AMERICAN STATES WATER CO

Previous wording

Included in the following analysis is a discussion of Registrant’s operations in terms of earnings per share by business segment and AWR (parent), which equals each business segment’s earnings divided by AWR’s weighted average number of diluted Common Shares. The impact of the water general rate case including the retroactive rates related to the full year 2022 recorded during the three months ended March 31, 2023 resulting from the proposed decision on the water general rate case, and the impact from the estimates of revenues subject to refund recorded during the three months ended March 31, 2023 resulting from the pending costs of capital pending at that time have been excluded in this analysis when communicating AWR’s consolidated and water segment results for the three months ended March 31, 2024 and 2023 to help facilitate comparisons of Registrant’s performance from period to period.

Current wording

Included in the following analysis is a discussion of Registrant’s operations in terms of earnings per share by business segment and AWR (parent), which equals each business segment’s earnings divided by AWR’s weighted average number of diluted Common Shares. The impact of retroactive rates related to the full year 2022 recorded during the six months ended June 30, 2023 resulting from the final decision on the water general rate case approved in June 2023, and the impact from the reversal of revenues subject to refund due to a change in estimates recorded during the three and six months ended June 30, 2023 following the receipt of a final cost of capital decision in June 2023 have been excluded in this analysis when communicating AWR’s consolidated and water segment results for the three and six months ended June 30, 2024 and 2023 to help facilitate comparisons of Registrant’s performance from period to period.

Previous wording

AWR uses earnings per share by business segment as an important measure in evaluating its operating results and believes it provides investors with clarity surrounding the performance of its segments. AWR reviews this measurement regularly and compares it to historical periods and to its operating budget. A reconciliation to AWR’s consolidated diluted earnings per share prepared in accordance with GAAP is included in the discussion under the section titled “Summary of First Quarter Results by Segment.”

Current wording

AWR uses earnings per share by business segment as an important measure in evaluating its operating results and believes it provides investors with clarity surrounding the performance of its segments. AWR reviews this measurement regularly and compares it to historical periods and to its operating budget. A reconciliation to AWR’s consolidated diluted earnings per share prepared in accordance with GAAP is included in the discussion under the section titled“Summary of Second Quarter Results by Segment”and“Summary of Year-to-Date Results by Segment.”

Previous wording

GSWC’s revenues, operating income and cash flows are earned primarily through delivering potable water to homes and businesses in California. BVES’ revenues, operating income and cash flows are primarily earned through delivering electricity in the Big Bear area of San Bernardino County, California. Rates charged to GSWC and BVES customers are authorized by the CPUC. These rates are intended to allow recovery of operating costs and a reasonable rate of return on invested capital. GSWC and BVES plan to continue seeking additional rate increases from the CPUC to recover operating and supply costs, and receive reasonable returns on invested capital. Capital expenditures in future years at GSWC and BVES are expected to remain at substantially higher levels than depreciation expense. When necessary, GSWC and BVES may obtain funds from external sources in the capital markets and through bank borrowings.

Current wording

GSWC’s revenues, operating income and cash flows are earned primarily through delivering potable water to homes and businesses in California. BVES’s revenues, operating income and cash flows are primarily earned through delivering electricity in the Big Bear area of San Bernardino County, California. Rates charged to GSWC and BVES customers are authorized by the CPUC. These rates are intended to allow recovery of operating costs and a reasonable rate of return on invested capital. GSWC and BVES plan to continue seeking additional rate increases from the CPUC to recover operating and supply costs, and receive reasonable returns on invested capital. Capital expenditures in future years at GSWC and BVES are expected to remain at substantially higher levels than depreciation expense. When necessary, GSWC and BVES may obtain funds from external sources in the capital markets and through bank borrowings.

Previous wording

On August 14, 2023, GSWC filed a general rate case application for all its water regions and the general office. This general rate case will determine new water rates for the years 2025 – 2027. Among other things, GSWC requested capital budgets of approximately $611.4 million for the three-year capital cycle. GSWC also requested the continuation of mechanisms to accommodate fully decoupled revenues and sales and track differences between recorded and CPUC-authorized supply-related expenses. GSWC has requested the CPUC to permit it to continue using a revenue decoupling mechanism. A proposed decision in the water general rate case is scheduled for the fourth quarter of 2024, with new rates to become effective January 1, 2025.

Current wording

On August 14, 2023, GSWC filed a general rate case application for all its water regions and the general office. This general rate case will determine new water rates for the years 2025 – 2027. On July 12, 2024, GSWC and the Public Advocates Office (“Cal Advocates”) of the CPUC filed a joint motion to adopt a settlement agreement between GSWC and Cal Advocates in connection with the water utility general rate case. The CPUC is scheduled to issue a decision in the water general rate case by the end of 2024, with new rates to become effective January 1, 2025.

Previous wording

In June 2023, the CPUC adopted a final decision in GSWC’s general rate case application for all its water regions and its general office that determined new water rates for the years 2022–2024 retroactive to January 1, 2022. The impact of retroactive rates for the full year of 2022 as well as the 2023 estimated second-year rate increases have been reflected in the results of operations for the three months ended March 31, 2023.

Current wording

In June 2023, the CPUC adopted a final decision in GSWC’s general rate case application for all its water regions and its general office that determined new water rates for the years 2022–2024 retroactive to January 1, 2022. The impact of retroactive rates for the full year of 2022 as well as the 2023 estimated second-year rate increases have been reflected in the results of operations for the six months ended June 30, 2023.

Previous wording

The third-year rate increases for 2024, which were effective January 1, 2024, have been reflected in the three months ended March 31, 2024 results. There was an increase in recorded water operating revenues of $5.2 million largely as a result of the third-year rate increases for 2024 that reflects, among other things, a higher revenue requirement for increases in recorded supply costs of $511,000, which combined is an increase of $0.09 per share. Actual water supply costs are tracked against adopted costs in the revenue requirement, and passed through to customers on a dollar-for-dollar basis by way of the CPUC-approved water supply cost balancing accounts. The increase in water supply costs results in a corresponding increase in water operating revenues and has no net impact on the water segment's profitability. Due to the delay in finalizing the water general rate case, water revenues billed to customers for the year ended December 31, 2022 and for the period from January 1, 2023 to July 30, 2023 were based on 2021 adopted rates and new 2023 rate increases went into effect on July 31, 2023. In October 2023, GSWC also filed with the CPUC to recover all retroactive rate amounts accumulated in memorandum accounts for the full 2022 year and for 2023 through July 30, 2023. Surcharges were implemented to recover the cumulative retroactive rate differences over 36 months. As of March 31, 2024, there is an aggregate cumulative balance of $50.0 million in CPUC-approved general rate case memorandum accounts that have been recognized as regulatory assets.

Current wording

The third-year rate increases for 2024, which were effective January 1, 2024, have been reflected in the six months ended June 30, 2024 results. There was an increase in recorded water operating revenues of $9.5 million largely as a result of the third-year rate increases for 2024 that reflects, among other things, a higher revenue requirement for increases in recorded supply costs of $1.2 million, which combined is an increase of $0.16 per share, and excludes the impact of (i) retroactive rates for the full year of 2022 resulting from the final general rate case decision and (ii) reversing the revenues subject to refund previously recorded in 2022 resulting from the final cost of capital decision, with both decisions received and recorded in 2023. Actual water supply costs are tracked against adopted costs in the revenue requirement, and passed through to customers on a dollar-for-dollar basis by way of the CPUC-approved water supply cost balancing accounts. The increase in water supply costs results in a corresponding increase in water operating revenues and has no net impact on the water segment’s profitability. Due to the delay in finalizing the prior water general rate case, water revenues billed to customers for the year ended December 31, 2022 and for the period from January 1, 2023 to July 30, 2023 were based on 2021 adopted rates and new 2023 rate increases went into effect on July 31, 2023. In October 2023, GSWC filed with the CPUC to recover all retroactive rate amounts accumulated in memorandum accounts for the full 2022 year and for 2023 through July 30, 2023. Surcharges were implemented to recover the cumulative retroactive rate differences over 36 months. As of June 30, 2024, there is an aggregate cumulative balance of $46.5 million in CPUC-approved general rate case memorandum accounts that have been recognized as regulatory assets.

Previous wording

GSWC filed its last cost of capital application with the CPUC in May 2021. On June 29, 2023, the CPUC adopted a final decision that, among other things, allowed for the continuation of the Water Cost of Capital Mechanism (“WCCM”) through December 31, 2024. The WCCM adjusts the return on equity and rate of return on rate base between the three-year cost of capital proceedings only if there is a positive or negative change of more than 100 basis points in the average of the Moody’s Aa utility bond rate as measured over the period October 1 through September 30. If there is a positive or negative change of more than 100 basis points, the return on equity is adjusted by one half of the difference. For the period from October 1, 2022 through September 30, 2023, the Moody’s Aa utility bond rate increased by 139.7 basis points from the benchmark, which triggered a WCCM adjustment and increased GSWC’s 9.36% adopted return on equity to 10.06% effective January 1, 2024.

Current wording

December 31, 2024. The WCCM adjusts the return on equity and rate of return on rate base between the three-year cost of capital proceedings only if there is a positive or negative change of more than 100 basis points in the average of the Moody’s Aa utility bond rate as measured over the period October 1 through September 30. If there is a positive or negative change of more than 100 basis points, the return on equity is adjusted by one half of the difference. For the period from October 1, 2022 through September 30, 2023, the Moody’s Aa utility bond rate increased by 139.7 basis points from the benchmark, which triggered a WCCM adjustment and increased GSWC’s 9.36% adopted return on equity to 10.06% effective January 1, 2024.

Previous wording

On August 30, 2022, BVES filed a general rate case application that will determine new electric rates for the years 2023 – 2026. Electric revenues billed to customers for 2023 were based on 2022 adopted rates and will remain in effect until finalization of the pending general rate case application. On December 15, 2022, the CPUC approved a decision for BVES to establish a general rate case memorandum account that makes the new 2023 rates effective and retroactive to January 1, 2023. When a decision is issued in the electric general rate case, cumulative adjustments will be recorded at that time. A proposed decision was issued that extends the statutory deadline of the general rate case to September 30, 2024. Therefore, a decision on the general rate case is scheduled to be issued by the end of the third quarter of 2024. No assurance can be given that a decision will be received at such time.

Current wording

On August 30, 2022, BVES filed a general rate case application that will determine new electric rates for the years 2023 – 2026. Electric revenues billed to customers for 2023 and through June 30, 2024 were based on 2022 adopted rates and will remain in effect until finalization of the pending general rate case application. On December 15, 2022, the CPUC approved a decision for BVES to establish a general rate case memorandum account that makes the new 2023 rates effective and retroactive to January 1, 2023. When a decision is issued in the electric general rate case, cumulative adjustments will be recorded at that time. A proposed decision was issued that extends the statutory deadline of the general rate case to September 30, 2024. Therefore, a decision on the general rate case is scheduled to be issued by the end of the third quarter of 2024. No assurance can be given that a decision will be received at such time.

Previous wording

ASUS’s revenues, operating income and cash flows are earned by providing water and/or wastewater services, including operation and maintenance services and construction of facilities for the water and/or wastewater systems at various military installations, pursuant to an initial 50-year, firm-fixed-price contract, additional firm-fixed-price contracts, task order agreements and subcontracts with third party prime contractors on military bases. Currently, ASUS has one subsidiary that has entered into a task order agreement with the U.S. government that has a term of 15 years. The contract price for each of the contracts and recurring task order agreements is subject to annual economic price adjustments. Additional revenues generated by contract operations are primarily dependent on annual economic price adjustments, and new construction activities under contract modifications with the U.S. government or agreements with other third-party prime contractors. ASUS’s subsidiaries continue to enter into U.S. government-awarded contract modifications and agreements with third-party prime contractors for new construction projects at the military bases served.

Current wording

ASUS’s revenues, operating income and cash flows are earned by providing water and/or wastewater services, including operation and maintenance services and construction of facilities for the water and/or wastewater systems at various military installations, pursuant to an initial 50-year, firm-fixed-price contract, additional firm-fixed-price contracts, task order agreements and subcontracts with third party prime contractors on military bases. Currently, ASUS has one subsidiary that has entered into a task order agreement with the U.S. government that has a term of 15 years. The contract prices for each of the contracts and recurring task order agreements are subject to annual economic price adjustments. Additional revenues generated by contract operations are primarily dependent on annual economic price adjustments, and new construction activities under contract modifications with the U.S. government or agreements with other third-party prime contractors. ASUS’s subsidiaries continue to enter into U.S. government-awarded contract modifications and agreements with third-party prime contractors for new construction projects at the military bases served.

Previous wording

In August and September of 2023, ASUS was awarded new contracts with the U.S. government to serve two military bases for which operations began in April 2024. After completion of the transition periods, ASUS has begun operating the water and wastewater utility systems at Naval Air Station Patuxent River in Maryland under a 50-year privatization contract with the U.S. government and at Joint Base Cape Cod in Massachusetts under a 15-year contract with the U.S. government. Operations commenced at Naval Air Station Patuxent River on April 1, 2024. The value of this contract is estimated at approximately $349 million over a 50-year period and is subject to an inventory adjustment and annual economic price adjustments. Operations at Joint Base Cape Cod commenced on April 15, 2024. Under this contract, ASUS will perform work through the annual issuance of task orders by the U.S. government over a 15-year period up to a maximum value to ASUS of $75 million subject to adjustments as task orders are issued. In April 2024, the U.S. government awarded a task order to ASUS valued at $4.1 million for the first year of operation, maintenance, and renewal and replacement services of the water and wastewater systems at Joint Base Cape Cod.

Current wording

In August and September of 2023, ASUS was awarded new contracts with the U.S. government to serve two military bases for which operations began in April 2024. After completion of the transition periods, ASUS began operating the water and wastewater utility systems at Naval Air Station Patuxent River in Maryland under a 50-year privatization contract with the U.S. government and at Joint Base Cape Cod in Massachusetts under a 15-year contract with the U.S. government. The initial value of its contract at Naval Air Station Patuxent River was estimated at approximately $349 million over a 50-year period subject to an inventory adjustment and annual economic price adjustments. In July 2024, the contract value was increased to $378 million after an inventory adjustment. Under its contract at Joint Base Cape Cod, ASUS performs work through the annual issuance of task orders by the U.S. government over a 15-year period up to a maximum value to ASUS of$75.0 million subject to adjustments as task orders are issued. In April 2024, the U.S. government awarded a task order to ASUS valued at$4.1 million for the first year of operation, maintenance, and renewal and replacement services of the water and wastewater systems at Joint Base Cape Cod.

Previous wording

The table below sets forth the first quarter diluted earnings per share by business segment and for the parent company:

Current wording

The table below sets forth the second quarter diluted earnings per share by business segment and for the parent company:

Previous wording

•An increase in water supply costs of $511,000, which consist of purchased water, purchased power for pumping, groundwater production assessments and changes in the water supply cost balancing accounts. The increase in water supply costs is primarily related to an increase in customer water usage and an increase in overall actual supply costs in 2024. Actual water supply costs are tracked against adopted costs in the revenue requirement, and passed through to customers on a dollar-for-dollar basis by way of the CPUC-approved water supply cost balancing accounts. The increase in water supply costs results in a corresponding increase in water operating revenues and has no net impact on the water segment’s profitability.

Current wording

•An increase in water supply costs of $0.7 million, which consist of purchased water, purchased power for pumping, groundwater production assessments and changes in the water supply cost balancing accounts. The increase in water supply costs is primarily related to an increase in customer water usage and an increase in overall actual supply costs in 2024. Actual water supply costs are tracked against adopted costs in the revenue requirement, and passed through to customers on a dollar-for-dollar basis by way of the CPUC-approved water supply cost balancing accounts. The increase in water supply costs results in a corresponding increase in water operating revenues and has no net impact on the water segment’s profitability.

Previous wording

•An overall increase in other income (net of other expense) of $704,000 due primarily to an increase of $440,000 in the gains generated on investments held to fund one of the Company’s retirement plans for the three months ended March 31, 2024 compared to the same period in 2023, due to financial market conditions.

Current wording

•An overall decrease in other income (net of other expense) of $0.2 million due primarily to a decrease of $0.5 million in gains generated on investments held to fund one of the Company’s retirement plans for the three months ended June 30, 2024 compared to the same period in 2023, due to financial market conditions, partially offset by the change in the non-service cost components related to GSWC’s benefit plans resulting from changes in actuarial assumptions including expected returns on plan assets. However, as a result of GSWC’s two-way pension balancing accounts authorized by the CPUC, changes in total net periodic benefits costs related to the pension plan have no material impact to earnings.

Previous wording

Diluted earnings from the electric utility segment decreased $0.01 per share for the first quarter of 2024 as compared to the same period in 2023, largely resulting from not having new rates while awaiting the processing of the pending electric general rate case that will set new rates for 2023 – 2026, while also experiencing continued increases in overall operating expenses and interest costs. When a decision is issued in the electric general rate case, new rates are expected to be retroactive to January 1, 2023 and cumulative adjustments will be recorded at that time.

Current wording

Diluted earnings from the electric utility segment decreased $0.02 per share for the second quarter of 2024 as compared to the same period in 2023, largely resulting from not having new rates while awaiting the processing of the pending electric general rate case that will set new rates for 2023 – 2026, while also experiencing continued increases in overall operating expenses and interest costs. When a decision is issued in the electric general rate case, new rates are expected to be retroactive to January 1, 2023 and cumulative adjustments will be recorded at that time.

Previous wording

Diluted earnings from the contracted services segment decreased $0.02 per share for the three months ended March 31, 2024 as compared to the same period in 2023, due to a decrease in construction activity largely resulting from the timing difference of when construction work was performed in 2024 as compared to the same period in 2023 and an overall increase in operating expenses, partially offset by an increase in management fee revenue resulting from the resolution of various economic price adjustments. The contracted services segment is expected to contribute $0.50 to $0.54 per share for the full 2024 year.

Current wording

Diluted earnings from the contracted services segment increased $0.07 per share for the three months ended June 30, 2024 as compared to the same period in 2023, due to an increase in management fee revenue resulting from the resolution of various economic price adjustments and operation of the water and wastewater systems at the new bases, and an increase in construction activity largely resulting from timing differences of when construction work was performed in 2024 as compared to the same period in 2023, partially offset by an overall increase in operating expenses. The contracted services segment is expected to contribute $0.50 to $0.54 per share for the full 2024 year.

Previous wording

All adjustments to 2023’s recorded diluted earnings per share relate to the water segment. The water segment’s adjusted earnings for 2023 exclude both the impact of the water general rate case proposed decision that included retroactive rates related to the full year of 2022, and the impact of lower revenues due to the recording of estimates related to revenues subject to refund shown separately in the table above. Lower revenues were recorded during the three months ended March 31, 2023 related to an estimate of revenues subject to refund recorded at that time from the pending cost of capital proceeding that were subsequently reversed in June 2023 upon receiving the final decision in this proceeding that made all adjustments to rates prospective.

Current wording

All adjustments to 2023’s recorded diluted earnings per share relate to the water segment. The water segment’s adjusted earnings for 2023 exclude both the impact of the final decision on the water general rate case that included retroactive rates related to the full year of 2022, and the impact of reversing previously recorded estimated 2022 revenues subject to refund as a result of the final cost of capital decision issued in June 2023 that made all adjustments to rates prospective. Both adjustments are shown separately in the table above.

Previous wording

For the three months ended March 31, 2024, AWR’s recorded consolidated diluted earnings were $0.62 per share, as compared to $0.93 per share for the same period in 2023, a decrease of $0.31 per share, which include: (i) the impact of the water general rate case, largely from the impact of retroactive new rates related to the full 2022 year, of $0.38 per share as a result of receiving a proposed decision in the water general rate case, and (ii) the impact of approximately $0.05 per share resulting from estimated revenues subject to refund related to the pending cost of capital proceeding at that time, both shown separately in the table above. The $0.05 per share of estimated revenues subject to refund consisted of $0.03 per share related to the first quarter of 2023 and $0.02 per share related to the incremental impact from recording the retroactive rates for the full year of 2022 in the first quarter of 2023. Excluding these items from the first quarter of 2023, adjusted consolidated diluted earnings were $0.60 per share, compared to adjusted and recorded consolidated earnings of $0.62 per share for the three months ended March 31, 2024.

Current wording

For the six months ended June 30, 2024, AWR’s recorded consolidated diluted earnings were $1.47 per share, as compared to $1.97 per share recorded for the same period in 2023, a decrease of $0.50 per share. Included in the results for the six months ended June 30, 2023 were (i) the impact from the final decision in the water general rate case recorded in 2023 that included retroactive new rates related to the full 2022 year of $0.38 per share, and (ii) the impact of the final cost of capital decision that resulted in the reversal of estimated water revenues subject to refund previously recorded in 2022 of $6.4 million, or $0.13 per share. Excluding these items from the first half of 2023, adjusted consolidated diluted earnings were $1.46 per share, compared to adjusted and recorded consolidated earnings of $1.47 per share during the same period in 2024, an adjusted increase of $0.01 per share.

Previous wording

For the three months ended March 31, 2024, recorded diluted earnings from the water utility segment were $0.48 per share, as compared to $0.74 per share for the same period in 2023, a decrease of $0.26 per share. Excluding the impact of the water general rate case including retroactive new rates related to the full 2022 year of $0.38 per share as a result of receiving a proposed decision in the water general rate case, and the impact of approximately $0.05 per share resulting from estimated revenues subject to refund related to the pending cost of capital proceeding at the time, adjusted diluted earnings for the first quarter of 2023 at the water segment were $0.41 per share, as compared to adjusted and recorded diluted earnings of $0.48 per share for the first quarter of 2024, an adjusted increase at the water segment of $0.07 per share, or a 17.1% increase, due largely to the following items:

Current wording

For the six months ended June 30, 2024, recorded diluted earnings from the water utility segment were $1.15 per share, as compared to $1.65 per share for the same period in 2023, a decrease of $0.50 per share, which includes (i) the impact from the final decision in the water general rate case recorded in 2023 that included retroactive new rates related to the full 2022 year of $0.38 per share, and (ii) the impact of the final cost of capital decision that resulted in the reversal during the six months ended June 30, 2023 of estimated revenues subject to refund recorded in 2022 of $6.4 million, or $0.13 per share. Excluding the impact of both items from the six months ended June 30, 2023, adjusted diluted earnings were $1.14 per share, as compared to adjusted and recorded diluted earnings of $1.15 per share for the six months ended June 30, 2024, an adjusted increase at the water segment of $0.01 per share due primarily to the following items:

Previous wording

•An increase in water operating revenues of approximately $5.2 million was largely a result of the third-year rate increases related to the three months ended March 31, 2024. The increase in water revenues during the first quarter of 2024 represents the difference from the third-year rate increases compared to the estimated second-year rate increases recorded during the three months ended March 31, 2023 as a result of receiving a proposed decision in the water general rate case at that time.

Current wording

•Excluding the revenue impact related to 2022 resulting from the decisions in both the general rate case and cost of capital proceedings recorded during the six months ended June 30, 2023 as previously discussed, there was an increase in water operating revenues of approximately $9.5 million largely as a result of the third-year rate increases related to the six months ended June 30, 2024. The increase in water revenues during 2024 represents the difference from the third-year rate increases compared to the second-year rate increases recorded during the six months ended June 30, 2023 as a result of receiving a final decision in the water general rate case at that time.

Previous wording

•An overall increase in operating expenses of $862,000 (excluding supply costs) due primarily to increases in (i) overall labor costs and other employee-related benefits, (ii) administrative and general expenses resulting largely from higher outside-services costs and insurance costs, and (iii) property taxes; partially offset by decreases in the timing of other operation and maintenance expenses.

Current wording

•An overall increase in operating expenses of $3.7 million (excluding supply costs) mainly due to increases in (i) overall labor costs and other employee-related benefits, (ii) administrative and general expenses resulting largely from higher outside-services costs related to the pending general rate case application and other regulatory filings, and an increase in insurance costs, (iii) depreciation and amortization expenses resulting from additions to utility plant, and (iv) property taxes; partially offset by decreases in the timing of other operation and maintenance expenses.

Previous wording

•Changes in certain flowed-through income taxes and permanent items included in GSWC’s income tax expense for the three months ended March 31, 2024 as compared to the same period in 2023 that favorably impacted the water segment’s earnings. As a regulated utility, GSWC treats certain temporary differences as being flowed-through in computing its income tax expense consistent with the income tax method used in its CPUC-jurisdiction rate making. Changes in the magnitude of flowed-through items either increase or decrease tax expense, thereby affecting diluted earnings per share.

Current wording

•Changes in certain flowed-through income taxes, permanent items and other regulatory tax adjustments included in GSWC’s income tax expense for the six months ended June 30, 2024 as compared to the same period in 2023 that unfavorably impacted the water segment’s earnings. As a regulated utility, GSWC treats certain temporary differences as being flowed-through in computing its income tax expense consistent with the income tax method used in its CPUC-jurisdiction rate making. Changes in the magnitude of flowed-through items either increase or decrease tax expense, thereby affecting diluted earnings per share.

Previous wording

For the three months ended March 31, 2024, diluted losses from AWR (parent) increased by $0.01 per share compared to the same period in 2023 due primarily to an increase in interest expense resulting from higher short-term interest rates and higher borrowings under AWR’s revolving credit facility.

Current wording

For the six months ended June 30, 2024, diluted loss from AWR (parent) increased by $0.02 per share compared to the same period in 2023 due primarily to an increase in interest expense resulting from higher short-term interest rates and higher borrowings made under AWR’s revolving credit facility.

Previous wording

The following discussion and analysis for the three months ended March 31, 2024 and 2023 provide information on AWR’s consolidated operations and assets and, where necessary, includes specific references to AWR’s individual segments and subsidiaries: GSWC, BVES and ASUS and its subsidiaries.

Current wording

The following discussion and analysis for the three and six months ended June 30, 2024 and 2023 provides information on AWR’s consolidated operations and, where necessary, includes specific references to AWR’s individual segments and subsidiaries: GSWC, BVES, and ASUS and its subsidiaries.

Previous wording

For the three months ended March 31, 2024, revenues from water operations decreased by $22.4 million to $90.3 million as compared to the same period in 2023. The decrease in water revenues was largely due to the impact of retroactive rates related to the full 2022 year of approximately $30 million recorded in the first quarter of 2023, partially offset bythe increase in water revenues during the first quarter of 2024 that represents the third-year rate increases recorded during the three months period ended March 31, 2024 as compared to the second-year rate increases for the same period in 2023.

Current wording

For the three months ended June 30, 2024, revenues from water operations decreased by $6.5 million to $110.4 million as compared to the same period in 2023. The decrease in water revenues was largely due to the impact ofthe final cost of capital decision that resulted in the reversal during the second quarter of 2023 of previously recorded revenues subject to refund totaling $9.3 million. During the three months ended June 30, 2023, there was also an increase in revenues as a result of recording regulatory adjustments of approximately $2 million that did not recur during the same period in 2024. The impact to revenues from both of these items that did not recur during the same period in 2024 waspartially offset bythe increase in water revenues during the second quarter of 2024 resulting from the third-year rate increases.

Previous wording

Billed water consumption for the first quarter of 2024 was higher by approximately 3.2% as compared to the same period in 2023 due primarily to lower amounts of seasonal precipitation in the first quarter of 2024 as compared to first quarter of 2023. Currently, changes in consumption generally do not have a significant impact on recorded revenues due to the CPUC-approved WRAM that is in place in all but one small rate making area. GSWC records the difference between what it bills its water customers and what is authorized by the CPUC in the WRAM accounts as regulatory assets or liabilities.

Current wording

Billed water consumption for the second quarter of 2024 was higher by approximately 3.2% as compared to the same period in 2023 due primarily to lower amounts of seasonal precipitation in thesecond quarter of 2024 as compared tosecond quarter of 2023. Currently, changes in consumption generally do not have a significant impact on recorded revenues due to the CPUC-approved WRAM that is in place in all but one small rate making area. GSWC records the difference between what it bills its water customers and what is authorized by the CPUC in the WRAM accounts as regulatory assets or liabilities.

Previous wording

Revenues from contracted services are composed of construction revenues (including renewal and replacements) and management fees for operating and maintaining water and/or wastewater systems at various military bases. For the three months ended March 31, 2024, revenues from contracted services decreased by $3.0 million to $32.8 million as compared to $35.8 million for the same period in 2023. The decrease was largely resulting from timing difference of when construction work was performed in 2024 as compared to the same period of 2023, partially offset by an overall increase in management fees from economic price adjustments and transition revenues at the new bases.

Current wording

Revenues from contracted services are composed of construction revenues (including renewal and replacements) and management fees for operating and maintaining water and/or wastewater systems at various military bases. For the three months ended June 30, 2024, revenues from contracted services increased by $4.5 million to $36.2 million as compared to $31.7 million for the same period in 2023. The increase was largely resulting from timing difference of when construction work was performed in 2024 as compared to the same period of 2023, and an increase in management fees from economic price adjustments and transition revenues at the new bases.

Previous wording

ASUS’s subsidiaries continue to enter into U.S. government-awarded contract modifications, agreements with third-party prime contractors for new construction projects at the military bases served and task order agreements. Earnings and cash flows from modifications to the initial 15- and 50-year contracts with the U.S. government and agreements with third-party prime contractors for additional construction projects, which may or may not continue at current levels in future periods.

Current wording

ASUS’s subsidiaries continue to enter into U.S. government-awarded contract modifications, agreements with third-party prime contractors for new construction projects at the military bases served and task order agreements. Earnings and cash flows from modifications to the initial 15- and 50-year contracts with the U.S. government and agreements with third-party prime contractors for additional construction projects may or may not continue at current levels in future periods.

Previous wording

Total supply costs at the regulated utilities comprise the largest segment of total consolidated operating expenses. Supply costs accounted for approximately 26.1% and 33.6% of total operating expenses for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Total supply costs at the regulated utilities comprise the largest segment of total consolidated operating expenses. Supply costs accounted for approximately 31.1% and 32.1% of total operating expenses for the three months ended June 30, 2024 and 2023, respectively.

Previous wording

Two of the principal factors affecting water supply costs are the amount of water produced and the source of the water. Generally, the variable cost of producing water from wells is less than the cost of water purchased from wholesale suppliers. The overall actual percentages of purchased water for the three months ended March 31, 2024 and 2023 were approximately 40% and 42%, respectively. The decrease in the actual percentage of purchased water resulted primarily from wells coming back on-line that had previously been out of service. This trend is expected to be consistent during the remainder of the year.

Current wording

Two of the principal factors affecting water supply costs are the amount of water produced and the source of the water. Generally, the variable cost of producing water from wells is less than the cost of water purchased from wholesale suppliers. The overall actual percentages of purchased water for the three months ended June 30, 2024 and 2023 were approximately 40.5% and 46%, respectively. The decrease in the actual percentage of purchased water resulted primarily from wells coming back on-line that had previously been out of service. This trend is expected to be consistent during the remainder of the year.

Previous wording

Purchased water costs for the first quarter of 2024 decreased to $13.8 million as compared to $14.3 million for the same period in 2023 primarily due to a decrease in purchased water resulting from wells coming back online, partially offset by increases in wholesale water costs. The increases in power purchased for pumping and groundwater production assessments are also as a result of wells coming back online and an overall increase in well production compared to the same period in 2023, as well as increases in electricity provider rates and increases in pump tax rates.

Current wording

Purchased water costs for the second quarter of 2024 decreased to $18.0 million as compared to $18.1 million for the same period in 2023 primarily due to a decrease in purchased water resulting from wells coming back online, partially offset by increases in wholesale water costs. The increases in power purchased for pumping and groundwater production assessments are also a result of wells coming back online and an overall increase in well production compared to the same period in 2023, as well as increases in electricity provider rates and increases in pump tax rates.

Previous wording

Administrative and general expenses decreased at the electric segment primarily due to the 2023 increase in general corporate office expenses allocated to the electric segment retroactive to 2022 that included a corresponding and offsetting increase in adopted electric revenues as provided in BVES’s last general rate case proceeding, resulting in no impact to earnings, partially offset by higher outside service and labor costs.

Current wording

Administrative and general expenses increased at the electric segment primarily due to higher outside-services costs.

Previous wording

Overall maintenance expense decreased at water segments due to lower planned and unplanned maintenance costs as compared to the same period in 2023 some of which is due to timing.

Current wording

Overall maintenance expense decreased at water and contracted services segments due to lower planned and unplanned maintenance costs as compared to the same period in 2023 due, in part, to timing.

Previous wording

Overall maintenance expense increased at electric and contracted services segments due to higher planned and unplanned maintenance costs as compared to the same period in 2023.

Current wording

Maintenance expense increased at the electric segment due to higher planned and unplanned maintenance costs as compared to the same period in 2023 also, in part, due to timing.

Previous wording

For the three months ended March 31, 2024, other expenses (net of other income) increased mostly because of gains of $2.1 million recorded on investments held to fund one of the Company’s retirement plans, compared to gains of $1.6 million recorded in 2023. In addition, there was a decrease in the non-service cost components of net periodic benefit costs related to the Company’s defined-benefit pension plan and other retirement benefits in 2024 as compared to the same period in 2023. As a result of GSWC’s and BVES’s two-way pension balancing accounts authorized by the CPUC, changes in total net periodic benefit costs related to the pension plan have no material impact to earnings.

Current wording

For the three months ended June 30, 2024, other income (net of other expense) decreased primarily because of gains of $1.0 million recorded on investments held to fund one of the Company’s retirement plans in 2024, compared to gains of $1.5 million recorded in 2023, partially offset by the change in the non-service cost components of net periodic benefit costs related to the Company’s defined-benefit pension plan and other retirement benefits in 2024 as compared to the same period in 2023. As a result of GSWC’s two-way pension balancing account authorized by the CPUC, changes in total net periodic benefit costs related to the pension plan have no material impact to earnings.

Previous wording

Consolidated income tax expense for the three months ended March 31, 2024 decreased by $3.4 million primarily due to a decrease in pretax income as compared to the same period in 2023. AWR’s ETR was 24.2% and 23.8% for the three months ended March 31, 2024 and 2023, respectively. GSWC’s ETR was 24.7% and 24.5% for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Consolidated income tax expense for the three months ended June 30, 2024 decreased by $2.8 million primarily due to a decrease in consolidated pretax income as compared to the same period in 2023. AWR’s ETR was 24.5% and 25.5% for the three months ended June 30, 2024 and 2023, respectively. GSWC’s ETR was 25.2% and 26.2% for the three months ended June 30, 2024 and 2023, respectively.

Previous wording

Electric revenues for the three months ended March 31, 2024 decreased by $699,000 to $12.2 million due, in large part, to the decision in the water general rate case proceeding that updated the costs allocated from the general corporate office to the electric segment retroactive to January 1, 2022. The decision authorized an increase in the allocation ratio to the electric segment. The increase in general corporate office expenses allocated and recorded to the electric segment in 2023 related to 2022 also included a corresponding and offsetting increase in adopted electric revenues as provided in BVES’s last general rate case proceeding, resulting in no impact to earnings.

Current wording

Electric revenues for the six months ended June 30, 2024 decreased by $0.8 million to $20.9 million due, in large part, to the final decision in the water general rate case proceeding that was adopted in 2023 and retroactive to January 1, 2022. The final decision recorded in 2023 included the full year impact of 2022 that updated the costs allocated from the general corporate office to the electric segment and authorized an increase in the allocation ratio to the electric segment. The increase in general corporate office expenses allocated to the electric segment also included a corresponding and offsetting increase in adopted electric revenues as provided in BVES’s last general rate case proceeding, resulting in no impact to earnings. Furthermore, customers are being billed at 2022’s adopted rates as a result of not having new rates while awaiting the processing of the pending electric general rate case that will set new rates for 2023 – 2026.

Previous wording

Electric usage for thefirst quarter of 2024 was lower by 2.1% compared to the same period in 2023. Due to the CPUC-approved Base Revenue Requirement Adjustment Mechanism, which adjusts certain revenues to adopted levels authorized by the CPUC, changes in usage do not have a significant impact on earnings.

Current wording

Electric usage for the six months ended June 30, 2024 was lower by 1.2% compared to the same period in 2023. Due to the CPUC-approved Base Revenue Requirement Adjustment Mechanism, which adjusts certain revenues to adopted levels authorized by the CPUC, changes in usage do not have a significant impact on earnings.

Previous wording

Under the current CPUC-approved MCBA, GSWC tracks adopted and actual expense levels for purchased water, power purchased for pumping and pump taxes. GSWC records the variances (which include the effects of changes in both rate and volume) between adopted and actual purchased water, purchased power and pump tax expenses. GSWC recovers from, or refunds to, customers the amount of such variances. GSWC tracks these variances individually for each water ratemaking area.

Current wording

Under the current CPUC-approved MCBA, GSWC tracks adopted and actual expense levels for purchased water, power purchased for pumping and pump taxes and records the variances (which include the effects of changes in both rate and volume) between adopted and actual purchased water, purchased power and pump tax expenses to the MCBA. GSWC recovers from, or refunds to, customers the amount of such variances. GSWC tracks these variances individually for each water ratemaking area.

Previous wording

For the three months ended March 31, 2024, the water supply cost balancing account had a $17,000 under-collection as compared to a $12.6 million over-collection during the same period in 2023. The change in water supply cost balancing accounts was primarily due to updated adopted supply costs from the proposed decision received in the water general rate case proceeding recorded in 2023. The over-collection recorded in 2023 included the full year impact of 2022 that reflected the new adopted supply costs retroactive to January 1, 2022. In addition, the increase in under-collection was attributed to an increase in customer water usage and increases in overall actual supply costs in 2024.

Current wording

For the six months ended June 30, 2024, the water supply cost balancing account had a $2.4 million over-collection as compared to a $15.4 million over-collection during the same period in 2023. The change in water supply cost balancing accounts was primarily due to updated adopted supply costs from the final decision in the water general rate case proceeding recorded in 2023. The over-collection recorded in 2023 included the full year impact of 2022 that reflected the new adopted supply costs retroactive to January 1, 2022.

Previous wording

For the three months ended March 31, 2024, the cost of power purchased for resale to BVES’s electric customers decreased by $654,000 to $4.3 million as compared to $5.0 million during the same period in 2023 due to a decrease in customer usage and lower average prices per megawatt-hour that include all fixed costs. The average price per megawatt-hour, including fixed costs, decreased from $94.73 for the three months ended March 31, 2023 to $81.66 for the same period in 2024. The under-collection in the electric supply cost balancing account decreased by $468,000 as compared to the three months ended March 31, 2023 due to lower customer usage.

Current wording

For the six months ended June 30, 2024, the cost of power purchased for resale to BVES’s electric customers decreased to $5.8 million as compared to $7.5 million during the same period in 2023 primarily due to a decrease in customer usage and lower overall average prices per megawatt-hour. The change in the electric supply cost balancing account during the six months ended June 30, 2024 compared to the same period in 2023 was due to decreases in energy prices and lower customer usage.