AWR

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 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 (Nine Months Ended Sept 30, 2025)

Segment Performance (YTD 2025 vs 2024):

• Water: Revenues increased 9.0% to $354.0 million; Net Income increased to $81.3 million.
• Electric: Revenues increased 37.8% to $41.3 million; Net Income increased to $5.5 million.
• Contracted Services: Revenues increased 0.8% to $98.5 million; Net Income increased to $17.3 million.

Material Changes vs. Prior Period

• Rate Increases: Significant revenue growth in Water and Electric segments was driven by new rates approved by the California Public Utilities Commission (CPUC) effective January 1, 2025 (Water) and March 1, 2025 (Electric).
• Regulatory Mechanism Change: GSWC transitioned from a full revenue decoupling mechanism (WRAM) to a modified mechanism (M-WRAM) effective January 1, 2025, exposing earnings to greater volatility from consumption fluctuations.
• Debt Issuance: GSWC issued $100 million in private placement notes in May 2025, and BVES issued $50 million in February 2025. Proceeds were used to pay down revolving credit facilities.
• PFAS Settlement: GSWC recognized a $12.5 million receivable from a 3M class action settlement regarding PFAS contamination, with the first payment received in August 2025.
• Interest Expense: Consolidated interest expense decreased 8.5% year-over-year due to lower average interest rates and lower borrowing levels at the regulated utilities, partially offset by higher borrowings at the parent company.

Guidance, Outlook, and Risks

• Contracted Services Outlook: Management expects the Contracted Services segment to contribute $0.59 to $0.63 per share for the full year 2025.
• Capital Expenditures: Regulated utilities' company-funded capital expenditures for 2025 are projected between $180 million and $210 million.
• Dividends: AWR declared a fourth-quarter dividend of $0.5040 per share, marking the 71st consecutive year of dividend increases.
• Government Shutdown: A U.S. government shutdown began October 1, 2025. Management states utility privatization contracts are "excepted services" and expects no immediate earnings impact, though delays in funding and contract modifications are possible.
• Water Supply Risks: California is experiencing drier conditions with 9.6% of the state in severe drought. The Colorado River System remains in a Level 1 Shortage Condition, requiring mandatory water reductions.
• Tariffs: Management is monitoring the impact of U.S. government tariffs on construction material costs.

Investor Verification Checklist

• Rate Case Recovery: Verify the timing and magnitude of surcharge implementations to recover retroactive rates and wildfire mitigation costs.
• Consumption Volatility: Monitor water consumption trends given the removal of the full revenue decoupling mechanism (WRAM).
• Government Funding: Track the resolution of the U.S. government shutdown and its impact on ASUS billing cycles and Economic Price Adjustments (EPAs).
• Debt Maturity: Review the maturity schedule of the new $150 million in debt issued by GSWC and BVES in 2025.
• PFAS Liabilities: Assess whether the $19 million settlement proceeds are sufficient to cover future PFAS-related capital and operational costs.