Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2024, for American States Water Company (AWR) and its wholly-owned subsidiary, Golden State Water Company (GSWC). AWR operates three reportable segments: Water (GSWC), Electric (Bear Valley Electric Service, Inc. or BVES), and Contracted Services (American States Utility Services, Inc. or ASUS, which serves U.S. military bases). The company serves over one million people across ten states, with regulated utilities primarily in California.
Key Financial Metrics (Nine Months Ended Sept 30, 2024)
- Revenue: Total operating revenues were $452.4 million, a decrease of 3.9% compared to $470.5 million in the prior year period. This decline is largely due to the absence of $38.4 million in retroactive revenue adjustments recorded in 2023 related to the 2022 general rate case.
- Net Income: Net income was $90.8 million, down 13.1% from $104.5 million in the prior year. Diluted earnings per share (EPS) were $2.42, compared to $2.82 in 2023.
- Operating Income: Total operating income was $145.8 million, a decrease of 9.9% year-over-year.
- Cash Flow: Net cash provided by operating activities was $134.2 million, a significant increase from $56.5 million in the prior year, driven by the implementation of new CPUC-approved rates and surcharges.
- Capital Expenditures: Capital additions totaled $173.5 million for the nine-month period.
- Debt and Liquidity:
- Long-term debt: $640.2 million.
- Current liabilities (including bank notes): $321.4 million.
- Cash and cash equivalents: $16.5 million.
- Available ATM equity offering capacity: $139.1 million.
Material Changes vs. Prior Period
- Revenue Variance: The year-over-year revenue decrease is primarily attributable to non-recurring items in 2023, specifically retroactive rate adjustments for 2022 ($32.0 million) and a reversal of refund liabilities ($6.4 million). Excluding these items, adjusted diluted EPS increased by $0.11 to $2.42.
- Expense Increases: Operating expenses increased due to higher labor costs, administrative expenses related to regulatory filings, and increased interest expense (up 22.9% to $39.2 million) driven by higher borrowing levels and interest rates.
- Segment Performance:
- Water: Operating income decreased due to the lack of 2023 retroactive adjustments, though billed consumption increased 5.5% due to dry conditions.
- Contracted Services: Operating income increased 14.8% to $22.8 million, driven by new contracts at Naval Air Station Patuxent River and Joint Base Cape Cod, and economic price adjustments.
- Electric: Operating income decreased 17.6% to $6.4 million, largely due to higher interest costs and the absence of new rates while awaiting the general rate case decision.
Guidance, Outlook, and Risks
- Regulatory Outlook:
- Water (GSWC): A settlement agreement for the 2025-2027 general rate case was filed in July 2024, with a proposed decision expected by year-end. This includes authorization for approximately $573.1 million in capital infrastructure investment.
- Electric (BVES): A settlement agreement for the 2023-2026 rate case was filed in November 2024. A decision is expected in Q1 2025, with rates retroactive to Jan 1, 2023.
- Capital Projects: BVES filed an application for a $26.2 million Battery and Solar Project. GSWC is pursuing the acquisition of San Juan Oaks Mutual Water Company assets.
- Environmental Risks: New EPA regulations on PFAS (effective 2027) and Hexavalent Chromium (effective 2024) are expected to increase capital and operating costs. GSWC has regulatory mechanisms to track these costs for future recovery.
- Climate and Wildfire: The company faces risks from drought and wildfires. While no significant impact was reported in Q3 2024, the company continues to invest in wildfire mitigation plans and water supply resiliency.
- Dividends: AWR declared a quarterly dividend of $0.4655 per share, marking the 70th consecutive year of dividend increases.
Investor Verification Checklist
- Verify the timing and final approval of the GSWC 2025-2027 General Rate Case settlement to confirm the $573.1 million capital investment authorization.
- Monitor the BVES 2023-2026 General Rate Case decision (expected Q1 2025) for retroactive revenue recognition.
- Assess the impact of new PFAS and Hexavalent Chromium regulations on future capital expenditure requirements and the ability to recover costs through rates.
- Review the status of GSWC's financing application (up to $750 million) to ensure sufficient long-term funding to pay off the $140 million credit facility maturing in June 2025.
- Track the performance of new ASUS military base contracts (Patuxent River and Cape Cod) to validate the projected $0.54-$0.57 per share contribution for the full year 2024.