SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended ~~September 30, 2018~~March 31, 2019



¨	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

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:



Title of each class	Trading symbol	Name of each exchange on which registered
Common shares	AWR	New York Stock Exchange

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 ¨
Golden State Water Company		Yes x No ¨

Indicate by check mark whether Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the Registrant was required to submit and post such files).



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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

American States Water Company



Large accelerated filer x	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨	Emerging growth company ¨

Golden State Water Company



Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company ¨	Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)



American States Water Company		Yes ¨ Nox
Golden State Water Company		Yes ¨ Nox

As of ~~November~~May 2, ~~2018,~~2019, the number of Common Shares outstanding of American States Water Company was ~~36,745,039~~36,795,218 shares. As of ~~November~~May 2, ~~2018,~~2019, all of the ~~146~~165 outstanding Common Shares of Golden State Water Company were owned by American States Water Company.

Golden State Water Company meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this Form, in part, with the reduced disclosure format for Golden State Water Company.

AMERICAN STATES WATER COMPANY

and

GOLDEN STATE WATER COMPANY

FORM 10-Q

INDEX



Part I	Financial Information	3

Item 1:	Financial Statements	1

	Consolidated Balance Sheets of American States Water Company as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018	54

	Consolidated Statements of Income of American States Water Company for the Three Months Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~	76

	Consolidated Statements of ~~Income of American States Water Company for~~Changes in Common Shareholders' Equity - For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~	87

	Consolidated Statements of Cash Flows of American States Water Company for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~	98

	Balance Sheets of Golden State Water Company as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018	109

	Statements of Income of Golden State Water Company for the Three Months Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~	1211

	Statements of ~~Income of Golden State Water Company for~~Changes in Common Shareholders' Equity - For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~	1312

	Statements of Cash Flows of Golden State Water Company for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~	1412

	Notes to Consolidated Financial Statements	1514

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2825

Item 3:	Quantitative and Qualitative Disclosures About Market Risk	5341

Item 4:	Controls and Procedures	5341

Part II	Other Information

Item 1:	Legal Proceedings	5442

Item 1A:	Risk Factors	5442

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	5442

Item 3:	Defaults Upon Senior Securities	5442

Item 4:	Mine Safety Disclosure	5442

Item 5:	Other Information	5442

Item 6:	Exhibits	5442

	Signatures	5846

PART I

Item 1. Financial Statements

General

The basic financial statements included herein have been prepared by Registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments consisting of normal recurring items and estimates necessary for a fair statement of results for the interim period have been made.

It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto in the latest Annual Report on Form 10-K of American States Water Company and its wholly owned subsidiary, Golden State Water Company.

Filing Format

American States Water Company (“AWR”) is the parent company of Golden State Water Company (“GSWC”) and American States Utility Services, Inc. and its subsidiaries ("ASUS").

This quarterly report on Form 10-Q is a combined report being filed by two separate Registrants: AWR and GSWC. For more information, please see Note 1 of the Notes to Consolidated Financial Statements and the heading entitled "General" in "Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations." References in this report to “Registrant” are to AWR and GSWC collectively, unless otherwise specified. GSWC makes no representations as to the information contained in this report other than with respect to itself.

Forward-Looking Information

This Form 10-Q and the documents incorporated herein contain forward-looking statements intended to qualify for the “safe harbor” from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current estimates, expectations and projections about future events and assumptions regarding these events and include statements regarding management’s goals, beliefs, plans or current expectations, taking into account the information currently available to management. Forward-looking statements are not statements of historical facts. For example, when we use words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “may” and other words that convey uncertainty of future events or outcomes, we are making forward-looking statements. We are not able to predict all the factors that may affect future results. We caution you that any forward-looking statements made by us are not guarantees of future performance and the actual results may differ materially from those in our forward-looking statements. Some of the factors that could cause future results to differ materially from those expressed or implied by 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 GSWC's general rate cases and the results of independent audits of GSWC's construction contracting procurement practices or other independent audits of our costs;

changes in the policies and procedures of the California Public Utilities Commission ("CPUC");

timeliness of CPUC action on GSWC rates;

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

liabilities of GSWC associated with the inherent risks of damage to private property and injuries to employees and the public if our or their property should come into contact with electrical current or ~~equipment, including through downed power lines or equipment malfunctions;~~

wildfires, which may become more common as a result of climate change in GSWC's electric division's service territory, as well as court decisions and regulatory actions that may affect our ability to recover the costs associated with such events or the defense or payment of resulting claims;

equipment;

the breakdown or failure of equipment at GSWC's electric division ~~that can cause~~if those failures result in fires ~~and~~or unplanned electric outages, and whether GSWC will be subject to investigations, penalties, liabilities to customers or other third parties or other costs in connection with such events;

the potential of strict liability for damages caused by GSWC's property or equipment, even if GSWC was not negligent in the operation and maintenance of that property or equipment, under a doctrine known as inverse condemnation;

the impact of storms, high winds, earthquakes, floods, mudslides, drought, wildfires and similar natural disasters, contamination or acts of terrorism or vandalism, that affect water quality and/or supply, affect customer demand, that damage or disrupt facilities, operations or information technology systems owned by us, our customers or third parties on

whom we rely or that damage the property of our customers or other third parties or cause bodily injury resulting in liabilities that we may be unable to recover from insurance, other third parties and/or the U.S. government or that the CPUC or the courts do not permit us to recover from ratepayers;

the impact on water utility operations during high fire threat conditions as a result of the Public Safety Power Shutdown ~~(PSPS)~~ program authorized by the CPUC and implemented by ~~California regulated~~the electric ~~companies, including Southern California Edison and Pacific Gas and Electric, which~~utilities that serve GSWC facilities throughout the state;

increases in the cost of obtaining insurance or in uninsured losses that may not be recovered in rates, or under our contracts with the U.S. government, including increases due to difficulties in obtaining insurance for certain risks, such as wildfires and earthquakes in California;

increases in costs to reduce the risks associated with the increasing frequency of severe weather, including to improve the resiliency and reliability of our water production and delivery facilities and systems, and our electric transmission and distribution lines;

increases in service disruptions if severe weather ~~becomes~~and wildfires or threats of wildfire become more frequent as predicted by some scientists who study climate change;

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

the impact of opposition to GSWC rate increases on our ability to recover our costs through rates, including costs associated with construction and costs associated with damages to our property and that of others and injuries to persons arising out of more extreme weather events;

the impact of opposition by GSWC customers to conservation rate design, including more stringent water-use restrictions if drought in California persists due to climate change, as well as ~~potential~~ future restrictions on water use mandated in California, which ~~decreases~~may decrease adopted usage and ~~increases~~increase customer rates;

the impact of opposition by GSWC's water and electric customers to rate increases if service is disrupted as the result of a Public Safety Power Shutdown program;

the impact of condemnation actions on future GSWC revenues and other aspects of our business if we do not receive adequate compensation for the assets taken, or recovery of all charges associated with the condemnation of such assets, as well as the impact on future revenues if we are no longer entitled to any portion of the revenues generated from such assets;

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

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

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

changes in environmental laws, health and safety laws, and water and recycled water quality requirements, and increases in costs associated with complying with these laws and requirements, including costs associated with GSWC's upgrading and building new water treatment plants, GSWC's disposing of residuals from our water treatment plants, more stringent rules regarding pipeline repairs and installation, handling and storing hazardous chemicals, upgrading electrical equipment to make it more resistant to extreme weather events, removal of vegetation near power lines, ~~compliance monitoring~~compliance-monitoring activities and GSWC's securing alternative water supplies when necessary;

our ability to obtain adequate, reliable and cost-effective supplies of chemicals, electricity, fuel, water and other raw materials that are needed for our water and wastewater operations;

our ability to attract, retain, train, motivate, develop and transition key employees;

our ability to recover the costs associated with any 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 GSWC's electric division's power supplies and the extent to which we can manage and respond to the volatility of electricity and natural gas prices;

GSWC's electric division's ability to comply with the CPUC’s renewable energy procurement requirements;

changes in GSWC's long-term customer demand due to changes in customer usage patterns as a result of conservation efforts, regulatory changes affecting demand such as mandatory restrictions on water use, new landscaping or irrigation requirements, recycling of water by customers or purchase of recycled water supplied by other parties, unanticipated population growth or decline, changes in climate conditions, general economic and financial market conditions and cost increases, which may impact our long-term operating revenues if we are unable to secure rate increases in an amount sufficient to offset reduced demand;

changes in accounting treatment for regulated utilities;

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

changes in estimates used in ASUS’s cost-to-cost method for revenue recognition of certain construction activities;

termination, in whole or in part, of one or more of ASUS's military utility privatization contracts to provide water and/or wastewater services at military bases for the convenience of the U.S. government or for default;

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

delays by the U.S. government in making timely payments to ASUS for water and/or wastewater services or construction activities at military bases because of fiscal uncertainties over the funding of the U.S. government or otherwise;

delays in ASUS obtaining economic price or equitable adjustments to our prices on one or more of our contracts to provide water and/or wastewater services at military bases;

disallowance of costs on any of ASUS's contracts to provide water and/or wastewater services at military bases because of audits, cost reviews or investigations by contracting agencies;

inaccurate assumptions used by ASUS in preparing bids in our contracted services business;

failure of wastewater systems that ASUS operates on military bases resulting in untreated wastewater or contaminants spilling into nearby properties, streams or rivers, ~~the likelihood of~~a risk which ~~could~~may increase ~~from climate-change induced~~if flooding and rainfall ~~events;~~

become more frequent or severe as a result of climate change;

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

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

competition for new military privatization contracts;

issues with the implementation, maintenance or upgrading of our information technology systems;

general economic conditions which may impact our ability to recover infrastructure investments and operating costs from customers;

explosions, fires, accidents, mechanical breakdowns, the disruption of information technology and telecommunication systems, human error and similar events that may occur while operating and maintaining water and electric systems in California or operating and maintaining water and wastewater systems on military bases under varying geographic conditions;

potential costs, lost revenues, or other consequences resulting from misappropriation of assets or sensitive information, corruption of data, or operational disruption due to a cyber-attack or other cyber incident;

restrictive covenants in our debt instruments or changes to our credit ratings on current or future debt that may increase our financing costs or affect our ability to borrow or make payments on our debt; and

our ability to access capital markets and other sources of credit in a timely manner on acceptable terms.

Please consider our forward-looking statements in light of these risks (which are more fully disclosed in our ~~2017~~2018 Annual Report on Form 10-K) as you read this Form 10-Q. We qualify all our forward-looking statements by these cautionary statements.

Table of Contents

AMERICAN STATES WATER COMPANY

CONSOLIDATED BALANCE SHEETS

ASSETS

(Unaudited)


(in thousands)	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Property, Plant and Equipment
Regulated utility plant, at cost	$	1,795,500		$	1,722,421		$	1,867,878		$	1,832,336
Non-utility property, at cost	23,759			15,941			27,207			25,829
Total	1,819,259			1,738,362			1,895,085			1,858,165
Less - Accumulated depreciation	(556,344		)	(533,370		)	(569,583		)	(561,855		)
Net property, plant and equipment	1,262,915			1,204,992			1,325,502			1,296,310

Other Property and Investments
Goodwill	1,116			1,116			1,116			1,116
Other property and investments	26,386			24,070			26,632			25,356
Total other property and investments	27,502			25,186			27,748			26,472

Current Assets
Cash and cash equivalents	1,976			214			1,844			7,141
Accounts receivable — customers (less allowance for doubtful accounts of $844 in 2018 and $806 in 2017)	29,915			26,127
Accounts receivable — customers (less allowance for doubtful accounts of $877 in 2019 and $892 in 2018)							17,485			23,395
Unbilled receivable	25,215			26,411			15,631			23,588
Receivable from the U.S. government	21,095			3,725			20,862			21,543
Other accounts receivable (less allowance for doubtful accounts of $59 in 2018 and $235 in 2017)	2,411			8,251
Other accounts receivable (less allowance for doubtful accounts of $59 in 2019 and $59 in 2018)							2,001			3,103
Income taxes receivable	730			4,737			45			2,164
Materials and supplies, at average cost	5,622			4,795			5,892			5,775
Regulatory assets — current	22,130			34,220			20,486			16,527
Prepayments and other current assets	6,915			5,596			8,351			6,063
Contract assets (Note 2)	18,889			—
Costs and estimated earnings in excess of billings on contracts (Note 2)	—			41,387
Contract assets							24,179			22,169
Total current assets	134,898			155,463			116,776			131,468

Regulatory and Other Assets
Receivable from the U.S. government (Note 2)	33,873			—
Contract assets (Note 2)	154			—
Costs and estimated earnings in excess of billings on contracts (Note 2)	—			25,426
Other Assets
Receivable from the U.S. government							39,149			39,583
Contract assets							5,281			2,278
Operating lease right-of-use assets							6,276			—
Other	5,700			5,667			5,365			5,322
Total regulatory and other assets	39,727			31,093			56,071			47,183

Total Assets	$	1,465,042		$	1,416,734		$	1,526,097		$	1,501,433

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

Table of Contents

AMERICAN STATES WATER COMPANY

CONSOLIDATED BALANCE SHEETS

CAPITALIZATION AND LIABILITIES

(Unaudited)


(in thousands)	September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Capitalization
Common shares, no par value
Authorized: 60,000,000 shares
Outstanding: 36,745,039 shares in 2018 and 36,680,794 shares in 2017	$	253,251	$	250,124
Outstanding: 36,795,218 shares in 2019 and 36,757,842 shares in 2018					$	254,297	$	253,689
Earnings reinvested in the business	300,910		279,821		307,203		304,534
Total common shareholders’ equity	554,161		529,945		561,500		558,223
Long-term debt	281,010		321,039		281,070		281,087
Total capitalization	835,171		850,984		842,570		839,310

Current Liabilities
Notes payable to bank	—		59,000
Long-term debt — current	40,320		324		326		40,320
Accounts payable	50,448		50,978		53,205		59,532
Income taxes payable	1,049		225		3,813		360
Accrued other taxes	10,311		7,344		7,119		10,094
Accrued employee expenses	11,633		12,969		14,043		13,842
Accrued interest	6,560		3,861		6,492		3,865
Unrealized loss on derivative contracts	1,143		2,941
Contract liabilities (Note 2)	8,942		3,911
Unrealized loss on purchased power contracts					336		311
Contract liabilities					10,426		7,530
Operating lease liabilities					2,027		—
Other	12,780		15,109		9,843		10,731
Total current liabilities	143,186		156,662		107,630		146,585

Other Credits
Notes payable to bank	70,000		—		151,500		95,500
Advances for construction	67,467		67,465		66,185		66,305
Contributions in aid of construction — net	123,686		123,602
Contributions in aid of construction - net					125,530		124,385
Deferred income taxes	114,925		115,703		112,850		114,216
Regulatory liabilities	43,766		32,178		44,212		44,867
Unamortized investment tax credits	1,384		1,436		1,349		1,367
Accrued pension and other postretirement benefits	54,239		57,695		58,887		57,636
Operating lease liabilities					4,439		—
Other	11,218		11,009		10,945		11,262
Total other credits	486,685		409,088		575,897		515,538

Commitments and Contingencies (Note 9)

Total Capitalization and Liabilities	$	1,465,042	$	1,416,734	$	1,526,097	$	1,501,433

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

Table of Contents

AMERICAN STATES WATER COMPANY

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED

~~ENDED SEPTEMBER 30,~~MARCH 31, 2019 AND 2018 ~~AND 2017~~

(Unaudited)


	Three Months Ended September 30,						Three Months Ended March 31,
(in thousands, except per share amounts)	2018			2017			2019			2018
Operating Revenues
Water	$	87,689		$	91,919		$	64,723		$	64,412
Electric	7,875			7,994			10,629			9,832
Contracted services	28,618			24,505			26,381			20,484
Total operating revenues	124,182			124,418			101,733			94,728

Operating Expenses
Water purchased	21,842			20,576			13,140			13,607
Power purchased for pumping	3,217			2,913			1,538			1,693
Groundwater production assessment	5,961			5,870			3,746			4,651
Power purchased for resale	2,647			2,439			3,704			3,408
Supply cost balancing accounts	(5,212		)	(4,621		)	(1,372		)	(3,869		)
Other operation	8,355			7,657			8,571			7,988
Administrative and general	21,570			21,823			21,672			20,293
Depreciation and amortization	10,118			9,854			10,832			9,666
Maintenance	3,422			3,222			2,566			3,829
Property and other taxes	4,692			4,475			4,896			4,799
ASUS construction	13,620			11,693			12,245			9,972
Gain on sale of assets	(25		)	(17		)
Total operating expenses	90,207			85,884			81,538			76,037

Operating Income	33,975			38,534			20,195			18,691

Other Income and Expenses
Interest expense	(5,948		)	(5,775		)	(6,317		)	(5,923		)
Interest income	641			321			942			536
Other, net	1,223			434			1,342			42
Total other income and expenses, net	(4,084		)	(5,020		)	(4,033		)	(5,345		)

Income before income tax expense	29,891			33,514			16,162			13,346

Income tax expense	6,939			12,508			3,310			2,564

Net Income	$	22,952		$	21,006		$	12,852		$	10,782

Weighted Average Number of Common Shares Outstanding	36,737			36,659			36,773			36,712
Basic Earnings Per Common Share	$	0.62		$	0.57		$	0.35		$	0.29

Weighted Average Number of Diluted Shares	36,950			36,856			36,951			36,874
Fully Diluted Earnings Per Common Share	$	0.62		$	0.57		$	0.35		$	0.29

Dividends Declared Per Common Share	$	0.275		$	0.255		$	0.275		$	0.255

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

AMERICAN STATES WATER COMPANY

CONSOLIDATED STATEMENTS OF CHANGES

IN COMMON SHAREHOLDERS' EQUITY

(Unaudited)



	Three Months Ended March 31, 2019
	Common Shares			Reinvested
	Number			Earnings
	of			in the
(in thousands)	Shares	Amount		Business		Total
Balances at December 31, 2018	36,758	$	253,689	$	304,534	$	558,223
Add:
Net income				12,852		12,852
Exercise of stock options and other issuances of Common Shares	37	75				75
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)		463				463
Dividend equivalent rights on stock-based awards not paid in cash		70				70
Deduct:
Dividends on Common Shares				10,113		10,113
Dividend equivalent rights on stock-based awards not paid in cash				70		70
Balances at March 31, 2019	36,795	$	254,297	$	307,203	$	561,500



	Three Months Ended March 31, 2018
	Common Shares				Reinvested
	Number				Earnings
	of				in the
(in thousands)	Shares	Amount			Business		Total
Balances at December 31, 2017	36,681	$	250,124		$	279,821	$	529,945
Add:
Net income					10,782		10,782
Exercise of stock options and other issuances of Common Shares	52	340					340
Taxes paid from shares withheld from employees related to net share settlements, net of stock-based compensation (Note 4)		(181		)			(181		)
Dividend equivalent rights on stock-based awards not paid in cash		56					56
Deduct:
Dividends on Common Shares					9,362		9,362
Dividend equivalent rights on stock-based awards not paid in cash					56		56
Balances at March 31, 2018	36,733	$	250,339		$	281,185	$	531,524

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

~~Table of Contents~~

~~AMERICAN STATES WATER COMPANY~~

~~CONSOLIDATED STATEMENTS OF INCOME~~

~~FOR THE NINE MONTHS~~

~~ENDED SEPTEMBER 30, 2018 AND 2017~~

~~(Unaudited)~~

Nine Months Ended
September 30,
(in thousands, except per share amounts) 2018 2017
Operating Revenues

Water $ 228,834
$ 239,057
Electric 25,548
26,108
Contracted services 71,429
71,258
Total operating revenues 325,811
336,423

Operating Expenses

Water purchased 52,057
50,619
Power purchased for pumping 7,141
6,667
Groundwater production assessment 15,146
14,176
Power purchased for resale 8,439
7,847
Supply cost balancing accounts (11,110 ) (11,663 )
Other operation 24,125
21,989
Administrative and general 62,076
62,519
Depreciation and amortization 29,794
29,184
Maintenance 10,921
10,292
Property and other taxes 13,863
13,386
ASUS construction 35,168
34,589
Gain on sale of assets (43 ) (8,318 )
Total operating expenses 247,577
231,287

Operating Income 78,234
105,136

Other Income and Expenses

Interest expense (17,919 ) (17,606 )
Interest income 1,813
1,200
Other, net 1,844
1,439
Total other income and expenses, net (14,262 ) (14,967 )

Income before income tax expense 63,972
90,169

Income tax expense 13,890
33,670

Net Income $ 50,082
$ 56,499

Weighted Average Number of Common Shares Outstanding 36,728
36,625
Basic Earnings Per Common Share $ 1.36
$ 1.53

Weighted Average Number of Diluted Shares 36,935
36,813
Fully Diluted Earnings Per Common Share $ 1.35
$ 1.53

Dividends Declared Per Common Share $ 0.785
$ 0.739

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

Table of Contents

AMERICAN STATES WATER COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2019 AND 2018 ~~AND 2017~~

(Unaudited)


	Nine Months Ended September 30,						Three Months Ended March 31,
(in thousands)	2018			2017			2019			2018
Cash Flows From Operating Activities:
Net income	$	50,082		$	56,499		$	12,852		$	10,782
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	29,973			29,365			10,890			9,726
Provision for doubtful accounts	588			720			157			151
Deferred income taxes and investment tax credits	(2,732		)	9,004			(2,321		)	440
Stock-based compensation expense	3,648			2,303			1,998			998
Gain on sale of assets	(43		)	(8,318		)
Other — net	(566		)	(802		)	(1,478		)	303
Changes in assets and liabilities:
Accounts receivable — customers	(4,385		)	(10,683		)	5,755			6,743
Unbilled receivable	1,196			(1,442		)	7,957			(1,548		)
Other accounts receivable	5,849			(1,951		)	1,100			4,411
Receivables from the U.S. government	(14,818		)	1,355			(2,322		)	(6,629		)
Materials and supplies	(827		)	(1,083		)	(117		)	194
Prepayments and other assets	(1,319		)	(1,401		)	(1,329		)	(3,178		)
Contract assets	11,345			—			(1,576		)	6,219
Costs and estimated earnings in excess of billings on contracts	—			7,576
Regulatory assets	22,945			10,344			(3,987		)	6,716
Accounts payable	(2,108		)	5,337			(6,131		)	(5,963		)
Income taxes receivable/payable	4,831			23,657			5,572			2,676
Contract liabilities / Billings in excess of costs and estimated earnings on contracts	5,031			203
Contract liabilities / billings in excess of costs and estimated earnings on contracts							2,896			2,672
Accrued pension and other post-retirement benefits	(2,305		)	(2,285		)	1,686			1,356
Other liabilities	2,020			1,831			(2,222		)	(341		)
Net cash provided	108,405			120,229			29,380			35,728

Cash Flows From Investing Activities:
Capital expenditures	(87,328		)	(77,896		)	(40,562		)	(30,364		)
Proceeds from sale of assets	63			34,324
Other investing activities	(1,492		)	(1,299		)	213			130
Net cash used	(88,757		)	(44,871		)	(40,349		)	(30,234		)

Cash Flows From Financing Activities:
Proceeds from stock option exercises	348			884			75			340
Receipt of advances for and contributions in aid of construction	4,363			6,132			1,927			1,083
Refunds on advances for construction	(3,223		)	(3,477		)	(562		)	(486		)
Retirement or repayments of long-term debt	(326		)	(320		)	(40,086		)	(89		)
Net change in notes payable to banks	11,000			(44,000		)	56,000			10,000
Dividends paid	(28,831		)	(27,064		)	(10,113		)	(9,362		)
Other financing activities	(1,217		)	(1,288		)	(1,569		)	(1,210		)
Net cash used	(17,886		)	(69,133		)
Net increase in cash and cash equivalents	1,762			6,225
Net cash provided							5,672			276
Net change in cash and cash equivalents							(5,297		)	5,770
Cash and cash equivalents, beginning of period	214			436			7,141			214
Cash and cash equivalents, end of period	$	1,976		$	6,661		$	1,844		$	5,984

Non-cash transactions:
Accrued payables for investment in utility plant	$	21,703		$	21,978		$	27,207		$	13,910
Property installed by developers and conveyed	$	1,968		$	1,796		$	678		$	421

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

Table of Contents

GOLDEN STATE WATER COMPANY

BALANCE SHEETS

ASSETS

(Unaudited)


(in thousands)	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Utility Plant
Utility plant, at cost	$	1,795,500		$	1,722,421		$	1,867,878		$	1,832,336
Less - Accumulated depreciation	(546,310		)	(524,481		)	(558,214		)	(551,244		)
Net utility plant	1,249,190			1,197,940			1,309,664			1,281,092

Other Property and Investments	24,290			21,956			24,542			23,263

Current Assets
Cash and cash equivalents	153			214			524			4,187
Accounts receivable-customers (less allowance for doubtful accounts of $844 in 2018 and $806 in 2017)	29,915			26,127
Accounts receivable-customers (less allowance for doubtful accounts of $877 in 2019 and $892 in 2018)							17,485			23,395
Unbilled receivable	19,987			18,852			14,455			17,892
Other accounts receivable (less allowance for doubtful accounts of $59 in 2018 and 2017)	1,350			6,105
Other accounts receivable (less allowance for doubtful accounts of $59 in 2019 and 2018)							1,124			1,959
Income taxes receivable from Parent	1,559			6,590			648			5,617
Materials and supplies, at average cost	4,674			4,046			4,681			4,797
Regulatory assets — current	22,130			34,220			20,486			16,527
Prepayments and other current assets	5,796			5,090			6,450			5,275
Total current assets	85,564			101,244			65,853			79,649

Regulatory and Other Assets
Other Assets
Operating lease right-of-use assets							5,367			—
Other	5,685			5,683			5,255			5,218
Total regulatory and other assets	5,685			5,683
Total other assets							10,622			5,218

Total Assets	$	1,364,729		$	1,326,823		$	1,410,681		$	1,389,222

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

109

Table of Contents

GOLDEN STATE WATER COMPANY

BALANCE SHEETS

CAPITALIZATION AND LIABILITIES

(Unaudited)


(in thousands)	September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Capitalization
Common Shares, no par value:
Authorized: 1,000 shares
Outstanding: 146 shares in 2018 and 2017	$	244,716	$	242,181
Outstanding: 165 shares in 2019 and 2018					$	293,044	$	292,412
Earnings reinvested in the business	243,660		232,193		210,025		211,163
Total common shareholder’s equity	488,376		474,374		503,069		503,575
Long-term debt	281,010		321,039		281,070		281,087
Total capitalization	769,386		795,413		784,139		784,662

Current Liabilities
Intercompany payable	50,475		34,836
Long-term debt — current	40,320		324		326		40,320
Accounts payable	44,798		42,497		46,578		47,865
Accrued other taxes	10,197		7,108		6,915		9,911
Accrued employee expenses	10,046		11,338		11,948		11,910
Accrued interest	6,298		3,585		6,190		3,550
Unrealized loss on derivative contracts	1,143		2,941
Unrealized loss on purchased power contracts					336		311
Operating lease liabilities					1,597		—
Other	11,469		14,705		9,129		9,432
Total current liabilities	174,746		117,334		83,019		123,299

Other Credits
Inter-company payable					116,148		57,289
Advances for construction	67,467		67,465		66,185		66,305
Contributions in aid of construction — net	123,686		123,602		125,530		124,385
Deferred income taxes	118,935		120,780		116,359		118,241
Regulatory liabilities	43,766		32,178		44,212		44,867
Unamortized investment tax credits	1,384		1,436		1,349		1,367
Accrued pension and other postretirement benefits	54,239		57,695		58,887		57,636
Operating lease liabilities					3,994		—
Other	11,120		10,920		10,859		11,171
Total other credits	420,597		414,076		543,523		481,261

Commitments and Contingencies (Note 9)

Total Capitalization and Liabilities	$	1,364,729	$	1,326,823	$	1,410,681	$	1,389,222

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

1110

Table of Contents

GOLDEN STATE WATER COMPANY

STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED

~~ENDED SEPTEMBER 30,~~MARCH 31, 2019 AND 2018 ~~AND 2017~~

(Unaudited)


	Three Months Ended September 30,						Three Months Ended March 31,
(in thousands)	2018			2017			2019			2018
Operating Revenues
Water	$	87,689		$	91,919		$	64,723		$	64,412
Electric	7,875			7,994			10,629			9,832
Total operating revenues	95,564			99,913			75,352			74,244

Operating Expenses
Water purchased	21,842			20,576			13,140			13,607
Power purchased for pumping	3,217			2,913			1,538			1,693
Groundwater production assessment	5,961			5,870			3,746			4,651
Power purchased for resale	2,647			2,439			3,704			3,408
Supply cost balancing accounts	(5,212		)	(4,621		)	(1,372		)	(3,869		)
Other operation	6,570			6,493			6,860			6,434
Administrative and general	16,367			16,929			16,094			15,148
Depreciation and amortization	9,623			9,509			9,989			9,334
Maintenance	2,709			2,692			1,913			3,155
Property and other taxes	4,300			4,144			4,413			4,386
Gain on sale of assets	—			(17		)
Total operating expenses	68,024			66,927			60,025			57,947

Operating Income	27,540			32,986			15,327			16,297

Other Income and Expenses
Interest expense	(5,781		)	(5,638		)	(5,998		)	(5,759		)
Interest income	451			318			408			380
Other, net	1,123			483			1,405			87
Total other income and expenses, net	(4,207		)	(4,837		)	(4,185		)	(5,292		)

Income before income tax expense	23,333			28,149			11,142			11,005

Income tax expense	5,414			10,813			2,120			2,115

Net Income	$	17,919		$	17,336		$	9,022		$	8,890

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

1211

~~Table of Contents~~

GOLDEN STATE WATER COMPANY

STATEMENTS OF ~~INCOME~~CHANGES

~~FOR THE NINE MONTHS~~

~~ENDED SEPTEMBER 30, 2018 AND 2017~~IN COMMON SHAREHOLDER'S EQUITY

(Unaudited)

Nine Months Ended
September 30,
(in thousands) 2018 2017
Operating Revenues

Water $ 228,834
$ 239,057
Electric 25,548
26,108
Total operating revenues 254,382
265,165

Operating Expenses

Water purchased 52,057
50,619
Power purchased for pumping 7,141
6,667
Groundwater production assessment 15,146
14,176
Power purchased for resale 8,439
7,847
Supply cost balancing accounts (11,110 ) (11,663 )
Other operation 19,423
18,142
Administrative and general 46,693
48,285
Depreciation and amortization 28,387
28,341
Maintenance 9,034
8,662
Property and other taxes 12,690
12,316
Gain on sale of assets —
(8,318 )
Total operating expenses 187,900
175,074

Operating Income 66,482
90,091

Other Income and Expenses

Interest expense (17,397 ) (17,170 )
Interest income 1,288
1,175
Other, net 1,827
1,587
Total other income and expenses, net (14,282 ) (14,408 )

Income before income tax expense 52,200
75,683

Income tax expense 11,743
29,235

Net Income $ 40,457
$ 46,448

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



	Three Months Ended March 31, 2019
	Common Shares			Reinvested
	Number			Earnings
	of			in the
(in thousands, except number of shares)	Shares	Amount		Business		Total
Balances at December 31, 2018	165	$	292,412	$	211,163	$	503,575
Add:
Net income				9,022		9,022
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)		572				572
Dividend equivalent rights on stock-based awards not paid in cash		60				60
Deduct:
Dividends on Common Shares				10,100		10,100
Dividend equivalent rights on stock-based awards not paid in cash				60		60
Balances at March 31, 2019	165	$	293,044	$	210,025	$	503,069



	Three Months Ended March 31, 2018
	Common Shares				Reinvested
	Number				Earnings
	of				in the
(in thousands, except number of shares)	Shares	Amount			Business		Total
Balances at December 31, 2017	146	$	242,181		$	232,193	$	474,374
Add:
Net income					8,890		8,890
Taxes paid from shares withheld from employees related to net share settlements, net of stock-based compensation (Note 4)		(266		)			(266		)
Dividend equivalent rights on stock-based awards not paid in cash		49					49
Deduct:
Dividends on Common Shares					9,380		9,380
Dividend equivalent rights on stock-based awards not paid in cash					49		49
Balances at March 31, 2018	146	$	241,964		$	231,654	$	473,618

Table of Contents

GOLDEN STATE WATER COMPANY

STATEMENTS OF CASH FLOWS

FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2019 AND 2018 ~~AND 2017~~

(Unaudited)


	Nine Months Ended September 30,						Three Months Ended March 31,
(in thousands)	2018			2017			2019			2018
Cash Flows From Operating Activities:
Net income	$	40,457		$	46,448		$	9,022		$	8,890
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	28,566			28,522			10,047			9,394
Provision for doubtful accounts	597			563			155			160
Deferred income taxes and investment tax credits	(3,797		)	9,139			(2,849		)	72
Stock-based compensation expense	3,264			1,970			1,845			752
Gain on sale of assets	—			(8,318		)
Other — net	(543		)	(866		)	(1,455		)	280
Changes in assets and liabilities:
Accounts receivable — customers	(4,385		)	(10,683		)	5,755			6,743
Unbilled receivable	(1,135		)	(3,138		)	3,437			1,274
Other accounts receivable	4,755			(1,658		)	835			3,384
Materials and supplies	(628		)	(891		)	116			97
Prepayments and other assets	(708		)	(976		)	(331		)	(2,271		)
Regulatory assets	22,945			10,344			(3,987		)	6,716
Accounts payable	726			5,999			(1,081		)	(4,937		)
Intercompany receivable/payable	(361		)	(623		)
Inter-company receivable/payable							(641		)	(51		)
Income taxes receivable/payable from/to Parent	5,031			22,992			4,969			2,596
Accrued pension and other post-retirement benefits	(2,305		)	(2,285		)	1,686			1,356
Other liabilities	1,283			1,905			(1,657		)	(1,025		)
Net cash provided	93,762			98,444			25,866			33,430

Cash Flows From Investing Activities:
Capital expenditures	(79,240		)	(76,373		)	(39,113		)	(27,592		)
Proceeds from sale of assets	—			34,324
Other investing activities	(1,492		)	(1,299		)	213			130
Net cash used	(80,732		)	(43,348		)	(38,900		)	(27,462		)

Cash Flows From Financing Activities:
Receipt of advances for and contributions in aid of construction	4,363			6,132			1,927			1,083
Refunds on advances for construction	(3,223		)	(3,477		)	(562		)	(486		)
Retirement or repayments of long-term debt	(326		)	(320		)	(40,086		)	(89		)
Net change in intercompany borrowings	16,000			(32,000		)
Net change in inter-company borrowings							59,500			6,000
Dividends paid	(28,850		)	(18,300		)	(10,100		)	(9,380		)
Other financing activities	(1,055		)	(1,086		)	(1,308		)	(1,049		)
Net cash used	(13,091		)	(49,051		)
Net cash provided (used)							9,371			(3,921		)

Net increase in cash and cash equivalents	(61		)	6,045
Net change in cash and cash equivalents							(3,663		)	2,047
Cash and cash equivalents, beginning of period	214			209			4,187			214
Cash and cash equivalents, end of period	$	153		$	6,254		$	524		$	2,261

Non-cash transactions:
Accrued payables for investment in utility plant	$	21,703		$	21,975		$	27,197		$	13,880
Property installed by developers and conveyed	$	1,968		$	1,796		$	678		$	421

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

1413

Table of Contents

AMERICAN STATES WATER COMPANY AND SUBSIDIARIES

AND

GOLDEN STATE WATER COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Summary of Significant Accounting Policies

Nature of Operations: American States Water Company (“AWR”) is the parent company of Golden State Water Company (“GSWC”) 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”), Old North Utility Services, Inc. (“ONUS”), Emerald Coast Utility Services, Inc. ("ECUS"), and Fort Riley Utility Services, Inc. ("FRUS")). The subsidiaries of ASUS are collectively referred to as the “Military Utility Privatization Subsidiaries.” AWR, through its wholly owned subsidiaries, serves over one million people in nine states.

GSWC is a public utility engaged principally in the purchase, production, distribution and sale of water in California serving approximately 260,000 ~~customers.~~customer connections. GSWC also distributes electricity in several San Bernardino County mountain communities in California serving approximately 24,000 ~~customers~~customer connections through its Bear Valley Electric Service (“BVES”) division. The California Public Utilities Commission (“CPUC”) regulates GSWC’s water and electric businesses in matters including properties, rates, services, facilities and transactions by GSWC with its affiliates. In December 2018, GSWC filed an application with the CPUC to transfer the assets and liabilities of the BVES division of GSWC to Bear Valley Electric Service, Inc., a newly created separate legal entity and stand-alone subsidiary of AWR. This reorganization plan is subject to CPUC approval and, if approved, is not expected to result in a substantive change to AWR's operations and business segments.

ASUS, through its wholly owned subsidiaries, operates, maintains and performs construction activities (including renewal and replacement capital work) on water and/or wastewater systems at various U.S. military bases pursuant to 50-year firm fixed-price contracts. These contracts are subject to annual economic price adjustments and modifications for changes in circumstances, changes in laws and regulations and additions to the contract value for new construction of facilities at the military bases. In September 2017, ASUS was awarded a new 50-year contract by the U.S. government to operate, maintain, and provide construction management services for the water distribution and wastewater collection and treatment facilities at Fort Riley, a United States Army installation located in Kansas. The contract over the 50-year period is subject to annual economic price adjustments. ASUS began operations at Fort Riley in July 2018.

There is no direct regulatory oversight by the CPUC over AWR or the operations, rates or services provided by ASUS or any of its wholly owned subsidiaries.

Basis of Presentation: The consolidated financial statements and notes thereto are presented in a combined report filed by two separate Registrants: AWR and GSWC. References in this report to “Registrant” are to AWR and GSWC, collectively, unless otherwise specified.

AWR owns all of the outstanding ~~Common Shares~~common shares of GSWC and ASUS. ASUS owns all of the outstanding ~~Common Shares~~common stock of the Military Utility Privatization Subsidiaries. The consolidated financial statements of AWR include the accounts of AWR and its subsidiaries, all of which are wholly owned. These financial statements are prepared in conformity with accounting principles generally accepted in the United States of ~~America.~~America ("GAAP"). Intercompany transactions and balances have been eliminated in the AWR consolidated financial statements.

The consolidated financial statements included herein have been prepared by Registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The December 31, ~~2017~~2018 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by ~~generally accepted accounting principles ("GAAP") in the United States of America.~~GAAP. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from 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, ~~2017~~2018 filed with the SEC.

~~GSWC's~~ Related Party Transactions: GSWC and ASUS provide and/or receive various support services to and from their parent, AWR, and among themselves. GSWC also allocates certain corporate office administrative and general costs to its affiliate, ASUS, using allocation factors approved by the CPUC. GSWC allocated corporate office administrative and general costs to ASUS of approximately ~~$1.2~~$1.1 million and $1.0 million during the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and approximately $3.2 million and $3.0 million during the nine months ended September 30, 2018 and 2017,~~ respectively.

AWR ~~has~~borrows under a ~~$150.0 million syndicated~~ credit facility, which ~~was renewed~~expires in May ~~2018. As of September 30, 2018, AWR had $70.0 million outstanding under this facility. All amounts borrowed by AWR under the renewed facility are contractually due~~

~~in May~~ 2023, ~~pursuant to the new terms and are generally priced off a spread to LIBOR. AWR borrows under this facility~~ and provides funds to its subsidiaries, GSWC and ASUS, in support of their operations. In March 2019, AWR amended this credit facility to increase its borrowing capacity from $150.0 million to $200.0 million. As of March 31, 2019, there was $151.5 millionoutstanding under this facility. The interest rate charged to GSWC and ASUS is sufficient to cover AWR’s interest expense under the credit facility. ~~Amounts owed to AWR by GSWC, including for allocated expenses, are included in GSWC's intercompany payable under "Current Liabilities" as of September 30, 2018 and December 31, 2017.~~

GSWC Long-Term Debt: In March of 2019, GSWC repaid $40 million of ~~GSWC's~~its 6.70% senior note, ~~will mature. This note has been included~~which matured in ~~"Current Liabilities" in Registrant's balance sheets as of September 30, 2018.~~that month. GSWC ~~intends to issue additional common shares to AWR, borrow under~~increased its intercompany ~~borrowing arrangement with~~borrowings from AWR ~~and/or issue additional long-term debt~~parent to fund the repayment of this ~~note as well as to maintain normal operations and to meet its capital and other financing requirements.~~note.

Recently Issued Accounting Pronouncements: In ~~May 2014,~~February 2016, the Financial Accounting Standards Board ("FASB") ~~issued Accounting Standard Update ("ASU") 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~. Under this guidance, an entity recognizes revenue when it transfers goods or services to customers in an amount that reflects what the entity expects in exchange for the goods or services. Registrant adopted this guidance under the modified retrospective approach beginning January 1, 2018. The adoption of this guidance did not have a material impact on Registrant's measurement or timing of revenue recognition but required additional disclosures (see Note 2).

~~In March 2017, the FASB issued ASU 2017-07,~~ ~~Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~, which changes the financial statement presentation for the costs of defined benefit pension plans and other retirement benefits. Prior to this guidance, the components of net benefit cost for retirement plans (such as service cost, interest cost, expected return on assets, and the amortization of prior service costs and actuarial gains and losses) were aggregated as operating costs for financial statement presentation purposes. Under the new guidance, the service cost component continues to be presented as operating costs, while all other components of net benefit cost are presented outside of operating income. The new guidance also limits any capitalization of net periodic benefits cost to the service cost component. Registrant adopted the new guidance beginning January 1, 2018, which did not have a material impact on its financial statements. Registrant used its prior year's disclosure of its pension and other employee benefit plans as an estimation for applying the retrospective presentation requirements of this guidance. The components of net periodic benefits cost, other than the service cost component, have been included in the line item “Other, net” in Registrant's income statements (see Note 8).

~~In November of 2016, the FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230) - Restricted Cash~~. The guidance requires restricted cash to be combined with cash and cash equivalents when reconciling the beginning and end of period cash balances in the statement of cash flows. The adoption of this new guidance in 2018 did not have an impact on Registrant's cash flow statements. In August 2016, the FASB also issued ASU 2016-15, ~~Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments~~, which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The adoption of this new guidance in 2018 did not have an impact on Registrant's cash flow statements.

~~In February 2016, the FASB~~ issued a new lease accounting standard, Leases (~~ASC~~Accounting Standards Codification ("ASC") 842), which replaces the prior lease guidance, (ASC 840). Under the new standard, lessees will recognize a right-of-use asset and a lease liability for virtually all leases (other than leases that meet the definition of a short-term lease). For income statement purposes, leases will be classified as either operating or finance. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. ~~The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.~~ Registrant ~~is assessing whether to elect the practical expedients available under this standard. Registrant will apply~~adopted the new lease accounting standard as of January 1, 2019 and ~~recognize a~~did not adjust comparative periods for it. There was no cumulative-effect ~~adjustment (if any)~~impact to the opening balance of retained ~~earnings. Any periods presented~~earnings as a result of this adoption. Registrant elected the practical expedient under ASU 2018-01 Land Easement Practical Expedient for Transition to Topic 842 and did not review existing easements entered into prior to January 1, ~~2019 will~~2019. Leases with terms of twelve months or less were not ~~be adjusted to conform to~~recorded on the balance sheet. The adoption of the new lease ~~standard.~~guidance did not have a material impact on Registrant's results of operations or liquidity, but resulted in the recognition of operating lease liabilities and operating lease right-of-use assets on its balance sheets. As of March 31, 2019, Registrant ~~continues to assess the impact~~has $6.3 million of ~~this standard to~~right-of-use assets and $6.5 million in operating lease liabilities reflected on its ~~financial statements.~~balance sheet (see Note 10).

In August 2018, the FASB issued ~~ASU 2018-15—Intangibles—Goodwill~~Accounting Standards Update ("ASU") 2018-15-Intangibles-Goodwill and ~~Other—Internal-Use~~Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. Under this ~~standard,~~ASU, entities that enter into cloud computing service arrangements will apply existing internal-use software guidance to determine which implementation costs are eligible for capitalization. Under that guidance, implementation costs are capitalized or expensed depending on the nature of the costs and the project stage during which they are incurred. The new guidance is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. Registrant ~~is currently evaluating the~~adopted this guidance effective January 1, 2019. This accounting change did not have a significant impact ~~of adopting this guidance.~~on Registrant's financial statements.

In August 2018, the FASB issued ASU ~~2018-14—~~2018-14-~~Compensation—Retirement Benefits—Defined~~Compensation-Retirement Benefits-Defined Benefit ~~Plans—General~~Plans-General (Subtopic 715-20): Disclosure ~~Framework—Changes~~Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. This ~~update~~ASU removes disclosures to pension plans and other ~~postretirement~~post-retirement benefit plans that no longer are considered cost beneficial, clarifies the specific disclosure requirements and adds disclosure requirements deemed relevant. ~~The amendments in this~~This ASU ~~are~~is effective for fiscal years ending after December 15, 2020 and will be applied by Registrant on a retrospective basis to all periods presented. Registrant is still evaluating the ASU and has not yet determined the effect of it on the Company's ongoing financial reporting.

Note 2 — Revenues ~~from Contracts with Customers~~

Most of Registrant's revenues are derived from contracts with customers, including tariff-based revenues from its regulated utilities. ASUS's 50-year firm fixed-price contracts with the U.S. government are considered service concession arrangements under ASC 853 Service Concession Arrangements. Accordingly, the services under these contracts are accounted for under ~~the revenue recognition accounting standard,~~Topic 606 "Revenue from Contracts with Customers ~~- (Topic 606)."~~ ~~The adoption of this accounting standard effective January 1, 2018 did not have a material impact on Registrant's measurement or timing of revenue recognition.~~

~~GSWC provides water~~ and electric utility services to customers as specified by the CPUC. The transaction prices for water and electric revenues are based on tariff rates authorized by the CPUC, which include both quantity-based and flat charges. Tariff revenues represent the adopted revenue requirement authorized by the CPUC intended to provide GSWC with an opportunity to recover its costs and earn a reasonable return on its net capital investment. The annual revenue requirements are comprised of operation and maintenance costs, administrative and general costs, depreciation and taxes in amounts authorized by the CPUC and a return on rate base consistent with the capital structure authorized by the CPUC.

Water and electric revenues are recognized over time as customers simultaneously receive and use the utility services provided. Water and electric revenues include amounts billed to customers on a cyclical basis, nearly all of which are based on meter readings for services provided. Customer bills also include surcharges for cost-recovery activities, which represent CPUC-authorized balancing and memorandum accounts that allow for the recovery of previously incurred operating costs. Revenues from these surcharges result in no impact to earnings as they are offset by corresponding increases in operating expenses to reflect the recovery of the associated costs. Customer payment terms are approximately 20 business days from the billing date. Unbilled revenues are amounts estimated to be billed for usage since the last meter-reading date to the end of the accounting period. Historical customer usage forms the basis for estimating unbilled revenue.

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 and counties (based on their ordinances) in order to use public rights of way for utility purposes. GSWC bills these franchise fees to its customers based on a CPUC-authorized rate for each ratemaking area as applicable. These franchise fees, which are required to be paid regardless of GSWC’s ability to collect them from its customers, are accounted for on a gross basis. GSWC’s franchise fees billed to customers and recorded as operating revenue were approximately $1.0 million for each of the three months ended September 30, 2018 and 2017, and $2.8 million for each of the nine months ended September 30, 2018 and 2017. When GSWC acts as an agent, and a tax is not required to be remitted if it is not collected from customers, the tax is accounted for on a net basis.

GSWC revenues tracked under the Water Revenue Adjustment Mechanism (“WRAM”) regulatory accounts for its water segment, and the Base Revenue Requirement Adjustment Mechanism ("BRRAM") regulatory account for its electric segment, are alternative revenue programs accounted for under Accounting Standards Codification ("ASC") Topic 980, ~~Regulated Operations~~.

~~For ASUS, performance obligations consist of (i) performing ongoing operation and maintenance of~~ the water and/or wastewater systems are not recorded as Property, Plant and ~~treatment plants for each military base served, and (ii) performing construction activities (including renewal and replacement capital work)~~Equipment on each military base served. The transaction price for each performance obligation is either delineated in, or initially derived from, the applicable 50-year contract and/or any subsequent contract modifications. Depending on the state in which operations are conducted, the Military Utility Privatization Subsidiaries are also subject to certain state non-income tax assessments, which are accounted for on a gross basis and have been immaterial to date.Registrant’s balance sheet.

The ongoing performance of operation and maintenance of the water and/or wastewater systems and treatment plants is viewed as a single performance obligation for each 50-year contract with the U.S. government. Registrant recognizes revenue for operations and maintenance fees monthly using the "right to invoice" practical expedient under ASC Topic 606. ASUS has a right to consideration from the U.S. government in an amount that corresponds directly to the value to the U.S. government of ASUS’s performance completed to date. The contractual operations and maintenance fees are firm-fixed, and the level of effort or resources expended in the performance of the operations-and-maintenance-fees performance obligation is largely consistent over the 50-year term. Therefore, Registrant has determined that the monthly amounts invoiced for operations and maintenance performance are a fair reflection of the value transferred to the U.S. government. Invoices to the U.S. government for operations and maintenance service, as well as construction activities, are due upon receipt.

ASUS's construction activities consist of various projects to be performed. Each of these projects' transaction prices is delineated either in the 50-year contract or through a specific contract modification for each construction project, which includes the transaction price for that project. Each construction project is viewed as a separate, single performance obligation. Therefore, it is generally not necessary to allocate a construction transaction price to more than one construction performance obligation. Revenues for construction activities are recognized over time, with progress toward completion measured based on the input method using costs incurred relative to the total estimated costs (cost-to-cost method). Due to the nature of these construction projects, Registrant has determined the cost-to-cost input measurement to be the best method to measure progress towards satisfying its construction contract performance obligations, as compared to using an output measurement such as units produced. Changes in job performance, job site conditions, change orders and/or estimated profitability may result in revisions to costs and income for ASUS, and are recognized in the period in which any such revisions are determined. Pre-contract costs for ASUS,

which consist of design and engineering labor costs, are deferred if recovery is probable, and are expensed as incurred if recovery is not probable. Deferred pre-contract costs have been immaterial to date.

~~Contracted services revenues recognized during the three and nine months ended September 30, 2018 from performance obligations satisfied in previous periods were not material.~~

Although GSWC has a diversified base of residential, commercial, industrial and other customers, revenues derived from residential and commercial customers ~~account~~accounted for approximately 90% and 85% of total water and electric revenues, respectively, during each of the three months ended March 31, 2019 and ~~90%~~2018. The vast majority of ~~total electric revenues.~~ASUS's revenues are with the U.S. government. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, disaggregated revenues from contracts with customers by segment ~~are~~were as follows:


							Three Months Ended March 31,
(dollar in thousands)	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018			2019			2018
Water:
Tariff-based revenues	$	87,204		$	223,230		$	59,575		$	65,775
CPUC-approved surcharges (cost-recovery activities)	937			2,458
Surcharges (cost-recovery activities)							291			793
Other	486			1,381			459			442
Water revenues from contracts with customers	88,627			227,069			60,325			67,010
WRAM under-collection (alternative revenue program)	(938		)	1,765
WRAM under (over)-collection (alternative revenue program)							4,398			(2,598		)
Total water revenues	87,689			228,834			64,723			64,412

Electric:
Tariff-based revenues	8,207			26,021			11,266			10,019
CPUC-approved surcharges (cost-recovery activities)	62			172
Surcharges (cost-recovery activities)							54			47
Electric revenues from contracts with customers	8,269			26,193			11,320			10,066
BRRAM over-collection (alternative revenue program)	(394		)	(645		)	(691		)	(234		)
Total electric revenues	7,875			25,548			10,629			9,832

Contracted services:
Water	16,909			44,134			13,355			13,000
Wastewater	11,709			27,295			13,026			7,484
Contracted services revenues from contracts with customers	28,618			71,429			26,381			20,484

Total revenues	$	124,182		$	325,811		$	101,733		$	94,728

The opening and closing balances of the receivable from the U.S. government, contract assets and contract liabilities from contracts with customers, which related entirely to ASUS, ~~are~~were as follows:


(dollar in thousands)	September 30, 2018		January 1, 2018		March 31, 2019		January 1, 2019

Receivable from the U.S. government	$	54,968	$	40,150	$	60,011	$	61,126
Contract assets	$	19,043	$	30,388	$	29,460	$	24,447
Contract liabilities	$	8,942	$	3,911	$	10,426	$	7,530

As a result of the adoption of ASC Topic 606, amounts previously reported under "Costs and estimated earnings in excess of billings on contracts" are now reflected as either "Receivable from U.S. government" or "Contract assets," depending on whether receipt of these amounts is conditional on something other than the passage of time. Amounts previously reported under "Billings in excess of costs and estimated earnings on contracts" are now reflected as "Contract liabilities."

Contract Assets - Contract assets are those of ASUS and consist of unbilled revenues recognized from work-in-progress construction projects, where the right to payment is conditional on something other than the passage of time. The classification of this asset as current or noncurrent is based on the timing of when ASUS expects to bill these amounts.

Contract Liabilities - Contract liabilities are those of ASUS and consist of billings in excess of revenue recognized. The classification of this liability as current or noncurrent is based on the timing of when ASUS expects to recognize revenue.

Revenue for the three ~~and nine~~ months ended ~~September 30, 2018 that were~~March 31, 2019, which was included in contract liabilities at the beginning of the period was not material. Contracted services revenues recognized during the three months ended March 31, 2019 from performance obligations satisfied in previous periods were ~~$3.4 million and $3.7 million, respectively.~~not material.

As of ~~September 30, 2018,~~March 31, 2019, Registrant's aggregate remaining performance obligations, ~~all of~~ which are entirely for the contracted services segment, ~~was~~were $3.2 billion. Registrant expects to recognize revenue on these remaining performance obligations over the remaining ~~terms~~term of each of the 50-year contracts, which range from 36 to 5049 years. Each of the contracts with the U.S. government is subject to termination, in whole or in part, prior to the end of its 50-year term for ~~the~~ convenience of the U.S. government.

Note 3 — 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 ~~September 30, 2018,~~March 31, 2019, Registrant had approximately ~~$59.6~~$56.0 million of regulatory liabilities, net of regulatory assets, not accruing carrying costs. Of this amount, (i) ~~$81.9~~$80.9 million of regulatory liabilities are excess deferred income taxes arising from the lower federal income tax rate due to the Tax Cuts and Jobs Act ("Tax Act") enacted in December 2017 that are expected to be refunded to customers, (ii) ~~$15.8~~$14.9 million of regulatory liabilities are from flowed-through deferred income taxes, (iii) ~~$33.5~~$35.7 million of regulatory assets relates to the underfunded position in Registrant's pension and other post-retirement obligations (not including the two-way pension balancing accounts), and (iv) ~~$1.1 million~~$336,000 of regulatory assets relates to a memorandum account authorized by the CPUC to track unrealized gains and losses on BVES's purchase power contracts over the term of the contracts. 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 ~~and~~or circumstances that would indicate if recovery is probable. If the CPUC determines that a portion of GSWC’s assets are not recoverable in customer rates, GSWC must determine if it has suffered an asset impairment ~~requiring~~that requires it to write down the asset's value. Regulatory assets are offset against regulatory liabilities within each ~~ratemaking~~rate-making area. Amounts expected to be collected or refunded in the next 12twelve months have been classified as current assets and current liabilities by ~~ratemaking~~rate-making area. Regulatory assets, less regulatory liabilities, included in the consolidated balance sheets are as follows:


(dollars in thousands)	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
GSWC
Water Revenue Adjustment Mechanism, net of Modified Cost Balancing Account	$	24,264		$	29,556
Water Revenue Adjustment Mechanism and Modified Cost Balancing Account							$	24,998		$	17,763
Costs deferred for future recovery on Aerojet case	9,809			10,656			9,397			9,516
Pensions and other post-retirement obligations (Note 8)	31,066			33,019			32,606			33,124
Derivative unrealized loss (Note 5)	1,143			2,941			336			311
Low income rate assistance balancing accounts	3,660			5,972			2,505			2,784
General rate case memorandum accounts	6,798			10,522			3,956			5,054
Excess deferred income taxes							(80,930		)	(81,465		)
Flow-through taxes, net							(14,859		)	(15,273		)
Other regulatory assets	15,506			14,875			16,215			15,656
Excess deferred income taxes (Note 7)	(81,912		)	(83,231		)
Flow-through taxes, net (Note 7)	(15,816		)	(17,716		)
Tax Cuts and Jobs Act ("Tax Act") memorandum accounts	(8,274		)	—
Tax Cuts and Jobs Act memorandum accounts							(9,036		)	(8,293		)
Various refunds to customers	(7,880		)	(4,552		)	(8,914		)	(7,517		)
Total	$	(21,636	)	$	2,042		$	(23,726	)	$	(28,340	)

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, ~~2017~~2018 filed with the SEC. The discussion below focuses on significant matters and developments since December 31, ~~2017.~~2018.

Alternative-Revenue Programs:

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

As required by the accounting guidance for alternative revenue programs, GSWC is required to collect its WRAM balances, net of its MCBA, within 24 months following the year in which an under-collection is recorded in order to recognize

such amounts as revenue. The recovery periods for the majority of GSWC's WRAM/MCBA balances are primarily within 12 to 24 months. GSWC has implemented surcharges to recover its WRAM/MCBA balances as of December 31, ~~2017.~~2018. For the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ surcharges (net of surcredits) of approximately ~~$7.7~~$2.8 million and ~~$11.4~~$4.2 million,

respectively, were billed to customers to recover previously incurred under-collections in the WRAM/MCBA accounts. ~~For~~During the ~~nine~~three months ended ~~September 30, 2018 and 2017, surcharges (net of surcredits) of approximately $17.5 million and $24.8 million, respectively, were billed to customers. During the nine months ended September 30, 2018,~~March 31, 2019, GSWC recorded additional net under-collections in the WRAM/MCBA accounts of ~~$12.2~~approximately $10.0 million ~~mainly~~ due to lower than adopted customer water usage, as well as higher than adopted supply ~~costs.~~ costs currently in billed customer rates.As of ~~September 30, 2018,~~March 31, 2019, GSWC had an aggregated regulatory asset of ~~$24.3~~$25.0 million, which is comprised of a ~~$3.4~~$10.1 million under-collection in the WRAM accounts and a ~~$20.9~~$14.9 million under-collection in the MCBA accounts.

~~Other Regulatory Matters:~~

~~Tax Cuts and Jobs Act ("Tax Act"):~~

On December 22, 2017, the Tax Act was signed into federal law. The provisions of this major tax reform were generally effective January 1, 2018. The most significant provisions of the Tax Act impacting GSWC are the reduction of the federal corporate income tax rate from 35% to 21% and the elimination of bonus depreciation for regulated utilities. Pursuant to a CPUC directive, the 2018 impact of the Tax Act on the water segment’s adopted revenue requirement is being captured in a memorandum account effective January 1, 2018. For the three and nine months ended September 30, 2018, approximately $944,000 and $7.4 million, respectively, of reduced water-revenue requirements were tracked and recorded as a regulatory liability, which were largely offset by decreases in income tax expense. In March 2018, GSWC filed updated testimony revising the revenue requirements to reflect the impacts of the Tax Act in its pending water general rate case that will set new rates for the years 2019 - 2021. On July 1, 2018, new lower water rates, which incorporate the new federal income tax rate, were implemented for all water ratemaking areas.

The CPUC also ordered GSWC to update its pending electric general rate case filing, which will determine new electric rates for the years 2018 - 2021, to reflect the lower federal corporate income tax rate. As a result, for the three and nine months ended September 30, 2018, GSWC reduced electric revenues by approximately $125,000 and $848,000, respectively, and recorded a corresponding regulatory liability that will be satisfied as part of implementing overall new rates from the general rate case retroactive to January 1, 2018.

Reductions in the water and electric revenue requirements resulting from the impacts of the Tax Act are largely offset by decreases in GSWC's income tax expense, resulting in no material impact to earnings (see Note 7).

~~Cost of Capital Proceeding:~~

In March 2018, the CPUC issued a final decision in the cost of capital proceeding for GSWC and three other water utilities for the years 2018 - 2020. Among other things, the final decision adopted for GSWC's water segment a return on equity of 8.90%, with a return on rate base of 7.91%. The previously authorized return on equity for GSWC’s water segment was 9.43%, with a return on rate base of 8.34%. Including the effects of the Tax Act, the lower return on equity and rate base are expected to decrease GSWC’s annual adopted revenue requirement beginning in 2018 by approximately $3.6 million. In April 2018, GSWC implemented new water rates to incorporate the cost of capital decision. For the nine months ended September 30, 2018, GSWC recorded a regulatory liability with a corresponding decrease in water revenues of approximately $955,000 representing the revenue difference between the old and new cost of capital rates through April 2018.

Pending General Rate Case Filings:

Water Segment:

In July 2017, GSWC filed a general rate case application ~~with the CPUC~~ for ~~all of GSWC’s~~its water regions and the general office. ~~This~~The general rate case will determine new water rates for the years 2019 -through 2021. On August 15, 2018, GSWC and the CPUC’s Public Advocates Office ~~("CalPA"), formerly the Office of Ratepayer Advocates,~~ filed a joint motion to adopt a settlement agreement between ~~GSWC and CalPA~~the two parties in connection with ~~this general rate case. If approved by the CPUC, this settlement agreement will resolve all of the issues in~~ the general rate case. ~~GSWC and CalPA informed~~

On April 8, 2019, the assigned Administrative Law Judge ~~("ALJ”) that hearings would not be needed in light of the settlement agreement. Subsequently, the ALJ~~ issued a ~~ruling requesting additional information~~proposed decision ("PD") on ~~a number of items in~~ the general rate case. The PD approves the settlement agreement, with the exception of advice letter capital projects totaling approximately$20.4 million that were agreed to by GSWC ~~has provided~~and the ~~additional information requested by~~CPUC’s Public Advocates Office in the ~~ALJ~~settlement. The PD does not explicitly disallow these projects, but instead instructs GSWC to include these projects in its next general rate case filing. As a result, no impairment charges were recorded for the three months ended March 31, 2019 related to the immaterial costs incurred to date for these projects. GSWC and ~~believes it has satisfied all~~the CPUC's Public Advocates Office have separately filed their response and comments to the PD, and both parties dispute the ALJ's rejection of the ~~questions raised. Both the ALJ’s request and GSWC’s response are public information.~~advice letter capital projects. At this time, GSWC ~~is awaiting a proposed decision by~~cannot predict the ~~ALJ, which is expected during~~final outcome regarding this matter. Due to the ~~fourth quarter of 2018, with~~delay in receiving a final decision by the CPUC ~~expected by~~on the water general rate case, billed water revenues for the first quarter of ~~2019. When approved, the~~2019 were based on 2018 adopted rates. Once a final decision is issued, new water rates will ~~become effective~~be retroactive to January 1, ~~2019.~~2019 and retroactive adjustments will be recorded accordingly.

Electric Segment:

In May 2017, GSWC filed its electric general rate case application with the CPUC to determine new electric rates for the years 2018 through 2021. In November 2018, GSWC and ~~CalPA have reached~~the Public Advocates Office filed a ~~tentative~~joint motion to adopt a settlement ~~which resolves~~agreement between the two parties resolving all ~~revenue requirement~~ issues in ~~this~~connection with the general rate case. ~~A settlement conference with all parties in the rate case is scheduled for November 2018.~~ Among other things, the ~~tentative~~ settlement incorporates a previous stipulation in the case, which authorizes a new return on equity for GSWC's electric segment of 9.60%~~. GSWC’s prior~~, as compared to its previously authorized return ~~on equity for its electric segment was~~of 9.95%. The stipulation also ~~included~~includes a capital structure and debt cost ~~similar~~the same to those approved by the CPUC in March 2018 in connection with GSWC's water segment cost of capital ~~proceeding, as discussed above.~~proceeding. Because of the delay in finalizing the electric general rate case, ~~year-to-date 2018~~ billed electric revenues ~~have been~~during the first quarter of 2019, and all of 2018, were based on 2017 adopted rates pending a final decision by the CPUC in ~~this~~the rate case application. ~~When a final~~A decision on the case is expected later in 2019 and, when approved by the CPUC, the new ~~electric~~ rates will be retroactive to January 1, ~~2018.~~2018 and retroactive adjustments will be recorded accordingly.

Note 4 — Earnings per Share/Capital Stock

In accordance with the accounting guidance for participating securities and earnings per share (“EPS”), Registrant uses the “two-class” method of computing EPS. The “two-class” method is an earnings allocation formula that determines EPS for each class of common stock and participating security. AWR has participating securities related to restricted stock units that earn dividend equivalents on an equal basis with AWR’s Common Shares, and that have been issued under AWR's stock incentive plans for employees and the non-employee directors stock plans. In applying the “two-class” method, undistributed earnings are allocated to both common shares and participating securities.

The following is a reconciliation of Registrant’s net income and weighted average Common Shares outstanding used for calculating basic net income per share:


Basic:	For The Three Months Ended September 30,				For The Nine Months Ended September 30,				For The Three Months Ended March 31,
(in thousands, except per share amounts)	2018		2017		2018		2017		2019		2018
Net income	$	22,952	$	21,006	50,082		56,499		$	12,852	$	10,782
Less: (a) Distributed earnings to common shareholders	10,102		9,349		28,831		27,064		10,113		9,362
Distributed earnings to participating securities	54		50		151		139		47		46
Undistributed earnings	12,796		11,607		21,100		29,296		2,692		1,374

(b) Undistributed earnings allocated to common shareholders	12,727		11,546		20,991		29,147		2,679		1,367
Undistributed earnings allocated to participating securities	69		61		109		149		13		7

Total income available to common shareholders, basic (a) + (b)	$	22,829	$	20,895	$	49,822	$	56,211
Total income available to common shareholders, basic (a)+(b)									$	12,792	$	10,729

Weighted average Common Shares outstanding, basic	36,737		36,659		36,728		36,625		36,773		36,712

Basic earnings per Common Share	$	0.62	$	0.57	$	1.36	$	1.53	$	0.35	$	0.29

Diluted EPS is based upon the weighted average number of Common Shares, including both outstanding shares and shares potentially issuable in connection with stock options and restricted stock units granted under AWR’s stock incentive plans for employees and the non-employee directors stock plans, and net income. At ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ there were ~~47,792~~29,160 and ~~70,702~~47,792 options outstanding, respectively, under these plans. At ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ there were also ~~198,613~~184,833 and ~~195,457~~193,740 restricted stock units outstanding, respectively, including performance shares awarded to officers of the Registrant.

The following is a reconciliation of Registrant’s net income and weighted average Common Shares outstanding for calculating diluted net income per share:


Diluted:	For The Three Months Ended September 30,				For The Nine Months Ended September 30,				For The Three Months Ended March 31,
(in thousands, except per share amounts)	2018		2017		2018		2017		2019		2018
Common shareholders earnings, basic	$	22,829	$	20,895	$	49,822	$	56,211	$	12,792	$	10,729
Undistributed earnings for dilutive stock-based awards	69		61		109		149		13		8
Total common shareholders earnings, diluted	$	22,898	$	20,956	$	49,931	$	56,360	$	12,805	$	10,737

Weighted average common shares outstanding, basic	36,737		36,659		36,728		36,625		36,773		36,712
Stock-based compensation (1)	213		197		207		188		178		162
Weighted average common shares outstanding, diluted	36,950		36,856		36,935		36,813		36,951		36,874

Diluted earnings per Common Share	$	0.62	$	0.57	$	1.35	$	1.53	$	0.35	$	0.29

(1) In applying the treasury stock method of reflecting the dilutive effect of outstanding stock-based compensation in the calculation of diluted EPS, ~~47,792~~29,160 and ~~70,702~~47,792 stock options at ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively, were deemed to be outstanding in accordance with ~~the~~ accounting guidance on earnings per share. All of the ~~198,613~~184,833 and ~~195,457~~193,740 restricted stock units at ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively, were included in the calculation of diluted EPS for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017~~.2018.

No stock options outstanding at ~~September 30, 2018~~March 31, 2019 had an exercise price greater than the average market price of AWR’s Common Shares for the three ~~and nine~~ months ended ~~September 30, 2018.~~March 31, 2019. There were no stock options outstanding at ~~September 30,~~March 31, 2019 or 2018 ~~or 2017~~ that were anti-dilutive.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ AWR issued ~~64,245~~37,376 and ~~107,815 Common Shares,~~52,622 common shares, for approximately ~~$348,000~~$75,000 and ~~$884,000,~~$340,000, respectively, under Registrant’s Common Share Purchase and Dividend Reinvestment Plan, the 401(k) Plan, the ~~2000 and 2008 Stock Incentive Plans~~stock incentive plans for employees, and the ~~2003 and 2013 Non-Employee Directors Stock Plans.~~non-employee directors stock plans.

During the three months ended ~~September 30,~~March 31, 2019 and 2018, AWR paid $1.6 million and ~~2017,~~$1.2 million, respectively, to taxing authorities on employees' behalf for shares withheld related to net share settlements. During the three months ended March 31, 2019 and 2018, GSWC paid $1.3 million and $1.0 million, respectively, to taxing authorities on employees' behalf for shares withheld related to net share settlements. These payments are included in the stock-based compensation caption of the statements of equity.

During the three months ended March 31, 2019 and 2018, AWR paid quarterly dividends of approximately $10.1 million, or $0.275 per share, and ~~$9.3~~$9.4 million, or $0.255 per share, respectively. During the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, GSWC paid dividends of $10.1 million and ~~2017, AWR paid quarterly dividends~~$9.4 million respectively, to ~~shareholders of approximately $28.8 million, or $0.785 per share, and $27.1 million, or $0.739 per share, respectively.~~AWR.

Note 5 — Derivative Instruments

Derivative financial instruments are used to manage exposure to commodity price risk. Commodity price risk represents the potential impact that can be caused by a change in the market value of a commodity.GSWC's electric division, BVES, purchases power under long-term contracts at a fixed cost depending on the amount of power and the period during which the power is purchased under such contracts. In December 2014, the CPUC approved an application that allowed BVES to ~~immediately execute new~~enter into long-term purchased power contracts with energy ~~providers.~~providers, which BVES executed in December 2014. BVES began taking power under these long-term contracts effective January 1, 2015 at a fixed cost over ~~three-and~~three- and five-year terms depending on the amount of power and ~~the~~ period during which the power is purchased under the contracts.

~~BVES's~~The long-term contracts executed in December 2014 are subject to the accounting guidance for derivatives and require mark-to-market derivative accounting. Among other things, the CPUC also authorized ~~GSWC~~BVES to establish a regulatory asset and liability memorandum account to offset the mark-to-market entries required by the accounting guidance. Accordingly, all unrealized gains and losses generated from the purchased power contracts executed in December 2014 are deferred on a monthly basis into a non-interest bearing regulatory memorandum account that tracks the changes in fair value of the ~~derivatives~~derivative throughout the term of the ~~contracts.~~contract. As a result, these unrealized gains and losses do not impact GSWC’s earnings. The three-year contract expired on December 31, 2017. Registrant intends to enter into new purchased power contracts, subject to CPUC approval, once the five-year term contract expires in November 2019. As of ~~September 30, 2018,~~March 31, 2019, there was a ~~$1.1 million~~$336,000 unrealized loss in the memorandum account for the purchased power contracts as a result of ~~the~~a drop in energy prices. The notional volume of derivatives remaining under these long-term contracts as of ~~September 30, 2018~~March 31, 2019 was approximately ~~123,000~~70,300 megawatt hours.

The accounting guidance for fair value measurements applies to all financial assets and financial liabilities that are measured and reported on a fair value basis. Under the accounting guidance, GSWC 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).

To value the contracts, Registrant applies the Black-76 model, utilizing various inputs that include quoted market prices for energy over the duration of the contracts. The market prices used to determine the fair value for ~~these~~this derivative ~~instruments~~instrument were estimated based on independent sources such as broker quotes and publications that are not observable in or corroborated by the market. Registrant received one broker quote to determine the fair value of its derivative instruments. When such inputs have a significant impact on the measurement of fair value, the instruments are categorized as Level 3. Accordingly, the valuation of the derivatives on Registrant’s purchased power contract has been classified as Level 3 for all periods presented.

The following table presents changes in the fair value of GSWC’s Level 3 derivatives for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017:~~2018:


	For The Three Months Ended September 30,						For The Nine Months Ended September 30,						For The Three Months Ended March 31,
(dollars in thousands)	2018			2017			2018			2017			2019			2018
Fair value at beginning of the period	$	(1,710	)	$	(4,493	)	$	(2,941	)	$	(4,901	)	$	(311	)	$	(2,941	)
Unrealized gain on purchased power contracts	567			656			1,798			1,064
Unrealized gain (loss) on purchased power contracts													(25		)	316
Fair value at end of the period	$	(1,143	)	$	(3,837	)	$	(1,143	)	$	(3,837	)	$	(336	)	$	(2,625	)

Note 6 — 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.~~these items.

Investments held in a Rabbi Trust for the supplemental executive retirement plan ("SERP") are measured at fair value and totaled $17.8 million as of ~~September 30, 2018.~~March 31, 2019. All equity investments in the Rabbi Trust are Level 1 investments in mutual funds. The investments held in the Rabbi Trust are included in ~~Other~~"Other Property and ~~Investments~~Investments" on Registrant's balance sheets.

The table below estimates the fair value of long-term debt held by GSWC. The fair values as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 were determined using rates for similar financial instruments of the same duration utilizing Level 2 methods and assumptions. The interest rates used for the ~~September 30, 2018~~March 31, 2019 valuation ~~increased~~decreased as compared to December 31, ~~2017~~2018, ~~decreasing~~increasing the fair value of long-term debt as of ~~September 30, 2018~~March 31, 2019. after taking into account the repayment of $40 million of GSWC's 6.70% senior note in March 2019. Changes in the assumptions will produce different results.


	September 30, 2018				December 31, 2017				March 31, 2019				December 31, 2018
(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 (1)	$	324,978	$	389,438	$	325,265	$	424,042	$	284,892	$	363,757	$	324,978	$	387,889

___________________

(1) Excludes debt issuance costs and redemption premiums.

Note 7 — Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act ("Tax Act") was signed into federal law. The provisions of this major tax reform were generally effective January 1, 2018. Among its significant provisions, the Tax Act reduced the federal corporate income tax rate from 35% to 21% and eliminated bonus depreciation for regulated utilities. AWR's effective income tax rate (“ETR”) was ~~23.2%~~20.5% and ~~37.3%~~19.2% for the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively, and ~~was 21.7% and 37.3% for the nine months ended September 30, 2018 and 2017, respectively.~~ GSWC's ETR was ~~23.2%~~19.0% and ~~38.4%~~19.2% for the three months ended ~~September 30,~~March 31, 2019 and 2018, respectively. AWR’s ETR increased because of higher state unitary taxes at AWR (parent).

The AWR and ~~2017, respectively, and was 22.5% and 38.6% for the nine months ended September 30, 2018 and 2017, respectively. Both decreases were due primarily to the reduction in~~GSWC effective tax rates differ from the federal ~~corporate income~~statutory tax ~~rate.~~

~~AWR's ETR differed from the new federal statutory~~ rate primarily ~~as a result of the differences between GSWC's ETR and the new federal statutory rate. These differences resulted primarily from:~~due to (i) state taxes, (ii) permanent differences, including the excess tax benefits from share-based payments, which were reflected in the income statements and resulted in a reduction to income tax expense during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, (iii) the continuing amortization of the excess deferred income tax liability that commenced upon the lowering of the federal tax rate, and ~~2017, (iii)~~(iv) differences between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements (principally from plant, rate-case, and compensation expenses)~~, and (iv) commencement of the amortization of the excess deferred~~. As a regulated utility, GSWC treats certain temporary differences as flow-through in computing its income tax ~~liability brought about by~~expense consistent with the ~~lower federal corporate~~ income tax ~~rate. There were no material updates to~~method used in its CPUC-jurisdiction ratemaking. Flow-through items either increase or decrease tax expense and thus impact the ~~excess deferred income tax liability balance during the three and nine months ended September 30, 2018 in accordance with Staff Accounting Bulletin 118.~~ETR.

Note 8 — Employee Benefit Plans

The components of net periodic benefit costs ~~before allocation to the overhead pool,~~ for Registrant’s pension plan, postretirement plan and ~~the supplemental executive retirement plan ("SERP")~~SERP for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017 are~~were as follows:


	For The Three Months Ended September 30,																For The Three Months Ended March 31,
	Pension Benefits						Other Postretirement Benefits						SERP				Pension Benefits						Other Postretirement Benefits						SERP
(dollars in thousands)	2018			2017			2018			2017			2018		2017		2019			2018			2019			2018			2019		2018
Components of Net Periodic Benefits Cost:
Service cost	$	1,335		$	1,250		$	48		$	53		$	274	$	232	$	1,234		$	1,401		$	53		$	57		$	298	$	274
Interest cost	1,912			1,976			75			73			222		223		2,131			1,921			80			72			267		222
Expected return on plan assets	(2,793		)	(2,428		)	(123		)	(107		)	—		—		(2,593		)	(2,791		)	(112		)	(123		)	—		—
Amortization of prior service cost (benefit)	—			—			—			—			—		3		109			—			—			—			—		—
Amortization of actuarial (gain) loss	314			231			(212		)	(242		)	262		194		359			345			(150		)	(182		)	118		262
Net periodic pension cost under accounting standards	768			1,029			(212		)	(223		)	758		652
Regulatory adjustment — deferred	—			266			—			—			—		—
Total expense recognized, before surcharges and allocation to overhead pool	$	768		$	1,295		$	(212	)	$	(223	)	$	758	$	652	$	1,240		$	876		$	(129	)	$	(176	)	$	683	$	758

For The Nine Months Ended September 30,
Pension Benefits
Other Postretirement
Benefits
SERP
(dollars in thousands) 2018 2017 2018 2017 2018 2017
Components of Net Periodic Benefits Cost:

Service cost $ 4,005
$ 3,750
$ 162
$ 171
$ 822
$ 696
Interest cost 5,736
5,928
219
243
666
669
Expected return on plan assets (8,379 ) (7,278 ) (369 ) (351 ) —
—
Amortization of prior service cost (benefit) —
—
—
—
—
9
Amortization of actuarial (gain) loss 942
693
(576 ) (582 ) 786
582
Net periodic pension cost under accounting standards 2,304
3,093
(564 ) (519 ) 2,274
1,956
Regulatory adjustment — deferred —
791
—
—
—
—
Total expense recognized, before surcharges and allocation to overhead pool $ 2,304
$ 3,884
$ (564 ) $ (519 ) $ 2,274
$ 1,956

~~In accordance with new accounting guidance (Note 1), effective January 1, 2018,~~ Registrant changed the financial statement presentation for the costs of its defined benefit pension plans and other retirement benefits. The components of net periodic benefits cost, other than the service cost component, have been included in the line item “Other, net” in Registrant's income statements. Prior period amounts have been reclassified on the income statementsexpects to ~~conform to the current-period presentation.~~

~~During the nine months ended September 30, 2018, Registrant contributed $6.0~~contribute, at least, approximately $3.6 million to its pension ~~plan.~~plan during 2019.

~~Regulatory Adjustment~~:

As authorized by the CPUC in the ~~most recent~~ water and electric general rate case decisions, GSWC utilizes two-way balancing accounts for its water and electric regions and the general office to track differences between the forecasted annual pension expenses in rates, or expected to be in rates, and the actual annual expense recorded by GSWC in accordance with the accounting guidance for pension costs. As of ~~September 30, 2018,~~March 31, 2019, GSWC had a ~~$2.5~~total of $3.1 million over-collection in the two-way pension balancing accounts included as part of the pension regulatory asset (Note 3).

Note 9 — Contingencies ~~and Gain on Sale of Assets~~

~~Condemnation of Properties~~:

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

~~Ojai Water System and Gain on Sale of Assets:~~

Pursuant to a settlement agreement, on June 8, 2017, Casitas Municipal Water District (“Casitas”) acquired the operating assets of GSWC’s 2,900-connection Ojai water system by eminent domain for $34.3 million in cash, including payments for customer receivables and regulatory assets. As a result of this transaction, GSWC recorded a pretax gain of $8.3 million on the sale of the Ojai water system during the second quarter of 2017. The terms of the settlement agreement resolved the eminent domain action and dismissed all claims against GSWC brought by Casitas and another third party.

Environmental Clean-Up and Remediation:

GSWC has been involved in environmental remediation and cleanup at a plant site ("Chadron Plant") that contained an underground storage tank ~~that had been~~which was used to store gasoline for its vehicles. ~~The~~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 ~~the~~this site. ~~Analyses indicate~~Analysis indicates that off-site monitoring wells may be necessary to document ~~the~~ effectiveness of remediation.

As of ~~September 30, 2018,~~March 31, 2019, the total spent to clean-up and remediate GSWC’s plant facility was approximately ~~$5.4~~$6.2 million, of which $1.5 million has been paid by the State of California Underground Storage Tank Fund. Amounts paid by GSWC have been included in rate base and approved by the CPUC for recovery. As of ~~September 30, 2018,~~March 31, 2019, GSWC has a regulatory asset and an accrued liability for the estimated additional cost of $1.3 million to complete the cleanup at the site. The estimate includes costs for two years of continued activities of groundwater cleanup and monitoring, future soil treatment and site-closure-related activities. The ultimate cost may vary as there are many unknowns in remediation of underground gasoline spills and this is an estimate based on currently available information. Management also believes it is probable that the estimated additional costs will be approved in rate base by the CPUC.

Other Litigation:

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

Note 10 — Leases

The adoption of the new lease guidance did not have a material impact on Registrant's results of operations or liquidity, but resulted in the recognition of operating lease liabilities and operating lease right-of-use assets on its balance sheets. Right-of-use ("ROU") assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. As of March 31, 2019, Registrant has right-of-use assets of $6.3 million, short-term operating lease liabilities of $2.0 million and long-term operating lease liabilities of $4.4 million.

Significant assumptions and judgments made as part of the adoption of this new lease standard include determining (i) whether a contract contains a lease, (ii) whether a contract involves an identified asset, and (iii) which party to the contract directs the use of the asset. The discount rates used to calculate the present value of lease payments were determined based on hypothetical borrowing rates available to Registrant over terms similar to the lease terms.

Registrant’s leases consist of real estate and equipment leases, and are mostly GSWC's. Most of Registrant's leases require fixed lease payments. Some real estate leases have escalation payments which depend on an index. Variable lease costs were not material. Lease terms used to measure the lease liability include options to extend the lease if the option is reasonably certain to be exercised. Lease and non-lease components were combined to measure lease liabilities. Registrant also has real estate leases that have not yet commenced as of March 31, 2019. These leases will create additional operating right-of-use assets and operating lease liabilities of approximately $5.5 million upon possession of the office spaces later in 2019.

GSWC's long-term debt includes $28 million of 9.56% private placement notes, which require GSWC to maintain a total indebtedness to capitalization ratio of less than 0.6667-to-1. The indebtedness, as defined in the note agreement, includes any lease liabilities required to be recorded under GAAP. As of March 31, 2019, GSWC had a total indebtedness (including GSWC's lease liabilities) to capitalization ratio of 0.4449-to-1. None of the other covenants or restrictions contained in Registrant's long-term debt agreements were affected by the adoption of the new lease standard.

Registrant's supplemental lease information for the three months ended March 31, 2019 is as follows (in thousands, except for weighted average data):



	Three Months Ended March 31, 2019

Operating lease costs	$	798
Short-term lease costs	$	74

Weighted average remaining lease term (in years)	6.63
Weighted-average discount rate	3.0		%

Non-cash transactions
Lease liabilities arising from obtaining right-of-use assets	$	7,968

During the three months ended March 31, 2019 and 2018, Registrant’s consolidated rent expense was approximately $663,000 and $559,000, respectively. Registrant’s future minimum payments under long-term non-cancelable operating leases are as follows (in thousands):



	March 31, 2019		December 31, 2018
2019 (April through December 2019 as of March 31, 2019)	$	1,809	$	2,818
2020	1,949		2,530
2021	1,455		1,497
2022	1,065		1,007
2023	575		546
Thereafter	629		605
Total lease payments	7,482		$	9,003
Less: imputed interest	1,016
Total lease obligations	6,466
Less: current obligations	2,027
Long-term lease obligations	$	4,439

The decrease in future minimum lease payments from December 31, 2018 to March 31, 2019 was largely due to the early termination of one of Registrant's real estate leases. The early termination did not have a material impact on Registrant's financial statements as of and during the three months ended March 31, 2019. There is no material difference between the consolidated operations of AWR and the operations of GSWC in regard to the future minimum payments under long-term cancelable operating leases.

Note 11 — Business Segments

AWR has three reportable segments, water, electric and contracted services, whereas GSWC has two segments, water and electric. On a stand-alone basis, AWR has no material assets other than its equity investments in its ~~subsidiaries.~~

subsidiaries and note receivables therefrom.

All activities of GSWC, a rate-regulated utility, are geographically located within California. Activities of ASUS and its subsidiaries are conducted in California, Georgia, Florida, ~~Georgia,~~ Kansas, Maryland, New Mexico, North Carolina, South Carolina, Texas and Virginia. Each of ASUS’s wholly owned subsidiaries is regulated, if applicable, by the state in which the subsidiary primarily conducts water and/or wastewater operations. Fees charged for operations and maintenance and renewal and replacement services are based upon the terms of the contracts with the U.S. government, which have been filed, as appropriate, with the commissions in the states in which ASUS’s subsidiaries are incorporated.

The tables below set forth information relating to GSWC’s operating segments, ASUS and its subsidiaries and other matters. Total assets by segment are not presented below, as certain of Registrant’s assets are not tracked by segment. The utility plant amounts are net of respective accumulated provisions for depreciation. Capital additions reflect capital expenditures paid in cash, and exclude U.S. government- and third-party contractor-funded capital expenditures for ASUS and property installed by developers and conveyed to GSWC.



	As Of And For The Three Months Ended March 31, 2019
	GSWC							AWR			Consolidated
(dollars in thousands)	Water		Electric		ASUS			Parent			AWR
Operating revenues	$	64,723	$	10,629	$	26,381		$	—		$	101,733
Operating income (loss)	13,266		2,061		4,870			(2		)	20,195
Interest expense, net	5,237		353		(361		)	146			5,375
Utility plant	1,247,080		62,584		15,838			—			1,325,502
Depreciation and amortization expense (1)	9,389		600		843			—			10,832
Income tax expense	1,673		447		1,125			65			3,310
Capital additions	38,379		734		1,449			—			40,562


	As Of And For The Three Months Ended September 30, 2018												As Of And For The Three Months Ended March 31, 2018
	GSWC							AWR			Consolidated		GSWC							AWR			Consolidated
(dollars in thousands)	Water		Electric		ASUS			Parent			AWR		Water		Electric		ASUS			Parent			AWR
Operating revenues	$	87,689	$	7,875	$	28,618		$	—		$	124,182	$	64,412	$	9,832	$	20,484		$	—		$	94,728
Operating income (loss)	26,710		830		6,437			(2		)	33,975		14,058		2,239		2,397			(3		)	18,691
Interest expense, net	5,039		291		(118		)	95			5,307		5,009		370		(66		)	74			5,387
Utility plant	1,187,786		61,404		13,725			—			1,262,915		1,149,038		60,261		9,531			—			1,218,830
Depreciation and amortization expense (1)	9,058		565		495			—			10,118		8,769		565		332			—			9,666
Income tax expense (benefit)	5,247		167		1,606			(81		)	6,939		1,649		466		554			(105		)	2,564
Capital additions	24,590		1,140		2,816			—			28,546		26,618		974		2,772			—			30,364

As Of And For The Three Months Ended September 30, 2017
GSWC AWR Consolidated
(dollars in thousands) Water Electric ASUS Parent AWR
Operating revenues $ 91,919
$ 7,994
$ 24,505
$ —
$ 124,418
Operating income (loss) (2)
31,408
1,578
5,551
(3 ) 38,534
Interest expense, net 4,974
346
58
76
5,454
Utility plant 1,117,674
57,669
6,273
—
1,181,616
Depreciation and amortization expense (1)
8,972
537
345
—
9,854
Income tax expense (benefit) 10,544
269
1,944
(249 ) 12,508
Capital additions 30,536
559
905
—
32,000

As Of And For The Nine Months Ended September 30, 2018
GSWC AWR Consolidated
(dollars in thousands) Water Electric ASUS Parent AWR
Operating revenues $ 228,834
$ 25,548
$ 71,429
$ —
$ 325,811
Operating income (loss) 62,012
4,470
11,759
(7 ) 78,234
Interest expense, net 15,095
1,014
(255 ) 252
16,106
Utility plant 1,187,786
61,404
13,725
—
1,262,915
Depreciation and amortization expense (1)
26,693
1,694
1,407
—
29,794
Income tax expense (benefit) 10,805
938
2,865
(718 ) 13,890
Capital additions 75,976
3,264
8,088
—
87,328

As Of And For The Nine Months Ended September 30, 2017
GSWC AWR Consolidated
(dollars in thousands) Water Electric ASUS Parent AWR
Operating revenues $ 239,057
$ 26,108
$ 71,258
$ —
$ 336,423
Operating income (loss) (2)
84,200
5,891
15,055
(10 ) 105,136
Interest expense, net 14,924
1,071
214
197
16,406
Utility plant 1,117,674
57,669
6,273
—
1,181,616
Depreciation and amortization expense (1)
26,731
1,610
843
—
29,184
Income tax expense (benefit) 27,739
1,496
5,152
(717 ) 33,670
Capital additions 74,113
2,260
1,523
—
77,896

(1)Depreciation computed on GSWC’s transportation equipment is recorded in other operating expenses and totaled $58,000

and ~~$61,000~~$60,000 for the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and $179,000 and $181,000 for the nine months ended September 30, 2018 and 2017,~~ respectively.

~~(2)~~ Adjusted to conform to current-year presentation pursuant to the adoption of ASU 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.

The following table reconciles total utility plant (a key figure for ratemaking) to total consolidated assets (in thousands):


	September 30,				March 31,
	2018		2017		2019		2018
Net property, plant and equipment	$	1,262,915	$	1,181,616
Total utility plant					$	1,325,502	$	1,218,830
Other assets	202,127		304,870		200,595		204,834
Total consolidated assets	$	1,465,042	$	1,486,486	$	1,526,097	$	1,423,664

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 its ~~subsidiaries: GSWC~~subsidiaries (GSWC and ASUS and its ~~subsidiaries.~~ subsidiaries), and AWR (parent) where applicable.

Included in the following analysis is a discussion of water and electric gross margins. Water and electric gross margins are computed by subtracting total supply costs from total revenues. Registrant uses these gross margins as important measures in evaluating its operating results. Registrant believes these measures are useful internal benchmarks in evaluating the performance of GSWC.

The discussions and tables included in the following analysis also present Registrant’s operations in terms of earnings per share by business segment. Registrant believes that the disclosure of earnings per share by business segment provides investors with clarity surrounding the performance of its different services. Registrant reviews these measurements regularly and compares them to historical periods and to its operating budget. However, these measures, which are not presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"), may not be comparable to similarly titled measures used by other entities and should not be considered as an alternative to operating income or earnings per share, which are determined in accordance with GAAP. A reconciliation of water and electric gross margins to the most directly comparable GAAP measures is included in the table under the section titled “Operating Expenses: Supply Costs.” ~~Reconciliations~~A reconciliation to AWR’s diluted earnings per share ~~are~~is included in the ~~discussions~~discussion under the ~~sections~~section titled “Summary of ~~Third~~First Quarter ~~Results by Segment” and “Summary of Year-to-Date~~ Results by Segment.”

Overview

Factors ~~that may affect~~affecting our financial performance are summarized under Forward-Looking Information.

~~Tax Cuts~~ and ~~Jobs Act ("Tax Act"):~~

On December 22, 2017, the Tax Act was signed into federal law. The provisions of this major tax reform were generally effective January 1, 2018. The most significant provisions of the Tax Act impacting GSWC are the reduction of the federal corporate income tax rate from 35% to 21% and the elimination of bonus depreciation for regulated utilities. As a result,under “Risk Factors” in our Form 10-K for the ~~three and nine months~~period ended September 30, 2018, the water-revenue requirement was reduced by approximately $4.2 million and $10.7 million, respectively, as a result of the Tax Act, which was largely offset by a decrease in income tax expense, resulting in no material impact to earnings. The CPUC also ordered GSWC to update its pending electric general rate case filing, which will determine new electric rates for the years 2018 - 2021, to reflect the lower federal corporate income tax rate. As a result, for the three and nine months ended September 30, 2018, GSWC reduced electric revenues by approximately $125,000 and $848,000, respectively, which were also largely offset by a corresponding decrease in income tax expense, resulting in no material impact to earnings. December 31, 2018.

In addition to lowering customer rates, GSWC expects the Tax Act to reduce property-related deferred tax liabilities. Property-related deferred tax liabilities reduce GSWC's rate base. As new plant is placed in service, the lower federal corporate tax rate will result in lower deferred tax liabilities. As a result of the lower federal tax rate and elimination of bonus depreciation by the Tax Act, GSWC expects that its rate base and earnings will increase for the same level of expected capital expenditures. This increase is expected to be partially offset by higher financing costs arising from a greater need to fund capital expenditures through the issuance of debt and/or equity due to lower cash flows from operating activities.

During the second and third quarter of 2018, the U.S. government issued contract modifications for the majority of ASUS's 50-year contracts addressing the impacts of the Tax Act. The modifications did not result in a material impact to ASUS's results during the three and nine months ended September 30, 2018.

Water and Electric Segments:

GSWC's revenues, operating income and cash flows are earned primarily through delivering potable water to homes and businesses in California and the delivery of electricity in the Big Bear area of San Bernardino County, California. 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. GSWC 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 higher levels than depreciation expense. When necessary, GSWC obtains funds from external sources in the capital markets and through bank borrowings.

Pending General Rate Case ~~("GRC")~~ Filings:

Water ~~Segment GRC:~~Segment:

In July 2017, GSWC filed a general rate case application for ~~all~~ its water regions and the general office. ~~This~~The general rate case will determine new water rates for the years 2019 through 2021. On August 15, 2018, GSWC and the CPUC’s Public Advocates Office ~~("CalPA"), formerly the Office of Ratepayer Advocates,~~ filed a joint motion to adopt a settlement agreement between the two parties in connection with the general rate case.

On April 8, 2019, the assigned Administrative Law Judge issued a proposed decision ("PD") on the general rate case. The PD approves the settlement agreement, with the exception of advice letter capital projects totaling approximately $20.4 million that were agreed to by GSWC and the ~~CalPA~~CPUC’s Public Advocates Office in ~~connection with this general rate case. If approved by~~ the ~~CPUC, this settlement resolves all the issues~~settlement. The PD does not explicitly disallow these projects, but instead instructs GSWC to include these projects in ~~the~~its next general rate case ~~application~~filing. As a result, no impairment charges were recorded for the three months ended March 31, 2019 related to the immaterial costs incurred to date for these projects. GSWC and ~~authorizes~~the CPUC's Public Advocates Office have separately filed their response and comments to the PD, and both parties dispute the ALJ's rejection of the advice letter capital projects. At this time, GSWC cannot predict the final outcome regarding this matter; however, if the PD is approved as is, it would authorize GSWC to invest approximately ~~$334.5~~$314.1 million in capital infrastructure over the three-year rate cycle. The $334.5 million of infrastructure investment, as settled, includes $20.4 million of capital projects to be filed for revenue recovery through advice letters when those projects are completed.

~~Excluding the advice letter project revenues,~~cycle, and would increase the water gross margin for 2019 ~~in the settlement filing is expected to increase~~ by approximately ~~$6.0~~$7.1 million, adjusted for updated inflation index values since the August settlement, as compared to the 2018 adopted water gross margin.

The 2019 water revenue

requirement ~~as settled,~~in the PD has been reduced ~~for~~to reflect a decrease of approximately $7.0 million in depreciation expense, compared to the adopted 2018 depreciation expense, due to a reduction in the overall composite depreciation rates based on a revised study filed in the general rate case. The decrease in depreciation expense lowers the water gross margin, and is offset by a corresponding decrease in depreciation expense, resulting in no impact to net earnings. In addition, the 2019 water revenue requirement ~~as settled,~~in the PD includes a decrease of approximately $2.2 million for excess deferred tax

refunds as a result of the 2017 Tax Cuts and Jobs Act ("Tax Act"), which has a corresponding decrease in income tax expense and also results in no impact to net earnings. Had depreciation expense ~~as settled,~~in the PD remained the same as the 2018 adopted amount and there was no excess deferred tax refund that lowered the 2019 revenue requirement, the water gross margin for 2019 would have increased by approximately ~~$15.2~~$16.3 million. Due to the delay in receiving a final decision by the CPUC on the water general rate case, billed water revenues for the first three months of 2019 were based on 2018 adopted rates. Based on the PD, had new rates been in place as of January 1, 2019, pretax income for the water segment would have been higher by approximately $4.0 million, or $0.08 per share, for the first quarter of 2019. When approved, the new rates will be retroactive to January 1, 2019 and retroactive adjustments will be recorded accordingly. In addition, the PD approves the recovery of previously incurred costs that were being tracked in CPUC-authorized memorandum accounts, which will result in a reduction to operating expenses of approximately $1.0 million, or $0.02 per share, if the PD is approved by the CPUC.

The ~~settlement as filed~~PD also allows for potential additional water revenue increases in 2020 and 2021 of approximately ~~$10.0~~$9.6 million and $12.0 million, respectively, subject to the results of an earnings test and changes to the forecasted inflationary index values.

GSWC and CalPA informed the assigned Administrative Law Judge ("ALJ”) that hearings would not be needed in light of the settlement agreement. Subsequently, the ALJ issued a ruling requesting additional information on a number of items in the general rate case. GSWC has provided the additional information requested by the ALJ and believes it has satisfied all of the questions raised. Both the ALJ’s request and GSWC’s response are public information. At this time, GSWC is awaiting a proposed decision by the ALJ, which is expected during the fourth quarter of 2018, with a final decision by the CPUC expected by the first quarter of 2019. When approved, the new rates will become effective January 1, 2019.

Electric ~~Segment GRC:~~Segment:

In May 2017, GSWC filed its electric general rate case application with the CPUC to determine new electric rates for the years 2018 through 2021. In November 2018, GSWC and ~~CalPA have reached~~the Public Advocates Office filed a ~~tentative~~joint motion to adopt a settlement ~~which resolves~~agreement between the two parties resolving all ~~revenue requirement~~ issues in ~~this~~connection with the general rate case. ~~A settlement conference with all parties in the rate case is scheduled for November 2018.~~ Among other things, the ~~tentative~~ settlement incorporates a previous stipulation in the case, which authorizes a new return on equity for GSWC's electric segment of 9.60%~~. GSWC’s prior~~, as compared to its previously authorized return ~~on equity for its electric segment was~~of 9.95%. The stipulation also included a capital structure and debt cost ~~similar to~~the same as those approved by the CPUC in March 2018 in connection with GSWC's water segment cost of capital ~~proceeding, as discussed below.~~ proceeding. Furthermore, the settlement (i) extends the rate cycle by one year (new rates will be effective for 2018-2022); (ii) increases the electric gross margin for 2018 by approximately $2.0 million compared to the 2017 adopted electric gross margin, adjusted for tax reform; (iii) authorizes BVES to invest approximately $44 million in capital infrastructure for 2018-2022, which includes all requested capital projects plus an additional $3 million for 2022; and (iv) increases the adopted electric gross margin by $1.2 million for each of the years 2019 and 2020, by $1.1 million in 2021, and by $1.0 million in 2022 (the rate increases for 2019 – 2022 are not subject to an earnings test).

Because of the delay in finalizing the electric general rate case, ~~year-to-date 2018~~ billed electric revenues ~~have been~~during 2018 and the first three months of 2019 were based on 2017 adopted rates, pending a final decision by the CPUC in this rate case application. Had the new rates in the settlement agreement been in place as of January 1, 2018, pretax income for the electric segment would have increased by approximately $2.0 million, or $0.04 per share, for the full year ended December 31, 2018, and by approximately $941,000, or approximately $0.02 per share, for the first three months of 2019. When ~~a final decision is~~ approved, the new ~~electric~~ rates will be retroactive to January 1, 2018 and retroactive adjustments for 2019 will be recorded accordingly, as well as the $2.0 million, or $0.04 per share, related to 2018.

~~Cost of Capital Proceeding for GSWC's Water Segment:~~

In March 2018, the CPUC issued a final decision in the cost of capital proceeding for GSWC and three other investor-owned water utilities that serve California. Among other things, the final decision adopts for GSWC (i) a return on equity of 8.90%, (ii) a cost of debt of 6.6%, (iii) a capital structure with 57% equity and 43% debt, (iv) a return on rate base of 7.91%, and (v) the continuation of the water cost of capital adjustment mechanism. GSWC’s prior authorized return on equity and equity ratio for its water segment were 9.43% and 55%, respectively, with a return on rate base of 8.34%. The newly authorized return on rate base of 7.91% reflects a true-up of GSWC’s embedded debt cost from 6.99% to 6.6%. The reduced debt costs contributed approximately 18 basis points to the 43-basis-point drop in the authorized return on rate base. The effects of the Tax Act discussed below and the lower return on rate base beginning in 2018 is expected to decrease GSWC’s 2018 adopted annual revenue requirement by approximately $3.6 million, or $0.07 per share.

Contracted Services Segment:

ASUS's revenues, operating income and cash flows are earned by providing water and/or wastewater services, including operation and maintenance services and construction of facilities at the water and/or wastewater systems at various military installations, pursuant to 50-year firm fixed-price contracts. The contract price for each of these 50-year contracts is subject to annual economic price adjustments. Additional revenues generated by contract operations are primarily dependent on new construction activities under contract modifications with the U.S. government or agreements with other third-party prime contractors.

Fort Riley:

On July 1, 2018, ASUS assumed the operation, maintenance and construction management of the water distribution and wastewater collection and treatment facilities at Fort Riley, a United States Army installation located in Kansas, after completing a transition ~~period. The contract was awarded by the U.S. government in September 2017 with an initial value of $601 million over~~period and a ~~50-year period, subject to adjustments for the actual~~detailed inventory ~~level to be managed and the lower federal corporate income tax rate effective January 1, 2018.~~study. The 50-year contract ~~will~~is also be subject to annual economic price adjustments.

~~Eglin Air Force Base (“Eglin AFB”):~~

On June 15, 2017, ASUS assumed operations of the water and wastewater systems at Eglin AFB in Florida after completing a transition period and a detailed joint inventory study. The value of the 50-year contract is approximately $702.4 million. The contract is subject to annual economic price adjustments.

With the addition of Fort Riley and Eglin AFB, ASUS serves 11 military bases in the United Sates, including four of the largest military installations: Fort Bragg, Fort Bliss, Eglin AFB and Fort Riley.

Summary of ~~Third~~First Quarter Results by Segment

The table below sets forth the ~~third~~first quarter diluted earnings per share by business segment:


	Diluted Earnings per Share							Diluted Earnings per Share
	Three Months Ended							Three Months Ended
	9/30/2018		9/30/2017		CHANGE			3/31/2019		3/31/2018		CHANGE
Water	$	0.47	$	0.44	$	0.03		$	0.21	$	0.20	$	0.01
Electric	0.02		0.03		(0.01		)	0.03		0.04		(0.01		)
Contracted services	0.13		0.10		0.03			0.11		0.05		0.06
Consolidated diluted earnings per share, as reported	$	0.62	$	0.57	$	0.05		$	0.35	$	0.29	$	0.06

Water Segment:

~~Diluted earnings per share for~~For the three months ended ~~September 30, 2018 at~~March 31, 2019, diluted earnings per share from the water segment increased ~~by $0.03~~$0.01 to $0.21 per share as compared to $0.20 per share for the same period in ~~2017. Excluding~~2018 despite the delay in receiving a final decision on the water general rate case. Because of the delay, billed water revenues for the first three months of 2019 were based on 2018 adopted rates, pending a final decision by the CPUC. As a result, the water gross margin remained relatively flat after excluding the effects of changes in the ~~Tax Act~~pension balancing account and of billed surcharges, ~~to recover previously incurred costs,~~ both of which have no material impact to earnings. Had new rates been in place as of January 1, 2019 based on the proposed decision issued in April 2019, pretax income at the water segment would have been higher by approximately $4.0 million, or $0.08 per share, for the first quarter of 2019. When approved, the new rates will be retroactive to January 1, 2019 and retroactive adjustments will be recorded accordingly.

Excluding the impact of billed surcharges to recover previously incurred costs, which have no material impact to earnings, diluted earnings from GSWC’s water operations increased compared to the same period in 2018 due mostly to the following two items, ~~affected the comparability between the two periods:~~

~~An overall increase in~~which, when combined, increased the water ~~gross margin, which increased net~~segment’s earnings by approximately ~~$0.02~~$0.01 per ~~share, was~~share:

an increase in interest and other income (net of interest expense) due primarily to ~~third-year rate increases approved by~~gains recorded on investments held to fund a retirement benefit plan as a result of market conditions, as compared to losses recognized during the ~~CPUC effective January 1,~~same period in 2018. This ~~increase~~ was partially offset by ~~the revenue impact~~an increase in interest expense resulting from higher borrowings to fund a ~~lower authorized return on rate base approved in the cost~~portion of GSWC’s capital decision issued by the CPUC in March 2018, which was effective in 2018. The lower authorized return decreased the water gross margin during the three months ended September 30, 2018 by approximately $0.02 per share.expenditures.

Anan overall increase in operating expenses ~~(other than~~(excluding supply costs)~~, which decreased earnings by approximately $0.02 per share, was~~ due primarily tofrom higher water treatment, conservation and employee-related ~~benefits,~~compensation costs, as well as depreciation expense ~~and property taxes.~~

Aresulting from capital additions. These increases in operating expenses were partially offset by lower ~~effective income tax rate (excluding~~maintenance expense incurred as compared to the ~~effects of the Tax Act), which increased earnings by approximately $0.03 per share, was due primarily to differences between book and taxable income that are treated as flow-through adjustments~~same period in accordance with regulatory requirements (primarily related to plant, rate case and compensation-related items). Flow-through adjustments increase or decrease tax expense in one period, with an offsetting decrease or increase in another period.2018.

Electric Segment:

For the three months ended ~~September 30, 2018,~~March 31, 2019, diluted earnings from the electric segment were ~~$0.02~~$0.03 per share as compared to ~~$0.03~~$0.04 per share for the same period in ~~2017.~~2018. The decrease in earnings was largely due to an increase in operating expenses without an increase in customer base rates due to delays in finalizing the pending electric general rate case. ~~GSWC filed its electric general rate case in May 2017 for new rates in the years 2018 - 2021.~~ Because of the delay, ~~year-to-date~~billed electric revenues during the first three months of 2019, and all of 2018, ~~billed revenues have been~~were based on 2017 adopted rates, pending a final decision by the CPUC ~~decision on~~in the ~~electric general~~ rate ~~case. When approved, the new rates~~case application, which will be retroactive to January 1, 2018. Had the new rates in the settlement agreement been approved by the CPUC and in place as of January 1, 2019, pretax income at the electric segment would have been higher by approximately $941,000, or $0.02 per share, for the first three months of 2019. This amount will be recorded when a CPUC decision is issued, along with $0.04 per share related to 2018.

The increase in operating expenses was due mostly to higher legal and outside service costs, as well as labor and other employee-related compensation. Maintenance and depreciation expenses were also higher than last year. The higher operating expenses (excluding supply costs), were partially offset by a higher electric gross margin resulting from rate increases generated from advice letter filings approved by the CPUC in the fourth quarter of 2018.

Contracted Services Segment:

For the three months ended ~~September 30, 2018,~~March 31, 2019 diluted earnings ~~per share~~ from the contracted services segment ~~increased by $0.03~~were $0.11 per share as compared to $0.05 per share for the same period in ~~2017~~2018 due, in ~~large~~ part, to the commencement of operations at Eglin AFB in June 2017 and at Fort Riley in July 2018, which resulted in an overall increase in contracted services revenue. This increase was partially offset by increases in operating expenses, largely related to the commencement of operations at Fort Riley in July 2018.

~~Summary of Year-to-Date Results by Segment~~

~~The table below sets forth the year-to-date diluted earnings per share by business segment:~~

Diluted Earnings per Share
Nine Months Ended
9/30/2018 9/30/2017 CHANGE
Water, excluding one-time gain on sale of Ojai water system $ 1.02
$ 1.04
$ (0.02 )
Electric 0.08
0.09
(0.01 )
Contracted services 0.24
0.26
(0.02 )
AWR (parent) 0.01
0.01
—
Consolidated diluted earnings per share, adjusted 1.35
1.40
(0.05 )
Gain on sale of Ojai water system —
0.13
(0.13 )
Consolidated diluted earnings per share, as reported $ 1.35
$ 1.53
$ (0.18 )

~~Water Segment:~~

~~Included in earnings for the first nine months of 2017~~ There was the recognition of a pretax gain of $8.3 million, or $0.13 per share, on the sale of GSWC's Ojai water system in June of 2017, with no similar gain in 2018. In June 2017, GSWC sold its Ojai water system pursuant to a settlement agreement, which resolved an eminent domain action. Also included in earnings for the first nine months of 2017 was the recovery of incremental drought-related items approved by the CPUC in February 2017 resulting inalso an increase ~~to pretax earnings of $1.5 million, or $0.02 per share~~ in ~~2017, which did not recur in 2018. Approximately $1.2 million was reflected as a reduction to~~management fees and construction activity at several other operation expenses and approximately $260,000 was reflected as additional revenue. Excluding the effects of both items, diluted earnings per share from the water segment for each of the nine months ended September 30, 2018 and 2017 were $1.02 per share. The following items (excluding the effects of the Tax Act and surcharges, which have no material impact to earnings) affected the comparability between the two periods:

~~An increase in the water gross margin, which increased net earnings by approximately $0.02 per share. This increase was~~military bases due to the ~~third-year rate increases effective January 1, 2018, partially offset by the revenue impact from the lower authorized return on rate base in the cost~~successful resolution of ~~capital proceeding approved by the CPUC~~various price adjustments and effective in 2018, as well as the cessation of the Ojai operations in June of 2017. The lower return on rate base beginning in 2018 is expected to decrease GSWC’s 2018 adopted annual revenue requirement by approximately $3.6 million, or about $0.07 per share. Before reflecting the effects of the new cost of capital and the Tax Act, third-year rate increases are expected to add approximately $4.5 million to the 2018 full year adopted water gross margin, net of the cessation of the Ojai water system.

Anan overall increase in operating expenses (excluding supply costs), which lowered net earnings by approximately $0.03 per share resulting primarily from higher employee-related benefits, maintenance, depreciation and property taxes as compared to the same period in 2017.

An increase in interest expense (net of interest and other income), which lowered net earnings at the water segment by approximately $0.02 per share, due primarily to (i) higher short-term borrowings to fund operations and a portion of GSWC’s capital expenditures, (ii) lower gains recorded on investments held to fund a retirement benefit plan resulting from recent market conditions, as compared to the same period in 2017, and (iii) amounts collected and recorded in 2017 from developers on certain outstanding balances, with no similar collections in 2018.

A lower effective income tax rate (excluding the effects of the Tax Act), increasing earnings by approximately $0.03 per share resulting primarily from differences between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements (primarily related to plant, rate case and compensation-related items).

~~Electric Segment:~~

~~For~~the nine months ended September 30, 2018, diluted earnings from the electric segment were $0.08 per share as compared to $0.09 per share for the same period in 2017. The decrease in earnings was due to an increase in operating expenses without increases in customer rates. As previously discussed, year-to-date 2018 billed revenues have been based on 2017 adopted rates, pending a final CPUC decision on the electric general rate case, which will be retroactive to January 1, 2018.

~~Contracted Services Segment:~~

For the nine months ended September 30, 2018, diluted earnings per share from the contracted services segment were $0.24 per share as compared to $0.26 per share for the same period in 2017. Included in the results for the nine months ended September 30, 2017 were retroactive revenues resulting from the approval of the third price redetermination at Fort Bragg, which totaled approximately $1.0 million, or $0.02 per share, related to periods prior to 2017. Excluding this retroactive amount, diluted earnings per share from the contracted services segment were $0.24 per share for the nine months ended September 30, 2018 and 2017. There were increases in management fee revenues generated from Eglin AFB and Fort Riley upon the commencement of the operation of their water and wastewater systems by ASUS in June 2017 and July 2018, respectively. These increases were largely offset by a decrease in overall construction ~~revenue and increases in operating expenses, including operating costs incurred at Eglin AFB and Fort Riley upon commencement of their operations.~~

activity.

The following discussion and analysis for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ provides information on AWR’s consolidated operations and assets, and ~~where necessary,~~ includes specific references to AWR’s individual segments and ~~subsidiaries: GSWC~~subsidiaries (GSWC and ASUS and its ~~subsidiaries.~~subsidiaries), and AWR (parent) where applicable.

Consolidated Results of Operations — Three Months Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ (amounts in thousands, except per share amounts):


	Three Months Ended September 30, 2018			Three Months Ended September 30, 2017			$ CHANGE			% CHANGE		Three Months Ended March 31, 2019			Three Months Ended March 31, 2018			$ CHANGE			% CHANGE
OPERATING REVENUES
Water	$	87,689		$	91,919		$	(4,230	)	(4.6	)%	$	64,723		$	64,412		$	311		0.5	%
Electric	7,875			7,994			(119		)	(1.5	)%	10,629			9,832			797			8.1	%
Contracted services	28,618			24,505			4,113			16.8	%	26,381			20,484			5,897			28.8	%
Total operating revenues	124,182			124,418			(236		)	(0.2	)%	101,733			94,728			7,005			7.4	%

OPERATING EXPENSES
Water purchased	21,842			20,576			1,266			6.2	%	13,140			13,607			(467		)	(3.4	)%
Power purchased for pumping	3,217			2,913			304			10.4	%	1,538			1,693			(155		)	(9.2	)%
Groundwater production assessment	5,961			5,870			91			1.6	%	3,746			4,651			(905		)	(19.5	)%
Power purchased for resale	2,647			2,439			208			8.5	%	3,704			3,408			296			8.7	%
Supply cost balancing accounts	(5,212		)	(4,621		)	(591		)	12.8	%	(1,372		)	(3,869		)	2,497			(64.5	)%
Other operation	8,355			7,657			698			9.1	%	8,571			7,988			583			7.3	%
Administrative and general	21,570			21,823			(253		)	(1.2	)%	21,672			20,293			1,379			6.8	%
Depreciation and amortization	10,118			9,854			264			2.7	%	10,832			9,666			1,166			12.1	%
Maintenance	3,422			3,222			200			6.2	%	2,566			3,829			(1,263		)	(33.0	)%
Property and other taxes	4,692			4,475			217			4.8	%	4,896			4,799			97			2.0	%
ASUS construction	13,620			11,693			1,927			16.5	%	12,245			9,972			2,273			22.8	%
Gain on sale of assets	(25		)	(17		)	(8		)	47.1	%
Total operating expenses	90,207			85,884			4,323			5.0	%	81,538			76,037			5,501			7.2	%

OPERATING INCOME	33,975			38,534			(4,559		)	(11.8	)%	20,195			18,691			1,504			8.0	%

OTHER INCOME AND EXPENSES
Interest expense	(5,948		)	(5,775		)	(173		)	3.0	%	(6,317		)	(5,923		)	(394		)	6.7	%
Interest income	641			321			320			99.7	%	942			536			406			75.7	%
Other, net	1,223			434			789			181.8	%	1,342			42			1,300			*
	(4,084		)	(5,020		)	936			(18.6	)%	(4,033		)	(5,345		)	1,312			(24.5	)%

INCOME BEFORE INCOME TAX EXPENSE	29,891			33,514			(3,623		)	(10.8	)%	16,162			13,346			2,816			21.1	%
Income tax expense	6,939			12,508			(5,569		)	(44.5	)%	3,310			2,564			746			29.1	%

NET INCOME	$	22,952		$	21,006		$	1,946		9.3	%	$	12,852		$	10,782		$	2,070		19.2	%

Basic earnings per Common Share	$	0.62		$	0.57		$	0.05		8.8	%	$	0.35		$	0.29		$	0.06		20.7	%

Fully diluted earnings per Common Share	$	0.62		$	0.57		$	0.05		8.8	%	$	0.35		$	0.29		$	0.06		20.7	%

* not meaningful

Operating Revenues:

General

GSWC relies upon approvals by the CPUC of rate increases to recover operating expenses and to provide for a return on invested and borrowed capital used to fund utility plant for GSWC. Registrant relies on economic price and equitable adjustments by the U.S. government in order to recover operating expenses and provide a profit margin for ASUS. Current operating revenues and earnings can be negatively impacted if the Military Privatization Subsidiaries do not receive adequate rate relief or adjustments in a timely manner. ASUS’s earnings are also impacted by the level of additional construction projects at the Military Utility Privatization Subsidiaries, which may or may not continue at current levels in future periods.

Water

For the three months ended ~~September 30, 2018,~~March 31, 2019, revenues from water operations ~~decreased $4.2 million~~increased $311,000 to ~~$87.7~~$64.7 million as compared to the same period in ~~2017. This decrease was~~2018 due primarily ~~due to: (i) downward adjustments~~ to ~~water revenue~~CPUC-approved rate increases to cover increases in supply costs experienced in most ratemaking areas, which were largely offset by ~~lower income tax expense, thus no material~~a corresponding increase in supply costs, resulting in an immaterial impact to ~~earnings, as a result of the Tax Act which reduced the federal corporate income tax rate, (ii) a lower authorized rate of return approved~~earnings. This increase in revenues was partially offset by ~~the CPUC in the March 2018 final decision on the water cost of capital application, and (iii) decreases related to~~ the expiration of various surcharges that were in place to recover previously incurred costs. ~~These~~The decrease in surcharge revenues ~~were~~was offset by a corresponding decrease in operating expenses (primarily administrative and general), also resulting in no impact to earnings. ~~These decreases~~

Excluding the items discussed above, water revenues remained relatively flat due to the delay in receiving a final decision on the water ~~revenue were partially offset by CPUC-approved third-year~~general rate ~~increases effective~~case. In July 2017, GSWC filed a general rate case application for its water regions and the general office for new rates in years 2019 through 2021. Pending a final CPUC decision on this general rate case, year-to-date 2019 billed revenues have been based on 2018 adopted rates. On April 8, 2019, the CPUC issued a proposed decision on this general rate case. Once a final decision is received, new rates will be retroactive to January 1, ~~2018.~~2019.

Billed water consumption for the ~~third~~first quarter of ~~2018 increased~~2019 decreased by approximately 2%16% as compared to the same period in ~~2017.~~2018 due to wet weather conditions experienced in late 2018 and early 2019. In general, changes in consumption do not have a significant impact on recorded revenues due to the CPUC-approved Water Revenue Adjustment Mechanism ("WRAM") ~~accounts~~ in place at all but one small rate-making area. However, under the accounting guidance for alternative revenue programs such as the WRAM, significant decreases in consumption may impact the timing of when revenues are recorded. GSWC records the difference between what it bills its water customers and that which is authorized by the CPUC in the WRAM accounts as regulatory assets or liabilities.

Electric

~~Electric~~

For the three months ended September 30, 2018, revenues from electric operations decreased slightly to $7.9 million as compared to $8.0 million for the same period in 2017 resulting primarily from downward adjustments to electric revenue to offset lower income tax expense, thus having no material impact to earnings, as a result of the Tax Act. Excluding the effects of the Tax Act, electric revenue remained relatively flat due to the delay in finalizing the electric general rate case. GSWC filed its electric general rate case in May 2017 for ~~new~~ rates in ~~the~~ years 2018 -through 2021. ~~Because~~Pending a final CPUC decision on the general rate case, year-to-date billed revenues for the three months ended March 31, 2019 and for all of ~~the delay, year-to-date~~ 2018, ~~billed revenues~~ have been based on 2017 adopted rates. For the three months ended March 31, 2019, electric revenues increased by $797,000, largely due to an increase in electric usage as compared to the same period in 2018. The increase in usage creates a corresponding increase in supply costs from the higher electric usage, resulting in no material impact to earnings. There were also increases in electric rates ~~pending a final~~due to advice letter projects approved by the CPUC ~~decision on~~during the ~~electric general rate case. When approved, the new rates will be retroactive to January 1,~~fourth quarter of 2018.

Billed electric usage ~~increased 1%~~ during the three months ended ~~September 30, 2018~~March 31, 2019 increased by approximately 11% as compared to the three months ended ~~September 30, 2017.~~March 31, 2018. Due to the CPUC-approved Base Revenue Requirement Adjustment Mechanism ("BRRAM"), which adjusts certain revenues to adopted levels authorized by the CPUC, changes in usage do not have a significant impact on earnings.

Contracted Services

Revenues from contracted services are composed of construction revenues (including renewal and replacements) and management fees for operating and maintaining the water and/or wastewater systems ~~and treatment plants~~ at various military bases. For the three months ended ~~September 30, 2018,~~March 31, 2019, revenues from contracted services increased ~~$4.1~~$5.9 million to ~~$28.6~~$26.4 million as compared to ~~$24.5~~$20.5 million for the same period in ~~2017 due~~2018 largely ~~to the commencement of operations at Eglin AFB in June 2017 and at Fort Riley in July 2018, which resulted in increases in construction revenue. There was also an increase in management fee revenue~~ due to the commencement of operations at Fort ~~Riley.~~Riley in July 2018.

ASUS subsidiaries continue to enter into U.S. government-awarded contract modifications and agreements with third-party prime contractors for new construction projects at the Military Utility Privatization Subsidiaries. ~~During 2018, ASUS has been awarded approximately $23 million in new construction projects, some of which have been or are expected to be completed during 2018, and the remainder in 2019.~~ Earnings and cash flows from modifications to the original 50-year contracts with the U.S. government and agreements with third-party prime contractors for additional construction projects may or may not continue in future periods.

Operating Expenses:

Supply Costs

Supply costs for the water segment consist of purchased water, purchased power for pumping, groundwater production assessments and changes in the water supply cost balancing accounts. Supply costs for the electric segment consist of purchased power for resale, the cost of natural gas used by BVES’s generating unit, the cost of renewable energy credits and changes in the electric supply cost balancing account. Water and electric gross margins are computed by subtracting total supply costs from total revenues. Registrant uses these gross margins and related percentages as an important measure in evaluating its operating results. Registrant believes these measures are useful internal benchmarks in evaluating the utility business performance within its water and electric segments. Registrant reviews these measurements regularly and compares them to historical periods and to its operating budget. However, these measures, which are not presented in accordance with GAAP, may not be comparable to similarly titled measures used by other entities, and should not be considered as an alternative to operating income, which is determined in accordance with GAAP.

Total supply costs comprise the largest segment of total operating expenses. Supply costs accounted for approximately ~~31.5%~~25.5% and ~~31.6%~~25.6% of total operating expenses for the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively.

The table below provides the ~~amount~~amounts (in thousands) of increases (decreases) and percent changes in water and electric revenues, supply costs and gross margin during the three months ended ~~September 30, 2018~~March 31, 2019 and 2017 (dollar amounts in thousands). As previously discussed, water and electric revenues for the three months ended September 30, 2018 were adjusted downward by $4.2 million and $125,000, respectively, to reflect the effects of the Tax Act, but had no significant impact to earnings due to a corresponding decrease in water and electric income tax expense. Furthermore, there2018. There was a decrease in surcharges of ~~$2.0 million~~approximately $502,000 recorded in water revenues to recover previously incurred costs, which ~~also~~ did not impact water earnings. Surcharges to recover previously incurred costs are recorded to revenues when billed to customers and are offset by a corresponding amount in operating expenses (primarily administrative and general), resulting in no impact to earnings.


	Three Months Ended September 30, 2018			Three Months Ended September 30, 2017			$ CHANGE			% CHANGE		Three Months Ended March 31, 2019			Three Months Ended March 31, 2018			$ CHANGE			% CHANGE
WATER OPERATING REVENUES (1)	$	87,689		$	91,919		$	(4,230	)	(4.6	)%	$	64,723		$	64,412		$	311		0.5	%
WATER SUPPLY COSTS:
Water purchased (1)	$	21,842		$	20,576		$	1,266		6.2	%	$	13,140		$	13,607		$	(467	)	(3.4	)%
Power purchased for pumping (1)	3,217			2,913			304			10.4	%	1,538			1,693			(155		)	(9.2	)%
Groundwater production assessment (1)	5,961			5,870			91			1.6	%	3,746			4,651			(905		)	(19.5	)%
Water supply cost balancing accounts (1)	(5,639		)	(5,245		)	(394		)	7.5	%	(2,119		)	(4,368		)	2,249			(51.5	)%
TOTAL WATER SUPPLY COSTS	$	25,381		$	24,114		$	1,267		5.3	%	$	16,305		$	15,583		$	722		4.6	%
WATER GROSS MARGIN (2)	$	62,308		$	67,805		$	(5,497	)	(8.1	)%	$	48,418		$	48,829		$	(411	)	(0.8	)%


ELECTRIC OPERATING REVENUES (1)	$	7,875		$	7,994		$	(119	)	(1.5	)%	$	10,629		$	9,832		$	797		8.1	%
ELECTRIC SUPPLY COSTS:
Power purchased for resale (1)	$	2,647		$	2,439		$	208		8.5	%	$	3,704		$	3,408		$	296		8.7	%
Electric supply cost balancing accounts (1)	427			624			(197		)	(31.6	)%	747			499			248			49.7	%
TOTAL ELECTRIC SUPPLY COSTS	$	3,074		$	3,063		$	11		0.4	%	$	4,451		$	3,907		$	544		13.9	%
ELECTRIC GROSS MARGIN (2)	$	4,801		$	4,931		$	(130	)	(2.6	)%	$	6,178		$	5,925		$	253		4.3	%

(1)As reported on AWR’s Consolidated Statements of Income, except for supply cost balancing accounts. The sum of water and electric supply cost balancing accounts in the table above are shown onin AWR’s Consolidated Statements of Income and totaled ~~$(5,212,000)~~$(1,372,000) and ~~$(4,621,000)~~$(3,869,000) for the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively. Revenues include surcharges, ~~to recover previously incurred costs,~~ which ~~increases~~increase both revenues and operating expenses by corresponding amounts, thus having no net earnings impact.

(2)Water and electric gross margins do not include any depreciation and amortization, maintenance, administrative and general, property or other taxes or other operation expenses.

Two of the principal factors affecting water supply costs are the amount of water produced and the source of the water. Generally, the variable cost of producing water from wells is less than the cost of water purchased from wholesale suppliers. Under the CPUC-approved Modified Cost Balancing Account ("MCBA"), GSWC tracks adopted and actual expense levels for purchased water, power purchased for pumping and pump taxes. GSWC records the variances (which include the effects of

changes in both rate and volume) between adopted and actual purchased water, purchased power, and pump tax expenses. GSWC recovers from, or refunds to, customers the amount of such variances. GSWC tracks these variances individually for each water ratemaking area.

The overall actual ~~percentages~~percentage of purchased water for ~~each of~~ the three months ended ~~September 30, 2018 and 2017 were~~March 31, 2019 was approximately 43%, as compared to the last authorized adopted percentage of ~~approximately 30%~~25%, which was for ~~each of the three months ended September 30,~~ 2018 and ~~2017.~~is pending a final decision on the water general rate case. The higher actual ~~percentages~~percentage of purchased water as compared to the adopted ~~percentages~~percentage resulted from ~~an increase in purchase~~a higher volume of purchased water costs due to several wells being out of service.

Purchased water costs for the three months ended ~~September 30, 2018 increased~~March 31, 2019 decreased to ~~$21.8~~$13.1 million as compared to ~~$20.6~~$13.6 million for the same period in ~~2017 primarily~~2018 due to ~~an increase~~a decrease in customer usage. The decreases in power purchased for pumping and groundwater production assessments were also largely due to a decrease in customer usage as ~~well as an increase in wholesale water costs as~~ compared to ~~the three months ended September 30, 2017.~~

~~Power purchased for pumping for the three months ended September 30, 2018 increased to $3.2 million as compared to $2.9 million for~~ the same period in ~~2017 primarily due to an increase in customer usage.~~2018.

The under-collection in the water supply cost balancing account ~~increased $394,000~~decreased $2.2 million during the three months ended ~~September 30, 2018 as compared to the same period in 2017~~March 31, 2019 mainly due to the ~~higher supply mix percentage of purchased water versus pumped water.~~decrease in customer usage, as well as CPUC-approved rate increases implemented in July 2018 to cover supply-cost increases experienced in prior years.

For the three months ended ~~September 30, 2018,~~March 31, 2019, the cost of power purchased for resale to BVES's customers ~~increased to $2.6~~was $3.7 million as compared to ~~$2.4~~$3.4 million for the ~~three months ended September 30, 2017,~~same period in 2018. The increase was due to an increase in ~~the~~customer usage, partially offset by a lower average price per ~~megawatt-hour (“MWh”~~megawatt hour ("MWh"). The average price per MWh, including fixed costs, ~~increased~~decreased from ~~$73.81~~$79.44 for the three months ended ~~September 30, 2017~~March 31, 2018 to ~~$81.95~~$77.77 for the same period in ~~2018.~~ 2019. The over-collection in the electric supply cost balancing account increased as compared to the three months ended March 31, 2018 due to the decrease in the average price per MWh.

Other Operation

The primary components of other operation expenses for GSWC include payroll, materials and supplies, chemicals and water treatment costs and outside service costs of operating the regulated water systems, including the costs associated with water transmission and distribution, pumping, water quality, meter reading, billing, and operations of district ~~offices.~~offices as well as the electric system. Registrant’s contracted services operations incur many of the same types of expenses as well. For the three months ended ~~September 30,~~March 31, ~~2018~~2019 and ~~2017~~2018, other operation expenses by business segment consisted of the following (dollar amounts in thousands):


	Three Months Ended September 30, 2018		Three Months Ended September 30, 2017		$ CHANGE		% CHANGE		Three Months Ended March 31, 2019		Three Months Ended March 31, 2018		$ CHANGE		% CHANGE
Water Services	$	5,820	$	5,817	$	3	0.1	%	$	6,045	$	5,722	$	323	5.6	%
Electric Services	750		676		74		10.9	%	815		712		103		14.5	%
Contracted Services	1,785		1,164		621		53.4	%	1,711		1,554		157		10.1	%
Total other operation	$	8,355	$	7,657	$	698	9.1	%	$	8,571	$	7,988	$	583	7.3	%

For the three months ended ~~September 30,~~March 31, 2019, there was a decrease of $183,000 in surcharges billed to customers to recover previously incurred other operation-related costs approved by the CPUC. This decrease was offset by a corresponding decrease in other operation expense to reflect the recovery of these costs, resulting in no impact to earnings. Excluding the decrease in billed surcharges, other operation expenses increased for the water segment by $506,000 as compared to the same period in 2018 due primarily to higher water treatment and conservation costs.

For the three months ended March 31, 2019, total other operation expenses at the electric segment increased mainly due to higher labor-related costs.

For the three months ended March 31, 2019, total other operation expenses for the contracted services segment increased ~~largely~~mainly due to the commencement of operations at Fort Riley on July 1, 2018, as well as ~~increases in labor costs incurred at the other ASUS subsidiaries.~~higher overall labor-related costs.

Administrative and General

Administrative and general expenses include payroll related to administrative and general functions, all employee-related benefits, insurance expenses, outside legal and consulting fees, ~~regulatory utility commission~~regulatory-utility-commission expenses, expenses associated with being a public company and general corporate expenses charged to expense accounts. For the three months ended ~~September 30,~~March 31, ~~2018~~2019 and ~~2017~~2018, administrative and general expenses by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):


	Three Months Ended September 30, 2018		Three Months Ended September 30, 2017		$ CHANGE			% CHANGE		Three Months Ended March 31, 2019		Three Months Ended March 31, 2018		$ CHANGE			% CHANGE
Water Services	$	14,268	$	15,223	$	(955	)	(6.3	)%	$	13,932	$	13,236	$	696		5.3	%
Electric Services	2,099		1,706		393			23.0	%	2,162		1,912		250			13.1	%
Contracted Services	5,201		4,891		310			6.3	%	5,576		5,142		434			8.4	%
AWR (parent)	2		3		(1		)	(33.3	)%	2		3		(1		)	(33.3	)%
Total administrative and general	$	21,570	$	21,823	$	(253	)	(1.2	)%	$	21,672	$	20,293	$	1,379		6.8	%

D~~uring~~For the three months ended ~~September 30, 2018,~~March 31, 2019, there was a decrease of $361,000 in surcharges billed to customers to recover previously incurred administrative and general ~~expenses for~~costs approved by the ~~water segment decreased $955,000 due, in large part, to lower surcharges billed for the recovery of administrative and general costs as compared to the same period in 2017. The~~CPUC. This decrease ~~in revenues and water gross margin from these surcharges is~~was offset by a corresponding decrease in ~~operating expenses (primarily~~ administrative and ~~general)~~general expense to reflect the recovery of these costs, resulting in no impact to earnings. Excluding the decrease in billed surcharges, administrative and general expenses for the water segment increased ~~$888,000~~by $1.1 million as compared to the same period in 2018 due primarily to higher employee-related ~~expenses, partially offset by lower legal~~compensation and other ~~outside services costs.~~benefits.

For the three months ended ~~September 30, 2018,~~March 31, 2019, the increase at the electric segment was due to higher legal and outside service costs, and allocated costs from the general office.

For the three months ended March 31, 2019, the increase in administrative and general expenses for the ~~electric~~contracted services segment ~~increased by $393,000~~was due to higher ~~regulatory~~labor-related costs ~~incurred~~largely due to the commencement of operations at Fort Riley in ~~connection with the pending electric general rate case, as well as higher legal and other outside services costs.~~

For the three months ended September 30, 2018, administrative and general expenses for contracted services increased by $310,000 due primarily to an increase in labor and other employee-related benefits incurred for Fort Riley.

July 2018.

Depreciation and Amortization

For the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ depreciation and amortization by business segment consisted of the following (dollar amounts in thousands):


	Three Months Ended September 30, 2018		Three Months Ended September 30, 2017		$ CHANGE		% CHANGE		Three Months Ended March 31, 2019		Three Months Ended March 31, 2018		$ CHANGE		% CHANGE
Water Services	$	9,058	$	8,972	$	86	1.0	%	$	9,389	$	8,769	$	620	7.1	%
Electric Services	565		537		28		5.2	%	600		565		35		6.2	%
Contracted Services	495		345		150		43.5	%	843		332		511		153.9	%
Total depreciation and amortization	$	10,118	$	9,854	$	264	2.7	%	$	10,832	$	9,666	$	1,166	12.1	%

~~Depreciation~~The increase in depreciation expense ~~overall increased by $264,000~~ during the three months ended ~~September 30,~~March 31, 2019 at the water and electric segments was due primarily to additions to utility plant during 2018 and the first three months of 2019. There was also an increase in depreciation expense for contracted services due ~~largely~~ to an increase in fixed assets resulting from the purchase of transportation and other equipment, as well as the commencement of operations at ~~the contracted services segment.~~Fort Riley in July 2018.

Maintenance

For the three months ended ~~September 30,~~March 31, ~~2018~~2019 and ~~2017~~2018, maintenance expense by business segment consisted of the following (dollar amounts in thousands):


	Three Months Ended September 30, 2018		Three Months Ended September 30, 2017		$ CHANGE			% CHANGE		Three Months Ended March 31, 2019		Three Months Ended March 31, 2018		$ CHANGE			% CHANGE
Water Services	$	2,421	$	2,513	$	(92	)	(3.7	)%	$	1,659	$	2,937	$	(1,278	)	(43.5	)%
Electric Services	288		179		109			60.9	%	254		218		36			16.5	%
Contracted Services	713		530		183			34.5	%	653		674		(21		)	(3.1	)%
Total maintenance	$	3,422	$	3,222	$	200		6.2	%	$	2,566	$	3,829	$	(1,263	)	(33.0	)%

Maintenance expense ~~increased for the three months ended September 30, 2018~~decreased due to ~~tree trimming and~~lower unplanned maintenance ~~costs incurred~~ at the ~~electric~~water segment as ~~well as maintenance costs incurred at Fort Riley for~~compared to the ~~contracted services segment.~~same period in 2018.

Property and Other Taxes

For the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ property and other taxes by business segment consisted of the following (dollar amounts in thousands):

Three Months Ended
September 30, 2018 Three Months Ended
September 30, 2017
$
CHANGE

%
CHANGE
Water Services $ 4,033
$ 3,887
$ 146
3.8 %
Electric Services 267
257
10
3.9 %
Contracted Services 392
331
61
18.4 %
Total property and other taxes $ 4,692
$ 4,475
$ 217
4.8 %

~~Property and other taxes increased overall by $217,000 during the three months ended September 30, 2018 due primarily to capital additions and the associated higher assessed property values.~~



	Three Months Ended March 31, 2019		Three Months Ended March 31, 2018		$ CHANGE		% CHANGE
Water Services	$	4,127	$	4,107	$	20	0.5	%
Electric Services	286		279		7		2.5	%
Contracted Services	483		413		70		16.9	%
Total property and other taxes	$	4,896	$	4,799	$	97	2.0	%

ASUS Construction

For the three months ended ~~September 30, 2018,~~March 31,2019, construction expenses for contracted services were ~~$13.6~~$12.2 million, increasing ~~$1.9~~$2.3 million compared to the same period in ~~2017,~~2018 largely due to ~~construction activity related to Eglin AFB and~~the commencement of operations at Fort Riley.

Interest Expense

For the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ interest ~~expense by business segment, including AWR (parent) consisted of the following (dollar amounts in thousands):~~

Three Months Ended
September 30, 2018 Three Months Ended
September 30, 2017
$
CHANGE

%
CHANGE
Water Services $ 5,472
$ 5,290
$ 182
3.4 %
Electric Services 309
348
(39 ) (11.2 )%
Contracted Services 73
62
11
17.7 %
AWR (parent) 94
75
19
25.3 %
Total interest expense $ 5,948
$ 5,775
$ 173
3.0 %

The increase in interest expense is due to higher borrowings on the revolving credit facility as compared to the third quarter of 2017. Registrant expects to continue borrowing on its revolving credit facility to fund operations and a portion of its capital expenditures. In addition, GSWC has a $40 million note which matures in March 2019. Registrant expects to borrow on its revolving credit facility and/or issue additional long-term debt to fund the repayment of this note by March 2019.

~~Interest Income~~

~~For the three months ended~~ ~~September 30,2018~~ ~~and~~ ~~2017, interest income by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):~~

Three Months Ended
September 30, 2018 Three Months Ended
September 30, 2017
$
CHANGE

%
CHANGE
Water Services $ 433
$ 316
$ 117
37.0 %
Electric Services 18
2
16
*
Contracted Services 191
4
187
*
AWR (parent) (1 ) (1 ) —
— %
Total interest income $ 641
$ 321
$ 320
99.7 %

* not meaningful

The increase in interest income for the water segment is due, in part, to the receipt of a quarterly interest payment related to a settlement agreement entered into during the fourth quarter of 2017. The increase in interest income for contracted services during the three months ended September 30, 2018, was due to Registrant's adoption of ASC Topic 606 (~~Revenues from Contracts with Customers)~~ on January 1, 2018 using the modified retrospective approach. As a result of this adoption, certain funds received by the contracted services segment from the U.S. government during the three months ended September 30, 2018 have been recorded to interest income. Prior to the adoption of ASC Topic 606, these funds were recorded as revenues.

~~Other income, net~~

For the three months ended September 30, 2018, other income increased by $789,000 due, in part, to higher gains recorded on investments as compared to the same period in 2017. In addition, there was a decrease in the non-service cost components of net periodic benefit costs related to Registrant's defined benefit pension plans and other retirement benefits as compared to the same period in 2017. However, as a result of GSWC's pension balancing account authorized by the CPUC, changes in net periodic benefit costs are mostly offset by corresponding changes in revenues, having no material impact to earnings.

~~Income Tax Expense~~

~~For the three months ended September 30, 2018 and 2017, income tax~~ expense by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):


	Three Months Ended September 30, 2018			Three Months Ended September 30, 2017			$ CHANGE			% CHANGE		Three Months Ended March 31, 2019		Three Months Ended March 31, 2018		$ CHANGE		% CHANGE
Water Services	$	5,247		$	10,544		$	(5,297	)	(50.2	)%	$	5,617	$	5,389	$	228	4.2	%
Electric Services	167			269			(102		)	(37.9	)%	381		370		11		3.0	%
Contracted Services	1,606			1,944			(338		)	(17.4	)%	174		91		83		91.2	%
AWR (parent)	(81		)	(249		)	168			(67.5	)%	145		73		72		98.6	%
Total income tax expense	$	6,939		$	12,508		$	(5,569	)	(44.5	)%
Total interest expense												$	6,317	$	5,923	$	394	6.7	%

Consolidated income tax expense for the three months ended September 30, 2018 decreased by $5.6 million due primarily to a decrease in pretax income as well as a lower federal corporate income tax rate as a result of the Tax Act. AWR's consolidated effective income tax rate ("ETR") was 23.2% for the three months ended September 30, 2018 as compared to 37.3% for the three months ended September 30, 2017. GSWC's ETR decreased to 23.2% for the three months ended September 30, 2018 as compared to 38.4% applicable to the three months ended September 30, 2017.

~~Consolidated Results of Operations — Nine Months Ended September 30, 2018 and 2017 (amounts in thousands, except per share amounts)~~:

Nine Months Ended
September 30, 2018 Nine Months Ended
September 30, 2017
$
CHANGE

%
CHANGE
OPERATING REVENUES

Water $ 228,834
$ 239,057
$ (10,223 ) (4.3 )%
Electric 25,548
26,108
(560 ) (2.1 )%
Contracted services 71,429
71,258
171
0.2 %
Total operating revenues 325,811
336,423
(10,612 ) (3.2 )%

OPERATING EXPENSES

Water purchased 52,057
50,619
1,438
2.8 %
Power purchased for pumping 7,141
6,667
474
7.1 %
Groundwater production assessment 15,146
14,176
970
6.8 %
Power purchased for resale 8,439
7,847
592
7.5 %
Supply cost balancing accounts (11,110 ) (11,663 ) 553
(4.7 )%
Other operation 24,125
21,989
2,136
9.7 %
Administrative and general 62,076
62,519
(443 ) (0.7 )%
Depreciation and amortization 29,794
29,184
610
2.1 %
Maintenance 10,921
10,292
629
6.1 %
Property and other taxes 13,863
13,386
477
3.6 %
ASUS construction 35,168
34,589
579
1.7 %
Gain on sale of assets (43 ) (8,318 ) 8,275
(99.5 )%
Total operating expenses 247,577
231,287
16,290
7.0 %

OPERATING INCOME 78,234
105,136
(26,902 ) (25.6 )%

OTHER INCOME AND EXPENSES

Interest expense (17,919 ) (17,606 ) (313 ) 1.8 %
Interest income 1,813
1,200
613
51.1 %
Other, net 1,844
1,439
405
28.1 %
(14,262 ) (14,967 ) 705
(4.7 )%

INCOME BEFORE INCOME TAX EXPENSE 63,972
90,169
(26,197 ) (29.1 )%
Income tax expense 13,890
33,670
(19,780 ) (58.7 )%

NET INCOME $ 50,082
$ 56,499
$ (6,417 ) (11.4 )%

Basic earnings per Common Share $ 1.36
$ 1.53
$ (0.17 ) (11.1 )%

Fully diluted earnings per Common Share $ 1.35
$ 1.53
$ (0.18 ) (11.8 )%

~~Operating Revenues:~~

~~Water~~

For the nine months ended September 30, 2018, revenues from water operations decreased $10.2 million to $228.8 million as compared to the same period in 2017. This decrease was primarily due to: (i) downward adjustments to water revenue which were largely offset by lower income tax expense, thus no material impact to earnings, as a result of the Tax Act which reduced the federal corporate income tax rate, (ii) the cessation of Ojai operations as a result of the sale of that water system in June 2017 under an eminent domain action, (iii) a lower authorized rate of return approved by the CPUC in March 2018, and (iv) the expiration of certain surcharges to recover previously incurred costs that were implemented in 2017. These decreases were partially offset by CPUC-approved third-year rate increases effective January 1, 2018.

Billed water consumption for the first nine months of 2018 increased approximately 6% as compared to the same period in 2017. Changes in consumption generally do not have a significant impact on revenues due to the WRAM.

~~Electric~~

For the nine months ended September 30, 2018, revenues from electric operations were $25.5 million as compared to $26.1 million for the same period in 2017 resulting primarily from downward adjustments to electric revenue to offset lower income tax expense, thus having no material impact to earnings, as a result of the Tax Act. Excluding the effects of the Tax Act, electric revenue remained relatively flat due to the delay in finalizing the electric general rate case. GSWC filed its electric general rate case in May 2017 for new rates in the years 2018 - 2021. Because of the delay, year-to-date 2018 billed revenues have been based on 2017 adopted rates, pending a final CPUC decision on the electric general rate case. When approved, the new rates will be retroactive to January 1, 2018.

Billed electric usage decreased by approximately 1% during the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017. Due to the CPUC-approved Base Revenue Requirement Adjustment Mechanism, which adjusts certain revenues to adopted levels authorized by the CPUC, changes in usage do not have a significant impact on earnings.

~~Contracted Services~~

For the nine months ended September 30, 2018, revenues from contracted services increased slightly to $71.4 million as compared to $71.3 million for the same period in 2017. In June of 2017, the U.S. government approved the third price redetermination for Fort Bragg resulting in anThe overall increase in management fees, including approximately $1.0 million related to periods prior to 2017. There were no similar retroactive revenues recorded in 2018. There were increases in management fees during the nine months ended September 30, 2018 due to the successful resolution of various price adjustments during 2017 and 2018, as well as revenues generated from the commencement of operations at Eglin AFB in June 2017 and at Fort Riley in July 2018. These increases were offset by decreases in overall construction revenue at the other military bases compared to the same period in 2017.

~~Operating Expenses:~~

~~Supply Costs~~

Total supply costs comprise the largest segment of total operating expenses. Supply costs accounted for approximately 28.9% and 29.2% of total operating expenses for the nine months ended September 30, 2018 and 2017, respectively. The table below provides the amount of increases (decreases) and percent changes in water and electric revenues, supply costs and gross margin during the nine months ended September 30, 2018 and 2017 (dollar amounts in thousands). As previously discussed, water and electric revenues for the nine months ended September 30, 2018 were adjusted downward by $10.7 million and $848,000, respectively, to reflect the effects of the Tax Act, but had no significant impact to earnings due to a corresponding decrease in water and electric income tax expense. Furthermore, there was a decrease in surcharges of $3.1 million recorded in water revenues to recover previously incurred costs, which also did not impact water earnings. Surcharges to recover previously incurred costs are recorded to revenues when billed to customers and are offset by a corresponding amount in operating expenses (primarily administrative and general), resulting in no impact to earnings.

Nine Months Ended
September 30, 2018 Nine Months Ended
September 30, 2017
$
CHANGE

%
CHANGE
WATER OPERATING REVENUES (1) $ 228,834
$ 239,057
$ (10,223 ) (4.3 )%
WATER SUPPLY COSTS:

Water purchased (1) $ 52,057
$ 50,619
$ 1,438
2.8 %
Power purchased for pumping (1) 7,141
6,667
474
7.1 %
Groundwater production assessment (1) 15,146
14,176
970
6.8 %
Water supply cost balancing accounts (1) (12,478 ) (13,785 ) 1,307
(9.5 )%
TOTAL WATER SUPPLY COSTS $ 61,866
$ 57,677
$ 4,189
7.3 %
WATER GROSS MARGIN (2) $ 166,968
$ 181,380
$ (14,412 ) (7.9 )%

ELECTRIC OPERATING REVENUES (1) $ 25,548
$ 26,108
$ (560 ) (2.1 )%
ELECTRIC SUPPLY COSTS:

Power purchased for resale (1) $ 8,439
$ 7,847
$ 592
7.5 %
Electric supply cost balancing accounts (1) 1,368
2,122
(754 ) (35.5 )%
TOTAL ELECTRIC SUPPLY COSTS $ 9,807
$ 9,969
$ (162 ) (1.6 )%
ELECTRIC GROSS MARGIN (2) $ 15,741
$ 16,139
$ (398 ) (2.5 )%

~~(1)~~As reported on AWR’s Consolidated Statements of Income, except for supply cost balancing accounts. The sum of water and electric supply cost balancing accounts in the table above are shown on AWR’s Consolidated Statements of Income and totaled $(11,110,000) and $(11,663,000) for the nine months ended September 30, 2018 and 2017, respectively. Revenues include surcharges to recover previously incurred costs, which increases both revenues and operating expenses by corresponding amounts, thus having no net earnings impact.

~~(2)Water and electric gross margins do not include any depreciation and amortization, maintenance, administrative and general, property or other taxes or other operation expenses.~~

The overall actual percentages of purchased water for the nine months ended September 30, 2018 and 2017 were 41% and 43%, respectively, as compared to the adopted percentage of approximately 29% for the nine months ended September 30, 2018 and 2017. The higher actual percentages of purchased water as compared to adopted percentages resulted primarily from several wells being out of service.

Purchased water costs for the nine months ended September 30, 2018 increased to $52.1 million as compared to $50.6 million for the same period in 2017 primarily due to an increase in wholesale water costs as well as an increase in customer usage.

For the nine months ended September 30, 2018 and 2017, groundwater production assessments increased $1.0 million due to an increase in the amount of water pumped, as well as an increase in pump tax rates for the nine months ended September 30, 2018 as compared to the same period in 2017.

The under-collection in the water supply cost balancing account increased $1.3 million during the nine months ended September 30, 2018 as compared to the same period in 2017 mainly due to the higher actual percentages of purchased water as compared to adopted percentages that resulted primarily from several wells being out of service.

For the nine months ended September 30, 2018, the cost of power purchased for resale to BVES's customers increased by $592,000 to $8.4 million as compared to $7.8 million for the same period in 2017 due primarily to an increase in the average price per megawatt-hour (“MWh”). The average price per MWh, including fixed costs, increased from $74.17 for the nine months ended September 30, 2017 to $80.14 for the same period in 2018. The over-collection in the electric supply cost balancing account decreased by $754,000 due primarily to this increase in the weighted average price per MWh.

~~Other Operation~~

~~For the nine months ended September 30, 2018 and 2017, other operation expenses by business segment consisted of the following (dollar amounts in thousands):~~

Nine Months Ended
September 30, 2018 Nine Months Ended
September 30, 2017
$
CHANGE

%
CHANGE
Water Services $ 17,307
$ 16,100
$ 1,207
7.5 %
Electric Services 2,116
2,042
74
3.6 %
Contracted Services 4,702
3,847
855
22.2 %
Total other operation $ 24,125
$ 21,989
$ 2,136
9.7 %

For the nine months ended September 30, 2018, total other operation expenses for the water segment increased overall by $1.2 million as compared to the same period in 2017 due to the CPUC's approval for recovery of $1.2 million in incremental drought-related costs, which was recorded as a regulatory asset with a corresponding decrease in other operation expenses during the first quarter of 2017. There was no similar reduction recorded in 2018.

~~For the nine months ended September 30, 2018, other operation expenses for the contracted services segment increased by $855,000 due primarily to the commencement of operations at Fort Riley.~~

~~Administrative and General~~

~~For the nine months ended September 30, 2018 and 2017, administrative and general expenses by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):~~

Nine Months Ended
September 30, 2018 Nine Months Ended
September 30, 2017
$
CHANGE

%
CHANGE
Water Services $ 40,833
$ 43,037
$ (2,204 ) (5.1 )%
Electric Services 5,860
5,248
612
11.7 %
Contracted Services 15,376
14,226
1,150
8.1 %
AWR (parent) 7
8
(1 ) (12.5 )%
Total administrative and general $ 62,076
$ 62,519
$ (443 ) (0.7 )%

For the nine months ended September 30, 2018, administrative and general expenses at the water segment decreased due, in large part, to lower surcharges billed for recovery of various administrative and general costs previously incurred, as compared to the first nine months of 2017. As previously discussed, surcharges are recorded in revenue with a corresponding and offsetting amount recorded to administrative and general expenses, having no impact on earnings. Excluding surcharges, administrative and general expenses for the water segment increased $1.4 million due primarily to higher employee-related expenses, partially offset by lower legal and other outside services costs.

~~For the nine months ended September 30, 2018, administrative and general expenses for the electric segment increased by $612,000~~interest expense is due to higher ~~regulatory costs in connection with the pending electric general rate case,~~average borrowings as well as higher ~~legal and other outside services costs.~~

For the nine months ended September 30, 2018, administrative and general expenses for contracted services increased by $1.2 million as compared to the nine months ended September 30, 2017 due primarily to higher expenses for Eglin AFB and Fort Riley, which ASUS began operating on June 15, 2017 and July 1, 2018, respectively.

~~Depreciation and Amortization~~

~~For the nine months ended September 30, 2018 and 2017, depreciation and amortization by business segment consisted of the following (dollar amounts in thousands):~~

Nine Months Ended
September 30, 2018 Nine Months Ended
September 30, 2017
$
CHANGE

%
CHANGE
Water Services $ 26,693
$ 26,731
$ (38 ) (0.1 )%
Electric Services 1,694
1,610
84
5.2 %
Contracted Services 1,407
843
564
66.9 %
Total depreciation and amortization $ 29,794
$ 29,184
$ 610
2.1 %

For the nine months ended September 30, 2018, depreciation and amortization expense for water services overall decreased due to plant retirements that occurred during the fourth quarter of 2017, which further reduced depreciation expense for the first nine months of 2018 as compared to the same period last year. These decreases were partially offset by plant additions.

The increase in depreciation for the contracted services segment was due to vehicle and other equipment additions to fixed assets during the nine months ended September 30, 2018 partly associated with the commencement of operations at Eglin AFB and Fort Riley.

~~Maintenance~~

~~For the nine months ended September 30, 2018 and 2017, maintenance expense by business segment consisted of the following (dollar amounts in thousands):~~

Nine Months Ended
September 30, 2018 Nine Months Ended
September 30, 2017
$
CHANGE

%
CHANGE
Water Services $ 8,236
$ 8,111
$ 125
1.5 %
Electric Services 798
551
247
44.8 %
Contracted Services 1,887
1,630
257
15.8 %
Total maintenance $ 10,921
$ 10,292
$ 629
6.1 %

Maintenance expense for the electric segment increased by $247,000 due to an increase in tree trimming and unplanned maintenance. Maintenance expense for contracted services increased largely due to maintenance costs incurred at Eglin AFB and Fort Riley, which ASUS began operating on June 15, 2017 and July 1, 2018, respectively

~~Property and Other Taxes~~

~~For the nine months ended September 30, 2018 and 2017, property and other taxes by business segment consisted of the following (dollar amounts in thousands):~~

Nine Months Ended
September 30, 2018 Nine Months Ended
September 30, 2017
$
CHANGE

%
CHANGE
Water Services $ 11,889
$ 11,517
$ 372
3.2 %
Electric Services 801
799
2
0.3 %
Contracted Services 1,173
1,070
103
9.6 %
Total property and other taxes $ 13,863
$ 13,386
$ 477
3.6 %

~~Property and other taxes increased overall by $477,000 during the nine months ended September 30, 2018 due primarily to capital additions and the associated higher assessed property values.~~

~~ASUS Construction~~

For the nine months ended September 30, 2018, construction expenses for contracted services were $35.2 million, increasing $579,000 compared to the same period in 2017 due, in part, to additional costs incurred in certain locations where ASUS experienced more difficult site conditions as compared to the same period in 2017.

~~Gain on Sale of Assets~~

~~In June 2017, GSWC completed the sale of its Ojai water system for $34.3 million resulting in a pretax gain of $8.3 million recorded during the nine months ended September 30, 2017.~~

~~Interest Expense~~

~~For the nine months ended September 30, 2018 and 2017,~~ interest ~~expense by business segment, including AWR (parent) consisted of the following (dollar amounts in thousands):~~

Nine Months Ended
September 30, 2018 Nine Months Ended
September 30, 2017
$
CHANGE

%
CHANGE
Water Services $ 16,352
$ 16,092
$ 260
1.6 %
Electric Services 1,045
1,078
(33 ) (3.1 )%
Contracted Services 271
228
43
18.9 %
AWR (parent) 251
208
43
20.7 %
Total interest expense $ 17,919
$ 17,606
$ 313
1.8 %

~~For the nine months ended September 30, 2018, interest expense increased $313,000 due largely to higher borrowings~~rates on the revolving credit facility as compared to 2018. In March 2019, AWR exercised an option in the ~~first nine months of 2017. Registrant expects to continue borrowing on its revolving~~ credit facility to increase its borrowing capacity from $150.0 million to $200.0 million. Borrowings made during the first three months of 2019 were used to repay $40 million of GSWC's 6.70% senior note, which matured in March 2019, as well as to fund ~~operations and~~ a portion of ~~its~~ capital expenditures. In addition, GSWC has a $40 million note which matures in March 2019. Registrant expects to borrow on its revolving credit facility and/or issue additional long-term debt to fund the repayment of this note by March 2019.

Interest Income

For the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ interest income by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):


	Nine Months Ended September 30, 2018			Nine Months Ended September 30, 2017		$ CHANGE			% CHANGE		Three Months Ended March 31, 2019			Three Months Ended March 31, 2018			$ CHANGE		% CHANGE
Water Services	$	1,257		$	1,168	$	89		7.6	%	$	380		$	380		$	—	—	%
Electric Services	31			7		24			*		28			—			28		100.0	%
Contracted Services	526			14		512			*		535			157			378		*
AWR (parent)	(1		)	11		(12		)	*		(1		)	(1		)	—		—	%
Total interest income	$	1,813		$	1,200	$	613		51.1	%	$	942		$	536		$	406	75.7	%

* ~~not~~ Not meaningful

The increase in interest income ~~for contracted services~~ during the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019 was largely due to ~~Registrant's adoption of ASC Topic 606 (Revenues from Contracts with Customers)~~interest income recognized on ~~January 1, 2018 using the modified retrospective approach. As a result of this adoption,~~ certain ~~funds received~~initial construction projects performed by the contracted services segment ~~from the U.S. government~~at Fort Riley during the ~~nine~~first three months ~~ended September 30, 2018 have been recorded to interest income. Prior to the adoption~~ of ~~ASC Topic 606, these funds were recorded as revenues.~~2019.

Other, net

For the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, other income increased by ~~$405,000 largely~~$1.3 million due primarily to gains recorded on the Company's investments held for a ~~decrease~~retirement benefit plan because of recent market conditions, as compared to losses recognized during the same period in 2018. This was partially offset by an increase in the non-service cost components of net periodic benefit costs related to Registrant's defined benefit pension ~~plans~~plan and other retirement benefits. However, as a result of GSWC's pension balancing account authorized by the CPUC, changes in net periodic benefit costs are mostly offset by corresponding changes in revenues, having no material impact to earnings. Excluding this change, other income decreased due to (i) lower gains recorded on investments as compared to the same period in 2017 and (ii) amounts collected and recorded in 2017 from developers on certain outstanding balances, with no similar collections in 2018.

Income Tax Expense

For the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ income tax expense by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):


	Nine Months Ended September 30, 2018			Nine Months Ended September 30, 2017			$ CHANGE			% CHANGE		Three Months Ended March 31, 2019		Three Months Ended March 31, 2018			$ CHANGE			% CHANGE
Water Services	$	10,805		$	27,739		$	(16,934	)	(61.0	)%	$	1,673	$	1,649		$	24		1.5	%
Electric Services	938			1,496			(558		)	(37.3	)%	447		466			(19		)	(4.1	)%
Contracted Services	2,865			5,152			(2,287		)	(44.4	)%	1,125		554			571			103.1	%
AWR (parent)	(718		)	(717		)	(1		)	0.1	%	65		(105		)	170			(161.9	)%
Total income tax expense	$	13,890		$	33,670		$	(19,780	)	(58.7	)%	$	3,310	$	2,564		$	746		29.1	%

Consolidated income tax expense for the ~~nine~~three months ended ~~September 30, 2018 decreased~~March 31, 2019 increased by ~~approximately $19.8~~$0.7 million due primarily to ~~a lower federal corporate~~an increase in pretax income. AWR's effective income tax rate ~~as a result of~~("ETR") was 20.5% and 19.2% for the ~~Tax Act, as well as a decrease in pretax income, which resulted, in large part, from~~three months ended March 31, 2019 and 2018, respectively, and GSWC's ETR was 19.0% and 19.2% for the ~~cessation of operations from GSWC's Ojai water system~~three months ended March 31, 2019 and ~~related pretax gain recognized on the sale of the system in June 2017.~~2018, respectively. AWR's consolidated ETR decreased to 21.7% for the nine months ended September 30, 2018 as compared to 37.3% for the nine months ended September 30, 2017. GSWC's ETR decreased to 22.5% for the nine months ended September 30, 2018 as compared to 38.6% for the nine months ended September 30, 2017. Both decreases were due primarily to the reduction in the federal corporate income tax rate from 35% to 21%increased because of higher state unitary taxes at AWR (parent).

Critical Accounting Policies and Estimates

Critical accounting policies and estimates are those that are important to the portrayal of AWR’s financial condition, results of operations and cash flows, and require the most difficult, subjective or complex judgments of AWR’s management. The need to make estimates about the effect of items that are uncertain is what makes these judgments difficult, subjective and/or complex. Management makes subjective judgments about the accounting and regulatory treatment of many items. These judgments are based on AWR’s historical experience, terms of existing contracts, AWR’s observance of trends in the industry, and information available from other outside sources, as appropriate. Actual results may differ from these estimates under different assumptions or conditions.

The critical accounting policies used in the preparation of the Registrant’s financial statements that it believes affect the more significant judgments and estimates used in the preparation of its consolidated financial statements presented in this report are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Registrant’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. There have been no material changes to Registrant’s critical accounting policies. Registrant adopted the new lease guidance beginning January 1, 2019 as further described in Note 10 of the Notes to Consolidated Financial Statements.

Liquidity and Capital Resources

AWR

Registrant’s regulated business is capital intensive and requires considerable capital resources. A portion of these capital resources is provided by internally generated cash flows from operations. AWR anticipates that interest expense will increase due to the need for additional external capital to fund its construction program and increases in market interest rates. AWR believes that costs associated with capital used to fund construction at GSWC will continue to be recovered through water and electric rates charged to customers. AWR funds its operating expenses and pays dividends on its outstanding Common Shares primarily through dividends from its wholly owned subsidiaries. The ability of GSWC to pay dividends to AWR is restricted by California law. Under these restrictions, approximately ~~$243.7~~$210.0 million was available on ~~September 30, 2018~~March 31, 2019 to pay dividends to AWR.

The ability of ASUS to pay dividends to AWR is also restricted by California law and by the ability of its subsidiaries to pay dividends to it.

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. AWR ~~also has access to~~borrows under a ~~$150.0 million revolving~~ credit facility, which ~~was renewed~~expires in May ~~2018.~~2023, and provides funds to its subsidiaries, GSWC and ASUS, in support of their operations. In March 2019, AWR amended this credit facility to increase its borrowing capacity from $150.0 million to $200.0 million. As of ~~September 30, 2018,~~March 31, 2019, there were ~~$70.0~~$151.5 million in borrowings outstanding under this facility and $940,000 of letters of credit outstanding. ~~These amounts are contractually due in May 2023 under the terms of the renewed credit facility and are generally priced off a spread to LIBOR.~~ As of ~~September 30, 2018,~~March 31, 2019, AWR had ~~$79.1~~$47.6 million available to borrow under the credit facility. ~~AWR also has the option to increase the borrowing capacity of the credit facility by an additional $50 million, if needed.~~

AWR borrows under this facility and provides funds to its subsidiaries, GSWC and ASUS, in support of their operations. The interest charged to GSWC and ASUS is sufficient to cover AWR’s interest expense under the credit facility. Amounts owed to AWR by GSWC, including for allocated expenses, are included in GSWC's intercompany payable under "Current Liabilities". In March of 2019, $40 million of GSWC's 6.70% senior note will mature. GSWC intends to borrow under its intercompany borrowing arrangement with AWR and/or issue additional long-term debt to fund the repayment of this note.

In April ~~2018,~~2019, Standard and Poor’s Global Ratings (“S&P”) affirmed an A+ credit rating with a stable outlook on both AWR and GSWC. S&P’s debt ratings range from AAA (highest possible) to D (obligation is in default). In ~~December 2017,~~January 2019, Moody's Investors Service ("Moody's") affirmed its A2 rating with a ~~revised rating~~positive outlook ~~from stable to positive~~ 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 agencies. Registrant believes that AWR’s sound capital structure and ~~strong~~A+ credit ~~ratings,~~rating, combined with its financial discipline, will enable AWR to access the debt and equity markets. However, unpredictable financial market conditions in the future may limit its access or impact the timing of when to access the market, in which case Registrant may choose to temporarily reduce its capital spending. If needed, GSWC may issue long-term debt in the future, depending on market conditions. It is anticipated that the proceeds from any such debt issuance would be used to pay down short-term borrowings and fund a portion of capital expenditures. During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, GSWC incurred ~~$79.2~~$38.2 million in company-funded capital expenditures. During 2019, Registrant's company-funded capital expenditures are estimated to be approximately $115 - $125 million.

AWR’s ability to pay cash dividends on its Common Shares outstanding depends primarily upon cash flows from its subsidiaries. AWR intends to continue paying quarterly cash dividends on or about March 1, June 1, September 1 and December 1, subject to earnings and financial conditions, regulatory requirements and such other factors as the Board of Directors may deem relevant. Registrant has paid common dividends for over 80 consecutive years. On ~~October 30, 2018,~~May 1, 2019, AWR's Board of Directors approved a ~~fourth~~second quarter dividend of $0.275 per share on AWR's Common Shares. Dividends on the Common Shares ~~are payable~~will be paid on ~~December~~June 3, ~~2018~~2019 to shareholders of record at the close of business on ~~November 15, 2018. AWR's current policy is to achieve a five-year compound annual growth rate in the dividend of more than 6% over the long term.~~

May 16, 2019.

Registrant's current liabilities may at times exceed its current assets. Management believes that internally generated funds along with ~~AWR's ability to access the debt and equity markets as well as~~ borrowings from ~~its~~AWR's credit facility are adequate to provide sufficient capital to maintain normal operations and to meet its capital and financing ~~requirements, including repayment of the $40 million note, which matures in March 2019.~~requirements.

Cash Flows from Operating Activities:

Cash flows from operating activities have generally provided sufficient cash to fund operating requirements, including a portion of construction expenditures at GSWC and construction expenses at ASUS, and to pay dividends. Registrant’s future cash flows from operating activities are expected to be affected by a number of factors, including utility regulation; changes in tax ~~law and deferred taxes;~~law; maintenance expenses; inflation; compliance with environmental, health and safety standards; production costs; customer growth; ~~per customer~~per-customer usage of water and electricity; weather and seasonality; conservation efforts; compliance with local governmental requirements, including mandatory restrictions on water use; and required cash contributions to pension and post-retirement plans. Future cash flows from contracted services subsidiaries will depend on new business activities, existing operations, the construction of new and/or replacement infrastructure at military bases, timely economic price and equitable adjustment of prices, and timely collection of payments from the U.S. government and other prime contractors operating at the military bases.

The lower federal tax rate and the elimination of bonus depreciation brought about by ~~the~~2017's Tax Cuts and Jobs Act ("Tax Act") are expected to reduce Registrant's cash flows from operating activities, and result in higher financing costs arising from an increased need to raise debt and/or equity.

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

Cash flows from operating activities are primarily generated by net income, adjusted for non-cash expenses such as depreciation and amortization, and deferred income taxes. ~~During the nine months ended September 30, 2017, it was also adjusted for the gain on the sale of GSWC's Ojai water system.~~ Cash generated by operations varies during the year. Net cash provided by operating activities of Registrant was ~~$108.4~~$29.4 million for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 as compared to ~~$120.2~~$35.7 million for the same period in ~~2017. The~~2018. There was a decrease in cash ~~from operating activities was~~receipts due ~~primarily to: (i) significant differences in~~to lower water customer usage and the ~~timing~~expiration of income tax payments made and refunds received between the two periods, and (ii) a decrease resulting from the timing of billing of and cash receipts for construction work at military bases during the nine months ended September 30, 2018. The billings (and cash receipts) for construction work generally occur at completion of the work or in accordance with a billing schedule contractually agreed to with the U.S. government and/or other prime contractors. Thus, cash flow from construction-related activities may fluctuate from period to period with such fluctuations representing timing

differences of when the work is being performed and when the cash is received for payment of the work. These decreases in cash from operating activities were partially offset by an overall increase in cash collected or over-collected from customersvarious surcharges related to GSWC’s regulatory accounts. The delay in the water general rate case has also affected cash flows from operating activities in 2019 as year-to-date billed revenues have been based on 2018's adopted customer rates. The timing of cash receipts and disbursements related to other working capital items also affected the ~~changes~~change in net cash provided by operating activities.

Cash Flows from Investing Activities:

Net cash used in investing activities was ~~$88.8~~$40.3 million for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 as compared to ~~$44.9~~$30.2 million for the same period in ~~2017. In addition~~2018, due to an increase in ~~cash used for~~ capital expenditures ~~in 2018,~~ during the ~~nine~~first three months ~~ended September 30, 2017, there were the proceeds received in 2017 for the sale~~ of ~~GSWC's Ojai water system, which generated $34.3 million in cash.~~

2019. Registrant invests 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~~(where infrastructure is replaced, as ~~needed,~~needed) and major capital investment projects ~~where~~(where new water treatment, supply and delivery facilities are ~~constructed.~~constructed). GSWC 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.

Cash Flows from Financing Activities:

Registrant’s financing activities include primarily: (i) the sale proceeds from the issuance of Common Shares and stock option exercises and the repurchase of Common ~~Shares;~~Shares, (ii) the issuance and repayment of long-term debt and notes payable to banks, and (iii) 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. Short-term borrowings are used to fund capital expenditures until long-term financing is arranged.

Net cash ~~used in~~provided by financing activities was ~~$17.9~~$5.7 million for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 as compared to ~~$69.1 million used~~$276,000 for the same period in ~~2017.~~2018. This ~~decrease~~increase in cash ~~used for~~from financing activities was due to an increase in ~~short-term~~ borrowings from Registrant's revolving credit facility during the ~~nine~~three months ended ~~September 30, 2018. During the nine months ended September 30, 2017, the cash proceeds from the Ojai sale, as well as cash generated from operating activities,~~March 31, 2019. The increased borrowings were used to ~~pay down short-term borrowings.~~

repay $40.0 million of GSWC's 6.70% senior note, which matured in March 2019, and to fund a portion of capital expenditures.

GSWC

GSWC funds its operating expenses, payments on its debt, ~~and~~ dividends on its outstanding common shares, and a portion of its construction expenditures through internal sources. Internal sources of cash flow are provided primarily by retention of a portion of earnings from operating activities. Internal cash generation is influenced by factors such as weather patterns, conservation efforts, environmental regulation, litigation, changes in tax law and deferred taxes, changes in supply costs and regulatory decisions affecting GSWC’s ability to recover these supply costs, timing of rate relief, increases in maintenance expenses and capital expenditures, surcharges authorized by the CPUC to enable GSWC to recover expenses previously incurred from customers, and CPUC requirements to refund amounts previously charged to customers.

GSWC may, at times, utilize external sources, including equity investments and short-term borrowings from AWR, and long-term debt to help fund a portion of its construction expenditures. In addition, GSWC receives advances and contributions from customers, homebuilders 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~~that are no longer subject to refund are reclassified to contributions in aid of construction. Utility plant funded by advances and contributions is excluded from rate base. Generally, GSWC amortizes contributions in aid of construction at the same composite rate of depreciation for the related property.

In December 2017, the Tax Act was signed into federal law. The provisions of this major tax reform were generally effective January 1, 2018. The most significant provisions of the Tax Act impacting GSWC was the reduction of the federal corporate income tax rate from 35% to 21% and the elimination of bonus depreciation for regulated utilities. Pursuant to a CPUC directive, the 2018 impact of the Tax Act on the water adopted revenue requirement was tracked in a memorandum account effective January 1, 2018. On July 1, 2018, new lower water rates, which incorporate the new federal income tax rate, were implemented for all water ratemaking areas. The 2018 over-collection recorded in this memorandum account related to the water segment was $7.1 million and will be refunded to customers once a final decision is received from the CPUC on the pending water general rate case. A final decision is expected later in 2019.

As is often the case with public utilities, GSWC’s current liabilities may at times exceed its current assets. Management believes that internally generated funds along with the proceeds from the issuance of long-term debt, ~~GSWC's~~ borrowings from ~~its intercompany arrangement with~~ AWR and ~~the ability to issue common shares~~Common Share issuances to AWR will be adequate to provide sufficient capital to enable GSWC to maintain normal operations and to meet its capital and financing ~~requirements.~~

requirements pending recovery of costs in rates.

Cash Flows from Operating Activities:

Net cash provided by operating activities was ~~$93.8~~$25.9 million for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 as compared to ~~$98.4~~$33.4 million for the same period in ~~2017. This~~2018. There was a decrease ~~was primarily~~in cash receipts due to ~~significant differences in~~lower water customer usage and the ~~timing~~expiration of ~~income tax payments made and refunds received between the two periods, partially offset by an overall increase in cash collected or over-collected from customers~~various surcharges related to GSWC’s regulatory accounts. The delay in the water general rate case has also affected cash flows from operating activities in 2019 as year-to-date billed revenues have been based on 2018's adopted customer rates. The timing of cash receipts and disbursements related to other working capital items also affected the change in net cash provided by operating activities.

Cash Flows from Investing Activities:

Net cash used in investing activities was ~~$80.7~~$38.9 million for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 as compared to ~~$43.3~~$27.5 million for the same period in 2017. Included in the activity for the nine months ended September 30, 2017 were $34.3 million in cash proceeds received from the sale of GSWC's Ojai water system. For the nine months ended September 30, 2018, cash2018. Cash used for capital expenditures was ~~$79.2 million.~~$39.1 million for the three months ended March 31, 2019 as compared to $27.6 million during the same period in 2018. During ~~2018,~~2019, GSWC's company-funded capital expenditures are estimated to be approximately ~~$110~~$115 - ~~$120~~$125 million.

Cash Flows from Financing Activities:

Net cash ~~used in~~provided by financing activities was ~~$13.1~~$9.4 million for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 as compared to ~~$49.1~~cash used of $3.9 million ~~used~~ for the same period in ~~2017. This decrease~~2018. The increase in cash from financing activities was due ~~in large part,~~ to an increase in intercompany borrowings ~~from AWR~~ during the ~~nine~~three months ended September 30, 2018, as compared to the same period in 2017. During the nine months ended September 30, 2017, the cash proceeds received from the sale of the Ojai system, as well as cash generated from operating activities, wereMarch 31, 2019 used to ~~pay down intercompany borrowings. This decrease~~repay $40.0 million of GSWC's 6.70% senior note, which matured in ~~cash used in financing activities was partially offset by the timing~~March 2019, and to fund a portion of dividend payments made to AWR. During the first nine months of 2017, GSWC made one quarterly dividend payment of $18.3 million to AWR. During the nine months ended September 30, 2018, GSWC paid three quarterly dividends totaling $28.9 million to AWR.GSWC's capital expenditures.

Contractual Obligations and Other Commitments

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

In addition to contractual maturities, Registrant has certain debt instruments that contain an annual sinking fund or other principal payments. Registrant believes that it will be able to refinance debt instruments at their maturity through public issuance, or private placement, of debt or equity. Annual payments to service debt are generally made from cash flows from operations.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations, Commitments and ~~Off Balance~~Off-Balance Sheet Arrangements” section of the Registrant’s Form 10-K for the year ended December 31, ~~2017~~2018 for a detailed discussion of contractual obligations and other commitments. In March of 2019, GSWC repaid $40 million of ~~GSWC's~~its 6.70% ~~note will mature, which has been included~~senior note. Effective January 1, 2019, Registrant adopted the new lease standard as further described in ~~"Current Liabilities" as~~Note 10 of ~~September 30, 2018. GSWC intends~~the Notes to ~~borrow under its intercompany borrowing arrangement with AWR and/or issue additional long-term debt to fund the repayment of this note.~~Consolidated Financial Statements.

Contracted Services

Under the terms of ~~the current and future~~its utility privatization contracts with the U.S. government, each contract's price is subject to an economic price adjustment (“EPA”) on an annual basis. In the event that ASUS (i) is managing more assets at specific military bases than were included in the U.S. government’s request for proposal, (ii) is managing assets that are in substandard condition as compared to what was disclosed in the request for proposal, (iii) prudently incurs costs not contemplated under the terms of the utility privatization contract, and/or (iv) becomes subject to new regulatory requirements, such as more stringent water-quality standards, ASUS is permitted to file, and has filed, requests for equitable adjustment (“REA”). The timely filing for and receipt of EPAs and/or REAs continues to be critical in order for the Military Utility Privatization Subsidiaries to recover increasing costs of operating and maintaining, and renewing and replacing the water and/or wastewater systems at the military bases it serves.

Under the Budget Control Act of 2011 (the “2011 Act”), substantial automatic spending cuts, known as "sequestration," have impacted the expected levels of Department of Defense budgeting. The Military Utility Privatization Subsidiaries have not experienced any earnings impact to their existing operations and maintenance and renewal and replacement services, as utility privatization contracts are an "excepted service" within the 2011 Act. While the ongoing effects of sequestration have been mitigated through the passage of a continuing resolution for the fiscal year ~~2018~~2019 Department of Defense budget, similar issues may arise as part of fiscal uncertainty and/or future debt-ceiling limits imposed by Congress. However, any future impact on ASUS and its operations through the Military Utility Privatization Subsidiaries will likely be limited to (a) the timing of funding to pay for services rendered, (b) delays in the processing of EPAs and/or REAs, (c) the timing of the issuance of contract modifications for new construction work not already funded by the U.S. government, and/or (d) delays in the solicitation for and/or awarding of new contracts under the Department of Defense utility privatization program.

At times, the Defense Contract Audit Agency and/or the Defense Contract Management Agency may, at the request of a contracting officer, perform audits/reviews of contractors for compliance with certain government guidance and regulations, such as the Federal Acquisition Regulations and Defense Federal Acquisition Regulation Supplements. Certain audit/review findings, such as system deficiencies for government-contract-business-system requirements, may result in delays in the timing of resolution of filings submitted to and/or the ability to file new proposals with the U.S. government.

On July 1, 2018, ASUS assumed the operation, maintenance and construction management of the water distribution, wastewater collection and treatment facilities at Fort Riley, a United States Army installation located in Kansas, after completing a transition period. The contract was awarded by the U.S. government on September 29, 2017 with an initial value of $601 million over the 50-year period, subject to adjustments for the actual inventory level to be managed and the lower federal corporate income tax rate effective January 1, 2018 resulting from the Tax Act. The 50-year contract will also be subject to annual economic price adjustments.

Regulatory Matters

Pending General Rate Case ~~Filings~~:Filings:

Water Segment:

The 2019 water revenue requirement ~~as settled,~~in the PD has been reduced ~~for~~to reflect a decrease of approximately $7.0 million in depreciation expense, compared to the adopted 2018 depreciation expense, due to a reduction in the overall composite depreciation rates based on a revised study filed in the general rate case. The decrease in depreciation expense lowers the water gross margin, and is offset by a corresponding decrease in depreciation expense, resulting in no impact to net earnings. In addition, the 2019 water revenue requirement ~~as settled,~~in the PD includes a decrease of approximately $2.2 million for excess deferred tax refunds as a result of the Tax Act, which has a corresponding decrease in income tax expense and also results in no impact to net earnings. Had depreciation expense ~~as settled,~~in the PD remained the same as the 2018 adopted amount and there was no excess deferred tax refund that lowered the 2019 revenue requirement, the water gross margin for 2019 would have increased by approximately ~~$15.2~~$16.3 million. Due to the delay in receiving a final decision by the CPUC on the water general rate case, billed water revenues for the first three months of 2019 were based on 2018 adopted rates. Based on the PD, had new rates been in place as of January 1, 2019, pretax income for the water segment would have been higher by approximately $4.0 million, or $0.08 per share, for the first quarter of 2019. When approved, the new rates will be retroactive to January 1, 2019 and retroactive adjustments will

be recorded accordingly. The ~~settlement as filed~~PD also allows for potential additional water revenue increases in 2020 and 2021 of approximately ~~$10.0~~$9.6 million and $12.0 million, respectively, subject to the results of an earnings test and changes to ~~the~~ forecasted inflationary index values.

Electric ~~Segment:~~Segment:

In May 2017, GSWC filed its electric general rate case application with the CPUC to determine new electric rates for the years 2018 through 2021. In November 2018, GSWC and ~~CalPA have reached~~the Public Advocates Office filed a ~~tentative~~joint motion to adopt a settlement ~~which resolves~~agreement between the two parties resolving all ~~revenue requirement~~ issues in ~~this~~connection with the general rate case. ~~A settlement conference with all parties in the rate case is scheduled for November 2018.~~ Among other things, the ~~tentative~~ settlement incorporates a previous stipulation in the case, which authorizes a new return on equity for GSWC's electric segment of 9.60%~~. GSWC’s prior~~, as compared to its previously authorized return ~~on equity for its electric segment was~~of 9.95%. The stipulation also included a capital structure and debt cost similar to those approved by the CPUC in March 2018 in connection with GSWC's water segment cost of capital ~~proceeding, as discussed below.~~ proceeding. Furthermore, the settlement (i) extends the rate cycle by one year (new rates will be for 2018-2022); (ii) increases the electric gross margin for 2018 by approximately $2.0 million compared to the 2017 adopted electric gross margin, adjusted for the Tax Act; (iii) authorizes BVES to invest approximately $44 million in capital infrastructure for 2018-2022, which includes all requested capital projects plus an additional $3 million for 2022; and (iv) increases the adopted electric gross margin by $1.2 million for each of the years 2019 and 2020, by $1.1 million in 2021, and by $1.0 million in 2022. The rate increases for 2019 – 2022 are not subject to an earnings test.

Because of the delay in finalizing the electric general rate case, ~~year-to-date 2018~~ billed electric revenues ~~have been~~during 2018 and the first three months of 2019 were based on 2017 adopted rates, pending a final decision by the CPUC in this rate case application. Had the new rates in the settlement agreement been in place as of January 1, 2018, pretax income at the electric segment would have increased by approximately $2.0 million, or $0.04 per share, for the full year ended December 31, 2018, and by approximately $941,000, or approximately $0.02 per share, for the first three months of 2019. When ~~a final decision is~~ approved, the new ~~electric~~ rates will be retroactive to January 1, ~~2018.~~2018 and retroactive adjustments for 2019 and 2018 will be recorded accordingly.

~~Cost of Capital Proceeding for Water Regions~~Application to Transfer Electric Utility Operations to New Subsidiary:

~~In April 2017,~~On December 14, 2018, GSWC filed ~~its water cost of capital~~an application with the ~~CPUC. In March 2018,~~CPUC to transfer the ~~CPUC issued~~assets and liabilities of the BVES division of GSWC to Bear Valley Electric Service, Inc. (“BVES Inc.”), a ~~final decision~~newly created separate legal entity and stand-alone subsidiary of AWR. Due to the differences in operations, regulations, and risks, management believes a separate electric legal entity and stand-alone subsidiary of AWR is in the ~~cost~~best interests of ~~capital proceeding~~customers, employees, and the communities served. This application is subject to CPUC approval and, if approved, is not expected to result in a substantive change to AWR's operations and business segments. In February 2019, the City of Big Bear Lake filed a protest to the application. GSWC has filed reply comments with the CPUC. The CPUC has not established a timeline for GSWC and three other investor-owned water utilities that serve California. Among other things, the final decision adopts for GSWC (i) an ROE of 8.90%, (ii) a capital structure with 57% equity and 43% debt,

~~(iii) a return on rate base of 7.91%, and (iv) the continuation~~its review of the water cost of capital adjustment mechanism. GSWC’s prior authorized ROE for its water segment was 9.43% with a return on rate base of 8.34%. The newly authorized return on rate base of 7.91% also reflects a true-up of GSWC’s embedded debt cost from 6.99% to 6.6%. The reduced debt costs contributed approximately 18 basis points to the 43-basis-point drop in the authorized return on rate base. Including the effects of the Tax Act, the lower return on rate base beginning in 2018 is expected to decrease GSWC’s 2018 adopted annual revenue requirement by approximately $3.6 million.

~~Other Regulatory Matters~~:application.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Regulatory Matters” section of the Registrant’s Form 10-K for the year-ended December 31, ~~2017~~2018 for a ~~detailed~~ discussion of other regulatory matters.

Environmental Matters

GSWC is required to comply with the safe drinking water standards established by the U.S. Environmental Protection Agency (“US EPA”) and the Division of Drinking Water ("DDW"), under the State Water Resources Control Board (“SWRCB”). The US EPA regulates contaminants that may have adverse health effects that are known or likely to occur at levels of public health concern, and the regulation of which will provide a meaningful opportunity for health risk reduction. The DDW, acting on behalf of the US EPA, administers the US EPA’s program in California. Similar state agencies administer these rules in the other states in which Registrant operates.

GSWC currently tests its water supplies and water systems according to, among other things, requirements listed in the Federal Safe Drinking Water Act (“SDWA”). In compliance with the SDWA and to assure a safe drinking water supply to its customers, GSWC has incurred operating costs for testing to determine the levels, if any, of the constituents in its sources of supply and additional expense to treat contaminants in order to meet federal and state maximum contaminant level standards and consumer demands. GSWC expects to incur additional capital costs as well as increased operating costs to maintain or improve the quality of water delivered to its customers in light of anticipated stress on water resources associated with watershed and aquifer pollution, as well as to meet future water quality standards. The CPUC ratemaking process provides GSWC with the opportunity to recover prudently incurred capital and operating costs in future filings associated with achieving water quality standards. Management believes that such incurred and expected future costs will be authorized for recovery by the CPUC.

~~Drinking Water Notifications Levels:~~

In July 2018, the DDW issued drinking water notification levels for certain fluorinated organic chemicals used to make certain fabrics and other materials, and used in various industrial processes. These chemicals are referred to as perfluoroalkyl substances (e.g., PFOA and PFOS). Notification levels are non-regulatory, health-based advisory levels established for contaminants in drinking water for which maximum contaminant levels have not been established. The US EPA has also established health advisory levels for these compounds. Notification to consumers is required when the advisory levels or notification levels are exceeded. GSWC currently does not have water sources exceeding the advisory or notification levels.

Lead Testing in ~~Schools:~~Schools:

In January 2017, the ~~DDW required~~California State Water Resources Control Board - Division of Drinking Water (DDW) issued a permit amendment that requires all community water ~~utilities~~systems to test the schools in their service area for lead, if sampling is requested in ~~their on-site drinking water if requested~~writing by the ~~school’s~~institution’s officials. ~~Legislation was passed in October 2017 making such testing mandatory for any~~In addition, the Governor of California signed an assembly bill, which requires all community water systems that serve a school site of a local educational agency with a building constructed before January 1, ~~2010. Monitoring by~~2010, to test for lead in the ~~utility must be completed~~potable water system of the school site on or before July 1, 2019. GSWC has been working

extensively with the schools in its service areas for the last several months. As a result of concerted outreach to the schools, GSWC has completed lead sampling at approximately 4295 percent of the schools in its service ~~areas~~area as of ~~September 2018, and~~March 31, 2019, as compared to the State average of 53 percent. GSWC will continue to work with the remaining schools in its service areas ~~in an effort~~ to meet the July 1, 2019 deadline. Management cannot predict if all schools will cooperate and complete the testing, and as a result cannot predict complete compliance with this regulation by the deadline.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Environmental Matters” section of the Registrant’s Form 10-K for the year-ended December 31, ~~2017~~2018 for a discussion of environmental matters applicable to GSWC and ASUS and its subsidiaries.

Water Supply

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—California Drought” section of the Registrant’s Form 10-K for the year-ended December 31, ~~2017~~2018 for a discussion of water supply issues. The discussion below focuses on significant matters and changes since December 31, ~~2017.~~2018.

~~California Water Use Standards:~~Drought Impact:

In ~~April 2017,~~May 2018, the ~~Governor of~~ California ended the drought state of emergency in most of California in response to significantly improved water supply conditions resulting from substantial rainfall and snowpack in late 2016 and early 2017. In April 2017, the SWRCB and related state agencies released a plan to establishLegislature passed two bills that provide a framework for long-term ~~water use~~water-use efficiency ~~standards.~~standards and drought planning and resiliency. The ~~plan includes continued bans on wasteful practices and outlines the SWRCB’s vision~~initial steps for ~~continued implementation of the Governor’s executive order on water conservation. In May 2018, the Governor signed into law two pieces of~~implementing this legislation ~~to implement the plan, establishing new permanent water use targets, beginning~~have been laid out in 2022. The legislation also includes reporting requirements and enforcement provisions, requiring compliance at the utility level. The overall framework includes water use limits based on the following: (i) a ~~standard for indoor water use that reduces over time, dropping to 50 gallons per capita per day, or lower,~~summary document by 2030; (ii) a standard for outdoor residential water use based on local climate conditions and amount of landscape, and (iii) a standard for water loss due to system leaks. Included in the provisions are penalties for non-compliance with the stated water use targets, with increased penalties during drought years. More specific details on these regulations will be developed by the SWRCB and the California Department of Water Resources ("DWR") ~~prior to compliance in 2022. Management cannot predict at this time its ability to comply with~~and the ~~new laws, or~~State Water Resources Control Board ("SWRCB"). Over the ~~CPUC’s treatment of any incremental costs incurred in compliance. The legislation also adds provisions to the existing Urban Water Management Plan regulations, and requires urban~~next several years, State agencies, water suppliers and other entities will be working to ~~conduct annual drought risk assessments~~meet the requirements and ~~submit reports~~timeliness of plan implementation. A notable milestone is the establishment of an indoor water use standard of 55 gallons per capita per day (gpcd) until 2025, at which time the standard may be reduced to ~~the~~52.5 gpcd or a new standard as recommend by DWR.

California's recent period of multi-year drought resulted in reduced recharge to the state's groundwater basins. GSWC utilizes groundwater from numerous groundwater basins throughout the state. Several of these basins, especially smaller basins, experienced lower groundwater levels because of the drought. Several of GSWC's service areas rely on groundwater as their only source of supply. Given the critical nature of the groundwater levels in California’s Central Coast area, GSWC implemented mandatory water restrictions in certain service areas, in accordance with CPUC procedures. In the event of water supply shortages beyond the locally available supply, GSWC would need to transport additional water from other areas, increasing the cost of water supply.

~~Precipitation during December 2017 and~~The 2017-2018 water year was a dry year, with rainfall in northern California being below normal levels. However, precipitation to date in ~~2018~~2019 has been ~~below average for much~~above normal levels, with northern Sierra snowpack at 165% of California and may indicate less than normal rainfall for 2018. If dry conditions persist through the remainder of 2018, areas served by these smaller basins may experience further mandatory conservation measures in the future.average.

As of ~~October~~April 30, ~~2018,~~2019, the U.S. Drought Monitor estimated ~~approximately 3~~that 6 percent of California ranks “Abnormally Dry” with no parts of the State ranked in “Drought.” This is in comparison to April 2018 when approximately 66 percent of the State was considered “Abnormally Dry,” and 37 percent was in the rank of ~~“Extreme Drought,” approximately 19 percent in the rank of “Severe Drought,” and approximately 48 percent in the rank of “Moderate~~Moderate Drought.” ~~If dry conditions persist, the SWRCB or other regulatory agencies may impose emergency drought actions.~~

Metropolitan Water District/ State Water ~~Project:~~Project:

GSWC supplements groundwater production with wholesale purchases ~~a portion of its water supply~~ from the Metropolitan Water District of Southern California ("MWD") member agencies. Water supplies available to the MWD through the State Water Project ("SWP") vary from year to year based on several factors. Every year, the ~~DWR~~California Department of Water Resources ("DWR") establishes the SWP allocation for water deliveries to state water contractors. DWR generally establishes a percentage allocation of delivery requests based on several factors, including weather patterns, snow-pack levels, reservoir levels and biological diversion restrictions. The SWP is a major source of water for the MWD. In ~~May 2018, the~~February 2019, DWR set an initial SWP delivery allocation ~~was set~~ at 35 percent of ~~requested orders.~~requests for the 2019 calendar year. However, DWR increased the allocation to 70 percent on March 20, 2019 due to higher than normal precipitation and snow pack.

New Accounting Pronouncements

Registrant is subject to newly issued requirements as well as changes in existing requirements issued by the Financial Accounting Standards Board. Differences in financial reporting between periods for GSWC could occur unless and until the CPUC approves such changes for conformity through regulatory proceedings. See Note 1 of the Unaudited Notes to Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Registrant is exposed to certain market risks, including fluctuations in interest rates, commodity price risk, primarily relating to changes in the market price of electricity at BVES, and other economic conditions. Market risk is the potential loss arising from adverse changes in prevailing market rates and prices.

The quantitative and qualitative disclosures about market risk are discussed in Item 7A-Quantitative and Qualitative Disclosures About Market Risk, contained in Registrant’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Securities and Exchange Act of 1934 (the “Exchange Act”), we have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of the effectiveness, as of the end of the fiscal quarter covered by this report, of the design and operation of our “disclosure controls and procedures” as defined in Rule 13a-15(e) and 15d-15(e) promulgated by the ~~Securities and Exchange Commission (“SEC”)~~SEC under the Exchange Act. Based upon that evaluation, the CEO and the CFO concluded that disclosure controls and procedures, as of the end of such fiscal quarter, were adequate and effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Controls over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended ~~September 30, 2018~~,March 31, 2019, that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II

Item 1. Legal Proceedings

Registrant is subject to ordinary routine litigation incidental to its business, some of which may include claims for compensatory and punitive damages. ~~Other than those disclosed in this Form 10-Q and in Registrant’s Form 10-K for the year ended December 31,~~ ~~2017, no other~~No legal proceedings ~~that~~are pending which are believed to be ~~material are pending.~~material. Management believes that rate recovery, proper insurance coverage and reserves are in place to insure against, among other things, property, general liability, employment, and workers’ compensation claims incurred in the ordinary course of business. Insurance coverage may not cover certain claims involving punitive damages.

Item 1A. Risk Factors

There have been no significant changes in the risk factors disclosed in our ~~2017~~2018 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. The following table provides information about repurchases of Common Shares by AWR during the ~~third~~first quarter of ~~2018~~2019:

Period
Total Number of
Shares
Purchased

Average Price Paid
per Share

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs (1)
Maximum Number
of Shares That May
Yet Be Purchased
under the Plans or
Programs (3)
July 1 – 31, 2018 12,738
$ 60.05
—
—
August 1 – 31, 2018 16,000
$ 59.80
—
—
September 1 – 30, 2018 43,795
$ 59.38
—
—
Total 72,533
(2) $ 59.59
—



Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number of Shares That May Yet Be Purchased under the Plans or Programs (1)(3)
January 1 – 31, 2019	26,181		$	65.60	—	—
February 1 – 28, 2019	407		$	69.46	—	—
March 1 – 31, 2019	3,312		$	70.52	—	—
Total	29,900	(2)	$	66.20	—

(1) None of the common shares were purchased pursuant to any publicly announced stock repurchase program.

(2) Of this amount, ~~67,225~~25,472 Common Shares were acquired on the open market for employees pursuant to the Company's 401(k) plan and the remainder ~~were~~was acquired on the open market for participants in the Common Share Purchase and Dividend Reinvestment Plan.

(3) Neither the 401(k) plan nor the Common Share Purchase and Dividend Reinvestment Plan contain a maximum number of common shares that may be purchased in the open market.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosure

Not applicable

Item 5. Other Information

(a) On October 30, 2018, AWR's Board of Directors approved a fourth quarter dividend of $0.275 per share on AWR's Common Shares. Dividends on the Common Shares are payable on December 3, 2018 to shareholders of record at the close of business on November 15, 2018.


(a)	On May 1, 2019, AWR's Board of Directors approved a second quarter dividend of $0.275 per share on AWR's Common Shares. Dividends on the Common Shares will be paid on June 3, 2019 to shareholders of record at the close of business on May 16, 2019.

~~(b) There have been no material changes during the third quarter of 2018 to the procedures by which shareholders may nominate persons to the Board of Directors of AWR.~~


(b)	There have been no material changes during the first quarter of 2019 to the procedures by which shareholders may nominate persons to the Board of Directors of AWR.

Item 6. Exhibits

(a) The following documents are filed as Exhibits to this report:



3.1		By-Laws of American States Water Company incorporated by reference to Exhibit 3.1 of Registrant's Form 10-Q, filed August 6, 2012 (File No. 1-14431)

3.2		By-laws of Golden State Water Company incorporated by reference to Exhibit 3.2 of Registrant's Form 8-K filed May 13, 2011 (File No. 1-14431)

3.3		Amended and Restated Articles of Incorporation of American States Water Company, as amended, incorporated by reference to Exhibit 3.1 of Registrant's Form 8-K filed June 19, 2013

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 (File No. 1-14431)

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 (File No. 333-156112)

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 (File No. 1-14431)

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 (File No. 1-14431)

~~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 (File No. 1-14431)

10.1		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

10.2		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 (File No. 1-14431)

10.3		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 (File No. 1-14431)

10.4		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 (File No. 1-14431)

10.5		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 (File No. 1-14431)

10.6		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~~ December��31, 1994 (File No. 1-14431)

10.7		2003 Non-Employee Directors Stock Purchase Plan, as amended, incorporated herein by reference to Exhibit 10.4 to Registrant's Form 8-K filed on May 20, 2015 (File No. 1-14431) (2)

10.8		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 (File No. 1-14431)

10.9		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 10.4 to Registrant's Form 8-K filed on November 21, 2014 (File No. 1-14431) (2)

10.10		Golden State Water Company Pension Restoration Plan, as amended, incorporated herein by reference to Exhibit 10.1 to the Registrant's Form 8-K filed on May 21, 2009 (File No. 1-14431) (2)



10.11		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 ~~May 25, 2018~~April 2, 2019

10.12		Form of Indemnification Agreement for executive officers incorporated by reference to Exhibit 10.21 to Registrant's Form 10-K for the year ended December 31, 2006 (File No. 1-14431) (2)




10.13		2008 Stock Incentive Plan, as amended, incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K filed March 25, 2016 (2)

10.14		Form of Nonqualified Stock Option Agreement for officers and key employees for the 2008 Stock Incentive Plan incorporated herein by reference to Exhibit 10.3 to Registrant's Form 8-K filed November 21, 2014 (2)

10.15		Policy Regarding the Recoupment of Certain Performance-Based Compensation Payments incorporated herein by reference to Exhibit 10.3 to the Registrant's Form 8-K filed on April 2, 2014 (2)

10.16		Performance Incentive Plan incorporated herein by reference to Exhibit 10.1 to the Registrant's Form 8-K filed on May 20, 2015 (File No. 1-14431) (2)

10.17		Officer Relocation Policy incorporated herein by reference to Exhibit 10.5 to the Registrant's Form 8-K filed on July 31, 2009 (2)

10.18		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 (File No. 1-14431) (2)

10.19		Form of Restricted Stock Unit Award Agreement for officers and key employees under the 2016 Stock Incentive Plan incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K filed on February 6, 2017 (File No. 1-14431) (2)

10.20		Form of Indemnification Agreement for directors incorporated by reference herein to Exhibit 10.35 to the Registrant's Form 10-K for the period ended December 31, 2012 (1) (2)

10.21		~~2016~~2019 Short-Term Incentive Program incorporated by reference herein to Exhibit ~~10.3~~10.1 to Registrant’s Form 8-K filed on ~~March 25, 2016~~April 1, 2019 (2)

10.22		Form of ~~2016~~2019 Short-Term Incentive Award Agreement incorporated by reference to Exhibit ~~10.4~~10.2 to the Registrant’s Form 8-K filed ~~March 25, 2016~~April 1, 2019 (2)

10.23		2016 Stock Incentive Plan incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on May 19, 2016 (2)

10.24		2013 Non-Employee Directors Plan incorporated by reference herein to Exhibit 10.2 to the Registrant's Form 8-K filed on March 25, 2016 (2)

10.25		Form of Restricted Stock Unit Agreement for grants after December 31, 2014 under the 2008 Stock Incentive Plan incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed November 21, 2014 (2)

10.26		Form of ~~2015 Performance Award Agreement incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed January 30, 2015 (2)~~

~~10.27~~		~~2015 Short-Term Incentive Program incorporated by reference herein to Exhibit 10.1 to the Registrant’s Form 8-K filed on March 27, 2015 (2)~~

~~10.28~~		~~Form of 2015 Short-Term Incentive Award Agreement incorporated by reference to Exhibit 10.2 to Registrant's Form 8-K filed March 27, 2015 (2)~~

~~10.29~~		~~Form of~~ 2016 Performance Award Agreement incorporated by reference to Exhibit 10.1 of Registrant's Form 8-K filed January 29, 2016 (2)

~~10.30~~10.27		Form of 2017 Performance Award Agreement incorporated by reference to Exhibit 10.2 of Registrant's Form 8-K filed on February 6, 2017 (2)

~~10.31~~		~~2017 Short-Term Incentive Program incorporated by reference to Exhibit 10.1 of Registrant's Form 8-K filed on March 31, 2017 (2)~~

~~10.32~~10.28		Form of Restricted Stock Award Agreement for officers with respect to time-vested restricted stock awards under the 2016 Stock Incentive Plan prior to January 1, 2018 incorporated by reference to Exhibit 10.1 of Form 8-K filed on February 6, 2017



~~10.33~~		~~Form of 2017 Short-Term Incentive Agreement incorporated by reference to Exhibit 10.2 of Registrant's Form 8-K filed on March 31, 2017 (2)~~

~~10.34~~10.29		Form of Restricted Stock Award Agreement for officers with respect to time-vested restricted stock awards under the 2016 Stock Incentive Plan after December 31, 2017 incorporated by reference to Exhibit 10.1 of Form 8-K filed on November 3, 2017

~~10.35~~10.30		Form of 2018 Performance Award Agreement incorporated by reference to Exhibit 10-1 of Registrant’s Form 8-K filed February 2, 2018 (2)

~~10.36~~10.31		2018 Short-Term Incentive Program incorporated by reference to Exhibit 10.1 of Registrant's Form 8-K filed on March 23, 2018 (2)

~~10.37~~10.32		Form of Award Agreement for the 2018 Short-Term Incentive Program incorporated by reference to Exhibit 10.2 of Registrant's Form 8-K filed on March 23, 2018 (2)

10.33		Form of Performance Award Agreement incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K filed on February 1, 2019 (2)

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for AWR (1)

31.1.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for GSWC (1)



31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for AWR (1)

31.2.1		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for GSWC (1)

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3)

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3)

101.INS		XBRL Instance Document (3)

101.SCH		XBRL Taxonomy Extension Schema (3)

101.CAL		XBRL Taxonomy Extension Calculation Linkbase (3)

101.DEF		XBRL Taxonomy Extension Definition Linkbase (3)

101.LAB		XBRL Taxonomy Extension Label Linkbase (3)

101.PRE		XBRL Taxonomy Extension Presentation Linkbase (3)

(1) Filed concurrently herewith

(2) Management contract or compensatory arrangement

(3) Furnished concurrently herewith

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized and as its principal financial officer.



			AMERICAN STATES WATER COMPANY (“AWR”):

		By:	/s/ EVA G. TANG
			Eva G. Tang
			Senior Vice President-Finance, Chief Financial
			Officer, Corporate Secretary and Treasurer

			GOLDEN STATE WATER COMPANY (“GSWC”):

		By:	/s/ EVA G. TANG
			Eva G. Tang
			Senior Vice President-Finance, Chief Financial
			Officer and Secretary

		Date:	~~November 5, 2018~~May 6, 2019

5846



	For The Nine Months Ended September 30,
	Pension Benefits						Other Postretirement Benefits						SERP
(dollars in thousands)	2018			2017			2018			2017			2018		2017
Components of Net Periodic Benefits Cost:
Service cost	$	4,005		$	3,750		$	162		$	171		$	822	$	696
Interest cost	5,736			5,928			219			243			666		669
Expected return on plan assets	(8,379		)	(7,278		)	(369		)	(351		)	—		—
Amortization of prior service cost (benefit)	—			—			—			—			—		9
Amortization of actuarial (gain) loss	942			693			(576		)	(582		)	786		582
Net periodic pension cost under accounting standards	2,304			3,093			(564		)	(519		)	2,274		1,956
Regulatory adjustment — deferred	—			791			—			—			—		—
Total expense recognized, before surcharges and allocation to overhead pool	$	2,304		$	3,884		$	(564	)	$	(519	)	$	2,274	$	1,956



	Diluted Earnings per Share
	Nine Months Ended
	9/30/2018		9/30/2017		CHANGE
Water, excluding one-time gain on sale of Ojai water system	$	1.02	$	1.04	$	(0.02	)
Electric	0.08		0.09		(0.01		)
Contracted services	0.24		0.26		(0.02		)
AWR (parent)	0.01		0.01		—
Consolidated diluted earnings per share, adjusted	1.35		1.40		(0.05		)
Gain on sale of Ojai water system	—		0.13		(0.13		)
Consolidated diluted earnings per share, as reported	$	1.35	$	1.53	$	(0.18	)