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 |
or |
o | 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)
California |
| 95-4676679 |
(State or Other Jurisdiction of Incorporation or Organization) |
| (IRS Employer Identification No.) |
630 E. Foothill Blvd, San Dimas, CA |
| 91773-1212 |
(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
Golden State Water Company
(Exact Name of Registrant as Specified in Its Charter)
California |
| 95-1243678 |
(State or Other Jurisdiction of Incorporation or Organization) |
| (IRS Employer Identification No.) |
630 E. Foothill Blvd, San Dimas, CA |
| 91773-1212 |
(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 Company |
| Yes x No o |
Golden State Water Company |
| Yes x No o |
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 Company |
| Yes x No o |
Golden State Water Company |
| Yes x No o |
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 filer |
| Accelerated filer |
| Non-accelerated filer o |
| Smaller reporting company o |
Golden State Water Company
Large accelerated filer o |
| Accelerated filer o |
| Non-accelerated filer x |
| Smaller reporting company o |
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 August 3, 2012,May 7, 2013, the number of Common Shares outstanding, of American States Water Company was 18,923,66819,284,804 shares. As of August 3, 2012,May 7, 2013, all of the 146 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
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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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 (hereinafter “AWR”) is the parent company of Golden State Water Company (hereinafter “GSWC”) and American States Utility Services, Inc. (hereinafter “ASUS”) and its subsidiaries.
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 toof the Notes to Consolidated Financial Statements and the heading entitled General in Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations. References in this report to “Registrant” are to AWR and GSWC collectively, unless otherwise specified. GSWC makes no representations as to the information contained in this report relating to AWR and its subsidiaries, other than GSWC.
Forward-Looking StatementsInformation
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 thatthose 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 our forward-looking statements, or from historical results, include, but are not limited to:
· The outcome of pending and future regulatory, legislative or other proceedings, investigations or audits, including decisions in our general rate cases and the results of independent audits of our 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
· Our ability to efficiently manage capital expenditures and operating and maintenance expenses within CPUC authorized levels and timely recovery of our costs through rates
· The impact of increasing opposition to GSWC rate increases on our ability to recover our costs through rates and on the size of our customer base
·Our ability to forecast the costs of maintaining GSWC’s aging water and electric infrastructure
· Our ability to recover increases in permitting costs and in 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 changes in our assessment of anticipated recovery of regulatory assets, liabilities and revenues subject to refund or regulatory disallowances
· Changes in environmental laws and water quality and wastewater quality requirements and increases in costs associated with complying with these laws and requirements
· Availability of water supplies, which may be adversely affected by changes in weather patterns, contamination and court decisions or other governmental actions restricting use of water from the Colorado River, transportation of water to GSWC’s service areas through the California State Water Project or pumping of groundwater
· 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 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
· Adequacy of our power supplies for GSWC’s Bear Valley Electric Service division and the extent to which we can manage and respond to the volatility of electric and natural gas prices
· Our ability to comply with the CPUC’s renewable energy procurement requirements
· Changes in GSWC customer demand due to unanticipated population growth or decline, changes in climate conditions, general economic and financial market conditions, cost increases and conservation
· Changes in accounting treatment for regulated utilities
· Changes in estimates used in ASUS’ASUS’s revenue recognition under the percentage of completion method of accounting for our construction activities at our contracted services business
· Termination, in whole or in part, of our contracts to provide water and/or wastewater services at military bases for the convenience of the U.S. government or for default
· Delays in filing for or obtaining redetermination of prices or equitable adjustments to our prices on our contracts to provide water and/or wastewater services at military bases
· Disallowance of costs on our contracts to provide water and/or wastewater services at military bases as a result of audits, cost review or investigations by contracting agencies
· Inaccurate assumptions used in preparing bids in our contracted services business
· Failure of the collection or sewage 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
· Implementation, maintenance and upgrading of our information technology systems
· General economic conditions which may impact our ability to recover revenueinfrastructure 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 a water and electric systemsystems 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 in connection with a cyber attack or other cyber incident
· 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
· Our ability to access capital markets and other sources of credit in a timely manner on acceptable terms
Please consider our forward-looking statements in light of these risks (which are more fully disclosed in our 20112012 Annual Report on Form 10-K) as you read this Form 10-Q. We qualify all of our forward-looking statementstatements by these cautionary statements.
AMERICAN STATES WATER COMPANY
ASSETS
(Unaudited)
(in thousands) |
| June 30, |
| December 31, |
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Property, Plant and Equipment |
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Regulated utility plant, at cost |
| $ | 1,324,583 |
| $ | 1,302,589 |
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Non utility property, at cost |
| 8,466 |
| 7,747 |
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Total |
| 1,333,049 |
| 1,310,336 |
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Less - Accumulated depreciation |
| (433,040 | ) | (413,836 | ) | ||
Net property, plant and equipment |
| 900,009 |
| 896,500 |
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Other Property and Investments |
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Goodwill |
| 1,116 |
| 1,116 |
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Other property and investments |
| 13,471 |
| 11,803 |
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Total other property and investments |
| 14,587 |
| 12,919 |
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Current Assets |
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Cash and cash equivalents |
| 25,915 |
| 1,315 |
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Accounts receivable — customers (less allowance for doubtful accounts of $762 in 2012 and $715 in 2011) |
| 22,212 |
| 20,399 |
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Unbilled revenue |
| 25,955 |
| 16,188 |
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Receivable from the U.S. government (less allowance for doubtful accounts of $0 in 2012 and 2011) |
| 10,091 |
| 7,584 |
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Other accounts receivable (less allowance for doubtful accounts of $367 in 2012 and $333 in 2011) |
| 7,640 |
| 12,181 |
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Income taxes receivable |
| 7,657 |
| 20,537 |
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Materials and supplies, at average cost |
| 4,958 |
| 3,070 |
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Regulatory assets — current |
| 31,814 |
| 36,362 |
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Prepayments and other current assets |
| 5,822 |
| 3,959 |
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Costs and estimated earnings in excess of billings on uncompleted contracts |
| 23,855 |
| 34,466 |
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Deferred income taxes — current |
| 9,935 |
| 9,540 |
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Total current assets |
| 175,854 |
| 165,601 |
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Regulatory and Other Assets |
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Regulatory assets |
| 143,867 |
| 143,595 |
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Costs and estimated earnings in excess of billings on uncompleted contracts |
| 1,477 |
| 598 |
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Receivable from the U.S. government (less allowance for doubtful accounts of $0 in 2012 and 2011) |
| 4,499 |
| 6,660 |
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Deferred income taxes |
| 11 |
| 15 |
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Other |
| 12,456 |
| 12,474 |
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Total regulatory and other assets |
| 162,310 |
| 163,342 |
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Total Assets |
| $ | 1,252,760 |
| $ | 1,238,362 |
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The accompanying notes are an integral part of these consolidated financial statements
AMERICAN STATES WATER COMPANY
CAPITALIZATION AND LIABILITIESASSETS
(Unaudited)
(in thousands) |
| June 30, |
| December 31, |
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Capitalization |
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Common shares, no par value |
| $ | 236,973 |
| $ | 233,306 |
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Earnings reinvested in the business |
| 189,941 |
| 175,360 |
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Total common shareholders’ equity |
| 426,914 |
| 408,666 |
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Long-term debt |
| 341,541 |
| 340,395 |
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Total capitalization |
| 768,455 |
| 749,061 |
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Current Liabilities |
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Notes payable to banks |
| — |
| 2,000 |
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Long-term debt — current |
| 177 |
| 291 |
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Accounts payable |
| 39,089 |
| 37,873 |
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Income taxes payable |
| 1,129 |
| 332 |
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Accrued employee expenses |
| 9,248 |
| 8,659 |
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Accrued interest |
| 3,921 |
| 3,938 |
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Unrealized loss on purchased power contracts |
| 5,176 |
| 7,611 |
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Billings in excess of costs and estimated earnings on uncompleted contracts |
| 25,887 |
| 26,973 |
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Other |
| 14,988 |
| 16,693 |
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Total current liabilities |
| 99,615 |
| 104,370 |
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Other Credits |
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Advances for construction |
| 73,797 |
| 75,353 |
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Contributions in aid of construction - net |
| 100,240 |
| 100,037 |
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Deferred income taxes |
| 130,873 |
| 128,963 |
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Unamortized investment tax credits |
| 1,929 |
| 1,972 |
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Accrued pension and other postretirement benefits |
| 70,811 |
| 68,353 |
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Billings in excess of costs and estimated earnings on uncompleted contracts |
| — |
| 3,272 |
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Other |
| 7,040 |
| 6,981 |
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Total other credits |
| 384,690 |
| 384,931 |
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Commitments and Contingencies (Note 8) |
| — |
| — |
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Total Capitalization and Liabilities |
| $ | 1,252,760 |
| $ | 1,238,362 |
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(in thousands) |
| March 31, |
| December 31, |
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Property, Plant and Equipment |
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Regulated utility plant, at cost |
| $ | 1,367,474 |
| $ | 1,351,086 |
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Non utility property, at cost |
| 9,329 |
| 9,021 |
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Total |
| 1,376,803 |
| 1,360,107 |
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Less - Accumulated depreciation |
| (447,265 | ) | (442,316 | ) | ||
Net property, plant and equipment |
| 929,538 |
| 917,791 |
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Other Property and Investments |
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Goodwill |
| 1,116 |
| 1,116 |
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Other property and investments |
| 13,835 |
| 13,755 |
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Total other property and investments |
| 14,951 |
| 14,871 |
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Current Assets |
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Cash and cash equivalents |
| 32,794 |
| 23,486 |
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Accounts receivable — customers (less allowance for doubtful accounts of $753 in 2013 and $797 in 2012) |
| 17,315 |
| 19,491 |
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Unbilled revenue |
| 14,522 |
| 16,147 |
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Receivable from the U.S. government (less allowance for doubtful accounts of $0 in 2013 and $8 in 2012) |
| 5,377 |
| 12,905 |
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Other accounts receivable (less allowance for doubtful accounts of $413 in 2013 and $423 in 2012) |
| 5,467 |
| 7,062 |
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Income taxes receivable |
| 1,675 |
| 16,547 |
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Materials and supplies, at average cost |
| 7,210 |
| 5,348 |
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Regulatory assets — current |
| 34,376 |
| 32,336 |
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Prepayments and other current assets |
| 4,251 |
| 4,391 |
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Costs and estimated earnings in excess of billings on uncompleted contracts |
| 42,154 |
| 37,703 |
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Deferred income taxes — current |
| 8,731 |
| 8,617 |
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Total current assets |
| 173,872 |
| 184,033 |
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Regulatory and Other Assets |
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Regulatory assets |
| 150,853 |
| 143,679 |
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Costs and estimated earnings in excess of billings on uncompleted contracts |
| 1,065 |
| 436 |
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Receivable from the U.S. government (less allowance for doubtful accounts of $0 in 2013 and 2012) |
| 3,812 |
| 4,535 |
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Deferred income taxes |
| 11 |
| 11 |
| ||
Other |
| 15,412 |
| 15,587 |
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Total regulatory and other assets |
| 171,153 |
| 164,248 |
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Total Assets |
| $ | 1,289,514 |
| $ | 1,280,943 |
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The accompanying notes are an integral part of these consolidated financial statements
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME BALANCE SHEETS
FOR THE THREE MONTHS
ENDED JUNE 30, 2012CAPITALIZATION AND 2011LIABILITIES
(Unaudited)
|
| Three Months Ended |
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(in thousands, except per share amounts) |
| 2012 |
| 2011 |
| ||
Operating Revenues |
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Water |
| $ | 80,886 |
| $ | 80,151 |
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Electric |
| 8,373 |
| 7,710 |
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Contracted services |
| 25,052 |
| 21,968 |
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Total operating revenues |
| 114,311 |
| 109,829 |
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Operating Expenses |
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Water purchased |
| 13,831 |
| 12,924 |
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Power purchased for pumping |
| 2,019 |
| 2,165 |
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Groundwater production assessment |
| 3,982 |
| 3,886 |
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Power purchased for resale |
| 2,680 |
| 2,854 |
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Supply cost balancing accounts |
| 4,163 |
| 4,245 |
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Other operation expenses |
| 6,851 |
| 6,946 |
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Administrative and general expenses |
| 17,792 |
| 17,740 |
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Depreciation and amortization |
| 10,407 |
| 9,538 |
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Maintenance |
| 3,852 |
| 4,623 |
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Property and other taxes |
| 3,716 |
| 3,406 |
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ASUS construction expenses |
| 14,896 |
| 12,491 |
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Net gain on sale of property |
| (3 | ) | (128 | ) | ||
Total operating expenses |
| 84,186 |
| 80,690 |
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Operating Income |
| 30,125 |
| 29,139 |
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Other Income and Expenses |
|
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Interest expense |
| (5,720 | ) | (6,869 | ) | ||
Interest income |
| 495 |
| 161 |
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Other |
| (13 | ) | (289 | ) | ||
Total other income and expenses |
| (5,238 | ) | (6,997 | ) | ||
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Income from continuing operations before income tax expense |
| 24,887 |
| 22,142 |
| ||
Income tax expense |
| 9,809 |
| 9,414 |
| ||
Income from continuing operations |
| 15,078 |
| 12,728 |
| ||
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Income from discontinued operations, net of tax |
| — |
| 3,234 |
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Net Income |
| $ | 15,078 |
| $ | 15,962 |
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Basic Earnings Per Common Share |
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| ||
Income from continuing operations |
| $ | 0.79 |
| $ | 0.68 |
|
Income from discontinued operations |
| — |
| 0.17 |
| ||
Net Income |
| $ | 0.79 |
| $ | 0.85 |
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Fully Diluted Earnings Per Share |
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Income from continuing operations |
| $ | 0.79 |
| $ | 0.68 |
|
Income from discontinued operations |
| — |
| 0.17 |
| ||
Net Income |
| $ | 0.79 |
| $ | 0.85 |
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Weighted Average Number of Shares Outstanding |
| 18,882 |
| 18,668 |
| ||
Weighted Average Number of Diluted Shares |
| 18,945 |
| 18,738 |
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Dividends Declared Per Common Share |
| $ | 0.28 |
| $ | 0.28 |
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(in thousands) |
| March 31, |
| December 31, |
| ||
Capitalization |
|
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Common shares, no par value |
| $ | 249,874 |
| $ | 249,322 |
|
Earnings reinvested in the business |
| 211,847 |
| 205,257 |
| ||
Total common shareholders’ equity |
| 461,721 |
| 454,579 |
| ||
Long-term debt |
| 332,446 |
| 332,463 |
| ||
Total capitalization |
| 794,167 |
| 787,042 |
| ||
|
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Current Liabilities |
|
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Long-term debt — current |
| 3,383 |
| 3,328 |
| ||
Accounts payable |
| 46,605 |
| 40,569 |
| ||
Income taxes payable |
| 750 |
| 511 |
| ||
Accrued other taxes |
| 4,125 |
| 8,167 |
| ||
Accrued employee expenses |
| 10,952 |
| 9,919 |
| ||
Accrued interest |
| 6,240 |
| 3,909 |
| ||
Unrealized loss on purchased power contracts |
| 1,540 |
| 3,060 |
| ||
Billings in excess of costs and estimated earnings on uncompleted contracts |
| 2,702 |
| 12,572 |
| ||
Other |
| 13,547 |
| 11,662 |
| ||
Total current liabilities |
| 89,844 |
| 93,697 |
| ||
|
|
|
|
|
| ||
Other Credits |
|
|
|
|
| ||
Advances for construction |
| 70,580 |
| 70,781 |
| ||
Contributions in aid of construction - net |
| 109,923 |
| 106,450 |
| ||
Deferred income taxes |
| 142,598 |
| 142,597 |
| ||
Unamortized investment tax credits |
| 1,859 |
| 1,881 |
| ||
Accrued pension and other postretirement benefits |
| 73,718 |
| 71,618 |
| ||
Other |
| 6,825 |
| 6,877 |
| ||
Total other credits |
| 405,503 |
| 400,204 |
| ||
|
|
|
|
|
| ||
Commitments and Contingencies (Note 8) |
| — |
| — |
| ||
|
|
|
|
|
| ||
Total Capitalization and Liabilities |
| $ | 1,289,514 |
| $ | 1,280,943 |
|
The accompanying notes are an integral part of these consolidated financial statements
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIXTHREE MONTHS
ENDED JUNE 30,MARCH 31, 2013 AND 2012 AND 2011
(Unaudited)
|
| Six Months Ended |
|
| Three Months Ended |
| ||||||||
(in thousands, except per share amounts) |
| 2012 |
| 2011 |
|
| 2013 |
| 2012 |
| ||||
Operating Revenues |
|
|
|
|
| �� |
|
|
|
| ||||
Water |
| $ | 146,843 |
| $ | 144,477 |
|
| $ | 69,233 |
| $ | 66,201 |
|
Electric |
| 19,186 |
| 18,434 |
|
| 10,734 |
| 10,813 |
| ||||
Contracted services |
| 54,930 |
| 41,225 |
|
| 30,585 |
| 29,878 |
| ||||
Total operating revenues |
| 220,959 |
| 204,136 |
|
| 110,552 |
| 106,892 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
| ||||
Water purchased |
| 23,383 |
| 21,585 |
|
| 10,732 |
| 9,552 |
| ||||
Power purchased for pumping |
| 3,575 |
| 3,701 |
|
| 1,639 |
| 1,556 |
| ||||
Groundwater production assessment |
| 7,305 |
| 6,512 |
|
| 3,187 |
| 3,323 |
| ||||
Power purchased for resale |
| 5,871 |
| 6,729 |
|
| 3,680 |
| 3,191 |
| ||||
Supply cost balancing accounts |
| 7,600 |
| 9,324 |
|
| 1,371 |
| 3,437 |
| ||||
Other operation expenses |
| 14,277 |
| 13,863 |
|
| 5,454 |
| 7,426 |
| ||||
Administrative and general expenses |
| 34,377 |
| 36,159 |
|
| 17,907 |
| 16,829 |
| ||||
Depreciation and amortization |
| 20,897 |
| 19,275 |
|
| 9,816 |
| 10,490 |
| ||||
Maintenance |
| 7,183 |
| 8,349 |
|
| 3,934 |
| 3,331 |
| ||||
Property and other taxes |
| 7,821 |
| 6,958 |
|
| 4,148 |
| 4,105 |
| ||||
ASUS construction expenses |
| 35,181 |
| 24,675 |
|
| 20,733 |
| 20,285 |
| ||||
Net gain on sale of property |
| (3 | ) | (128 | ) |
| (12 | ) | — |
| ||||
Total operating expenses |
| 167,467 |
| 157,002 |
|
| 82,589 |
| 83,525 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Operating Income |
| 53,492 |
| 47,134 |
|
| 27,963 |
| 23,367 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Other Income and Expenses |
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
| (11,790 | ) | (12,613 | ) |
| (5,778 | ) | (6,070 | ) | ||||
Interest income |
| 710 |
| 298 |
|
| 187 |
| 215 |
| ||||
Other |
| 216 |
| (209 | ) | |||||||||
Other, net |
| 342 |
| 229 |
| |||||||||
Total other income and expenses |
| (10,864 | ) | (12,524 | ) |
| (5,249 | ) | (5,626 | ) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Income from continuing operations before income tax expense |
| 42,628 |
| 34,610 |
| |||||||||
Income from operations before income tax expense |
| 22,714 |
| 17,741 |
| |||||||||
|
|
|
|
|
| |||||||||
Income tax expense |
| 17,435 |
| 14,927 |
|
| 9,249 |
| 7,626 |
| ||||
Income from continuing operations |
| 25,193 |
| 19,683 |
| |||||||||
|
|
|
|
|
| |||||||||
Income from discontinued operations, net of tax |
| — |
| 3,868 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Net Income |
| $ | 25,193 |
| $ | 23,551 |
|
| $ | 13,465 |
| $ | 10,115 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted Average Number of Common Shares Outstanding |
| 19,265 |
| 18,831 |
| |||||||||
Basic Earnings Per Common Share |
|
|
|
|
|
| $ | 0.69 |
| $ | 0.53 |
| ||
Income from continuing operations |
| $ | 1.33 |
| $ | 1.05 |
| |||||||
Income from discontinued operations |
| — |
| 0.20 |
| |||||||||
Net Income |
| $ | 1.33 |
| $ | 1.25 |
| |||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Fully Diluted Earnings Per Share |
|
|
|
|
| |||||||||
Income from continuing operations |
| $ | 1.32 |
| $ | 1.05 |
| |||||||
Income from discontinued operations |
| — |
| 0.20 |
| |||||||||
Net Income |
| $ | 1.32 |
| $ | 1.25 |
| |||||||
|
|
|
|
|
| |||||||||
Weighted Average Number of Shares Outstanding |
| 18,857 |
| 18,658 |
| |||||||||
Weighted Average Number of Diluted Shares |
| 18,988 |
| 18,797 |
|
| 19,311 |
| 18,973 |
| ||||
Fully Diluted Earnings Per Common Share |
| $ | 0.69 |
| $ | 0.53 |
| |||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Dividends Declared Per Common Share |
| $ | 0.56 |
| $ | 0.54 |
|
| $ | 0.355 |
| $ | 0.280 |
|
The accompanying notes are an integral part of these consolidated financial statements
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIXTHREE MONTHS ENDED JUNE 30,MARCH 31, 2013 AND 2012 AND 2011
(Unaudited)
|
| Six Months Ended |
|
| Three Months Ended |
| ||||||||
(in thousands) |
| 2012 |
| 2011 |
|
| 2013 |
| 2012 |
| ||||
Cash Flows From Operating Activities: |
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 25,193 |
| $ | 23,551 |
|
| $ | 13,465 |
| $ | 10,115 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
| ||||
Gain on sale of CCWC, net of taxes |
| — |
| (2,454 | ) | |||||||||
Depreciation and amortization |
| 20,897 |
| 19,275 |
|
| 10,066 |
| 11,067 |
| ||||
Provision for doubtful accounts |
| 959 |
| 577 |
|
| 188 |
| 653 |
| ||||
Gain on sale of property |
| (3 | ) | (128 | ) | |||||||||
Deferred income taxes and investment tax credits |
| 2,361 |
| (216 | ) |
| 270 |
| (2 | ) | ||||
Stock-based compensation expense |
| 1,170 |
| 969 |
|
| 661 |
| 542 |
| ||||
Other — net |
| (257 | ) | 679 |
|
| (172 | ) | (140 | ) | ||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
| ||||
Accounts receivable — customers |
| (2,738 | ) | (6,318 | ) |
| 1,998 |
| 911 |
| ||||
Unbilled revenue |
| (9,767 | ) | (3,484 | ) |
| 1,625 |
| (781 | ) | ||||
Other accounts receivable |
| 4,306 |
| (1,159 | ) |
| 1,585 |
| 1,989 |
| ||||
Receivable from the U.S. government |
| (346 | ) | (10,718 | ) |
| 8,251 |
| (5,110 | ) | ||||
Materials and supplies |
| (1,888 | ) | (326 | ) |
| (1,862 | ) | (1,727 | ) | ||||
Prepayments and other current assets |
| (1,863 | ) | 1,030 |
|
| 140 |
| (1,480 | ) | ||||
Regulatory assets — supply cost balancing accounts |
| 7,600 |
| 9,324 |
|
| 1,371 |
| 3,437 |
| ||||
Costs and estimated earnings in excess of billings on uncompleted contracts |
| 9,732 |
| 1,672 |
|
| (5,080 | ) | (1,362 | ) | ||||
Other assets (including other regulatory assets) |
| (8,471 | ) | (12,224 | ) |
| (13,147 | ) | (5,697 | ) | ||||
Accounts payable |
| 4,428 |
| 9,583 |
|
| 2,229 |
| 2,745 |
| ||||
Income taxes receivable/payable |
| 13,677 |
| (2,202 | ) |
| 15,111 |
| 7,603 |
| ||||
Billings in excess of costs and estimated earnings on uncompleted contracts |
| (4,358 | ) | 4,141 |
|
| (9,870 | ) | (1,154 | ) | ||||
Accrued pension and other postretirement benefits |
| 4,379 |
| 1,745 |
|
| 3,021 |
| 3,145 |
| ||||
Other liabilities |
| (1,074 | ) | (378 | ) |
| 1,155 |
| 1,836 |
| ||||
Net cash provided |
| 63,937 |
| 32,939 |
|
| 31,005 |
| 26,590 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
|
| ||||
Construction expenditures |
| (29,447 | ) | (37,295 | ) |
| (18,425 | ) | (14,967 | ) | ||||
Proceeds from the sale of CCWC |
| — |
| 29,025 |
| |||||||||
Other |
| 4 |
| (72 | ) | |||||||||
Proceed from sale of property |
| 12 |
| — |
| |||||||||
Net cash used |
| (29,443 | ) | (8,342 | ) |
| (18,413 | ) | (14,967 | ) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
|
|
| ||||
Proceeds from issuance of Common Shares and stock option exercises |
| 2,748 |
| 953 |
|
| 625 |
| 1,403 |
| ||||
Receipt of advances for and contributions in aid of construction |
| 2,049 |
| 3,497 |
|
| 4,151 |
| 538 |
| ||||
Refunds on advances for construction |
| (2,684 | ) | (2,351 | ) |
| (430 | ) | (499 | ) | ||||
Repayments of long-term debt |
| (234 | ) | (22,279 | ) |
| (22 | ) | (65 | ) | ||||
Proceeds from issuance of long-term debt, net of issuance costs |
| 1,266 |
| 61,914 |
| |||||||||
Net change in notes payable to banks |
| (2,000 | ) | (48,900 | ) |
| — |
| (2,000 | ) | ||||
Dividends paid |
| (10,559 | ) | (10,074 | ) |
| (6,838 | ) | (5,277 | ) | ||||
Other — net |
| (480 | ) | (292 | ) |
| (770 | ) | (480 | ) | ||||
Net cash used |
| (9,894 | ) | (17,532 | ) |
| (3,284 | ) | (6,380 | ) | ||||
Net increase in cash and cash equivalents |
| 24,600 |
| 7,065 |
|
| 9,308 |
| 5,243 |
| ||||
Cash and cash equivalents, beginning of period |
| 1,315 |
| 4,197 |
|
| 23,486 |
| 1,315 |
| ||||
Cash and cash equivalents of continuing operations |
| $ | 25,915 |
| $ | 11,262 |
| |||||||
Cash and cash equivalents, end of period |
| $ | 32,794 |
| $ | 6,558 |
|
The accompanying notes are an integral part of these consolidated financial statements
GOLDEN STATE WATER COMPANY
ASSETS
(Unaudited)
(in thousands) |
| June 30, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||
Utility Plant |
|
|
|
|
|
|
|
|
|
| ||||
Utility plant, at cost |
| $ | 1,324,583 |
| $ | 1,302,589 |
|
| $ | 1,367,474 |
| $ | 1,351,086 |
|
Less - Accumulated depreciation |
| (429,300 | ) | (410,644 | ) |
| (442,648 | ) | (437,949 | ) | ||||
Net utility plant |
| 895,283 |
| 891,945 |
|
| 924,826 |
| 913,137 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Other Property and Investments |
| 11,300 |
| 9,626 |
|
| 11,673 |
| 11,590 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Current Assets |
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| 6,799 |
| — |
|
| 32,135 |
| 22,578 |
| ||||
Accounts receivable-customers (less allowance for doubtful accounts of $762 in 2012 and $715 in 2011) |
| 22,212 |
| 20,399 |
| |||||||||
Accounts receivable-customers (less allowance for doubtful accounts of $753 in 2013 and $797 in 2012) |
| 17,315 |
| 19,491 |
| |||||||||
Unbilled revenue |
| 25,955 |
| 16,188 |
|
| 14,522 |
| 16,147 |
| ||||
Inter-company receivable |
| 1,137 |
| 785 |
|
| 5,330 |
| 2,508 |
| ||||
Other accounts receivable (less allowance for doubtful accounts of $290 in 2012 and 2011) |
| 6,479 |
| 7,755 |
| |||||||||
Other accounts receivable (less allowance for doubtful accounts of $371 in 2013 and $380 in 2012) |
| 3,926 |
| 6,377 |
| |||||||||
Income taxes receivable from Parent |
| 6,315 |
| 19,914 |
|
| 2,788 |
| 16,442 |
| ||||
Materials and supplies, at average cost |
| 2,105 |
| 1,926 |
|
| 2,324 |
| 2,244 |
| ||||
Regulatory assets — current |
| 31,814 |
| 36,362 |
|
| 34,376 |
| 32,336 |
| ||||
Prepayments and other current assets |
| 5,474 |
| 3,710 |
|
| 3,618 |
| 4,162 |
| ||||
Deferred income taxes — current |
| 8,898 |
| 8,497 |
|
| 7,682 |
| 7,577 |
| ||||
Total current assets |
| 117,188 |
| 115,536 |
|
| 124,016 |
| 129,862 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Regulatory and Other Assets |
|
|
|
|
|
|
|
|
|
| ||||
Regulatory assets |
| 143,867 |
| 143,595 |
|
| 150,853 |
| 143,679 |
| ||||
Other accounts receivable |
| 2,039 |
| 1,838 |
|
| 1,445 |
| 1,445 |
| ||||
Other |
| 10,605 |
| 10,843 |
|
| 14,153 |
| 14,339 |
| ||||
Total regulatory and other assets |
| 156,511 |
| 156,276 |
|
| 166,451 |
| 159,463 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Total Assets |
| $ | 1,180,282 |
| $ | 1,173,383 |
|
| $ | 1,226,966 |
| $ | 1,214,052 |
|
The accompanying notes are an integral part of these financial statements
GOLDEN STATE WATER COMPANY
BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
(Unaudited)
(in thousands) |
| June 30, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||
Capitalization |
|
|
|
|
|
|
|
|
|
| ||||
Common shares, no par value |
| $ | 229,734 |
| $ | 228,936 |
|
| $ | 231,309 |
| $ | 231,480 |
|
Earnings reinvested in the business |
| 164,361 |
| 155,870 |
|
| 188,648 |
| 184,777 |
| ||||
Total common shareholder’s equity |
| 394,095 |
| 384,806 |
|
| 419,957 |
| 416,257 |
| ||||
Long-term debt |
| 341,541 |
| 340,395 |
|
| 332,446 |
| 332,463 |
| ||||
Total capitalization |
| 735,636 |
| 725,201 |
|
| 752,403 |
| 748,720 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Current Liabilities |
|
|
|
|
|
|
|
|
|
| ||||
Long-term debt — current |
| 177 |
| 291 |
|
| 3,383 |
| 3,328 |
| ||||
Accounts payable |
| 27,990 |
| 31,227 |
|
| 31,829 |
| 27,292 |
| ||||
Accrued other taxes |
| 3,628 |
| 7,720 |
| |||||||||
Accrued employee expenses |
| 8,384 |
| 7,544 |
|
| 9,552 |
| 8,786 |
| ||||
Accrued interest |
| 3,921 |
| 3,938 |
|
| 6,240 |
| 3,909 |
| ||||
Unrealized loss on purchased power contracts |
| 5,176 |
| 7,611 |
|
| 1,540 |
| 3,060 |
| ||||
Other |
| 14,565 |
| 16,162 |
|
| 13,462 |
| 11,606 |
| ||||
Total current liabilities |
| 60,213 |
| 66,773 |
|
| 69,634 |
| 65,701 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Other Credits |
|
|
|
|
|
|
|
|
|
| ||||
Advances for construction |
| 73,797 |
| 75,353 |
|
| 70,580 |
| 70,781 |
| ||||
Contributions in aid of construction — net |
| 100,240 |
| 100,037 |
|
| 109,923 |
| 106,450 |
| ||||
Deferred income taxes |
| 130,725 |
| 128,815 |
|
| 142,083 |
| 142,082 |
| ||||
Unamortized investment tax credits |
| 1,929 |
| 1,972 |
|
| 1,859 |
| 1,881 |
| ||||
Accrued pension and other postretirement benefits |
| 70,811 |
| 68,353 |
|
| 73,718 |
| 71,618 |
| ||||
Other |
| 6,931 |
| 6,879 |
|
| 6,766 |
| 6,819 |
| ||||
Total other credits |
| 384,433 |
| 381,409 |
|
| 404,929 |
| 399,631 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Commitments and Contingencies (Note 8) |
| — |
| — |
|
| — |
| — |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Total Capitalization and Liabilities |
| $ | 1,180,282 |
| $ | 1,173,383 |
|
| $ | 1,226,966 |
| $ | 1,214,052 |
|
The accompanying notes are an integral part of these financial statements
GOLDEN STATE WATER COMPANY
FOR THE THREE MONTHS
ENDED JUNE 30,MARCH 31, 2013 AND 2012 AND 2011
(Unaudited)
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||
(in thousands) |
| 2012 |
| 2011 |
|
| 2013 |
| 2012 |
| ||||
Operating Revenues |
|
|
|
|
|
|
|
|
|
| ||||
Water |
| $ | 80,886 |
| $ | 80,151 |
|
| $ | 69,233 |
| $ | 66,201 |
|
Electric |
| 8,373 |
| 7,710 |
|
| 10,734 |
| 10,813 |
| ||||
Total operating revenues |
| 89,259 |
| 87,861 |
|
| 79,967 |
| 77,014 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
| ||||
Water purchased |
| 13,831 |
| 12,924 |
|
| 10,732 |
| 9,552 |
| ||||
Power purchased for pumping |
| 2,019 |
| 2,165 |
|
| 1,639 |
| 1,556 |
| ||||
Groundwater production assessment |
| 3,982 |
| 3,886 |
|
| 3,187 |
| 3,323 |
| ||||
Power purchased for resale |
| 2,680 |
| 2,854 |
|
| 3,680 |
| 3,191 |
| ||||
Supply cost balancing accounts |
| 4,163 |
| 4,245 |
|
| 1,371 |
| 3,437 |
| ||||
Other operating expenses |
| 6,202 |
| 5,842 |
| |||||||||
Other operation expenses |
| 4,797 |
| 6,649 |
| |||||||||
Administrative and general expenses |
| 15,399 |
| 14,922 |
|
| 14,234 |
| 13,696 |
| ||||
Depreciation and amortization |
| 10,122 |
| 9,321 |
|
| 9,522 |
| 10,220 |
| ||||
Maintenance |
| 3,357 |
| 4,006 |
|
| 3,493 |
| 2,940 |
| ||||
Property and other taxes |
| 3,354 |
| 3,113 |
|
| 3,716 |
| 3,743 |
| ||||
Net gain on sale of property |
| — |
| (128 | ) | |||||||||
Total operating expenses |
| 65,109 |
| 63,150 |
|
| 56,371 |
| 58,307 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Operating Income |
| 24,150 |
| 24,711 |
|
| 23,596 |
| 18,707 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Other Income and Expenses |
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
| (5,680 | ) | (6,685 | ) |
| (5,748 | ) | (6,009 | ) | ||||
Interest income |
| 469 |
| 155 |
|
| 178 |
| 210 |
| ||||
Other |
| (14 | ) | (477 | ) | |||||||||
Other, net |
| 342 |
| 229 |
| |||||||||
Total other income and expenses |
| (5,225 | ) | (7,007 | ) |
| (5,228 | ) | (5,570 | ) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Income from operations before income tax expense |
| 18,925 |
| 17,704 |
|
| 18,368 |
| 13,137 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Income tax expense |
| 7,567 |
| 7,699 |
|
| 7,663 |
| 5,755 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Net Income |
| $ | 11,358 |
| $ | 10,005 |
|
| $ | 10,705 |
| $ | 7,382 |
|
The accompanying notes are an integral part of these financial statements
GOLDEN STATE WATER COMPANY
FOR THE SIXTHREE MONTHS
ENDED JUNE 30,MARCH 31, 2013 AND 2012 AND 2011
(Unaudited)
|
| Six Months Ended |
| ||||
(in thousands) |
| 2012 |
| 2011 |
| ||
Operating Revenues |
|
|
|
|
| ||
Water |
| $ | 146,843 |
| $ | 144,477 |
|
Electric |
| 19,186 |
| 18,434 |
| ||
Total operating revenues |
| 166,029 |
| 162,911 |
| ||
|
|
|
|
|
| ||
Operating Expenses |
|
|
|
|
| ||
Water purchased |
| 23,383 |
| 21,585 |
| ||
Power purchased for pumping |
| 3,575 |
| 3,701 |
| ||
Groundwater production assessment |
| 7,305 |
| 6,512 |
| ||
Power purchased for resale |
| 5,871 |
| 6,729 |
| ||
Supply cost balancing accounts |
| 7,600 |
| 9,324 |
| ||
Other operating expenses |
| 12,851 |
| 11,556 |
| ||
Administrative and general expenses |
| 28,851 |
| 29,784 |
| ||
Depreciation and amortization |
| 20,342 |
| 18,837 |
| ||
Maintenance |
| 6,297 |
| 6,990 |
| ||
Property and other taxes |
| 7,097 |
| 6,272 |
| ||
Net gain on sale of property |
| — |
| (128 | ) | ||
Total operating expenses |
| 123,172 |
| 121,162 |
| ||
|
|
|
|
|
| ||
Operating Income |
| 42,857 |
| 41,749 |
| ||
|
|
|
|
|
| ||
Other Income and Expenses |
|
|
|
|
| ||
Interest expense |
| (11,689 | ) | (12,298 | ) | ||
Interest income |
| 679 |
| 290 |
| ||
Other |
| 215 |
| (399 | ) | ||
Total other income and expenses |
| (10,795 | ) | (12,407 | ) | ||
|
|
|
|
|
| ||
Income from operations before income tax expense |
| 32,062 |
| 29,342 |
| ||
|
|
|
|
|
| ||
Income tax expense |
| 13,322 |
| 12,935 |
| ||
|
|
|
|
|
| ||
Net Income |
| $ | 18,740 |
| $ | 16,407 |
|
|
| Three Months Ended |
| ||||
(in thousands) |
| 2013 |
| 2012 |
| ||
Cash Flows From Operating Activities: |
|
|
|
|
| ||
Net income |
| $ | 10,705 |
| $ | 7,382 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
| 9,772 |
| 10,797 |
| ||
Provision for doubtful accounts |
| 188 |
| 619 |
| ||
Deferred income taxes and investment tax credits |
| 279 |
| (5 | ) | ||
Stock-based compensation expense |
| 400 |
| 341 |
| ||
Other — net |
| (159 | ) | (174 | ) | ||
Changes in assets and liabilities: |
|
|
|
|
| ||
Accounts receivable — customers |
| 1,998 |
| 911 |
| ||
Unbilled revenue |
| 1,625 |
| (781 | ) | ||
Other accounts receivable |
| 2,441 |
| 1,543 |
| ||
Materials and supplies |
| (80 | ) | (77 | ) | ||
Prepayments and other current assets |
| 544 |
| (1,273 | ) | ||
Regulatory assets — supply cost balancing accounts |
| 1,371 |
| 3,437 |
| ||
Other assets (including other regulatory assets) |
| (13,102 | ) | (5,615 | ) | ||
Accounts payable |
| 730 |
| (2,633 | ) | ||
Inter-company receivable/payable |
| (2,822 | ) | (502 | ) | ||
Income taxes receivable/payable from/to Parent |
| 13,654 |
| 5,760 |
| ||
Accrued pension and other postretirement benefits |
| 3,021 |
| 3,145 |
| ||
Other liabilities |
| 808 |
| 1,614 |
| ||
Net cash provided |
| 31,373 |
| 24,489 |
| ||
|
|
|
|
|
| ||
Cash Flows From Investing Activities: |
|
|
|
|
| ||
Construction expenditures |
| (18,111 | ) | (14,479 | ) | ||
Net cash used |
| (18,111 | ) | (14,479 | ) | ||
|
|
|
|
|
| ||
Cash Flows From Financing Activities: |
|
|
|
|
| ||
Receipt of advances for and contributions in aid of construction |
| 4,151 |
| 538 |
| ||
Refunds on advances for construction |
| (430 | ) | (499 | ) | ||
Repayments of long-term debt |
| (22 | ) | (65 | ) | ||
Dividends paid |
| (6,800 | ) | (5,000 | ) | ||
Other — net |
| (604 | ) | (389 | ) | ||
Net cash used |
| (3,705 | ) | (5,415 | ) | ||
|
|
|
|
|
| ||
Net increase in cash and cash equivalents |
| 9,557 |
| 4,595 |
| ||
Cash and cash equivalents, beginning of period |
| 22,578 |
| — |
| ||
Cash and cash equivalents, end of period |
| $ | 32,135 |
| $ | 4,595 |
|
The accompanying notes are an integral part of these financial statements
GOLDEN STATE WATER COMPANY
FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(Unaudited)
|
| Six Months Ended |
| ||||
(in thousands) |
| 2012 |
| 2011 |
| ||
Cash Flows From Operating Activities: |
|
|
|
|
| ||
Net income |
| $ | 18,740 |
| $ | 16,407 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
| 20,342 |
| 18,837 |
| ||
Gain on sale of property |
| — |
| (128 | ) | ||
Provision for doubtful accounts |
| 925 |
| 498 |
| ||
Deferred income taxes and investment tax credits |
| 2,351 |
| (65 | ) | ||
Stock-based compensation expense |
| 961 |
| 853 |
| ||
Other — net |
| (323 | ) | 704 |
| ||
Changes in assets and liabilities: |
|
|
|
|
| ||
Accounts receivable — customers |
| (2,738 | ) | (6,318 | ) | ||
Unbilled revenue |
| (9,767 | ) | (3,484 | ) | ||
Other accounts receivable |
| 1,075 |
| 673 |
| ||
Materials and supplies |
| (179 | ) | (102 | ) | ||
Prepayments and other current assets |
| (1,764 | ) | 860 |
| ||
Regulatory assets — supply cost balancing accounts |
| 7,600 |
| 9,324 |
| ||
Other assets (including other regulatory assets) |
| (8,383 | ) | (12,127 | ) | ||
Accounts payable |
| (25 | ) | 10,316 |
| ||
Inter-company receivable/payable |
| (352 | ) | (840 | ) | ||
Income taxes receivable/payable from/to Parent |
| 13,599 |
| (4,115 | ) | ||
Accrued pension and other postretirement benefits |
| 4,379 |
| 1,745 |
| ||
Other liabilities |
| (722 | ) | 24 |
| ||
Net cash provided |
| 45,719 |
| 33,062 |
| ||
|
|
|
|
|
| ||
Cash Flows From Investing Activities: |
|
|
|
|
| ||
Construction expenditures |
| (28,728 | ) | (36,715 | ) | ||
Proceeds from sale of property |
| — |
| 144 |
| ||
Net cash used |
| (28,728 | ) | (36,571 | ) | ||
|
|
|
|
|
| ||
Cash Flows From Financing Activities: |
|
|
|
|
| ||
Receipt of advances for and contributions in aid of construction |
| 2,049 |
| 3,497 |
| ||
Refunds on advances for construction |
| (2,684 | ) | (2,351 | ) | ||
Proceeds from the issuance of long-term debt, net of issuance costs |
| 1,266 |
| 61,914 |
| ||
Repayments of long-term debt |
| (234 | ) | (22,279 | ) | ||
Net change in inter-company borrowings |
| — |
| (26,000 | ) | ||
Dividends paid |
| (10,200 | ) | (10,000 | ) | ||
Other — net |
| (389 | ) | (237 | ) | ||
Net cash (used) provided |
| (10,192 | ) | 4,544 |
| ||
|
|
|
|
|
| ||
Net increase in cash and cash equivalents |
| 6,799 |
| 1,035 |
| ||
Cash and cash equivalents, beginning of period |
| — |
| 1,541 |
| ||
Cash and cash equivalents, end of period |
| $ | 6,799 |
| $ | 2,576 |
|
The accompanying notes are an integral part of these financial statements
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”) and American States Utility Services, Inc. (“ASUS”) (and its subsidiaries, Fort Bliss Water Services Company (“FBWS”), Terrapin Utility Services, Inc. (“TUS”), Old Dominion Utility Services, Inc. (“ODUS”), Palmetto State Utility Services, Inc. (“PSUS”) and Old North Utility Services, Inc. (“ONUS”)). The subsidiaries of ASUS may be collectively referred to herein as the “Military Utility Privatization Subsidiaries.” AWR was also the parent company of Chaparral City Water Company (“CCWC”) until the sale of CCWC on May 31, 2011.
GSWC is a public utility engaged principally in the purchase, production, distribution and sale of water in California serving approximately 255,000256,000 customers. GSWC also distributes electricity in several San Bernardino MountainCounty mountain communities in California serving approximately 23,000 customers.customers through its Bear Valley Electric Service (“BVES”) division. The California Public Utilities Commission (“CPUC”) regulates GSWC’s water and electric businesses, including properties, rates, services, facilities and other matters, and transactions by GSWC with its affiliates. AWR’s assets and operating income are primarily those of GSWC.
ASUS performs water and wastewater services, including the operation, maintenance, renewal and replacement of water and/or wastewater systems on a contract basis. Through its wholly owned subsidiaries, ASUS operates and maintains the water and/or wastewater systems at various military bases pursuant to 50-year firm, fixed-price contracts, which are subject to periodic price redeterminations and modifications for changes in circumstances, and changes in laws and regulations. There is no direct regulatory oversight by the CPUC over AWR or the operation, rates or services provided by ASUS or any of its wholly owned subsidiaries.
Basis of Presentation: The consolidated financial statements and notes thereto are being presented in a combined report being filed by two separate Registrants: AWR and GSWC. References in this report to “Registrant” are to AWR and GSWC, collectively, unless otherwise specified. Certain prior period amounts have been reclassified to conform to the 20122013 financial statement presentation.
The consolidated financial statements of AWR include the accounts of AWR and its subsidiaries, all of which are wholly owned. These financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. Inter-company transactions and balances have been eliminated in the AWR consolidated financial statements. The operational results of CCWC for the periods presented are reported in discontinued operations, net of transaction costs.
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, 20112012 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by 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 those 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, 20112012 filed with the SEC.
GSWC’s Related Party Transactions: GSWC and ASUSother subsidiaries provide and receive various services to and from their parent, AWR. Any transactions between GSWCAWR, and AWR or ASUS are governed by the CPUC’s affiliate transaction rules.among themselves. In addition, AWR has a $100.0 million syndicated credit facility. AWR borrows under this facility and provides funds to its subsidiaries, including GSWC, in support of their operations. Any amounts owed to AWR for borrowings under this facility are included in inter-company payables on GSWC’s balance sheet. The interest rate charged to GSWC and other affiliates is sufficient to cover AWR’s interest cost under the credit facility. GSWC also allocates certain corporate office administrative and general costs to its affiliate, ASUS, using allocation factors mandatedapproved by the CPUC. Through MayAmounts owed to GSWC by its parent, AWR, or for allocated expenses are included in inter-company receivables as of March 31, 2011, GSWC also allocated costs to CCWC.
Table of Contents2013 and December 31, 2012.
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
(based on ordinances adopted by these municipalities) in order to use public right of way for utility purposes. GSWC bills these franchise fees to its customers based on a CPUC-authorized rate. These franchise fees, which are required to be paid regardless of GSWC’s ability to collect from the customer, are accounted for on a gross basis. GSWC’s franchise fees billed to customers and recorded as operating revenue were approximately $850,000$811,000 and $764,000$784,000 for the three months ended June 30,March 31, 2013 and 2012, and 2011, respectively, and $1,634,000 and $1,464,000 for the six months ended June 30, 2012 and 2011, respectively. When GSWC acts as an agent, and the tax is not required to be remitted if it is not collected from the customer, the taxes are accounted for on a net basis.
Depending on the state in which the operations are conducted, ASUS and its 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 subsidiary is reimbursed by the U.S. government for these assessments under its 50-year contracts with the U.S. government. The non-income tax assessments are accounted for on a gross basis and totaled $186,000$162,000 and $171,000$155,000 during the three months ended June 30,March 31, 2013 and 2012, and 2011, respectively, and $341,000 and $365,000 for the six months ended June 30, 2012 and 2011, respectively.
Recently Adopted Accounting Pronouncements: In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”). Under ASU 2011-05, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity will be required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. In December 2011, the FASB issued Accounting Standards Update No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (“ASU 2011-12”), which deferred the requirement to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income while the FASB further deliberates this aspect of the proposal. The adoption of the new guidance did not have any impact on Registrant’s consolidated financial statements.
In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment (“ASU 2011-08”). Under ASU 2011-08, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, performing the two-step impairment test is not required. The guidance does not change how an entity measures a goodwill impairment loss, and is therefore not expected to affect the information reported to users of an entity’s financial statements. The guidance also includes examples of events and circumstances that an entity should consider in evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of the new guidance did not have any impact on Registrant’s consolidated financial statements.
In December 2011, the FASB issued Accounting Standards Update No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). The ASU 2011-11 amendments require companies to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU 2011-11 is required to be applied retrospectively for all prior periods presented and is effective for annual periods for fiscal years beginning on or after January 1, 2013, and interim periods within those annual fiscal years. Registrant does not expect adoption of this standard to have a material impact on its consolidated results of operations and financial condition.
Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on Registrant’s consolidated financial statements upon adoption.
Note 2 — Regulatory Matters:
In accordance with accounting principles for rate-regulated enterprises, Registrant records regulatory assets, which represent probable future recovery of costs from customers through the ratemaking process, and regulatory liabilities, which represent probable future refunds that are to be credited to customers through the ratemaking process. At June 30, 2012,March 31, 2013, Registrant had approximately $81.2$75.4 million of regulatory assets, net of regulatory liabilities not accruing carrying costs. Of this amount, $53.0$51.6 million relates to the underfunded positions of the pension and other post-retirement obligations, $16.1$16.0 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, and $5.2$1.5 million relates to a memorandum account authorized by the CPUC to track unrealized gains and losses on GSWC’s purchase power contract over the life of the contract. The remainder relates to other items that do not provide for or incur carrying costs.
Regulatory assets represent costs incurred by GSWC for which it has received or expects to receive rate recovery in the future. In determining the probability of costs being recognized in other periods, GSWC considers regulatory rules and decisions, past practices, and other facts or circumstances that would indicate if recovery is probable. If the CPUC determined that a portion of GSWC’s assets were not recoverable in customer rates, GSWC would be required to determine if it had suffered an asset impairment that would require a write-down in the assets’ valuation. Regulatory assets, less regulatory liabilities, included in the consolidated balance sheets are as follows:
(dollars in thousands) |
| June 30, |
| December 31, |
| ||
GSWC |
|
|
|
|
| ||
Electric supply cost balancing account |
| $ | 6,472 |
| $ | 8,347 |
|
Water Revenue Adjustment Mechanism, net of Modified Cost Balancing Account |
| 38,273 |
| 39,112 |
| ||
Base Revenue Requirement Adjustment Mechanism |
| 5,410 |
| 4,053 |
| ||
Costs deferred for future recovery on Aerojet case |
| 16,673 |
| 17,173 |
| ||
Pensions and other post-retirement obligations |
| 56,142 |
| 56,960 |
| ||
Derivative unrealized loss (Note 4) |
| 5,176 |
| 7,611 |
| ||
Flow-through taxes, net (Note 6) |
| 16,147 |
| 17,032 |
| ||
Electric transmission line abandonment costs |
| 2,315 |
| 2,428 |
| ||
Asset retirement obligations |
| 2,890 |
| 2,793 |
| ||
Low income rate assistance balancing accounts |
| 7,728 |
| 6,194 |
| ||
General rate case memorandum accounts |
| 9,290 |
| 12,922 |
| ||
Santa Maria adjudication memorandum accounts |
| 3,645 |
| 3,662 |
| ||
Bay Point balancing accounts |
| 5,475 |
| 5,752 |
| ||
Other regulatory assets, net |
| 9,878 |
| 8,409 |
| ||
Various refunds to customers |
| (9,833 | ) | (12,491 | ) | ||
Total |
| $ | 175,681 |
| $ | 179,957 |
|
(dollars in thousands) |
| March 31, |
| December 31, |
| ||
Water Revenue Adjustment Mechanism, net of Modified Cost Balancing Account |
| $ | 44,449 |
| $ | 42,574 |
|
Base Revenue Requirement Adjustment Mechanism |
| 7,270 |
| 6,833 |
| ||
Costs deferred for future recovery on Aerojet case |
| 15,831 |
| 16,030 |
| ||
Pensions and other post-retirement obligations (Note 7) |
| 56,484 |
| 56,894 |
| ||
Flow-through taxes, net (Note 6) |
| 16,010 |
| 16,415 |
| ||
General rate case memorandum accounts |
| 11,427 |
| 4,495 |
| ||
Other regulatory assets |
| 40,280 |
| 40,332 |
| ||
Various refunds to customers |
| (6,522 | ) | (7,558 | ) | ||
Total |
| $ | 185,229 |
| $ | 176,015 |
|
Regulatory matters are discussed in detail in the consolidated financial statements and the notes thereto included in the Form 10-K for the year ended December 31, 20112012 filed with the SEC. The discussion below focuses on significant matters and changes since December 31, 2011.2012.
Alternative-Revenue Programs:
GSWC records the difference between what it bills its water customers and that which is authorized by the CPUC using the Water Revenue Adjustment Mechanism (“WRAM”). GSWC also records the difference between adopted and actual expense levels for purchased water, purchased power and pump taxes, as established by the CPUC, using the Modified Cost Balancing Account (“MCBA”) accounts.accounts approved by the CPUC. GSWC has implemented surcharges to recover all of its WRAM balances, net of the MCBA. The recovery or refund of the WRAM is netted against the MCBA over- or under-collection for the corresponding rate-making area and is interest bearing at the current 90-day commercial paper rate. For the three months ended June 30,March 31, 2013 and 2012, and 2011, surcharges of $4.2$3.6 million and $4.0$3.4 million, respectively, were billed to customers to decrease previously incurred under-collections in the WRAM, net of MCBA accounts, and approximately $7.6 million and $5.6 million, foraccounts. For the sixthree months ended June 30, 2012March 31, 2013, the WRAM and 2011, respectively.MCBA accounts also reflect the effects of the authorized 2013 adopted revenue and supply cost amounts approved in the CPUC’s final decision issued in May 2013 on GSWC’s water general rate case, discussed later under General Rate Case Memorandum
Accounts. As of June 30, 2012,March 31, 2013, GSWC has a net aggregated regulatory asset of $38.3$44.4 million which is comprised of a $61.1$61.9 million under-collection in the WRAM accounts and $22.8$17.5 million over-collection in the MCBA accounts.
Based on CPUC guidelines, recovery periods relating to the majority of GSWC’s WRAM/MCBA balances range between 1218 and 36 months, with the majority being 24 months. As required by the accounting guidance for alternative revenue programs, GSWC is required to collect its WRAM, net of its MCBA, within 24 months following the year in which they are recorded. In September 2010, GSWC, along with other California water utilities, filed an application with the CPUC to modify the recovery period of its WRAM and MCBA to 18 months or less. In April 2012, the CPUC issued a final decision which, among other things, setsset the recovery periodperiods for under-collection balances that are up to 15% of adopted annual revenues at 18 months or less. For under-collection balances greater than 15%, the recovery period is 19 to 36 months. GSWC does not currently have any balances over 15% of adopted annual revenues. In addition to adopting a new amortization schedule, the final decision sets a cap on total net WRAM/MCBA surcharges in any given calendar year of 10% of the last authorized revenue requirement. The cap is effective following the first test year of each applicant’s pending or next general rate case. For GSWC, the cap will be applied to its 2013 WRAM balances filed in early 2014. The cap requirement set forth in the final decision will not impact GSWC’s 2012 and prior year WRAM/MCBA balances.
15For BVES, the CPUC approved the Base Revenue Requirement Adjustment Mechanism (“BRRAM”), which adjusts certain revenues to adopted levels
. In June 2012,March 2013, the CPUC approved surcharges for recovery of the 2011 Base Revenue Requirement Adjustment Mechanism (“BRRAM”)BVES’ 2012 BRRAM balance. The CPUC approved a 36-month surcharge, with the amounts collected through December 20132014 to be applied to the 20112012 BRRAM under-collection. Surcharges collected during the remainder of the 36-month period would be for recovery ofwill recover a $1.6 million increase in the BVES revenue requirement representing the difference between the allocated general office costs authorized by the CPUC in its November 2010 decision on the Region II, Region III and general office rate case, and what is currentlywas then in BVES’ rates for allocated general office costs. As authorized by the CPUC, the $1.6 million was includedcombined in the BRRAM for recovery through the surcharge; however, these costs are not considered an alternative revenue program.
General Rate Case Memorandum Accounts:
The balance in the general rate case memorandum accounts represents the revenue differences between interim rates and final rates authorized by the CPUC due to delays in receiving decisions on various general rate case applications. As of March 31, 2013, there is an aggregate of $11.4 million in the general rate case memorandum accounts, the majority of which is for retroactive rate increases effective January 1, 2013, as a result of the final decision issued by the CPUC in May 2013 on GSWC’s general rate case.
On May 9, 2013, the CPUC issued a final decision on GSWC’s general water rate case approving new rates for 2013 — 2015 at GSWC’s three water regions and the general office. The new rates were retroactive to January 1, 2013 and have been reflected in the 2013 first quarter results. Accordingly, for the three months ended March 31, 2013, GSWC recorded a $7.3 million regulatory asset representing the difference between interim rates and the final rates authorized by the CPUC for the period January 1, 2013 through March 31, 2013. A surcharge to recover this difference is expected to be implemented during the second quarter of 2013.
Other Regulatory Assets:
Among other things, the final CPUC decision issued in May 2013 approved the recovery of various memorandum accounts which tracked certain previously incurred costs. As a result, for the three months ended March 31, 2013, GSWC recorded $3.2 million in other regulatory assets, the majority of which was reflected as a decrease in certain operating expenses related to the approval of these memorandum accounts in the final decision.
Other Regulatory Matters:
Cost of Capital Proceeding for Water RegionsCPUC Rehearing Matter:
In July 2012,2011, the CPUC issued a final decision on GSWC’s cost of capital proceeding filed in May 2011. The decision approvesan order granting DRA’s request to rehear certain issues from the settlement agreement entered into between GSWC, along with three other California water utilities, and the Division of Ratepayer Advocates (“DRA”) in November 2011. The approved settlement authorizes a Return on Equity (“ROE”) of 9.99% and a rate-making capital structure for GSWC of 55% equity and 45% debt. The weighted cost of capital (return on rate base), with an updated embedded debt cost and the settlement ROE, is 8.64%. The new rate of return authorized by the CPUC’s final decision will be implemented into water rates retroactive to January 1, 2012. Among other things, the final decision requires GSWC to refund to customers approximately $408,000, representing the settled amount included in the interest rate balancing account. GSWC had estimated $789,000 would be refunded to customers, which had been recorded in the interest rate balancing account. As a result of the CPUC’s decision, GSWC recorded a reduction in interest expense of $381,000 in the second quarter of 2012 and discontinued the interest rate balancing account. GSWC will refund the $408,000 to customers through a one-time surcredit.
La Serena Plant Improvement Project:
In January 2008, the CPUC approved Region I’s general rate case effective for years 2008, 2009 and 2010. The rates authorized by the CPUC in the decision included the costs of the La Serena plant improvement project as part of the utility rate base. Subsequent to the issued decision, the CPUC’s Division of Ratepayer Advocates (“DRA”) requested a rehearing on whether these costs were reasonable. The CPUC granted a limited rehearing, which was consolidated into GSWC’s Region II, Region III and general office rate case approved in order to consider whether it is reasonable to includeNovember 2010. Among the issues in Region I’s rate base approximately $3.5 million of costs incurred in connection withthe rehearing was the La Serena plant improvement project. In November 2010, as part of GSWC’s Region II, Region III and general officeproject included in rate case decision, the CPUC disallowed a portion of the La Serena plant improvement costs from utility customer rates. The CPUC found that the disallowed portion of the costs were attributable to providing service to new development and should have been recovered from the customers in the new development.base totaling approximately $3.5 million. As a result of the CPUC’s decision in November 2010, GSWC had recorded a pretax charge of $2.2 million during 2010, which included the disallowance of certain capital costs fora portion of the La Serena plant improvement projectcapital costs and the related revenues earned on those capital costs that will be refunded to customers.
In December 2010, DRA filed a motion for rehearing on this matter, contending that the CPUC erred in assigning a portion of the La Serena plant improvement costs to GSWC utility customers and requested that all of the capital costs related to the La Serena plant improvement project be disallowed. In July 2011, the CPUC granted DRA’s request for rehearing. The rehearing will also address deferred rate case costs and the methodology for allocation of general office costs to GSWC’s affiliate, ASUS. Hearings on these matters are expected in the third or fourth quarter of 2012. In addition to granting a rehearing, the CPUC also directed the Division of Water and Audits to undertake an audit of the La Serena project costs and to provide a confidential report to the CPUC with recommendations on whether an investigation should be conducted to determine whether any laws were broken related to the La Serena project. At this time, management cannot predict the outcome of the rehearing, DWA’s recommendations, or determine the estimated loss or range of loss, if any.
Changes in Tax Law
The Small Business Jobs Act of 2010 and the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (“Tax Relief Acts”) extended 50% bonus depreciation for qualifying property through 2012 and created 100% bonus depreciation for qualifying property placed in service between September 9, 2010 and December 31, 2011.
costs to be refunded to customers. In June 2011,March 2013, GSWC and DRA reached a settlement agreement, subject to CPUC approval, to resolve all the issues in the rehearing. In March 2013, GSWC filed for CPUC adopted a resolution that requires water utilities to file advice letters implementing a one-way memorandum account to track the revenue effects associated with the Tax Relief Acts. This may result in a reduction in revenue requirements in future rate case proceedings. The effective dateapproval of the memorandum account established bysettlement agreement. In anticipation of this settlement, GSWC recorded an additional pretax charge of $416,000 in 2012, representing disallowed plant improvement project costs and related revenues earned on those costs that it expects will be refunded to customers based upon the resolution was April 14, 2011. More specifically, the memorandum account established by the resolution tracks on a CPUC-jurisdictional, revenue-requirement basis: (a) decreases in each impacted utility’s revenue requirement resulting from increases in its deferred tax reserve; and (b) other direct changes in the revenue requirement resulting from taking advantageterms of the Tax Relief Acts. This resolution also authorizes impacted utilities to use savingssettlement being discussed. The settlement agreement, if approved, would resolve all issues arising from this new tax law to invest in certain additional, needed utility infrastructure, not otherwise funded in rates, within a time frame shorter than would be practicable through the formal application or advice letter processes. The establishment of a memorandum account does not change rates, nor guarantee that rates will be changed in the future. This mechanism simply allows the CPUC to determine at a future date whether rates should be changed. GSWC has evaluated the potential impact of this resolution and does not expect it to have a material impact on its consolidated financial statements in 2012.rehearing.
RenewablesBVES General Rate Case
In February 2012, BVES filed its general rate case (“GRC”) for new rates in years 2013 through 2016. In August 2012, the Division of Ratepayer Advocates (“DRA”) issued its report on the GRC. Included in DRA’s recommendations was a $2.0 million retroactive ratemaking proposal to increase BVES’ accumulated depreciation balance to reflect adopted depreciation expense for the years 2009 through 2012 rather than actual depreciation expense as recorded in accordance with GAAP. DRA also recommended that one-half of deferred rate case costs be borne by shareholders, rather than entirely by customers, as has been authorized by the CPUC in prior rate cases. As of March 31, 2013, GSWC has a $2.2 million regulatory asset representing deferred rate case costs for the current BVES general rate case, which the CPUC has historically allowed utilities to recover. If DRA prevails, GSWC may be required to record a charge to adjust accumulated depreciation and to write-off half of its deferred rate case costs. GSWC believes DRA’s recommendations are without merit and intends to vigorously defend its positions. At this time, GSWC does not believe a potential loss is probable, but is unable to predict the final outcome of these matters in the pending rate case.
Hearings on BVES’s GRC, including the matters discussed above, were held in September 2012. In November 2012, GSWC filed a motion to introduce new information regarding the results of a study on mandatory testing recently received on BVES’s transmission and distribution poles. Bringing this new study data to the CPUC will help support the requests for capital expenditures. The administrative law judge assigned to this GRC re-opened the record to receive additional testimony on this study, and to conduct additional evidentiary hearings. DRA has challenged the results of the study, and requested that BVES provide additional information. A proposed decision for this GRC is now expected later in 2013.
Renewable Portfolio Standard
GSWC’s BVES division has been regularly filing compliance reports with the CPUC regarding its purchases of energy from renewable energy resources (“RPS”). Previous filings under prior RPS laws had indicated that BVES had not achieved annual target purchase levels of renewable energy resources and thus, on its face, might be subject to a potential penalty. However,In December 2011, a new RPSrenewable standards procurement standards (“RPS”) law went into effect in December 2011 which modified,changed, among other things, the prior RPS requirement based upon annual procurement targets to multi-year procurement targets. Under the new RPS law, BVES must procure sufficient RPS-eligible resources to meetmeet: (i) any RPS procurement requirement deficit for any year prior to 2011, and (ii) RPS procurement requirements for the 2011 — 2013 compliance period by no later than December 31, 2013. BVES’ firstlatest RPS reportreports under the new law waswere submitted to the CPUC on March 1,in December 2012, and it did not reflect any RPS procurement deficiencies nor any potential or actual penalties. Accordingly, no provision for loss has been recorded in the financial statements as of June 30, 2012.March 31, 2013.
In September 2009,December 2012, GSWC negotiatedentered into a ten-year contractagreement with the Los Angeles County Sanitation District (“LACSD”)a third party to purchase renewable energy created from landfill gas. In February 2011, LACSD notified GSWC that it intended to shut down the landfill gas generator.In August 2011, GSWC and LACSD negotiated a settlement to resolve a dispute between the parties regarding certain terms of the contract.credits (“RECs”). Under the terms of the settlement,agreement, which is subject to CPUC approval, GSWC agreed to waive its right towould purchase approximately 582,000 RECs over a 14 month termination notice and LACSD agreed to sell renewable energy credits (“RECs”) to GSWC. ten-year period which would be used towards meeting the CPUC’s RPS procurement requirements. In February 2013, GSWC filed for CPUC approval of this agreement.
In November 2011, GSWC filed for CPUC approval with the CPUC for the purchase of these RECs.RECs from the Los Angeles County Sanitation District. In July 2012, the CPUC approved the purchase of these RECs, whichpurchase. BVES intends to apply these RECS towards either its pre-2011 renewable energyRPS requirements or its 2011-2013 requirements.requirements The REC’sRECs will be purchased for approximately $325,000 during the third quarterincluded as part of 2012 and will be recorded as a cost of purchased power and included in the electric supply cost balancing account.
In June 2011, GSWC’s BVES filed an application withaccount when the CPUC to recover $1.2 million in legal and outside service costs incurredRECs are applied towards the RPS requirements during the period September 1, 2007 through March 31, 2011 in connection with seeking to procure renewable energy resources. In March 2012, the CPUC approved the application. Accordingly, a regulatory assetfourth quarter of $1.3 million, including accrued interest, was recorded in March 2012. A 12- month surcharge was implemented in May 2012 for recovery of these costs.
CPUC Subpoena
On June 27, 2011 GSWC executed a settlement agreement with the Division of Water and Audits (“DWA”) to resolve an investigation of certain work orders and charges paid to a specific contractor used previously by GSWC for numerous construction projects over a period of 14 years. On December 15, 2011, the CPUC approved the settlement agreement. The settlement provides for refunds to customers totaling $9.5 million to be made over a period of 12-36 months, as well as a reduction in rate-base and other rate adjustments totaling $3.0 million. As a result of the settlement, management does not expect future increases in the reserve related to this specific contractor. Refunds totaling $1.0 million and $1.2 million were made to customers during the three and six months ended June 30, 2012, respectively.
Finally, as part of the settlement agreement, GSWC agreed to be subject to three separate independent audits of its procurement practices over a period of ten years from the date the settlement was approved by the CPUC. The audits will cover GSWC’s procurement practices from 1994 forward and could result in further disallowances of costs. The cost of the audits will be borne by shareholders and may not be recovered by GSWC in rates to customers. At this time, management cannot predict the outcome of these audits or determine the estimated loss or range of loss, if any, resulting from these audits.2013.
Note 3 — Earnings per Share/Capital Stock:
In accordance with the accounting guidance for participating securities and earnings per share (“EPS”), AWRRegistrant 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 stock options and restricted stock unitsits stock-based awards that earn dividend equivalents on an equal basis with AWR’s Common Shares (the “Common Shares”) that have been issued under AWR’s 2000 Stock Incentive Plan and 2008 Stock Incentive Plan (the “2000 and 2008 Employee Plans”) and the 2003 Non-Employee Directors Plan (the “2003 Directors Plan”). In applying the “two-class” method, undistributed earnings are allocated to both common shares and participating securities.
The following is a reconciliation of AWR’sRegistrant’s net income and weighted average Common Shares outstanding for calculating basic net income per share:
Basic |
| For The Three Months |
| For The Six Months |
| ||||||||||
(in thousands, except per share amounts) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||||
Net income from continuing operations |
| $ | 15,078 |
| $ | 12,728 |
| $ | 25,193 |
| $ | 19,683 |
| ||
Net income from discontinued operations |
| — |
| 3,234 |
| — |
| 3,868 |
| ||||||
Total net income |
| 15,078 |
| 15,962 |
| 25,193 |
| 23,551 |
| ||||||
Less: (a) | Distributed earnings to common shareholders |
| 5,287 |
| 5,227 |
| 10,560 |
| 10,075 |
| |||||
| Distributed earnings to participating securities |
| 38 |
| 36 |
| 68 |
| 64 |
| |||||
Undistributed earnings |
| 9,753 |
| 10,699 |
| 14,565 |
| 13,412 |
| ||||||
|
|
|
|
|
|
|
|
|
| ||||||
(b) | Undistributed earnings allocated to common shareholders |
| 9,683 |
| 10,625 |
| 14,472 |
| 13,327 |
| |||||
| Undistributed earnings allocated to participating securities |
| 70 |
| 74 |
| 93 |
| 85 |
| |||||
|
|
|
|
|
|
|
|
|
| ||||||
Total income available to common shareholders, basic (a)+(b) |
| $ | 14,970 |
| $ | 15,852 |
| $ | 25,032 |
| $ | 23,402 |
| ||
|
|
|
|
|
|
|
|
|
| ||||||
Weighted average Common Shares outstanding, basic |
| 18,882 |
| 18,668 |
| 18,857 |
| 18,658 |
| ||||||
|
|
|
|
|
|
|
|
|
| ||||||
Basic earnings per Common Share: |
|
|
|
|
|
|
|
|
| ||||||
Income from continuing operations |
| $ | 0.79 |
| $ | 0.68 |
| $ | 1.33 |
| $ | 1.05 |
| ||
Income from discontinued operations |
| — |
| 0.17 |
| — |
| 0.20 |
| ||||||
Net Income |
| $ | 0.79 |
| $ | 0.85 |
| $ | 1.33 |
| $ | 1.25 |
| ||
Basic: |
| For The Three Months |
| ||||||
(in thousands, except per share amounts) |
| 2013 |
| 2012 |
| ||||
Net income |
| $ | 13,465 |
| $ | 10,115 |
| ||
Less: (a) | Distributed earnings to common shareholders |
| 6,839 |
| 5,273 |
| |||
| Distributed earnings to participating securities |
| 107 |
| 35 |
| |||
Undistributed earnings |
| 6,519 |
| 4,807 |
| ||||
|
|
|
|
|
| ||||
(b) | Undistributed earnings allocated to common shareholders |
| 6,419 |
| 4,775 |
| |||
| Undistributed earnings allocated to participating securities |
| 100 |
| 32 |
| |||
Total income available to common shareholders, basic (a)+(b) |
| $ | 13,258 |
| $ | 10,048 |
| ||
|
|
|
|
|
| ||||
Weighted average Common Shares outstanding, basic |
| 19,265 |
| 18,831 |
| ||||
Basic earnings per Common Share |
| $ | 0.69 |
| $ | 0.53 |
| ||
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 granted under Registrant’s 2000 and 2008 Employee Plans, and the 2003 Directors Plan, and net income. At June 30,March 31, 2013 and 2012, and 2011, there were 519,273176,048 and 708,345566,406 options outstanding, respectively, under these Plans. At June 30,March 31, 2013 and 2012, and 2011, there were also 147,109145,208 and 135,611147,078 restricted stock units outstanding, respectively.
The following is a reconciliation of AWR’sRegistrant’s net income and weighted average Common Shares outstanding for calculating diluted net income per share:
Diluted |
| For The Three Months |
| For The Six Months |
| ||||||||
(in thousands, except per share amounts) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
Common shareholders earnings, basic |
| $ | 14,970 |
| $ | 15,852 |
| $ | 25,032 |
| $ | 23,402 |
|
Undistributed earnings for dilutive stock options |
| — |
| 74 |
| 93 |
| 85 |
| ||||
Total common shareholders earnings, diluted |
| $ | 14,970 |
| $ | 15,926 |
| $ | 25,125 |
| $ | 23,487 |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares outstanding, basic |
| 18,882 |
| 18,668 |
| 18,857 |
| 18,658 |
| ||||
Stock-based compensation (1) |
| 63 |
| 70 |
| 131 |
| 139 |
| ||||
Weighted average common shares outstanding, diluted |
| 18,945 |
| 18,738 |
| 18,988 |
| 18,797 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Diluted earnings per Common Share: |
|
|
|
|
|
|
|
|
| ||||
Income from continuing operations |
| $ | 0.79 |
| $ | 0.68 |
| $ | 1.32 |
| $ | 1.05 |
|
Income from discontinued operations |
| — |
| 0.17 |
| — |
| 0.20 |
| ||||
Net Income |
| $ | 0.79 |
| $ | 0.85 |
| $ | 1.32 |
| $ | 1.25 |
|
Diluted: |
| For The Three Months |
| ||||
(in thousands, except per share amounts) |
| 2013 |
| 2012 |
| ||
Common shareholders earnings, basic |
| $ | 13,258 |
| $ | 10,048 |
|
Undistributed earnings for dilutive stock options |
| — |
| 32 |
| ||
Total common shareholders earnings, diluted |
| $ | 13,258 |
| $ | 10,080 |
|
|
|
|
|
|
| ||
Weighted average common shares outstanding, basic |
| 19,265 |
| 18,831 |
| ||
Stock-based compensation (1) |
| 46 |
| 142 |
| ||
Weighted average common shares outstanding, diluted |
| 19,311 |
| 18,973 |
| ||
|
|
|
|
|
| ||
Diluted earnings per Common Share |
| $ | 0.69 |
| $ | 0.53 |
|
(1)In applying the treasury stock method of reflecting the dilutive effect of outstanding stock-based compensation in the calculation of diluted EPS, 410,760176,048 and 465,824456,318 stock options at June 30,March 31, 2013 and 2012, and 2011, respectively, were deemed to be outstanding in accordance with accounting guidance on earnings per share. All of the 147,109145,208 and 135,611147,078 restricted stock units at June 30,March 31, 2013 and 2012, and 2011, respectively, were included in the calculation of diluted EPS for the sixthree months ended June 30, 2012March 31, 2013 and 2011.2012.
StockNo stock options outstanding as of 108,013 and 241,921March 31, 2013 had an exercise price greater than the average market price of AWR’s Common Shares for the three months ended March 31, 2013. As of March 31, 2012, 110,013 stock options were outstanding at June 30, 2012 and 2011, respectively, but not included in the computation of diluted EPS because the related option exercise price was greater than the average market price of AWR’s Common Shares for the sixthree months ended June 30, 2012 and 2011. StockMarch 31, 2012. There were 75 stock options of 500 and 600 were outstanding at June 30,March 31, 2012, and 2011, respectively, but not included in the computation of diluted EPS because they were anti-dilutive. There were no stock options outstanding at March 31, 2013 that were anti-dilutive.
During the sixthree months ended June 30,March 31, 2013 and 2012, Registrant issued 46,293 and 2011, AWR issued 131,581 and 49,45669,512 Common Shares, for approximately $2,748,000$625,000 and $953,000,$1,403,000, respectively, under AWR’sRegistrant’s Common Share Purchase and Dividend Reinvestment Plan (“DRP”), the 401(k) Plan, the 2000 and 2008 Employee Plans, and the 2003 Directors Plan. In addition, Registrant purchased 408,96242,597 and 159,383221,932 Common Shares on the open market during the sixthree months ended June 30,March 31, 2013 and 2012, and 2011, respectively, under Registrant’s 401(k) Plan and the Common Share Purchase and Dividend Reinvestment Plan.DRP. The Common Shares purchased by Registrant were used to satisfy the requirements of these plans.
During the three months ended June 30,March 31, 2013 and 2012, and 2011, AWR paid quarterly dividends of approximately $6.8 million, or $0.355 per share, and $5.3 million, or $0.28 per share, and $5.2 million, or $0.28 per share, respectively. During the six months ended June 30, 2012 and 2011, AWR paid quarterly dividends to shareholders
Note 4 — Derivative Instruments:
GSWC purchases certain power at a fixed cost depending on the amount of power and the period during which the power is purchased under a purchased power contract. The contract is subject to the accounting guidance for derivatives and requires mark-to-market derivative accounting. The CPUC has authorized GSWC to establish a regulatory asset and liability memorandum account to offset the entries required by the accounting guidance. Accordingly, all unrealized gains and losses generated from the purchased power contract are deferred on a monthly basis into a non-interest bearing regulatory memorandum account that tracks the changes in fair value of the derivative throughout the term of the contract, having no impact on GSWC’s earnings. Upon expiration of the purchased power contract, the balance in this regulatory memorandum account will be zero.
As of June 30, 2012March 31, 2013 there was a $5.2$1.5 million cumulative unrealized loss which has been included in the memorandum account.
OnIn January 12, 2012, GSWC executed a new purchased power master agreement. The agreement is subject to CPUC approval. If approved, GSWC will be able to purchase 12 megawatts (“MWs”) of base load energy at a fixed price to be negotiated upon CPUC approval of the agreement. GSWC plans to file for approval of the agreement with the CPUC in 2012.the second quarter of 2013. GSWC also intends to request CPUC approval of a regulatory asset and liability memorandum account for the new contract to offset the entries required by the accounting guidance on derivatives.
The accounting guidance for fair value measurements applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. Under the accounting guidance, GSWC makes fair value measurements that are classified and disclosed in one of the following three categories:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability, or
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Registrant’s valuation model utilizes various inputs that include quoted market prices for energy over the duration of the contract. 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 receives one broker quote to determine the fair value of its derivative instrument. When such inputs have a significant impact on the measurement of fair value, the instrument is categorized in Level 3. Accordingly, the valuation of the derivative 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 the derivative for the three and six months ended June 30, 2012March 31, 2013 and 2011.2012.
|
| For the Three Months Ended June 30, |
| For the Six Months Ended June 30, |
|
| For the Three Months Ended March 31, |
| ||||||||||||
(dollars in thousands) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
| 2013 |
| 2012 |
| ||||||
Balance, at beginning of the period |
| $ | (7,506 | ) | $ | (6,874 | ) | $ | (7,611 | ) | $ | (6,850 | ) |
| $ | (3,060 | ) | $ | (7,611 | ) |
Unrealized gain (loss) on purchased power contracts |
| 2,330 |
| (601 | ) | 2,435 |
| (625 | ) | |||||||||||
Unrealized gain on purchased power contracts |
| 1,520 |
| 105 |
| |||||||||||||||
Balance, at end of the period |
| $ | (5,176 | ) | $ | (7,475 | ) | $ | (5,176 | ) | $ | (7,475 | ) |
| $ | (1,540 | ) | $ | (7,506 | ) |
Note 5 — 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 the amounts. The table below estimates the fair value of long-term debt held by GSWC. Rates available to GSWC at June 30, 2012March 31, 2013 and December 31, 20112012 for debt with similar terms and remaining maturities were used to estimate fair value for long-term debt. The interest rates used for the June 30, 2012March 31, 2013 valuation increased as compared to December, 31, 2011, reducing2012, decreasing the fair value of long-term debt as of June 30, 2012.March 31, 2013. Changes in the assumptions will produce differing results.
|
| June 30, 2012 |
| December 31, 2011 |
|
| March 31, 2013 |
| December 31, 2012 |
| ||||||||||||||||
(dollars in thousands) |
| Carrying Amount |
| Fair Value |
| Carrying Amount |
| Fair Value |
|
| Carrying Amount |
| Fair Value |
| Carrying Amount |
| Fair Value |
| ||||||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Long-term debt—GSWC |
| $ | 341,718 |
| $ | 421,093 |
| $ | 340,686 |
| $ | 437,275 |
|
| $ | 335,829 |
| $ | 425,443 |
| $ | 335,791 |
| $ | 456,792 |
|
As previously discussed in Note 4, the accounting guidance for fair value measurements establishes a framework for measuring fair value and requires fair value measurements to be classified and disclosed in one of three levels. The following tables set forth by level, within the fair value hierarchy, GSWC’s long-term debt measured at fair value as of June 30, 2012:March 31, 2013:
(dollars in thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| |||
Long-term debt—GSWC |
| $ | 262,742 |
| $ | 158,351 |
| — |
| $ | 421,093 |
|
(dollars in thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||
Long-term debt—GSWC |
| — |
| $ | 425,443 |
| — |
| $ | 425,443 |
|
Note 6 — Income Taxes:
As a regulated utility, GSWC treats certain temporary differences as flow-through adjustments in computing its income tax provision consistent with the income tax approach approved by the CPUC for ratemaking purposes. Flow-through adjustments 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 between the effective tax rate (“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. The GSWC ETRs deviated from the statutory rate primarily due to state taxes and differences between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements (principally plant-, rate-case- and compensation-related items)., as well as nondeductible permanent items.
Changes in Tax Law:
The TaxIn January 2013, the American Taxpayer Relief ActsAct of 2012 extended 50% bonus depreciation for qualifying property through 2012. As a result, Registrant’s current tax expense for 2011 and 2012 reflects benefits from the Tax Relief Acts.2013. Although thesethis law changes reducechange reduces AWR’s current taxes payable, they doit does not reduce its total income tax expense or ETR.
Note 7 — Employee Benefit Plans:
The components of net periodic benefit costs, before allocation to the overhead pool, for Registrant’s pension plan, postretirement plan, and Supplemental Executive Retirement Plan (“SERP”) for the three and six months ended June 30,March 31, 2013 and 2012 and 2011 are as follows:
|
| For The Three Months Ended June 30, |
| |||||||||||||||||||||||||||||||||||
|
| Pension Benefits |
| Other |
| SERP |
|
| Pension Benefits |
| Other |
| SERP |
| ||||||||||||||||||||||||
(dollars in thousands) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
| 2013 |
| 2012 |
| 2013 |
| 2012 |
| 2013 |
| 2012 |
| ||||||||||||
Components of Net Periodic Benefits Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Service cost |
| $ | 1,618 |
| $ | 1,429 |
| $ | 112 |
| $ | 107 |
| $ | 183 |
| $ | 150 |
|
| $ | 1,864 |
| $ | 1,719 |
| $ | 106 |
| $ | 112 |
| $ | 201 |
| $ | 183 |
|
Interest cost |
| 1,653 |
| 1,639 |
| 136 |
| 153 |
| 122 |
| 116 |
|
| 1,731 |
| 1,676 |
| 113 |
| 136 |
| 129 |
| 122 |
| ||||||||||||
Expected return on plan assets |
| (1,635 | ) | (1,588 | ) | (90 | ) | (74 | ) | — |
| — |
|
| (1,893 | ) | (1,636 | ) | (95 | ) | (90 | ) | — |
| — |
| ||||||||||||
Amortization of transition |
| — |
| — |
| 105 |
| 105 |
| — |
| — |
|
| — |
| — |
| 105 |
| 105 |
| — |
| — |
| ||||||||||||
Amortization of prior service cost (benefit) |
| 29 |
| 30 |
| (50 | ) | (50 | ) | 40 |
| 40 |
|
| 30 |
| 30 |
| (50 | ) | (50 | ) | 40 |
| 40 |
| ||||||||||||
Amortization of actuarial loss |
| 740 |
| 322 |
| — |
| — |
| 77 |
| 34 |
|
| 711 |
| 778 |
| — |
| — |
| 85 |
| 77 |
| ||||||||||||
Net periodic pension cost under accounting standards |
| 2,405 |
| 1,832 |
| 213 |
| 241 |
| 422 |
| 340 |
|
| 2,443 |
| 2,567 |
| 179 |
| 213 |
| 455 |
| 422 |
| ||||||||||||
Regulatory adjustment — deferred (1) |
| (632 | ) | (161 | ) | — |
| — |
| — |
| — |
| |||||||||||||||||||||||||
Regulatory adjustment — deferred |
| (510 | ) | (566 | ) | — |
| — |
| — |
| — |
| |||||||||||||||||||||||||
Total expense recognized, before allocation to overhead pool |
| $ | 1,773 |
| $ | 1,671 |
| $ | 213 |
| $ | 241 |
| $ | 422 |
| $ | 340 |
|
| $ | 1,933 |
| $ | 2,001 |
| $ | 179 |
| $ | 213 |
| $ | 455 |
| $ | 422 |
|
|
| For The Six Months Ended June 30, |
| ||||||||||||||||
|
| Pension Benefits |
| Other |
| SERP |
| ||||||||||||
(dollars in thousands) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||||
Components of Net Periodic Benefits Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Service cost |
| $ | 3,337 |
| $ | 2,812 |
| $ | 224 |
| $ | 214 |
| $ | 366 |
| $ | 300 |
|
Interest cost |
| 3,329 |
| 3,262 |
| 272 |
| 306 |
| 244 |
| 232 |
| ||||||
Expected return on plan assets |
| (3,271 | ) | (3,174 | ) | (180 | ) | (147 | ) | — |
| — |
| ||||||
Amortization of transition |
| — |
| — |
| 210 |
| 210 |
| — |
| — |
| ||||||
Amortization of prior service cost (benefit) |
| 59 |
| 59 |
| (100 | ) | (100 | ) | 80 |
| 81 |
| ||||||
Amortization of actuarial loss |
| 1,518 |
| 621 |
| — |
| — |
| 154 |
| 67 |
| ||||||
Net periodic pension cost under accounting standards |
| 4,972 |
| 3,580 |
| 426 |
| 483 |
| 844 |
| 680 |
| ||||||
Regulatory adjustment — deferred (1) |
| (1,198 | ) | (253 | ) | — |
| — |
| — |
| — |
| ||||||
Total expense recognized, before allocation to overhead pool |
| $ | 3,774 |
| $ | 3,327 |
| $ | 426 |
| $ | 483 |
| $ | 844 |
| $ | 680 |
|
Registrant expects to contribute approximately $6.6 million and $150,000 to the pension and postretirement medical plans in 2013, respectively. No contributions were made to these plans during the three months ended March 31, 2013. In April 2013, Registrant contributed $2.1 million to the pension plan.
(1)Regulatory Adjustment - :
In November 2010,May 2013, the CPUC issued a final decision that once again authorized GSWC to establish a two-way balancing account effective January 1, 2010, for all of its water regions and the general office to track differences between the forecasted annual pension expenses adopted in rates for 2010, 2011 and 2012 and the actual annual expense to be recorded by GSWC in accordance with the accounting guidance for pension costs. As of June 30, 2012,March 31, 2013, GSWC has included a $3.1$4.9 million under-collection in the two-way pension balancing account recorded as a regulatory asset (Note 2).
Registrant expects to contribute approximately $6.1 million and $500,000 to the pension and postretirement medical plans in 2012, respectively. A contribution of $1.8 million was made to the pension plan during the three and six months ended June 30, 2012.
Note 8 — Contingencies:
Water Quality-Related LitigationBarstow Perchlorate Contamination::
Perchlorate and/or Volatile Organic Compounds (“VOC”) have been detectedOn March 8, 2013, the Company was served with four toxic tort lawsuits arising out of the November 19, 2010 detection of perchlorate in certain wells servicing GSWC’s South San Gabriel System. GSWC filed suit in federal court, along with two other affected water purveyors and the San Gabriel Basin Water Quality Authority, together known as the “Water Entities”, against some of those allegedly responsible for the contamination of twoone of GSWC’s active production wells in the Barstow service area. The plaintiffs assert that they were affected by the perchlorate, claim negligence by GSWC and those of theseek, among other affected water purveyors. In response to the filing of the lawsuit, the Potentially Responsible Party (“PRP”) defendants filed motions to dismiss the suit or strike certain portions of the suit. The judge issued a ruling on April 1, 2003 granting in partthings, punitive and denying in part the PRP’s motions. A key ruling of the court was that the water purveyors, including GSWC, by virtue of their ownership of wells contaminated with hazardous chemicals are themselves PRPs under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). GSWC has amended its suit to claim certain affirmative defenses as an “innocent” party under CERCLA.compensatory damages. GSWC is presentlythe only named defendant in all four lawsuits. GSWC believes that these lawsuits are without merit and intends to vigorously defend itself in this matter. At this time, management is unable to estimate a loss or range of loss, if any, in the event that GSWCresulting from these pending lawsuits, but does not believe a loss is deemed to be a PRP, or on GSWC’s ability to fully recover from the PRPs, past and future costs associated with the treatment of these wells. On August 29, 2003, the US Environmental Protection Agency (“EPA”) issued Unilateral Administrative Orders (“UAO”) against 41 parties deemed responsible for polluting the groundwater in portions of the San Gabriel Valley from which those impacted GSWC wells draw water. GSWC was not named as a party to the UAO. The UAO requires these parties to remediate the contamination.
On October 12, 2004, the judge in the lawsuit stayed the matter in order to allow the parties to explore settlement and appointed a special master to oversee mandatory settlement discussions between the PRPs and the Water Entities. EPA has also conducted settlement discussions with several PRPs regarding the UAO. The Water Entities and EPA have worked closely to coordinate their settlement discussions under the auspices of the special master in order to arrive at a complete resolution of all issues affecting the lawsuit and the UAO. Settlements have been reached with a majority of the PRPs.
On March 28, 2011, the Court lifted the stay and the matter has proceeded in litigation. The EPA filed a separate complaint against the remaining PRPs and this matter was consolidated with those filed by the Water Entities. Since October 17, 2011 several 30-day stays were granted to continue settlement discussions. During these 30-day stays, EPA and the Water Entities have successfully reached settlements with most of the remaining PRPs. On January 15, 2012, the stay was lifted and the case entered the discovery phase as settlement negotiations with the remaining few PRPs continued. Registrant believes it will reach settlements with all the PRPs. However, Registrant is presently unable to predict the ultimate outcome of this matter.probable.
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: (i) that the owner of utility property may contest whether the condemnation is actually necessary and in the public interest, and (ii) that the owner is entitled to receive the fair market value of its property if the property is ultimately taken.
The City of Claremont (“Claremont”) located in GSWC’s Region III, has expressed various concerns to GSWC about rates charged by GSWC and the effectiveness of the CPUC’s rate-setting procedures. OnIn January 5, 2012, the Claremont City council members directed staff to pursue analysisanalyses required for potential acquisition of the water system and allocated funds from its general reserve for such analysis. On June 27,analyses. In November 2012, Claremont notified GSWC of its intentmade an offer to appraise the value ofacquire GSWC’s water system servingservicing Claremont. GSWC rejected the offer and informed the City that the system is not for sale. Claremont continues to express a desire to potentially take the system by eminent domain; however, Claremont and GSWC have agreed to hold meetings to further discuss alternatives, rates and other concerns of the City. GSWC serves approximately 11,000 customers in Claremont.
The Town of Apple Valley (the “Town”) had abandoned its activities related to a potential condemnation of GSWC’s water system serving the Town in 2007. However, in January 2011, the Town Council directed staff to update the previously prepared financial feasibility study for the acquisition of GSWC’s water systems. The Town also created a Blue Ribbon Water Commission (“BRWC”) to provide recommendations on the items pending before the CPUC associated with the water companies (including GSWC) serving the Town. The BRWC recommended against acquisition at this time based on current economic conditions. The Town has not yet made a decision based on the recommendation. GSWC’s Apple Valley water systems serve approximately 2,900 customers.
In April 2011, an organization called Ojai FLOW (Friends of Locally Owned Water) started a local campaign for the Casitas Municipal Water District (“CMWD”) to purchase GSWC’s Ojai water system. The Ojai City CouncilIn March 2013, the CMWD passed a resolution supporting the efforts of Ojai FLOW at their regular meeting on April 26, 2011. In May 2011, Ojai FLOW submitted a petition with over 1,800 signatures to the Casitas Municipal Water District supporting the recommended acquisition of GSWC’s Ojai water system. On July 25, 2012, the Casitas Municipal Water District hired a financial consultant to provide consulting services to the District forresolutions authorizing the establishment of a Community Facilities District (“CFD”) and, among other things, authorized a special election for the issuancepurposes of bonds withinlevying a special tax via the CFDMello-Roos Community Facilities District Act of 1982 (“Mello-Roos Act”). The special tax would be used to provide funding for the potential acquisition of GSWC’s Ojai system.system by eminent domain. On March 26, 2013, GSWC filed a petition in the Superior Court, Ventura County which, among other things, challenges the CMWD’s ability to utilize the Mello-Roos Act to fund such action. At this time, GSWC is unable to predict the outcome of that petition. GSWC serves approximately 3,000 customers in Ojai.
Except for the City of Claremont Town of Apple Valley and the City of Ojai, Registrant is currently not involved in activities related to the potential condemnation of any of its water customer service areas or in its BVES customer service area. No formal condemnation proceedings have been filed against any of the Registrant’s service areas during the past three years.
Santa Maria Groundwater Basin Adjudication:
In 1997, the Santa Maria Valley Water Conservation District (“plaintiff”) filed a lawsuit against multiple defendants, including GSWC, the City of Santa Maria, and several other public water purveyors. The plaintiff’s lawsuit sought an adjudication of the Santa Maria Groundwater Basin (the “Basin”). A stipulated settlement of the lawsuit has been reached subject to CPUC approval. The settlement, amongand was approved by the courts in February 2008. Among other things, ifthe settlement, which was also approved by the CPUC would preservein May 2013, preserves GSWC’s historical pumping rights and securesecures supplemental water rights for use in case of drought or other reductions in the natural yield of the Basin. GSWC, under the stipulation, has a right to 10,000 acre-feet of groundwater replenishment provided by the Twitchell Project, a storage and flood control reservoir project operated by the Santa Maria Valley Conservation District. A monitoring and annual reporting program has been established to allow the parties to responsibly manage the Basin and to respond to shortage conditions. If severe water shortage conditions are found over a period of five years, the management area engineer will make findings and recommendations to alleviate such shortages. In the unlikely case that the Basin experiences severe shortage conditions, the court has the authority to limit GSWC’s groundwater production to 10,248 acre-feet per year, based on developed water in the Basin. Over the last five years, GSWC’s average groundwater production has been 10,140 acre-feet per year.plaintiff.
On February 11, 2008, theThe court issued its final judgment which approved and incorporated the stipulation. The judgmentalso awarded GSWC prescriptive rights to groundwater against the non-stipulating parties. In addition, the judgmentparties and granted GSWC the right to use the Basin for temporary storage and to recapture 45 percent of the return flows that are generated from its importation of State Water Project water. Pursuant to this judgment, the court retained jurisdiction over all of the parties to make supplemental orders or to amend the judgment as necessary. On In
March 20, 2008, the non-stipulating parties filed notices of appeal. In August 2010,November 2012, the appellantsAppellate Court upheld the Santa Maria judgment, with a remand to the trial court to clarify the narrow issue that non-stipulating parties retained their overlying rights. There is no dispute on this clarification and the required filings will be made with the court in 2013. In December 2012, the Appellate Court further modified the decision clarifying the basis for the overdraft finding that precipitated the prescriptive right finding. In December 2012, the non-stipulating parties filed their opening briefs. Registrant is unable to predicta request with the outcomeCalifornia Supreme Court for a review of the appeal.Appellate Court findings. In February 2013, the California Supreme Court denied the parties’ request for review of the Appellate Court findings.
Environmental Clean-Up and Remediation:
Chadron Plant: GSWC has been involved in environmental remediation and clean-up at a plant site (“Chadron Plant”) 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. Recent site assessments have been conducted which showed that there was more gasoline at higher concentrations spread over a larger area than previously measured. Remediation is estimated to take two more years, followed by at least one year of monitoring and reporting. As of June 30, 2012,March 31, 2013, the total spent to clean-up and remediate GSWC’s plant facility was approximately $3.5 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 June 30, 2012,March 31, 2013, GSWC has an accrued liability for the estimated additional cost of $1.2 million to complete the clean-up at the site. 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 be approved in rate base by the CPUC and has recorded a corresponding regulatory asset.
Table of ContentsCPUC.
Other Litigation:
Registrant is also subject to other ordinary routine litigation incidental to its business. Management believes that rate recovery, proper insurance coverage and reserves are in place to insure against property, professional and general liability and workers’ compensation claims incurred in the ordinary course of business. Registrant is unable to predict an estimate of the loss, if any, resulting from any pending suits or administrative proceedings.
Note 9 — Discontinued Operations:
On May 31, 2011, AWR sold CCWC to EPCOR Water (USA) Inc. for a total purchase price of $35.2 million, including the assumption of approximately $5.6 million of long-term debt. AWR received approximately $29.6 million in cash, which was used primarily to pay down short-term borrowings. The completion of the sale generated a gain (net of taxes and transaction costs) of approximately $2.2 million during 2011. A summary of discontinued operations presented in the consolidated statements of income for the three and six months ended June 30, 2011 are as follows:
(dollars in thousands) |
| Three Months Ended |
| Six Months Ended |
| ||
Operating revenues |
| $ | 1,571 |
| $ | 3,492 |
|
Operating expenses |
| (131 | ) | 660 |
| ||
Operating income |
| 1,702 |
| 2,832 |
| ||
Interest expense, net |
| (59 | ) | (142 | ) | ||
Income before income taxes |
| 1,643 |
| 2,690 |
| ||
Income tax expense |
| 670 |
| 1,078 |
| ||
Income from the operations, net of tax |
| 973 |
| 1,612 |
| ||
|
|
|
|
|
| ||
Gain on sale of business, net of tax |
| 2,454 |
| 2,454 |
| ||
Transaction costs, net of tax |
| (193 | ) | (198 | ) | ||
Net gain on sale |
| 2,261 |
| 2,256 |
| ||
|
|
|
|
|
| ||
Income from discontinued operations (1) |
| $ | 3,234 |
| $ | 3,868 |
|
(1)Corporate overhead costs allocated to CCWC have been excluded from discontinued operations and have been included in other operating expenses and administrative and general expenses as part of continuing operations as they continue to be incurred, primarily at GSWC.
Note 109 — Business SegmentsSegments:
AWR has three reportable segments, water, electric and contracted services, whereas GSWC has two segments, water and electric. Within the segments, AWR has two continuing principal business units: water and electric service utility operations conducted through GSWC, and one contracted services unit conducted through ASUS and its subsidiaries. All activities of GSWC are geographically located within California. The operating activities of CCWC have been included in discontinued operations as described in Note 9. All activities of CCWC were located in the state of Arizona. GSWC is, and CCWC was, a rate-regulated utility. AWR has no material assets other than its investments in its subsidiaries on a stand-alone basis. All activities of GSWC are geographically located within California.
Activities of ASUS and its subsidiaries are conducted in California, Georgia, Maryland, southeast New Mexico, North Carolina, South Carolina, Texas and Virginia. Each of ASUS’s wholly ownedwholly-owned subsidiaries is regulated by the state in which the subsidiary primarily conducts water and/or wastewater operations. Fees charged for operationoperations and maintenance, and renewal and replacement services are based upon the terms of the contracts with the U.S. government which have been filed with the commissions in the states in which ASUS’s subsidiaries are incorporated.
The tables below set forth information relating to GSWC’s operating segments, ASUS and its subsidiaries, and other matters. CertainTotal assets revenues and expenses have been allocated in the amounts set forth.by segment are not presented below, as certain of Registrant’s assets are not tracked by segment. The identifiable assetsutility plants are net of respective accumulated provisions for depreciation. Capital additions reflect capital expenditures paid in cash and exclude property installed by developers and conveyed to GSWC and through May 31, 2011 for CCWC.GSWC.
|
| As Of And For The Three Months Ended June 30, 2012 |
|
| As Of And For The Three Months Ended March 31, 2013 |
| ||||||||||||||||||||||||||||
|
| GSWC |
| ASUS |
| AWR |
| Consolidated |
|
| GSWC |
| ASUS |
| AWR |
| Consolidated |
| ||||||||||||||||
(dollars in thousands) |
| Water |
| Electric |
| Contracts |
| Parent |
| AWR |
|
| Water |
| Electric |
| Contracts |
| Parent |
| AWR |
| ||||||||||||
Operating revenues |
| $ | 80,886 |
| $ | 8,373 |
| $ | 25,052 |
| $ | — |
|
|
| $ | 114,311 |
|
| $ | 69,233 |
| $ | 10,734 |
| $ | 30,585 |
| $ | — |
| $ | 110,552 |
|
Operating income (loss) |
| 22,666 |
| 1,484 |
| 5,989 |
| (14 | ) |
|
| 30,125 |
| |||||||||||||||||||||
Operating income |
| 21,763 |
| 1,833 |
| 4,367 |
| — |
| 27,963 |
| |||||||||||||||||||||||
Interest expense, net |
| 4,815 |
| 396 |
| 40 |
| (26 | ) |
|
| 5,225 |
|
| 5,194 |
| 376 |
| 60 |
| (39 | ) | 5,591 |
| ||||||||||
Identifiable assets |
| 855,742 |
| 39,541 |
| 4,726 |
| — |
|
|
| 900,009 |
| |||||||||||||||||||||
Utility Plant |
| 883,863 |
| 40,963 |
| 4,712 |
| — |
| 929,538 |
| |||||||||||||||||||||||
Depreciation and amortization expense |
| 9,525 |
| 597 |
| 285 |
| — |
|
|
| 10,407 |
|
| 8,930 |
| 592 |
| 294 |
| — |
| 9,816 |
| ||||||||||
Income tax expense |
| 6,941 |
| 722 |
| 1,666 |
| (80 | ) | 9,249 |
| |||||||||||||||||||||||
Capital additions |
| 13,544 |
| 705 |
| 231 |
| — |
|
|
| 14,480 |
|
| 17,878 |
| 233 |
| 314 |
| — |
| 18,425 |
|
|
| As Of And For The Three Months Ended June 30, 2011 |
|
| As Of And For The Three Months Ended March 31, 2012 |
| |||||||||||||||||||||||||||||
|
| GSWC |
| CCWC |
| ASUS |
| AWR |
| Consolidated |
|
| GSWC |
| ASUS |
| AWR |
| Consolidated |
| |||||||||||||||
(dollars in thousands) |
| Water |
| Electric |
| Water |
| Contracts |
| Parent |
| AWR |
|
| Water |
| Electric |
| Contracts |
| Parent |
| AWR |
| |||||||||||
Operating revenues |
| $ | 80,151 |
| $ | 7,710 |
| $ | — |
| $ | 21,968 |
| $ | — |
| $ | 109,829 |
|
| $ | 66,201 |
| $ | 10,813 |
| $ | 29,878 |
| $ | — |
| $ | 106,892 |
|
Operating income (loss) |
| 23,470 |
| 1,241 |
| (106 | ) | 4,537 |
| (3 | ) | 29,139 |
|
| 14,851 |
| 3,856 |
| 4,741 |
| (81 | ) | 23,367 |
| |||||||||||
Interest expense, net |
| 6,091 |
| 439 |
| — |
| 141 |
| 37 |
| 6,708 |
|
| 5,406 |
| 393 |
| 54 |
| 2 |
| 5,855 |
| |||||||||||
Identifiable assets |
| 841,318 |
| 37,939 |
| — |
| 3,736 |
| — |
| 882,993 |
| ||||||||||||||||||||||
Utility Plant |
| 853,533 |
| 39,526 |
| 4,776 |
| — |
| 897,835 |
| ||||||||||||||||||||||||
Depreciation and amortization expense |
| 8,874 |
| 447 |
| — |
| 217 |
| — |
| 9,538 |
|
| 9,597 |
| 623 |
| 270 |
| — |
| 10,490 |
| |||||||||||
Income from discontinued operations, net of tax (2) |
| — |
| — |
| 973 |
| — |
| 2,261 |
| 3,234 |
| ||||||||||||||||||||||
Income tax expense |
| 4,355 |
| 1,400 |
| 1,829 |
| 42 |
| 7,626 |
| ||||||||||||||||||||||||
Capital additions |
| 18,873 |
| 1,020 |
| — |
| 102 |
| — |
| 19,995 |
|
| 13,940 |
| 539 |
| 488 |
| — |
| 14,967 |
|
|
| As Of And For The Six Months Ended June 30, 2012 |
| |||||||||||||||
|
| GSWC |
| ASUS |
| AWR |
| Consolidated |
| |||||||||
(dollars in thousands) |
| Water |
| Electric |
| Contracts |
| Parent |
| AWR |
| |||||||
Operating revenues |
| $ | 146,843 |
| $ | 19,186 |
| $ | 54,930 |
| $ | — |
|
|
| $ | 220,959 |
|
Operating income (loss) |
| 37,517 |
| 5,340 |
| 10,730 |
| (95 | ) |
|
| 53,492 |
| |||||
Interest expense, net |
| 10,221 |
| 789 |
| 94 |
| (24 | ) |
|
| 11,080 |
| |||||
Identifiable assets |
| 855,742 |
| 39,541 |
| 4,726 |
| — |
|
|
| 900,009 |
| |||||
Depreciation and amortization expense |
| 19,122 |
| 1,220 |
| 555 |
| — |
|
|
| 20,897 |
| |||||
Capital additions |
| 27,484 |
| 1,244 |
| 719 |
| — |
|
|
| 29,447 |
| |||||
(1)Depreciation computed on GSWC’s transportation equipment of $250,000 and $577,000 for the three months ended March 31, 2013 and 2012, respectively, is recorded in administrative and general expenses.
25The following table reconciles total utility plant (a key figure for rate-making) to total consolidated assets (in thousands):
|
| March 31, |
| ||||
|
| 2013 |
| 2012 |
| ||
Total utility plant |
| $ | 929,538 |
| $ | 897,835 |
|
Other assets |
| 359,976 |
| 348,794 |
| ||
Total consolidated assets |
| $ | 1,289,514 |
| $ | 1,246,629 |
|
|
| As Of And For The Six Months Ended June 30, 2011 |
| ||||||||||||||||
|
| GSWC |
| CCWC |
| ASUS |
| AWR |
| Consolidated |
| ||||||||
(dollars in thousands) |
| Water |
| Electric |
| Water |
| Contracts |
| Parent |
| AWR |
| ||||||
Operating revenues |
| $ | 144,477 |
| $ | 18,434 |
| $ | — |
| $ | 41,225 |
| $ | — |
| $ | 204,136 |
|
Operating income (loss) (1) |
| 38,568 |
| 3,181 |
| (356 | ) | 5,795 |
| (54 | ) | 47,134 |
| ||||||
Interest expense, net |
| 11,192 |
| 816 |
| — |
| 225 |
| 82 |
| 12,315 |
| ||||||
Identifiable assets |
| 841,318 |
| 37,939 |
| — |
| 3,736 |
| — |
| 882,993 |
| ||||||
Depreciation and amortization expense |
| 17,830 |
| 1,007 |
| — |
| 438 |
| — |
| 19,275 |
| ||||||
Income from discontinued operations, net of tax (2) |
| — |
| — |
| 1,612 |
| — |
| 2,256 |
| 3,868 |
| ||||||
Capital additions |
| 35,086 |
| 1,629 |
| — |
| 580 |
| — |
| 37,295 |
| ||||||
(1)Operating income (loss) include CCWC’s allocated corporate overhead costs that are now primarily at GSWC.
(2)In accordance with the accounting guidance relating to assets held for sale, Registrant did not record depreciation expense for CCWC in 2011.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
The following discussion and analysis provides information on AWR’s consolidated operations and assets and where necessary, includes specific references to AWR’s individual segments and/or other subsidiaries: GSWC and ASUS and its subsidiaries, or AWR’s former subsidiary, CCWC.subsidiaries. Included in the following analysis is a discussion of water and electric gross margins. Water and electric gross margins are computed by taking total revenues, less total supply costs. Registrant uses these gross margins and related percentages 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 differing services and information that could be indicative of future performance for each business segment. Registrant reviews these measurements regularly and compares them to historical periods and to its operating budget as approved.
However, these measures, which are not presented in accordance with Generally Accepted Accounting Principles (“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 are 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 sectionssection titled “Summary of First Quarter Results by Segment.”
Overview
Registrant’s revenues, operating income and cash flows are earned primarily through delivering potable water to homes and businesses through its contracted services business for the operationin California and maintenance and renewal and replacement of water and/or wastewater systems for the U.S. government at various military bases, and through the delivery of electricity in the Big Bear area of San Bernardino County, California.County. Rates charged to GSWC customers are determined by the CPUC. These rates are intended to allow recovery of operating costs and a reasonable rate of return on capital. Registrant plans to continue to seek 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 are expected to remain at much higher levels than depreciation expense. When necessary, Registrant obtains funds from external sources in the capital markets and through bank borrowings.
AllThrough its contracted services business, Registrant’s revenues, operating expenses and cash flows are also earned by providing water and/or wastewater services, including the operation, maintenance, renewal and replacement of the current operation and maintenance contracts with the U.S. government arewater and/or wastewater systems, at various military installations pursuant to 50-year firm, fixed-price contracts. The contract price for each of these contracts withis subject to prospective price redeterminations. Additional revenues generated by contract operations are primarily dependent on new construction activities under contract modifications. As a result, ASUS is subject to risks that are different than those of GSWC.
SomeOn May 9, 2013, the CPUC issued a final decision on GSWC’s general water rate case approving new rates for 2013 — 2015 at GSWC’s three water regions and the general office. The new rates are retroactive to January 1, 2013 and are expected to generate approximately $10 million in additional annual revenues in 2013 as compared to 2012 adopted revenues. The 2013 adopted water gross margin is projected to increase by approximately $14 million, or 6.6%, as compared to the 2012 adopted water gross margin. The new rates have been reflected in the results of operations for the first quarter of 2013. Among other things, the final decision also reduced the overall composite depreciation rates and approved the recovery of various memorandum accounts which tracked certain costs that were previously expensed as incurred. As a result, for the three months ended March 31, 2013, GSWC recorded a decrease of approximately $3.0 million in certain operating expenses related to the approval of these memorandum accounts in the final decision.
The pretax impact of the factors that affect Registrant’s financial performance are described in Item 1. Financial Statements, Forward-Looking Statements.final decision related to the first quarter of 2013 is summarized as follows (in thousands, except per share amounts):
|
| Pretax Income |
| EPS |
| ||
Increase in water gross margin due to rate changes |
| $ | 2,928 |
| $ | 0.09 |
|
Decrease in depreciation due to lower composite rates* |
| 1,244 |
| 0.04 |
| ||
One-time recovery of previously incurred costs** |
| 3,057 |
| 0.09 |
| ||
Pretax operating income increase |
| $ | 7,229 |
| $ | 0.22 |
|
* $0.01 per share decreased administrative and general expenses
**$0.01 per share impacted the water gross margin
Summary of SecondFirst Quarter Results by Segment
The table below sets forth the secondfirst quarter diluted earnings per share by business segment from continuing operations:segment:
|
| Diluted Earnings per Share |
| |||||||
|
| 3 Months Ended |
|
|
| |||||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| |||
|
|
|
|
|
|
|
| |||
Water |
| $ | 0.56 |
| $ | 0.51 |
| $ | 0.05 |
|
Electric |
| 0.04 |
| 0.03 |
| 0.01 |
| |||
Contracted services |
| 0.19 |
| 0.14 |
| 0.05 |
| |||
Totals from continuing operations, as reported |
| $ | 0.79 |
| $ | 0.68 |
| $ | 0.11 |
|
|
| Diluted Earnings per Share |
| |||||||
|
| 3 Months Ended |
|
|
| |||||
|
| 3/31/2013 |
| 3/31/2012 |
| CHANGE |
| |||
|
|
|
|
|
|
|
| |||
Water |
| $ | 0.51 |
| $ | 0.28 |
| $ | 0.23 |
|
Electric |
| 0.04 |
| 0.11 |
| (0.07 | ) | |||
Contracted services |
| 0.14 |
| 0.15 |
| (0.01 | ) | |||
AWR (parent) |
| — |
| (0.01 | ) | 0.01 |
| |||
Consolidated diluted earnings per share, as reported |
| $ | 0.69 |
| $ | 0.53 |
| $ | 0.16 |
|
For the three months ended June 30, 2012,March 31, 2013, diluted earnings per share from the water operationssegment increased $0.05by $0.23 to $0.56$0.51 per share, as compared to $0.51$0.28 per share for the three months ended June 30, 2011.same period of 2012. Impacting the comparability of the two periods were the following items:
· An increase in the water gross margin of approximately $305,000,$3.7 million, or $0.01$0.11 per share, during the three months ended June 30, 2012March 31, 2013 as compared to the same period in 20112012, due primarily to CPUC-approved third yearnew rates effective January 1, 2013 approved by the CPUC on May 9, 2013, as discussed above. There was also an increase in the water gross margin of approximately $361,000, or $0.01 per share, due to rate increases for Regions IIcertain pre-approved capital projects filed with the CPUC during 2012 and III effective January 1, 2012. It is also worth noting that 2012 is the last year of a rate case cycle for all of GSWC’s water regions, since rate increases are typically lowest in the final year of a rate case cycle.2013.
· An increaseA decrease in operating expenses (other than supply costs) of $3.2 million, or $0.10 per share, during the three months ended March 31, 2013, due in large part, to the CPUC’s approval of memorandum accounts totaling $2.7 million, or $0.08 per share, primarily for certain previously expensed operating costs, and the approval of lower depreciation expense resulting from a decrease in the composite rates, as discussed above. Excluding the impact of these memorandum accounts and the lower depreciation expense, operating expenses increased by approximately $1.0 million,$674,000, or $0.03$0.02 per share, due primarily to increases in: (i) maintenance expense for planned maintenance work, and (ii) administrative and general expenses related to legal and other outside services costs. These increases were partially offset by a decrease in operation expenses of $306,000 due to higher labor and other employee benefits, and conservation costs, and (ii) depreciation expense of $651,000 resulting primarily from additions to utility plant.lower bad debt expense.
· An overall decrease in interest expense (net of interest income)income and other non-operating items) of $1.3 million,$323,000, or $0.04$0.01 per share, due primarily to GSWC’s October 2012 redemption of $8.0 million of its 7.55% notes, and lower short-term bank borrowings andloan balances during the recording of a $381,000 reduction in interest expense in connection with the CPUC’s final decision on the water cost of capital proceeding, as further discussed under the Regulatory Matters section. In addition, included in thefirst three months ended June 30, 2011 results were interest charges totaling $553,000 related to the redemption of $22.0 million of GSWC’s 7.65% Medium-Term Notes, which did not recur in 2012.2013.
· A decrease in the effective income tax rate increasedfor the three months ended March 31, 2013 as compared to the same period in 2012, increasing earnings by approximately $0.03$0.01 per share duringshare. The change in the second quarter of 2012tax rate is primarily resulting fromdue to changes between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements, and changes in certain permanent items.requirements.
For the three months ended June 30, 2012, diluted earnings from electric operations were $0.04 per share as compared to $0.03 per share for the same period of 2011. An increase in the electric gross margin of $492,000, or $0.02 per share, as compared to the same period in 2011, was partially offset by a $249,000, or $0.01 per share increase in operating expenses.
For the three months ended June 30, 2012, diluted earnings from contracted services increased by $0.05 per share as compared to the same period in 2011 due primarily to an increase in construction activities at Fort Bragg in North Carolina. There was a receipt of a contract modification and revisions in cost estimates during the second quarter of 2012 for Fort Bragg, which resulted in additional pretax operating income of $820,000. These increases were partially offset by a $2.9 million increase in pretax operating income recorded during the second quarter of 2011 due to a change in estimated costs related to a pipeline project at Fort Bragg.
The tables below set forth summaries of the second quarter results of continuing operations by business segment (dollars in thousands):
|
| Operating Revenues |
| Pretax Operating Income |
| ||||||||||||||||||
|
| 3 Months |
| 3 Months |
|
|
|
|
| 3 Months |
| 3 Months |
|
|
|
|
| ||||||
|
| Ended |
| Ended |
| $ |
| % |
| Ended |
| Ended |
| $ |
| % |
| ||||||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Water |
| $ | 80,886 |
| $ | 80,151 |
| $ | 735 |
| 0.9 | % | $ | 22,666 |
| $ | 23,364 |
| $ | (698 | ) | -3.0 | % |
Electric |
| 8,373 |
| 7,710 |
| 663 |
| 8.6 | % | 1,484 |
| 1,241 |
| 243 |
| 19.6 | % | ||||||
Contracted services |
| 25,052 |
| 21,968 |
| 3,084 |
| 14.0 | % | 5,989 |
| 4,537 |
| 1,452 |
| 32.0 | % | ||||||
AWR (parent) |
| — |
| — |
| — |
| — |
| (14 | ) | (3 | ) | (11 | ) | 366.7 | % | ||||||
Totals from continuing operations |
| $ | 114,311 |
| $ | 109,829 |
| $ | 4,482 |
| 4.1 | % | $ | 30,125 |
| $ | 29,139 |
| $ | 986 |
| 3.4 | % |
Discontinued Operations:
Net income from discontinued operations for the three months ended June 30, 2011 was $3.2 million, due primarily to the gain on sale of CCWC of $2.3 million, net of taxes and transaction costs, or $0.12 per share. Excluding the gain on sale, there was also net income of $0.9 million from CCWC’s operations for the two months of operations during the three months ended June 30, 2011.
Summary of Year-to-Date Results by Segment
The table below sets forthFor the year-to-datethree months ended March 31, 2013, diluted earnings per sharefrom electric operations decreased by business segment from continuing operations, as reported:
|
| Diluted Earnings per Share |
| |||||||
|
| 6 Months Ended |
|
|
| |||||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| |||
|
|
|
|
|
|
|
| |||
Water |
| $ | 0.83 |
| $ | 0.80 |
| $ | 0.03 |
|
Electric |
| 0.15 |
| 0.07 |
| 0.08 |
| |||
Contracted services |
| 0.34 |
| 0.18 |
| 0.16 |
| |||
Totals from continuing operations |
| $ | 1.32 |
| $ | 1.05 |
| $ | 0.27 |
|
For the six months ended June 30, 2012, diluted earnings per share contributed by the water segment were $0.83 per share as compared to $0.80 per share for the same period in 2011. Once again, it is worth noting that 2012 is the last year of a rate case cycle for all of GSWC’s water regions. The significant items in the water segment between the two periods were:
·An increase in the water gross margin of $2.1 million, or $0.07 per share during the six months ended June 30, 2012 primarily as the result of CPUC-approved third year rate increases for Regions II and III effective January 1, 2012.
·An increase in operating expenses (other than supply costs) by approximately $2.8 million, or $0.09 per share, due primarily to increases in: (i) other operation expenses of $1.2 million due, in large part, to higher labor and other employee benefits, conservation costs and bad debt expense, and (ii) depreciation expenseCPUC approval in March 2012 for the recovery of $1.3 million resulting from additions to utility plant.
·An overall decrease in interest expense (net of interest income) of approximately $1.0 million, or $0.03 per share, primarily due to interest costs totaling $553,000 incurred in 2011 related to the redemption of $22.0 million of GSWC’s 7.65% Medium-Term Notes. In addition, in June 2012 GSWC recorded a reduction in interest expense totaling $381,000 to reflect the CPUC’s final decision on the water cost of capital proceeding, as further discussed under the Regulatory Matters section.
·A decrease in the effective income tax rate during the six months ended June 30, 2012 as compared to the same period in 2011, increasing earnings by approximately $0.02 per share primarily resulting from changes between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements, and changes in certain permanent items.
For the six months ended June 30, 2012, diluted earnings from electric operations increased by $0.08 per share as compared to the same period in 2011 due, in large part, to the CPUC’s approval of GSWC’s application to recover $1.2 million in legal and outside services costs previously expensed as incurred fromduring the period September 1, 2007 through March 31, 2011 in connection with itsGSWC’s efforts to procure renewable energy resources. As a result, in March 2012 GSWC recorded a $1.2 million, or $0.04 per share, reduction in legal and outside services costs which had previously been expensed as incurred.operating expenses in 2012, with no similar decrease during the three months ended March 31, 2013. Excluding the impact of this item, diluted earnings from electric earnings increasedoperations decreased by $0.04$0.03 per share during the six months ended June 30, 2012 due primarily to an increaseto: (i) a decrease in the electric gross margin of $1.1 million,$317,000, or $0.03$0.01 per share, as compared to the same period in 2011,2012, (ii) an increase of approximately $457,000, or $0.01 per share, in other operating expenses resulting from higher legal and a decreaseother outside services incurred in connection with the pending rate case, and higher maintenance costs during the three months ended March 31, 2013, and (iii) an increase in the effective income tax rate increasing earnings by approximately $0.01 per share.
Forfor the sixthree months ended June 30, 2012, diluted earnings from contracted services increased by $0.16 per shareMarch 31, 2013 as compared to the same period in 2012, decreasing earnings by $0.01 per share.
GSWC’s electric division continues its efforts to comply with the renewable energy portfolio standards. In March 2013, GSWC filed an application with the CPUC to recover additional costs incurred from April 1, 2011 due primarilythrough December 31, 2012 totaling approximately $835,000, which have been expensed as incurred. In May 2013, the CPUC approved the recovery of these additional costs and accordingly, GSWC will record a regulatory asset and a corresponding decrease to legal and outside services costs during the second quarter of 2013.
For the three months ended March 31, 2013, diluted earnings from contracted services remained relatively unchanged as compared to prior year. There was an increase in renewal and replacement work at Fort Bliss in Texas and Fort Jackson in South Carolina under the terms of the respective 50-year contracts with the U.S. government which was offset by a decrease in construction activitiesactivity at Fort Bragg in North Carolina. There was significant progress made on a major water and wastewater pipeline replacement project as a result of better than expected weather conditions at Fort Bragg during the first several months of 2012. This project is estimated to be completed in early 2014. There was also a receipt of a contract modification and revisions in cost estimates during the second quarter of 2012 for Fort Bragg, which resulted in additional pretax operating income of $820,000. The increase in construction activities was partially offset by a $2.9 million increase in pretax operating income recorded during the second quarter of 2011 due to a change in estimated costs related to the pipeline project at Fort Bragg.
The tables below set forth summaries of the year-to-date results by business segment of continuing operations (dollars in thousands):
|
| Operating Revenues |
| Pretax Operating Income |
| ||||||||||||||||||
|
| 6 Months |
| 6 Months |
|
|
|
|
| 6 Months |
| 6 Months |
|
|
|
|
| ||||||
|
| Ended |
| Ended |
| $ |
| % |
| Ended |
| Ended |
| $ |
| % |
| ||||||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Water |
| $ | 146,843 |
| $ | 144,477 |
| $ | 2,366 |
| 1.6 | % | $ | 37,517 |
| $ | 38,212 |
| $ | (695 | ) | -1.8 | % |
Electric |
| 19,186 |
| 18,434 |
| 752 |
| 4.1 | % | 5,340 |
| 3,181 |
| 2,159 |
| 67.9 | % | ||||||
Contracted services |
| 54,930 |
| 41,225 |
| 13,705 |
| 33.2 | % | 10,730 |
| 5,795 |
| 4,935 |
| 85.2 | % | ||||||
AWR (parent) |
| — |
| — |
| — |
| — |
| (95 | ) | (54 | ) | (41 | ) | 75.9 | % | ||||||
Totals from continuing operations |
| $ | 220,959 |
| $ | 204,136 |
| $ | 16,823 |
| 8.2 | % | $ | 53,492 |
| $ | 47,134 |
| $ | 6,358 |
| 13.5 | % |
Discontinued Operations:
Net income from discontinued operations for the six months ended June 30, 2011 was $3.9 million, due primarily to the gain on sale of CCWC of $2.3 million, net of taxes and transaction costs, or $0.12 per share. Excluding the gain on sale, there was also net income of $1.6 million from CCWC’s operations for the first five months of 2011.
The following discussion and analysis providesprovide information on AWR’s consolidated operations and where necessary, includes specific references to AWR’s individual segments and/or other continuing subsidiaries: GSWC and ASUS and its subsidiaries, and the discontinued operations of CCWC.subsidiaries.
Consolidated Results of Operations — Three Months Ended March 31, 2013 and 2012 (amounts in thousands, except per share amounts):
|
| 3 Months |
| 3 Months |
|
|
|
|
| |||
|
| Ended |
| Ended |
| $ |
| % |
| |||
|
| 3/31/2013 |
| 3/31/2012 |
| CHANGE |
| CHANGE |
| |||
OPERATING REVENUES |
|
|
|
|
|
|
|
|
| |||
Water |
| $ | 69,233 |
| $ | 66,201 |
| $ | 3,032 |
| 4.6 | % |
Electric |
| 10,734 |
| 10,813 |
| (79 | ) | -0.7 | % | |||
Contracted services |
| 30,585 |
| 29,878 |
| 707 |
| 2.4 | % | |||
Total operating revenues |
| 110,552 |
| 106,892 |
| 3,660 |
| 3.4 | % | |||
|
|
|
|
|
|
|
|
|
| |||
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
| |||
Water purchased |
| 10,732 |
| 9,552 |
| 1,180 |
| 12.4 | % | |||
Power purchased for pumping |
| 1,639 |
| 1,556 |
| 83 |
| 5.3 | % | |||
Groundwater production assessment |
| 3,187 |
| 3,323 |
| (136 | ) | -4.1 | % | |||
Power purchased for resale |
| 3,680 |
| 3,191 |
| 489 |
| 15.3 | % | |||
Supply cost balancing accounts |
| 1,371 |
| 3,437 |
| (2,066 | ) | -60.1 | % | |||
Other operation expenses |
| 5,454 |
| 7,426 |
| (1,972 | ) | -26.6 | % | |||
Administrative and general expenses |
| 17,907 |
| 16,829 |
| 1,078 |
| 6.4 | % | |||
Depreciation and amortization |
| 9,816 |
| 10,490 |
| (674 | ) | -6.4 | % | |||
Maintenance |
| 3,934 |
| 3,331 |
| 603 |
| 18.1 | % | |||
Property and other taxes |
| 4,148 |
| 4,105 |
| 43 |
| 1.0 | % | |||
ASUS construction expenses |
| 20,733 |
| 20,285 |
| 448 |
| 2.2 | % | |||
Gain on sale of property |
| (12 | ) | — |
| (12 | ) | 100 | % | |||
Total operating expenses |
| 82,589 |
| 83,525 |
| (936 | ) | -1.1 | % | |||
|
|
|
|
|
|
|
|
|
| |||
OPERATING INCOME |
| 27,963 |
| 23,367 |
| 4,596 |
| 19.7 | % | |||
|
|
|
|
|
|
|
|
|
| |||
OTHER INCOME AND EXPENSES |
|
|
|
|
|
|
|
|
| |||
Interest expense |
| (5,778 | ) | (6,070 | ) | 292 |
| -4.8 | % | |||
Interest income |
| 187 |
| 215 |
| (28 | ) | -13.0 | % | |||
Other, net |
| 342 |
| 229 |
| 113 |
| 49.3 | % | |||
|
| (5,249 | ) | (5,626 | ) | 377 |
| -6.7 | % | |||
|
|
|
|
|
|
|
|
|
| |||
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE |
| 22,714 |
| 17,741 |
| 4,973 |
| 28.0 | % | |||
Income tax expense |
| 9,249 |
| 7,626 |
| 1,623 |
| 21.3 | % | |||
|
|
|
|
|
|
|
|
|
| |||
NET INCOME |
| $ | 13,465 |
| $ | 10,115 |
| $ | 3,350 |
| 33.1 | % |
|
|
|
|
|
|
|
|
|
| |||
Basic earnings per common share |
| $ | 0.69 |
| $ | 0.53 |
| $ | 0.16 |
| 30.2 | % |
|
|
|
|
|
|
|
|
|
| |||
Fully diluted earnings per common share |
| $ | 0.69 |
| $ | 0.53 |
| $ | 0.16 |
| 30.2 | % |
Consolidated Results of Operations — Three Months Ended June 30, 2012 and 2011 (dollars in thousands, except per share amounts):
|
| 3 Months |
| 3 Months |
|
|
|
|
| |||
|
| Ended |
| Ended |
| $ |
| % |
| |||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
| |||
OPERATING REVENUES |
|
|
|
|
|
|
|
|
| |||
Water |
| $ | 80,886 |
| $ | 80,151 |
| $ | 735 |
| 0.9 | % |
Electric |
| 8,373 |
| 7,710 |
| 663 |
| 8.6 | % | |||
Contracted services |
| 25,052 |
| 21,968 |
| 3,084 |
| 14.0 | % | |||
Total operating revenues |
| 114,311 |
| 109,829 |
| 4,482 |
| 4.1 | % | |||
|
|
|
|
|
|
|
|
|
| |||
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
| |||
Water purchased |
| 13,831 |
| 12,924 |
| 907 |
| 7.0 | % | |||
Power purchased for pumping |
| 2,019 |
| 2,165 |
| (146 | ) | -6.7 | % | |||
Groundwater production assessment |
| 3,982 |
| 3,886 |
| 96 |
| 2.5 | % | |||
Power purchased for resale |
| 2,680 |
| 2,854 |
| (174 | ) | -6.1 | % | |||
Supply cost balancing accounts |
| 4,163 |
| 4,245 |
| (82 | ) | -1.9 | % | |||
Other operation expenses |
| 6,851 |
| 6,946 |
| (95 | ) | -1.4 | % | |||
Administrative and general expenses |
| 17,792 |
| 17,740 |
| 52 |
| 0.3 | % | |||
Depreciation and amortization |
| 10,407 |
| 9,538 |
| 869 |
| 9.1 | % | |||
Maintenance |
| 3,852 |
| 4,623 |
| (771 | ) | -16.7 | % | |||
Property and other taxes |
| 3,716 |
| 3,406 |
| 310 |
| 9.1 | % | |||
ASUS construction expenses |
| 14,896 |
| 12,491 |
| 2,405 |
| 19.3 | % | |||
Net gain on sale of property |
| (3 | ) | (128 | ) | 125 |
| -97.7 | % | |||
Total operating expenses |
| 84,186 |
| 80,690 |
| 3,496 |
| 4.3 | % | |||
|
|
|
|
|
|
|
|
|
| |||
OPERATING INCOME |
| 30,125 |
| 29,139 |
| 986 |
| 3.4 | % | |||
|
|
|
|
|
|
|
|
|
| |||
OTHER INCOME AND EXPENSES |
|
|
|
|
|
|
|
|
| |||
Interest expense |
| (5,720 | ) | (6,869 | ) | 1,149 |
| -16.7 | % | |||
Interest income |
| 495 |
| 161 |
| 334 |
| 207.5 | % | |||
Other |
| (13 | ) | (289 | ) | 276 |
| -95.5 | % | |||
|
| (5,238 | ) | (6,997 | ) | 1,759 |
| -25.1 | % | |||
|
|
|
|
|
|
|
|
|
| |||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE |
| 24,887 |
| 22,142 |
| 2,745 |
| 12.4 | % | |||
Income tax expense |
| 9,809 |
| 9,414 |
| 395 |
| 4.2 | % | |||
INCOME FROM CONTINUING OPERATIONS |
| 15,078 |
| 12,728 |
| 2,350 |
| 18.5 | % | |||
|
|
|
|
|
|
|
|
|
| |||
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX |
| — |
| 3,234 |
| (3,234 | ) | -100.0 | % | |||
NET INCOME |
| $ | 15,078 |
| $ | 15,962 |
| $ | (884 | ) | -5.5 | % |
|
|
|
|
|
|
|
|
|
| |||
Basic earnings from continuing operations |
| $ | 0.79 |
| $ | 0.68 |
| $ | 0.11 |
| 16.2 | % |
Basic earnings from discontinued operations |
| — |
| 0.17 |
| (0.17 | ) | -100.0 | % | |||
|
| $ | 0.79 |
| $ | 0.85 |
| $ | (0.06 | ) | -7.1 | % |
|
|
|
|
|
|
|
|
|
| |||
Diluted earnings from continuing operations |
| $ | 0.79 |
| $ | 0.68 |
| $ | 0.11 |
| 16.2 | % |
Diluted earnings from discontinued operations |
| — |
| 0.17 |
| (0.17 | ) | -100.0 | % | |||
|
| $ | 0.79 |
| $ | 0.85 |
| $ | (0.06 | ) | -7.1 | % |
Operating RevenuesRevenues:
General
Registrant relies upon rate approvals by the CPUC to recover operating expenses and to provide for a return on invested and borrowed capital used to fund utility plant for GSWC. ASUS filesRegistrant relies on price redeterminations and equitable adjustments withby the U.S. government in order to recover operating expenses and provide a profit margin for contracted services.ASUS. If adequate rate relief and price redeterminations and adjustments are not granted in a timely manner, operating revenues and earnings can be negatively impacted. ASUS’ASUS’s earnings arehave also been positively impacted by additional construction projects at each of the Military Utility Privatization Subsidiaries.
Water
For the three months ended June 30, 2012,March 31, 2013, revenues from water operations increased $3.0 million to $80.9$69.2 million, as compared to $80.2$66.2 million for the three months ended June 30, 2011.March 31, 2012. The increase in water revenues is primarily due to CPUC-approved third year rate increases for Regions II and IIIhigher water rates approved by the CPUC effective January 1, 2012.
GSWC’s revenue requirement and volumetric revenues are adopted as part of a2013 in connection with the general rate case (“GRC”) every three years. GSWC filed a GRC for all three water regions in July of 2011 with rates expected to be effective January 2013. As further discussed in the Regulatory Matters section, in June 2012 GSWC filed a motion to adopt a settlement agreement resolving most issues between GSWC and the CPUC’s Division of Ratepayer Advocates in connection with this GRC.general office, as previously discussed. The revenue increase adopted by the CPUC for 2013 is approximately $10 million over 2012 on a normalized sales basis.
GSWC’s billed customerBilled water usage increasedconsumption for the first quarter of 2013 decreased by approximately 5%4.0% as compared to the second quarter of 2011 but was lower than adopted consumption. Changessame period in 2012. A change in consumption dodoes not have a significant impact on earnings due to the CPUC-approved Water Revenue Adjustment Mechanism (“WRAM”) account in place in all three water regions. GSWC records the difference between what it bills its water customers and that which is authorized by the CPUC in the WRAM accounts.accounts as regulatory assets or liabilities.
Electric
For the three months ended June 30, 2012,March 31, 2013, revenues from electric operations increaseddecreased slightly to $8.4$10.7 million compared to $7.7$10.8 million for the same period in 2011 due2012. In February 2012, GSWC filed its BVES rate case for rates in years 2013 through 2016. If rates are approved as filed, the rate increases are expected to increasesgenerate approximately $1.3 million in electric base rates approved byannual revenues on a normalized sales basis. A final decision on this rate case is expected from the CPUC effective January 1, 2012. There was also an increase in electric supply costs of $171,000 during the three months ended June 30, 2012, which resulted in a corresponding increase in electric revenues.late 2013.
Billed electric usage increased by 5.6%4.5% during the three months ended June 30, 2012March 31, 2013 as compared to the three months ended June 30, 2011.March 31, 2012. Due to the CPUC-approvedCPUC approved Base Revenue Requirement Adjustment Mechanism, which adjusts certain revenues to adopted levels authorized by the CPUC, changesthis change in usage did not have a significant impact on earnings.
Contracted Services
Revenues from contracted services are composed of construction revenues (including renewals and replacements) and management fees for operating and maintaining the water and/or wastewater systems at military bases. For the three months ended June 30, 2012,March 31, 2013, revenues from contracted services increased by $3.1 million, or 14%, to $25.1were $30.6 million as compared to $22.0$29.9 million for the three months ended June 30, 2011, due primarily toMarch 31, 2012. There was an increase in renewal and replacement work at Fort Bliss in Texas and Fort Jackson in South Carolina under the terms of the respective 50-year contracts with the U.S. government. This increase was primarily offset by a decrease in construction activitiesactivity at Fort Bragg in North Carolina, relatedlargely due to various projects, including a major water and wastewater pipeline replacement project. This project is estimated to be completed in early 2014. The increase in construction activities was partially offset by a $2.9 million increase in revenues recordedfavorable weather conditions experienced during the secondfirst quarter of 2011 due to a change in estimated costs related to the pipeline project at Fort Bragg. Contracted services continues to receive U.S. government awarded contract modifications and agreements with third-party prime contractors2012, which allowed for newmore construction projects at the Military Utility Privatization Subsidiaries. The majority of the current new construction activity is expected to be performed during that period. Weather conditions for the next twelve months. Earnings and cash flows from amendments and modifications to the original 50-year contracts with the U.S. government and agreements with third-party prime contractors for additional construction projects may or maythree months ended March 31, 2013 were not continue in future periods.
Table of Contentsas favorable.
Operating Expenses:
Supply Costs
Supply costs for the water segment consist of purchased water, purchased power for pumping, groundwater production assessments and water supply cost balancing accounts. Supply costs for the electric segment consist of purchased power for resale, (including the cost of natural gas used by BVES’ generating unit)unit and the electric supply cost balancing account. Water and electric gross margins are computed by taking total revenues, less total supply costs. Registrant uses these gross margins and related percentages as an important measuresmeasure in evaluating its operating results. Registrant believes these measures arethis measure is a useful internal benchmarksbenchmark 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.budget as approved. However, these measures,this measure, which areis not presented in accordance with Generally Accepted Accounting Principles (“GAAP”), may not be comparable to similarly titled measures used by other entities and should not be considered as alternativesan alternative to operating income, which is determined in accordance with GAAP.
Total supply costs comprise the largest segment of total operating expenses. Supply costs accounted for 31.7% and 32.3%approximately 25% of total operating expenses for the three months ended June 30, 2012March 31, 2013 and 2011, respectively.2012.
The table below provides the amount of increases (decreases), percent changes in supply costs, and gross margins during the three months ended June 30,March 31, 2013 and 2012 and 2011 (dollars(amounts in thousands):
|
| 3 Months |
| 3 Months |
|
|
|
|
|
| 3 Months |
| 3 Months |
|
|
|
|
| ||||||
|
| Ended |
| Ended |
| $ |
| % |
|
| Ended |
| Ended |
| $ |
| % |
| ||||||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
|
| 3/31/2013 |
| 3/31/2012 |
| CHANGE |
| CHANGE |
| ||||||
WATER OPERATING REVENUES (1) |
| $ | 80,886 |
| $ | 80,151 |
| $ | 735 |
| 0.9 | % |
| $ | 69,233 |
| $ | 66,201 |
| $ | 3,032 |
| 4.6 | % |
WATER SUPPLY COSTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Water purchased (1) |
| $ | 13,831 |
| $ | 12,924 |
| $ | 907 |
| 7.0 | % |
| $ | 10,732 |
| $ | 9,552 |
| $ | 1,180 |
| 12.4 | % |
Power purchased for pumping (1) |
| 2,019 |
| 2,165 |
| (146 | ) | -6.7 | % |
| 1,639 |
| 1,556 |
| 83 |
| 5.3 | % | ||||||
Groundwater production assessment (1) |
| 3,982 |
| 3,886 |
| 96 |
| 2.5 | % |
| 3,187 |
| 3,323 |
| (136 | ) | -4.1 | % | ||||||
Water supply cost balancing accounts (1) |
| 3,587 |
| 4,014 |
| (427 | ) | -10.6 | % |
| 203 |
| 2,018 |
| (1,815 | ) | -89.9 | % | ||||||
TOTAL WATER SUPPLY COSTS |
| $ | 23,419 |
| $ | 22,989 |
| $ | 430 |
| 1.9 | % |
| $ | 15,761 |
| $ | 16,449 |
| $ | (688 | ) | -4.2 | % |
WATER GROSS MARGIN (2) |
| $ | 57,467 |
| $ | 57,162 |
| $ | 305 |
| 0.5 | % |
| $ | 53,472 |
| $ | 49,752 |
| $ | 3,720 |
| 7.5 | % |
PERCENT MARGIN - WATER |
| 71.0 | % | 71.3 | % |
|
|
|
|
| 77.2 | % | 75.2 | % |
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
ELECTRIC OPERATING REVENUES (1) |
| $ | 8,373 |
| $ | 7,710 |
| $ | 663 |
| 8.6 | % |
| $ | 10,734 |
| $ | 10,813 |
| $ | (79 | ) | -0.7 | % |
ELECTRIC SUPPLY COSTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Power purchased for resale (1) |
| $ | 2,680 |
| $ | 2,854 |
| $ | (174 | ) | -6.1 | % |
| $ | 3,680 |
| $ | 3,191 |
| $ | 489 |
| 15.3 | % |
Electric supply cost balancing accounts (1) |
| 576 |
| 231 |
| 345 |
| 149.4 | % |
| 1,168 |
| 1,419 |
| (251 | ) | -17.7 | % | ||||||
TOTAL ELECTRIC SUPPLY COSTS |
| $ | 3,256 |
| $ | 3,085 |
| $ | 171 |
| 5.5 | % |
| $ | 4,848 |
| $ | 4,610 |
| $ | 238 |
| 5.2 | % |
ELECTRIC GROSS MARGIN (2) |
| $ | 5,117 |
| $ | 4,625 |
| $ | 492 |
| 10.6 | % |
| $ | 5,886 |
| $ | 6,203 |
| $ | (317 | ) | -5.1 | % |
PERCENT MARGIN - ELECTRIC |
| 61.1 | % | 60.0 | % |
|
|
|
|
| 54.8 | % | 57.4 | % |
|
|
|
|
(1) As reported on AWR’s Consolidated Statements of Income, except for supply cost balancing accounts. The sum of water and electric supply cost balancing accounts in the table above are shown on AWR’s Consolidated Statements of Income and totaled $4,163,000$1,371,000 and $4,245,000$3,437,000 for the three months ended June 30,March 31, 2013 and 2012, and 2011, respectively.
(2) Water and electric gross margins do not include any depreciation and amortization, maintenance, administrative and general, property andor other taxes, or other operation expenses.
Two of the principal factors affecting water supply costs are the amount of water produced and the source of the water. Generally, the variable cost of producing water from wells is less than the cost of water purchased from wholesale suppliers. Under the modified cost balancing accountModified Cost Balancing Account (“MCBA”), GSWC tracks adopted and actual expense levels for purchased water, purchased power and pump taxes, as established by the CPUC. 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.
For the three months ended June 30, 2012, 35.0% of GSWC’s water supply mix was purchased as compared to 35.7% purchased for the three months ended June 30, 2011. However, as noted above, the implementation of the MCBA for GSWC’s water regions eliminates the effects of changes in the water supply mix on earnings. The overall adopted percentages of purchased water for the three months ended June 30,March 31, 2013 and 2012 waswere approximately 42.7%32% and 38%, respectively, as compared to overallthe actual purchased waterpercentages of 35.0%.33% and 30%,
respectively. The overall water gross margin percent was 71.0%approximately 77% in the secondfirst quarter of 20122013 as compared to 71.3%75% in the same period of 2011.2012 resulting primarily from higher water rates and the change in supply cost mix.
Purchased water costs for the three months ended June 30, 2012March 31, 2013 increased to $13.8$10.7 million as compared to $12.9$9.6 million infor the same period of 2011.in 2012. This increase was primarily due to several wells being offline for maintenance, resulting in an increased need for purchased water. In addition, wholesale water costs were higher water rates charged by wholesale suppliers, an increase inas compared to the amount of water purchased in Region I, and an increase in customer water consumption.three months ended March 31, 2012.
For the three months ended June 30,March 31, 2013 and 2012, the cost of power purchased for pumping decreased to $2.0 million as compared to $2.2 millionwas approximately $1.6 million. An increase in average electric costs was mostly offset by a decrease in pumping activity for the second quarter of 2011. This was primarilythree months ended March 31, 2013. Groundwater production assessments decreased $136,000 due to lower electric supply rates and improved energy efficiency at GSWC’s pumping facilities.the decrease in pumped water.
A decrease of $427,000 in theThe water supply cost balancing account provisiondecreased $1.8 million during the three months ended June 30, 2012March 31, 2013 as compared to the same period in 2011 was primarily2012, due to a higher thanan overall lower total adopted water supply cost for 2013 and an increase in purchased water supply mix in Region I, creating a decrease in the MCBA accountas discussed above. The amount of purchased water increased as compared to the second quartersame period in 2012, but was still lower than the 2013 adopted level of 2011. In addition, certain surcharges related to supply cost balancing accounts expiredpurchased water, resulting in early 2012.a lower over-collection tracked in the MCBA.
For the three months ended June 30, 2012,March 31, 2013, the cost of power purchased for resale to customers in GSWC’s BVES division decreasedincreased to $2.7$3.7 million as compared to $2.9$3.2 million for the three months ended March 31, 2012, due largely to an increase in the average price per megawatt-hour (“MWh”) from $56.23 per MWh for the three months ended March 31, 2012 to $60.37 for the same period in 2011. For the three months ended June 30, 2012, BVES purchased seasonal energy in the spot market at an average price of $28.15 per megawatt hour (“MWh”), as compared to an average price of $34.28 in the spot market for the same period of 2011.2013. In addition, to the spot market, BVES purchases power at $67.90 per MWh under an existing purchased power contract.there was also a 4.5% increase in customer usage. The difference between the price of purchased power and $77 per MWh as authorized by the CPUC is reflected in the electric supply cost balancing account. decreased by $251,000 due to the increase in average MWh.
Other Operation Expenses
The primary components of other operation expenses for GSWC include payroll, materials and supplies, chemicals and water treatment costs, and outside service costs of operating the regulated water systems, including the costs associated with water transmission and distribution, pumping, water quality, meter reading, billing, and operations of district offices. Registrant’s electric and contracted services operations incur many of the same types of costsexpenses as well. For the three months ended June 30,March 31, 2013 and 2012, and 2011, other operation expenses by business segment consisted of the following (dollars(amounts in thousands):
|
| 3 Months |
| 3 Months |
|
|
|
|
|
| 3 Months |
| 3 Months |
|
|
|
|
| ||||||
|
| Ended |
| Ended |
| $ |
| % |
|
| Ended |
| Ended |
| $ |
| % |
| ||||||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
|
| 3/31/2013 |
| 3/31/2012 |
| CHANGE |
| CHANGE |
| ||||||
Water Services |
| $ | 5,600 |
| $ | 5,294 |
| $ | 306 |
| 5.8 | % |
| $ | 4,211 |
| $ | 6,089 |
| $ | (1,878 | ) | -30.8 | % |
Electric Services |
| 603 |
| 556 |
| 47 |
| 8.5 | % |
| 586 |
| 559 |
| 27 |
| 4.8 | % | ||||||
Contracted Services |
| 648 |
| 1,096 |
| (448 | ) | -40.9 | % |
| 657 |
| 778 |
| (121 | ) | -15.6 | % | ||||||
Total other operation expenses |
| $ | 6,851 |
| $ | 6,946 |
| $ | (95 | ) | -1.4 | % |
| $ | 5,454 |
| $ | 7,426 |
| $ | (1,972 | ) | -26.6 | % |
For the three months ended June 30, 2012,March 31, 2013, other operation expenses for water services increaseddecreased by $306,000$1.9 million. This decrease was due, primarilyin large part, to an increase of $202,000 in costs related to conservation programs previously approved by the CPUC final decision issued in May 2013 on the water rate case, which approved among other things, the recovery of $1.0 million of certain other operation costs that were being tracked in memorandum accounts and includedwhich had previously been expensed as incurred. As a result of the final decision, GSWC recorded additional regulatory assets with a corresponding reduction in rates.other operation expenses for the three months ended March 31, 2013. In addition, there were increases inalso decreases in: (i) labor and other employee related benefits of $199,000$200,000 due to fewer employees; (ii) bad debt expense of $432,000, and water treatment costs(iii) miscellaneous other operation expenses of $217,000. These increases were partially offset$225,000.
For the three months ended March 31, 2013, other operation expenses for contracted services decreased by a decrease$121,000 due primarily to decreases in bad debt expense and other miscellaneous operationoperations expenses.
Other operation expenses for contracted services decreased by $448,000 primarily due to an overall decrease in precontract costs during the three months ended June 30, 2012 as compared to the same period in 2011 due to a decrease in bidding related activities, particularly at Fort Bragg in North Carolina and Fort Bliss in Texas.
Administrative and General Expenses
Administrative and general expenses include payroll related to administrative and general functions, the related employee benefits, charged to expense accounts, insurance expenses, outside legal and consulting fees, regulatory utility commission expenses, expenses associated with being a public company, and general corporate expenses.expenses charged to expense accounts. For the three months ended June 30,March 31, 2013 and 2012, and 2011, administrative and general expenses by business segment, including AWR (parent), consisted of the following (dollars(amounts in thousands):
|
| 3 Months |
| 3 Months |
|
|
|
|
| |||
|
| Ended |
| Ended |
| $ |
| % |
| |||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
| |||
Water Services |
| $ | 13,359 |
| $ | 13,052 |
| $ | 307 |
| 2.4 | % |
Electric Services |
| 2,039 |
| 1,971 |
| 68 |
| 3.5 | % | |||
Contracted Services |
| 2,378 |
| 2,715 |
| (337 | ) | -12.4 | % | |||
AWR (parent) |
| 16 |
| 2 |
| 14 |
| 700.0 | % | |||
Total administrative and general expenses |
| $ | 17,792 |
| $ | 17,740 |
| $ | 52 |
| 0.3 | % |
|
| 3 Months |
| 3 Months |
|
|
|
|
| |||
|
| Ended |
| Ended |
| $ |
| % |
| |||
|
| 3/31/2013 |
| 3/31/2012 |
| CHANGE |
| CHANGE |
| |||
Water Services |
| $ | 11,879 |
| $ | 12,917 |
| $ | (1,038 | ) | -8.0 | % |
Electric Services |
| 2,355 |
| 780 |
| 1,575 |
| 201.9 | % | |||
Contracted Services |
| 3,673 |
| 3,053 |
| 620 |
| 20.3 | % | |||
AWR (parent) |
| — |
| 79 |
| (79 | ) | -100.0 | % | |||
Total administrative and general expenses |
| $ | 17,907 |
| $ | 16,829 |
| $ | 1,078 |
| 6.4 | % |
For the three months ended JuneMarch 30, 2012,31, 2013, administrative and general expenses increaseddecreased by $307,000$1.0 million in water services compared to the three months ended June 30, 2011March 31, 2012. As part of the CPUC’s final decision on the water rate case, the CPUC also approved the recovery of $1.7 million in certain administrative and general costs that were being tracked in memorandum accounts and which had previously been expensed as incurred. As a result of the final decision, GSWC recorded additional regulatory assets with a corresponding reduction to administrative and general expenses for the three months ended March 31, 2013. In addition, the CPUC’s final decision also decreased transportation expenses by approximately $310,000 as a result of a lower composite depreciation rate used for GSWC’s vehicles. Depreciation expense on vehicles is included in transportation expenses in accordance with CPUC guidelines.
Excluding the reductions resulting from the final decision discussed above, administrative and general expenses for water services increased by approximately $1 million due primarily to a $535,000$611,000 increase in labor costslegal, regulatory and other outside services costs. Legal and outside services tend to fluctuate and are expected to continue to fluctuate. In addition, there was an increase in employee related benefits partially offset by decreases of $207,000 in legal and outside services costs and $21,000 of other miscellaneous administrative and general expenses.
For the three months ended June 30, 2012, administrative and general expenses for contracted services decreased by $337,000 due primarily to an increase in the allocation of overhead expenses to construction costs and a reduced allocation to administrative and general expenses as compared to the same period in 2011 as a result of increased construction activities primarily at Fort Bragg in North Carolina.
Depreciation and Amortization
For the three months ended June 30, 2012 and 2011 depreciation and amortization by segment consisted of the following (dollars in thousands):
|
| 3 Months |
| 3 Months |
|
|
|
|
| |||
|
| Ended |
| Ended |
| $ |
| % |
| |||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
| |||
Water Services |
| $ | 9,525 |
| $ | 8,874 |
| $ | 651 |
| 7.3 | % |
Electric Services |
| 597 |
| 447 |
| 150 |
| 33.6 | % | |||
Contracted Services |
| 285 |
| 217 |
| 68 |
| 31.3 | % | |||
Total depreciation and amortization |
| $ | 10,407 |
| $ | 9,538 |
| $ | 869 |
| 9.1 | % |
For the three months ended June 30, 2012, depreciation and amortization expense for water and electric services increased by $801,000 to $10.1 million compared to $9.3 million for the three months ended June 30, 2011 due to approximately $93.1 million of additions to utility plant during 2011. Registrant believes that depreciation expense related to property additions approved by the CPUC will be recovered through rates.
Maintenance
For the three months ended June 30, 2012 and 2011, maintenance expense by segment consisted of the following (dollars in thousands):
|
| 3 Months |
| 3 Months |
|
|
|
|
| |||
|
| Ended |
| Ended |
| $ |
| % |
| |||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
| |||
Water Services |
| $ | 3,173 |
| $ | 3,792 |
| $ | (619 | ) | -16.3 | % |
Electric Services |
| 183 |
| 214 |
| (31 | ) | -14.5 | % | |||
Contracted Services |
| 496 |
| 617 |
| (121 | ) | -19.6 | % | |||
Total maintenance |
| $ | 3,852 |
| $ | 4,623 |
| $ | (771 | ) | -16.7 | % |
Maintenance expense for water services decreased by $619,000 due primarily to a decrease in planned and unplanned maintenance of Registrant’s water facilities, particularly in Region II and Region III. Maintenance expenses are expected to increase in the second half of 2012 partially offsetting the lower second quarter costs.
Maintenance expense for contracted services decreased by $121,000 due primarily to a decrease in the need for maintenance of the Military Utility Privatization Subsidiaries’ facilities.
Property and Other Taxes
For the three months ended June 30, 2012 and 2011, property and other taxes by segment consisted of the following (dollars in thousands):
|
| 3 Months |
| 3 Months |
|
|
|
|
| |||
|
| Ended |
| Ended |
| $ |
| % |
| |||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
| |||
Water Services |
| $ | 3,143 |
| $ | 2,916 |
| $ | 227 |
| 7.8 | % |
Electric Services |
| 212 |
| 197 |
| 15 |
| 7.6 | % | |||
Contracted Services |
| 361 |
| 293 |
| 68 |
| 23.2 | % | |||
Total property and other taxes |
| $ | 3,716 |
| $ | 3,406 |
| $ | 310 |
| 9.1 | % |
Property and other taxes for water services increased by $227,000 for the three months ended June 30, 2012 due primarily to increases in property and payroll taxes.
ASUS Construction Expenses
For the three months ended June 30, 2012, construction expenses for contracted services were $14.9 million, increasing $2.4 million compared to the same period in 2011, due primarily to additional construction activity at Fort Bragg in North Carolina.
Interest Expense
For the three months ended June 30, 2012 and 2011, interest expense by segment, including AWR (parent) consisted of the following (dollars in thousands):
|
| 3 Months |
| 3 Months |
|
|
|
|
| |||
|
| Ended |
| Ended |
| $ |
| % |
| |||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
| |||
Water Services |
| $ | 5,273 |
| $ | 6,246 |
| $ | (973 | ) | -15.6 | % |
Electric Services |
| 407 |
| 439 |
| (32 | ) | -7.3 | % | |||
Contracted Services |
| 40 |
| 143 |
| (103 | ) | -72.0 | % | |||
AWR (parent) |
| — |
| 41 |
| (41 | ) | -100.0 | % | |||
Total interest expense |
| $ | 5,720 |
| $ | 6,869 |
| $ | (1,149 | ) | -16.7 | % |
Overall, interest expense decreased by $1.1 million during the second quarter of 2012 as compared to the same period in 2011 due to costs totaling $553,000 incurred in connection with the redemption of $22.0 million of GSWC’s 7.65% Medium-Term Notes during the second quarter of 2011. In addition, in 2012 GSWC recorded a $381,000 reduction to interest expense in connection with the CPUC’s final decision on the water cost of capital proceeding, as further discussed under the Regulatory Matters section. Average bank loan balances outstanding under Registrant’s revolving credit facility for the three months ended June 30, 2012 were approximately $352,000, as compared to an average of $30.0 million during the same period of 2011. The average interest rates on short-term borrowings for the three months ended June 30, 2012 and 2011 were approximately 1.5% and 1.4%, respectively.
Interest Income
For the three months ended June 30, 2012 and 2011, interest income by segment, including AWR (parent) consisted of the following (dollars in thousands):
|
| 3 Months |
| 3 Months |
|
|
|
|
| |||
|
| Ended |
| Ended |
| $ |
| % |
| |||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
| |||
Water Services |
| $ | 458 |
| $ | 155 |
| $ | 303 |
| 195.5 | % |
Electric Services |
| 11 |
| — |
| 11 |
| 100.0 | % | |||
Contracted Services |
| — |
| 2 |
| (2 | ) | -100.0 | % | |||
AWR (parent) |
| 26 |
| 4 |
| 22 |
| 550.0 | % | |||
Total interest income |
| $ | 495 |
| $ | 161 |
| $ | 334 |
| 207.5 | % |
Overall, interest income increased by $334,000 for the three months ended June 30, 2012 due primarily to changes in the settlement of refund claims currently under review by the Internal Revenue Service.
Other
For the three months ended June 30, 2011, Registrant recorded other expenses of $289,000 primarily related to a loss incurred on one of Registrant’s investments. No similar loss was incurred in 2012.
Income Tax Expense
For the three months ended June 30, 2012 and 2011, income tax expense by segment, including AWR (parent), consisted of the following (dollars in thousands):
|
| 3 Months |
| 3 Months |
|
|
|
|
| |||
|
| Ended |
| Ended |
| $ |
| % |
| |||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
| |||
Water Services |
| $ | 7,208 |
| $ | 7,353 |
| $ | (145 | ) | -2.0 | % |
Electric Services |
| 359 |
| 303 |
| 56 |
| 18.5 | % | |||
Contracted Services |
| 2,313 |
| 1,713 |
| 600 |
| 35.0 | % | |||
AWR (parent) |
| (71 | ) | 45 |
| (116 | ) | -257.8 | % | |||
Total income tax expense |
| $ | 9,809 |
| $ | 9,414 |
| $ | 395 |
| 4.2 | % |
For the three months ended June 30, 2012, income tax expense for water and electric services decreased to $7.6 million compared to $7.7 million for the three months ended June 30, 2011 due primarily to a decrease in the effective tax rate, partially offset by an increase in pretax income. The effective tax rate (“ETR”) for GSWC was 40.0% for the three months ended June 30, 2012 as compared to 43.5% applicable to the three months ended June 30, 2011. The ETR deviates from the federal statutory rate primarily due to state taxes and differences between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements (principally plant-, rate-case- and compensation-related items), and changes in permanent items. Flow-through adjustments increase or decrease tax expense in one period, with an offsetting decrease or increase occurring in another period.
For the three months ended June 30, 2012, income tax expense for contracted services increased to $2.3 million as compared to $1.7 million for the three months ended June 30, 2011 due to an increase in pretax income. The ETR was 38.9% and 39.0% for the three months ended June 30, 2012 and 2011, respectively.
Income from Discontinued Operations
Net income from discontinued operations for the three months ended June 30, 2011 was $3.2 million, due primarily to the gain on sale of CCWC of $2.3 million, net of taxes and transaction costs, or $0.12 per share, recorded in May 2011. Excluding the gain on sale, there was also net income of $974,000 from CCWC’s operations through the completion of the sale on MayMarch 31, 2011.
Consolidated Results of Operations — Six months ended June 30, 2012 and 2011 (dollars in thousands except per share amounts):
|
| 6 Months |
| 6 Months |
|
|
|
|
| |||
|
| Ended |
| Ended |
| $ |
| % |
| |||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
| |||
OPERATING REVENUES |
|
|
|
|
|
|
|
|
| |||
Water |
| $ | 146,843 |
| $ | 144,477 |
| $ | 2,366 |
| 1.6 | % |
Electric |
| 19,186 |
| 18,434 |
| 752 |
| 4.1 | % | |||
Contracted services |
| 54,930 |
| 41,225 |
| 13,705 |
| 33.2 | % | |||
Total operating revenues |
| 220,959 |
| 204,136 |
| 16,823 |
| 8.2 | % | |||
|
|
|
|
|
|
|
|
|
| |||
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
| |||
Water purchased |
| 23,383 |
| 21,585 |
| 1,798 |
| 8.3 | % | |||
Power purchased for pumping |
| 3,575 |
| 3,701 |
| (126 | ) | -3.4 | % | |||
Groundwater production assessment |
| 7,305 |
| 6,512 |
| 793 |
| 12.2 | % | |||
Power purchased for resale |
| 5,871 |
| 6,729 |
| (858 | ) | -12.8 | % | |||
Supply cost balancing accounts |
| 7,600 |
| 9,324 |
| (1,724 | ) | -18.5 | % | |||
Other operation expenses |
| 14,277 |
| 13,863 |
| 414 |
| 3.0 | % | |||
Administrative and general expenses |
| 34,377 |
| 36,159 |
| (1,782 | ) | -4.9 | % | |||
Depreciation and amortization |
| 20,897 |
| 19,275 |
| 1,622 |
| 8.4 | % | |||
Maintenance |
| 7,183 |
| 8,349 |
| (1,166 | ) | -14.0 | % | |||
Property and other taxes |
| 7,821 |
| 6,958 |
| 863 |
| 12.4 | % | |||
ASUS construction expenses |
| 35,181 |
| 24,675 |
| 10,506 |
| 42.6 | % | |||
Net gain on sale of property |
| (3 | ) | (128 | ) | 125 |
| -97.7 | % | |||
Total operating expenses |
| 167,467 |
| 157,002 |
| 10,465 |
| 6.7 | % | |||
|
|
|
|
|
|
|
|
|
| |||
OPERATING INCOME |
| 53,492 |
| 47,134 |
| 6,358 |
| 13.5 | % | |||
|
|
|
|
|
|
|
|
|
| |||
OTHER INCOME AND EXPENSES |
|
|
|
|
|
|
|
|
| |||
Interest expense |
| (11,790 | ) | (12,613 | ) | 823 |
| -6.5 | % | |||
Interest income |
| 710 |
| 298 |
| 412 |
| 138.3 | % | |||
Other |
| 216 |
| (209 | ) | 425 |
| -203.3 | % | |||
|
| (10,864 | ) | (12,524 | ) | 1,660 |
| -13.3 | % | |||
|
|
|
|
|
|
|
|
|
| |||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE |
| 42,628 |
| 34,610 |
| 8,018 |
| 23.2 | % | |||
Income tax expense |
| 17,435 |
| 14,927 |
| 2,508 |
| 16.8 | % | |||
INCOME FROM CONTINUING OPERATIONS |
| 25,193 |
| 19,683 |
| 5,510 |
| 28.0 | % | |||
|
|
|
|
|
|
|
|
|
| |||
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX |
| — |
| 3,868 |
| (3,868 | ) | -100.0 | % | |||
NET INCOME |
| $ | 25,193 |
| $ | 23,551 |
| $ | 1,642 |
| 7.0 | % |
|
|
|
|
|
|
|
|
|
| |||
Basic earnings from continuing operations |
| $ | 1.33 |
| $ | 1.05 |
| $ | 0.28 |
| 26.7 | % |
Basic earnings from discontinued operations |
| — |
| 0.20 |
| (0.20 | ) | -100.0 | % | |||
|
| $ | 1.33 |
| $ | 1.25 |
| $ | 0.08 |
| 6.4 | % |
|
|
|
|
|
|
|
|
|
| |||
Diluted earnings from continuing operations |
| $ | 1.32 |
| $ | 1.05 |
| $ | 0.27 |
| 25.7 | % |
Diluted earnings from discontinued operations |
| — |
| 0.20 |
| (0.20 | ) | -100.0 | % | |||
|
| $ | 1.32 |
| $ | 1.25 |
| $ | 0.07 |
| 5.6 | % |
Operating Revenues
Water
For the six months ended June 30, 2012, revenues from water operations increased by $2.4 million to $146.8 million as compared to $144.5 million for the six months ended June 30, 2011. The increase in water revenues is primarily due to CPUC-approved third year rate increases for Regions II and III effective January 1, 2012.
GSWC’s revenue requirement and volumetric revenues are adopted as part of a general rate case (“GRC”) every three years. GSWC filed a GRC for all three water regions in July of 2011 with rates expected to be effective January 2013. As further discussed in the Regulatory Matters section, in June 2012 GSWC filed a motion to adopt a settlement agreement resolving most issues between GSWC, the CPUC’s Division of Ratepayer Advocates and The Utility Reform Network in connection with this GRC.
GSWC’s billed customer water usage increased by approximately 6% as compared to the same period in 2011, but was lower than adopted consumption. Changes in consumption do not have a significant impact on earnings due to the CPUC-approved Water Revenue Adjustment Mechanism (“WRAM”) account in all three water regions. GSWC records the difference between what it bills its water customers and that which is authorized by the CPUC in the WRAM accounts.
Electric
For the six months ended June 30, 2012, revenues from electric operations increased by 4.1% to $19.2 million compared to $18.4 million for the same period in 2011 due primarily to increases in electric base rates approved by the CPUC effective January 1, 2012.
Billed electric usage for the six months ended June 30, 2012 decreased 2.8% as compared to the same period in 2011. Due to the CPUC approved Base Revenue Requirement Adjustment Mechanism, which adjusts certain revenues to adopted levels authorized by the CPUC, this change in usage did not have a significant impact on earnings.
Contracted Services
Revenues from contracted services are composed of construction revenues (including renewals and replacements) and management fees for operating and maintaining the water and/or wastewater systems at military bases. For the six months ended June 30, 2012, revenues from contracted services increased by $13.7 million, or 33.2%, to $54.9 million as compared to $41.2 million for the six months ended June 30, 2011 primarily due to an increase in construction activities at Fort Bragg in North Carolina related to various projects, including a major water and wastewater pipeline replacement project. This project is estimated to be completed in early 2014. The increase in construction activities was partially offset by a $2.9 million increase in revenues recorded during the second quarter of 2011 due to a change in estimated costs related to the pipeline project at Fort Bragg. Contracted services continues to receive contract modifications from the U.S. government and agreements with third-party prime contractors for new construction projects at the Military Utility Privatization Subsidiaries. The majority of the current new construction activity is expected to be performed during the next twelve months. Earnings and cash flows from amendments and modifications to the original 50-year contracts with the U.S. government and agreements with third-party prime contractors for additional construction projects may or may not continue in future periods.
Registrant relies upon rate approvals by the CPUC to provide for a return on invested and borrowed capital used to fund utility plant, and price redeterminations and equitable adjustments by the U.S. government in order to recover operating expenses and profit margin. If adequate rate relief and price redeterminations and adjustments are not granted in a timely manner, operating revenues and earnings can be negatively impacted. ASUS’ earnings are also impacted by additional construction projects at each of the Military Utility Privatization Subsidiaries.
Operating Expenses:
Supply Costs
Supply costs for the water segment consist of purchased water, purchased power for pumping, groundwater production assessments and water supply cost balancing accounts. Supply costs for the electric segment consist of power purchased for resale (including the cost of natural gas) and the electric supply cost balancing account. Water and electric gross margins are computed by taking total revenues, less total supply costs. Registrant uses these margins and related percentages as important measures 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 alternatives to operating income, which is determined in accordance with GAAP, as an indicator of operating performance.
Total supply costs comprise the largest segment of total operating expenses. Supply costs accounted for approximately 28.5% and 30.5% of total operating expenses for the six months ended June 30, 2012 and 2011, respectively.
The table below provides the amount of increases (decreases), percent changes in supply costs, and margins during the six months ended June 30, 2012 and 2011 (dollars in thousands):
|
| 6 Months |
| 6 Months |
|
|
|
|
| |||
|
| Ended |
| Ended |
| $ |
| % |
| |||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
| |||
WATER OPERATING REVENUES (1) |
| $ | 146,843 |
| $ | 144,477 |
| $ | 2,366 |
| 1.6 | % |
WATER SUPPLY COSTS: |
|
|
|
|
|
|
|
|
| |||
Water purchased (1) |
| $ | 23,383 |
| $ | 21,585 |
| $ | 1,798 |
| 8.3 | % |
Power purchased for pumping (1) |
| 3,575 |
| 3,701 |
| (126 | ) | -3.4 | % | |||
Groundwater production assessment (1) |
| 7,305 |
| 6,512 |
| 793 |
| 12.2 | % | |||
Water supply cost balancing accounts (1) |
| 5,605 |
| 7,823 |
| (2,218 | ) | -28.4 | % | |||
TOTAL WATER SUPPLY COSTS |
| $ | 39,868 |
| $ | 39,621 |
| $ | 247 |
| 0.6 | % |
WATER GROSS MARGIN (2) |
| $ | 106,975 |
| $ | 104,856 |
| $ | 2,119 |
| 2.0 | % |
PERCENT MARGIN - WATER |
| 72.8 | % | 72.6 | % |
|
|
|
| |||
|
|
|
|
|
|
|
|
|
| |||
ELECTRIC OPERATING REVENUES (1) |
| $ | 19,186 |
| $ | 18,434 |
| $ | 752 |
| 4.1 | % |
ELECTRIC SUPPLY COSTS: |
|
|
|
|
|
|
|
|
| |||
Power purchased for resale (1) |
| $ | 5,871 |
| $ | 6,729 |
| $ | (858 | ) | -12.8 | % |
Electric supply cost balancing accounts (1) |
| 1,995 |
| 1,501 |
| 494 |
| 32.9 | % | |||
TOTAL ELECTRIC SUPPLY COSTS |
| $ | 7,866 |
| $ | 8,230 |
| $ | (364 | ) | -4.4 | % |
ELECTRIC GROSS MARGIN (2) |
| $ | 11,320 |
| $ | 10,204 |
| $ | 1,116 |
| 10.9 | % |
PERCENT MARGIN - ELECTRIC |
| 59.0 | % | 55.4 | % |
|
|
|
|
(1)As reported on AWR’s Consolidated Statements of Income, except for supply cost balancing accounts. The sum of water and electric supply cost balancing accounts in the table above are shown on AWR’s Consolidated Statements of Income and totaled $7,600,000 and $9,324,000 for the six months ended June 30, 2012 and 2011, respectively.
(2)Water and electric margins do not include any depreciation and amortization, maintenance, administrative and general, property and other taxes, or other operation expenses.
Two of the principal factors affecting water supply costs and gross margin are the amount of water produced and the source of the water. Generally, the variable cost of producing water from wells is less than the cost of water purchased from wholesale suppliers. Under the modified cost balancing account (“MCBA”), GSWC tracks adopted and actual expense levels for purchased water, purchased power and pump taxes, as established by the CPUC. 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.
For the six months ended June 30, 2012, 34.6% of GSWC’s water supply mix was purchased as compared to 34.2% purchased for the six months ended June 30, 2011. However, GSWC implemented the MCBA for all its water regions which eliminates the effects of changes in the water supply mix on earnings. The overall adopted percentages of purchased water for the six months ended June 30, 2012 was approximately 40.8% as compared to overall actual purchased water of 34.6%. The difference in actual mix compared to the mix approved by the CPUC resulted in an over-collection in the MCBA account. The overall water margin percent was 72.8% for the six months ended June 30, 2012 as compared to 72.6% in the same period of 2011.
Purchased water costs for the six months ended June 30, 2012 increased to $23.4 million as compared to $21.6 million in the same period of 2011 primarily due to higher water rates charged by wholesale suppliers and an overall increase in the amount of water purchased.
For the six months ended June 30, 2012, power purchased for pumping decreased slightly to $3.6 million as compared to $3.7 million for the same period of 2011. This was primarily due to lower electric supply rates and improved energy efficiency at GSWC’s pumping facilities.
For the six months ended June 30, 2012, groundwater production assessments were $793,000 higher when compared to the same period in 2011 due to additional assessment rates levied. Due to the MCBA account, these additional assessments do not impact the dollar water margin. The MCBA tracks the increases in pump tax rates for future recovery in water rates.
A decrease of $2.2 million in the water supply cost balancing account provision during the six months ended June 30, 2012 as compared to the same period in 2011 was primarily due to a decrease in the over-collection tracked in the MCBA account from higher water supply rates and a higher percentage of purchased water as compared to the same period in 2011.
For the six months ended June 30, 2012, the cost of power purchased for resale to customers in GSWC’s BVES division decreased 12.8% to $5.9 million as compared $6.7 million for the same period of 2011 due primarily to lower energy prices purchased in the spot market in 2012 as compared to the same period of 2011. The difference between the price of purchased power and $77 per MWh as authorized by the CPUC is reflected in the electric supply cost balancing account.
Other Operation Expenses
The primary components of other operation expenses include payroll, materials and supplies, chemicals and water treatment, and outside service costs of operating the continuing regulated water systems, including the costs associated with water transmission and distribution, pumping, water quality, meter reading, billing, and operations of district offices. Registrant’s electric and contracted services operations incur many of the same types of costs as well. For the six months ended June 30, 2012 and 2011, other operation expenses by segment consisted of the following (dollars in thousands):
|
| 6 Months |
| 6 Months |
|
|
|
|
| |||
|
| Ended |
| Ended |
| $ |
| % |
| |||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
| |||
Water Services |
| $ | 11,689 |
| $ | 10,471 |
| $ | 1,218 |
| 11.6 | % |
Electric Services |
| 1,162 |
| 1,105 |
| 57 |
| 5.2 | % | |||
Contracted Services |
| 1,426 |
| 2,287 |
| (861 | ) | -37.6 | % | |||
Total other operation expenses |
| $ | 14,277 |
| $ | 13,863 |
| $ | 414 |
| 3.0 | % |
For the six months ended June 30, 2012, other operation expenses for water services increased by $1.2 million as compared to the same period in 2011 primarily due to: (i) an increase of $696,000 in outside services costs related to conservation programs previously approved by the CPUC and included in rates; (ii) an increase of $426,000 in bad debt expense, and; (iii) a $312,000 increase in labor and related benefits costs. These increases were partially offset by a $216,000 decrease in other miscellaneous operation expenses.
For the six months ended June 30, 2012, other operation expenses for contracted services decreased by $861,000 as compared to the same period in 2011, due largely to a decrease in precontract costs for design and engineering labor incurred for potential new construction projects primarily at Fort Bragg in North Carolina.
Administrative and General Expenses
Administrative and general expenses include payroll related to administrative and general functions, all employee benefits charged to expense accounts, insurance expenses, outside legal and consulting fees, regulatory utility commission expenses, expenses associated with being a public company, and general corporate expenses. For the six months ended June 30, 2012 and 2011, administrative and general expenses by segment, including AWR (parent), consisted of the following (dollars in thousands):
|
| 6 Months |
| 6 Months |
|
|
|
|
| |||
|
| Ended |
| Ended |
| $ |
| % |
| |||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
| |||
Water Services |
| $ | 26,032 |
| $ | 26,060 |
| $ | (28 | ) | -0.1 | % |
Electric Services |
| 2,819 |
| 4,061 |
| (1,242 | ) | -30.6 | % | |||
Contracted Services |
| 5,431 |
| 5,985 |
| (554 | ) | -9.3 | % | |||
AWR (parent) |
| 95 |
| 53 |
| 42 |
| 79.2 | % | |||
Total administrative and general expenses |
| $ | 34,377 |
| $ | 36,159 |
| $ | (1,782 | ) | -4.9 | % |
For the six months ended June 30, 2012, administrative and general expenses remained flat for water services compared to the six months ended June 30, 2011. Increases in labor and other employee related costs of $1.2 million were offset by decreases in legal and other administrative and general expenses of approximately $1.1 million.
For the six months ended June 30, 2012,2013, administrative and general expenses for electric services decreasedincreased by $1.2$1.6 million as compared to the sixthree months ended June 30, 2011March 31, 2012 due, in large part, to the CPUC’s approval in March 2012 for BVES to recover $1.2 million of previously incurred legal and outside service costs in connection with its efforts to procure renewable energy resources. As a result, in March 2012 BVES recorded a $1.2 million reduction in legal and outside services for these costs which had previously been expensed as incurred. In addition, there were increases of: (i) $227,000 in additional legal and other outside services incurred primarily for the pending general rate case, and (ii) $148,000 in miscellaneous other administrative and general expenses. In March 2013, BVES filed with the CPUC to recover an additional $835,000 of costs, including interest, incurred in connection with renewable energy resources and which have been expensed. In May 2013, the CPUC approved these additional costs and accordingly, BVES will record a regulatory asset and a corresponding decrease to legal and outside services costs during the second quarter of 2013.
AFor the three months ended March 31, 2013, administrative and general expenses for contracted services decreased by $554,000 due primarily to an increase in allocation of overhead expenses to construction costs as compared to the same period in 2011 as a result of increased construction activities primarily at Fort Bragg in North Carolina.
Depreciation and Amortization
For the six months ended June 30, 2012 and 2011, depreciation and amortization by segment consisted of the following (dollars in thousands):
|
| 6 Months |
| 6 Months |
|
|
|
|
| |||
|
| Ended |
| Ended |
| $ |
| % |
| |||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
| |||
Water Services |
| $ | 19,122 |
| $ | 17,830 |
| $ | 1,292 |
| 7.2 | % |
Electric Services |
| 1,220 |
| 1,007 |
| 213 |
| 21.2 | % | |||
Contracted Services |
| 555 |
| 438 |
| 117 |
| 26.7 | % | |||
Total depreciation and amortization |
| $ | 20,897 |
| $ | 19,275 |
| $ | 1,622 |
| 8.4 | % |
For the six months ended June 30, 2012, depreciation and amortization expense for water and electric services increased by $1.5 million to $20.3 million compared to $18.8 million for the six months ended June 30, 2011 primarily due to approximately $93.1 million of additions to utility plant during 2011. Registrant believes that depreciation expense related to property additions approved by the CPUC will be recovered through rates.
There was also an increase in depreciation and amortization expense for contracted services due to the addition of fixed assets.
Maintenance
For the six months ended June 30, 2012 and 2011, maintenance expense by segment consisted of the following (dollars in thousands):
|
| 6 Months |
| 6 Months |
|
|
|
|
| |||
|
| Ended |
| Ended |
| $ |
| % |
| |||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
| |||
Water Services |
| $ | 5,977 |
| $ | 6,556 |
| $ | (579 | ) | -8.8 | % |
Electric Services |
| 319 |
| 434 |
| (115 | ) | -26.5 | % | |||
Contracted Services |
| 887 |
| 1,359 |
| (472 | ) | -34.7 | % | |||
Total maintenance |
| $ | 7,183 |
| $ | 8,349 |
| $ | (1,166 | ) | -14.0 | % |
For the six months ended June 30, 2012, maintenance expense for water services decreased $579,000 to $6.0 million compared to $6.6 million for the six months ended June 30, 2011 primarily due to a decrease in both planned and unplanned maintenance at GSWC’s water facilities in Region II and Region III. Maintenance costs are expected to increase in the second half of 2012 partially offsetting the lower costs for the first six months of the year.
For the six months ended June 30, 2012, maintenance expense for electric services decreased by $115,000$620,000 due primarily to a decrease$422,000 increase in tree trimming maintenance as comparedlabor and other employee related benefits and a $336,000 increase in consulting and other outside services costs associated, in part, with the preparation of responses to requests for proposals issued by the same period in 2011.
For the six months ended June 30, 2012, maintenance expenseU.S. government for contractednew military base utility privatizations. Legal and outside services decreasedtend to fluctuate and are expected to continue to fluctuate. These increases were partially offset by $472,000 due primarily to a decrease in the need for maintenance performed primarily at Fort Bragg as compared to the same period in 2011.
Propertymiscellaneous other administrative and Other Taxesgeneral expenses.
For the six months ended June 30, 2012 and 2011, property and other taxes by segment consisted of the following (dollars in thousands):
|
| 6 Months |
| 6 Months |
|
|
|
|
| |||
|
| Ended |
| Ended |
| $ |
| % |
| |||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
| |||
Water Services |
| $ | 6,638 |
| $ | 5,856 |
| $ | 782 |
| 13.4 | % |
Electric Services |
| 460 |
| 416 |
| 44 |
| 10.6 | % | |||
Contracted Services |
| 723 |
| 686 |
| 37 |
| 5.4 | % | |||
Total property and other taxes |
| $ | 7,821 |
| $ | 6,958 |
| $ | 863 |
| 12.4 | % |
For the six months ended June 30, 2012, property and other taxes for water services increased by $782,000 primarily due to increases in franchise fees and property taxes.
Depreciation and Amortization
For the three months ended March 31, 2013 and 2012 depreciation and amortization by business segment consisted of the following (amounts in thousands):
|
| 3 Months |
| 3 Months |
|
|
|
|
| |||
|
| Ended |
| Ended |
| $ |
| % |
| |||
|
| 3/31/2013 |
| 3/31/2012 |
| CHANGE |
| CHANGE |
| |||
Water Services |
| $ | 8,930 |
| $ | 9,597 |
| $ | (667 | ) | -7.0 | % |
Electric Services |
| 592 |
| 623 |
| (31 | ) | -5.0 | % | |||
Contracted Services |
| 294 |
| 270 |
| 24 |
| 8.9 | % | |||
Total depreciation and amortization |
| $ | 9,816 |
| $ | 10,490 |
| $ | (674 | ) | -6.4 | % |
For the three months ended March 31, 2013, depreciation and amortization expense for water and electric services decreased by $698,000 to $9.5 million compared to $10.2 million for the three months ended March 31, 2012 due primarily to lower depreciation composite rates as approved by the CPUC in the water rate case finalized in May 2013. Overall, composite rates for the water services segment decreased from 3.7% in 2012 to 3.4% for 2013 resulting in lower depreciation expense of approximately $807,000 during the first quarter of 2013. The decrease resulting from lower depreciation rates was partially offset by approximately $61.0 million of additions to utility plant during 2012.
Maintenance
For the three months ended March 31, 2013 and 2012, maintenance expense by business segment consisted of the following (amounts in thousands):
|
| 3 Months |
| 3 Months |
|
|
|
|
| |||
|
| Ended |
| Ended |
| $ |
| % |
| |||
|
| 3/31/2013 |
| 3/31/2012 |
| CHANGE |
| CHANGE |
| |||
Water Services |
| $ | 3,252 |
| $ | 2,805 |
| $ | 447 |
| 15.9 | % |
Electric Services |
| 241 |
| 136 |
| 105 |
| 77.2 | % | |||
Contracted Services |
| 441 |
| 390 |
| 51 |
| 13.1 | % | |||
Total maintenance |
| $ | 3,934 |
| $ | 3,331 |
| $ | 603 |
| 18.1 | % |
Maintenance expense for water services increased by $447,000 due primarily to planned maintenance work performed at GSWC’s Region II and Region III.
Maintenance expense for electric services increased during the three months ended March 31, 2013 as compared to the same period of 2012 in connection with expenses for tree trimming required by the CPUC.
Property and Other Taxes
For the three months ended March 31, 2013 and 2012, property and other taxes by business segment consisted of the following (amounts in thousands):
|
| 3 Months |
| 3 Months |
|
|
|
|
| |||
|
| Ended |
| Ended |
| $ |
| % |
| |||
|
| 3/31/2013 |
| 3/31/2012 |
| CHANGE |
| CHANGE |
| |||
Water Services |
| $ | 3,437 |
| $ | 3,495 |
| $ | (58 | ) | -1.7 | % |
Electric Services |
| 279 |
| 248 |
| 31 |
| 12.5 | % | |||
Contracted Services |
| 432 |
| 362 |
| 70 |
| 19.3 | % | |||
Total property and other taxes |
| $ | 4,148 |
| $ | 4,105 |
| $ | 43 |
| 1.0 | % |
Property and other taxes remained relatively unchanged. Increases in property and payroll taxes were offset by lower franchise fees.
ASUS Construction Expenses
For the sixthree months ended June 30, 2012,March 31, 2013, construction expenses for contracted services were $35.2$20.7 million, increasing by $10.5 million$448,000 compared to the same period in 2011,2012 due primarily to increasedan increase in renewal and replacement work at Fort Bliss in Texas and Fort Jackson in South Carolina under the terms of the respective 50-year contracts with the U.S. government. The increases in construction at Fort Bliss and Fort Jackson was partially offset by a decrease in construction activity at Fort Bragg.Bragg in North Carolina.
Interest Expense
For the sixthree months ended June 30,March 31, 2013 and 2012, and 2011, interest expense by business segment, including AWR (parent) consisted of the following (dollars(amounts in thousands):
|
| 6 Months |
| 6 Months |
|
|
|
|
|
| 3 Months |
| 3 Months |
|
|
|
|
| ||||||
|
| Ended |
| Ended |
| $ |
| % |
|
| Ended |
| Ended |
| $ |
| % |
| ||||||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
|
| 3/31/2013 |
| 3/31/2012 |
| CHANGE |
| CHANGE |
| ||||||
Water Services |
| $ | 10,877 |
| $ | 11,482 |
| $ | (605 | ) | -5.3 | % |
| $ | 5,366 |
| $ | 5,603 |
| $ | (237 | ) | -4.2 | % |
Electric Services |
| 812 |
| 816 |
| (4 | ) | -0.5 | % |
| 382 |
| 406 |
| (24 | ) | -5.9 | % | ||||||
Contracted Services |
| 99 |
| 228 |
| (129 | ) | -56.6 | % |
| 62 |
| 59 |
| 3 |
| 5.1 | % | ||||||
AWR (parent) |
| 2 |
| 87 |
| (85 | ) | -97.7 | % |
| (32 | ) | 2 |
| (34 | ) | -1700.0 | % | ||||||
Total interest expense |
| $ | 11,790 |
| $ | 12,613 |
| $ | (823 | ) | -6.5 | % |
| $ | 5,778 |
| $ | 6,070 |
| $ | (292 | ) | -4.8 | % |
Overall, interest expense decreased by $823,000$292,000 due primarily to costs totaling $553,000 incurredGSWC’s redemption of $8.0 million of its 7.55% notes in October 2012. In addition, there were lower short-term bank loan balances during the sixfirst three months ended June 30, 2011 relatedof 2013 as compared to the redemption of $22.0 million of GSWC’s 7.65% Medium-Term Notes. No such costssame period in 2012. There were incurred during 2012. Also, in 2012 GSWC recorded a $381,000 reduction to interest expense in connection with the CPUC’s final decision on the water cost of capital proceeding, as further discussed under the Regulatory Matters section. These decreases were partially offset by additional interest expense related to $62.0 million of 6% senior notes issued in April 2011. Averageno bank loan balances outstanding under Registrant’s revolvingthe credit facility for the sixthree months ended June 30, 2012 were approximately $1.8 million,March 31, 2013, as compared to an average of $45.5$3.3 million during the same period of 2011. The average interest rates on short-term borrowings for the six months ended June 30, 2012 and 2011 were approximately 1.5%.
Interest Income
For the six months ended June 30, 2012 and 2011, interest income by segment, including AWR (parent) consisted of the following (dollars in thousands):
|
| 6 Months |
| 6 Months |
|
|
|
|
| |||
|
| Ended |
| Ended |
| $ |
| % |
| |||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
| |||
Water Services |
| $ | 656 |
| $ | 290 |
| $ | 366 |
| 126.2 | % |
Electric Services |
| 23 |
| 0 |
| 23 |
| 100.0 | % | |||
Contracted Services |
| 5 |
| 3 |
| 2 |
| 66.7 | % | |||
AWR (parent) |
| 26 |
| 5 |
| 21 |
| 420.0 | % | |||
Total interest income |
| $ | 710 |
| $ | 298 |
| $ | 412 |
| 138.3 | % |
Interest income increased by $412,000 for the six months ended June 30, 2012 primarily as a result of changes in the settlement of refund claims currently under review by the Internal Revenue Service.
Other2012.
For the six months ended June 30, 2012, Registrant recorded a gain of $216,000 on investments held in a Rabbi Trust for the Supplemental Executive Retirement Plan. For the six months ended June 30, 2011, Registrant recorded other expenses of $209,000 primarily related to a loss incurred on one of Registrant’s investments.
Income Tax Expense
For the sixthree months ended June 30,March 31, 2013 and 2012, and 2011, income tax expense by business segment, including AWR (parent), consisted of the following (dollars(amounts in thousands):
|
| 6 Months |
| 6 Months |
|
|
|
|
|
| 3 Months |
| 3 Months |
|
|
|
|
| ||||||
|
| Ended |
| Ended |
| $ |
| % |
|
| Ended |
| Ended |
| $ |
| % |
| ||||||
|
| 6/30/2012 |
| 6/30/2011 |
| CHANGE |
| CHANGE |
|
| 3/31/2013 |
| 3/31/2012 |
| CHANGE |
| CHANGE |
| ||||||
Water Services |
| $ | 11,563 |
| $ | 11,741 |
| $ | (178 | ) | -1.5 | % |
| $ | 6,941 |
| $ | 4,355 |
| $ | 2,586 |
| 59.4 | % |
Electric Services |
| 1,759 |
| 1,049 |
| 710 |
| 67.7 | % |
| 722 |
| 1,400 |
| (678 | ) | -48.4 | % | ||||||
Contracted Services |
| 4,143 |
| 2,166 |
| 1,977 |
| 91.3 | % |
| 1,666 |
| 1,829 |
| (163 | ) | -8.9 | % | ||||||
AWR (parent) |
| (30 | ) | (29 | ) | (1 | ) | 3.4 | % |
| (80 | ) | 42 |
| (122 | ) | -290.5 | % | ||||||
Total income tax expense |
| $ | 17,435 |
| $ | 14,927 |
| $ | 2,508 |
| 16.8 | % |
| $ | 9,249 |
| $ | 7,626 |
| $ | 1,623 |
| 21.3 | % |
For the sixthree months ended June 30, 2012,March 31, 2013, income tax expense for water and electric services increased to $13.3$7.7 million compared to $12.8$5.8 million for the sixthree months ended June 30, 2011March 31, 2012 due primarily to an increase in pretax income, partially offset by a decrease in the effective tax rate.income. The effective tax rate (“ETR”) for GSWC was 41.7% for the sixthree months ended June 30, 2012 was 41.6%March 31, 2013 as compared to a 44.1% ETR43.8% applicable to the sixthree months ended June 30, 2011.March 31, 2012. The ETR deviates from the federal statutory rate primarily due to state taxes and changesdifferences between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements (principally plant-, rate-case- and compensation-related items), and changes in permanent items.. Flow-through adjustments increase or decrease tax expense in one period, with an offsetting decrease or increase occurring in another period.
IncomeFor the three months ended March 31, 2013, income tax expense for contracted services increased $1.9decreased to $1.7 million to $4.1 millionas compared to $2.2$1.8 million for the sixthree months ended June 30, 2011March 31, 2012 due primarily to an increasea decrease in pretax income. The ETR was approximately 39% for contracted services for both the sixthree months ended June 30, 2012March 31, 2013 and 2011 was 38.9%.
Income from Discontinued Operations
Net income from discontinued operations for the six months ended June 30, 2011 was $3.9 million, due primarily to the gain on sale of CCWC of $2.3 million, net of taxes and transaction costs, or $0.12 per share. Excluding the gain on sale, there was also net income of $1.6 million from CCWC’s operations from the five months of operations in 2011 until the completion of the sale on May 31, 2011.
Table of Contents2012.
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that are important to the portrayal of Registrant’sAWR’s financial condition, results of operations and cash flows, and require the most difficult, subjective or complex judgments of Registrant’sAWR’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 Registrant’sAWR’s historical experience, terms of existing contracts, Registrant’sAWR’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 Operation”Operations” included in Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011.2012. There have been no material changes to Registrant’s critical accounting policies.
Liquidity and Capital Resources
AWR
Registrant’s regulated business is capital intensive and requires considerable capital resources. A portion of these capital resources are provided by internally generated cash flows from operations. When necessary, Registrant obtains funds from external sources in the capital markets and through 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. Registrant also has access to a $100.0 million revolving credit facility, that is currently utilized to support operations. Under the Third Amendment to the Amended and Restated Credit Agreement, which expires on May 27, 2013, the maximum amount that may be borrowed2013. Management expects to have a new facility in place prior to its expiration. AWR borrows under this facility and
provides funds to its subsidiaries, including GSWC, in support of their operations. Any amounts owed to AWR for borrowings under this facility are included in inter-company payables on GSWC’s balance sheet. The interest rate charged to GSWC and other affiliates is $100.0 million. AWR may,sufficient to cover AWR’s interest cost under the terms of the Amended and Restated Credit Agreement, elect to increase the aggregate bank commitments by up to $40.0 million. The aggregate effective amount that may be outstanding under letters of credit is $25.0 million.facility. As of June 30, 2012,March 31, 2013, there were no borrowings under this facility and $18.2 million of letters of credit were outstanding. As of June 30, 2012,March 31, 2013, AWR had $81.8 million available to borrow under the credit facility.
In July 2012, Standard & Poor’s Ratings Services (“S&P”) affirmed the ‘A+’ corporate credit rating on AWR and GSWC with a stable outlook. S&P debt ratings range from AAA (highest rating possible) to D (obligation is in default). In December 2012, Moody’s Investors Service (“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. Pursuant to the revolving credit facility agreement, the “A+ stable” credit rating results in an interest rate spread on the facility of 125120 basis points. Registrant believes that AWR’s sound capital structure and “A+ stable” credit rating, combined with its financial discipline, will enable AWR to access the debt and/or equity markets. However, unpredictable financial market conditions in the future may limit its access or impact the timing of when to access the market, in which case, Registrant may choose to temporarily reduce its capital spending. Registrant estimatesexpects to spend an average of $85 million a year in capital expenditures for 2012 to be approximately $70 - $80 million.over the next three years, consistent with the CPUC-approved water general rate case.
AWR’s shelfAWR filed a Registration Statement expires onin August 21, 2012. Prior to the expiration of this Registration Statement, AWR plans to file another Registration Statement2012 with the Securities and Exchange Commission for the sale from time to time of debt and equity securities. As of March 31, 2013, $115.0 million was available for issuance under this Registration Statement. The Registration Statement expires in August 2015.
AWR funds its operating expenses and pays dividends on its outstanding common shares primarily through dividends from GSWC and through proceeds from equity issuances not invested in subsidiaries. The ability of GSWC to pay dividends to AWR is restricted by California law. Under these restrictions, approximately $164.4$188.6 million was available on June 30, 2012March 31, 2013 to pay dividends to AWR.
Registrant has paid common dividends for over 7576 consecutive years. On July 31, 2012,April 26, 2013, AWR declared a regular quarterly dividend of $0.355 per Common Share. The dividend, totaling approximately $6.7$6.8 million, will be paid on or about SeptemberJune 1, 20122013 to common shareholders of record at the close of business on August 13, 2012.May 15, 2013. AWR’s ability to pay cash dividends on its Common Shares outstanding depends primarily upon cash flows from GSWC. AWR presently intends to continue paying quarterly cash dividends in the future, on or about March 1, June 1, September 1 and December 1, subject to earnings and financial condition, regulatory requirements and such other factors as the Board of Directors may deem relevant.
AWR anticipates that interest costs will increase in future periods due to the need for additional external capital to fund its construction program.program, and market interest rate increases. AWR believes that costs associated with capital used to fund construction projects at GSWC will continue to be recovered in water and electric rates charged to customers.
Cash Flows from Operating Activities:
Cash flows from operating activities have generally been sufficient to meet operating requirements and a portion of capital expenditure requirements. Registrant’s future cash flows from operating activities will be affected by a number of factors, including utility regulation; infrastructure investment; maintenance expenses; inflation; compliance with environmental, health and safety standards; production costs; customer growth; per customer usage of water and electricity; weather and seasonality; conservation efforts; compliance with local governmental requirements and required cash contributions to pension and post-retirement plans. In addition, future cash flows from non-regulated subsidiaries will depend on new business activities, including military base operations and the construction of new and/or replacement infrastructure at military bases, timely redetermination of prices and equitable adjustments of prices and timely collection of payments from the U.S. government.
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. Net cash provided by operating activities was $63.9$31.0 million for the sixthree months ended June 30, 2012March 31, 2013 as compared to $32.9$26.6 million for the sixthree months ended June 30, 2011.March 31, 2012. There was an increase in cash flows from operating activities at ASUS of approximately $19 million due primarily to higher construction activity at Fort Bragg and the timely collection of amounts billed for construction work. There was also an increase in GSWC’s operating cash flows due primarily to rate increasestax refunds received during the first quarter of 2013 in connection with a method change approved by the CPUC, including surchargesInternal Revenue Service related to recover previously recorded regulatory assets. GSWC currently has surcharges in place to recover approximately $31.6 million included in its WRAM, netthe capitalization of MCBA accounts, as of June 30, 2012.certain costs. The timing of cash receipts and disbursements related to other working capital items also affected the changes in net cash provided by operating activities.
Cash Flows from Investing Activities:
Net cash used in investing activities was $29.4$18.4 million for the sixthree months ended June 30, 2012March 31, 2013 as compared to $8.3$15.0 million for the same period in 2011. Cash flows from investing activities for the six months ended June 30, 2011 included $29.0 million in cash received in connection2012, which is consistent with the sale of CCWC.GSWC’s 2013 capital investment program.
Registrant intends to invest in capital to provide essential services to its regulated customer base, while working with its regulators to have the opportunity to earn a fair rate of return on investment. Registrant’s infrastructure investment plan consists of both infrastructure renewal programs, where infrastructure is replaced, as needed, and major capital investment projects, where new water treatment and delivery facilities are constructed. GSWCThe Company 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 to reflect changes in economic conditions and other factors.
Cash Flows from Financing Activities:
Registrant’s financing activities include primarily: (i) the issuance of common shares, andCommon Shares, short-term and long-term debt; (ii) the repayment of long-term debt and notes payable to banks; (iii) proceeds from stock option exercises; and (iv) the payment of dividends on common shares. In order to finance new infrastructure, Registrant also receives customer advances (net of refunds) for and contributions in aid of construction (net of refunds).construction. Short-term borrowings are used to fund capital expenditures until long-term financing is arranged.
Net cash used in financing activities was $9.9$3.3 million for the sixthree months ended June 30, 2012March 31, 2013 as compared to $17.5$6.4 million for the same period in 20112012 due primarily to thea decrease in short-term borrowings. Due to an increaseborrowings in 2012 and increases in receipts of advances for and contributions in aid of construction during 2013. As a result of AWR’s cash flowsgenerated from operations, AWR was able to use the funds to pay down itsthere were no short-term borrowings under its revolving credit facility.during the three months ended March 31, 2013. AWR paid dividends of $6.8 million in the first quarter of 2013 as compared to $5.3 million for the same period of 2012.
GSWC
GSWC funds the majority of 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 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. As of June 30, 2012,March 31, 2013, GSWC had $100.0 million available for issuance of debt securities under a Registration Statement filed with the SECSEC. This Registration Statement expires in November 2011.2014. During the sixthree months ended June 30, 2012,March 31, 2013, GSWC was able to fund its operations and its capital expenditures through cash generated from operating activities.
GSWC relies onmay at times utilize external sources, including equity investments and short-term borrowings from AWR, and long-term debt from time to time to help fund a portion of its construction expenditures. 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 refundable are reclassified to contributions in aid of construction. Utility plant funded by advances and contributions is excluded from rate base. Generally, GSWC depreciates contributed property and amortizes contributions in aid of construction at the composite rate of 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 short-term borrowings under AWR’s existing credit facility and the proceeds from the issuance of long-term debt, borrowings from AWR and common shares issuances to AWR will be adequate to provide sufficient working capital to enable GSWC to maintain normal operations and to meet its capital and financing requirements pending recovery of costs in rates.
Cash Flows from Operating Activities:
Net cash provided by operating activities was $45.7$31.4 million for the sixthree months ended June 30, 2012March 31, 2013 as compared to $33.1$24.5 million for the same period in 2011.2012. As previously discussed, thisthere was an increase wasin GSWC’s
operating cash flows due primarily to higher ratestax refunds received during the first quarter of 2013 in effect, as well as surcharges in placeconnection with a method change approved by the Internal Revenue Services related to collect the WRAM under-collections in allcapitalization of GSWC’s water regions. GSWC currently has surcharges in place to recover approximately $31.6 million included in its WRAM, net of MCBA, accounts as of June 30, 2012.certain costs. The timing of cash receipts and disbursements related to other working capital items also affected the changes in net cash provided by operating activities.
Cash Flows from Investing Activities:
Net cash used in investing activities was $28.7$18.1 million for the sixthree months ended June 30, 2012March 31, 2013 as compared to $36.6$14.5 million for the same period in 2011, which is consistent with GSWC’s 2012 capital investment program.2012. GSWC is expected to incurmake capital expenditures in 2012 of approximately $70 - $80averaging $85 million a year over the next three year rate cycle, primarily for upgrades to its water supply and distribution facilities.
Cash Flows from Financing Activities:
Net cash used in financing activities was $10.2$3.7 million for the sixthree months ended June 30, 2012March 31, 2013 as compared to cash provided by financing activitiesused of $4.5$5.4 million for the same period in 2011. As a result of the2012. The decrease in cash used in financing activities was due to an increase in cash generated from operations, GSWC did not have any intercompany borrowingsadvances for and contributions in aid of construction. Cash used for financing activities was ableprimarily used to pay dividends to AWR.AWR during both periods.
ASUS
ASUS funds its operating expenses primarily through internal operating sources and investments by, or loans from, AWR. ASUS, in turn, provides funding to its subsidiaries.
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 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 principal and interest payments are generally made from cash flow from operations.
In October 2009, GSWC entered into an agreement with the California Department of Public Health (“CDPH”) whereby CDPH agreed to loan GSWC up to $9.0 million under the American Recovery and Reinvestment Act (“ARRA”). Proceeds of the loan will be used to reimburse GSWC for the costs of retrofitting 6,228 water meters. Pursuant to the agreement, as reimbursements are filed, GSWC will issue letters of credit to CDPH equal to 80% of the amount loaned to GSWC (up to an aggregate of $7.2 million). In March 2012, GSWC filed a $6.8 million request for reimbursement with the CDPH. In June 2012, GSWC received $2.0 million in ARRA funds from CDPH, a portion of which was recorded as contributions and the remainder of which was recorded as long term debt.
There have been no other material changes to AWR’s contractual obligations and other commitments since December 31, 2011.2012. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Operations—Contractual Obligations, Commitments and Off Balance Sheet Arrangements” section of the Registrant’s Form 10-K for the year-ended December 31, 20112012 for a detailed discussion of contractual obligations and other commitments.
Contracted Services
The timely filing for and receipt of price redeterminations continues to be critical in order for ASUS to recover increasing costs of operating and maintaining, and renewing and replacing the water and/or wastewater systems at the military bases. In addition, higher expenses from the corporate office and ASUS headquarters allocated to the Military Utility Privatization Subsidiaries were not contemplated at the time the contracts with the U.S. government were negotiated and are being addressed in current outstanding and future price redeterminations.
Under the terms of thesethe military privatization contracts, each contract price is subject to price redetermination two years after commencement of operations and every three years thereafter, unless otherwise agreed to by the parties. In the event that ASUS is: (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 iswas disclosed in the request for proposal; or (iii) 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.
The timing of future filings of price redeterminations may be impacted by government actions, including audits by the Defense Contract Audit Agency.Agency (“DCAA”). At times, our filing of price redeterminationredeterminations and requests for equitable adjustment may be postponed pending the outcomes of these audits.audits or upon mutual agreement with the U.S. government.
Below is a summary of significant projects, price redeterminationredeterminations and requests for equitable adjustment filings by subsidiaries of ASUS.
· FBWS — In connection with the inventory settlement with the U.S. government reached in January 2010, FBWS and the government agreed to waive the first and second price redeterminations for Fort Bliss required under the original 50-year contract. The—The third price redetermination, for the three-year period beginning October 1, 2012, was filed on July 16, 2012.finalized in October 2012 and provides for an annual increase of approximately $450,000 to the operations and maintenance fee compared to the amounts previously in effect. A modification funding this increased amount was issued by the U.S. government in January 2013.
· TUS —The first price redetermination for Andrews Air Force Base was filed in December 2007. The U.S. government has agreed in principle with TUS’A modification funding the settlement position forof this redetermination, which would provideprovides an increase of 7% to the operations and maintenance fee and an increase of 15% to the renewal and replacement fee compared to the interim adjustment in effect since August 2010, (andwas issued in August 2012. This modification provided funding for the increases effective February 2012. A modification to fund the retroactive portion of this increase to February 2008). Final modification for funding2008 is pending government approval.
· ODUS — The second price redetermination for the Fort Lee privatization contract in Virginia, for the three-year period beginning February 2011, was filed in May 2012 and the the second price redetermination for the other bases that ODUS operates in Virginia, for the three-year period beginning April 2011, was filed in July 2012. Negotiations on July 30, 2012.these redeterminations have commenced and are expected to be completed in late 2013.
· PSUS — In February 2012, PSUS filed the first price redetermination for Fort Jackson, to be effective beginning February 16, 2010. Pending resolution of this filing, an interim increase of 3.4%, retroactive to February 2010, is currently in effect. Negotiations on this redetermination have commenced and are expected to be completed during the fourth quarter of 2013.
· ONUS - In March 2012, ONUS received a contract modification based on a request for equitable adjustment regarding installation of new water meters at Fort Bragg. The contract modification provided for a reduction in the number of water meters to be installed, and the price associated with this revised scope. This $11.0 million project commenced during the second quarter of 2012 and is being performed in conjunction with a backflow preventor installation.preventer installation project. The metertwo projects total $23 million in contract value and backflow preventor installations are expected to be completed by the end of 2013. mid-2014.
·In AprilSeptember 2012, ONUS received a $17.6 million contract modification affirming that ONUS willfor construction of water and sewer infrastructure at a new area in Fort Bragg. Construction is scheduled to be able to retainsubstantially complete by the full amountend of the cost savings from the use of an alternative pipe replacement technology. This modification and revision in cost estimates resulted in additional pretax operating income of $820,000. 2013.
·In December 2011, ONUS filed the first price redetermination for Fort Bragg, to be effective beginning March 1, 2010. Pending resolution of this filing, an interim increase of 3.6%, retroactive to March 2010, is currently in effect. Negotiations on this redetermination are expected to commence during the second quarter and are expected to be completed during the third quarter of 2013.
Price redeterminations and equitable adjustments, which include adjustments to reflect changes in operating conditions and infrastructure levels from that assumed at the time of the execution of the contracts, as well as inflation in costs, are expected to provide added revenues to help offset increased costs and provide Registrant the opportunity to continue to generate positive operating income at its Military Utility Privatization Subsidiaries.
Regulatory Matters
Recent Changes in Rates
Rate changesincreases in 2012:2013:
In July 2012,On May 9, 2013, the CPUC issued a final decision on GSWC’s cost of capital proceeding filed in May 2011. The decision approves the settlement agreement entered into between GSWC, along withgeneral water rate case approving new rates for 2013 — 2015 at GSWC’s three other California water utilities,regions and the CPUC’s Division of Ratepayer Advocates (“DRA”) in November 2011. The approved settlement authorizes a Return on Equity (“ROE”) of 9.99% and a rate-making capital structure for GSWC of 55% equity and 45% debt. The weighted cost of capital (return on rate base), with an updated embedded debt cost and the settlement ROE, is 8.64%.general office. The new rate of return authorized by the CPUC’s final decision will be implemented into water rates are retroactive to January 1, 2012. Among other things,2013 and are expected to generate approximately $10 million in additional annual revenues starting in 2013 as compared to 2012 adopted revenues. The rate increases for 2014 and 2015 are subject to an earnings test and fluctuations in market indices. While the increase in 2013 revenues is projected to be approximately $10 million, the increase in the adopted water gross margin is forecasted to be approximately $14 million, or 6.6%, when compared to the 2012 CPUC-adopted water gross margin. The final decision requires GSWC to refund to customers approximately $408,000, representingalso approves the settled amount included in the interest rate balancing account. GSWCrecovery of various memorandum accounts which tracked certain costs that had estimated $789,000 would be refunded to customers. This estimate was recorded in the interest rate balancing account.previously been expensed as incurred. As a result, offor the CPUC’s decision,three months ended March 31, 2013, GSWC recorded a $381,000 reduction$3.2 million in interest expense in the second quarteradditional regulatory assets related to CPUC approval of 2012 and discontinued the interest rate balancing account. GSWC will refund the $408,000 to customers through a one-time surcredit.these memorandum accounts.
The CPUC decision also authorized GSWC to continue the Water Cost of Capital Mechanism (“WCCM”). The WCCM adjusts ROE 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 pointsRate increases in the average of the Moody’s Aa utility bond rate as measured over the period October 1 through September 30. If the average Moody’s rate for this period changes by over 100 basis points from the benchmark, the ROE will be adjusted by one half of the difference. For the first 10-months of the period, the rate has declined by more than 100 basis points from the benchmark. Based upon this data, at this time GSWC expects that it will have to lower its ROE by about 50 to 60 basis points, effective January 1, 2013.2012:
In January 2012, the CPUC approved rate increases for Regions I, II and III effective January 1, 2012. The authorized rate increases represent increases of approximately $2.0 million for Region II and $3.0 million for Region III overcompared to 2011 adoptedCPUC-adopted revenues. The rate increases for Region I arewere not material.
In January 2012, the CPUC approved the phase-in rate increase for BVES effective January 1, 2012. The authorized rate increase is expected to provide GSWC with additional annual revenues of approximately $681,000, which includes BVES’ portion of the general office allocation.
Rate changes in 2011:
In January 2011, the CPUC approved rate increases for Region II and Region III effective January 1, 2011. The authorized rate increases represented increases of approximately $1.6 million for Region II, and approximately $2.4 million for Region III as compared to 2010 adopted revenues. These additional revenues were based upon normalized sales levels approved by the CPUC, effective January 1, 2011.
In January 2011, the CPUC approvedattrition year rate increases for BVES effective January 1, 2011.2012. The authorized rate increase provided GSWC with additional annual revenues of approximately $209,000$681,000 for BVES. In addition,BVES based upon normalized sales levels approved by the CPUC authorized rate increases to cover higher general office costs allocated to BVES. This added additional revenues to BVES of $1.4 million in 2011 as compared to 2010.
In December 2010, the CPUC issued a final decision on GSWC’s Region I rate case, approving revenue increases for 2011 and 2012. On a year to year basis, the increase in 2011 revenues represented an increase of approximately $3.6 million over 2010 adopted revenues. The CPUC also authorized approximately $18.5 million of capital projects to be filed for revenue recovery with advice letters when those projects are completed. During the time that such projects are under development and construction, GSWC may accrue an allowance for funds used during construction on the accrued expenditures to offset the cost of financing project construction. A portion of these projects was completed in 2011. The remaining projects are expected to be completed during 2012 and 2013.
Table of ContentsCPUC.
Pending General Rate Case Requests
GSWC
On June 21, 2012, GSWC filed a motion to adopt a settlement agreement between GSWC, the DRA, and The Utility Reform Network (“TURN”) in connection with the water General Rate Case (“GRC”) filing made in July 2011. The proposed settlement, if approved by the CPUC, resolves almost all of the issues in the GRC application and would generate approximately $9 million in additional annual revenues starting in 2013 as compared to 2012 adopted revenues. The proposed rate increases for 2014 over 2013 are $8 million or 3%, and the 2015 proposed rate increases over 2014 amount to $6.5 million, or 2%. While the increase in 2013 revenues would be $9 million under the settlement agreement, the increase in the adopted water gross margin is approximately $18 million, or 8.4%, when compared to the 2012 adopted water gross margin. Supply costs, which are a pass-through, are projected to decrease by approximately $9 million in 2013 as compared to 2012 adopted supply costs resulting primarily from lower customer consumption as compared to 2012 adopted consumption levels. In addition, the CPUC requested GSWC, DRA and TURN to file additional testimony to justify the reasonableness of the Water Revenue Adjustment Mechanism (“WRAM”) and address the CPUC’s questions regarding the WRAM. In July 2012, all three parties filed additional testimony addressing the WRAM. The settlement agreement for the GRC is subject to an acceptable resolution regarding the WRAM matter.
In February 2012, GSWC filed its BVES rate case for rates in years 2013 through 2016. If rates are approved as filed, the rate increases are expected to generate approximately $1.3 million in annual revenues startingbased upon normalized sales levels. A proposed decision for this general rate case is expected later in 2013. The proposed rate increases for 2014 over 2013 are $1.9 million, the 2015 proposed rate increases over 2014 amount to $1.3 million, and the 2016 proposed rate increases over 2015 amount to $1.3 million.
Other Regulatory Matters
See “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Operations—Regulatory Matters” section of the Registrant’s Form 10-K for the year-ended December 31, 20112012 for a detailed discussion of other regulatory matters.
Finance ApplicationCPUC Rehearing Matter
In July 2012, GSWC filed with2011, the CPUC issued an application requesting authorization for itorder granting the DRA’s request to issue, sell and deliver, by public offering or private placement, securities not exceeding $225.0 million in aggregate offering amount, consisting of, but not limited to, common shares and preferred shares, bonds, debentures, medium-term notes, loans and tax exempt debt. GSWC expects to use the net proceedsrehear certain issues from the issuanceRegion II, Region III and general office rate case approved in November 2010. Among the issues in the rehearing was the La Serena plant improvement project included in rate base totaling approximately $3.5 million. As a result of securities to first pay down all orthe CPUC’s decision in November 2010, GSWC recorded a pretax charge of $2.2 million during 2010, which included the disallowance of a portion of its then outstanding short-term debtthe La Serena capital costs and fund its construction expenditures.the related revenues earned on those capital costs that to be refunded to customers. In March 2013, GSWC expectsand DRA reached a settlement agreement, subject to CPUC approval, to resolve all the issues in the rehearing. In March 2013, GSWC filed for CPUC will approveapproval of the agreement. In anticipation of this applicationsettlement, GSWC recorded an additional pretax charge of $416,000 in 2012, or early 2013.representing disallowed plant improvement project costs and related revenues earned on those costs that it expects will be refunded to customers based upon the terms of the settlement being discussed. The settlement, if approved, would resolve all issues arising from the rehearing.
Alternative Revenue Mechanisms:
GSWC records the difference between what it bills its water customers and that which is authorized by the CPUC using the WRAM. GSWC also records the difference between adoptedWRAM and actual expense levels for purchased water, purchased power and pump taxes, as establishedMCBA accounts approved by the CPUC, using the Modified Cost Balancing Account (“MCBA”) accounts.CPUC. GSWC has implemented surcharges to recover all of its WRAM balances, net of the MCBA. For the three and six months ended June 30,March 31, 2013 and 2012, surcharges of $4.2$3.6 million and $7.6$3.4 million, respectively, were billed to customers to decrease previously incurred under-collections in the WRAM, net of MCBA accounts. As of June 30, 2012,March 31, 2013, GSWC has a net aggregated regulatory asset of $38.3$44.4 million which is comprised of a $61.1$61.9 million under-collection in the WRAM accounts and $22.8$17.5 million over-collection in the MCBA accounts. In March 2013, GSWC filed with the CPUC for recovery of its 2012 net WRAM, totaling $23.8 million, to be collected between 12 to 18 months.
Based on CPUC guidelines, recovery periods relating to the majority of GSWC’s WRAM/MCBA balances range between 1218 and 36 months, with the majority being 24 months. As required by the accounting guidance for alternative revenue programs, GSWC is required to collect its WRAM, net of its MCBA, within 24 months following the year in which they are recorded. In September 2010, GSWC, along with other California water utilities, filed an application with the CPUC to modify the recovery period of its WRAM and MCBA to 18 months or less. In April 2012, the CPUC issued a final decision which, among other things, setsset the recovery periodperiods for under-collection balances that are up to 15% of adopted annual revenues at 18 months or less. For under-collection balances greater than 15%, the recovery period is 19 to 36 months. GSWC does not currently have any balances over 15% of adopted annual revenues. In addition to adopting a new amortization schedule, the final decision sets a cap on total net WRAM/MCBA surcharges in any given calendar year of 10% of the last authorized revenue requirement. The cap becomesis effective following the first test year of each applicant’s pending or next general rate case. For GSWC, the cap will be applied to its 2013 WRAM balances filed in early 2014. The cap requirement set forth in the final decision will not impact GSWC’s 2012 and prior year WRAM/MCBA balances. Surcharges are currently in place to recover the WRAM/MCBA balances from 2009, 2010 and 2011.
In June 2012, the CPUC approved surcharges for recovery of the 2011 Base Revenue Requirement Adjustment Mechanism (���BRRAM”) balance. The CPUC approved a 36-month surcharge to recover BVES’ 2011 BRRAM balance, with the amounts collected through December 2013 to be applied to the 2011 BRRAM under-collection. Surcharges collected during the remainder of the 36-month period would be for recovery of a $1.6 million increase in the BVES revenue requirement representing the difference between the allocated general office costs authorized by the CPUC in its November 2010 decision on the Region II, Region III and general office rate case, and what is currentlywas then in BVES’ rates for allocated general office costs. As authorized by the CPUC, the $1.6 million was includedcombined in the BRRAM for recovery through the surcharge; however, these costs are not considered an alternative revenue program.
TableIn March 2013, BVES filed with the CPUC for recovery of Contentsits 2012 BRRAM balance of $2.3 million. In addition, the filing also requests recovery of $1.8 million representing the difference between the general office allocation and what is in BVES’ rates for allocated general office costs, similar to the 2011 amount discussed above.
Bear Valley Electric Service:
In January 2010,February 2012, BVES filed its general rate case (“GRC”) for new rates in years 2013 through 2016. In August 2012, DRA issued its report on the CityGRC. Included in DRA’s recommendations was a $2.0 million retroactive ratemaking proposal to increase BVES’ accumulated depreciation balance to reflect adopted depreciation expense for the years 2009 through 2012 rather than actual depreciation expense as recorded in accordance with GAAP. DRA also recommended that one-half of Big Beardeferred rate case costs be borne by shareholders, rather than entirely by customers, as has been authorized by the CPUC in prior rate cases. As of March 31, 2013, GSWC has a $2.2 million regulatory asset representing deferred rate case costs for the current BVES general rate case, which the CPUC has historically allowed utilities to recover. If DRA prevails, GSWC may be required to record a charge to adjust accumulated depreciation and surrounding areasto write-off half of San Bernardino County experienced a series of snow storms, which damaged BVES power lines, poles, transformers,its deferred rate case costs. GSWC believes DRA’s recommendations are without merit and other facilities and caused temporary interruption of serviceintends to some BVES customers. As a resultvigorously defend its positions. At this time, GSWC is unable to predict the final outcome of these storms, BVES incurred additional operating costs to repair equipment and restore electric service to its customers, whichmatters in the pending rate case.
Hearings on BVES’s GRC, including the matters discussed above, were trackedheld in a catastrophic event memorandum account (“CEMA”).September 2012. In June 2011,November 2012, GSWC filed a motion to introduce new information regarding the results of a study on mandatory testing recently received on BVES’s transmission and distribution poles. Bringing this new study data to the CPUC will help support the requests for recoverycapital expenditures. The administrative law judge assigned to this GRC re-opened the record to receive additional testimony on this study, and to conduct additional evidentiary hearings. DRA has challenged the results of the CEMA account related to the storm damagestudy, and alsorequested that BVES provide additional information. A proposed decision for the remaining unrecovered balance for costs incurred from 2003 through 2005 related to a bark beetle infestationthis GRC is now expected later in its BVES service area. In June 2012, the CPUC approved a 12-month surcharge to recover $796,000 recorded in BVES’s CEMA accounts.2013.
GSWC’s BVES division has been regularly filing compliance reports with the CPUC regarding its purchases ofA new renewal energy from renewable energy resources to meet the renewable portfolio standardstandards (“RPS”). Previous filings under prior RPS laws had indicated that BVES had not achieved annual target purchase levels of renewable energy resources and thus, on its face, might be subject to a potential penalty. However, a new RPS law went into effect in December 2011 which modified,changed, among other things, the prior RPS requirement based upon annual procurement targets to multi-year procurement targets. Under the new RPS law, BVES must procure sufficient RPS-eligible resources to meetmeet: (i) any RPS procurement requirement deficit for any year prior to 2011, and (ii) RPS procurement requirements for the 2011 — 2013 compliance period by no later than December 31, 2013. BVES’ firstmost recent RPS report under the new law
was submitted to the CPUC on March 1,in December 2012 and it did not reflect any RPS procurement deficiencies nor any potential or actual penalties. Accordingly, no provision for loss has been recorded in the financial statements as of June 30, 2012.
In September 2009, GSWC negotiated a ten-year contract with the Los Angeles County Sanitation District (“LACSD”) to purchase renewable energy created from landfill gas. In February 2011, LACSD notified GSWC that it intended to shut down the landfill gas generator.In August 2011, GSWC and LACSD negotiated a settlement to resolve a dispute between the parties regarding certain terms of the contract. Under the terms of the settlement, GSWC agreed to waive its right to a 14 month termination notice and LACSD agreed to sell renewable energy credits (“RECs”) to GSWC. In November 2011, GSWC filed for approval with the CPUC for the purchase of these RECs. In July 2012, the CPUC approved the purchase of these RECs, which BVES intends to apply towards either its pre-2011 renewable energy requirements or its 2011-2013 requirements. The REC’s will be purchased for approximately $325,000 during the third quarter of 2012 and will be recorded as purchased power and included in the electric supply cost balancing account.
In June 2011, BVES filed an application with the CPUC to recover $1.2 million in outside service costs incurred during the period September 1, 2007 through March 31, 2011 in connection with its efforts to procure renewable energy resources. In March 2012, the CPUC approved the application. Accordingly, GSWC recorded a regulatory asset of $1.3 million, including accrued interest, was recorded in March 2012. A 12-month surcharge was implemented in May 2012 for recovery of these costs.
La Serena Plant Improvement Project:
In January 2008,March 2013, BVES filed an application with the CPUC to recover additional costs incurred from April 1, 2011 through December 31, 2012 totaling approximately $835,000 (including interest) and which have been expensed. In May 2013, the CPUC approved Region I’s general rate case effective for years 2008, 2009 and 2010. The rates authorized by the CPUC in the decision included the costs of the La Serena plant improvement project as part of the utility rate base. Subsequent to the issued decision, the DRA requested a rehearing on whether these costs were reasonable. The CPUC granted a limited rehearing, which was consolidated into GSWC’s Region II, Region III, and general office rate case, in order to consider whether it is reasonable to include in Region I’s rate base approximately $3.5 million of costs incurred in connection with the La Serena Plant Improvement Project. In November 2010, as part of GSWC’s Region II, Region III and general office rate case decision, the CPUC disallowed a portion of the La Serena plant improvement costs from utility customer rates. The CPUC found that the disallowed portion of the costs were attributable to providing service to new development and should have been recovered from the customers in the new development. As a result of the CPUC’s decision, in 2010 GSWC recorded a charge of $2.2 million, which included the disallowance of certain capital costs for the La Serena Plant Improvement Project and the related revenues earned on those capital costs that will be refunded to customers.
In December 2010, DRA filed a motion for rehearing on this matter, contending that the CPUC erred in assigning a portion of the La Serena plant improvement costs to GSWC utility customers and requested that all of the capital costs related to the La Serena plant improvement project be disallowed. In July 2011, the CPUC granted DRA’s request for rehearing. The rehearing will also address deferred rate caseadditional costs and accordingly, BVES will record a regulatory asset and a corresponding decrease to legal and outside services costs during the methodology for allocation of general office costs to GSWC’s affiliate, ASUS. Hearings on these matters are expected in the third or fourthsecond quarter of 2012. In addition to granting a rehearing, the CPUC also directed the Division of Water and Audits (“DWA”) to undertake an audit of the La Serena project costs and to provide a confidential report to the CPUC with recommendations on whether an investigation should be conducted to determine whether any laws were broken related to the La Serena project. At this time, management cannot predict the outcome of the rehearing, DWA’s recommendations, or determine the estimated loss or range of loss, if any.
Changes in Tax Law:
The Small Business Jobs Act of 2010 and the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (“Tax Relief Acts”) extended 50% bonus depreciation for qualifying property through 2012 and created a 100% bonus depreciation for qualifying property placed in service between September 9, 2010 and December 31, 2011.
In June 2011, the CPUC adopted a resolution that requires water utilities to file advice letters implementing a one-way memorandum account to track the revenue effects associated with the Tax Relief Acts, which may reduce revenue requirements in future rate case proceedings. The effective date of the memorandum account established by the resolution was April 14, 2011. More specifically, the memorandum account established by the resolution will track on a CPUC-jurisdictional, revenue requirement basis: (a) decreases in each impacted utility’s revenue requirement resulting from increases in its deferred tax reserve; and (b) other direct changes in the revenue requirement resulting from taking advantage of the Tax Relief Acts. This resolution also authorizes impacted utilities to use savings from this new tax law to invest in certain additional, needed utility infrastructure, not otherwise funded in rates, within a time frame shorter than would be practicable through the formal application or advice letter processes. The establishment of a memorandum account does not change rates, nor guarantee that rates will be changed in the future. This mechanism simply allows the CPUC to determine at a future date whether rates should be changed. GSWC has evaluated the potential impact of this resolution and does not expect it to have a material impact on its consolidated financial statements in 2012.
CPUC Subpoena:
On June 27, 2011 GSWC executed a settlement agreement with DWA to resolve an investigation of certain work orders and charges paid to a specific contractor used previously by GSWC for numerous construction projects over a period of 14 years. On December 15, 2011, the CPUC approved the settlement agreement. The settlement provides for refunds to customers totaling $9.5 million to be made over a period of 12-36 months, as well as a reduction in rate-base and other rate adjustments totaling $3.0 million. As a result of the settlement, management does not expect future increases in the reserve related to this specific contractor. Refunds totaling $1.0 million and $1.2 million were made to customers during the three and six months ended June 30, 2012, respectively.
Finally, as part of the settlement agreement, GSWC agreed to be subject to three separate independent audits of its procurement practices over a period of ten years from the date the settlement was approved by the CPUC. The audits will cover GSWC’s procurement practices from 1994 forward and could result in further disallowances of costs. The cost of the audits will be borne by shareholders and may not be recovered by GSWC in rates to customers. At this time, management cannot predict the outcome of these audits or determine the estimated loss or range of loss, if any.2013.
Environmental Matters
AWR’s subsidiaries are subject to increasingly stringent environmental regulations, including the 1996 amendments to the Federal Safe Drinking Water Act; interim enhanced surface water treatment rules; regulation of disinfectant/disinfection by-products; and the long-term enhanced surface water treatment rules; the ground water treatment rule; contaminant regulation of radon and arsenic; and unregulated contaminants monitoring rule.
There have been no material changes to AWR’s environmental matters since December 31, 2011.2012. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation-EnvironmentalOperations-Environmental Matters” section of the Registrant’s Form 10-K for the year-ended December 31, 20112012 for a detailed discussion of environmental matters.
Water Supply
See “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Operations—Water Supply” section of the Registrant’s Form 10-K for the year-ended December 31, 20112012 for a detailed discussion of water supply issues. The discussion below focuses on significant matters and changes since December 31, 2011.2012.
Metropolitan Water District/ State Water Project
Water supplies available to the Metropolitan Water District of Southern California (“MWD”) through the State Water Project (“SWP”) vary from year to year based on weather.several factors. Historically, weather was the primary factor in determining annual deliveries. However, biological opinions issued in late 2007 have limited water diversions through the Sacramento/San Joaquin Delta (“Delta”) resulting in pumping restrictions to the State Water Project. Even with variable State Water Project deliveries, MWD has generally been able to provide sufficient quantities of water to satisfy the needs of its member agencies and their customers. Under its Integrated Resources Plan, MWD estimates that it can meet its member agencies’ demands over at least the next 20 years.
Every year, the California Department of Water Resources (“DWR”) establishes the SWPState Water Project allocation for water deliveries to the state water contractors. DWR generally establishes a percentage allocation of delivery requests based on a number of factors, including weather patterns, snow pack levels, reservoir levels and reservoir levels. Thebiological diversion restrictions. Snow surveys conducted in March 2013 reported Sierra Mountain snowpack at 52 percent allocation given to state contractors can vary throughout the year as weather and other factors change. In April 2012,of normal. On March 22, 2013, DWR announced an increase indecreased its projected 20122013 SWP water deliveries from 50%40 percent to 60% of delivery requests.35 percent due to an unusually dry winter and pumping restrictions in the Delta. Should such dry conditions continue, MWD could implement mandatory water rationing within its service territories. However, GSWC believes that MWD will be able to continue meeting water demand for the year.
New Accounting Pronouncements
Registrant is subject to newly issued requirements as well as changes in existing requirements issued by the Financial Accounting Standards Board. Differences in financial reporting between periods for GSWC could occur unless and until the CPUC approves such changes for conformity through regulatory proceedings. See Note 1of Unaudited Notes to Consolidated Financial Statements.
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 for BVES and economic conditions. Market risk is the potential loss arising from adverse changes in prevailing market rates and prices.
There have been no other material changes regarding Registrant’s market risk position from the information provided in its Annual Report on Form 10-K for the year ended December 31, 2011.2012. 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.
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”), Registrant haswe have carried out an evaluation, under the supervision and with the participation of its’our management, including Registrant’sour Chief Executive Officer (“CEO”) and itsour 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 itsour “disclosure controls and procedures” as defined in Rule 13a-15(e) and 15d-15(e) promulgated by the Securities and Exchange Commission (“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 Registrantus in the reports that it fileswe file or submitssubmit 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 Registrant’sour management, including itsour 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 Registrant’sour internal control over financial reporting during the quarter ended June 30, 2012,March 31, 2013, that has materially affected or is reasonably likely to materially affect itsour internal control over financial reporting.
There have been no material developmentsBarstow Perchlorate Contamination
On March 8, 2013, the Company was served with four toxic tort lawsuits filed in anythe Superior Court of San Bernardino: Rachel Alford et al vs. Golden State Water Company (case number CIVBS #1200612), Lorraine Gardner et al vs. Golden State Water Company (case number CIVBS #1200613), Clarice Matthews et al vs. Golden State Water Company (case number CIVBS #1200615), and Amy Dixon, et al vs. Golden State Water Company (case number CIVBS #1200616) arising out of the legal proceedings describedNovember 19, 2010 detection of perchlorate in one of GSWC’s active production wells in the Barstow service area. The lawsuits claim negligence by GSWC and seek, among other things, punitive and compensatory damages. GSWC is the only named defendant in all four lawsuits. GSWC believes that these lawsuits are without merit and intends to vigorously defend itself in this matter. However, at this time management is unable to estimate a loss or range of loss, if any, resulting from these pending lawsuits, but does not believe a loss is probable.
Therehavebeennomaterialdevelopmentsinanyofthelegalproceedingsdescribedinour 2011 2012AnnualReportonForm10-K.
Registrant is subject to ordinary routine litigation incidental to its business. Other than the above and those disclosed in Registrant’s Form 10-K for the year ended December 31, 2011,2012, no other 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 property, general liability and workers’ compensation claims incurred in the ordinary course of business.
There have been no significant changes in the risk factors disclosed in our 20112012 Annual Report on Form 10-K.
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. AWR did not directly issue any unregistered equity securities during the secondfirst quarter of 2012.2013. The following table provides information about repurchases of common shares by AWR during the secondfirst quarter of 2012:2013:
Period |
| Total Number of |
| Average Price Paid |
| Total Number of |
| Maximum Number |
| |
April 1 - 30, 2012 |
| 77,982 |
| $ | 36.10 |
| — |
| NA |
|
May 1 - 31, 2012 |
| 96,418 |
| $ | 36.16 |
| — |
| NA |
|
June 1 - 30, 2012 |
| 12,630 |
| $ | 37.98 |
| — |
| NA |
|
Total |
| 187,030 | (2) | $ | 36.52 |
| — |
| NA | (3) |
Period |
| Total Number of |
| Average Price Paid |
| Total Number of |
| Maximum Number |
| |
January 1 - 31, 2013 |
| 872 |
| $ | 50.40 |
| — |
| NA |
|
February 1 – 28, 2013 |
| 28,322 |
| $ | 52.20 |
| — |
| NA |
|
March 1 - 31, 2013 |
| 13,403 |
| $ | 54.98 |
| — |
| NA |
|
Total |
| 42,597 | (2) | $ | 53.04 |
| — |
| NA | (3) |
(1) None of the common shares were purchased pursuant to any publicly announced stock repurchase program.
(2) Of this amount, 180,45037,500 Common Shares were acquired on the open market for employees pursuant to the Company’s 401(k) Plan. The remainder of the Common Shares were acquired on the open market for participants in the Company’s Common Share Purchase and Dividend Reinvestment Plan.
(3) None of these plans contain a maximum number of common shares that may be purchased in the open market under the plans.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosure
Not applicable.
(a) On July 31, 2012,April 26, 2013, the Board of Directors of AWR declared a regular quarterly dividend of $0.355 per Common Share. The dividend will be paid on or about SeptemberJune 1, 20122013 to shareholders of record as of the close of business on August 13, 2012.May 15, 2013.
(b) There have been no material changes during the secondfirst quarter of 20122013 to the procedures by which shareholders may nominate persons to the Board of Directors of AWR.
(a)The following documents are filed as Exhibits to this report:
3.1 |
| By-Laws of American States Water Company |
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3.2 |
| By-laws of Golden State Water Company incorporated by reference to Exhibit 3.1 of Registrant’s Form 8-K filed May 13, 2011 |
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3.3 |
| Amended and Restated Articles of Incorporation of American States Water Company incorporated by reference to Exhibit 3.3 of Registrant’s Form 10-K/A for the year ended December 31, 2003 |
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3.4 |
| Restated Articles of Incorporation of Golden State Water Company, as amended, incorporated herein by reference to Exhibit 3.1 of Registrant’s Form 10-Q for the quarter ended September 30, 2005 |
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4.1 |
| Indenture, dated September 1, 1993 between Golden State Water Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee, as supplemented, incorporated herein by reference to Exhibit 4.01 of Golden State Water Company Form S-3 filed December 12, 2008 |
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4.2 |
| Note Purchase Agreement dated as of October 11, 2005 between Golden State Water Company and Co-Bank, ACB incorporated by reference to Exhibit 4.1 of Registrant’s Form 8-K filed October 13, 2005 |
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4.3 |
| Note Purchase Agreement dated as of March 10, 2009 between Golden State Water Company and Co-Bank, ACB, incorporated herein by reference to Exhibit 10.16 to Registrant’s Form 10-K filed on March 13, 2009 |
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4.4 |
| Indenture dated as of December 1, 1998 between American States Water Company and The Bank of New York Mellon Trust Company, N.A., as supplemented by the First Supplemental Indenture dated as of July 31, 2009 incorporated herein by reference to Exhibit 4.1 of American States Water Company’s Form 10-Q for the quarter ended June 30, 2009 |
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10.1 |
| Deferred Compensation Plan for Directors and Executives incorporated herein by reference to Registrant’s Registration Statement on Form S-2, Registration No. 33-5151 (2) |
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10.2 |
| Second 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 |
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10.3 |
| Note 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 |
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10.4 |
| Schedule 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 |
10.5 |
| Loan Agreement between California Pollution Control Financing Authority and Golden State Water Company, dated as of December 1, 1996 incorporated by reference to Exhibit 10.7 of Registrant’s Form 10-K for the year ended December 31, 1998 |
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10.6 |
| Agreement 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 |
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10.7 |
| Water Supply Agreement dated as of June 1, 1994 between Golden State Water Company and Central Coast Water Authority incorporated herein by reference to Exhibit 10.15 of Registrant’s Form 10-K with respect to the year ended December 31, 1994 |
10.8 |
| 2003 Non-Employee Directors Stock Purchase Plan, as amended, incorporated herein by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on January 30, 2009 (2) |
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10.9 |
| Dividend Reinvestment and Common Share Purchase Plan incorporated herein by reference to American States Water Company Registrant’s Form S-3D filed November 12, 2008 |
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10.10 |
| Form of Amended and Restated Change in Control Agreement between American States Water Company or a subsidiary and certain executives incorporated herein by reference to Exhibit 10.5 to Registrant’s Form 8-K filed on November 5, 2008(2) |
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10.11 |
| 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(2) |
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10.12 |
| 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 23, 2008 (2) |
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10.13 |
| Loan and Trust Agreement between The Industrial Development Authority of The County of Maricopa, Chaparral City Water Company and Bank One, Arizona, NA, dated as of December 1, 1997 incorporated by reference to Exhibit 10.19 of Registrant’s Form 10-K with respect to the year ended December 31, 2000 |
10.14 | Subcontract among the United States, Central Arizona Water Conservation District and Chaparral City Water Company providing for water service, dated as of December 6, 1984 incorporated by reference to Exhibit 10.20 to Registrant’s Form 10-K with respect to the year ended December 31, 2000 | |
10.15 | Contract between the United States and Chaparral City Water Company service, dated as of December 6, 1984 for construction of a water distribution system incorporated by reference to Exhibit 10.21 Registrant’s Form 10-K with respect to the year ended December 31, 2000 | |
10.16 | 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 June 3, 2010 | |
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| Form of Indemnification Agreement for executive officers |
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| 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 to Registrant’s Form 8-K filed on January 7, 2005 (2) |
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| 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 (2) |
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| Form of Director’s Non-Qualified Stock Option Agreement incorporated by reference to Exhibit 10.1 to Registrant’s Form 10-Q for the period ended September 30, 2006 (2) |
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| Water Sale Agreement dated as of January 31, 2006 between Natomas Central Mutual Water Company and American States Utility Services, Inc. incorporated by reference to Exhibit 9.01 to Registrant’s Form 8-K filed February 3, 2006 |
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| Form of Restricted Stock Unit Award Agreement for officers and key employees under the 2000 Stock Incentive Plan incorporated by reference to Exhibit 10.3 of Registrant’s Form 8-K filed November 5, 2008 (2) |
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| 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 (2) |
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| Form of Amendment to Change in Control Agreement between American States Water Company or a subsidiary and certain executives incorporated herein by reference to Exhibit 10.6 to Registrant’s Form 8-K filed November 5, 2008 (2) |
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| 2008 Stock Incentive Plan incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed May 23, 2008 (2) |
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| Form of Nonqualified Stock Option Agreement for officers and key employees for the 2008 Stock Incentive Plan incorporated for stock options granted prior to January 1, 2011 herein by reference to Exhibit 10.3 to Registrant’s Form 8-K filed May 23, 2008 (2) |
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| Form of Award Agreement for Awards under the |
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| Policy Regarding the Recoupment of Certain Performance-Based Compensation Payments incorporated herein by reference to Exhibit 10.3 to the Registrant’s Form 8-K filed on July 31, 2009(2) |
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| Performance Incentive Plan incorporated herein by reference to Exhibit 10.4 to the Registrant’s Form 8-K filed on July 31, 2009(2) |
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| Officer Relocation Policy incorporated herein by reference to Exhibit 10.5 to the Registrant’s Form 8-K filed on July 31, 2009(2) |
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| Form of Non-Qualified Stock Option Award Agreement for officers and key employees under the 2008 Stock Incentive Plan for stock options granted after December 31, 2010 incorporated by reference to Exhibit 10.2 of Registrant’s Form 8-K filed on February 4, 2011 (2) |
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| Form of Restricted Stock Unit Award Agreement for officers and key employees under the 2008 Stock Incentive Plan for restricted stock unit awards after December 31, 2010 incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on February 4, 2011 |
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| 2013 Short-Term Incentive Program incorporated by reference herein to Exhibit 10.1 to the Registrant’s Form 8-K filed on March 28, 2013 (2) | |
10.35 |
| Form of |
10.36 | Performance Award Agreement between Registrant and Robert J. Sprowls dated May 29, 2012 incorporated by reference herein to Exhibit 10.1 to the Registrant’s Form 8-K filed on June 4, 2012 (2) | |
10.37 | Form of 2013 Performance Award Agreement incorporated by reference herein to Exhibit 10.1 to the Registrant’s Form 8-K filed on March 15, 2013 (2) |
10.38 | 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 (2) | |
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31.1 |
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for AWR (1) |
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31.1.1 |
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for GSWC (1) |
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31.2 |
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for AWR (1) |
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31.2.1 |
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for GSWC (1) |
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32.1 |
| Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3) |
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32.2 |
| Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3) |
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101.INS |
| XBRL Instance Document (3) |
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101.SCH |
| XBRL Taxonomy Extension Schema (3) |
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101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase (3) |
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101.DEF |
| XBRL Taxonomy Extension Definition Linkbase (3) |
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101.LAB |
| XBRL Taxonomy Extension Label Linkbase (3) |
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101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase (3) |
(1) Filed concurrently herewith
(2) Management contract or compensatory arrangement
(3) Furnished concurrently herewith
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.
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| AMERICAN STATES WATER COMPANY (“AWR”): | |
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| By: | /s/ EVA G. TANG | |
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| Senior Vice President-Finance, Chief Financial | |
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| Officer, Corporate Secretary and Treasurer | |
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| GOLDEN STATE WATER COMPANY (“GSWC”): | |
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| By: | /s/ EVA G. TANG | |
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| Senior Vice President-Finance, Chief Financial | |
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| Officer and Secretary | |
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| Date: |
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