American States Water pany(AWR) - 2021 Q1 - Quarterly Report

Part I Financial Information This section provides the unaudited consolidated financial statements and related notes for American States Water Company and its subsidiary Golden State Water Company Item 1: Financial Statements Presents unaudited consolidated financial statements for AWR and GSWC, including balance sheets, income statements, equity, and cash flows, prepared under GAAP and SEC regulations Consolidated Balance Sheets (AWR) Provides a snapshot of AWR's financial position, detailing assets, liabilities, and equity at specific points in time | (in thousands) | March 31, 2021 | December 31, 2020 | | :----------------------------------- | :------------- | :---------------- | | ASSETS | | | | Net property, plant and equipment | $1,542,423 | $1,512,043 | | Total other property and investments | $36,927 | $36,434 | | Total current assets | $118,912 | $157,115 | | Total other assets | $94,559 | $86,011 | | Total Assets | $1,792,821 | $1,791,603 | | CAPITALIZATION AND LIABILITIES | | | | Total common shareholders' equity | $649,393 | $641,673 | | Long-term debt | $440,326 | $440,348 | | Total capitalization | $1,089,719 | $1,082,021 | | Total current liabilities | $113,010 | $118,572 | | Total other credits | $590,092 | $591,010 | | Total Capitalization and Liabilities | $1,792,821 | $1,791,603 | Consolidated Statements of Income (AWR) Details AWR's financial performance over a period, showing revenues, expenses, and net income | (in thousands, except per share amounts) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | Change (YoY) | % Change (YoY) | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | :------------- | | Total operating revenues | $117,060 | $109,077 | +$7,983 | +7.3% | | Total operating expenses | $86,731 | $83,378 | +$3,353 | +4.0% | | Operating Income | $30,329 | $25,699 | +$4,630 | +18.0% | | Total other income and expenses, net | $(5,147) | $(7,726) | +$2,579 | -33.4% | | Income before income tax expense | $25,182 | $17,973 | +$7,209 | +40.1% | | Income tax expense | $5,914 | $3,901 | +$2,013 | +51.6% | | Net Income | $19,268 | $14,072 | +$5,196 | +36.9% | | Basic Earnings Per Common Share | $0.52 | $0.38 | +$0.14 | +36.8% | | Fully Diluted Earnings Per Common Share | $0.52 | $0.38 | +$0.14 | +36.8% | | Dividends Declared Per Common Share | $0.335 | $0.305 | +$0.03 | +9.8% | Consolidated Statements of Changes in Common Shareholders' Equity (AWR) Outlines changes in AWR's common shareholders' equity, including net income, stock compensation, and dividends | (in thousands) | March 31, 2021 | December 31, 2020 | March 31, 2020 | December 31, 2019 | | :------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :------------- | :---------------- | :------------- | :---------------- | | Balances at period start | $641,673 | N/A | $604,583 | $601,530 | | Net income | $19,268 | N/A | $14,072 | N/A | | Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements | $813 | N/A | $193 | N/A | | Dividends on Common Shares | $(12,361) | N/A | $(11,242) | N/A | | Balances at period end | $649,393 | $641,673 | $604,583 | $601,530 | Consolidated Statements of Cash Flows (AWR) Summarizes AWR's cash inflows and outflows from operating, investing, and financing activities | (in thousands) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $24,676 | $15,654 | | Net cash used in investing activities | $(36,980) | $(33,377) | | Net cash (used) provided by financing activities | $(17,482) | $16,818 | | Net change in cash and cash equivalents | $(29,786) | $(905) | | Cash and cash equivalents, end of period | $6,951 | $429 | Balance Sheets (GSWC) Presents GSWC's financial position, detailing assets, liabilities, and equity at specific points in time | (in thousands) | March 31, 2021 | December 31, 2020 | | :----------------------------------- | :------------- | :---------------- | | ASSETS | | | | Net utility plant | $1,426,175 | $1,400,489 | | Total current assets | $63,718 | $105,288 | | Total other assets | $38,094 | $21,765 | | Total Assets | $1,561,723 | $1,560,782 | | CAPITALIZATION AND LIABILITIES | | | | Total common shareholder's equity | $583,911 | $583,298 | | Long-term debt | $440,326 | $440,348 | | Total capitalization | $1,024,237 | $1,023,646 | | Total current liabilities | $85,741 | $89,220 | | Total other credits | $451,745 | $447,916 | | Total Capitalization and Liabilities | $1,561,723 | $1,560,782 | Statements of Income (GSWC) Details GSWC's financial performance over a period, showing revenues, expenses, and net income | (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------------- | :-------------------------------- | :-------------------------------- | | Total operating revenues | $75,029 | $82,392 | | Total operating expenses | $53,970 | $60,300 | | Operating Income | $21,059 | $22,092 | | Total other income and expenses, net | $(5,060) | $(7,662) | | Income before income tax expense | $15,999 | $14,430 | | Income tax expense | $3,768 | $3,228 | | Net Income | $12,231 | $11,202 | - Electric revenues and expenses are no longer included in GSWC's statements from July 1, 2020, due to reorganization, impacting year-over-year comparisons[45][91] Statements of Changes in Common Shareholder's Equity (GSWC) Outlines changes in GSWC's common shareholder's equity, including net income, stock compensation, and dividends | (in thousands) | March 31, 2021 | December 31, 2020 | March 31, 2020 | December 31, 2019 | | :------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :------------- | :---------------- | :------------- | :---------------- | | Balances at period start | $583,298 | N/A | $551,394 | $551,188 | | Net income | $12,231 | N/A | $11,202 | N/A | | Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements | $782 | N/A | $254 | N/A | | Dividends on Common Shares | $(12,400) | N/A | $(11,250) | N/A | | Balances at period end | $583,911 | $583,298 | $551,394 | $551,188 | Statements of Cash Flows (GSWC) Summarizes GSWC's cash inflows and outflows from operating, investing, and financing activities | (in thousands) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $22,799 | $17,943 | | Net cash used in investing activities | $(43,715) | $(31,892) | | Net cash (used) provided by financing activities | $(12,210) | $13,979 | | Net change in cash and cash equivalents | $(33,126) | $30 | | Cash and cash equivalents, end of period | $2,452 | $431 | - Electric segment cash flows are no longer included in GSWC's statements from July 1, 2020, due to reorganization[151] Notes to Consolidated Financial Statements Provides detailed explanations and additional information supporting the consolidated financial statements Note 1: Summary of Significant Accounting Policies Outlines the key accounting principles and practices used in preparing the financial statements - AWR is the parent company of Golden State Water Company (GSWC), Bear Valley Electric Service, Inc. (BVESI), and American States Utility Services, Inc. (ASUS), serving over one million people in nine states[55] - BVESI's electric utility assets were transferred from GSWC to BVESI on July 1, 2020, becoming a direct wholly-owned subsidiary of AWR[55] - The consolidated financial statements are prepared in conformity with GAAP and presented in a combined report for AWR and GSWC, with intercompany transactions eliminated[55] - GSWC allocated corporate administrative costs of approximately $799,000 to BVESI and $1.5 million to ASUS during Q1 2021[56] - AWR has a $200 million credit facility ($107 million outstanding) to fund GSWC and ASUS, while BVESI has a separate $35 million facility ($22 million outstanding)[57] - GSWC must pay down intercompany borrowings from AWR within 24 months[57] - COVID-19: Operations are essential, and GSWC and BVESI suspended service disconnections for nonpayment, extended through June 30, 2021[57] - $5.7 million in incremental COVID-19 costs (e.g., bad debt) are tracked as regulatory assets, probable of recovery[57] - ASUS's operations were not materially impacted by COVID-19[57] - The adoption of ASU No. 2019-12 (Income Taxes) effective January 1, 2021, did not have a material impact on the financial statements[58] Note 2: Revenues Details the sources and recognition of revenue across the registrant's business segments - Registrant's revenues are primarily derived from tariff-based contracts for GSWC and BVESI, and 50-year firm fixed-price contracts with the U.S. government for ASUS[60] - Residential and commercial customers account for approximately 90% of water and electric revenues[60] | (in thousands) | 2021 | 2020 | | :------------------ | :------ | :------ | | Water | $75,029 | $71,424 | | Electric | $11,539 | $10,968 | | Contracted services | $30,492 | $26,685 | | Total | $117,060 | $109,077 | | (dollar in thousands) | March 31, 2021 | December 31, 2020 | | :------------------------------------ | :------------- | :---------------- | | Receivable from the U.S. government | $75,979 | $74,670 | | Contract assets | $13,726 | $10,257 | | Contract liabilities | $1,049 | $1,800 | - As of March 31, 2021, aggregate remaining performance obligations for the contracted services segment were $3.2 billion, expected to be recognized over 34 to 47 years[64] Note 3: Regulatory Matters Discusses regulatory assets and liabilities, including those related to COVID-19 and storm costs - GSWC and BVESI record regulatory assets (probable future cost recovery) and liabilities (probable future refunds)[65] - As of March 31, 2021, there were approximately $22.9 million of net regulatory liabilities not accruing carrying costs[65] | (dollars in thousands) | March 31, 2021 | December 31, 2020 | | :------------------------------------- | :------------- | :---------------- | | GSWC Total | $16,230 | $12,373 | | BVESI Derivative unrealized (gain) loss | $(1,224) | $1,537 | | BVESI Other regulatory assets | $3,257 | $2,629 | | Total AWR | $18,263 | $16,539 | - GSWC's WRAM/MCBA accounts showed an aggregated regulatory asset of $16.6 million as of March 31, 2021, primarily due to higher-than-adopted supply costs[66][68] - Surcharges of $1.9 million were billed to customers in Q1 2021 to recover previous under-collections[68] - COVID-19 related incremental costs of $5.7 million have been recorded as regulatory assets for GSWC and BVESI, believed to be probable of recovery[69] - BVESI has a $455,000 regulatory asset for 2019 winter storm costs (CEMA account), with recovery denied in a proposed decision, but BVESI plans to refile[70] Note 4: Earnings per Share/Capital Stock Explains the calculation of earnings per share and details common stock and dividend information - Registrant uses the "two-class" method for EPS calculation, allocating undistributed earnings to common shares and participating securities[72] | (in thousands, except per share amounts) | 2021 | 2020 | | :--------------------------------------- | :------ | :------ | | Net income | $19,268 | $14,072 | | Total income available to common shareholders, basic | $19,211 | $14,026 | | Weighted average Common Shares outstanding, basic | 36,898 | 36,860 | | Basic earnings per Common Share | $0.52 | $0.38 | | (in thousands, except per share amounts) | 2021 | 2020 | | :--------------------------------------- | :------ | :------ | | Total common shareholders earnings, diluted | $19,231 | $14,035 | | Weighted average common shares outstanding, diluted | 36,993 | 36,969 | | Diluted earnings per Common Share | $0.52 | $0.38 | - AWR paid quarterly dividends of $0.335 per share ($12.4 million) in Q1 2021, up from $0.305 per share ($11.2 million) in Q1 2020[75] - GSWC paid dividends of $12.4 million to AWR in Q1 2021[75] Note 5: Derivative Instruments Describes BVESI's long-term power purchase contracts and their mark-to-market derivative accounting - BVESI purchases power under long-term fixed-cost contracts (3-5 year terms) subject to mark-to-market derivative accounting[76][77] - Unrealized gains and losses from these contracts are deferred into a non-interest bearing regulatory memorandum account, preventing impact on AWR's earnings[77] - As of March 31, 2021, there was a $1.2 million unrealized gain recorded as a regulatory liability[77] | (dollars in thousands) | 2021 | 2020 | | :----------------------------------------- | :-------- | :-------- | | Fair value at beginning of the period | $(1,537)$ | $(3,171)$ | | Unrealized gains (losses) on purchased power contracts | $2,761 | $(1,109)$ | | Fair value at end of the period | $1,224 | $(4,280)$ | Note 6: Fair Value of Financial Instruments Discusses the fair value of various financial instruments, including cash, receivables, and investments - The carrying amount for cash, accounts receivable, accounts payable, and short-term debt approximates fair value due to their short-term nature[78] - Investments held in a Rabbi Trust for the supplemental executive retirement plan (SERP) totaled $26.5 million as of March 31, 2021, classified as Level 1 mutual funds[78] | (dollars in thousands) | March 31, 2021 | December 31, 2020 | | :--------------------- | :------------- | :---------------- | | Carrying Amount | $444,172 | $444,271 | | Fair Value | $519,888 | $559,752 | Note 7: Income Taxes Provides details on AWR's and GSWC's effective income tax rates and contributing factors - AWR's effective income tax rate (ETR) was 23.5% for Q1 2021 (vs. 21.7% for Q1 2020)[81] - GSWC's ETR was 23.6% for Q1 2021 (vs. 22.4% for Q1 2020)[81] - Differences from the 21% federal statutory rate are primarily due to state taxes, permanent differences, amortization of excess deferred income tax liability, and flow-through adjustments[81] Note 8: Employee Benefit Plans Details the components of net periodic benefit costs for pension, postretirement, and SERP plans | Components of Net Periodic Benefits Cost | Pension Benefits 2021 | Pension Benefits 2020 | Other Postretirement Benefits 2021 | Other Postretirement Benefits 2020 | SERP 2021 | SERP 2020 | | :--------------------------------------- | :-------------------- | :-------------------- | :--------------------------------- | :--------------------------------- | :-------- | :-------- | | Service cost | $1,625 | $1,408 | $40 | $47 | $348 | $244 | | Interest cost | $1,712 | $1,954 | $31 | $56 | $229 | $247 | | Expected return on plan assets | $(3,134)$ | $(2,950)$ | $(134)$ | $(127)$ | — | — | | Amortization of prior service cost | $109 | $109 | — | — | — | — | | Amortization of actuarial (gain) loss | $993 | $442 | $(287)$ | $(199)$ | $419 | $211 | | Net periodic benefits costs under accounting standards | $1,305 | $963 | $(350)$ | $(223)$ | $996 | $702 | | Regulatory adjustment - deferred | $(351)$ | $(93)$ | — | — | — | — | | Total expense (benefit) recognized | $954 | $870 | $(350)$ | $(223)$ | $996 | $702 | - The pension plan obligation used a discount rate of 2.55% as of December 31, 2020[83] - A 65-basis point increase in the assumed discount rate would have decreased the projected benefit obligation (PBO) by approximately 10% ($27.3 million)[83] - Registrant expects to contribute approximately $3.6 million to its pension plan in 2021[83] - GSWC and BVESI utilize two-way balancing accounts for pension expenses, with GSWC having $665,000 and BVESI $256,000 in over-collections as of March 31, 2021[83] Note 9: Contingencies Addresses potential future obligations, including environmental remediation and routine litigation - GSWC has spent approximately $6.4 million on environmental remediation, with $1.5 million reimbursed by the State[84] - An estimated $1.3 million in additional cleanup costs is recorded as a regulatory asset, expected to be approved by the CPUC for recovery[84] - Management believes rate recovery, insurance, and reserves are adequate for ordinary litigation, with no material effect expected on consolidated results[85] Note 10: Business Segments Provides financial data segmented by AWR's Water, Electric, and Contracted Services operations - AWR has three reportable segments: Water (GSWC), Electric (BVESI), and Contracted Services (ASUS)[87] - GSWC and BVESI operate in California, while ASUS operates in nine states[87] | (dollars in thousands) | Water 2021 | Electric 2021 | Contracted Services 2021 | AWR Parent 2021 | Consolidated AWR 2021 | Water 2020 | Electric 2020 | Contracted Services 2020 | AWR Parent 2020 | Consolidated AWR 2020 | | :---------------------------------- | :--------- | :------------ | :----------------------- | :-------------- | :-------------------- | :--------- | :------------ | :----------------------- | :-------------- | :-------------------- | | Operating revenues | $75,029 | $11,539 | $30,492 | — | $117,060 | $71,424 | $10,968 | $26,685 | — | $109,077 | | Operating income (loss) | $21,059 | $3,448 | $5,824 | $(2) | $30,329 | $18,605 | $3,487 | $3,609 | $(2) | $25,699 | | Net property, plant and equipment | $1,426,175 | $94,346 | $21,902 | — | $1,542,423 | $1,336,012 | $74,745 | $21,640 | — | $1,432,397 | | Depreciation and amortization expense | $8,062 | $639 | $859 | — | $9,560 | $7,422 | $607 | $782 | — | $8,811 | | Income tax expense (benefit) | $3,768 | $884 | $1,391 | $(129) | $5,914 | $2,378 | $850 | $748 | $(75) | $3,901 | | Capital additions | $31,824 | $4,782 | $487 | — | $37,093 | $28,459 | $3,554 | $1,531 | — | $33,544 | | (dollars in thousands) | March 31, 2021 | March 31, 2020 | | :-------------------------------- | :------------- | :------------- | | Total net property, plant and equipment | $1,542,423 | $1,432,397 | | Other assets | $250,398 | $228,492 | | Total consolidated assets | $1,792,821 | $1,660,889 | Note 11: Electric Utility Reorganization Details the transfer of electric utility assets from GSWC to BVESI, effective July 1, 2020 - On July 1, 2020, GSWC transferred its electric utility assets and liabilities ($71.3 million net assets and equity) to BVESI, a new wholly-owned subsidiary of AWR[91] - This was a non-cash, tax-free reorganization that did not materially change AWR's operations[91] - From July 1, 2020, electric segment operating results and cash flows are no longer included in GSWC's financial statements but remain in AWR's consolidated statements[91] | (in thousands) | 2021 (Subsidiary of AWR) | 2020 (Division of GSWC) | | :----------------- | :----------------------- | :---------------------- | | Electric revenues | $11,539 | $10,968 | | Operating expenses | $8,091 | $7,482 | | Operating income | $3,448 | $3,486 | | Net income | $2,523 | $2,346 | | (in thousands) | 2021 (Subsidiary of AWR) | | :-------------------------------------------- | :----------------------- | | Net cash provided from operating activities | $2,803 | | Net cash used in investing activities | $(4,782)$ | | Net cash provided from financing activities | $1,795 | | Net change in cash and cash equivalents | $(184)$ | | Cash and cash equivalents, end of period | $183 | - BVESI has a separate 3-year, $35 million revolving credit facility, with $22.0 million outstanding as of March 31, 2021[93] Note 12: Subsequent Event Reports GSWC's intent to redeem $28.0 million in private placement notes in May 2021 - On April 23, 2021, GSWC notified note holders of its intent to redeem $28.0 million of 9.56% private placement notes due 2031 on May 24, 2021[95] - The prepayment will include a 3.0% redemption premium ($840,000)[95] - GSWC plans to fund the redemption through intercompany borrowings from AWR, which will use its revolving credit facility[95] Item 2: Management's Discussion and Analysis (MD&A) Management's discussion and analysis of AWR's consolidated financial condition and results for Q1 2021, covering segments, regulatory matters, liquidity, and outlook General Overview (MD&A) Introduces the scope of the MD&A, covering consolidated operations and individual segments - The discussion covers AWR's consolidated operations, individual segments (GSWC, BVESI, ASUS), and AWR (parent)[98] - Water and electric gross margins and earnings per share by business segment are used as non-GAAP internal benchmarks to evaluate operating results[98] Overview (MD&A) Refers to the Form 10-K for a summary of factors affecting financial performance - Factors affecting financial performance are summarized under "Risk Factors" in the Form 10-K for the period ended December 31, 2020[99] Water and Electric Segments (MD&A) Discusses revenue generation and capital expenditure expectations for GSWC and BVESI - GSWC and BVESI revenues are earned through delivering potable water and electricity in California, with rates determined by the CPUC to allow recovery of operating costs and a reasonable rate of return on capital[100] - Capital expenditures for GSWC and BVESI are expected to remain higher than depreciation expense in future years, funded by external sources and bank borrowings[100] General Rate Case Filings and Other Matters (MD&A) Covers GSWC's and BVESI's rate case applications, authorized capital, and regulatory decisions impacting future rates - GSWC filed a general rate case application on July 15, 2020, for new water rates for 2022-2024, requesting approximately $450.6 million in capital budgets[101][157] - A decision for GSWC's rate case is scheduled for Q4 2021, with new rates effective January 1, 2022[101][157] - The final decision on GSWC's 2019-2021 water general rate case authorized $334.5 million in infrastructure investment[102] - Full third-year rate increases were approved for 2021, expected to generate an additional $11.1 million in water gross margin[103] - CPUC's August 2020 decision on low-income affordability may discontinue WRAM/MCBA for future GRC applications (post-2024), potentially increasing earnings volatility[103][157] - GSWC is allowed to continue using WRAM/MCBA through 2024[103][157] - CPUC denied a request to postpone GSWC's cost of capital application; GSWC intends to file on May 3, 2021, with a decision scheduled for Q4 2021, effective January 1, 2022[104][158] - The August 2019 final decision on the electric general rate case extended the rate cycle to include 2022, authorized $44 million in capital projects, and increased the adopted electric gross margin by $1.1 million for 2021 and $1.0 million for 2022[104][160] Contracted Services Segment (MD&A) Describes ASUS's 50-year fixed-price contracts with the U.S. government for water and wastewater services - ASUS earns revenues by providing water and/or wastewater services at U.S. military bases under 50-year firm fixed-price contracts[105] - These contracts are subject to annual economic price adjustments and modifications for new construction[105] COVID-19 Impact (MD&A) Details the impact of COVID-19 on operations, service disconnections, and tracking of incremental costs - GSWC, BVESI, and ASUS continue essential operations, with GSWC and BVESI suspending service disconnections for nonpayment, extended through June 30, 2021[106][107] - Transition plans for service disconnections were filed on April 1, 2021[107] - Increased allowance for doubtful accounts due to expected future credit losses[107] - Approximately $5.7 million in COVID-19 related incremental costs have been recorded as regulatory assets, with recovery expected through memorandum accounts[107] Summary of First Quarter Results by Segment (MD&A) Summarizes diluted earnings per share performance across Water, Electric, and Contracted Services segments | Segment | 3/31/2021 | 3/31/2020 | CHANGE | | :------------------ | :-------- | :-------- | :----- | | Water | $0.33 | $0.24 | $0.09 | | Electric | $0.07 | $0.06 | $0.01 | | Contracted services | $0.12 | $0.08 | $0.04 | | Consolidated | $0.52 | $0.38 | $0.14 | - Water segment diluted EPS increased by $0.09, primarily due to a $2.5 million (or $0.05 per share) increase in water gross margin from new CPUC-authorized rates[111] - This excludes $0.05 per share losses on retirement plan investments in Q1 2020[111] - Electric segment diluted EPS increased by $0.01 due to higher customer rates and decreased interest expense[112] - Contracted services segment diluted EPS increased by $0.04, mainly from increased construction activity and lower legal/outside services costs[113] - The segment is expected to contribute $0.45 to $0.49 per share for the full year 2021[113] Consolidated Results of Operations (MD&A) Analyzes AWR's consolidated financial performance for Q1 2021 compared to Q1 2020, detailing revenues, expenses, and net income | Metric | 2021 | 2020 | $ CHANGE | % CHANGE | | :------------------------------- | :-------- | :-------- | :------- | :------- | | Total operating revenues | $117,060 | $109,077 | $7,983 | 7.3% | | Total operating expenses | $86,731 | $83,378 | $3,353 | 4.0% | | OPERATING INCOME | $30,329 | $25,699 | $4,630 | 18.0% | | Total other income and expenses, net | $(5,147)$ | $(7,726)$ | $2,579 | (33.4)% | | INCOME BEFORE INCOME TAX EXPENSE | $25,182 | $17,973 | $7,209 | 40.1% | | Income tax expense | $5,914 | $3,901 | $2,013 | 51.6% | | NET INCOME | $19,268 | $14,072 | $5,196 | 36.9% | | Fully diluted earnings per Common Share | $0.52 | $0.38 | $0.14 | 36.8% | Operating Revenues (MD&A) Examines revenue changes across water, electric, and contracted services segments - Water revenues increased by $3.6 million (5.0% YoY) to $75.0 million due to full third-year step increases for 2021 rates, with billed water consumption up 3%[118] - Electric revenues increased by $571,000 (5.2% YoY) to $11.5 million due to new CPUC-approved rates and a 10% increase in electric usage, driven by higher tourist activity[119] - Contracted services revenues increased by $3.8 million (14.3% YoY) to $30.5 million, primarily due to increased construction activity and higher management fees[120] Operating Expenses (MD&A) Analyzes changes in supply costs, administrative, depreciation, and other operating expenses by segment - Total supply costs increased by $1.079 million (6.1% YoY) for water and $539,000 (17.1% YoY) for electric[121][123] - Water supply costs were impacted by a higher actual percentage of purchased water (43%) compared to the adopted percentage (30%)[123] | Metric | 2021 | 2020 | $ CHANGE | % CHANGE | | :---------------------- | :------ | :------ | :------- | :------- | | Water Operating Revenues | $75,029 | $71,424 | $3,605 | 5.0% | | Total Water Supply Costs | $18,904 | $17,825 | $1,079 | 6.1% | | Water Gross Margin | $56,125 | $53,599 | $2,526 | 4.7% | | Electric Operating Revenues | $11,539 | $10,968 | $571 | 5.2% | | Total Electric Supply Costs | $3,691 | $3,152 | $539 | 17.1% | | Electric Gross Margin | $7,848 | $7,816 | $32 | 0.4% | | Segment | 2021 | 2020 | $ CHANGE | % CHANGE | | :------------------ | :----- | :----- | :------- | :------- | | Water Services | $5,813 | $5,819 | $(6)$ | (0.1)% | | Electric Services | $771 | $811 | $(40)$ | (4.9)% | | Contracted Services | $1,633 | $1,856 | $(223)$ | (12.0)% | | Total | $8,217 | $8,486 | $(269)$ | (3.2)% | | Segment | 2021 | 2020 | $ CHANGE | % CHANGE | | :------------------ | :------ | :------ | :------- | :------- | | Water Services | $14,435 | $14,552 | $(117)$ | (0.8)% | | Electric Services | $2,429 | $2,286 | $143 | 6.3% | | Contracted Services | $5,187 | $6,110 | $(923)$ | (15.1)% | | AWR (parent) | $2 | $2 | — | —% | | Total | $22,053 | $22,950 | $(897)$ | (3.9)% | | Segment | 2021 | 2020 | $ CHANGE | % CHANGE | | :------------------ | :----- | :----- | :------- | :------- | | Water Services | $8,062 | $7,422 | $640 | 8.6% | | Electric Services | $639 | $607 | $32 | 5.3% | | Contracted Services | $859 | $782 | $77 | 9.8% | | Total | $9,560 | $8,811 | $749 | 8.5% | | Segment | 2021 | 2020 | $ CHANGE | % CHANGE | | :------------------ | :----- | :----- | :--------- | :--------- | | Water Services | $1,740 | $2,887 | $(1,147)$ | (39.7)% | | Electric Services | $208 | $306 | $(98)$ | (32.0)% | | Contracted Services | $714 | $691 | $23 | 3.3% | | Total | $2,662 | $3,884 | $(1,222)$ | (31.5)% | | Segment | 2021 | 2020 | $ CHANGE | % CHANGE | | :------------------ | :----- | :----- | :------- | :------- | | Water Services | $5,016 | $4,313 | $703 | 16.3% | | Electric Services | $353 | $320 | $33 | 10.3% | | Contracted Services | $571 | $526 | $45 | 8.6% | | Total | $5,940 | $5,159 | $781 | 15.1% | - ASUS construction expenses increased by $2.6 million (19.8% YoY) to $15.7 million, mainly due to timing differences in construction activity[135] Interest Expense (MD&A) Examines changes in interest expense across segments and factors influencing borrowing costs | Segment | 2021 | 2020 | $ CHANGE | % CHANGE | | :------------------ | :----- | :----- | :------- | :------- | | Water Services | $5,798 | $5,398 | $400 | 7.4% | | Electric Services | $116 | $379 | $(263)$ | (69.4)% | | Contracted Services | $109 | $161 | $(52)$ | (32.3)% | | AWR (parent) | $235 | $112 | $123 | 109.8% | | Total | $6,258 | $6,050 | $208 | 3.4% | - Consolidated interest expense increased due to higher overall borrowing levels to support operations and capital expenditures at regulated utilities[137] - GSWC plans to redeem $28 million of 9.56% private placement notes on May 24, 2021, incurring a 3% redemption premium, funded by intercompany borrowings from AWR's revolving credit facility[137] Interest Income (MD&A) Analyzes changes in interest income, primarily from regulatory assets and construction projects | Segment | 2021 | 2020 | $ CHANGE | % CHANGE | | :------------------ | :----- | :----- | :------- | :--------- | | Water Services | $87 | $265 | $(178)$ | (67.2)% | | Electric Services | $30 | $53 | $(23)$ | (43.4)% | | Contracted Services | $338 | $238 | $100 | 42.0% | | AWR (parent) | — | $2 | $(2)$ | (100.0)% | | Total | $455 | $558 | $(103)$ | (18.5)% | - The decrease in interest income was largely due to lower interest earned on regulatory assets at the water and electric segments, partially offset by increased interest income from contracted services construction projects[138] Other Income and (Expense), net (MD&A) Explains changes in other income and expenses, primarily related to retirement benefit plan investments | Segment | 2021 | 2020 | $ CHANGE | % CHANGE | | :------------------ | :----- | :------- | :------- | :---------- | | Water Services | $651 | $(2,237)$ | $2,888 | (129.1)% | | Electric Services | $46 | $34 | $12 | 35.3% | | Contracted Services | $(41)$ | $(31)$ | $(10)$ | 32.3% | | Total | $656 | $(2,234)$ | $2,890 | (129.4)% | - Other income (net) increased primarily due to gains on retirement benefit plan investments in Q1 2021, contrasting with losses incurred in Q1 2020 due to market conditions and COVID-19 effects[140] Income Tax Expense (MD&A) Analyzes the increase in consolidated income tax expense due to higher pretax income and effective tax rate | Segment | 2021 | 2020 | $ CHANGE | % CHANGE | | :------------------ | :----- | :----- | :------- | :------- | | Water Services | $3,768 | $2,378 | $1,390 | 58.5% | | Electric Services | $884 | $850 | $34 | 4.0% | | Contracted Services | $1,391 | $748 | $643 | 86.0% | | AWR (parent) | $(129)$ | $(75)$ | $(54)$ | 72.0% | | Total | $5,914 | $3,901 | $2,013 | 51.6% | - Consolidated income tax expense increased by $2.0 million due to higher pretax income and an increase in AWR's effective income tax rate (23.5% in Q1 2021 vs. 21.7% in Q1 2020)[142] Critical Accounting Policies and Estimates (MD&A) Confirms no material changes to critical accounting policies since the prior annual report - There have been no material changes to Registrant's critical accounting policies since the Annual Report on Form 10-K for the year ended December 31, 2020[144] Liquidity and Capital Resources (MD&A) Assesses AWR's ability to meet financial obligations, covering cash flows, credit facilities, debt, and dividend policy - AWR's regulated business is capital intensive, requiring significant capital resources from internal cash flows and external financing[146] - Interest expense is expected to increase due to additional external capital needs and rising market interest rates[146] - AWR funds operations and dividends primarily through subsidiary dividends, which are restricted by California law[146] - AWR has a $200 million credit facility ($107 million outstanding) and BVESI has a $35 million facility ($22 million outstanding)[146] - GSWC plans to redeem $28 million of 9.56% notes on May 24, 2021, funded by intercompany borrowings from AWR, which will use its revolving credit facility[146] - COVID-19 related service disconnection suspensions have impacted cash flows from operating activities, increasing the need for credit facility borrowings[146] - S&P affirmed A+ credit ratings for AWR and GSWC but revised the outlook to negative from stable in March 2021[146] - Moody's reaffirmed A2 with a stable outlook for GSWC in June 2020[146] - AWR has increased common dividends for 66 consecutive years and aims for a compound annual growth rate of over 7% long-term[146][182] - A Q2 2021 dividend of $0.335 per share was approved[146][182] - Management believes internally generated cash, credit facilities, and access to capital markets will provide sufficient capital, despite current liabilities sometimes exceeding current assets[146][150] Cash Flows from Operating Activities (AWR MD&A) Analyzes AWR's operating cash flow, noting an increase primarily due to improved accounts receivable - Net cash provided by operating activities was $24.7 million for Q1 2021, an increase from $15.7 million in Q1 2020, largely due to improvements in cash flows from accounts receivable following COVID-19 impacts in 2020[147] Cash Flows from Investing Activities (AWR MD&A) Examines AWR's investing cash flow, noting increased capital expenditures at regulated utilities - Net cash used in investing activities was $37.0 million for Q1 2021, up from $33.4 million in Q1 2020, primarily due to increased capital expenditures at the regulated utilities[148] - Regulated utilities' company-funded capital expenditures are projected to be between $120 million and $135 million for fiscal 2021[148] Cash Flows from Financing Activities (AWR MD&A) Analyzes AWR's financing cash flow, noting a shift from net borrowings to a pay down of the credit facility - Net cash used by financing activities was $17.5 million for Q1 2021, compared to $16.8 million provided in Q1 2020[149] - This shift was primarily due to a pay down of AWR's revolving credit facility in Q1 2021, versus net borrowings in Q1 2020[149] GSWC Liquidity and Capital Resources (MD&A) Discusses GSWC's funding sources, including internal cash, external financing, and intercompany borrowings - GSWC funds operations, debt payments, dividends, and construction through internal sources (retained earnings) and external sources (long-term financing, equity investments, intercompany borrowings from AWR)[150][151] - GSWC receives customer advances and contributions for construction, which are generally refundable and excluded from rate base[151] - CPUC requires GSWC to pay down all intercompany borrowings from AWR within a 24-month period[151] - As of March 31, 2021, GSWC had no borrowings from AWR, with the next paydown period ending March 2023[151] - Due to the electric utility reorganization effective July 1, 2020, the electric segment's cash flows are no longer included in GSWC's statement of cash flows[151] Cash Flows from Operating Activities (GSWC MD&A) Analyzes GSWC's operating cash flow, noting an increase primarily due to improved accounts receivable - Net cash provided by operating activities was $22.8 million for Q1 2021, an increase from $17.9 million in Q1 2020, primarily due to improvements in cash flows from accounts receivable following COVID-19 impacts[152] Cash Flows from Investing Activities (GSWC MD&A) Examines GSWC's investing cash flow, noting increased usage and AWR borrowings - Net cash used in investing activities was $43.7 million for Q1 2021, up from $31.9 million in Q1 2020[153] - AWR had net borrowings of $12 million from GSWC under a promissory note in Q1 2021[153] - GSWC's investing cash flows for Q1 2021 do not include the electric segment's capital expenditures, unlike Q1 2020, due to the electric utility reorganization[153] Cash Flows from Financing Activities (GSWC MD&A) Analyzes GSWC's financing cash flow, noting a decrease due to no intercompany borrowings from AWR parent - Net cash used in financing activities was $12.2 million for Q1 2021, compared to $14.0 million provided in Q1 2020[154] - This decrease was due to no intercompany borrowings from AWR parent in Q1 2021, versus net borrowings in Q1 2020[154] Contractual Obligations and Other Commitments (MD&A) Discusses debt refinancing strategies and the funding of annual debt service payments - Registrant expects to refinance debt instruments at maturity through public issuance or private placement of debt or equity[155] - Annual debt service payments are generally made from cash flows from operations[155] - A detailed discussion of contractual obligations and other commitments is available in the Registrant's Form 10-K for the year ended December 31, 2020[155] Contracted Services (MD&A) Highlights the importance of economic price adjustments and equitable adjustments for ASUS's cost recovery - Annual economic price adjustments (EPAs) and requests for equitable adjustment (REAs) are crucial for ASUS to recover increasing costs under its 50-year contracts with the U.S. government[156] - Utility privatization contracts are an "excepted service" under the Budget Control Act of 2011, mitigating earnings impact from sequestration[156] - Future impacts may include delays in funding, EPA/REA processing, contract modifications, or new contract awards[156] - Audits by federal agencies may result in delays in resolving filings or submitting new proposals[156] Regulatory Matters (MD&A) Covers regulatory developments impacting water and electric segments, including rate cases and wildfire mitigation Water Segment Regulatory Matters (MD&A) Details CPUC-approved rate increases, GSWC's general rate case filings, and potential changes to WRAM/MCBA - CPUC approved water rate increases effective January 1, 2021, expected to generate an additional $11.1 million in adopted water gross margin for 2021[157] - GSWC filed a general rate case application for 2022-2024, requesting $450.6 million in capital budgets, with a decision scheduled for Q4 2021, effective January 1, 2022[157] - CPUC's August 2020 decision on low-income affordability may discontinue WRAM/MCBA for GRCs filed after August 27, 2020, potentially increasing earnings volatility[157] - GSWC can continue using WRAM/MCBA through 2024[157] - CPUC denied a request to postpone GSWC's cost of capital application; GSWC intends to file on May 3, 2021, with a decision expected in Q4 2021, effective January 1, 2022[158] - CPUC approved GSWC's finance application in May 2020, authorizing up to $465 million in long-term debt and equity securities[159] - GSWC issued $160 million in unsecured private placement notes in July 2020[159] Electric Segment Regulatory Matters (MD&A) Covers CPUC decisions on electric gross margin, BVESI's Wildfire Mitigation Plan, and cost recovery for storm expenses - CPUC's August 2019 decision increased the adopted electric gross margin by $1.1 million for 2021 and $1.0 million for 2022, applicable to BVESI[160] - BVESI's 2020 Wildfire Mitigation Plan (WMP) was approved in January 2021, and its 2021 safety certification remains in effect during review[160] - AB 1054 shifts the burden of proof for wildfire cost recovery if an electric utility has a valid safety certification[160] - BVESI has a $455,000 regulatory asset for 2019 winter storm costs (CEMA account), with a proposed decision denying recovery, but BVESI plans to refile[161] COVID-19 Regulatory Matters (MD&A) Discusses CPUC extensions of emergency customer protections and memorandum accounts for COVID-19 costs - CPUC extended emergency customer protections (suspension of service disconnections) through June 30, 2021, with GSWC and BVESI filing transition plans[162] - COVID-19 related memorandum accounts for GSWC and BVESI were extended to track incremental costs[162] Environmental Matters (MD&A) Addresses compliance with drinking water standards and the recoverability of associated operating and capital costs - GSWC complies with US EPA and California DDW drinking water standards, incurring operating and capital costs for testing and treatment[163] - These costs are expected to be recoverable through the CPUC ratemaking process[163] Drinking Water Notifications Levels (MD&A) Details GSWC's response to PFAS chemical notification levels, including sampling, well removal, and cost tracking - DDW issued drinking water notification levels for PFAS chemicals; GSWC is collecting and analyzing samples, has removed some wells from service, and expects additional treatment costs[164] - CPUC authorized GSWC to track incremental PFAS-related costs (testing, monitoring, notification, treatment) in a Polyfluoroalkyl Substances Memorandum Account (PFASMA) for future recovery[164] Water Supply (MD&A) Discusses long-term water-use efficiency standards and the impact of drought conditions on groundwater levels and supply costs Drought Impact (MD&A) Examines the impact of multi-year drought on groundwater levels, mandatory water restrictions, and potential cost increases - California legislation (May 2018) established long-term water-use efficiency standards, including an indoor water use standard of 55 gallons per capita per day (gpcd) until 2025[168] - Reduced groundwater recharge from multi-year drought has led to lower groundwater levels in some GSWC service areas, necessitating mandatory water restrictions[168] - As of April 27, 2021, 53% of California was in "Extreme Drought" and 88% in "Severe Drought," significantly worse than a year prior[168] - These dry conditions could lead to increased water supply costs and adversely impact liquidity[168] Metropolitan Water District/ State Water Project (MD&A) Reports on the State Water Project delivery allocation and Metropolitan Water District's water reserves - The State Water Project (SWP) delivery allocation was initially set at 10% for 2020 and decreased to 5% in March 2021 due to ongoing dry conditions[169] - The Metropolitan Water District (MWD) currently has robust reserves in storage and is not projecting shortages in the current water year[169] New Accounting Pronouncements (MD&A) Refers to Note 1 for details on newly issued and changed FASB accounting requirements - Registrant is subject to newly issued and changed requirements by the Financial Accounting Standards Board; refer to Note 1 of the Unaudited Notes to Consolidated Financial Statements for details[170] Item 3: Market Risk Disclosures Discloses exposure to market risks, including interest rate and commodity price fluctuations, with further details in the annual report Item 4: Controls and Procedures Confirms the effectiveness of disclosure controls and procedures and the absence of material changes in internal controls Evaluation of Disclosure Controls and Procedures States that the CEO and CFO concluded disclosure controls and procedures were adequate and effective - The CEO and CFO concluded that disclosure controls and procedures were adequate and effective as of March 31, 2021[173] Changes in Internal Controls over Financial Reporting Confirms no material changes in internal control over financial reporting during the quarter - There has been no material change in internal control over financial reporting during the quarter ended March 31, 2021[174] Part II Other Information Provides additional information not covered in Part I, including legal proceedings, risk factors, equity sales, and other corporate matters Item 1: Legal Proceedings Details routine litigation and management's belief that no pending suits will materially affect consolidated results Item 1A: Risk Factors Confirms no significant changes to previously disclosed risk factors from the 2020 Annual Report on Form 10-K Item 2: Unregistered Sales of Equity Securities and Use of Proceeds Details repurchases of Common Shares for employee benefit plans during Q1 2021, not under a public repurchase program | Period | Total Number of Purchased Shares | Average Price Paid per Share | | :-------------------- | :------------------------------- | :--------------------------- | | January 1 – 31, 2021 | 294 | $81.10 | | February 1 – 28, 2021 | 546 | $78.15 | | March 1 – 31, 2021 | 3,074 | $72.52 | | Total | 3,914 | $73.95 | - All Common Shares were acquired on the open market for employees pursuant to the Company's 401(k) plan and for participants in the Common Share Purchase and Dividend Reinvestment Plan[181] - Neither the 401(k) plan nor the Common Share Purchase and Dividend Reinvestment Plan contain a maximum number of Common Shares that may be purchased in the open market[181] Item 3: Defaults Upon Senior Securities Reports no defaults upon senior securities during the period Item 4: Mine Safety Disclosure States that this item is not applicable to the Registrant Item 5: Other Information Includes approval of the second quarter dividend and confirms no material changes to director nomination procedures - AWR's Board of Directors approved a second quarter dividend of $0.335 per share on April 30, 2021, payable June 2, 2021, to shareholders of record on May 17, 2021[182] - There have been no material changes during Q1 2021 to the procedures by which shareholders may nominate persons to the Board of Directors of AWR[182] Item 6: Exhibits Lists all documents filed as exhibits to the Form 10-Q, including corporate governance, debt agreements, and certifications