Co. v. City of Claremont, et al , Los Angeles Sup. Ct. No. BS 148759).

As to each of the pending actions, if the City abandons its effort to seize the water system
before a trial or other dispositive hearing on the merits is conducted in the Superior Court,
Golden State Water will dismiss the pending action and will not seek recovery of any attorneys
fees or other litigation costs from the City.


Term of Agreement. The initial term of this MOU is from June 1, 2014 to December
31, 2018 (the initial term). Following the intitial term, this MOU will automatically extend for
three additional three-year terms (for a total of 13 years, ending December 31, 2027), provided
however that either party may terminate the MOU in its sole discretion, and thereby extinguish
all commitments and covenants herein, by giving the other party written notice of termination no
later than six months prior to the start of a new three-year term. (For example, if either party
wishes to terminate the MOU following the intial term, written notice shall be delivered to the
signatory below by no later than June 30, 2018.) This MOU may be modified or amended only
by written agreement between the parties. Irrespective of any other provision herein, this MOU
is deemed terminated immediately upon the filing by the City of an eminent domain lawsuit
seeking to condemn the Claremont water system.

CPUC Compliance. Golden State Water will continue to comply with all California
Public Utilities Commission (CPUC) rules and directives, and where there may be a conflict with
any potential commitments set forth above, Golden State Water will follow CPUC requirements
except insofar as Golden State Water shall take all steps reasonably necessary to obtain CPUC
approval or consent necessary to implement such commitments where applicable.

IT IS SO AGREED:

GOLDEN STATE WATER COMPANY


________________________________ ______________________
Denise Kruger, Senior Vice President Date


CLAREMONT AFFORDABLE WATER ADVOCATES


________________________________ _______________________
Donna Lowe, Date
Denise Kruger
Digitally signed by Denise Kruger
DN: cn=Denise Kruger, o=Golden State Water
Company, ou=Regulated Utilities,
email=denise.kruger@gswater.com, c=US
Date: 2014.06.09 09:25:28 -07'00'
6/9/2014
6/9/2014