EMPLOYMENT AGREEMENT

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     This Employment Agreement ("Agreement") between Southwest Water Company

("Company") and Cheryl L. Clary ("Executive") is entered into effective as of

April 28, 2006 ("Effective Date"). The Company and Executive are each a Party

and are collectively referred to as the "Parties" to this Agreement.



                              REASON FOR AGREEMENT

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     A. As part of an orderly succession process and in accordance with prudent

corporate governance practices, the Company has retained an executive recruiting

firm to begin a search for a new Chief Executive Officer ("CEO").



     B. The Company considers a sound and vital management team to be essential

and wishes to encourage the Executive to effectively perform Executive's duties

and responsibilities without distraction from circumstances arising in the event

of a change of CEO. Therefore, in the event a new CEO is hired during the Term,

the Company desires to provide certain incentives and separation benefits under

the terms and conditions provided in this Agreement. The date a new CEO is hired

will be referred to as the "Transition Date."



     C. The Parties desire to formalize the terms of their continued employment

relationship.



     THEREFORE, in consideration of the promises and of the covenants and

agreements herein provided, the Parties agree as follows:



     1. Term. The term of this Agreement begins on the Transition Date and

continues until the first anniversary of the Transition Date ("Term").

Notwithstanding any other provision of this Agreement, if the Transition Date

has not occurred on or before December 31, 2006, this Agreement expires on

December 31, 2006 ("Expiration Date"). Prior to the Transition Date and

following the Expiration Date, the terms and conditions of Executive's

employment will be governed by the Company's usual policies for executives

(including any Company Change of Control Agreement then in effect) or as

otherwise agreed by the Parties.



     2. Duties and Responsibilities.



          2.1. Duties. During the Term, Executive agrees to continue to serve as

Chief Financial Officer and will have such powers, duties and responsibilities

as are usually vested in Executive's position and as may be assigned from time

to time by the CEO and the Board of Directors, subject to the direction of the

CEO and the Board of Directors.



          2.2. Business Ethics. During the Term, Executive will perform

Executive's duties and responsibilities faithfully, diligently and to the best

of Executive's ability, consistent with the highest and best standards of the

industry and in compliance with all applicable laws and the Company's policies

and procedures. Executive understands that it is the Company's policy to conduct

its business according to the highest moral, ethical and legal standards and

agrees to uphold those standards of business conduct and ethical principles, and

comply with all applicable laws and regulations and the Company's Ethics Policy.



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     3. Compensation and Method of Payment.



          3.1.1. Compensation. For so long as Executive is employed by the

Company during the Term, Executive will receive the base salary Executive is

currently receiving and will be eligible for such salary review, bonus programs

and stock option awards as may be established by the Company for Executive and

as may be approved by the Compensation and Organization Committee and the Board

of Directors.



          3.1.2. Reasonable Expenses. For so long as Executive is employed by

the Company during the Term, the Company will reimburse Executive for all

reasonable travel, entertainment and other expenses incurred or paid by

Executive in connection with, or related to, the performance of Executive's

duties, responsibilities or services under this Agreement, upon presentation by

the Executive of documentation, expense statements, vouchers and/or such other

reasonable supporting information as the Company may request.



          3.1.3. Benefits. For so long as Executive is employed by the Company

during the Term, Executive may continue to participate in the Company's

executive fringe benefits, health insurance, life insurance, key employee

insurance and other plans and programs in effect from time to time for

executives of the Company and its affiliates at comparable levels of

responsibility.



        3.2. Reservation Of Rights. Notwithstanding any other provision of this

Agreement, the Company reserves the right to modify, suspend or discontinue any

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