Table of Contents



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
x☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended September 30, 2017
for the quarterly period ended March 31, 2021

or
¨☐Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from                    to                   
 
Commission file number   001-14431
American States Water Company
(Exact Name of Registrant as Specified in Its Charter)
 
California95-4676679
(State or Other Jurisdiction of Incorporation or Organization)(IRS Employer Identification No.)
630 E. Foothill BlvdSan Dimas CACA91773-1212
(Address of Principal Executive Offices)(Zip Code)
(909) 394-3600
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Commission file number   001-12008

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each classTrading symbolName of each exchange on which registered
Common sharesAWRNew York Stock Exchange
Golden State Water Company
(Exact Name of Registrant as Specified in Its Charter)
California95-1243678
(State or Other Jurisdiction of Incorporation or Organization)(IRS Employer Identification No.)
630 E. Foothill BlvdSan Dimas CACA91773-1212
(Address of Principal Executive Offices)(Zip Code)
(909) 394-3600
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 
Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Table of Contents
American States Water CompanyYes
Yes x
No¨
Golden State Water CompanyYes
Yes x
No¨
 
Indicate by check mark whether Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the Registrant was required to submit and post such files).

American States Water CompanyYes
Yes x
No¨
Golden State Water CompanyYes
Yes x
No¨


Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
American States Water Company
Large accelerated filerx
x
Accelerated filer¨¨
Non-accelerated filer¨¨
Smaller reporting company¨☐Emerging growth company☐
Golden State Water Company
Large accelerated filer¨
¨
Accelerated filer¨¨
Non-accelerated filerxx
Smaller reporting company¨☐Emerging growth company☐


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
American States Water Company
Yes¨
☐Nox
Golden State Water Company
Yes¨
☐Nox
As of November 1, 2017,April 30, 2021, the number of Common Shares outstanding of American States Water Company was 36,679,17536,913,017 shares. As of November 1, 2017,April 30, 2021, all of the 146170 outstanding Common Shares of Golden State Water Company were owned by American States Water Company.
Golden State Water Company meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this Form, in part, with the reduced disclosure format for Golden State Water Company.




AMERICAN STATES WATER COMPANY
and
GOLDEN STATE WATER COMPANY
FORM 10-Q
 
INDEX



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42
64
75
86
97
119
1210
1311
1412
2824
5243
5243
5344
5344
5345
5445
5445
5445
5446
5849


Table of Contents
PART I
Item 1. Financial Statements
General
 The basic financial statements included herein have been prepared by Registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.
 Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments consisting of normal recurring items and estimates necessary for a fair statement of results for the interim period have been made.
 It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto in the latest Annual Report on Form 10-K of American States Water Company and its wholly owned subsidiary, Golden State Water Company.
 
Filing Format
American States Water Company (“AWR”) is the parent company of Golden State Water Company (“GSWC”), Bear Valley Electric Service, Inc. ("BVESI"), and American States Utility Services, Inc. and its subsidiaries ("ASUS"). On July 1, 2020, GSWC completed the transfer of the electric utility assets and liabilities from its electric division to BVESI, in exchange for common shares of BVESI. GSWC then immediately distributed all of BVESI's common shares to AWR, whereupon BVESI became wholly owned directly by AWR. This reorganization did not result in any substantive changes to AWR's operations and business segments.
This quarterly report on Form 10-Q is a combined report being filed by two separate Registrants: AWR and GSWC. For more information, please see Note 1 of the Notes to Consolidated Financial Statements and the heading entitled "General" in "Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations." References in this report to “Registrant” are to AWR and GSWC collectively, unless otherwise specified. GSWC makes no representations as to the information contained in this report other than with respect to itself.
Forward-Looking Information
     This Form 10-Q and the documents incorporated herein contain forward-looking statements intended to qualify for the “safe harbor” from liability established by the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are based on current estimates, expectations and projections about future events and assumptions regarding these events and include statements regarding management’s goals, beliefs, plans or current expectations, taking into account the information currently available to management.  Forward-looking statements are not statements of historical facts.  For example, when we use words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “may” and other words that convey uncertainty of future events or outcomes, we are making forward-looking statements.  We are not able to predict all the factors that may affect future results.  We caution you that any forward-looking statements made by us are not guarantees of future performance and the actual results may differ materially from those in our forward-looking statements. Some of the factors that could cause future results to differ materially from those expressed or implied by
Factors affecting our forward-looking statements or from historical results, include, butfinancial performance are not limited to: 

the outcome of pending summarized under Forward-Looking Information and future regulatory, legislative or other proceedings, investigations or audits, including decisionsunder “Risk Factors” in GSWC's general rate cases and the results of independent audits of GSWC's construction contracting procurement practices or other independent audits of our costs;
changes in the policies and procedures of the California Public Utilities Commission ("CPUC");
timeliness of CPUC action on rates;

availability of GSWC's water supplies, which may be adversely affected by drought, changes in weather patterns in the West, contamination, and court decisions or other governmental actions restricting the use of water from the Colorado River, the California State Water Project, and/or pumping of groundwater;

our ability to efficiently manage GSWC capital expenditures and operating and maintenance expenses within CPUC authorized levels and timely recover our costs through rates;

the impact of opposition to GSWC rate increases on our ability to recover our costs through rates, including costs associated with construction of pipelines to connect to alternative sources of water, new wells to replace wells that are no longer in service (or are otherwise inadequate to meet the needs of GSWC's customers), and other facilities to conserve or reclaim water;


the impact of opposition by GSWC customers to rate increases associated with tiered rate structures as well as potential future restrictions on water use mandated in California, which decreases adopted usage and increases customer rates;

the impact of condemnation actions on future GSWC revenues and other aspects of our business if we do not receive adequate compensationForm 10-K for the assets acquired, or recovery of all charges associatedperiod ended December 31, 2020 filed with the condemnation of these assets, and the impact on future revenues if we are no longer entitled to any portion of the revenues generated from these assets;

liabilities of GSWC associated with the inherent risks of damage to private property and injuries to employees and the public if they should come into contact with electrical current or equipment, including through downed power lines or equipment malfunctions, or if safe construction and maintenance work sites are not maintained;

our ability to forecast the costs of maintaining GSWC’s aging water and electric infrastructure;

our ability to recover increases in permitting costs and costs associated with negotiating and complying with the terms of our franchise agreements with cities and counties and other demands made upon us by the cities and counties in which GSWC operates;

changes in accounting valuations and estimates, including changes resulting from our assessment of anticipated recovery of GSWC's regulatory assets, liabilities and revenues subject to refund or regulatory disallowances and the timing of such recovery, and the amounts set aside for uncollectible accounts receivable, inventory obsolescence, pensions and post-retirement liabilities, taxes and uninsured losses and claims, including general liability and workers' compensation claims;

changes in environmental laws, health and safety laws and water and wastewater quality requirements and increases in costs associated with complying with these laws and requirements, including costs associated with GSWC's upgrading and building new water treatment plants, GSWC's disposing of residuals from our water treatment plants, handling and storing hazardous chemicals, compliance monitoring activities and GSWC's securing alternative supplies of water when necessary;

our ability to obtain adequate, reliable and cost-effective supplies of chemicals, electricity, fuel, water and other raw materials that are needed for our water and wastewater operations;
our ability to attract, retain, train, motivate, develop and transition key employees;

our ability to recover the costs associated with the contamination of GSWC’s groundwater supplies from parties responsible for the contamination or through the ratemaking process, and the time and expense incurred by us in obtaining recovery of such costs;

the breakdown or failure of equipment at GSWC's electric division that can cause fires and unplanned electric outages, and whether GSWC will be subject to investigations, penalties, and other costs in connection with such events;
adequacy of our electric division's power supplies and the extent to which we can manage and respond to the volatility of electricity and natural gas prices;
our electric division's ability to comply with the CPUC’s renewable energy procurement requirements;
changes in GSWC long-term customer demand due to changes in customer usage patterns as a result of conservation efforts, regulatory changes affecting demand such as mandatory restrictions on water use, new landscaping or irrigation requirements, recycling of water by customers or purchase of recycled water supplied by other parties, unanticipated population growth or decline, changes in climate conditions, general economic and financial market conditions and cost increases, which may impact our long-term operating revenues if we are unable to secure rate increases, if growth in the residential customer base does not occur to the extent necessary to offset the decline in per-customer residential usage or GSWC's customer base declines as a result of condemnation actions or the use of recycled or reclaimed water from other third-party sources;

changes in accounting treatment for regulated utilities;

effects of changes in or interpretations of tax laws, rates or policies;


changes in estimates used in ASUS’s revenue recognition under the percentage of completion method of accounting for certain construction activities;
termination, in whole or in part, of one or more of our military utility privatization contracts to provide water and/or wastewater services at military bases for the convenience of the U.S. government or for default;

suspension or debarment for a period of time from contracting with the government due to violations of laws or regulations in connection with military utility privatization activities;

delays by the U.S. government in making timely payments to ASUS for water and/or wastewater services or construction activities at military bases because of fiscal uncertainties over the funding of the U.S. government or otherwise;
delays in obtaining economic price or equitable adjustments to our prices on one or more of our contracts to provide water and/or wastewater services at military bases;

disallowance of costs on any of our contracts to provide water and/or wastewater services at military bases because of audits, cost reviews or investigations by contracting agencies;
inaccurate assumptions used in preparing bids in our contracted services business or negotiating periodic price adjustments;

failure of the wastewater systems that we operate on military bases resulting in untreated wastewater or contaminants spilling into nearby properties, streams or rivers;

failure to comply with the terms of our military privatization contracts;

failure of any of our subcontractors to perform services for us in accordance with the terms of our military privatization contracts;

competition for new military privatization contracts;
issues with the implementation, maintenance or upgrading of our information technology systems;
general economic conditions which may impact our ability to recover infrastructure investments and operating costs from customers;
explosions, fires, accidents, mechanical breakdowns, the disruption of information technology and telecommunication systems, human error and similar events that may occur while operating and maintaining water and electric systems in California or operating and maintaining water and wastewater systems on military bases under varying geographic conditions;
the impact of storms, earthquakes, floods, mudslides, drought, wildfires, disease and similar natural disasters, or acts of terrorism or vandalism, that affect customer demand or that damage or disrupt facilities, operations or information technology systems owned by us, our customers or third parties on whom we rely;
potential costs, lost revenues, or other consequences resulting from misappropriation of assets or sensitive information, corruption of data, or operational disruption due to a cyber-attack or other cyber incident;

increases in the cost of obtaining insurance or in uninsured losses that may not be recovered in rates, or under our contracts with the U.S. government, including increases due to difficulties in obtaining insurance for certain risks, such as wildfires and earthquakes in California;
restrictive covenants in our debt instruments or changes to our credit ratings on current or future debt that may increase our financing costs or affect our ability to borrow or make payments on our debt; and

our ability to access capital markets and other sources of credit in a timely manner on acceptable terms.
SEC. Please consider our forward-looking statements in light of these risks (which are more fully disclosed in our 2016 Annual Report on Form 10-K) as you read this Form 10-Q.  We qualify all of our forward-looking statements by these cautionary statements.


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Table of Contents
AMERICAN STATES WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)



(in thousands) September 30,
2017		 December 31, 2016(in thousands)March 31,
2021		December 31, 2020
Property, Plant and Equipment  
  
Property, Plant and Equipment  
Regulated utility plant, at cost $1,699,631
 $1,670,238
Regulated utility plant, at cost$2,080,048 $2,043,791 
Non-utility property, at cost 14,826
 13,441
Non-utility property, at cost37,053 36,578 
Total 1,714,457
 1,683,679
Total2,117,101 2,080,369 
Less - Accumulated depreciation (532,841) (532,753)Less - Accumulated depreciation(574,678)(568,326)
Net property, plant and equipment 1,181,616
 1,150,926
Net property, plant and equipment1,542,423 1,512,043 
    
Other Property and Investments  
  
Other Property and Investments  
Goodwill 1,116
 1,116
Goodwill1,116 1,116 
Other property and investments 23,346
 20,836
Other property and investments35,811 35,318 
Total other property and investments 24,462
 21,952
Total other property and investments36,927 36,434 
    
Current Assets  
  
Current Assets  
Cash and cash equivalents 6,661
 436
Cash and cash equivalents6,951 36,737 
Accounts receivable — customers (less allowance for doubtful accounts of $770 in 2017 and $702 in 2016) 29,392
 19,993
Accounts receivable — customers (less allowance for doubtful accounts of $6,478 in 2021 and $5,263 in 2020)Accounts receivable — customers (less allowance for doubtful accounts of $6,478 in 2021 and $5,263 in 2020)22,016 29,162 
Unbilled receivable 25,833
 24,391
Unbilled receivable23,315 25,836 
Receivable from the U.S. government 7,112
 8,467
Other accounts receivable (less allowance for doubtful accounts of $219 in 2017 and $62 in 2016) 4,945
 3,151
Receivable from the U.S. government (Note 2)Receivable from the U.S. government (Note 2)23,606 25,182 
Other accounts receivable (less allowance for doubtful accounts of $53 in 2021 and $53 in 2020)Other accounts receivable (less allowance for doubtful accounts of $53 in 2021 and $53 in 2020)2,574 3,960 
Income taxes receivable 74
 17,867
Income taxes receivable68 103 
Materials and supplies, at average cost 5,377
 4,294
Materials and supplies, at weighted average costMaterials and supplies, at weighted average cost8,751 8,619 
Regulatory assets — current 27,385
 43,296
Regulatory assets — current10,628 13,088 
Prepayments and other current assets 5,248
 3,735
Prepayments and other current assets10,028 5,555 
Costs and estimated earnings in excess of billings on contracts 34,636
 41,245
Unrealized gains on purchased power contractsUnrealized gains on purchased power contracts1,224 0 
Contract assetsContract assets9,751 8,873 
Total current assets 146,663
 166,875
Total current assets118,912 157,115 
    
Regulatory and Other Assets  
  
Other AssetsOther Assets  
Unbilled revenue- receivable from U.S. governmentUnbilled revenue- receivable from U.S. government9,305 9,945 
Receivable from the U.S. government ( Note 2)Receivable from the U.S. government ( Note 2)52,373 49,488 
Contract assets (Note 2)Contract assets (Note 2)3,975 1,384 
Operating lease right-of-use assetsOperating lease right-of-use assets10,718 11,146 
Regulatory assets 103,521
 102,985
Regulatory assets7,635 3,451 
Costs and estimated earnings in excess of billings on contracts 21,720
 22,687
Other 8,504
 5,068
Other10,553 10,597 
Total regulatory and other assets 133,745
 130,740
Total other assetsTotal other assets94,559 86,011 
    
Total Assets $1,486,486
 $1,470,493
Total Assets$1,792,821 $1,791,603 
 
The accompanying notes are an integral part of these consolidated financial statements








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AMERICAN STATES WATER COMPANY
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
(Unaudited)

(in thousands) September 30,
2017		 December 31,
2016
(in thousands, except number of shares)(in thousands, except number of shares)March 31,
2021		December 31,
2020
Capitalization  
  
Capitalization  
Common shares, no par value    
Common shares, 0 par valueCommon shares, 0 par value
Authorized: 60,000,000 shares    Authorized: 60,000,000 shares
Outstanding: 36,679,175 shares in 2017 and 36,571,360 shares in 2016 $249,468
 $247,232
Outstanding: 36,913,017 shares in 2021 and 36,889,103 shares in 2020Outstanding: 36,913,017 shares in 2021 and 36,889,103 shares in 2020$257,528 $256,666 
Earnings reinvested in the business 276,344
 247,065
Earnings reinvested in the business391,865 385,007 
Total common shareholders’ equity 525,812
 494,297
Total common shareholders’ equity649,393 641,673 
Long-term debt 320,949
 320,981
Long-term debt440,326 440,348 
Total capitalization 846,761
 815,278
Total capitalization1,089,719 1,082,021 
    
Current Liabilities  
  
Current Liabilities  
Notes payable to bank 46,000
 90,000
Long-term debt — current 333
 330
Long-term debt — current364 358 
Accounts payable 53,804
 43,724
Accounts payable57,360 63,788 
Income taxes payable 6,013
 149
Income taxes payable6,474 6,783 
Accrued other taxes 9,195
 9,112
Accrued other taxes9,888 11,902 
Accrued employee expenses 11,211
 12,304
Accrued employee expenses18,138 15,122 
Accrued interest 6,576
 3,864
Accrued interest7,277 4,832 
Unrealized loss on purchased power contracts 3,837
 4,901
Unrealized loss on purchased power contracts0 1,537 
Billings in excess of costs and estimated earnings on contracts 2,466
 2,263
Contract liabilitiesContract liabilities1,049 1,800 
Operating lease liabilitiesOperating lease liabilities2,010 2,013 
Other 12,434
 11,297
Other10,450 10,437 
Total current liabilities 151,869
 177,944
Total current liabilities113,010 118,572 
    
Other Credits  
  
Other Credits  
Notes payable to bankNotes payable to bank129,000 134,200 
Advances for construction 67,438
 69,722
Advances for construction65,622 63,374 
Contributions in aid of construction - net 123,569
 120,518
Contributions in aid of construction - net141,366 140,332 
Deferred income taxes 234,719
 224,530
Deferred income taxes131,894 131,172 
Unamortized investment tax credits 1,453
 1,529
Unamortized investment tax credits1,206 1,224 
Accrued pension and other postretirement benefits 46,868
 49,856
Accrued pension and other postretirement benefits96,201 95,639 
Operating lease liabilitiesOperating lease liabilities9,159 9,636 
Other 13,809
 11,116
Other15,644 15,433 
Total other credits 487,856
 477,271
Total other credits590,092 591,010 
    
Commitments and Contingencies (Note 8) 

 

Commitments and Contingencies (Note 9)Commitments and Contingencies (Note 9)00
    
Total Capitalization and Liabilities $1,486,486
 $1,470,493
Total Capitalization and Liabilities$1,792,821 $1,791,603 
 
The accompanying notes are an integral part of these consolidated financial statements

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Table of Contents
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
ENDED SEPTEMBER 30, 2017MARCH 31, 2021 AND 20162020
(Unaudited)



 Three Months Ended September 30, Three months ended March 31,
(in thousands, except per share amounts) 2017 2016(in thousands, except per share amounts)20212020
Operating Revenues  
  
Operating Revenues  
Water $91,919
 $90,617
Water$75,029 $71,424 
Electric 7,994
 8,146
Electric11,539 10,968 
Contracted services 24,505
 25,043
Contracted services30,492 26,685 
Total operating revenues 124,418
 123,806
Total operating revenues117,060 109,077 
    
Operating Expenses  
  
Operating Expenses  
Water purchased 20,576
 19,631
Water purchased15,239 14,092 
Power purchased for pumping 2,913
 2,988
Power purchased for pumping2,145 1,859 
Groundwater production assessment 5,870
 4,482
Groundwater production assessment4,440 4,148 
Power purchased for resale 2,439
 2,394
Power purchased for resale3,198 3,043 
Supply cost balancing accounts (4,621) (4,213)Supply cost balancing accounts(2,427)(2,165)
Other operation 7,657
 7,448
Other operation8,217 8,486 
Administrative and general 21,790
 19,768
Administrative and general22,053 22,950 
Depreciation and amortization 9,854
 9,486
Depreciation and amortization9,560 8,811 
Maintenance 3,222
 4,203
Maintenance2,662 3,884 
Property and other taxes 4,475
 4,317
Property and other taxes5,940 5,159 
ASUS construction 11,693
 13,685
ASUS construction15,704 13,111 
Gain on sale of assets (17) —
Total operating expenses 85,851
 84,189
Total operating expenses86,731 83,378 
    
Operating Income 38,567
 39,617
Operating Income30,329 25,699 
    
Other Income and Expenses  
  
Other Income and Expenses  
Interest expense (5,775) (5,730)Interest expense(6,258)(6,050)
Interest income 321
 206
Interest income455 558 
Other, net 401
 254
Other, net656 (2,234)
Total other income and expenses, net (5,053) (5,270)Total other income and expenses, net(5,147)(7,726)
    
Income before income tax expense 33,514
 34,347
Income before income tax expense25,182 17,973 
    
Income tax expense 12,508
 12,708
Income tax expense5,914 3,901 
    
Net Income $21,006
 $21,639
Net Income$19,268 $14,072 
    
Weighted Average Number of Common Shares Outstanding 36,659
 36,561
Weighted Average Number of Common Shares Outstanding36,898 36,860 
Basic Earnings Per Common Share $0.57
 $0.59
Basic Earnings Per Common Share$0.52 $0.38 
    
Weighted Average Number of Diluted Shares 36,856
 36,762
Weighted Average Number of Diluted Shares36,993 36,969 
Fully Diluted Earnings Per Common Share $0.57
 $0.59
Fully Diluted Earnings Per Common Share$0.52 $0.38 
    
Dividends Declared Per Common Share $0.255
 $0.224
Dividends Declared Per Common Share$0.335 $0.305 
 
The accompanying notes are an integral part of these consolidated financial statements


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AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF CHANGES
IN COMMON SHAREHOLDERS' EQUITY
(Unaudited)



Three Months Ended March 31, 2021
 Common SharesReinvested 
 Number Earnings 
 of in the 
(in thousands)SharesAmountBusinessTotal
Balances at December 31, 202036,889 256,666 385,007 $641,673 
Add:    
Net income19,268 19,268 
Exercise of stock options and other issuances of Common Shares240 0 
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)813 813 
Dividend equivalent rights on stock-based awards not paid in cash49 49 
Deduct: 
Dividends on Common Shares12,361 12,361 
Dividend equivalent rights on stock-based awards not paid in cash49 49 
Balances at March 31, 202136,913$257,528 $391,865 $649,393 

Three Months Ended March 31, 2020
 Common SharesReinvested 
 Number Earnings 
 of in the 
(in thousands)SharesAmountBusinessTotal
Balances at December 31, 201936,847$255,566 $345,964 $601,530 
Add:    
Net income14,072 14,072 
Exercise of stock options and other issuances of Common Shares3730 30 
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)193 193 
Dividend equivalent rights on stock-based awards not paid in cash52 52 
Deduct: 
Dividends on Common Shares11,242 11,242 
Dividend equivalent rights on stock-based awards not paid in cash52 52 
Balances at March 31, 202036,884 $255,841 $348,742 $604,583 

The accompanying notes are an integral part of these consolidated financial statements.
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AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOMECASH FLOWS
FOR THE NINETHREE MONTHS
ENDED SEPTEMBER 30, 2017MARCH 31, 2021 AND 20162020
(Unaudited)

 Three Months Ended 
 March 31,
(in thousands)20212020
Cash Flows From Operating Activities:  
Net income$19,268 $14,072 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization9,656 8,892 
Provision for doubtful accounts255 273 
Deferred income taxes and investment tax credits(343)574 
Stock-based compensation expense1,930 1,844 
(Gain) loss on investments held in a trust(628)2,413 
Other — net104 110 
Changes in assets and liabilities:  
Accounts receivable — customers5,711 (4,085)
Unbilled receivable3,161 1,417 
Other accounts receivable1,386 64 
Receivables from the U.S. government(1,015)704 
Materials and supplies(132)(914)
Prepayments and other assets(4,026)(3,400)
Contract assets(3,763)(3,716)
Regulatory assets(3,493)(2,976)
Accounts payable(7,267)(4,112)
Income taxes receivable/payable(274)3,326 
Contract liabilities(751)(492)
Accrued pension and other postretirement benefits1,796 1,306 
Other liabilities3,101 354 
Net cash provided24,676 15,654 
Cash Flows From Investing Activities:  
Capital expenditures(37,093)(33,544)
Other investing activities113 167 
Net cash used(36,980)(33,377)
Cash Flows From Financing Activities:  
Proceeds from stock option exercises0 30 
Receipt of advances for and contributions in aid of construction2,016 3,522 
Refunds on advances for construction(569)(591)
Retirement or repayments of long-term debt(99)(92)
Net change in notes payable to banks(5,200)27,000 
Dividends paid(12,361)(11,242)
Other financing activities(1,269)(1,809)
Net cash (used) provided(17,482)16,818 
Net change in cash and cash equivalents(29,786)(905)
Cash and cash equivalents, beginning of period36,737 1,334 
Cash and cash equivalents, end of period$6,951 $429 
Non-cash transactions:
Accrued payables for investment in utility plant$28,700 $15,748 
Property installed by developers and conveyed$2,761 $856 
  Nine Months Ended 
 September 30,
(in thousands, except per share amounts) 2017 2016
Operating Revenues  
  
Water $239,057
 $237,987
Electric 26,108
 26,420
Contracted services 71,258
 64,880
Total operating revenues 336,423
 329,287
     
Operating Expenses  
  
Water purchased 50,619
 49,265
Power purchased for pumping 6,667
 6,752
Groundwater production assessment 14,176
 11,150
Power purchased for resale 7,847
 7,481
Supply cost balancing accounts (11,663) (10,145)
Other operation 21,989
 21,331
Administrative and general 62,534
 61,829
Depreciation and amortization 29,184
 28,878
Maintenance 10,292
 11,908
Property and other taxes 13,386
 12,863
ASUS construction 34,589
 35,351
Gain on sale of assets (8,318) —
Total operating expenses 231,302
 236,663
     
Operating Income 105,121
 92,624
     
Other Income and Expenses  
  
Interest expense (17,606) (16,956)
Interest income 1,200
 568
Other, net 1,454
 872
Total other income and expenses, net (14,952) (15,516)
     
Income before income tax expense 90,169
 77,108
     
Income tax expense 33,670
 28,577
     
Net Income $56,499
 $48,531
     
Weighted Average Number of Common Shares Outstanding 36,625
 36,546
Basic Earnings Per Common Share $1.53
 $1.32
     
Weighted Average Number of Diluted Shares 36,813
 36,743
Fully Diluted Earnings Per Common Share $1.53
 $1.32
     
Dividends Declared Per Common Share $0.739
 $0.672


The accompanying notes are an integral part of these consolidated financial statements

6
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AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
(Unaudited)

  Nine Months Ended 
 September 30,
(in thousands) 2017 2016
Cash Flows From Operating Activities:  
  
Net income $56,499
 $48,531
Adjustments to reconcile net income to net cash provided by operating activities:  
  
Depreciation and amortization 29,365
 29,080
Provision for doubtful accounts 720
 420
Deferred income taxes and investment tax credits 9,004
 11,295
Stock-based compensation expense 2,303
 1,965
Gain on sale of assets (8,318) —
Other — net (802) (360)
Changes in assets and liabilities:  
  
Accounts receivable — customers (10,683) (4,471)
Unbilled receivable (1,442) (1,139)
Other accounts receivable (1,951) 36
Receivables from the U.S. government 1,355
 (3,623)
Materials and supplies (1,083) 682
Prepayments and other assets (1,401) (1,149)
Costs and estimated earnings in excess of billings on contracts 7,576
 (8,274)
Regulatory assets 10,344
 (13,823)
Accounts payable 5,337
 (1,545)
Income taxes receivable/payable 23,657
 16,653
Billings in excess of costs and estimated earnings on contracts 203
 1,777
Accrued pension and other post-retirement benefits (2,285) (1,529)
Other liabilities 1,831
 2,983
Net cash provided 120,229
 77,509
     
Cash Flows From Investing Activities:  
  
Capital expenditures (77,896) (99,907)
Proceeds from sale of assets 34,324
 —
Other investing activities (1,299) (1,448)
Net cash used (44,871) (101,355)
     
Cash Flows From Financing Activities:  
  
Proceeds from stock option exercises 884
 210
Receipt of advances for and contributions in aid of construction 6,132
 2,902
Refunds on advances for construction (3,477) (3,449)
Retirement or repayments of long-term debt (320) (305)
Net change in notes payable to banks (44,000) 49,000
Dividends paid (27,064) (24,558)
Other financing activities (1,288) (1,529)
Net cash (used) provided (69,133) 22,271
Net change in cash and cash equivalents 6,225
 (1,575)
Cash and cash equivalents, beginning of period 436
 4,364
Cash and cash equivalents, end of period $6,661
 $2,789
     
Non-cash transactions:    
Accrued payables for investment in utility plant $21,978
 $19,843
Property installed by developers and conveyed $1,796
 $4,853


The accompanying notes are an integral part of these consolidated financial statements

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Table of Contents
GOLDEN STATE WATER COMPANY
BALANCE SHEETS
ASSETS
(Unaudited)

(in thousands)March 31,
2021		December 31,
2020
Utility Plant  
Utility plant, at cost$1,933,425 $1,902,772 
Less - Accumulated depreciation(507,250)(502,283)
Net utility plant1,426,175 1,400,489 
Other Property and Investments33,736 33,240 
Current Assets  
Cash and cash equivalents2,452 35,578 
Accounts receivable-customers (less allowance for doubtful accounts of $5,887 in 2021 and $4,907 in 2020)19,707 26,920 
Unbilled receivable17,805 19,330 
Other accounts receivable (less allowance for doubtful accounts of $53 in 2021 and $53 in 2020)1,792 3,255 
Intercompany receivable1,113 1,107 
Materials and supplies, at average cost3,926 3,659 
Regulatory assets — current10,291 11,325 
Prepayments and other current assets6,632 4,114 
Total current assets63,718 105,288 
Other Assets  
Note receivable from AWR parent12,000 0 
Operating lease right-of-use assets10,573 11,103 
Regulatory assets5,939 1,048 
Other9,582 9,614 
Total other assets38,094 21,765 
Total Assets$1,561,723 $1,560,782 

The accompanying notes are an integral part of these financial statements
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GOLDEN STATE WATER COMPANY
BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
(Unaudited)
(in thousands) September 30,
2017		 December 31,
2016
Utility Plant  
  
Utility plant, at cost $1,699,631
 $1,670,238
Less - Accumulated depreciation (524,288) (524,927)
Net utility plant 1,175,343
 1,145,311
     
Other Property and Investments 21,232
 18,719
     
Current Assets  
  
Cash and cash equivalents 6,254
 209
Accounts receivable-customers (less allowance for doubtful accounts of $770 in 2017 and $702 in 2016) 29,392
 19,993
Unbilled receivable 20,838
 17,700
Other accounts receivable (less allowance for doubtful accounts of $59 in 2017 and 2016) 3,617
 1,959
Income taxes receivable from Parent —
 21,856
Materials and supplies, at average cost 4,615
 3,724
Regulatory assets — current 27,385
 43,296
Prepayments and other current assets 4,594
 3,520
Total current assets 96,695
 112,257
     
Regulatory and Other Assets  
  
Regulatory assets 103,521
 102,985
Other 8,407
 4,906
Total regulatory and other assets 111,928
 107,891
     
Total Assets $1,405,198
 $1,384,178
(in thousands, except number of shares)March 31,
2021		December 31, 2020
Capitalization  
Common Shares, 0 par value:
 Authorized: 1,000 shares
 Outstanding: 170 shares in 2021 and 2020$355,733 $354,906 
Earnings reinvested in the business228,178 228,392 
Total common shareholder’s equity583,911 583,298 
Long-term debt440,326 440,348 
Total capitalization1,024,237 1,023,646 
Current Liabilities  
Long-term debt — current364 358 
Accounts payable39,835 45,613 
Accrued other taxes8,333 10,382 
Accrued employee expenses14,639 12,351 
Accrued interest6,972 4,545 
Income taxes payable to Parent4,221 4,612 
Operating lease liabilities1,969 1,956 
Other9,408 9,403 
Total current liabilities85,741 89,220 
Other Credits  
Advances for construction65,602 63,354 
Contributions in aid of construction — net139,732 138,691 
Deferred income taxes125,062 124,581 
Unamortized investment tax credits1,206 1,224 
Accrued pension and other postretirement benefits96,096 95,570 
Operating lease liabilities9,095 9,636 
Other14,952 14,860 
Total other credits451,745 447,916 
Commitments and Contingencies (Note 9)00
Total Capitalization and Liabilities$1,561,723 $1,560,782 
 
The accompanying notes are an integral part of these financial statements

8
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GOLDEN STATE WATER COMPANY
BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
(Unaudited)

(in thousands) September 30,
2017		 December 31, 2016
Capitalization  
  
Common Shares, no par value:    
 Authorized: 1,000 shares    
 Outstanding: 146 shares in 2017 and 2016 $241,684
 $240,482
Earnings reinvested in the business 234,299
 206,288
Total common shareholder’s equity 475,983
 446,770
Long-term debt 320,949
 320,981
Total capitalization 796,932
 767,751
     
Current Liabilities  
  
Inter-company payable 29,103
 61,726
Long-term debt — current 333
 330
Accounts payable 45,415
 34,648
Income taxes payable to Parent 1,136
 —
Accrued other taxes 9,078
 8,870
Accrued employee expenses 9,809
 10,983
Accrued interest 6,305
 3,588
Unrealized loss on purchased power contracts 3,837
 4,901
Other 12,088
 10,925
Total current liabilities 117,104
 135,971
     
Other Credits  
  
Advances for construction 67,438
 69,722
Contributions in aid of construction — net 123,569
 120,518
Deferred income taxes 238,110
 227,798
Unamortized investment tax credits 1,453
 1,529
Accrued pension and other postretirement benefits 46,868
 49,856
Other 13,724
 11,033
Total other credits 491,162
 480,456
     
Commitments and Contingencies (Note 8) 

 

     
Total Capitalization and Liabilities $1,405,198
 $1,384,178
The accompanying notes are an integral part of these financial statements

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Table of Contents
GOLDEN STATE WATER COMPANY
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
ENDED SEPTEMBER 30, 2017MARCH 31, 2021 AND 20162020
(Unaudited)


 Three Months Ended September 30, Three Months Ended March 31,
(in thousands) 2017 2016(in thousands)20212020
Operating Revenues    Operating Revenues  
Water $91,919
 $90,617
Water$75,029 $71,424 
Electric 7,994
 8,146
Electric (Note 11)Electric (Note 11)0 10,968 
Total operating revenues 99,913
 98,763
Total operating revenues75,029 82,392 
    
Operating Expenses    
Operating Expenses (Note 11)Operating Expenses (Note 11)  
Water purchased 20,576
 19,631
Water purchased15,239 14,092 
Power purchased for pumping 2,913
 2,988
Power purchased for pumping2,145 1,859 
Groundwater production assessment 5,870
 4,482
Groundwater production assessment4,440 4,148 
Power purchased for resale 2,439
 2,394
Power purchased for resale0 3,043 
Supply cost balancing accounts (4,621) (4,213)Supply cost balancing accounts(2,920)(2,165)
Other operation 6,493
 6,604
Other operation5,813 6,630 
Administrative and general 16,847
 15,833
Administrative and general14,435 16,838 
Depreciation and amortization 9,509
 9,240
Depreciation and amortization8,062 8,029 
Maintenance 2,692
 3,644
Maintenance1,740 3,193 
Property and other taxes 4,144
 4,018
Property and other taxes5,016 4,633 
Gain on sale of assets (17) —
Total operating expenses 66,845
 64,621
Total operating expenses53,970 60,300 
    
Operating Income 33,068
 34,142
Operating Income (Note 11)Operating Income (Note 11)21,059 22,092 
    
Other Income and Expenses    Other Income and Expenses  
Interest expense (5,638) (5,673)Interest expense(5,798)(5,777)
Interest income 318
 200
Interest income87 318 
Other, net 401
 255
Other, net651 (2,203)
Total other income and expenses, net (4,919) (5,218)Total other income and expenses, net(5,060)(7,662)
    
Income before income tax expense 28,149
 28,924
Income before income tax expense15,999 14,430 
    
Income tax expense 10,813
 11,041
Income tax expense3,768 3,228 
    
Net Income $17,336
 $17,883
Net Income (Note 11)Net Income (Note 11)$12,231 $11,202 
 
The accompanying notes are an integral part of these consolidated financial statements

9

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GOLDEN STATE WATER COMPANY
STATEMENTS OF INCOMECHANGES
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2017 AND 2016
(Unaudited)


  Nine Months Ended 
 September 30,
(in thousands) 2017 2016
Operating Revenues  
  
Water $239,057
 $237,987
Electric 26,108
 26,420
Total operating revenues 265,165
 264,407
     
Operating Expenses  
  
Water purchased 50,619
 49,265
Power purchased for pumping 6,667
 6,752
Groundwater production assessment 14,176
 11,150
Power purchased for resale 7,847
 7,481
Supply cost balancing accounts (11,663) (10,145)
Other operation 18,142
 18,843
Administrative and general 48,152
 49,348
Depreciation and amortization 28,341
 28,117
Maintenance 8,662
 10,426
Property and other taxes 12,316
 11,828
Gain on sale of assets (8,318) —
Total operating expenses 174,941
 183,065
     
Operating Income 90,224
 81,342
     
Other Income and Expenses  
  
Interest expense (17,170) (16,829)
Interest income 1,175
 560
Other, net 1,454
 667
Total other income and expenses, net (14,541) (15,602)
     
Income before income tax expense 75,683
 65,740
     
Income tax expense 29,235
 25,203
     
Net Income $46,448
 $40,537
The accompanying notes are an integral part of these consolidated financial statements


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GOLDEN STATE WATER COMPANY
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016IN COMMON SHAREHOLDER'S EQUITY
(Unaudited)

Three Months Ended March 31, 2021
 Common SharesReinvested 
 Number Earnings 
 of in the 
(in thousands, except number of shares)SharesAmountBusinessTotal
Balances at December 31, 2020170$354,906 $228,392 $583,298 
Add:    
Net income12,231 12,231 
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)782 782 
Dividend equivalent rights on stock-based awards not paid in cash45 45 
Deduct: 
Dividends on Common Shares12,400 12,400 
Dividend equivalent rights on stock-based awards not paid in cash45 45 
Balances at March 31, 2021170 $355,733 $228,178 $583,911 

Three Months Ended March 31, 2020
 Common SharesReinvested 
 Number Earnings 
 of in the 
(in thousands, except number of shares)SharesAmountBusinessTotal
Balances at December 31, 2019165$293,754 $257,434 $551,188 
Add:    
Net income11,202 11,202 
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)254 254 
Dividend equivalent rights on stock-based awards not paid in cash46 46 
Deduct: 
Dividends on Common Shares11,250 11,250 
Dividend equivalent rights on stock-based awards not paid in cash46 46 
Balances at March 31, 2020165 $294,054 $257,340 $551,394 
  Nine Months Ended 
 September 30,
(in thousands) 2017 2016
Cash Flows From Operating Activities:  
  
Net income $46,448
 $40,537
Adjustments to reconcile net income to net cash provided by operating activities:  
  
Depreciation and amortization 28,522
 28,319
Provision for doubtful accounts 563
 431
Deferred income taxes and investment tax credits 9,139
 10,782
Stock-based compensation expense 1,970
 1,672
Gain on sale of assets (8,318) —
Other — net (866) (367)
Changes in assets and liabilities:  
  
Accounts receivable — customers (10,683) (4,471)
Unbilled receivable (3,138) (1,941)
Other accounts receivable (1,658) 212
Materials and supplies (891) 724
Prepayments and other assets (976) (1,143)
Regulatory assets 10,344
 (13,823)
Accounts payable 5,999
 1,920
Inter-company receivable/payable (623) (933)
Income taxes receivable/payable from/to Parent 22,992
 12,863
Accrued pension and other post-retirement benefits (2,285) (1,529)
Other liabilities 1,905
 2,991
Net cash provided 98,444
 76,244
     
Cash Flows From Investing Activities:  
  
Capital expenditures (76,373) (98,161)
Proceeds from sale of assets 34,324
 —
Other investing activities (1,299) (1,484)
Net cash used (43,348) (99,645)
     
Cash Flows From Financing Activities:  
  
Receipt of advances for and contributions in aid of construction 6,132
 2,902
Refunds on advances for construction (3,477) (3,449)
Retirement or repayments of long-term debt (320) (305)
Net change in inter-company borrowings (32,000) 42,000
Dividends paid (18,300) (16,600)
Other financing activities (1,086) (1,301)
Net cash (used) provided (49,051) 23,247
     
Net increase (decrease) in cash and cash equivalents 6,045
 (154)
Cash and cash equivalents, beginning of period 209
 2,501
Cash and cash equivalents, end of period $6,254
 $2,347
     
Non-cash transactions:    
Accrued payables for investment in utility plant $21,975
 $19,843
Property installed by developers and conveyed $1,796
 $4,853

The accompanying notes are an integral part of these financial statements

10
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GOLDEN STATE WATER COMPANY
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
(Unaudited)
 Three Months Ended 
 March 31,
(in thousands)20212020
Cash Flows From Operating Activities:  
Net income$12,231 $11,202 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization8,126 8,111 
Provision for doubtful accounts221 273 
Deferred income taxes and investment tax credits(505)542 
Stock-based compensation expense1,790 1,706 
(Gain) loss on investments held in a trust(628)2,413 
Other — net83 70 
Changes in assets and liabilities:  
Accounts receivable — customers6,033 (4,085)
Unbilled receivable1,525 1,209 
Other accounts receivable1,463 (31)
Materials and supplies(267)(788)
Prepayments and other assets(1,956)(2,246)
Regulatory assets(3,165)(2,976)
Accounts payable(5,674)(1,427)
Intercompany receivable/payable8 (398)
Income taxes receivable/payable from/to Parent(391)2,686 
Accrued pension and other postretirement benefits1,760 1,306 
Other liabilities2,145 376 
Net cash provided22,799 17,943 
Cash Flows From Investing Activities:  
Capital expenditures(31,824)(32,013)
Note receivable from AWR parent(23,000)0 
Receipt of payment of note receivable from AWR parent11,000 0 
Other investing activities109 121 
Net cash used(43,715)(31,892)
Cash Flows From Financing Activities:  
Receipt of advances for and contributions in aid of construction2,013 3,522 
Refunds on advances for construction(569)(591)
Retirement or repayments of long-term debt(99)(92)
Net change in intercompany borrowings0 24,000 
Dividends paid(12,400)(11,250)
Other financing activities(1,155)(1,610)
Net cash (used) provided(12,210)13,979 
Net change in cash and cash equivalents(33,126)30 
Cash and cash equivalents, beginning of period35,578 401 
Cash and cash equivalents, end of period$2,452 $431 
Non-cash transactions:
Accrued payables for investment in utility plant$25,529 $15,748 
Property installed by developers and conveyed$2,761 $856 
The accompanying notes are an integral part of these financial statements
11
Table of Contents
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
AND
GOLDEN STATE WATER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Note 1 — Summary of Significant Accounting Policies
 
Nature of Operations: American States Water Company (“AWR”) is the parent company of Golden State Water Company (“GSWC”), Bear Valley Electric Service, Inc. ("BVESI"), and American States Utility Services, Inc. (“ASUS”) (and its subsidiaries,wholly owned subsidiaries: Fort Bliss Water Services Company (“FBWS”), Terrapin Utility Services, Inc. (“TUS”), Old Dominion Utility Services, Inc. (“ODUS”), Palmetto State Utility Services, Inc. (“PSUS”), Old North Utility Services, Inc. (“ONUS”), and Emerald Coast Utility Services, Inc. ("ECUS"), and Fort Riley Utility Services, Inc. ("FRUS")).  The subsidiaries of ASUS are collectively referred to as the “Military Utility Privatization Subsidiaries.”Subsidiaries”. On July 1, 2020, GSWC completed the transfer of the electric utility assets and liabilities from its electric division to BVESI, a separate legal entity and wholly owned subsidiary of AWR (Note 11). This reorganization did not result in any substantive changes to AWR's operations and business segments. AWR, through its wholly owned subsidiaries, serves over 1000000 people in 9 states.
 
GSWC and BVESI are both California public utilities. GSWC is a public utility engaged principally in the purchase, production, distribution and sale of water inthroughout California serving approximately 259,000 customers. GSWC also262,000 customer connections. BVESI distributes electricity in several San Bernardino County mountain communities in California serving approximately 24,000 customers through its Bear Valley Electric Service (“BVES”) division. Although GSWC has a diversified base of residential, industrial and other customers, revenues derived from commercial and residential water customers accounted for approximately 90% of total water revenues during the three and nine months ended September 30, 2017 and 2016.24,500 customer connections. The California Public Utilities Commission (“CPUC”) regulates GSWC’s water and electricBVESI's businesses in matters including properties, rates, services, facilities, and transactions bybetween GSWC, with itsBVESI, and their affiliates.  AWR’s assets and operating income are primarily those of GSWC.
ASUS, through its wholly owned subsidiaries, operates, maintains and performs construction activities (including renewal and replacement capital work) on water and/or wastewater systems at various United StatesU.S. military bases pursuant to initial 50-year firm fixed-price contracts. These contracts are subject to annual economic price adjustments and modifications for changes in circumstances, changes in laws and regulations, and additions to the contract value for new construction of facilities at the military bases.

On September 29, 2017, ASUS was awarded a new 50-year contract by the U.S. government to operate, maintain, and provide construction management services for the water distribution and wastewater collection and treatment facilities at Fort Riley, a United States Army installation located in Kansas. The initial value of the contract is approximately $601 million over the 50-year period and is subject to annual economic price adjustments. This initial value is also subject to adjustment based on the results of a joint inventory of assets to be performed during the transition period. ASUS will assume operations at Fort Riley following the completion of a six-to-twelve-month transition period.

There is no direct regulatory oversight by the CPUC over AWR or the operations, rates or services provided by ASUS or any of its wholly owned subsidiaries.
Basis of Presentation: The consolidated financial statements and notes thereto are presented in a combined report filed by two2 separate Registrants: AWR and GSWC. References in this report to “Registrant” are to AWR and GSWC, collectively, unless otherwise specified.
AWR owns all of the outstanding Common Sharescommon shares of GSWC, BVESI and ASUS. ASUS owns all of the outstanding Common Sharescommon stock of the Military Utility Privatization Subsidiaries. The consolidated financial statements of AWR include the accounts of AWR and its subsidiaries, all of which are wholly owned.subsidiaries. These financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. Inter-companyAmerica ("GAAP"). Intercompany transactions and balances have been eliminated in the AWR consolidated financial statements.
 
The consolidated financial statements included herein have been prepared by Registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  The December 31, 20162020 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles ("GAAP") in the United States of America.GAAP. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from thosethese estimates. In the opinion of management, all adjustments consisting of normal, recurring items, and estimates necessary for a fair statement of the results for the interim periods have been made. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Form 10-K for the year ended December 31, 20162020 filed with the SEC.

GSWC's Related Party Transactions and Financing Activities: GSWC, BVESI and ASUS provide and/or receive various support services to and from their parent, AWR, and among themselves. GSWC also allocateshas allocated certain corporate office administrative and general costs to its affiliate,affiliates, BVESI and ASUS, using allocation factors approved by the CPUC. GSWC allocated corporate office administrative and general costs to ASUSBVESI of approximately $1.0 million$799,000 during each of the three months ended September 30, 2017March 31, 2021. GSWC allocated corporate office administrative and 2016,general costs to ASUS of approximately $1.5 million and approximately $3.0$1.4 million during each of the ninethree months ended September 30, 2017March 31, 2021 and 2016. In addition, AWR has a $150.0 million syndicated credit facility. 2020, respectively.

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AWR borrows under thisa $200.0 million credit facility, which expires in May 2023, and provides funds to its subsidiaries, GSWC and ASUS in support of their operations.  As of September 30, 2017, there was $46.0 million outstanding under this facility.  The interest rate charged to GSWC and ASUS is sufficient to cover AWR’s interest expense under the credit facility.

In October 2015, AWR issued interest-bearing promissory notes (the "Notes") to GSWC and ASUS for $40 As of March 31, 2021, there was $107.0 million and $10outstanding under this facility. BVESI has a separate $35 million respectively,revolving credit facility, which expire on May 23, 2018.expires in July 2023. Under the terms of these Notes,the credit agreement, BVESI has the option to request an increase in the facility by an additional $15 million. As of March 31, 2021, there was $22.0 million outstanding under this facility.
The CPUC requires GSWC to completely pay down all intercompany borrowings from AWR within a 24-month period. The next 24-month period in which GSWC is required to completely pay down its intercompany borrowings is at the end of March 2023 since GSWC had 0 borrowings from AWR as of March 31, 2021.
In October 2020, AWR issued an interest bearing promissory note to GSWC, which expires in May 2023. Under the terms of the note, AWR may borrow from GSWC and ASUS amounts up to $40$30 million and $10 million, respectively, for working capital purposes. AWR agrees to pay any unpaid principal amounts outstanding under these notes,this note, plus accrued interest. As of September 30, 2017 and 2016,March 31, 2021, there were no amountswas $12.0 million outstanding under these notes.this note reflected as a non-current asset on GSWC's balance sheet.
Sales and Use TaxesCOVID-19 Impact: GSWC, BVESI and ASUS have continued their operations given that their water, wastewater, and electric utility services are deemed essential.AWR's responses take into account orders issued by the CPUC, and the guidance provided by federal, state, and local health authorities and other government officials to the COVID-19 pandemic.Some of the actions taken by GSWC and BVESI continue to include: (i) suspending service disconnections for nonpayment pursuant to CPUC and state orders, and (ii) telecommuting by employees.In February 2021, the CPUC adopted a resolution that extended the existing emergency customer protections previously established by the CPUC through June 30, 2021, including the suspension of service disconnections for non-payment by electric utility customers in response to the on-going COVID-19 pandemic. For water utilities, the moratorium on service disconnections was implemented in response to an order by the governor of California, which we believe would require another action by the governor to cease the moratorium on service disconnections for our water customers. It is expected that the CPUC will work with the governor’s office to coordinate the lifting of the moratorium for water utility customers consistent with the electric customers. The CPUC's February resolution did extend the COVID-19-related memorandum accounts established by GSWC and by BVESI to track incremental costs associated with complying with the resolution. In addition, the resolution required utilities in California to file transition plans to address the eventual discontinuance of the emergency customer protections.The goal of the transition plan is to effectively ease customers through a transition off the emergency customer protections by proactively communicating with customers to enroll in programs to manage their utility bills certain sales and use taxes levied by state or local governmentsinforming them of the changes to its customers. Includedprograms in which they are already enrolled. GSWC and BVESI filed their respective transition plans with the CPUC on April 1, 2021.
Initially and throughout 2020, the pandemic caused significant volatility on financial markets resulting in fluctuations in the fair value of plan assets in GSWC's pension and other retirement plans.In addition, due to expected future credit losses on utility customer bills, GSWC and BVESI have increased their allowance for doubtful accounts.However, the CPUC has authorized GSWC and BVESI to track incremental costs, including bad debt expense in excess of what is included in their respective revenue requirements, incurred as a result of the pandemic in COVID-19-related memorandum accounts, such as a Catastrophic Event Memorandum Account ("CEMA"), to be filed with the CPUC for future recovery.GSWC and BVESI have recorded a total of approximately $5.7 million in these salesaccounts as regulatory assets, as it is believed such amounts are probable of recovery.CEMA and use taxesother emergency-type memorandum accounts are franchise fees, which GSWC paysestablished as a result of a state/federal declared emergency, and are therefore recognized as regulatory assets for future recovery. As a result, the amounts recorded in the COVID-19-related memorandum accounts have not impacted GSWC's and BVESI's earnings.GSWC's COVID-19 memorandum account is being addressed in its pending water general rate case, while BVESI intends to various municipalities (based on ordinances adopted by these municipalities)include the memorandum account for recovery in order to use public rights of way for utility purposes. GSWC bills these franchise fees to its customers based on a CPUC-authorizednext general rate for each ratemaking area as applicable. These franchise fees, which are requiredcase application expected to be paid regardless of GSWC’s ability to collect them from its customers, are accounted forfiled in 2022. Thus far, the COVID-19 pandemic has not had a material impact on a gross basis. GSWC’s franchise fees billed to customers and recorded as operating revenue were approximately $1.0 million and $1.1 million for the three months ended September 30, 2017 and 2016, respectively, and $2.8 million and $3.0 million for the nine months ended September 30, 2017 and 2016, respectively. When GSWC acts as an agent, and a tax is not required to be remitted if it is not collected from customers, the tax is accounted for on a net basis.ASUS's operations.
Depending on the states in which their operations are conducted, the Military Utility Privatization Subsidiaries are also subject to certain state non-income tax assessments generally computed on a “gross receipts” or “gross revenues” basis.  These non-income tax assessments are required to be paid regardless of whether the U.S. government reimburses these assessments under the 50-year contracts.  The non-income tax assessments are accounted for on a gross basis and totaled $55,000 and $62,000 during the three months ended September 30, 2017 and 2016, respectively, and $177,000 and $209,000 for the nine months ended September 30, 2017 and 2016, respectively.
Recently Issued Accounting Pronouncements Adopted in 2021:
In March 2016,December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting StandardStandards Update 2016-09, Improvements to Employee Share-Based Payment("ASU") No. 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting which amends Accounting Standards Codification ("ASC") Topic 718, Compensation - Stock Compensation. Underfor Income Taxes. The amendments in this update simplify the new guidance, theaccounting for income taxes by removing certain exceptions and clarifying certain requirements regarding franchise taxes, goodwill, consolidated tax effects related to share-based payments at settlement (or expiration) are required to be recorded through the income statement rather than through equity, therefore increasing the volatility of income tax expense. The new standard also removed the requirement to delay recognition of a windfall tax benefit until an employer reduces its current taxes payable. It also permits entities to make an accounting policy election for the impact of forfeitures on the recognition of expense for shared-based payment awards. Income tax benefits in excess of compensation costs or tax deficiencies for share-based compensation are recorded to the income tax provision, instead of to shareholders' equity, which can impact theexpenses, and annual effective tax rate. Registrant adopted the new standardrate calculations. The adoption of this guidance effective January 1, 2017 (see 2021 did not have a material impact on Registrant's financial statements.
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Note 6)2 — Revenues
Most of Registrant's revenues are derived from contracts with customers, including tariff-based revenues from its regulated utilities at GSWC and BVESI. ASUS's initial 50-year firm fixed-price contracts with the U.S. government are considered service concession arrangements under ASC 853, Service Concession Arrangements. On a prospective basis,Accordingly, the excess tax benefitsservices under these contracts are classified as an operating activity along with other income tax cash flows on the statement of cash flows.

In May 2014, the FASB issued Accounting Standard Update 2014-09, accounted for under Topic 606—Revenue from Contracts with Customers, (Topic 606). Under this guidance, an entity recognizes revenue when it transfers promised goods and the water and/or services towastewater systems are not recorded as Property, Plant and Equipment on Registrant’s balance sheets.
Although GSWC and BVESI have a diversified base of residential, commercial, industrial, and other customers, in an amount that reflects what the entity expects in exchangerevenues derived from residential and commercial customers generally account for the goods or services.approximately 90% of total water and electric revenues. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and adoption is not permitted earlier than 2017. The guidance allows entities to select onevast majority of two methods of adoption, either the full retrospective approach, meaning the guidance would be applied to all periods presented, or modified retrospective approach, meaning the cumulative effect of applying the guidance to prior periods would be recognized as an adjustment to opening retained earnings at January 1, 2018, and requires certain additional disclosures. Registrant intends to use the modified retrospective approach beginning January 1, 2018. Management continues to assess all potential impacts of the standard, and to-date has not identified any material impact on earnings or material impacts on how Registrant recognizes revenue. The previously disclosed issue regarding contributions in aid of construction (CIAC) has been resolved, subject to finalization of implementation guidance. GSWC does not expect CIAC to be in the scope of the guidance and, therefore, will continue to record CIAC as liabilities and as a reduction to rate base. The guidance will also require enhanced disclosures, including a disaggregated revenue disclosure from contracts with customers. Some revenue arrangements which meet the definition of alternative revenue programs under ASC 980 Regulated Operations, such as GSWC's Water Revenue Adjustment Mechanism and Base Revenue Requirement Adjustment Mechanisms,ASUS's revenues are excluded from the

scope of U.S. government. For the new standardthree months ended March 31, 2021 and therefore, will be disclosed separately from2020, disaggregated revenues from contracts with customers under the new guidance.by segment were as follows:

Three Months Ended March 31,
(dollar in thousands)20212020
Water:
Tariff-based revenues$74,288 $69,254 
Surcharges (cost-recovery activities)534 734 
Other517 495 
Water revenues from contracts with customers75,339 70,483 
WRAM (over) under-collection (alternative revenue program)(310)941 
Total water revenues75,029 71,424 
Electric:
Tariff-based revenues11,677 10,032 
Surcharges (cost-recovery activities)202 258 
Electric revenues from contracts with customers11,879 10,290 
BRRAM (over) under-collection (alternative revenue program)(340)678 
Total electric revenues11,539 10,968 
Contracted services:
Water18,883 14,701 
Wastewater11,609 11,984 
Contracted services revenues from contracts with customers30,492 26,685 
Total AWR revenues$117,060 $109,077 
In February 2016, the FASB issued a new lease accounting standard, Leases (ASC 842). Under the new guidance, lessees will recognize a right-of-use assetThe opening and a lease liability for virtually all leases (other than leases that meet the definition of a short-term lease). For income statement purposes, leases will be classified as either operating or finance. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Management has not yet determined the effectclosing balances of the standard on Registrant's financial statements.

In March 2017,receivable from the FASB issued Accounting Standards Update 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which changes the financial statement presentation for the costs of defined benefit pension plans and other retirement benefits. Under current GAAP, the components of net benefit cost for retirement plans (such as service cost, interest cost, expected return onU.S. government, contract assets, and the amortization of various deferred items), are aggregated as operating costs for financial statement presentation purposes. Under the new guidance, the service cost component will continue to be presented as operating costs, while all other components of net benefit cost will be presented outside of operating income. The new guidance also limits any capitalization of net periodic benefits cost to the service cost component. The new guidance is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. Registrant is currently evaluating the impact of this new standard on its financial statements, and to-date has not identified a material impact on its consolidated financial statements. Registrant will adopt the standard beginning in 2018.

In August 2016, the FASB issued Accounting Standards Update 2016-15, Statement of Cash Flows (Topic 230)
Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. Registrant does not expect the adoption of this new standard to have a significant impact on its cash flow statements.
In May 2017, the FASB issued Accounting Standards Update 2017-10, Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services, which addresses the accounting for a service concession arrangement. A service concession arrangement is an arrangement between a grantor and an operating entity for which the terms provide that the operating entity will operate the grantor’s infrastructure (such as water and wastewater facilities) for a specified period of time. Under this guidance, revenue from service concession arrangements will be accounted for in accordance with Topic 605 on revenue recognition, or Topic 606 on revenuecontract liabilities from contracts with customers, which are related entirely to ASUS, were as applicable. In addition,follows:    
(dollar in thousands)March 31, 2021December 31, 2020
Unbilled receivables$13,302 $14,924 
Receivable from the U.S. government$75,979 $74,670 
Contract assets$13,726 $10,257 
Contract liabilities$1,049 $1,800 
Contract Assets - Contract assets are those of ASUS and consist of unbilled revenues recognized from work-in-progress construction projects, where the infrastructure thatright to payment is conditional on something other than the subjectpassage of a service concession arrangement will not be recognizedtime. The classification of this asset as property, plant,current or noncurrent is based on the timing of when ASUS expects to bill these amounts.
Contract Liabilities - Contract liabilities are those of ASUS and equipmentconsist of billings in excess of revenue recognized. The classification of this liability as current or noncurrent is based on the timing of when ASUS expects to recognize revenue.
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Revenues for the three months ended March 31, 2021, which were included in contract liabilities at the beginning of the operating entity. Forperiod were $838,000. Contracted services revenues recognized during the three months ended March 31, 2021 from performance obligations satisfied in previous periods were not material.
As of March 31, 2021, Registrant's aggregate remaining performance obligations, which are entirely for the contracted services segment, were $3.2 billion. Registrant expects to recognize revenue on these remaining performance obligations over the effective dateremaining term of this new guidance will be January 1, 2018, the same date that Registrant will adopt the provisions under Topic 606. Registrant does not expect the adoptioneach of the guidance on service concession arrangements50-year contracts, which range from 34 to have a significant impact on47 years. Each of the contracts with the U.S. government is subject to termination, in whole or in part, prior to the end of its consolidated financial statements.50-year term for convenience of the U.S. government.

Note 23 — Regulatory Matters
In accordance with accounting principles for rate-regulated enterprises, Registrant recordsGSWC and BVESI record regulatory assets, which represent probable future recovery of costs from customers through the ratemaking process, and regulatory liabilities, which represent probable future refunds that are to be credited to customers through the ratemaking process. At September 30, 2017, RegistrantMarch 31, 2021, GSWC and BVESI had approximately $55.7$22.9 million of regulatory assets,liabilities, net of regulatory liabilities,assets, not accruing carrying costs. Of this amount, $26.1(i) $78.0 million of regulatory liabilities are excess deferred income taxes arising from the lower federal income tax rate due to the Tax Cuts and Jobs Act ("Tax Act") enacted in December 2017 that are expected to be refunded to customers, (ii) $9.7 million of regulatory liabilities are from flowed-through deferred income taxes, (iii) $65.4 million of net regulatory assets relates to the underfunded position in Registrant'sGSWC's pension and other post-retirementretirement obligations $3.8(not including the two-way pension balancing accounts), and (iv) a $1.2 million relatesregulatory liability related to a memorandum account authorized by the CPUC to track unrealized gains and losses on BVES'sBVESI's purchase power contracts over the term of the contracts, and $21.2 million relates to deferred income taxes representing accelerated tax benefits flowed through to customers, which will be included in rates concurrently with recognition of the associated future tax expense.contracts. The remainder relates to other items that do not provide for or incur carrying costs.

Regulatory assets represent costs incurred by GSWC and/or BVESI for which it hasthey have received or expectsexpect to receive rate recovery in the future. In determining the probability of costs being recognized in other periods, GSWC considersand BVESI consider regulatory rules and decisions, past practices, and other facts or circumstances that would indicate if recovery is probable. If the CPUC determines that a portion of either GSWC’s or BVESI's assets are not recoverable in customer rates, GSWCthe applicable utility must determine if it has suffered an asset impairment requiringthat requires it to write down the asset's value. Regulatory assets are offset against regulatory liabilities within each ratemaking area. Amounts expected to be collected or refunded in the next 12twelve months have been classified as current assets and current liabilities by ratemaking area. Regulatory assets, less regulatory liabilities, included in the consolidated balance sheets are as follows:
(dollars in thousands)March 31,
2021		December 31,
2020
GSWC
Water Revenue Adjustment Mechanism and Modified Cost Balancing Account$16,580 $13,741 
Costs deferred for future recovery on Aerojet case6,544 6,751 
Pensions and other post-retirement obligations (Note 8)64,693 65,576 
COVID-19 memorandum accounts5,140 4,119 
Excess deferred income taxes(73,926)(74,185)
Flow-through taxes, net(9,013)(9,722)
Other regulatory assets10,739 10,670 
Various refunds to customers(4,527)(4,577)
Total GSWC$16,230 $12,373 
BVESI
Derivative unrealized (gain) loss (Note 5)(1,224)1,537
Other regulatory assets3,2572,629
Total AWR$18,263 $16,539 
(dollars in thousands) September 30,
2017		 December 31,
2016
GSWC    
Water Revenue Adjustment Mechanism, net of Modified Cost Balancing Account $40,230
 $47,340
Costs deferred for future recovery on Aerojet case 10,983
 11,820
Pensions and other post-retirement obligations (Note 7) 24,944
 28,118
Derivative unrealized loss (Note 4) 3,837
 4,901
Flow-through taxes, net (Note 6) 21,231
 20,134
Low income rate assistance balancing accounts 6,779
 8,272
General rate case memorandum accounts 12,369
 13,929
Other regulatory assets 15,322
 17,633
Various refunds to customers (4,789) (5,866)
Total $130,906
 $146,281
Regulatory matters are discussed in the consolidated financial statements and the notes thereto included in the Company's Form 10-K for the year ended December 31, 20162020 filed with the SEC. The discussion below focuses on significant matters and developments since December 31, 2016.

2020.
Alternative-Revenue Programs:

GSWC records the difference between what it bills its water customers and that which is authorized by the CPUC using the Water Revenue Adjustment Mechanism (“WRAM”("WRAM") and the Modified Cost Balancing Account (“MCBA”) accounts approved by the CPUC.  The over- or under-collection of the WRAM is aggregated with the MCBA over- or under-collection for the corresponding ratemaking area and bears interest at the current 90-day90-day commercial paper rate. 

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GSWC has implemented surcharges to recover its WRAM/MCBA balances as of December 31, 2016. For the three months ended September 30, 2017 and 2016, surcharges (net of surcredits) of approximately $11.4 million and $6.5 million, respectively, were billed to customers to recover previously incurred under-collections in the WRAM/MCBA accounts. For the nine months ended September 30, 2017 and 2016, surcharges (net of surcredits) of approximately $24.8 million and $12.9 million, respectively, were billed to customers. During the nine months ended September 30, 2017, GSWC recorded additional under-collections in the WRAM/MCBA accounts of $19.5 million due to higher than adopted supply costs as well as lower than adopted customer water usage. As of September 30, 2017, GSWC had an aggregated regulatory asset of $40.2 million which is comprised of a $20.0 million under-collection in the WRAM accounts and a $20.2 million under-collection in the MCBA accounts.

As required by the accounting guidance for alternative revenue programs, GSWC is required to collect its WRAM balances, net of its MCBA, within 24 months following the year in which an under-collection is recorded in order to recognize such amounts as revenue.  The recovery periods for the majority of GSWC's WRAM/MCBA balances are primarily within 12 to 24 months; however,months. GSWC has filed with the CPUC for recovery of its 2020 WRAM/MCBA balances. For the three months ended March 31, 2021 and 2020, surcharges (net of surcredits) of approximately $1.9 million and $2.2 million, respectively, were billed to customers to recover previously incurred net under-collections in the WRAM/MCBA accounts. During the three months ended March 31, 2021, GSWC recorded additional net under-collections in the WRAM/MCBA accounts of approximately $4.7 million due primarily to higher-than-adopted supply costs currently in billed customer rates. As of March 31, 2021, GSWC had an aggregated regulatory asset of $16.6 million, which is comprised of a $1.4 million under-collection in the WRAM accounts and a $15.1 million under-collection in the MCBA accounts.
COVID-19 Memorandum Accounts:
The CPUC has approved GSWC's and BVESI's requests to activate COVID-19-related memorandum accounts, such as a Catastrophic Event Memorandum Account ("CEMA"), for the impact of December 31, 2015 there were some ratemaking areas that had recovery periods relatedthe COVID-19 pandemic. The Company's response to the 2015 WRAM balances that were greater than 24 months. As a result,pandemic has included suspending service disconnections for nonpayment, which has significantly increased the amount of delinquent customer accounts receivable during the fourth quarterCOVID-19 pandemic. Costs incurred by GSWC and BVESI in response to the COVID-19 pandemic, including bad debt expense in excess of 2015, GSWC did not record $1.4 million of the 2015 WRAM under-collection balance as revenue. This amount has been recognized aswhat is included in their respective revenue requirements, are being included in the periodsCOVID-19-related memorandum accounts for future recovery. As of March 31, 2021, a total of $5.7 million in which it was determined the amounts would be collected within 24 months. Approximately $450,000COVID-19 related incremental costs have been recorded as regulatory assets as GSWC and $910,000BVESI believe their respective costs are probable of the 2015 WRAM balance was recognized during the first nine months of 2017 and during the year ended December 31, 2016, respectively.  

Water General Rate Case:
In December 2016, the CPUC issued a decisionrecovery. GSWC's COVID-19 memorandum account is being addressed in GSWC'sits pending water general rate case, while BVESI intends to include the memorandum account for allrecovery in its water ratemaking areasnext general rate case application expected to be filed in 2022.
Other Regulatory Assets:
Other regulatory assets represent costs incurred by GSWC or BVESI for which it has received or expects to receive rate recovery in the future. These regulatory assets are supported by regulatory rules and the general office to determine new rates for the years 2016, 2017decisions, past practices, and 2018. The new rates approved were retroactive to January 1, 2016. However, because of delays in issuing a final decision,other facts or circumstances that indicate recovery is probable. If the CPUC ordered GSWCdetermines that a portion of either GSWC’s or BVESI's assets are not recoverable in customer rates, the applicable entity must determine if it has suffered an asset impairment that requires it to bypass implementing 2016 rates andwrite down the asset's value.
BVESI Other CEMA Regulatory Asset: BVESI activated a CEMA account to implement 2017 rates aftertrack the correction of minor rate calculationsincremental costs incurred in the December 2016 decision, which the CPUC completed with the issuance ofresponse to a final decision in March 2017. A net revenue shortfall of $9.9 million, representing the rate difference between interim rates and final rates authorized by the CPUC in March 2017 that were retroactive to January 1, 2016, was approved for recovery by the CPUC in August 2017. CPUC-approved surcharges to recover this shortfall were implemented on September 1, 2017 with amortization periods ranging between 12 - 36 months for GSWC's various water ratemaking areas.
Other Regulatory Matters:
Formal Complaint Filed with the CPUC
In June 2016, a third party filed a formal complaint with the CPUC against GSWC about a water main breaksevere winter storm that occurred in 2014 causing damageFebruary 2019 and which resulted in the declaration of an emergency by the governor of California. Incremental costs of $455,000 were included in the CEMA account and recorded as a regulatory asset. BVESI subsequently filed for recovery of these costs. In April 2021, the administrative law judge issued a proposed decision denying BVESI’s request for recovery, claiming that BVESI did not adequately demonstrate that the costs incurred were incremental and beyond costs already included in BVESI’s revenue requirement. The proposed decision does permit BVESI to file a commercial building. Repairsnew application on the issue of incrementality should it wish to continue pursuing recovery. BVESI did file a response to the building have been delayed forproposed decision supporting BVESI's position. BVESI believes the storm costs were incremental and beyond what was included in its revenue requirement, and therefore, will plan on filing a variety of reasons, includingnew application to continue pursuing recovery. As a dispute and litigation between two of GSWC's insurance carriers regarding their respective coverage obligations, as well as questions as to the nature and extent of the building’s damage andresult, the costs associated therewith. The complaint filedin this CEMA account remain as a regulatory asset at March 31, 2021 as the Company continues to believe the incremental costs were properly tracked and included in the CEMA account consistent with the CPUC's well-established past practices. The CPUC requests, among other things, thatallows CEMA accounts to be established following a state/federal declared emergency, and are therefore recognized as regulatory assets for future recovery. However, if BVESI does not ultimately prevail in obtaining recovery, it will result in a charge to earnings for the CPUC investigate the main break, the damage to the commercial building and the delaywrite-off of its repairs, and order GSWC to complete repairs immediately. In September 2017, the CPUC dismissed the complaint on the grounds that the CPUC lacks jurisdiction to impose monetary damages for injuries to property, as requested by the third party, and the third party lacks standing with respect to the property as it is not the owner of the damaged property.

Previously, the owners of the commercial building filed suit in Ventura County Superior Court against GSWC for damages to the building. On September 11, 2017, the Ventura County Superior Court issued a statement of decision in favor of the plaintiffs, and awarded damages to the plaintiffs in the amount of $2.6 million.  In October 2017, the Court held a hearing and also awarded the plaintiffs attorneys’ fees in the amount of approximately $895,000.  GSWCthis CEMA regulatory asset totaling $455,000. Although BVESI believes it has sufficient insurance coverageprovided the necessary evidence to cover the judgment and attorney fees totaling $3.5 million entered by the Court insupport recovery of its requested incremental CEMA costs, at this lawsuit.  However, GSWCtime, management cannot predict the final outcome of the dispute and litigation between its insurers. At this time, GSWC does not believe the final outcome will materially affect GSWC's consolidated resultsmatter.

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Note 34 — Earnings per Share/Capital Stock
In accordance with the accounting guidance for participating securities and earnings per share (“EPS”), Registrant uses the “two-class” method of computing EPS. The “two-class” method is an earnings allocation formula that determines EPS for each class of common stock and participating security. AWR has participating securities related to restricted stock units that earn dividend equivalents on an equal basis with AWR’s Common Shares, and that have been issued under AWR's Stock Incentive Plansstock incentive plans for employees and the Non-Employee Directors Stock Plans.non-employee directors stock plans.  In applying the “two-class” method, undistributed earnings are allocated to both common shares and participating securities.
The following is a reconciliation of Registrant’s net income and weighted average Common Shares outstanding used for calculating basic net income per share:
Basic:For The Three Months Ended March 31,
(in thousands, except per share amounts)20212020
Net income$19,268 $14,072 
Less: (a) Distributed earnings to common shareholders12,361 11,242 
Distributed earnings to participating securities37 37 
Undistributed earnings6,870 2,793 
          (b) Undistributed earnings allocated to common shareholders6,850 2,784 
Undistributed earnings allocated to participating securities20 9 
Total income available to common shareholders, basic (a)+(b)$19,211 $14,026 
Weighted average Common Shares outstanding, basic36,898 36,860 
Basic earnings per Common Share$0.52 $0.38 
Basic: For The Three Months Ended September 30,  For The Nine Months Ended 
 September 30,
(in thousands, except per share amounts) 2017 2016 2017 2016
Net income $21,006
 $21,639
 56,499
 48,531
Less: (a) Distributed earnings to common shareholders 9,349
 8,189
 27,064
 24,558
Distributed earnings to participating securities 50
 48
 139
 141
Undistributed earnings 11,607
 13,402
 29,296
 23,832
         
(b) Undistributed earnings allocated to common shareholders 11,546
 13,323
 29,147
 23,696
Undistributed earnings allocated to participating securities 61
 79
 149
 136
         
Total income available to common shareholders, basic (a)+(b) $20,895
 $21,512
 $56,211
 $48,254
         
Weighted average Common Shares outstanding, basic 36,659
 36,561
 36,625
 36,546
         
Basic earnings per Common Share $0.57
 $0.59
 $1.53
 $1.32

Diluted EPS is based upon the weighted average number of Common Shares, including both outstanding shares and shares potentially issuable in connection with stock options and restricted stock units granted under AWR’s Stock Incentive Plansstock incentive plans for employees and the Non-Employee Directors Stock Plans,non-employee directors stock plans, and net income. There were 0 options outstanding as of March 31, 2021 and 2020 under these plans. At September 30, 2017March 31, 2021 and 2016,2020, there were 70,702120,973 and 138,060 options outstanding, respectively, under these Plans. At September 30, 2017 and 2016, there were also 195,457 and 216,733129,637 restricted stock units outstanding, respectively, including performance shares awarded to officers of the Registrant.

The following is a reconciliation of Registrant’s net income and weighted average Common Shares outstanding for calculating diluted net income per share:
Diluted: For The Three Months Ended September 30,  For The Nine Months Ended 
 September 30,
(in thousands, except per share amounts) 2017 2016 2017 2016
Common shareholders earnings, basic $20,895
 $21,512
 $56,211
 $48,254
Undistributed earnings for dilutive stock-based awards 61
 79
 149
 136
Total common shareholders earnings, diluted $20,956
 $21,591
 $56,360
 $48,390
         
Weighted average common shares outstanding, basic 36,659
 36,561
 36,625
 36,546
Stock-based compensation (1) 197
 201
 188
 197
Weighted average common shares outstanding, diluted 36,856
 36,762
 36,813
 36,743
         
Diluted earnings per Common Share $0.57
 $0.59
 $1.53
 $1.32
Diluted:For The Three Months Ended March 31,
(in thousands, except per share amounts)20212020
Common shareholders earnings, basic$19,211 $14,026 
Undistributed earnings for dilutive stock-based awards20 9 
Total common shareholders earnings, diluted$19,231 $14,035 
Weighted average common shares outstanding, basic36,898 36,860 
Stock-based compensation (1)95 109 
Weighted average common shares outstanding, diluted36,993 36,969 
Diluted earnings per Common Share$0.52 $0.38 
(1)       In applying the treasury stock method of reflecting the dilutive effect of outstanding stock-based compensation in the calculation of diluted EPS, 70,702 and 138,060 stock options at September 30, 2017 and 2016, respectively, were deemed to be outstanding in accordance with accounting guidance on earnings per share.  All of the 195,457120,973 and 216,733129,637 restricted stock units at September 30, 2017March 31, 2021 and 2016,2020, respectively, were included in the calculation of diluted EPS for the three and ninemonths ended September 30, 2017March 31, 2021 and 2016.2020.
NoDuring the three months ended March 31, 2021, AWR issued 23,914 related to restricted stock units. During the three months ended March 31, 2020, AWR issued 37,157 common shares related to restricted stock units and stock options outstanding at September 30, 2017 had an exercise price greater than the average market price of AWR’s Common Shares for the three and nine months ended September 30, 2017. There were no stock options outstanding at September 30, 2017 or 2016 that were anti-dilutive.
During the nine months ended September 30, 2017 and 2016, AWR issued 107,815 and 67,832 common shares, for approximately $884,000 and $210,000, respectively,$30,000, under Registrant’s Common Share Purchase and Dividend Reinvestment Plan, the 401(k) Plan, the 2000, 2008 and 2016 Stock Incentive Plans, and the 2003 and 2013 Non-Employee Directors Stock Plans.

stock incentive plans for employees.
During the three months ended September 30, 2017March 31, 2021 and 2016,2020, AWR paid $1.3 million and $1.8 million, respectively, to taxing authorities on employees' behalf for shares withheld related to net share settlements. During the three months ended March 31, 2021 and 2020, GSWC paid $1.2 million and $1.6 million, respectively, to taxing authorities on employees' behalf for
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shares withheld related to net share settlements. These payments are included in the stock-based compensation caption of the statements of equity.
During the three months ended March 31, 2021 and 2020, AWR paid quarterly dividends of approximately $9.3$12.4 million, or $0.255$0.335 per share, and $8.2$11.2 million, or $0.224$0.305 per share, respectively. During the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, GSWC paid dividends of $12.4 million and $11.3 million, respectively, to AWR paid quarterly dividends to shareholders of approximately $27.1 million, or $0.739 per share, and $24.6 million, or $0.672 per share, respectively.during these periods.

Note 45 — Derivative Instruments

Derivative financial instruments are used to manage exposure to commodity price risk. Commodity price risk represents the potential impact that can be caused by a change in the market value of a commodity. BVESBVESI purchases power under long-term contracts at a fixed cost depending on the amount of power and the period during which the power is purchased under such contracts.  In December 2014, the CPUC approved an application that allowed BVES to immediately execute new long-term purchasedThese contracts provide power contracts with energy providers. BVES began taking power under these long-term contracts effective January 1, 2015at a fixed cost over three-approximately three- and five-year terms.terms depending on the amount of power and period during which the power is purchased under the contracts.
The long-termThese purchase power contracts executed in December 2014 are subject to the accounting guidance for derivatives and require mark-to-market derivative accounting. Among other things, the CPUC also authorized GSWC to establishthe use of a regulatory asset and liability memorandum account to offset the mark-to-market entries required by the accounting guidance.  Accordingly, all unrealized gains and losses generated from the purchased power contracts executed in December 2014 are deferred on a monthly basis into a non-interest bearing regulatory memorandum account that tracks the changes in fair value of the derivative throughout the termterms of the contract.contracts. As a result, these unrealized gains and losses dodid not impact GSWC’sAWR’s earnings. As of September 30, 2017,March 31, 2021, there was a $3.8$1.2 million unrealized lossgain recorded as a regulatory liability in the memorandum account for the purchased power contracts as a result of a drop in energy prices.contracts. The notional volume of derivatives remaining under these long-term contracts as of September 30, 2017March 31, 2021 was approximately 245,000445,573 megawatt hours.

The accounting guidance for fair value measurements applies to all financial assets and financial liabilities that are measured and reported on a fair value basis. Under the accounting guidance, GSWC makesBVESI has made fair value measurements that are classified and disclosed in one of the following three categories:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
To value the contracts, Registrant applies the Black-76 model, utilizingutilizes various inputs that include quoted market prices for energy over the duration of the contracts. The market prices used to determine the fair value for this derivative instrument were estimated based on independent sources such as broker quotes and publications that are not observable in or corroborated by the market.  Registrant received one broker quote to determine the fair value of its derivative instruments.  When such inputs have a significant impact on the measurement of fair value, the instruments are categorized as Level 3. Accordingly, the valuation of the derivatives on Registrant’s purchased power contract has been classified as Level 3 for all periods presented.
The following table presents changes in the fair value of GSWC’sthe Level 3 derivatives for the three and nine months ended September 30, 2017March 31, 2021 and 2016:2020. The change in fair value was due to an increase in energy prices during the three months ended March 31, 2021.
For The Three Months Ended March 31,
(dollars in thousands)20212020
Fair value at beginning of the period$(1,537)$(3,171)
Unrealized gains (losses) on purchased power contracts2,761 (1,109)
Fair value at end of the period$1,224 $(4,280)
  For The Three Months Ended September 30,  For The Nine Months Ended 
 September 30,
(dollars in thousands) 2017 2016 2017 2016
Fair value at beginning of the period $(4,493) $(4,933) $(4,901) $(7,053)
Unrealized gain (loss) on purchased power contracts 656
 (648) 1,064
 1,472
Fair value at end of the period $(3,837) $(5,581) $(3,837) $(5,581)


Note 56 — Fair Value of Financial Instruments
For cash and cash equivalents, accounts receivable, accounts payable and short-term debt, the carrying amount is assumed to approximate fair value due to the short-term nature of these items.

Investments held in a Rabbi Trust for the supplemental executive retirement plan ("SERP") are measured at fair value and totaled $14.8$26.5 million as of September 30, 2017.March 31, 2021. All equity investments in the Rabbi Trust are Level 1 investments in mutual funds. The investments held in the Rabbi Trust are included in Other"Other Property and InvestmentsInvestments" on Registrant's balance sheets.

The table below estimates the fair value of long-term debt held by GSWC. The fair values as of September 30, 2017March 31, 2021 and December 31, 20162020 were determined using rates for similar financial instruments of the same duration utilizing Level 2 methods and assumptions. The interest rates used for the September 30, 2017 valuation decreased slightly as compared to December 31, 2016, increasing the fair value of long-term debt as of September 30, 2017. Changes in the assumptions will produce different results.
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 September 30, 2017 December 31, 2016March 31, 2021December 31, 2020
(dollars in thousands) Carrying Amount Fair Value Carrying Amount Fair Value(dollars in thousands)Carrying AmountFair ValueCarrying AmountFair Value
Financial liabilities:  
  
  
  
Financial liabilities:    
Long-term debt—GSWC (1)
 $325,275
 $423,841
 $325,582
 $423,124
Long-term debt—GSWC (1)
$444,172 $519,888 $444,271 $559,752 
___________________
(1) Excludes debt issuance costs and redemption premiums.


Note 67 — Income Taxes
AWR's consolidated effective income tax rate (“ETR”) was 37.3%23.5% and 37.0%21.7% for the three months ended September 30, 2017March 31, 2021 and 2016, respectively, and was 37.3% and 37.1% for the nine months ended September 30, 2017 and 2016,2020, respectively. AWR’s ETR increased slightly during the three and nine months ended September 30, 2017 primarily due to the increase in GSWC's ETR. GSWC's ETR was 38.4%23.6% and 38.2%22.4% for the three months ended September 30, 2017March 31, 2021 and 2016, respectively,2020, respectively.
The AWR and was 38.6%GSWC effective tax rates differed from the federal corporate statutory tax rate of 21% primarily due to (i) state taxes; (ii) permanent differences, including the excess tax benefits from share-based payments, which were reflected in the income statements and 38.3% forresulted in a reduction to income tax expense during the ninethree months ended September 30, 2017March 31, 2021 and 2016, respectively. GSWC's ETR increased2020; (iii) the ongoing amortization of the excess deferred income tax liability; and also deviated from the statutory rate due to state tax and(iv) differences between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements (principally from plant, rate case,rate-case, and compensation-relatedcompensation related items).

As a regulated utility, GSWC treats certain temporary differences as flow-through adjustments in computing its income tax provisionexpense consistent with the income tax approach approved by the CPUC for ratemaking purposes.method used in its CPUC-jurisdiction ratemaking. Flow-through adjustmentsitems either increase or decrease tax expense in one period, with an offsetting decrease or increase occurring in another period. Giving effect to these temporary differences as flow-through adjustments typically results in a greater variance betweenand thus impact the ETR and the statutory federal income tax rate in any given period than would otherwise exist if GSWC were not required to account for its income taxes as a regulated enterprise.ETR.
Change in Accounting Guidance:
Effective January 1, 2017, Registrant adopted the new accounting standard addressing share-based payments (see Note 1). Under the new guidance, the tax effects related to share-based payments are required to be recorded through the income statement. Previously, tax benefits in excess of compensation cost ("windfalls") were recorded directly to equity and tax deficiencies ("shortfalls") were recorded to equity to the extent of any pool of windfall tax benefits from prior awards, with the remainder recognized in income tax expense. AWR and GSWC adopted the guidance effective January 1, 2017 and, therefore, all excess tax benefits resulting from share-based payments during the three and nine months ended September 30, 2017 were reflected in the income statements. For the three months ended September 30, 2017, this change reduced income tax expense by approximately $279,000 and $288,000 for AWR and GSWC, respectively. For the nine months ended September 30, 2017, the reduction to income tax expense was approximately $1,019,000 and $989,000 for AWR and GSWC, respectively.



Note 78 — Employee Benefit Plans
The components of net periodic benefit costs before allocation to the overhead pool, for Registrant’s pension plan, postretirement medical benefit plan, and SERP for the three and nine months ended September 30, 2017March 31, 2021 and 20162020 were as follows:
For The Three Months Ended March 31,
 Pension BenefitsOther
Postretirement
Benefits		SERP
(dollars in thousands)202120202021202020212020
Components of Net Periodic Benefits Cost:      
Service cost$1,625 $1,408 $40 $47 $348 $244 
Interest cost1,712 1,954 31 56 229 247 
Expected return on plan assets(3,134)(2,950)(134)(127)0 0 
Amortization of prior service cost109 109 0 0 0 0 
Amortization of actuarial (gain) loss993 442 (287)(199)419 211 
Net periodic benefits costs under accounting standards1,305 963 (350)(223)996 702 
Regulatory adjustment - deferred(351)(93)0 0 0 0 
Total expense (benefit) recognized, before surcharges and allocation to overhead pool$954 $870 $(350)$(223)$996 $702 
For the pension plan obligation, Registrant used a discount rate of 2.55% as of December 31, 2020 to determine the projected benefit obligation (“PBO”) of $272.8 million. Discount rates as of March 31, 2021 are approximately 65-basis points higher than those used as follows:
  For The Three Months Ended September 30,
  Pension Benefits 
Other
Postretirement
Benefits
 SERP
(dollars in thousands) 2017 2016 2017 2016 2017 2016
Components of Net Periodic Benefits Cost:  
  
  
  
  
  
Service cost $1,250
 $1,274
 $53
 $68
 $232
 $200
Interest cost 1,976
 1,978
 73
 97
 223
 186
Expected return on plan assets (2,428) (2,457) (107) (122) —
 —
Amortization of prior service cost (benefit) —
 12
 —
 (9) 3
 6
Amortization of actuarial (gain) loss 231
 228
 (242) (150) 194
 73
Net periodic pension cost under accounting standards 1,029
 1,035
 (223) (116) 652
 465
Regulatory adjustment — deferred 266
 221
 —
 —
 —
 —
Total expense recognized, before surcharges and allocation to overhead pool $1,295
 $1,256
 $(223) $(116) $652
 $465

   For The Nine Months Ended September 30,
  Pension Benefits 
Other
Postretirement
Benefits
 SERP
(dollars in thousands) 2017 2016 2017 2016 2017 2016
Components of Net Periodic Benefits Cost:  
  
  
  
  
  
Service cost $3,750
 $3,822
 $171
 $204
 $696
 $600
Interest cost 5,928
 5,934
 243
 291
 669
 558
Expected return on plan assets (7,278) (7,377) (351) (366) —
 —
Amortization of prior service cost (benefit) —
 36
 —
 (27) 9
 18
Amortization of actuarial (gain) loss 693
 684
 (582) (450) 582
 219
Net periodic pension cost under accounting standards 3,093
 3,099
 (519) (348) 1,956
 1,395
Regulatory adjustment — deferred 791
 644
 —
 —
 —
 —
Total expense recognized, before surcharges and allocation to overhead pool $3,884
 $3,743
 $(519) $(348) $1,956
 $1,395
of December 31, 2020 based on recent changes in market interest-rate conditions. A 65-basis point increase in the assumed discount rate would have decreased the PBO as of December 31, 2020 by approximately 10% or $27.3 million. In 2021, Registrant contributed $6.5expects to contribute approximately $3.6 million to its pension plan during the nine months ended September 30, 2017.plan.
Regulatory Adjustment:
As authorized by the CPUC in the most recent water and electric general rate case decisions, GSWC utilizesand BVESI each utilize two-way balancing accounts for its water and electric regions and the general office to track differences between the forecasted annual pension expenses in rates, or expected to be in rates, and the actual annual expense recorded by GSWC in accordance with the accounting guidance for pension costs.  During the three months ended March 31, 2021 and 2020, GSWC's actual pension expense was higher than the amounts included in water customer rates by $351,000 and $93,000, respectively. BVESI's actual expense was lower than the amounts included in electric customer rates for all periods presented. As of September 30, 2017,March 31, 2021, GSWC and BVESI had a total of $1.1 million over-collectionover-collections in thetheir two-way pension balancing accounts of $665,000 and $256,000, respectively, included as part of the pension regulatory asset (Note 2).

Note 8 — Contingencies and Gain on Sale of Assets

Condemnation of Properties:
The laws of the State of California provide for the acquisition of public utility property by governmental agencies through their power of eminent domain, also known as condemnation, where doing so is necessary and in the public interest. In addition, these laws provide that the owner of utility property (i) may contest whether the condemnation is necessary and in the public interest, and (ii) is entitled to receive the fair market value of its property if the property is ultimately taken.

Claremont System:
In December 2014, the City of Claremont, California (“Claremont”) filed an eminent-domain action against GSWC to condemn GSWC's Claremont water system.  In December 2016, the County of Los Angeles Superior Court (the “Court”) issued a decision rejecting Claremont’s attempt to take over GSWC’s Claremont water system. In February 2017, the Court further ordered that GSWC was entitled to recover $7.6 million (“Judgment Amount”) of its litigation expenses and related defense costs from Claremont. During the first quarter of 2017, Claremont appealed both decisions. 
In October 2017, GSWC and Claremont entered into a settlement agreement whereby Claremont agreed to drop its appeals and to pay $2.0 million on or before December 31, 2017 to GSWC as partial satisfaction of the Judgment Amount plus interest accrued through the end of 2017. Upon receipt of the $2.0 million, which is expected during the fourth quarter of 2017 pursuant to the settlement agreement, GSWC will reflect this $2.0 million payment as a reduction to operating expenses. Furthermore, quarterly interest-only payments calculated on the unpaid Judgment Amount of $5.9 million are to be made by Claremont to GSWC over the next 12 years. If Claremont (i) makes its initial payment of $2.0 million and all of the quarterly payments as required, and (ii) does not take formal action to condemn GSWC's Claremont water system before December 31, 2029, GSWC will waive payment of the unpaid Judgment Amount. However, if Claremont were to take formal action within the next 12 years or miss any of the required payments specified in the settlement agreement, the unpaid Judgment Amount and any unpaid accrued interest would immediately become due and payable. At this time, GSWC is unable to predict the actions that Claremont will take over the next 12 years. GSWC serves approximately 11,000 customers in Claremont.

Ojai Water System and Gain on Sale of Assets:
On April 12, 2017, the Board of Directors of Casitas Municipal Water District (“Casitas”) approved a settlement agreement with GSWC, and a group of citizens referred to as Ojai Friends of Locally Owned Water (“Ojai FLOW”), to resolve the eminent domain action and other litigation brought by Casitas and Ojai FLOW against GSWC. In accordance with the terms of the settlement agreement, on June 8, 2017 Casitas acquired the operating assets of GSWC’s 2,900-connection Ojai water system by eminent domain for $34.3 million in cash, including payments for customer receivables and regulatory assets and Casitas and Ojai FLOW dismissed all claims against GSWC. As a resultliabilities (Note 3).
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Table of this transaction, GSWC recorded a pretax gain of $8.3 million on the sale of the Ojai water system during the second quarter of 2017. The proceeds received from this transaction were used to repay a portion of GSWC’s short-term borrowings. On June 8, 2017, the closing date of the transaction, the assets and liabilities related to the Ojai water system acquired and assumed by Casitas were as follows:
Contents
Assets and Liabilities Sold:  
(dollars in thousands) As of June 8, 2017
   
Net utility plant, including construction work in progress $22,256
Accounts receivable 721
Regulatory assets 3,944
Assets sold $26,921
   
Advances for construction $(366)
Contributions in aid of construction — net (532)
Liabilities directly associated with assets sold $(898)
Note 9 — Contingencies

Environmental Clean-Up and Remediation:
GSWC has been involved in environmental remediation and cleanup at aone of its plant site ("Chadron Plant")sites that contained an underground storage tank which was used to store gasoline for its vehicles. This tank was removed from the ground in July 1990 along with the dispenser and ancillary piping. Since then, GSWC has been involved in various remediation activities at this site.  Analysis indicates that off-site monitoring wells may be necessary to document effectiveness of remediation.
As of September 30, 2017,March 31, 2021, the total amount spent to clean-upclean up and remediate GSWC’s plant facility was approximately $5.2$6.4 million, of which $1.5 million has been paid by the State of California Underground Storage Tank Fund. Amounts paid by GSWC have been included in rate base and approved by the CPUC for recovery. As of September 30, 2017,March 31, 2021, GSWC has a regulatory asset and an accrued liability for the estimated additional cost of $1.4$1.3 million to complete the cleanup at the site. The estimate includes costs for two years of continued activities of groundwater cleanup and monitoring, future soil treatment and site-closure-related activities. The ultimate cost may vary as there are many unknowns in remediation of underground gasoline spills and this is an estimate based on currently available information. Management also believes it is probable that the estimated additional costs will continue to be approved in rate base by the CPUC.

Other Litigation:
Registrant is also subject to other ordinary routine litigation incidental to its business, some of which may include claims for compensatory and punitive damages. Management believes that rate recovery, proper insurance coverage and reserves are in place to insure against, among other things, property, general liability, employment, and workers’ compensation claims incurred in the ordinary course of business. Insurance coverage may not cover certain claims involving punitive damages. However, Registrant does not believe the outcome from any pending suits or administrative proceedings will have a material effect on Registrant's consolidated results of operations, financial position, or cash flows.

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Note 910 — Business Segments
AWR has three3 reportable segments,segments: water, electric and contracted services, whereasservices. Prior to July 1, 2020, GSWC has twohad 2 segments, water and electric. On July 1, 2020, GSWC completed the transfer of the electric utility assets and liabilities from its electric division to BVESI, a separate legal entity and now a wholly owned subsidiary of AWR (Note 11). On a stand-alone basis, AWR has no material assets other than its equity investments in its subsidiaries. 
subsidiaries, note payables to its subsidiaries and deferred taxes. 
All activities of GSWC a rate-regulated utility,and BVESI are geographically located within California. Activities of ASUS and its subsidiaries are conducted in California, Florida, Georgia, Florida,Kansas, Maryland, New Mexico, North Carolina, South Carolina, Texas and Virginia.  In September 2017, ASUS was awarded a new 50-year contract by the U.S. government for water and wastewater operations at Fort Riley located in Kansas. ASUS will assume operations at Fort Riley following the completion of a six-to-twelve-month transition period.  Each of ASUS’s wholly owned subsidiaries is regulated, if applicable, by the state in which the subsidiary primarily conducts water and/or wastewater operations.  Fees charged for operations and maintenance and renewal and replacement services are based upon the terms of the contracts with the U.S. government, which have been filed, as appropriate, with the commissions in the states in which ASUS’s subsidiaries are incorporated.
The tables below set forth information relating to GSWC’sAWR’s operating segments ASUS and its subsidiaries and other matters. Total assets by segment are not presented below, as certain of Registrant’s assets are not tracked by segment.AWR Parent. The utility plant amounts are net of respective accumulated provisions for depreciation. Capital additions reflect capital expenditures paid in cash, and excludeexcluding U.S. government- and third-party contractor-funded capital expenditures for ASUS and property installed by developers and conveyed to GSWC.GSWC or BVESI.
 As Of And For The Three Months Ended March 31, 2021
 ContractedAWRConsolidated
(dollars in thousands)WaterElectric ServicesParentAWR
Operating revenues$75,029 $11,539 $30,492 $0 $117,060 
Operating income (loss)21,059 3,448 5,824 (2)30,329 
Interest expense, net5,711 86 (229)235 5,803 
Net property, plant and equipment1,426,175 94,346 21,902 0 1,542,423 
Depreciation and amortization expense (1)8,062 639 859 0 9,560 
Income tax expense (benefit)3,768 884 1,391 (129)5,914 
Capital additions31,824 4,782 487 0 37,093 
 As Of And For The Three Months Ended September 30, 2017 As Of And For The Three Months Ended March 31, 2020
 GSWC   AWR Consolidated ContractedAWRConsolidated
(dollars in thousands) Water Electric ASUS Parent AWR(dollars in thousands)WaterElectricServicesParentAWR
Operating revenues $91,919
 $7,994
 $24,505
 $—
 $124,418
Operating revenues$71,424 $10,968 $26,685 $0 $109,077 
Operating income (loss) 31,473
 1,595
 5,502
 (3) 38,567
Operating income (loss)18,605 3,487 3,609 (2)25,699 
Interest expense, net 4,974
 346
 58
 76
 5,454
Interest expense, net5,133 326 (77)110 5,492 
Utility plant 1,117,674
 57,669
 6,273
 —
 1,181,616
Net property, plant and equipmentNet property, plant and equipment1,336,012 74,745 21,640 0 1,432,397 
Depreciation and amortization expense (1) 8,972
 537
 345
 —
 9,854
Depreciation and amortization expense (1)7,422 607 782 0 8,811 
Income tax expense (benefit) 10,544
 269
 1,944
 (249) 12,508
Income tax expense (benefit)2,378 850 748 (75)3,901 
Capital additions 30,536
 559
 905
 —
 32,000
Capital additions28,459 3,554 1,531 0 33,544 

  As Of And For The Three Months Ended September 30, 2016
  GSWC   AWR Consolidated
(dollars in thousands) Water Electric ASUS Parent AWR
Operating revenues $90,617
 $8,146
 $25,043
 $—
 $123,806
Operating income (loss) 32,642
 1,500
 5,487
 (12) 39,617
Interest expense, net 5,145
 328
 12
 39
 5,524
Utility plant 1,068,048
 54,880
 5,660
 —
 1,128,588
Depreciation and amortization expense (1) 8,734
 506
 246
 —
 9,486
Income tax expense (benefit) 10,575
 466
 1,951
 (284) 12,708
Capital additions 32,655
 1,290
 628
 —
 34,573


  As Of And For The Nine Months Ended September 30, 2017
  GSWC   AWR Consolidated
(dollars in thousands) Water Electric ASUS Parent AWR
Operating revenues $239,057
 $26,108
 $71,258
 $—
 $336,423
Operating income (loss) 84,289
 5,935
 14,907
 (10) 105,121
Interest expense, net 14,924
 1,071
 214
 197
 16,406
Utility plant 1,117,674
 57,669
 6,273
 —
 1,181,616
Depreciation and amortization expense (1) 26,731
 1,610
 843
 —
 29,184
Income tax expense (benefit) 27,739
 1,496
 5,152
 (717) 33,670
Capital additions 74,113
 2,260
 1,523
 —
 77,896

  As Of And For The Nine Months Ended September 30, 2016
  GSWC   AWR Consolidated
(dollars in thousands) Water Electric ASUS Parent AWR
Operating revenues $237,987
 $26,420
 $64,880
 $—
 $329,287
Operating income (loss) 76,502
 4,840
 11,298
 (16) 92,624
Interest expense, net 15,272
 997
 29
 90
 16,388
Utility plant 1,068,048
 54,880
 5,660
 —
 1,128,588
Depreciation and amortization expense (1) 26,597
 1,520
 761
 —
 28,878
Income tax expense (benefit) 23,528
 1,675
 4,029
 (655) 28,577
Capital additions 93,189
 4,972
 1,746
 —
 99,907
(1)Depreciation computed on GSWC’s and BVESI's transportation equipment is recorded in other operating expenses and totaled $61,000$95,000 and $68,000$82,000 for the three months ended September 30, 2017March 31, 2021 and 2016, respectively, and $181,000 and $202,000 for the nine months ended September 30, 2017 and 2016,2020, respectively.


The following table reconciles total utilitynet property, plant and equipment (a key figure for ratemaking) to total consolidated assets (in thousands):
  September 30,
  2017 2016
Total utility plant $1,181,616
 $1,128,588
Other assets 304,870
 311,798
Total consolidated assets $1,486,486
 $1,440,386
 March 31,
 20212020
Total net property, plant and equipment1,542,423 $1,432,397 
Other assets250,398 228,492 
Total consolidated assets$1,792,821 $1,660,889 
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Note 11 - Completion of Electric Utility Reorganization Plan
On July 1, 2020, GSWC completed the transfer of approximately $71.3 million in net assets and equity (based on their recorded amounts) from its electric utility division to BVESI in exchange for common shares of BVESI of equal value. This was a non-cash transaction, and 0 gain or loss was recognized. GSWC then immediately distributed all of BVESI's common shares to AWR, whereupon BVESI became wholly owned directly by AWR. The reorganization did not result in any substantive changes to AWR's operations or business segments. In addition, pursuant to federal and state tax law, the exchange and distribution qualify as a tax-free reorganization; consequently, 0 income tax liability was triggered for the AWR consolidated group or any of its members.
The transfer between GSWC and BVESI, both wholly owned subsidiaries of AWR, was considered a common control transaction. Although the electric utility division was considered a separate business segment and component of GSWC, the transfer did not qualify as a discontinued operation based on management's assessment of the applicable accounting guidance. As a result of this transfer, from July 1, 2020 onward, operating results and cash flows of the electric segment, as well as its assets and liabilities, are no longer included in GSWC's financial statements, but continue to be included in AWR's consolidated financial statements. GSWC's statements of income and cash flows for the three months ended March 31, 2020 include the electric segment's results.
The table below sets forth selected information relating to the electric segment's results of operations for the three months ended March 31, 2021 and 2020, and its cash flows for the three months ended March 31, 2021 (in thousands):
Three months ended March 31,
20212020
(Subsidiary of AWR)(Division of GSWC)
Electric revenues$11,539 $10,968 
Operating expenses8,091 7,482 
   Operating income$3,448 $3,486 
Net income$2,523 $2,346 

Three Months Ended March 31, 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)
1,795 
Net change in cash and cash equivalents(184)
Cash and cash equivalents, beginning of period367
Cash and cash equivalents, end of period$183 

(1)    Effective July 1, 2020, BVESI has a 3-year, $35 million revolving credit facility agreement.As of March 31, 2021, there was $22.0 million outstanding under this facility. Under the terms of the credit agreement, BVESI has the option to request an increase in the facility by an additional $15.0 million.




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Note 12 - Subsequent Event
GSWC's 9.56% private placement notes issued in the amount of $28.0 million and due in 2031 can be redeemed, in whole or in part, at the option of GSWC subject to redemption schedules embedded in the agreement. The 9.56% notes are subject to a make-whole premium based on 55 basis points above the applicable Treasury Yield if redeemed prior to May 15, 2021. After May 15, 2021, the maximum redemption premium is 3.0% of par value. On April 23, 2021, GSWC notified the note holders of its intent to redeem the notes on May 24, 2021. Pursuant to the agreement, the prepayment of the notes will include the redemption premium of 3.0% on par value, or $840,000. GSWC recovers redemption premiums in its embedded cost of debt as filed in cost of capital proceedings where the cost savings from redeeming high interest rate debt are passed on to customers.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General
The following discussion and analysis provides information on AWR’s consolidated operations and assets, and where necessary, includes specific references to AWR’s individual segments and/orand its subsidiaries: GSWCsubsidiaries (GSWC, BVESI, and ASUS and its subsidiaries.  subsidiaries), and AWR (parent) where applicable. 
Included in the following analysis is a discussion of water and electric gross margins.  Water and electric gross margins are computed by subtracting total supply costs from total revenues.  Registrant uses these gross margins as important measures in evaluating its operating results.  Registrant believes these measures are useful internal benchmarks in evaluating the performance of GSWC.
GSWC and BVESI. The discussions and tables included in the following analysis also present Registrant’s operations in terms of earnings per share by business segment.  segment, which equals each business segment’s earnings divided by Registrant’s weighted average number of diluted common shares. Furthermore, the losses incurred during the first quarter of 2020 on the investments held to fund one of the Company's retirement plans resulting from the negative effects on the financial markets at the start of the COVID-19 pandemic have been excluded when communicating the results to help facilitate comparisons of the Company’s performance from period to period. All of these items are derived from consolidated financial information but are not presented in our financial statements that are prepared in accordance with Generally Accepted Accounting Principles (GAAP) in the United States. These items constitute "non-GAAP financial measures" under the Securities and Exchange Commission rules.
Registrant believes that the disclosuredisclosures of the water and electric gross margins, and earnings per share by business segment providesprovide investors with clarity surrounding the performance of its different services.segments.  Registrant reviews these measurements regularly and compares them to historical periods and to its operating budget. TheseHowever, these measures, which are not presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"),GAAP, may not be comparable to similarly titled measures used by other entities and should not be considered as an alternative to operating income or earnings per share, which are determined in accordance with GAAP. A reconciliation of water and electric gross margins to the most directly comparable GAAP measures is included in the table under the section titled “Operating Expenses: Supply Costs.”  Reconciliations  A reconciliation to AWR’s diluted earnings per share areis included in the discussionsdiscussion under the sections titled “Summary of ThirdFirst Quarter Results by SegmentSegment.” and “Summary of Year-to-Date Results by Segment.”

Overview
Factors affecting our financial performance are summarized under Forward-Looking Information.“Risk Factors” in our Form 10-K for the period ended December 31, 2020 filed with the SEC.
Water and Electric Segments:
GSWC's and BVESI's revenues, operating income, and cash flows have been earned primarily through delivering potable water to homes and businesses in California and electricity in the City of Big Bear Lake and surrounding areas in San Bernardino County, California, respectively. Rates charged to GSWC and BVESI customers are determined by the CPUC. These rates are intended to allow recovery of operating costs and a reasonable rate of return on capital.  GSWC and BVESI plan to continue seeking additional rate increases in future years from the CPUC to recover operating and supply costs and receive reasonable returns on invested capital. Capital expenditures in future years at GSWC and BVESI are expected to remain at higher levels than depreciation expense. When necessary, GSWC and BVESI are able to obtain funds from external sources in the capital markets and through bank borrowings.
General Rate Case Filings and Other Matters:
Water GRC for years 2022 – 2024:
On July 15, 2020, GSWC filed a general rate case application for all of its water regions and its general office. This general rate case will determine new water rates for the years 2022 – 2024. Among other things, GSWC requested capital budgets in this application of approximately $450.6 million for the three-year rate cycle, and another $11.4 million of capital projects to be filed for revenue recovery only through advice letters when those projects are completed. A decision in the water general rate case is scheduled for the fourth quarter of 2021, with new rates to become effective January 1, 2022.
Water General Rate Case and Changes in Rates for 2016 and 2017years 2019 – 2021:
In December 2016,May 2019, the CPUC issued a final decision inon GSWC's water general rate case, which setsdetermined new rates for the years 2016 - 2018. The 20162019 – 2021 with rates approved by the CPUC in the decision were retroactive to January 1, 2016. Because2019. Among other things, the final decision authorized GSWC to invest approximately $334.5 million over the rate cycle. The $334.5 million of infrastructure investment included $20.4 million of capital projects to be filed for revenue recovery through advice letters when those projects are completed. Due to changes in circumstances, not all the anticipated advice letter projects have been completed during this rate cycle.
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The final decision also allowed for water gross margin increases in 2020 and 2021, subject to an earnings test. The full step increase generated an additional $10.4 million in water gross margin for 2020. Effective January 1, 2021,the CPUC approved all third-year rate increases, which GSWC achieved because of passing an earnings test at all of its ratemaking areas, and are expected to generate an additional increase in the water gross margin of approximately $11.1 million in 2021 as compared to 2020.
Final Decision on the First Phase of the delay in issuing a decision,Low-Income Affordability Rulemaking: 
On August 27, 2020, the CPUC ordered GSWC to bypass implementing 2016 rates and to implement 2017 rates after the correction of minor rate calculations in the December 2016 decision. The CPUC issued a final decision in March 2017 with the correctedfirst phase of the CPUC’s Order Instituting Rulemaking evaluating the low income ratepayer assistance and affordability objectives contained in the CPUC’s 2010 Water Action Plan. This decision also addressed other issues, including the continued use of the Water Revenue Adjustment Mechanism ("WRAM") and the Modified Cost Balancing Account ("MCBA"). The MCBA is a full-cost balancing account used to track the difference between adopted and actual water supply costs (including the effects of changes in both rates and volume). Based on the final decision, any general rate calculations. case application filed by GSWC and the other California water utilities after August 27, 2020 may not include a proposal to continue the use of the WRAM or MCBA, but may instead include a proposal to use a limited price adjustment mechanism and an incremental supply cost balancing account.
The revenue shortfallfinal decision will not have any impact on GSWC's WRAM or MCBA balances during the current rate cycle (2019 – 2021). Furthermore, in February 2021, a procedural hearing in the pending general rate case application that will set new rates for the years 2022 – 2024 was held, and the assigned administrative law judge in the proceeding clarified that GSWC is allowed to continue using the WRAM and MCBA through the year 2024. GSWC’s next general rate case application will be filed in 2023 to establish new rates for the years 2025 – 2027 and may not include the WRAM or MCBA for those years.
Since its implementation in 2008, the WRAM and MCBA have helped mitigate fluctuations in GSWC’s earnings due to differences between the actual rates chargedchanges in 2016 and early 2017 while the decision was still pending, and the rates adoptedwater consumption by its customers or changes in water supply mix. Replacing them with mechanisms recommended in the final decision are being recovered through a rate surcharge. The new 2017 rates, which are effectivewill likely result in more volatility in GSWC’s future earnings and retroactive to January 1, 2017, were implementedcould result in April 2017. The new rates and adopted supply costs are expected to increase the adoptedless than or more than full recovery of its authorized water gross marginmargin. In October 2020, GSWC, the other California water utilities, and the California Water Association filed separate applications for rehearing on this matter. At this time, management cannot predict the outcome of this request for rehearing.
Cost of Capital Proceeding:
Investor-owned water utilities serving California are required to file their cost of capital applications on a triennial basis. GSWC, along with three other investor-owned water utilities in 2017 by approximately $3.3 million as compared to 2016, excluding the increase related to GSWC's Ojai water system, which was sold in June 2017 (see discussion below).
The water gross margin recorded through September 30, 2016 reflected GSWC's position in the then pending water general rate case, which assumedCalifornia, filed a joint request with the CPUC would adopt GSWC’s litigated positions in January 2021 to postpone the cost of capital applications from May 1, 2021 to May 1, 2022, and to keep the current authorized cost of capital parameters in effect through 2022. In February 2021, the CPUC denied the request. GSWC intends to file its entirety related tocost of capital expenditure requests and executive compensation. Theapplication with the CPUC on May 3, 2021 (end of business day). A final decision authorized 87% of GSWC’s capital requests in customer rates, and allowed only a portion of its executive incentive program. When the initial decision was issued in December 2016 with new rates retroactive to January 1, 2016, GSWC recorded a cumulative downward adjustment of $5.2 million to the water gross margin inon this proceeding is scheduled for the fourth quarter of 2016 related2021, with an effective date of January 1, 2022.
Electric Segment General Rate Case:
On August 15, 2019, the CPUC issued a final decision on the electric general rate case. Among other things, the decision (i) extended the rate cycle by one year to include 2022; (ii) increased the electric gross margin for 2018 by approximately $2.3 million compared to the first three quarters of 2016. Approximately $2.0 million of this amount would have lowered the water2017 adopted electric gross margin, duringadjusted for tax reform changes; (iii) allows the three months ended September 30, 2016 hadelectric segment to construct all the CPUC decision been issued on time.
Ojai Water System
On April 12, 2017, the Board of Directors of Casitas Municipal Water District (“Casitas”) approved a settlement agreement with GSWCcapital projects requested in its application, which are dedicated to improving system safety and a group of citizens referred to as Ojai Friends of Locally Owned Water (“Ojai FLOW”), to resolve the eminent domain actionreliability and other litigation brought by Casitas and Ojai FLOW against GSWC. In accordance with the terms of the settlement agreement, on June 8, 2017 Casitas acquired the operating assets of GSWC’s 2,900-connection Ojai water system by eminent domain for $34.3 million in cash, including payments for customer receivables and regulatory assets, and Casitas and Ojai FLOW dismissed all claims against GSWC. As a result of the transaction, GSWC recorded a pretax gain of $8.3 million, or $0.13 per share, on the sale of the Ojai water system during the second quarter of 2017. The proceeds received from this transaction were used to repay a portion of GSWC’s short-term borrowings. Management is evaluating the long-term use of these proceeds.
New Privatization Contract Award
On September 29, 2017, ASUS was awarded a new 50-year contract by the U.S. government to operate, maintain, and provide construction management services for the water distribution, and wastewater collection and treatment facilities at Fort Riley, a United States Army installation located in Kansas. The initial value of the contract istotal approximately $601$44 million over the 5-year rate cycle; and (iv) increased the adopted electric gross margin by $1.2 million for each of the years 2019 and 2020, by $1.1 million for 2021, and by $1.0 million for 2022. The rate increases for 2019 - 2022 are not subject to an earnings test. The decision authorized a return on equity for the electric segment of 9.6% and included a capital structure and debt cost that is consistent with those approved by the CPUC in March 2018 in connection with GSWC's water segment cost of capital proceeding. The rate case decision continues to apply to BVESI.
Contracted Services Segment:
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 at the water and/or wastewater systems at various military installations, pursuant to 50-year period andfirm fixed-price contracts. The contract price for each of these 50-year contracts is subject to annual economic price adjustments. This initialAdditional revenues generated by contract operations are primarily dependent on new construction activities under contract modifications with the U.S. government or agreements with other third-party prime contractors.
COVID-19:
GSWC, BVESI and ASUS have continued their operations given that their water, wastewater, and electric utility services are deemed essential. Our responses to the COVID-19 pandemic take into account orders issued by the CPUC, and the guidance provided by federal, state, and local health authorities and other government officials. The response of GSWC and BVESI continues to include: (i) suspending service disconnections for nonpayment pursuant to CPUC and state orders, and
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(ii) telecommuting by employees. In February 2021, the CPUC adopted a resolution that extended the existing emergency customer protections previously established by the CPUC through June 30, 2021, including the suspension of service disconnections for non-payment by electric utility customers in response to the on-going COVID-19 pandemic. For water utilities, the moratorium on service disconnections was implemented in response to an order by the governor of California, which we believe would require another action by the governor to cease the moratorium on service disconnections for our water customers. It is expected that the CPUC will work with the governor’s office to coordinate the lifting of the moratorium for water utility customers consistent with the electric customers. The CPUC's February resolution did extend the COVID-19-related memorandum accounts established by GSWC and by BVESI to track incremental costs associated with complying with the resolution. In addition, the resolution required utilities in California to file transition plans to address the eventual discontinuance of the emergency customer protections.The goal of the transition plan is to effectively ease customers through a transition off the emergency customer protections by proactively communicating with customers to enroll in programs to manage their utility bills and informing them of the changes to programs in which they are already enrolled. GSWC and BVESI filed their respective transition plans with the CPUC on April 1, 2021.
Initially and throughout 2020, the pandemic caused significant volatility in financial markets resulting in fluctuations in the fair value of plan assets in GSWC's pension and other retirement plans. Furthermore, due to expected future credit losses on utility customer bills, GSWC and BVESI have increased their allowance for doubtful accounts as of March 31, 2021. The CPUC has authorized GSWC and BVESI to track incremental costs, including bad debt expense in excess of what is also subject to adjustment based on

the results ofincluded in their respective revenue requirements, in COVID-19-related memorandum accounts, such as a joint inventory of assetsCatastrophic Event Memorandum Account ("CEMA") to be performed. ASUS will assume operations at Fort Riley followingfiled with the completionCPUC for future recovery. Through March 31, 2021, AWR has recorded approximately $5.7 million in these COVID-19-related memorandum accounts related to bad debt expense in excess of a six-to-twelve-month transition period currently underway.GSWC’s and BVESI's revenue requirement, personal protective equipment, printing costs and other incremental costs. By tracking these costs in memorandum accounts, utilities can later request authorization from the CPUC for recovery of these costs. GSWC's COVID-19 memorandum account is being addressed in its pending water general rate case, while BVESI intends to include the memorandum account for recovery in its next general rate case application expected to be filed in 2022.

26
Eglin Air Force Base (“Eglin”)
On June 15, 2017, ASUS assumed operations
Table of the water and wastewater systems at Eglin in Florida after completing a transition period and a detailed joint inventory study. The value of the 50-year contract is approximately $702 million. The contract is subject to annual economic price adjustments.Contents

Summary of ThirdFirst Quarter Results by Segment
The table below sets forth the thirdfirst quarter diluted earnings per share by business segment:
 Diluted Earnings per Share Diluted Earnings per Share
 Three Months Ended   Three Months Ended 
 9/30/2017 9/30/2016 CHANGE 3/31/20213/31/2020CHANGE
Water $0.44
 $0.47
 $(0.03)Water$0.33 $0.24 $0.09 
Electric 0.03
 0.02
 0.01
Electric0.07 0.06 0.01 
Contracted services 0.10
 0.10
 —
Contracted services0.12 0.08 0.04 
Consolidated diluted earnings per share, as reported $0.57
 $0.59
 $(0.02)
Consolidated diluted earnings per shareConsolidated diluted earnings per share$0.52 $0.38 $0.14 
Water Segment:
For the three months ended September 30, 2017, dilutedDiluted earnings per share from the water utility segment decreasedfor the three months ended March 31, 2021 increased by $0.03 to $0.44$0.09 per share as compared to the same period in 2016. Impacting2020. Included in the quarter-over-quarter comparison was a decreaseresults for the first quarter of 2020 were losses totaling $2.4 million, or approximately $0.05 per share, incurred on investments held to fund one of the Company's retirement plans that resulted from the negative effects at the start of the COVID-19 pandemic early last year on the financial markets. Excluding this item from the results for the first quarter of 2020, diluted earnings for the first quarter of 2021 increased by $0.04 per share due to the following items (excluding the impact of billed surcharges, which have no effect on net earnings):
•An increase in the water gross margin of $2.0$2.5 million, or $0.03approximately $0.05 per share, thatas a result of new rates authorized by the CPUC. Effective January 1, 2021, GSWC received its full third-year step increase, which it achieved as a result of passing an earnings test.  The full step increase is expected to generate an additional $11.1 million in water gross margin for 2021.  
•An overall increase in operating expenses (excluding supply costs), which negatively impacted earnings by $0.01 per share mainly due to increases in depreciation expense and property and other non-income taxes, partially offset by a decrease in maintenance expense.
An increase in interest expense (net of interest income) was not reflectedmostly offset by an overall increase in other income primarily from gains earned during the resultsfirst quarter of 2021 on investments held to fund one of the Company's retirement plans.
Electric Segment:
Diluted earnings per share from the electric utility segment for the three months ended September 30, 2016March 31, 2021 increased $0.01 per share due to an increase in the delayelectric gross margin resulting from higher customer rates for 2021 approved by the CPUC in issuingAugust 2019, and a decision on the water general rate case, as previously discussed. In addition, surcharges were implementeddecrease in 2017 to recover previously incurred costs approved by the CPUC as part of the final decision on the water general rate case issued in March 2017.  An increase in revenues and water gross margin totaling $1.9 million from these surcharges was offset by a corresponding increase in operating expenses (primarily administrative and general) resulting in no impact to earnings for the three months ended September 30, 2017.
Excluding the impact of the items discussed above, diluted earnings from the water segment for the quarter were unchangedinterest expense as compared to the same period in 2016. There was an overall decrease in operating expenses (excluding supply costs) resulting mainly from lower maintenance costs as well as lower legal expenses related to condemnation matters as compared to the same period in 2016. There was also CPUC-approved second year rate increases effective January 1, 2017. These increases to earnings were mostly offset by lower water earnings as a result of the cessation of Ojai operations in June 2017, as well as a higher effective income tax rate as compared to the third quarter of 2016.
Electric Segment:
Forthe three months ended September 30, 2017, diluted earnings from the electric segment increased by $0.01 per share as compared to the same period in 2016 due primarily to a lower effective income tax rate resulting from differences between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements (primarily related to plant, rate case and compensation-related items). Flow-through adjustments increase or decrease tax expense in one period, with an offsetting decrease or increase in another period.
In March 2016, the CPUC issued a decision granting a request filed by GSWC to defer the next general rate case filing of its Bear Valley Electric Service ("BVES") division by one year. GSWC filed this general rate case in May 2017 for rates in years 2018 through 2021. Adopted base revenues for 2017 are based on 2016 adopted base revenues, adjusted for a change in the general office allocation as stipulated in the CPUC's final decision on the water general rate case.2020.
Contracted Services Segment:
For the three months ended September 30, 2017 and 2016,March 31, 2021, diluted earnings per share from the contracted services segment were $0.10 per share. There was an increase in management fee revenue for the third quarter of 2017 due to the successful resolution of various price adjustments and asset transfers during 2016 and 2017, and the revenue generated from Eglin since assuming the operation of its water and wastewater systems on June 15, 2017. This increase in management fee revenue was offset by lower construction activity and higher operating expenses as compared to the third quarter of 2016.

Summary of Year-to-Date Results by Segment
The table below sets forth the year-to-date diluted earnings per share by business segment:
  Diluted Earnings per Share
  Nine Months Ended  
  9/30/2017 9/30/2016 CHANGE
Water $1.17
 $1.04
 $0.13
Electric 0.09
 0.06
 0.03
Contracted services 0.26
 0.20
 0.06
AWR (parent) 0.01
 0.02
 (0.01)
Consolidated diluted earnings per share, as reported $1.53
 $1.32
 $0.21
Water Segment:
For the nine months ended September 30, 2017, diluted earnings per share from the water segment increased by $0.13 to $1.17$0.12 per share as compared to the same period in 2016 due, in large part, to the recognition of a pretax gain of $8.3 million, or $0.13 per share, on the sale of GSWC's Ojai water system in June 2017. Furthermore, the following two items related to other periods impacted the comparability of the results for the nine months ended September 30, 2017 and 2016 which, when netted, negatively impacted the reported results through September 30, 2017 compared to 2016 by approximately $3.7 million, or $0.06 per share:
A decrease in the water gross margin of $5.2 million, or $0.08 per share, was not reflected in the results for the nine months ended September 30, 2016 due to the delay by the CPUC in issuing a decision on the water general rate case. When the decision was issued in December 2016 with new rates retroactive to January 1, 2016, a cumulative downward adjustment of $5.2 million was recorded to the water gross margin in the fourth quarter of 2016, which related to the first three quarters of 2016.
In February 2017, the CPUC approved recovery of incremental costs related to California's drought state of emergency, which were previously expensed. As a result of this approval, during the nine months ended September 30, 2017 GSWC recorded a regulatory asset and a corresponding increase to pretax earnings of $1.5 million, or $0.02 per share, of which $1.2 million was reflected as a reduction to other operation expenses and approximately $260,000 as additional revenue.
Excluding the impact of the items discussed above and a $3.1 million increase in billed surcharges which have no impact to earnings, diluted earnings from the water segment for the nine months ended September 30, 2017 increased by $0.06 per share as compared to the same period in 2016. The following items impacted the comparability between the two periods:
A decrease in operating expenses (excluding supply costs) of $3.2 million, or $0.05 per share, due mostly to lower legal expenses related to condemnation matters, as well as lower maintenance costs.
An increase in interest and other income of $1.1 million, or $0.02 per share, due to amounts collected from developers on certain outstanding balances owed to GSWC and higher gains recorded on investments as compared to 2016.
A higher effective income tax rate, negatively impacting earnings by $0.01 per share, resulting from differences between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements (primarily plant, rate case and compensation-related items).
An increase in the water margin generated from CPUC-approved second year rate increases was largely offset by the cessation of Ojai operations in June 2017.
Electric Segment:
Forthe nine months ended September 30, 2017, diluted earnings from the electric segment were $0.09 per share as compared to $0.06 per share for the same period in 2016. Operating expenses (other than supply costs) decreased by $1.6 million2020, a $0.04 per share increase primarily due to additional costs incurredan overall increase in 2016construction activity, as well as lower legal and other outside services costs. The increase in responseconstruction activity was largely due to power outages caused by severe winter storms experienced in January 2016, lower regulatory costs, and lower costs associated with a solar power program approved by the CPUC. Theretiming differences of when work was also a decrease in the effective income tax rate for the electric segmentperformed as compared to the same period in 2016 resulting from flow-through items as previously discussed. A lower electric gross margin was due to a downward adjustment to the revenue requirement, with a corresponding decrease in the allocationfirst quarter of general office expenses, resulting in no impact to earnings.

Contracted Services Segment:
For the nine months ended September 30, 2017, diluted earnings per share from2020. We expect the contracted services segment increased by $0.06 to $0.26contribute $0.45 to $0.49 per share as comparedfor the year 2021.
The following discussion and analysis for the three months ended March 31, 2021 and 2020 provides information on AWR’s consolidated operations and assets and, where necessary, includes specific references to the same period in 2016. There was an increase in management fees from the successful resolutionAWR’s individual segments and subsidiaries: GSWC, BVESI and ASUS and its subsidiaries.
27
Table of various price adjustments and asset transfers received during 2016 and 2017, including approximately $1.0 million, or $0.02 per share, of retroactive management fees recorded in 2017 which related to periods prior to 2017, as well as a higher direct construction margin resulting primarily from improved cost efficiencies. There was also an increase in management fees and construction revenues generated from the operations at Eglin, which began in June 2017. These increases to earnings were partially offset by higher operation costs due to Eglin's transition activities and joint inventory study, as well as increases in labor and outside services costs related to business development and compliance.Contents

Consolidated Results of Operations — Three Months Ended September 30, 2017March 31, 2021 and 20162020 (amounts in thousands, except per share amounts):
Three Months Ended 
 March 31, 2021		Three Months Ended 
 March 31, 2020		$
CHANGE		%
CHANGE
OPERATING REVENUES    
Water$75,029 $71,424 $3,605 5.0 %
Electric11,539 10,968 571 5.2 %
Contracted services30,492 26,685 3,807 14.3 %
Total operating revenues117,060 109,077 7,983 7.3 %
OPERATING EXPENSES    
Water purchased15,239 14,092 1,147 8.1 %
Power purchased for pumping2,145 1,859 286 15.4 %
Groundwater production assessment4,440 4,148 292 7.0 %
Power purchased for resale3,198 3,043 155 5.1 %
Supply cost balancing accounts(2,427)(2,165)(262)12.1 %
Other operation8,217 8,486 (269)(3.2)%
Administrative and general22,053 22,950 (897)(3.9)%
Depreciation and amortization9,560 8,811 749 8.5 %
Maintenance2,662 3,884 (1,222)(31.5)%
Property and other taxes5,940 5,159 781 15.1 %
ASUS construction15,704 13,111 2,593 19.8 %
Total operating expenses86,731 83,378 3,353 4.0 %
OPERATING INCOME30,329 25,699 4,630 18.0 %
OTHER INCOME AND EXPENSES    
Interest expense(6,258)(6,050)(208)3.4 %
Interest income455 558 (103)(18.5)%
Other, net656 (2,234)2,890 (129.4)%
 (5,147)(7,726)2,579 (33.4)%
INCOME BEFORE INCOME TAX EXPENSE25,182 17,973 7,209 40.1 %
Income tax expense5,914 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 %

28
  Three Months Ended 
 September 30, 2017		 Three Months Ended 
 September 30, 2016		 
$
CHANGE
 
%
CHANGE
OPERATING REVENUES  
  
  
  
Water $91,919
 $90,617
 $1,302
 1.4 %
Electric 7,994
 8,146
 (152) (1.9)%
Contracted services 24,505
 25,043
 (538) (2.1)%
Total operating revenues 124,418
 123,806
 612
 0.5 %
         
OPERATING EXPENSES  
  
  
  
Water purchased 20,576
 19,631
 945
 4.8 %
Power purchased for pumping 2,913
 2,988
 (75) (2.5)%
Groundwater production assessment 5,870
 4,482
 1,388
 31.0 %
Power purchased for resale 2,439
 2,394
 45
 1.9 %
Supply cost balancing accounts (4,621) (4,213) (408) 9.7 %
Other operation 7,657
 7,448
 209
 2.8 %
Administrative and general 21,790
 19,768
 2,022
 10.2 %
Depreciation and amortization 9,854
 9,486
 368
 3.9 %
Maintenance 3,222
 4,203
 (981) (23.3)%
Property and other taxes 4,475
 4,317
 158
 3.7 %
ASUS construction 11,693
 13,685
 (1,992) (14.6)%
Gain on sale of assets (17) —
 (17) — %
Total operating expenses 85,851
 84,189
 1,662
 2.0 %
         
OPERATING INCOME 38,567
 39,617
 (1,050) (2.7)%
         
OTHER INCOME AND EXPENSES  
  
  
  
Interest expense (5,775) (5,730) (45) 0.8 %
Interest income 321
 206
 115
 55.8 %
Other, net 401
 254
 147
 57.9 %
  (5,053) (5,270) 217
 (4.1)%
         
INCOME BEFORE INCOME TAX EXPENSE 33,514
 34,347
 (833) (2.4)%
Income tax expense 12,508
 12,708
 (200) (1.6)%
         
NET INCOME $21,006
 $21,639
 $(633) (2.9)%
         
Basic earnings per Common Share $0.57
 $0.59
 $(0.02) (3.4)%
         
Fully diluted earnings per Common Share $0.57
 $0.59
 $(0.02) (3.4)%
Table of Contents



Operating Revenues:
General
Registrant reliesGSWC and BVESI rely upon approvals by the CPUC of rate increases to recover operating expenses and to provide for a return on invested and borrowed capital used to fund utility plant for GSWC. Registrantplant. ASUS relies on economic price and equitable adjustments by the U.S. government in order to recover operating expenses and provide a profit margin for ASUS.  If adequate rate relief or adjustments are not granted in a timely manner, currentCurrent operating revenues and earnings can be negatively impacted.impacted if the Military Privatization Subsidiaries do not receive adequate rate relief or adjustments in a timely manner.  ASUS’s earnings are also impacted by the level of additional construction projects at the Military Utility Privatization Subsidiaries, which may or may not continue at current levels in future periods.
Water
For the three months ended September 30, 2017,March 31, 2021, revenues from water operations increased $1.3by $3.6 million to $91.9$75.0 million as compared to the same period in 2016. The increase was2020 due primarily to CPUC-approved second-year ratefull third-year step increases effective January 1, 2017, as well as a $1.9 million increase infor 2021. These increases were partially offset by lower surcharges billed during the three months ended March 31, 2021 related to CPUC-approved surcharges to recover previously incurred costs. The newThese surcharges implemented during 2017 wereare largely offset by a corresponding increasedecreases in operating expenses, (primarily administrative and general) totaling $1.9 million, resulting in no impact to earnings. Furthermore, in July 2017, the CPUC approved rate increases implemented for certain rate-making areas to specifically cover increases in supply costs experienced in these areas. This increase in revenue is mostly offset by a corresponding increase in supply costs, resulting in an insignificant change to the water gross margin.
Partially offsetting the increases discussed above was the cessation of Ojai operations due to the sale of the water system in June 2017, as well as a decrease in water revenues of approximately $1.0 million that was not reflected in the results for the three months ended September 30, 2016 due to the delay by the CPUC in issuing a decision on the water general rate case. As previously discussed in the "Overview" section, the water gross margin recorded through September 30, 2016 reflected GSWC's litigated positions in the then pending water general rate case, which assumed the CPUC would adopt GSWC’s positions in their entirety. When the decision was issued in December 2016 with new rates retroactive to January 1, 2016, GSWC recorded a cumulative downward adjustment of $5.2 million to the water gross margin in the fourth quarter of 2016 related to the first three quarters of 2016. Of this amount, $2.0 million related to the third quarter of 2016, which would have decreased revenues by $1.0 million and increased supply costs by $1.0 million for the three months ended September 30, 2016 had the CPUC decision been issued on time.
Billed water consumption for the thirdfirst quarter of 20172021 increased by approximately 5.6%3% as compared to the same period in 2016. In general,2020. Currently, changes in consumption generally do not have a significant impact on recorded revenues due to the CPUC-approved Water Revenue Adjustment Mechanism ("WRAM") accountsWRAM in place atin all but one small rate-making area. However, under the accounting guidance for alternative revenue programs such as the WRAM, significant decreases in consumption may impact the timing of when revenues are recorded. GSWC records the difference between what it bills its water customers and that which is authorized by the CPUC in the WRAM accounts as regulatory assets or liabilities.
Electric
Electric
In 2016, the CPUC granted BVES's request to defer the filing of its next electric general rate case to 2017, setting new rates in years 2018 through 2021. As a result, adopted base revenues for 2017 are based on 2016 adopted base revenues adjusted for the change in the general office allocation approved by the CPUC in the water general rate case. For the three months ended September 30, 2017, revenues from electric operations decreased slightlyMarch 31, 2021 increased by $571,000 to $8.0$11.5 million as a result of new CPUC-approved electric rates effective January 1, 2021, as well as a 10% increase in electric usage as compared to $8.1 million for the same period in 20162020. The higher usage was due to an increase in part, to the downward adjustmenttourist activity experienced in the revenue requirement for 2017 with a corresponding and offsetting reduction inBig Bear Lake area as the general office allocation. This decrease in revenues was partially offset by rate increases generated from advice letter capital projects approved by the CPUC during 2016 and 2017.
Billed electric usage during the three months ended September 30, 2017 was mostly unchanged as comparedeconomy continues to the three months ended September 30, 2016.reopen. Due to the CPUC-approved Base Revenue Requirement Adjustment Mechanism, ("BRRAM"), which adjusts certain revenues to adopted levels authorized by the CPUC, changes in usage do not have a significant impact on earnings.
Contracted Services
Revenues from contracted services are composed of construction revenues (including renewal and replacements) and management fees for operating and maintaining the water and/or wastewater systems at various military bases.  For the three months ended September 30, 2017,March 31, 2021, revenues from contracted services decreased $538,000increased $3.8 million to $24.5$30.5 million as compared to $25.0$26.7 million for the same period in 20162020. This was due primarily to lower construction activities. This decrease construction was partially

offset by an increase in construction activity resulting from timing differences of when construction activity was performed as compared to the first quarter of 2020. These timing differences are expected to reverse over the remainder of 2021. In addition, there were increases in management fee revenuesfees due to the successful resolution of various economic price adjustments and asset transfers received during 2016 and 2017.

adjustments.
ASUS 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 Utility Privatization Subsidiaries. During the first nine months of 2017, ASUS was awarded $20.1 million in new construction projects, the majority of which are expected to be completed through 2018. During 2016, ASUS was awarded approximately $24.0 million in new construction projects, the majority of which have, or are expected to be completed, through 2017. Earnings and cash flows from modifications to the original 50-year contracts with the U.S. government and agreements with third-party prime contractors for additional construction projects may or may not continue in future periods.
Operating Expenses:
Supply Costs
Supply costs for the water segment consist of purchased water, purchased power for pumping, groundwater production assessments and changes in the water supply cost balancing accounts. Supply costs for the electric segment consist primarily of purchased power for resale, the cost of natural gas used by BVES’sBVESI’s generating unit, the cost of renewable energy credits and changes in the electric supply cost balancing account. Total supply costs comprise the largest segment of total operating expenses. Supply costs accounted for approximately 26.1% and 25.2% of total operating expenses for the three months ended March 31, 2021 and 2020, respectively.
Water and electric gross margins are computed by subtracting total supply costs from total revenues. Registrant uses these gross margins and related percentages as an important measure in evaluating its operating results. Registrant believes these measures are useful internal benchmarks in evaluating the utility business performance within its water and electric segments. Registrant reviews these measurements regularly and compares them to historical periods and to its operating budget. However, these measures, which are not presented in accordance with GAAP, may not be comparable to similarly titled measures used by other entities, and should not be considered as an alternative to operating income, which is determined in accordance with GAAP.
29
Table of Contents
Total supply costs comprise the largest segment of total operating expenses. Supply costs accounted for approximately 31.7% and 30.0% of total operating expenses for the three months ended September 30, 2017 and 2016, respectively.  The table below provides the amountamounts (in thousands) of increases (decreases) and percent changes in water and electric revenues, supply costs and gross margin during the three months ended September 30, 2017March 31, 2021 and 2016 (dollar amounts2020. There was a decrease of $200,000 in thousands):water surcharges, and a decrease of $56,000 in electric surcharges to recover previously incurred costs. Surcharges to recover previously incurred costs are recorded to revenues when billed to customers and are offset by a corresponding amount in operating expenses, resulting in no impact to earnings.
 Three Months Ended 
 September 30, 2017		 Three Months Ended 
 September 30, 2016		 
$
CHANGE
 
%
CHANGE
Three Months Ended 
 March 31, 2021		Three Months Ended 
 March 31, 2020		$
CHANGE		%
CHANGE
WATER OPERATING REVENUES (1)
 $91,919
 $90,617
 $1,302
 1.4 %
WATER OPERATING REVENUES (1)
$75,029 $71,424 $3,605 5.0 %
WATER SUPPLY COSTS:  
  
  
  
WATER SUPPLY COSTS:    
Water purchased (1) $20,576
 $19,631
 $945
 4.8 %Water purchased (1)$15,239 $14,092 $1,147 8.1 %
Power purchased for pumping (1) 2,913
 2,988
 (75) (2.5)%Power purchased for pumping (1)2,145 1,859 286 15.4 %
Groundwater production assessment (1) 5,870
 4,482
 1,388
 31.0 %Groundwater production assessment (1)4,440 4,148 292 7.0 %
Water supply cost balancing accounts (1) (5,245) (4,843) (402) 8.3 %Water supply cost balancing accounts (1)(2,920)(2,274)(646)28.4 %
TOTAL WATER SUPPLY COSTS $24,114
 $22,258
 $1,856
 8.3 %TOTAL WATER SUPPLY COSTS$18,904 $17,825 $1,079 6.1 %
WATER GROSS MARGIN (2) $67,805
 $68,359
 $(554) (0.8)%WATER GROSS MARGIN (2)$56,125 $53,599 $2,526 4.7 %

  
   
  
  
        
ELECTRIC OPERATING REVENUES (1) $7,994
 $8,146
 $(152) (1.9)%ELECTRIC OPERATING REVENUES (1)$11,539 $10,968 $571 5.2 %
ELECTRIC SUPPLY COSTS:  
  
  
  
ELECTRIC SUPPLY COSTS:    
Power purchased for resale (1) $2,439
 $2,394
 $45
 1.9 %Power purchased for resale (1)$3,198 $3,043 $155 5.1 %
Electric supply cost balancing accounts (1) 624
 630
 (6) (1.0)%Electric supply cost balancing accounts (1)493 109 384 352.3 %
TOTAL ELECTRIC SUPPLY COSTS $3,063
 $3,024
 $39
 1.3 %TOTAL ELECTRIC SUPPLY COSTS$3,691 $3,152 $539 17.1 %
ELECTRIC GROSS MARGIN (2) $4,931
 $5,122
 $(191) (3.7)%ELECTRIC GROSS MARGIN (2)$7,848 $7,816 $32 0.4 %

      
  
(1)As reported on AWR’s Consolidated Statements of Income, except for supply cost balancing accounts. The sum of water and electric supply cost balancing accounts in the table above are shown onin AWR’s Consolidated Statements of Income and

totaled $(4,621,000)$(2,427,000) and $(4,213,000)$(2,165,000) for the three months ended September 30, 2017March 31, 2021 and 2016,2020, respectively. Revenues include surcharges, which increase both revenues and operating expenses by corresponding amounts, thus having no net earnings impact.
(2)Water and electric gross margins do not include any depreciation and amortization, maintenance, administrative and general, property or other taxes or other operation expenses.
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. Under the CPUC-approved Modified Cost Balancing Account ("MCBA"),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.
The overall actual percentagepercentages of purchased water for the three months ended September 30, 2017 was 46%March 31, 2021 and 2020 were approximately 43% and 45%, respectively, as compared to the authorized adopted percentagepercentages of 31%.30% for the three months ended March 31, 2021 and 2020. The higher actual percentage of purchased water as compared to the adopted percentage resulted from an increase ina higher volume of purchased water as part of GSWC's supply mixcosts due to several wells being out of service.
 Purchased water costs  The increases in power purchased for pumping, as well as groundwater production assessments, were due to increases in electricity usage for pumping as well as increased rates and pump taxes as compared to the three months ended September 30, 2017 increased to $20.6 million as compared to $19.6 million forMarch 31, 2020.
For the same period in 2016 primarily due to an increase in wholesale water rates as well as an increase in water purchased as part of GSWC's water supply mix.
 Groundwater production assessments increased $1.4 million due to an increase in pump tax rates and pump taxes paid for water storage rights as compared to the same period in 2016.
The under-collection inthree months ended March 31, 2021, the water supply cost balancing account increased $402,000 during the three months ended September 30, 2017had a $2.9 million under-collection as compared toa $2.3 million under-collection during the same period in 2016 mainly2020. This variance was due to the higher costs for purchased water, costs as compared to adopted water supply costs.pumping and groundwater assessments.
For the three months ended September 30,2017 and 2016,March 31, 2021, the cost of power purchased for resale to BVES'sBVESI's electric customers was $2.4increased to $3.2 million. as compared to $3.0 million during the same period in 2020 due primarily to a higher average price per megawatt-hour. The average price per MWh,megawatt-hour, including fixed costs, increased from $69.87$70.65 for the three months ended September 30, 2016March 31, 2020 to $73.81$76.14 for the same period in 2017.2021.  The over-collection in the electric supply cost balancing account decreased slightlyincreased as compared to the three months ended March 31, 2020 due to the increase in the average price per MWh.an updated adopted supply cost effective January 1, 2021.
30
Table of Contents
Other Operation
The primary components of other operation expenses for GSWC include payroll, materials and supplies, chemicals and water treatment costs and outside service costs of operating the regulated water systems, including the costs associated with water transmission and distribution, pumping, water quality, meter reading, billing, and operations of district offices.offices as well as the electric system.  Registrant’s contracted services operations incur many of the same types of expenses as well.  For the three months ended September 30,2017March 31, 2021 and 2016,2020, other operation expenses by business segment consisted of the following (dollar amounts in thousands):
 Three Months Ended 
 September 30, 2017		 Three Months Ended 
 September 30, 2016		 
$
CHANGE
 
%
CHANGE
Three Months Ended 
 March 31, 2021		Three Months Ended 
 March 31, 2020		$
CHANGE		%
CHANGE
Water Services $5,817
 $5,847
 $(30) (0.5)%Water Services$5,813 $5,819 $(6)(0.1)%
Electric Services 676
 757
 (81) (10.7)%Electric Services771 811 (40)(4.9)%
Contracted Services 1,164
 844
 320
 37.9 %Contracted Services1,633 1,856 (223)(12.0)%
Total other operation $7,657
 $7,448
 $209
 2.8 %Total other operation$8,217 $8,486 $(269)(3.2)%
For the three months ended September 30, 2017, other operation expenses forMarch 31, 2021, the $223,000 decrease at the contracted services segment increasedwas due primarily to an increasetiming differences of certain work performed in bad debt reserveoperations as compared to the same period in 2020. The level of other operation expense for work previously performed for another prime contractor, as well as costs associated withcontracted services during the commencementfirst quarter of operations at Eglin in June 2017.

2021 is not expected to be indicative of the remainder of 2021.
Administrative and General
Administrative and general expenses include payroll related to administrative and general functions, all employee-related benefits, insurance expenses, outside legal and consulting fees, regulatory utility commissionregulatory-utility-commission expenses, expenses associated with being a public company and general corporate expenses charged to expense accounts. For the three months ended September 30,2017March 31, 2021 and 2016,2020, administrative and general expenses by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands): 
Three Months Ended 
 March 31, 2021		Three Months Ended 
 March 31, 2020		$
CHANGE		%
CHANGE
Water Services$14,435 $14,552 $(117)(0.8)%
Electric Services2,429 2,286 143 6.3 %
Contracted Services5,187 6,110 (923)(15.1)%
AWR (parent)2 2 — — %
Total administrative and general$22,053 $22,950 $(897)(3.9)%
  Three Months Ended 
 September 30, 2017		 Three Months Ended 
 September 30, 2016		 
$
CHANGE
 
%
CHANGE
Water Services $15,158
 $13,851
 $1,307
 9.4 %
Electric Services 1,689
 1,982
 (293) (14.8)%
Contracted Services 4,940
 3,926
 1,014
 25.8 %
AWR (parent) 3
 9
 (6) (66.7)%
Total administrative and general $21,790
 $19,768
 $2,022
 10.2 %
Surcharges were implemented in 2017 to recover previously incurredExcluding the impact of billed surcharges, administrative and generalcosts approved by expenses at the CPUC as part ofregulated water and electric utilities remained relatively flat.
For the final decision onthree months ended March 31, 2021, the water general rate case issued in March 2017.  A $1.7 million increase in revenues and water gross margin from these surcharges was offset by a corresponding increasedecrease in administrative and general to reflectexpenses at the recovery of these costs, resulting in no impact to earnings.
Excluding the increase in billed surcharges discussed above, which have no impact on earnings, during the three months ended September 30, 2017 administrative and general expenses for the watercontracted services segment decreased by approximately $400,000 duewas primarily to lower legal expenses related to condemnation mattersdecreases in legal and other outside services costs, travel and related costs, and employee-related benefit costs as compared to the same period in 2016.2020. Legal and outside services tend to fluctuate from period to period.
Depreciation and Amortization
For the three months ended September 30, 2017, administrativeMarch 31, 2021 and general expenses for the electric segment decreased by $293,000 due to lower regulatory costs, as well as a lower allocation of general office expenses as compared to the same period in 2016. The lower allocation of general office expenses has also been reflected in the electric revenue requirement.

For the three months ended September 30, 2017, administrative and general expenses for contracted services increased by $1.0 million due primarily to an increase in labor and other employee-related benefits, as well as costs associated with the commencement of operations at Eglin in June 2017.


Depreciation and Amortization

For the three months ended September 30, 2017 and 2016,2020, depreciation and amortization by business segment consisted of the following (dollar amounts in thousands):
 Three Months Ended 
 September 30, 2017		 Three Months Ended 
 September 30, 2016		 
$
CHANGE
 
%
CHANGE
Three Months Ended 
 March 31, 2021		Three Months Ended 
 March 31, 2020		$
CHANGE		%
CHANGE
Water Services $8,972
 $8,734
 $238
 2.7%Water Services$8,062 $7,422 $640 8.6 %
Electric Services 537
 506
 31
 6.1%Electric Services639 607 32 5.3 %
Contracted Services 345
 246
 99
 40.2%Contracted Services859 782 77 9.8 %
Total depreciation and amortization $9,854
 $9,486
 $368
 3.9%Total depreciation and amortization$9,560 $8,811 $749 8.5 %
The overall increase in depreciation expense during the three months ended September 30, 2017 was due primarily toresulted from additions to utility plant partially offset by retirements recorded forand other fixed assets since the fourthfirst quarter of 2016 and the first nine months2020.
31
Table of 2017, as well as the sale of the Ojai utility assets in June 2017.Contents

Maintenance
For the three months ended September 30,2017March 31, 2021 and 2016,2020, maintenance expense by business segment consisted of the following (dollar amounts in thousands):
Three Months Ended 
 March 31, 2021		Three Months Ended 
 March 31, 2020		$
CHANGE		%
CHANGE
Water Services$1,740 $2,887 $(1,147)(39.7)%
Electric Services208 306 (98)(32.0)%
Contracted Services714 691 23 3.3 %
Total maintenance$2,662 $3,884 $(1,222)(31.5)%
  Three Months Ended 
 September 30, 2017		 Three Months Ended 
 September 30, 2016		 
$
CHANGE
 
%
CHANGE
Water Services $2,513
 $3,521
 $(1,008) (28.6)%
Electric Services 179
 123
 56
 45.5 %
Contracted Services 530
 559
 (29) (5.2)%
Total maintenance $3,222
 $4,203
 $(981) (23.3)%
Maintenance expense at the water segment decreased primarily due to lower unplanned maintenance as compared to the same period in 2020. Maintenance expense for water services decreased by $1.0 million duethe remainder of 2021 is expected to an overall lower levelbe incurred at a higher rate than that experienced during the first quarter of planned and unplanned maintenance in 2017, as well as the timing of planned maintenance activities.

2021.
Property and Other Taxes
For the three months ended September 30, 2017March 31, 2021 and 2016,2020, property and other taxes by business segment consisted of the following (dollar amounts in thousands):
 Three Months Ended 
 September 30, 2017		 Three Months Ended 
 September 30, 2016		 
$
CHANGE
 
%
CHANGE
Three Months Ended 
 March 31, 2021		Three Months Ended 
 March 31, 2020		$
CHANGE		%
CHANGE
Water Services $3,887
 $3,767
 $120
 3.2%Water Services$5,016 $4,313 $703 16.3 %
Electric Services 257
 251
 6
 2.4%Electric Services353 320 33 10.3 %
Contracted Services 331
 299
 32
 10.7%Contracted Services571 526 45 8.6 %
Total property and other taxes $4,475
 $4,317
 $158
 3.7%Total property and other taxes$5,940 $5,159 $781 15.1 %
Property and other taxes increased overall by $158,000 during the three months ended September 30, 2017 due primarilymostly to capital additions.

additions at the water segment and the associated higher assessed property values.
ASUS Construction
For the three months ended September 30,2017,March 31, 2021, construction expenses for contracted services were $11.7$15.7 million,, decreasing $2.0 increasing $2.6 million compared to the same period in 20162020 due largely to lower overallan increase in construction activity.

activity resulting from timing differences of when construction activity was performed as compared to the same period last year.
Interest Expense
For the three months ended September 30, 2017March 31, 2021 and 2016,2020, interest expense by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):
Three Months Ended 
 March 31, 2021		Three Months Ended 
 March 31, 2020		$
CHANGE		%
CHANGE
Water Services$5,798 $5,398 $400 7.4 %
Electric Services116 379 (263)(69.4)%
Contracted Services109 161 (52)(32.3)%
AWR (parent)235 112 123 109.8 %
Total interest expense$6,258 $6,050 $208 3.4 %
Consolidated interest expense increased as compared to the same period in 2020 resulting from higher overall borrowing levels to support operations and the capital expenditures program at the regulated utilities. On April 23, 2021, GSWC notified holders of its 9.56% private placement notes totaling $28 million and due in 2031, of its intent to redeem the notes on May 24, 2021. Pursuant to the note agreement, the prepayment of the notes will include a redemption premium of 3% on par value. GSWC will fund the redemption through intercompany borrowings from AWR parent. AWR will fund the intercompany borrowings using its revolving credit facility.

32
  Three Months Ended 
 September 30, 2017		 Three Months Ended 
 September 30, 2016		 
$
CHANGE
 
%
CHANGE
Water Services $5,290
 $5,343
 $(53) (1.0)%
Electric Services 348
 330
 18
 5.5 %
Contracted Services 62
 18
 44
 244.4 %
AWR (parent) 75
 39
 36
 92.3 %
Total interest expense $5,775
 $5,730
 $45
 0.8 %
Table of Contents
Interest Income
For the three months ended September 30,2017March 31, 2021 and 2016,2020, interest income by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):
Three Months Ended 
 March 31, 2021		Three Months Ended 
 March 31, 2020		$
CHANGE		%
CHANGE
Water Services$87 $265 $(178)(67.2)%
Electric Services30 53 (23)(43.4)%
Contracted Services338 238 100 42.0 %
AWR (parent)— 2 (2)(100.0)%
Total interest income$455 $558 $(103)(18.5)%
  Three Months Ended 
 September 30, 2017		 Three Months Ended 
 September 30, 2016		 
$
CHANGE
 
%
CHANGE
Water Services $316
 $198
 $118
 59.6 %
Electric Services 2
 2
 —
 — %
Contracted Services 4
 6
 (2) (33.3)%
AWR (parent) (1) —
 (1) — %
Total interest income $321
 $206
 $115
 55.8 %

Other, net
ForThe decrease in interest income during the three months ended June 30, 2017, other income increased by $147,000March 31, 2021 was largely due primarily to higher gainslower interest earned on investments asregulatory assets at the water and electric segments bearing interest at the current 90-day commercial paper rate, which has decreased compared to the same period in 2016.2020. This was partially offset by an increase in interest income recognized on certain construction projects at the contracted services segment.

Other Income and (Expense), net
For the three months ended March 31, 2021 and 2020, other income and (expense), net by business segment, consisted of the following (dollar amounts in thousands):
Three Months Ended 
 March 31, 2021		Three Months Ended 
 March 31, 2020		$
CHANGE		%
CHANGE
Water Services$651 $(2,237)$2,888 (129.1)%
Electric Services46 34 12 35.3 %
Contracted Services(41)(31)(10)32.3 %
Total other income and (expense), net$656 $(2,234)$2,890 (129.4)%
For the three months ended March 31, 2021, other income (net of other expense) increased mostly as a result of gains recorded on Registrant's investments held for a retirement benefit plan, as compared to losses incurred during the same period in 2020 that resulted from market conditions and the effects of COVID-19 at that time.
Income Tax Expense
For the three months ended September 30, 2017March 31, 2021 and 2016,2020, income tax expense by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):
 Three Months Ended 
 September 30, 2017		 Three Months Ended 
 September 30, 2016		 
$
CHANGE
 
%
CHANGE
Three Months Ended 
 March 31, 2021		Three Months Ended 
 March 31, 2020		$
CHANGE		%
CHANGE
Water Services $10,544
 $10,575
 $(31) (0.3)%Water Services$3,768 $2,378 $1,390 58.5 %
Electric Services 269
 466
 (197) (42.3)%Electric Services884 850 34 4.0 %
Contracted Services 1,944
 1,951
 (7) (0.4)%Contracted Services1,391 748 643 86.0 %
AWR (parent) (249) (284) 35
 (12.3)%AWR (parent)(129)(75)(54)72.0 %
Total income tax expense $12,508
 $12,708
 $(200) (1.6)%Total income tax expense$5,914 $3,901 $2,013 51.6 %
Consolidated income tax expense for the three months ended September 30, 2017 decreasedMarch 31, 2021 increased by $200,000$2.0 million due primarily to a decreasean increase in pretax income. AWR's consolidatedincome, as well as an increase in the overall effective income tax rate ("ETR"). AWR's ETR was 37.3%23.5% and 21.7% for the three months ended September 30, 2017 as compared to 37.0%March 31, 2021 and 2020, respectively. GSWC's ETR was 23.6% and 22.4% for the three months ended September 30, 2016.March 31, 2021 and 2020, respectively. The consolidated ETR increased primarily as a result of increases in the ETRincrease at GSWC which was 38.4% for the three months ended September 30, 2017 as compared to 38.2% applicable to the three months ended September 30, 2016. The change in GSWC's ETR was due primarily to differences between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements (primarily related to plant, rate case and compensation-related items). Flow-through adjustments increase or decrease tax expense in one period, with an offsetting decrease or increase in another period.

Consolidated Results of Operations — Nine Months Ended September 30, 2017 and 2016 (amounts in thousands, except per share amounts):
  Nine Months Ended 
 September 30, 2017		 Nine Months Ended 
 September 30, 2016		 
$
CHANGE
 
%
CHANGE
OPERATING REVENUES  
  
  
  
Water $239,057
 $237,987
 $1,070
 0.4 %
Electric 26,108
 26,420
 (312) (1.2)%
Contracted services 71,258
 64,880
 6,378
 9.8 %
Total operating revenues 336,423
 329,287
 7,136
 2.2 %
         
OPERATING EXPENSES  
  
  
  
Water purchased 50,619
 49,265
 1,354
 2.7 %
Power purchased for pumping 6,667
 6,752
 (85) (1.3)%
Groundwater production assessment 14,176
 11,150
 3,026
 27.1 %
Power purchased for resale 7,847
 7,481
 366
 4.9 %
Supply cost balancing accounts (11,663) (10,145) (1,518) 15.0 %
Other operation 21,989
 21,331
 658
 3.1 %
Administrative and general 62,534
 61,829
 705
 1.1 %
Depreciation and amortization 29,184
 28,878
 306
 1.1 %
Maintenance 10,292
 11,908
 (1,616) (13.6)%
Property and other taxes 13,386
 12,863
 523
 4.1 %
ASUS construction 34,589
 35,351
 (762) (2.2)%
Gain on sale of assets (8,318) —
 (8,318) — %
Total operating expenses 231,302
 236,663
 (5,361) (2.3)%
         
OPERATING INCOME 105,121
 92,624
 12,497
 13.5 %
         
OTHER INCOME AND EXPENSES  
  
  
  
Interest expense (17,606) (16,956) (650) 3.8 %
Interest income 1,200
 568
 632
 111.3 %
Other, net 1,454
 872
 582
 66.7 %
  (14,952) (15,516) 564
 (3.6)%
         
INCOME BEFORE INCOME TAX EXPENSE 90,169
 77,108
 13,061
 16.9 %
Income tax expense 33,670
 28,577
 5,093
 17.8 %
         
NET INCOME $56,499
 $48,531
 $7,968
 16.4 %
         
Basic earnings per Common Share $1.53
 $1.32
 $0.21
 15.9 %
         
Fully diluted earnings per Common Share $1.53
 $1.32
 $0.21
 15.9 %





Operating Revenues:
Water
For the nine months ended September 30, 2017, revenues from water operations increased $1.1 million to $239.1 million as compared to the same period in 2016 primarily due to second-year rate increases effective January 1, 2017, and rate increases to specifically cover increases in supply costs experienced in certain rate-making areas. The increases related to supply costs are largely offset by a corresponding increase in supply costs, resulting in an insignificant change to the water gross margin. Furthermore, there were also new surcharges implemented during 2017 to recover previously incurred costs, which was offset by a corresponding increase in operating expenses (primarily administrative and general) totaling $3.1 million, but resulted in no impact to earnings.
The increases in water revenue discussed above were largely offset by the cessation of Ojai operations in June 2017, as well as a decrease in water revenues of approximately $2.6 million that was not reflected in the results for the nine months ended September 30, 2016 due to the delay by the CPUC in issuing a decision on the water general rate case. As previously discussed in the "Overview" section, the water gross margin recorded through September 30, 2016 reflected GSWC's litigated positions in the then pending water general rate case, which assumed the CPUC would adopt GSWC’s positions in their entirety. When the decision was issued in December 2016 with new rates retroactive to January 1, 2016, a cumulative downward adjustment of $5.2 million to the water gross margin was recorded in the fourth quarter of 2016 related to the first three quarters of 2016. The $5.2 million downward adjustment would have decreased revenues by $2.6 million and increased supply costs by $2.6 million for the nine months ended September 30, 2016 had the CPUC decision been issued on time.
Billed water consumption for the first nine months of 2017 increased 2.5% as compared to the same period in 2016. Changes in consumption generally do not have a significant impact on revenues due to the WRAM.
Electric
Adopted base revenues for 2017 are based on 2016 adopted base revenues, adjusted for the change in the general office allocation. For the nine months ended September 30, 2017, revenues from electric operations were $26.1 million as compared to $26.4 million for the same period in 2016 due to the downward adjustment in the revenue requirement for 2017 with a corresponding and offsetting reduction in the general office allocation as stipulated in the CPUC's final decision on the water general rate case. There was also a decrease due to the recognition of approximately $300,000 in BRRAM revenues during the nine months ended September 30, 2016 that had previously been deferred. There was no similar item in 2017. These decreases were partially offset by rate increases generated from advice letter capital projects approved by the CPUC during 2016 and 2017.
 Billed electric usage increased by approximately 1% during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.  Due to the CPUC-approved BRRAM, which adjusts certain revenues to adopted levels authorized by the CPUC, changes in usage do not have a significant impact on earnings.
Contracted Services
For the nine months ended September 30, 2017, revenues from contracted services increased $6.4 million to $71.3 million as compared to $64.9 million for the same period in 2016 due largely to an increase in management fees resulting from the successful resolution of several price adjustments and asset transfers during 2016 and 2017, including the third price redetermination for Fort Bragg in June 2017. This third price redetermination was retroactive to March 2016, resulting in $1.0 million in management fees recorded in 2017 related to periods prior to 2017. There were also management fees and construction revenues related to Eglin, which ASUS began operating in June 2017. Finally, there was an overall increase in construction activities during the nine months ended September 30, 2017 as compared to the same period in 2016.

Operating Expenses:
Supply Costs
Total supply costs comprise the largest segment of total operating expenses. Supply costs accounted for approximately 29.2% and 27.3% of total operating expenses for the nine months ended September 30, 2017 and 2016, respectively.

The table below provides the amount of increases (decreases) and percent changes in water and electric revenues, supply costs and gross margin during the nine months ended September 30, 2017 and 2016 (dollar amounts in thousands):
  Nine Months Ended 
 September 30, 2017		 Nine Months Ended 
 September 30, 2016		 
$
CHANGE
 
%
CHANGE
WATER OPERATING REVENUES (1) $239,057
 $237,987
 $1,070
 0.4 %
WATER SUPPLY COSTS:  
  
  
  
Water purchased (1) $50,619
 $49,265
 $1,354
 2.7 %
Power purchased for pumping (1) 6,667
 6,752
 (85) (1.3)%
Groundwater production assessment (1) 14,176
 11,150
 3,026
 27.1 %
Water supply cost balancing accounts (1) (13,785) (12,420) (1,365) 11.0 %
TOTAL WATER SUPPLY COSTS $57,677
 $54,747
 $2,930
 5.4 %
WATER GROSS MARGIN (2) $181,380
 $183,240
 $(1,860) (1.0)%

      
  
         
ELECTRIC OPERATING REVENUES (1) $26,108
 $26,420
 $(312) (1.2)%
ELECTRIC SUPPLY COSTS:  
  
  
  
Power purchased for resale (1) $7,847
 $7,481
 $366
 4.9 %
Electric supply cost balancing accounts (1) 2,122
 2,275
 (153) (6.7)%
TOTAL ELECTRIC SUPPLY COSTS $9,969
 $9,756
 $213
 2.2 %
ELECTRIC GROSS MARGIN (2) $16,139
 $16,664
 $(525) (3.2)%

      
  
(1)As reported on AWR’s Consolidated Statements of Income, except for supply cost balancing accounts. The sum of water and electric supply cost balancing accounts in the table above are shown on AWR’s Consolidated Statements of Income and totaled $(11,663,000) and $(10,145,000) for the nine months ended September 30, 2017 and 2016, respectively. Revenues include surcharges, which increase both revenues and operating expenses by corresponding amounts, thus having no net earnings impact.
(2)Water and electric gross margins do not include any depreciation and amortization, maintenance, administrative and general, property or other taxes or other operation expenses.
 The overall actual percentage of purchased water for the nine months ended September 30, 2017 was 41% as compared to the adopted percentage of approximately 29%. The higher actual percentages of purchased water as compared to adopted percentages resulted primarily from several wells being out of service.net changes in certain flow-through and permanent items.
 Purchased water costs for the nine months ended September 30, 2017 increased to $50.6 million as compared to $49.3 million for the same period in 2016, primarily due to an increase in wholesale water rates as well as an increase in purchased water due to several wells being out of service, as compared to the nine months ended September 30, 2016.
For the nine months ended September 30, 2017 and 2016, groundwater production assessments increased $3.0 million due to an increase in pump tax rates and pump taxes paid for water storage rights during the nine months ended September 30, 2017 as compared to the same period in 2016.
The under-collection in the water supply cost balancing account increased $1.4 million during the nine months ended September 30, 2017 as compared to the same period in 2016 mainly due to the higher purchased water costs as well as higher groundwater production assessments as compared to adopted water supply costs.
For the nine months ended September 30, 2017, the cost of power purchased for resale to BVES's customers increased by $366,000 to $7.8 million as compared to $7.5 million for the same period in 2016 due to an increase in the average price per MWh. The average price per MWh, including fixed costs, increased from $69.54 for the nine months ended September 30, 2016 to $74.17 for the same period in 2017. The over-collection in the electric supply cost balancing account decreased by $153,000 due primarily to an increase in the weighted average price per MWh.

Other Operation
For the nine months ended September 30, 2017 and 2016, other operation expenses by business segment consisteda comparison of the following (dollar amounts in thousands):
  Nine Months Ended 
 September 30, 2017		 Nine Months Ended 
 September 30, 2016		 
$
CHANGE
 
%
CHANGE
Water Services $16,100
 $16,294
 $(194) (1.2)%
Electric Services 2,042
 2,549
 (507) (19.9)%
Contracted Services 3,847
 2,488
 1,359
 54.6 %
Total other operation $21,989
 $21,331
 $658
 3.1 %
     For the nine months ended September 30, 2017, total other operation expensesfinancial results for the water segment decreased by $194,000 as compared to the same period in 2016 due, in large part, to the CPUC's approval in February 2017 for recovery of a memorandum account, which tracked incremental drought-related costs incurred in 2015 and 2016 during the drought state of emergency in California. As a result of the CPUC's approval, GSWC recorded a $1.2 million regulatory asset with a corresponding reduction in other operation expenses during the first quarter of 2017. During the nine months2020 to 2019, see “Consolidated Results of Operations-Three Months ended September 30, 2017 there was also a $205,000 increaseMarch 31, 2020 and March 31, 2019” in surcharges billed to customers, with a corresponding increase in other operation expenses, resulting in no impact to earnings. Excluding the impact of these two items, other operation expensesRegistrant’s Form 10-Q for the water segment increased by $801,000 due to increases in: (i) labor costs, (ii) annual public water system fees paid to the state of California, and (iii) bad debt expense.
Other operation expenses at the electric segment were lower due primarily to costs incurred in the first quarter of 2016 in response to power outages caused by severe winter storms experienced in January 2016. There were no similar costs incurred during the first nine months of 2017.
For the nine monthsperiod ended September 30, 2017, total other operation expenses for the contracted services segment increased mainly due to transition costs incurred at Eglin, including costs for a joint inventory study of Eglin's water system infrastructure conductedMarch 31, 2020 filed with the U.S. government. In accordance with the 50-year contract with the U.S. government, ASUS received revenues to help cover someSEC.
33
Table of the costs of the transition at Eglin. ASUS assumed operations at Eglin in June 2017, which further increased other operation expenses in 2017.Contents
Administrative and General
For the nine months ended September 30, 2017 and 2016, administrative and general expenses by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):
  Nine Months Ended 
 September 30, 2017		 Nine Months Ended 
 September 30, 2016		 
$
CHANGE
 
%
CHANGE
Water Services $42,948
 $42,877
 $71
 0.2 %
Electric Services 5,204
 6,471
 (1,267) (19.6)%
Contracted Services 14,374
 12,465
 1,909
 15.3 %
AWR (parent) 8
 16
 (8) (50.0)%
Total administrative and general $62,534
 $61,829
 $705
 1.1 %
     During the nine months ended September 30, 2017, $2.9 million in surcharges were implemented in 2017 to recover previously incurred administrative and general approved by the CPUC, increasing revenues and water gross margin with a corresponding increase in administrative and general expenses, resulting in no impact to earnings.
Excluding the impact of surcharges, for the nine months ended September 30, 2017, administrative and general expenses at the water segment decreased by $2.8 million mainly due to lower legal expenses related to condemnation activities. This decrease was partially offset by increases in labor and employee-related benefits, regulatory expenses and insurance-related costs as compared to the same period in 2016. Legal and outside services costs tend to fluctuate and are expected to continue to fluctuate.
For the nine months ended September 30, 2017, administrative and general expenses for electric services decreased by $1.3 million as compared to the nine months ended September 30, 2016 due primarily to decreases in: (i) the allocation of general office expenses, (ii) regulatory expenses, and (iii) costs associated with a solar-initiative program approved by the CPUC. The lower allocation of general office expenses has also been reflected in the electric revenue requirement.

    For the nine months ended September 30, 2017, administrative and general expenses for contracted services increased by $1.9 million as compared to the nine months ended September 30, 2016 due primarily to an increase in labor and other employee- related benefits, and outside services costs related to new business development and compliance. Expenses in 2017 were also higher due to the commencement of operations at Eglin in June 2017.

Depreciation and Amortization
For the nine months ended September 30, 2017 and 2016, depreciation and amortization by business segment consisted of the following (dollar amounts in thousands):
  Nine Months Ended 
 September 30, 2017		 Nine Months Ended 
 September 30, 2016		 
$
CHANGE
 
%
CHANGE
Water Services $26,731
 $26,597
 $134
 0.5%
Electric Services 1,610
 1,520
 90
 5.9%
Contracted Services 843
 761
 82
 10.8%
Total depreciation and amortization $29,184
 $28,878
 $306
 1.1%
For the nine months ended September 30, 2017, depreciation and amortization expense increased due primarily to additions to utility plant, partially offset by retirements recorded during the fourth quarter of 2016 and first nine months of 2017, as well as the sale of the Ojai utility assets in June 2017.

Maintenance
For the nine months ended September 30, 2017 and 2016, maintenance expense by business segment consisted of the following (dollar amounts in thousands):
  Nine Months Ended 
 September 30, 2017		 Nine Months Ended 
 September 30, 2016		 
$
CHANGE
 
%
CHANGE
Water Services $8,111
 $9,954
 $(1,843) (18.5)%
Electric Services 551
 472
 79
 16.7 %
Contracted Services 1,630
 1,482
 148
 10.0 %
Total maintenance $10,292
 $11,908
 $(1,616) (13.6)%
Maintenance expense for water services decreased by $1.8 million due to an overall lower level of planned and unplanned maintenance in 2017, as well as the timing of planned maintenance activities.

Property and Other Taxes
For the nine months ended September 30, 2017 and 2016, property and other taxes by business segment consisted of the following (dollar amounts in thousands):
  Nine Months Ended 
 September 30, 2017		 Nine Months Ended 
 September 30, 2016		 
$
CHANGE
 
%
CHANGE
Water Services $11,517
 $11,022
 $495
 4.5 %
Electric Services 799
 806
 (7) (0.9)%
Contracted Services 1,070
 1,035
 35
 3.4 %
Total property and other taxes $13,386
 $12,863
 $523
 4.1 %
Property and other taxes increased overall by $523,000 during the nine months ended September 30, 2017 due primarily to capital additions.


ASUS Construction
For the nine months ended September 30, 2017, construction expenses for contracted services were $34.6 million, decreasing $762,000 compared to the same period in 2016 largely due to improved cost efficiencies, partially offset by an increase in construction activity.
Gain on Sale of Assets

In June 2017, GSWC completed the sale of its Ojai water system to Casitas for $34.3 million, resulting in a pretax gain of $8.3 million on the sale of assets.

Interest Expense
For the nine months ended September 30, 2017 and 2016, interest expense by business segment, including AWR (parent) consisted of the following (dollar amounts in thousands):
  Nine Months Ended 
 September 30, 2017		 Nine Months Ended 
 September 30, 2016		 
$
CHANGE
 
%
CHANGE
Water Services $16,092
 $15,821
 $271
 1.7%
Electric Services 1,078
 1,008
 70
 6.9%
Contracted Services 228
 37
 191
 516.2%
AWR (parent) 208
 90
 118
 131.1%
Total interest expense $17,606
 $16,956
 $650
 3.8%
For the nine months ended September 30, 2017, interest expense increased $650,000 due largely to higher average borrowings on the revolving credit facility as compared to the first nine months of 2016. The proceeds received in June 2017 from the completed sale of GSWC's Ojai system were used to repay a portion of these borrowings.

Interest Income

For the nine months ended September 30, 2017 and 2016, interest income by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):
  Nine Months Ended 
 September 30, 2017		 Nine Months Ended 
 September 30, 2016		 
$
CHANGE
 
%
CHANGE
Water Services $1,168
 $549
 $619
 112.8 %
Electric Services 7
 11
 (4) (36.4)%
Contracted Services 14
 8
 6
 75.0 %
AWR (parent) 11
 —
 11
 — %
Total interest income $1,200
 $568
 $632
 111.3 %

The increase in interest income is due to the collection of certain amounts from developers previously owed to GSWC, as well as an increase in interest income related to regulatory assets.
Other, net

For the nine months ended September 30, 2017, other income increased by $582,000 due to higher gains on investments as compared to the same period in 2016.


Income Tax Expense
For the nine months ended September 30, 2017 and 2016, income tax expense by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):
  Nine Months Ended 
 September 30, 2017		 Nine Months Ended 
 September 30, 2016		 
$
CHANGE
 
%
CHANGE
Water Services $27,739
 $23,528
 $4,211
 17.9 %
Electric Services 1,496
 1,675
 (179) (10.7)%
Contracted Services 5,152
 4,029
 1,123
 27.9 %
AWR (parent) (717) (655) (62) 9.5 %
Total income tax expense $33,670
 $28,577
 $5,093
 17.8 %
Consolidated income tax expense for the nine months ended September 30, 2017 increased by approximately $5.1 million due primarily to an increase in pretax income, which included the pretax gain recognized on the sale of GSWC's Ojai water system in June 2017. AWR's consolidated ETR was 37.3% for the nine months ended September 30, 2017 as compared to 37.1% for the nine months ended September 30, 2016.

Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that are important to the portrayal of AWR’s financial condition, results of operations and cash flows and require the most difficult, subjective or complex judgments of AWR’s management. The need to make estimates about the effect of items that are uncertain is what makes these judgments difficult, subjective and/or complex. Management makes subjective judgments about the accounting and regulatory treatment of many items. These judgments are based on AWR’s historical experience, terms of existing contracts, AWR’s observance of trends in the industry, and information available from other outside sources, as appropriate. Actual results may differ from these estimates under different assumptions or conditions.
The critical accounting policies used in the preparation of the Registrant’s financial statements that it believes affect the more significant judgments and estimates used in the preparation of its consolidated financial statements presented in this report are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Registrant’s Annual Report on Form 10-K for the year ended December 31, 2016.2020 filed with the SEC. There have been no material changes to Registrant’s critical accounting policies.

34
Table of Contents
Liquidity and Capital Resources
AWR
Registrant’s regulated business is capital intensive and requires considerable capital resources. A portion of these capital resources is provided by internally generated cash flows from operations. AWR anticipates that interest expense will increase in future periods due to the need for additional external capital to fund construction programs at its construction program,regulated utilities and increases inas market interest rates.rates increase. In addition, as the capital investment program continues to increase, coupled with the elimination of bonus depreciation for regulated utilities due to tax reform enacted in 2017, AWR and its subsidiaries anticipate they will need to access external financing more often. AWR believes that costs associated with capital used to fund construction at GSWC and BVESI will continue to be recovered through water and electric rates charged to customers.
AWR funds its operating expenses and pays dividends on its outstanding Common Shares primarily through dividends from its wholly owned subsidiaries. The ability of GSWC and BVESI to pay dividends to AWR is restricted by California law. Under these restrictions, approximately $234.3$583.9 million was available on September 30, 2017for GSWC to pay dividends to AWR.AWR on March 31, 2021. Approximately $65.4 million was available for BVESI to pay dividends to AWR as of March 31, 2021. ASUS's ability to pay dividends to AWR is dependent upon state laws in which each Military Utility Privatization Subsidiary operates, as well as ASUS's ability to pay dividends under California law.

When necessary, Registrant obtains funds from external sources inthrough the capital markets, and throughas well as from bank borrowings. Access to external financing on reasonable terms depends on the credit ratings of AWR and GSWC and current business conditions, including that of the water utility industry in general as well as conditions in the debt or equity capital markets. AWR alsocurrently has access to a $150.0$200.0 million revolving credit facility and borrows under this facility, which expires in May 2018.  Management expects2023, to extend this facility prior to its expiration date. AWR borrows under this facility and providesprovide funds to its subsidiaries, GSWC and ASUS in support of their operations.  Any amounts owed to AWR for borrowings by GSWC under this facility are included in inter-company payables on GSWC’s balance sheet. The interest rate charged to GSWC and ASUS is sufficient to cover AWR’s interest expense under the credit facility. As of September 30, 2017,March 31, 2021, there were $46.0was $107.0 million in borrowings outstanding under this facility.  BVESI has a separate $35 million revolving credit facility, and $6.3 million of letters of credit outstanding.which expires in July 2023. As of September 30, 2017,March 31, 2021, there was $22.0 millionoutstanding under this facility. Borrowings made under this facility support BVESI's operations and capital expenditures. Under the terms of the credit agreement, BVESI has the option to request an increase in the facility by an additional $15.0 million.
On April 23, 2021, GSWC notified holders of its 9.56% private placement notes totaling $28 million and due in 2031, of its intent to redeem the notes on May 24, 2021. Pursuant to the note agreement, the prepayment of the notes will include a redemption premium of 3% on par value. GSWC will fund the redemption through intercompany borrowings from AWR had $97.7 million availableparent, and plans to issue new debt in 2022. AWR will fund the intercompany borrowings using its revolving credit facility.
As part of the response to the COVID-19 pandemic, GSWC and BVESI have suspended service disconnections for non-payment pursuant to CPUC orders. This has affected Registrant's cash flows from operating activities and increased the need to borrow under AWR's and BVESI's credit facilities. In February 2021, the credit facility.


CPUC adopted a resolution requiring utilities in California to file transition plans to address the eventual discontinuance of the emergency customer protections by proactively communicating with customers to enroll in programs to manage their utility bills and informing them of the changes to programs in which they are already enrolled. On April 1, 2021, GSWC and BVESI filed their respective transition plans with the CPUC.
In May 2017,March 2021, Standard and Poor’s Global Ratings (“S&P”) reaffirmedaffirmed an A+ credit rating with a stable outlook onfor both AWR and GSWC. S&P also revised its rating outlook to negative from stable for both companies. S&P’s debt ratings range from AAA (highest possible) to D (obligation is in default). In December 2016,June 2020, Moody's Investors Service ("Moody's") affirmedalso reaffirmed its A2 rating with a stable outlook for GSWC. Securities ratings are not recommendations to buy, sell or hold a security, and are subject to change or withdrawal at any time by the rating agency.agencies.  Registrant believes that AWR’s sound capital structure and A+ credit rating, combined with its financial discipline, will enable AWRRegistrant to access the debt and equity markets. However, unpredictable financial market conditions in the future may limit its access or impact the timing of when to access the market, in which case, Registrant may choose to temporarily reduce its capital spending.  During the nine months ended September 30, 2017, GSWC incurred $79.7 million in company-funded capital expenditures. During 2017, Registrant's company-funded capital expenditures are estimated to be approximately $110 - $120 million. If needed, GSWC may issue long-term debt depending on market conditions. The proceeds from any debt issuance would be used
AWR’s ability to pay down short-term borrowings and fund a portion of capital expenditures. Furthermore, the proceeds of approximately $34.3 millioncash dividends on its Common Shares outstanding depends primarily upon cash flows from the sale of GSWC's Ojai water system were used to repay a portion of GSWC’s short-term borrowings. Management is evaluating the long-term use of these proceeds.

its subsidiaries. AWR intends to continue paying quarterly cash dividends on or about March 1, June 1, September 1 and December 1, subject to earnings and financial conditions, regulatory requirements and such other factors as the Board of Directors may deem relevant. Registrant has paid common dividends for over 80 consecutive years.  On OctoberApril 30, 2017,2021, AWR's Board of Directors approved a fourthsecond quarter dividend of $0.255$0.335 per share on AWR's Common Shares. Dividends on the Common Shares will be payablepaid on December 1, 2017June 2, 2021 to shareholders of record at the close of business on November 15, 2017.

May 17, 2021. AWR has paid common dividends every year since 1931, and has increased the dividends received by shareholders each calendar year for 66 consecutive years, which places it in an exclusive group of companies on the New York Stock Exchange that have achieved that result. AWR's current policy is to achieve a compound annual growth rate in the dividend of more than 7% over the long-term.
Registrant's current liabilities may at times exceed its current assets.  Management believes that internally generated funds along withcash flows from operations, borrowings from AWR's and BVESI's credit facility arefacilities, and access to long-term financing from capital markets will be adequate to provide sufficient capital to maintain normal operations and to meet its capital and financing requirements.requirements of AWR and its subsidiaries.
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Cash Flows from Operating Activities:
Cash flows from operating activities have generally provided sufficient cash to fund operating requirements, including a portion of construction expenditures at GSWC and BVESI, and construction expenses at ASUS, and to pay dividends. Registrant’s future cash flows from operating activities are expected to be affected by a number of factors, including utility regulation; changes in tax law; maintenance expenses; inflation; compliance with environmental, health and safety standards; production costs; customer growth; per customerper-customer usage of water and electricity; weather and seasonality; conservation efforts; compliance with local governmental requirements, including mandatory restrictions on water use; the impact of the COVID-19 pandemic on its customers' ability to pay utility bills and required cash contributions to pension and post-retirement plans. Future cash flows from contracted services subsidiaries will depend on new business activities, existing operations, the construction of new and/or replacement infrastructure at military bases, timely economic price and equitable adjustment of prices, and timely collection of payments from the U.S. government and other prime contractors operating at the military bases.bases and any adjustments arising out of an audit or investigation by federal governmental agencies.
ASUS funds its operating expenses primarily through internal operating sources, which include U.S. government funding under 50-year contracts for operations and maintenance costs and construction activities, as well as investments by, or loans from, AWR. ASUS, in turn, provides funding to its subsidiaries. ASUS's subsidiaries may also from time to time provide funding to ASUS or its subsidiaries.
Cash flows from operating activities are primarily generated by net income, adjusted for non-cash expenses such as depreciation and amortization, and deferred income taxes.  Cash generated by operations varies during the year. Net cash provided by operating activities of Registrant was $120.2$24.7 million for the ninethree months ended September 30, 2017March 31, 2021 as compared to $77.5$15.7 million for the same period in 2016.  There2020.  This was an increase in operating cash flow for GSWClargely due to various CPUC-approved surcharges implemented during 2017 to recover previously incurred costs, as well as federal income tax refunds receivedrecent improvements in 2017. The increase in operating cash flow was also due toflows from accounts receivable from utility customers, which were negatively impacted by the timing of billing of and cash receipts for construction work at military bases during the nine months ended September 30, 2017. The billings (and cash receipts) for this construction work generally occur at completion of the work or in accordance with a billing schedule contractually agreed to with the U.S. government and/or other prime contractors. Thus, cash flow from construction-related activities may fluctuate from period to period with such fluctuations representing timing differences of when the work is being performed and when the cash is received for payment of the work.COVID-19 pandemic throughout 2020. The timing of cash receipts and disbursements related to other working capital items also affected the changeschange in net cash provided by operating activities.


Cash Flows from Investing Activities:

Net cash used in investing activities was $44.9$37.0 million for the ninethree months ended September 30, 2017March 31, 2021 as compared to $101.4$33.4 million for the same period in 2016.  Cash paid for2020 largely due to an increase in capital expenditures were partially offset by $34.3 million in cash proceeds generated fromat the sale of GSWC's Ojai water system.regulated utilities. Registrant invests capital to provide essential services to its regulated customer base, while working with its regulatorsthe CPUC to have the opportunity to earn a fair rate of return on investment. Registrant’s infrastructure investment plan consists of both infrastructure renewal programs where(where infrastructure is replaced, as needed,needed) and major capital investment projects where(where new water treatment, supply and delivery facilities are constructed.  GSWCconstructed). The regulated utilities may also be required from time to time to relocate existing infrastructure in order to accommodate local infrastructure improvement projects. Projected capital expenditures and other investments are subject to periodic review and revision. For fiscal 2021, the regulated utilities' company-funded capital expenditures are expected to be between $120 and $135 million.

ASUS funds its operating expenses primarily through internal operating sources, which include U.S. government funding under 50-year contracts for operations and maintenance costs and construction activities, as well as investments by, or loans from, AWR. ASUS, in turn, provides funding to its subsidiaries.

Cash Flows from Financing Activities:

Registrant’s financing activities include primarily: (i) the sale proceeds from the issuance of Common Shares, and stock option exercises and the repurchase of Common Shares; (ii) the issuance and repayment of long-term debt and notes payable to banks;banks, and (iii) the payment of dividends on Common Shares. In order to finance new infrastructure, RegistrantGSWC also receives customer advances (net of refunds) for, and contributions in aid of, construction. Short-term borrowingsBorrowings on AWR's and BVESI's credit facilities are used to fund GSWC and BVESI capital expenditures, respectively, until long-term financing is arranged.

Overall debt levels are expected to increase to fund a portion of the costs of the capital expenditures that will be made by the regulated utilities.
Net cash used inby financing activities was $69.1$17.5 million for the ninethree months ended September 30, 2017March 31, 2021 as compared to net cash provided of $22.3$16.8 million forduring the same period in 2016.2020. This decrease in cash from financing activities was primarily due to the usea pay down of the Ojai sale proceeds, as well as cash generated from operating activities, to repay a portion of short-term borrowings from Registrant'sAWR's revolving credit facility during the ninethree months ended September 30, 2017. Management is evaluatingMarch 31, 2021, as compared to an increase in net borrowings on the long-term use ofcredit facility during the Ojai proceeds.

same period in 2020.
GSWC
GSWC funds its operating expenses, payments on its debt, and dividends on its outstanding common shares, and a portion of its construction expenditures through internal sources. Internal sources of cash flow are provided primarily by retention of a portion of earnings from operating activities. Internal cash generation is influenced by factors such as weather patterns, conservation efforts, environmental regulation, litigation, changes in tax law and deferred taxes, changes in supply costs and regulatory decisions affecting GSWC’s ability to recover these supply costs, timing of rate relief, increases in maintenance expenses and capital expenditures, surcharges authorized by the CPUC to enable GSWC to recover expenses previously incurred from customers, and CPUC requirements to refund amounts previously charged to customers. Internal cash flows may also be impacted by delays in receiving payments from GSWC customers due to the economic impact of the COVID-19 pandemic and state legislation suspending customer disconnections for non-payment.
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GSWC may, at times, utilize external sources includingfor long-term financing, as well as obtain funds from equity investments and short-termintercompany borrowings from AWR and long-term debt to help fund a portion of its operations and construction expenditures. In July 2020, GSWC completed the issuance of unsecured private placement notes totaling $160.0 million. AWR borrows under a revolving credit facility, which expires in May 2023, and provides funds to GSWC in support of its operations under intercompany borrowing arrangements.
In addition, GSWC receives advances and contributions from customers, home builders and real estate developers to fund construction necessary to extend service to new areas. Advances for construction are generally refundable at a rate of 2.5% in equal annual installments over 40 years. Amounts whichthat are no longer subject to refund are reclassified to contributions in aid of construction. Utility plant funded by advances and contributions is excluded from rate base. Generally, GSWC amortizes contributions in aid of construction at the same composite rate of depreciation for the related property.
As is often the case with public utilities, GSWC’s current liabilities may at times exceed its current assets. Management believes that internally generated funds, along with the proceeds from the issuance of long-term debt, borrowings from AWR and common share issuances to AWR, will be adequate to provide sufficient capital to enable GSWC to maintain normal operations and to meet its capital and financing requirements pending recovery of costs in rates.

The CPUC requires GSWC to completely pay down all intercompany borrowings from AWR within a 24-month period. During the fourth quarter of 2020, GSWC paid down intercompany borrowings owed to AWR. The end of the next 24-month period in which GSWC is required to completely pay down its intercompany borrowings is at the end of March 2023 since GSWC had no borrowings from AWR as of March 31, 2021.
On July 1, 2020, GSWC completed the transfer of the net assets from its electric utility division to BVESI. As a result of this transfer, from July 1, 2020 onward, the cash flows of the electric segment are no longer included in GSWC's statement of cash flows, but continue to be included in AWR's consolidated statement of cash flows.
Cash Flows from Operating Activities:
Net cash provided by operating activities was $98.4$22.8 million for the ninethree months ended September 30, 2017March 31, 2021 as compared to $76.2$17.9 million for the same period in 2016.  There2020.  This was an increase in operating cash flow for GSWClargely due to various CPUC-approved surcharges implemented during 2017 to recover previously incurred costs, as well as federal income tax refunds receivedrecent improvements in 2017.cash flows from accounts receivable from utility customers, which were negatively impacted by the COVID-19 pandemic throughout 2020. The timing of cash receipts and disbursements related to other working capital items also affected the change in net cash provided by operating activities.

Cash Flows from Investing Activities:
Net cash used in investing activities was $43.3$43.7 million for the ninethree months ended September 30, 2017March 31, 2021 as compared to $99.6$31.9 million for the same period in 2016. For2020. In October 2020, AWR issued an interest bearing promissory note to GSWC, which expires in May 2023. Under the nineterms of this note, AWR may borrow from GSWC amounts up to $30 million for working capital purposes. AWR agrees to pay any unpaid principal amounts outstanding under this note, plus accrued interest. During the first quarter of 2021, AWR had net borrowings of $12 million from GSWC under the terms of the note.
Furthermore, due to the electric utility reorganization effective July 1, 2020, GSWC's cash flows from investing activities during the three months ended September 30, 2017, cash used forMarch 31, 2021 do not include the electric segment's capital expenditures, was $76.4 million, which was partially offset bywhereas the cash proceeds received fromflows for the sale of GSWC's Ojai water system. During 2017, GSWC's company-fundedthree months ended March 31, 2020 include the electric segment's capital expenditures are estimated to be approximately $110 - $120 million.expenditures.

Cash Flows from Financing Activities:
Net cash used in financing activities was $49.1$12.2 million for the ninethree months ended September 30, 2017March 31, 2021 as compared to $14.0 million net cash provided by financing activities of $23.2 million for the same period in 2016.2020.  This decrease in cash provided from financing activities was due to the use of the Ojai sale proceeds, as well as cash generatednet borrowings from operating activities, to repay a portion of inter-company short-term borrowingsAWR during the nine months ended September 30, 2017.first quarter of 2020, while there were no intercompany borrowings from AWR parent during the first quarter of 2021.

Contractual Obligations and Other Commitments
Registrant has various contractual obligations, which are recorded as liabilities in the consolidated financial statements. Other items, such as certain purchase commitments, and operating leases are not recognized as liabilities in the consolidated financial statements but are required to be disclosed.

In addition to contractual maturities, Registrant has certain debt instruments that contain an annual sinking fund or other principal payments. Registrant believes that it will be able to refinance debt instruments at their maturity through public issuance, or private placement, of debt or equity. Annual payments to service debt are generally made from cash flows from operations.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations, Commitments and Off BalanceOff-Balance Sheet Arrangements” section of the Registrant’s Form 10-K for the year ended December 31, 20162020 filed with the SEC for a detailed discussion of contractual obligations and other commitments.
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Contracted Services
Under the terms of the current and future utility privatization contracts with the U.S. government, each contract's price is subject to an economic price adjustment (“EPA”) on an annual basis. In the event that ASUS (i) is managing more assets at specific military bases than were included in the U.S. government’s request for proposal, (ii) is managing assets that are in substandard condition as compared to what was disclosed in the request for proposal, (iii) prudently incurs costs not contemplated under the terms of the utility privatization contract, and/or (iv) becomes subject to new regulatory requirements, such as more stringent water-quality standards, ASUS is permitted to file, and has filed, requests for equitable adjustment (“REAs”). The timely filing for and receipt of EPAs and/or REAs continues to be critical in order for the Military Utility Privatization Subsidiaries to recover increasing costs of operating, and maintaining, and renewing, and replacing the water and/or wastewater systems at the military bases it serves.
Under the Budget Control Act of 2011 (the “Act”“2011 Act”), substantial automatic spending cuts, known as "sequestration," have impacted the expected levels of Department of Defense budgeting. The Military Utility Privatization Subsidiaries have not experienced any earnings impact to their existing operations and maintenance and renewal and replacement services, as utility privatization contracts are an "excepted service" within the 2011 Act. While the ongoing effects of sequestration have been mitigated through the passage of a continuing resolutionvarious legislation, most recently the Bipartisan Budget Act of 2019 for the fiscal year 2018 Department of Defense budget,years 2020 and 2021, similar issues may arise as part of fiscal uncertainty and/or future debt-ceiling limits imposed by Congress. However, any future impact on ASUS and its operations through the Military Utility Privatization Subsidiaries will likely be limited to (a) the timing of funding to pay for services rendered, (b) delays in the processing of EPAs and/or REAs, (c) the timing of the issuance of contract modifications for new construction work not already funded by the U.S. government, and/or (d) delays in the solicitation for and/or awarding of new contracts under the Department of Defense utility privatization program.
At times, the Defense Contract AuditAuditing Agency (“DCAA”) and/or the Defense Contract Management Agency (“DCMA”) may, at the request of a contracting officer, perform audits/reviews of contractors for compliance with certain government guidance and regulations, such as the Federal Acquisition Regulations and Defense Federal Acquisition Regulation Supplements. Certain audit/review findings, such as system deficiencies for government-contract-business-system requirements, may result in delays in the timing of resolution of filings submitted to and/or the ability to file new proposals with the U.S. government.
Below is a summary of price redetermination, EPA and REA filings and other matters for the Military Utility Privatization Subsidiaries.

FBWS - The EPA for Fort Bliss for the contract year beginning October 1, 2017 was submitted to the government in the third quarter of 2017.

TUS - The EPA filing for Andrews Air Force Base, covering the period February 2017 through January 2018, was approved by the government in the third quarter of 2017 and provides for an annualized inflationary increase in operations and maintenance (“O&M”) and renewal and replacement (“R&R”) fees.

ODUS - The EPA filing for the Fort Lee privatization contract in Virginia, covering the one-year period beginning February 2017, and the EPA for the other bases that ODUS operates in Virginia, covering the one-year period beginning April 2017 were approved by the government in the third quarter of 2017. Both filings provide for an annualized inflationary increase in O&M and R&R fees.

PSUS - The EPA filing for Fort Jackson for the one-year period beginning February 2017 was approved by the government in the first quarter of 2017 and provides for an annualized increase in both O&M and R&R fees.

ONUS - The third price redetermination with a conversion to an EPA filing mechanism for Fort Bragg, covering the period March 2016 through February 2017, together with an EPA filing for the one-year period beginning March 2017, was approved in the second quarter of 2017. A modification implementing the settlement is expected in the fourth quarter of 2017.

ECUS - ASUS assumed the operation of the water and wastewater systems at Eglin Air Force Base as of June 15, 2017. The value of this contract is approximately $702 million over its 50-year term.

New Privatization Contract Award
On September 29, 2017, ASUS was awarded a new 50-year contract by the U.S. government to operate, maintain, and provide construction management services for the water distribution and wastewater collection and treatment facilities at Fort Riley, a United States Army installation located in Kansas. The initial value of the contract is approximately $601 million over the 50-year period and is subject to annual economic price adjustments. This initial value is also subject to adjustment based on the results of a joint inventory of assets to be performed during the transition period. ASUS will assume operations at Fort Riley following the completion of a six-to-twelve-month transition period currently underway.

Regulatory Matters
Cost of Capital Proceeding for Water RegionsSegment:
In early April 2017, GSWC filed itsRecent Changes in Rates
The CPUC approved water cost of capital application with the CPUC. The application filed with the CPUC recommends an overall weighted return on rate base of 9.11%, including an updated cost of debt of 6.6% and a return on equity ("ROE") of 11%. The current authorized return on rate base is 8.34%, including an ROE of 9.43%. A decision on the application is scheduled to be received by the end of 2017 and to becomeincreases effective January 1, 2018.2021. These increases are expected to generate an additional $11.1 million in the adopted water gross margin for 2021 as compared to the adopted water gross margin in 2020.
Water General Rate Case and Changes in Rates for 2016 and 2017
In December 2016, the CPUC issued a decision in the water general rate case for GSWC. The 2016 rates approved by the CPUC in the decision were retroactive to January 1, 2016. However, because of the delay in issuing a decision, the CPUC ordered GSWC to bypass implementing 2016 rates and to implement 2017 rates after the correction of minor rate calculations in the December 2016 decision. The CPUC completed the corrections and subsequently issued a final decision in March 2017. The new 2017 rates are effective retroactive to January 1, 2017 and were implemented in April 2017. InOn July 2017, GSWC filed with the CPUC for recovery of $9.9 million in revenue shortfall, representing the net differences between the actual rates billed from January 2016 through April 2017 and the new rates adopted in the final decision. In September 2017, GSWC implemented surcharges to recover this revenue shortfall over a 12- to 36-month amortization period.
Pending General Rate Case Filings
In July 2017,15, 2020, GSWC filed a general rate case application for all of its water regions and the general office.  This general rate case will determine new water rates for the years 2019, 2020 and 2021.2022 – 2024.  Among other things, GSWC'sGSWC requested capital budgets in this application averageof approximately $125$450.6 million per year for the three-year rate cycle.cycle, and another $11.4 million of capital projects to be filed for revenue recovery through advice letters when those projects are completed. A decision in the water general rate case is scheduled for the fourth quarter of 20182021, with new rates to become effective January 1, 2019.2022.
Final Decision on the First Phase of the Low-Income Affordability Rulemaking 
On May 1, 2017, GSWC filed its electricAugust 27, 2020, the CPUC issued a final decision in the first phase of the CPUC’s Order Instituting Rulemaking evaluating the low income ratepayer assistance and affordability objectives contained in the CPUC’s 2010 Water Action Plan. Based on the final decision, any general rate case application withfiled by GSWC and the CPUC. Thisother California water utilities after August 27, 2020 may not include a proposal to continue the use of the WRAM or MCBA. Instead the utility may include a proposal to use a limited price adjustment mechanism and an incremental supply cost balancing account.
The final decision will not have any impact on GSWC's WRAM or MCBA balances during the current rate cycle (2019 – 2021). In February 2021, a procedural hearing in this pending general rate case was held, and the assigned administrative law judge in the proceeding clarified that GSWC may continue the use of the WRAM and MCBA through the year 2024. GSWC’s next general rate case application will determinebe filed in 2023 to establish new electric rates for the years 20182025 – 2027 and, based on the August 27, 2020 decision, may not include the WRAM or MCBA for those years. Since its implementation in 2008, the WRAM and MCBA have helped mitigate fluctuations in GSWC’s earnings due to changes in water consumption by its customers or changes in water supply mix. Replacing them with other more limited mechanisms recommended in the final decision would likely result in more volatility in GSWC’s future earnings and could result in less than or more than full recovery of its authorized water gross margin. In October 2020, GSWC, the other California water utilities, and the California Water Association filed separate applications for rehearing on this matter. At this time, management cannot predict the outcome of this matter.    
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Cost of Capital Proceeding
Investor-owned water utilities serving California are required to file their cost of capital applications on a triennial basis. GSWC, along with three other investor-owned water utilities in California, filed a joint request with the CPUC in January 2021 to postpone the cost of capital applications from May 1, 2021 to May 1, 2022, and to keep the current authorized cost of capital parameters in effect through 2021.2022. In February 2021, the CPUC denied the request. GSWC intends to file its cost of capital application with the CPUC on May 3, 2021 (end of business day). A final decision on this proceeding is scheduled for the fourth quarter of 2021, with an effective date of January 1, 2022.
Finance Application
In November 2019, GSWC filed a finance application with the CPUC requesting, among other things, authorization to issue additional long-term debt and equity securities not to exceed $465 million to support its water operations. On May 7, 2020, the CPUC approved the finance application. Following the CPUC’s approval, on July 8, 2020, GSWC completed the issuance of unsecured private placement notes totaling $160.0 million.
Electric Segment:
Recent Changes in Rates
On August 15, 2019, the CPUC issued a final decision on the electric segment's general rate case is expected in 2018, with rates effective January 1, 2018.which, among other things, increases the adopted electric gross margin by $1.1 million for 2021, and by $1.0 million for 2022. The rate case decision continues to apply for BVESI.

Wildfire Mitigation Plans and Safety Certification
Other Regulatory Matters
Formal Complaint Filed withCalifornia requires all investor-owned electric utilities to submit an annual wildfire mitigation plan (WMP) to the CPUC
for approval. The WMP is to include a utility's plans on constructing, maintaining, and operating its electrical lines and equipment to minimize the risk of catastrophic wildfire. In June 2016, a third partyFebruary 2019, the electric segment filed a formal complaint withits first WMP, which was subsequently approved by the CPUC against GSWC about a water main break that occurred in 2014 causing damageJune 2019. Among other things, the WMP approves capital projects and programs dedicated to a commercial building. Repairs toimproving system safety and reliability and, specifically, aimed at reducing the building have been delayed for a varietypossibility of reasons, including a dispute and litigation between two of GSWC's insurance carriers regarding their respective coverage obligations, as well as questions as towildfires. Upon approval in June 2019, the nature and extent of the building’s damage and the costs associated therewith. The complaintelectric segment commenced executing its WMP immediately. BVESI's second WMP filed with the CPUC requests,in 2020 was approved in January 2021. The CPUC is currently reviewing BVESI's latest WMP submission. Capital expenditures and other costs incurred as a result of the WMP are subject to CPUC audit.
Additionally, the California legislature enacted Assembly Bill (AB) 1054 in July 2019, which among other things, changed the burden of proof applicable in CPUC proceedings in which an electric utility with a valid safety certification seeks to recover wildfire costs. Traditionally, an electric utility seeking to recover costs had the burden to prove that it acted reasonably. Under AB 1054, if an electric utility has a valid safety certification, it will be presumed to have acted reasonably unless a party to the relevant proceeding creates a “serious doubt” as to the reasonableness of the utility’s conduct. GSWC received an initial safety certification for its electric division from the CPUC in February 2020. Following the reorganization, the CPUC approved the transfer of the safety certification to BVESI in August 2020. In February 2021, BVESI filed its 2021 safety certification to the CPUC. BVESI's current safety certification remains in effect while the CPUC reviews BVESI's 2021 safety certification filing.
BVESI CEMA Regulatory Asset
BVESI activated a CEMA account to track the incremental costs incurred in response to a severe winter storm that occurred in February 2019 and which resulted in the declaration of an emergency by the governor of California. Incremental costs of $455,000 were included in the CEMA account and recorded as a regulatory asset. BVESI subsequently filed for recovery of these costs. In April 2021, the administrative law judge issued a proposed decision denying BVESI’s request for recovery, claiming that BVESI did not adequately demonstrate that the CPUC investigatecosts incurred were incremental and beyond costs already included in BVESI’s revenue requirement. The proposed decision does permit BVESI to file a new application on the main break, the damageissue of incrementality should it wish to continue pursuing recovery. BVESI did file a response to the commercial buildingproposed decision supporting BVESI's position. BVESI believes the storm costs were incremental and beyond what was included in its revenue requirement, and therefore, will plan on filing a new application to continue pursuing recovery. As a result, the delay of its repairs,costs in this CEMA account remain as a regulatory asset at March 31, 2021 as the Company continues to believe the incremental costs were properly tracked and order GSWC to complete repairs immediately. In September 2017, the CPUC dismissed the complaint on the grounds that the CPUC lacks jurisdiction to impose monetary damages for injuries to property, as requested by the third party, and the third party lacks standing with respect to the property as it is not the owner of the damaged property.
Previously, the owners of the commercial building filed suit in Ventura County Superior Court against GSWC for damages to the building. On September 11, 2017, the Ventura County Superior Court issued a statement of decision in favor of the plaintiffs, and awarded damages to the plaintiffsincluded in the amountCEMA account consistent with the CPUC's well-established past practices. The CPUC allows CEMA accounts to be established following a state/federal declared emergency, and are therefore recognized as regulatory assets for future recovery. However, if BVESI does not ultimately prevail in obtaining recovery, it will result in a charge to earnings for the write-off of $2.6 million.  In October 2017, the Court held a hearing and also awarded the plaintiffs attorneys’ fees in the amount of approximately $895,000.  GSWCthis CEMA regulatory asset totaling $455,000. Although BVESI believes it has sufficient insurance coverageprovided the necessary evidence to cover the judgment and attorney fees totaling $3.5 million entered by the Court insupport recovery of its requested incremental CEMA costs, at this lawsuit.  However, GSWCtime, management cannot predict the final outcome of this matter.
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COVID-19:
In February 2021, the disputeCPUC adopted a resolution that extended the existing emergency customer protections previously established by the CPUC through June 30, 2021, including the suspension of service disconnections for non-payment by electric utility customers in response to the on-going COVID-19 pandemic. For water utilities, the moratorium on service disconnections was implemented in response to an order by the governor of California, which we believe would require another action by the governor to cease the moratorium on service disconnections for our water customers. It is expected that the CPUC will work with the governor’s office to coordinate the lifting of the moratorium for water utility customers consistent with the electric customers. The CPUC's February resolution did extend the COVID-19-related memorandum accounts established by GSWC and litigation between its insurers. At this time,by BVESI to track incremental costs associated with complying with the resolution. In addition, the resolution required utilities in California to file transition plans to address the eventual discontinuance of the emergency customer protections.The goal of the transition plan is to effectively ease customers through a transition off the emergency customer protections by proactively communicating with customers to enroll in programs to manage their utility bills and informing them of the changes to programs in which they are already enrolled. GSWC does not believeand BVESI filed their respective transition plans with the final outcome will materially affect GSWC's consolidated results of operations, financial position or cash flows.CPUC on April 1, 2021.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Regulatory Matters” section of the Registrant’s Form 10-K for the year-ended December 31, 20162020 filed with the SEC for a detailed discussion of other regulatory matters.

Environmental Matters
AWR’s subsidiaries are subject to stringent environmental regulations, including the 1996 amendments to the Federal Safe Drinking Water Act.

GSWC is required to comply with the safe drinking water standards established by the U.S. Environmental Protection Agency (“US EPA”) and the Division of Drinking Water ("DDW"), under the State Water Resources Control Board (“SWRCB”). The US EPA regulates contaminants that may have adverse health effects that are known or likely to occur at levels of public health concern, and the regulation of which will provide a meaningful opportunity for health risk reduction. The DDW, acting on behalf of the US EPA, administers the US EPA’s program in California. Similar state agencies administer these rules in the other states in which Registrant operates.
GSWC currently tests its water supplies and water systems according to, among other things, requirements listed in the Federal Safe Drinking Water Act (“SDWA”). In compliance with the SDWA and to assure a safe drinking water supply to its customers, GSWC has incurred operating costs for testing to determine the levels, if any, of the constituents in its sources of supply and additional expense to treat contaminants in order to meet the federal and state maximum contaminant level standards and consumer demands. GSWC expects to incur additional capital costs as well as increased operating costs to maintain or improve the quality of water delivered to its customers in light of anticipated stress on water resources associated with watershed and aquifer pollution, as well as to meet future water quality standards. The CPUC ratemaking process provides GSWC with the opportunity to recover prudently incurred capital and operating costs in future filings associated with achieving water quality standards. Management believes that such incurred and expected future costs shouldwill be authorized for recovery by the CPUC.

Drinking Water Notifications Levels:
In July 2018, DDW issued drinking water notification levels for certain fluorinated organic chemicals used to make certain fabrics and other materials, and used in various other industrial processes. These chemicals were also present in certain fire suppression agents. These chemicals are referred to as perfluoroalkyl substances ("PFAS"). Notification levels are health-based advisory levels established for contaminants in drinking water for which maximum contaminant levels have not been established. The US EPA has also established health advisory levels for these compounds. Notification to consumers is required when the advisory levels or notification levels are exceeded.
California Assembly Bill No. 756, signed into law in July 2019 and effective in January 2020 requires, among other things, additional notification requirements for water systems detecting levels of PFAS above certain levels. GSWC is in the process of collecting and analyzing samples for PFAS under the direction of DDW. GSWC has removed some wells from service and expects to incur additional costs to treat impacted wells. GSWC has provided customers with information regarding PFAS detection and provided updated information via its website. In February 2020, DDW established new response levels for two of the PFAS compounds - 10 parts per trillion for perfluorooctanoic acid ("PFOA") and 40 parts per trillion for perfluorooctanesulfonic acid ("PFOS"). In March 2021, DDW issued a notification level and response level of 0.5 parts per billion (ppb) and 5 ppb, respectively, for perfluorobutane sulfonic acid (PFBS). The CPUC has authorized GSWC to track incremental costs, including laboratory testing and monitoring costs, customer and public notification costs, and chemical and operating treatment costs, incurred as a result of PFAS contamination in a Polyfluoroalkyl Substances Memorandum Account ("PFASMA") to be filed with the CPUC for future recovery.
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See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Environmental Matters” section of the Registrant’s Form 10-K for the year-ended December 31, 20162020 filed with the SEC for a discussion of environmental matters applicable to GSWC and ASUS and its subsidiaries.
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Water Supply
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—California Drought” section of the Registrant’s Form 10-K for the year-ended December 31, 20162020 filed with the SEC for a detailed discussion of water supply issues. The discussion below focuses on significant matters and changes since December 31, 2016.2020.
California Drought Impact:
In April 2017,May 2018, the Governor of California ended the drought state of emergency in most of California in response to significantly improved water supply conditions resulting from substantial rainfall and snowpack in late 2016 and 2017. On the same date, the SWRCB and related state agencies released a plan to establishLegislature passed two bills that provide a framework for long-term waterwater-use efficiency standards.standards and drought planning and resiliency. The plan includes continued bans on wasteful practicesinitial steps for implementing this legislation have been laid out in a summary document by the California Department of Water Resources ("DWR") and outlines the SWRCB’s vision for continued

implementation of the Governor’s executive order on water conservation. Both the SWRCB and State Legislature are expected to act on the Governor’s executive order inWater Resources Control Board (“SWRCB”). Over the next year.
The SWRCB had taken various actions to help ensure reducedseveral years, State agencies, water usage throughout the State during a drought emergency declaration,suppliers and to track reductions by larger urban water suppliers. GSWC filed appropriate drought contingency plans, or Staged Mandatory Water Conservation and Rationing Plans, with the CPUCother entities will be working to meet the SWRCB requirements.requirements and implement plans. A notable milestone is the establishment of an indoor water use standard of 55 gallons per capita per day (gpcd) until 2025, at which time the standard may be reduced to 52.5 gpcd or a new standard as recommended by DWR.
California's recent period of multi-year drought resulted in reduced recharge to the state's groundwater basins. GSWC utilizes groundwater from numerous groundwater basins throughout the state. Several of these basins, especially smaller basins, experienced lower groundwater levels because of the drought. Several of GSWC's service areas rely on groundwater as their only source of supply. Given the critical nature of the groundwater levels in theCalifornia’s Central Coast area, GSWC implemented mandatory water restrictions in certain service areas, moving to higher stages of the Staged Mandatory Water Conservation and Rationing Plan for those areas.in accordance with CPUC procedures. In the event of water supply shortages beyond the mandated reductions,locally available supply, GSWC would need to transport additional water from other areas, increasing the cost of water supply. GSWC has ended implementationRegistrant's liquidity may be adversely impacted by changes in water supply costs.
For the current 2020-2021 water year, precipitation and snow levels have been below average. The April 1st snow survey showed levels around 59% of average for the Staged Mandatory Water ConservationSierra snowpack and Rationing Plan in allprecipitation statewide is approximately 50% of its service areas.
average for the water year. As a result, California is entering yet another concerning dry spell. As of October 31, 2017,April 27, 2021, the U.S. Drought Monitor estimated zero percent of California in the rank of “Severe Drought” andreported that approximately 8 percent continued in the rank of “Moderate Drought,” which is a significant improvement from October 2016 when approximately 62 percent53% of California was rankedconsidered in "Extreme Drought" and approximately 88% of California was considered to be in “Severe Drought.”Drought” as compared to approximately 5% and 20% for those categories, respectively, one year ago. These dry conditions are more pronounced in northern and eastern portions of California, while the Coastal and Southern California areas continue to experience abnormally dry to moderate drought conditions. If these dry conditions continue or worsen, the SWRCB or other regulatory agencies may impose emergency drought actions. On March 3, 2021 the United States Department of Agriculture declared a natural disaster for 50 counties in California, including those served by GSWC, due to drought impacts on agriculture. However, the State has not declared a similar proclamation and the DWR recently stated that implementation of State emergency powers is not necessary at this time. Due to local conditions, water-use restrictions and allocations remain in place for customers in some of GSWC’s service areas. GSWC has water supply contingency plans in place which address different actions to be taken based upon available water supply, and has increased customer communication regarding water conservation. GSWC must file with the CPUC before implementing any mandatory cut backs. Registrant's liquidity may be adversely impacted by water-use restrictions imposed on customers.
Metropolitan Water District/ State Water ProjectProject:
GSWC supplements groundwater production with wholesale purchases from the Metropolitan Water District of Southern California ("MWD") member agencies. Water supplies available to the MWD through the State Water Project ("SWP") vary from year to year based on several factors. Every year, the California Department of Water Resources ("DWR") establishes the SWP allocation for water deliveries to state water contractors. DWR generally establishes a percentage allocation of delivery requests based on a number ofseveral factors, including weather patterns, snow-pack levels, reservoir levels and biological diversion restrictions. The SWP is a major source of water for the MWD. In April 2017,December 2020, DWR set the initial SWP delivery allocation at 10 percent of requests for the 2020 calendar year. Due to ongoing dry conditions, the delivery allocation was increaseddecreased to 855 percent of requested orders as a result of improved hydrologic conditions in Northern California.March 2021. However, MWD has stated that it currently has robust reserves in storage and is not currently projecting shortages in the current water year.
New Accounting Pronouncements
Registrant is subject to newly issued requirements as well as changes in existing requirements issued by the Financial Accounting Standards Board. Differences in financial reporting between periods for GSWC could occur unless and until the CPUC approves such changes for conformity through regulatory proceedings. See Note 1 of the Unaudited Notes to Consolidated Financial Statements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Registrant is exposed to certain market risks, including fluctuations in interest rates, commodity price risk primarily relating to changes in the market price of electricity at BVES,BVESI, and other economic conditions. Market risk is the potential loss arising from adverse changes in prevailing market rates and prices.
The quantitative and qualitative disclosures about market risk are discussed in Item 7A-Quantitative and Qualitative Disclosures About Market Risk, contained in Registrant’s Annual Report on Form 10-K for the year ended December 31, 2016.2020 filed with the SEC.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Securities and Exchange Act of 1934 (the “Exchange Act”), we have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of the effectiveness, as of the end of the fiscal quarter covered by this report, of the design and operation of our “disclosure controls and procedures” as defined in Rule 13a-15(e) and 15d-15(e) promulgated by the SEC under the Exchange Act. Based upon that evaluation, the CEO and the CFO concluded that disclosure controls and procedures, as of the end of such fiscal quarter, were adequate and effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in Internal Controls over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended September 30, 2017,March 31, 2021, that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

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PART II


Item 1. Legal Proceedings
In December 2014, the City of Claremont, California (“Claremont”) filed an eminent-domain action against GSWC to condemn GSWC's Claremont water system.  In December 2016, the County of Los Angeles Superior Court (the “Court”) issued a decision rejecting Claremont’s attempt to take over GSWC’s Claremont water system. In February 2017, the Court further ordered that GSWC is entitled to recover $7.6 million (“Judgment Amount”) of its litigation expenses and related defense costs from Claremont. During the first quarter of 2017, Claremont appealed both decisions. 
In October 2017, GSWC and Claremont entered into a settlement agreement whereby Claremont agreed to drop its appeals and to pay $2.0 million on or before December 31, 2017 to GSWC as partial satisfaction of the Judgment Amount plus interest accrued through the end of 2017. Upon receipt of the $2.0 million, which is expected during the fourth quarter of 2017 pursuant to the settlement agreement, GSWC will reflect this $2.0 million payment as a reduction to operating expenses. Furthermore, quarterly interest-only payments calculated on the unpaid Judgment Amount of $5.9 million are to be made by Claremont to GSWC over the next 12 years. If Claremont (i) makes its initial payment of $2.0 million and all of the quarterly payments as required, and (ii) does not take formal action to condemn GSWC's Claremont water system before December 31, 2029, GSWC will waive payment of the unpaid Judgment Amount. However, if Claremont were to take formal action within the next 12 years or miss any of the required payments specified in the settlement agreement, the unpaid Judgment Amount and any unpaid accrued interest would immediately become due and payable. At this time, GSWC is unable to predict the actions that Claremont will take over the next 12 years. GSWC serves approximately 11,000 customers in Claremont.

Registrant is subject to ordinary routine litigation incidental to its business, some of which may include claims for compensatory and punitive damages. Other than those disclosed in this Form 10-Q and in Registrant’s Form 10-K for the year ended December 31, 2016, no otherNo legal proceedings are pending, which are believed to be material. Management believes that rate recovery, proper insurance coverage and reserves are in place to insure against, among other things, property, general liability, employment, and workers’ compensation claims incurred in the ordinary course of business. Insurance coverage may not cover certain claims involving punitive damages.  

Item 1A. Risk Factors
There have been no significant changes in the risk factors disclosed in our 20162020 Annual Report on Form 10-K.10-K filed with the SEC.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The shareholders of AWR have approved the material features of all equity compensation plans under which AWR directly issues equity securities. The following table provides information about repurchases of Common Shares by AWR during the thirdfirst quarter of 2017:
2021:
Period 
Total Number of
Shares
Purchased
 
Average Price Paid
per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs (1)
 Maximum Number
of Shares That May
Yet Be Purchased
under the Plans or
Programs (3)
July 1 – 31, 2017 14,118
 $47.17
 —
 —
August 1 – 31, 2017 53,172
 $49.52
 —
 —
September 1 – 30, 2017 43,027
 $49.09
 —
 —
Total 110,317
(2)$49.05
 —
  
PeriodTotal Number of
Shares
Purchased		 Average Price Paid
per Share		Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs (1)		Maximum Number
of Shares That May
Yet Be Purchased
under the Plans or
Programs (1)(3)
January 1 – 31, 2021294  $81.10 — — 
February 1 – 28, 2021546  $78.15 — — 
March 1 – 31, 20213,074  $72.52 — — 
Total3,914 (2)$73.95 — 

(1)   None of the common shares were purchased pursuant to any publicly announced stock repurchase program.
(2)Of this amount, 103,225All of these Common Shares were acquired on the open market for employees pursuant to the Company's 401(k) plan and the remainder was acquired on the open market for participants in the Common Share Purchase and Dividend Reinvestment Plan. 
(3)  Neither the 401(k) plan nor the Common Share Purchase and Dividend Reinvestment Plan contain a maximum number of common sharesCommon Shares that may be purchased in the open market.

Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosure
Not applicable

Item 5. Other Information
(a)    On OctoberApril 30, 2017,2021, AWR's Board of Directors approved a fourthsecond quarter dividend of $0.255$0.335 per share on AWR's Common Shares. Dividends on the Common Shares will be payablepaid on December 1, 2017June 2, 2021 to shareholders of record at the close of business on November 15, 2017.

May 17, 2021.
(b)    There have been no material changes during the thirdfirst quarter of 20172021 to the procedures by which shareholders may nominate persons to the Board of Directors of AWR.

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Item 6. Exhibits
(a) The following documents are filed as Exhibits to this report: 
3.1
3.2
3.3
3.4
4.1
4.2
4.3
4.4
10.1Second Sublease dated October 5, 1984 between Golden State Water Company and Three Valleys Municipal Water District incorporated herein by reference to Registrant's Registration Statement on Form S-2, Registration No. 33-5151
10.2Note Agreement dated as of May 15, 1991 between Golden State Water Company and Transamerica Occidental Life Insurance Company incorporated herein by reference to Registrant's Form 10-Q with respect to the quarter ended June 30, 1991 (File No. 1-14431)
10.3Schedule of omitted Note Agreements, dated May 15, 1991, between Golden State Water Company and Transamerica Annuity Life Insurance Company, and Golden State Water Company and First Colony Life Insurance Company incorporated herein by reference to Registrant's Form 10-Q with respect to the quarter ended June 30, 1991 (File No. 1-14431)
10.4
10.5Agreement for Financing Capital Improvement dated as of June 2, 1992 between Golden State Water Company and Three Valleys Municipal Water District incorporated herein by reference to Registrant's Form 10-K with respect to the year ended December 31, 1992 (File No. 1-14431)
10.6
10.710.6
10.810.7
10.910.8
10.1010.9
10.11
American States Water Company 2000 Stock Incentive Plan, as amended, incorporated by reference to Exhibit 10.2 of Registrant's Form 8-K filed May 20, 2015 (File No. 1-14431) (2)

10.10
10.12
10.1310.11
10.1410.12
10.15
Form of Non-Qualified Stock Option Plan Agreement for officers and key employees for the 2000 Stock Incentive Plan incorporated by reference to Exhibit 10.1 of Registrant's Form 10-Q for the period ended March 31, 2006 (File No. 1-14431) (2)
10.16
Form of Directors Non-Qualified Stock Option Agreement for the 2003 Non-Employee Directors Plan incorporated by reference to Exhibit 10.1 to Registrant's Form 10-Q for the period ended September 30, 2006 (File No. 1-14431) (2)
10.17
Form of Restricted Stock Unit Award Agreement for officers and key employees under the 2008 Stock Incentive Plan for restricted stock unit awards prior to January 1, 2011 incorporated by reference to Exhibit 10.4 of Registrant's Form 8-K filed on November 5, 2008 (File No. 1-14431) (2)
10.18
2008 Stock Incentive Plan, as amended, incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K filed March 25, 2016 (2)
10.19
Form of Nonqualified Stock Option Agreement for officers and key employees for the 2008 Stock Incentive Plan incorporated herein by reference to Exhibit 10.3 to Registrant's Form 8-K filed November 21, 2014 (2)
10.20
Policy Regarding the Recoupment of Certain Performance-Based Compensation Payments incorporated herein by reference to Exhibit 10.3 to the Registrant's Form 8-K filed on April 2, 2014 (2)
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10.2110.13
10.22
Officer Relocation Policy incorporated herein by reference to Exhibit 10.5 to the Registrant's Form 8-K filed on July 31, 2009 (2)
10.2310.14
10.24
Form of Restricted Stock Unit Award Agreement for officers and key employees under the 2016 Stock Incentive Plan incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K filed on February 6, 2017 (File No. 1-14431) (2)
10.25
Form of Indemnification Agreement for directors incorporated by reference herein to Exhibit 10.35 to the Registrant's Form 10-K for the period ended December 31, 2012 (1) (2)
10.2610.15
10.27
Form of 2016 Short-Term Incentive Award Agreement incorporated by reference to Exhibit 10.4 to the Registrant’s Form 8-K filed March 25, 2016 (2)
10.28
2016 Stock Incentive Plan incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on May 19, 2016 (2)
10.2910.16
10.30
2013 Non-Employee Directors Plan incorporated by reference herein to Exhibit 10.2 to the Registrant's Form 8-K filed on March 25, 2016 (2)
10.3110.17
10.3210.18
10.33
2015 Short-Term Incentive Program incorporated by reference herein to Exhibit 10.1 to the Registrant’s Form 8-K filed on March 27, 2015 (2)

10.3410.19
10.3510.20
10.21
10.3610.22
10.23
10.3710.24
10.3810.25
10.3931.1
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for AWR (1)
31.1.1
31.2
31.2.1
32.1
32.2
101.INSXBRL Instance Document (3)- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema (3)
101.CALXBRL Taxonomy Extension Calculation Linkbase (3)
101.DEFXBRL Taxonomy Extension Definition Linkbase (3)
101.LABXBRL Taxonomy Extension Label Linkbase (3)
101.PREXBRL Taxonomy Extension Presentation Linkbase (3)
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

(1)Filed concurrently herewith 
(2)Management contract or compensatory arrangement 
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(3)Furnished concurrently herewith



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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized and as its principal financial officer.
AMERICAN STATES WATER COMPANY (“AWR”):
By:AMERICAN STATES WATER COMPANY (“AWR”):
By:/s/ EVA G. TANG
Eva G. Tang
Senior Vice President-Finance,President - Finance, Chief Financial
Officer, Corporate Secretary and Treasurer
GOLDEN STATE WATER COMPANY (“GSWC”):
By:/s/ EVA G. TANG
Eva G. Tang
Senior Vice President-Finance,President - Finance, Chief Financial
Officer and Secretary
Date:November 6, 2017May 3, 2021

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