SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

for the quarterly period ended ~~September 30, 2022~~March 31, 2023


☐			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

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

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

Golden State Water Company

Yes

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

Golden State Water Company

Yes

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

American States Water Company

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

Golden State Water Company

Large accelerated filer

Accelerated filer

Non-accelerated filer

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

☐

Golden State Water Company

Yes

☐

As of ~~November 4, 2022,~~May 9, 2023, the number of Common Shares outstanding of American States Water Company was ~~36,960,897~~36,976,400 shares. As of ~~November 4, 2022,~~May 9, 2023, all of the ~~170~~171 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~~March ~~30, 2022~~3 1 , 202 3 and December 31, ~~2021~~20 2 2	2

	Consolidated Statements of Income of American States Water Company for the Three ~~and~~ ~~Nine~~Months Ended ~~September~~March 3 1 , 202 3 ~~30, 2022~~ and ~~2021~~20 2 2	4

	Consolidated Statements of Changes in Common Shareholders' Equity for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023 and 2022	5

	~~Consolidated Statements of Changes in Common Shareholders' Equity for the Nine Months Ended September 30, 2021~~	6

	Consolidated Statements of Cash Flows of American States Water Company for the ~~Nine~~Three Months Ended ~~September~~ ~~30, 2022~~March 3 1 , 202 3 and ~~2021~~202 2	76

	Balance Sheets of Golden State Water Company as of ~~September~~March 31 ~~30, 2022~~, 202 3 and December 31, ~~2021~~202 2	87

	Statements of Income of Golden State Water Company for the Three M onths Ended March 31, 2023 and ~~Nine Months Ended September 30,~~ 2022 ~~and 2021~~	109

	Statements of Changes in Common Shareholder's Equity for the ~~Nine~~ Three Months Ended ~~September 30,~~March 31, 2023 and 2022	1110

	~~Statements of Changes in Common Shareholder's Equity for the Nine Months Ended September 30, 2021~~	12


	Statements of Cash Flows of Golden State Water Company for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	1311

	Notes to Consolidated Financial Statements	1412

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2724

Item 3:	Quantitative and Qualitative Disclosures About Market Risk	5748

Item 4:	Controls and Procedures	5748

Part II	Other Information

Item 1:	Legal Proceedings	5849

Item 1A:	Risk Factors	5849

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	5950

Item 3:	Defaults Upon Senior Securities	5950

Item 4:	Mine Safety Disclosure	5950

Item 5:	Other Information	5950

Item 6:	Exhibits	6051

	Signatures	6353

Table of Contents

PART I

Item 1. Financial Statements

General

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

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

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

Filing Format

American States Water Company (“AWR”) is the parent company of Golden State Water Company (“GSWC”), Bear Valley Electric Service, Inc. (“~~BVESI”~~BVES”), 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.

Factors affecting our financial performance are summarized under Forward-Looking Information and under “Risk Factors” in our Form 10-K for the period ended December 31, ~~2021~~2022 filed with the SEC. Please consider our forward-looking statements in light of these risks as you read this Form 10-Q. We qualify all of our forward-looking statements by these cautionary statements.

Table of Contents

AMERICAN STATES WATER COMPANY

CONSOLIDATED BALANCE SHEETS

ASSETS

(Unaudited)


(in thousands)	(in thousands)	September 30, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022
Property, Plant and Equipment	Property, Plant and Equipment					Property, Plant and Equipment
Regulated utility plant, at cost	Regulated utility plant, at cost	$	2,284,066	$	2,183,183	Regulated utility plant, at cost	$	2,357,966	$	2,321,712
Non-utility property, at cost	Non-utility property, at cost	37,838		37,085		Non-utility property, at cost	38,898		38,285
Total	Total	2,321,904		2,220,268		Total	2,396,864		2,359,997
Less - Accumulated depreciation	Less - Accumulated depreciation	(603,752)		(594,264)		Less - Accumulated depreciation	(616,403)		(606,231)
Net property, plant and equipment	Net property, plant and equipment	1,718,152		1,626,004		Net property, plant and equipment	1,780,461		1,753,766

Other Property and Investments	Other Property and Investments					Other Property and Investments
Goodwill	Goodwill	1,116		1,116		Goodwill	1,116		1,116
Other property and investments	Other property and investments	34,113		40,806		Other property and investments	38,408		36,907
Total other property and investments	Total other property and investments	35,229		41,922		Total other property and investments	39,524		38,023

Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	2,258		4,963		Cash and cash equivalents	2,126		5,997
Accounts receivable — customers (less allowance for doubtful accounts of $6,598 in 2022 and $3,516 in 2021)		31,829		34,416
Accounts receivable — customers (less allowance for doubtful accounts of $4,364 in 2023 and $4,387 in 2022)						Accounts receivable — customers (less allowance for doubtful accounts of $4,364 in 2023 and $4,387 in 2022)	21,293		26,206
Unbilled receivable	Unbilled receivable	25,165		27,147		Unbilled receivable	22,444		20,663
Receivable from the U.S. government (Note 2)	Receivable from the U.S. government (Note 2)	25,493		27,827		Receivable from the U.S. government (Note 2)	41,091		34,974
Other accounts receivable (less allowance for doubtful accounts of $53 in 2022 and $53 in 2021)		3,369		6,510
Other accounts receivable (less allowance for doubtful accounts of $53 in 2023 and $53 in 2022)						Other accounts receivable (less allowance for doubtful accounts of $53 in 2023 and $53 in 2022)	3,391		4,215
Income taxes receivable	Income taxes receivable	91		236		Income taxes receivable	35		3,901
Materials and supplies, at weighted average cost	Materials and supplies, at weighted average cost	13,444		12,163		Materials and supplies, at weighted average cost	16,282		14,623
Regulatory assets — current	Regulatory assets — current	13,048		8,897		Regulatory assets — current	11,032		14,028
Prepayments and other current assets	Prepayments and other current assets	7,292		5,317		Prepayments and other current assets	11,690		5,450
Unrealized gains on purchased power contracts		7,569		4,441
Purchase power contract derivative at fair value (Note 5)						Purchase power contract derivative at fair value (Note 5)	6,669		11,847
Contract assets (Note 2)	Contract assets (Note 2)	9,232		6,135		Contract assets (Note 2)	3,637		9,390
Total current assets	Total current assets	138,790		138,052		Total current assets	139,690		151,294

Other Assets	Other Assets					Other Assets
Unbilled revenue — receivable from the U.S. government		7,260		9,671
Unbilled revenue — receivable from the U.S. government (Note 2)						Unbilled revenue — receivable from the U.S. government (Note 2)	7,790		6,456
Receivable from the U.S. government (Note 2)	Receivable from the U.S. government (Note 2)	48,992		51,991		Receivable from the U.S. government (Note 2)	50,207		50,482
Contract assets (Note 2)	Contract assets (Note 2)	4,348		3,452		Contract assets (Note 2)	9,836		5,592
Operating lease right-of-use assets	Operating lease right-of-use assets	9,172		10,479		Operating lease right-of-use assets	8,990		9,535
Regulatory assets	Regulatory assets	5,291		3,182		Regulatory assets	10,474		5,694
Other	Other	15,341		16,230		Other	13,400		13,532
Total other assets	Total other assets	90,404		95,005		Total other assets	100,697		91,291

Total Assets	Total Assets	$	1,982,575	$	1,900,983	Total Assets	$	2,060,372	$	2,034,374

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

Table of Contents

AMERICAN STATES WATER COMPANY

CONSOLIDATED BALANCE SHEETS

CAPITALIZATION AND LIABILITIES

(Unaudited)


(in thousands, except number of shares)	(in thousands, except number of shares)	September 30, 2022		December 31, 2021		(in thousands, except number of shares)	March 31, 2023		December 31, 2022
Capitalization	Capitalization					Capitalization
Common shares, no par value	Common shares, no par value					Common shares, no par value
Authorized: 60,000,000 shares	Authorized: 60,000,000 shares					Authorized: 60,000,000 shares
Outstanding: 36,960,897 shares in 2022 and 36,936,285 shares in 2021		$	260,011	$	258,442
Earnings reinvested in the business		445,493		427,505
Outstanding: 36,976,284 shares in 2023 and 36,962,241 shares in 2022						Outstanding: 36,976,284 shares in 2023 and 36,962,241 shares in 2022	$	261,792	$	260,158
Retained earnings						Retained earnings	469,056		449,391
Total common shareholders’ equity	Total common shareholders’ equity	705,504		685,947		Total common shareholders’ equity	730,848		709,549
Long-term debt	Long-term debt	446,817		412,176		Long-term debt	576,431		446,547
Total capitalization	Total capitalization	1,152,321		1,098,123		Total capitalization	1,307,279		1,156,096

Current Liabilities	Current Liabilities					Current Liabilities
Notes payable to bank		238,500		31,000
Notes payable to banks						Notes payable to banks	175,500		255,500
Long-term debt — current	Long-term debt — current	399		377		Long-term debt — current	404		399
Accounts payable	Accounts payable	69,982		65,902		Accounts payable	65,705		84,849
Income taxes payable	Income taxes payable	5,464		4,662		Income taxes payable	10,855		1,848
Accrued other taxes	Accrued other taxes	15,760		17,137		Accrued other taxes	14,257		16,257
Accrued employee expenses	Accrued employee expenses	15,529		16,256		Accrued employee expenses	17,390		13,996
Accrued interest	Accrued interest	7,234		4,545		Accrued interest	8,411		5,308
Regulatory liabilities	Regulatory liabilities	4,821		1,896		Regulatory liabilities	2,097		4,574
Contract liabilities (Note 2)	Contract liabilities (Note 2)	1,253		257		Contract liabilities (Note 2)	560		903
Operating lease liabilities	Operating lease liabilities	1,892		2,044		Operating lease liabilities	1,906		1,892
Other	Other	12,345		11,498		Other	10,605		10,996
Total current liabilities	Total current liabilities	373,179		155,574		Total current liabilities	307,690		396,522

Other Credits	Other Credits					Other Credits
Notes payable to bank		3,000		174,500
Notes payable to banks						Notes payable to banks	25,000		22,000
Advances for construction	Advances for construction	65,210		66,727		Advances for construction	64,097		64,351
Contributions in aid of construction - net	Contributions in aid of construction - net	146,711		147,482		Contributions in aid of construction - net	148,456		147,918
Deferred income taxes	Deferred income taxes	142,726		140,290		Deferred income taxes	148,138		149,677
Regulatory liabilities	Regulatory liabilities	17,609		32,979		Regulatory liabilities	1,783		40,602
Unamortized investment tax credits	Unamortized investment tax credits	1,099		1,153		Unamortized investment tax credits	1,064		1,082
Accrued pension and other postretirement benefits	Accrued pension and other postretirement benefits	58,835		61,365		Accrued pension and other postretirement benefits	34,796		33,636
Operating lease liabilities	Operating lease liabilities	7,721		8,920		Operating lease liabilities	7,559		8,090
Other	Other	14,164		13,870		Other	14,510		14,400
Total other credits	Total other credits	457,075		647,286		Total other credits	445,403		481,756

Commitments and Contingencies (Note 9)	Commitments and Contingencies (Note 9)					Commitments and Contingencies (Note 9)

Total Capitalization and Liabilities	Total Capitalization and Liabilities	$	1,982,575	$	1,900,983	Total Capitalization and Liabilities	$	2,060,372	$	2,034,374

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 THREE ~~AND NINE~~ MONTHS ENDED

~~SEPTEMBER 30,~~MARCH 31, 2023 AND 2022 ~~AND 2021~~

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(in thousands, except per share amounts)	(in thousands, except per share amounts)	2022		2021		2022		2021		(in thousands, except per share amounts)	2023		2022
Operating Revenues	Operating Revenues									Operating Revenues
Water	Water	$	100,799	$	102,768	$	265,561	$	269,430	Water	$	112,712	$	73,906
Electric	Electric	8,919		8,564		29,028		28,211		Electric	12,904		11,892
Contracted services	Contracted services	25,266		25,423		71,572		84,588		Contracted services	35,807		22,772
Total operating revenues	Total operating revenues	134,984		136,755		366,161		382,229		Total operating revenues	161,423		108,570

Operating Expenses	Operating Expenses									Operating Expenses
Water purchased	Water purchased	20,304		24,093		58,115		60,248		Water purchased	14,304		17,848
Power purchased for pumping	Power purchased for pumping	3,878		3,584		9,182		8,590		Power purchased for pumping	2,354		2,374
Groundwater production assessment	Groundwater production assessment	5,650		5,185		14,726		14,845		Groundwater production assessment	3,833		4,211
Power purchased for resale	Power purchased for resale	2,673		2,875		9,186		8,203		Power purchased for resale	4,986		5,166
Supply cost balancing accounts	Supply cost balancing accounts	640		(2,446)		(6,160)		(7,959)		Supply cost balancing accounts	11,566		(6,343)
Other operation	Other operation	9,696		9,414		28,028		26,165		Other operation	10,116		8,667
Administrative and general	Administrative and general	21,594		20,255		65,030		62,938		Administrative and general	23,547		22,972
Depreciation and amortization	Depreciation and amortization	10,117		9,826		30,402		29,156		Depreciation and amortization	11,203		10,114
Maintenance	Maintenance	3,408		2,979		10,120		8,908		Maintenance	3,150		3,140
Property and other taxes	Property and other taxes	5,942		6,052		17,247		17,265		Property and other taxes	6,295		5,853
ASUS construction	ASUS construction	10,742		12,154		31,263		42,910		ASUS construction	18,904		10,203
Total operating expenses	Total operating expenses	94,644		93,971		267,139		271,269		Total operating expenses	110,258		84,205

Operating Income	Operating Income	40,340		42,784		99,022		110,960		Operating Income	51,165		24,365

Other Income and Expenses	Other Income and Expenses									Other Income and Expenses
Interest expense	Interest expense	(7,331)		(5,553)		(19,246)		(17,843)		Interest expense	(9,481)		(5,606)
Interest income	Interest income	667		333		1,387		1,136		Interest income	1,864		283
Other, net	Other, net	338		467		(2,370)		2,998		Other, net	1,611		(419)
Total other income and expenses, net	Total other income and expenses, net	(6,326)		(4,753)		(20,229)		(13,709)		Total other income and expenses, net	(6,006)		(5,742)

Income before income tax expense	Income before income tax expense	34,014		38,031		78,793		97,251		Income before income tax expense	45,159		18,623

Income tax expense	Income tax expense	8,360		9,878		19,026		23,254		Income tax expense	10,752		4,461

Net Income	Net Income	$	25,654	$	28,153	$	59,767	$	73,997	Net Income	$	34,407	$	14,162

Weighted Average Number of Common Shares Outstanding	Weighted Average Number of Common Shares Outstanding	36,958		36,933		36,953		36,916		Weighted Average Number of Common Shares Outstanding	36,968		36,944
Basic Earnings Per Common Share	Basic Earnings Per Common Share	$	0.69	$	0.76	$	1.61	$	2.00	Basic Earnings Per Common Share	$	0.93	$	0.38

Weighted Average Number of Diluted Shares	Weighted Average Number of Diluted Shares	37,042		37,025		37,034		37,004		Weighted Average Number of Diluted Shares	37,047		37,019
Fully Diluted Earnings Per Common Share	Fully Diluted Earnings Per Common Share	$	0.69	$	0.76	$	1.61	$	2.00	Fully Diluted Earnings Per Common Share	$	0.93	$	0.38

Dividends Paid Per Common Share	Dividends Paid Per Common Share	$	0.3975	$	0.365	$	1.1275	$	1.035	Dividends Paid Per Common Share	$	0.3975	$	0.365

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

AMERICAN STATES WATER COMPANY

CONSOLIDATED STATEMENTS OF CHANGES

IN COMMON SHAREHOLDERS' EQUITY

~~FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022~~

(Unaudited)


										Three Months Ended March 31, 2023
										Common Shares
										Number
										of			Retained
(in thousands)									(in thousands)	Shares	Amount		Earnings		Total
Balances at December 31, 2022									Balances at December 31, 2022	36,962	$	260,158	$	449,391	$	709,549
Add:									Add:
Net income									Net income				34,407		34,407
Exercise of stock options and other issuances of Common Shares									Exercise of stock options and other issuances of Common Shares	14	—				—
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)									Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)		1,587				1,587
Dividend equivalent rights on stock-based awards not paid in cash									Dividend equivalent rights on stock-based awards not paid in cash		47				47
Deduct:									Deduct:
Dividends on Common Shares									Dividends on Common Shares				14,695		14,695
Dividend equivalent rights on stock-based awards not paid in cash									Dividend equivalent rights on stock-based awards not paid in cash				47		47
Balances at March 31, 2023									Balances at March 31, 2023	36,976	$	261,792	$	469,056	$	730,848

		Nine Months Ended September 30, 2022								Three Months Ended March 31, 2022
		Common Shares			Reinvested					Common Shares
		Number			Earnings					Number
		of			in the					of			Retained
(in thousands)	(in thousands)	Shares	Amount		Business		Total		(in thousands)	Shares	Amount		Earnings		Total
Balances at December 31, 2021	Balances at December 31, 2021	36,936	$	258,442	$	427,505	$	685,947	Balances at December 31, 2021	36,936	$	258,442	$	427,505	$	685,947
Add:	Add:								Add:
Net income	Net income				14,162		14,162		Net income				14,162		14,162
Exercise of stock options and other issuances of Common Shares	Exercise of stock options and other issuances of Common Shares	20	—				—		Exercise of stock options and other issuances of Common Shares	20	—				—
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)	Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)		801				801		Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)		801				801
Dividend equivalent rights on stock-based awards not paid in cash	Dividend equivalent rights on stock-based awards not paid in cash		41				41		Dividend equivalent rights on stock-based awards not paid in cash		41				41
Deduct:	Deduct:								Deduct:
Dividends on Common Shares	Dividends on Common Shares				13,485		13,485		Dividends on Common Shares				13,485		13,485
Dividend equivalent rights on stock-based awards not paid in cash	Dividend equivalent rights on stock-based awards not paid in cash				41		41		Dividend equivalent rights on stock-based awards not paid in cash				41		41
Balances at March 31, 2022	Balances at March 31, 2022	36,956	$	259,284	$	428,141	$	687,425	Balances at March 31, 2022	36,956	$	259,284	$	428,141	$	687,425

Add:
Net income					19,951		19,951
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)			338				338
Dividend equivalent rights on stock-based awards not paid in cash			34				34
Deduct:
Dividends on Common Shares					13,489		13,489
Dividend equivalent rights on stock-based awards not paid in cash					34		34
Balances at June 30, 2022		36,956	$	259,656	$	434,569	$	694,225

Add:
Net income					25,654		25,654
Exercise of stock options and other issuances of Common Shares		5	—				—
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)			315				315
Dividend equivalent rights on stock-based awards not paid in cash			40				40
Deduct:
Dividends on Common Shares					14,690		14,690
Dividend equivalent rights on stock-based awards not paid in cash					40		40
Balances at September 30, 2022		36,961	$	260,011	$	445,493	$	705,504

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

~~AMERICAN STATES WATER COMPANY~~

~~CONSOLIDATED STATEMENTS OF CHANGES~~

~~IN COMMON SHAREHOLDERS' EQUITY~~

~~FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021~~

~~(Unaudited)~~

Nine Months Ended September 30, 2021
Common Shares Reinvested
Number Earnings
of in the
(in thousands) Shares Amount Business Total
Balances at December 31, 2020 36,889 $ 256,666 $ 385,007 $ 641,673
Add:
Net income 19,268 19,268
Exercise of stock options and other issuances of Common Shares 24 — —
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4) 813 813
Dividend equivalent rights on stock-based awards not paid in cash 49 49
Deduct:
Dividends on Common Shares 12,361 12,361
Dividend equivalent rights on stock-based awards not paid in cash 49 49
Balances at March 31, 2021 36,913 $ 257,528 $ 391,865 $ 649,393
Add:
Net income 26,576 26,576
Exercise of stock options and other issuances of Common Shares 19 — —
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4) 531 531
Dividend equivalent rights on stock-based awards not paid in cash 42 42
Deduct:
Dividends on Common Shares 12,366 12,366
Dividend equivalent rights on stock-based awards not paid in cash 42 42
Balances at June 30, 2021 36,932 $ 258,101 $ 406,033 $ 664,134
Add:
Net income 28,153 28,153
Exercise of stock options and other issuances of Common Shares 4 — —
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4) 128 128
Dividend equivalent rights on stock-based awards not paid in cash 35 35
Deduct:
Dividends on Common Shares 13,480 13,480
Dividend equivalent rights on stock-based awards not paid in cash 35 35
Balances at September 30, 2021 36,936 $ 258,264 $ 420,671 $ 678,935

~~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, 2023 AND 2022 ~~AND 2021~~

(Unaudited)


		Nine Months Ended September 30,					Three Months Ended March 31,
(in thousands)	(in thousands)	2022		2021		(in thousands)	2023		2022
Cash Flows From Operating Activities:	Cash Flows From Operating Activities:					Cash Flows From Operating Activities:
Net income	Net income	$	59,767	$	73,997	Net income	$	34,407	$	14,162
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	30,688		29,440		Depreciation and amortization	11,572		10,208
Provision for doubtful accounts	Provision for doubtful accounts	833		873		Provision for doubtful accounts	458		258
Deferred income taxes and investment tax credits	Deferred income taxes and investment tax credits	(1,098)		1,205		Deferred income taxes and investment tax credits	(3,286)		1,552
Stock-based compensation expense	Stock-based compensation expense	2,439		2,456		Stock-based compensation expense	2,254		1,905
Loss (gain) on investments held in a trust		6,445		(2,313)
(Gain) loss on investments held in a trust						(Gain) loss on investments held in a trust	(1,630)		1,653
Other — net	Other — net	263		273		Other — net	(71)		83
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable — customers	Accounts receivable — customers	(1,760)		(8,748)		Accounts receivable — customers	4,455		7,627
Unbilled receivable	Unbilled receivable	4,393		2,564		Unbilled receivable	(3,115)		2,451
Other accounts receivable	Other accounts receivable	3,179		(935)		Other accounts receivable	824		3,467
Receivables from the U.S. government	Receivables from the U.S. government	5,333		(7,847)		Receivables from the U.S. government	(5,842)		4,589
Materials and supplies	Materials and supplies	(1,281)		(1,621)		Materials and supplies	(1,659)		220
Prepayments and other assets	Prepayments and other assets	520		(1,139)		Prepayments and other assets	(5,656)		(4,584)
Contract assets	Contract assets	(3,993)		172		Contract assets	1,509		(199)
Regulatory assets		(14,065)		(8,319)
Regulatory assets/liabilities						Regulatory assets/liabilities	(35,863)		(5,713)
Accounts payable	Accounts payable	(575)		2,924		Accounts payable	(8,542)		341
Income taxes receivable/payable	Income taxes receivable/payable	947		(3,235)		Income taxes receivable/payable	12,873		(1,592)
Contract liabilities	Contract liabilities	996		(1,245)		Contract liabilities	(343)		(47)
Accrued pension and other postretirement benefits	Accrued pension and other postretirement benefits	(3,070)		1,416		Accrued pension and other postretirement benefits	1,020		71
Other liabilities	Other liabilities	(28)		2,005		Other liabilities	3,599		1,574
Net cash provided		89,933		81,923
Net cash provided by						Net cash provided by	6,964		38,026

Cash Flows From Investing Activities:	Cash Flows From Investing Activities:					Cash Flows From Investing Activities:
Capital expenditures	Capital expenditures	(122,056)		(106,721)		Capital expenditures	(49,337)		(35,170)
Other investing activities	Other investing activities	321		229		Other investing activities	172		121
Net cash used		(121,735)		(106,492)
Net cash used in						Net cash used in	(49,165)		(35,049)

Cash Flows From Financing Activities:	Cash Flows From Financing Activities:					Cash Flows From Financing Activities:

Receipt of advances for and contributions in aid of construction	Receipt of advances for and contributions in aid of construction	5,489		10,636		Receipt of advances for and contributions in aid of construction	2,064		1,795
Refunds on advances for construction	Refunds on advances for construction	(3,941)		(3,613)		Refunds on advances for construction	(712)		(833)
Repayments of long-term debt	Repayments of long-term debt	(377)		(28,356)		Repayments of long-term debt	(109)		(103)
Proceeds from the issuance of long-term debt, net of issuance costs	Proceeds from the issuance of long-term debt, net of issuance costs	34,826		—		Proceeds from the issuance of long-term debt, net of issuance costs	129,665		—
Net change in notes payable to banks	Net change in notes payable to banks	36,000		55,800		Net change in notes payable to banks	(77,000)		16,000
Dividends paid	Dividends paid	(41,664)		(38,207)		Dividends paid	(14,695)		(13,485)
Other financing activities	Other financing activities	(1,236)		(1,287)		Other financing activities	(883)		(1,188)
Net cash provided (used)		29,097		(5,027)
Net cash provided by						Net cash provided by	38,330		2,186
Net change in cash and cash equivalents	Net change in cash and cash equivalents	(2,705)		(29,596)		Net change in cash and cash equivalents	(3,871)		5,163
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	4,963		36,737		Cash and cash equivalents, beginning of period	5,997		4,963
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	2,258	$	7,141	Cash and cash equivalents, end of period	$	2,126	$	10,126

Non-cash transactions:	Non-cash transactions:					Non-cash transactions:
Accrued payables for investment in utility plant	Accrued payables for investment in utility plant	$	37,510	$	29,101	Accrued payables for investment in utility plant	$	29,746	$	34,101
Property installed by developers and conveyed	Property installed by developers and conveyed	$	511	$	6,093	Property installed by developers and conveyed	$	364	$	130

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

Table of Contents

GOLDEN STATE WATER COMPANY

BALANCE SHEETS

ASSETS

(Unaudited)


(in thousands)	(in thousands)	September 30, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022
Utility Plant	Utility Plant					Utility Plant
Utility plant, at cost	Utility plant, at cost	$	2,112,923	$	2,022,417	Utility plant, at cost	$	2,177,606	$	2,147,643
Less - Accumulated depreciation	Less - Accumulated depreciation	(528,035)		(522,672)		Less - Accumulated depreciation	(539,575)		(530,925)
Net utility plant	Net utility plant	1,584,888		1,499,745		Net utility plant	1,638,031		1,616,718

Other Property and Investments	Other Property and Investments	31,975		38,659		Other Property and Investments	36,159		34,655

Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	386		525		Cash and cash equivalents	813		370
Accounts receivable — customers (less allowance for doubtful accounts of $6,315 in 2022 and $3,168 in 2021)		29,431		31,870
Accounts receivable — customers (less allowance for doubtful accounts of $4,111 in 2023 and $4,143 in 2022)						Accounts receivable — customers (less allowance for doubtful accounts of $4,111 in 2023 and $4,143 in 2022)	18,697		23,107
Unbilled receivable	Unbilled receivable	18,181		20,525		Unbilled receivable	13,399		15,006
Other accounts receivable (less allowance for doubtful accounts of $53 in 2022 and $53 in 2021)		2,068		3,791

Other accounts receivable (less allowance for doubtful accounts of $53 in 2023 and $53 in 2022)						Other accounts receivable (less allowance for doubtful accounts of $53 in 2023 and $53 in 2022)	2,316		2,721
Intercompany receivable						Intercompany receivable	—		621
Income taxes receivable from Parent						Income taxes receivable from Parent	—		1,692
Materials and supplies, at average cost	Materials and supplies, at average cost	5,323		5,384		Materials and supplies, at average cost	6,338		6,120
Regulatory assets — current	Regulatory assets — current	13,048		8,897		Regulatory assets — current	11,032		14,028
Prepayments and other current assets	Prepayments and other current assets	5,642		4,223		Prepayments and other current assets	8,347		4,464
Total current assets	Total current assets	74,079		75,215		Total current assets	60,942		68,129

Other Assets	Other Assets					Other Assets
Operating lease right-of-use assets	Operating lease right-of-use assets	8,804		10,439		Operating lease right-of-use assets	8,703		9,208

Other	Other	14,427		14,424		Other	12,535		12,598
Total other assets	Total other assets	23,231		24,863		Total other assets	21,238		21,806

Total Assets	Total Assets	$	1,714,173	$	1,638,482	Total Assets	$	1,756,370	$	1,741,308

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

Table of Contents

GOLDEN STATE WATER COMPANY

BALANCE SHEETS

CAPITALIZATION AND LIABILITIES

(Unaudited)


(in thousands, except number of shares)	(in thousands, except number of shares)	September 30, 2022		December 31, 2021		(in thousands, except number of shares)	March 31, 2023		December 31, 2022
Capitalization	Capitalization					Capitalization
Common Shares, no par value:	Common Shares, no par value:					Common Shares, no par value:
Authorized: 1,000 shares	Authorized: 1,000 shares					Authorized: 1,000 shares
Outstanding: 170 shares in 2022 and 2021		$	357,970	$	356,530
Earnings reinvested in the business		275,429		259,156
Outstanding: 171 shares in 2023 and 170 in 2022						Outstanding: 171 shares in 2023 and 170 in 2022	$	369,770	$	358,123
Retained earnings						Retained earnings	288,502		285,783
Total common shareholder’s equity	Total common shareholder’s equity	633,399		615,686		Total common shareholder’s equity	658,272		643,906
Long-term debt	Long-term debt	411,985		412,176		Long-term debt	541,627		411,748
Total capitalization	Total capitalization	1,045,384		1,027,862		Total capitalization	1,199,899		1,055,654

Current Liabilities	Current Liabilities					Current Liabilities
Intercompany payable to Parent		112,235		—
Intercompany payable						Intercompany payable	428		—
Intercompany note payable						Intercompany note payable	45,000		—
Long-term debt — current	Long-term debt — current	399		377		Long-term debt — current	404		399
Accounts payable	Accounts payable	60,033		50,627		Accounts payable	47,860		65,944
Accrued other taxes	Accrued other taxes	13,879		14,960		Accrued other taxes	12,248		14,501
Accrued employee expenses	Accrued employee expenses	12,430		12,867		Accrued employee expenses	13,841		11,233
Accrued interest	Accrued interest	6,052		4,210		Accrued interest	7,144		4,364
Income taxes payable to Parent	Income taxes payable to Parent	6,169		2,972		Income taxes payable to Parent	10,394		—
Operating lease liabilities	Operating lease liabilities	1,780		2,029		Operating lease liabilities	1,794		1,788
Other	Other	11,410		10,505		Other	9,754		10,152
Total current liabilities	Total current liabilities	224,387		98,547		Total current liabilities	148,867		108,381

Other Credits	Other Credits					Other Credits
Intercompany payable to Parent		—		49,280

Intercompany note payable						Intercompany note payable	—		129,000
Advances for construction	Advances for construction	65,190		66,707		Advances for construction	64,077		64,331
Contributions in aid of construction — net	Contributions in aid of construction — net	146,711		145,848		Contributions in aid of construction — net	148,456		147,918
Deferred income taxes	Deferred income taxes	133,762		132,314		Deferred income taxes	135,921		138,788
Regulatory liabilities	Regulatory liabilities	17,609		32,979		Regulatory liabilities	1,783		40,602
Unamortized investment tax credits	Unamortized investment tax credits	1,099		1,153		Unamortized investment tax credits	1,064		1,082
Accrued pension and other postretirement benefits	Accrued pension and other postretirement benefits	58,535		61,170		Accrued pension and other postretirement benefits	34,556		33,421
Operating lease liabilities	Operating lease liabilities	7,477		8,891		Operating lease liabilities	7,397		7,878
Other	Other	14,019		13,731		Other	14,350		14,253
Total other credits	Total other credits	444,402		512,073		Total other credits	407,604		577,273

Commitments and Contingencies (Note 9)	Commitments and Contingencies (Note 9)					Commitments and Contingencies (Note 9)

Total Capitalization and Liabilities	Total Capitalization and Liabilities	$	1,714,173	$	1,638,482	Total Capitalization and Liabilities	$	1,756,370	$	1,741,308

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

Table of Contents

GOLDEN STATE WATER COMPANY

STATEMENTS OF INCOME

FOR THE THREE ~~AND NINE~~ MONTHS ENDED

~~SEPTEMBER 30,~~MARCH 31, 2023 AND 2022 ~~AND 2021~~

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(in thousands)	(in thousands)	2022		2021		2022		2021		(in thousands)	2023		2022
Operating Revenues	Operating Revenues									Operating Revenues
Water	Water	$	100,799	$	102,768	$	265,561	$	269,430	Water	$	112,712	$	73,906
Total operating revenues	Total operating revenues	100,799		102,768		265,561		269,430		Total operating revenues	112,712		73,906

Operating Expenses	Operating Expenses									Operating Expenses
Water purchased	Water purchased	20,304		24,093		58,115		60,248		Water purchased	14,304		17,848
Power purchased for pumping	Power purchased for pumping	3,878		3,584		9,182		8,590		Power purchased for pumping	2,354		2,374
Groundwater production assessment	Groundwater production assessment	5,650		5,185		14,726		14,845		Groundwater production assessment	3,833		4,211
Supply cost balancing accounts	Supply cost balancing accounts	885		(2,114)		(5,682)		(8,445)		Supply cost balancing accounts	12,625		(5,067)
Other operation	Other operation	7,273		7,287		20,908		19,476		Other operation	7,271		6,354
Administrative and general	Administrative and general	14,362		13,677		43,945		41,973		Administrative and general	15,381		15,596
Depreciation and amortization	Depreciation and amortization	8,475		8,272		25,573		24,547		Depreciation and amortization	9,606		8,545
Maintenance	Maintenance	2,526		2,140		7,193		6,236		Maintenance	1,960		2,156
Property and other taxes	Property and other taxes	4,995		5,185		14,440		14,665		Property and other taxes	5,139		4,890

Total operating expenses	Total operating expenses	68,348		67,309		188,400		182,135		Total operating expenses	72,473		56,907

Operating Income	Operating Income	32,451		35,459		77,161		87,295		Operating Income	40,239		16,999

Other Income and Expenses	Other Income and Expenses									Other Income and Expenses
Interest expense	Interest expense	(5,950)		(5,184)		(16,650)		(16,625)		Interest expense	(6,922)		(5,236)
Interest income	Interest income	325		86		562		352		Interest income	1,428		91
Other, net	Other, net	(70)		429		(3,070)		2,684		Other, net	1,628		(598)
Total other income and expenses, net	Total other income and expenses, net	(5,695)		(4,669)		(19,158)		(13,589)		Total other income and expenses, net	(3,866)		(5,743)

Income before income tax expense	Income before income tax expense	26,756		30,790		58,003		73,706		Income before income tax expense	36,373		11,256

Income tax expense	Income tax expense	6,831		7,993		14,623		17,718		Income tax expense	8,910		2,689

Net Income	Net Income	$	19,925	$	22,797	$	43,380	$	55,988	Net Income	$	27,463	$	8,567

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

109

GOLDEN STATE WATER COMPANY

STATEMENTS OF CHANGES

IN COMMON SHAREHOLDER'S EQUITY

~~FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022~~

(Unaudited)


										Three Months Ended March 31, 2023
										Common Shares
										Number
										of			Retained
(in thousands, except number of shares)									(in thousands, except number of shares)	Shares	Amount		Earnings		Total
Balances at December 31, 2022									Balances at December 31, 2022	170	$	358,123	$	285,783	$	643,906
Add:									Add:
Net income									Net income				27,463		27,463
Issuance of Common Share to Parent									Issuance of Common Share to Parent	1	10,000				10,000
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)									Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)		1,603				1,603
Dividend equivalent rights on stock-based awards not paid in cash									Dividend equivalent rights on stock-based awards not paid in cash		44				44
Deduct:									Deduct:
Dividends on Common Shares									Dividends on Common Shares				24,700		24,700
Dividend equivalent rights on stock-based awards not paid in cash									Dividend equivalent rights on stock-based awards not paid in cash				44		44
Balances at March 31, 2023									Balances at March 31, 2023	171	$	369,770	$	288,502	$	658,272

		Nine Months Ended September 30, 2022								Three Months Ended March 31, 2022
		Common Shares			Reinvested					Common Shares
		Number			Earnings					Number
		of			in the					of			Retained
(in thousands, except number of shares)	(in thousands, except number of shares)	Shares	Amount		Business		Total		(in thousands, except number of shares)	Shares	Amount		Earnings		Total
Balances at December 31, 2021	Balances at December 31, 2021	170	$	356,530	$	259,156	$	615,686	Balances at December 31, 2021	170	$	356,530	$	259,156	$	615,686
Add:	Add:								Add:
Net income	Net income				8,567		8,567		Net income				8,567		8,567
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)	Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)		742				742		Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)		742				742
Dividend equivalent rights on stock-based awards not paid in cash	Dividend equivalent rights on stock-based awards not paid in cash		39				39		Dividend equivalent rights on stock-based awards not paid in cash		39				39
Deduct:	Deduct:								Deduct:
Dividends on Common Shares	Dividends on Common Shares				13,500		13,500		Dividends on Common Shares				13,500		13,500
Dividend equivalent rights on stock-based awards not paid in cash	Dividend equivalent rights on stock-based awards not paid in cash				39		39		Dividend equivalent rights on stock-based awards not paid in cash				39		39
Balances at March 31, 2022	Balances at March 31, 2022	170	$	357,311	$	254,184	$	611,495	Balances at March 31, 2022	170	$	357,311	$	254,184	$	611,495

Add:
Net income					14,888		14,888
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)			274				274
Dividend equivalent rights on stock-based awards not paid in cash			31				31
Deduct:
Dividends on Common Shares					13,500		13,500
Dividend equivalent rights on stock-based awards not paid in cash					31		31
Balances at June 30, 2022		170	$	357,616	$	255,541	$	613,157

Add:
Net income					19,925		19,925
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)			317				317
Dividend equivalent rights on stock-based awards not paid in cash			37				37
Deduct:

Dividend equivalent rights on stock-based awards not paid in cash					37		37
Balances at September 30, 2022		170	$	357,970	$	275,429	$	633,399

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

~~GOLDEN STATE WATER COMPANY~~

~~STATEMENTS OF CHANGES~~

~~IN COMMON SHAREHOLDER'S EQUITY~~

~~FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021~~

~~(Unaudited)~~

Nine Months Ended September 30, 2021
Common Shares Reinvested
Number Earnings
of in the
(in thousands, except number of shares) Shares Amount Business Total
Balances at December 31, 2020 170 $ 354,906 $ 228,392 $ 583,298
Add:
Net income 12,231 12,231
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4) 782 782
Dividend equivalent rights on stock-based awards not paid in cash 45 45
Deduct:
Dividends on Common Shares 12,400 12,400
Dividend equivalent rights on stock-based awards not paid in cash 45 45
Balances at March 31, 2021 170 $ 355,733 $ 228,178 $ 583,911
Add:
Net income 20,960 20,960
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4) 479 479
Dividend equivalent rights on stock-based awards not paid in cash 39 39
Deduct:
Dividends on Common Shares 12,400 12,400
Dividend equivalent rights on stock-based awards not paid in cash 39 39
Balances at June 30, 2021 170 $ 356,251 $ 236,699 $ 592,950
Add:
Net income 22,797 22,797
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4) 117 117
Dividend equivalent rights on stock-based awards not paid in cash 35 35
Deduct:
Dividends on Common Shares 13,500 13,500
Dividend equivalent rights on stock-based awards not paid in cash 35 35
Balances at September 30, 2021 170 $ 356,403 $ 245,961 $ 602,364

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

1210

Table of Contents

GOLDEN STATE WATER COMPANY

STATEMENTS OF CASH FLOWS

FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2023 AND 2022 ~~AND 2021~~

(Unaudited)


		Nine Months Ended September 30,					Three Months Ended March 31,
(in thousands)	(in thousands)	2022		2021		(in thousands)	2023		2022
Cash Flows From Operating Activities:	Cash Flows From Operating Activities:					Cash Flows From Operating Activities:
Net income	Net income	$	43,380	$	55,988	Net income	$	27,463	$	8,567
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	25,773		24,741		Depreciation and amortization	9,947		8,610
Provision for doubtful accounts	Provision for doubtful accounts	784		789		Provision for doubtful accounts	420		222
Deferred income taxes and investment tax credits	Deferred income taxes and investment tax credits	(1,433)		578		Deferred income taxes and investment tax credits	(4,348)		1,305
Stock-based compensation expense	Stock-based compensation expense	2,194		2,249		Stock-based compensation expense	2,190		1,751

Loss (gain) on investments held in a trust		6,445		(2,313)
(Gain) loss on investments held in a trust						(Gain) loss on investments held in a trust	(1,630)		1,653
Other — net	Other — net	248		248		Other — net	(105)		84
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable — customers	Accounts receivable — customers	(1,678)		(8,555)		Accounts receivable — customers	3,990		7,499
Unbilled receivable	Unbilled receivable	2,344		(1,796)		Unbilled receivable	1,607		4,183
Other accounts receivable	Other accounts receivable	1,723		648		Other accounts receivable	405		1,944
Materials and supplies	Materials and supplies	61		(262)		Materials and supplies	(218)		797
Prepayments and other assets	Prepayments and other assets	163		(469)		Prepayments and other assets	(3,380)		(3,268)
Regulatory assets		(12,549)		(7,316)
Regulatory assets/liabilities						Regulatory assets/liabilities	(34,059)		(5,135)
Accounts payable	Accounts payable	3,918		5,799		Accounts payable	(7,831)		2,886
Intercompany receivable/payable	Intercompany receivable/payable	25		694		Intercompany receivable/payable	1,077		428
Income taxes receivable/payable from/to Parent	Income taxes receivable/payable from/to Parent	3,197		(567)		Income taxes receivable/payable from/to Parent	12,086		(1,791)
Accrued pension and other postretirement benefits	Accrued pension and other postretirement benefits	(3,175)		1,308		Accrued pension and other postretirement benefits	1,004		36
Other liabilities	Other liabilities	(152)		1,563		Other liabilities	2,259		1,494
Net cash provided		71,268		73,327
Net cash provided by						Net cash provided by	10,877		31,265

Cash Flows From Investing Activities:	Cash Flows From Investing Activities:					Cash Flows From Investing Activities:
Capital expenditures	Capital expenditures	(107,668)		(90,299)		Capital expenditures	(42,005)		(31,465)
Note receivable from AWR parent		—		(23,000)
Receipt of payment of note receivable from AWR parent		—		23,000

Other investing activities	Other investing activities	224		181		Other investing activities	171		117
Net cash used		(107,444)		(90,118)
Net cash used in						Net cash used in	(41,834)		(31,348)

Cash Flows From Financing Activities:	Cash Flows From Financing Activities:					Cash Flows From Financing Activities:
Proceeds from issuance of Common Shares to Parent						Proceeds from issuance of Common Shares to Parent	10,000		—
Receipt of advances for and contributions in aid of construction	Receipt of advances for and contributions in aid of construction	5,489		10,604		Receipt of advances for and contributions in aid of construction	2,064		1,759
Refunds on advances for construction	Refunds on advances for construction	(3,941)		(3,613)		Refunds on advances for construction	(712)		(833)
Repayments of long-term debt	Repayments of long-term debt	(377)		(28,356)		Repayments of long-term debt	(109)		(103)

Proceeds from the issuance of long-term debt, net of issuance costs						Proceeds from the issuance of long-term debt, net of issuance costs	129,665		—
Net change in intercompany borrowings	Net change in intercompany borrowings	63,000		45,000		Net change in intercompany borrowings	(84,000)		18,000
Dividends paid	Dividends paid	(27,000)		(38,300)		Dividends paid	(24,700)		(13,500)
Other financing activities	Other financing activities	(1,134)		(1,163)		Other financing activities	(808)		(1,088)
Net cash provided (used)		36,037		(15,828)
Net cash provided by						Net cash provided by	31,400		4,235

Net change in cash and cash equivalents	Net change in cash and cash equivalents	(139)		(32,619)		Net change in cash and cash equivalents	443		4,152
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	525		35,578		Cash and cash equivalents, beginning of period	370		525
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	386	$	2,959	Cash and cash equivalents, end of period	$	813	$	4,677

Non-cash transactions:	Non-cash transactions:					Non-cash transactions:
Accrued payables for investment in utility plant	Accrued payables for investment in utility plant	$	36,144	$	27,399	Accrued payables for investment in utility plant	$	28,363	$	32,439
Property installed by developers and conveyed	Property installed by developers and conveyed	$	511	$	6,093	Property installed by developers and conveyed	$	364	$	130

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

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AMERICAN STATES WATER COMPANY AND SUBSIDIARIES

AND

GOLDEN STATE WATER COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Summary of Significant Accounting Policies

Nature of Operations: American States Water Company (“AWR”) is the parent company of Golden State Water Company (“GSWC”), Bear Valley Electric Service, Inc. (“~~BVESI”~~BVES”), and American States Utility Services, Inc. (“ASUS”) (and its wholly owned subsidiaries: Fort Bliss Water Services Company (“FBWS”), Terrapin Utility Services, Inc. (“TUS”), Old Dominion Utility Services, Inc. (“ODUS”), Palmetto State Utility Services, Inc. (“PSUS”), Old North Utility Services, Inc. (“ONUS”), 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 and ~~BVESI~~BVES are both California public utilities. GSWC is engaged in the purchase, production, distribution and sale of water throughout California serving approximately ~~263,000~~263,400 customer connections. ~~BVESI~~BVES distributes electricity in several San Bernardino County mountain communities in California serving approximately 24,700 customer connections. The California Public Utilities Commission (“CPUC”) regulates GSWC’s and ~~BVESI’s~~BVES’s businesses in matters including properties, rates, services, facilities, and transactions between GSWC, ~~BVESI,~~BVES, and their affiliates.

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 an initial 50-year firm fixed-price ~~contracts.~~contracts with the U.S. government. 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.

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.~~the Military Utility Privatization Subsidiaries.

Basis of Presentation: The consolidated financial statements and notes hereto 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 of GSWC, ~~BVESI~~BVES and ASUS. ASUS owns all of the outstanding common stock of the Military Utility Privatization Subsidiaries. The consolidated financial statements of AWR include the accounts of AWR and its subsidiaries. These financial statements are prepared in conformity with accounting principles generally accepted in the United States of 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, ~~2021~~2022 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these 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, ~~2021~~2022 filed with the SEC.

Related Party and Intercompany Transactions: As discussed below under Liquidity and Financing Plans, AWR currently borrows under a credit facility and provides funds to GSWC and ASUS in support of their operations. Furthermore, GSWC, ~~BVESI~~BVES and ASUS provide and/or receive various support ~~services~~service to and from their parent, AWR, and among themselves. GSWC ~~has allocated~~also allocates certain corporate office administrative and general costs to its affiliates, ~~BVESI~~BVES and ASUS, using allocation factors approved by the CPUC. During the three months ended March 31, 2023 and 2022, GSWC allocated corporate office administrative and general costs to ~~the electric segment~~BVES of approximately ~~$663,000~~$1.3 million and ~~$653,000 during~~$794,000, respectively. During the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $2.1 million during each of the nine month periods ended September 30, 2022 and 2021.~~ GSWC allocated corporate office administrative and general costs to ASUS of approximately ~~$1.3~~$1.5 million and ~~$1.2~~$1.6 million, ~~during~~respectively.

In January 2023, the ~~three months ended September 30, 2022~~Board of Directors approved the issuance of one GSWC Common Share to AWR for $10.0 million. GSWC used the proceeds from the issuance of equity to AWR and ~~2021, respectively, and $4.0~~from the issuance of $130.0 million ~~during each~~in unsecured long-term notes on January 13, 2023 to pay-off all intercompany borrowings from AWR. The CPUC requires GSWC to fully pay-off all intercompany borrowings it has from AWR within a 24-month period.

Table of ~~the nine months ended September 30, 2022 and 2021.~~Contents

Liquidity and Financing Plans: AWR borrows under a revolving credit facility with a current borrowing capacity of $280.0 million and provides funds to GSWC and ASUS in support of their operations through intercompany borrowing ~~agreements.~~agreements on terms that are similar to that of the credit facility. The interest rate charged to GSWC and ASUS is comparable to the interest rate AWR pays under the credit facility. AWR's credit agreement was set to expire on May 23, 2023. On May 8, 2023, the credit facility was amended to extend the maturity date by two-months to provide adequate time to put in place a new credit agreement. The amendment extends the maturity date of the existing credit agreement ~~expires in May~~to July 23, 2023 ~~and all~~or an earlier date on which the credit agreement is either terminated or cancelled when superseded by a new agreement. All intercompany borrowing agreements will expire concurrent with the expiration of ~~AWR's~~AWR’s credit facility. ~~AWR intends to execute new intercompany borrowing agreements with its subsidiaries consistent with a new credit facility.~~

~~Table of Contents~~

On April 22, 2022, AWR’s credit facility was amended to increase the borrowing capacity from $200.0 million to $280.0 million. The amendment also changed the benchmark interest rate from the London Interbank Offered Rate (“LIBOR”) to the Secured Overnight Financing Rate (“SOFR”). The change in benchmark rates has not had a material impact on its financing costs. The interest rate charged to GSWC and ASUS is sufficient to cover AWR’s interest expense under the credit facility.

~~Given that AWR’s credit agreement will expire in May 2023,~~Therefore, the outstanding borrowings under the credit facility of ~~$238.5~~$175.5 million as ~~of September 30, 2022~~of March 31, 2023 have been classified as a current ~~liability~~liabilities on AWR’s Consolidated Balance Sheet, thus creating a negative working-capital condition for AWR of~~$234.4 million~~. $168.0 million. Additionally, as of ~~September 30, 2022,~~March 31, 2023, the ~~$112.2~~ $45.0 million of outstanding intercompany borrowings of GSWC from AWR have been classified as a current ~~liability~~liabilities on ~~GSWC’s Consolidated~~GSWC's Balance Sheet, also creating a negative working-capital condition for GSWC of $87.9 million. ~~$150.3 million~~. As of ~~November 7, 2022,~~May 10, 2023, neither AWR nor GSWC have sufficient liquidity or capital resources to repay ~~their~~its credit facility or intercompany borrowings, respectively, without either extending its existing credit facility, entering into a new credit facility, or issuing new debt or equity.

~~Management plans~~AWR is confident and believes it is probable that it will be able to ~~renew and extend AWR’s~~execute a new credit facility ~~prior~~agreement with the needed borrowing capacities required to repay its ~~expiration date,~~existing credit facility and ~~is confident,~~to run its operations given Registrant's ability to generate consistent cash flows, its A+ credit ratings, and its history in obtaining revolving credit facilities to meet its working-capital needs, that AWR will successfully renew or extend its facility or obtain a new facility with the needed borrowing capacities required to run its operations. In addition, Registrant expects to issue long-term debt through GSWC during the fourth quarter of 2022, and use the proceeds to pay off outstanding borrowings under the intercompany borrowing arrangement with AWR. AWR intends to use the proceeds to pay off portions of the outstanding borrowings under its credit facility. Management believes that execution of its plan is probable based on Registrant’s ability to generate consistent cash flows, its A+ credit ratings, its relationships with lenders, andas well as its history of successfully raising debt ~~necessary~~as recently done with GSWC's issuance of $130.0 million in unsecured long-term notes on January 13, 2023. In addition, management is considering a separate credit facility for GSWC to ~~fund~~support its standalone water utility operations. Alternatively, AWR may enter into a new intercompany borrowing agreement with GSWC. Accordingly, management has concluded that Registrant will be able to satisfy its obligations, including those under its current credit facility, for at least the next twelve months from the issuance date of these financial statements. However, Registrant’s ability to access the capital markets or to otherwise obtain sufficient financing may be affected by future conditions and, accordingly, no assurances can be made that Registrant will be successful in implementing its ~~plan.~~financing plans.

~~BVESI~~BVES has a separate $35.0 million revolving credit facility without a parent guaranty ~~which was amended in December 2021 to reduce the interest rate and fees charged, as well as to extend the maturity date by a year to~~that matures on July 1, 2024. As of March 31, 2023, there was $25.0 million outstanding borrowing under this credit facility. Under the terms of the credit agreement, ~~BVESI~~BVES has the option to increase the facility by an additional $15.0 million, subject to lender approval. Interest rates under this facility are currently based on LIBOR. ~~Under~~Effective July 1, 2023, all new borrowings under this credit agreement will be based on the ~~terms of the December 2021 amendment, upon discontinuation of the LIBOR benchmark rate in 2023, the lender may replace LIBOR with a benchmark interest rate such as SOFR. BVESI~~Secured Overnight Financing Rate ("SOFR"). BVES does not believe the change from LIBOR to a new benchmark rate such as SOFR will have a material impact on its financing costs. ~~The CPUC requires BVESI to completely pay off all borrowings under its revolving credit facility within a 24-month period.~~

On April 28, 2022, BVESI completed the issuance of $35.0 million in unsecured private-placement notes consisting of $17.5 million at a coupon rate of 4.548% due April 28, 2032 and $17.5 million at a coupon rate of 4.949% due April 28, 2037. BVESI used the proceeds from the notes to pay down all amounts under its revolving credit facility outstanding at the time of issuing the notes. Interest on these notes is payable semiannually, and the covenant requirements under these notes are similar to the terms of BVESI’s revolving credit facility. As of September 30, 2022, there were $3.0 million outstanding borrowings under this facility.

COVID-19 Impact: ~~GSWC, BVESI and ASUS have continued their operations throughout the COVID-19 pandemic given that their water, wastewater and electric utility services are deemed essential.~~ AWR and its subsidiaries continue to monitor the guidance provided by federal, state, and local health authorities and other government officials. ~~While continuing to monitor transmission rates~~On April 10, 2023, the Biden Administration terminated the COVID-19 national emergency. The COVID-19 emergency-related memorandum accounts for GSWC and ~~other variables, employees have returned to company offices.~~BVES expired when the COVID-19 national emergency ended. Thus far, the COVID-19 pandemic has not had a material impact on ASUS's current operations.

During ~~2022,~~the first quarter of 2023, GSWC and ~~BVESI~~BVES continue to incur some incremental costs in excess of their revenue requirements ~~primarily related to delinquent customer accounts receivable,~~ due to the lingering effects of the pandemic that are being tracked in COVID-19-related memorandum accounts and recorded as regulatory assets (Note 3). As a result, the amounts recorded in the COVID-19-related memorandum accounts have not impacted GSWC’s or BVESI’s earnings. Thus far, the COVID-19 pandemic has not had a material impact on ASUS’s current operations.

~~Accounting Pronouncements to Be Adopted in 2022: In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-10~~ ~~Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance~~. The amendments in this update require disclosures about transactions with a government such as government grants or assistance. The amendments were effective for all applicable entities for financial statements issued for annual periods beginning after December 15, 2021. Registrant does not anticipate that this guidance update will have a material impact on its financial statement disclosures.

1513

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Note 2 — Revenues

Most of Registrant’s revenues are derived from contracts with customers, including tariff-based revenues from its regulated utilities at GSWC and ~~BVESI.~~BVES. ASUS’s initial 50-year firm fixed-price contracts with the U.S. government are considered service concession arrangements under ASC 853, Service Concession Arrangements. Accordingly, the services under these contracts are accounted for under Topic 606—Revenue from Contracts with Customers, and the water and/or wastewater systems are not recorded as Property, Plant and Equipment on the Registrant’s balance sheets.

Although GSWC and ~~BVESI~~BVES have a diversified customer base of residential, commercial, industrial, and other customers, revenues derived from residential and commercial customers generally account for approximately 90% of total water and electric revenues. Most of ASUS’s revenues are derived from contracts with the U.S. government. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ disaggregated revenues from contracts with customers by segment were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2023		2022
Water:	Water:									Water:
Tariff-based revenues	Tariff-based revenues	$	90,998	$	100,256	$	247,108	$	261,231	Tariff-based revenues	$	100,541	$	72,498
Surcharges (cost-recovery activities)	Surcharges (cost-recovery activities)	672		1,095		2,018		2,604		Surcharges (cost-recovery activities)	317		549
Other	Other	625		586		1,714		1,626		Other	737		518
Water revenues from contracts with customers	Water revenues from contracts with customers	92,295		101,937		250,840		265,461		Water revenues from contracts with customers	101,595		73,565
WRAM under-collection (alternative revenue program)		8,504		831		14,721		3,969
WRAM under/(over) collection (alternative revenue program)										WRAM under/(over) collection (alternative revenue program)	11,117		341
Total water revenues(1)	Total water revenues(1)	100,799		102,768		265,561		269,430		Total water revenues(1)	112,712		73,906

Electric:	Electric:									Electric:
Tariff-based revenues	Tariff-based revenues	8,891		8,791		29,824		28,798		Tariff-based revenues	13,063		12,552
Surcharges (cost-recovery activities)	Surcharges (cost-recovery activities)	29		32		88		278		Surcharges (cost-recovery activities)	149		27
Electric revenues from contracts with customers	Electric revenues from contracts with customers	8,920		8,823		29,912		29,076		Electric revenues from contracts with customers	13,212		12,579
BRRAM over-collection (alternative revenue program)		(1)		(259)		(884)		(865)
BRRAM under/(over) collection (alternative revenue program)										BRRAM under/(over) collection (alternative revenue program)	(308)		(687)
Total electric revenues	Total electric revenues	8,919		8,564		29,028		28,211		Total electric revenues	12,904		11,892

Contracted services:	Contracted services:									Contracted services:
Water	Water	16,142		15,454		43,862		53,102		Water	22,488		13,546
Wastewater	Wastewater	9,124		9,969		27,710		31,486		Wastewater	13,319		9,226
Contracted services revenues from contracts with customers	Contracted services revenues from contracts with customers	25,266		25,423		71,572		84,588		Contracted services revenues from contracts with customers	35,807		22,772

Total AWR revenues	Total AWR revenues	$	134,984	$	136,755	$	366,161	$	382,229	Total AWR revenues	$	161,423	$	108,570

(1) Water revenues for the three months ended March 31, 2023 includes approximately $30 million, which represents the impact of the retroactive new rates for the full year of 2022 as a result of a proposed decision issued by the CPUC in April 2023 on GSWC’s general rate case (Note 3).

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


(dollars in thousands)	(dollars in thousands)	September 30, 2022		December 31, 2021		(dollars in thousands)	March 31, 2023		December 31, 2022
Unbilled receivables	Unbilled receivables	$	13,087	$	14,835	Unbilled receivables	$	15,167	$	10,125
Receivable from the U.S. government	Receivable from the U.S. government	$	74,485	$	79,818	Receivable from the U.S. government	$	91,298	$	85,456
Contract assets	Contract assets	$	13,580	$	9,587	Contract assets	$	13,473	$	14,982
Contract liabilities	Contract liabilities	$	1,253	$	257	Contract liabilities	$	560	$	903

Unbilled receivables and Receivable from the U.S. government represent receivables where the right to payment is conditional only by the passage of time.

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

Contract Liabilities - Contract liabilities are liabilities of ASUS and 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.

Table of Contents

Revenues for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, which were included in contract liabilities at the beginning of the period were not material. Contracted services revenues recognized during the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 from performance obligations satisfied in previous periods were not material.

~~Table of Contents~~

As of ~~September 30, 2022,~~March 31, 2023, AWR’s aggregate remaining performance obligations, which are entirely for the contracted services segment, were $3.5 billion. AWR expects to recognize revenue on these remaining performance obligations over the remaining term of each of the 50-year contracts, which range from 32 to 4645 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 convenience of the U.S. government.

Note 3 — Regulatory Matters

In accordance with accounting principles for rate-regulated enterprises, GSWC and ~~BVESI~~BVES record regulatory assets, which represent probable future recovery of costs from customers through the ~~ratemaking~~rate making process, and regulatory liabilities, which represent probable future refunds that are to be credited to customers through the ~~ratemaking~~rate making process. At ~~September 30, 2022,~~March 31, 2023, GSWC and ~~BVESI~~BVES had approximately ~~$60.4~~$77.6 million of regulatory liabilities, net of regulatory assets, not accruing carrying costs. Of this amount, (i) ~~$76.2~~$75.2 million of regulatory liabilities are excess deferred income taxes arising from the lower federal income tax rate under the Tax Cuts and Jobs Act enacted in December 2017 that are being refunded to customers, (ii) ~~$3.7~~$2.3 million of ~~regulatory liabilities are from flowed-through deferred income taxes, (iii) $25.5 million of net~~ regulatory assets relates to the underfunded position in Registrant's pension and other retirement obligations (not including the two-way pension balancing accounts), and ~~(iv) $7.6~~(iii) $6.7 million regulatory liability related to a memorandum account authorized by the CPUC to track unrealized gains and losses on ~~BVESI’s~~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.~~costs including flowed-through deferred income taxes.

Regulatory assets represent costs incurred by GSWC and/or ~~BVESI~~BVES for which they have received or expect to receive rate recovery in the future. In determining the probability of costs being recognized in other periods, GSWC and ~~BVESI~~BVES consider regulatory rules and decisions, past practices, and other facts or circumstances that would indicate if recovery is probable. If the CPUC determines that a portion of either GSWC’s or ~~BVESI’s~~BVES’s assets are not recoverable in customer rates, the applicable utility must determine if it has suffered an asset impairment 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 twelve months have been classified as current assets and current liabilities by ~~ratemaking~~rate making area. Regulatory ~~assets,~~liabilities, less regulatory ~~liabilities,~~assets, included in the consolidated balance sheets are as follows:


(dollars in thousands)	(dollars in thousands)	September 30, 2022		December 31, 2021		(dollars in thousands)	March 31, 2023		December 31, 2022
GSWC	GSWC					GSWC
Water Revenue Adjustment Mechanism and Modified Cost Balancing Account		$	30,869	$	13,326

Pensions and other post-retirement obligations (Note 8)		24,406		25,212
COVID-19 memorandum accounts		5,090		1,663
2022/2023 general rate case memorandum accounts (unbilled revenue)						2022/2023 general rate case memorandum accounts (unbilled revenue)	$	38,419	$	—
Water revenue adjustment mechanism, net of the modified cost balancing account						Water revenue adjustment mechanism, net of the modified cost balancing account	29,069		31,803
COVID-19 memorandum account						COVID-19 memorandum account	3,540		3,478
Excess deferred income taxes	Excess deferred income taxes	(72,296)		(73,000)		Excess deferred income taxes	(71,418)		(71,870)
Flow-through taxes, net		(3,429)		(5,552)
Flowed-through income taxes						Flowed-through income taxes	447		(1,134)
Other regulatory assets	Other regulatory assets	16,342		16,949		Other regulatory assets	22,390		19,964
Other regulatory liabilities	Other regulatory liabilities	(5,543)		(2,680)		Other regulatory liabilities	(13,198)		(8,815)
Total GSWC	Total GSWC	$	(4,561)	$	(24,082)	Total GSWC	$	9,249	$	(26,574)
BVESI
Derivative unrealized gain (Note 5)		(7,569)		(4,441)
BVES						BVES
Derivative instrument memorandum account (Note 5)						Derivative instrument memorandum account (Note 5)	(6,669)		(11,847)
Wildfire mitigation and other fire prevention related costs memorandum accounts						Wildfire mitigation and other fire prevention related costs memorandum accounts	14,131		13,007
Other regulatory assets	Other regulatory assets	17,160		13,916		Other regulatory assets	9,480		7,965
Other regulatory liabilities	Other regulatory liabilities	(9,121)		(8,189)		Other regulatory liabilities	(8,565)		(8,005)
Total AWR	Total AWR	$	(4,091)	$	(22,796)	Total AWR	$	17,626	$	(25,454)

Regulatory matters are discussed in the consolidated financial statements and the notes thereto included in the Company’s Form 10-K for the year ended December 31, ~~2021~~2022 filed with the SEC. The discussion below focuses on significant matters and developments since December 31, ~~2021.~~2022.

Pending Water General Rate ~~Case:~~Case and the 2022/2023 General Rate Case Memorandum Accounts:

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for 2022 and 2023 are effective and retroactive to January 1, 2022 and January 1, 2023, respectively. As a result of receiving a proposed decision that approves the settlement agreement in its entirety, the impact of retroactive rates for the full year of 2022 and the estimated second-year rate increases for the three ~~unresolved issues.~~ months ended March 31, 2023 have been reflected in the 2023 first quarter results as it became probable that the approved retroactive rates for the full year of 2022 and the first three months of 2023 would be permitted to be billed to customers in the future. GSWC expects to receive a final decision during the second quarter of 2023.

Due to the delay in finalizing the water general rate case, water revenues billed ~~and recorded~~to customers for the ~~nine~~year ended December 31, 2022 and for the three months ended ~~September 30, 2022~~March 31, 2023 were based on 2021 adopted rates, pending a final decision by the ~~CPUC in this~~ CPUC. GSWC has been authorized to create general rate case ~~application. When approved,~~memorandum accounts to track the revenue differences between the 2021 adopted rates and the new 2022 and 2023 rates authorized by the CPUC. As of March 31, 2023, there is an aggregate cumulative amount of $38.4 million in the general rate case memorandum accounts that relates to water revenues recorded during the three months ended March 31, 2023, and which represent the difference between the 2021 adopted rates billed to customers and the rates authorized in the proposed decision for the full year of 2022 and the estimated increases for the period ended March 31, 2023. Additional increases in adopted revenues for 2023 are subject to an earnings test and changes to the forecasted inflationary index values. The best estimate of 2023 rate increases have been computed at this time using inflationary index values as of March 31, 2023. Actual increases for 2023 will be ~~retroactive~~determined when the filings to ~~January 1, 2022, and cumulative adjustments will be recorded in the quarter in which~~implement the new ~~rates~~rate increases are

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approved by the ~~CPUC. In October 2022,~~CPUC, and will be calculated using the inflationary index values at that time. GSWC will file for the 2023 increases once the CPUC ~~issued a decision approving an extension of~~approves the ~~statutory deadline for~~final decision. Once a final decision is issued by the CPUC, GSWC will also request recovery through a surcharge of the cumulative amounts included in the ~~water~~ general rate case ~~proceeding to February 14, 2023.~~memorandum accounts.

~~Cost of Capital Proceeding:~~

GSWC filed a cost of capital application in May 2021 currently pending CPUC approval. Hearings on this proceeding occurred in May 2022 and briefs were filed in June 2022. Based on management’s analysis of this regulatory proceeding and associated accounting to date, forFurthermore, the proposed decision addressed the three remaining unresolved issues related to GSWC's requests for: (i) a medical insurance cost balancing account, (ii) a general liability insurance cost balancing account, and ~~nine months ended September 30, 2022,~~(iii) the consolidation of two of GSWC’s customer service areas. The proposed decision approved both balancing accounts and denied GSWC’s consolidation of its two customer service areas. The proposed decision also approved the recovery of previously incurred costs that were being tracked in other CPUC-authorized memorandum accounts. GSWC ~~reduced revenues by $1.9 million~~recorded the amounts tracked in the balancing and ~~$5.0 million, respectively, and recorded a corresponding regulatory liability for revenues subject to refund based on its best estimate, which relates to~~memorandum accounts that are being approved in the proposed decision, the net impact of GSWC’s lower cost of debt requested in its application. However, at this time, management cannot predict the ultimate outcome of the cost of capital application and the associated impact on 2022 revenues. Changes in estimates will be made, if necessary, as more information in this proceeding becomes available.which was not material to 2023 first quarter results.

Alternative-Revenue Programs:

GSWC currently records the difference between what it bills its water customers and ~~that which~~what is authorized by the CPUC using the Water Revenue Adjustment Mechanism (“WRAM”) and the Modified Cost Balancing Account (“MCBA”) 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~~rate making area and bears interest at the current 90-day commercial-paper rate.

During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, GSWC recorded ~~additional~~ net under-collections in the WRAM/MCBA accounts of approximately ~~$20.7~~$9.5 million ~~based on 2021 authorized amounts, pending a final decision on the~~due to lower-than-adopted water ~~general rate case. Once the CPUC issues a final decision on the general rate case, the WRAM~~usage and ~~MCBA amounts recorded in 2022 will be updated~~ to reflect the authorized 2023 amounts. In addition, GSWC recorded a net reduction of $9.8 million of under-collection during the first quarter of 2023 to reflect the cumulative full-year impact of 2022 ~~amounts.~~based on authorized 2022 amounts for both WRAM/MCBA accounts as a result of receiving the proposed water general rate case decision. Surcharges for the 2022 WRAM/ MCBA balance is expected to be requested after the final CPUC-decision is received on GSWC's general rate case. Surcharges and surcredits have been implemented for all pre-2022 WRAM/MCBA balances. As of March 31, 2023, GSWC had an aggregated regulatory asset of $29.1 million, which is comprised of a $28.9 million under-collection in the WRAM accounts and a $189,000 under-collection in the MCBA accounts.

As required by the accounting guidance for alternative revenue programs, GSWC is required to collect its WRAM balances within 24 months following the year in which an under-collection is recorded. As of ~~September 30, 2022,~~March 31, 2023, there were no material WRAM under-collections that were estimated to be collected ~~beyond~~over more than 24 months.

Cost of Capital Proceeding:

GSWC filed a cost of capital application in May 2021 currently pending CPUC approval. Hearings on this ~~24 month period.~~proceeding occurred in May 2022 and briefs were filed in June 2022. On May 9, 2023, GSWC received a proposed decision from the assigned administrative law judge at the CPUC on the cost of capital proceeding. Among other things, the proposed decision (i) adopts GSWC’s requested capital structure and cost of debt filed in the application; (ii) adopts a return on equity of 8.85% for GSWC as compared to 8.9% previously authorized; (iii) allows for the continuation of the Water Cost of Capital Mechanism (“WCCM”); and (iv) adopts the new cost of capital for the three-year period commencing January 1, 2022, through December 31, 2024. Comments on the proposed decision are due on May 30. In March 2023, the CPUC issued a decision that approved an extension of the statutory deadline for a final decision in the cost of capital proceeding to August 10, 2023.

Based on management’s analysis of this regulatory proceeding and the associated accounting to date, for the three months ended March 31, 2023 and 2022, GSWC reduced revenues by $1.8 million, and $1.4 million, respectively, and recorded a corresponding regulatory liability for revenues subject to refund based on its best estimate, which relates to the impact of GSWC’s lower cost of debt requested in its application and adopted in the proposed decision. Also, an additional reduction to revenues of $1.1 million was recorded during the first quarter of 2023 to reflect the incremental impact of revenues subject to refund from the new 2022 rates in the proposed water general rate case decision that results from the lower cost of debt in the

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pending cost of capital proceeding. As of March 31, 2023, GSWC had an aggregated regulatory liability of $9.3 million for the estimated revenues subject to refund from the pending cost of capital proceeding. However, at this time, management cannot predict the ultimate outcome and any changes that may be made to the final decision in the cost of capital application, and the associated impact on 2022 and 2023 revenues. Changes in estimates will be made, if necessary, as more information in this proceeding becomes available.

Furthermore, the proposed decision continues the WCCM for the years 2023 and 2024, which adjusts the return on equity and rate of return on rate base between the three-year cost of capital proceedings only if there is a positive or negative change of more than 100 basis points in the average of the Moody’s Aa utility bond rate as measured over the period October 1 through September 30. If there is a positive or negative change of more than 100 basis points, the return on equity is adjusted by one half of the difference. For the period from October 1, 2021 through September 30, 2022, the Moody’s rate increased by 103 basis points from the benchmark, which triggers the WCCM adjustment. GSWC recognized revenues for the first quarter of 2023 and all of 2022 based on the previously authorized return of equity of 8.9% that is presently being billed to water customers pending a final decision in the cost of capital proceeding.

COVID-19 Emergency Memorandum Accounts:

During 2022, GSWC and BVESI continue to experience delinquent customer accounts receivable due to the lingering effects of the COVID-19 pandemic, resulting in both GSWC and BVESI increasing their allowances for doubtful accounts during the nine months ended September 30, 2022. The CPUC has authorized GSWC and ~~BVESI~~BVES to track incremental costs, including bad debt expense, in excess of what is included in their respective revenue requirements incurred as a result of the pandemic in COVID-19 emergency-related memorandum accounts. During the first quarter of 2023, GSWC and BVES incurred some incremental costs in excess of their revenue requirements due to the lingering effects of the pandemic that are being tracked in COVID-19-related memorandum accounts and recorded as regulatory assets, which GSWC and ~~BVESI~~BVES intend to file with the CPUC for future recovery.

As of ~~September 30, 2022,~~March 31, 2023, GSWC and ~~BVESI~~BVES had approximately ~~$5.1~~$3.5 million and ~~$454,000,~~$500,000, respectively, in regulatory asset accounts related to bad debt expense in excess of their revenue requirements, the purchase of personal protective equipment, additional incurred printing costs, and other incremental COVID-19-related costs. Emergency-related memorandum accounts are well-established cost recovery mechanisms authorized as a result of a state/federal declared emergency, and are therefore recognized as regulatory assets for future recovery. As a result, the amounts recorded in the COVID-19 emergency-related memorandum accounts have not impacted GSWC’s or ~~BVESI’s~~BVES’s earnings.

~~In January 2022, GSWC received $9.5 million in COVID relief funds through~~ On April 10, 2023, the ~~California Water and Wastewater Arrearage Payment Program to provide assistance to customers for their water debt accrued during~~Biden Administration terminated the COVID-19 ~~pandemic by remitting federal funds that~~national emergency. The COVID-19 emergency-related memorandum accounts for GSWC and BVES expired when the ~~state received from the American Rescue Plan Act of 2021 to the utility on behalf of eligible customers. GSWC applied~~COVID-19 national emergency ended and no additional amounts will be included in these funds to its delinquent customers’ eligible balances. In February 2022, BVESI received $321,000 from the state of California for similar customer relief funding for unpaid electric customer bills incurred during the pandemic.memorandum accounts.

The CPUC requires that amounts tracked in GSWC’s and ~~BVESI’s~~BVES’s COVID-19 memorandum accounts for unpaid customer bills be first offset by any (i) federal and state relief for water or electric utility bill debt, and (ii) customer payments through payment plan arrangements, prior to receiving recovery from customers at large. After these offsets are made, GSWC will file with the CPUC for recovery of the remaining balance. ~~BVESI~~BVES intends to include the remaining balance in its COVID-19 memorandum account for recovery once all alternative sources of funding have been exhausted and credited to eligible customer accounts.

The CPUC’s moratoriums on service disconnections for nonpayment for water and electric customers have ended. As a result, service disconnections due to nonpayment ~~have resumed with disconnections for~~from delinquent residential customers ~~having~~ resumed in June 2022.

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Other ~~BVESI~~BVES Regulatory Assets:

~~Vegetation Management,~~ Wildfire Mitigation ~~Plans~~ and ~~Legislation~~Other Fire Prevention Related Costs Memorandum Accounts

The CPUC adopted regulations intended to enhance the fire safety of overhead electric power lines. Those regulations included increased minimum clearances around electric power lines. BVES was authorized to track incremental costs incurred to implement the regulations in a fire hazard prevention memorandum account for the purpose of obtaining cost recovery in a future general rate case. In August 2019, the CPUC issued a final decision on the electric general rate case, which set new rates through the year 2022. Among other things, the decision authorized ~~BVESI~~BVES to record incremental costs related to vegetation management, such as costs for increased minimum clearances around electric power lines, in athe CPUC-approved memorandum account for future recovery. As of ~~September 30, 2022, BVESI~~March 31, 2023, BVES had approximately ~~$7.9~~$9.3 million in incremental vegetation management costs recorded as a regulatory asset, which has been included in ~~its~~the new general rate case application filed with the CPUC in August 2022 for future recovery. The incremental costs related to vegetation management included in the memorandum account will be subject to review during the general rate case proceeding.

California legislation enacted in September 2018 requires all investor-owned electric utilities to submit an annual wildfire mitigation plan (“WMP”) to the CPUC for approval. The WMP must include a utility’s plans on constructing, maintaining and operating its electrical lines and equipment to minimize the risk of catastrophic wildfire. In ~~September 2021,~~December 2022, the ~~CPUC approved BVESI’s most recent WMP submission.~~

~~Capital expenditures and other costs incurred as a result~~Office of ~~the WMP are subject to CPUC audit. As a result, the CPUC’s Wildfire~~Energy Infrastructure Safety ~~Division (now part of~~under the California Natural Resources Agency ~~effective July 1, 2021) engaged an independent accounting firm to conduct examinations of~~approved BVES's 2022 WMP update. In February 2023, the ~~expenses and capital investments identified in the 2019 and 2020 WMPs for each of the investor-owned electric utilities, including BVESI.~~CPUC ratified BVES’s current WMP. As of ~~September 30, 2022, BVESI~~March 31, 2023, BVES has approximately ~~$4.0~~$4.8 million related to expenses accumulated in its WMP memorandum accounts that have been recognized as regulatory assets for future recovery. ~~In December 2021, the independent accounting firm issued its final examination report, which contains the auditors' results and recommendations. While the final report did not identify any findings~~

Table of inappropriate costs included in the WMP memorandum accounts under review, the report suggested that the CPUC should evaluate whether some of the costs recorded in the WMP memorandum accounts are incremental to what is being recovered in customer rates in its general rate case proceeding. At this time, BVESI considers the auditor's examination complete and does not expect further developments.Contents

All capital expenditures and other costs incurred through ~~September 30, 2022~~March 31, 2023 as a result of ~~BVESI's~~BVES's WMPs are not currently in rates and have been filed for future recovery in ~~BVESI's~~BVES's general rate case application. These costs will be subject to review during ~~the~~BVES's general rate case ~~proceeding and the CPUC may refer to the recommendations of the independent auditor’s report at that time.~~proceeding.

~~BVESI~~2023 Winter Storm Other Regulatory Asset

~~BVESI~~BVES activated a catastrophic emergency memorandum account (“CEMA”) to track the incremental costs incurred in response to a severe winter storm that occurred ~~in February 2019,~~during the first quarter of 2023, which resulted in the declaration of an emergency by the governor of California. Incremental costs of approximately ~~$452,000~~$810,000 were incurred and included in the CEMA account, ~~and~~which has been recorded as a regulatory ~~asset. BVESI subsequently filed~~asset as of March 31, 2023 for ~~recovery of these costs.~~

~~In May 2021, the CPUC issued a decision denying BVESI’s request for recovery, claiming that BVESI did not adequately demonstrate that the~~future recovery. The incremental costs ~~incurred were incremental and beyond costs already~~ included in ~~BVESI’s revenue requirement. The decision allowed BVESI~~the CEMA account will be subject to ~~file~~review and approval by the CPUC. CEMA accounts are well-established cost recovery mechanisms authorized as a ~~new application on~~result of a state/federal declared emergency, and are therefore recognized as regulatory assets for future recovery. As a result, the issue of incrementality. In October 2021, BVESI filed a new application to continue pursuing recovery since BVESI believes the storm costs were incremental and beyond what was included in its revenue requirement. On November 3, 2022, the CPUC adopted a final decision authorizing BVESI’s request to recover the full amount includedamounts recorded in this CEMA account ~~through a~~ ~~twelve-month surcharge, which resolves this matter.~~did not impact BVES’s earnings.

Other Regulatory Assets:

Other regulatory assets represent costs incurred by GSWC or ~~BVESI~~BVES for which they have received or expect to receive rate recovery in the future. Registrant believes that these regulatory assets are supported by regulatory rules and decisions, past practices, and other facts or circumstances that indicate recovery is probable. If the CPUC determines that a portion of either GSWC’s or ~~BVESI’s~~BVES’s assets are not recoverable in customer rates, the applicable entity must determine if it has suffered an asset impairment that requires it to write down the regulatory asset to the amount that is probable of recovery.

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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:	Basic:	For The Three Months Ended September 30,				For The Nine Months Ended September 30,				Basic:	For The Three Months Ended March 31,
(in thousands, except per share amounts)	(in thousands, except per share amounts)	2022		2021		2022		2021		(in thousands, except per share amounts)	2023		2022
Net income	Net income	$	25,654	$	28,153	$	59,767	$	73,997	Net income	$	34,407	$	14,162
Less: (a) Distributed earnings to common shareholders	Less: (a) Distributed earnings to common shareholders	14,690		13,480		41,664		38,207		Less: (a) Distributed earnings to common shareholders	14,695		13,485
Distributed earnings to participating securities	Distributed earnings to participating securities	38		37		104		100		Distributed earnings to participating securities	37		31
Undistributed earnings	Undistributed earnings	10,926		14,636		17,999		35,690		Undistributed earnings	19,675		646

(b) Undistributed earnings allocated to common shareholders	(b) Undistributed earnings allocated to common shareholders	10,897		14,596		17,955		35,597		(b) Undistributed earnings allocated to common shareholders	19,625		644
Undistributed earnings allocated to participating securities	Undistributed earnings allocated to participating securities	29		40		44		93		Undistributed earnings allocated to participating securities	50		2

Total income available to common shareholders, basic (a)+(b)	Total income available to common shareholders, basic (a)+(b)	$	25,587	$	28,076	$	59,619	$	73,804	Total income available to common shareholders, basic (a)+(b)	$	34,320	$	14,129

Weighted average Common Shares outstanding, basic	Weighted average Common Shares outstanding, basic	36,958		36,933		36,953		36,916		Weighted average Common Shares outstanding, basic	36,968		36,944

Basic earnings per Common Share	Basic earnings per Common Share	$	0.69	$	0.76	$	1.61	$	2.00	Basic earnings per Common Share	$	0.93	$	0.38

Diluted EPS is based upon the weighted average number of Common Shares, including both outstanding shares and shares potentially issuable in connection with restricted stock units granted under AWR’s stock incentive plans for employees and the non-employee directors stock plans, and net income. There were no options outstanding as of ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ under these plans. At ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ there were ~~96,629 and 101,267~~106,817 and 96,586 restricted stock units outstanding, respectively, including performance shares awarded to officers of the Registrant.

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The following is a reconciliation of Registrant’s net income and weighted average Common Shares outstanding for calculating diluted net income per share:
Diluted: For The Three Months Ended
September 30, For The Nine Months Ended
September 30,
(in thousands, except per share amounts) 2022 2021 2022 2021
Common shareholders earnings, basic $ 25,587 $ 28,076 $ 59,619 $ 73,804
Undistributed earnings for dilutive stock-based awards 29 40 44 93
Total common shareholders earnings, diluted $ 25,616 $ 28,116 $ 59,663 $ 73,897
Weighted average common shares outstanding, basic 36,958 36,933 36,953 36,916
Stock-based compensation (1) 84 92 81 88
Weighted average common shares outstanding, diluted 37,042 37,025 37,034 37,004
Diluted earnings per Common Share $ 0.69 $ 0.76 $ 1.61 $ 2.00


Diluted:	For The Three Months Ended March 31,
(in thousands, except per share amounts)	2023		2022
Common shareholders earnings, basic	$	34,320	$	14,129
Undistributed earnings for dilutive stock-based awards	50		2
Total common shareholders earnings, diluted	$	34,370	$	14,131

Weighted average common shares outstanding, basic	36,968		36,944
Stock-based compensation (1)	79		75
Weighted average common shares outstanding, diluted	37,047		37,019

Diluted earnings per Common Share	$	0.93	$	0.38

(1) All of the ~~96,629 and 101,267~~ 106,817 and 96,586 restricted stock units at ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively, were included in the calculation of diluted EPS for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ AWR issued ~~24,612~~14,043 and ~~47,149~~19,348 of common shares related to restricted stock units, respectively.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ AWR paid ~~$1.2 million~~$883,000 and ~~$1.3~~$1.2 million, respectively, to taxing authorities on employees’ behalf for shares withheld related to net share settlements. During the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ GSWC paid ~~$1.1 million~~$808,000 and ~~$1.2~~$1.1 million, respectively, to taxing authorities on employees’ behalf

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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 ~~September 30,~~March 31, 2023, GSWC issued one Common Share to AWR for $10.0 million. Proceeds from the stock issuance were used to pay down a portion of intercompany borrowings owed to AWR.

During the three months ended March 31, 2023 and 2022, ~~and 2021,~~ AWR paid quarterly dividends of approximately $14.7 million, or $0.3975 per share, and $13.5 million, or $0.365 per share, respectively. ~~During the nine months ended September 30, 2022 and 2021, AWR paid quarterly dividends of approximately $41.7 million, or $1.1275 per share, and $38.2 million, or $1.035 per share, respectively.~~

During the three months ended ~~September 30, 2021,~~March 31, 2023 and 2022, GSWC paid dividends of $13.5 million to AWR. During the three months ended September 30, 2022, GSWC did not pay a dividend to AWR. Instead, ASUS paid a $14.7 million dividend to AWR during this period. During the nine months ended September 30, 2022 and 2021, GSWC paid dividends of $27.0$24.7 million and ~~$38.3~~$13.5 million, respectively, to AWR during these periods.

Note 5 — Derivative Instruments

~~BVESI purchases~~BVES has purchased power under long-term contracts at a fixed cost ~~depending on the amount of power and the period during which the power may be purchased under such contracts. These contracts provide power at a fixed cost~~ over ~~approximately~~ three- and five-year terms depending on the amount of power and period during which the power is purchased under the contracts.

~~BVESI's purchase power~~ These long-term contracts are subject to the accounting guidance for derivatives and require mark-to-market derivative accounting.

Among other things, the CPUC authorized the use of a regulatory asset and liability memorandum account to offset the mark-to-market entries required by the accounting guidance. Accordingly, all unrealized gains and losses generated from the purchased power contracts are deferred on a monthly basis into a non-interest bearing regulatory memorandum account that tracks the changes in fair value of the derivative throughout the terms of the contracts. As a result, these unrealized gains and losses ~~did~~do not impact ~~AWR’s~~Registrant’s earnings. As of ~~September 30, 2022,~~March 31, 2023, there was a ~~$7.6~~$6.7 million ~~unrealized gain recorded as an~~derivative asset with a corresponding regulatory liability in the ~~same amount recorded in the~~derivative instrument memorandum account for the purchased power ~~contracts.~~contract as a result of fixed prices being lower than future energy prices. The notional volume of derivatives remaining under these long-term contracts as of ~~September 30, 2022~~March 31, 2023 was ~~254,022~~184,979 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, ~~BVESI~~BVES has made fair value measurements that are classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

To value the contracts, Registrant utilizes various inputs that include quoted market prices for energy over the duration of the contracts. The market prices used to determine the fair value for this derivative instrument were estimated based on

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independent sources such as broker quotes and publications that are not observable in or corroborated by the market. 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 the Level 3 derivatives for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. The change in fair value was due to the change in market energy prices during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022.


		For The Three Months Ended September 30,				For The Nine Months Ended September 30,					For The Three Months Ended March 31,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2023		2022
Fair value at beginning of the period	Fair value at beginning of the period	$	8,114	$	2,810	$	4,441	$	(1,537)	Fair value at beginning of the period	$	11,847	$	4,441
Unrealized (losses) gains on purchased power contracts	Unrealized (losses) gains on purchased power contracts	(545)		5,065		3,128		9,412		Unrealized (losses) gains on purchased power contracts	(5,178)		2,579
Fair value at end of the period	Fair value at end of the period	$	7,569	$	7,875	$	7,569	$	7,875	Fair value at end of the period	$	6,669	$	7,020

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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 these items.

Investments held in a Rabbi Trust for the supplemental executive retirement plan (“SERP”) are measured at fair value and totaled ~~$25.0~~$29.2 million as of ~~September 30, 2022~~March 31, 2023 and ~~$31.5~~$27.5 million as of December 31, ~~2021.~~2022. All equity investments in the Rabbi Trust are Level 1 investments in mutual funds. The investments held in the Rabbi Trust are included in "Other Property and Investments" on Registrant's balance sheets.

The table below estimates the fair value of long-term debt held by AWR and GSWC, respectively. At September 30, 2022, the outstanding long-term debt held by AWR includes $35.0 million of new debt issued in April 2022 by BVESI. As of December 31, 2021, all outstanding long-term debt was held by GSWC. The fair values as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 were determined using rates for similar financial instruments of the same duration utilizing Level 2 methods and assumptions. Changes in the assumptions will produce different results.


		September 30, 2022				December 31, 2021					March 31, 2023				December 31, 2022
(dollars in thousands)	(dollars in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value		(dollars in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial liabilities:	Financial liabilities:									Financial liabilities:
Long-term debt—AWR (1)	Long-term debt—AWR (1)	$	450,373	$	416,999	$	415,788	$	490,852	Long-term debt—AWR (1)	$	580,264	$	564,605	$	450,373	$	424,151

		September 30, 2022				December 31, 2021					March 31, 2023				December 31, 2022
(dollars in thousands)	(dollars in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value		(dollars in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial liabilities:	Financial liabilities:									Financial liabilities:
Long-term debt—GSWC (2)	Long-term debt—GSWC (2)	$	415,373	$	384,685	$	415,788	$	490,852	Long-term debt—GSWC (2)	$	545,264	$	530,671	$	415,373	$	391,198

__________________

(1) Excludes debt issuance costs of approximately $3.4 million as of March 31, 2023 and December 31, 2022.

(2)Excludes debt issuance costs of approximately $3.2 ~~million.~~

~~(2)~~ ~~Excludes debt issuance costs~~million as of ~~approximately $3.0 million.~~March 31, 2023 and December 31, 2022.

Note 7 — Income Taxes

AWR’s effective income tax rate (“ETR”) was ~~24.6%~~23.8% and ~~26.0%~~24.0% for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and was 24.1% and 23.9% for the nine months ended September 30, 2022 and 2021,~~ respectively. GSWC’s ETR was ~~25.5%~~24.5% and ~~26.0%~~23.9% for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and was 25.2% and 24.0% for the nine months ended September 30, 2022 and 2021,~~ respectively.

The AWR and GSWC ETRs differed from the federal corporate statutory tax rate of 21% primarily due to (i) state taxes; (ii) permanent differences, including ~~the excess~~certain tax ~~benefits~~effects 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, 2022 and 2021;~~stock compensation; (iii) the ongoing amortization of the excess deferred income tax liability; and (iv) differences between book and taxable income that are treated as ~~flow-through~~flowed-through adjustments in accordance with regulatory requirements (principally from plant, rate-case, and compensation-related items). As a regulated utility, GSWC treats certain temporary differences as ~~flow-through~~being flowed-through in computing its income tax expense consistent with the income tax method used in its CPUC-jurisdiction rate making. ~~Flow-through~~Flowed-through items either increase or decrease tax expense and thus impact the ETR.

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Note 8 — Employee Benefit Plans

The components of net periodic benefit costs for Registrant’s pension plan, postretirement medical benefit plan and SERP for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ 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)	(dollars in thousands)	2022		2021		2022		2021		2022		2021		(dollars in thousands)	2023		2022		2023		2022		2023		2022
Components of Net Periodic Benefits Cost:	Components of Net Periodic Benefits Cost:													Components of Net Periodic Benefits Cost:
Service cost	Service cost	$	1,411	$	1,487	$	30	$	31	$	298	$	348	Service cost	$	846	$	1,480	$	33	$	33	$	312	$	298
Interest cost	Interest cost	1,850		1,700		13		22		256		229		Interest cost	2,513		1,844		25		16		411		256
Expected return on plan assets	Expected return on plan assets	(3,291)		(3,137)		(147)		(134)		—		—		Expected return on plan assets	(2,623)		(3,292)		(120)		(147)		—		—
Amortization of prior service cost	Amortization of prior service cost	109		109		—		—		—		—		Amortization of prior service cost	108		109		—		—		—		—
Amortization of actuarial (gain) loss	Amortization of actuarial (gain) loss	—		876		(478)		(488)		145		419		Amortization of actuarial (gain) loss	—		—		(240)		(412)		(8)		145
Net periodic benefits costs under accounting standards	Net periodic benefits costs under accounting standards	79		1,035		(582)		(569)		699		996		Net periodic benefits costs under accounting standards	844		141		(302)		(510)		715		699
Regulatory adjustment - deferred		—		(254)		—		—		—		—
Regulatory adjustment - deferred cost														Regulatory adjustment - deferred cost	(92)		—		—		—		—		—
Total expense (benefit) recognized, before surcharges and allocation to overhead pool	Total expense (benefit) recognized, before surcharges and allocation to overhead pool	$	79	$	781	$	(582)	$	(569)	$	699	$	996	Total expense (benefit) recognized, before surcharges and allocation to overhead pool	$	752	$	141	$	(302)	$	(510)	$	715	$	699

		For The Nine Months Ended September 30,
		Pension Benefits				Other Postretirement Benefits				SERP
(dollars in thousands)		2022		2021		2022		2021		2022		2021
Components of Net Periodic Benefits Cost:
Service cost		$	4,233	$	4,737	$	96	$	111	$	894	$	1,044
Interest cost		5,550		5,124		45		84		768		687
Expected return on plan assets		(9,873)		(9,405)		(441)		(402)		—		—
Amortization of prior service cost		327		327		—		—		—		—
Amortization of actuarial (gain) loss		—		2,862		(1,302)		(1,062)		435		1,257
Net periodic benefits costs under accounting standards		237		3,645		(1,602)		(1,269)		2,097		2,988
Regulatory adjustment - deferred		—		(956)		—		—		—		—
Total expense (benefit) recognized, before surcharges and allocation to overhead pool		$	237	$	2,689	$	(1,602)	$	(1,269)	$	2,097	$	2,988

~~For the pension plan obligation,~~In 2023, Registrant ~~used a discount rate of 2.89% as of December 31, 2021~~expects to ~~determine the projected benefit obligation (“PBO”) of $259.8 million.~~ ~~Discount rates as of September 30, 2022 are~~contribute approximately 261-basis points higher than those used as of December 31, 2021 based on recent changes in market interest-rate conditions. A 261-basis point increase in the assumed discount rate would have decreased the PBO as of December 31, 2021 by approximately 28% or $73.6 million, which decreases the underfunded status of the pension plan. However, this decrease in the underfunded status caused by the higher discount rate would be largely offset by the decrease in the fair value of plan assets since December 31, 2021 resulting from current market conditions and related volatility experienced thus far in 2022. ~~In September 2022, Registrant contributed approximately $3.1~~$3.0 million to its pension plan.

As authorized by the CPUC in the water and electric general rate case decisions, GSWC and ~~BVESI~~BVES each utilize two-way balancing accounts to track differences between the forecasted annual pension expenses in rates, or expected to be in rates, and the actual annual expense recorded in accordance with the accounting guidance for pension costs.

GSWC’s actual pension expense was lower than the amounts included in water customer rates for the three and nine months ended September 30, 2022. During the three and nine months ended September 30, 2021, GSWC’s actual pension expense was higher than the amounts included in water customer rates by ~~$254,000 and $956,000, respectively. BVESI’s~~$92,000 for the three months ended March 31, 2023. During the three months ended March 31, 2022, GSWC’s actual pension expense was lower than the amounts included in water customer rates. BVES’s actual expense was lower than the amounts included in electric customer rates for all periods presented. As of ~~September 30, 2022,~~March 31, 2023, GSWC and ~~BVESI~~BVES had net over-collections inin their two-way pension balancing accounts of ~~$1,087,000~~$1,227,000 and ~~$370,000,~~$574,000, respectively, included as part of regulatory assets and liabilities (Note 3).

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Note 9 — Contingencies

Environmental Clean-Up and Remediation at GSWC:

GSWC has been involved in environmental remediation and cleanup at one of its plant sites that contained an underground storage tank which was used to store gasoline for its vehicles. This tank was removed from the ground in July 1990 along with the dispenser and ancillary piping. Since then, GSWC has been involved in various remediation activities at this site. Analysis indicates that off-site monitoring wells may be necessary to document effectiveness of remediation.

As of ~~September 30, 2022,~~March 31, 2023, the total amount spent to clean up and remediate GSWC’s plant facility was approximately $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, 2022,~~March 31, 2023, 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.

Contracted Services:

ASUS’s utility privatization contract services are provided to the U.S. government pursuant to the terms of the initial 50-year firm, fixed-price contract and additional firm, fixed-price contracts subject to annual economic price adjustments. Entering into contracts with the U.S. government subjects ASUS to potential government audits or investigations of its business practices and compliance with government procurement statutes and regulations. ASUS is currently under a civil government investigation over bidding and estimating practices used in certain capital upgrade projects. ASUS is cooperating fully with the investigation and management does not currently believe that the investigation will have a material adverse effect on its consolidated results of operations, financial condition, or liquidity. However, at this time, management cannot predict the final outcome or recommendations that may result from the investigation or determine the amount, if any, of penalties and damages that may be assessed.

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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. Registrant does not believe the outcome from any pending suits or administrative proceedings will have a material effect on Registrant's consolidated results of operations, financial position, or cash flows.

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Note 10 — Business Segments

AWR has three reportable segments: water, electric and contracted services. GSWC has one segment, water. On a stand-alone basis, AWR has no material assets or liabilities other than its equity investments in its subsidiaries, notes payable to bank, deferred taxes and intercompany note ~~payables to~~receivables with its ~~subsidiaries and deferred taxes.~~ subsidiaries.

All of GSWC’s and ~~BVESI’s~~BVES’s business activities are conducted in California. Activities of ASUS and ~~its subsidiaries~~the Military Utility Privatization Subsidiaries are conducted in California, Florida, Georgia, Kansas, Maryland, New Mexico, North Carolina, South Carolina, Texas and Virginia. Some of ASUS’s wholly owned subsidiaries are regulated 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 AWR’s operating segments and AWR Parent. The utility plant ~~amounts~~balance are net of respective accumulated provisions for depreciation. Capital additions reflect capital expenditures paid in cash ~~excluding~~and exclude U.S. government-funded and third-party prime funded capital expenditures for ASUS and property installed by developers and conveyed to GSWC ~~or BVESI,~~ and ~~U.S. government-~~BVES.


	As Of And For The Three Months Ended March 31, 2023
					Contracted		AWR		Consolidated
(dollars in thousands)	Water		Electric		Services		Parent		AWR
Operating revenues	$	112,712	$	12,904	$	35,807	$	—	$	161,423
Operating income (loss)	40,239		3,631		7,296		(1)		51,165
Interest expense, net	5,494		573		227		1,323		7,617
Net property, plant and equipment	1,638,031		125,093		17,337		—		1,780,461
Depreciation and amortization expense (1)	9,606		748		849		—		11,203
Income tax expense (benefit)	8,910		701		1,685		(544)		10,752
Capital additions	42,005		6,652		680		—		49,337


	As Of And For The Three Months Ended March 31, 2022
					Contracted		AWR		Consolidated
(dollars in thousands)	Water		Electric		Services		Parent		AWR
Operating revenues	$	73,906	$	11,892	$	22,772	$	—	$	108,570
Operating income (loss)	16,999		3,598		3,770		(2)		24,365
Interest expense (income), net	5,145		113		(135)		200		5,323
Net property, plant and equipment	1,523,665		107,114		19,080		—		1,649,859
Depreciation and amortization expense (1)	8,545		654		915		—		10,114
Income tax expense (benefit)	2,689		952		944		(124)		4,461
Capital additions	31,465		3,468		237		—		35,170

(1) Depreciation computed on GSWC’s and ~~third-party contractor-funded capital expenditures~~BVES’s transportation equipment is recorded in other operation expenses and totaled $368,000 and $94,000 for ~~ASUS.~~the three months ended March 31, 2023 and 2022, respectively. For the three months ended March 31, 2023, approximately $212,000 of additional depreciation expense on GSWC's transportation equipment was recorded that relates to the cumulative retroactive impact for the full year of 2022 approved in the CPUC proposed decision that resulted from an increase to the transportation equipment composite depreciation rates that are retroactive to January 1, 2022.

As Of And For The Three Months Ended September 30, 2022
Contracted AWR Consolidated
(dollars in thousands) Water Electric Services Parent AWR
Operating revenues $ 100,799 $ 8,919 $ 25,266 $ — $ 134,984
Operating income (loss) 32,451 2,337 5,553 (1) 40,340
Interest expense (income), net 5,625 355 (27) 711 6,664
Net property, plant and equipment 1,584,888 115,379 17,885 — 1,718,152
Depreciation and amortization expense (1)
8,475 709 933 — 10,117
Income tax expense (benefit) 6,831 478 1,347 (296) 8,360
Capital additions 40,684 4,711 109 — 45,504

As Of And For The Three Months Ended September 30, 2021
Contracted AWR Consolidated
(dollars in thousands) Water Electric Services Parent AWR
Operating revenues $ 102,768 $ 8,564 $ 25,423 $ — $ 136,755
Operating income (loss) 35,459 2,053 5,273 (1) 42,784
Interest expense (income), net 5,098 101 (141) 162 5,220
Net property, plant and equipment 1,471,740 101,952 20,854 — 1,594,546
Depreciation and amortization expense (1)
8,272 644 910 — 9,826
Income tax expense 7,993 537 1,265 83 9,878
Capital additions 26,490 3,941 143 — 30,574

As Of And For The Nine Months Ended September 30, 2022
Contracted AWR Consolidated
(dollars in thousands) Water Electric Services Parent AWR
Operating revenues $ 265,561 $ 29,028 $ 71,572 $ — $ 366,161
Operating income (loss) 77,161 7,973 13,894 (6) 99,022
Interest expense (income), net 16,088 763 (264) 1,272 17,859
Net property, plant and equipment 1,584,888 115,379 17,885 — 1,718,152
Depreciation and amortization expense (1)
25,573 2,049 2,780 — 30,402
Income tax expense (benefit) 14,623 1,645 3,399 (641) 19,026
Capital additions 107,668 13,485 903 — 122,056

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As Of And For The Nine Months Ended September 30, 2021
Contracted AWR Consolidated
(dollars in thousands) Water Electric Services Parent AWR
Operating revenues $ 269,430 $ 28,211 $ 84,588 $ — $ 382,229
Operating income (loss) 87,295 7,296 16,375 (6) 110,960
Interest expense (income), net 16,273 275 (458) 617 16,707
Net property, plant and equipment 1,471,740 101,952 20,854 — 1,594,546
Depreciation and amortization expense (1)
24,547 1,925 2,684 — 29,156
Income tax expense (benefit) 17,718 1,879 3,927 (270) 23,254
Capital additions 90,299 15,139 1,283 — 106,721

~~(1)~~ Depreciation computed on GSWC’s and BVESI’s transportation equipment is recorded in other operating expenses and totaled $97,000 and $94,000 for the three months ended September 30, 2022 and 2021, respectively, and totaled $286,000 and $283,000 for the ~~nine~~ ~~months ended September 30, 2022 and 2021, respectively.~~

The following table reconciles total net property, plant and equipment (a key figure for ~~ratemaking)~~rate making) to total consolidated assets (in thousands):


		September 30,					March 31,
		2022		2021			2023		2022
Total net property, plant and equipment	Total net property, plant and equipment	$	1,718,152	$	1,594,546	Total net property, plant and equipment	$	1,780,461	$	1,649,859
Other assets	Other assets	264,423		280,254		Other assets	279,911		264,073
Total consolidated assets	Total consolidated assets	$	1,982,575	$	1,874,800	Total consolidated assets	$	2,060,372	$	1,913,932

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

General

The following discussion and analysis provides information on AWR’s consolidated operations and assets, and includes specific references to AWR’s individual segments and its subsidiaries (GSWC, ~~BVESI,~~BVES, and ASUS and its subsidiaries), and AWR (parent) where applicable. The subsidiaries of ASUS are collectively referred to as the “Military Utility Privatization ~~Subsidiaries”.~~Subsidiaries.”

Included in the following analysis is a discussion of AWR’s operations in terms of earnings per share by business segment and AWR (parent), which equals each business segment's earnings divided by AWR’s weighted average number of diluted common shares. Furthermore, the gains and losses generated on the investments held to fund one of the Company’s retirement plans during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ have been excluded when communicating the results to help facilitate comparisons of AWR’s performance from period to period. Also, the ~~retroactive~~ impact of retroactive new ~~2022 water~~ rates ~~not yet recorded due~~related to the ~~delay~~full year 2022 recorded in ~~receiving a final decision~~the three months ended March 31, 2023 resulting from the ~~CPUC, which will be retroactive to January 1, 2022 when approved, have~~proposed decision on the water general rate case has been ~~included~~excluded when communicating AWR’s consolidated and ~~its~~ water segment’s results for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 to help facilitate comparisons of AWR’s performance from period to period. All of these measures are derived from consolidated financial information but are not presented in our financial statements that are prepared in accordance with Generally Accepted Accounting Principles (GAAP) in the United States. These itemsDiluted earnings per share by business segment and adjusted diluted earnings per share constitute “non-GAAP financial measures” under the Securities and Exchange Commission rules, which supplement our GAAP disclosures but should not be considered as an alternative to the respective GAAP measures. Furthermore, the non-GAAP financial measures may not be comparable to similarly titled non-GAAP financial measures of other registrants. All of these measures are derived from consolidated financial information of the Registrant, but are not presented in our financial statements that are prepared in accordance with GAAP.

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

Overview

Factors affecting our financial performance are summarized under “Risk Factors” in our Form 10-K for the period ended December 31, ~~2021~~2022 filed with the SEC.

Water and Electric Segments:

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

Pending General Rate Case Filings and Other Matters:

Water General Rate Case for the ~~years~~Years 2022–2024:

In July 2020, GSWC filed a general rate case application for all of its water regions and its general office. This general rate case ~~will determine~~determines new water rates for the years 2022 – 2024. ~~In November 2021,~~On April 13, 2023, GSWC received a proposed decision from the assigned administrative law judge at the CPUC on GSWC's water general rate case with rates retroactive to January 1, 2022. Among other items, the proposed decision approves and adopts in its entirety the settlement agreement between GSWC and the Public Advocates Office at the CPUC (“Public Advocates”) that had been filed with the CPUC ~~a joint motion to adopt a settlement agreement between GSWC~~in November 2021, and ~~Public Advocates on this general rate case application. The settlement agreement, if approved,~~ resolves all issues related to the 2022 annual revenue requirement in the general rate case application ~~leaving only~~and allows for additional increases in adopted revenues for 2023. The new rates for 2022 and 2023 are effective and retroactive to January 1, 2022 and 2023, respectively. As a result of receiving a proposed decision that approves the settlement agreement in its entirety, the impact of retroactive new rates for the full year of 2022 and the estimated second-year rate increases for the three ~~unresolved issues. Among other things,~~months ended March 31, 2023 have been reflected in the 2023 first quarter results as it became probable that the approved retroactive rates for the full year of 2022 and first three months of 2023 would be permitted to be billed to customers in the future. GSWC expects to receive a final decision during the second quarter of 2023.

The settlement agreement approved in the proposed decision (i) authorizes GSWC to invest approximately $404.8 million in capital infrastructure over the three-year ~~cycle. The settlement also authorizes GSWC to complete certain~~cycle (excluding advice letter ~~capital projects approved in~~projects); (ii) increases the last general rate case, which have recently been completed for a total capital investment of $9.4 million. The additional annual revenue requirements generated from these capital investments total $1.2 million and became effective February 15, 2022. Advice letter projects are filed for revenue recovery only when the projects are completed.

~~Excluding~~2022 adopted revenues (excluding the advice letter project ~~revenues, the amounts included in the settlement agreement would increase the 2022 adopted revenues~~revenues) by approximately ~~$30.3~~$30.3 million, or $0.59 per share, as compared to the 2021 adopted revenues, and ~~increase~~increases the 2022 adopted supply costs by ~~$9.7~~$9.6 million, or $0.19 per share, as compared to the 2021

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adopted supply costs, which combined is an increase of $0.40 per ~~share. The settlement agreement also~~share; (iii) adopts new operating expense levels for 2022 including a higher depreciation expense resulting from overall higher composite depreciation rates based on a new depreciation study adopted in the proposed decision; and (iv) allows for ~~the potential of~~ additional increases in adopted revenues for 2023 and 2024 subject to an earnings test and changes to the forecasted inflationary index values.

27Due to the delay in finalizing the water general rate case, water revenues billed to customers for the year ended December 31, 2022 and for the three months ended March 31, 2023 were based on 2021 adopted rates, pending a final decision by the CPUC. As a result of receiving a proposed decision that approves the settlement agreement in its entirety, the impact of retroactive new rates for the full year of 2022 of $0.36 per share has been reflected in the 2023 first quarter results and included primarily (i) the increase in 2022’s adopted revenues and supply costs that is consistent with the settlement agreement, or $0.40 per share as discussed above; (ii) a reduction to revenues of $1.1 million, or $0.02 per share, to reflect the incremental impact of revenues subject to refund from the new 2022 rates as a result of the lower cost of debt in the pending cost of capital proceeding; and (iii) higher overall depreciation expense for 2022 of approximately $790,000, or $0.02 per share, resulting from updated composite depreciation rates adopted in the proposed decision and which are reflected in the 2022 adopted revenue requirement.

~~Table~~The estimated second-year increases for 2023 have also been reflected in the 2023 first quarter results for the three months ended March 31, 2023. This included increases in revenues of ~~Contents~~approximately $8.7 million, or $0.17 per share, compared to the adopted 2021 rates currently being billed, and increases in supply costs of approximately $1.6 million, or $0.03 per share, which combined is an increase of $0.14 per share for the three months ended March 31, 2023. The best estimate of 2023 rates have been computed at this time using inflationary index values as of March 31, 2023. Actual increases for 2023 will be determined when the filings to implement the new rate increases are approved by the CPUC, and will be calculated using the inflationary index values at that time. GSWC will file for the 2023 increases once the CPUC approves the final decision.

As of March 31, 2023, there is an aggregate cumulative amount of $38.4 million in CPUC-approved general rate case memorandum accounts that relates to water revenues recorded during the three months ended March 31, 2023, and which represent the difference between the 2021 adopted rates billed to customers and the rates authorized in the proposed decision for the full year of 2022 and estimated increases for the three months ended March 31, 2023. Once a final decision is issued by the CPUC, GSWC will request recovery through a surcharge of the cumulative amounts included in the general rate case memorandum accounts.

~~The~~Furthermore, the proposed decision addressed the three remaining unresolved issues ~~relate~~related to GSWC’s requests for: (i) a medical insurance cost balancing account, (ii) a general liability insurance cost balancing account, and (iii) the consolidation of two of GSWC’s customer service areas. The proposed decision approved both balancing accounts and denied GSWC’s consolidation of its two customer service areas. The proposed decision also approved the recovery of previously incurred costs that were being tracked in other CPUC-authorized memorandum accounts. As a result, GSWC recorded the cumulative amounts tracked in these balancing and ~~Public Advocates have~~memorandum accounts that are being approved in the proposed decision, the net impact of which was not material to 2023 first quarter results.

Cost of Capital Proceeding:

Investor-owned water utilities serving California are required to file their cost of capital applications on a triennial basis. GSWC filed ~~briefs~~a cost of capital application with the CPUC in May 2021 currently pending final approval, which requested a capital structure of 57% equity and 43% debt, a return on ~~these unsettled issues. A~~equity of 10.5%, an embedded cost of debt of 5.1%, and a return on rate base of 8.18%. Hearings on this proceeding occurred in May 2022 and briefs were filed in June 2022. On May 9, 2023, GSWC received a proposed decision ~~will address~~from the ~~three unresolved issues along with the settlement agreement filed by GSWC and Public Advocates. Pending a final decision on this general rate case application, GSWC filed with~~assigned administrative law judge at the CPUC on the cost of capital proceeding. Among other things, the proposed decision (i) adopts GSWC’s requested capital structure and cost of debt filed in the application; (ii) adopts a return on equity of 8.85% for ~~interim rates that will make~~GSWC as compared to 8.9% previously authorized; (iii) allows for the continuation of the Water Cost of Capital Mechanism (“WCCM”); and (iv) adopts the new ~~2022 rates, once approved in a CPUC final decision, effective~~cost of capital for the three-year period commencing January 1, ~~2022.~~2022, through December 31, 2024. Comments on the proposed decision are due on May 30. In ~~October 2022,~~March 2023, the CPUC issued a decision ~~approving~~that approved an extension of the statutory deadline for a final decision in the ~~water general rate case~~cost of capital proceeding to ~~February 14,~~August 10, 2023.

~~Due~~The 5.1% cost of debt adopted in the proposed decision is lower than the previously authorized amount of 6.6%. The new cost of debt is expected to ~~the delay in finalizing the water general rate case,~~lower 2023 and 2022 adopted water revenues ~~billed and recorded for the first nine months of 2022 were based on 2021 adopted rates, pending a final decision~~ by ~~the CPUC. When approved, the new rates will be retroactive to January 1, 2022 and cumulative adjustments will be recorded in the quarter in which the new rates are approved by the CPUC.~~ Had the new 2022 water rates been approved and effective January 1, 2022 consistent with the settlement agreement between GSWC and Public Advocates, for the three months ended September 30, 2022, GSWC would have recorded additional revenues of $8.7approximately $8.2 million, or ~~$0.17~~$0.16 per share, and additional water supply costs of $3.4 million, or $0.07 per share, which together is $0.10 per share higher than what was actually recorded for the third quarter of 2022. For the nine months ended September 30, 2022, GSWC would have recorded additional revenues of $22.7 million, or $0.44 per share, and additional water supply costs of $7.7$7.5 million, or $0.15 per share, respectively, as compared to 2021 adopted water revenues at the currently authorized cost of debt of 6.6% that is presently being billed to water customers until a final decision is issued in this proceeding. Based on management's analysis of this regulatory proceeding and the associated accounting in 2022 and through March 31, 2023, GSWC has reduced revenues and recorded a corresponding regulatory liability for revenues subject to refund based on its best estimate at this time, which ~~together is $0.29~~includes the impact of GSWC’s lower cost of debt adopted in the proposed decision. For the three months ended March 31, 2023 and 2022, GSWC reduced revenues by $1.8 million and $1.4 million, respectively, that are subject to refund. Furthermore, an additional reduction to revenues of $1.1 million, or $0.02 per share, ~~higher~~related to the full year of 2022 was recorded during the first quarter of 2023 to reflect the incremental impact of revenues subject to refund from the new 2022 rates approved in the proposed water general rate case decision. As of March 31, 2023, GSWC had a cumulative regulatory liability of $9.3

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million for the estimated revenues subject to refund from the pending cost of capital proceeding covering the period January 1, 2022 through March 31, 2023. However, management cannot predict the ultimate outcome and any changes that may be made to the final decision in the cost of capital application, and the associated impact on 2023 and 2022 revenues. Changes in estimates will be made, if necessary, as more information in this proceeding becomes available.

Furthermore, the proposed decision continues the WCCM for the years 2023 and 2024, which adjusts the return on equity and rate of return on rate base between the three-year cost of capital proceedings only if there is a positive or negative change of more than ~~what was actually recorded~~100 basis points in the average of the Moody’s Aa utility bond rate as measured over the period October 1 through September 30. If there is a positive or negative change of more than 100 basis points, the return on equity is adjusted by one half of the difference. For the period from October 1, 2021 through September 30, 2022, the Moody’s rate increased by 103 basis points from the benchmark, which triggers the WCCM adjustment. GSWC recognized revenues for the first ~~nine months~~quarter of ~~2022.~~2023 and all of 2022 based on the previously authorized return of equity of 8.9% that is presently being billed to water customers pending a final decision in the cost of capital proceeding.

Final Decision in the First Phase of the Low-Income Affordability Rulemaking:

In August 2020, the CPUC issued a final decision in the first phase of the CPUC’s Order Instituting Rulemaking evaluating the low income ratepayer assistance and affordability objectives contained in the CPUC’s 2010 Water Action Plan. This decision also addressed other issues, including the discontinued use of the Water Revenue Adjustment Mechanism (“WRAM”) and the Modified Cost Balancing Account (“MCBA”). The MCBA is a full-cost balancing account used to track the difference between adopted and actual water supply costs (including the effects of changes in both rates and volume). Based on the final decision, any general rate case application filed by GSWC and the other California water utilities after August 27, 2020 may not include a proposal to continue the use of the WRAM or MCBA, but may instead include a proposal to use a limited price adjustment mechanism and an incremental supply cost balancing account. Since its implementation in 2008, the WRAM and MCBA have helped mitigate fluctuations in GSWC’s earnings due to changes in water consumption by its customers or changes in water supply mix. Replacing them with mechanisms recommended in the final decision will likely result in more volatility in GSWC’s future earnings and could result in less than, or more than, full recovery of its authorized revenue and supply costs.

~~As a result of the~~The August 2020 decision ~~the discontinuation of~~provides that the WRAM and MCBA for GSWC would be ~~effective for years~~discontinued after 2024. However, on September 30, 2022, the governor of California signed Senate Bill (“SB”) 1469. Effective January 1, 2023, SB 1469 allows Class A water utilities, including GSWC, to continue requesting the use of the WRAM in their next general rate case. With the passage of SB 1469, GSWC will be able to request the continued use of the WRAM in its next general rate case to be filed in 2023 that will establish new rates for the years 2025 – 2027. GSWC’s request to continue using the WRAM in its next general rate case will be subject to CPUC approval.

In October 2020, GSWC, three other investor-owned water utilities (“IOWUs”) operating in California, and the California Water Association (“CWA”) filed applications with the CPUC for rehearing on the discontinuation of the WRAM and MCBA, which the CPUC denied in September 2021. GSWC, the three other IOWUs and CWA each separately filed a petition with the California Supreme Court (“Court”) to review the CPUC’s decision revoking prior authorization of the WRAM and MCBA. In May 2022, the Court granted the petition for writ of review. The Court ~~has~~ ordered GSWC, along with the other IOWUs and CWA, to file opening briefs, which were filed on September 1.1, 2022. The CPUC’s answer to the opening brief iswas originally due byon November 15, 2022 and reply briefs ~~are~~were due byon December ~~15.~~15, 2022. However, as a result of SB 1469, in October 2022 the CPUC filed a motion to dismiss the IOWUs and CWA’s petition with the Court, and also requested that the Court suspend the proceeding schedule until it rules on the motion to dismiss. The Court granted the CPUC’s request to suspend the proceeding ~~schedule.~~schedule until it ruled on the motion to dismiss. In November 2022, the Court denied the motion to dismiss resulting in the CPUC filing their answer brief on December 9, 2022 and reply briefs were filed on January 13, 2023. There is no timeline for the Court to complete their review. At this time, management cannot predict the final outcome of this matter.

~~Final Decision in the Second Phase of the Low-Income Affordability Rulemaking:~~

On July 15, 2021, the CPUC issued a final decision in the second phase of the Low-Income Affordability Rulemaking. The final decision requires that amounts tracked in GSWC’s COVID-19 Catastrophic Event Memorandum Account (“CEMA”) account for unpaid customer bills be first offset by any (i) federal or state relief for customers' utility bill debt, and (ii) customer payments through payment-plan arrangements prior to receiving recovery from customers at large. In January 2022, GSWC received $9.5 million of relief funding from the state of California for customers' unpaid water bills incurred during the pandemic, which it applied to its delinquent customers' eligible balances.

In August 2021, GSWC, in addition to three other parties, filed separate applications to the CPUC for rehearing on certain aspects of this final decision, which the CPUC denied in May 2022. In March 2022, CWA filed a petition for writ of review to the California Supreme Court, urging the Court to review the CPUC’s final decision on the second phase of the Low-

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Income Affordability Rulemaking. CWA amended its petition to reflect the CPUC’s decision denying the requests for rehearing. In September 2022, the Supreme Court denied CWA’s amended petition for writ of review.

~~Cost of Capital Proceeding:~~

Investor-owned water utilities serving California are required to file their cost of capital applications on a triennial basis. GSWC filed a cost of capital application with the CPUC in May 2021 currently pending approval, which requested a capital structure of 57% equity and 43% debt, a return on equity of 10.5%, an embedded cost of debt of 5.1%, and a return on rate base of 8.18%. Hearings on this proceeding occurred in May 2022 and briefs were filed in June 2022. Based on management's analysis of this regulatory proceeding and associated accounting to date, for the three and nine months ended September 30, 2022, GSWC reduced revenues by $1.9 million and $5.0 million, respectively, and recorded a corresponding regulatory liability for revenues subject to refund based on its best estimate at this time, which includes the impact of GSWC’s lower cost of debt requested in its application. However, management cannot predict the ultimate outcome of the cost of capital application and the associated impact on 2022 revenues. Changes in estimates will be made, if necessary, as more information in this proceeding becomes available. The lower cost of debt of 5.1% is expected to lower 2022 adopted water revenues by approximately $7.5 million, or $0.15 per share, as compared to 2021 adopted water revenues at the currently authorized cost of debt of 6.6% that is presently being billed to water customers until a final decision is issued in this proceeding.

In the pending cost of capital proceeding, GSWC requested authorization to continue the Water Cost of Capital Mechanism (“WCCM”). The WCCM adjusts return on equity and rate of return on rate base between the three-year cost of capital proceedings only if there is a positive or negative change of more than 100 basis points in the average of the Moody’s Aa utility bond rate as measured over the period October 1 through September 30. If there is a positive or negative change of more than 100 basis points, the return on equity is adjusted by one half of the difference. For the period from October 1, 2021 through September 30, 2022, the Moody’s rate increased by more than 100 basis points from the benchmark, which triggered the WCCM adjustment. The WCCM is expected to be addressed by the CPUC in the pending proposed decision.

Electric General Rate ~~Cases:~~

~~On August 15, 2019, the CPUC issued a final decision on the electric general rate case that set new rates~~Case for the years ~~2018~~ 2023– 2022. Among other things, the decision increased adopted electric revenues by $1.0 million in 2022 not subject to an earnings test. The decision also allowed BVESI to construct all the capital projects requested in its application, which are dedicated to improving system safety and reliability and total approximately $44 million over the 5-year rate cycle. The decision authorized a return on equity for the electric segment of 9.6% and included a capital structure and a debt cost that are consistent with those approved by the CPUC in March 2018 in connection with GSWC's water segment cost of capital proceeding.2026:

On August 30, 2022, ~~BVESI~~BVES filed a general rate case application that will determine new electric rates for the years 2023 – 2026. In December 2022, a pre-hearing conference was held to discuss the scope of issues and schedule for the proceeding. In February 2023, a scoping memo and ruling that set the final schedule and scope of issues in BVES’s general rate case proceeding was issued by the CPUC. Based on the schedule, a proposed decision is expected in the fourth quarter of 2023. On December 15, 2022, the CPUC approved a decision for BVES to establish a general rate case memorandum account that makes the new 2023 rates effective and retroactive to January 1, 2023.

Among other things, ~~BVESI~~BVES requested (i) capital budgets of approximately ~~$62~~$62.0 million for the four-year rate cycle, and another $6.2 million for a large line replacement capital project to be filed for revenue recovery through an advice letter when the project is completed, and (ii) a capital structure for ~~BVESI~~BVES of 61.8% equity and 38.2% debt, a return on equity of 11.25%, an embedded cost of debt of ~~5.1%~~5.51%, and a return on rate base of 9.05%. Furthermore, included in the general rate case application is a request for recovery of all capital expenditures and other costs incurred over the last few years in connection with ~~BVESI’s~~BVES’s wildfire mitigation plans that are currently not in customer rates. These costs will be subject to review by the CPUC during the general rate case proceeding. ~~A pre-hearing conference has been scheduled for December 16, 2022 at which time the scope~~

Table of issues and schedule for the proceeding will be determined. On November 2, 2022, BVESI filed a motion to request a general rate case memorandum account that would make the new 2023 rates, once approved in a CPUC final decision, effective and retroactive to January 1, 2023.Contents

Contracted Services Segment:

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

Entering into contracts with the U.S. government subjects ASUS to potential government audits or investigations of its business practices and compliance with government procurement statutes and regulations. ASUS is currently under a civil government investigation over bidding and estimating practices used in certain capital upgrade projects. ASUS is cooperating fully with the investigation and management does not currently believe that the investigation will have a material adverse effect on its consolidated results of operations, financial condition, or liquidity. However, at this time, management cannot predict the final outcome or recommendations that may result from the investigation or determine the amount, if any, of penalties and damages that may be assessed.

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COVID-19:

~~GSWC, BVESI and ASUS have continued their operations throughout the COVID-19 pandemic given that their water, wastewater and electric utility services are deemed essential.~~ AWR and its subsidiaries continue to monitor the guidance provided by federal, state, and local health authorities and other government officials. ~~While continuing to monitor transmission rates and other variables, employees have returned to company offices.~~ Thus far, the COVID-19 pandemic has not had a material impact on ~~ASUS's~~ASUS’s current operations.

During ~~2022,~~2023, GSWC and ~~BVESI continue to experience delinquent customer accounts receivable~~BVES incurred some incremental costs in excess of their revenue requirements due to the lingering effects of the ~~COVID-19~~ pandemic ~~resulting~~that are being tracked in ~~both GSWC~~COVID-19-related memorandum accounts and ~~BVESI increasing their allowance for doubtful accounts during the nine months ended September 30, 2022.~~recorded as regulatory assets. The CPUC has authorized GSWC and ~~BVESI~~BVES to track incremental costs, including bad debt expense, in excess of what is included in their respective revenue requirements incurred as a result of the pandemic in COVID-19 emergency-related memorandum accounts, which GSWC and ~~BVESI~~BVES intend to file with the CPUC for future recovery. As of ~~September 30, 2022,~~March 31, 2023, GSWC and ~~BVESI~~BVES had approximately ~~$5.1~~$3.5 million and ~~$454,000,~~$500,000, respectively, in regulatory asset accounts related to bad debt expense in excess of their revenue requirements, the purchase of personal protective equipment, additional incurred printing costs, and other incremental COVID-19-related costs. Emergency-type memorandum accounts are well-established cost recovery mechanisms authorized as a result of a state/federal declared emergency, and are therefore recognized as regulatory assets for future recovery. As a result, the amounts recorded in the COVID-19 emergency-related memorandum accounts have not impacted GSWC’s or ~~BVESI’s~~BVES’s earnings.

In January 2022, GSWC received $9.5 million in COVID relief funds through the California Water and Wastewater Arrearage Payment Program to provide assistance to customers for their water debt accrued during the COVID-19 pandemic by remitting federal funds that the state received from the American Rescue Plan Act of 2021 to the utility on behalf of eligible customers. GSWC applied these funds to its delinquent customers' eligible balances. In February 2022, BVESI received $321,000 from the state of California for similar customer relief funding for unpaid electric customer bills incurred during the pandemic.

On April 10, 2023, the Biden Administration terminated the COVID-19 national emergency. The ~~CPUC’s moratoriums on service disconnections~~COVID-19 emergency-related memorandum accounts for ~~nonpayment for water~~GSWC and ~~electric customers have ended. As a result, service disconnections due to nonpayment have resumed with disconnections for delinquent residential customers having resumed~~BVES expired when the COVID-19 national emergency ended and no additional amounts will be included in ~~June 2022.~~these memorandum accounts.

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

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


		Diluted Earnings per Share							Diluted Earnings per Share
		Three Months Ended							Three Months Ended
		9/30/2022		9/30/2021		CHANGE			3/31/2023		3/31/2022		CHANGE
Water		$	0.54	$	0.62	$	(0.08)
Water, adjusted (2023 excludes the impact of retroactive rates related to 2022 from the CPUC proposed decision in the general rate case)								Water, adjusted (2023 excludes the impact of retroactive rates related to 2022 from the CPUC proposed decision in the general rate case)	$	0.38	$	0.23	$	0.15
Electric	Electric	0.04		0.04		—		Electric	0.06		0.07		(0.01)
Contracted services	Contracted services	0.12		0.11		0.01		Contracted services	0.15		0.08		0.07
AWR (parent)	AWR (parent)	(0.01)		(0.01)		—		AWR (parent)	(0.02)		—		(0.02)
Consolidated diluted earnings per share, as adjusted								Consolidated diluted earnings per share, as adjusted	0.57		0.38		0.19
Impact of retroactive rates related to the full year of 2022 from the proposed decision in the water general rate case (approximately $0.08 per share relates to first quarter of 2022)								Impact of retroactive rates related to the full year of 2022 from the proposed decision in the water general rate case (approximately $0.08 per share relates to first quarter of 2022)	0.36		—		0.36
Consolidated diluted earnings per share, as recorded	Consolidated diluted earnings per share, as recorded	$	0.69	$	0.76	$	(0.07)	Consolidated diluted earnings per share, as recorded	$	0.93	$	0.38	$	0.55

For the three months ended ~~September 30, 2022,~~March 31, 2023, AWR’s recorded consolidated diluted earnings were ~~$0.69~~$0.93 per share, as compared to ~~$0.76~~$0.38 per share for the same period in ~~2021,~~2022, an increase of $0.55 per share, which includes the impact of retroactive new rates related to the full 2022 year of $0.36 per share that was recorded in the first quarter 2023 as a ~~decrease~~result of ~~$0.07~~receiving the proposed decision in April 2023 on the water general rate case. The impact of retroactive rates related to the full year of 2022 is shown separately in the table above and included primarily: (i) the increase in 2022’s adopted revenues and supply costs that is consistent with the settlement agreement, or $0.40 per share as previously discussed; (ii) a reduction to revenues of $1.1 million, or $0.02 per share, to reflect the incremental impact of revenues subject to refund from the new 2022 rates as a result of the lower cost of debt in the pending cost of capital proceeding; and (iii) higher overall depreciation expense for 2022 of approximately $790,000, or $0.02 per share, resulting from higher composite depreciation rates adopted in the proposed decision and which are reflected in the 2022 adopted revenue requirement.

Excluding the impact of retroactive rates related to the full 2022 year of $0.36 per share that was recorded in the first quarter of 2023 and is shown on a separate line in the table above, adjusted consolidated diluted earnings for the three months ended March 31, 2023 were $0.57 per share. ~~Included~~The proposed decision on the water general rate case set new rates for 2022 and 2023, retroactive to January 1, 2022 and January 1, 2023, respectively, and cumulative adjustments were recorded in the first quarter of 2023 to reflect the impact of retroactive rates to the full year 2022 and the three months ended March 31, 2023.

Also included in the results for the ~~third~~first quarter ended ~~September 30, 2022~~March 31, 2023 were ~~losses~~gains totaling ~~$1.3~~$1.6 million, or approximately $0.03 per share, on investments held to fund one of the Company’s retirement plans, as compared to ~~gains~~losses of ~~$104,000~~$1.7 million, or approximately $0.03 per share, for the same period in ~~2021,~~2022, both due to financial market conditions. Furthermore, due to the delay in receiving a final decision from the CPUC on GSWC’s pending water general rate case that will set new rates beginning in 2022, water revenues billed and recorded for the third quarter of 2022 were based on 2021 adopted rates, pending a final decision. When approved, the new rates will be retroactive to January 1, 2022 and cumulative adjustments will be recorded in the quarter in which the new rates are approved by the CPUC. Had the new 2022 water rates been approved and effective January 1, 2022 consistent with the settlement agreement reached between GSWC and Public Advocates, GSWC would have recorded additional revenues of $8.7 million, or $0.17 per share, and additional water supply costs of $3.4 million, or $0.07 per share, which combined would have been $0.10 per share higher than what was actually recorded for the third quarter of 2022.

Excluding the gains and losses on investments from both periods, and ~~including~~excluding the ~~additional revenues and water supply costs~~impact of retroactive rates related to the full year of 2022 of $0.36 per share recorded in the ~~results for the third quarter of 2022 had the water general rate case not been delayed,~~three months ended March 31, 2023, adjusted consolidated diluted earnings for the ~~third~~first quarter of ~~2022~~2023 were ~~$0.82~~$0.54 per share as compared to adjusted diluted earnings of ~~$0.76~~$0.41 per share for the same period in ~~2021,~~2022, an adjusted increase of ~~$0.06~~$0.13 per share orlargely due to the 2023 estimated second-year rate increases recorded as a ~~7.9% increase.~~result of receiving a proposed decision in GSWC’s general rate case proceeding.

The following is a computation and reconciliation of recorded diluted earnings per share from the measure of operating income by business segment as disclosed in Note 10 to the Unaudited Consolidated Financial Statements, to AWR’s consolidated fully diluted earnings per common share (as recorded), for the three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


		Water				Electric				Contracted Services				AWR (Parent)				Consolidated (GAAP)					Water				Electric				Contracted Services				AWR (Parent)				Consolidated (GAAP)
(in thousands, except per share amounts)	(in thousands, except per share amounts)	Q3 2022		Q3 2021		Q3 2022		Q3 2021		Q3 2022		Q3 2021		Q3 2022		Q3 2021		Q3 2022		Q3 2021		(in thousands, except per share amounts)	Q1 2023		Q1 2022		Q1 2023		Q1 2022		Q1 2023		Q1 2022		Q1 2023		Q1 2022		Q1 2023		Q1 2022
Operating income (Note 10)		$	32,451	$	35,459	$	2,337	$	2,053	$	5,553	$	5,273	$	(1)	$	(1)	$	40,340	$	42,784
Other income and expense		5,695		4,669		243		33		(65)		(111)		453		162		6,326		4,753
Operating income (loss) (Note 10)																						Operating income (loss) (Note 10)	$	40,239	$	16,999	$	3,631	$	3,598	$	7,296	$	3,770	$	(1)	$	(2)	$	51,165	$	24,365
Other (income) and expense																						Other (income) and expense	3,866		5,743		560		(30)		257		(171)		1,323		200		6,006		5,742
Income tax expense (benefit)	Income tax expense (benefit)	6,831		7,993		478		537		1,347		1,265		(296)		83		8,360		9,878		Income tax expense (benefit)	8,910		2,689		701		952		1,685		944		(544)		(124)		10,752		4,461
Net income		$	19,925	$	22,797	$	1,616	$	1,483	$	4,271	$	4,119	$	(158)	$	(246)	$	25,654	$	28,153
Net income (loss)																						Net income (loss)	$	27,463	$	8,567	$	2,370	$	2,676	$	5,354	$	2,997	$	(780)	$	(78)	$	34,407	$	14,162
Weighted Average Number of Diluted Shares	Weighted Average Number of Diluted Shares	37,042		37,025		37,042		37,025		37,042		37,025		37,042		37,025		37,042		37,025		Weighted Average Number of Diluted Shares	37,047		37,019		37,047		37,019		37,047		37,019		37,047		37,019		37,047		37,019
Diluted earnings per share	Diluted earnings per share	$	0.54	$	0.62	$	0.04	$	0.04	$	0.12	$	0.11	$	(0.01)	$	(0.01)	$	0.69	$	0.76	Diluted earnings per share	$	0.74	$	0.23	$	0.06	$	0.07	$	0.15	$	0.08	$	(0.02)	$	—	$	0.93	$	0.38

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Water Segment:

For the three months ended ~~September 30, 2022,~~March 31, 2023, recorded diluted earnings from the water utility segment were ~~$0.54~~$0.74 per share, as compared to ~~$0.62~~$0.23 per share for the same period in ~~2021, a decrease~~2022, an increase of ~~$0.08~~$0.51 per ~~share. As discussed~~share, which includes (i) the impact of retroactive new rates for the full year of 2022 of $0.36 per share that was recorded in the first quarter 2023 and is shown separately in the table above, ~~the decrease was partly due to losses~~and (ii) gains totaling ~~$1.3~~$1.6 million, or approximately $0.03 per share, incurred during the ~~third~~first quarter of ~~2022~~2023 on investments held to fund one of the ~~Company's~~Company’s retirement plans, as compared to ~~nominal gains~~losses of $1.7 million, or approximately $0.03 per share, recorded for the same period in 2021. Furthermore, and also discussed above, the water segment's third quarter 2022 results would have included an additional $0.10 per share had there been no delay in receiving a final decision in the water general rate case that approved the new 2022 rates effective January 1, 2022.

Excluding the gains and losses on investments from both periods, and ~~including~~excluding the ~~additional revenues and water supply costs~~impact of retroactive rates related to the full year of 2022 recorded in the ~~results for the third~~first quarter of ~~2022 had the water general rate case not been delayed,~~2023, adjusted diluted earnings for the ~~third~~first quarter of ~~2022~~2023 at the water segment were ~~$0.67~~$0.35 per share as compared to adjusted diluted earnings of ~~$0.62~~$0.26 per share for the same period in ~~2021,~~2022, an adjusted increase at the water segment of $0.05 per share, or an 8.1% increase, despite a $0.04 per share reduction in 2022's third quarter earnings as a result of the lower cost of debt in the pending cost of capital proceeding discussed below.

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Excluding only the gains and losses on investments from both periods discussed above, adjusted diluted earnings at the water segment for the third quarter of 2022 were $0.57 per share, as compared to adjusted earnings of $0.62 per share for the third quarter of 2021, an adjusted decrease of $0.05$0.09 per share due primarily to the following items:

•~~A decrease~~An increase in water operating revenues of ~~$2.0~~approximately $9.0 million largely as a result of the ~~lower cost~~estimated second-year rate increases for 2023 that will be effective as of ~~debt included~~January 1, 2023 and have been reflected in the ~~pending cost of capital application. GSWC recorded a reduction to revenues of $1.9 million, or $0.04 per share, to reflect management's best estimate at this time of revenues~~2023 first quarter results. Approved 2023 rates will be subject to refund from the pending cost of capital proceeding, which includes the impact of GSWC’s lower cost of debt requested in its application. However, management cannot predict the ultimate outcome of the cost of capital applicationan earnings test and ~~the associated impact on 2022 revenues. Changes in estimates will be made, if necessary, as more information in this proceeding becomes available. As discussed previously,~~changes to inflationary index values. Because water revenues ~~billed and~~ recorded during the ~~third quarter of~~three months ended March 31, 2022 were based on 2021 adopted rates, ~~pending a final decision by~~ the ~~CPUC on~~increase in water revenues during the ~~general~~first quarter of 2023 represents the difference from the 2021 adopted rates and the 2023 estimated second-year rate ~~case application.~~

increases for the three months period ended March 31, 2023.

•~~A decrease~~An increase in water supply costs of ~~$31,000,~~$1.6 million, which consist of purchased water, purchased power for pumping, groundwater production assessments and changes in the water supply cost balancing accounts. Adopted supply costs for the ~~third~~first quarter of ~~2022~~2023 were based on ~~2021~~2023 authorized amounts, pending a final decision by the CPUC in the water general rate case application. Actual water supply costs are tracked and passed through to customers on a dollar-for-dollar basis by way of the CPUC-approved water supply cost balancing accounts. ~~A decrease in water supply costs results in a corresponding decrease in water operating revenues and has no net impact on the water segment’s profitability.~~

•An overall increase in operating expenses of $1.1 million (excluding supply costs), which negatively impacted earnings and was mainly due to increases in (i) administrative and general expenses resulting from higher employee-related benefits and insurance costs, (ii) depreciation and amortization expenses resulting from additions to utility plant, and (iii) maintenance expenses.

•An increase in interest expense (net of interest income) of $527,000 resulting primarily from an overall increase in total borrowing levels to support, among other things, the capital expenditures program at GSWC.

•An overall increase in other income (net of other expenses) of $880,000 due primarily from a decrease in the non-service cost components related to GSWC’s benefit plans resulting from lower actuarial losses recognized during the third quarter of 2022 as compared to the same period in 2021.

~~Electric Segment~~:

Diluted earnings from the electric utility segment were $0.04 per share for the three months ended September 30, 2022 and 2021. An increase in electric operating revenues resulting from CPUC-approved rate increases effective January 1, 2022 and a lower effective income tax rate at the electric segment due to changes in flow-through taxes were mostly offset by higher operating and interest expenses. In April 2022, BVESI completed the issuance of $35.0 million in unsecured private-placement notes consisting of 10 and 15 year term notes. BVESI used the proceeds to pay down all outstanding borrowings under its credit facility as required by the CPUC. Borrowings under the credit facility bear lower short-term rates.

~~Contracted Services Segment~~:

Diluted earnings from the contracted services segment increased $0.01 per share for the three months ended September 30, 2022 as compared to the same period in 2021, largely due to an increase in management fee revenue resulting from resolution of various economic price adjustments, partially offset by higher overall operating expenses as compared to the same period of 2021.

~~Table of Contents~~

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

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

Diluted Earnings per Share
Nine Months Ended
9/30/2022 9/30/2021 CHANGE
Water $ 1.17 $ 1.51 $ (0.34)
Electric 0.16 0.14 0.02
Contracted services 0.29 0.35 (0.06)
AWR (Parent) (0.01) — (0.01)
Consolidated diluted earnings per share, as recorded $ 1.61 $ 2.00 $ (0.39)

For the nine months ended September 30, 2022, AWR’s recorded consolidated diluted earnings were $1.61 per share, as compared to $2.00 per share for the same period in 2021, a decrease of $0.39 per share. Included in the results for the nine months ended September 30, 2022 were losses totaling $6.4 million, or $0.13 per share, on investments held to fund one of the Company's retirement plans as compared to gains of $2.3 million, or $0.04 per share, for the same period in 2021, a net decrease in earnings of $0.17 per share, both due to financial market conditions. Furth~~ermore, and as previously discussed, due to the delay in finalizing the water general rate case, water revenues billed and recorded for the~~ ~~nine months ended September 30, 2022~~ were based on 2021 adopted rates, pending a final decision by the CPUC in this general rate case application. Had the new 2022 water rates been approved by the CPUC effective January 1, 2022, GSWC would have recorded additional revenues of $22.7 million, or $0.44 per share, and additional water supply costs of $7.7 million, or $0.15 per share, which combined would have been $0.29 per share higher than what was actually recorded for the nine months ended September 30, 2022.

The following is a computation and reconciliation of diluted earnings per share from the measure of operating income by business segment as disclosed in Note 10 to the Unaudited Consolidated Financial Statements, to AWR’s consolidated fully diluted earnings per common share, for the nine months ended September 30, 2022 and 2021:

Water Electric Contracted Services AWR (Parent) Consolidated (GAAP)
(in thousands, except per share amounts) YTD 2022 YTD 2021 YTD 2022 YTD 2021 YTD 2022 YTD 2021 YTD 2022 YTD 2021 YTD 2022 YTD 2021
Operating income (Note 10) $ 77,161 $ 87,295 $ 7,973 $ 7,296 $ 13,894 $ 16,375 $ (6) $ (6) $ 99,022 $ 110,960
Other income and expense 19,158 13,589 431 107 (374) (346) 1,014 359 20,229 13,709
Income tax expense (benefit) 14,623 17,718 1,645 1,879 3,399 3,927 (641) (270) 19,026 23,254
Net income $ 43,380 $ 55,988 $ 5,897 $ 5,310 $ 10,869 $ 12,794 $ (379) $ (95) $ 59,767 $ 73,997
Weighted Average Number of Diluted Shares 37,034 37,004 37,034 37,004 37,034 37,004 37,034 37,004 37,034 37,004
Diluted earnings per share $ 1.17 $ 1.51 $ 0.16 $ 0.14 $ 0.29 $ 0.35 $ (0.01) $ — $ 1.61 $ 2.00

~~Water Segment:~~

For the nine months ended September 30, 2022, recorded diluted earnings from the water utility segment were $1.17 per share, as compared to $1.51 per share for the same period in 2021, a decrease of $0.34 per share. As discussed above, the decrease at the water segment was partly due to losses of $0.13 per share incurred during the nine months ended September 30, 2022 on investments held to fund a retirement plan, as compared to gains of $0.04 per share for the same period in 2021, a net decrease in earnings of $0.17 per share. Furthermore, and also discussed above, the water segment’s results for the nine months ended September 30, 2022 would have included an additional $0.29 per share had there been no delay in receiving a final decision in the water general rate case that approved the new 2022 rates effective January 1, 2022.

Excluding the gains and losses on investments from both periods, and including the additional revenues and water supply costs in the results for the nine months ended September 30, 2022 had the water general rate case not been delayed, adjusted diluted earnings for the nine months ended September 30, 2022 at the water segment were $1.59 per share as compared to adjusted diluted earnings of $1.47 per share for the same period in 2021, an adjusted increase at the water segment of $0.12 per share, or an 8.2% increase, despite a $0.10 per share reduction in earnings during the nine months ended September 30, 2022 as a result of the lower cost of debt in the pending cost of capital proceeding discussed below.

~~Table of Contents~~

Excluding only the gains and losses on investments from both periods discussed above, adjusted diluted earnings at the water segment for the nine months ended September 30, 2022 were $1.30 per share, as compared to adjusted earnings of $1.47 per share for the same period in 2021, an adjusted decrease of $0.17 per share due to the following items:

•A decrease in water operating revenues of $3.9 million largely as a result of the lower cost of debt included in the pending cost of capital application. GSWC recorded a reduction to revenues during the nine months ended September 30, 2022 of $5.0 million, or $0.10 per share, to reflect management's best estimate at this time of revenues subject to refund from the pending cost of capital proceeding, which includes the impact of GSWC’s lower cost of debt requested in its application. However, management cannot predict the ultimate outcome of the cost of capital application and the associated impact on 2022 revenues. Changes in estimates will be made, if necessary, as more information in this proceeding becomes available. This decrease was partially offset by an increase in revenues from advice letter projects that became effective February 15, 2022, as well as mid-year increases implemented in July 2021 to reflect higher water supply costs. Due to regulatory mechanisms in place for water supply costs, the increase in operating revenues includes the full recovery of the increases in supply costs discussed below. As discussed previously, water revenues billed and recorded for the nine months ended September 30, 2022 were based on 2021 adopted rates, pending a final decision by the CPUC on the general rate case application.

•An increase in water supply costs of $1.1 million, which consist of purchased water, purchased power for pumping, groundwater production assessments and changes in the water supply cost balancing accounts. Adopted supply costs for the nine months ended September 30, 2022 were based on 2021 authorized amounts, pending a final decision by the CPUC in the water general rate case application. Actual water supply costs are tracked and passed through to customers on a dollar-for-dollar basis by way of the CPUC-approved water supply cost balancing accounts. An increase in water supply costs results in a corresponding increase in water operating revenues and has no net impact on the water segment’s profitability.

•An overall increase in operating expenses of ~~$5.2~~$1.3 million (excluding supply costs)~~, which negatively impacted earnings and was~~ mainly due to increases in (i) ~~operation-related~~overall labor costs, (ii) other operation expenses resulting primarily from higher ~~chemical and~~ water treatment and transportation costs, ~~transportation expenses, and conservation spending, (ii)~~(iii) administrative and general expenses ~~resulting~~largely from higher ~~insurance~~employee-related expenses and outside-service costs, and ~~employee-related benefits, (iii)~~(iv) depreciation and amortization expenses resulting from additions to utility plant and ~~(iv) maintenance expenses.~~the higher composite depreciation rates based on a revised depreciation study approved in the proposed decision on the water general rate case.

•An increase in interest expense (net of interest income) of $1.1 million resulting primarily from an increase in interest rates, as well as an overall increase in total borrowing levels to support, among other things, the capital expenditures program at GSWC, partially offset by higher interest income earned on regulatory assets bearing interest at the current 90-day commercial-paper rate, which increased compared to 2022’s rates, as well as an increase in the level of regulatory assets recorded resulting, in large part, from the proposed decision on the water general rate case.

•An overall increase in other ~~income~~expenses (net of other ~~expenses)~~income) of ~~$3.0~~$1.1 million due primarily ~~from a decrease~~to an increase in the non-service cost components related to GSWC’s benefit plans resulting from ~~lower~~changes in actuarial ~~losses recognized during~~assumptions including expected returns on plan assets. However, as a result of GSWC’s two-way pension balancing accounts authorized by the ~~first nine~~CPUC, changes in total net periodic benefit costs related to the pension plan have no material impact to earnings.

•Changes in certain flowed-through taxes and permanent items included in GSWC’s income tax expense for the three months ~~of 2022~~ended March 31, 2023 as compared to the same period in ~~2021.~~

•~~An increase in the effective income tax rate, which negatively~~2022 that favorably impacted ~~net earnings at the~~ water ~~segment. The increase resulted primarily from changes in certain flow-through and permanent items.~~earnings. As a regulated utility, GSWC treats certain temporary differences as ~~flow-through~~being flowed-through in computing its income tax expense consistent with the income tax method used in its CPUC-jurisdiction ~~ratemaking.~~rate making. Changes in the magnitude of ~~flow-through~~flowed-through items either increase or decrease tax expense, thereby affecting diluted earnings per share.

Electric Segment:

Diluted earnings from the electric utility segment ~~increased $0.02~~decreased by $0.01 per share for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 as compared to the same period in ~~2021,~~2022, largely ~~due to an increase in electric operating revenues~~ resulting from ~~CPUC-approved~~not having new rates in 2023 while awaiting the processing of the pending electric general rate case that will set new rates for 2023 – 2026, while also experiencing continued increases ~~effective~~in overall operating expenses and interest costs. When a decision is issued in the electric general rate case, new rates are expected to be retroactive to January 1, ~~2022~~2023 and ~~a lower effective income tax rate~~cumulative adjustments will be recorded at ~~the electric segment due to changes in flow-through taxes, partially offset by higher operating and interest expenses. In April 2022, BVESI completed the issuance~~that time.

Table of $35.0 million in unsecured private-placement notes consisting of 10 and 15 year term notes. BVESI used the proceeds to pay down all outstanding borrowings under its credit facility as required by the CPUC. Borrowings under the credit facility bear lower short-term rates.Contents

Contracted Services Segment:

Diluted earnings from the contracted services segment ~~decreased $0.06~~increased by $0.07 per share for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 as compared to the same period in ~~2021,~~2022, largely due to ~~a decrease~~an increase in construction activity ~~resulting from~~due to timing differences of when ~~such~~construction work was performed in 2023 as compared to the same period in 2022, and an increase in management fee revenue resulting from the resolution of various economic price adjustments, partially offset by higher overall operating expenses and interest costs as compared to the same period of 2021, as well as a slowdown caused by longer materials supply-chain lead-times, weather conditions, and other delays. There was also an increase in overall operating expenses. These decreases to earnings at the contracted services segment were partially offset by an increase in management fees. As it continues to experience challenges in its construction activity, the2022. The contracted services segment is expected to contribute ~~$0.43~~$0.45 to ~~$0.47~~$0.49 per share for the full ~~2022~~2023 year.

~~Table of Contents~~

AWR (Parent):

For the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, diluted earnings from AWR (parent) decreased ~~$0.01~~$0.02 per share compared to the same period in ~~2021~~2022 due primarily to an increase in interest expense resulting from higher short-term interest rates on borrowings made under ~~AWR's~~AWR’s revolving credit ~~facility.~~facility, as well as changes in state unitary taxes.

The following discussion and analysis for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021 provides~~provide information on AWR’s consolidated operations and assets and, where necessary, includes specific references to AWR’s individual segments and subsidiaries: GSWC, ~~BVESI,~~BVES and ASUS and its subsidiaries.

3530

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Consolidated Results of Operations — Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (amounts in thousands, except per share amounts):


		Three Months Ended September 30, 2022		Three Months Ended September 30, 2021		$ CHANGE		% CHANGE			Three Months Ended March 31, 2023		Three Months Ended March 31, 2022		$ CHANGE		% CHANGE
OPERATING REVENUES	OPERATING REVENUES									OPERATING REVENUES
Water	Water	$	100,799	$	102,768	$	(1,969)	(1.9)	%	Water	$	112,712	$	73,906	$	38,806	52.5	%
Electric	Electric	8,919		8,564		355		4.1	%	Electric	12,904		11,892		1,012		8.5	%
Contracted services	Contracted services	25,266		25,423		(157)		(0.6)	%	Contracted services	35,807		22,772		13,035		57.2	%
Total operating revenues	Total operating revenues	134,984		136,755		(1,771)		(1.3)	%	Total operating revenues	161,423		108,570		52,853		48.7	%

OPERATING EXPENSES	OPERATING EXPENSES									OPERATING EXPENSES
Water purchased	Water purchased	20,304		24,093		(3,789)		(15.7)	%	Water purchased	14,304		17,848		(3,544)		(19.9)	%
Power purchased for pumping	Power purchased for pumping	3,878		3,584		294		8.2	%	Power purchased for pumping	2,354		2,374		(20)		(0.8)	%
Groundwater production assessment	Groundwater production assessment	5,650		5,185		465		9.0	%	Groundwater production assessment	3,833		4,211		(378)		(9.0)	%
Power purchased for resale	Power purchased for resale	2,673		2,875		(202)		(7.0)	%	Power purchased for resale	4,986		5,166		(180)		(3.5)	%
Supply cost balancing accounts	Supply cost balancing accounts	640		(2,446)		3,086		(126.2)	%	Supply cost balancing accounts	11,566		(6,343)		17,909		*
Other operation	Other operation	9,696		9,414		282		3.0	%	Other operation	10,116		8,667		1,449		16.7	%
Administrative and general	Administrative and general	21,594		20,255		1,339		6.6	%	Administrative and general	23,547		22,972		575		2.5	%
Depreciation and amortization	Depreciation and amortization	10,117		9,826		291		3.0	%	Depreciation and amortization	11,203		10,114		1,089		10.8	%
Maintenance	Maintenance	3,408		2,979		429		14.4	%	Maintenance	3,150		3,140		10		0.3	%
Property and other taxes	Property and other taxes	5,942		6,052		(110)		(1.8)	%	Property and other taxes	6,295		5,853		442		7.6	%
ASUS construction	ASUS construction	10,742		12,154		(1,412)		(11.6)	%	ASUS construction	18,904		10,203		8,701		85.3	%
Total operating expenses	Total operating expenses	94,644		93,971		673		0.7	%	Total operating expenses	110,258		84,205		26,053		30.9	%

OPERATING INCOME	OPERATING INCOME	40,340		42,784		(2,444)		(5.7)	%	OPERATING INCOME	51,165		24,365		26,800		110.0	%

OTHER INCOME AND EXPENSES	OTHER INCOME AND EXPENSES									OTHER INCOME AND EXPENSES
Interest expense	Interest expense	(7,331)		(5,553)		(1,778)		32.0	%	Interest expense	(9,481)		(5,606)		(3,875)		69.1	%
Interest income	Interest income	667		333		334		100.3	%	Interest income	1,864		283		1,581		558.7	%
Other, net	Other, net	338		467		(129)		(27.6)	%	Other, net	1,611		(419)		2,030		*
		(6,326)		(4,753)		(1,573)		33.1	%		(6,006)		(5,742)		(264)		4.6	%

INCOME BEFORE INCOME TAX EXPENSE	INCOME BEFORE INCOME TAX EXPENSE	34,014		38,031		(4,017)		(10.6)	%	INCOME BEFORE INCOME TAX EXPENSE	45,159		18,623		26,536		142.5	%

Income tax expense	Income tax expense	8,360		9,878		(1,518)		(15.4)	%	Income tax expense	10,752		4,461		6,291		141.0	%

NET INCOME	NET INCOME	$	25,654	$	28,153	$	(2,499)	(8.9)	%	NET INCOME	$	34,407	$	14,162	$	20,245	143.0	%

Basic earnings per Common Share	Basic earnings per Common Share	$	0.69	$	0.76	$	(0.07)	(9.2)	%	Basic earnings per Common Share	$	0.93	$	0.38	$	0.55	144.7	%

Fully diluted earnings per Common Share	Fully diluted earnings per Common Share	$	0.69	$	0.76	$	(0.07)	(9.2)	%	Fully diluted earnings per Common Share	$	0.93	$	0.38	$	0.55	144.7	%

* not meaningful

3631

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Operating Revenues:

General

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

Water

Due to the delay in the CPUC issuing a final decision on the water general rate case, billed water revenues for the three months ended September 30, 2022 were based on 2021 adopted rates, pending a CPUC final decision on GSWC’s general rate case application. For the three months ended ~~September 30, 2022,~~March 31, 2023, revenues from water operations ~~decreased~~increased by ~~$2.0~~$38.8 million to ~~$100.8~~$112.7 million as compared to the same period in ~~2021~~2022. The increase in water revenues was largely as a result of ~~the lower cost of debt included~~receiving in April 2023 a proposed decision in the pending ~~cost~~general rate case application. As a result of ~~capital application. GSWC recorded~~receiving a ~~reduction to water revenues of $1.9 million to reflect management's best estimate at this time of revenues subject to refund from~~proposed decision that approves the ~~pending cost of capital proceeding, which includes~~ November 2021 settlement agreement in its entirety, the impact of ~~GSWC’s lower cost~~retroactive new adopted rates for the full year of ~~debt requested in its application.~~2022 of $30.3 million and the estimated 2023 revenue increases for the three months ended March 31, 2023 of $8.7 million were recorded during the first quarter of 2023.

Billed water consumption for the ~~third~~first quarter of ~~2022~~2023 was lower by approximately ~~10.1%~~17% as compared to the same period in ~~2021.~~ 2022 due primarily to above average rainfall in California in the first quarter of 2023 compared to the same period in 2022, which was the driest on record for this three month period.Currently, changes in consumption generally do not have a significant impact on recorded revenues due to the CPUC-approved WRAM that is in place in all but one small ~~rate-making~~rate making area. GSWC records the difference between what it bills its water customers and ~~that which~~what is authorized by the CPUC in the WRAM accounts as regulatory assets or liabilities.

Electric

Electric revenues for the three months ended ~~September 30, 2022~~March 31, 2023 increased by ~~$355,000~~$1.0 million to ~~$8.9~~$12.9 million due, in large part, to the proposed decision issued in the water general rate case proceeding that updates the costs allocated from the general corporate office to the electric segment. The proposed decision authorizes an increase in the allocation ratio to the electric segment. The increase in general corporate office expenses allocated to the electric segment, as discussed later, also includes a ~~result~~corresponding and offsetting increase in adopted electric revenues as provided in BVES’s last general rate case proceeding, resulting in no impact to earnings. There was also an increase in electric revenues from an advice letter filing related to a completed capital project.

Electric usage for the first quarter of ~~new CPUC-approved electric rates effective January 1, 2022, partially offset~~2023 was lower by ~~a 4.5% dec~~2.5% ~~rease in electric usage~~ as compared to the same period in ~~2021.~~2022. 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

Revenues from contracted services are composed of construction revenues (including renewal and replacements) and management fees for operating and maintaining water and/or wastewater systems at various military bases. For the three months ended ~~September 30, 2022,~~March 31, 2023, revenues from contracted services ~~decreased $157,000~~increased $13.0 million to ~~$25.3~~$35.8 million as compared to ~~$25.4~~$22.8 million for the same period in ~~2021.~~2022. The ~~decrease~~increase was largely due to ~~lower~~higher construction activity ~~resulting,~~and an increase in ~~part,~~management fee revenue from ~~timing differences of when such work was performed~~annual economic price adjustments as compared to the same period of 2021, as well as a slowdown caused by longer materials supply-chain lead-times, weather conditions, and other delays. This decrease was largely offset by increases in management fees due to the successful resolution of various economic price adjustments.2022.

ASUS’s subsidiaries continue to enter into U.S. government-awarded contract modifications and agreements with third-party prime contractors for new construction projects at the military bases served. ~~As of September 30, 2022,~~During the three months ended March 31, 2023, ASUS has been awarded approximately ~~$31.1~~$4.6 million in new construction projects for completion in 2023 through 2025. This is in addition to $34.4 million of new construction projects awarded in 2022, which are being completed from late 2022 through 2025. Earnings and cash flows from modifications to the ~~original~~initial 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

Total supply costs at the regulated utilities comprise the largest segment of total consolidated operating expenses. Supply costs accounted for approximately ~~35.0%~~33.6% and ~~35.4%~~27.6% of total operating expenses for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

Table of Contents

Water segment supply costs

Two of the principal factors affecting water supply costs are the amount of water produced and the source of the water. Generally, the variable cost of producing water from wells is less than the cost of water purchased from wholesale suppliers. The actual percentages of purchased water for the three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ were approximately ~~44%~~42% and ~~47%~~48%, respectively, as compared to the authorized adopted percentages of ~~37%~~38% and 30% for the three months ended ~~September 30,~~March 31, 2023 and 2022, and 2021. The higher actual percentage of purchased water as compared to the adopted percentage resulted from a higher volume of purchased water costs due to several wells being out of service. Due to the delay in finalizing the water general raterespectively.

~~Table of Contents~~

case, which will set new rates for the years 2022 through 2024, adopted supply costs for the third quarter of 2022 were based on 2021 authorized amounts, pending a final decision by the CPUC on GSWC’s general rate case application.

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

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. For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ water supply costs consisted of the following amounts (in thousands):


		Three Months Ended September 30, 2022		Three Months Ended September 30, 2021		$ CHANGE		% CHANGE			Three Months Ended March 31, 2023		Three Months Ended March 31, 2022		$ CHANGE		% CHANGE
Water purchased	Water purchased	$	20,304	$	24,093	$	(3,789)	-15.7	%	Water purchased	$	14,304	$	17,848	$	(3,544)	-19.9	%
Power purchased for pumping	Power purchased for pumping	3,878		3,584		294		8.2	%	Power purchased for pumping	2,354		2,374		(20)		-0.8	%
Groundwater production assessment	Groundwater production assessment	5,650		5,185		465		9.0	%	Groundwater production assessment	3,833		4,211		(378)		-9.0	%
Water supply cost balancing accounts *	Water supply cost balancing accounts *	885		(2,114)		2,999		-141.9	%	Water supply cost balancing accounts *	12,625		(5,067)		17,692		**
Total water supply costs	Total water supply costs	$	30,717	$	30,748	$	(31)	-0.1	%	Total water supply costs	$	33,116	$	19,366	$	13,750	71.0	%

* The sum of the water and electric supply-cost balancing accounts are shown on AWR’s Consolidated Statements of Income and totaled ~~$640,000~~$11,566,000 and ~~$(2,446,000)~~$(6,343,000) for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

** not meaningful

Purchased water costs for the ~~third~~first quarter of ~~2022~~2023 decreased to ~~$20.3~~$14.3 million as compared to ~~$24.1~~$17.8 million for the same period in ~~2021~~2022 primarily due to decreases in water consumption and production that ~~are being~~was driven by above-average rainfall in 2023 and drought conditions ~~and rationing,~~experienced in 2022 that resulted in related water use restrictions, as well as a lower mix of purchased water compared to the same period in ~~2021,~~2022, all partially offset by increases in wholesale water costs. ~~The increase in power purchased for pumping was due to increases in electricity provider rates.~~ Groundwater production assessments ~~increased~~decreased largely due to a ~~higher mix of pumped~~decrease in water consumption and production compared to the three months ended ~~September 30, 2021.~~March 31, 2022 due primarily to above-average rainfall in 2023.

For the three months ended ~~September 30, 2022,~~March 31, 2023, the water supply cost balancing account had ~~an $885,000~~a $12.6 million over-collection as compared to a ~~$2.1~~$5.1 million under-collection during the same period in ~~2021.~~2022. The ~~decrease~~increase in the ~~under-collection~~over-collection was primarily due to ~~the effect of rate increases implemented mid-year 2021 at certain rate-making areas to specifically cover increases in~~updated adopted supply costs ~~experienced~~from the proposed decision received in ~~these areas, thereby decreasing~~April 2023 in the ~~under-collection, partially offset by increases~~water general rate case proceeding. This increase includes largely the full year impact of 2022 to reflect new adopted supply costs retroactive to January 1, 2022, with a corresponding and offsetting increase in ~~wholesale~~adopted water ~~costs.~~revenues, resulting in no impact to earnings.

Electric segment supply costs

Supply costs for the electric segment consist primarily of purchased power for resale, the cost of natural gas used by ~~BVESI’s~~BVES’s generating unit, the cost of renewable energy credits and changes in the electric supply cost balancing account. For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ electric supply costs consisted of the following amounts (in thousands):


		Three Months Ended September 30, 2022		Three Months Ended September 30, 2021		$ CHANGE		% CHANGE			Three Months Ended March 31, 2023		Three Months Ended March 31, 2022		$ CHANGE		% CHANGE
Power purchased for resale	Power purchased for resale	$	2,673	$	2,875	$	(202)	-7.0	%	Power purchased for resale	$	4,986	$	5,166	$	(180)	-3.5	%
Electric supply cost balancing account *	Electric supply cost balancing account *	(245)		(332)		87		-26.2	%	Electric supply cost balancing account *	(1,059)		(1,276)		217		-17.0	%
Total electric supply costs	Total electric supply costs	$	2,428	$	2,543	$	(115)	-4.5	%	Total electric supply costs	$	3,927	$	3,890	$	37	1.0	%

For the three months ended ~~September 30, 2022,~~March 31, 2023, the cost of power purchased for resale to ~~BVESI’s~~BVES’s electric customers decreased by ~~$202,000~~$180,000 to ~~$2.7~~$5.0 million as compared to ~~$2.9~~$5.2 million during the same period in ~~2021~~2022 due to a decrease in customer usage and lower average prices per megawatt-hour that include all fixed costs. The average price per megawatt-hour, including fixed costs, decreased from ~~$79.03~~$141.21 for the three months ended ~~September 30, 2021~~March 31, 2022 to ~~$77.47~~$94.73 for the same period in ~~2022.~~2023. The decrease in average price per megawatt-hour resulted in a decrease in the under-collection in the electric supply cost balancing account, which decreased by ~~$87,000~~$217,000 as compared to the three months ended ~~September 30, 2021 due to lower customer usage.~~

March 31, 2022.

3833

Table of Contents

Other Operation

The primary components of other operation expenses include payroll costs, materials and supplies, chemicals and water treatment costs and outside-service costs of operating the regulated water systems, including the costs associated with water transmission and distribution, pumping, water quality, meter reading, billing, and operations of district offices and the electric system. Registrant’s contracted services operations incur many of the same types of expenses. For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ other operation expenses by business segment consisted of the following (dollar amounts in thousands):


		Three Months Ended September 30, 2022		Three Months Ended September 30, 2021		$ CHANGE		% CHANGE			Three Months Ended March 31, 2023		Three Months Ended March 31, 2022		$ CHANGE		% CHANGE
Water Services	Water Services	$	7,273	$	7,287	$	(14)	(0.2)	%	Water Services	$	7,271	$	6,354	$	917	14.4	%
Electric Services	Electric Services	814		705		109		15.5	%	Electric Services	1,059		876		183		20.9	%
Contracted Services	Contracted Services	1,609		1,422		187		13.2	%	Contracted Services	1,786		1,437		349		24.3	%
Total other operation	Total other operation	$	9,696	$	9,414	$	282	3.0	%	Total other operation	$	10,116	$	8,667	$	1,449	16.7	%

For the three months ended ~~September 30, 2022,~~March 31, 2023, the increase in other operation expenses at the water segment was due primarily to higher operation-related labor, water treatment, and vehicle and equipment costs. As a result of receiving the proposed decision in the water general rate case, the increase at the water segment also included a cumulative depreciation adjustment for 2022 of $212,000 on GSWC’s transportation equipment, which is recorded in other operation expenses.

The increase in electric segment was due primarily to ~~higher~~operation-related labor and transportation ~~and outside-service costs.~~expense. The increase at the contracted services segment was due primarily to higher operation-related labor ~~transportation,~~ and ~~chemical costs.~~outside services. Transportation costs were higher due, in part, to increases in fuel and maintenance costs compared to the same period in ~~2021.~~2022.

Administrative and General

Administrative and general expenses include payroll costs related to administrative and general functions, all employee-related benefits, insurance expenses, outside legal and consulting fees, regulatory-utility-commission expenses, expenses associated with being a public company and general corporate expenses charged to expense accounts. For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ administrative and general expenses by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):


		Three Months Ended September 30, 2022		Three Months Ended September 30, 2021		$ CHANGE		% CHANGE			Three Months Ended March 31, 2023		Three Months Ended March 31, 2022		$ CHANGE		% CHANGE
Water Services	Water Services	$	14,362	$	13,677	$	685	5.0	%	Water Services	$	15,381	$	15,596	$	(215)	(1.4)	%
Electric Services	Electric Services	2,026		2,039		(13)		(0.6)	%	Electric Services	2,673		2,166		507		23.4	%
Contracted Services	Contracted Services	5,205		4,538		667		14.7	%	Contracted Services	5,492		5,208		284		5.5	%
AWR (parent)	AWR (parent)	1		1		—		—	%	AWR (parent)	1		2		(1)		(50.0)	%
Total administrative and general	Total administrative and general	$	21,594	$	20,255	$	1,339	6.6	%	Total administrative and general	$	23,547	$	22,972	$	575	2.5	%

Administrative and general expenses decreased for the water segment due, in large part, to a reduction of approximately $447,000 to reflect the April 2023 proposed decision on the water general rate case for recovery of previously incurred costs that were tracked in CPUC-authorized memorandum accounts. This was offset by an increase in outside-service costs, labor and employee-related expenses, partially offset by a decrease in the service cost component of GSWC’s defined-benefit pension plan. Due to GSWC’s two-way pension balancing accounts authorized by the CPUC, changes in total net periodic benefit costs related to the pension plan have no material impact to earnings.

Administrative and general expenses increased at the ~~water~~electric segment ~~largely~~primarily due to an increase in ~~insurance~~ costs ~~and employee-related benefits, partially offset by~~allocated from the general corporate office as a ~~decrease~~result of the allocation ratio update authorized in ~~outside-service costs.~~the proposed decision on the water general rate case. The increase in general corporate office expenses allocated to the electric segment also includes a corresponding and offsetting increase in adopted electric revenues, resulting in no impact to earnings.

Administrative and general expenses increased at the contracted services segment is mainly due to higher labor and outside ~~services, insurance and travel expenses.~~services.

Table of Contents

Depreciation and Amortization

For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ depreciation and amortization by business segment consisted of the following (dollar amounts in thousands):


		Three Months Ended September 30, 2022		Three Months Ended September 30, 2021		$ CHANGE		% CHANGE			Three Months Ended March 31, 2023		Three Months Ended March 31, 2022		$ CHANGE		% CHANGE
Water Services	Water Services	$	8,475	$	8,272	$	203	2.5	%	Water Services	$	9,606	$	8,545	$	1,061	12.4	%
Electric Services	Electric Services	709		644		65		10.1	%	Electric Services	748		654		94		14.4	%
Contracted Services	Contracted Services	933		910		23		2.5	%	Contracted Services	849		915		(66)		(7.2)	%
Total depreciation and amortization	Total depreciation and amortization	$	10,117	$	9,826	$	291	3.0	%	Total depreciation and amortization	$	11,203	$	10,114	$	1,089	10.8	%

The water general rate case proposed decision issued in April 2023 approves overall higher composite depreciation rates based on a revised depreciation study. The increase in composite depreciation rates increases the adopted water revenue requirement, with a corresponding increase in adopted depreciation expense, resulting in no impact to net earnings. Therefore, the overall increase in depreciation and amortization expenses ~~resulted from~~at the water segment included the retroactive impact for the full year of 2022 of approximately $576,000. There was also an increase in depreciation at the water and electric segments due to additions to utility plant and other fixed assets since the ~~third~~first quarter of ~~2021.~~

~~Table of Contents~~

2022.

Maintenance

For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ maintenance expense by business segment consisted of the following (dollar amounts in thousands):


		Three Months Ended September 30, 2022		Three Months Ended September 30, 2021		$ CHANGE		% CHANGE			Three Months Ended March 31, 2023		Three Months Ended March 31, 2022		$ CHANGE		% CHANGE
Water Services	Water Services	$	2,526	$	2,140	$	386	18.0	%	Water Services	$	1,960	$	2,156	$	(196)	(9.1)	%
Electric Services	Electric Services	131		158		(27)		(17.1)	%	Electric Services	321		250		71		28.4	%
Contracted Services	Contracted Services	751		681		70		10.3	%	Contracted Services	869		734		135		18.4	%
Total maintenance	Total maintenance	$	3,408	$	2,979	$	429	14.4	%	Total maintenance	$	3,150	$	3,140	$	10	0.3	%

Maintenance expense decreased for the water segment due, in part, to a reduction of approximately $98,000 to reflect the April 2023 proposed decision on the water general rate case for recovery of previously incurred costs that were tracked in CPUC-authorized memorandum accounts. Maintenance expense also decreased at the water segment due to timing of maintenance activities compared to the same period in 2022.

Maintenance expense increased at the ~~water~~electric and contracted services segments due to higher maintenance planned and unplanned ~~maintenance expenses~~activities as compared to the same period in ~~2021.~~2022.

Property and Other Taxes

For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ property and other taxes by business segment consisted of the following (dollar amounts in thousands):


		Three Months Ended September 30, 2022		Three Months Ended September 30, 2021		$ CHANGE		% CHANGE			Three Months Ended March 31, 2023		Three Months Ended March 31, 2022		$ CHANGE		% CHANGE
Water Services	Water Services	$	4,995	$	5,185	$	(190)	(3.7)	%	Water Services	$	5,139	$	4,890	$	249	5.1	%
Electric Services	Electric Services	474		422		52		12.3	%	Electric Services	545		458		87		19.0	%
Contracted Services	Contracted Services	473		445		28		6.3	%	Contracted Services	611		505		106		21.0	%
Total property and other taxes	Total property and other taxes	$	5,942	$	6,052	$	(110)	(1.8)	%	Total property and other taxes	$	6,295	$	5,853	$	442	7.6	%

~~Property~~The increase to property and other taxes ~~decreased~~was primarily attributed to an increase in franchise fees at the water segment ~~mostly due~~resulting from higher water revenues recognized in 2023 compared to ~~changes in assessed property values and tax rates.~~2022.

ASUS Construction

For the three months ended ~~September 30, 2022,~~March 31, 2023, construction expenses for contracted services were ~~$10.7~~$18.9 million, ~~decreasing $1.4~~increasing $8.7 million compared to the same period in ~~2021~~2022 primarily due to ~~a decrease~~an increase in construction activity resulting from timing differences of when such work was performed in 2023 as compared to the same period of ~~2021, as well as a slowdown caused by longer materials supply-chain lead-times, weather conditions, and other delays.~~2022.

Table of Contents

Interest Expense

For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ interest expense by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):


		Three Months Ended September 30, 2022		Three Months Ended September 30, 2021		$ CHANGE		% CHANGE			Three Months Ended March 31, 2023		Three Months Ended March 31, 2022		$ CHANGE		% CHANGE
Water Services	Water Services	$	5,950	$	5,184	$	766	14.8	%	Water Services	$	6,922	$	5,236	$	1,686	32.2	%
Electric Services	Electric Services	474		131		343		261.8	%	Electric Services	834		112		722		644.6	%
Contracted Services	Contracted Services	205		78		127		162.8	%	Contracted Services	416		62		354		571.0	%
AWR (parent)	AWR (parent)	702		160		542		338.8	%	AWR (parent)	1,309		196		1,113		567.9	%
Total interest expense	Total interest expense	$	7,331	$	5,553	$	1,778	32.0	%	Total interest expense	$	9,481	$	5,606	$	3,875	69.1	%

AWR’s borrowings consist of bank debt under revolving credit facilities and long-term debt issuances at GSWC and ~~BVESI.~~BVES. Consolidated interest expense increased as compared to the same period in ~~2021~~2022 resulting primarily from an increase in total borrowing levels to support, among other things, the capital expenditures program at the regulated utilities, as well as an overall increase in average interest ~~rates.~~rates both short- and long-term. On January 13, 2023, GSWC issued $130.0 million unsecured private-placement notes consisting of: $100.0 million in aggregate notes at a coupon rate of 5.12% due January 31, 2033, and $30.0 million in aggregate notes at a coupon rate of 5.22% due January 31, 2038. In April 2022, ~~BVESI~~BVES issued $35.0 million in unsecured private-placement notes consisting of 10 and 15 year term notes with interest rates at 4.548% and 4.949%, respectively.

~~Table of Contents~~

Interest Income

For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ interest income by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):


		Three Months Ended September 30, 2022		Three Months Ended September 30, 2021		$ CHANGE		% CHANGE			Three Months Ended March 31, 2023		Three Months Ended March 31, 2022		$ CHANGE		% CHANGE
Water Services	Water Services	$	325	$	86	$	239	277.9	%	Water Services	$	1,428	$	91	$	1,337	*
Electric Services	Electric Services	119		30		89		296.7	%	Electric Services	261		(1)		262		*
Contracted Services	Contracted Services	232		219		13		5.9	%	Contracted Services	189		197		(8)		(4.1)	%
AWR (parent)	AWR (parent)	(9)		(2)		(7)		350.0	%	AWR (parent)	(14)		(4)		(10)		*
Total interest income	Total interest income	$	667	$	333	$	334	100.3	%	Total interest income	$	1,864	$	283	$	1,581	*

*not meaningful

For the three months ended ~~September 30, 2022,~~March 31, 2023, overall interest income increased by ~~$334,000~~$1.6 million as compared to the same period in ~~2021~~2022 due primarily to higher interest income earned on regulatory assets at the water segment bearing interest at the current 90-day commercial-paper rate, which have increased compared to ~~2021.~~2022’s rates, as well as an overall increase in recorded regulatory assets as a result of the proposed decision in the water general rate case received in April 2023.

Other Income and (Expense), net

For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ other income and (expense), net by business segment, consisted of the following (dollar amounts in thousands):


		Three Months Ended September 30, 2022		Three Months Ended September 30, 2021		$ CHANGE		% CHANGE			Three Months Ended March 31, 2023		Three Months Ended March 31, 2022		$ CHANGE		% CHANGE
Water Services	Water Services	$	(70)	$	429	$	(499)	(116.3)	%	Water Services	$	1,628	$	(598)	$	2,226	*
Electric Services	Electric Services	112		68		44		64.7	%	Electric Services	13		143		(130)		(90.9)	%
Contracted Services	Contracted Services	38		(30)		68		(226.7)	%	Contracted Services	(30)		36		(66)		*
AWR (parent)		258		—		258		N/A

Total other income and (expense), net	Total other income and (expense), net	$	338	$	467	$	(129)	(27.6)	%	Total other income and (expense), net	$	1,611	$	(419)	$	2,030	*

* not meaningful

For the three months ended ~~September 30, 2022,~~March 31, 2023, other income (net of other expense) ~~decreased~~increased mostly as a result of ~~losses incurred~~gains of $1.6 million recorded on investments held to fund one of the Company’s retirement plans, as compared to ~~gains~~losses of $1.7 million generated during the same period in ~~2021,~~2022, both due to financial market conditions. This was partially offset by ~~a decrease~~an increase in the non-service cost components of net periodic benefit costs related to the ~~Company's~~Company’s defined-benefit pension plan and other retirement ~~benefits resulting from lower actuarial losses recognized during the third quarter of 2022 as compared to the same period in 2021.~~benefits. However, as a result of GSWC’s and ~~BVESI’s~~BVES’s two-way pension balancing accounts authorized by the CPUC, changes in total net periodic benefit costs related to the pension plan have no material impact to earnings.

Table of Contents

Income Tax Expense

For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ income tax expense by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):


		Three Months Ended September 30, 2022		Three Months Ended September 30, 2021		$ CHANGE		% CHANGE			Three Months Ended March 31, 2023		Three Months Ended March 31, 2022		$ CHANGE		% CHANGE
Water Services	Water Services	$	6,831	$	7,993	$	(1,162)	(14.5)	%	Water Services	$	8,910	$	2,689	$	6,221	231.3	%
Electric Services	Electric Services	478		537		(59)		(11.0)	%	Electric Services	701		952		(251)		(26.4)	%
Contracted Services	Contracted Services	1,347		1,265		82		6.5	%	Contracted Services	1,685		944		741		78.5	%
AWR (parent)	AWR (parent)	(296)		83		(379)		(456.6)	%	AWR (parent)	(544)		(124)		(420)		338.7	%
Total income tax expense	Total income tax expense	$	8,360	$	9,878	$	(1,518)	(15.4)	%	Total income tax expense	$	10,752	$	4,461	$	6,291	141.0	%

Consolidated income tax expense for the three months ended ~~September 30, 2022 decreased~~March 31, 2023 increased by ~~$1.5~~$6.3 million primarily due to ~~a decrease~~an increase in pretax income as compared to the same period in ~~2021, as well as~~2022, partially offset by a decrease in the consolidated effective income tax rate (“ETR”). AWR’s ETR was ~~24.6%~~23.8% and ~~26.0%~~24.0% for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. GSWC’s ETR was ~~25.5%~~24.5% and ~~26.0%~~23.9% for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. ~~The decrease in~~ GSWC’s ~~ETR~~income tax expense was ~~primarily due to~~affected by net changes in certain ~~flow-through~~flowed-through and permanent items. The increase in the tax benefit recorded at AWR (parent) during the three months ended ~~September 30,~~March 31, 2023 compared to the same period in 2022 was primarily due to ~~changes in state unitary taxes, as well as~~ an increase in pretax loss at AWR (parent) resulting from higher interest ~~expense.~~

~~For a comparison of the financial results for the third quarter of 2021 to 2020, see “Consolidated Results of Operations-Three Months Ended September 30, 2021 and September 30, 2020” in Registrant’s Form 10-Q for the period ended September 30, 2021 filed with the SEC.~~

~~Table of Contents~~

~~Consolidated Results of Operations — Nine Months Ended September 30, 2022 and 2021 (amounts in thousands, except per share amounts)~~:

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 $
CHANGE %
CHANGE
OPERATING REVENUES
Water $ 265,561 $ 269,430 $ (3,869) (1.4) %
Electric 29,028 28,211 817 2.9 %
Contracted services 71,572 84,588 (13,016) (15.4) %
Total operating revenues 366,161 382,229 (16,068) (4.2) %
OPERATING EXPENSES
Water purchased 58,115 60,248 (2,133) (3.5) %
Power purchased for pumping 9,182 8,590 592 6.9 %
Groundwater production assessment 14,726 14,845 (119) (0.8) %
Power purchased for resale 9,186 8,203 983 12.0 %
Supply cost balancing accounts (6,160) (7,959) 1,799 (22.6) %
Other operation 28,028 26,165 1,863 7.1 %
Administrative and general 65,030 62,938 2,092 3.3 %
Depreciation and amortization 30,402 29,156 1,246 4.3 %
Maintenance 10,120 8,908 1,212 13.6 %
Property and other taxes 17,247 17,265 (18) (0.1) %
ASUS construction 31,263 42,910 (11,647) (27.1) %
Total operating expenses 267,139 271,269 (4,130) (1.5) %
OPERATING INCOME 99,022 110,960 (11,938) (10.8) %
OTHER INCOME AND EXPENSES
Interest expense (19,246) (17,843) (1,403) 7.9 %
Interest income 1,387 1,136 251 22.1 %
Other, net (2,370) 2,998 (5,368) (179.1) %
(20,229) (13,709) (6,520) 47.6 %
INCOME BEFORE INCOME TAX EXPENSE 78,793 97,251 (18,458) (19.0) %
Income tax expense 19,026 23,254 (4,228) (18.2) %
NET INCOME $ 59,767 $ 73,997 $ (14,230) (19.2) %
Basic earnings per Common Share $ 1.61 $ 2.00 $ (0.39) (19.5) %
Fully diluted earnings per Common Share $ 1.61 $ 2.00 $ (0.39) (19.5) %

~~Table of Contents~~

~~Operating Revenues:~~

~~General~~

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

~~Water~~

Due to the delay in the CPUC issuing a final decision on the water general rate case, billed water revenues for the first nine months of 2022 were based on 2021 adopted rates, pending a CPUC final decision on GSWC’s general rate case application. For the nine months ended September 30, 2022, revenues from water operations decreased by $3.9 million to $265.6 million as compared to the same period in 2021 as a result of the lower cost of debt included in the pending cost of capital application. GSWC recorded a reduction to water revenues of $5.0 million to reflect management's best estimate at this time of revenues subject to refund from the pending cost of capital proceeding, which includes the impact of GSWC’s lower cost of debt requested in its application. This decrease was partially offset by an increase in revenues from advice letter projects that became effective February 15, 2022,expense, as well as ~~mid-year increases implemented in July 2021 to reflect higher water supply costs.~~

Billed water consumption for the first nine months of 2022 was lower by 5.6% as compared to the same period in 2021. Currently, changes in consumption generally do not have a significant impact on recorded revenues due to the CPUC-approved WRAM that is in place in all but one small rate-making area. GSWC records the difference between what it bills its water customers and that which is authorized by the CPUC in the WRAM accounts as regulatory assets or liabilities.

~~Electric~~

Electric revenues for the nine months ended September 30, 2022 increased by $817,000 to $29.0 million as a result of new CPUC-approved electric rates effective January 1, 2022. There was a minimal change in electric usage as compared to the same period in 2021. 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~~

Revenues from contracted services are composed of construction revenues (including renewal and replacements) and management fees for operating and maintaining the water and/or wastewater systems at various military bases. For the nine months ended September 30, 2022, revenues from contracted services decreased $13.0 million to $71.6 millionas compared to $84.6 million for the same period in 2021. The decrease was due to lower construction activity resulting, in part, from timing differences of when such work was performed as compared to the same period of 2021, as well as a slowdown primarily caused by longer materials supply-chain lead-times, weather conditions, and other delays. This decrease was partially offset by increases in management fees due to the successful resolution of various economic price adjustments.

~~Operating Expenses:~~

~~Supply Costs~~

Total supply costs at the regulated utilities comprise the largest segment of total consolidated operating expenses. Supply costs accounted for approximately 31.8% and 30.9% of total operating expenses for the nine months ended September 30, 2022 and 2021, respectively.

~~Water segment supply costs~~

Two of the principal factors affecting water supply costs are the amount of water produced and the source of the water. Generally, the variable cost of producing water from wells is less than the cost of water purchased from wholesale suppliers. The overall actual percentages of purchased water for the nine months ended September 30, 2022 and 2021 were approximately ~~45%~~, as compared to the authorized adopted percentages of 35% for the nine months ended September 30, 2022 and 2021. The higher actual percentage of purchased water as compared to the adopted percentage resulted from a higher volume of purchased water costs due to several wells being out of service. Due to the delay in finalizing the water general rate case, which will set new rates for the years 2022 through 2024, adopted supply costs for the nine months of 2022 were based on 2021 authorized amounts, pending a final decision by the CPUC on GSWC’s general rate case application.

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~~expenses. GSWC recovers from, or refunds to, customers the amount of such variances. GSWC tracks these variances individually for each water ratemaking area.~~

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. For the nine months ended September 30, 2022 and 2021, water supply costs consisted of the following amounts (in thousands):

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 $
CHANGE %
CHANGE
Water purchased $ 58,115 $ 60,248 $ (2,133) -3.5 %
Power purchased for pumping 9,182 8,590 592 6.9 %
Groundwater production assessment 14,726 14,845 (119) -0.8 %
Water supply cost balancing accounts * (5,682) (8,445) 2,763 -32.7 %
Total water supply costs $ 76,341 $ 75,238 $ 1,103 1.5 %

* The sum of the water and electric supply-cost balancing accounts are shown on AWR’s Consolidated Statements of Income and totaled $(6,160,000) and $(7,959,000) for the nine months ended September 30, 2022 and 2021, respectively.

Purchased water costs during the nine months ended September 30, 2022 decreased to $58.1 million as compared to $60.2 million for the same period in 2021 primarily due to decreases in water consumption and production that are being driven by drought conditions and rationing, ~~partially offset by increases in wholesale water costs. The in~~crease in power purchased for pumping was due to increases in electric rates. Groundwater production assessments decreased due to a decrease in water usage, partially offset by increases in pump tax rates during the nine months ended September 30, 2022 as compared to the same period in 2021.

For the nine months ended September 30, 2022, the water supply cost balancing account had a $5.7 million under-collection as compared to a $8.4 million under-collection during the same period in 2021. The decrease in under-collection was primarily due to the effect of rate increases implemented mid-year 2021 at certain rate-making areas to specifically cover increases in supply costs experienced in these areas, thereby reducing their under-collections.

~~Electric segment supply costs~~

Supply costs for the electric segment consist primarily of purchased power for resale, the cost of natural gas used by BVESI’s generating unit, the cost of renewable energy credits and changes in the electric supply cost balancing account. ~~For the nine months ended September 30, 2022 and 2021, electric supply costs consisted of the following amounts (in thousands):~~

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 $
CHANGE %
CHANGE
Power purchased for resale $ 9,186 $ 8,203 $ 983 12.0 %
Electric supply cost balancing account * (478) 486 (964) -198.4 %
Total electric supply costs $ 8,708 $ 8,689 $ 19 0.2 %

For the nine months ended September 30, 2022, the cost of power purchased for resale to BVESI’s electric customers increased to $9.2 million as compared to $8.2 million during the same period in 2021 primarily due to higher average price per megawatt-hour. The average price per megawatt-hour, including fixed costs, increased from $72.04 for the nine months ended September 30, 2021 to $88.01 for the same period in 2022. ~~The under-collection in the electric supply cost balancing account during the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2022~~ ~~compared to an over-collection during the nine months ended September 30, 2021 was due primarily to the increase in energy prices experienced since 2021.~~

~~Other Operation~~

The primary components of other operation expenses include payroll costs, materials and supplies, chemicals and water treatment costs and outside-service costs of operating the regulated water systems, including the costs associated with water transmission and distribution, pumping, water quality, meter reading, billing, and operations of district offices and the electric system. Registrant’s contracted services operations incur many of the same types of expenses. For the nine months ended September 30, 2022 and 2021, other operation expenses by business segment consisted of the following (dollar amounts in thousands):

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Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 $
CHANGE %
CHANGE
Water Services $ 20,908 $ 19,476 $ 1,432 7.4 %
Electric Services 2,330 2,114 216 10.2 %
Contracted Services 4,790 4,575 215 4.7 %
Total other operation $ 28,028 $ 26,165 $ 1,863 7.1 %

For the nine months ended September 30, 2022, the increase in other operation expense at the water segment was due primarily to higher water treatment and chemical costs, as well as transportation costs. The increase at the electric segment was due primarily to higher operation-related outside-service costs. The increase at the contracted services segment was due primarily to higher operation-related labor, transportation and chemical costs. Transportation costs were higher due, in part, to increases in fuel costs.

~~Administrative and General~~

Administrative and general expenses include payroll costs related to administrative and general functions, all employee-related benefits, insurance expenses, outside legal and consulting fees, regulatory-utility-commission expenses, expenses associated with being a public company and general corporate expenses charged to expense accounts. For the nine months ended September 30, 2022 and 2021, administrative and general expenses by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 $
CHANGE %
CHANGE
Water Services $ 43,945 $ 41,973 $ 1,972 4.7 %
Electric Services 5,995 6,533 (538) (8.2) %
Contracted Services 15,084 14,426 658 4.6 %
AWR (parent) 6 6 — — %
Total administrative and general $ 65,030 $ 62,938 $ 2,092 3.3 %

Administrative and general expenses increased at the water segment largely due to increases in employee-related benefits, including an increase of $965,000 related to the service cost component of GSWC’s defined-benefit pension plan. As a result of GSWC’s two-way pension balancing account authorized by the CPUC, increases in pension costs are fully recovered in customer rates, thus having no material impact to earnings. There was also an increase in insurance costs, partially offset by decreases in regulatory and other outside-service costs.

Administrative and general expenses decreased at the electric segment due, in part, to a decrease of $190,000 in surcharges billed to customers for the recovery of previously incurred costs, which had a corresponding decrease in administrative and general expenses, resulting in no impact to earnings. There was also a decrease in other outside-service costs that tend to fluctuate from period to period.

~~Administrative and general expenses increased at the contracted services segment due to an increase in outside services, insurance and travel expenses.~~

~~Depreciation and Amortization~~

~~For the nine months ended September 30, 2022 and 2021, depreciation and amortization by business segment consisted of the following (dollar amounts in thousands):~~

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 $
CHANGE %
CHANGE
Water Services $ 25,573 $ 24,547 $ 1,026 4.2 %
Electric Services 2,049 1,925 124 6.4 %
Contracted Services 2,780 2,684 96 3.6 %
Total depreciation and amortization $ 30,402 $ 29,156 $ 1,246 4.3 %

~~The overall increase in depreciation and amortization expenses resulted from additions to utility plant and other fixed assets since the third quarter of 2021.~~

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~~Maintenance~~

~~For the nine months ended September 30, 2022 and 2021, maintenance expense by business segment consisted of the following (dollar amounts in thousands):~~

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 $
CHANGE %
CHANGE
Water Services $ 7,193 $ 6,236 $ 957 15.3 %
Electric Services 622 565 57 10.1 %
Contracted Services 2,305 2,107 198 9.4 %
Total maintenance $ 10,120 $ 8,908 $ 1,212 13.6 %

~~Maintenance expense increased at each of the three segments due to higher unplanned maintenance expenses incurred as compared to the same period in 2021.~~

~~Property and Other Taxes~~

~~For the nine months ended September 30, 2022 and 2021, property and other taxes by business segment consisted of the following (dollar amounts in thousands):~~

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 $
CHANGE %
CHANGE
Water Services $ 14,440 $ 14,665 $ (225) (1.5) %
Electric Services 1,351 1,090 261 23.9 %
Contracted Services 1,456 1,510 (54) (3.6) %
Total property and other taxes $ 17,247 $ 17,265 $ (18) (0.1) %

Property and other taxes decreased at the water segment primarily due to a decrease in franchise fees offset by an increase in property taxes at the electric segment resulting from an increase in capital additions and higher assessed property values.

~~ASUS Construction~~

For the nine months ended September 30, 2022, construction expenses for contracted services were $31.3 million, decreasing $11.6 million compared to the same period in 2021 primarily due to a decrease in construction activity resulting from timing differences of when such work was performed as compared to the same period of 2021, as well as a slowdown caused by longer materials supply-chain lead-times, weather conditions, and other delays.

~~Interest Expense~~

~~For the nine months ended September 30, 2022 and 2021, interest expense by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):~~

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 $
CHANGE %
CHANGE
Water Services $ 16,650 $ 16,625 $ 25 0.2 %
Electric Services 970 364 606 166.5 %
Contracted Services 371 296 75 25.3 %
AWR (parent) 1,255 558 697 124.9 %
Total interest expense $ 19,246 $ 17,843 $ 1,403 7.9 %

AWR’s borrowings consist of bank debt under revolving credit facilities and long-term debt issuances at GSWC and BVESI. Consolidated interest expense increased as compared to the same period in 2021 resulting primarily from an increase in total borrowing levels to support, among other things, the capital expenditures program at the regulated utilities. This includes BVESI’s issuance of $35.0 million in unsecured private-placement notes in April 2022 consisting of 10 and 15 year term notes with interest rates at 4.548% and 4.949%, respectively. The increase in overall borrowing levels was partially offset by a decrease in overall interest rates primarily from the early redemption in May 2021 of GSWC’s 9.56% private-placement notes in the amount of $28 million.

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~~Interest Income~~

~~For the nine months ended September 30, 2022 and 2021, interest income by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):~~

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 $
CHANGE %
CHANGE
Water Services $ 562 $ 352 $ 210 59.7 %
Electric Services 207 89 118 132.6 %
Contracted Services 635 754 (119) (15.8) %
AWR (parent) (17) (59) 42 (71.2) %
Total interest income $ 1,387 $ 1,136 $ 251 22.1 %

The overall increase in interest income was due primarily to higher interest income earned on regulatory assets at the water and electric segments bearing interest at the current 90-day commercial-paper rates which have increased since 2021, partially offset by lower interest income recognized on certain construction projects at the contracted services segment as compared to the same period in 2021.

~~Other Income and (Expense), net~~

~~For the nine months ended September 30, 2022 and 2021, other income and (expense), net by business segment, consisted of the following (dollar amounts in thousands):~~

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 $
CHANGE %
CHANGE
Water Services $ (3,070) $ 2,684 $ (5,754) (214.4) %
Electric Services 332 168 164 97.6 %
Contracted Services 110 (112) 222 (198.2) %
AWR (parent) 258 258 — — %
Total other income and (expense), net $ (2,370) $ 2,998 $ (5,368) (179.1) %

For the nine months ended September 30, 2022, other income (net of other expense) decreased mostly as a result of significant losses incurred on investments held to fund one of the Company's retirement plans, as compared to gains generated during the same period in 2021, both due to financial market conditions. This was partially offset by a decrease in the non-service cost components of net periodic benefit costs related to the Company’s defined-benefit pension plan and other retirement benefits resulting from lower actuarial losses recognized during the first nine months of 2022, as compared to the same period in 2021. However, as a result of GSWC’s and BVESI’s two-way pension balancing accounts authorized by the CPUC, changes in total net periodic benefit costs related to the pension plan have no material impact to earnings.

~~Income Tax Expense~~

~~For the nine months ended September 30, 2022 and 2021, income tax expense by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):~~

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 $
CHANGE %
CHANGE
Water Services $ 14,623 $ 17,718 $ (3,095) (17.5) %
Electric Services 1,645 1,879 (234) (12.5) %
Contracted Services 3,399 3,927 (528) (13.4) %
AWR (parent) (641) (270) (371) 137.4 %
Total income tax expense $ 19,026 $ 23,254 $ (4,228) (18.2) %

~~Consolidated income tax expense for the nine months ended September 30, 2022 decreased by~~ ~~$4.2 million~~ primarily due to a decrease in pretax income as compared to the same period in 2021, partially offset by an increase in the consolidated ETR. AWR’s ETR was 24.1% and 23.9% for the nine months ended September 30, 2022 and 2021, respectively. GSWC’s ETR was 25.2% and 24.0% for the nine months ended September 30, 2022 and 2021, respectively. The increase in GSWC’s ETR was primarily due to net changes in certain flow-through and permanent items. The increase in AWR (parent)’s tax benefit was primarily due to an increase in pretax loss resulting from higher interest expense and changes in state unitary taxes.

For a comparison of the financial results for the first ~~nine months~~quarter of ~~2021~~2022 to ~~2020,~~2021, see “Consolidated Results of ~~Operations-Nine~~Operations-Three Months Ended ~~September 30,~~March 31, 2022 and March 31, 2021 ~~and September 30, 2020~~” in Registrant’s Form 10-Q for the period ended ~~September 30, 2021~~March 31, 2022 filed with the SEC.

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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 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, ~~2021~~2022 filed with the SEC. There have been no material changes to Registrant’s critical accounting policies.

Liquidity and Capital Resources

AWR

AWR’s regulated business is capital intensive and requires considerable capital resources. A portion of these capital resources is provided by internally generated cash flows from operations. AWR anticipates that interest expense will increase in future periods due to the need for additional external capital to fund construction programs at its regulated utilities and as market interest rates increase. In addition, as the capital investment program continues to increase, coupled with the elimination of bonus depreciation for regulated utilities due to tax reform enacted in 2017, AWR and its subsidiaries anticipate they will need to access external financing more often. AWR believes that costs associated with capital used to fund construction at GSWC and ~~BVESI~~BVES will continue to be recovered through water and electric rates charged to customers.

AWR funds its operating expenses and pays dividends on its outstanding Common Shares primarily through dividends from its wholly owned subsidiaries. The ability of GSWC and ~~BVESI~~BVES to pay dividends to AWR is restricted by California law. Under these restrictions, approximately ~~$633.4~~$658.3 million was available for GSWC to pay dividends to AWR on ~~September 30, 2022.~~March 31, 2023. Approximately ~~$76.6~~$67.2 million was available for ~~BVESI~~BVES to pay dividends to AWR as of ~~September 30, 2022. ASUS's~~March 31, 2023. ASUS’s ability to pay dividends to AWR is dependent upon state laws in which each Military Utility Privatization Subsidiary operates, as well as ASUS’s ability to pay dividends under California law.

When necessary, AWR obtains funds from external sources through the capital markets and from bank borrowings. Access to external financing on reasonable terms depends on the credit ratings of AWR and GSWC and current business conditions, including that of the water utility industry in general as well as conditions in the debt or equity capital markets.

AWR currently borrows under a revolving credit facility with a current borrowing capacity of $280.0 million and provides funds to GSWC and ASUS in support of their operations through intercompany borrowing ~~agreements. AWR's~~agreements on terms that are similar to that of the credit facility. The interest rate charged to GSWC and ASUS is comparable to the interest rate AWR pays under the credit facility. AWR’s credit agreement ~~expires~~was set to expire on May 23, 2023. On May 8, 2023, the credit facility was amended to extend the maturity date by two-months to provide adequate time to put in ~~May~~place a new credit agreement. The amendment extends the maturity date of the existing credit agreement to July 23, 2023 ~~and all~~or an earlier date on which the credit agreement is either terminated or cancelled when superseded by a new agreement. All intercompany borrowing agreements will expire concurrent with the expiration of ~~AWR's~~AWR’s credit facility. AWR intends to execute new intercompany borrowing agreements with its subsidiaries consistent with a new credit facility. On April 22, 2022, AWR's credit facility was amended to increase the borrowing capacity from $200.0 million to $280.0 million. The amendment also changed the benchmark interest rate from the London Interbank Offered Rate (“LIBOR”) to the Secured Overnight Financing Rate (“SOFR”). The change in benchmark rates has not had a material impact on its financing costs. The interest rate charged to GSWC and ASUS is sufficient to cover AWR’s interest expense under the credit facility.

~~Given that AWR’s credit agreement will expire in May 2023,~~Therefore, the outstanding borrowings under the credit facility of ~~$238.5~~$175.5 million as ~~of September 30, 2022~~of March 31, 2023 have been classified as a current ~~liability~~liabilities on AWR’s Consolidated Balance Sheet, thus creating a negative working-capital condition for AWR of ~~$234.4~~ $168.0 million. Additionally, as of ~~September 30, 2022,~~March 31, 2023, the~~$112.2~~ $45.0 million of outstanding intercompany borrowings of GSWC from AWR have been classified as a current ~~liability~~liabilities on ~~GSWC’s Consolidated~~GSWC's Balance Sheet, also creating a negative working-capital condition for GSWC of $87.9 million.~~$150.3 million.~~ As of ~~November 7, 2022,~~May 10, 2023, neither AWR nor GSWC have sufficient liquidity or capital resources to repay ~~their~~its credit facility or intercompany borrowings, respectively, without either extending its existing credit facility, entering into a new credit facility, or issuing new debt or equity.

~~Management plans~~AWR is confident and believes it is probable that it will be able to ~~renew and extend AWR’s~~execute a new credit facility ~~prior~~agreement with the needed borrowing capacities required to repay its ~~expiration date,~~existing credit facility and ~~is confident,~~to run its operations given Registrant's ability to generate consistent cash flows, its A+ credit ratings, and its history in obtaining revolving credit facilities to meet its working-capital needs, that AWR will successfully renew or extend its facility or obtain a new facility with the needed borrowing capacities required to run its operations. In addition, Registrant expects to issue long-term debt through GSWC during the fourth quarter of 2022, and use the proceeds to pay off outstanding borrowings under the intercompany borrowing arrangement with AWR. AWR intends to use the proceeds to pay off portions of the outstanding borrowings under its credit facility. Management believes that execution of its plan is probable based on Registrant’s ability to generate consistent cash flows, its A+ credit ratings, its relationships with lenders, andas well as its history of successfully raising debt ~~necessary~~as recently done with GSWC’s issuance of $130 million in unsecured long-term notes on January 13, 2023. In addition, management is considering a separate credit facility for GSWC to ~~fund~~support its standalone water utility operations. Alternatively, AWR may enter into a new intercompany borrowing agreement with GSWC. Accordingly, management has concluded that Registrant will be able to

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satisfy its obligations, including those under its current credit facility, for at least the next twelve months from the issuance date of these financial statements. However, Registrant’s ability to access the capital markets or to otherwise obtain sufficient financing may be affected by future conditions and, accordingly, no assurances can be made that Registrant will be successful in implementing its ~~plan.~~financing plans.

~~BVESI~~

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BVES has a separate $35.0 million revolving credit facility without a parent guaranty ~~which was amended in December 2021 to reduce the interest rate and fees charged, as well as to extend the maturity date by a year to~~that matures on July 1, 2024. As of March 31, 2023, there were $25.0 million of outstanding borrowings under this facility. Under the terms of the credit agreement, ~~BVESI~~BVES has the option to increase the facility by an additional $15.0 million, subject to lender approval. Interest rates under this facility are currently based on LIBOR. ~~Under the terms of the December 2021 amendment, upon discontinuation of the LIBOR benchmark rate in~~Effective July 1, 2023, ~~the lender may replace LIBOR with a benchmark interest rate such as~~all new borrowings under this credit agreement will be based on SOFR. ~~BVESI~~BVES does not believe the change from LIBOR to a new benchmark rate such as SOFR will have a material impact on its financing costs. ~~The CPUC requires BVESI to completely pay off all borrowings under its revolving credit facility within a 24-month period.~~

During 2022, GSWC and BVESI continue to experience delinquent customer accounts receivable due to the lingering effects of the COVID-19 pandemic that has affected cash flows from operations and resulted in both GSWC and BVESI increasing their allowance for doubtful accounts during the nine months ended September 30, 2022. However, the moratoriums on service disconnections for nonpayment from water and electric customers have ended and service disconnections due to nonpayment have resumed, with disconnections for delinquent residential customers resuming in June 2022. Thus far, the COVID-19 pandemic has not had a material impact on ASUS’s current operations.

In June 2022, Standard and Poor’s Global Ratings (“S&P”) affirmed an A+ credit rating for both AWR and GSWC. S&P also affirmed its negative outlook for both companies. S&P’s debt ratings range from AAA (highest possible) to D (obligation is in default). In ~~November 2021,~~January 2023, Moody’s Investors Service (“Moody’s”) affirmed its A2 rating with a stable outlook for GSWC. Securities ratings are not recommendations to buy, sell or hold a security, and are subject to change or withdrawal at any time by the rating agencies. Management believes that AWR’s and GSWC’s sound capital structures and A+ credit ratings, combined with its financial discipline, will enable AWR to access the debt and equity markets. However, unpredictable financial market conditions in the future may limit its access or impact the timing of when to access the market, in which case AWR may choose to temporarily reduce its capital spending.

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. On ~~November 1, 2022, AWR's~~May 8, 2023, AWR’s Board of Directors approved a ~~fourth~~second quarter dividend of $0.3975 per share on ~~AWR's~~AWR’s Common Shares. Dividends on the Common Shares will be paid on ~~December~~June 1, ~~2022~~2023 to shareholders of record at the close of business on ~~November 15, 2022.~~May 19, 2023. AWR has paid common dividends every year since 1931, and has increased the dividends received by shareholders each calendar year for 68 consecutive years, which places it in an exclusive group of companies on the New York Stock Exchange that have achieved that result. AWR has achieved a 9.2% compound annual growth rate in its annual dividend payments from 2012 – 2022. AWR’s current policy is to achieve a compound annual growth rate in the dividend of more than 7% over the long-term.

Cash Flows from Operating Activities:

Cash flows from operating activities have generally provided sufficient cash to fund operating requirements, including a portion of construction expenditures at GSWC and ~~BVESI,~~BVES, and construction expenses at ASUS, and to pay dividends. AWR’s future cash flows from operating activities are expected to be affected by a number of factors, including utility regulation; changes in tax law; maintenance expenses; inflation; compliance with environmental, health and safety standards; production costs; customer growth; per-customer usage of water and electricity; weather and seasonality; conservation efforts; compliance with local governmental requirements, including mandatory restrictions on water use; the lingering effects of the COVID-19 pandemic on its customers’ ability to pay utility bills; and required cash contributions to pension and post-retirement plans. Future cash

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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, and any adjustments arising out of an audit or investigation by federal governmental agencies.

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

Cash flows from operating activities are primarily generated by net income, adjusted for non-cash expenses such as depreciation and amortization, and deferred income taxes. Cash generated by operations varies during the year. Net cash provided by operating activities of AWR was ~~$89.9~~$7.0 million for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 as compared to ~~$81.9~~$38.0 million for the same period in ~~2021.~~2022. During the first quarter of 2022, GSWC and ~~BVESI~~BVES received $9.5 million and $321,000, respectively, in COVID-19 relief funds from the state of California to provide assistance to customers for delinquent water and electric customer bills incurred during the pandemic. There were no relief funds received during the first quarter of 2023.

The ~~increase~~decrease in operating cash ~~flow~~flows was also due to a 17% decrease in billed water consumption, as well as the continued delay in receiving the water general rate case final decision as billed water revenues in 2022 and 2023 were based on 2021 adopted rates pending a final CPUC decision, while operating expenses continued to rise due to inflation. On April 13, 2023, GSWC received a proposed decision on its water general rate case with 2022 and 2023 rates retroactive to January 1, 2022 and 2023, respectively. A final decision by the CPUC is expected during the second quarter of 2023. Once a final decision is received, GSWC will request recovery through a surcharge of all revenues accumulated since 2022 with retroactive new rates, and will also file for the 2023 second-year rate increases. Furthermore, decreases in operating cash flows was also due to differences in the timing of ~~income tax installment~~vendor payments, ~~between the two periods, as well as~~and the timing of billing of and cash receipts for construction work at military bases. The billings (and cash receipts) for this construction work generally occur at completion of the work or in accordance with a billing schedule contractually agreed to with the U.S. government and/or other prime contractors. Thus, cash flow from ~~construction-related~~construction-

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related activities may fluctuate from period to period with such fluctuations representing timing differences of when the work is being performed and when the cash is received for payment of the work.

The ~~increases~~timing of cash receipts and disbursements related to other working capital items also affected the change in net cash ~~flows from operations discussed above were partially offset~~provided by a decrease in customer cash collections resulting from decreased water consumption brought about by drought conditions and rationing. These under-collections are being captured in the 2022 WRAM. Furthermore, the delay in the water general rate case decision has negatively affected cash flows from operating ~~activities as year-to-date billed revenues have been based on 2021’s adopted customer rates while operating expenses have continued to increase.~~activities.

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 ~~$121.7~~$49.2 million for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 as compared to ~~$106.5~~$35.0 million for the same period in ~~2021,~~2022, which is mostly related to capital expenditures at the regulated ~~utilities.~~utilities for both periods. AWR invests capital to provide essential services to its regulated customer base, while working with the CPUC to have the opportunity to earn a fair rate of return on investment. AWR’s infrastructure investment plan consists of both infrastructure renewal programs (to replace infrastructure, including those to mitigate wildfire risk) and major capital investment projects (to construct new water treatment, supply and delivery facilities). The regulated utilities may also be required from time to time to relocate existing infrastructure in order to accommodate local infrastructure improvement projects. Projected capital expenditures and other investments are subject to periodic review and revision.

For the year ~~2022,~~2023, the regulated ~~utilities'~~utilities’ company-funded capital expenditures are expected to be between ~~$145~~$140 million and $160 million, barring any delays resulting from changes in capital improvement schedules due to supply-chain ~~issues or the continued effects of the COVID-19 pandemic.~~issues.

Cash Flows from Financing Activities:

AWR’s financing activities include primarily: (i) the ~~proceeds from the issuance of Common Shares, (ii) the~~ issuance and repayment of long-term debt and notes payable to banks, and ~~(iii)~~(ii) the payment of dividends on Common Shares. In order to finance new infrastructure, GSWC also receives customer advances (net of refunds) for, and contributions in aid of, construction. Borrowings on AWR’s and ~~BVESI’s~~BVES’s credit facilities are used to fund GSWC and ~~BVESI~~BVES capital expenditures, respectively, until long-term financing is arranged. Overall debt levels are expected to increase to fund a portion of the costs of the capital expenditures that will be made by the regulated utilities.

Net cash provided by financing activities was ~~$29.1~~$38.3 million for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 as compared to ~~cash used of $5.0~~$2.2 million during the same period in ~~2021.~~2022. The increase in net cash provided by financing activities in ~~2022~~2023 was due primarily to an increase in ~~part,~~total borrowing levels necessary to support operations affected by a significant decrease in cash flows from operating activities and to support, among other things, the ~~issuance by BVESI~~capital expenditures program at the regulated utilities. In January 2023, GSWC issued $130.0 million of ~~new~~ unsecured private-placement notes ~~totaling $35.0 million. The~~and used the proceeds ~~were~~to pay down the majority of its outstanding intercompany borrowings from AWR, which in turn used the proceeds to pay down outstanding borrowings under ~~BVESI’s~~the AWR credit facility. ~~In addition, during 2021, cash was used for the early redemption of GSWC’s 9.56% private-placement notes in the amount of $28.0 million in May 2021.~~ During the ~~nine~~three months ended ~~September 30,~~March 31, 2023, AWR had net payments on its credit facilities of $77.0 million, while during the three months ended March 31, 2022, AWR had a net increase in borrowings on its credit facilities of ~~$36.0~~$16.0 million to support operations and capital expenditures. ~~During the nine months ended September 30, 2021, AWR had a net increase in borrowings on its credit facilities of $55.8 million.~~

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GSWC

GSWC funds its operating expenses, payments on its debt, dividends on its outstanding common shares, and a portion of its construction expenditures through internal sources. Internal sources of cash flow are provided primarily by retention of a portion of earnings from operating activities. Internal cash generation is influenced by factors such as weather patterns, conservation efforts, environmental regulation, litigation, changes in tax law and deferred taxes, changes in supply costs and regulatory decisions affecting GSWC’s ability to recover these supply costs, timing of rate relief, increases in maintenance expenses and capital expenditures, surcharges authorized by the CPUC to enable GSWC to recover expenses previously incurred from customers, and CPUC requirements to refund amounts previously charged to customers. Internal cash flows may also be impacted by delays in receiving payments from GSWC customers due to the lingering effects of the COVID-19 pandemic.

GSWC may, at times, utilize external sources for long-term financing, as well as obtain funds from equity investments and intercompany borrowings from its parent, AWR, to help fund a portion of its operations and construction expenditures. AWR borrows under a revolving credit facility and provides funds to GSWC in support of its operations under intercompany borrowing arrangements. On April 22, 2022, the AWR credit facility was amended to increase the borrowing capacity from $200.0 million to $280.0 million, which provided an increase in GSWC’s borrowing capacity under its intercompany borrowing agreement. All intercompany borrowing agreements expire ~~concurrent~~concurrently with the expiration of AWR’s credit facility in ~~May~~July 2023. Upon the expiration of GSWC's intercompany borrowing agreement with AWR, GSWC intends to either execute a new intercompany borrowing agreement ~~with GSWC~~ consistent with a new credit facility at AWR, or enter into its own separate credit facility. ~~Additionally, as~~As of ~~September 30, 2022, the$112.2~~March 31, 2023, GSWC had $45.0 million of outstanding under its intercompany ~~borrowings of GSWC from~~borrowing arrangement with AWR ~~have~~that has been classified as a current liability on GSWC’s ~~Consolidated~~ Balance Sheet, ~~also~~ creating a negative working-capital condition for GSWC of $~~150.3 million.~~87.9 million. As of ~~November 7, 2022,~~May 10, 2023, GSWC does not have sufficient liquidity or capital resources to repay its intercompany borrowings from AWR without either issuing new ~~debt. GSWC expects to issue~~ long-term debt, ~~during the fourth quarter~~or entering into a new short-term borrowing arrangement, which is confident it will be

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able to achieve. On January 13, 2023, GSWC issued unsecured private placement notes totaling $130.0 million. GSWC used the proceeds to pay ~~down its~~off the majority of outstanding borrowings under the intercompany ~~borrowings from~~borrowing arrangement with AWR.

In addition, GSWC receives advances and contributions from customers, home builders and real estate developers to fund construction necessary to extend service to new areas. Advances for construction are generally refundable at a rate of 2.5% in equal annual installments over 40 years. Utility plant funded by advances and contributions is excluded from rate base. GSWC amortizes contributions in aid of construction at the same composite rate of depreciation for the related property.

Cash Flows from Operating Activities:

Net cash provided by operating activities was ~~$71.3~~$10.9 million for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 as compared to ~~$73.3~~$31.3 million for the same period in ~~2021.~~The overall decrease in GSWC’s cash flows from operations was largely due to a decrease in customer cash collections resulting from decreased water consumption brought about drought conditions and rationing. These under-collections are being captured in the 2022 WRAM balances. Furthermore, the delay in the water general rate case decision has negatively affected cash flows from operating activities as year-to-date billed revenues have been based on 2021’s adopted customer rates while operating expenses have continued to increase. These decreases were partially offset by state relief funds. 2022. During the first quarter of 2022, GSWC received $9.5 million in COVID-19 relief funds from the state of California to provide assistance to customers for delinquent water ~~customer~~ bills incurred during the pandemic. There were no relief funds received during the first quarter of 2023. The decrease in operating cash flow was also ~~partially offset~~due to a 17% decrease in billed water consumption, as well as the continued delay in receiving the final water general rate case decision as billed water revenues in 2022 and 2023 were based on 2021 adopted rates pending a final CPUC decision, while operating expenses continued to rise due to inflation. On April 13, 2023, GSWC received a proposed decision on its water general rate case with 2022 and 2023 rates retroactive to January 1, 2022 and 2023, respectively. A final decision by the CPUC is expected during the second quarter of 2023. Once a final decision is received, GSWC will request recovery through a surcharge of all revenues accumulated since 2022 with retroactive new rates, and will also file for 2023 second-year rate increases. Furthermore, decreases in operating cash flows was also due to differences in the timing of ~~income tax installment payments to AWR parent between the two periods.~~ vendor payments.

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 ~~$107.4~~$41.8 million for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 as compared to ~~$90.1~~$31.3 million for the same period in ~~2021,~~2022, which is mostly related to spending under GSWC’s infrastructure investment plans that are consistent with capital budgets authorized in its general rate cases.

AWR issued an interest-bearing promissory note to GSWC that expires in May 2023, and that allows AWR to borrow amounts up to $30 million for working-capital purposes. During the first nine months of 2021, AWR borrowed and subsequently repaid $23 million under the terms of the note. During 2022, there were no borrowings under this arrangement.

Cash Flows from Financing Activities:

Net cash provided by financing activities was ~~$36.0~~$31.4 million for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 as compared to ~~$15.8~~$4.2 million ~~net cash used~~ for the same period in ~~2021. The higher cash used for financing activities in 2021 was largely due to the early redemption~~2022. In January 2023, GSWC issued $130.0 million of ~~GSWC’s 9.56%~~unsecured private-placement notes inand also issued $10 million of equity to AWR. GSWC used the ~~amount~~proceeds from its issuance of ~~$28.0 million in May 2021. During~~private-placement notes and the ~~nine months ended September 30, 2022 , GSWC had an increase in net~~issuance of equity to pay-off all its outstanding intercompany borrowings ~~of $63.0 million~~ from ~~AWR parent to support its operations and capital expenditures. During the nine months ended September 30, 2021, GSWC had an increase in net intercompany borrowings of $45.0 million from AWR parent.~~AWR. The CPUC requires GSWC to fully ~~pay off~~pay-off all intercompany borrowings it has from AWR within a 24-month period. ~~The next 24-month period by which~~As a result, during the ~~end of~~three months ended March 31, 2023, GSWC ~~is required to have paid off its~~had net payments on intercompany borrowings of $84.0 million. During the three months ended March 31, 2022, GSWC had an increase in net intercompany borrowings of $18.0 million from AWR ~~ends in April 2023. GSWC expects to issue long-term debt during the fourth quarter of 2022 and use the proceeds to pay down its intercompany borrowings from AWR.~~parent.

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Contractual Obligations and Other Commitments

Registrant has various contractual obligations, which are recorded as liabilities in the consolidated financial statements. Other items, such as certain purchase commitments, 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.

On April 28, 2022, AWR’s electric segment issued $35 million in unsecured private-placement notes consisting of $17.5 million at a coupon rate of 4.548% due April 28, 2032, and $17.5 million at a coupon rate of 4.949% due April 28, 2037. Interest on these notes is payable semiannually.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations, Commitments and Off-Balance Sheet Arrangements” section of the Registrant’s Form 10-K for the year ended December 31, ~~2021~~2022 filed with the SEC for a detailed discussion of contractual obligations and other commitments.

Contracted Services

Under the terms of ~~the current and future~~ utility privatization contracts with the U.S. government, each ~~contract's~~contract’s price is subject to an economic price adjustment (“EPA”) on an annual basis. In the event that ASUS (i) is managing more assets at specific military bases than were included in the U.S. government’s request for proposal, (ii) is managing assets that are in substandard condition as compared to what was disclosed in the request for proposal, (iii) prudently incurs costs not contemplated under the terms of the utility privatization contract, and/or (iv) becomes subject to new regulatory requirements, such as more stringent water-quality standards, ASUS is permitted to file, and has filed, requests for equitable adjustment (“REAs”). The timely filing for and receipt of EPAs and/or REAs continues to be critical in order for the Military Utility Privatization Subsidiaries to recover increasing costs of operating, maintaining, 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~~During sequestration or automatic spending cuts, ~~known as “sequestration,” have impacted~~ the ~~expected levels of Department of Defense budgeting. The~~ Military Utility Privatization Subsidiaries ~~have~~did not ~~experienced~~experience any earnings impact to their existing operations and maintenance and renewal and replacement services, as utility privatization contracts are an “excepted ~~service” within~~service.”With the ~~2011 Act. While the ongoing effects~~expiration of sequestration, ~~have been mitigated through the passage of various legislations,~~ similar issues including ~~the recent executive order issued on March 28, 2022 to adopt~~further sequestration pursuant to the Balanced Budget and Emergency Deficit Control Act ~~of 1985,~~ may arise as part of the fiscal uncertainty and/or future debt-ceiling limits imposed by Congress. ~~However, any~~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,~~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 Auditing Agency~~DCAA and/or the ~~Defense Contract Management Agency~~DCMA may, at the request of a contracting officer, perform audits/reviews of contractors for compliance with certain government guidance and regulations, such as the Federal Acquisition Regulations and Defense Federal Acquisition Regulation Supplements. Certain audit/review findings, such as system deficiencies for government-contract-business-system requirements, may result in delays in the resolution of filings submitted to and/or the ability to file new proposals with the U.S. government.

Regulatory Matters

An update on various regulatory matters is included in the discussion under the section titled “Overview” in this Form ~~10-Q's~~10-Q’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The discussion below focuses on other regulatory matters and developments.

Water Segment:

Recent Changes in Rates

Rates that GSWC is authorized to charge are determined by the CPUC in general rate cases. Water revenues billed to customers for the three months ended March 31, 2023 and 2022 were based on 2021 adopted rates, pending a final decision by the CPUC. GSWC has a pending general rate case that will determine new water rates for the years 2022–2024. ~~In November 2021,~~On April 13, 2023, GSWC ~~and Public Advocates filed with~~received a proposed decision from the assigned administrative law judge at the CPUC ~~a joint motion~~on GSWC's water general rate case with rates retroactive to ~~adopt a~~January 1, 2022. Among other items, the proposed decision approves and adopts in its entirety the settlement agreement between GSWC and Public Advocates ~~on this~~in November 2021 that had been filed with the CPUC, and resolves all issues related to the 2022 annual revenue requirement in the general rate case application. ~~Pending a final decision on this general rate case, GSWC filed with the CPUC~~The settlement agreement also allows for ~~interim rates, which will make the new 2022 rates, once approved~~additional increases in ~~a CPUC final decision, effective January 1, 2022. Due~~adopted revenues for 2023 and 2024 subject to an earnings test and changes to the ~~delay~~forecasted inflationary index values. As a result of receiving a proposed decision that approves the settlement agreement in ~~finalizing~~ its entirety, the ~~water general~~impact of retroactive new rates for the full year of 2022 and the estimated second-year rate ~~case, water revenues billed and recorded during~~increases for the ~~nine~~three months ended ~~September 30, 2022 were based on 2021 adopted rates, pending a final decision by~~March 31, 2023 have been reflected in the ~~CPUC on this general rate case application. When approved, the new rates~~2023 first quarter results.

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GSWC expects to receive a final decision during the second quarter of 2023. Once a final decision is issued, GSWC will request recovery of the cumulative amounts related to 2022 rate increases through a surcharge. Actual increases for 2023 will be ~~retroactive~~determined when the filings to ~~January 1, 2022 and cumulative adjustments will be recorded in the quarter in which~~implement the new ~~rates~~rate increases are approved by the ~~CPUC.~~CPUC, and will be calculated using the inflationary index values at that time. GSWC will file for the 2023 increases once the CPUC approves the final decision.

Among other things, the settlement authorizes GSWC to complete certain advice letter capital projects approved in the last general rate case, which have been completed for a total capital investment of $9.4 million. The additional annual revenue requirements generated from these capital investments total $1.2 million and became effective February 15, 2022.

~~Pending~~ Cost of Capital Proceeding

GSWC also has a pending cost of capital proceeding that will determine a new return on rate base for the years 2022 – 2024. On May 9, 2023, GSWC received a proposed decision from the assigned administrative law judge at the CPUC on the cost of capital proceeding. Among other things, the proposed decision (i) adopts GSWC’s requested capital structure and cost of debt filed in the application; (ii) adopts a return on equity of 8.85% for GSWC as compared to 8.9% previously authorized; (iii) allows for the continuation of the Water Cost of Capital Mechanism (“WCCM”); and (iv) adopts the new cost of capital for the three-year period commencing January 1, 2022, through December 31, 2024. Comments on the proposed decision are due on May 30. In March 2023, the CPUC issued a decision that approved an extension of the statutory deadline for a final decision in the cost of capital proceeding to August 10, 2023.

While this proceeding is pending, the previously authorized return, which includes a cost of debt of 6.6%, has been and is presently being billed to water customers during 2022 and 2023 until a final decision is issued in this proceeding. ~~However, based~~In the pending cost of capital proceeding, GSWC requested an updated cost of debt of 5.1%, which is being adopted in the proposed decision. Based on management's analysis of this regulatory proceeding and the associated accounting ~~to date, for the three~~in 2022 and ~~nine months ended September 30, 2022,~~through March 31, 2023, GSWC has reduced revenues ~~by $1.9 million and $5.0 million, respectively,~~ and recorded a corresponding regulatory liability for revenues subject to refund based on its best estimate at this time, which includes the impact of GSWC’s lower cost of debt ~~requested~~adopted in ~~its application.~~the proposed decision. For the three months ended March 31, 2023 and 2022, GSWC reduced revenues by $1.8 million and $1.4 million, respectively, that are subject to refund. An additional reduction to revenues of $1.1 million was recorded during the first quarter of 2023 to reflect the incremental impact of revenues subject to refund from the new 2022 rates recorded as a result of the proposed water general rate case decision. As of March 31, 2023, GSWC had an aggregated regulatory liability of $9.3 million for the estimated revenues subject to refund from the pending cost of capital proceeding. However, at this time, management cannot predict the ultimate outcome ofand any changes that may be made to the final decision in the cost of capital application, and the associated impact on 2022 and 2023 revenues. Changes in estimates will be made, if necessary, as more information in this proceeding becomes available.

InFurthermore, the ~~pending cost of capital proceeding, GSWC requested authorization to continue~~proposed decision continues the ~~Water Cost of Capital Mechanism (“WCCM”). The~~ WCCM for the years 2023 and 2024, which adjusts the return on equity and rate of return on rate base between the three-year cost of capital proceedings only if there is a positive or negative change of more than 100 basis points in the average of the Moody’s Aa utility bond rate as measured over the period October 1 through September 30. If there is a positive or negative change of more than 100 basis points, the return on equity is adjusted by one half of the difference. For the period from October 1, 2021 through September 30, 2022, the Moody’s rate increased by ~~more than 100~~103 basis points from the benchmark, which ~~triggered~~triggers the WCCM adjustment. ~~The WCCM~~GSWC recognized revenues for the first quarter of 2023 and all of 2022 based on the previously authorized return of equity of 8.9% that is ~~expected~~presently being billed to ~~be addressed by the CPUC~~water customers pending a final decision in the ~~pending proposed decision.~~cost of capital proceeding.

Electric Segment:

Recent Changes in Rates

~~In August 2019, the CPUC issued a final decision on the electric segment’s general rate case which, among other things, increases adopted revenues by $1.0 million for 2022.~~ On August 30, 2022, ~~BVESI~~BVES filed a new general rate case application with the CPUC to determine new rates for the years 2023–2026. On December 15, 2022, the CPUC approved a decision for BVES to establish a general rate case memorandum account that makes the new 2023 ~~– 2026. BVESI~~rates effective and retroactive to January 1, 2023. Based on the established schedule in this proceeding, a proposed decision is expected ~~to file a motion~~ in the fourth quarter of ~~2022 to request interim rates, which will make new 2023 rates, once approved in a CPUC final decision, effective January 1,~~ 2023.

Vegetation Management, Wildfire Mitigation Plans and Legislation

The CPUC adopted regulations intended to enhance the fire safety of overhead electric power lines. Those regulations included increased minimum clearances around electric power lines. BVES was authorized to track incremental costs incurred to implement the regulations in a fire hazard prevention memorandum account for the purpose of obtaining cost recovery in a future general rate case. The August 2019 final decision also authorized ~~BVESI~~BVES to record incremental costs related to vegetation management, such as costs for increased minimum clearances around electric power lines, in athe CPUC-approved memorandum account for future recovery. As of ~~September 30, 2022, BVESI~~March 31, 2023, BVES had approximately ~~$7.9~~$9.3 million in incremental vegetation management costs recorded as a regulatory asset. As part of its general rate case application filing with the CPUC in August 2022, ~~BVESI~~BVES requested recovery of the costs accumulated in this memorandum ~~account.~~account, which will be subject to CPUC review.

California legislation enacted in September 2018 requires all investor-owned electric utilities to have a wildfire mitigation plan (“WMP”) approved by the Office of Energy Infrastructure Safety (“OEIS”) and ratified by the CPUC. The WMP must include a utility’s plans on constructing, maintaining, and operating its electrical lines and equipment to minimize the risk of catastrophic wildfire. ~~In September 2021, the CPUC ratified BVESI’s current WMP. BVESI~~BVES submitted an update to its WMP in May 2022 to OEIS for approval prior to going to the

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CPUC for ratification. In ~~October~~December 2022, OEIS issued a ~~draft~~final decision of approval to ~~BVESI~~BVES for its 2022 WMP update. In February 2023, the CPUC ratified BVES’s current WMP. As of ~~September 30, 2022,~~March 31, 2023, ~~BVESI~~BVES has approximately ~~$4.0~~$4.8 million related to expenses accumulated in its WMP memorandum accounts that have been recognized as regulatory assets for future recovery. All capital expenditures and other costs incurred through ~~September 30, 2022~~March 31, 2023 as a result of ~~BVESI's~~BVES’s WMPs are not currently in rates and have been filed for future recovery in ~~BVESI’s~~BVES’s general rate case application in August ~~2022.~~2022, which will be subject to CPUC review.

Additionally, the governor of California approved Assembly Bill (“AB”) 1054 in July 2019 that, among other things, changed the burden of proof applicable in CPUC proceedings in which an electric utility with a valid safety certification seeks to recover wildfire costs. Previously, an electric utility seeking to recover costs had the burden to prove that it acted reasonably. Under AB 1054, if an electric utility has a valid safety certification, it will be presumed to have acted reasonably unless a party to the relevant proceeding creates a “serious doubt” as to the reasonableness of the utility’s conduct. In September 2021, OEIS under the California Natural Resources Agency approved ~~BVESI’s~~BVES’s latest safety certification filing ~~which is valid until BVESI~~’~~s pending safety certification is approved or disapproved.~~. In ~~September~~December 2022, ~~BVESI filed with~~ OEIS ~~its request for~~issued a renewal of its safety ~~certification.~~certification to BVES.

2023 Winter Storm Other Regulatory Asset

BVES activated a catastrophic emergency memorandum account (“CEMA”) to track the incremental costs incurred in

response to a severe winter storm that occurred during the first quarter of 2023, which resulted in the declaration of an emergency by the governor of California. Incremental costs of approximately $810,000 were incurred and included in the CEMA account, which has been recorded as a regulatory asset as of March 31, 2023 for future recovery. The incremental costs included in the CEMA account will be subject to review and approval by the CPUC. CEMA accounts are well-established cost recovery mechanisms authorized as a result of a state/federal declared emergency, and are therefore recognized as regulatory assets for future recovery. As a result, the amounts recorded in this CEMA account did not impact BVES’s earnings.

See also “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, ~~2021~~2022 filed with the SEC for a discussion of other regulatory matters.

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Environmental Matters

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

GSWC currently tests its water supplies and water systems according to, among other things, requirements listed in the Federal Safe Drinking Water Act (“SDWA”). GSWC works proactively with third parties and governmental agencies to address issues relating to known contamination threatening GSWC water sources. GSWC also incurs operating costs for testing to determine the levels, if any, of the constituents in its sources of supply, and additional expense to treat contaminants in order to meet the federal and state maximum contaminant level standards and consumer demands. GSWC expects to incur additional capital costs as well as increased operating costs to maintain or improve the quality of water delivered to its customers in light of anticipated stress on water resources associated with watershed and aquifer pollution, drought impacts, as well as to meet future water quality standards and consumer expectations. The CPUC ~~ratemaking~~rate making process provides GSWC with the opportunity to recover prudently incurred capital and operating costs in future filings associated with achieving water quality standards. Management believes that such incurred and expected future costs should be authorized for recovery by the CPUC.

Drinking Water Notification Levels and proposed Maximum Contamination Levels:

In July 2018, DDW issued drinking water notification levels for certain fluorinated organic chemicals used to make certain fabrics and other materials, and used in various industrial processes. These chemicals were also present in certain fire suppression agents. These chemicals are referred to as perfluoroalkyl substances (“PFAS”). Notification levels are health-based advisory levels established for contaminants in drinking water for which maximum contaminant levels have not been established. The U.S. EPA has also established health advisory levels for these compounds. Notification to consumers and stakeholders is required when the advisory levels or notification levels are exceeded. Assembly Bill 756, signed into law in July 2019 and effective in January 2020, requires, among other things, additional notifications by water systems when they detect levels of PFAS above response levels.

GSWC is in the process of collecting and analyzing samples for PFAS under the direction of DDW. GSWC has removed some wells from service, installed treatment in some wells and expects to incur additional costs to treat impacted wells. GSWC has provided customers with information regarding PFAS detection, and provided updated information via its website. ~~In February 2020,~~

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To date, DDW has established new response levels for two of the PFAS compounds: 10 parts per trillion (“ppt”) for perfluorooctanoic acid (“PFOA”) and 40 ppt for perfluorooctanesulfonic acid (“PFOS”). In March 2021, DDW issued drinking-wateradvisory drinking water notification and response levels ~~of 0.5 parts per billion ("ppb"~~for four individual PFAS chemicals namely, perfluorooctanoic acid (“PFOA”), perfluorooctane sulfonate (“PFOS”), perfluorobutane sulfonate (“PFBS”), and ~~5 ppb, respectively, for perfluorobutane sulfonic acid~~perfluorohexane sulfonate (“~~PFBS”~~PFHxS”).

In ~~June 2022,~~March 2023, the U.S. EPA ~~issued interim updated drinking-water health advisories~~proposed maximum contaminant levels (“MCLs”) for six specific PFAS compounds in drinking water. The proposed rule addresses PFOS and PFOA as individual constituents and addresses the other four PFAS constituents as a mixture of chemicals. The proposed MCLs are 4 parts per trillion for PFOA and PFOS and ~~also issued final health advisories~~a hazard index of 1 for PFBS, PFHxS, perfluorononanoic acid (“PFNA”) and ~~other compounds known as~~ GenX chemicals. ~~Through~~

When finalized, the proposed regulation will require public water systems to monitor and treat for these ~~health advisories,~~chemicals. It will also require water systems to notify the customers and reduce the levels if it exceeds the regulatory standards. The U.S. EPA ~~has set levels at extremely low amounts, especially for PFOA~~anticipates finalizing and ~~PFOS. This potentially may have an impact on~~adopting this rule by the ~~final maximum contaminant levels (“MCL”) that~~end of 2023. Once the ~~U.S. EPA may require in~~rule is finalized, water systems will be required to comply with the ~~near future. Lower MCL levels~~MCLs after a specified implementation period, which is currently anticipated to be three years from the rule-adoption date. These proposed MCLs, once finalized, are expected to increase ~~GSWC's~~GSWC’s water treatment and other operating costs.

Lead and Copper Rule Revisions:

On December 16, 2021, the U.S. EPA announced the ~~Lead~~lead and ~~Copper Rule Revisions~~copper rule revisions under an executive order with a compliance date of October 16, 2024. Additionally, the U.S. EPA announced its intention to develop a new proposed rule, the Lead and Copper Rule Improvements (“LCRI”) that will further strengthen the regulatory framework prior to the October 2024 compliance date. There are still many unknowns regarding the implementation of the rule. The details of the requirements will be better understood over the next year once the LCRI is published and a final rule is approved.

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, ~~2021~~2022 filed with the SEC for a discussion of environmental matters applicable to AWR and its subsidiaries.

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Water Supply

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—California Drought” section of the Registrant’s Form 10-K for the year-ended December 31, ~~2021~~2022 filed with the SEC for a discussion of water supply issues. The discussion below focuses on significant matters and changes since December 31, ~~2021.~~2022.

Drought Impact:

In May 2018, the California Legislature passed two bills that provide a framework for long-term water-use efficiency standards and drought planning and resiliency. The initial steps in implementation of this legislation have been laid out in a summary document by the California Department of Water Resources (“DWR”) and State Water Resources Control Board (“SWRCB”). ~~Over the next several years, State agencies, water suppliers and other entities will be working to meet the requirements and timelines 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. Legislation signed by the Governor into law in September 2022 has set more stringent indoor standard targets than initially set forth in the 2018 legislation.The indoor standard will now be set at 47 gpcd in 2025 and then reduced to 42 gpcd in 2030 (previously had been set at 52.5 gpcd and 50 gpcd, respectively). The SWRCB will begin a formal rulemaking process in the next several months and consider adoption of a final regulation for overall conservation standards by the end of this year that will include the indoor standard as well as outdoor use standards.

~~California's recent period~~California started the 2023 water year, beginning on October 1, 2022, as a potentially fourth driest consecutive year of ~~multi-year drought has resulted in reduced recharge~~drought. However, a series of nine atmospheric storm events between January and March 2023 have delivered a promising outlook to the state’s groundwater basins. GSWC utilizes groundwater from numerous groundwater basins throughout the state. Several of these basins, especially smaller basins, experienced lower groundwater levels because of the drought. Several of GSWC’s service areas rely on groundwater as their only source of supply. Given the critical nature of the groundwater levels in California’s Central Coast area, GSWC implemented mandatory water restrictions in certain service areas in accordance with CPUC procedures. In the event of waterState’s supply ~~shortages from the locally available supply, GSWC would need to transport additional water from other areas, increasing the cost of water supply.~~

conditions. As of ~~November 1, 2022,~~May 2, 2023, the U.S. Drought Monitor reported that ~~43%~~none of California was in “Extreme Drought” as compared to ~~83%~~41% one year ago, and ~~92%~~none of California ~~was~~is in “Severe Drought” as compared to ~~94% a~~33% just three months ago and 95% one year ago. ~~California~~On April 27, 2023, the DWR reported that the statewide snowpack is ~~potentially entering into a fourth year~~at 211% of ~~drought after experiencing a very dry 2022 Water Year, beginning October~~average for April 1 ~~2021 to September 30, 2022, with~~and 54 inches of snow water equivalent making this year’s snowpack one of the ~~driest January to March in 100 years and~~largest since the ~~period~~1950’s.

At the start of ~~2020 to 2022 being~~2023, DWR initially set the ~~driest 3-year period on record.~~

~~Due to the ongoing dry conditions in 2022, DWR set the~~California State Water Project (“SWP”) allocations at 5%. However, due to improved precipitation and snow levels experienced state-wide, DWR increased the SWP allocation to ~~only 5% in March 2022. In April 2022,~~75%, and as a result, the Metropolitan Water District of Southern California (“MWD”) ~~declared a water supply emergency condition for~~lifted restrictions that had impacted SWP dependent service areas of ~~their service area dependent on SWP supplies. This has impacted GSWC’s~~ Simi Valley and Claremont ~~service areas, which utilize a portion of their supply from the SWP. This action also includes a phased emergency conservation program~~ that ~~limits outdoor watering~~had been in ~~those areas to one day per week. If the necessary demand reductions are not realized, MWD will move to zero outdoor watering days any time after September 1~~st and could move to only “health and human safety” supplies of 55 gpcd later in the year should demand reduction actions not result in adequate water savings. Should dry conditions continue into the winter, initial SWP allocations for 2023 are expected to be set low onceplace since mid-2022. DWR again ~~and~~increased the SWP ~~dependent area water emergency conditions may be extended.~~allocation to 100% on April 20, 2023, which is the first time the full contracted SWP allocation has been at this level since 2006.

On March ~~28, 2022,~~15, 2023, the governor of California issued an executive order ~~calling on all urban water suppliers to reduce~~modifying the drought restrictions that were issued in March 2022. The order ended the voluntary water use ~~by 20 – 30 percent. In June 2022, GSWC moved~~requirement as well as the required stage 2 implementation of the water supply contingency plans but did not end all ~~of its~~ water ~~systems to the second stage of its water-rationing plan that limits outdoor watering to two days per week (except for the Claremont and Simi Systems, which are restricted to one day per week).~~use restrictions. GSWC will continue to work with its local suppliers to assess water supply conditions and water-use restrictions in its service areas and make appropriate adjustments as needed. In ~~2021,~~response to improving supply conditions in much of the State, GSWC has made an advice letter filing with the CPUC ~~authorized GSWC~~ to ~~track incremental drought-related costs~~move from stage 2 to stage 1 effective on May 14, 2023 in ~~a memorandum account~~all of GSWC's service areas except for ~~future recovery.~~three coastal systems that are still experiencing depressed groundwater water levels.

Prolonged drought conditions ~~also~~still exist on the Colorado River System, which is experiencing historically low reservoir levels in Lake ~~Mead.~~Mead and Lake Powell. Urgent action to reduce water demand on the lower river by 2 to 4 million acre feet annually has been requested by the US Bureau of Reclamation (the ~~"Bureau"~~“Bureau”). Under the drought contingency plan on the river, the lower basin states (except California) will experience reductions in volume deliveries in 2023. However, on-going negotiations among the basin states to reachThe Bureau prepared a ~~consensus on how to share reductions called by the Bureau~~supplemental environmental impact statement with options that may result in ~~proactive actions in 2023 by MWD.~~modifications to current agreements. This may ~~include region-wide~~result in water ~~supply allocations put in place~~delivery cuts by ~~MWD in 2023 to reduce demand on~~all of the ~~river.~~lower states including California.

Other Climate Change Matters

Climate change is one area that we focus on as we develop and execute our business strategy and financial planning, both in the short- and long-term. The risks posed by climate variability increase the need for us to plan for and address supply resiliency. Climate change has also impacted electric utilities in California increasing wildfire risks and requiring the need to develop robust wildfire mitigation plans. We address these and other climate change risks by planning, assessing, mitigating, and investing in our infrastructure for the long-term benefit of our communities. See “Item 1. Business Overview” section of Registrant’s Form 10-K for the year-ended December 31, ~~2021~~2022 filed with the SEC for a discussion of climate change planning, risks and opportunities.

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Cybersecurity Matters

The increase in cyberattacks results in a greater threat to water, wastewater and electric utility systems and thereby the safety and security of our communities. We continue to increase our investments in information technology to monitor and address these threats and attempted cyber-attacks, and to improve our posture in addressing security vulnerabilities. See “Item 1. Business Overview” section of Registrant’s Form 10-K for the year-ended December 31, ~~2021~~2022 filed with the SEC for a discussion of cybersecurity matters.

New Accounting Pronouncements

Registrant is subject to newly issued requirements as well as changes in existing requirements issued by the Financial Accounting Standards Board. There are no current accounting pronouncements that Registrant believes will significantly impact it. See Note 1 of the Unaudited Notes to Consolidated Financial ~~Statements~~.Statements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Registrant is exposed to certain market risks, including fluctuations in interest rates, commodity price risk primarily relating to changes in the market price of electricity at ~~BVESI,~~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, ~~2021~~2022 filed with the SEC.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

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

(b) Changes in Internal Controls over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended ~~September 30, 2022,~~March 31, 2023, that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

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PART II

Item 1. Legal Proceedings

Registrant is subject to ordinary routine litigation incidental to its business, some of which may include claims for compensatory and punitive damages. No legal proceedings are pending, which are believed to be material. Management believes that rate recovery, proper insurance coverage and reserves are in place to insure against, among other things, property, general liability, employment, and workers’ compensation claims incurred in the ordinary course of business. Insurance coverage may not cover certain claims involving punitive damages.

Item 1A. Risk Factors

There have been no significant changes in the risk factors disclosed in our ~~2021~~2022 Annual Report on Form 10-K filed with the SEC.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The shareholders of AWR have approved the material features of all equity compensation plans under which AWR issues equity securities. The following table provides information about repurchases of Common Shares by AWR during the ~~third~~first quarter of ~~2022:~~2023:

Period Total Number of
Shares
Purchased Average Price Paid
per Share Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs (1) Maximum Number
of Shares That May
Yet Be Purchased
under the Plans or
Programs (1)(3)
July 1 – 31, 2022 377 $ 81.76 — —
August 1 – 31, 2022 236 $ 87.97 — —
September 1 – 30, 2022 9,057 $ 84.25 — —
Total 9,670 (2) $ 84.24 —


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, 2023	296		$	93.57	—	—
February 1 – 28, 2023	227		$	94.17	—	—
March 1 – 31, 2023	8,857		$	86.05	—	—
Total	9,380	(2)	$	86.48	—

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

(2) ~~These~~ Of these amounts, 6,204 Common Shares were acquired on the open market for employees pursuant to the ~~GSWC's~~ 401(k) ~~plan and~~Plan. The remainder of the shares were 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 ~~November 1, 2022,~~May 8, 2023, AWR’s Board of Directors approved a ~~fourth~~second quarter dividend of $0.3975 per share on AWR’s Common Shares. Dividends on the Common Shares will be paid on ~~December~~June 1, ~~2022~~2023 to shareholders of record at the close of business on ~~November 15, 2022.~~May 19, 2023.

(b) There have been no material changes during the ~~third~~first quarter of ~~2022~~2023 to the procedures by which shareholders may nominate persons to the Board of Directors of AWR.

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Item 6. Exhibits
(a) The following documents are filed as Exhibits to this report:

3.1						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						Description of Common Shares incorporated by reference to Exhibit 4.3 to Registrant's Form 10-K for the year ended December 31, 2019

4.4						Description of Debt Securities incorporated by reference to Exhibit 4.4 to Registrant's Form 10-K for the year ended December 31,2021

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						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)

10.3						Water Supply Agreement dated as of June 1, 1994 between Golden State Water Company and Central Coast Water Authority incorporated herein by reference to Exhibit 10.15 of Registrant's Form 10-K with respect to the year ended December 31, 1994 (File No. 1-14431)

10.4						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)

10.5						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)

10.6						~~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~~10.6 to Registrant's Form ~~8-K filed on November 21, 2014 (File No. 1-14431)~~ 10-K for the year ended December 31, 2022 (2)

10.7						Golden State Water Company Supplemental Executive Retirement Plan, amended and restated, incorporated herein by reference to Exhibit 10.7 to Registrant’s Form 10-Q filed on May 2, 2022 (2)

10.8						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 herein to Exhibit ~~10.1~~10.8 to Registrant's ~~8-K dated April 22, 2022~~Form 10-Q for the quarter ended March 31, 2023 (1)

10.9						~~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)~~

~~10.10~~						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)

~~10.11~~10.10						Officer Relocation Policy incorporated herein by reference to Exhibit 10.5 to the Registrant's Form 8-K filed on July 31, 2009 (2)

~~10.12~~10.11						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)

~~Table of Contents~~


~~10.13~~10.12						2016 Stock Incentive Plan incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on May 19, 2016 (2)

~~10.14~~10.13						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)

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~~10.15~~10.14						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 (2)

~~10.16~~						~~Performance Incentive Plan incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on May 20, 2015 (2)~~

~~10.17~~10.15						Note Purchase Agreement dated July 8, 2020 incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed July 14, 2020

~~10.18~~						~~Separation Agreement and General Release of All Claims incorporated by reference to Exhibit 10.24 to Registrant's Form 10-K filed on February 24, 2020 (2)~~

~~10.19~~10.16						Form of 2020 Performance Award Agreement incorporated by reference to Exhibit 10.1 of Registrant's Form 8-K filed January 31, 2020 (2)

~~10.20~~10.17						Form of 2021 Performance Award Agreement incorporated by reference to Exhibit 10.1 of Registrant's Form 8-K filed February 5, 2021 (2)


~~10.21~~						~~Contract for Professional Services effective July 10, 2021 incorporated by reference from Exhibit 10.1 to Form 8-K filed on July 15, 2021 (2)~~

~~10.22~~10.18						Separation Agreement and General Release of Claims dated August 10, 2021 incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on August 13, 2021 (2)

~~10.23~~10.19						Retirement Agreement and General Release of Claims effective January 14, 2022, incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K filed on January 21, 2022 (2)

~~10.24~~10.20						Contract for Professional Services effective January 15, 2022, incorporated by reference to Exhibit 10.2 to Registrant's Form 8-K filed on January 21, 2022 (2)

~~10.25~~10.21						Form of 2022 Performance Award Agreement incorporated by reference to Exhibit 10.1 of Registrant's Form 8-K filed February 4, 2022 (2)

~~10.26~~10.22						~~2022 Short-Term Incentive Program~~Form of 2023 Performance Award Agreement incorporated by reference to Exhibit 10.1 of Registrant's Form 8-K filed February 10, 2023 (2)

10.23						Form of Indemnification Agreement for directors and officers incorporated by reference herein to Exhibit 10.24 to the Registrant's Form 10-K for the year ended December 31, 2022 (2)

10.24						Short-Term Incentive Program incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed on ~~April 1, 2022~~March 31, 2023 (2)

10.25						Form of 2023 Short-Term Incentive Program Award Agreement incorporated by reference to Exhibit 10.2 of Registrant’s Form 8-K filed on March 31, 2023 (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 - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

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)

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

~~Table of Contents~~

(1) Filed concurrently herewith

(2) Management contract or compensatory arrangement

(3) Furnished concurrently herewith

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SIGNATURE

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


									AMERICAN STATES WATER COMPANY (“AWR”):

						By:			/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 7, 2022~~May 10, 2023

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	Nine Months Ended September 30, 2021
	Common Shares			Reinvested
	Number			Earnings
	of			in the
(in thousands)	Shares	Amount		Business		Total
Balances at December 31, 2020	36,889	$	256,666	$	385,007	$	641,673
Add:
Net income				19,268		19,268
Exercise of stock options and other issuances of Common Shares	24	—				—
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)		813				813
Dividend equivalent rights on stock-based awards not paid in cash		49				49
Deduct:
Dividends on Common Shares				12,361		12,361
Dividend equivalent rights on stock-based awards not paid in cash				49		49
Balances at March 31, 2021	36,913	$	257,528	$	391,865	$	649,393

Add:
Net income				26,576		26,576
Exercise of stock options and other issuances of Common Shares	19	—				—
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)		531				531
Dividend equivalent rights on stock-based awards not paid in cash		42				42
Deduct:
Dividends on Common Shares				12,366		12,366
Dividend equivalent rights on stock-based awards not paid in cash				42		42
Balances at June 30, 2021	36,932	$	258,101	$	406,033	$	664,134

Add:
Net income				28,153		28,153
Exercise of stock options and other issuances of Common Shares	4	—				—
Stock-based compensation, net of taxes paid from shares withheld from employees related to net share settlements (Note 4)		128				128
Dividend equivalent rights on stock-based awards not paid in cash		35				35
Deduct:
Dividends on Common Shares				13,480		13,480
Dividend equivalent rights on stock-based awards not paid in cash				35		35
Balances at September 30, 2021	36,936	$	258,264	$	420,671	$	678,935


	Diluted Earnings per Share
	Nine Months Ended
	9/30/2022		9/30/2021		CHANGE
Water	$	1.17	$	1.51	$	(0.34)
Electric	0.16		0.14		0.02
Contracted services	0.29		0.35		(0.06)
AWR (Parent)	(0.01)		—		(0.01)
Consolidated diluted earnings per share, as recorded	$	1.61	$	2.00	$	(0.39)