AWR

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2025, 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). 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, 2025)

Material Changes vs. Prior Period

• Revenue Growth: Total operating revenues increased by 7.1% ($20.5 million) compared to the six months ended June 30, 2024. This was driven by a 10.5% increase in Water revenues and a 33.6% increase in Electric revenues, partially offset by a 10.9% decrease in Contracted Services revenues due to timing of construction activities.
• Profitability: Net income rose 10.1% to $60.5 million. Diluted EPS increased to $1.57 from $1.47 in the prior year.
• Segment Performance:
  • Water: Earnings increased due to new CPUC-approved rates effective January 1, 2025, and favorable water supply source mix (less purchased water than authorized).
  • Electric: Earnings improved due to new rates retroactive to 2023 and recovery of wildfire mitigation costs.
  • Contracted Services: Earnings declined due to reduced construction activity and weather delays, though management fees increased.
• Costs: Operating expenses increased 7.4% year-over-year. Maintenance expenses rose 52.0% largely due to vegetation management costs at BVES and timing of activities at other segments.

Guidance, Outlook, and Management Commentary

• Regulatory Developments: The California Public Utilities Commission (CPUC) approved new rates for GSWC (2025-2027) and BVES (2023-2026). GSWC transitioned to a modified revenue adjustment mechanism (M-WRAM) and an incremental cost balancing account (ICBA), which may introduce earnings volatility related to water consumption and supply mix.
• Capital Projects: GSWC completed the acquisition of water and wastewater assets in California's Central Coast region ($10.7 million non-cash transaction). BVES is proceeding with a $28.0 million solar and battery storage project pending final CPUC approval.
• Financing: GSWC issued $100 million in private placement notes (Series A and B) and received a $50 million equity contribution from AWR to pay down revolving credit facilities. BVES issued $50 million in notes to pay off its credit facility. AWR expanded its credit facility capacity to $195 million.
• Dividends: The Board approved an 8.3% increase in the third-quarter dividend to $0.5040 per share, marking the 72nd consecutive year of dividend increases.
• Risks: Key risks include California drought conditions (Colorado River levels remain low), potential tariff impacts on construction costs, and the timing of government contract adjustments for ASUS.

Investor Verification Checklist

• Rate Case Implementation: Verify the impact of the new M-WRAM and ICBA mechanisms on future revenue stability and earnings volatility.
• Construction Timing: Monitor the Contracted Services segment for recovery of construction activity levels and the timing of economic price adjustments from the U.S. government.
• Water Supply: Assess the impact of ongoing drought conditions in California and the Colorado River Basin on water supply costs and customer demand.
• Debt Structure: Review the terms of the new $150 million in long-term debt issued by GSWC and BVES and the reduction in short-term credit facility reliance.
• PFAS Settlements: Track the receipt of the $12.5 million 3M settlement payment and the utilization of funds for PFAS-related capital and operational costs.