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 June 30, 2023

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.


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,August 4, 2023, the number of Common Shares outstanding of American States Water Company was 36,679,17536,976,784 shares. As of November 1, 2017,August 4, 2023, all of the 146171 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




3
1
42
64
75
Consolidated Statements of Changes in Common Shareholders' Equity for the Six Months Ended June 30, 2022
6
87
98
1110
11
12
13
14
2827
5257
5257
5358
5358
5359
5459
5459
5459
5460
5862


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. (“BVES”) and American States Utility Services, Inc. and its subsidiaries ("ASUS"(“ASUS”).
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"“General” in "Item“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, 2022 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)June 30,
2023		December 31,
2022
Property, Plant and Equipment  
  
Property, Plant and Equipment  
Regulated utility plant, at cost $1,699,631
 $1,670,238
Regulated utility plant, at cost$2,391,596 $2,321,712 
Non-utility property, at cost 14,826
 13,441
Non-utility property, at cost39,180 38,285 
Total 1,714,457
 1,683,679
Total2,430,776 2,359,997 
Less - Accumulated depreciation (532,841) (532,753)Less - Accumulated depreciation(616,715)(606,231)
Net property, plant and equipment 1,181,616
 1,150,926
Net property, plant and equipment1,814,061 1,753,766 
    
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 investments39,889 36,907 
Total other property and investments 24,462
 21,952
Total other property and investments41,005 38,023 
    
Current Assets  
  
Current Assets  
Cash and cash equivalents 6,661
 436
Cash and cash equivalents1,026 5,997 
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 $4,235 in 2023 and $4,387 in 2022)Accounts receivable — customers (less allowance for doubtful accounts of $4,235 in 2023 and $4,387 in 2022)27,000 26,206 
Unbilled receivable 25,833
 24,391
Unbilled receivable21,230 20,663 
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)47,301 34,974 
Other accounts receivable (less allowance for doubtful accounts of $53 in 2023 and 2022)Other accounts receivable (less allowance for doubtful accounts of $53 in 2023 and 2022)4,636 4,215 
Income taxes receivable 74
 17,867
Income taxes receivable74 3,901 
Materials and supplies, at average cost 5,377
 4,294
Materials and suppliesMaterials and supplies16,822 14,623 
Regulatory assets — current 27,385
 43,296
Regulatory assets — current25,360 14,028 
Prepayments and other current assets 5,248
 3,735
Prepayments and other current assets9,174 5,450 
Costs and estimated earnings in excess of billings on contracts 34,636
 41,245
Purchase power contract derivative at fair value (Note 5)Purchase power contract derivative at fair value (Note 5)4,657 11,847 
Contract assets (Note 2)Contract assets (Note 2)11,630 9,390 
Total current assets 146,663
 166,875
Total current assets168,910 151,294 
    
Regulatory and Other Assets  
  
Other AssetsOther Assets  
Unbilled revenue — receivable from the U.S. government (Note 2)Unbilled revenue — receivable from the U.S. government (Note 2)6,822 6,456 
Receivable from the U.S. government (Note 2)Receivable from the U.S. government (Note 2)49,077 50,482 
Contract assets (Note 2)Contract assets (Note 2)3,880 5,592 
Operating lease right-of-use assetsOperating lease right-of-use assets8,475 9,535 
Regulatory assets 103,521
 102,985
Regulatory assets32,574 5,694 
Costs and estimated earnings in excess of billings on contracts 21,720
 22,687
Other 8,504
 5,068
Other14,831 13,532 
Total regulatory and other assets 133,745
 130,740
Total other assetsTotal other assets115,659 91,291 
    
Total Assets $1,486,486
 $1,470,493
Total Assets$2,139,635 $2,034,374 
 
The accompanying notes are an integral part of these consolidated financial statementsstatements.








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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)June 30,
2023		December 31,
2022
Capitalization  
  
Capitalization  
Common shares, no par value    Common shares, no 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: 36,976,599 shares in 2023 and 36,962,241 shares in 2022Outstanding: 36,976,599 shares in 2023 and 36,962,241 shares in 2022$262,230 $260,158 
Earnings reinvested in the business 276,344
 247,065
Earnings reinvested in the business492,836 449,391 
Total common shareholders’ equity 525,812
 494,297
Total common shareholders’ equity755,066 709,549 
Long-term debt 320,949
 320,981
Long-term debt576,376 446,547 
Total capitalization 846,761
 815,278
Total capitalization1,331,442 1,156,096 
    
Current Liabilities  
  
Current Liabilities  
Notes payable to bank 46,000
 90,000
Notes payable to banksNotes payable to banks— 255,500 
Long-term debt — current 333
 330
Long-term debt — current414 399 
Accounts payable 53,804
 43,724
Accounts payable70,678 84,849 
Income taxes payable 6,013
 149
Income taxes payable19,453 1,848 
Accrued other taxes 9,195
 9,112
Accrued other taxes14,542 16,257 
Accrued employee expenses 11,211
 12,304
Accrued employee expenses12,741 13,996 
Accrued interest 6,576
 3,864
Accrued interest7,801 5,308 
Unrealized loss on purchased power contracts 3,837
 4,901
Billings in excess of costs and estimated earnings on contracts 2,466
 2,263
Regulatory liabilitiesRegulatory liabilities1,624 4,574 
Contract liabilities (Note 2)Contract liabilities (Note 2)585 903 
Operating lease liabilitiesOperating lease liabilities1,880 1,892 
Other 12,434
 11,297
Other11,212 10,996 
Total current liabilities 151,869
 177,944
Total current liabilities140,930 396,522 
    
Other Credits  
  
Other Credits  
Notes payable to banksNotes payable to banks243,000 22,000 
Advances for construction 67,438
 69,722
Advances for construction63,520 64,351 
Contributions in aid of construction - net 123,569
 120,518
Contributions in aid of construction - net148,660 147,918 
Deferred income taxes 234,719
 224,530
Deferred income taxes153,386 149,677 
Regulatory liabilitiesRegulatory liabilities— 40,602 
Unamortized investment tax credits 1,453
 1,529
Unamortized investment tax credits1,046 1,082 
Accrued pension and other postretirement benefits 46,868
 49,856
Accrued pension and other postretirement benefits35,961 33,636 
Operating lease liabilitiesOperating lease liabilities7,078 8,090 
Other 13,809
 11,116
Other14,612 14,400 
Total other credits 487,856
 477,271
Total other credits667,263 481,756 
    
Commitments and Contingencies (Note 8) 

 

Commitments and Contingencies (Note 9)Commitments and Contingencies (Note 9)
    
Total Capitalization and Liabilities $1,486,486
 $1,470,493
Total Capitalization and Liabilities$2,139,635 $2,034,374 
 
The accompanying notes are an integral part of these consolidated financial statements

statements.
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AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED
ENDED SEPTEMBERJUNE 30, 20172023 AND 20162022
(Unaudited)



 Three Months Ended September 30, Three Months Ended June 30,Six Months Ended June 30,
(in thousands, except per share amounts) 2017 2016(in thousands, except per share amounts)2023202220232022
Operating Revenues  
  
Operating Revenues  
Water $91,919
 $90,617
Water$116,908 $90,856 $229,620 $164,762 
Electric 7,994
 8,146
Electric8,828 8,217 21,732 20,109 
Contracted services 24,505
 25,043
Contracted services31,664 23,534 67,471 46,306 
Total operating revenues 124,418
 123,806
Total operating revenues157,400 122,607 318,823 231,177 
    
Operating Expenses  
  
Operating Expenses  
Water purchased 20,576
 19,631
Water purchased18,070 19,963 32,374 37,811 
Power purchased for pumping 2,913
 2,988
Power purchased for pumping2,869 2,930 5,223 5,304 
Groundwater production assessment 5,870
 4,482
Groundwater production assessment5,365 4,865 9,198 9,076 
Power purchased for resale 2,439
 2,394
Power purchased for resale2,469 1,347 7,455 6,513 
Supply cost balancing accounts (4,621) (4,213)Supply cost balancing accounts2,837 (457)14,403 (6,800)
Other operation 7,657
 7,448
Other operation9,716 9,665 19,832 18,332 
Administrative and general 21,790
 19,768
Administrative and general21,503 20,464 45,050 43,436 
Depreciation and amortization 9,854
 9,486
Depreciation and amortization10,258 10,171 21,461 20,285 
Maintenance 3,222
 4,203
Maintenance3,779 3,572 6,929 6,712 
Property and other taxes 4,475
 4,317
Property and other taxes5,555 5,452 11,850 11,305 
ASUS construction 11,693
 13,685
ASUS construction16,034 10,318 34,938 20,521 
Gain on sale of assets (17) —
Total operating expenses 85,851
 84,189
Total operating expenses98,455 88,290 208,713 172,495 
    
Operating Income 38,567
 39,617
Operating Income58,945 34,317 110,110 58,682 
    
Other Income and Expenses  
  
Other Income and Expenses  
Interest expense (5,775) (5,730)Interest expense(10,728)(6,309)(20,209)(11,915)
Interest income 321
 206
Interest income1,803 437 3,667 720 
Other, net 401
 254
Other, net1,705 (2,289)3,316 (2,708)
Total other income and expenses, net (5,053) (5,270)Total other income and expenses, net(7,220)(8,161)(13,226)(13,903)
    
Income before income tax expense 33,514
 34,347
Income before income tax expense51,725 26,156 96,884 44,779 
    
Income tax expense 12,508
 12,708
Income tax expense13,204 6,205 23,956 10,666 
    
Net Income $21,006
 $21,639
Net Income$38,521 $19,951 $72,928 $34,113 
    
Weighted Average Number of Common Shares Outstanding 36,659
 36,561
Weighted Average Number of Common Shares Outstanding36,976 36,956 36,972 36,950 
Basic Earnings Per Common Share $0.57
 $0.59
Basic Earnings Per Common Share$1.04 $0.54 $1.97 $0.92 
    
Weighted Average Number of Diluted Shares 36,856
 36,762
Weighted Average Number of Diluted Shares37,067 37,039 37,058 37,029 
Fully Diluted Earnings Per Common Share $0.57
 $0.59
Fully Diluted Earnings Per Common Share$1.04 $0.54 $1.97 $0.92 
    
Dividends Declared Per Common Share $0.255
 $0.224
Dividends Paid Per Common ShareDividends Paid Per Common Share$0.3975 $0.3650 $0.7950 $0.7300 
 
The accompanying notes are an integral part of these consolidated financial statementsstatements.


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AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOMECHANGES
IN COMMON SHAREHOLDERS' EQUITY
FOR THE NINESIX MONTHS
ENDED SEPTEMBERJUNE 30, 2017 AND 20162023
(Unaudited)




  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
Six Months Ended June 30, 2023
 Common SharesReinvested 
 Number Earnings 
 of in the 
(in thousands)SharesAmountBusinessTotal
Balances at December 31, 202236,962 $260,158 $449,391 $709,549 
Add:    
Net income34,407 34,407 
Issuances of Common Shares under stock-based compensation plans14— — 
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)1,587 1,587 
Dividend equivalent rights on stock-based awards not paid in cash47 47 
Deduct: 
Dividends on Common Shares14,695 14,695 
Dividend equivalent rights on stock-based awards not paid in cash47 47 
Balances at March 31, 202336,976$261,792 $469,056 $730,848 
Add:
Net income38,521 38,521 
Issuances of Common Shares under stock-based compensation plans1— — 
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)396 396 
Dividend equivalent rights on stock-based awards not paid in cash42 42 
Deduct:
Dividends on Common Shares14,699 14,699 
Dividend equivalent rights on stock-based awards not paid in cash42 42 
Balances at June 30, 202336,977$262,230 $492,836 $755,066 


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

statements.
7
5
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF CHANGES
IN COMMON SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2022
(Unaudited)
Six Months Ended June 30, 2022
 Common SharesReinvested 
 Number Earnings 
 of in the 
(in thousands)SharesAmountBusinessTotal
Balances at December 31, 202136,936$258,442 $427,505 $685,947 
Add:    
Net income14,162 14,162 
Issuances of Common Shares under stock-based compensation plans20— — 
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)801 801 
Dividend equivalent rights on stock-based awards not paid in cash41 41 
Deduct: 
Dividends on Common Shares13,485 13,485 
Dividend equivalent rights on stock-based awards not paid in cash41 41 
Balances at March 31, 202236,956 $259,284 $428,141 $687,425 
Add:
Net income19,951 19,951 
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)338 338 
Dividend equivalent rights on stock-based awards not paid in cash34 34 
Deduct:
Dividends on Common Shares13,489 13,489 
Dividend equivalent rights on stock-based awards not paid in cash34 34 
Balances at June 30, 202236,956 $259,656 $434,569 $694,225 

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

6
Table of Contents
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172023 AND 20162022
(Unaudited)

 Six Months Ended 
 June 30,
(in thousands)20232022
Cash Flows From Operating Activities:  
Net income$72,928 $34,113 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization21,984 20,475 
Provision for doubtful accounts847 549 
Deferred income taxes and investment tax credits599 (152)
Stock-based compensation expense2,577 2,183 
(Gain) loss on investments held in a trust(3,086)5,171 
Other — net(89)178 
Changes in assets and liabilities:  
Accounts receivable — customers(1,641)2,455 
Unbilled receivable(933)3,943 
Other accounts receivable(421)2,538 
Receivables from the U.S. government(10,922)6,658 
Materials and supplies(2,199)(988)
Prepayments and other assets(2,690)(1,215)
Contract assets(528)(4,590)
Regulatory assets/liabilities(70,875)(8,404)
Accounts payable(9,669)1,509 
Income taxes receivable/payable21,432 (1,170)
Contract liabilities(318)65 
Accrued pension and other postretirement benefits2,041 83 
Other liabilities(1,273)(6,496)
Net cash provided17,764 56,905 
Cash Flows From Investing Activities:  
Capital expenditures(88,649)(76,552)
Other investing activities827 136 
Net cash used(87,822)(76,416)
Cash Flows From Financing Activities:  
Receipt of advances for and contributions in aid of construction4,606 4,111 
Refunds on advances for construction(2,973)(3,174)
Repayments of long-term debt(251)(205)
Proceeds from the issuance of long-term debt, net of issuance costs129,665 34,820 
Net changes in notes payable to banks(35,667)18,000 
Dividends paid(29,394)(26,974)
Other financing activities(899)(1,205)
Net cash provided65,087 25,373 
Net change in cash and cash equivalents(4,971)5,862 
Cash and cash equivalents, beginning of period5,997 4,963 
Cash and cash equivalents, end of period$1,026 $10,825 
Non-cash transactions:
Accrued payables for investment in utility plant$35,731 $37,373 
Property installed by developers and conveyed$809 $255 
  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

statements.
8
7
Table of Contents
GOLDEN STATE WATER COMPANY
BALANCE SHEETS
ASSETS
(Unaudited)

(in thousands)June 30,
2023		December 31,
2022
Utility Plant  
Utility plant, at cost$2,205,129 $2,147,643 
Less - Accumulated depreciation(538,429)(530,925)
Net utility plant1,666,700 1,616,718 
Other Property and Investments37,643 34,655 
Current Assets  
Cash and cash equivalents367 370 
Accounts receivable — customers (less allowance for doubtful accounts of $3,994 in 2023 and $4,143 in 2022)24,621 23,107 
Unbilled receivable15,376 15,006 
Other accounts receivable (less allowance for doubtful accounts of $53 in 2023 and 2022)2,774 2,721 
Intercompany receivable458 621 
Income taxes receivable from Parent— 1,692 
Materials and supplies6,505 6,120 
Regulatory assets — current25,360 14,028 
Prepayments and other current assets6,699 4,464 
Total current assets82,160 68,129 
Other Assets  
Operating lease right-of-use assets8,222 9,208 
Regulatory assets19,445 — 
Other13,245 12,598 
Total other assets40,912 21,806 
Total Assets$1,827,415 $1,741,308 
(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

The accompanying notes are an integral part of these financial statements

statements.
9
8
Table of Contents
GOLDEN STATE WATER COMPANY
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)June 30,
2023		December 31,
2022
Capitalization  
  
Capitalization  
Common Shares, no par value:    Common Shares, no par value:
Authorized: 1,000 shares     Authorized: 1,000 shares
Outstanding: 146 shares in 2017 and 2016 $241,684
 $240,482
Outstanding: 171 shares in 2023 and 170 in 2022 Outstanding: 171 shares in 2023 and 170 in 2022$370,129 $358,123 
Earnings reinvested in the business 234,299
 206,288
Earnings reinvested in the business307,296 285,783 
Total common shareholder’s equity 475,983
 446,770
Total common shareholder’s equity677,425 643,906 
Long-term debt 320,949
 320,981
Long-term debt541,568 411,748 
Total capitalization 796,932
 767,751
Total capitalization1,218,993 1,055,654 
    
Current Liabilities  
  
Current Liabilities  
Inter-company payable 29,103
 61,726
Long-term debt — current 333
 330
Long-term debt — current414 399 
Accounts payable 45,415
 34,648
Accounts payable58,151 65,944 
Income taxes payable to Parent 1,136
 —
Accrued other taxes 9,078
 8,870
Accrued other taxes12,908 14,501 
Accrued employee expenses 9,809
 10,983
Accrued employee expenses10,183 11,233 
Accrued interest 6,305
 3,588
Accrued interest7,031 4,364 
Unrealized loss on purchased power contracts 3,837
 4,901
Income taxes payable to ParentIncome taxes payable to Parent18,798 — 
Operating lease liabilitiesOperating lease liabilities1,759 1,788 
Other 12,088
 10,925
Other10,112 10,152 
Total current liabilities 117,104
 135,971
Total current liabilities119,356 108,381 
    
Other Credits  
  
Other Credits  
Intercompany note payableIntercompany note payable— 129,000 
Notes payable to banksNotes payable to banks78,000 — 
Advances for construction 67,438
 69,722
Advances for construction63,500 64,331 
Contributions in aid of construction — net 123,569
 120,518
Contributions in aid of construction — net148,660 147,918 
Deferred income taxes 238,110
 227,798
Deferred income taxes140,762 138,788 
Regulatory liabilitiesRegulatory liabilities— 40,602 
Unamortized investment tax credits 1,453
 1,529
Unamortized investment tax credits1,046 1,082 
Accrued pension and other postretirement benefits 46,868
 49,856
Accrued pension and other postretirement benefits35,695 33,421 
Operating lease liabilitiesOperating lease liabilities6,952 7,878 
Other 13,724
 11,033
Other14,451 14,253 
Total other credits 491,162
 480,456
Total other credits489,066 577,273 
    
Commitments and Contingencies (Note 8) 

 

Commitments and Contingencies (Note 9)Commitments and Contingencies (Note 9)
    
Total Capitalization and Liabilities $1,405,198
 $1,384,178
Total Capitalization and Liabilities$1,827,415 $1,741,308 
 
The accompanying notes are an integral part of these financial statements

statements.
10
9
Table of Contents
GOLDEN STATE WATER COMPANY
STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED
ENDED SEPTEMBERJUNE 30, 20172023 AND 20162022

(Unaudited)


 Three Months Ended September 30, Three Months Ended June 30,Six Months Ended June 30,
(in thousands) 2017 2016(in thousands)2023202220232022
Operating Revenues    Operating Revenues  
Water $91,919
 $90,617
Water$116,908 $90,856 $229,620 $164,762 
Electric 7,994
 8,146
Total operating revenues 99,913
 98,763
Total operating revenues116,908 90,856 229,620 164,762 
    
Operating Expenses    Operating Expenses  
Water purchased 20,576
 19,631
Water purchased18,070 19,963 32,374 37,811 
Power purchased for pumping 2,913
 2,988
Power purchased for pumping2,869 2,930 5,223 5,304 
Groundwater production assessment 5,870
 4,482
Groundwater production assessment5,365 4,865 9,198 9,076 
Power purchased for resale 2,439
 2,394
Supply cost balancing accounts (4,621) (4,213)Supply cost balancing accounts2,787 (1,500)15,412 (6,567)
Other operation 6,493
 6,604
Other operation7,221 7,281 14,492 13,635 
Administrative and general 16,847
 15,833
Administrative and general14,282 13,987 29,663 29,583 
Depreciation and amortization 9,509
 9,240
Depreciation and amortization8,674 8,553 18,280 17,098 
Maintenance 2,692
 3,644
Maintenance2,556 2,511 4,516 4,667 
Property and other taxes 4,144
 4,018
Property and other taxes4,560 4,555 9,699 9,445 
Gain on sale of assets (17) —
Total operating expenses 66,845
 64,621
Total operating expenses66,384 63,145 138,857 120,052 
    
Operating Income 33,068
 34,142
Operating Income50,524 27,711 90,763 44,710 
    
Other Income and Expenses    Other Income and Expenses  
Interest expense (5,638) (5,673)Interest expense(7,835)(5,464)(14,757)(10,700)
Interest income 318
 200
Interest income1,320 146 2,748 237 
Other, net 401
 255
Other, net1,458 (2,402)3,086 (3,000)
Total other income and expenses, net (4,919) (5,218)Total other income and expenses, net(5,057)(7,720)(8,923)(13,463)
    
Income before income tax expense 28,149
 28,924
Income before income tax expense45,467 19,991 81,840 31,247 
    
Income tax expense 10,813
 11,041
Income tax expense11,934 5,103 20,844 7,792 
    
Net Income $17,336
 $17,883
Net Income$33,533 $14,888 $60,996 $23,455 
 
The accompanying notes are an integral part of these consolidated financial statements


statements.
11
10
Table of Contents
GOLDEN STATE WATER COMPANY
STATEMENTS OF INCOMECHANGES
IN COMMON SHAREHOLDER'S EQUITY
FOR THE NINESIX MONTHS
ENDED SEPTEMBERJUNE 30, 2017 AND 20162023
(Unaudited)


Six Months Ended June 30, 2023
 Common SharesReinvested 
 Number Earnings 
 of in the 
(in thousands, except number of shares)SharesAmountBusinessTotal
Balances at December 31, 2022170$358,123 $285,783 $643,906 
Add:    
Net income27,463 27,463 
Issuance of Common Share to Parent110,000 10,000 
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)1,603 1,603 
Dividend equivalent rights on stock-based awards not paid in cash44 44 
Deduct: 
Dividends on Common Shares24,700 24,700 
Dividend equivalent rights on stock-based awards not paid in cash44 44 
Balances at March 31, 2023171 $369,770 $288,502 $658,272 
Add:
Net income33,533 33,533 
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)320 320 
Dividend equivalent rights on stock-based awards not paid in cash39 39 
Deduct:
Dividends on Common Shares14,700 14,700 
Dividend equivalent rights on stock-based awards not paid in cash39 39 
Balances at June 30, 2023171 $370,129 $307,296 $677,425 

  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 statementsstatements.

11

GOLDEN STATE WATER COMPANY
STATEMENTS OF CHANGES
IN COMMON SHAREHOLDER'S EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2022
(Unaudited)
Six Months Ended June 30, 2022
 Common SharesReinvested 
 Number Earnings 
 of in the 
(in thousands, except number of shares)SharesAmountBusinessTotal
Balances at December 31, 2021170$356,530 $259,156 $615,686 
Add:    
Net income8,567 8,567 
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)742 742 
Dividend equivalent rights on stock-based awards not paid in cash39 39 
Deduct: 
Dividends on Common Shares13,500 13,500 
Dividend equivalent rights on stock-based awards not paid in cash39 39 
Balances at March 31, 2022170 $357,311 $254,184 $611,495 
Add:
Net income14,888 14,888 
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)274 274 
Dividend equivalent rights on stock-based awards not paid in cash31 31 
Deduct:
Dividends on Common Shares13,500 13,500 
Dividend equivalent rights on stock-based awards not paid in cash31 31 
Balances at June 30, 2022170 $357,616 $255,541 $613,157 

The accompanying notes are an integral part of these financial statements.
12
Table of Contents
GOLDEN STATE WATER COMPANY
STATEMENTS OF CASH FLOWS
FOR THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172023 AND 20162022
(Unaudited)

 Six Months Ended 
 June 30,
(in thousands)20232022
Cash Flows From Operating Activities:  
Net income$60,996 $23,455 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization18,748 17,230 
Provision for doubtful accounts782 488 
Deferred income taxes and investment tax credits(817)(122)
Stock-based compensation expense2,434 1,964 
(Gain) loss on investments held in a trust(3,086)5,171 
Other — net39 164 
Changes in assets and liabilities:  
Accounts receivable — customers(2,296)2,316 
Unbilled receivable(370)959 
Other accounts receivable(53)1,267 
Materials and supplies(385)(152)
Prepayments and other assets(1,261)(1,072)
Regulatory assets/liabilities(68,016)(8,035)
Accounts payable(1,167)4,200 
Intercompany receivable/payable134 (834)
Income taxes receivable/payable from/to Parent20,490 1,448 
Accrued pension and other postretirement benefits2,007 13 
Other liabilities(973)(5,235)
Net cash provided27,206 43,225 
Cash Flows From Investing Activities:  
Capital expenditures(76,572)(66,984)
Other investing activities203 123 
Net cash used(76,369)(66,861)
Cash Flows From Financing Activities:  
Proceeds from issuance of Common Shares to Parent10,000 — 
Receipt of advances for and contributions in aid of construction4,606 4,051 
Refunds on advances for construction(2,973)(3,174)
Repayments of long-term debt(251)(205)
Proceeds from the issuance of long-term debt, net of issuance costs129,665 — 
Net change in intercompany borrowings(129,000)54,000 
Net borrowings on notes payable to banks77,334 — 
Dividends paid(39,400)(27,000)
Other financing activities(821)(1,103)
Net cash provided49,160 26,569 
Net change in cash and cash equivalents(3)2,933 
Cash and cash equivalents, beginning of period370 525 
Cash and cash equivalents, end of period$367 $3,458 
Non-cash transactions:
Accrued payables for investment in utility plant$31,944 $36,023 
Property installed by developers and conveyed$809 $255 
  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 statementsstatements.

13
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. (“BVES”), 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"(“ECUS”), and Fort Riley Utility Services, Inc. (“FRUS”)).  The subsidiaries of ASUS are collectively referred to as the “Military Utility Privatization Subsidiaries.” AWR, through its wholly owned subsidiaries, serves over one million people in nine states.
 
GSWC and BVES 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 also263,600 customer connections. BVES 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 2016.24,700 customer connections. The California Public Utilities Commission (“CPUC”) regulates GSWC’s water and electricBVES’s businesses in matters including properties, rates, services, facilities, and transactions bybetween GSWC, with itsBVES, 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 theretohereto are presented in a combined report filed by two 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, BVES 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, 20162022 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, 20162022 filed with the SEC.

GSWC's Related Party and Intercompany Transactions: As discussed below under Liquidity and Financing Activities, prior to AWR and GSWC entering into new separate credit agreements on June 28, 2023 that replaced AWR's previous credit agreement, AWR borrowed under its credit facility and provided funds to both GSWC and ASUS in support of their operations.  Under AWR's new credit facility, AWR borrows and continues to provide funds to ASUS in support of their operations. GSWC's new credit facility provides support for its water operations.
Furthermore, GSWC, BVES 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, BVES and ASUS, using allocation factors approved by the CPUC. GSWC allocated corporate office administrative and general costs to the electric segment of approximately $745,000 and $592,000 during the three months ended June 30, 2023 and 2022, respectively, and $2.1 million and $1.4 million during the six month periods ended June 30, 2023 and 2022. GSWC allocated corporate office administrative and general costs to ASUS of approximately $1.0$1.2 million and $1.1 million during the three months ended June 30, 2023 and 2022, respectively, and $2.7 million during each of the threesix months ended SeptemberJune 30, 20172023 and 2016,2022.
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In January 2023, the Board of Directors approved the issuance of one GSWC Common Share to AWR for $10.0 million. In January 2023, GSWC also issued $130.0 million in unsecured private placement long-term notes. GSWC used the proceeds from both the issuance of equity and approximately $3.0long-term debt to pay-off all intercompany borrowings from AWR. On June 28, 2023, GSWC borrowed for the first time under its new syndicated credit facility and used the proceeds to again pay-off in full its short-term intercompany borrowings due to AWR. The CPUC requires GSWC to fully pay-off all intercompany borrowings it has from AWR within a 24-month period. GSWC's borrowings under its new credit facility will also be required to be paid-off in full within a 24-month period.
Liquidity and Financing Activities: On June 28, 2023, AWR and GSWC, each entered into new credit agreements with a term of five years provided by a syndicate of banks and financial institutions. Both credit agreements will mature on June 28, 2028. In connection with the new credit agreements, AWR and GSWC paid upfront, legal and other fees totaling $530,000 and $702,000, respectively. The syndicated credit facilities replaced AWR’s previous credit agreement with a sole bank where AWR had a borrowing capacity of $280.0 million during each ofto support both GSWC and ASUS operations. Funds from the nine months ended September 30, 2017new facilities were used to pay-off in full all outstanding borrowings under AWR's prior credit facility and 2016. In addition, AWR hasGSWC's outstanding intercompany borrowings from AWR.

AWR’s credit agreement provides for a $150.0 million syndicatedunsecured revolving credit facility.facility to support AWR borrowsparent and ASUS. Under AWR’s credit agreement, the borrowing capacity may be expanded up to an additional amount of $75.0 million subject to the lenders’ approval. The aggregate amount that may be outstanding under letters of credit is $10.0 million. Loans may be obtained under this credit facility at the option of AWR and bear interest at rates based on either a base rate plus an applicable margin or an adjusted term secured overnight financing rate (“SOFR”) determined by the SOFR administrator, currently the Federal Reserve Bank of New York, plus an applicable margin. The applicable margin depends upon AWR’s credit rating. AWR's outstanding borrowings under the credit facility of $135.0 million as of June 30, 2023 have been classified as non-current liabilities on AWR’s Consolidated Balance Sheet.

AWR’s credit agreement contains affirmative and negative covenants and events of default customary for credit facilities of this type, including, among other things, affirmative covenants relating to compliance with law and material contracts, and negative covenants relating to additional indebtedness, liens, investments, restricted payments and asset sales by AWR and its subsidiaries, other than BVES. AWR is not permitted to have a consolidated total capitalization ratio (consolidated funded indebtedness to sum of shareholders’ equity and consolidated funded indebtedness), excluding AWR’s electric subsidiary, greater than 0.65 to 1.00 at the end of any quarter. Default under any indebtedness of any subsidiary of AWR, other than BVES, will result in a default under AWR’s credit agreement.

GSWC’s credit agreement provides for a $200.0 million unsecured revolving credit facility to support its operations and capital expenditures. Under GSWC’s credit agreement, the borrowing capacity may be expanded up to an additional amount of $75.0 million, subject to the lenders’ approval. The aggregate amount that may be outstanding under letters of credit is $20.0 million. Loans may be obtained under this credit facility at the option of GSWC and bear interest at rates based on either a base rate plus an applicable margin or an adjusted term SOFR determined by the SOFR administrator plus an applicable margin. The applicable margin depends upon GSWC’s credit rating. GSWC's outstanding borrowings under the credit facility of $78.0 million as of June 30, 2023 have been classified as non-current liabilities on GSWC’s Balance Sheet. Similar to AWR's credit agreement, GSWC's credit agreement also contains affirmative and negative covenants and events of default customary for credit facilities of its type. GSWC is also not permitted to have a total capitalization ratio greater than 0.65 to 1.00 at the end of any quarter. Default under any indebtedness of any subsidiary of AWR will not result in a default under GSWC’s credit agreement.

On June 16, 2023, BVES’s credit agreement was amended to increase the borrowing capacity from $35.0 million to $50.0 million. In addition, BVES’s amended credit agreement also (i) extends the credit facility to July 1, 2026, (ii) converts the interest rate on new borrowings to the benchmark rate of SOFR, plus a margin, and (iii) provides an option to increase the facility by an additional $25.0 million, subject to lender approval. Based on the amended terms of the credit agreement, the outstanding borrowings under the credit facility of $30.0 million as of June 30, 2023 have been classified as a non-current liability in AWR’s Consolidated Balance Sheet. Borrowings made under this facility will continue to be used to support the electric segment's operations and provides funds to its subsidiaries,capital expenditures.
COVID-19 Impact: On April 10, 2023, the Biden Administration terminated the COVID-19 national emergency. The COVID-19 emergency-related memorandum accounts for GSWC and ASUS, in supportBVES expired when the COVID-19 national emergency ended. See Note 3 for further details on the COVID-19 emergency-related memorandum accounts. The COVID-19 pandemic has not had a material impact on ASUS's operations.

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Note 2 — Revenues
Most of September 30, 2017, there was $46.0 million outstanding under this facility. The interest rate charged toRegistrant’s revenues are derived from contracts with customers, including tariff-based revenues from its regulated utilities at GSWC and ASUS is sufficient to cover AWR’s interest expenseBVES. 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. Accordingly, the credit facility.

In October 2015, AWR issued interest-bearing promissory notes (the "Notes") to GSWC and ASUS for $40 million and $10 million, respectively, which expire on May 23, 2018. Under the terms of these Notes, AWR may borrow from GSWC and ASUS amounts up to $40 million and $10 million, respectively, for working capital purposes. AWR agrees to pay any unpaid principal amounts outstandingservices under these notes, plus accrued interest. As of September 30, 2017 and 2016, there were no amounts outstanding under these notes.
Sales and Use Taxes:  GSWC bills certain sales and use taxes levied by state or local governments to its customers. Included in these sales and use taxes are franchise fees, which GSWC pays to various municipalities (based on ordinances adopted by these municipalities) in order to use public rights of way for utility purposes. GSWC bills these franchise fees to its customers based on a CPUC-authorized rate for each ratemaking area as applicable. These franchise fees, which are required to be paid regardless of GSWC’s ability to collect them from its customers,contracts are accounted for 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.
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: In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends Accounting Standards Codification ("ASC") Topic 718, Compensation - Stock Compensation. Under the new guidance, the 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 the effective tax rate. Registrant adopted the new standard effective January 1, 2017 (see Note 6). On a prospective basis, the excess tax benefits 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, 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 BVES have a diversified customer 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. The guidance is effective for fiscal years,approximately 90% of total water 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 oneelectric revenues. Most 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 excludedderived from the

scope of U.S. government. For the new standardthree and therefore, will be disclosed separately fromsix months ended June 30, 2023 and 2022, disaggregated revenues from contracts with customers under the new guidance.by segment were as follows:

Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands)2023202220232022
Water:
Tariff-based revenues$98,378 $83,612 $198,919 $156,110 
Surcharges (cost-recovery activities)558 797 875 1,346 
Other649 571 1,386 1,089 
Water revenues from contracts with customers99,585 84,980 201,180 158,545 
WRAM under-collection (alternative revenue program)17,323 5,876 28,440 6,217 
Total water revenues (1)
116,908 90,856 229,620 164,762 
Electric:
Tariff-based revenues8,929 8,381 21,992 20,933 
Surcharges (cost-recovery activities)117 32 266 59 
Electric revenues from contracts with customers9,046 8,413 22,258 20,992 
BRRAM over-collection (alternative revenue program)(218)(196)(526)(883)
Total electric revenues8,828 8,217 21,732 20,109 
Contracted services:
Water19,181 14,175 41,669 27,721 
Wastewater12,483 9,359 25,802 18,585 
Contracted services revenues from contracts with customers31,664 23,534 67,471 46,306 
Total AWR revenues$157,400 $122,607 $318,823 $231,177 
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 asset 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 effect of the standard on Registrant's financial statements.

In March 2017, 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(1) Water revenues 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 on 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 evaluatingsix months ended June 30, 2023 includes approximately $30 million from the impact of thisretroactive new standard on its financial statements, and to-date has not identifiedrates for the full year of 2022 as 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 Customerresult of the Operation ServicesCPUC's approval of GSWC's general rate case (Note 3). Furthermore, the CPUC also issued a final decision in June 2023 on GSWC's cost of capital proceeding. As a result of the final cost of capital decision (Note 3), which addresses the accounting forthree and six months ended June 30, 2023 include an increase in water revenues of $9.3 million and $6.4 million, respectively, from the reversal of revenues subject to refund due to a service concession arrangement. A service concession arrangement is an arrangement between a grantorchange in estimates from what had been recorded during 2022 and an operating entity for which the terms provide thatfirst quarter of 2023.
The opening and closing balances of the operating entity will operatereceivable from the grantor’s infrastructure (such as waterU.S. government, contract assets, 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:    
(dollars in thousands)June 30, 2023December 31, 2022
Unbilled receivables$11,629 $10,125 
Receivable from the U.S. government$96,378 $85,456 
Contract assets$15,510 $14,982 
Contract liabilities$585 $903 
Unbilled receivables and Receivable from the infrastructure thatU.S. government represent receivables where the right to payment is conditional only by the subjectpassage of a service concession arrangement will not betime.
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Contract Assets - Contract assets are assets of ASUS and consist of unbilled revenues recognized from work-in-progress construction projects, where the right to payment is conditional on something other than the passage of time. 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 liabilities 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. Revenues for the three and six months ended June 30, 2023, which were included in contract liabilities at the beginning of the operating entity. For Registrant,period were not material. Contracted services revenues recognized during the effective datethree and six months ended June 30, 2023 from performance obligations satisfied in previous periods were also not material.
As of this new guidance will be January 1, 2018,June 30, 2023, AWR’s aggregate remaining performance obligations, which are entirely from the same date that Registrant will adoptcontracted services segment, were $3.6 billion. ASUS expects to recognize revenue on these remaining performance obligations over the provisions under Topic 606. Registrant does not expect the adoptionremaining term of each of the guidance on service concession arrangements50-year contracts, which range from 31 to have a significant impact on45 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 BVES record regulatory assets, which represent probable future recovery of incurred 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 SeptemberJune 30, 2017, Registrant2023, GSWC and BVES had approximately $55.7$73.7 million of regulatory assets,liabilities, net of regulatory liabilities,assets, not accruing carrying costs. Of this amount, $26.1(i) $74.9 million of regulatory liabilities are excess deferred income taxes arising from the lower federal income tax rate under the Tax Cuts and Jobs Act enacted in December 2017 that are being refunded to customers, (ii) $2.4 million of net regulatory assets relates to the underfunded position in Registrant's pension and other post-retirementretirement obligations $3.8(not including the two-way pension balancing accounts), and (iii) a $4.7 million relatesregulatory liability related to a memorandum account authorized by the CPUC to track unrealized gains and losses on BVES'sBVES’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.

costs including flowed-through deferred income taxes.
Regulatory assets represent costs incurred by GSWC and/or BVES 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 BVES 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 BVES’s regulatory 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'sasset’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)June 30,
2023		December 31,
2022
GSWC
2022/2023 general rate case memorandum accounts (unbilled revenue)$50,345 $— 
Water revenue adjustment mechanism, net of modified cost balancing account39,006 31,803 
COVID-19 memorandum accounts3,543 3,478 
Excess deferred income taxes(70,967)(71,870)
Other regulatory assets24,917 19,964 
Other regulatory liabilities(2,039)(9,949)
Total GSWC$44,805 $(26,574)
BVES
Derivative instrument memorandum account (Note 5)(4,657)(11,847)
Wildfire mitigation and other fire prevention related costs memorandum accounts15,121 13,007 
Other regulatory assets9,546 7,965 
Other regulatory liabilities(8,505)(8,005)
Total AWR$56,310 $(25,454)
(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, 20162022 filed with the SEC. The discussion below focuses on significant matters and developments since December 31, 2016.2022.


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Water General Rate Case and the 2022/2023 General Rate Case Memorandum Accounts:
On June 29, 2023, the CPUC adopted a final decision in GSWC's general rate case application for all of its water regions and its general office that determines new water rates for the years 2022–2024. The assigned administrative law judge at the CPUC had issued a proposed decision on April 13, 2023 that, among other things, (i) adopted the full settlement agreement between GSWC and the Public Advocates Office at the CPUC (“Public Advocates”) that resolved all issues related to the 2022 annual revenue requirement in the general rate case application, and (ii) allowed for additional increases in adopted revenues for 2023 and 2024 subject to an earnings test and inflationary index values at the time of filing for implementation of the new rates. The final decision issued on June 29, 2023 is consistent in all material respects with the proposed decision issued in April. The new rates for 2022 and 2023 are effective and retroactive to January 1, 2022 and January 1, 2023, respectively. The impact of retroactive rates for the full year of 2022 as well as the 2023 second-year rate increases for the first half of 2023 have been reflected in the results of operations for the six months ended June 30, 2023. Because of receiving a proposed decision in April 2023 that approved the settlement agreement in its entirety, the impact of retroactive rates for the full year of 2022 and the estimated second-year rate increases had been reflected in the 2023 first quarter results as it became probable that the approved retroactive rates for the full year of 2022 and the first three months of 2023 would be permitted to be billed to customers in the future.
Due to the delay in finalizing the water general rate case, water revenues billed to customers for the year ended December 31, 2022 and for the six months ended June 30, 2023 were based on 2021 adopted rates. GSWC was authorized to create general rate case memorandum accounts to track the revenue differences between the 2021 adopted rates and the new 2022 and 2023 rates authorized by the CPUC. As of June 30, 2023, there is an aggregate cumulative amount of $50.3 million in the general rate case memorandum accounts that have been recorded as regulatory assets related to unbilled water revenues recognized during the three and six months ended June 30, 2023, and which represent the difference between the 2021 adopted rates billed to customers and the rates authorized in the final decision for the full year of 2022 and the 2023 second-year rate increases recorded through June 30, 2023. As a result of receiving the final decision, GSWC filed for the implementation of new 2023 rate increases that went into effect on July 31, 2023. Within 90 days after the implementation of 2023 rates, GSWC will also file to recover all retroactive amounts accumulated in GSWC's general rate case memorandum accounts, of which the majority of the balances will be recovered over a 36-month period.
Alternative-Revenue Programs:

GSWC currently 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”) 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-day commercial paper90-day commercial-paper rate. 

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 SeptemberJune 30, 2017,2023, GSWC had an aggregated regulatory asset of $40.2$39.0 million, which is comprised of a $20.0$43.4 million under-collection in the WRAM accounts and a $20.2 million under-collection$4.4 over-collection in the MCBA accounts.

During the six months ended June 30, 2023, GSWC recorded additional net under-collections in the WRAM/MCBA accounts of approximately $22.2 million related to the 2023 year that resulted largely from lower-than-adopted water usage as authorized in the general rate case decision. In addition, GSWC recorded a net reduction of $9.8 million of under-collections during the first quarter of 2023 to reflect the cumulative full-year impact of 2022 based on authorized 2022 amounts approved in the general rate case decision for both the WRAM and MCBA accounts. On July 27, 2023, the CPUC approved the recovery of all pre-2023 WRAM/MCBA balances. Accordingly, GSWC has implemented surcharges and surcredits to recover/refund all of its WRAM/MCBA balances accumulated as of December 31, 2022.
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. As of June 30, 2023, there were no WRAM under-collections that were estimated to be collected beyond this 24 month period.
Cost of Capital Proceeding:
On June 29, 2023, a final decision was adopted by the CPUC in the cost of capital proceeding that, among other things, (i) adopts GSWC’s requested capital structure of 57% equity and 43% debt; (ii) adopts a cost of debt of 5.1% for GSWC as compared to 6.6% previously authorized; (iii) adopts a return on equity of 8.85% for GSWC as compared to 8.9% previously authorized; (iv) allows for the continuation of the Water Cost of Capital Mechanism (“WCCM”) through December 31, 2024; and (v) adopts the new cost of capital for the three-year period commencing January 1, 2022 through December 31, 2024. Based on the Company's assessment of the final decision issued in June, all adjustments to rates are to be prospective and not retroactive. GSWC filed an advice letter that implemented the new cost of capital effective July 31, 2023.
Following the receipt of the final decision adopted on June 29 in the cost of capital proceeding, management updated its analysis and reassessed the accounting estimates recorded to date related to GSWC’s lower cost of debt. Accordingly, GSWC recorded a change in estimate that resulted in an increase to water revenues during the second quarter of 2023 in the amount of $9.3 million as a result of reversing its regulatory liability for revenues subject to refund that it had recorded during 2022 and
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through the end of the first quarter of 2023. The lower revenues recorded in order2022 and in the first quarter of 2023 of $6.4 million and $2.9 million, respectively, were estimates of revenues subject to recognize such amountsrefund at that time associated with the lower cost of debt.
The WCCM adjusts the return on equity and rate of return on rate base between the three-year cost of capital proceedings only if there is a positive or negative change of more than 100 basis points in the average of the Moody’s Aa utility bond rate as revenue.  The recovery periodsmeasured over the period October 1 through September 30. If there is a positive or negative change of more than 100 basis points, the return on equity is adjusted by one half of the difference. For the period from October 1, 2021 through September 30, 2022, the Moody’s rate increased by 102.8 basis points from the benchmark, which triggered the WCCM adjustment. GSWC recognized revenues for the majorityfirst half of 2023 and all of 2022 based on the previously authorized return of equity of 8.9% that has been billed to water customers through the first half of 2023. On June 30, 2023, GSWC filed an advice letter to establish the WCCM for 2023, which increased GSWC's WRAM/MCBA balances are primarily within 24 months; however,8.85% adopted return on equity in the decision to 9.36% effective July 31, 2023.
COVID-19 Emergency Memorandum Accounts:
The CPUC has authorized GSWC and BVES to track incremental costs, including bad debt expense, in excess of what is included in their respective revenue requirements incurred as a result of December 31, 2015 there were some ratemaking areas thatthe pandemic in COVID-19 emergency-related memorandum accounts. As of June 30, 2023, GSWC and BVES had recovery periodsapproximately $3.5 million and $500,000, respectively, in regulatory asset accounts related to bad debt expense in excess of their revenue requirements, the 2015 WRAM balances that were greater than 24 months.purchase of personal protective equipment, additional incurred printing costs, and other incremental COVID-19-related costs, which GSWC and BVES intend to file with the CPUC for future recovery. Emergency-related memorandum accounts are well-established cost recovery mechanisms authorized as a result of a state/federal declared emergency, and are therefore recognized as regulatory assets for future recovery. As a result, during the fourth quarter of 2015,amounts recorded in the COVID-19 emergency-related memorandum accounts have not impacted GSWC’s or BVES’s earnings. On April 10, 2023, the Biden Administration terminated the COVID-19 national emergency. The COVID-19 emergency-related memorandum accounts for GSWC did not record $1.4 millionand BVES expired when the COVID-19 national emergency ended and no additional amounts will be included in these memorandum accounts.
The CPUC requires that amounts tracked in GSWC’s and BVES’s COVID-19 memorandum accounts for unpaid customer bills be first offset by any (i) federal and state relief for water or electric utility bill debt, and (ii) customer payments through payment plan arrangements, prior to receiving recovery from customers at large. After these offsets are made, GSWC will file with the CPUC for recovery of the 2015 WRAM under-collectionremaining balance. BVES intends to include the remaining balance as revenue. This amount hasin its COVID-19 memorandum account for recovery once all alternative sources of funding have been recognized as revenue in the periods in which it was determined the amounts would be collected within 24 months. Approximately $450,000exhausted and $910,000 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:credited to eligible customer accounts.
In December 2016,2022, the CPUC’s moratoriums on service disconnections for nonpayment for water and electric customers ended. As a result, service disconnections due to nonpayment resumed with disconnections for delinquent residential customers having resumed in June 2022.
BVES Regulatory Assets:
Wildfire Mitigation and Other Fire Prevention Related Costs Memorandum Accounts
The CPUC adopted regulations intended to enhance the fire safety of overhead electric power lines. Those regulations included increased minimum clearances around electric power lines. BVES was authorized to track incremental costs incurred to implement the regulations in a fire hazard prevention memorandum account for the purpose of obtaining cost recovery in a future general rate case. In August 2019, the CPUC issued a final decision in GSWC's wateron the electric general rate case, for all its water ratemaking areas and the general office to determinewhich set new rates for BVES through the years 2016, 2017 and 2018. The new rates approved were retroactiveyear 2022. Among other things, the decision authorized BVES to January 1, 2016. However, because of delays in issuing a final decision, the CPUC ordered GSWCrecord incremental costs related to bypass implementing 2016 rates and to implement 2017 rates after the correction of minor rate calculationsvegetation management, such as costs for increased minimum clearances around electric power lines, in the December 2016 decision,CPUC-approved memorandum account for future recovery. As of June 30, 2023, BVES had approximately $10.1 million in incremental vegetation management costs recorded as a regulatory asset, which the CPUC completedhas been included in a new general rate case application filed with the issuance of 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 surcharges2022 for future recovery. The incremental costs related to recovervegetation management included in the memorandum account will be subject to review during the pending general rate case proceeding.
California legislation enacted in September 2018 requires all investor-owned electric utilities to submit an annual wildfire mitigation plan (“WMP”) to the CPUC for approval. The WMP must include a utility’s plans on constructing, maintaining and operating its electrical lines and equipment to minimize the risk of catastrophic wildfire. In December 2022, the Office of Energy Infrastructure Safety under the California Natural Resources Agency approved BVES's 2022 WMP update. In February 2023, the CPUC ratified BVES’s current WMP. As of June 30, 2023, BVES has approximately $5.0 million related to expenses accumulated in its WMP memorandum accounts that have been recognized as regulatory assets for future recovery.
All capital expenditures and other costs incurred through June 30, 2023 as a result of BVES’s WMPs are not currently in rates and have been filed for future recovery in BVES’s general rate case application. These costs will be subject to review during BVES's general rate case proceeding.

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2023 Winter Storm Other Regulatory Asset
BVES activated a catastrophic emergency memorandum account (“CEMA”) to track the incremental costs incurred in response to a severe winter storm that occurred during certain weeks of the first and second quarters of 2023, which resulted in the declaration of an emergency by the governor of California. Incremental costs of approximately $1.3 million were incurred and included in the CEMA account, which has been recorded as a regulatory asset as of June 30, 2023 for future recovery. The incremental costs included in the CEMA account will be subject to review and approval by the CPUC. CEMA accounts are well-established cost recovery mechanisms authorized 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 this shortfall were implemented on September 1, 2017 with amortization periods ranging between 12 - 36 months for GSWC's various water ratemaking areas.CEMA account did not impact BVES’s earnings.
Other Regulatory Assets:
Other Regulatory Matters:
Formal Complaint Filed withregulatory assets represent costs incurred by GSWC or BVES for which they have received or expect to receive rate recovery in the future. Registrant believes that these regulatory assets are supported by regulatory rules and decisions, past practices, and other facts or circumstances that indicate recovery is probable. If the CPUC
In June 2016, determines that a third party filed a formal complaint withportion of either GSWC’s or BVES’s regulatory assets are not recoverable in customer rates, the CPUC against GSWC about a water main breakapplicable entity must determine if it has suffered an asset impairment that occurred in 2014 causing damagerequires it to a commercial building. Repairswrite down the regulatory asset to the building have been delayed for a varietyamount that is probable of reasons, including 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 and the costs associated therewith. The complaint filed with the CPUC requests, among other things, that the CPUC investigate the main break, the damage to the commercial building and the delay 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.recovery.

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.  GSWC believes it has sufficient insurance coverage to cover the judgment and attorney fees totaling $3.5 million entered by the Court in this lawsuit.  However, GSWC 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 results of operations, financial position or cash flows.


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 PlansAWR’s stock 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 September 30,  For The Nine Months Ended 
 September 30,		Basic: For The Three Months Ended 
 June 30,		 For The Six Months Ended 
 June 30,
(in thousands, except per share amounts) 2017 2016 2017 2016(in thousands, except per share amounts)2023202220232022
Net income $21,006
 $21,639
 56,499
 48,531
Net income$38,521 $19,951 $72,928 $34,113 
Less: (a) Distributed earnings to common shareholders 9,349
 8,189
 27,064
 24,558
Less: (a) Distributed earnings to common shareholders14,698 13,489 29,394 26,974 
Distributed earnings to participating securities 50
 48
 139
 141
Distributed earnings to participating securities43 36 80 67 
Undistributed earnings 11,607
 13,402
 29,296
 23,832
Undistributed earnings23,780 6,426 43,454 7,072 
        
(b) Undistributed earnings allocated to common shareholders 11,546
 13,323
 29,147
 23,696
 (b) Undistributed earnings allocated to common shareholders23,711 6,409 43,337 7,055 
Undistributed earnings allocated to participating securities 61
 79
 149
 136
Undistributed earnings allocated to participating securities69 17 117 17 
        
Total income available to common shareholders, basic (a)+(b) $20,895
 $21,512
 $56,211
 $48,254
Total income available to common shareholders, basic (a)+(b)$38,409 $19,898 $72,731 $34,029 
        
Weighted average Common Shares outstanding, basic 36,659
 36,561
 36,625
 36,546
Weighted average Common Shares outstanding, basic36,976 36,956 36,972 36,950 
        
Basic earnings per Common Share $0.57
 $0.59
 $1.53
 $1.32
Basic earnings per Common Share$1.04 $0.54 $1.97 $0.92 
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,directors, and net income. There were no stock options outstanding as of June 30, 2023 and 2022 under these plans. At SeptemberJune 30, 20172023 and 2016,2022, there were 70,702110,576 and 138,060 options outstanding, respectively, under these Plans. At September 30, 2017 and 2016, there were also 195,457 and 216,733100,820 restricted stock units outstanding, respectively, including performance shares awarded to officers of the Registrant.Company.

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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 
 June 30,		 For The Six Months Ended 
 June 30,
(in thousands, except per share amounts)2023202220232022
Common shareholders earnings, basic$38,409 $19,898 $72,731 $34,029 
Undistributed earnings for dilutive stock-based awards69 17 117 17 
Total common shareholders earnings, diluted$38,478 $19,915 $72,848 $34,046 
Weighted average common shares outstanding, basic36,976 36,956 36,972 36,950 
Stock-based compensation (1)91 83 86 79 
Weighted average common shares outstanding, diluted37,067 37,039 37,058 37,029 
Diluted earnings per Common Share$1.04 $0.54 $1.97 $0.92 
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
(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 195,457110,576 and 216,733100,820 restricted stock units at SeptemberJune 30, 20172023 and 2016,2022, respectively, were included in the calculation of diluted EPS for the three and ninesix months ended June 30, 2023 and 2022.
During the six months ended SeptemberJune 30, 20172023 and 2016.2022, AWR issued 14,358 and 19,742 of common shares related to restricted stock units, respectively.
No stock options outstanding at September 30, 2017 had an exercise price greater thanDuring the average market price of AWR’s Common Shares for the three and ninesix months ended SeptemberJune 30, 2017. There were no stock options outstanding at September 30, 2017 or 2016 that were anti-dilutive.
2023 and 2022, AWR paid $899,000 and $1.2 million, respectively, to taxing authorities on employees’ behalf for shares withheld related to net share settlements. During the ninesix months ended SeptemberJune 30, 20172023 and 2016, AWR issued 107,8152022, GSWC paid $821,000 and 67,832 common$1.1 million, respectively, to taxing authorities on employees’ behalf for shares for approximately $884,000 and $210,000, respectively, under Registrant’s Common Share Purchase and Dividend Reinvestment Plan,withheld related to net share settlements. These payments are included in the 401(k) Plan,stock-based compensation caption of the 2000, 2008 and 2016 Stock Incentive Plans, and the 2003 and 2013 Non-Employee Directors Stock Plans.

statements of equity.
During the three months ended SeptemberJune 30, 20172023 and 2016,2022, AWR paid quarterly dividends of approximately $9.3$14.7 million, or $0.255$0.3975 per share, and $8.2$13.5 million, or $0.224$0.3650 per share, respectively. During the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, AWR paid quarterly dividends to shareholders of approximately $27.1$29.4 million, or $0.739$0.7950 per share, and $24.6$27.0 million, or $0.672$0.7300 per share, respectively.

During the six months ended June 30, 2023, GSWC issued one Common Share to AWR for $10.0 million. Proceeds from the stock issuance were used to pay down a portion of intercompany borrowings owed to AWR as described in Note 1.
During the three months ended June 30, 2023 and 2022, GSWC paid dividends of $14.7 million and $13.5 million, respectively, to AWR. During the six months ended June 30, 2023 and 2022, GSWC paid dividends of $39.4 million and $27.0 million, respectively, to AWR.
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. BVES purchaseshas purchased power under long-term contracts at a fixed cost over three- and five-year terms depending on the amount of power and the period during which the power is purchased under suchthe contracts.  In December 2014, the CPUC approved an application that allowed BVES to immediately execute newThese long-term purchased power contracts with energy providers. BVES began taking power under these long-term contracts effective January 1, 2015 over three- and five-year terms.
The long-term 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 bearingnon-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’sRegistrant’s earnings. As of SeptemberJune 30, 2017,2023, there was a $3.8$4.7 million unrealized losspurchase power contract derivative asset at fair value, with a corresponding regulatory liability recorded in the derivative instrument memorandum account for the purchased power contracts as a result of a drop infixed prices under BVES's purchase power contracts being lower than future energy prices. The notional volume of derivatives remaining under these long-term contracts as of SeptemberJune 30, 20172023 was approximately 245,000157,571 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 makesRegistrant 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
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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 purchase power 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 ninesix months ended SeptemberJune 30, 20172023 and 2016:2022. The change in fair value was due to the change in market energy prices during the three and six months ended June 30, 2023 and 2022.
 For The Three Months Ended 
 June 30,		 For The Six Months Ended 
 June 30,
(dollars in thousands)2023202220232022
Fair value at beginning of the period$6,669 $7,020 $11,847 $4,441 
Unrealized (losses) gains on purchased power contracts(2,012)1,094 (7,190)3,673 
Fair value at end of the period$4,657 $8,114 $4,657 $8,114 
  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"(“SERP”) are measured at fair value and totaled $14.8totaled $30.6 million as of June 30, 2023 and $27.5 million as of September 30, 2017.December 31, 2022. 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. AWR and GSWC, respectively. The fair values as of SeptemberJune 30, 20172023 and December 31, 20162022 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.
June 30, 2023December 31, 2022
(dollars in thousands)Carrying AmountFair ValueCarrying AmountFair Value
Financial liabilities:    
Long-term debt—AWR (1)
$580,122 $552,374 $450,373 $424,151 
June 30, 2023December 31, 2022
(dollars in thousands)Carrying AmountFair ValueCarrying AmountFair Value
Financial liabilities:
Long-term debt—GSWC (2)
$545,122 $519,412 $415,373 $391,198 
  September 30, 2017 December 31, 2016
(dollars in thousands) Carrying Amount Fair Value Carrying Amount Fair Value
Financial liabilities:  
  
  
  
Long-term debt—GSWC (1)
 $325,275
 $423,841
 $325,582
 $423,124
__________________
___________________
(1) Excludes debt issuance costs of approximately $3.3 million and redemption premiums.$3.4 million as of June 30, 2023 and December 31, 2022, respectively.

(2) Excludes debt issuance costs of approximately $3.1 million and $3.2 million as of June 30, 2023 and December 31, 2022, respectively.
Note 67 — Income Taxes
AWR's consolidatedAWR’s effective income tax rate (“ETR”) was 37.3%25.5% and 37.0%23.7% for the three months ended SeptemberJune 30, 20172023 and 2016,2022, respectively, and was 37.3%24.7% and 37.1%23.8% for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, 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'sGSWC’s ETR was 38.4%26.2% and 38.2%25.5% for the three months ended SeptemberJune 30, 20172023 and 2016,2022, respectively, and was 38.6%25.5% and 38.3%24.9% for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively. GSWC's ETR increased
The AWR and also deviatedGSWC ETRs differed from the federal corporate statutory tax rate of 21% primarily due to (i) state taxes; (ii) permanent differences, including certain tax effects from stock compensation; (iii) the ongoing amortization of the excess deferred income tax liability; and (iv) differences between book and taxable income that are treated as flow-through flowed-through
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adjustments in accordance with regulatory requirements (principally from plant, rate case,rate-case, and compensation-related items).

As a regulated utility,utilities, GSWC treatsand BVES treat certain temporary differences as flow-through adjustmentsbeing flowed-through in computing its income tax provisionexpense consistent with the income tax approach approved by the CPUC for ratemaking purposes. Flow-through adjustmentsmethod used in its CPUC-jurisdiction rate making. Flowed-through items 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 ninesix months ended SeptemberJune 30, 20172023 and 2016 are2022 were as follows:
For The Three Months Ended June 30,
Pension BenefitsOther
Postretirement
Benefits		SERP
(dollars in thousands)(dollars in thousands)202320222023202220232022
Components of Net Periodic Benefits Cost:Components of Net Periodic Benefits Cost:      
Service costService cost$846 $1,342 $33 $33 $312 $298 
Interest costInterest cost2,513 1,856 26 16 411 256 
Expected return on plan assetsExpected return on plan assets(2,623)(3,290)(119)(147)— — 
Amortization of prior service costAmortization of prior service cost108 109 — — — — 
Amortization of actuarial (gain) lossAmortization of actuarial (gain) loss— — (242)(412)(8)145 
Net periodic benefits costs under accounting standardsNet periodic benefits costs under accounting standards844 17 (302)(510)715 699 
Regulatory adjustments - deferredRegulatory adjustments - deferred(92)— — — — — 
Total expense (benefit) recognized, before surcharges and allocation to overhead poolTotal expense (benefit) recognized, before surcharges and allocation to overhead pool$752 $17 $(302)$(510)$715 $699 
 For The Three Months Ended September 30,For The Six Months Ended June 30,
 Pension Benefits 
Other
Postretirement
Benefits
 SERPPension BenefitsOther
Postretirement
Benefits		SERP
(dollars in thousands) 2017 2016 2017 2016 2017 2016(dollars in thousands)202320222023202220232022
Components of Net Periodic Benefits Cost:  
  
  
  
  
  
Components of Net Periodic Benefits Cost:
Service cost $1,250
 $1,274
 $53
 $68
 $232
 $200
Service cost$1,692 $2,822 $66 $66 $624 $596 
Interest cost 1,976
 1,978
 73
 97
 223
 186
Interest cost5,026 3,700 51 32 822 512 
Expected return on plan assets (2,428) (2,457) (107) (122) —
 —
Expected return on plan assets(5,246)(6,582)(239)(294)— — 
Amortization of prior service cost (benefit) —
 12
 —
 (9) 3
 6
Amortization of prior service costAmortization of prior service cost216 218 — — — — 
Amortization of actuarial (gain) loss 231
 228
 (242) (150) 194
 73
Amortization of actuarial (gain) loss— — (482)(824)(16)290 
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
Net periodic benefits costs under accounting standardsNet periodic benefits costs under accounting standards1,688 158 (604)(1,020)1,430 1,398 
Regulatory adjustments - deferredRegulatory adjustments - deferred(184)— — — — — 
Total expense (benefit) recognized, before surcharges and allocation to overhead poolTotal expense (benefit) recognized, before surcharges and allocation to overhead pool$1,504 $158 $(604)$(1,020)$1,430 $1,398 

   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
In 2023, Registrant contributed $6.5expects to contribute approximately $3.0 million to its pension plan during the nine months ended September 30, 2017.
Regulatory Adjustment:plan.
As authorized by the CPUC in the most recent water and electric general rate case decisions, GSWC utilizesand BVES 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 and six months ended June 30, 2023, GSWC’s actual pension expense was higher than the amounts included in water customer rates by $92,000 and $184,000, respectively. GSWC’s actual pension expense was lower than the amounts included in water customer rates for the three and six months ended June 30, 2022. BVES’s actual expense was lower than the amounts included in electric customer rates for all periods presented. As of SeptemberJune 30, 2017,2023, GSWC and BVES had a total of $1.1 million over-collectionover-collections in thetheir two-way pension balancing accounts of $1,150,000 and $145,000, respectively, included as part of the pension regulatory assetassets and liabilities (Note 2)3).

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 Over-collections are recorded as a reduction to operating expenses. Furthermore, quarterly interest-only payments calculated on the unpaid Judgment Amountrevenues.

23
Table 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 result 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 at GSWC:
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 SeptemberJune 30, 2017,2023, the total amount spent to clean-upclean up and remediate GSWC’s plant facility was approximately $5.2$6.3 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 SeptemberJune 30, 2017,2023, 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.

Contracted Services:
ASUS’s utility privatization contract services are provided to the U.S. government pursuant to the terms of the initial 50-year firm, fixed-price contract and additional firm, fixed-price contracts subject to annual economic price adjustments. Entering into contracts with the U.S. government subjects ASUS to potential government audits or investigations of its business practices and compliance with government procurement statutes and regulations. ASUS had been under a civil government investigation over bidding and estimating practices used in certain capital upgrade projects and has fully cooperated with the investigation. In July 2023, ASUS and the U.S. government entered into an agreement that settles civil and monetary claims by the U.S. government. This settlement did not have a material impact on Registrant’s financial statements.
Other Litigation: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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Table of Contents
Note 910 — Business Segments
AWR has three reportable segments,segments: water, electric and contracted services, whereasservices. GSWC has two segments, water and electric.one segment, water. On a stand-alone basis, AWR has no material assets or liabilities other than its equity investments in its subsidiaries. 
subsidiaries, note payables to bank, deferred taxes and intercompany note receivables.
All GSWC and BVES business activities of GSWC, a rate-regulated utility, are geographically located withinconducted in California. Activities of ASUS and its subsidiariesthe Military Utility Privatization Subsidiaries are conducted in California, 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. EachSome of ASUS’s wholly owned subsidiaries isare 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 amountsbalances are net of respective accumulated provisions for depreciation. Capital additions reflect capital expenditures paid in cash and exclude U.S. government-government-funded and third-party contractor-fundedprime funded capital expenditures for ASUS, and property installed by developers and conveyed to GSWC.GSWC and BVES.
 As Of And For The Three Months Ended June 30, 2023
 ContractedAWRConsolidated
(dollars in thousands)WaterElectric ServicesParentAWR
Operating revenues$116,908 $8,828 $31,664 $— $157,400 
Operating income (loss)50,524 2,103 6,354 (36)58,945 
Interest expense (income), net6,515 654 327 1,429 8,925 
Net property, plant and equipment1,666,700 130,502 16,859 — 1,814,061 
Depreciation and amortization expense (1)
8,674 759 825 — 10,258 
Income tax expense (benefit)11,934 247 1,506 (483)13,204 
Capital additions34,567 4,386 359 — 39,312 
 As Of And For The Three Months Ended June 30, 2022
 ContractedAWRConsolidated
(dollars in thousands)WaterElectricServicesParentAWR
Operating revenues$90,856 $8,217 $23,534 $— $122,607 
Operating income (loss)27,711 2,038 4,571 (3)34,317 
Interest expense (income), net5,318 295 (102)361 5,872 
Net property, plant and equipment1,553,389 111,394 18,704 — 1,683,487 
Depreciation and amortization expense (1)
8,553 686 932 — 10,171 
Income tax expense (benefit)5,103 215 1,108 (221)6,205 
Capital additions35,519 5,306 557 — 41,382 
 As Of And For The Six Months Ended June 30, 2023
 ContractedAWRConsolidated
(dollars in thousands)WaterElectric ServicesParentAWR
Operating revenues$229,620 $21,732 $67,471 $— $318,823 
Operating income (loss)90,763 5,734 13,650 (37)110,110 
Interest expense (income), net12,009 1,227 554 2,752 16,542 
Net property, plant and equipment1,666,700 130,502 16,859 — 1,814,061 
Depreciation and amortization expense (1)
18,280 1,507 1,674 — 21,461 
Income tax expense (benefit)20,844 948 3,191 (1,027)23,956 
Capital additions76,572 11,038 1,039 — 88,649 

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Table of Contents
 As Of And For The Three Months Ended September 30, 2017 As Of And For The Six Months Ended June 30, 2022
 GSWC   AWR Consolidated ContractedAWRConsolidated
(dollars in thousands) Water Electric ASUS Parent AWR(dollars in thousands)WaterElectric ServicesParentAWR
Operating revenues $91,919
 $7,994
 $24,505
 $—
 $124,418
Operating revenues$164,762 $20,109 $46,306 $— $231,177 
Operating income (loss) 31,473
 1,595
 5,502
 (3) 38,567
Operating income (loss)44,710 5,636 8,341 (5)58,682 
Interest expense, net 4,974
 346
 58
 76
 5,454
Utility plant 1,117,674
 57,669
 6,273
 —
 1,181,616
Interest expense (income), netInterest expense (income), net10,463 408 (237)561 11,195 
Net property, plant and equipmentNet property, plant and equipment1,553,389 111,394 18,704 — 1,683,487 
Depreciation and amortization expense (1) 8,972
 537
 345
 —
 9,854
Depreciation and amortization expense (1)
17,098 1,340 1,847 — 20,285 
Income tax expense (benefit) 10,544
 269
 1,944
 (249) 12,508
Income tax expense (benefit)7,792 1,167 2,052 (345)10,666 
Capital additions 30,536
 559
 905
 —
 32,000
Capital additions66,984 8,774 794 — 76,552 

  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 BVES’s transportation equipment is recorded in other operatingoperation expenses and totaled $61,000$155,000 and $68,000$95,000 for the three months ended SeptemberJune 30, 20172023 and 2016,2022, respectively, and $181,000totaled $523,000 and $202,000$189,000 for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively.

For the six months ended June 30, 2023, approximately $212,000 of additional depreciation expense on GSWC's transportation equipment was recorded that relates to the cumulative retroactive impact for the full year of 2022 approved in the CPUC final decision in GSWC's general rate case that resulted from an increase to the transportation equipment composite depreciation rates that are retroactive to January 1, 2022.
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
 June 30,
 20232022
Total net property, plant and equipment$1,814,061 $1,683,487 
Other assets325,574 266,159 
Total consolidated assets$2,139,635 $1,949,646 

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Table of Contents
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 includes specific references to AWR’s individual segments and its subsidiaries (GSWC, BVES, and ASUS and its subsidiaries), and AWR (parent) where applicable. The subsidiaries of ASUS are collectively referred to as the “Military Utility Privatization Subsidiaries.”
Included in the following analysis is a discussion of AWR’s operations in terms of earnings per share by business segment and AWR (parent), which equals each business segment's earnings divided by AWR’s weighted average number of diluted common shares. Furthermore, the gains and losses generated on the investments held to fund one of the Company’s retirement plans during the three and six months ended June 30, 2023 and 2022 have been excluded when communicating the results to help facilitate comparisons of AWR’s performance from period to period. Finally, both the impact of retroactive rates related to the full year 2022 recorded during the six months ended June 30, 2023 resulting from the final decision on the water general rate case, and the impact from the estimates of revenues subject to refund recorded in 2022 and changes in estimates recorded in 2023 following the receipt of a final cost of capital decision in June of 2023 have been excluded when communicating AWR’s consolidated and water segment’s results for the three and six months ended June 30, 2023 to help facilitate comparisons of the Company’s performance from period to period.
All of the measures discussed above 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 Securities and Exchange Commission rules, which supplement our GAAP disclosures but should not be considered as an alternative to the respective GAAP measures. Furthermore, the non-GAAP financial measures may not be comparable to similarly titled non-GAAP financial measures of other registrants.
AWR uses earnings per share by business segment as an important measure in evaluating its operating results and believes it provides investors with clarity surrounding the performance of its segments. AWR reviews this measurement regularly and compares it to historical periods and to its operating budget. A reconciliation to AWR’s consolidated diluted earnings per share prepared in accordance with GAAP is included in the discussion under the section titled “Summary of Second Quarter Results by Segment”and “Summary of Year-to-Date Results by Segment.”
Overview
Factors affecting our financial performance are summarized under “Risk Factors” in our Form 10-K for the period ended December 31, 2022 filed with the SEC.
Water and Electric Segments:
GSWC’s and BVES’s revenues, operating income, and cash flows are earned primarily through delivering potable water to homes and businesses in California and electricity in the Big Bear area of San Bernardino County, California, respectively. Rates charged to GSWC and BVES 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 BVES 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 BVES are expected to remain at substantially higher levels than depreciation expense. When necessary, GSWC and BVES may obtain funds from external sources in the capital markets and through bank borrowings.
General Rate Case Filings and Other Matters:
Water General Rate Case for the years 2022–2024:
On June 29, 2023, the CPUC adopted a final decision in GSWC's general rate case application for all of its water regions and its general office that determines new water rates for the years 2022–2024. The assigned administrative law judge at the CPUC had issued a proposed decision on April 13, 2023 that, among other things, (i) adopted the full settlement agreement between GSWC and the Public Advocates Office at the CPUC (“Public Advocates”) that resolved all issues related to the 2022 annual revenue requirement in the general rate case application, and (ii) allowed for additional increases in adopted revenues for 2023 and 2024 subject to an earnings test and inflationary index values at the time of filing for implementation of the new rates. The final decision issued on June 29, 2023 is consistent in all material respects with the proposed decision issued in April. The impact of retroactive rates for the full year of 2022 as well as the 2023 second-year rate increases for the first half of 2023 have been reflected in the results of operations for the six months ended June 30, 2023. Because of receiving a proposed decision in April 2023 that approved the settlement agreement in its entirety, the impact of retroactive rates for the full year of 2022 and the estimated second-year rate increases had been reflected in the 2023 first quarter results as it became probable that the approved retroactive rates for the full year of 2022 and the first three months of 2023 would be permitted to be billed to customers in the future.
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Table of Contents
The settlement agreement approved in the final decision (i) authorizes GSWC to invest approximately $404.8 million in capital infrastructure over the three-year cycle (excluding advice letter projects); (ii) increases the 2022 adopted revenues (excluding the advice letter project revenues) by approximately $30.3 million, or $0.59 per share, as compared to the 2021 adopted revenues, and increases the 2022 adopted supply costs by $9.6 million, or $0.19 per share, as compared to the 2021 adopted supply costs, which combined is an increase of $0.40 per share; and (iii) adopts new operating expense levels for 2022 including a higher depreciation expense resulting from overall higher composite depreciation rates based on a new depreciation study adopted in the decision.
Due to the delay in finalizing the water general rate case, water revenues billed to customers for the year ended December 31, 2022 and for the six months ended June 30, 2023 were based on 2021 adopted rates. As a result of receiving a final decision that approves the settlement agreement in its entirety, the impact of retroactive new rates for the full year of 2022 of $0.38 per share has been reflected in the six months ended June 30, 2023 results and included primarily (i) the increase in 2022’s adopted revenues and supply costs that is consistent with the settlement agreement, or $0.40 per share, as discussed above; and (ii) a higher overall depreciation expense for 2022 of approximately $790,000, or $0.02 per share, resulting from updated composite depreciation rates adopted in the final decision and which are reflected in the 2022 adopted revenue requirement. Because of receiving a proposed decision on April 13, 2023 that approved the settlement agreement in its entirety, the retroactive impact for the full year of 2022 had been reflected in the 2023 first quarter results, which at the time totaled $0.36 per share and included a reduction to revenues of $1.1 million, or $0.02 per share, to reflect the incremental impact of revenues subject to refund from the new 2022 rates as a result of the lower cost of debt in the pending cost of capital proceeding at that time. On June 29, 2023, the CPUC also adopted a final decision in the cost of capital proceeding, as described below, and all adjustments to rates are to be prospective and not retroactive and, therefore, the $0.02 per share recorded in the first quarter of 2023 was reversed in the second quarter of 2023 leaving the final impact from retroactive new rates for 2022 at $0.38 per share as described above.
The second-year rate increases for 2023 have also been reflected in the three and six months ended June 30, 2023. Through June 30, 2023, this included increases in revenues of approximately $23.0 million, or $0.45 per share, compared to the adopted 2021 rates, and increases in supply costs of approximately $4.4 million, or $0.09 per share, which combined is an increase of $0.36 per share for the six months ended June 30, 2023.
As a result of receiving the final decision in the general rate case, GSWC filed for the implementation of new 2023 rate increases that went into effect on July 31, 2023. Within 90 days after 2023 rates have been implemented, GSWC will also file to recover the impact of retroactive rates accumulated in GSWC's memorandum accounts, of which the majority of the balances will be recovered over a 36-month period. As of June 30, 2023, there is an aggregate cumulative amount of $50.3 million in CPUC-approved general rate case memorandum accounts that have been recognized as regulatory assets with a corresponding increase in unbilled water revenues, and which represent the difference between the 2021 adopted rates billed to customers and the rates approved in the final decision for the full year of 2022 and second-year rate increases recorded through June 30, 2023.
Cost of Capital Proceeding:
Investor-owned water utilities serving California are required to file their cost of capital applications on a triennial basis. GSWC filed a cost of capital application with the CPUC in May 2021. On June 29, 2023, the CPUC adopted a final decision that, among other things, (i) adopts GSWC’s requested capital structure of 57% equity and 43% debt; (ii) adopts a cost of debt of 5.1% for GSWC as compared to 6.6% previously authorized; (iii) adopts a return on equity of 8.85% for GSWC as compared to 8.9% previously authorized; (iv) allows for the continuation of the Water Cost of Capital Mechanism (“WCCM”) through December 31, 2024; and (v) adopts the new cost of capital for the three-year period commencing January 1, 2022 through December 31, 2024. Based on the Company's assessment of the final decision issued in June, all adjustments to rates are to be prospective and not retroactive. GSWC filed an advice letter that implemented the new cost of capital effective July 31, 2023.
Following the receipt of the final decision adopted on June 29 in the cost of capital proceeding, management updated its analysis and reassessed the accounting estimates recorded to date related to GSWC’s lower cost of debt. Accordingly, GSWC recorded a change in estimate that resulted in an increase to water revenues during the second quarter of 2023 in the amount of $9.3 million, or $0.18 per share, as a result of reversing its regulatory liability for revenues subject to refund that it had recorded during 2022 and through the end of the first quarter of 2023. The lower revenues recorded for the full year of 2022 and in the first quarter of 2023 of $6.4 million and $2.9 million, respectively, were estimates of revenues subject to refund at that time associated with the lower cost of debt. Of the $6.4 million recorded in 2022, $1.7 million, or $0.03 per share, and $3.1 million, or $0.06 per share, were recorded during the three and six months ended June 30, 2022, respectively.
The WCCM adjusts the return on equity and rate of return on rate base between the three-year cost of capital proceedings only if there is a positive or negative change of more than 100 basis points in the average of the Moody’s Aa utility bond rate as measured over the period October 1 through September 30. If there is a positive or negative change of more than 100 basis points, the return on equity is adjusted by one half of the difference. For the period from October 1, 2021 through September 30, 2022, the Moody’s rate increased by 102.8 basis points from the benchmark, which triggered the WCCM adjustment. GSWC recognized revenues for the first half of 2023 and all of 2022 based on the previously authorized return of equity of 8.9% that has been billed to water customers through the first half of 2023. On June 30, 2023, GSWC filed an advice letter to establish the WCCM for 2023, which increased GSWC's 8.85% adopted return on equity in the decision to 9.36% effective July 31, 2023.
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Electric General Rate Case for the years 2023–2026:
On August 30, 2022, BVES filed a general rate case application that will determine new electric rates for the years 2023 – 2026. In February 2023, a scoping memo and ruling that set the final schedule and scope of issues in BVES’s general rate case proceeding was issued by the CPUC. Based on the schedule issued by the CPUC, a proposed decision is expected in the fourth quarter of 2023. Electric revenues billed to customers for the six months ended June 30, 2023 were based on 2022 adopted rates and will remain in effect until finalization of the pending general rate case application. On December 15, 2022, the CPUC approved a decision for BVES to establish a general rate case memorandum account that makes the new 2023 rates effective and retroactive to January 1, 2023. When a decision is issued in the electric general rate case, cumulative adjustments will be recorded at that time.
Among other things, BVES requested (i) capital budgets of approximately $62.0 million for the four-year rate cycle, and another $6.2 million for a large line replacement capital project to be filed for revenue recovery through an advice letter when the project is completed, and (ii) a capital structure for BVES of 61.8% equity and 38.2% debt, a return on equity of 11.25%, an embedded cost of debt of 5.51%, and a return on rate base of 9.05%. Furthermore, included in the general rate case application is a request for recovery of all capital expenditures and other costs incurred over the last few years in connection with BVES’s wildfire mitigation plans that are currently not in customer rates. These costs will be subject to review by the CPUC during the general rate case proceeding.
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 for the water and/or wastewater systems at various military installations, pursuant to an initial 50-year firm fixed-price contract and additional firm fixed-price contracts. The contract price for each of these contracts is subject to annual economic price adjustments. Additional revenues generated by contract operations are primarily dependent on annual economic price adjustments, and new construction activities under contract modifications with the U.S. government or agreements with other third-party prime contractors.
ASUS’s subsidiaries continue to enter into U.S. government-awarded contract modifications and agreements with third-party prime contractors for new construction projects at the military bases served. As of June 30, 2023, ASUS has been awarded approximately $6.9 million in new construction projects for completion in 2023 through 2025. This is in addition to $34.4 million of new construction projects awarded in 2022, to be completed from late 2022 through 2025. Earnings and cash flows from modifications to the initial 50-year contracts with the U.S. government and agreements with third-party prime contractors for additional construction projects which may or may not continue at current levels in future periods.
Entering into contracts with the U.S. government subjects ASUS to potential government audits or investigations of its business practices and compliance with government procurement statutes and regulations. ASUS had been under a civil government investigation over bidding and estimating practices used in certain capital upgrade projects and has fully cooperated with the investigation. In July 2023, ASUS and the U.S. government entered into an agreement that settles civil and monetary claims by the U.S. government. This settlement did not have a material impact on Registrant’s financial statements.

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Summary of Second Quarter Results by Segment
The table below sets forth the second quarter diluted earnings per share by business segment and for the parent company:
 Diluted Earnings per Share
 Three Months Ended 
 6/30/20236/30/2022CHANGE
Water, adjusted*$0.73 $0.43 $0.30 
Electric0.03 0.04 (0.01)
Contracted services0.12 0.10 0.02 
AWR (parent)(0.02)— (0.02)
  Consolidated diluted earnings per share, as adjusted0.86 0.57 0.29 
Impact related to the final cost of capital decision*0.18 (0.03)0.21 
  Consolidated diluted earnings per share, as recorded$1.04 $0.54 $0.50 
*TheWater segment’s adjusted earnings for 2023 and 2022 exclude the impact of estimates and changes in estimates resulting from revenues subject to refund related to the cost of capital proceeding as previously discussed, and as shown separately in the table above. GSWC recorded an increase to water revenues during the second quarter of 2023 in the amount of $9.3 million, or $0.18 per share, to reverse its regulatory liability for revenues subject to refund due to a change in estimates from what had been recorded during 2022 and through the end of the first quarter of 2023. The lower revenues recorded during the three months ended June 30, 2022 totaled $1.7 million, or $0.03 per share, and were estimates of revenues subject to refund at that time.
For the three months ended June 30, 2023, AWR’s recorded consolidated diluted earnings were $1.04 per share, as compared to $0.54 per share for the same period in 2022, an increase of $0.50 per share, which includes a net favorable variance of $0.21 per share resulting from the impact of estimates and changes in estimates following the receipt of a final decision on the cost of capital proceeding in June 2023, as discussed and shown separately in the table above. Excluding this impact from both periods, for the three months ended June 30, 2023 and 2022, adjusted consolidated diluted earnings were $0.86 per share and $0.57 per share, respectively, an adjusted increase of $0.29 per share.
Also included in the results for the three months ended June 30, 2023 were gains totaling $1.5 million, or $0.03 per share, on investments held to fund one of the Company’s retirement plans, as compared to losses of $3.5 million, or $0.07 per share, for the same period in 2022, both due to financial market conditions. Excluding from both periods the gains and losses on investments and the impact of estimates and changes in estimates from the cost of capital proceeding, adjusted consolidated diluted earnings for the second quarter of 2023 were $0.83 per share as compared to adjusted diluted earnings of $0.64 per share for the same period in 2022, an adjusted increase of $0.19 per share, or a 30% increase, largely due to new 2023 water rates approved in GSWC's final decision in the general rate case proceeding received in June 2023.
The following is a computation and reconciliation of diluted earnings per share from the measure of operating income by business segment as disclosed in Note 10 to the Unaudited Consolidated Financial Statements, to AWR’s consolidated fully diluted earnings per common share (as recorded), for the three months ended June 30, 2023 and 2022:
WaterElectricContracted ServicesAWR (Parent)Consolidated (GAAP)
(in thousands, except per share amounts)Q2 2023Q2 2022Q2 2023Q2 2022Q2 2023Q2 2022Q2 2023Q2 2022Q2 2023Q2 2022
Operating income (loss) (Note 10)$50,524 $27,711 $2,103 $2,038 $6,354 $4,571 $(36)$(3)$58,945 $34,317 
Other (income) and expenses, net5,057 7,720 645 218 357 (138)1,161 361 7,220 8,161 
Income tax expense (benefit)11,934 5,103 247 215 1,506 1,108 (483)(221)13,204 6,205 
Net income (loss)$33,533 $14,888 $1,211 $1,605 $4,491 $3,601 $(714)$(143)$38,521 $19,951 
Weighted Average Number of Diluted Shares37,067 37,039 37,067 37,039 37,067 37,039 37,067 37,039 37,067 37,039 
Diluted earnings (loss) per share$0.91 $0.40 $0.03 $0.04 $0.12 $0.10 $(0.02)$— $1.04 $0.54 

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Water Segment:
For the three months ended June 30, 2023, recorded diluted earnings from the water utility segment were $0.91 per share, as compared to $0.40 per share for the same period in 2022, an increase of $0.51 per share, which include (i) a net favorable variance of $0.21 per share from the impact of the final cost of capital decision that resulted in the reversal during the second quarter of 2023 of revenues subject to refund due to a change in estimates from what had been recorded during 2022 and the first quarter of 2023, as shown separately in the table above, and (ii) a net favorable variance of $0.10 per share from gains totaling $1.5 million, or approximately $0.03 per share, recorded during the second quarter of 2023 on investments held to fund one of the Company's retirement plans, as compared to losses of $3.5 million, or approximately $0.07 per share, recorded for the same period in 2022.
Excluding from both periods the gains and losses on investments and the impact from the final cost of capital proceeding, adjusted diluted earnings for the second quarter of 2023 at the water segment were $0.70 per share as compared to adjusted diluted earnings of $0.50 per share for the same period in 2022, an adjusted increase at the water segment of $0.20 per share, or a 40.0% increase, due largely to the following items:
•An increase in water operating revenues of approximately $15.0 million largely as a result of the second-year increases related to the three months ended June 30, 2023. GSWC filed for the implementation of new 2023 rate increases upon receiving the final decision in June 2023. Because water revenues recorded during the three months ended June 30, 2022 were based on 2021 adopted rates, the increase in water revenues during the second quarter of 2023 represents the difference from the 2021 adopted rates and the 2023 second-year increases for the three-month period ended June 30, 2023.
•An increase in water supply costs of $2.8 million, which consist of purchased water, purchased power for pumping, groundwater production assessments and changes in the water supply cost balancing accounts. Adopted supply costs for the second quarter of 2023 were based on 2023 authorized amounts approved in the final CPUC decision in the water general rate case application. Actual water supply costs are tracked and passed through to customers on a dollar-for-dollar basis by way of the CPUC-approved water supply cost balancing accounts. The increase in water supply costs results in a corresponding increase in water operating revenues and has no net impact on the water segment’s profitability.
•An overall increase in operating expenses of $406,000 (excluding supply costs), which negatively impacted earnings and was mainly due to increases in (i) overall labor costs, (ii) administrative and general expenses resulting largely from higher employee-related benefits and outside-services costs, and (iii) depreciation and amortization expenses resulting from additions to utility plant and the higher composite depreciation rates based on a revised depreciation study approved in the final decision on the water general rate case.
•An increase in interest expense (net of interest income) of $1.2 million resulting primarily from an overall increase in interest rates, as well as an overall increase in total borrowing levels to support, among other things, the capital expenditures programs at GSWC, partially offset by higher interest income earned on regulatory assets bearing interest at the current 90-day commercial-paper rate, which increased compared to 2022’s rates, as well as an increase in the level of regulatory assets recorded that resulted, in large part, from the final decision on the water general rate case.
•An overall increase in other expenses (net of other income) of $1.1 million due primarily to an increase in the non-service cost components related to GSWC’s benefit plans resulting from changes in actuarial assumptions including expected returns on plan assets. However, as a result of GSWC’s two-way pension balancing accounts authorized by the CPUC, changes in total net periodic benefits costs related to the pension plan have no material impact to earnings.
•Changes in certain flowed-through taxes and permanent items included in GSWC’s income tax expense for the three months ended June 30, 2023 as compared to the same period in 2022 that favorably impacted water earnings. As a regulated utility, GSWC treats certain temporary differences as being flowed-through in computing its income tax expense consistent with the income tax method used in its CPUC-jurisdiction rate making. Changes in the magnitude of flowed-through items either increase or decrease tax expense, thereby affecting diluted earnings per share.
Electric Segment:
Diluted earnings from the electric utility segment decreased by $0.01 per share for the three months ended June 30, 2023 as compared to the same period in 2022, largely resulting from not having new rates in 2023 while awaiting the processing of the pending electric general rate case that will set new rates for 2023 – 2026, while also experiencing continued increases in overall operating expenses and interest costs. When a decision is issued in the electric general rate case, new rates are expected to be retroactive to January 1, 2023 and cumulative adjustments will be recorded at that time.

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Contracted Services Segment:
Diluted earnings from the contracted services segment increased $0.02 per share for the three months ended June 30, 2023 as compared to the same period in 2022, largely due to an increase in construction activity due to timing differences of when construction work was performed in 2023 as compared to the same period in 2022, and an increase in management fee revenue resulting from resolution of various economic price adjustments, partially offset by higher overall operating expenses (excluding construction expenses) and interest costs as compared to the same period of 2022. The contracted services segment is expected to contribute $0.45 to $0.49 per share for the full 2023 year.
AWR (Parent):
For the three months ended June 30, 2023, diluted earnings from AWR (parent) decreased $0.02 per share compared to the same period in 2022 due primarily to an increase in interest expense resulting from higher short-term interest rates and higher borrowings under AWR’s revolving credit facility, as well as changes in state unitary taxes.
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Summary of Year-to-Date Results by Segment
The table below sets forth the year-to-date diluted earnings per share by business segment and for the parent company:
 Diluted Earnings per Share
 Six Months Ended 
 6/30/20236/30/2022CHANGE
Water, adjusted*$1.14 $0.69 $0.45 
Electric0.09 0.12 (0.03)
Contracted services0.27 0.18 0.09 
AWR (Parent)(0.04)(0.01)(0.03)
  Consolidated diluted earnings per share, as adjusted1.46 0.98 0.48 
Impact of retroactive rates related to the full year of 2022 from the final decision in the water general rate case (approximately $0.19 per share relates to the first half of 2022)*0.38 — 0.38 
Impact related to the final cost of capital decision*0.13 (0.06)0.19 
  Consolidated diluted earnings per share, as recorded$1.97 $0.92 $1.05 
*The Water segment’s adjusted earnings for 2023 exclude the impact of retroactive rates related to the full year of 2022 resulting from the final CPUC decision in the general rate case previously discussed, and for 2023 and 2022 they exclude the impact of estimates and changes in estimates resulting from revenues subject to refund related to the cost of capital proceeding, both shown separately in the table above.

For the six months ended June 30, 2023, AWR’s recorded consolidated diluted earnings were $1.97 per share, as compared to $0.92 per share for the same period in 2022, an increase of $1.05 per share, which includes: (i) the impact of retroactive new rates related to the full 2022 year of $0.38 per share as a result of receiving a final decision in the water general rate case, as discussed previously, and (ii) a net favorable variance of $0.19 per share from the impact of the final cost of capital decision that resulted in the reversal during the six months ended June 30, 2023 of revenues subject to refund of $6.4 million, or $0.13 per share, due to a change in estimates from what had been recorded during 2022, of which $3.1 million, or $0.06 per share, was related to the six months ended June 30, 2022. Excluding these items from both periods, for the six months ended June 30, 2023 and 2022, adjusted consolidated diluted earnings were $1.46 per share and $0.98 per share, respectively, an adjusted increase of $0.48 per share.
The impact of retroactive rates related to the full year of 2022 discussed and shown separately in the table above included primarily: (i) the increase in 2022’s adopted revenues and supply costs that is consistent with the settlement agreement, or $0.40 per share, and (ii) higher overall depreciation expense for 2022 of approximately $790,000, or $0.02 per share, resulting from higher composite depreciation rates adopted in the proposed decision and which are reflected in the 2022 adopted revenue requirement.
Also included in the results for the six months ended June 30, 2023 were gains totaling $3.1 million, or $0.06 per share, on investments held to fund one of the Company's retirement plans as compared to losses of $5.2 million, or $0.10 per share, for the same period in 2022, a net increase in earnings of $0.16 per share, both due to financial market conditions.
Excluding the gains and losses on investments from both periods, the impact of retroactive rates recorded in 2023 related to the full year of 2022, and the impact of estimates and changes in estimates from the cost of capital proceeding from both periods, adjusted consolidated diluted earnings for the six months ended June 30, 2023 were $1.40 per share as compared to adjusted diluted earnings of $1.08 per share for the same period in 2022, an adjusted increase of $0.32 per share, or a 30% increase, largely due to new 2023 water rates approved in GSWC's final decision in its general rate case proceeding.

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The following is a computation and reconciliation of diluted earnings per share from the measure of operating income by business segment as disclosed in Note 10 to the Unaudited Consolidated Financial Statements, to AWR’s consolidated fully diluted earnings per common share, for the six months ended June 30, 2023 and 2022:
WaterElectricContracted ServicesAWR (Parent)Consolidated (GAAP)
(in thousands, except per share amounts)YTD 2023YTD 2022YTD 2023YTD 2022YTD 2023YTD 2022YTD 2023YTD 2022YTD 2023YTD 2022
Operating income (loss) (Note 10)$90,763 $44,710 $5,734 $5,636 $13,650 $8,341 $(37)$(5)$110,110 $58,682 
Other (income) and expenses, net8,923 13,463 1,205 188 614 (309)2,484 561 13,226 13,903 
Income tax expense (benefit)20,844 7,792 948 1,167 3,191 2,052 (1,027)(345)23,956 10,666 
Net income (loss)$60,996 $23,455 $3,581 $4,281 $9,845 $6,598 $(1,494)$(221)$72,928 $34,113 
Weighted Average Number of Diluted Shares37,058 37,029 37,058 37,029 37,058 37,029 37,058 37,029 37,058 37,029 
Diluted earnings (loss) per share$1.65 $0.63 $0.09 $0.12 $0.27 $0.18 $(0.04)$(0.01)$1.97 $0.92 
Water Segment:
For the six months ended June 30, 2023, recorded diluted earnings from the water utility segment were $1.65 per share, as compared to $0.63 per share for the same period in 2022, an increase of $1.02 per share, which includes (i) the impact of retroactive new rates for the full year of 2022 of $0.38 per share, (ii) a net favorable variance of $0.19 per share from the impact of the final cost of capital decision that resulted in the reversal of $6.4 million, or $0.13 per share, during the six months ended June 30, 2023 of revenues subject to refund due to a change in estimates from what had been recorded during 2022 of which $3.1 million, or $0.06 per share, was recorded during the six months ended June 30, 2022, and (iii) a net favorable variance of $0.16 per share from gains totaling $3.1 million, or $0.06 per share incurred during the six months ended June 30, 2023 on investments held to fund a retirement plan, as compared to losses of $5.2 million, or $0.10 per share for the same period in 2022.
Excluding the gains and losses on investments from both periods, the impact of retroactive rates recorded in 2023 related to the full of 2022, and the impact of estimates and changes in estimates from the cost of capital proceeding from both periods, adjusted diluted earnings for the six months ended June 30, 2023 at the water segment were $1.08 per share as compared to adjusted diluted earnings of $0.79 per share for the same period in 2022, an adjusted increase at the water segment of $0.29 per share, or a 36.7% increase, due primarily to the following items:
•An increase in water operating revenues of approximately $24.6 million largely as a result of the second-year rate increases for 2023 that are retroactive to January 1, 2023 and have been reflected in the results for the six months ended June 30, 2023. GSWC filed for the implementation of new 2023 rate increases upon receiving the final decision in June 2023. Because water revenues recorded during the six months ended June 30, 2022 were based on 2021 adopted rates, the increase in water revenues during the first half of 2023 represents the difference from the 2021 adopted rates and the 2023 second-year rate increases for the six-month period ended June 30, 2023.
•An increase in water supply costs of $4.4 million, which consists of purchased water, purchased power for pumping, groundwater production assessments and changes in the water supply cost balancing accounts. Adopted supply costs for the first half of 2023 were based on 2023 authorized amounts approved in the final CPUC decision in the water general rate case. Actual water supply costs are tracked and passed through to customers on a dollar-for-dollar basis by way of the CPUC-approved water supply cost balancing accounts. The increase in water supply costs results in a corresponding increase in water operating revenues and has no net impact on the water segment’s profitability.
•An overall increase in operating expenses of $1.7 million (excluding supply costs) mainly due to increases in (i) overall labor costs, (ii) other operation-related expenses resulting primarily from higher transportation costs, (iii) depreciation and amortization expenses resulting from additions to utility plant and the higher composite depreciation rates based on a revised depreciation study approved in the water general rate case, and (iv) property and other taxes; all partially offset by a decrease in maintenance expense.
•An overall increase in interest expenses (net of interest income) of $2.3 million resulting primarily from an increase in interest rates, as well as an overall increase in total borrowing levels to support, among other things, the capital expenditures program at GSWC, partially offset by higher interest income earned on regulatory assets bearing interest at the current 90-day commercial-paper rate, which increased compared to 2022’s rates, as well as an increase in the level of regulatory assets recorded resulting, in large part, from the decision on the water general rate case.
•An overall increase in other expenses (net of other income) of $2.2 million due primarily to an increase in the non-service cost components related to GSWC’s benefit plans resulting from changes in actuarial assumptions including
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expected returns on plan assets. However, as a result of GSWC’s two-way pension balancing accounts authorized by the CPUC, changes in total net periodic benefit costs related to the pension plan have no material impact to earnings.
•Changes in certain flowed-through taxes and permanent items included in GSWC’s income tax expense for the six months ended June 30, 2023 as compared to the same period in 2022 that favorably impacted water earnings. As a regulated utility, GSWC treats certain temporary differences as being flowed-through in computing its income tax expense consistent with the income tax method used in its CPUC-jurisdiction rate making. Changes in the magnitude of flowed-through items either increase or decrease tax expense, thereby affecting diluted earnings per share.
Electric Segment:
Diluted earnings from the electric utility segment decreased $0.03 per share for the six months ended June 30, 2023 as compared to the same period in 2022, largely resulting from not having new rates in 2023 while awaiting the processing of the pending electric general rate case that will set new rates for 2023 – 2026, while also experiencing continued increases in overall operating expenses and interest costs. When a decision is issued in the electric general rate case, new rates are expected to be retroactive to January 1, 2023 and cumulative adjustments will be recorded at that time.
Contracted Services Segment:
Diluted earnings from the contracted services segment increased $0.09 per share for the six months ended June 30, 2023 as compared to the same period in 2022, largely due to an increase in construction activity due to timing differences of when construction work was performed in 2023 as compared to the same period in 2022, and an increase in management fee revenue resulting from the resolution of various economic price adjustments, partially offset by higher overall operating expenses (excluding construction expenses) and interest costs as compared to the same period of 2022. The contracted services segment is expected to contribute $0.45 to $0.49 per share for the full 2023 year.
AWR (Parent):
For the six months ended June 30, 2023, diluted earnings from AWR (parent) decreased $0.03 per share compared to the same period in 2022 due primarily to an increase in interest expense resulting from higher short-term interest rates and higher borrowings made under AWR’s revolving credit facility, as well as changes in state unitary taxes.
The following discussion and analysis for the three and six months ended June 30, 2023 and 2022 provides information on AWR’s consolidated operations and assets and, where necessary, includes specific references to AWR’s individual segments and/or itsand subsidiaries: GSWC, BVES, and ASUS and its subsidiaries.  Included in the following analysis is a discussion
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Table 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.
The discussions and tables included in the following analysis also present Registrant’s operations in terms of earnings per share by business segment.  Registrant believes that the disclosure of earnings per share by business segment provides investors with clarity surrounding the performance of its different services.  Registrant reviews these measurements regularly and compares them to historical periods and to its operating budget. These measures, which are not presented in accordance with accounting principles generally accepted in the United States of America ("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 to AWR’s diluted earnings per share are included in the discussions under the sections titled “Summary of Third Quarter Results by Segment” and “Summary of Year-to-Date Results by Segment.”

Contents
Overview
Factors affecting our financial performance are summarized under Forward-Looking Information.
Water General Rate Case and Changes in Rates for 2016 and 2017
In December 2016, the CPUC issued a decision in GSWC's water general rate case, which sets new rates for the years 2016 - 2018. The 2016 rates approved by the CPUC in the decision were retroactive to January 1, 2016. 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 issued a final decision in March 2017 with the corrected rate calculations. The revenue shortfall due to differences between the actual rates charged in 2016 and early 2017 while the decision was still pending, and the rates adopted in the final decision are being recovered through a rate surcharge. The new 2017 rates, which are effective and retroactive to January 1, 2017, were implemented in April 2017. The new rates and adopted supply costs are expected to increase the adopted water gross margin 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 assumed the CPUC would adopt GSWC’s litigated positions in its entirety related to capital expenditure requests and executive compensation. The 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 in the fourth quarter of 2016 related to the first three quarters of 2016. Approximately $2.0 million of this amount would have lowered the water gross margin during the three months ended September 30, 2016 had 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 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 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 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. ASUS will assume operations at Fort Riley following the completion of a six-to-twelve-month transition period currently underway.

Eglin Air Force Base (“Eglin”)
On June 15, 2017, ASUS assumed operations 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.

Summary of Third Quarter Results by Segment
The table below sets forth the third quarter diluted earnings per share by business segment:
  Diluted Earnings per Share
  Three Months Ended  
  9/30/2017 9/30/2016 CHANGE
Water $0.44
 $0.47
 $(0.03)
Electric 0.03
 0.02
 0.01
Contracted services 0.10
 0.10
 —
Consolidated diluted earnings per share, as reported $0.57
 $0.59
 $(0.02)
Water Segment:
For the three months ended September 30, 2017, diluted earnings per share from the water segment decreased by $0.03 to $0.44 per share as compared to the same period in 2016. Impacting the quarter-over-quarter comparison was a decrease in the water gross margin of $2.0 million, or $0.03 per share, 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 addition, surcharges were implemented 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 unchanged 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.
Contracted Services Segment:
For the three months ended September 30, 2017 and 2016, 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 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 million primarily due to additional costs incurred in 2016 in response 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. There was also a decrease in the effective income tax rate for the electric segment 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 allocation 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 from the contracted services segment increased by $0.06 to $0.26 per share as compared to the same period in 2016. There was an increase in management fees from the successful resolution 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.

Consolidated Results of Operations — Three Months Ended SeptemberJune 30, 20172023 and 20162022 (amounts in thousands, except per share amounts):
Three Months Ended 
 June 30, 2023		Three Months Ended 
 June 30, 2022		$
CHANGE		%
CHANGE
OPERATING REVENUES    
Water$116,908 $90,856 $26,052 28.7 %
Electric8,828 8,217 611 7.4 %
Contracted services31,664 23,534 8,130 34.5 %
Total operating revenues157,400 122,607 34,793 28.4 %
OPERATING EXPENSES    
Water purchased18,070 19,963 (1,893)(9.5)%
Power purchased for pumping2,869 2,930 (61)(2.1)%
Groundwater production assessment5,365 4,865 500 10.3 %
Power purchased for resale2,469 1,347 1,122 83.3 %
Supply cost balancing accounts2,837 (457)3,294          *
Other operation9,716 9,665 51 0.5 %
Administrative and general21,503 20,464 1,039 5.1 %
Depreciation and amortization10,258 10,171 87 0.9 %
Maintenance3,779 3,572 207 5.8 %
Property and other taxes5,555 5,452 103 1.9 %
ASUS construction16,034 10,318 5,716 55.4 %
Total operating expenses98,455 88,290 10,165 11.5 %
OPERATING INCOME58,945 34,317 24,628 71.8 %
OTHER INCOME AND EXPENSES    
Interest expense(10,728)(6,309)(4,419)70.0 %
Interest income1,803 437 1,366 312.6 %
Other, net1,705 (2,289)3,994        *
 (7,220)(8,161)941 (11.5)%
INCOME BEFORE INCOME TAX EXPENSE51,725 26,156 25,569 97.8 %
Income tax expense13,204 6,205 6,999 112.8 %
NET INCOME$38,521 $19,951 $18,570 93.1 %
Basic earnings per Common Share$1.04 $0.54 $0.50 92.6 %
Fully diluted earnings per Common Share$1.04 $0.54 $0.50 92.6 %
* not meaningful
36
  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 BVES 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.  IfCurrent operating revenues and earnings may be negatively impacted if the Military Utility Privatization Subsidiaries do not receive adequate rate relief or adjustments are not granted in a timely manner, current operating revenues and earnings can be negatively impacted.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 SeptemberJune 30, 2017,2023, revenues from water operations increased $1.3by $26.1 million to $91.9$116.9 million as compared to the same period in 2016. 2022. The increase in water revenues was largely due primarily to CPUC-approvedthe second-year rate increases for 2023 effective as of January 1, 2017, as well as a $1.9 million2023. Because water revenues recorded during the three months ended June 30, 2022 were based on 2021 adopted rates, the increase in CPUC-approved surcharges to recover previously incurred costs. The new surcharges implemented during 2017 were offset by a corresponding increase 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 during the second quarter of approximately $1.0 million that was not reflected in2023 represents the resultsdifference from the 2021 adopted rates and the 2023 second-year increases for the three months period ended SeptemberJune 30, 2016 due to the delay by the CPUC in issuing2023. In addition, as a result of receiving a final decision on the water general rate case. As previously discussedcost of capital proceeding 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,June 2023, GSWC recorded a cumulative downward adjustmentchange in estimate during the second quarter of $5.2 million to the water gross margin2023 that resulted in the fourthreversal of revenues subject to refund of $9.3 million that had been recorded in 2022 and the first quarter of 2016 related2023. All adjustments to rates from the first three quartersfinal cost of 2016. Of this amount, $2.0 million relatedcapital decision are to the third quarter of 2016, which would have decreased revenues by $1.0 millionbe prospective and increased supply costs by $1.0 million for the three months ended September 30, 2016 had the CPUC decision been issued on time.not retroactive.
Billed water consumption for the thirdsecond quarter of 2017 increased2023 was lower by approximately 5.6%17.0% as compared to the same period in 2016. In general,2022 due primarily to above average rainfall in California in the second quarter of 2023 as compared to the same period in 2022, which was one of the drier periods on record in California. 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 that is in place atin all but one small rate-makingrate 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 whichwhat 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 2016the three months ended June 30, 2023 increased by $611,000 to $8.8 million due, in part, to the final decision adopted base revenues adjusted for the change in the general office allocation approved by the CPUC in the water general rate case. Forcase proceeding that updates the three months ended September 30, 2017,costs allocated from the general corporate office to the electric segment. The decision authorizes an increase in the allocation ratio to the electric segment. The increase in general corporate office expenses allocated to the electric segment also includes a corresponding and offsetting increase in adopted electric revenues as provided in BVES’s last general rate case proceeding, resulting in no impact to earnings. There was also an increase in electric revenues from electric operations decreased slightlyan advice letter filing related to $8.0 million asa completed capital project.
Electric usage for the second quarter of 2023 was higher by 3.8% compared to $8.1 million for the same period in 2016 due, in part, to the downward adjustment in the revenue requirement for 2017 with a corresponding and offsetting reduction in 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 compared to the three months ended September 30, 2016.2022. 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 SeptemberJune 30, 2017,2023, revenues from contracted services decreased $538,000increased $8.1 million to $24.5$31.7 million as compared to $25.0$23.5 million for the same period in 20162022. The increase was largely due primarily to lowerhigher construction activities. This decrease construction was partially

offset byactivity and an increase in management fee revenues duerevenue from annual economic price adjustments as compared to the successful resolutionsame period of various price adjustments and asset transfers received during 2016 and 2017.2022.

ASUSASUS’s subsidiaries continue to enter into U.S. government-awarded contract modifications and agreements with third-party prime contractors for new construction projects at the Military Utility Privatization Subsidiaries. During the first nine monthsmilitary bases served. As of 2017,June 30, 2023, ASUS washas been awarded $20.1approximately $6.9 million in new construction projects the majorityfor completion in 2023 through 2025. This is in addition to $34.4 million of which are expectednew construction projects awarded in 2022, to be completed from late 2022 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 2017.2025. Earnings and cash flows from modifications to the originalinitial 50-year contracts with the U.S. government and agreements with third-party prime contractors for additional construction projects, which may or may not continue at current levels in future periods.
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 of purchased power for resale, the cost of natural gas used by BVES’s generating unit, the cost of renewable energy credits and changes in the electric supply cost balancing account. 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.
Total supply costs at the regulated utilities comprise the largest segment of total consolidated operating expenses. Supply costs accounted for approximately 31.7%32.1% and 30.0%32.4% of total operating expenses for the three months ended SeptemberJune 30, 20172023 and 2016,2022, respectively.  The table below provides the amount
37
Table of increases (decreases) and percent changes in water and electric revenues,Contents
Water segment supply costs and gross margin during the three months ended September 30, 2017 and 2016 (dollar amounts in thousands):
  Three Months Ended 
 September 30, 2017		 Three Months Ended 
 September 30, 2016		 
$
CHANGE
 
%
CHANGE
WATER OPERATING REVENUES (1)
 $91,919
 $90,617
 $1,302
 1.4 %
WATER SUPPLY COSTS:  
  
  
  
Water purchased (1) $20,576
 $19,631
 $945
 4.8 %
Power purchased for pumping (1) 2,913
 2,988
 (75) (2.5)%
Groundwater production assessment (1) 5,870
 4,482
 1,388
 31.0 %
Water supply cost balancing accounts (1) (5,245) (4,843) (402) 8.3 %
TOTAL WATER SUPPLY COSTS $24,114
 $22,258
 $1,856
 8.3 %
WATER GROSS MARGIN (2) $67,805
 $68,359
 $(554) (0.8)%

  
   
  
         
ELECTRIC OPERATING REVENUES (1) $7,994
 $8,146
 $(152) (1.9)%
ELECTRIC SUPPLY COSTS:  
  
  
  
Power purchased for resale (1) $2,439
 $2,394
 $45
 1.9 %
Electric supply cost balancing accounts (1) 624
 630
 (6) (1.0)%
TOTAL ELECTRIC SUPPLY COSTS $3,063
 $3,024
 $39
 1.3 %
ELECTRIC GROSS MARGIN (2) $4,931
 $5,122
 $(191) (3.7)%

      
  
(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 $(4,621,000) and $(4,213,000) for the three 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.
Two of the principal factors affecting water supply costs are the amount of water produced and the source of the water. Generally, the variable cost of producing water from wells is less than the cost of water purchased from wholesale suppliers. The actual percentages of purchased water for the three months ended June 30, 2023 and 2022 were approximately 46% and 45%, respectively, as compared to the authorized adopted percentages of 43% and 36% for the three months ended June 30, 2023 and 2022, respectively. The higher actual percentage of purchased water as compared to the adopted percentage resulted from a higher volume of purchased water costs due to several wells being out of service.  
Under the current 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 percentageSupply 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. For the three months ended June 30, 2023 and 2022, water supply costs consisted of the following amounts (in thousands):
Three Months Ended 
 June 30, 2023		Three Months Ended 
 June 30, 2022		$
CHANGE		%
CHANGE
Water purchased$18,070 $19,963 $(1,893)-9.5 %
Power purchased for pumping2,869 2,930 (61)-2.1 %
Groundwater production assessment5,365 4,865 500 10.3 %
Water supply cost balancing accounts *2,787 (1,500)4,287 **
Total water supply costs$29,091 $26,258 $2,833 10.8 %
* The sum of the water and electric supply-cost balancing accounts are shown on AWR’s Consolidated Statements of Income and totaled $2,837,000 and $(457,000) for the three months ended SeptemberJune 30, 2017 was 46% as compared to the adopted percentage of 31%. The higher actual percentage of purchased water as compared to the adopted percentage resulted from an increase in purchased water as part of GSWC's supply mix due to several wells being out of service.2023 and 2022, respectively.
** not meaningful
Purchased water costs for the three months ended September 30, 2017 increasedsecond quarter of 2023 decreased to $20.6$18.1 million as compared to $19.6$20.0 million for the same period in 2016 primarily2022 largely due to an increasedecreases in water consumption and production that was driven by above-average rainfall in 2023, partially offset by increases in wholesale water rates as well as an increase in water purchased as part of GSWC's water supply mix.
costs. Groundwater production assessments increased $1.4 millionlargely due to an increase in pump tax rates and pump taxes paid for water storage rights asrate increases, partially offset by a decrease in well production compared to the same period in 2016.three months ended June 30, 2022.
The under-collection inFor the three months ended June 30, 2023, the water supply cost balancing account increased $402,000 during the three months ended September 30, 2017had a $2.8 million over-collection as compared to a $1.5 million under-collection during the same period in 2016 mainly2022. The increase in over-collection was primarily due to higherupdated adopted supply costs from the final decision received in the water general rate case proceeding.
Electric segment supply costs
Supply costs for the electric segment consist primarily of purchased water costs as compared to adopted waterpower for resale, the cost of natural gas used by BVES’s generating unit, the cost of renewable energy credits and changes in the electric supply costs.
cost balancing account. For the three months ended SeptemberJune 30,2017 2023 and 2016,2022, electric supply costs consisted of the following amounts (in thousands):
Three Months Ended 
 June 30, 2023		Three Months Ended 
 June 30, 2022		$
CHANGE		%
CHANGE
Power purchased for resale$2,469 $1,347 $1,122 83.3 %
Electric supply cost balancing account *50 1,043 (993)-95.2 %
Total electric supply costs$2,519 $2,390 $129 5.4 %
* The sum of the water and electric supply-cost balancing accounts are shown on AWR’s Consolidated Statements of Income and totaled $2,837,000 and $(457,000) for the three months ended June 30, 2023 and 2022, respectively.
For the three months ended June 30, 2023, the cost of power purchased for resale to BVES'sBVES’s electric customers was $2.4increased by $1.1 million. The to $2.5 million as compared to $1.3 million during the same period in 2022 due to an increase in customer usage and an increase in California Independent System Operator (“CAISO”) settlement credits received during the second quarter of 2022 with no similar credits in 2023. In addition, excluding the CAISO credits received in the second quarter of 2022, the average price per MWh,megawatt-hour, including fixed costs, increased from $69.87$70.42 for the three months ended SeptemberJune 30, 20162022 to $73.81$75.07 for the same period in 2017.2023. The over-collection in the electric supply cost balancing account decreased slightlyby $993,000 as compared to the three months ended June 30, 2022 due to the increasehigher amount of CAISO credits received in 2022, which are passed through to customers, as will as the average price per MWh.higher customer demand in 2023.
38
Table of Contents
Other Operation
The primary components of other operation expenses for GSWC include payroll costs, materials and supplies, chemicals and water treatment costs and outside serviceoutside-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 and the electric system.  Registrant’s contracted services operations incur many of the same types of expenses as well.expenses.  For the three months ended SeptemberJune 30,2017 2023 and 2016,2022, 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 
 June 30, 2023		Three Months Ended 
 June 30, 2022		$
CHANGE		%
CHANGE
Water Services $5,817
 $5,847
 $(30) (0.5)%Water Services$7,221 $7,281 $(60)(0.8)%
Electric Services 676
 757
 (81) (10.7)%Electric Services768 640 128 20.0 %
Contracted Services 1,164
 844
 320
 37.9 %Contracted Services1,727 1,744 (17)(1.0)%
Total other operation $7,657
 $7,448
 $209
 2.8 %Total other operation$9,716 $9,665 $51 0.5 %
     For the three months ended September 30, 2017,The increase in other operation expenses forat the contracted serviceselectric segment increasedwas due primarily to an increase in bad debt reserve for work previously performed for another prime contractor, as well as costs associated with the commencement of operations at Eglin in June 2017.

higher operation-related labor and outside services costs.
Administrative and General
Administrative and general expenses include payroll costs 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 SeptemberJune 30,2017 2023 and 2016,2022, administrative and general expenses by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands): 
Three Months Ended 
 June 30, 2023		Three Months Ended 
 June 30, 2022		$
CHANGE		%
CHANGE
Water Services$14,282 $13,987 $295 2.1 %
Electric Services1,911 1,803 108 6.0 %
Contracted Services5,274 4,671 603 12.9 %
AWR (parent)36 3 33 *
Total administrative and general$21,503 $20,464 $1,039 5.1 %
* not meaningful
  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 incurred administrativeAdministrative and generalcosts approved expenses increased at the water segment due, in large part, to an increase in outside-services, labor and employee-related expenses, partially offset by a decrease in the service cost component of GSWC’s defined-benefit pension plan. Due to GSWC’s two-way pension balancing accounts authorized by the CPUC, changes in total net periodic benefit costs related to the pension plan have no material impact to earnings.
Administrative and general expenses increased at the electric segment primarily due to an increase in costs allocated from the general corporate office as parta result of the finalallocation ratio update authorized in the decision on the water general rate case issued in March 2017.  A $1.7 millioncase. The increase in revenues and water gross margin from these surcharges was offset bygeneral corporate office expenses allocated to the electric segment also includes a corresponding and offsetting increase in administrative and general to reflect the recovery of these costs,adopted electric revenues, 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 administrativeAdministrative and general expenses forincreased at the watercontracted services segment decreased by approximately $400,000mainly due primarily to lowerhigher labor and legal expenses related to condemnation matters as compared to the same period in 2016.and other outside-service costs.
Depreciation and Amortization
For the three months ended SeptemberJune 30, 2017, administrative2023 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 2016,2022, 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 
 June 30, 2023		Three Months Ended 
 June 30, 2022		$
CHANGE		%
CHANGE
Water Services $8,972
 $8,734
 $238
 2.7%Water Services$8,674 $8,553 $121 1.4 %
Electric Services 537
 506
 31
 6.1%Electric Services759 686 73 10.6 %
Contracted Services 345
 246
 99
 40.2%Contracted Services825 932 (107)(11.5)%
Total depreciation and amortization $9,854
 $9,486
 $368
 3.9%Total depreciation and amortization$10,258 $10,171 $87 0.9 %
The overall increase in depreciation expense during the three months ended September 30, 2017 was due primarily toand amortization expenses resulted from additions to utility plant partially offset by retirements recorded forand other fixed assets and higher composite depreciation rates at the fourth quarterwater segment based on a revised depreciation study approved in the final decision in the water general rate case.
39
Table of 2016 and the first nine months of 2017, as well as the sale of the Ojai utility assets in June 2017.Contents

Maintenance
For the three months ended SeptemberJune 30,2017 2023 and 2016,2022, maintenance expense by business segment consisted of the following (dollar amounts in thousands):
Three Months Ended 
 June 30, 2023		Three Months Ended 
 June 30, 2022		$
CHANGE		%
CHANGE
Water Services$2,556 $2,511 $45 1.8 %
Electric Services277 241 36 14.9 %
Contracted Services946 820 126 15.4 %
Total maintenance$3,779 $3,572 $207 5.8 %
  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)%
     MaintenanceOverall maintenance expense for water services decreased by $1.0 millionincreased at all segments due to an overall lower level ofboth higher planned and unplanned maintenance costs as compared to the same period in 2017, as well as the timing of planned maintenance activities.

2022.
Property and Other Taxes
For the three months ended SeptemberJune 30, 20172023 and 2016,2022, 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 
 June 30, 2023		Three Months Ended 
 June 30, 2022		$
CHANGE		%
CHANGE
Water Services $3,887
 $3,767
 $120
 3.2%Water Services$4,560 $4,555 $5 0.1 %
Electric Services 257
 251
 6
 2.4%Electric Services491 419 72 17.2 %
Contracted Services 331
 299
 32
 10.7%Contracted Services504 478 26 5.4 %
Total property and other taxes $4,475
 $4,317
 $158
 3.7%Total property and other taxes$5,555 $5,452 $103 1.9 %
Property and other taxes increased overalllargely because of higher franchise fees at the water segment resulting from higher water revenues recognized in 2023 compared to 2022 and higher property taxes at the electric segment, partially offset by $158,000 duringfavorable property tax true-ups at the three months ended September 30, 2017 due primarilywater segment resulting from changes to capital additions.

property tax assessments in certain counties.
ASUS Construction
For the three months ended SeptemberJune 30,2017, 2023, construction expenses for contracted services were $11.7$16.0 million,, decreasing $2.0 an increase of $5.7 million compared to the same period in 20162022 primarily due to lower overallan increase in construction activity.

activity resulting from timing differences of when such work was performed in 2023 as compared to the same period of 2022.
Interest Expense
For the three months ended SeptemberJune 30, 20172023 and 2016,2022, interest expense by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):
Three Months Ended 
 June 30, 2023		Three Months Ended 
 June 30, 2022		$
CHANGE		%
CHANGE
Water Services$7,835 $5,464 $2,371 43.4 %
Electric Services952 384 568 147.9 %
Contracted Services518 104 414 398.1 %
AWR (parent)1,423 357 1,066 298.6 %
Total interest expense$10,728 $6,309 $4,419 70.0 %
AWR’s borrowings consist of bank notes under revolving credit facilities and long-term debt issuances at GSWC and BVES. Consolidated interest expense increased as compared to the same period in 2022 resulting primarily from an increase in total borrowing levels to support, among other things, the capital expenditures program at the regulated utilities, as well as an overall increase in average interest rates.


40
  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 SeptemberJune 30,2017 2023 and 2016,2022, interest income by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):
Three Months Ended 
 June 30, 2023		Three Months Ended 
 June 30, 2022		$
CHANGE		%
CHANGE
Water Services$1,320 $146 $1,174 *
Electric Services298 89 209 234.8 %
Contracted Services191 206 (15)(7.3)%
AWR (parent)(6)(4)(2)50.0 %
Total interest income$1,803 $437 $1,366 312.6 %
  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 %
* not meaningful

Other, net
For the three months ended June 30, 2017, other2023, overall interest income increased by $147,000$1.4 million as compared to the sme period in 2022 due primarily to higher interest income earned on regulatory assets at the water and electric segments bearing interest at the current 90-day commercial-paper rate, which have increased compared to 2022’s rates, as well as an overall increase in recorded regulatory assets as a result of the final decision in the water general rate case adopted in June 2023.
Other Income and (Expenses), net
For the three months ended June 30, 2023 and 2022, other income and (expenses), net by business segment, including AWR (parent),consisted of the following (dollar amounts in thousands):
Three Months Ended 
 June 30, 2023		Three Months Ended 
 June 30, 2022		$
CHANGE		%
CHANGE
Water Services$1,458 $(2,402)$3,860 *
Electric Services9 77 (68)*
Contracted Services(30)36 (66)*
AWR (parent)268 — 268 N/A
Total other income and (expenses), net$1,705 $(2,289)$3,994 *
* not meaningful
For the three months ended June 30, 2023, other income (net of other expenses) increased mostly as a result of gains of $1.5 million recorded on investments held to fund one of the Company’s retirement plans, as compared to losses of $3.5 million generated during the same period in 2016.

2022, both due to financial market conditions. This was partially offset by an increase in the non-service cost components of net periodic benefit costs related to the Company’s defined-benefit pension plan and other retirement benefits. However, as a result of GSWC’s and BVES’s two-way pension balancing accounts authorized by the CPUC, changes in total net periodic benefit costs related to the pension plan have no material impact to earnings.
Income Tax Expense
For the three months ended SeptemberJune 30, 20172023 and 2016,2022, 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 
 June 30, 2023		Three Months Ended 
 June 30, 2022		$
CHANGE		%
CHANGE
Water Services $10,544
 $10,575
 $(31) (0.3)%Water Services$11,934 $5,103 $6,831 133.9 %
Electric Services 269
 466
 (197) (42.3)%Electric Services247 215 32 14.9 %
Contracted Services 1,944
 1,951
 (7) (0.4)%Contracted Services1,506 1,108 398 35.9 %
AWR (parent) (249) (284) 35
 (12.3)%AWR (parent)(483)(221)(262)118.6 %
Total income tax expense $12,508
 $12,708
 $(200) (1.6)%Total income tax expense$13,204 $6,205 $6,999 112.8 %
Consolidated income tax expense for the three months ended SeptemberJune 30, 2017 decreased2023 increased by $200,000$7.0 million primarily due primarily to a decreasean increase in pretax income. AWR's consolidated effective income tax rate ("ETR")as compared to the same period in 2022. AWR’s ETR was 37.3%25.5% and 23.7% for the three months ended SeptemberJune 30, 2017 as compared to 37.0%2023 and 2022, respectively. GSWC’s ETR was 26.2% and 25.5% for the three months ended SeptemberJune 30, 2016.2023 and 2022, respectively. The consolidated ETR increased primarily as a result of increasesincrease in the ETR at GSWC, which was 38.4% forAWR (parent)’s tax benefit during the three months ended SeptemberJune 30, 20172023 as compared to 38.2% applicablethe same period in 2022 was primarily due 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.pretax loss at AWR (parent) resulting from higher interest expense, as well as changes in state unitary taxes.

For a comparison of the financial results for the second quarter of 2022 to 2021, see “Consolidated Results of Operations-Three Months Ended June 30, 2022 and June 30, 2021” in Registrant’s Form 10-Q for the period ended June 30, 2022 filed with the SEC.
41
Consolidated Results of Operations — NineSix Months Ended SeptemberJune 30, 20172023 and 20162022 (amounts in thousands, except per share amounts):
Six Months Ended June 30, 2023Six Months Ended June 30, 2022$
CHANGE		%
CHANGE
OPERATING REVENUES    
Water$229,620 $164,762 $64,858 39.4 %
Electric21,732 20,109 1,623 8.1 %
Contracted services67,471 46,306 21,165 45.7 %
Total operating revenues318,823 231,177 87,646 37.9 %
OPERATING EXPENSES    
Water purchased32,374 37,811 (5,437)(14.4)%
Power purchased for pumping5,223 5,304 (81)(1.5)%
Groundwater production assessment9,198 9,076 122 1.3 %
Power purchased for resale7,455 6,513 942 14.5 %
Supply cost balancing accounts14,403 (6,800)21,203           *
Other operation19,832 18,332 1,500 8.2 %
Administrative and general45,050 43,436 1,614 3.7 %
Depreciation and amortization21,461 20,285 1,176 5.8 %
Maintenance6,929 6,712 217 3.2 %
Property and other taxes11,850 11,305 545 4.8 %
ASUS construction34,938 20,521 14,417 70.3 %
Total operating expenses208,713 172,495 36,218 21.0 %
OPERATING INCOME110,110 58,682 51,428 87.6 %
OTHER INCOME AND EXPENSES    
Interest expense(20,209)(11,915)(8,294)69.6 %
Interest income3,667 720 2,947 409.3 %
Other, net3,316 (2,708)6,024         *
 (13,226)(13,903)677 (4.9)%
INCOME BEFORE INCOME TAX EXPENSE96,884 44,779 52,105 116.4 %
Income tax expense23,956 10,666 13,290 124.6 %
NET INCOME$72,928 $34,113 $38,815 113.8 %
Basic earnings per Common Share$1.97 $0.92 $1.05 114.1 %
Fully diluted earnings per Common Share$1.97 $0.92 $1.05 114.1 %
* not meaningful
42
  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 %
Table of Contents





Operating Revenues:
General
GSWC and BVES 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. 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.  Current operating revenues and earnings can be negatively impacted if the Military Utility 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 ninesix months ended SeptemberJune 30, 2017,2023, revenues from water operations increased $1.1by $64.9 million to $239.1$229.6 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. 2022. 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 was largely because of approximately $2.6 million that was not reflectedthe adoption of a final decision 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 discussedcase that included the impact of retroactive newly adopted rates for the full year of 2022 of $30.3 million, as well as the second-year rate increases for 2023. In addition, as a result of receiving a final decision in the "Overview" section,cost of capital proceeding in June 2023, GSWC recorded a change in estimate during the water gross margin recorded through Septembersix months ended June 30, 2016 reflected GSWC's litigated positions2023 that resulted 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 retroactivereversal of revenues subject to January 1, 2016, a cumulative downward adjustmentrefund of $5.2$6.4 million to the water gross margin wasthat had been recorded in 2022. All adjustments to rates from the fourth quarterfinal cost of 2016 relatedcapital decision are to the first three quarters of 2016. The $5.2 million downward adjustment would have decreased revenues by $2.6 millionbe prospective and increased supply costs by $2.6 million for the nine months ended September 30, 2016 had the CPUC decision been issued on time.not retroactive.
Billed water consumption for the first ninesix months of 2017 increased 2.5%2023 was lower by 17.0% as compared to the same period in 2016. Changes2022 due primarily to above average rainfall in California in the first half of 2023 as compared to the same period in 2022, which was one of the driest on record. Currently, changes in consumption generally do not have a significant impact on recorded revenues due to the WRAM.CPUC-approved WRAM that is in place in all but one small rate making area. GSWC records the difference between what it bills its water customers and what is authorized by the CPUC in the WRAM accounts as regulatory assets or liabilities.
Electric
Adopted baseElectric revenues for 2017 are based on 2016the six months ended June 30, 2023 increased by $1.6 million to $21.7 million due, in large part, to the final decision adopted basein the water general rate case proceeding that updates the costs allocated from the general corporate office to the electric segment. The final decision authorizes an increase in the allocation ratio to the electric segment. The increase in general corporate office expenses allocated to the electric segment also includes a corresponding and offsetting increase in adopted electric revenues adjustedas provided in BVES’s last general rate case proceeding, resulting in no impact to earnings. There was also an increase in electric revenues from an advice letter filing related to a completed capital project.
Electric usage for the changesix months ended June 30, 2023 was flat compared to the same period in 2022.
Contracted Services
Revenues from contracted services are composed of construction revenues (including renewal and replacements) and management fees for operating and maintaining the general office allocation.water and/or wastewater systems at various military bases.  For the ninesix months ended SeptemberJune 30, 2017,2023, revenues from electric operations were $26.1contracted services increased $21.2 million to $67.5 millionas compared to $26.4$46.3 million for the same period in 20162022. The increase was largely due to the downward adjustment in the revenue requirement for 2017 with a correspondinghigher construction activity 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 resultingfee revenue from the successful resolution of severalannual economic 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.

of 2022.
Operating Expenses:
Supply Costs
Total supply costs at the regulated utilities comprise the largest segment of total consolidated operating expenses. Supply costs accounted for approximately 29.2%32.9% and 27.3%30.1% of total operating expenses for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively.
Water segment supply costs

The table below providesTwo of the principal factors affecting water supply costs are the amount of increases (decreases)water produced and percentthe source of the water. Generally, the variable cost of producing water from wells is less than the cost of water purchased from wholesale suppliers. The overall actual percentages of purchased water for the six months ended June 30, 2023 and 2022 were approximately 44% and 46%, respectively, as compared to the authorized adopted percentages of 41% and 33% for the six months ended June 30, 2023 and 2022, respectively. The higher actual percentage of purchased water as compared to the adopted percentage resulted from a higher volume of purchased water costs due to several wells being out of service.  
Under the current CPUC-approved Modified Cost Balancing Account (“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 electric revenues, supply costs and gross margin during the nine months ended September 30, 2017 and 2016 (dollar amounts in thousands):pump tax
43
  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)%

      
  
expenses. GSWC recovers from, or refunds to, customers the amount of such variances.  GSWC tracks these variances individually for each water ratemaking area.
(1)As reported on AWR’s Consolidated StatementsSupply costs for the water segment consist of Income, exceptpurchased water, purchased power for pumping, groundwater production assessments and changes in the water supply cost balancing accounts. For the six months ended June 30, 2023 and 2022, water supply costs consisted of the following amounts (in thousands):
Six Months Ended June 30, 2023Six Months Ended June 30, 2022$
CHANGE		%
CHANGE
Water purchased$32,374 $37,811 $(5,437)-14.4 %
Power purchased for pumping5,223 5,304 (81)-1.5 %
Groundwater production assessment9,198 9,076 122 1.3 %
Water supply cost balancing accounts *15,412 (6,567)21,979 **
Total water supply costs$62,207 $45,624 $16,583 36.3 %
* The sum of the water and electric supply costsupply-cost balancing accounts in the table above are shown on AWR’s Consolidated Statements of Income and totaled $(11,663,000)$14,403,000 and $(10,145,000)$(6,800,000) for the nine months ended SeptemberJune 30, 20172023 and 2016,2022, respectively. Revenues include surcharges, which increase both revenues and operating expenses by corresponding amounts, thus having no net earnings impact.
** not meaningful
(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.
Purchased water costs forduring the ninesix months ended SeptemberJune 30, 2017 increased2023 decreased to $50.6$32.4 million as compared to $49.3$37.8 million for the same period in 2016, primarily2022 largely due to an increasedecreases in water consumption and production that was driven by above-average rainfall in 2023 and from overall improvements in drought conditions in 2023 as compared to 2022, partially offset by increases 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, groundwatercosts. Groundwater production assessments increased $3.0 million due to an increaseincreases in pump tax rates and pump taxes paid for water storage rights during the ninesix months ended SeptemberJune 30, 20172023 as compared to the same period in 2016.2022.
The under-collection inFor the six months ended June 30, 2023, the water supply cost balancing account increased $1.4had a $15.4 million during the nine months ended September 30, 2017over-collection as compared to a $6.6 million under-collection during the same period in 2016 mainly2022. The change in water supply cost balancing accounts was primarily due to updated adopted supply costs from the higher purchasedfinal decision in the water general rate case proceeding received in June 2023. This increase includes the full year impact of 2022 to reflect newly adopted supply costs as well as higher groundwater production assessments as comparedretroactive to January 1, 2022, with a corresponding and offsetting increase in adopted water revenues, resulting in no impact to earnings.
Electric segment supply costs.costs
Supply costs for the electric segment consist primarily of purchased power for resale, the cost of natural gas used by BVES’s generating unit, the cost of renewable energy credits and changes in the electric supply cost balancing account. For the ninesix months ended SeptemberJune 30, 2017,2023 and 2022, electric supply costs consisted of the following amounts (in thousands):
Six Months Ended June 30, 2023Six Months Ended June 30, 2022$
CHANGE		%
CHANGE
Power purchased for resale$7,455 $6,513 $942 14.5 %
Electric supply cost balancing account *(1,009)(233)(776)333.0 %
Total electric supply costs$6,446 $6,280 $166 2.6 %
* The sum of the water and electric supply-cost balancing accounts are shown on AWR’s Consolidated Statements of Income and totaled $14,403,000 and $(6,800,000) for the six months ended June 30, 2023 and 2022, respectively.
For the six months ended June 30, 2023, the cost of power purchased for resale to BVES'sBVES’s electric customers increased by $366,000 to $7.8$7.5 million as compared to $7.5$6.5 million during the same period in 2022 primarily due to higher average prices per megawatt-hour. The average price per megawatt-hour, excluding certain fixed costs, increased from $76.82 for the six months ended June 30, 2022 to $85.96 for the same period in 2016 due to an2023.  The 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-collectionunder-collection in the electric supply cost balancing account decreased by $153,000during the six months ended June 30, 2023 compared to the same period in 2022 was due primarily to an increaseincreases in the weighted average price per MWh.energy prices experienced since 2022.


44
Other Operation
The primary components of other operation expenses include payroll costs, 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 and the electric system.  Registrant’s contracted services operations incur many of the same types of expenses.  For the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, other operation expenses 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
Six Months Ended June 30, 2023Six Months Ended June 30, 2022$
CHANGE		%
CHANGE
Water Services $16,100
 $16,294
 $(194) (1.2)%Water Services$14,492 $13,635 $857 6.3 %
Electric Services 2,042
 2,549
 (507) (19.9)%Electric Services1,827 1,516 311 20.5 %
Contracted Services 3,847
 2,488
 1,359
 54.6 %Contracted Services3,513 3,181 332 10.4 %
Total other operation $21,989
 $21,331
 $658
 3.1 %Total other operation$19,832 $18,332 $1,500 8.2 %
For the ninesix months ended SeptemberJune 30, 2017, total2023, the increase in other operation expenses forat the water segment decreasedwas due primarily to higher operation-related labor, transportation and outside-service costs, partially offset by $194,000 aslower water treatment costs. As a result of receiving the final decision in the water general rate case, the increase at the water segment also included a cumulative depreciation adjustment for 2022 of $212,000 on GSWC’s transportation equipment, which is recorded in other operation expenses.
The increase at the electric segment was due primarily to operation-related labor and transportation expense. Transportation costs were higher due, in part, to increases in fuel and maintenance costs 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 months ended September 30, 2017 there was also a $205,0002022.
The increase 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 expenses 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 months ended September 30, 2017, total other operation expenses for the contracted services segment increased mainlywas due primarily to transition costshigher operation-related labor and outside services incurred at Eglin, including costs for a joint inventory study of Eglin'soil water system infrastructure conducted withseparators and the U.S. government. In accordance with the 50-year contract with the U.S. government, ASUS received revenues to help cover some of the costs of the transition at Eglin. ASUS assumed operations at Eglin in June 2017, which further increased other operation expenses in 2017.water treatment plant.
Administrative and General
Administrative and general expenses include payroll costs related to administrative and general functions, all employee-related benefits, insurance expenses, outside legal and consulting fees, regulatory-utility-commission expenses, expenses associated with being a public company and general corporate expenses charged to expense accounts. For the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, 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
Six Months Ended June 30, 2023Six Months Ended June 30, 2022$
CHANGE		%
CHANGE
Water Services $42,948
 $42,877
 $71
 0.2 %Water Services$29,663 $29,583 $80 0.3 %
Electric Services 5,204
 6,471
 (1,267) (19.6)%Electric Services4,584 3,969 615 15.5 %
Contracted Services 14,374
 12,465
 1,909
 15.3 %Contracted Services10,766 9,879 887 9.0 %
AWR (parent) 8
 16
 (8) (50.0)%AWR (parent)37 5 32 *
Total administrative and general $62,534
 $61,829
 $705
 1.1 %Total administrative and general$45,050 $43,436 $1,614 3.7 %
     During* not meaningful
Administrative and general expenses increased at the nine months ended September 30, 2017, $2.9 millionwater segment due, in surcharges were implementedlarge part, to an increase in 2017outside-service costs, labor and employee-related expenses, partially offset by a decrease in the service cost component of GSWC’s defined-benefit pension plan. Due to recoverGSWC’s two-way pension balancing accounts authorized by the CPUC, changes in total net periodic benefit costs related to the pension plan have no material impact to earnings. In addition, there was a reduction of approximately $447,000 to reflect the final decision on the water general rate case that authorized the recovery of previously incurred administrative and general approved byexpenses that were being tracked in CPUC-authorized memorandum accounts.
Administrative and general expenses increased at the CPUC, increasing revenues andelectric segment primarily due to an increase in costs allocated from the general corporate office because of the allocation ratio update authorized in the final decision on the water gross margin withgeneral rate case. The increase in general corporate office expenses allocated to the electric segment also includes a corresponding and offsetting increase in administrative and general expenses,adopted electric revenues, resulting in no impact to earnings.
Excluding the impact of surcharges, for the nine months ended September 30, 2017, administrativeAdministrative and general expenses increased 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, 2016segment due primarily to an increase in labor and legal 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 commencementoutside-service costs.

45
Table of operations at Eglin in June 2017.Contents

Depreciation and Amortization
For the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, depreciation and amortization by business segment consisted of the following (dollar amounts in thousands):
Six Months Ended June 30, 2023Six Months Ended June 30, 2022$
CHANGE		%
CHANGE
Water Services$18,280 $17,098 $1,182 6.9 %
Electric Services1,507 1,340 167 12.5 %
Contracted Services1,674 1,847 (173)(9.4)%
Total depreciation and amortization$21,461 $20,285 $1,176 5.8 %
  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%
ForThe water general rate case final decision approves overall higher composite depreciation rates based on a revised depreciation study. The increase in composite depreciation rates increases the nine months ended September 30, 2017,adopted water revenue requirement, with a corresponding increase in adopted depreciation expense, resulting in no impact to net earnings. The overall increase in depreciation and amortization expense increased due primarilyexpenses at the water segment included the retroactive impact for the full year of 2022 of approximately $576,000. In addition, the increase to depreciation and amortization was also attributed to additions to utility plant partially offset by retirements recorded duringand other fixed assets at the fourth quarter of 2016 and first nine months of 2017, as well as the sale of the Ojai utility assets in June 2017.

regulated utilities.
Maintenance
For the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, 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
Six Months Ended June 30, 2023Six Months Ended June 30, 2022$
CHANGE		%
CHANGE
Water Services $8,111
 $9,954
 $(1,843) (18.5)%Water Services$4,516 $4,667 $(151)(3.2)%
Electric Services 551
 472
 79
 16.7 %Electric Services598 491 107 21.8 %
Contracted Services 1,630
 1,482
 148
 10.0 %Contracted Services1,815 1,554 261 16.8 %
Total maintenance $10,292
 $11,908
 $(1,616) (13.6)%Total maintenance$6,929 $6,712 $217 3.2 %
Maintenance expense fordecreased at the water services decreased by $1.8 millionsegment due, in part, to ana reduction of approximately $98,000 to reflect the final decision in the water general rate case that authorized the recovery of previously incurred costs that were tracked in CPUC-authorized memorandum accounts and overall lower level of planned and unplanned maintenance as compared to the same period in 2017,2022. Maintenance expense increased at the electric and contracted services segments due to higher planned and unplanned maintenance expenses incurred as well ascompared to the timing of planned maintenance activities.

same period in 2022.
Property and Other Taxes
For the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, 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
Six Months Ended June 30, 2023Six Months Ended June 30, 2022$
CHANGE		%
CHANGE
Water Services $11,517
 $11,022
 $495
 4.5 %Water Services$9,699 $9,445 $254 2.7 %
Electric Services 799
 806
 (7) (0.9)%Electric Services1,036 877 159 18.1 %
Contracted Services 1,070
 1,035
 35
 3.4 %Contracted Services1,115 983 132 13.4 %
Total property and other taxes $13,386
 $12,863
 $523
 4.1 %Total property and other taxes$11,850 $11,305 $545 4.8 %
Property and other taxes increased overallat the water segment primarily due to an increase in franchise fees resulting from higher water revenues, partially offset by $523,000 duringfavorable property tax true-ups resulting from changes in property tax assessments for certain counties. In addition, there was an increase in property taxes at the nine months ended September 30, 2017 due primarily toelectric segment resulting from an increase in capital additions.


additions and higher assessed values, and an increase in gross receipts taxes at the contracted services segment from higher construction activity.
ASUS Construction
For the ninesix months ended SeptemberJune 30, 2017,2023, construction expenses for contracted services were $34.6$34.9 million, decreasing $762,000increasing $14.4 million compared to the same period in 2016 largely2022 primarily due to improved cost efficiencies, partially offset by an increase in construction activity.activity resulting from timing differences of when such work was performed in 2023 as compared to the same period of 2022.

Gain on Sale
46
Table of AssetsContents

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 ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, interest expense by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):
Six Months Ended June 30, 2023Six Months Ended June 30, 2022$
CHANGE		%
CHANGE
Water Services$14,757 $10,700 $4,057 37.9 %
Electric Services1,786 496 1,290 260.1 %
Contracted Services934 166 768 462.7 %
AWR (parent)2,732 553 2,179 394.0 %
Total interest expense$20,209 $11,915 $8,294 69.6 %
  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,AWR’s borrowings consist of bank notes under revolving credit facilities, while GSWC and BVES borrowings consist of revolving credit facilities and long-term debt issuances. Consolidated interest expense increased $650,000 due largely to higher average borrowings on the revolving credit facility as compared to the first nine monthssame period in 2022 resulting primarily from an increase in total borrowing levels to support, among other things, the capital expenditures program at the regulated utilities, as well as an overall increase in average interest rates both short- and long-term. On January 13, 2023, GSWC issued $130.0 million unsecured private-placement notes consisting of: $100.0 million in aggregate notes at a coupon rate of 2016. The proceeds received5.12% due January 31, 2033, and $30.0 million in June 2017 from the completed saleaggregate notes at a coupon rate of GSWC's Ojai system were used to repay a portion5.22% due January 31, 2038. In April 2022, BVES issued $35.0 million in unsecured private-placement notes consisting of these borrowings.

10 and 15 year term notes with interest rates at 4.548% and 4.949%, respectively.
Interest Income

For the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, interest income by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):
Six Months Ended June 30, 2023Six Months Ended June 30, 2022$
CHANGE		%
CHANGE
Water Services$2,748 $237 $2,511 *
Electric Services559 88 471 *
Contracted Services380 403 (23)(5.7)%
AWR (parent)(20)(8)(12)*
Total interest income$3,667 $720 $2,947 *
  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 %

* not meaningful
The overall increase in interest income iswas due primarily to higher interest income earned on regulatory assets at the collection of certain amounts from developers previously owed to GSWC,water and electric segments bearing interest at the current 90-day commercial-paper rates, which have increased since 2022, as well as an overall increase in recorded regulatory assets as a result of the final decision in the water general rate case, partially offset by lower interest income related to regulatory assets.
Other, net

Forrecognized on certain construction projects at the nine months ended September 30, 2017, other income increased by $582,000 due to higher gains on investmentscontracted services segment as compared to the same period in 2016.2022.

Other Income and (Expenses), net
For the six months ended June 30, 2023 and 2022, other income and (expenses), net by business segment, consisted of the following (dollar amounts in thousands):

Six Months Ended June 30, 2023Six Months Ended June 30, 2022$
CHANGE		%
CHANGE
Water Services$3,086 $(3,000)$6,086 (202.9)%
Electric Services22 220 (198)(90.0)%
Contracted Services(60)72 (132)(183.3)%
AWR (parent)268 — 268 100.0 %
Total other income and (expenses), net$3,316 $(2,708)$6,024 (222.5)%
    For the six months ended June 30, 2023, other income (net of other expenses) increased mostly because of gains of $3.1 million recorded on investments held to fund one of the Company’s retirement plans, as compared to losses of $5.2 million incurred during the same period in 2022, both due to financial market conditions. This was partially offset by an increase in the non-service cost components of net periodic benefit costs related to the Company’s defined-benefit pension plan and other retirement benefits. However, as a result of GSWC’s and BVES’s two-way pension balancing accounts authorized by the CPUC, changes in total net periodic benefit costs related to the pension plan have no material impact to earnings.
47
Income Tax Expense
For the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, 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
Six Months Ended June 30, 2023Six Months Ended June 30, 2022$
CHANGE		%
CHANGE
Water Services $27,739
 $23,528
 $4,211
 17.9 %Water Services$20,844 $7,792 $13,052 167.5 %
Electric Services 1,496
 1,675
 (179) (10.7)%Electric Services948 1,167 (219)(18.8)%
Contracted Services 5,152
 4,029
 1,123
 27.9 %Contracted Services3,191 2,052 1,139 55.5 %
AWR (parent) (717) (655) (62) 9.5 %AWR (parent)(1,027)(345)(682)197.7 %
Total income tax expense $33,670
 $28,577
 $5,093
 17.8 %Total income tax expense$23,956 $10,666 $13,290 124.6 %
Consolidated income tax expense for the ninesix months ended SeptemberJune 30, 20172023 increased by approximately $5.1$13.3 million primarily 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%the same period in 2022. AWR’s ETR was 24.7% and 23.8% for the ninesix months ended SeptemberJune 30, 2016.2023 and 2022, respectively. GSWC’s ETR was 25.5% and 24.9% for the six months ended June 30, 2023 and 2022, respectively. The increase in AWR (parent)’s tax benefit during the six months ended June 30, 2023 as compared to the same period in 2022 was primarily due to an increase in pretax loss at AWR (parent) resulting from higher interest expense, as well as changes in state unitary taxes.

For a comparison of the financial results for the first six months of 2021 to 2020, see “Consolidated Results of Operations-Six Months Ended June 30, 2022 and June 30, 2021” in Registrant’s Form 10-Q for the period ended June 30, 2022 filed with the SEC.
48
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, 2016.2022 filed with the SEC. There have been no material changes to Registrant’s critical accounting policies.

Liquidity and Capital Resources
AWR
Registrant’sAWR’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, 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 BVES 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 BVES to pay dividends to AWR is restricted by California law. Under these restrictions, approximately $234.3$677.4 million was available on September 30, 2017for GSWC to pay dividends to AWR.

AWR on June 30, 2023. Approximately $68.4 million was available for BVES to pay dividends to AWR as of June 30, 2023. 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, RegistrantAWR obtains funds from external sources inthrough the capital markets and throughfrom 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.
On June 28, 2023, AWR also has access toand GSWC each executed new credit agreements with terms of five years provided by a syndicate of banks and financial institutions for a total combined unsecured revolving credit facilities of $350.0 million. These syndicated credit facilities replaced AWR’s previous credit agreement with a sole bank. AWR’s new credit agreement provides for a $150.0 million unsecured revolving credit facility which expires in May 2018.  Management expects to extend thissupport AWR parent and its contracted services subsidiary, while GSWC’s credit agreement provides for a $200.0 million unsecured revolving credit facility prior to support its expiration date.water operations and capital expenditures. Both credit facilities may be expanded up to an additional amount of $75 million, subject to the lenders’ approval. AWR borrowspreviously borrowed under thisa revolving credit facility with a borrowing capacity of $280.0 million and providesprovided funds to its subsidiaries,both GSWC and ASUS in support of their operations.  Any amounts owedoperations through intercompany borrowing agreements on terms that are similar 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.  Asthat of September 30, 2017, there were $46.0 million in borrowings outstanding under this facility and $6.3 million of letters of credit outstanding.  As of September 30, 2017, AWR had $97.7 million available to borrow under the credit facility.


BVES has a separate revolving credit facility without a parent guaranty, which was amended on June 16, 2023, to increase the borrowing capacity from $35.0 million to $50.0 million. In addition, BVES’s amended credit agreement also included (i) the extension of the credit facility to mature on July 1, 2026, (ii) conversion of the interest rate on new borrowings to the benchmark rate Secured Overnight Financing Rate (“SOFR”), and (iii) an option to increase the facility by an additional $25.0 million, subject to lender approval. The CPUC requires BVES to completely pay off all borrowings under its revolving credit facility within a 24-month period. In addition, on June 13, 2023, BVES filed a financing application with the CPUC, pending approval, that requests the authorization for the issuance and sale of additional debt and equity securities of up to $120.0 million.
In May 2017,July 2023, Standard and Poor’s Global Ratings (“S&P”) reaffirmed andowngraded AWR’s credit rating from A+ to A, while affirming GSWC's A+ credit rating with a stablerating. S&P also revised the outlook onfor both AWR and GSWC. S&P’s debt ratings rangecompanies from AAA (highest possible)negative to D (obligation is in default).stable. In December 2016, Moody'sJanuary 2023, Moody’s Investors Service ("Moody's"(“Moody’s”) affirmed 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.  Registrantagencies. Management believes that AWR’s and GSWC’s sound capital structurestructures and A+strong credit rating,ratings, combined with its financial discipline, will enable AWR 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 RegistrantAWR 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
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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 October 30, 2017, AWR'sAugust 1, 2023, AWR’s Board of Directors approved a fourthan 8.2% increase in the third quarter dividend of $0.255from $0.3975 per share to $0.4300 per share on AWR'sAWR’s Common Shares. Dividends on the Common Shares will be payablepaid on DecemberSeptember 1, 20172023 to shareholders of record at the close of business on NovemberAugust 15, 2017.2023. AWR has paid common dividends every year since 1931, and has increased the dividends received by shareholders each calendar year for 69 consecutive years, which places it in an exclusive group of companies on the New York Stock Exchange that have achieved that result. AWR's quarterly dividend rate has grown at a compound annual growth rate (“CAGR”) of 9.4% over the last five years. AWR’s current policy is to achieve a CAGR 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 with borrowings from AWR's credit facility are adequate to provide sufficient capital to maintain normal operations and to meet its capital and financing requirements.
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 BVES, and construction expenses at ASUS, and to pay dividends. Registrant’sAWR’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 lingering effects 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 other subsidiaries of ASUS.
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 RegistrantAWR was $120.2$17.8 million for the ninesix months ended SeptemberJune 30, 20172023 as compared to $77.5$56.9 million for the same period in 2016.2022. During the first quarter of 2022, GSWC and BVES received $9.5 million and $321,000, respectively, in COVID-19 relief funds from the state of California to aid customers in paying delinquent water and electric customer bills incurred during the pandemic. There was an increasewere no relief funds received during the first half of 2023.
The decrease in operating cash flow for GSWCflows was also due to various CPUC-approved surcharges implemented during 2017 to recover previously incurred costs,a 17.0% decrease in billed water consumption, as well as federal income tax refundsthe delay in receiving the water general rate case final decision as billed water revenues in 2022 and first half of 2023 were based on 2021 adopted rates pending a final CPUC decision, while operating expenses continued to rise due to inflation. A final decision from the CPUC was received in 2017.on June 29, 2023 on the water general rate case with 2022 and 2023 rates retroactive to January 1, 2022 and 2023, respectively. Upon receiving the decision, GSWC filed for the implementation of new 2023 rate increases. The increasenew rates for 2023 went into effect on July 31, 2023. Within 90 days after 2023 rates have been implemented, GSWC intends to also file for recovery of retroactive amounts accumulated through July 31, 2023 related to the new 2022 and 2023 rates, of which the majority of the balances will be recovered over a 36-month period. Furthermore, the decrease in operating cash flowflows was also due to differences in the timing of vendor payments, and the timing of billing of and cash receipts for construction work at military bases during the nine months ended September 30, 2017.bases. 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.
The decrease in operating cash flows discussed above was partially offset by differences in the timing of income tax installment payments between the two periods. The timing of cash receipts and disbursements related to other working capital items also affected the changeschange in net cash provided by operating activities.



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Cash Flows from Investing Activities:

Net cash used in investing activities was $44.9$87.8 million for the ninesix months ended SeptemberJune 30, 20172023 as compared to $101.4$76.4 million for the same period in 2016.  Cash paid for2022, which is mostly related to capital expenditures were partially offset by $34.3 million in cash proceeds generated fromat the sale of GSWC's Ojai water system. Registrantregulated utilities. AWR 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’sAWR’s infrastructure investment plan consists of both infrastructure renewal programs where(to replace infrastructure, is replaced, as needed,including those to mitigate wildfire risk) and major capital investment projects where(to construct new water treatment, supply and delivery facilities, are constructed.  GSWCand electric facilities). 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 the year 2023, the regulated utilities’ company-funded capital expenditures are expected to be between $140 million and $160 million, barring any delays resulting from changes in capital improvement schedules due to supply-chain issues.
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’sAWR’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, (iii) the proceeds from unsecured new revolving credit facilities for AWR, GSWC and (iii)BVES, and (iv) 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-termBorrowings on AWR’s new credit facility is used to support AWR parent and its contracted services subsidiary and borrowings on GSWC and BVES’s credit facilities are used to fund GSWC and BVES capital expenditures, respectively, until long-term financing is arranged.

Overall debt levels are expected to increase to fund the costs of the capital expenditures that will be made by the regulated utilities.
Net cash used inprovided by financing activities was $69.1$65.1 million for the ninesix months ended SeptemberJune 30, 20172023 as compared to net cash providedused of $22.3$25.4 million forduring the same period in 2016. This2022. The increase in net cash provided by financing activities in 2023 was due primarily to an increase in total borrowing levels necessary to support operations affected by a significant decrease in cash from financing activities was due to the use of the Ojai sale proceeds, as well as cash generatedflows from operating activities and to repay a portionsupport, among other things, the capital expenditures program at the regulated utilities. In January 2023, GSWC issued $130.0 million of short-termunsecured private-placement notes and used the proceeds to pay down the majority of its outstanding intercompany borrowings from Registrant's revolvingAWR, which in turn used the proceeds to pay down outstanding borrowings under the AWR credit facility at that time.
In addition, on June 28, 2023, AWR and GSWC each executed new unsecured syndicated credit facilities to replace AWR’s previous credit agreement with a sole bank. During the six months ended June 30, 2023, AWR had a net decrease in borrowings from all of its credit facilities of $35.7 million, while during the ninesix months ended SeptemberJune 30, 2017. Management is evaluating the long-term use2022, AWR had a net increase in borrowings on its credit facilities of the Ojai proceeds.

$18.0 million to support operations and capital expenditures.
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 lingering effects of the COVID-19 pandemic.
GSWC may, at times, utilize external sources includingfor long-term financing, as well as obtain funds from equity investments and short-term borrowings from its parent, AWR, and long-term debt to help fund a portion of its operations and construction expenditures. On June 28, 2023, GSWC executed its own separate credit agreement that provides for a $200.0 million unsecured revolving credit facility to support GSWC’s operations and capital expenditures. Under GSWC’s new credit agreement, the borrowing capacity may be expanded up to an additional amount of $75.0 million, subject to the lenders’ approval. Previously, AWR borrowed under a revolving credit facility and provided funds to GSWC in support of its operations under intercompany borrowing arrangements.
In January 2023, GSWC issued (i) one Common Share to AWR for $10.0 million, and (ii) $130.0 million in unsecured private placement long-term notes. GSWC used the proceeds from both the issuance of equity and long-term debt to pay-off all intercompany borrowings from AWR. On June 28, 2023, GSWC borrowed for the first time under its new syndicated credit facility and used the proceeds to again pay-off in full its short-term intercompany borrowings due to AWR. The CPUC requires GSWC to fully pay-off all intercompany borrowings it has from AWR within a 24-month period. GSWC's borrowings under its new credit facility will also be required to be paid-off in full within a 24-month period.
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 which 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
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Cash Flows from Operating Activities:
Net cash provided by operating activities was $98.4$27.2 million for the ninesix months ended SeptemberJune 30, 20172023 as compared to $76.2$43.2 million for the same period in 2016.2022.During the first quarter of 2022, GSWC received $9.5 million in COVID-19 relief funds from the state of California to provide assistance to customers for delinquent water bills incurred during the pandemic. There was an increasewere no relief funds received during the first half of 2023. The decrease in operating cash flow for GSWCwas also due to various CPUC-approved surcharges implemented during 2017 to recover previously incurred costs,a 17.0% decrease in billed water consumption, as well as federalthe delay in receiving the final water general rate case decision as billed water revenues in 2022 and 2023 were based on 2021 adopted rates pending a final CPUC decision, while operating expenses continued to rise due to inflation. A final decision from the CPUC was received on June 29, 2023 on the water general rate case with 2022 and 2023 rates retroactive to January 1, 2022 and 2023, respectively. Upon receiving the decision, GSWC filed for the implementation of new 2023 rate increases. The new rates for 2023 went into effect on July 31, 2023. Within 90 days after 2023 rates have been implemented, GSWC also intends to file for recovery of retroactive amounts accumulated through July 31, 2023 related to the new 2022 and 2023 rates, of which the majority of the balances will be recovered over a 36-month period. Furthermore, the decrease in operating cash flows was also due to differences in the timing of vendor payments.
The decrease in operating cash flows discussed above was partially offset by differences in the timing of income tax refunds received in 2017.installment payments between the two periods. 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$76.4 million for the ninesix months ended SeptemberJune 30, 20172023 as compared to $99.6$66.9 million for the same period in 2016. For the nine months ended September 30, 2017, cash used for2022, which is mostly related to spending under GSWC’s infrastructure investment plans that are consistent with capital expenditures was $76.4 million, which was partially offset by cash proceeds received from the sale of GSWC's Ojai water system. During 2017, GSWC's company-funded capital expenditures are estimated to be approximately $110 - $120 million.budgets authorized in its general rate cases.

Cash Flows from Financing Activities:
Net cash used inprovided by financing activities was $49.1$49.2 million for the ninesix months ended SeptemberJune 30, 20172023 as compared to $26.6 million net cash used for the same period in 2022.  The increase in net cash provided by financing activities in 2023 was due primarily to an increase in total borrowing levels necessary to support water operations affected by a significant decrease in cash flows from operating activities and to support, among other things, the capital expenditures program at GSWC.
In January 2023, GSWC issued $130.0 million of $23.2unsecured private-placement notes and also issued $10.0 million of equity to AWR. GSWC used the proceeds from both issuances to pay-off all of its outstanding intercompany borrowings from AWR at that time. On June 28, 2023, GSWC entered into an unsecured revolving credit facility that provided net borrowings of $77.3 million for the same periodsix months ended June 30, 2023. GSWC used the proceeds from the borrowings under the new credit facility to again pay-off in 2016.  This decrease in cashfull all of its intercompany borrowings owed to AWR. The CPUC requires GSWC to fully pay-off all intercompany borrowings it has from financing activities was due to the use of the Ojai sale proceeds, as well as cash generated from operating activities, to repayAWR within a portion of inter-company short-term borrowings24-month period. As a result, during the ninesix months ended SeptemberJune 30, 2017.2023, GSWC had net payments on intercompany borrowings of $129.0 million. During the six months ended June 30, 2022, GSWC had an increase in net intercompany borrowings of $54.0 million from AWR parent.
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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 Balance Sheet Arrangements”Commitments” section of the Registrant’s Form 10-K for the year ended December 31, 20162022 filed with the SEC for a detailed discussion of contractual obligations and other commitments.
Contracted Services
Under the terms of the current and future utility privatization contracts with the U.S. government, each contract'scontract’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”), substantialDuring sequestration or automatic spending cuts, known as "sequestration," have impacted the expected levels of Department of Defense budgeting. The Military Utility Privatization Subsidiaries havedid not experiencedexperience any earnings impact to their existing operations and maintenance and renewal and replacement services, as utility privatization contracts are an "excepted service" within“excepted service.”With the Act.  While the ongoing effectsexpiration of sequestration, have been mitigated throughsimilar issues including further sequestration pursuant to the passage of a continuing resolution for the fiscal year 2018 Department of Defense budget, similar issuesBalanced Budget and Emergency Deficit Control Act may arise as part of the fiscal uncertainty and/or future debt-ceiling limits imposed by Congress. However, anyAny 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,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 Audit Agency (“DCAA”)DCAA and/or the Defense Contract Management Agency (“DCMA”)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.
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Regulatory Matters
An update on various regulatory matters is a summaryincluded in the discussion under the section titled “Overview” in this Form 10-Q’s “Management’s Discussion and Analysis of price redetermination, EPAFinancial Condition and REA filingsResults of Operations.”The discussion below focuses on other regulatory matters and other mattersdevelopments.
Water Segment:
Recent Changes in Rates
Rates that GSWC is authorized to charge are determined by the CPUC in general rate cases. Water revenues billed to customers for the Military Utility Privatization Subsidiaries.

FBWS -six months ended June 30, 2023 and 2022 were based on 2021 adopted rates. On June 29, 2023, GSWC received a final decision on its general rate case application. The EPAnew rates for Fort Bliss2022 and 2023 are effective and retroactive to January 1, 2022 and January 1, 2023, respectively. The impact of retroactive rates for the contractfull year beginning October 1, 2017 was submitted toof 2022 and the government second-year 2023 rate increases have been reflected in the third quarterresults for the six months of 2017.
2023. GSWC filed for the implementation of new 2023 rate increases effective on July 31, 2023. Within 90 days after 2023 rates have been implemented, GSWC will also file to recover all retroactive amounts accumulated through the effective date of the new 2023 rates.

Cost of Capital Proceeding
TUS - The EPA filing for Andrews Air Force Base, covering the period February 2017 through January 2018,On June 29, 2023, a final decision was approvedadopted by the governmentCPUC in the third quartercost of 2017 and providescapital proceeding that, among other things, (i) adopts GSWC’s requested capital structure; (ii) adopts a cost of debt of 5.1% for an annualized inflationary increase in operations and maintenance (“O&M”) and renewal and replacement (“R&R”) fees.

ODUS - The EPA filingGSWC as compared to 6.6% previously authorized; (iii) adopts a return on equity of 8.85% for GSWC as compared to 8.9% previously authorized; (iv) allows for the Fort Lee privatization contract in Virginia, coveringcontinuation of the one-year period beginning February 2017,Water Cost of Capital Mechanism (“WCCM”) through December 31, 2024; and (v) adopts the EPAnew cost of
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capital for the other basesthree-year period commencing January 1, 2022 through December 31, 2024. Based on an assessment of the final decision issued in June, all adjustments to rates are to be prospective and not retroactive. GSWC filed an advice letter that ODUS operates in Virginia, coveringimplemented the one-year period beginning April 2017 were approved bynew cost of capital effective July 31, 2023.
GSWC recognized revenues for the governmentfirst half of 2023 and all of 2022 based on the previously authorized return of equity of 8.9% that has been billed to water customers through the first half of 2023. On June 30, 2023, GSWC filed an advice letter to establish the WCCM for 2023, which will increase the 8.85% adopted return on equity in the third quarter of 2017. Both filings provide for an annualized inflationary increasedecision to 9.36% effective July 31, 2023.
Electric Segment:
Recent Changes in O&M and R&R fees.
Rates

PSUS - The EPA filing for Fort JacksonOn August 30, 2022, BVES filed a new general rate case application with the CPUC to determine new rates for the one-year period beginning February 2017 wasyears 2023–2026. Electric revenues billed to customers for the six months ended June 30, 2023 were based on 2022 adopted rates and will remain in effect until finalization of the pending general rate case application. On December 15, 2022, the CPUC approved bya decision for BVES to establish a general rate case memorandum account that makes the governmentnew 2023 rates effective and retroactive to January 1, 2023. Because new rates are expected to be retroactive to January 1, 2023, when a decision is issued in the first quarter of 2017 and provides for an annualized increaseelectric general rate case, cumulative adjustments will be recorded at that time. Based on the established schedule in both O&M and R&R fees.

ONUS - The third price redetermination withthis proceeding, 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 settlementproposed decision is expected in the fourth quarter of 2017.
2023.

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 isSee 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 Regions
In early April 2017, GSWC filed its 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 become effective January 1, 2018.
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. In 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, 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.  Among other things, GSWC's requested capital budgets in this application average approximately $125 million per year for the three-year rate cycle. A decision in the water general rate case is scheduled for the fourth quarter of 2018 with new rates to become effective January 1, 2019.
On May 1, 2017, GSWC filed its electric general rate case application with the CPUC. This general rate case will determine new electric rates for the years 2018 through 2021. A final decision in the electric general rate case is expected in 2018, with rates effective January 1, 2018.

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 break that occurred in 2014 causing damage to a commercial building. Repairs to the building have been delayed for a variety of reasons, including 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 and the costs associated therewith. The complaint filed with the CPUC requests, among other things, that the CPUC investigate the main break, the damage to the commercial building and the delay 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.  GSWC believes it has sufficient insurance coverage to cover the judgment and attorney fees totaling $3.5 million entered by the Court in this lawsuit.  However, GSWC 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 results of operations, financial position or cash flows.

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, 20162022 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.

regulations. GSWC is required to comply with the safe drinking water standards established by the U.S. Environmental Protection Agency (“USU.S. EPA”) and the Division of Drinking Water ("DDW"(“DDW”), under the State Water Resources Control Board (“SWRCB”). The USU.S. 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 USU.S. EPA, administers the USU.S. 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 complianceGSWC works proactively with the SDWAthird parties and governmental agencies to assure a safe drinkingaddress issues relating to known contamination threatening GSWC water supply to its customers,sources. GSWC has incurredalso incurs 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, drought impacts, as well as to meet future water quality standards.standards and consumer expectations. 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 should be authorized for recovery by the CPUC.

Drinking Water Notification Levels:
In March 2023, the U.S. EPA proposed maximum contaminant levels (“MCLs”) for various individual and specific chemicals that are referred to as perfluoroalkyl substances (“PFAS”) compounds in drinking water. When finalized, the proposed regulation will require public water systems to monitor and treat for these chemicals. It will also require water systems to notify the customers and reduce the levels if it exceeds the regulatory standards. The U.S. EPA anticipates finalizing and adopting this rule by the end of 2023. Once the rule is finalized, water systems will be required to comply with the MCLs after a specified implementation period, which is currently anticipated to be three years from the rule-adoption date. These proposed MCLs, once finalized, are expected to increase GSWC’s water treatment and other operating costs.
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, 20162022 filed with the SEC for a discussion of environmental matters applicable to GSWC and ASUSAWR 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, 20162022 filed with the SEC for a detailed discussion of water supply issues. The discussion below focuses on significant matters and changes since December 31, 2016.2022.
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 practices and outlines the SWRCB’s vision for continued

initial steps in implementation of this legislation have been laid out in a summary document by the Governor’s executive order on water conservation. Both the SWRCBCalifornia Department of Water Resources (“DWR”) and State Legislature areWater Resources Control Board (“SWRCB”). A notable milestone is the establishment of an indoor water use standard of 55 gallons per capita per day (“gpcd”) until 2025. Legislation signed by the Governor into law in September 2022 has set more stringent indoor standard targets than initially set forth in the 2018 legislation. The indoor standard will now be set at 47 gpcd in 2025 and then reduced to 42 gpcd in 2030 (previously had been set at 52.5 gpcd and 50 gpcd, respectively). The SWRCB is expected to act on the Governor’s executive orderbegin a formal rulemaking process in the next year.several months and consider adoption of a final regulation for overall conservation standards by the end of this year or early 2024 that will include the indoor standard as well as outdoor use standards.
The SWRCB had taken various actions to help ensure reduced
California started the 2023 water usage throughoutyear, beginning on October 1, 2022, as a potentially fourth driest consecutive year of drought. However, a series of atmospheric storm events occurring during the State duringfirst half of 2023 delivered a drought emergency declaration, 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 CPUC to meet the SWRCB requirements.
California's period of drought resulted in reduced rechargepromising outlook 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 the 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 the event of waterState’s supply shortages beyond the mandated reductions, GSWC would need to transport additional water from other areas, increasing the cost of water supply. GSWC has ended implementation of the Staged Mandatory Water Conservation and Rationing Plan in all of its service areas.
conditions. As of October 31, 2017,August 1, 2023, the U.S. Drought Monitor estimated zero percentreported that that 26% of California was “abnormally dry” with 7% characterized as “moderate drought.” This is in stark contrast to 97% of California in “severe drought” just one year ago.

At the rankstart of “Severe Drought” and approximately 8 percent continued in2023, DWR initially set the rank of “Moderate Drought,” which is a significant improvement from October 2016 when approximately 62 percent of California was ranked “Severe Drought.”
Metropolitan Water District/ State Water Project
GSWC supplements groundwater production with wholesale purchases from (“SWP”) allocations at 5%. However, due to improved precipitation and snow levels experienced state-wide, DWR increased the SWP allocation to 75%, and as a result, the Metropolitan Water District of Southern California ("MWD"(“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 Departmentlifted restrictions that had impacted SWP dependent service areas of Water Resources ("DWR") establishesSimi Valley and Claremont that had been in place since mid-2022. DWR again increased the SWP allocation for water deliveries to state water contractors.  DWR generally establishes a percentage allocation of delivery requests based100% on a number of factors, including weather patterns, snow-pack levels, reservoir levels and biological diversion restrictions.  The SWPApril 20, 2023, which is a major source of water for the MWD. In April 2017,first time the full contracted SWP allocation was increased to 85 percent of requested orders ashas been at this level since 2006. As a result of improved hydrologic conditions, several of the key State's reservoirs, including Lake Oroville and San Luis Reservoir, have been replenished to capacity or nearing capacity, thus bolstering California's water available in Northernstorage.
On March 15, 2023, the governor of California issued an executive order modifying the drought restrictions that were issued in March 2022. The order ended the voluntary water use requirement as well as the required stage 2 implementation of the water supply contingency plans but did not end all water use restrictions. GSWC will continue to work with its local suppliers to assess water supply conditions and water-use restrictions in its service areas and make appropriate adjustments as needed. In response to improving supply conditions throughout the State, GSWC made an advice letter filing with the CPUC to move from stage 2 to stage 1, which became effective on May 14, 2023 in all of GSWC's service areas except for three coastal systems that are still experiencing depressed groundwater water levels.
Prolonged drought conditions still exist on the Colorado River System, which is experiencing historically low reservoir levels in Lake Mead and Lake Powell. Urgent action to reduce water demand on the lower river by 2 to 4 million acre feet annually has been requested by the US Bureau of Reclamation (the “Bureau”). The Bureau prepared a supplemental environmental impact statement with options that may result in modifications to current agreements. This may result in water delivery cuts by all of the lower states including California. However, California along with the other two lower river states issued a plan in late May of 2023, which calls for a water use reduction of 3 million acre-feet through the end of 2026. The details of how those cuts will be achieved are still not available.

Other Climate Change Matters
Climate change is one area that we focus on as we develop and execute our business strategy and financial planning, both in the short- and long-term. The risks posed by climate variability increase the need for us to plan for and address supply resiliency. Climate change has also impacted electric utilities in California increasing wildfire risks and requiring the need to develop robust wildfire mitigation plans. We address these and other climate change risks by planning, assessing, mitigating, and investing in our infrastructure for the long-term benefit of our communities. See “Item 1. Business Overview” section of Registrant’s Form 10-K for the year-ended December 31, 2022 filed with the SEC for a discussion of climate change planning, risks and opportunities.
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Cybersecurity Matters
The increase in cyberattacks results in a greater threat to water, wastewater and electric utility systems and thereby the safety and security of our communities. We continue to increase our investments in information technology to monitor and address these threats and attempted cyber-attacks, and to improve our posture in addressing security vulnerabilities. See “Item 1. Business” section of Registrant’s Form 10-K for the year-ended December 31, 2022 filed with the SEC for a discussion of cybersecurity matters.
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 inThere are no current accounting pronouncements that Registrant believes will significantly impact its consolidated financial reporting between periods for GSWC could occur unless and until the CPUC approves such changes for conformity through regulatory proceedings. See Note 1statements.
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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, 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, 2016.2022 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 SeptemberJune 30, 2017,2023, that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

57
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 20162022 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 thirdsecond quarter of 2017:
2023:
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)
April 1 – 30, 2023238  $91.43 — — 
May 1 – 31, 2023255  $88.64 — — 
June 1 – 30, 202318,705  $88.64 — — 
Total19,198 (2)$88.67 — 

(1)   None of the common sharesCommon Shares were purchased pursuant to any publicly announced stock repurchase program.
(2)Of this amount, 103,225These Common Shares were acquired on the open market for employees pursuant to the Company'sGSWC’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 October 30, 2017, AWR'sAugust 1, 2023, AWR’s Board of Directors approved a fourthan 8.2% increase in the third quarter dividend of $0.255from $0.3975 per share to $0.4300 per share on AWR'sAWR’s Common Shares. Dividends on the Common Shares will be payablepaid on DecemberSeptember 1, 20172023 to shareholders of record at the close of business on NovemberAugust 15, 2017.

2023.
(b)    There have been no material changes during the thirdsecond quarter of 20172023 to the procedures by which shareholders may nominate persons to the Board of Directors of AWR.
(c)    During the quarter ended June 30, 2023, no officer or director adopted, terminated, or modified any Rule 10b5-1 plans.
Except as disclosed below, during the quarter ended June 30, 2023, no officer or director adopted, terminated, or modified any plan that might be considered a non-Rule 10b5-1 plan. Certain of our officers, as applicable, have made elections to participate in, and are participating in, our dividend reinvestment plan and purchase AWR common shares through the AWR stock fund under the Company's 401(k) plan. It is possible that either the 401(k) plan or the dividend reinvestment plan might be deemed to be a non-Rule 10b5-1 plan.



On April 12, 2023, David Schickling, Vice President of Water Operations, elected a prospective change to his 401(k) plan contribution percentage of the AWR stock fund from 5% to 0%. This election remains in effect until it is changed again under the terms of the 401(k) plan.
Item 6. Exhibits

(a) The following documents are filed as Exhibits to this report: 
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Table of Contents
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
10.510.3Agreement 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
10.710.4
10.810.5
10.910.6
10.10
Golden State Water Company Pension Restoration Plan, as amended, incorporated herein by reference to Exhibit 10.1 to the Registrant's Form 8-K filed on May 21, 2009 (File No. 1-14431) (2)
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)

10.12
Amended and Restated Credit Agreement between American States Water Company dated June 3, 2005 with Wells Fargo Bank, N.A., as Administrative Agent, as amended, incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K filed October 28, 2016
10.13
Form of Indemnification Agreement for executive officers incorporated by reference to Exhibit 10.2110.6 to Registrant's Form 10-K for the year ended December 31, 2006 (File No. 1-14431)2022 (2)
10.1410.7
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 Planrestated, incorporated herein by reference to Exhibit 10.310.7 to Registrant’s Form 10-Q filed on May 2, 2022 (2)
10.8
10.2010.9
10.2110.10
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)
10.2310.11
10.2410.12
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)
10.26
2016 Short-Term Incentive Program incorporated by reference herein to Exhibit 10.3 to Registrant’s Form 8-K filed on March 25, 2016 (2)
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)
10.2910.13
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Table of Contents
10.14
10.15
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)
10.31
Form of Restricted Stock Unit Agreement for grants after December 31, 2014 under the 2008 Stock Incentive Plan incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed November 21, 2014 (2)
10.32
Form of 2015 Performance Award Agreement incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed January 30, 2015 (2)
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)

10.3410.16
10.35
Form of 20162021 Performance Award Agreement incorporated by reference to Exhibit 10.1 of Registrant's Form 8-K filed January 29, 2016February 5, 2021 (2)
10.36
Form of 2017 Performance Award Agreement incorporated by reference to Exhibit 10.2 of Registrant's Form 8-K filed on February 6, 2017 (2)
10.17
10.37
10.3810.18
10.39
Form of Restricted Stock Unit Award Agreement for Officers under the 2016 Stock Incentive PlanClaims effective January 14, 2022, incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K filed on November 3, 2017 (File No. 1-14431)January 21, 2022 (2)
31.110.19
10.20
10.21
10.22
10.23
10.24
31.1
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 
(3)Furnished concurrently herewith

61

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, 2017August 7, 2023

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