Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2026, 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.), and Contracted Services (American States Utility Services, Inc. and subsidiaries). The company serves over one million people across ten states, with regulated utilities in California and military base utility services nationwide.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Total Operating Revenues | $169.2 million | $148.0 million |
| Net Income | $29.9 million | $26.8 million |
| Diluted Earnings Per Share (EPS) | $0.76 | $0.70 |
| Operating Cash Flow | $71.6 million | $45.1 million |
| Capital Expenditures | $49.1 million | $67.6 million |
| Long-Term Debt | $782.7 million | $782.7 million |
| Cash and Cash Equivalents | $22.2 million | $18.8 million |
| Effective Tax Rate | 24.8% | 24.0% |
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased 14.3% year-over-year. Water revenues rose 10.9% ($11.1 million) driven by CPUC-approved second-year rate increases effective January 1, 2026. Electric revenues increased 24.4% ($3.7 million) due to fourth-year rate increases. Contracted services revenues grew 20.7% ($6.4 million) due to increased construction activity and management fees.
- Profitability: Net income increased 11.6% to $29.9 million. Operating income rose 12.8% to $51.4 million. The increase in earnings was primarily driven by rate increases in the regulated segments and higher construction activity in the contracted services segment.
- Expense Trends: Total operating expenses increased 15.0%. Notable increases included water purchased costs (up 31.0% due to higher volumes and prices) and ASUS construction expenses (up 34.0%). Maintenance expenses rose 37.4%, largely due to billed surcharges in the electric segment.
- Cash Flow: Net cash provided by operating activities increased significantly to $71.6 million from $45.1 million, attributed to the timing of cash receipts from new rates and surcharges.
Guidance, Outlook, and Risks
- Outlook: Management expects the Contracted Services segment to contribute $0.63 to $0.67 per share for the full year 2026. Regulated utilities' capital expenditures for 2026 are estimated between $185 million and $225 million.
- Regulatory Developments: GSWC transitioned to a modified rate adjustment mechanism (M-WRAM) and an incremental cost balancing account (ICBA) effective January 1, 2025, which may introduce earnings volatility related to consumption fluctuations and water supply mix. BVES filed a new general rate case for 2027-2030 in January 2026.
- Dividends: A quarterly dividend of $0.5040 per share was paid in Q1 2026. The Board approved a second-quarter dividend of $0.5040 per share on May 4, 2026, marking the 72nd consecutive year of dividend increases.
- Risks and Contingencies:
- Government Shutdowns: While utility privatization contracts are "excepted services," prolonged government shutdowns could delay funding, economic price adjustments, and contract modifications for the Contracted Services segment.
- Water Supply: The Colorado River System remains in a "Level 1 Shortage Condition" through 2027. Invasive golden mussels in the State Water Project have impacted groundwater recharge operations in Southern California.
- Environmental: GSWC expects to receive $2.2 million from a PFAS contamination settlement with Tyco, recorded as a regulatory liability to offset future PFAS-related costs. Ongoing environmental remediation at a former plant site has an estimated remaining cost of $1.3 million.
Investor Verification Checklist
- Verify the impact of the transition from full revenue decoupling (WRAM) to the modified mechanism (M-WRAM) on future earnings volatility regarding water consumption.
- Monitor the status of the Colorado River shortage conditions and the impact of invasive mussels on GSWC's water supply reliability and costs.
- Track the timing of Economic Price Adjustments (EPAs) and Requests for Equitable Adjustments (REAs) for the Contracted Services segment, particularly in light of potential government funding delays.
- Review the progress of the $573.1 million capital infrastructure investment plan approved for GSWC's 2025-2027 rate cycle.
- Assess the sufficiency of the $2.2 million PFAS settlement proceeds against projected future compliance and remediation costs.