AWR

Business Context and Reporting Period

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

Key Financial Metrics (Six Months Ended June 30, 2024)

Material Changes vs. Prior Period

• Revenue Decline: Total operating revenues decreased by 8.9% ($28.2 million) compared to the first half of 2023. This decrease is primarily attributed to the absence of one-time retroactive revenue adjustments recorded in 2023 related to the water general rate case and cost of capital decisions.
• Net Income Decrease: Net income fell 24.6% to $55.0 million from $72.9 million in the prior year period. On an adjusted basis (excluding 2023 one-time items), diluted EPS increased slightly from $1.46 to $1.47.
• Segment Performance:
  • Water: Revenues decreased due to the lack of 2023 retroactive adjustments, though billed consumption increased 3.2% due to lower precipitation.
  • Contracted Services: Revenues increased 2.2% driven by new operations at Naval Air Station Patuxent River and Joint Base Cape Cod, and economic price adjustments.
  • Electric: Revenues decreased 3.8% as rates remain at 2022 levels pending a general rate case decision.
• Interest Expense: Increased 28.6% due to higher interest rates and increased borrowing levels to fund capital programs.

Guidance, Outlook, and Management Commentary

• Dividend Increase: On July 30, 2024, the Board approved an 8.3% increase in the quarterly dividend to $0.4655 per share, marking the 71st consecutive year of dividend increases.
• Regulatory Developments:
  • Water Rate Case (2025-2027): AWR and Cal Advocates filed a joint motion to adopt a settlement agreement. If approved, it authorizes approximately $573.1 million in capital infrastructure investment over three years. A decision is expected by the end of 2024.
  • Electric Rate Case: A decision on the 2023-2026 rate case is scheduled for the third quarter of 2024. New rates are expected to be retroactive to January 1, 2023.
  • Cost of Capital: The filing deadline for the next cost of capital application was deferred by one year; current rates remain in effect through 2025.
• Environmental Compliance: New EPA regulations on PFAS and hexavalent chromium are expected to increase capital and operating costs. AWR is tracking these costs in memorandum accounts for future rate recovery.
• Liquidity: AWR raised $33.0 million via its At-The-Market (ATM) equity program in the first half of 2024. GSWC issued $65.0 million in private placement notes in June 2024 to pay down credit facility borrowings.

Investor Verification Checklist

• Regulatory Approvals: Monitor the CPUC's final decision on the 2025-2027 water general rate case settlement and the 2023-2026 electric rate case, as these will determine future revenue recovery.
• Environmental Costs: Verify the estimated capital and operating cost impacts of new PFAS and hexavalent chromium regulations and the timeline for rate recovery.
• Debt Maturities: Review the status of GSWC and BVES credit facility pay-off periods (due June 2025 and extended for BVES) and the issuance of long-term financing to replace short-term debt.
• Contracted Services Growth: Track the revenue contribution from new military base contracts (Patuxent River and Cape Cod) and the resolution of economic price adjustments.
• Capital Expenditures: Confirm that the projected $170 million to $200 million capital expenditure program for 2024 remains on schedule despite supply chain or weather delays.