American States Water Company (NYSE:AWR) Q2 2023 Results Conference Call August 8, 2023 2:00 PM ET Company Participants Bob Sprowls - President and Chief Executive Officer Eva Tang - Senior Vice President of Finance and Chief Financial Officer Conference Call Participants Angie Storozynski - Seaport Global Jonathan Reeder - Wells Fargo Operator Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company Conference Call discussing the company's Second Quarter 2023 Results. T ...

Part I Financial Information [Item 1. Financial Statements](index=3&type=section&id=Item%201%20Financial%20Statements) This section presents the unaudited consolidated financial statements for AWR and its subsidiary GSWC for the period ended June 30, 2023 [General Information](index=4&type=section&id=General) The unaudited financial statements are condensed and include all necessary adjustments for a fair interim statement - The basic financial statements are unaudited and prepared pursuant to SEC rules, with certain GAAP disclosures condensed or omitted[6](index=6&type=chunk) - Management believes all adjustments, consisting of normal recurring items and estimates, are necessary for a fair statement of interim results[6](index=6&type=chunk) [Filing Format](index=4&type=section&id=Filing%20Format) This Form 10-Q is a combined report filed by American States Water Company (AWR) and its subsidiary Golden State Water Company (GSWC) - This Form 10-Q is a combined report filed by two separate Registrants: **AWR and GSWC**[7](index=7&type=chunk) - AWR is the parent company of GSWC, BVES, and ASUS[7](index=7&type=chunk) [Forward-Looking Information](index=4&type=section&id=Forward-Looking%20Information) The report contains forward-looking statements based on current estimates and expectations that are subject to risks and uncertainties - The report contains forward-looking statements based on current estimates, expectations, and projections, intended to qualify for the 'safe harbor' from liability[8](index=8&type=chunk) - Actual results may differ materially from forward-looking statements due to various factors, including those summarized under 'Risk Factors' in the Form 10-K[8](index=8&type=chunk) [Consolidated Balance Sheets of American States Water Company](index=5&type=section&id=AMERICAN%20STATES%20WATER%20COMPANY%20CONSOLIDATED%20BALANCE%20SHEETS) Total assets and liabilities increased from December 2022 to June 2023, driven by growth in net property and long-term debt Consolidated Balance Sheet Highlights (AWR) (in thousands) | Metric | June 30, 2023 | December 31, 2022 | |:---|:---|:---| | Total Assets | $2,139,635 | $2,034,374 | | Net property, plant and equipment | $1,814,061 | $1,753,766 | | Total common shareholders' equity | $755,066 | $709,549 | | Long-term debt | $576,376 | $446,547 | | Total capitalization | $1,331,442 | $1,156,096 | | Total current liabilities | $140,930 | $396,522 | | Total Capitalization and Liabilities | $2,139,635 | $2,034,374 | [Consolidated Statements of Income of American States Water Company](index=7&type=section&id=AMERICAN%20STATES%20WATER%20COMPANY%20CONSOLIDATED%20STATEMENTS%20OF%20INCOME) The company reported significant increases in operating revenues and net income for the three and six months ended June 30, 2023 Consolidated Statements of Income Highlights (AWR) (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:---|:---|:---|:---|:---| | Total operating revenues | $157,400 | $122,607 | $318,823 | $231,177 | | Operating Income | $58,945 | $34,317 | $110,110 | $58,682 | | Net Income | $38,521 | $19,951 | $72,928 | $34,113 | | Basic Earnings Per Common Share | $1.04 | $0.54 | $1.97 | $0.92 | | Fully Diluted Earnings Per Common Share | $1.04 | $0.54 | $1.97 | $0.92 | | Dividends Paid Per Common Share | $0.3975 | $0.3650 | $0.7950 | $0.7300 | [Consolidated Statements of Changes in Common Shareholders' Equity for AWR](index=8&type=section&id=AMERICAN%20STATES%20WATER%20COMPANY%20CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20COMMON%20SHAREHOLDERS'%20EQUITY) Common shareholders' equity increased from $709.5 million to $755.1 million, driven by net income and stock-based compensation Consolidated Shareholders' Equity Changes (AWR) (in thousands) | Metric | December 31, 2022 | June 30, 2023 | |:---|:---|:---| | Total common shareholders' equity (beginning) | $709,549 | $709,549 | | Net income | - | $72,928 (total for 6 months) | | Issuances of Common Shares | - | 15 shares (total for 6 months) | | Stock-based compensation | - | $1,983 (total for 6 months) | | Dividends on Common Shares | - | $29,394 (total for 6 months) | | Total common shareholders' equity (ending) | $709,549 | $755,066 | [Consolidated Statements of Cash Flows of American States Water Company](index=10&type=section&id=AMERICAN%20STATES%20WATER%20COMPANY%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) Operating cash flow decreased significantly, while financing cash flow increased due to new debt and credit facilities Consolidated Cash Flow Highlights (AWR) (in thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:---|:---|:---| | Net cash provided by operating activities | $17,764 | $56,905 | | Net cash used in investing activities | $(87,822) | $(76,416) | | Net cash provided by financing activities | $65,087 | $25,373 | | Net change in cash and cash equivalents | $(4,971) | $5,862 | | Cash and cash equivalents, end of period | $1,026 | $10,825 | [Balance Sheets of Golden State Water Company](index=11&type=section&id=GOLDEN%20STATE%20WATER%20COMPANY%20BALANCE%20SHEETS) GSWC's total assets and liabilities grew, primarily due to increases in net utility plant and long-term debt Balance Sheet Highlights (GSWC) (in thousands) | Metric | June 30, 2023 | December 31, 2022 | |:---|:---|:---| | Total Assets | $1,827,415 | $1,741,308 | | Net utility plant | $1,666,700 | $1,616,718 | | Total common shareholder's equity | $677,425 | $643,906 | | Long-term debt | $541,568 | $411,748 | | Total capitalization | $1,218,993 | $1,055,654 | | Total current liabilities | $119,356 | $108,381 | | Total Capitalization and Liabilities | $1,827,415 | $1,741,308 | [Statements of Income of Golden State Water Company](index=13&type=section&id=GOLDEN%20STATE%20WATER%20COMPANY%20STATEMENTS%20OF%20INCOME) GSWC reported substantial increases in operating revenues and net income for the three and six months ended June 30, 2023 Statements of Income Highlights (GSWC) (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:---|:---|:---|:---|:---| | Total operating revenues | $116,908 | $90,856 | $229,620 | $164,762 | | Operating Income | $50,524 | $27,711 | $90,763 | $44,710 | | Net Income | $33,533 | $14,888 | $60,996 | $23,455 | [Statements of Changes in Common Shareholder's Equity for GSWC](index=14&type=section&id=GOLDEN%20STATE%20WATER%20COMPANY%20STATEMENTS%20OF%20CHANGES%20IN%20COMMON%20SHAREHOLDER'S%20EQUITY) GSWC's common shareholder's equity increased from $643.9 million to $677.4 million, driven by net income and a share issuance to AWR Shareholder's Equity Changes (GSWC) (in thousands) | Metric | December 31, 2022 | June 30, 2023 | |:---|:---|:---| | Total common shareholder's equity (beginning) | $643,906 | $643,906 | | Net income | - | $60,996 (total for 6 months) | | Issuance of Common Share to Parent | - | $10,000 | | Stock-based compensation | - | $1,923 (total for 6 months) | | Dividends on Common Shares | - | $39,400 (total for 6 months) | | Total common shareholder's equity (ending) | $643,906 | $677,425 | [Statements of Cash Flows of Golden State Water Company](index=16&type=section&id=GOLDEN%20STATE%20WATER%20COMPANY%20STATEMENTS%20OF%20CASH%20FLOWS) GSWC's operating cash flow decreased, while financing cash flow increased due to new debt and equity issuances Cash Flow Highlights (GSWC) (in thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:---|:---|:---| | Net cash provided by operating activities | $27,206 | $43,225 | | Net cash used in investing activities | $(76,369) | $(66,861) | | Net cash provided by financing activities | $49,160 | $26,569 | | Net change in cash and cash equivalents | $(3) | $2,933 | | Cash and cash equivalents, end of period | $367 | $3,458 | [Notes to Consolidated Financial Statements](index=18&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section details accounting policies, revenues, regulatory matters, EPS, derivatives, fair value, taxes, benefits, and contingencies [Note 1 — Summary of Significant Accounting Policies](index=18&type=section&id=Note%201%20%E2%80%94%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines AWR's operations, basis of presentation, and significant updates including new credit agreements - AWR operates through GSWC (water), BVES (electric), and ASUS (contracted services for military bases) across nine states[49](index=49&type=chunk) - AWR and GSWC entered into new, separate five-year credit agreements on June 28, 2023, replacing AWR's previous facility; AWR's facility is **$150M**, GSWC's is **$200M**, both expandable by **$75M**[52](index=52&type=chunk)[53](index=53&type=chunk)[55](index=55&type=chunk) - BVES's credit agreement was amended on June 16, 2023, increasing borrowing capacity from **$35M to $50M** and extending maturity to July 1, 2026[56](index=56&type=chunk) [Note 2 — Revenues](index=20&type=section&id=Note%202%20%E2%80%94%20Revenues) Revenues are derived from tariff-based services and long-term government contracts, with significant growth in water revenues Disaggregated Revenues from Contracts with Customers (in thousands) | Segment | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:---|:---|:---|:---|:---| | Water | $116,908 | $90,856 | $229,620 | $164,762 | | Electric | $8,828 | $8,217 | $21,732 | $20,109 | | Contracted services | $31,664 | $23,534 | $67,471 | $46,306 | | Total AWR revenues | $157,400 | $122,607 | $318,823 | $231,177 | - Water revenues for the six months ended June 30, 2023, include approximately **$30 million** from retroactive new rates for 2022 and an increase of **$9.3 million** from the reversal of revenues subject to refund due to a change in estimates from the cost of capital decision[59](index=59&type=chunk) - ASUS's aggregate remaining performance obligations were **$3.6 billion** as of June 30, 2023, to be recognized over 31 to 45 years[61](index=61&type=chunk) [Note 3 — Regulatory Matters](index=21&type=section&id=Note%203%20%E2%80%94%20Regulatory%20Matters) This note details regulatory assets and liabilities, including significant developments in rate cases and cost of capital proceedings Regulatory Assets and Liabilities (in thousands) | Category | June 30, 2023 | |:---|:---| | Total GSWC Regulatory Assets (net) | $44,805 | | Total BVES Regulatory Assets (net) | $11,010 | | Total AWR Regulatory Assets (net) | $56,310 | - CPUC adopted a final decision in GSWC's water general rate case, setting new rates for 2022-2024, retroactive to January 1, 2022 and 2023; this resulted in **$50.3 million** in regulatory assets for unbilled water revenues[64](index=64&type=chunk) - CPUC adopted a final decision in GSWC's cost of capital proceeding, adopting a **57% equity/43% debt** capital structure, **5.1% cost of debt** (vs 6.6% prior), and **8.85% return on equity** (vs 8.9% prior); this led to a **$9.3 million** increase in water revenues in Q2 2023 by reversing regulatory liability[66](index=66&type=chunk)[67](index=67&type=chunk) [Water General Rate Case and the 2022/2023 General Rate Case Memorandum Accounts](index=22&type=section&id=Water%20General%20Rate%20Case%20and%20the%202022/2023%20General%20Rate%20Case%20Memorandum%20Accounts) The CPUC's final decision on GSWC's rate case established new retroactive rates and a plan to recover unbilled revenues - CPUC adopted a final decision for GSWC's water general rate case on June 29, 2023, setting new rates for 2022-2024, retroactive to January 1, 2022, and January 1, 2023[64](index=64&type=chunk) - An aggregate cumulative amount of **$50.3 million** in general rate case memorandum accounts has been recorded as regulatory assets related to unbilled water revenues as of June 30, 2023[64](index=64&type=chunk) - GSWC will file to recover retroactive amounts, with the majority of balances to be recovered over a **36-month period**[64](index=64&type=chunk) [Alternative-Revenue Programs](index=22&type=section&id=Alternative-Revenue%20Programs) GSWC tracks revenue and cost differences in balancing accounts, resulting in a net regulatory asset of $39.0 million - GSWC uses WRAM and MCBA to track revenue and cost variances, with an aggregated regulatory asset of **$39.0 million** as of June 30, 2023[65](index=65&type=chunk) - During the six months ended June 30, 2023, GSWC recorded **$22.2 million** in net under-collections in WRAM/MCBA accounts due to lower-than-adopted water usage[65](index=65&type=chunk) - CPUC approved the recovery of all pre-2023 WRAM/MCBA balances on July 27, 2023[65](index=65&type=chunk) [Cost of Capital Proceeding](index=22&type=section&id=Cost%20of%20Capital%20Proceeding) The CPUC's final decision adjusted GSWC's capital structure and return on equity, increasing Q2 2023 revenues - CPUC adopted GSWC's requested capital structure (**57% equity, 43% debt**), a **5.1% cost of debt** (vs 6.6% prior), and an **8.85% return on equity** (vs 8.9% prior), effective January 1, 2022, through December 31, 2024[66](index=66&type=chunk) - GSWC recorded a **$9.3 million** increase in water revenues in Q2 2023 by reversing regulatory liability for revenues subject to refund, following the final cost of capital decision[66](index=66&type=chunk)[67](index=67&type=chunk) - The Water Cost of Capital Mechanism (WCCM) was triggered, increasing GSWC's adopted return on equity to **9.36%** effective July 31, 2023[68](index=68&type=chunk) [COVID-19 Emergency Memorandum Accounts](index=23&type=section&id=COVID-19%20Emergency%20Memorandum%20Accounts) COVID-19 related regulatory asset accounts expired in April 2023, with future recovery subject to offsets - GSWC and BVES held approximately **$3.5 million** and **$500,000**, respectively, in COVID-19 emergency-related regulatory asset accounts as of June 30, 2023[69](index=69&type=chunk) - These memorandum accounts expired on April 10, 2023, with the termination of the COVID-19 national emergency[69](index=69&type=chunk) - Amounts tracked for unpaid customer bills must first be offset by federal/state relief and customer payments before recovery from customers at large[70](index=70&type=chunk) [BVES Regulatory Assets](index=23&type=section&id=BVES%20Regulatory%20Assets) BVES has accumulated regulatory assets for wildfire mitigation and winter storm costs, filed for future recovery - BVES has approximately **$10.1 million** in incremental vegetation management costs and **$5.0 million** in WMP expenses recorded as regulatory assets as of June 30, 2023, filed for future recovery[71](index=71&type=chunk)[72](index=72&type=chunk) - Approximately **$1.3 million** in incremental costs from a severe winter storm in Q1/Q2 2023 were recorded as a regulatory asset in a CEMA account for future recovery[73](index=73&type=chunk) [Other Regulatory Assets](index=24&type=section&id=Other%20Regulatory%20Assets) Other regulatory assets represent incurred costs for which future rate recovery is deemed probable by management - Other regulatory assets represent costs incurred by GSWC or BVES for which rate recovery is expected and deemed probable[74](index=74&type=chunk) - If the CPUC determines a portion of regulatory assets are not recoverable, an asset impairment write-down would be required[74](index=74&type=chunk) [Note 4 — Earnings per Share/Capital Stock](index=24&type=section&id=Note%204%20%E2%80%94%20Earnings%20per%20Share/Capital%20Stock) This note details AWR's EPS calculation, dividend increases, and capital transactions between AWR and GSWC Basic and Diluted EPS (AWR) (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:---|:---|:---|:---|:---| | Basic earnings per Common Share | $1.04 | $0.54 | $1.97 | $0.92 | | Fully Diluted Earnings Per Common Share | $1.04 | $0.54 | $1.97 | $0.92 | | Dividends Paid Per Common Share (AWR) | $0.3975 | $0.3650 | $0.7950 | $0.7300 | - GSWC issued one Common Share to AWR for **$10.0 million** and paid **$39.4 million** in dividends to AWR for the six months ended June 30, 2023[79](index=79&type=chunk) [Note 5 — Derivative Instruments](index=25&type=section&id=Note%205%20%E2%80%94%20Derivative%20Instruments) BVES's long-term power contracts are treated as derivatives, with unrealized gains and losses deferred in a regulatory account - BVES's long-term purchased power contracts are derivatives, with unrealized gains/losses deferred into a regulatory memorandum account, not impacting earnings[80](index=80&type=chunk) - As of June 30, 2023, a **$4.7 million** purchase power contract derivative asset was recorded, with a corresponding regulatory liability[80](index=80&type=chunk) - The valuation of these derivatives is classified as **Level 3** fair value measurement due to significant unobservable market inputs[81](index=81&type=chunk) [Note 6 — Fair Value of Financial Instruments](index=26&type=section&id=Note%206%20%E2%80%94%20Fair%20Value%20of%20Financial%20Instruments) This note provides fair value measurements for financial instruments, including investments and long-term debt - Investments held in a Rabbi Trust for SERP totaled **$30.6 million** as of June 30, 2023, classified as Level 1[83](index=83&type=chunk) Fair Value of Long-Term Debt (in thousands) | Entity | June 30, 2023 Carrying Amount | June 30, 2023 Fair Value | December 31, 2022 Carrying Amount | December 31, 2022 Fair Value | |:---|:---|:---|:---|:---| | Long-term debt—AWR | $580,122 | $552,374 | $450,373 | $424,151 | | Long-term debt—GSWC | $545,122 | $519,412 | $415,373 | $391,198 | [Note 7 — Income Taxes](index=26&type=section&id=Note%207%20%E2%80%94%20Income%20Taxes) Effective tax rates for AWR and GSWC were higher than the federal statutory rate due to state taxes and other adjustments Effective Income Tax Rates (ETR) | Entity | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:---|:---|:---|:---|:---| | AWR ETR | 25.5% | 23.7% | 24.7% | 23.8% | | GSWC ETR | 26.2% | 25.5% | 25.5% | 24.9% | - ETRs differ from the **21% federal statutory rate** due to state taxes, permanent differences, amortization of excess deferred income tax liability, and flowed-through adjustments from regulatory requirements[85](index=85&type=chunk)[86](index=86&type=chunk) [Note 8 — Employee Benefit Plans](index=27&type=section&id=Note%208%20%E2%80%94%20Employee%20Benefit%20Plans) This note details net periodic benefit costs for pension, postretirement, and SERP plans, with no material earnings impact Net Periodic Benefits Costs (in thousands) | Plan | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:---|:---|:---| | Pension | $1,504 | $158 | | Other Postretirement Benefits | $(604) | $(1,020) | | SERP | $1,430 | $1,398 | - Registrant expects to contribute approximately **$3.0 million** to its pension plan in 2023[90](index=90&type=chunk) - GSWC and BVES use two-way balancing accounts for pension expenses, meaning changes in total net periodic benefit costs related to the pension plan have **no material impact on earnings**[90](index=90&type=chunk) [Note 9 — Contingencies](index=28&type=section&id=Note%209%20%E2%80%94%20Contingencies) This note covers environmental remediation costs, a settled government investigation, and other routine litigation - GSWC has spent approximately **$6.3 million** on environmental remediation at a plant site, with an estimated additional cost of **$1.3 million**, expected to be approved in rate base[91](index=91&type=chunk) - ASUS settled a civil government investigation over bidding and estimating practices in July 2023, which did **not have a material impact** on Registrant's financial statements[92](index=92&type=chunk) - Management believes existing rate recovery, insurance coverage, and reserves are sufficient for other routine litigation, with **no material effect** on consolidated results expected[93](index=93&type=chunk) [Note 10 — Business Segments](index=29&type=section&id=Note%2010%20%E2%80%94%20Business%20Segments) AWR operates in three segments, with water and contracted services leading significant revenue and income growth - AWR has three reportable segments: **water (GSWC)**, **electric (BVES)**, and **contracted services (ASUS)**[95](index=95&type=chunk) Operating Revenues by Segment (in thousands) | Segment | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:---|:---|:---|:---|:---| | Water | $116,908 | $90,856 | $229,620 | $164,762 | | Electric | $8,828 | $8,217 | $21,732 | $20,109 | | Contracted Services | $31,664 | $23,534 | $67,471 | $46,306 | | Consolidated AWR | $157,400 | $122,607 | $318,823 | $231,177 | Operating Income by Segment (in thousands) | Segment | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:---|:---|:---|:---|:---| | Water | $50,524 | $27,711 | $90,763 | $44,710 | | Electric | $2,103 | $2,038 | $5,734 | $5,636 | | Contracted Services | $6,354 | $4,571 | $13,650 | $8,341 | | Consolidated AWR | $58,945 | $34,317 | $110,110 | $58,682 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes AWR's financial performance, liquidity, and capital resources, highlighting growth driven by new water rates [General](index=31&type=section&id=General) This section introduces the MD&A, covering consolidated and segment operations and the use of non-GAAP financial measures - The discussion covers AWR's consolidated operations and individual segments (GSWC, BVES, ASUS)[104](index=104&type=chunk) - Non-GAAP financial measures, such as earnings per share by business segment, are used to evaluate operating results and facilitate comparisons, excluding certain investment gains/losses and retroactive rate impacts[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk) [Overview](index=31&type=section&id=Overview) GSWC and BVES generate regulated revenues, while ASUS earns revenue from government contracts, with all segments anticipating growth - GSWC and BVES revenues are from regulated water and electricity services, with rates set by CPUC to recover costs and provide a return on capital[108](index=108&type=chunk) - ASUS earns revenue from contracted services at U.S. military bases, subject to annual economic price adjustments and contract modifications for new construction[114](index=114&type=chunk) - Capital expenditures at GSWC and BVES are expected to remain high, requiring external financing[108](index=108&type=chunk) [General Rate Case Filings and Other Matters](index=31&type=section&id=General%20Rate%20Case%20Filings%20and%20Other%20Matters) This section details outcomes of GSWC's rate cases, BVES's pending rate case, and ASUS's new construction projects [Water General Rate Case for the years 2022–2024](index=31&type=section&id=Water%20General%20Rate%20Case%20for%20the%20years%202022%E2%80%932024) The CPUC's final decision approved new retroactive rates, authorizing significant capital investment and increasing revenues - CPUC adopted a final decision in GSWC's water general rate case, setting new rates for 2022-2024, retroactive to January 1, 2022, and 2023[109](index=109&type=chunk) - The decision authorizes **$404.8 million** in capital infrastructure investment and increased 2022 adopted revenues by **$30.3 million** ($0.59/share) and supply costs by **$9.6 million** ($0.19/share)[110](index=110&type=chunk) - Retroactive new rates for 2022 impacted earnings by **$0.38 per share**, and 2023 second-year rate increases added **$0.36 per share** for the six months ended June 30, 2023[110](index=110&type=chunk) [Cost of Capital Proceeding](index=32&type=section&id=Cost%20of%20Capital%20Proceeding) The CPUC's final decision adjusted GSWC's capital structure and return on equity, increasing Q2 2023 revenues - CPUC adopted GSWC's requested capital structure (**57% equity, 43% debt**), a **5.1% cost of debt** (vs 6.6% prior), and an **8.85% return on equity** (vs 8.9% prior), effective January 1, 2022, through December 31, 2024[111](index=111&type=chunk) - GSWC recorded a **$9.3 million ($0.18/share)** increase in water revenues in Q2 2023 by reversing regulatory liability for revenues subject to refund, following the final cost of capital decision[111](index=111&type=chunk) - The Water Cost of Capital Mechanism (WCCM) was triggered, increasing GSWC's adopted return on equity to **9.36%** effective July 31, 2023[112](index=112&type=chunk) [Electric General Rate Case for the years 2023–2026](index=33&type=section&id=Electric%20General%20Rate%20Case%20for%20the%20years%202023%E2%80%932026) BVES filed a general rate case for 2023-2026, with a decision and retroactive rates expected in Q4 2023 - BVES filed a general rate case application for 2023-2026, with a proposed decision expected in Q4 2023; new rates will be retroactive to January 1, 2023[113](index=113&type=chunk) - BVES requested capital budgets of approximately **$62.0 million** and recovery of wildfire mitigation costs[113](index=113&type=chunk) [Contracted Services Segment](index=33&type=section&id=Contracted%20Services%20Segment) ASUS's revenues are driven by long-term contracts, with new construction projects awarded and a government investigation settled - ASUS's revenues are from operation, maintenance, and construction services at military bases under 50-year firm fixed-price contracts, subject to annual economic price adjustments[114](index=114&type=chunk) - ASUS was awarded approximately **$6.9 million** in new construction projects for 2023-2025, in addition to **$34.4 million** awarded in 2022[115](index=115&type=chunk) - ASUS settled a civil government investigation over bidding and estimating practices in July 2023, with **no material financial impact**[116](index=116&type=chunk) [Summary of Second Quarter Results by Segment](index=34&type=section&id=Summary%20of%20Second%20Quarter%20Results%20by%20Segment) AWR's adjusted consolidated diluted earnings increased by 30% to $0.83 per share, driven primarily by new 2023 water rates Second Quarter Diluted Earnings Per Share by Segment | Segment | 6/30/2023 | 6/30/2022 | CHANGE | |:---|:---|:---|:---| | Water, adjusted* | $0.73 | $0.43 | $0.30 | | Electric | $0.03 | $0.04 | $(0.01) | | Contracted services | $0.12 | $0.10 | $0.02 | | AWR (parent) | $(0.02) | $0.00 | $(0.02) | | Consolidated diluted earnings per share, as adjusted | $0.86 | $0.57 | $0.29 | | Impact related to the final cost of capital decision* | $0.18 | $(0.03) | $0.21 | | Consolidated diluted earnings per share, as recorded | $1.04 | $0.54 | $0.50 | - Excluding investment gains/losses and cost of capital impacts, adjusted consolidated diluted earnings for Q2 2023 were **$0.83 per share**, a **30% increase** from $0.64 in Q2 2022, largely due to new 2023 water rates[119](index=119&type=chunk) [Water Segment](index=35&type=section&id=Water%20Segment) The water segment's adjusted diluted earnings increased by 40% to $0.70 per share, driven by new 2023 rates - Recorded diluted earnings for the water segment increased by $0.51 to **$0.91 per share** in Q2 2023, including a **$0.21 favorable variance** from the cost of capital decision and a **$0.10 favorable variance** from investment gains[122](index=122&type=chunk) - Adjusted diluted earnings for the water segment increased by **$0.20 (40%) to $0.70 per share**, largely due to a **$15.0 million** increase in water operating revenues from new 2023 rates[123](index=123&type=chunk) - Operating expenses (excluding supply costs) increased by $406,000, and net interest expense increased by $1.2 million, partially offsetting revenue gains[123](index=123&type=chunk) [Electric Segment](index=35&type=section&id=Electric%20Segment) The electric segment's diluted earnings decreased slightly due to the absence of new rates and rising costs - Diluted earnings from the electric segment decreased by **$0.01 per share** for Q2 2023[124](index=124&type=chunk) - The decrease was largely due to not having new rates in 2023 while awaiting the pending electric general rate case, and continued increases in operating expenses and interest costs[124](index=124&type=chunk) - New rates are expected to be retroactive to January 1, 2023, once a decision is issued[124](index=124&type=chunk) [Contracted Services Segment](index=36&type=section&id=Contracted%20Services%20Segment) The contracted services segment's diluted earnings increased due to higher construction activity and management fees - Diluted earnings from the contracted services segment increased by **$0.02 per share** for Q2 2023[125](index=125&type=chunk) - The increase was largely due to higher construction activity and increased management fee revenue from economic price adjustments[125](index=125&type=chunk) - The contracted services segment is expected to contribute **$0.45 to $0.49 per share** for the full 2023 year[125](index=125&type=chunk) [AWR (Parent)](index=36&type=section&id=AWR%20(Parent)) AWR (parent)'s diluted earnings decreased due to higher interest expense and changes in state unitary taxes - Diluted earnings from AWR (parent) decreased by **$0.02 per share** for Q2 2023[126](index=126&type=chunk) - The decrease was primarily due to increased interest expense from higher short-term interest rates and increased borrowings, and changes in state unitary taxes[126](index=126&type=chunk) [Summary of Year-to-Date Results by Segment](index=37&type=section&id=Summary%20of%20Year-to-Date%20Results%20by%20Segment) AWR's adjusted consolidated diluted earnings increased by 30% to $1.40 per share, driven by new 2023 water rates Year-to-Date Diluted Earnings Per Share by Segment | Segment | 6/30/2023 | 6/30/2022 | CHANGE | |:---|:---|:---|:---| | Water, adjusted* | $1.14 | $0.69 | $0.45 | | Electric | $0.09 | $0.12 | $(0.03) | | Contracted services | $0.27 | $0.18 | $0.09 | | AWR (Parent) | $(0.04) | $(0.01) | $(0.03) | | Consolidated diluted earnings per share, as adjusted | $1.46 | $0.98 | $0.48 | | Impact of retroactive rates related to the full year of 2022 from the final decision in the water general rate case | $0.38 | $0.00 | $0.38 | | Impact related to the final cost of capital decision* | $0.13 | $(0.06) | $0.19 | | Consolidated diluted earnings per share, as recorded | $1.97 | $0.92 | $1.05 | - Excluding specific adjustments, adjusted consolidated diluted earnings for the six months ended June 30, 2023, were **$1.40 per share**, a **30% increase** from $1.08 in 2022, largely due to new 2023 water rates[132](index=132&type=chunk) [Water Segment](index=38&type=section&id=Water%20Segment) The water segment's adjusted diluted earnings increased by 36.7% to $1.08 per share, driven by new 2023 rates - Recorded diluted earnings for the water segment increased by $1.02 to **$1.65 per share** for the six months ended June 30, 2023, including a **$0.38 impact** from retroactive 2022 rates, a **$0.19 favorable variance** from the cost of capital decision, and a **$0.16 favorable variance** from investment gains[135](index=135&type=chunk) - Adjusted diluted earnings for the water segment increased by **$0.29 (36.7%) to $1.08 per share**, primarily due to a **$24.6 million** increase in water operating revenues from new 2023 rates[135](index=135&type=chunk) - Operating expenses (excluding supply costs) increased by $1.7 million, and net interest expenses increased by $2.3 million, partially offsetting revenue gains[135](index=135&type=chunk) [Electric Segment](index=39&type=section&id=Electric%20Segment) The electric segment's diluted earnings decreased due to the absence of new rates and rising costs - Diluted earnings from the electric segment decreased by **$0.03 per share** for the six months ended June 30, 2023[137](index=137&type=chunk) - The decrease was largely due to not having new rates in 2023 while awaiting the pending electric general rate case, and continued increases in operating expenses and interest costs[137](index=137&type=chunk) - New rates are expected to be retroactive to January 1, 2023, once a decision is issued[137](index=137&type=chunk) [Contracted Services Segment](index=39&type=section&id=Contracted%20Services%20Segment) The contracted services segment's diluted earnings increased due to higher construction activity and management fees - Diluted earnings from the contracted services segment increased by **$0.09 per share** for the six months ended June 30, 2023[138](index=138&type=chunk) - The increase was largely due to higher construction activity and increased management fee revenue from economic price adjustments[138](index=138&type=chunk) - The contracted services segment is expected to contribute **$0.45 to $0.49 per share** for the full 2023 year[138](index=138&type=chunk) [AWR (Parent)](index=39&type=section&id=AWR%20(Parent)) AWR (parent)'s diluted earnings decreased due to higher interest expense and changes in state unitary taxes - Diluted earnings from AWR (parent) decreased by **$0.03 per share** for the six months ended June 30, 2023[139](index=139&type=chunk) - The decrease was primarily due to increased interest expense from higher short-term interest rates and increased borrowings, and changes in state unitary taxes[139](index=139&type=chunk) [Consolidated Results of Operations — Three Months Ended June 30, 2023 and 2022](index=40&type=section&id=Consolidated%20Results%20of%20Operations%20%E2%80%94%20Three%20Months%20Ended%20June%2030,%202023%20and%202022) AWR's consolidated operating revenues increased by 28.4% and net income surged by 93.1% for Q2 2023 Consolidated Results of Operations (Q2 2023 vs. Q2 2022) (in thousands) | Metric | Q2 2023 | Q2 2022 | $ CHANGE | % CHANGE | |:---|:---|:---|:---|:---| | Total operating revenues | $157,400 | $122,607 | $34,793 | 28.4% | | Operating Income | $58,945 | $34,317 | $24,628 | 71.8% | | Net Income | $38,521 | $19,951 | $18,570 | 93.1% | | Basic earnings per Common Share | $1.04 | $0.54 | $0.50 | 92.6% | | Fully diluted earnings per Common Share | $1.04 | $0.54 | $0.50 | 92.6% | [Operating Revenues](index=41&type=section&id=Operating%20Revenues) Total operating revenues for Q2 2023 increased by 28.4%, driven by growth in water and contracted services Operating Revenues by Segment (Q2 2023 vs. Q2 2022) (in thousands) | Segment | Q2 2023 | Q2 2022 | $ CHANGE | % CHANGE | |:---|:---|:---|:---|:---| | Water | $116,908 | $90,856 | $26,052 | 28.7% | | Electric | $8,828 | $8,217 | $611 | 7.4% | | Contracted services | $31,664 | $23,534 | $8,130 | 34.5% | | Total operating revenues | $157,400 | $122,607 | $34,793 | 28.4% | - Water revenues increased by **$26.1 million**, largely due to 2023 second-year rate increases and a **$9.3 million** reversal of revenues subject to refund from the cost of capital decision[145](index=145&type=chunk) - Contracted services revenues increased by **$8.1 million** due to higher construction activity and increased management fee revenue from economic price adjustments[147](index=147&type=chunk) [Operating Expenses](index=41&type=section&id=Operating%20Expenses) Total operating expenses increased by 11.5%, driven by higher construction and administrative expenses Total Operating Expenses (Q2 2023 vs. Q2 2022) (in thousands) | Metric | Q2 2023 | Q2 2022 | $ CHANGE | % CHANGE | |:---|:---|:---|:---|:---| | Total operating expenses | $98,455 | $88,290 | $10,165 | 11.5% | - Water purchased costs decreased by **$1.9 million (-9.5%)** due to lower consumption, partially offset by higher wholesale costs[150](index=150&type=chunk) - ASUS construction expenses increased by **$5.7 million (55.4%)** due to higher construction activity[161](index=161&type=chunk) [Interest Expense](index=44&type=section&id=Interest%20Expense) Consolidated interest expense increased by 70.0% due to higher borrowing levels and increased interest rates Interest Expense by Segment (Q2 2023 vs. Q2 2022) (in thousands) | Segment | Q2 2023 | Q2 2022 | $ CHANGE | % CHANGE | |:---|:---|:---|:---|:---| | Water Services | $7,835 | $5,464 | $2,371 | 43.4% | | Electric Services | $952 | $384 | $568 | 147.9% | | Contracted Services | $518 | $104 | $414 | 398.1% | | AWR (parent) | $1,423 | $357 | $1,066 | 298.6% | | Total interest expense | $10,728 | $6,309 | $4,419 | 70.0% | - Consolidated interest expense increased by **$4.4 million (70.0%)** due to higher borrowing levels and increased average interest rates[162](index=162&type=chunk) [Interest Income](index=45&type=section&id=Interest%20Income) Overall interest income increased by 312.6%, driven by higher interest earned on regulatory assets Interest Income by Segment (Q2 2023 vs. Q2 2022) (in thousands) | Segment | Q2 2023 | Q2 2022 | $ CHANGE | % CHANGE | |:---|:---|:---|:---|:---| | Water Services | $1,320 | $146 | $1,174 | * | | Electric Services | $298 | $89 | $209 | 234.8% | | Contracted Services | $191 | $206 | $(15) | (7.3)% | | AWR (parent) | $(6) | $(4) | $(2) | 50.0% | | Total interest income | $1,803 | $437 | $1,366 | 312.6% | - Overall interest income increased by **$1.4 million (312.6%)** due to higher interest earned on regulatory assets at water and electric segments, driven by increased commercial-paper rates and regulatory asset levels[164](index=164&type=chunk) [Other Income and (Expenses), net](index=45&type=section&id=Other%20Income%20and%20(Expenses),%20net) Other income increased by $4.0 million, primarily due to gains on retirement plan investments Other Income and (Expenses), net (Q2 2023 vs. Q2 2022) (in thousands) | Segment | Q2 2023 | Q2 2022 | $ CHANGE | % CHANGE | |:---|:---|:---|:---|:---| | Water Services | $1,458 | $(2,402) | $3,860 | * | | Electric Services | $9 | $77 | $(68) | * | | Contracted Services | $(30) | $36 | $(66) | * | | AWR (parent) | $268 | $0 | $268 | N/A | | Total other income and (expenses), net | $1,705 | $(2,289) | $3,994 | * | - Other income (net of other expenses) increased by **$4.0 million**, primarily due to **$1.5 million** in gains on retirement plan investments in 2023, compared to **$3.5 million** in losses in 2022[166](index=166&type=chunk) [Income Tax Expense](index=45&type=section&id=Income%20Tax%20Expense) Consolidated income tax expense increased by 112.8% due to higher pretax income Income Tax Expense by Segment (Q2 2023 vs. Q2 2022) (in thousands) | Segment | Q2 2023 | Q2 2022 | $ CHANGE | % CHANGE | |:---|:---|:---|:---|:---| | Water Services | $11,934 | $5,103 | $6,831 | 133.9% | | Electric Services | $247 | $215 | $32 | 14.9% | | Contracted Services | $1,506 | $1,108 | $398 | 35.9% | | AWR (parent) | $(483) | $(221) | $(262) | 118.6% | | Total income tax expense | $13,204 | $6,205 | $6,999 | 112.8% | - Consolidated income tax expense increased by **$7.0 million (112.8%)** due to increased pretax income[167](index=167&type=chunk) - AWR's ETR was **25.5%** (2023) vs **23.7%** (2022); GSWC's ETR was **26.2%** (2023) vs **25.5%** (2022)[167](index=167&type=chunk) [Consolidated Results of Operations — Six Months Ended June 30, 2023 and 2022](index=46&type=section&id=Consolidated%20Results%20of%20Operations%20%E2%80%94%20Six%20Months%20Ended%20June%2030,%202023%20and%202022) AWR's consolidated operating revenues increased by 37.9% and net income surged by 113.8% for the six-month period Consolidated Results of Operations (YTD June 30, 2023 vs. 2022) (in thousands) | Metric | YTD 2023 | YTD 2022 | $ CHANGE | % CHANGE | |:---|:---|:---|:---|:---| | Total operating revenues | $318,823 | $231,177 | $87,646 | 37.9% | | Operating Income | $110,110 | $58,682 | $51,428 | 87.6% | | Net Income | $72,928 | $34,113 | $38,815 | 113.8% | | Basic earnings per Common Share | $1.97 | $0.92 | $1.05 | 114.1% | | Fully diluted earnings per Common Share | $1.97 | $0.92 | $1.05 | 114.1% | [Operating Revenues](index=47&type=section&id=Operating%20Revenues) Total operating revenues for the six-month period increased by 37.9%, driven by growth in water and contracted services Operating Revenues by Segment (YTD June 30, 2023 vs. 2022) (in thousands) | Segment | YTD 2023 | YTD 2022 | $ CHANGE | % CHANGE | |:---|:---|:---|:---|:---| | Water | $229,620 | $164,762 | $64,858 | 39.4% | | Electric | $21,732 | $20,109 | $1,623 | 8.1% | | Contracted services | $67,471 | $46,306 | $21,165 | 45.7% | | Total operating revenues | $318,823 | $231,177 | $87,646 | 37.9% | - Water revenues increased by **$64.9 million**, largely due to retroactive 2022 rates (**$30.3 million**) and a **$6.4 million** reversal of revenues subject to refund from the cost of capital decision[171](index=171&type=chunk) - Contracted services revenues increased by **$21.2 million** due to higher construction activity and increased management fee revenue from economic price adjustments[173](index=173&type=chunk) [Operating Expenses](index=47&type=section&id=Operating%20Expenses) Total operating expenses increased by 21.0%, driven by higher water supply and construction expenses Total Operating Expenses (YTD June 30, 2023 vs. 2022) (in thousands) | Metric | YTD 2023 | YTD 2022 | $ CHANGE | % CHANGE | |:---|:---|:---|:---|:---| | Total operating expenses | $208,713 | $172,495 | $36,218 | 21.0% | - Water supply costs increased by **$16.6 million (36.3%)**, primarily due to a **$15.4 million** over-collection in the balancing account, despite a **$5.4 million** decrease in purchased water costs[178](index=178&type=chunk)[179](index=179&type=chunk) - ASUS construction expenses increased by **$14.4 million (70.3%)** due to higher construction activity[194](index=194&type=chunk) [Interest Expense](index=52&type=section&id=Interest%20Expense) Consolidated interest expense increased by 69.6% due to higher borrowing levels and increased interest rates Interest Expense by Segment (YTD June 30, 2023 vs. 2022) (in thousands) | Segment | YTD 2023 | YTD 2022 | $ CHANGE | % CHANGE | |:---|:---|:---|:---|:---| | Water Services | $14,757 | $10,700 | $4,057 | 37.9% | | Electric Services | $1,786 | $496 | $1,290 | 260.1% | | Contracted Services | $934 | $166 | $768 | 462.7% | | AWR (parent) | $2,732 | $553 | $2,179 | 394.0% | | Total interest expense | $20,209 | $11,915 | $8,294 | 69.6% | - Consolidated interest expense increased by **$8.3 million (69.6%)** due to higher borrowing levels and increased average interest rates[195](index=195&type=chunk) - GSWC issued **$130.0 million** in unsecured private-placement notes in January 2023, and BVES issued **$35.0 million** in April 2022[195](index=195&type=chunk) [Interest Income](index=52&type=section&id=Interest%20Income) Overall interest income increased by 409.3%, driven by higher interest earned on regulatory assets Interest Income by Segment (YTD June 30, 2023 vs. 2022) (in thousands) | Segment | YTD 2023 | YTD 2022 | $ CHANGE | % CHANGE | |:---|:---|:---|:---|:---| | Water Services | $2,748 | $237 | $2,511 | * | | Electric Services | $559 | $88 | $471 | * | | Contracted Services | $380 | $403 | $(23) | (5.7)% | | AWR (parent) | $(20) | $(8) | $(12) | * | | Total interest income | $3,667 | $720 | $2,947 | * | - Overall interest income increased by **$2.9 million (409.3%)** due to higher interest earned on regulatory assets at water and electric segments, driven by increased commercial-paper rates and regulatory asset levels[196](index=196&type=chunk) [Other Income and (Expenses), net](index=52&type=section&id=Other%20Income%20and%20(Expenses),%20net) Other income increased by $6.0 million, primarily due to gains on retirement plan investments Other Income and (Expenses), net (YTD June 30, 2023 vs. 2022) (in thousands) | Segment | YTD 2023 | YTD 2022 | $ CHANGE | % CHANGE | |:---|:---|:---|:---|:---| | Water Services | $3,086 | $(3,000) | $6,086 | (202.9)% | | Electric Services | $22 | $220 | $(198) | (90.0)% | | Contracted Services | $(60) | $72 | $(132) | (183.3)% | | AWR (parent) | $268 | $0 | $268 | 100.0% | | Total other income and (expenses), net | $3,316 | $(2,708) | $6,024 | (222.5)% | - Other income (net of other expenses) increased by **$6.0 million**, primarily due to **$3.1 million** in gains on retirement plan investments in 2023, compared to **$5.2 million** in losses in 2022[197](index=197&type=chunk) [Income Tax Expense](index=53&type=section&id=Income%20Tax%20Expense) Consolidated income tax expense increased by 124.6% due to higher pretax income Income Tax Expense by Segment (YTD June 30, 2023 vs. 2022) (in thousands) | Segment | YTD 2023 | YTD 2022 | $ CHANGE | % CHANGE | |:---|:---|:---|:---|:---| | Water Services | $20,844 | $7,792 | $13,052 | 167.5% | | Electric Services | $948 | $1,167 | $(219) | (18.8)% | | Contracted Services | $3,191 | $2,052 | $1,139 | 55.5% | | AWR (parent) | $(1,027) | $(345) | $(682) | 197.7% | | Total income tax expense | $23,956 | $10,666 | $13,290 | 124.6% | - Consolidated income tax expense increased by **$13.3 million (124.6%)** due to increased pretax income[198](index=198&type=chunk) - AWR's ETR was **24.7%** (2023) vs **23.8%** (2022); GSWC's ETR was **25.5%** (2023) vs **24.9%** (2022)[198](index=198&type=chunk) [Critical Accounting Policies and Estimates](index=54&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) There have been no material changes to the Registrant's critical accounting policies and estimates since the 2022 Annual Report - **No material changes** to critical accounting policies and estimates since the 2022 Annual Report on Form 10-K[201](index=201&type=chunk) - Critical accounting policies require difficult, subjective, or complex judgments and estimates, which may differ from actual results[201](index=201&type=chunk) [Liquidity and Capital Resources](index=54&type=section&id=Liquidity%20and%20Capital%20Resources) The company secured new credit facilities and increased its dividend, though operating cash flows decreased due to lower consumption [AWR](index=54&type=section&id=AWR) AWR executed new credit facilities, saw a credit rating downgrade, and continued its long history of dividend increases - AWR and GSWC executed new syndicated credit facilities totaling **$350.0 million** on June 28, 2023, replacing AWR's previous $280.0 million facility[202](index=202&type=chunk) - BVES's credit agreement was amended on June 16, 2023, increasing borrowing capacity from **$35.0 million to $50.0 million**[202](index=202&type=chunk) - S&P downgraded AWR's credit rating from **A+ to A** but affirmed GSWC's A+ rating in July 2023; AWR approved an **8.2% increase** in its Q3 2023 dividend, marking **69 consecutive years** of increases[202](index=202&type=chunk)[203](index=203&type=chunk) [Cash Flows from Operating Activities](index=55&type=section&id=Cash%20Flows%20from%20Operating%20Activities) AWR's operating cash flow decreased significantly due to lower water consumption and delayed rate case decisions Net Cash Provided by Operating Activities (AWR) (in thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:---|:---|:---| | Net cash provided by operating activities | $17,764 | $56,905 | - Decrease in operating cash flows was due to a **17.0% decrease** in billed water consumption, delay in water general rate case decision, rising operating expenses, and absence of 2022 COVID-19 relief funds[204](index=204&type=chunk) [Cash Flows from Investing Activities](index=56&type=section&id=Cash%20Flows%20from%20Investing%20Activities) Net cash used in investing activities increased due to higher capital expenditures at regulated utilities Net Cash Used in Investing Activities (AWR) (in thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:---|:---|:---| | Net cash used in investing activities | $(87,822) | $(76,416) | - Increase in cash used in investing activities primarily due to capital expenditures at regulated utilities[206](index=206&type=chunk) - Projected company-funded capital expenditures for 2023 are between **$140 million and $160 million**[206](index=206&type=chunk) [Cash Flows from Financing Activities](index=56&type=section&id=Cash%20Flows%20from%20Financing%20Activities) Net cash from financing activities increased significantly, driven by new debt and equity issuances to support operations Net Cash Provided by Financing Activities (AWR) (in thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:---|:---|:---| | Net cash provided by financing activities | $65,087 | $25,373 | | Proceeds from issuance of long-term debt, net | $129,665 | $34,820 | | Net changes in notes payable to banks | $(35,667) | $18,000 | | Dividends paid | $(29,394) | $(26,974) | - Increase in net cash provided by financing activities due to increased borrowing levels to support operations and capital expenditures[207](index=207&type=chunk) - GSWC issued **$130.0 million** in notes and **$10.0 million** in equity to AWR, which used proceeds to pay down intercompany borrowings[207](index=207&type=chunk) [GSWC](index=56&type=section&id=GSWC) GSWC executed its own credit facility and issued new debt and equity to pay off intercompany borrowings - GSWC executed its own **$200.0 million** unsecured revolving credit facility on June 28, 2023, to support operations and capital expenditures[208](index=208&type=chunk) - In January 2023, GSWC issued **$130.0 million** in unsecured private-placement notes and one Common Share to AWR for **$10.0 million**, using proceeds to pay off intercompany borrowings[208](index=208&type=chunk) - CPUC requires GSWC to fully pay off all intercompany borrowings from AWR within a **24-month period**[208](index=208&type=chunk) [Cash Flows from Operating Activities](index=58&type=section&id=Cash%20Flows%20from%20Operating%20Activities) GSWC's operating cash flow decreased due to lower water consumption and the absence of COVID-19 relief funds Net Cash Provided by Operating Activities (GSWC) (in thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:---|:---|:---| | Net cash provided by operating activities | $27,206 | $43,225 | - Decrease in operating cash flow due to a **17.0% decrease** in billed water consumption, absence of **$9.5 million** in COVID-19 relief funds received in 2022, and delayed water general rate case decision[210](index=210&type=chunk) [Cash Flows from Investing Activities](index=58&type=section&id=Cash%20Flows%20from%20Investing%20Activities) Net cash used in investing activities increased, reflecting spending on infrastructure investment plans Net Cash Used in Investing Activities (GSWC) (in thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:---|:---|:---| | Net cash used in investing activities | $(76,369) | $(66,984) | - Increase in cash used in investing activities primarily due to spending under GSWC's infrastructure investment plans[211](index=211&type=chunk) [Cash Flows from Financing Activities](index=58&type=section&id=Cash%20Flows%20from%20Financing%20Activities) Net cash from financing activities increased, driven by new debt, equity, and credit facilities to pay off intercompany borrowings Net Cash Provided by Financing Activities (GSWC) (in thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:---|:---|:---| | Net cash provided by financing activities | $49,160 | $26,569 | | Proceeds from issuance of Common Shares to Parent | $10,000 | $0 | | Proceeds from issuance of long-term debt, net | $129,665 | $0 | | Net change in intercompany borrowings | $(129,000) | $54,000 | | Net borrowings on notes payable to banks | $77,334 | $0 | | Dividends paid | $(39,400) | $(27,000) | - Increase in net cash provided by financing activities due to increased borrowing levels to support operations and capital expenditures[212](index=212&type=chunk) - GSWC issued **$130.0 million** in notes and **$10.0 million** in equity, and secured a new **$77.3 million** credit facility, using proceeds to pay off **$129.0 million** in intercompany borrowings[212](index=212&type=chunk) [Contractual Obligations and Other Commitments](index=59&type=section&id=Contractual%20Obligations%20and%20Other%20Commitments) The Registrant has various contractual obligations, including debt instruments, which it expects to service and refinance - Registrant has various contractual obligations, including debt instruments with annual sinking fund or principal payments[214](index=214&type=chunk) - Annual payments to service debt are generally made from cash flows from operations[214](index=214&type=chunk) - Registrant believes it will be able to refinance debt instruments at maturity through public or private placements[214](index=214&type=chunk) [Contracted Services](index=59&type=section&id=Contracted%20Services) ASUS's contracts are subject to price adjustments, with future fiscal uncertainties posing potential risks to funding and awards - ASUS's contracts are subject to annual economic price adjustments (EPAs) and requests for equitable adjustment (REAs) to recover increasing costs[215](index=215&type=chunk) - Future fiscal uncertainties could impact funding timing, EPA/REA processing, and new contract awards, though sequestration did not materially affect existing operations[215](index=215&type=chunk) - DCAA/DCMA audits may result in delays in resolving filings or ability to file new proposals[215](index=215&type=chunk) [Regulatory Matters](index=59&type=section&id=Regulatory%20Matters) This section provides updates on regulatory matters, including final decisions on GSWC's rate case and cost of capital [Water Segment: Recent Changes in Rates](index=59&type=section&id=Water%20Segment:%20Recent%20Changes%20in%20Rates) GSWC received a final decision on its general rate case, with new retroactive rates reflected in Q2 2023 results - GSWC received a final decision on its general rate case on June 29, 2023, making new rates for 2022 and 2023 retroactive to January 1, 2022, and 2023[217](index=217&type=chunk) - The impact of retroactive rates for 2022 and 2023 has been reflected in the six months ended June 30, 2023, results[217](index=217&type=chunk) - GSWC filed for implementation of new 2023 rates effective July 31, 2023, and will file to recover all retroactive amounts within 90 days[217](index=217&type=chunk) [Cost of Capital Proceeding](index=59&type=section&id=Cost%20of%20Capital%20Proceeding) The CPUC adopted a final decision on GSWC's cost of capital, adjusting its capital structure and return on equity - CPUC adopted a final decision on GSWC's cost of capital, approving a **57% equity/43% debt** capital structure, a **5.1% cost of debt**, and an **8.85% return on equity**, effective January 1, 2022, through December 31, 2024[218](index=218&type=chunk) - Adjustments to rates from the cost of capital decision are prospective, not retroactive[219](index=219&type=chunk) - The Water Cost of Capital Mechanism (WCCM) was triggered, increasing GSWC's adopted return on equity to **9.36%** effective July 31, 2023[219](index=219&type=chunk) [Electric Segment: Recent Changes in Rates](index=60&type=section&id=Electric%20Segment:%20Recent%20Changes%20in%20Rates) BVES filed a new general rate case, with a decision and retroactive rates expected in Q4 2023 - BVES filed a new general rate case application for 2023-2026, with a proposed decision expected in Q4 2023[220](index=220&type=chunk) - Electric revenues for the six months ended June 30, 2023, were based on 2022 adopted rates[220](index=220&type=chunk) - New 2023 rates are expected to be retroactive to January 1, 2023, with cumulative adjustments recorded upon decision[220](index=220&type=chunk) [Environmental Matters](index=60&type=section&id=Environmental%20Matters) The company faces increasing costs to comply with stringent environmental regulations, particularly for water quality standards - AWR's subsidiaries are subject to stringent environmental regulations, including federal and state drinking water standards[221](index=221&type=chunk) - GSWC expects to incur additional capital and operating costs to maintain/improve water quality and meet future standards, with anticipated recovery through CPUC ratemaking[221](index=221&type=chunk) - U.S. EPA's proposed MCLs for PFAS compounds, expected to be finalized by end of 2023, will likely increase GSWC's water treatment and operating costs[222](index=222&type=chunk) [Water Supply](index=61&type=section&id=Water%20Supply) California's water supply improved significantly in H1 2023, but long-term drought conditions persist in the Colorado River System [Drought Impact](index=61&type=section&id=Drought%20Impact) California's water outlook improved in H1 2023, leading to lifted restrictions, but Colorado River drought persists - California's 'severe drought' areas decreased from **97% to 7%** as of August 1, 2023, due to atmospheric storm events in H1 2023[226](index=226&type=chunk) - The California State Water Project (SWP) allocation increased to **100%** on April 20, 2023, the first time since 2006[227](index=227&type=chunk) - Prolonged drought conditions persist in the Colorado River System, with potential water delivery cuts of **3 million acre-feet** for lower states, including California, through 2026[227](index=227&type=chunk) [Other Climate Change Matters](index=61&type=section&id=Other%20Climate%20Change%20Matters) Climate change is a key focus in AWR's strategy, impacting supply resiliency and wildfire risks - Climate change is a focus in AWR's business strategy, increasing the need for supply resiliency and impacting wildfire risks for electric utilities[228](index=228&type=chunk) - AWR addresses climate change risks through planning, assessing, mitigating, and investing in infrastructure for long-term community benefit[228](index=228&type=chunk) [Cybersecurity Matters](index=62&type=section&id=Cybersecurity%20Matters) The increasing threat of cyberattacks necessitates continuous investment in information technology to enhance security - Increased cyberattacks pose a greater threat to water, wastewater, and electric utility systems[230](index=230&type=chunk) - AWR continues to increase investments in information technology to monitor, address, and improve security vulnerabilities[230](index=230&type=chunk) [New Accounting Pronouncements](index=62&type=section&id=New%20Accounting%20Pronouncements) No new accounting pronouncements are expected to significantly impact the company's consolidated financial statements - **No current accounting pronouncements** are expected to significantly impact Registrant's consolidated financial statements[231](index=231&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=63&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Registrant is exposed to market risks, including interest rate and commodity price fluctuations - Registrant is exposed to market risks, including fluctuations in interest rates, commodity price risk (BVES electricity), and other economic conditions[233](index=233&type=chunk) - Detailed disclosures about market risk are available in the Annual Report on Form 10-K for the year ended December 31, 2022[233](index=233&type=chunk) [Item 4. Controls and Procedures](index=63&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes in internal controls [Evaluation of Disclosure Controls and Procedures](index=63&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were adequate and effective as of June 30, 2023 - CEO and CFO concluded that disclosure controls and procedures were **adequate and effective** as of June 30, 2023[234](index=234&type=chunk) - Controls ensure information is recorded, processed, summarized, and reported within SEC specified time periods[234](index=234&type=chunk) [Changes in Internal Controls over Financial Reporting](index=63&type=section&id=Changes%20in%20Internal%20Controls%20over%20Financial%20Reporting) There were no material changes in internal control over financial reporting during the quarter ended June 30, 2023 - **No material changes** in internal control over financial reporting during the quarter ended June 30, 2023[235](index=235&type=chunk) Part II Other Information [Item 1. Legal Proceedings](index=64&type=section&id=Item%201.%20Legal%20Proceedings) No pending legal proceedings are believed to be material, with adequate reserves and insurance in place for routine litigation - **No legal proceedings** are pending that are believed to be material[237](index=237&type=chunk) - Management believes rate recovery, proper insurance coverage, and reserves are in place for ordinary routine litigation[237](index=237&type=chunk) [Item 1A. Risk Factors](index=64&type=section&id=Item%201A.%20Risk%20Factors) There have been no significant changes in the risk factors previously disclosed in the 2022 Annual Report - **No significant changes** in risk factors disclosed in the 2022 Annual Report on Form 10-K[238](index=238&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=65&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) AWR repurchased 19,198 common shares during Q2 2023 for employee benefit and dividend reinvestment plans Common Shares Repurchased by AWR (Q2 2023) | Period | Total Number of Purchased Shares | Average Price Paid per Share | |:---|:---|:---| | April 1 – 30, 2023 | 238 | $91.43 | | May 1 – 31, 2023 | 255 | $88.64 | | June 1 – 30, 2023 | 18,705 | $88.64 | | Total | 19,198 | $88.67 | - Shares were acquired on the open market for employee 401(k) plans and the Common Share Purchase and Dividend Reinvestment Plan, **not under publicly announced programs**[242](index=242&type=chunk) [Item 3. Defaults Upon Senior Securities](index=65&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the Registrant for the reporting period - This item is **not applicable**[243](index=243&type=chunk) [Item 4. Mine Safety Disclosure](index=65&type=section&id=Item%204.%20Mine%20Safety%20Disclosure) This item is not applicable to the Registrant for the reporting period - This item is **not applicable**[243](index=243&type=chunk) [Item 5. Other Information](index=65&type=section&id=Item%205.%20Other%20Information) AWR's Board approved an 8.2% dividend increase, with no material changes to director nomination procedures or Rule 10b5-1 plans - AWR's Board of Directors approved an **8.2% increase** in the third-quarter dividend to **$0.4300 per share**, payable September 1, 2023[243](index=243&type=chunk) - **No material changes** to procedures for shareholder director nominations or Rule 10b5-1 plans by officers/directors during Q2 2023[243](index=243&type=chunk) - An officer elected a prospective change to his 401(k) plan contribution percentage of the AWR stock fund from 5% to 0% on April 12, 2023[244](index=244&type=chunk) [Item 6. Exhibits](index=66&type=section&id=Item%206.%20Exhibits) This section lists all documents filed as exhibits to the Form 10-Q, including agreements, plans, and certifications - The section lists various exhibits filed with the report, including organizational documents, debt agreements, stock plans, and certifications[245](index=245&type=chunk)[246](index=246&type=chunk)[247](index=247&type=chunk) [Signatures](index=68&type=section&id=Signatures) The report is duly signed on behalf of both Registrants by the Senior Vice President - Finance and CFO as of August 7, 2023 - The rep

American States Water Co (NYSE:AWR) Q1 2023 Earnings Conference Call May 11, 2023 2:00 PM ET Company Participants Robert Sprowls - President and Chief Executive Officer Eva Tang - Senior Vice President of Finance and Chief Financial Officer Conference Call Participants Agnieszka Storozynski - Seaport Research Partners Jonathan Reeder - Wells Fargo Securities Operator Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company conference call discussing the company's First Q ...

SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2023 or ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to | --- | --- | --- | |----------------------------------------------------------------------------------------------------|----------------------------------------------- ...

Financial Data and Key Metrics Changes - Consolidated earnings per share (EPS) for Q4 2022 were $0.50, down from $0.55 in Q4 2021, a decrease of $0.05 per share [9] - Adjusted consolidated diluted earnings for 2022 were $2.59 per share, an increase of $0.12 from $2.47 per share in 2021 [7][15] - Full year EPS for 2022 was $2.11, down from $2.55 in 2021, a decrease of $0.44 per share [15] Business Line Data and Key Metrics Changes - Golden State Water Company reported Q4 earnings of $0.28 per share, down from $0.36 per share in 2021 [10] - The electric segment's earnings increased to $0.08 per share in Q4 2022 from $0.07 per share in Q4 2021 [11] - Contracted services segment earnings increased by $0.04 per share for Q4 2022 compared to the same period last year [11][26] Market Data and Key Metrics Changes - Consolidated revenue for Q4 2022 increased by $8.8 million compared to Q4 2021, primarily due to increased revenues from contracted services [12] - Operating expenses, excluding supply costs, increased by approximately $10.6 million compared to Q4 2021, driven by higher construction costs and administrative expenses [13] Company Strategy and Development Direction - The company invested a record high of $167.4 million in infrastructure at regulated utilities in 2022, with plans for $140 million to $150 million in capital expenditures for 2023 [6][17] - The company aims to maintain a compound annual growth rate of over 7% in dividends over the long term, with an 8.9% increase in annual dividends in 2022 [7][28] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment over the delayed decision from the California Public Utilities Commission (CPUC) regarding the general rate case, which could have positively impacted earnings [20][21] - The company anticipates that supply chain issues will improve in 2023, projecting earnings contributions from the contracted services segment to be between $0.45 and $0.49 per share [26] Other Important Information - The company received $10 million in COVID-19 relief funds to assist customers with delinquent bills [16] - The company plans to file its next water general rate case in July 2023 for rates effective from 2025 to 2027 [21] Q&A Session Summary Question: Impact of the pending cost of capital proceeding on earnings - Management confirmed that the $0.13 drag on earnings due to the pending cost of capital proceeding is expected to return in 2023 if the decision does not require retroactive adjustments [30][31] Question: Dividend increase and long-term growth potential - Management discussed the 8.9% dividend increase as a reflection of the company's long-term earnings growth potential, with significant rate base growth anticipated [32][34] Question: Future equity needs and rising interest rates - Management indicated that rising interest rates could impact future equity needs, but they aim to maintain their credit rating and assess capital expenditure needs continuously [39][42] Question: Delays in the general rate case decision - Management expressed frustration over the delays in the CPUC's decision-making process, attributing it to potential staffing issues within the commission [49][53]

Financial Performance - Fourth quarter 2022 consolidated diluted earnings per share (EPS) as reported was $0.50, compared to $0.55 in Q4 2021[11] - Adjusted fourth quarter 2022 consolidated diluted EPS was $0.56, an increase of $0.05 compared to adjusted Q4 2021[11, 16] - Full year 2022 diluted EPS decreased $0.44 to $2.11 per share, but adjusted EPS increased $0.12 to $2.59 per share[10] - Water segment Q4 2022 diluted EPS was $0.28, down $0.08 from $0.36 in Q4 2021[11] - Contracted Services (ASUS) Q4 2022 earnings were $0.17 per share, an increase of $0.04 per share compared to Q4 2021[11, 29] Revenue and Expenses - Total operating revenues for Q4 2022 were $125.4 million, an increase of $8.8 million compared to $116.6 million in Q4 2021[13] - Water segment revenues for Q4 2022 were $75.0 million, a decrease of $2.7 million compared to $77.7 million in Q4 2021[13] - Total operating expenses for Q4 2022 were $97.8 million, an increase of $11.2 million compared to $86.6 million in Q4 2021[14] Regulatory and Capital Investments - Invested a record high $167.4 million in company-funded infrastructure at regulated utilities in 2022[10, 19] - Received $34.4 million in new capital upgrade awards at ASUS[10, 29] - Awaiting a decision from the CPUC for GSWC's general rate case, which, if approved as settled, would add $0.38 per share to full year 2022 earnings[10] Dividends and Liquidity - Increased the annual dividend by 8.9%, marking 68 consecutive years of annual dividend increases[10] - Operating cash flows were $117.8 million for 2022, compared to $115.6 million for 2021[19]

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) ☒ Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2022 or ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to | --- | --- | --- | --- | |--------------------------|--------------- ...

American States Water Company (NYSE:AWR) Q3 2022 Earnings Conference Call November 8, 2022 2:00 PM ET Company Participants Bob Sprowls - President and Chief Executive Officer Eva Tang - Senior Vice President, Finance and Chief Financial Officer Operator Ladies and gentlemen, thank you for standing by and welcome to the American States Water Company Conference Call discussing the company’s Third Quarter 2022 Results. The call is being recorded. And if you would like to listen to the replay of this call, it w ...