AWR

Business Context and Reporting Period

This Form 10-K is a combined annual report for American States Water Company (AWR) and its wholly-owned subsidiary, Golden State Water Company (GSWC), for the fiscal year ended December 31, 2024. 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). GSWC and BVES are regulated public utilities in California, while ASUS provides water and wastewater services to U.S. military bases under long-term contracts.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Stability: Total operating revenues remained flat year-over-year ($595.5M vs $595.7M). Water revenues decreased by 3.7% primarily due to the absence of retroactive rate adjustments recorded in 2023. Electric revenues increased 23.5% due to the recognition of retroactive rates for 2023 and 2024 following a CPUC decision. Contracted services revenues grew 5.0% driven by new base operations.
• Profitability: Net income decreased 4.5% to $119.3 million. Adjusted diluted EPS (excluding one-time 2023 regulatory items) increased by $0.32 per share to $3.17, reflecting underlying operational growth.
• Cash Flow Surge: Operating cash flow more than doubled to $198.7 million, driven by the implementation of new water rates and surcharges in late 2023, a 4.5% increase in billed water consumption, and receipt of $3.5 million in COVID-19 relief funds.
• Expense Increases: Operating expenses rose 3.0% to $411.0 million. Maintenance expenses jumped 42.5% largely due to wildfire mitigation costs at BVES. Interest expense increased 17.8% due to higher borrowing levels and interest rates.

Guidance, Outlook, and Management Commentary

• Regulatory Decisions: The CPUC issued final decisions in January 2025 for both GSWC (2025-2027 rates) and BVES (2023-2026 rates). GSWC was denied the continuation of its full revenue decoupling mechanism (WRAM) and cost balancing account (MCBA), transitioning instead to modified mechanisms (M-WRAM and ICBA) effective January 1, 2025. This may introduce future revenue volatility based on consumption fluctuations.
• Capital Program: The company expects regulated utility capital expenditures to range between $170 million and $210 million in 2025. GSWC is authorized to invest approximately $573.1 million over the 2025-2027 cycle, while BVES is authorized for approximately $52.5 million over 2023-2026.
• Dividend Policy: AWR has increased dividends for 70 consecutive years. The Board approved a Q1 2025 dividend of $0.4655 per share. The company targets a long-term dividend CAGR of more than 7%.
• Environmental & Climate Risks: New EPA regulations on PFAS and Hexavalent Chromium are expected to increase capital and operating costs significantly over the next decade. BVES continues to incur costs for wildfire mitigation plans, which are now recoverable in rates.
• Liquidity: GSWC has a $200 million credit facility with a pay-off deadline in June 2025. The company is awaiting CPUC approval for a new financing application to issue up to $750 million in long-term debt/equity to refinance this facility.

Investor Verification Checklist

• Regulatory Mechanism Transition: Verify the impact of the CPUC's rejection of the WRAM/MCBA on GSWC's revenue stability starting in 2025.
• Financing Application Status: Monitor the CPUC's decision on GSWC's application to issue $750 million in new securities, critical for refinancing the June 2025 credit facility maturity.
• PFAS Compliance Costs: Track capital expenditure requirements and cost recovery timelines for new EPA PFAS and Hexavalent Chromium regulations.
• Wildfire Mitigation Recovery: Confirm the full recovery of BVES's wildfire mitigation costs through the new 2023-2026 rate structure.
• Contracted Services Growth: Assess the profitability and cash flow contribution of the new military base contracts at Naval Air Station Patuxent River and Joint Base Cape Cod.