AWR

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 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 contracted services on U.S. military bases.

Key Financial Metrics (Six Months Ended June 30, 2026)

Material Changes vs. Prior Period

• Revenue Growth: Total operating revenues increased by 12.7% ($39.4 million) compared to the six months ended June 30, 2025. This was driven by a 10.1% increase in Water revenues, 15.6% in Electric revenues, and 20.5% in Contracted Services.
• Profitability: Net income rose 21.0% to $73.2 million, and diluted EPS increased 18.5% to $1.86 per share.
• Segment Performance:
  • Water: Earnings increased primarily due to CPUC-approved second-year rate increases effective January 1, 2026, and a 2.2% increase in water consumption.
  • Contracted Services: Revenues grew significantly due to increased construction activities and management fee revenues from economic price adjustments.
  • Electric: Revenues increased due to fourth-year rate increases and advice letter capital project recoveries.
• Costs: Operating expenses increased 9.6%, largely due to higher supply costs (water and power) and increased construction expenses in the Contracted Services segment.

Guidance, Outlook, and Risks

• Dividend Increase: On July 28, 2026, the Board approved an 8.2% increase in the quarterly dividend to $0.5455 per share, marking the 73rd consecutive year of dividend increases.
• Capital Markets: AWR successfully completed its At-The-Market (ATM) offering program on June 12, 2026, raising the maximum $200 million in gross proceeds. The company has no plans to issue additional equity through at least the end of 2029.
• Regulatory Outlook:
  • Water: GSWC filed a general rate case for 2028-2030 requesting ~$1 billion in capital budgets. The company is transitioning to a modified revenue adjustment mechanism (M-WRAM), introducing volatility based on consumption fluctuations.
  • Electric: BVES filed a rate case for 2027-2030 requesting ~$133 million in capital budgets.
• Risks and Contingencies:
  • PFAS Litigation: GSWC received approximately $4 million in settlement proceeds from Tyco, BASF, and 3M during the quarter. These funds are tracked in a regulatory liability account to offset future PFAS-related costs.
  • Water Supply: While California reservoir levels are currently above average, the Colorado River System remains in a "Level 2 Shortage Condition," posing long-term supply risks.
  • Government Shutdowns: Early 2026 government shutdowns did not materially impact ASUS operations (classified as "excepted service"), but prolonged shutdowns could delay funding and contract modifications.

Investor Verification Checklist

• Rate Case Timing: Verify the expected decision date for the 2028-2030 Water General Rate Case (expected Q4 2027) and the impact of the new M-WRAM mechanism on revenue stability.
• Debt Refinancing: Confirm the refinancing strategy for GSWC's $65.0 million private placement notes maturing on June 5, 2027, which are currently classified as current liabilities.
• Construction Pipeline: Assess the sustainability of the 20.5% revenue growth in Contracted Services, which relies on U.S. government contract modifications and construction activity levels.
• PFAS Exposure: Monitor the adequacy of the $16.9 million regulatory liability for PFAS proceeds against future capital and operational costs for water treatment.
• Capital Expenditures: Review the 2026 capital expenditure guidance ($185-$220 million for regulated utilities) against actual spending to ensure alignment with rate base recovery.