AT YOUR
SERVICE
American States Water Company
2015 Annual Report
CONTENTS
01 Financial Highlights
03 Letter to Our Shareholders and Operations Review
10 American States Water Company and Its Subsidiaries
12 Five-Year Statistical Review
13 Form 10-K
AMERICAN STATES WATER COMPANY
American States Water Company is the parent of Golden State Water Company and
American States Utility Services, Inc. Through its utility subsidiary, Golden State
Water Company, the Company provides water service to customers located
within communities in Northern, Coastal and Southern California. The Company’s
Bear Valley Electric Service, a division of Golden State Water Company, distributes
electricity to customers in the City of Big Bear and surrounding areas in San
Bernardino County, California. Through its contracted services subsidiary, American
States Utility Services, Inc., the Company provides operations, maintenance, and
construction management services for water and wastewater systems located on
U.S. military bases. American States Water Company common stock trades on the
New York Stock Exchange under the symbol AWR.
(in thousands, except per share and per customer amounts)
2015
2014
Variance
Change
FINANCIAL HIGHLIGHTS
Income Statement Information
Total Operating Revenues
Total Operating Expenses
Operating Income
Interest Charges (Net)
Net Income from Operations
Basic Earnings per Common Share
Fully Diluted Earnings per Common Share
Dividends Declared per Common Share
Average Number of Shares Outstanding
Average Number of Diluted Shares Outstanding
Balance Sheet Information
Total Assets
Net Utility Plant
Common Shareholders’ Equity
Long-Term Debt
Total Capitalization
$
458,641
$
465,791
$
(7,150)
340,152
118,489
20,630
60,484
346,746
119,045
20,690
61,058
$
1.61
$
1.57
$
1.60
0.874
37,389
37,614
1.57
0.831
38,658
38,880
(6,594)
(556)
(60)
(574)
0.04
0.03
0.04
(1,269)
(1,266)
$ 1,348,600
$
1,378,298
$
(29,698)
1,060,794
1,003,520
465,945
325,541
791,486
506,801
325,798
832,599
57,274
(40,856)
(257)
(41,113)
-1.5%
-1.9%
-0.5%
-0.3%
-0.9%
2.5%
1.9%
5.2%
-3.3%
-3.3%
-2.2%
5.7%
-8.1%
-0.1%
-4.9%
Book Value per Common Share
$
12.76
$
13.24
$
(0.47)
-3.6%
2015 Revenues by Segment
(dollars in thousands)
Investment per Customer
72%
$328,511
Total Operating
Revenues
$458,641
20%
$94,091
8%
$36,039
2015
2014
2013
$5,600
$5,334
$5,176
Golden State Water Company - Water Utility
American States Utility Services, Inc. - Contracted Services
Golden State Water Company - Electric Utility
(Bear Valley Electric Service)
AWR | 2015 Annual Report
01
DEPENDABLE.
RELIABLE.
AND AT YOUR
SERVICE.
American States Water Company provides value
to everyone we serve. For customers, ongoing
investments in infrastructure, improvements to
operational processes, and a commitment to
customer satisfaction have produced a network
of reliable and efficient systems to deliver quality,
cost-effective services. For our shareholders, an
experienced leadership team and dedicated
employees are focused on running a disciplined
operation and growing shareholder value. Whether
you’re a customer of Golden State Water Company,
Bear Valley Electric Service or American States Utility
Services, or a shareholder—we’re at your service.
02 AWR | 2015 Annual Report
LETTER TO OUR SHAREHOLDERS
DEAR SHAREHOLDERS,
American States Water Company celebrated its 86th year in business in 2015, enjoying
sustained growth over that period. If you have been with us for any length of time, you
know that the Company was built on the foundation of delivering outstanding customer
service and improving the infrastructure at each of our business segments, and that has
never been truer than it is today. Our focus on these fundamentals has served us well over
the years. We are pleased to take this opportunity to communicate the highlights of our
performance in 2015 and our strategy going forward.
FINANCIAL RESULTS
American States Water produced another year of solid
financial performance, as we achieved a higher total return
on our common stock than an index of the eight other
publicly traded water utilities in the U.S. and the S&P 500,
and once again increased our dividend. We earned $1.60
per fully diluted share in 2015 and achieved a consolidated
return on equity for the year of 12.4%. Our consolidated
performance reflects excellent financial results by our
two first-tier subsidiaries: Golden State Water Company
(GSWC), our regulated water and electric utility, and
American States Utility Services, Inc. (ASUS), our contracted
services business.
2015 KEY DEVELOPMENTS
• Our water and electric utilities continue to invest in
maintaining and improving the reliability of our systems.
During 2015, GSWC invested $91.1 million in infrastruc-
ture—well above the $60.8 million spent in 2014. Capital
expenditures at Bear Valley Electric Service accounted
for $7.7 million of that amount, reflecting our electric
division’s work on two very large projects. The Company
reinvested nearly all of its cash from operations into
infrastructure during 2015.
• GSWC successfully implemented the mandatory water-
use reductions imposed by the California Governor’s
April 1, 2015 executive order in response to the state’s
drought. The governor initially directed a 25% reduction
in urban water use through February 2016, and this has
been extended through October 2016. We held numerous
meetings with customers to review our Staged Mandatory
Water Conservation and Rationing Plan prior to imple-
mentation, and we have provided continuous commu-
nication and conservation support throughout our service
territories. Through December 31, 2015, nearly all of our 18
water systems that are subject to the mandatory reduc-
tion requirements had met the required reductions on a
cumulative basis.
• GSWC has a culture of cost containment, and this was
further evidenced in 2015. Excluding depreciation expenses,
non-supply cost related operating expenses for 2015 were
relatively unchanged compared with 2014. Management
continues to focus on controlling its staffing levels. In fact,
total employment at GSWC has declined by approximately
8% since 2011.
• ASUS continued to play a significant role for the Company
during the year, contributing $0.32 per share, or approxi-
mately 20% of consolidated earnings and revenues, and
achieving a higher return on investment than our well-
performing regulated utilities.
• Because of our earnings growth over the past five years and
a dividend payout ratio that was lower than those of the
utilities with which we compete for capital, our board of
directors has increased the annual dividend at a compound
annual growth rate of 10.9% since 2010.
• In addition to the share repurchase program, which began
in 2014, the board approved a second stock repurchase
program in 2015, authorizing the repurchase of up to 1.2
million shares, or 3.2% of outstanding common shares.
AWR | 2015 Annual Report
03
GOLDEN STATE
WATER COMPANY
GSWC has been in business for 86 years because
we put customers first. We operate a call center
24 hours a day, 7 days per week, and 365 days per
year, while many other water providers do not.
04 AWR | 2015 Annual Report
Both programs were completed in 2015 and have enabled
the Company to reduce its consolidated equity ratio (as
a percentage of total capitalization) to a level that is more
in line on a weighted basis with appropriate capital struc-
tures for GSWC and ASUS. The Company has returned
approximately $90 million to shareholders through these
two programs.
• ASUS favorably resolved its price redeterminations at the
military bases we serve in Virginia, Maryland, and South
Carolina, resulting in contract modifications that provided a
prospective increase in operation and maintenance manage-
ment fee revenues and included retroactive amounts totaling
$3 million related to prior years. The contract modifications
also provided additional renewal and replacement funding,
which will be recognized in construction revenues when the
work is performed.
• ASUS continues to receive contract modifications from the
U.S. government for new construction projects at the military
bases we serve. During the third quarter of 2015, the U.S.
government awarded ASUS approximately $50 million for new
construction projects, the majority of which are expected to
be completed during 2016.
• During the year, Standard & Poor’s Ratings Services affirmed
its A+ ratings on American States Water and GSWC, and
Moody’s Investors Service affirmed its A2 rating on GSWC.
These are some of the highest credit ratings in the water
utility industry, and they allow us to borrow at low rates to
fund our capital and operational needs.
• In mid-2014 the water segment of GSWC filed its general
rate case to determine customer rates for 2016–2018. During
2015 the Company reached a settlement agreement with the
Office of Ratepayer Advocates of the California Public
Utilities Commission (CPUC) on many of the operating
expense items in the case, though the entire capital budget
request was litigated through the hearing process. We expect
a final decision on the case during the second quarter of
2016, with new rates retroactive to January 1, 2016. Under
the CPUC’s rate case plan, water utilities are required to
file rate applications every three years.
• GSWC took advantage of new tax regulations that resulted
in lower tax payments in 2015. The impact of implement-
ing these new regulations will be reflected as a reduction in
customer rates once a final decision is issued in the pending
general rate case for the water segment. We understand the
importance of keeping customer rates affordable and are
always looking for ways to mitigate future rate increases.
• In October, GSWC completed the acquisition of the operating
assets of Rural Water Company, and we now serve approx-
imately 960 additional customers located near the city of
Arroyo Grande in San Luis Obispo County, California.
• In November, American States Water was named one of
the top four publicly traded companies headquartered
in California for having women in leadership positions by
the UC Davis Study of California Women Business Leaders:
A Census of Women Directors and Highest-Paid Executives.
Since 2009, American States Water has annually made the
top 25 companies for the highest percentage of women leaders
among the 400 largest public companies.
WORKING TO PROVIDE ABOVE-MARKET RETURNS
TO SHAREHOLDERS OVER THE LONG TERM
Our common stock achieved a total shareholder return (TSR)
of 13.9% for 2015, higher than the S&P 500’s TSR of 1.4% for
the year. Over the past three years, the Company has achieved
a compound annual return of 23.6% compared with a 15.1%
return for the S&P 500 for this same period.
61ST CONSECUTIVE YEAR OF DIVIDEND INCREASES
2015 marked the 61st consecutive year of increases in our
annual dividend, placing us in an exclusive group of companies
on the New York Stock Exchange that have achieved that
result. Earnings from ASUS have grown significantly over the
past five years and have contributed to our recent increases in
the annual dividend. Our goal is to increase our dividend at
a compound annual growth rate of 5% or more over the long
term. Our 2015 dividend-to-earnings payout ratio was 56%,
which is below the average payout ratio for those utilities with
which we compete for capital. Given the currently low payout
ratio and earnings growth potential, we believe that American
States Water is well positioned for future dividend growth.
GOLDEN STATE WATER COMPANY:
A STRATEGY THAT WORKS
GSWC remains our flagship subsidiary, as it is responsible
for our water and electric utility operations. During 2015
it accounted for approximately 80% of American States
Water’s consolidated revenues and net income. The key
tenets of GSWC’s strategy continue to include: (i) deliver-
ing outstanding customer service; (ii) driving operational
efficiency to minimize costs to our customers; (iii) making
prudent capital additions and infrastructure investments; (iv)
maintaining a strong water supply portfolio; (v) establishing
a rate structure that provides the right customer incentives
for conservation; and (vi) purchasing goods and services
from diverse vendors.
AWR | 2015 Annual Report
05
Delivering Outstanding Customer Service GSWC has
been in business for 86 years because we put customers first.
We operate a call center 24 hours a day, 7 days per week, and
365 days per year, while many other water providers do not.
We think it is critical that when customers have a problem
with their water or electric service, they are able to contact
us at any time of day. The Company has been focusing on
improving our communication with customers, including
sending electronic newsletters, improving the GSWC website,
and providing more timely updates on capital projects and
issues of interest to our stakeholders. We do not play politics
with customer service—cutting corners and deferring
infrastructure investment and maintenance put customers,
the water supply, and water quality at risk.
We would not have our well-earned reputation for cus-
tomer service without the dedication of our employees. They
know they have a very important job to do, which is to protect the
communities we serve by delivering safe water and high-quality
customer service. We will continue our commitment to attract
and retain the talented employees needed to manage a very
complex business.
Driving Operational Efficiency to Minimize Costs to
Our Customers We continually look for ways to improve
efficiency and manage our operating expenses to mitigate
future rate increases. We understand that this is part of our
commitment to customers, and we have continually executed
plans to stabilize costs and mitigate expense volatility. For
instance, over the past few years we have redeemed long-
term notes totaling $45 million prior to their maturities, to
leverage the opportunity to borrow at lower interest rates.
We have closed out the Company’s defined benefit pension
plan to new hires and have centralized our procurement
activities to allow us to more effectively purchase materials
and services. In addition, we have reduced staff by about
8% since 2011 and continue to adjust our headcount while
balancing customer service and cost. We are committed to
continuously evaluating our processes to maximize efficiency
and are always cognizant of the importance of keeping
customer rates affordable. For example, as we developed
our current water general rate case, we were able to pass
along the cost savings to customers while continuing to
invest in our systems.
Making Prudent Capital Additions and Infrastructure
Investments It is no coincidence that our company is rarely
in the news for a water main break or water system failure
because we are proactive and take great pride in keeping our
systems reliable and running efficiently. Water is an essential
part of life, and customers expect to receive safe, uninter-
rupted service. Our capital investment program is a critical
factor in delivering consistent, high-quality service to our
customers. During 2015 the Company spent $91.1 million
of capital expenditures on its infrastructure. GSWC’s water
operations invested approximately 75% of its capital budget
in pipeline, water supply, and water quality-related projects.
Our electric division invested $7.7 million of capital expen-
ditures during the year, primarily on a distribution under-
grounding project and a substation upgrade project. GSWC
recovers its capital expenditures from customers through depre-
ciation expense and a return on its rate base. Over the past
five years, GSWC’s net utility plant has increased from $851.4
million at the end of 2010 to $1.056 billion at the end of 2015.
Maintaining a Strong Water Supply Portfolio GSWC owns
74,300 acre-feet of adjudicated groundwater rights and a
significant number of unadjudicated groundwater rights.
In addition, GSWC owns 11,300 acre-feet of surface water
rights. We remain intent on preserving the ever-increasing
value of these water rights to serve our customers. Facing
severe drought conditions in California, we continue to closely
monitor our water supplies to ensure a robust water supply
portfolio for the future.
Establishing a Rate Structure that Provides the Right
Incentives for Conservation We maintain a strong conser-
vation program to encourage customers to use less water and
electricity. With the CPUC’s encouragement, GSWC has also
implemented a tiered structure in its water and electric rates to
promote conservation. The tiered water rates were established
to meet the State of California’s goal of a 20% reduction in
water use by 2020. As part of the implementation of these tiered
rates, the CPUC authorized both the water and electric utility
business segments to establish revenue adjustment mechanisms
to decouple revenues from sales to ensure that conservation
would not compromise reliable operations and necessary capital
investments. Due to our conservation programs, the implemen-
tation of the tiered rate design, public awareness of the need for
Californians to conserve, and the mandatory usage reductions
imposed by California’s Governor, GSWC’s water sales in
2015 were approximately 32.5% lower than water sales in 2007,
the last full year before implementation of the tiered rates. As
a result, GSWC has been able to meet more of its customers’
demand from its own water sources, decreasing dependency on
expensive, purchased water.
For our electricity customers, we secured the purchase
of green energy as part of our supply portfolio. We have a
10-year agreement for renewable resources, allowing our
electric segment to meet the CPUC’s Renewables Portfolio
Standard requirements. In addition, in 2015 we increased
0606 AWR | 2015 Annual Report
BEAR VALLEY
ELECTRIC SERVICE
Our electric division, BVES, invested $7.7 million
of capital expenditures during the year, primarily
on a distribution undergrounding project and a
substation upgrade project.
AWR | 2015 Annual Report
07
AMERICAN STATES
UTILITY SERVICES
Our strategy for ASUS is to increase the size and
scope of our contracted ser vices operations
through (i) further developing opportunities on
the bases we currently ser ve and (ii) actively
pursuing bases still to be privatized.
08 AWR | 2015 Annual Report
$50 million of new construction projects from the U.S.
government in 2015, the majority of which are expected to
be completed during 2016. ASUS has also been expanding
the assets it manages on all the bases it serves, and we expect
construction activities to continue making a significant
contribution to ASUS’s earnings in 2016 and beyond.
Actively Pursuing Bases Still to be Privatized We are
also aggressively responding to solicitations from the U.S.
government on military bases where the water and waste-
water utilities are in the process of being privatized, in an
effort to increase ASUS’s footprint in the utility privatization
industry and to continue to be recognized as one of the premier
providers of water and wastewater services. We have made
several key hires in the past few years so that we are able
to respond to multiple requests for proposals from the U.S.
government in a cost-effective manner. We anticipate continued
expansion of privatizations by the U.S. government over the
next five years and expect ASUS to be successful in winning
our share of the new bases.
On behalf of everyone at American States Water Company
and its subsidiaries, we thank you for your continued trust
and support.
Sincerely,
LLOYD E. ROSS
Chairman of the Board
ROBERT J. SPROWLS
President and CEO
spending on our energy-efficiency and solar-initiative programs,
which were approved by the CPUC.
Purchasing Goods and Services from Diverse Vendors
GSWC remains committed to providing opportunities and
forming partnerships within the diverse communities we
serve. We continue to follow the guidelines established by
the CPUC to increase the inclusion of women-, minority-,
and disabled veteran-owned business enterprises (WMDVBEs)
in procurement opportunities at GSWC. We have increased
our percentage of spend with WMDVBE vendors from 7.3%
in 2004, when we started our Supplier Diversity Program, to
22.4% in 2015. This significant progress is a direct result of our
commitment to diversity at all levels of the Company.
ASUS: A GOOD YEAR AND POISED FOR GROWTH
ASUS performs operations, maintenance, and capital con-
struction activities on water and/or wastewater systems at
nine military bases under 50-year contracts with the U.S.
government. This subsidiary had another solid year in 2015,
generating operating revenues of $94.1 million and pretax
operating income of $18.1 million, and contributing $0.32
per share to consolidated earnings. ASUS provides American
States Water with opportunities to improve companywide
returns, grow the Company, diversify risk, and contribute to
funding dividends to shareholders. ASUS has also given the
Company the opportunity to proudly serve the men and women
in our nation’s military.
Our strategy for ASUS is to increase the size and scope
of our contracted services operations through (i) further
developing opportunities on the bases we currently serve and
(ii) actively pursuing bases still to be privatized.
Further Developing Opportunities on the Bases We
Currently Serve Like GSWC, ASUS is focused on providing
excellent customer service, and we continue to enhance our
relationship with the U.S. government. We are proud that we
consistently receive high marks from the U.S. government
for our customer service and adherence to the schedule for
capital construction, and that we continue to exceed our
customers’ requirements for small business utilization.
During 2015, ASUS spent $52.8 million of direct construc-
tion cost in renewing, replacing, expanding, and improving
water and wastewater infrastructure on various military
bases. Unlike GSWC, which earns a return on its infra-
structure investment, ASUS earns a profit on its construction
activities. In addition to ongoing renewal and replacement
construction projects, ASUS continues to receive contract
modifications from the U.S. government for new construction
projects at the military bases we serve. ASUS was awarded
AWR | 2015 Annual Report
09
AMERICAN STATES WATER COMPANY AND ITS SUBSIDIARIES
American States Water Company and
Golden State Water Company Headquarters
Golden State Water Company
Golden State Water Company provides water service to customers located
throughout 10 counties in Northern, Coastal, and Southern California, as
well as distributes electricity to customers in the Big Bear recreational area of
California. Our customers reside in the following areas:
Customers
16,520
5,021
2,180
3,281
2,899
14,633
13,365
Central District
Central Basin East
Central Basin West
Culver City
Southwest District
Southwest
Foothill District
Claremont
San Dimas
San Gabriel
20,146
20,241
9,673
52,458
11,168
16,120
12,419
Northern District
Arden/Rancho Cordova
Bay Point
Clearlake
Coastal District
Los Osos
Ojai
Santa Maria
Simi Valley
10 AWR | 2015 Annual Report
American States Utility Services, Inc.
Headquarters
American States Utility Services, Inc. contracts with the U.S.
government and private entities to provide operation and
maintenance and capital construction and improvements
(collectively, “services”) of potable water and waste-water
systems as identified below:
Maryland
Terrapin Utility Services, Inc. provides services to the United
States Air Force at Joint Base Andrews in Maryland.
Virginia
In Virginia, Old Dominion Utility Services, Inc. provides services to
the United States Army at Joint Base Langley Eustis and Joint
Expeditionary Base Little Creek-Fort Story along with wastewater
services at Fort Lee.
North Carolina
Old North Utility Services, Inc. provides services to the United
States Army in North Carolina at Fort Bragg, Pope Army
Airfield and Camp Mackall.
South Carolina
Palmetto State Utility Services, Inc. provides services to the
United States Army at Fort Jackson in South Carolina.
Texas/New Mexico
Fort Bliss Water Services Company provides services to the
United States Army at the Fort Bliss military installation in
El Paso, Texas. The service area also includes Dona Ana,
MacGregor, and Myers Range Camps located in New Mexico.
283,997
Total GSWC Customers
AWR | 2015 Annual Report
11
Mountain/Desert District
Victorville/Apple Valley
Barstow
Calipatria
Morongo Valley
Wrightwood
Orange County District
Los Alamitos
Placentia
Total Water Customers
Bear Valley Electric Service
2,952
9,033
1,170
969
2,745
27,610
15,548
260,151
23,846
FIVE-YEAR STATISTICAL REVIEW
(dollars in thousands, except per share and per customer amounts)
2015
2014
2013
2012
2011
Financial Information for Continuing Operations
Revenues by Segment from Continuing Operations
Water Revenues
Electric Revenues
Contracted Services Revenues
Total Operating Revenues
Net Income
Diluted Earnings per Common Share
Total Assets
Net Utility Plant
Capital Additions
Long-term Debt
Investment per Customer
$ 328,511
36,039
94,091
458,641
60,484
1.60
$
$1,348,600
1,060,794
87,323
325,541
5,600
$
$
326,672
34,387
104,732
465,791
61,058
1.57
$
$
320,131
38,409
113,537
472,077
62,686
1.61
$
$
305,898
37,033
123,977
466,908
54,148
1.41
$
$
300,450
36,275
83,188
419,913
42,010
1.11
$ 1,378,298
1,003,520
72,553
325,798
5,334
$ 1,310,183
981,477
97,379
326,079
5,176
$ 1,280,943
917,791
68,104
332,463
4,874
$ 1,238,362
896,500
80,281
340,395
4,689
Financial Information for Discontinued Operations
Water Revenues
Net Income
Diluted Earnings per Common Share
$
-
-
-
Financial Information for Consolidated Operations
Total Operating Revenues
Net Income
Diluted Earnings per Common Share
Dividends Declared per Common Share
Book Value per Common Share
$ 458,641
60,484
1.60
0.874
12.76
Operating Information for Continuing Operations
$
$
-
-
-
465,791
61,058
1.57
0.831
13.24
$
$
$
$
-
-
-
472,077
62,686
1.61
0.760
12.72
-
-
-
466,908
54,148
1.41
0.635
11.82
$
$
$3,492
3,849
0.10
423,405
45,859
1.21
0.550
10.88
Water Sold by Classification (mg)
Residential and Commercial
Industrial
Fire Service and Other
Total Water
36,972
388
3,801
41,161
43,539
434
5,121
49,094
45,308
437
5,112
50,858
44,786
422
5,189
50,397
43,220
420
4,439
48,079
Total Electric Sales (mwh)
133,665
126,850
134,129
130,784
134,216
Water Production by Source (mg)
Purchased
Pumped - Electric and Gas
Gravity and Surface
Total Supply
Customers by Classification*
Residential and Commercial
Industrial
Fire Service and Other
Total Water
Electric
Total Company
Miles of Main in Service
Number of Employees as of December 31
18,237
23,436
2,345
44,018
251,880
346
7,925
260,151
23,846
283,997
2,820
702
18,430
30,486
2,881
51,797
250,035
345
7,811
258,191
23,716
281,907
2,792
709
19,291
32,663
2,972
54,926
249,051
342
7,709
257,102
23,615
280,717
2,789
723
19,077
32,035
3,049
54,161
247,648
351
7,658
255,657
23,379
279,036
2,786
725
18,077
30,805
3,116
51,998
247,838
350
7,747
255,935
23,508
279,443
2,780
732
mg = millions of gallons mwh = mega-watt hours
* In addition, as of December 31, 2015 the Company had six contracts with the U.S. government for its contracted services business.
12 AWR | 2015 Annual Report
FORM 10-K
AWR | 2015 Annual Report
13
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(cid:95) Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended
December 31, 2015 or(cid:3)
(cid:133) Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period
from to(cid:3)
Commission
File Number
001-14431
001-12008
Registrant, State of Incorporation
Address, Zip Code and Telephone Number
American States Water Company
(Incorporated in California)
630 E. Foothill Boulevard, San Dimas, CA 91773-1212
(909) 394-3600
Golden State Water Company
(Incorporated in California)
630 E. Foothill Boulevard, San Dimas, CA 91773-1212
(909) 394-3600
Securities registered pursuant to Section 12(b) of the Act:
IRS Employer
Identification No.
95-4676679
95-1243678
Title of Each Class
American States Water Company Common Shares
Name of Each Exchange on Which Registered
New York Stock Exchange
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
American States Water Company
Golden State Water Company
Yes (cid:95) No (cid:133)
Yes (cid:133)No (cid:95)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
American States Water Company
Golden State Water Company
Yes (cid:133) No (cid:95)
Yes (cid:133) No (cid:95)
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
Golden State Water Company
Yes (cid:95) No (cid:133)
Yes (cid:95) No (cid:133)
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
Golden State Water Company
Yes (cid:95) No (cid:133)
Yes (cid:95) No (cid:133)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (cid:133)
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 (cid:95)
Golden State Water Company
Large accelerated filer (cid:133)
Smaller reporting company (cid:133)
Smaller reporting company (cid:133)
Non-accelerated filer (cid:95)
Non-accelerated filer (cid:133)
Accelerated filer (cid:133)
Accelerated filer (cid:133)
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
Golden State Water Company
Yes (cid:133) No (cid:95)
Yes (cid:133) No (cid:95)
The aggregate market value of all voting Common Shares held by non-affiliates of American States Water Company was approximately
$1,393,317,000 and $1,710,746,000 on June 30, 2015 and February 22, 2016, respectively. The closing price per Common Share of American
States Water Company on February 22, 2016, as quoted in The Wall Street Journal website, was $46.84. As of February 22, 2016, the number of
Common Shares of American States Water Company outstanding was 36,523,179. As of that same date, American States Water Company owned
all 146 outstanding Common Shares of Golden State Water Company. The aggregate market value of all voting stock held by non-affiliates of
Golden State Water Company was zero on June 30, 2015 and February 22, 2016.
Golden State Water Company meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form,
in part, with the reduced disclosure format for Golden State Water Company.
Documents Incorporated by Reference:
Portions of the Proxy Statement of American States Water Company will be subsequently filed with the Securities and Exchange Commission as
to Part III, Item Nos. 10, 11, 13 and 14 and portions of Item 12, in each case as specifically referenced herein.
AMERICAN STATES WATER COMPANY
and
GOLDEN STATE WATER COMPANY
FORM 10-K
INDEX
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosure
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operation
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 15.
Exhibits, Financial Statement Schedules
Schedule I — Condensed Financial Information of Parent and Notes
3
7
18
19
20
20
21
24
25
62
63
115
115
115
116
116
116
116
116
117
122
2
Item 1. Business
PART I
This annual report on Form 10-K is a combined report being filed by two separate Registrants, American States Water
Company (“AWR”) and Golden State Water Company (“GSWC”). References in this report to “Registrant” are to AWR and
GSWC, collectively, unless otherwise specified. GSWC makes no representations as to the information contained in this report
relating to AWR and its subsidiaries, other than GSWC.
AWR makes its periodic reports, Form 10-Q and Form 10-K, and current reports, Form 8-K, available free of charge
through its website, www.aswater.com, as soon as material is electronically filed with or furnished to the Securities and
Exchange Commission (“SEC”). Such reports are also available on the SEC’s website at www.sec.gov. AWR also makes
available free of charge its code of business conduct and ethics, its corporate governance guidelines and the charters of its
Board of Directors, Nominating and Governance Committee, Compensation Committee, and Audit and Finance Committee
through its website or by calling (800) 999-4033. AWR and GSWC have filed the certification of officers required by
Section 302 of the Sarbanes-Oxley Act as Exhibits 31.1 and 31.2 to its Form 10-K for the year ended December 31, 2015.
General
AWR is the parent company of GSWC and American States Utility Services, Inc. (“ASUS”) (and its subsidiaries (Fort
Bliss Water Services Company (“FBWS”), Terrapin Utility Services, Inc. (“TUS”), Old Dominion Utility Services, Inc.
(“ODUS”), Palmetto State Utility Services, Inc. (“PSUS”) and Old North Utility Services, Inc. (“ONUS”)). AWR was
incorporated as a California corporation in 1998 as a holding company. AWR has three reportable segments: water, electric and
contracted services. Within the segments, AWR has two principal business units, water and electric service utility operations,
conducted through GSWC, and contracted services conducted through ASUS and its subsidiaries. FBWS, TUS, ODUS, PSUS
and ONUS may be referred to herein individually as a “Military Utility Privatization Subsidiary” or collectively as the
“Military Utility Privatization Subsidiaries.”
GSWC is a public utility engaged principally in the purchase, production, distribution and sale of water in 10 counties
in the State of California. GSWC is regulated by the California Public Utilities Commission (“CPUC”). It was incorporated as
a California corporation on December 31, 1929. GSWC also distributes electricity in several San Bernardino County mountain
communities in California through its Bear Valley Electric Service (“BVES”) division.
GSWC served 260,151 water customers and 23,846 electric customers at December 31, 2015, or a total of 283,997
customers, compared with 258,191 water customers and 23,716 electric customers at December 31, 2014, or a total of 281,907
customers. GSWC’s operations exhibit seasonal trends. Although GSWC’s water utility operations have a diversified
customer base, residential and commercial customers account for the majority of GSWC’s water sales and revenues. Revenues
derived from commercial and residential water customers accounted for approximately 90% of total water revenues for the
years ended December 31, 2015, 2014 and 2013.
ASUS, through its wholly owned subsidiaries, has contracted with the U.S. government to provide water and/or
wastewater services at various military installations. ASUS operates, maintains and performs construction activities (including
renewal and replacement capital work) on water and/or wastewater systems at various United States military bases pursuant to
50-year firm, fixed-price contracts. 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 or as a result of default or nonperformance by
the subsidiary performing the contract. The contract price for each of these contracts is subject to redetermination every three
years following the initial two years of the contract or annually under an economic price adjustment. Contracts are also subject
to equitable price adjustments and modifications for changes in circumstances, changes in laws and regulations, additions to the
contract value for new construction of facilities at the military bases and changes in wages and fringe benefits to the extent
provided in the contract. AWR guarantees performance of ASUS’s military privatization contracts.
3
Pursuant to the terms of these contracts, the Military Utility Privatization Subsidiaries operate, as of the effective date
of their respective contracts, the following water and wastewater systems:
•
•
•
•
•
FBWS - water and wastewater systems at Fort Bliss located near El Paso, Texas and extending into southeastern New
Mexico effective October 1, 2004;
TUS - water and wastewater systems at Joint Base Andrews in Maryland effective February 1, 2006;
ODUS - wastewater system at Fort Lee in Virginia effective February 23, 2006 and the water and wastewater systems
at Joint-Base Langley Eustis and Joint Expeditionary Base Little Creek-Fort Story in Virginia (“TRADOC”) effective
April 3, 2006;
PSUS - water and wastewater systems at Fort Jackson in South Carolina effective February 16, 2008; and
ONUS - water and wastewater systems at Fort Bragg, Pope Army Airfield and Camp Mackall, North Carolina
effective March 1, 2008.
Certain financial information for each of AWR’s business segments - water distribution, electric distribution, and
contracted services - is set forth in Note 15 to the Notes to Consolidated Financial Statements of American States Water
Company and its subsidiaries. AWR’s water and electric distribution segments are not dependent upon a single or only a few
customers. The U.S. government is the primary customer for ASUS’s contracted services. ASUS, from time to time, performs
work at military bases for other prime contractors of the U.S. government.
The revenue from AWR’s segments is seasonal. The impact of seasonality on these AWR businesses is discussed in
more detail in Item 1A. “Risk Factors.”
Environmental matters and compliance with such laws and regulations are discussed in detail in Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operation” under the section titled
“Environmental Matters.”
Competition
The businesses of GSWC are substantially free from direct and indirect competition with other public utilities,
municipalities and other public agencies within their existing service territories. However, GSWC may be subject to eminent
domain proceedings in which governmental agencies, under state law, may acquire GSWC’s water systems if doing so is
necessary and in the public’s interest. GSWC competes with governmental agencies and other investor-owned utilities in
connection with offering service to new real estate developments on the basis of financial terms, availability of water and
ability to commence providing service on a timely basis. ASUS actively competes for business with other investor-owned
utilities, other third party providers of water and/or wastewater services and governmental entities primarily on the basis of
price and quality of service.
AWR Workforce
AWR and its subsidiaries had a total of 707 employees as of January 31, 2016. GSWC had 553 employees as of
January 31, 2016. Seventeen employees of BVES are covered by a collective bargaining agreement with the International
Brotherhood of Electrical Workers, which expires in December 2017. Prior to March 2015, sixty-three employees at one of
GSWC’s water rate-making areas were covered by a collective bargaining agreement with the Utility Workers Union of
America ("UWUA"), which expired by its own terms on August 31, 2014 and was thereafter extended on a monthly basis
through February 28, 2015. In March 2015, GSWC received objective evidence that UWUA had lost support of a majority of
the bargaining unit employees. Consequently, GSWC withdrew recognition of UWUA effective as of March 2, 2015. Thus,
other than at BVES, GSWC has no other unionized employees.
ASUS had 154 employees as of January 31, 2016. Sixteen of FBWS's employees are covered by a collective
bargaining agreement with the International Union of Operating Engineers. This agreement expires in 2017.
4
Forward-Looking Information
This Form 10-K and the documents incorporated herein contain forward-looking statements intended to qualify for the
“safe harbor” from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements
are based on current estimates, expectations and projections about future events and assumptions regarding these events and
include statements regarding management’s goals, beliefs, plans or current expectations, taking into account the information
currently available to management. Forward-looking statements are not statements of historical facts. For example, when we
use words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “may” and other words that convey
uncertainty of future events or outcomes, we are making forward-looking statements. We are not able to predict all the factors
that may affect future results. We caution you that any forward-looking statements made by us are not guarantees of future
performance and the actual results may differ materially from those in our forward-looking statements. Some of the factors that
could cause future results to differ materially from those expressed or implied by our forward-looking statements or from
historical results, include, but are not limited to:
•
the outcome of pending and future regulatory, legislative or other proceedings, investigations or audits, including
decisions in GSWC's general rate cases and the results of independent audits of GSWC's construction contracting
procurement practices or other independent audits of our costs;
•
changes in the policies and procedures of the CPUC;
•
timeliness of CPUC action on rates;
•
availability of water supplies, which may be adversely affected by the California drought, changes in weather patterns
in the West, contamination, and court decisions or other governmental actions restricting the use of water from the
Colorado River, the California State Water Project, and/or pumping of groundwater;
• our ability to efficiently manage GSWC capital expenditures and operating and maintenance expenses within CPUC
authorized levels and timely recover our costs through rates;
•
•
the impact of opposition to GSWC rate increases on our ability to recover our costs through rates;
the impact of condemnation actions on the size of our customer base;
• our ability to forecast the costs of maintaining GSWC’s aging water and electric infrastructure;
• our ability to recover increases in permitting costs and in costs associated with negotiating and complying with the
terms of our franchise agreements with cities and counties and other demands made upon us by the cities and counties
in which GSWC operates;
•
•
changes in accounting valuations and estimates, including changes resulting from our assessment of anticipated
recovery of GSWC's regulatory assets, liabilities and revenues subject to refund or regulatory disallowances;
changes in environmental laws and water and wastewater quality requirements and increases in costs associated with
complying with these laws and requirements;
• our ability to obtain adequate, reliable and cost-effective supplies of chemicals, electricity, fuel, water and other raw
materials that are needed for our water and wastewater operations;
• our ability to recover the costs associated with the contamination of GSWC’s groundwater supplies from parties
responsible for the contamination or through the ratemaking process, and the time and expense incurred by us in
obtaining recovery of such costs;
•
adequacy of our electric division's power supplies and the extent to which we can manage and respond to the volatility
of electricity and natural gas prices;
• our electric division's ability to comply with the CPUC’s renewable energy procurement requirements;
•
changes in GSWC's long-term customer demand due to changes in customer usage patterns as a result of conservation
efforts, regulatory changes affecting demand such as mandatory restrictions on water use, new landscaping or
irrigation requirements, recycling of water by customers or purchase of recycled water supplied by other parties,
5
unanticipated population growth or decline, changes in climate conditions, general economic and financial market
conditions and cost increases;
changes in accounting treatment for regulated utilities;
effects of changes in or interpretations of tax laws, rates or policies;
changes in estimates used in ASUS’s revenue recognition under the percentage of completion method of accounting
for construction activities;
termination, in whole or in part, of one or more of our military utility privatization contracts to provide water and/or
wastewater services at military bases for the convenience of the U.S. government or for default;
termination of contracts and suspension or debarment for a period of time from contracting with the government due
to violations of federal law or regulations in connection with military utility privatization activities;
•
•
•
•
•
• delays by the U.S. government in making timely payments to ASUS for water and/or wastewater services at military
bases as a result of fiscal uncertainties over the funding of the U.S. government or otherwise;
• delays in obtaining redetermination of prices or economic price or equitable adjustments to our prices on one or more
of our contracts to provide water and/or wastewater services at military bases;
• disallowance of costs on any of our contracts to provide water and/or wastewater services at military bases as a result
of audits, cost reviews or investigations by contracting agencies;
•
•
•
•
inaccurate assumptions used in preparing bids in our contracted services business;
failure of the wastewater systems that we operate on military bases resulting in untreated wastewater or contaminants
spilling into nearby properties, streams or rivers;
failure to comply with the terms of our military privatization contracts;
failure of any of our subcontractors to perform services for us in accordance with the terms of our military
privatization contracts;
•
issues with the implementation, maintenance or upgrading of our information technology systems;
• general economic conditions which may impact our ability to recover infrastructure investments and operating costs
from customers;
•
•
explosions, fires, accidents, mechanical breakdowns, the disruption of information technology and telecommunication
systems, human error and similar events that may occur while operating and maintaining water and electric systems in
California or operating and maintaining water and wastewater systems on military bases under varying geographic
conditions;
the impact of storms, earthquakes, floods, mudslides, drought, wildfires, disease and similar natural disasters, or acts
of terrorism or vandalism, that affect customer demand or that damage or disrupt facilities, operations or information
technology systems owned by us, our customers or third parties on whom we rely;
• potential costs, lost revenues, or other consequences resulting from misappropriation of assets or sensitive
information, corruption of data, or operational disruption in connection with a cyber-attack or other cyber incident;
•
restrictive covenants in our debt instruments or changes to our credit ratings on current or future debt that may
increase our financing costs or affect our ability to borrow or make payments on our debt; and
• our ability to access capital markets and other sources of credit in a timely manner on acceptable terms.
Please consider our forward-looking statements in light of these risks as you read this Form 10-K. We qualify all of
our forward-looking statements by these cautionary statements.
6
Item 1A. Risk Factors
You should carefully read the risks described below and other information in this Form 10-K in order to understand
certain of the risks of our business.
Our business is heavily regulated and, as a result, decisions by regulatory agencies and changes in laws and
regulations can significantly affect our business
GSWC's revenues depend substantially on the rates and fees it charges its customers and the ability to recover its costs
on a timely basis, including the ability to recover the costs of purchased water, groundwater assessments, electricity, natural
gas, chemicals, water treatment, security at water facilities and preventative maintenance and emergency repairs. Any delays
by the CPUC in granting rate relief to cover increased operating and capital costs at our public utilities or delays in obtaining
approval of our requests at ASUS for economic price or equitable adjustments or price redeterminations for contracted services
from the U.S. government may adversely affect our financial performance. We may file for interim rates in California in
situations where there may be delays in granting final rate relief during a general rate case proceeding. If the CPUC approves
lower rates, the CPUC will require us to refund to customers the difference between the interim rates and the rates approved by
the CPUC. Similarly, if the CPUC approves rates that are higher than the interim rates, the CPUC may authorize us to recover
the difference between the interim rates and the final rates. Interim rates may also be granted by the U.S. government should
there be delays in the price redetermination process.
Regulatory decisions may also impact prospective revenues and earnings, affect the timing of the recognition of
revenues and expenses, may overturn past decisions used in determining our revenues and expenses and could result in
impairment charges and customer refunds. Management continually evaluates the anticipated recovery of regulatory assets,
liabilities and revenues subject to refund and provides for allowances and reserves as deemed necessary. In the event that our
assessment of the probability of recovery through the ratemaking process is incorrect, we will adjust the associated regulatory
asset or liability to reflect the change in our assessment or any regulatory disallowances. A change in our evaluation of the
probability of recovery of regulatory assets or a regulatory disallowance of all or a portion of our costs could have a material
adverse effect on our financial results.
We are also, in some cases, required to estimate future expenses and, in others, we are required to incur the expense
before recovering costs. As a result, our revenues and earnings may fluctuate depending on the accuracy of our estimates, the
timing of our investments or expenses or other factors. If expenses increase significantly over a short period of time, we may
experience delays in recovery of these expenses, the inability to recover carrying costs for these expenses and increased risks of
regulatory disallowances or write-offs.
Regulatory agencies may also change their rules and policies which may adversely affect our profitability and cash
flows. Changes in policies of the U.S. government may also adversely affect one or more of our Military Utility Privatization
Subsidiaries. In certain circumstances, the U.S. government may be unwilling or unable to appropriate funds to pay costs
mandated by changes in rules and policies of federal or state regulatory agencies. The U.S. government may disagree with the
increases that we request and may delay approval of requests for equitable adjustment or redetermination of prices which could
adversely affect our anticipated rates of return.
We may also be subject to fines or penalties if a regulatory agency, including the U.S. government, determines that we
have failed to comply with laws, regulations or orders applicable to our businesses, unless we successfully appeal such an
adverse determination. Regulatory agencies may also disallow certain costs if audit findings determine that we have failed to
comply with our policies and procedures for procurement or other practices.
Our costs involved in maintaining water quality and complying with environmental regulation have increased and
are expected to continue to increase
Our capital and operating costs at GSWC can increase substantially as a result of increases in environmental regulation
arising from increases in the cost of upgrading and building new water treatment plants, disposing of residuals from our water
treatment plants, compliance-monitoring activities and securing alternative supplies when necessary. GSWC may be able to
recover these costs through the ratemaking process. We may also be able to recover these costs under settlement and
contractual arrangements.
7
We may sustain losses that exceed or are excluded from our insurance coverage or for which we are not insured
We are, from time to time, parties to legal or regulatory proceedings. These proceedings may pertain to regulatory
investigations, employment matters or other disputes. Management periodically reviews its assessment of the probable
outcome of these proceedings, the costs and expenses reasonably expected to be incurred, and the availability and extent of
insurance coverage. On the basis of this review, management establishes reserves for such matters. We may, however, from
time to time be required to pay fines, penalties or damages that exceed our insurance coverage and/or reserves if our estimate of
the probable outcome of such proceedings proves to be inaccurate.
We maintain insurance coverage as part of our overall legal and risk management strategy to minimize our potential
liabilities. However, our insurance policies contain exclusions and other limitations that may not cover our potential liabilities.
Generally, our insurance policies cover property, workers compensation, employer liability, general liability and automobile
liability. Each policy includes deductibles or self-insured retentions and policy limits for covered claims. As a result, we may
sustain losses that exceed or that are excluded from our insurance coverage or for which we are not insured.
We have experienced increased costs and difficulties in obtaining insurance coverage for wildfires that could arise
from BVES’s ordinary operations. Uninsured losses and increases in the cost of insurance may not be recoverable in customer
rates. A loss which is not insured or not fully insured or cannot be recovered in customer rates could materially affect GSWC’s
financial condition and results of operations.
Additional Risks Associated with our Public Utility Operations
Our operating costs may increase as a result of groundwater contamination
Our operations can be impacted by groundwater contamination in certain service territories. Historically, we have
taken a number of steps to address contamination, including the removal of wells from service, decreasing the amount of
groundwater pumped from wells in order to slow the movement of plumes of contaminated water, constructing water treatment
facilities and securing alternative sources of supply from other areas not affected by the contamination. In emergency
situations, we have supplied our customers with bottled water until the emergency situation has been resolved.
Our ability to recover these types of costs depends upon a variety of factors, including approval of rate increases, the
willingness of potentially responsible parties to settle litigation and otherwise address the contamination and the extent and
magnitude of the contamination. We may recover costs from certain third parties that may be responsible, or potentially
responsible, for groundwater contamination. However, we often experience delays in obtaining recovery of these costs and
incur additional costs associated with seeking recovery from responsible or potentially responsible parties which may adversely
impact our liquidity. In some events we may be unable to recover all of these costs from third parties due to the inability to
identify the potentially responsible parties, the lack of financial resources of responsible parties or the high litigation costs
associated with obtaining recovery from responsible or potentially responsible parties.
We can give no assurance regarding the adequacy of any such recovery to offset the costs associated with
contamination or the cost of recovery of any legal costs. To date, the CPUC has permitted us to establish memorandum
accounts for potential recovery of these types of costs when they arise.
Management believes that rate recovery, proper insurance coverage and reserves are in place to appropriately manage
these types of contamination issues. However, such issues, if ultimately resolved unfavorably to us, could, in the aggregate,
have a material adverse effect on our results of operations and financial condition.
The adequacy of our water supplies depends upon weather and a variety of other uncontrollable factors
The adequacy of our water supplies varies from year to year depending upon a variety of factors, including:
•
•
•
rainfall, basin replenishment, flood control, snow pack levels in California and the West, reservoir levels and
availability of reservoir storage;
availability of Colorado River water and imported water from the State Water Project;
the amount of usable water stored in reservoirs and groundwater basins;
8
•
the amount of water used by our customers and others;
• water quality;
•
•
legal limitations on production, diversion, storage, conveyance and use; and
climate change.
The extended California drought and changes in weather patterns in the West and population growth in California have
caused increased stress on surface water supplies and groundwater basins. In addition, low or no allocations of water from the
State Water Project and court-ordered pumping restrictions on water obtained from the Sacramento-San Joaquin Delta decrease
or eliminate the amount of water Metropolitan Water District of Southern California ("MWD") and other state water contractors
are able to import from northern California.
We have implemented tiered rates and other practices in order to encourage water conservation. We have also
implemented programs to assist customers in complying with mandated water usage reductions. Over the long term, we are
acting to secure additional supplies from desalination and increase use of reclaimed water, where appropriate and feasible. We
cannot predict the extent to which these efforts to reduce stress on our water supplies will be successful or sustainable, or the
extent to which these efforts will enable us to continue to satisfy all of the water needs of our customers.
Water shortages at GSWC may:
•
•
•
•
•
•
adversely affect our supply mix, for instance, by causing increased reliance upon more expensive water sources;
adversely affect our operating costs, for instance, by increasing the cost of producing water from more highly
contaminated aquifers or requiring us to transport water over longer distances, truck water to water systems or
adopt other emergency measures to enable us to continue to provide water service to our customers;
result in an increase in our capital expenditures over the long term, for example, by requiring future construction
of pipelines to connect to alternative sources of supply, new wells to replace those that are no longer in service or
are otherwise inadequate to meet the needs of our customers, and other facilities to conserve or reclaim water;
adversely affect the volume of water sold as a result of such factors as mandatory or voluntary conservation
efforts by customers, changes in customer conservation patterns, recycling of water by customers and imposition
of new regulations impacting such things as landscaping and irrigation patterns;
adversely affect aesthetic water quality if we are unable to flush our water systems as frequently due to water
shortages or drought restrictions; and
result in customer dissatisfaction and harm to our reputation if water service is reduced, interrupted or otherwise
adversely affected as a result of the California drought, water contamination or other causes.
Our liquidity may be adversely affected by changes in water supply costs
We obtain our water supplies for GSWC from a variety of sources, which vary among our water systems. Certain
systems obtain all of their supply from water that is pumped from aquifers within our service areas; some systems purchase all
of the supply from wholesale suppliers; some systems obtain the supply from treating surface water sources; and other systems
obtain the supply from a combination of wells, surface water sources or wholesale suppliers. The cost of obtaining these
supplies varies, and overall costs can be impacted as use within a system varies from time to time. As a result, our cost of
providing, distributing and treating water for our customers’ use can vary significantly.
Furthermore, imported water wholesalers, such as MWD, may not always have an adequate supply of water to sell to
us. Wholesale water suppliers may increase their prices for water delivered to us based on factors that affect their operating
costs. Purchased-water rate increases are beyond our control.
GSWC has implemented a modified supply cost balancing account ("MCBA") to track and recover costs from supply
mix changes and rate changes by wholesale suppliers, as authorized by the CPUC. However, cash flows from operations can
be significantly affected as much of the balance we recognize in the MCBA account is collected from or refunded to customers
primarily through surcharges or surcredits, respectively, generally over twelve to eighteen month periods.
9
Our liquidity and earnings may be adversely affected by maintenance costs
Some of our infrastructure in California is more than fifty years old. We have experienced leaks and mechanical
problems in some of these older systems. In addition, well and pump maintenance expenses are affected by labor and material
costs and more stringent water discharge requirements. These costs can increase substantially and unexpectedly.
We include estimated increases in maintenance costs for future years in each general rate case filed by GSWC for
possible recovery. We may not recover overages from amounts estimated in rates.
Our liquidity and earnings may be adversely affected by our conservation efforts
Our water utility business is heavily dependent upon revenue generated from rates charged to our residential customers
for the volume of water used. The rates we charge for water are regulated by the CPUC and may not be adequately adjusted to
reflect changes in demand. Declining usage also negatively impacts our long-term operating revenues if we are unable to
secure rate increases or if growth in the residential customer base does not occur to the extent necessary to offset per-customer
residential-usage decline.
Conservation by all customer classes at GSWC is a top priority. However, customer conservation will result in lower
volumes of water sold. We may experience a decline in per-residential-customer water usage due to factors such as:
conservation efforts to reduce costs;
•
• drought conditions resulting in additional water conservation;
•
• voluntary or mandatory changes in landscaping and irrigation patterns; and
•
recycling of water by our customers.
the use of more efficient household fixtures and appliances by consumers to save water;
These types of changes may result in permanent decreases in demand even if our water supplies are sufficient to meet
higher levels of demand after a drought ends. In addition, governmental restrictions on water usage during drought conditions
may result in a decreased demand for our water, even if our water reserves are sufficient to serve our customers during such
drought conditions.
We implemented a CPUC-approved water-revenue adjustment mechanism ("WRAM") at GSWC, which has the effect
of reducing the adverse impact of our customers’ conservation efforts on revenues. However, cash flows from operations can
be significantly affected as much of the balance we recognize in the WRAM account is collected from or refunded to customers
generally over a twelve, eighteen or thirty-six month period.
Our earnings may be affected by weather during different seasons
The demand for water and electricity varies by season. For instance, there can be a higher level of water consumption
during the third quarter of each year when weather in California tends to be hot and dry. During unusually wet weather, our
customers generally use less water. The CPUC-approved WRAM helps mitigate fluctuations in revenues due to changes in
water consumption by our customers in California.
The demand for electricity in our electric customer service area is greatly affected by winter snow levels. An increase
in winter snow levels reduces the use of snowmaking machines at ski resorts in the Big Bear area and, as a result, reduces our
electric revenues. Likewise, unseasonably warm weather during a skiing season may result in temperatures too high for
snowmaking conditions, which also reduces our electric revenues. GSWC has implemented a CPUC-approved base-revenue-
requirement adjustment mechanism for our electric business which helps mitigate fluctuations in the revenues of our electric
business due to changes in the amount of electricity used by GSWC’s electric customers.
Our liquidity may be adversely affected by increases in electricity and natural gas prices in California
We generally purchase most of the electric energy sold to customers in our electric customer service area from others
under purchased power contracts. In addition to purchased power contracts, we purchase additional energy from the spot
market to meet peak demand and following the expiration of purchased power contracts if there are delays in obtaining CPUC
10
authorization of new power purchase contracts. We may sell surplus power to the spot market during times of reduced energy
demand. As a result, our cash flows may be affected by increases in spot market prices of electricity purchased and decreases
in spot market prices for electricity sold. However, GSWC has implemented supply-cost balancing accounts, as approved by
the CPUC, to alleviate any fluctuation to supply costs. We also operate a natural-gas-fueled 8.4 megawatt generator in our
electric service area.
Unexpected generator downtime or a failure to perform by any of the counterparties to our electric and natural gas
purchase contracts could further increase our exposure to fluctuating natural gas and electricity prices.
Changes in electricity prices also affect the unrealized gains and losses on our block forward purchased power
contracts that qualify as derivative instruments as we adjust the asset or liability on these contracts to reflect the fair market
value of the contracts at the end of each month. The CPUC has authorized us to establish a memorandum account to track the
changes in the fair market value of our purchased power contracts. As a result, unrealized gains and losses on these types of
purchased power contracts do not impact earnings.
We may not be able to procure sufficient renewable energy resources to comply with CPUC rules
We are required to procure a portion of our electricity from renewable energy resources to meet the CPUC’s renewable
procurement requirements. We have an agreement with a third party to purchase renewable energy credits which we believe
allows us to meet these requirements through 2023. In the event that the third party fails to perform in accordance with the
terms of the agreement, we may not be able to obtain sufficient resources to meet the renewable procurement requirements. We
may be subject to fines and penalties by the CPUC if the CPUC determines that we are not in compliance with the renewable
resource procurement rules.
Our assets are subject to condemnation
Municipalities and other governmental subdivisions may, in certain circumstances, seek to acquire certain of our assets
through eminent domain proceedings. It is generally our practice to contest these proceedings, which may be costly and may
divert the attention of management from the operation of our business. If a municipality or other governmental subdivision
succeeds in acquiring our assets, there is a risk that we will not receive adequate compensation for the assets acquired or be able
to recover all charges associated with the condemnation of these assets. In addition, we would no longer be entitled to any
portion of revenue generated from the use of such assets.
Our costs of obtaining and complying with the terms of franchise agreements are increasing
Cities and counties in which GSWC operates have granted GSWC franchises to construct, maintain and use pipes and
appurtenances in public streets and rights of way. The costs of obtaining, renewing and complying with the terms of these
franchise agreements have been increasing as cities and counties attempt to regulate GSWC’s operations within the boundaries
of the city or unincorporated areas of the counties in which GSWC operates. Cities and counties have also been attempting to
impose new fees on GSWC’s operations, including pipeline abandonment fees and road-cut or other types of capital
improvement fees. At the same time, there is increasing opposition from consumer groups to rate increases that may be
necessary to compensate GSWC for the increased costs of regulation by local governments. These trends may adversely affect
GSWC’s ability to recover its costs of providing water service in rates and to efficiently manage capital expenditures and
operating and maintenance expenses within CPUC authorized levels.
The generation, transmission and distribution of electricity are dangerous and involve inherent risks of damage to
private property and injury to employees and the general public
Electricity is dangerous for employees and the general public should they come in contact with electrical current or
equipment, including through downed power lines or equipment malfunctions. Injuries and property damage caused by such
events may subject GSWC to significant liabilities that may not be covered or fully covered by insurance. Additionally, the
CPUC has delegated to its staff the authority to issue citations, which carry a fine of $50,000-per-violation per day, to electric
utilities subject to its jurisdiction for violations of safety rules found in statutes, regulations, and the General Orders of the
CPUC which could also materially affect GSWC's liquidity and results of operations.
11
We may be subject to financial losses, penalties and other liabilities if we fail to maintain safe work sites
Our safety record is critical to our reputation. We maintain health and safety standards to protect our employees,
customers, vendors and the public. Although we intend to adhere to such health and safety standards, it is unlikely that we will
be able to avoid accidents at all times.
Our business sites, including construction and maintenance sites, often put our employees and others in close
proximity with large pieces of equipment, moving vehicles, pressurized water, chemicals and other regulated materials. On
many sites we are responsible for safety and, accordingly, must implement safety procedures. If we fail to implement such
procedures or if the procedures we implement are ineffective or are not followed by our employees or others, our employees
and others may be injured or die. Unsafe work sites also have the potential to increase our operating costs. Any of the
foregoing could result in financial losses, which could have a material adverse impact on our business, financial condition, and
results of operations.
In addition, our operations can involve the handling and storage of hazardous chemicals, which, if improperly handled,
stored or disposed of, could subject us to penalties or other liabilities. We are also subject to regulations dealing with
occupational health and safety. Although we maintain functional employee groups whose primary purpose is to ensure that we
implement effective health, safety, and environmental work procedures throughout our organization, including construction
sites and maintenance sites, a failure to comply with such regulations could subject us to liability.
Additional Risks Associated with our Contracted Services
We derive revenues from contract operations primarily from the operation and maintenance of water and/or
wastewater systems at military bases and the construction of water and wastewater infrastructure on these bases (including
renewal and replacement of these systems). As a result, these operations are subject to risks that are different from those of our
public utility operations.
Our 50-year contracts for servicing military bases create certain risks that are different from our public utility
operations
We have entered into contracts to provide water and/or wastewater services at military bases pursuant to 50-year
contracts, subject to termination, in whole or in part, for the convenience of the U.S. government. In addition, the U.S.
government may stop work under the terms of one or more of the contracts, delay performance of our obligations under the
contracts or modify the contracts at its convenience.
Our contract pricing was based on a number of assumptions, including assumptions about prices and availability of
labor, equipment and materials. We may be unable to recover all costs if any of these assumptions are inaccurate or if all costs
incurred in connection with performing the work were not considered. Our contracts are also subject to periodic price
adjustments at the time of price redetermination or in connection with economic price adjustments or requests for equitable
adjustment or other changes permitted by the terms of the contracts. The contract price for each of these contracts is subject to
redetermination every three years following the initial two years of the contracts or economic price adjustments on an annual
basis. Prices are also subject to equitable adjustment based upon changes in circumstances, laws or regulations and service-
requirement changes with respect to wages and fringe benefits to the extent provided in each of the contracts.
We are required to record all costs under these types of contracts as they are incurred. As a result, we may record
losses associated with unanticipated conditions, higher than anticipated infrastructure levels and emergency work at the time
such expenses occur. We recognize additional revenue for such work as, and to the extent that, our price redeterminations,
economic price adjustments and/or requests for equitable adjustments are approved. Delays in obtaining approval of price
redeterminations, economic price adjustments and/or equitable adjustments can negatively impact our results of operations and
cash flows.
Certain payments under these contracts are subject to appropriations by Congress. We may experience delays in
receiving payment or delays in redetermination of prices or other price adjustments due to canceled or delayed appropriations
specific to our projects or reductions in government spending for the military generally or military-base operations specifically.
Appropriations and the timing of payment may be influenced by, among other things, the state of the economy, competing
12
political priorities, budget constraints, the timing and amount of tax receipts and the overall level of government expenditures
for the military generally or military-base operations specifically.
Management also reviews goodwill for impairment at least annually. ASUS has $1.1 million of goodwill which may
be at risk for potential impairment if requested price redeterminations, economic price adjustments and/or equitable
adjustments are not granted.
Risks associated with the collection of wastewater are different from those of our water distribution operations
The wastewater-collection-system operations of our subsidiaries providing wastewater services on military bases are
subject to substantial regulation and involve significant environmental risks. If collection or sewage systems fail, overflow or
do not operate properly, untreated wastewater or other contaminants could spill onto nearby properties or into nearby streams
and rivers, causing damage to persons or property, injury to aquatic life and economic damages. The cost of addressing such
damages may not be recoverable. This risk is most acute during periods of substantial rainfall or flooding, which are common
causes of sewer overflows and system failures. Liabilities resulting from such damage could adversely and materially affect
our business, results of operations and financial condition. In the event that we are deemed liable for any damage caused by
overflows, our losses may not be recoverable under our contracts with the U.S. government, covered by insurance policies or
we may find it difficult to secure insurance for this business in the future at acceptable rates.
Our contracts for the construction of infrastructure improvements on military bases create risks that are different
from those of our operations and maintenance activities
We have entered into contract modifications with the U.S. government and agreements with third parties for the
construction of new water and/or wastewater infrastructure at the military bases on which we operate. Most of these contracts
are firm fixed-price contracts. Under firm fixed-price contracts, we will benefit from cost savings, but are generally unable
(except for changes in scope or circumstances approved by the U.S. government or third party) to recover any cost overruns to
the approved contract price. Under most circumstances, the U.S. government or third party has approved increased-cost change
orders due to changes in scope of work performed.
We generally recognize revenues from these types of contracts using the percentage-of-completion method of
accounting. This accounting practice results in our recognizing contract revenues and earnings ratably over the contract term in
proportion to contract costs incurred or the physical completion of the construction projects. The earnings or losses recognized
on individual contracts are based on periodic estimates of contract revenues, costs and profitability as these construction
projects progress.
We establish prices for these types of firm fixed-price contracts and the overall 50-year contracts taken as a whole,
based, in part, on cost estimates that are subject to a number of assumptions, including assumptions regarding future economic
conditions. If these estimates prove inaccurate or circumstances change, cost overruns could have a material adverse effect on
our contracted business operations and results of operations.
We may be adversely affected by disputes with the U.S. government regarding our performance of contracted
services on military bases
We are routinely audited or reviewed by the Defense Contract Auditing Agency (“DCAA”) and/or the Defense
Contract Management Agency ("DCMA") for compliance with federal acquisition regulations, cost-accounting standards and
other laws, regulations and standards that are not applicable to the operations of GSWC. During the course of these
audits/reviews, the DCAA or DCMA may question our incurred project costs or the manner in which we have accounted for
such costs and recommend to our U.S. government administrative contracting officer that such costs be disallowed.
If there is a dispute with the U.S. government regarding performance under these contracts or the amounts owed to us,
the U.S. government may delay, reject or withhold payment, delay price redeterminations or assert its right to offset damages
against amounts owed to us. If we are unable to collect amounts owed to us on a timely basis or the U.S. government asserts its
offset rights, profits and cash flows could be adversely affected.
13
If we fail to comply with the terms of one or more of our U.S. government contracts, other agreements with the U.S.
government or U.S. government statutes and regulations, we could also be suspended or barred from future U.S. government
contracts for a period of time and be subject to possible damages, fines and penalties and damage to our reputation in the water
and wastewater industry.
We depend, to some extent, upon subcontractors to assist us in the performance of contracted services on military
bases
We rely, to some extent, on subcontractors to assist us in the operation and maintenance of the water and wastewater
systems at military bases. The failure of any of these subcontractors to perform services for us in accordance with the terms of
our contracts with the U.S. government could result in the termination of our contract to provide water and/or wastewater
services at the affected base(s), a loss of revenues or increases in costs to correct a subcontractor’s performance failures.
We are also required to make a good faith effort to achieve our small business subcontracting plan goals pursuant to
U.S. government regulations. If we fail to use good faith efforts to meet these goals, the U.S. government may assess damages
against us either at the end of each price redetermination or economic adjustment period or at the end of the contract. The U.S.
government has the right to offset claimed damages against any amounts owed to us.
We also rely on third-party manufacturers, as well as third-party subcontractors, to complete our construction projects.
To the extent that we cannot engage subcontractors or acquire equipment or materials, our ability to complete a project in a
timely fashion or at a profit may be impaired. If the amount of costs we incur for these projects exceeds the amount we have
estimated in our bid, we could experience reduced profits or losses in the performance of these contracts. In addition, if a
subcontractor or manufacturer is unable to deliver its services, equipment or materials according to the negotiated terms for any
reason, including the deterioration of its financial condition, we may be required to purchase the services, equipment or
materials from another source at a higher price. This may reduce the profit to be realized or result in a loss on a project for
which the services, equipment or materials were needed.
If these subcontractors fail to perform services to be provided to us or fail to provide us with the proper equipment or
materials, we may be penalized for their failure to perform; however, our contracts with these subcontractors include certain
protective provisions, which may include the assessment of liquidated damages. We mitigate these risks by requiring our
subcontractors, as appropriate, to obtain performance bonds and to compensate us for any penalties we may be required to pay
as a result of their failure to perform.
Our earnings may be affected, to some extent, by weather during different seasons
Seasonal weather conditions, such as hurricanes, heavy rainfall or significant winter storms, occasionally cause
temporary office closures and/or result in temporary halts to construction activity at military bases. To the extent that our
construction activities are impeded by these events, we will experience a delay in recognizing revenues from these construction
projects.
We continue to incur costs associated with the expansion of our contract activities
We continue to incur additional costs in connection with the attempted expansion of our contract operations associated
with the preparation of bids for new contract operations on prospective and existing military bases. Our ability to recover these
costs and to earn a profit on our contract operations will depend upon the extent to which we are successful in obtaining new
contracts and recovering these costs and other costs from new contract revenues.
Other Risks
The accuracy of our judgments and estimates about financial and accounting matters will impact our operating
results and financial condition
The quality and accuracy of estimates and judgments used have an impact on our operating results and financial
condition. If our estimates are not accurate, we will be required to make an adjustment in a future period. We make certain
estimates and judgments in preparing our financial statements regarding, among others:
14
•
•
timing of recovering of WRAM and MCBA regulatory assets;
amounts to set aside for uncollectible accounts receivable, inventory obsolescence and uninsured losses;
• our legal exposure and the appropriate accrual for claims, including general liability and workers
compensation claims;
•
•
future costs and assumptions for pensions and other post-retirement benefits;
regulatory recovery of deferred items; and
• possible tax uncertainties.
Our business requires significant capital expenditures
The utility business is capital intensive. We spend significant sums of money for additions to, or replacement of, our
property, plant and equipment at our water and electric utilities. We obtain funds for these capital projects from operations,
contributions by developers and others and advances from developers (which are repaid over a period of time at no interest).
We also periodically borrow money or issue equity for these purposes. In addition, we have a syndicated bank credit facility
that is partially used for these purposes. We cannot provide assurance that these sources will continue to be adequate or that the
cost of funds will remain at levels permitting us to earn a reasonable rate of return.
Our subsidiaries providing water and wastewater services on military bases also expect to incur significant capital
expenditures. To the extent that the U.S. government does not reimburse us for these expenditures as the work is performed or
completed, the U.S. government will repay us over time.
We may be adversely impacted by economic conditions
Access to external financing on reasonable terms depends, in part, on conditions in the debt and equity markets. When
business and market conditions deteriorate, we may no longer have access to the capital markets on reasonable terms. Our
ability to obtain funds is dependent upon our ability to access the capital markets by issuing debt or equity to third parties or
obtaining funds from our revolving credit facility. In the event of financial turmoil affecting the banking system and financial
markets, consolidation of the financial services industry, significant financial service institution failures or our inability to
renew or replace our existing revolving credit facility on favorable terms, it may become necessary for us to seek funds from
other sources on less favorable terms.
Market conditions and demographic changes may adversely impact the value of our benefit plan assets and
liabilities
Market factors can affect assumptions we use in determining funding requirements with respect to our pension and
postretirement benefit plans. For example, a relatively modest change in our assumptions regarding discount rates can
materially affect our calculation of funding requirements. To the extent that market data compels us to reduce the discount rate
used in our assumptions, our benefit obligations could materially increase, which could adversely affect our financial position
and our cash flow position. Further, changes in demographics, such as increases in life expectancy assumptions may also
increase the funding requirements of our obligations related to the pension and other postretirement benefit plans.
Market conditions also affect the values of the assets that are held in trust to satisfy significant future obligations under
our pension and postretirement benefit plans. These assets are subject to market fluctuations, which may cause investment
returns to fall below our projected rates of return. A decline in the market value of our pension and postretirement benefit plan
assets will increase the funding requirements under our pension and postretirement benefit plans if future returns on these assets
are insufficient to offset the decline in value. Future increases in pension and other postretirement costs as a result of the
reduced value of plan assets may not be fully recoverable in rates, and our results of operations and financial position could be
negatively affected. These risks are mitigated to some extent by the two-way pension balancing account authorized by the
CPUC which permits us to track differences between forecasted annual pension expense adopted in rates and actual pension
expenses for future recovery or refund to customers.
15
Payment of our debt may be accelerated if we fail to comply with restrictive covenants in our debt agreements
Our failure to comply with restrictive covenants in our debt agreements could result in an event of default. If the
default is not cured or waived, we may be required to repay or refinance this debt before it becomes due. Even if we are able to
obtain waivers from our creditors, we may only be able to do so on unfavorable terms.
The price of our Common Shares may be volatile and may be affected by market conditions beyond our control
The trading price of our Common Shares may fluctuate in the future because of the volatility of the stock market and a
variety of other factors, many of which are beyond our control. Factors that could cause fluctuations in the trading price of our
Common Shares include: regulatory developments; general economic conditions and trends; price and volume fluctuations in
the overall stock market from time to time; actual or anticipated changes or fluctuations in our results of operations; actual or
anticipated changes in the expectations of investors or securities analysts; actual or anticipated developments in other utilities'
businesses or the competitive landscape generally; litigation involving us or our industry; and major catastrophic events or sales
of large blocks of our stock.
AWR is a holding company that depends on cash flow from its subsidiaries to meet its financial obligations and to
pay dividends on its Common Shares
As a holding company, our subsidiaries conduct substantially all operations and our only significant assets are
investments in our subsidiaries. This means that we are dependent on distributions of funds from our subsidiaries to meet our
debt service obligations and to pay dividends on our Common Shares.
Our subsidiaries are separate and distinct legal entities and generally have no obligation to pay any amounts due on
our credit facility. Our subsidiaries only pay dividends if and when declared by the subsidiary board. Moreover, GSWC is
obligated to give first priority to its own capital requirements and to maintain a capital structure consistent with that determined
to be reasonable by the CPUC in its most recent decision on capital structure in order that customers not be adversely affected
by the holding company structure. Furthermore, our right to receive cash or other assets in the unlikely event of liquidation or
reorganization of any of our subsidiaries is generally subject to the prior claims of creditors of that subsidiary. If we are unable
to obtain funds from a subsidiary in a timely manner, we may be unable to meet our financial obligations, make additional
investments or pay dividends.
Failure to attract, retain, train, motivate, develop and transition key employees could adversely affect our business
In order to be successful, we must attract, retain, train, motivate, and develop key employees, including those in
managerial, operational, financial, business-development and information-technology support positions. Our regulated
business and contracted services operations are complex. Attracting and retaining high quality staff allows us to minimize the
cost of providing quality service. In order to attract and retain key employees in a competitive marketplace, we must provide a
competitive compensation package and be able to effectively recruit qualified candidates. The failure to successfully hire key
employees or the loss of a material number of key employees could have a significant impact on the quality of our operations in
the short term. Further, changes in our management team may be disruptive to our business, and any failure to successfully
transition key new hires or promoted employees could adversely affect our business and results of operations.
We must successfully maintain and/or upgrade our information technology systems as we are increasingly
dependent on the continuous and reliable operation of these systems
We rely on various information technology systems to manage our operations. Such systems require periodic
modifications, upgrades and/or replacement, which subject us to inherent costs and risks including potential disruption of our
internal control structure, substantial capital expenditures, additional administration and operating expenses, retention of
sufficiently skilled personnel to implement and operate the new systems, and other risks and costs of delays or difficulties in
transitioning to new systems or of integrating new systems into our current systems. In addition, the difficulties with
implementing new technology systems may cause disruptions in our business operations and have an adverse effect on our
business and operations, if not anticipated and appropriately mitigated.
16
We rely on our computer, information and communications technology systems in connection with the operation of
our business, especially with respect to customer service and billing, accounting and, in some cases, the monitoring and
operation of our treatment, storage and pumping facilities. Our computer and communications systems and operations could be
damaged or interrupted by weather, natural disasters, telecommunications failures or acts of war or terrorism or similar events
or disruptions. Any of these or other events could cause system interruption, delays and loss of critical data or delay or prevent
operations and adversely affect our financial results.
Security risks, data protection breaches and cyber-attacks could disrupt our internal operations, and any such
disruption could increase our expenses, damage our reputation and adversely affect our stock price
There have been an increasing number of cyber-attacks on companies around the world, which have caused
operational failures or compromised sensitive corporate or customer data. These attacks have occurred over the internet,
through malware, viruses or attachments to e-mails or through persons inside the organization or with access to systems inside
the organization. Although we do not believe that our systems are at a materially greater risk of cyber security attacks than
other similar organizations, our information technology systems remain vulnerable to damage or interruption from:
computer viruses;
•
• malware;
• hacking; and
• denial of service actions.
We have implemented security measures and will continue to devote significant resources to address any security
vulnerabilities in an effort to prevent cyber-attacks. Despite our efforts, we cannot be assured that a cyber-attack will not cause
water, wastewater or electric system problems, disrupt service to our customers, compromise important data or systems or
result in unintended release of customer or employee information. Moreover, if a computer security breach affects our systems
or results in the unauthorized release of sensitive data, our reputation could be materially damaged. We could also be exposed
to a risk of loss or litigation and possible liability.
Our operations are geographically concentrated in California
Although we operate water and wastewater facilities in a number of states, our operations are concentrated in
California, particularly Southern California. As a result, our financial results are largely subject to political, water supply, labor,
utility cost and regulatory risks, economic conditions, natural disasters and other risks affecting California.
We operate in areas subject to natural disasters or that may be the target of terrorist activities
We operate in areas that are prone to earthquakes, fires, mudslides, hurricanes, tornadoes, flooding and other natural
disasters. While we maintain insurance policies to help reduce our financial exposure, a significant seismic event in Southern
California, where GSWC's operations are concentrated, or other natural disasters in any of the areas that we serve could
adversely impact our ability to deliver water and electricity or provide wastewater service and adversely affect our costs of
operations. With respect to GSWC, the CPUC has historically allowed utilities to establish a catastrophic event memorandum
account to potentially recover such costs.
Terrorists could seek to disrupt service to our customers by targeting our assets. We have invested in additional
security for facilities throughout our regulated service areas to mitigate the risks of terrorist activities. We also may be
prevented from providing water and/or wastewater services at the military bases we serve in times of military crisis affecting
these bases.
The final determination of our income tax liability may be materially different from our income tax provision
Significant judgment is required in determining our provision for income taxes. Our calculation of the provision for
income taxes is subject to our interpretation of applicable business tax laws in the jurisdictions in which we file. In addition,
our income tax returns are subject to periodic examination by the Internal Revenue Service and other taxing authorities.
17
In December 2014, the Company changed its tax method of accounting to permit the expensing of qualifying utility
asset improvement costs that were previously being capitalized and depreciated for tax purposes. As a result of the change,
which included a cumulative adjustment for 2013 and prior years, the Company deducted a significant amount of asset costs
that consisted primarily of water mains and connections. Our determination of costs that qualify as a capital asset versus a tax
deduction for utility asset improvements is subject to subsequent adjustment arising from review by taxing authorities, and may
impact the deductions that have been taken on recently filed income tax returns. Although we believe our income tax estimates
are appropriate, there is no assurance that the final determination of our current taxes payable will not be materially different,
either higher or lower, from the amounts reflected in our financial statements. In the event we are assessed additional income
taxes, our financial condition and cash flows could be adversely affected.
Item 1B. Unresolved Staff Comments
None.
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Item 2. Properties
Water Properties
As of December 31, 2015, GSWC’s physical properties consisted of water transmission and distribution systems
which included 2,820 miles of pipeline together with services, meters and fire hydrants and approximately 425 parcels of land,
generally less than one acre each, on which are located wells, pumping plants, reservoirs and other water utility facilities,
including four surface water treatment plants. GSWC also has franchises, easements and other rights of way for the purpose of
accessing wells and tanks and constructing and using pipes and appurtenances for transmitting and distributing water. All of
GSWC's properties are located in California.
As of December 31, 2015, GSWC owned 238 wells, of which 191 are active operable wells equipped with pumps with
an aggregate production capacity of approximately 203 million gallons per day. GSWC has 63 connections to the water
distribution facilities of the MWD and other municipal water agencies. GSWC’s storage reservoirs and tanks have an
aggregate capacity of approximately 113.6 million gallons. GSWC owns no dams. The following table provides information
regarding the water utility plant of GSWC:
Pumps
Distribution Facilities
Reservoirs
Well
Booster
Mains*
Services
Hydrants
Tanks
Capacity*
238
384
2,820
260,321
25,658
141
113,554 (1)
* Reservoir capacity is measured in thousands of gallons. Mains are in miles.
(1) GSWC has additional capacity in its Bay Point system through an exclusive capacity right to use 4.4 million gallons from a
treatment plant owned by the Contra Costa Water District. GSWC also has additional reservoir capacity through an exclusive
right to use an eight-million-gallon reservoir, one-half of another eight-million-gallon reservoir, and one-half of a treatment
plant’s capacity, all owned by the Three Valleys Municipal Water District, to serve the cities of Claremont and San Dimas.
Electric Properties
GSWC’s electric properties are located in the Big Bear area of San Bernardino County, California. As of
December 31, 2015, GSWC owned and operated 30.23 miles of overhead 34.5 kilovolt (“kv”) transmission lines, 1.42 miles of
underground 34.5 kv transmission lines, 183.78 miles of 4.16 kv or 2.4 kv distribution lines, 54.2 miles of underground cable,
13 sub-stations and a natural-gas-fueled 8.4 MW peaking generation facility. GSWC also has franchises, easements and other
rights of way for the purpose of constructing and using poles, wires and other appurtenances for transmitting electricity.
Adjudicated and Other Water Rights
GSWC owns groundwater and surface water rights in California. Groundwater rights are further subject to
classification as either adjudicated or unadjudicated rights. Adjudicated rights have been subjected to comprehensive litigation
in the courts, are typically quantified and are actively managed for optimization and sustainability of the resource. Surface
water rights are quantified and managed by the State Water Resources Control Board, unless they originated prior to 1914. As
of December 31, 2015, GSWC had adjudicated groundwater rights and surface water rights of 74,332 and 11,335 acre feet per
year, respectively. GSWC also has a number of unadjudicated groundwater rights, which have not been quantified and are not
subject to predetermined limitations, but are typically measured by historical usage.
Office Buildings
Registrant owns its general headquarters facilities in San Dimas, California. GSWC also owns and leases certain
facilities that house district and customer service offices. ASUS leases office facilities in California, Georgia, Virginia and
North Carolina. However, in 2015, ASUS entered into an agreement to sublet its office facility in California to a third party,
which expires in August 2017. TUS rents a temporary service center facility in Maryland, pending the completion of a facility
expected to be constructed at that location. FBWS has a ten-year, renewable, no-cost license for use of space in a U.S.
government building at Fort Bliss as a service center. PSUS, ODUS and ONUS own service centers in South Carolina,
Virginia and North Carolina, respectively.
19
Mortgage and Other Liens
As of December 31, 2015, neither AWR, GSWC, nor ASUS, or any of its subsidiaries, had any mortgage debt or liens
securing indebtedness outstanding.
Under the terms of certain debt of AWR and GSWC, AWR and GSWC are prohibited from issuing any secured debt,
without providing equal and ratable security to the holders of this existing debt.
Condemnation of Properties
The laws of the state of California provide for the acquisition of public utility property by governmental agencies
through their power of eminent domain, also known as condemnation, where doing so is necessary and in the public interest.
In addition, these laws provide that the owner of utility property (i) may contest whether the condemnation is actually
necessary and in the public interest, and (ii) is entitled to receive the fair market value of its property if the property is
ultimately taken.
Claremont System:
On November 4, 2014, voters in the City of Claremont ("Claremont" or "the City") approved a measure authorizing
the issuance of $135.0 million in water revenue bonds by the City to finance the acquisition of GSWC's Claremont water
system. On December 9, 2014, the City filed an eminent domain lawsuit against GSWC. GSWC does not believe the seizure
is necessary and continues to vigorously defend against the potential condemnation. The eminent domain Right to Take trial is
scheduled to begin on June 13, 2016. At this time, management cannot predict the outcome of the eminent domain proceeding.
The Claremont water system has a net book value of approximately $49.3 million. GSWC serves approximately 11,000
customers in Claremont.
Ojai System:
In March 2013, the Casitas Municipal Water District ("CMWD") passed resolutions under the Mello-Roos
Communities Facilities District Act of 1982 ("Mello-Roos Act") authorizing the establishment of a Community Facilities
District, and the issuance of bonds to finance the potential acquisition of GSWC’s Ojai system through eminent domain. At
this time, management cannot predict the potential for an eminent domain proceeding. GSWC serves approximately 3,000
customers in Ojai.
Environmental Clean-Up and Remediation of Properties
GSWC has been involved in environmental remediation and cleanup at a plant site ("Chadron Plant") that contained
an underground storage tank which was used to store gasoline for its vehicles. This tank was removed from the ground in
July 1990 along with the dispenser and ancillary piping. Since then, GSWC has been involved in various remediation activities
at this site. Analysis indicates that offsite monitoring wells may also be necessary to document effectiveness of remediation.
GSWC has accrued an estimated liability which 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 the estimated liability is 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.
Item 3. Legal Proceedings
On December 9, 2014, the City of Claremont filed an eminent domain lawsuit in the County of Los Angeles Superior
Court against GSWC (City of Claremont v. Golden State Water Company, Case No. BC 566125) to acquire the portion of
GSWC's system which serves the City of Claremont. GSWC is vigorously contesting this action.
Registrant is subject to ordinary routine litigation incidental to its business. Management believes that rate recovery,
proper insurance coverage and reserves are in place to insure against property, general liability and workers compensation
claims incurred in the ordinary course of business. Registrant is unable to predict an estimate of the loss, if any, resulting from
any pending suits or administrative proceedings.
Item 4. Mine Safety Disclosure
Not applicable.
20
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Stock Performance Graph
The graph below compares the cumulative 5-year total return provided shareholders on American States Water
Company's Common Shares relative to the cumulative total returns of the S&P 500 index and a customized peer group of eight
companies. The eight companies included in the Company's customized peer group are: American Water Works Company Inc.,
Aqua America Inc., Artesian Resources Corp, California Water Service Group, Connecticut Water Service Inc., Middlesex
Water Company, York Water Company and SJW Corp.
An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our Common Shares, and in the
common stock in the index and in the peer group on December 31, 2010. Relative performance is tracked through
December 31, 2015.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among American States Water Company, the S&P 500 Index,
and a Peer Group
$300
$250
$200
$150
$100
$50
$0
12/10
12/11
12/12
12/13
12/14
12/15
American States Water Company
S&P 500
Peer Group
*$100 invested on 12/31/10 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2016 S&P, a division of McGraw Hill Financial. All rights reserved.
American States Water Company
S&P 500
Peer Group
$
$
$
100.00 $
100.00 $
100.00 $
104.54 $
102.11 $
114.09 $
148.29 $
118.45 $
134.47 $
182.46 $
156.82 $
158.27 $
245.77 $
178.29 $
192.68 $
279.96
180.75
217.32
12/2010
12/2011
12/2012
12/2013
12/2014
12/2015
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
21
Market Information Relating to Common Shares
Common Shares of American States Water Company are traded on the New York Stock Exchange (“NYSE”) under
the symbol “AWR”. The intra-day high and low NYSE prices on the Common Shares for each quarter during the past two
years, were:
2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Stock Prices
High
Low
41.73 $
40.70 $
41.84 $
44.14 $
32.97 $
33.27 $
34.00 $
38.74 $
36.86
35.87
35.80
39.67
27.02
27.82
30.11
30.26
$
$
$
$
$
$
$
$
The closing price of the Common Shares of American States Water Company on the NYSE on February 22, 2016 was
$46.84.
Approximate Number of Holders of Common Shares
As of February 22, 2016, there were 2,434 holders of record of the 36,523,179 outstanding Common Shares of
American States Water Company. AWR owns all of the outstanding Common Shares of GSWC and ASUS. ASUS owns all of
the outstanding stock of the Military Utility Privatization Subsidiaries.
Frequency and Amount of Any Dividends Declared and Dividend Restrictions
For the last two years, AWR has paid dividends on its Common Shares on or about March 1, June 1, September 1 and
December 1. The following table lists the amounts of dividends paid on Common Shares of American States Water Company:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
2015
2014
0.2130 $
0.2130 $
0.2240 $
0.2240 $
0.8740 $
0.2025
0.2025
0.2130
0.2130
0.8310
$
$
$
$
$
AWR’s ability to pay dividends is subject to the requirement in its $100.0 million revolving credit facility to maintain
compliance with all covenants described in footnote (14) to the table in the section entitled “Contractual Obligations,
Commitments and Off Balance Sheet Arrangements” included in Part II, Item 7, in Management’s Discussion and Analysis of
Financial Condition and Results of Operation. GSWC’s maximum ability to pay dividends is restricted by certain Note
Agreements to the sum of $21.0 million plus 100% of consolidated net income from certain dates plus the aggregate net cash
proceeds received from capital stock offerings or other instruments convertible into capital stock from various dates. Under the
most restrictive of the Note Agreements, $353.3 million was available from GSWC to pay dividends to AWR as of
December 31, 2015. GSWC is also prohibited under the terms of senior notes from paying dividends if, after giving effect to
the dividend, its total indebtedness to capitalization ratio (as defined) would be more than 0.6667-to-1. GSWC would have to
issue additional debt of $499.4 million to invoke this covenant as of December 31, 2015.
22
Under California law, AWR, GSWC and ASUS are each permitted to distribute dividends to its shareholders and
repurchase its shares so long as the Board of Directors determines, in good faith, that either: (i) the value of the corporation’s
assets equals or exceeds the sum of its total liabilities immediately after the dividend, or (ii) its retained earnings equals or
exceeds the amount of the distribution. Under the least restrictive of the California tests, approximately $220.9 million was
available to pay dividends to AWR’s common shareholders and repurchase shares from AWR’s common shareholders at
December 31, 2015. Approximately $184.9 million was available for GSWC to pay dividends to AWR at December 31, 2015.
ASUS's ability to pay dividends is subject to the ability of each of its subsidiaries to pay dividends to it, which may, in turn, be
restricted by the laws under the states in which the applicable subsidiary was formed.
AWR paid $32.7 million in dividends to shareholders for the year ended December 31, 2015, as compared to $32.1
million for the year ended December 31, 2014. GSWC paid dividends of $62.0 million and $52.0 million to AWR in 2015 and
2014, respectively. ASUS did not pay dividends to AWR in 2015 or 2014. AWR paid $72.9 million and $17.2 million to
repurchase its Common Shares in 2015 and 2014, respectively.
Other Information
The shareholders of AWR have approved the material features of all equity-compensation plans under which AWR
directly issues equity securities. AWR did not directly issue any unregistered equity securities during 2015.
The following table provides information about AWR repurchases of its Common Shares during the fourth quarter
of 2015:
Period
October 1—31, 2015
November 1—30, 2015
December 1—31, 2015
Total
Total Number of
Shares Purchased
Average Price Paid
per Share
1,285
$
239,484
$
26,649
$
267,418 (2) $
41.71
40.55
41.00
40.60
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)
—
238,147
—
238,147
238,147
—
—
(1) On May 19, 2015, AWR's Board of Directors approved a stock repurchase program to purchase up to 1.2 million shares of its
Common Shares through June 30, 2017. AWR also from time to time purchases its Common Shares for employees pursuant to
AWR's 401(k) plan and for participants in its Common Share Purchase and Dividend Reinvestment Plan.
(2) Of this amount, 21,000 Common Shares were acquired on the open market for employees pursuant to AWR's 401(k) Plan and 8,270
Common 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 contains a maximum number of common
shares that may be purchased in the open market.
23
Item 6. Selected Financial Data
AMERICAN STATES WATER COMPANY (AWR):
(in thousands, except per share amounts)
2015
2014
2013
2012
2011
Income Statement Information:
Total Operating Revenues
Total Operating Expenses
Operating Income
Interest Expense
Interest Income
Income from Continuing Operations
Income from Discontinued Operations, net of tax (2)
Basic Earnings per Common Share (1):
Income from Continuing Operations
Income from Discontinued Operations (2)
Total
Fully Diluted Earnings per Common Share (1):
Income from Continuing Operations
Income from Discontinued Operations (2)
Total
Average Shares Outstanding
Average number of Diluted Shares Outstanding
Dividends Declared per Common Share
Balance Sheet Information:
Total Assets (3)
Common Shareholders’ Equity
Long-Term Debt
Total Capitalization
GOLDEN STATE WATER COMPANY (GSWC):
(in thousands)
Income Statement Information:
Total Operating Revenues
Total Operating Expenses
Operating Income
Interest Expense
Interest Income
Net Income
Balance Sheet Information:
Total Assets (3)
Common Shareholder’s Equity
Long-Term Debt
Total Capitalization
$
$
$
$
$
$
$
$
458,641 $
340,152
118,489
21,088
458
60,484 $
— $
465,791 $
346,746
119,045
21,617
927
61,058 $
— $
472,077 $
353,005
119,072
22,415
707
62,686 $
— $
466,908 $
355,814
111,094
22,765
1,333
54,148 $
— $
419,913
324,809
95,104
23,681
859
42,010
3,849
1.61 $
—
1.61 $
1.60 $
—
1.60 $
1.57 $
—
1.57 $
1.57 $
—
1.57 $
1.61 $
—
1.61 $
1.61 $
—
1.61 $
1.42 $
—
1.42 $
1.41 $
—
1.41 $
1.12
0.10
1.22
1.11
0.10
1.21
37,389
37,614
0.874 $
38,658
38,880
0.831 $
38,639
38,869
0.760 $
37,998
38,262
0.635 $
37,386
37,674
0.550
$ 1,348,600 $ 1,378,298 $ 1,310,183 $ 1,280,943 $ 1,238,362
408,666
340,395
749,061
454,579
332,463
787,042 $
506,801
325,798
832,599 $
492,404
326,079
818,483 $
465,945
325,541
791,486 $
$
2015
2014
2013
2012
2011
$ 364,550 $
264,141
100,409
20,998
440
47,591 $
$
361,059 $ 358,540 $
256,197
261,317
102,343
99,742
22,287
21,524
615
894
48,642 $
47,857 $
342,931 $ 336,725
253,047
256,326
83,678
86,605
23,292
22,609
801
1,293
34,822
39,220 $
$ 1,276,520 $ 1,282,374 $ 1,233,381 $ 1,214,052 $ 1,173,383
384,806
416,257
332,463
340,395
748,720 $ 725,201
437,613
435,190
325,798
326,079
760,988 $ 763,692 $
423,730
325,541
$ 749,271 $
(1) On September 3, 2013, a two-for-one stock split became effective. The number of shares outstanding, and basic and diluted earnings per share
(“EPS”) have been restated for all periods presented above to reflect the stock split.
(2) In May 2011, AWR completed its sale of Chaparral City Water Company (“CCWC”) and recorded a gain on the sale (net of taxes and transaction
costs) of approximately $2.2 million, or $0.06 per share. The results of CCWC for 2011 have been presented as a discontinued operation.
(3) Registrant adopted Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes, as of December 31, 2015 on a
prospective basis, whereby all deferred tax assets and liabilities are classified as noncurrent on the Registrant's balance sheet. Prior periods were not
retrospectively adjusted.
24
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
The following discussion and analysis provides information on AWR’s consolidated operations and assets, and where
necessary, includes specific references to AWR’s individual segments and/or its subsidiaries: GSWC and ASUS and its
subsidiaries. Included in the following analysis is a discussion of water and electric gross margins. Water and electric gross
margins are computed by subtracting total supply costs from total revenues. Registrant uses these gross margins and related
percentages as an important measure in evaluating its operating results. Registrant believes this measure is a useful internal
benchmark in evaluating the performance of GSWC.
The discussions and tables included in the following analysis also present Registrant’s operations in terms of earnings
per share by business segment. Registrant believes that the disclosure of earnings per share by business segment provides
investors with clarity surrounding the performance of its different services. Registrant reviews these measurements regularly
and compares them to historical periods and to its operating budget. However, these measures, which are not presented in
accordance with Generally Accepted Accounting Principles (“GAAP”), may not be comparable to similarly titled measures
used by other entities and should not be considered as an alternative to operating income or earnings per share, which are
determined in accordance with GAAP. A reconciliation of water and electric gross margins to the most directly comparable
GAAP measures is included in the table under the section titled “Operating Expenses: Supply Costs.” Reconciliations to
AWR’s diluted earnings per share are included in the discussions under the sections titled “Summary Results by Segment.”
Overview
GSWC's revenues, operating income and cash flows are earned primarily through delivering potable water to homes
and businesses in California and the delivery of electricity in the Big Bear area of San Bernardino County, California. Rates
charged to GSWC customers are determined by the CPUC. These rates are intended to allow recovery of operating costs and a
reasonable rate of return on capital. Factors affecting the financial performance of GSWC are described under Forward-
Looking Information and Risk Factors and include: the process and timing of setting rates charged to customers; the ability to
recover, and the process for recovering in rates, the costs of distributing water and electricity and overhead costs; pressures on
water supply caused by the drought in California, changing weather patterns in the West, population growth, more stringent
water quality standards and deterioration in water quality and water supply from a variety of causes; fines, penalties and
disallowances by the CPUC arising from failures to comply with regulatory requirements; the impact of increased water-quality
standards and environmental regulations on the cost of operations and capital expenditures; changes in long-term customer
demand due to changes in usage patterns as a result of conservation efforts, mandatory regulatory changes impacting the use of
water, such as mandatory restrictions on water use, new landscaping or irrigation requirements, recycling of water by customers
and purchases of recycled water by customers from other third parties; capital expenditures needed to upgrade water systems;
increased costs and risks associated with litigation relating to water quality and water supply, including suits initiated by
GSWC to protect its water supply and condemnation actions initiated by municipalities; fines, penalties and liabilities arising
from failure to comply with health and safety standards and other liabilities related to hazards associated with electricity and
chemicals used in our business; and increased costs and difficulties in obtaining insurance protecting BVES from wildfires in
its service territory. GSWC plans to continue to seek additional rate increases in future years from the CPUC to recover
operating and supply costs and receive reasonable returns on invested capital. Capital expenditures in future years at GSWC
are expected to remain at higher levels than depreciation expense. When necessary, GSWC obtains funds from external sources
in the capital markets and through bank borrowings.
ASUS's revenues, operating income and cash flows are earned by providing water and/or wastewater services,
including the operation, maintenance, renewal and replacement of the water and/or wastewater systems at various military
installations pursuant to 50-year firm, fixed-price contracts. The contract price for each of these contracts is subject to
prospective price redeterminations or economic price adjustments. Additional revenues generated by contract operations are
primarily dependent on new construction activities under contract modifications with the U.S. government or agreements with
other third-party prime contractors. As a result, ASUS is subject to risks that are different from those of GSWC. Factors
affecting the financial performance of the Military Utility Privatization Subsidiaries are described under Forward-Looking
Information and under Risk Factors and include delays in receiving payments from, and the redetermination and economic
price or equitable adjustment of prices under, contracts with the U.S. government; fines, penalties or disallowance of costs by
the U.S. government; and termination of contracts and suspension or debarment for a period of time from contracting with the
government due to violations of federal statutes and regulations in connection with military utility privatization
activities. ASUS's financial performance is also dependent upon its ability to accurately estimate costs in bidding on firm
fixed-price contracts for additional construction work at existing bases and the costs of seeking new contracts for the operation
25
and maintenance and renewal and replacement of water and/or wastewater systems at military bases. ASUS is actively
pursuing utility privatization contracts of other military bases to expand the contracted services segment.
During the third quarter of 2015, ASUS received retroactive contract modifications from the U.S. government for
price redeterminations related to Joint Base Andrews, Fort Jackson and the military bases in Virginia. As a result, included in
earnings for the year ended December 31, 2015 was approximately $3.0 million in retroactive revenues related to these
redeterminations for prior periods.
In 2014 and 2015, AWR's Board of Directors approved two stock repurchase programs, authorizing AWR to
repurchase up to 2.45 million shares of AWR's Common Shares. Both stock repurchase programs were completed in 2015.
The repurchase programs were intended to enable AWR to achieve a consolidated shareholders’ equity ratio (as a percentage of
total capitalization) that is more reflective of the current CPUC-authorized equity ratio for GSWC and an equity ratio for ASUS
that is more consistent with firms in the government contracting industry. As a result, AWR repurchased 1.9 million and
545,000 shares of its stock in 2015 and 2014, respectively, resulting in reduced weighted-average shares outstanding on a
diluted basis in both periods, which positively benefited earnings per share in 2015 and 2014. As of December 31, 2015, the
equity ratio as a percent of total capitalization was 59%.
Summary Results by Segment
The table below sets forth diluted earnings per share by business segment for AWR’s operations:
Water
Electric
Contracted services
AWR (parent)
Totals from operations, as reported
Diluted Earnings per Share
Year Ended
12/31/2015
12/31/2014
CHANGE
$
$
1.19 $
0.07
0.32
0.02
1.60 $
1.16 $
0.07
0.31
0.03
1.57 $
0.03
—
0.01
(0.01)
0.03
For the year ended December 31, 2015, fully diluted earnings per share for the water segment increased by $0.03 per
share to $1.19 per share, as compared to $1.16 per share for 2014. The discussion below includes the items which impacted the
comparability of the two periods. The discussion excludes the effects of a decrease in water surcharges billed to customers to
recover previously incurred costs, which resulted in lower water revenues of approximately $2.0 million with a corresponding
decrease in operating expenses and, therefore, had no impact on operating income.
• The water gross margin increased by $1.2 million primarily as a result of CPUC-approved third-year rate increases
and advice letter filings for the completion of certain capital projects not previously included in rates. These increases
were partially offset by $1.4 million of under-collections in the 2015 Water Revenue Adjustment Mechanism
("WRAM") not recorded as revenue, as this amount is estimated to not be fully collectable within 24 months
following the end of the year under current CPUC amortization guidelines. Under the accounting guidance for
alternative revenue programs such as the WRAM, GSWC is required to collect its WRAM balances, net of MCBA,
within 24 months following the year in which they are recorded. Due to the state-mandated water-conservation
targets, lower water usage has resulted in an increase in under-collections recorded in the 2015 WRAM accounts.
Based on the CPUC guidelines, some of GSWC's ratemaking areas will have recovery periods greater than 24 months.
This accounting guidance impacts the timing of when WRAM revenues are recorded, but not the collectability;
therefore, the $1.4 million will be recognized as revenue in future periods as it becomes collectable within 24 months.
• Excluding supply costs, there was an increase in operating expenses of approximately $1.0 million due primarily to
increases in maintenance costs and depreciation expense. These increases in operating expenses were partially offset
by lower other operation-related costs, such as water treatment, mainly as a result of decreases in water usage and
pumped water.
• An increase in earnings per share for the water segment due to the Company’s stock repurchase programs in 2014 and
2015 was partially offset by a decrease in other income, net of other expenses (including interest), of $637,000 due to
a decrease in interest income as well as a decrease in gains on investments held for a retirement benefit plan resulting
from market conditions during 2015.
26
For the years ended December 31, 2015 and 2014, diluted earnings from the electric segment were $0.07 per share.
Third-year rate increases approved by the CPUC were mostly offset by an increase in operating expenses mainly attributable to
costs associated with energy-efficiency and solar-initiative programs approved by the CPUC. The costs of these programs have
been included in customer rates equally over the rate cycle. The spending of such funds increased in 2015 due to the delay in
receiving the final decision in November 2014 of the BVES rate case, which authorized these programs.
For the year ended December 31, 2015, diluted earnings from contracted services were $0.32 per share, compared to
$0.31 per share for the same period in 2014. Impacting the comparability of the two periods were the following items:
• An increase of $2.6 million in operations and maintenance ("O&M") management fees in 2015 as a result of
successful resolutions of various price redeterminations received during the third quarter of 2015. These price
redeterminations included an increase of $1.2 million in retroactive O&M management fees, as compared to the
retroactive impact for the price redeterminations received in the same period of 2014.
• An increase in operating expenses of $2.0 million primarily due to an increase in labor, insurance and other outside
services costs.
• An overall decrease in construction activity reducing pretax operating income by approximately $2.0 million due to
significant work on several larger projects being substantially completed during 2014, which did not recur in 2015.
• An increase in earnings per share due to the Company's stock repurchase programs, as well as a reduction in state
income taxes, which vary among the jurisdictions in which it operates.
Diluted earnings from AWR (parent) decreased $0.01 per share as compared to the same period in 2014 due primarily
to higher state income taxes.
The following discussion and analysis for the years ended December 31, 2015, 2014 and 2013 provides information
on AWR’s consolidated operations and assets and, where necessary, includes specific references to AWR’s individual segments
and subsidiaries: GSWC and ASUS and its subsidiaries.
27
Consolidated Results of Operations — Years Ended December 31, 2015 and 2014 (amounts in thousands, except per share
amounts):
OPERATING REVENUES
Water
Electric
Contracted services
Total operating revenues
OPERATING EXPENSES
Water purchased
Power purchased for pumping
Groundwater production assessment
Power purchased for resale
Supply cost balancing accounts
Other operation
Administrative and general
Depreciation and amortization
Maintenance
Property and other taxes
ASUS construction
Total operating expenses
Year Ended
Year Ended
$
%
12/31/2015
12/31/2014
CHANGE
CHANGE
$
328,511 $
36,039
94,091
458,641
326,672 $
34,387
104,732
465,791
1,839
1,652
(10,641)
(7,150)
62,726
8,988
13,648
10,395
7,785
28,429
79,817
42,033
16,885
16,636
52,810
340,152
57,790
10,700
16,450
9,649
6,346
28,288
78,268
41,073
16,092
16,722
65,368
346,746
4,936
(1,712)
(2,802)
746
1,439
141
1,549
960
793
(86)
(12,558)
(6,594)
0.6%
4.8%
-10.2%
-1.5%
8.5%
-16.0%
-17.0%
7.7%
22.7%
0.5%
2.0%
2.3%
4.9%
-0.5%
-19.2%
-1.9%
OPERATING INCOME
118,489
119,045
(556)
-0.5%
OTHER INCOME AND EXPENSES
Interest expense
Interest income
Other, net
(21,088)
458
356
(20,274)
(21,617)
927
751
(19,939)
529
(469)
(395)
(335)
-2.4%
-50.6%
-52.6%
1.7%
INCOME FROM OPERATIONS BEFORE INCOME TAX
EXPENSE
98,215
99,106
(891)
-0.9%
Income tax expense
NET INCOME
Basic earnings per Common Share
Fully diluted earnings per Common Share
37,731
38,048
(317)
-0.8%
60,484 $
61,058 $
(574 )
-0.9%
1.61 $
1.57 $
0.04
1.60 $
1.57 $
0.03
2.5%
1.9%
$
$
$
28
Operating Revenues
General
Registrant relies upon approvals by the CPUC of rate increases to recover operating expenses and to provide for a return
on invested and borrowed capital used to fund utility plant for GSWC. Registrant relies on price redeterminations, economic
price adjustments and equitable adjustments by the U.S. government in order to recover operating expenses and provide a profit
margin for ASUS. If adequate rate relief or price redeterminations and other contract adjustments are not granted in a timely
manner, operating revenues and earnings can be negatively impacted. ASUS’s earnings are also impacted by the level of
additional construction projects at the Military Utility Privatization Subsidiaries, which may or may not continue at current levels
in future periods.
Water
For the year ended December 31, 2015, revenues from water operations increased by $1.8 million to $328.5 million,
compared to $326.7 million for the year ended December 31, 2014. The increase in water revenues was primarily due to CPUC-
approved third-year rate increases effective January 1, 2015 for certain rate-making areas and CPUC-approved increases
generated from advice letter filings. There were also CPUC-approved increases in rates implemented during the second and third
quarters of 2014 specifically intended to cover increases in supply costs experienced in certain rate-making areas, increasing
revenues by $2.9 million for the year ended December 31, 2015 as compared to the same period in 2014. This increase in
revenues was offset by a corresponding increase in supply cost, resulting in no impact to pretax operating income.
These increases were partially offset by a $2.0 million decrease in surcharges during the year ended December 31, 2015
to recover previously incurred costs approved by the CPUC. Most of these surcharges were implemented in 2013 and expired
during 2014. The decrease in revenues from these surcharges was offset by a corresponding decrease in operating expenses
(primarily administrative and general) resulting in no impact to pretax operating income.
Billed water consumption for the year ended December 31, 2015 decreased by approximately 16% as compared to the
same period in 2014. In general, changes in consumption do not have a significant impact on recorded revenues due to the
CPUC-approved WRAM accounts in place in all three water regions. However, under the accounting guidance for alternative
revenue programs such as the WRAM, significant decreases in consumption may impact the timing of when revenues are
recorded. During the fourth quarter of 2015, GSWC did not record $1.4 million of the 2015 WRAM under-collection balance as
revenue, as previously discussed. 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
For the year ended December 31, 2015, revenues from electric operations increased by $1.6 million to $36.0 million as
compared to $34.4 million for the year ended December 31, 2014. In November 2014, the CPUC issued a final decision on
BVES's general rate case, which set new rates for years 2013—2016. The new rates were retroactive to January 1, 2013. The
newly adopted revenues for the years 2013 through 2016 are lower than revenues in the previous rate cycle resulting from a
revised return on equity of 9.95%, as well as lower depreciation and certain other operating expenses. As a result of the final
decision, a cumulative reduction in revenues was recorded during the fourth quarter of 2014, along with a cumulative reduction
in depreciation expense. The impact of the retroactive effect of the new rates to BVES's 2014 net earnings was not significant.
However, because the new rates were retroactive to January 1, 2013, a portion of the retroactive adjustment recorded during the
fourth quarter of 2014 related to 2013. Excluding the impact of 2013's retroactive adjustment, electric revenues increased by
approximately $500,000 in 2015 as compared to 2014 due primarily to the CPUC-approved third-year rate increases effective
January 1, 2015, and the CPUC-approved increases generated from advice letter filings.
Billed electric usage for the year ended December 31, 2015 increased 5.4% as compared to the same period in
2014. The winters experienced in California during the first and fourth quarters of 2014 were too warm for snowmaking,
resulting in less electric usage in the Big Bear area than in 2015. Due to the CPUC-approved base revenue requirement
adjustment mechanism, which adjusts base 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 year
ended December 31, 2015, revenues from contracted services were $94.1 million as compared to $104.7 million for 2014. The
decrease was due primarily to the completion of several large capital upgrade projects during 2014 which did not recur in 2015.
The decrease in construction revenues was partially offset by an increase in O&M management fees as a result of successful
29
resolutions of various price redeterminations received during the third quarter of 2015, increasing earnings by approximately
$3.0 million as compared to 2014. These price redeterminations also included an increase of $1.2 million in retroactive O&M
management fees, as compared to the retroactive impact for the price redeterminations received in 2014.
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 Utility Privatization Subsidiaries. During the third quarter
of 2015, the U.S. government awarded ASUS approximately $50.0 million in new construction projects, the majority of which
are expected to be completed during 2016. Similarly, during the third quarter of 2014, the U.S. government awarded ASUS
$27.0 million in new construction projects, the majority of which were completed in 2015. Earnings and cash flows from
modifications to the original 50-year contracts with the U.S. government and agreements with third-party prime contractors for
additional construction projects may or may not continue in future periods.
Operating Expenses:
Supply Costs
Supply costs for the water segment consist of purchased water, purchased power for pumping, groundwater production
assessments and water-supply-cost balancing accounts. Supply costs for the electric segment consist of power purchased for
resale, the cost of natural gas used by the electric segment’s generating unit, the cost of renewable energy credits and the electric-
supply-cost balancing account. Water and electric gross margins are each computed by subtracting total supply costs from total
revenues. Registrant uses these gross margins and related percentages as important measures in evaluating its operating results.
Registrant believes these measures are useful internal benchmarks in evaluating the utility business performance within its water
and electric segments. Registrant reviews these measurements regularly and compares them to historical periods and to its
operating budget. However, these measures, which are not presented in accordance with GAAP, may not be comparable to
similarly titled measures used by other entities and should not be considered as alternatives to operating income, which is
determined in accordance with GAAP.
Total supply costs comprise the largest segment of total operating expenses. Supply costs accounted for 30.4% and
29.1% of total operating expenses for the years ended December 31, 2015 and 2014, respectively.
The table below provides the amounts (in thousands) of increases (decreases) and percent changes in water and electric
revenues, supply costs and gross margin during the years ended December 31, 2015 and 2014:
WATER OPERATING REVENUES (1)
WATER SUPPLY COSTS:
Water purchased (1)
Power purchased for pumping (1)
Groundwater production assessment (1)
Water supply cost balancing accounts (1)
TOTAL WATER SUPPLY COSTS
WATER GROSS MARGIN (2)
PERCENT MARGIN - WATER
ELECTRIC OPERATING REVENUES (1)
ELECTRIC SUPPLY COSTS:
Power purchased for resale (1)
Electric supply cost balancing accounts (1)
TOTAL ELECTRIC SUPPLY COSTS
ELECTRIC GROSS MARGIN (2)
PERCENT MARGIN - ELECTRIC
Year Ended
12/31/2015
$ 328,511
Year Ended
12/31/2014
$ 326,672
$
%
CHANGE
$
1,839
CHANGE
0.6%
62,726
8,988
13,648
3,623
88,985
$
$ 239,526
57,790
10,700
16,450
1,378
86,318
$
$ 240,354
$
$
72.9%
73.6%
4,936
(1,712)
(2,802)
2,245
2,667
(828 )
0.7
8.5%
-16.0%
-17.0%
162.9%
3.1%
-0.3%
$
36,039
$
34,387
$
1,652
4.8%
10,395
4,162
14,557
21,482
$
$
9,649
4,968
14,617
19,770
$
$
59.6%
57.5%
$
$
746
(806)
(60 )
1,712
0.6
7.7%
-16.2%
-0.4%
8.7%
(1) As reported on AWR’s Consolidated Statements of Income, except for supply-cost-balancing accounts. The sums of water and electric
supply-cost balancing accounts in the table above are shown on AWR’s Consolidated Statements of Income and totaled $7.8 million and
$6.3 million for the years ended December 31, 2015 and 2014, respectively. Revenues include surcharges, which increase both revenues
and operating expenses by corresponding amounts, thus having no net earnings impact.
(2) Water and electric gross margins do not include depreciation and amortization, maintenance, administrative and general, property and
other taxes, and other operation expenses.
30
Two of the principal factors affecting water supply costs are the amount of water produced and the source of the water.
Generally, the variable cost of producing water from wells is less than the cost of water purchased from wholesale suppliers.
Under the MCBA, GSWC tracks adopted and actual expense levels for purchased water, power purchased for pumping and
pump taxes, as established by the CPUC. GSWC records the variances (which include the effects of changes in both rate and
volume) between adopted and actual purchased water, purchased power and pump tax expenses. GSWC recovers from, or
refunds to, customers the amount of such variances. GSWC tracks these variances individually for each water rate-making area.
The overall actual percentages for purchased water for the years ended December 31, 2015 and 2014 were 41% and
35%, respectively, as compared to the adopted percentages of 36% and 35%, respectively. The increase in the supply mix was
due to several wells being temporarily out of service during 2015, resulting in an increase in purchased water as compared to
pumped water. The overall water gross margin percent was 72.9% for the year ended December 31, 2015 as compared to 73.6%
for the same period of 2014. This decrease was primarily due to CPUC-approved increases in rates implemented in the second
and third quarters of 2014 specifically intended to cover increases in supply costs experienced in certain rate-making areas,
increasing revenues by $2.9 million for the year ended December 31, 2015 as compared to the same period in 2014. This
increase in revenues was offset by a corresponding increase in supply cost, resulting in no impact to the water gross dollar
margin but lowering the gross margin as a percentage of total water revenues. There was also $1.4 million of WRAM revenue
not recorded, as previously discussed.
Purchased water costs for the year ended December 31, 2015 increased by 8.5% to $62.7 million as compared to $57.8
million for the same period in 2014 primarily due to an increase of purchased water in the supply mix as a result of wells being
out of service, and an increase in wholesale water costs as compared to the year ended December 31, 2014. These increases were
partially offset by a lower volume of water purchased due to lower water consumption.
For the year ended December 31, 2015, the cost of power purchased for pumping decreased to $9.0 million as compared
to $10.7 million for the same period in 2014 primarily due to decreases in pumped water resulting from lower water consumption
and an increase in purchased water. Groundwater production assessments were $13.6 million in 2015 as compared to $16.5
million in 2014 due to a decrease in well production resulting from several wells being out of service during 2015 as compared to
2014.
The water-supply-cost balancing account increased $2.2 million during the year ended December 31, 2015 as compared
to the same period in 2014 due to rates implemented in mid-2014 specifically intended to cover increases in supply costs for
certain rate-making areas. This increase in revenues was offset by a corresponding increase in the water-supply-cost balancing
account, resulting in no impact to the water gross dollar margin. There was also an increase due to lower customer water usage
during 2015 as compared to 2014. These increases in the water-supply-cost balancing account were partially offset by increases
in water vendor rates and an increase in purchased water in the water supply mix as compared to 2014.
For the year ended December 31, 2015, the cost of power purchased for resale to BVES's customers increased to $10.4
million, as compared to $9.6 million for the year ended December 31, 2014, due to an increase in customer usage during the year
ended December 31, 2015, partially offset by a decrease in the average price per MWh. Customer usage increased 5.4% as
compared to the year ended December 31, 2014. The average price per MWh decreased from $48.00 per MWh for the year
ended December 31, 2014 to $46.39 per MWh for the same period in 2015. The electric-supply-cost balancing account included
in total supply costs decreased by $806,000 primarily due to a decrease in supply cost surcharges, which have no impact on
pretax operating income.
31
Other Operation
The primary components of other operation expenses for GSWC include payroll, materials and supplies, chemicals and
water treatment costs and outside service costs of operating the regulated water systems, including the costs associated with
water transmission and distribution, pumping, water quality, meter reading, billing and operations of district offices. Registrant’s
contracted services operations incur many of the same types of expenses. For the years ended December 31, 2015 and 2014,
other operation expenses by business segment consisted of the following amounts (in thousands):
Water Services
Electric Services
Contracted Services
Total other operation expenses
Year
Ended
12/31/2015
Year
Ended
12/31/2014
$
$
21,961 $
2,931
3,537
28,429 $
22,871 $
2,677
2,740
28,288 $
$
%
CHANGE
CHANGE
(910)
254
797
141
-4.0%
9.5%
29.1%
0.5%
Excluding an overall reduction of $286,000 in billed surcharges, which have no impact on earnings, other operation
expenses at the utility segments decreased by $370,000 during the year ended December 31, 2015 as compared to the same
period in 2014. The decrease was due primarily to lower water treatment costs as a result of lower water consumption as well as
a higher amount of filter replacements performed in 2014, and a reduction in materials and supplies and bad debt expenses at the
water segment. These decreases were partially offset by an increase in drought-related costs at the water segment and labor-
related expenses at the electric segment. In April 2015, as a response to ongoing drought conditions, the Governor of California
issued an executive order mandating an overall 25% reduction in water usage as compared to 2013. GSWC has been authorized
by the CPUC to track incremental drought-related costs incurred in a memorandum account for possible future recovery. Such
incremental drought-related costs are being expensed until recovery is approved by the CPUC.
For the year ended December 31, 2015, other operation expenses for the contracted services segment increased by
$797,000 as compared to the same period in 2014 primarily due to a shift in labor costs to operation-related activities from
administrative and general activities.
Administrative and General
Administrative and general expenses include payroll related to administrative and general functions, the related
employee 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 years ended
December 31, 2015 and 2014, administrative and general expenses by business segment, including AWR (parent), consisted of
the following amounts (in thousands):
Water Services
Electric Services
Contracted Services
AWR (parent)
Total administrative and general expenses
Year
Ended
12/31/2015
Year
Ended
12/31/2014
$
%
CHANGE
CHANGE
$
$
55,977 $
8,900
14,929
11
79,817 $
57,729 $
8,085
12,406
48
78,268 $
(1,752)
815
2,523
(37)
1,549
-3.0%
10.1%
20.3%
-77.1%
2.0%
Excluding an overall reduction of $1.7 million in billed surcharges, which have no impact on earnings, administrative
and general expenses for the water services segment decreased slightly during the year ended December 31, 2015 as compared to
the same period in 2014. Lower employee-related costs were mostly offset by increases in legal and other outside services costs
primarily related to condemnation activities. Legal and outside services costs tend to fluctuate and are expected to continue to
fluctuate.
Excluding an overall reduction of $96,000 in billed surcharges, which have no impact on earnings, administrative and
general expenses for the electric services segment increased by $911,000 during the year ended December 31, 2015 as compared
to the same period in 2014 due primarily to an increase in costs associated with energy-efficiency and solar-initiative programs
approved by the CPUC. The costs of these programs have been included in customer rates equally over the rate cycle. The
spending of such funds increased in 2015 due to the delay in receiving the final decision in November 2014 of the BVES rate
case, which authorized these programs.
32
For the year ended December 31, 2015, administrative and general expenses for contracted services increased by $2.5
million primarily due to a shift in labor and other indirect costs to administrative and general-related activities, in support of
various functions at ASUS, from construction-related activities. There was also an increase in insurance and other outside
services costs, as compared to the same period in 2014.
Depreciation and Amortization
For the years ended December 31, 2015 and 2014, depreciation and amortization expense by segment consisted of the
following amounts (in thousands):
Water Services
Electric Services
Contracted Services
Total depreciation and amortization
Year
Ended
12/31/2015
Year
Ended
12/31/2014
$
%
CHANGE
CHANGE
$
$
39,190 $
1,703
1,140
42,033 $
38,388 $
1,466
1,219
41,073 $
802
237
(79)
960
2.1%
16.2%
-6.5%
2.3%
For the year ended December 31, 2015, depreciation and amortization expense for the utility segments increased by
$1.0 million resulting primarily from additions to utility plant during 2014.
Maintenance
For the years ended December 31, 2015 and 2014, maintenance expense by segment consisted of the following amounts
(in thousands):
Water Services
Electric Services
Contracted Services
Total maintenance
Year
Ended
12/31/2015
Year
Ended
12/31/2014
$
%
CHANGE
CHANGE
$
$
13,935 $
758
2,192
16,885 $
13,067 $
878
2,147
16,092 $
868
(120)
45
793
6.6%
-13.7%
2.1%
4.9%
For the year ended December 31, 2015, maintenance expense for water services increased by $868,000 compared to the
year ended December 31, 2014 due to higher levels of both planned and unplanned maintenance performed in 2015.
For the year ended December 31, 2015, maintenance expense for electric services decreased by $120,000 due to a
higher level of expenses related to unplanned maintenance and tree trimming performed in 2014.
Property and Other Taxes
For the years ended December 31, 2015 and 2014, property and other taxes by segment, consisted of the following
amounts (in thousands):
Water Services
Electric Services
Contracted Services
Total property and other taxes
Year
Ended
12/31/2015
Year
Ended
12/31/2014
$
%
CHANGE
CHANGE
$
$
14,250 $
994
1,392
16,636 $
14,285 $
936
1,501
16,722 $
(35)
58
(109)
(86)
-0.2%
6.2%
-7.3%
-0.5%
For the year ended December 31, 2015, property and other taxes for contracted services decreased by $109,000 due to
lower gross receipts taxes primarily resulting from the elimination of such taxes in North Carolina effective July 1, 2014.
ASUS Construction
For the year ended December 31, 2015, construction expenses for contracted services were $52.8 million, decreasing by
$12.6 million compared to the same period in 2014 due primarily to significant work on several larger projects being
substantially completed during 2014, which did not recur in 2015. In addition, there was a higher amount of internal labor
incurred for administrative and general-related activities, while in 2014 such labor was incurred for construction activities.
33
Interest Expense
For the years ended December 31, 2015 and 2014, interest expense by segment, including AWR (parent), consisted of
the following amounts (in thousands):
Water Services
Electric Services
Contracted Services
AWR (parent)
Total interest expense
Year
Ended
12/31/2015
Year
Ended
12/31/2014
$
%
CHANGE
CHANGE
$
$
19,898 $
1,100
33
57
21,088 $
20,260 $
1,264
151
(58)
21,617 $
(362)
(164)
(118)
115
(529)
-1.8%
-13.0%
-78.1%
-198.3%
-2.4%
Overall, interest expense for the year ended December 31, 2015 decreased by $529,000 as compared to the same period
in 2014 due largely to an increase in capitalized interest at the water segment resulting from the approval of an allowance for
funds used during construction ("AFUDC") from advice letter filings approved by the CPUC during the first quarter of 2015. In
addition, GSWC replaced $15.0 million of certain long-term notes during the fourth quarter of 2014 with a note that bears a
lower interest rate.
Interest Income
For the years ended December 31, 2015 and 2014, interest income by business segment, including AWR (parent),
consisted of the following amounts (in thousands):
Water Services
Electric Services
Contracted Services
AWR (parent)
Total interest income
Year
Ended
Year
Ended
$
%
12/31/2015
12/31/2014
CHANGE
CHANGE
$
$
430 $
10
7
11
458 $
890 $
4
9
24
927 $
(460)
6
(2)
(13)
(469)
-51.7 %
150.0 %
-22.2 %
-54.2 %
-50.6 %
Interest income decreased by $469,000 for the year ended December 31, 2015 as compared to the same period in 2014
due to interest collected on certain outstanding balances owed to GSWC during 2014. There was no similar item in 2015.
Other, net
For the year ended December 31, 2015, other income decreased by $395,000 primarily due to lower gains recorded on
investments held for a retirement benefit plan resulting from recent market conditions as compared to 2014.
Income Tax Expense
For the years ended December 31, 2015 and 2014, income tax expense by segment, including AWR (parent), consisted
of the following amounts (in thousands):
Water Services
Electric Services
Contracted Services
AWR (parent)
Total income tax expense
Year
Ended
12/31/2015
Year
Ended
12/31/2014
$
%
CHANGE
CHANGE
$
$
30,302 $
2,170
6,069
(810)
37,731 $
30,410 $
1,596
7,038
(996)
38,048 $
(108)
574
(969)
186
(317)
-0.4%
36.0%
-13.8%
-18.7%
-0.8%
Consolidated income tax expense for the year ended December 31, 2015 decreased by $317,000 due primarily to a
decrease in pretax income. AWR's consolidated effective income tax rate ("ETR") was 38.4% for the years ended December 31,
2015 and 2014. The ETR for GSWC was 40.6% for 2015 as compared to 40.1% for 2014 due primarily to differences between
book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements, and
permanent differences such as deductions related to production activities. The increase in ETR for GSWC was partially offset by
a lower ETR at the contracted services segment due mostly to lower state taxes, which vary among the jurisdictions in which it
operates.
34
Consolidated Results of Operations — Years Ended December 31, 2014 and 2013 (dollar amounts in thousands, except per
share amounts):
OPERATING REVENUES
Water
Electric
Contracted services
Total operating revenues
OPERATING EXPENSES
Water purchased
Power purchased for pumping
Groundwater production assessment
Power purchased for resale
Supply cost balancing accounts
Other operation
Administrative and general
Depreciation and amortization
Maintenance
Property and other taxes
ASUS construction
Total operating expenses
Year
Ended
12/31/2014
Year
Ended
12/31/2013
$
%
CHANGE
CHANGE
$
326,672 $
34,387
104,732
465,791
320,131 $
38,409
113,537
472,077
6,541
(4,022)
(8,805)
(6,286)
57,790
10,700
16,450
9,649
6,346
28,288
78,268
41,073
16,092
16,722
65,368
346,746
58,930
9,518
15,541
13,392
214
27,767
77,289
40,090
17,772
15,865
76,627
353,005
(1,140)
1,182
909
(3,743)
6,132
521
979
983
(1,680)
857
(11,259)
(6,259)
2.0 %
-10.5 %
-7.8 %
-1.3 %
-1.9 %
12.4 %
5.8 %
-27.9 %
*
1.9 %
1.3 %
2.5 %
-9.5 %
5.4 %
-14.7 %
-1.8 %
OPERATING INCOME
119,045
119,072
(27)
— %
OTHER INCOME AND EXPENSES
Interest expense
Interest income
Other, net
INCOME FROM OPERATIONS BEFORE INCOME TAX
EXPENSE
(21,617)
927
751
(19,939)
(22,415)
707
1,105
(20,603)
99,106
98,469
798
220
(354)
664
637
-3.6 %
31.1 %
-32.0 %
-3.2 %
0.6 %
Income tax expense
38,048
35,783
2,265
6.3 %
INCOME FROM OPERATIONS
Basic earnings per Common Share
Diluted earnings per Common Share
* Not meaningful
$
$
$
61,058 $
62,686 $
(1,628)
-2.6 %
1.57 $
1.61 $
(0.04)
-2.5 %
1.57 $
1.61 $
(0.04)
-2.5 %
35
The table below sets forth diluted earnings per share by business segment for AWR’s operations:
Water
Electric
Contracted services
AWR (parent)
Totals from operations, as reported
Diluted Earnings per Share
Year Ended
12/31/2014
12/31/2013
CHANGE
$
$
1.16 $
0.07
0.31
0.03
1.57 $
1.19 $
0.06
0.30
0.06
1.61 $
(0.03)
0.01
0.01
(0.03)
(0.04)
For the year ended December 31, 2014, fully diluted earnings per share for the water segment decreased by $0.03 per
share to $1.16 per share, as compared to $1.19 per share for 2013. In May 2013, the CPUC issued a final decision on GSWC's
water general rate case which approved, among other things, recovery of $3.1 million of previously incurred costs. The
approval of these items increased earnings for the year ended December 31, 2013 by $0.05 per share, with no similar increase
in 2014. Excluding this $0.05 per share impact, diluted earnings from the water segment increased by $0.02 per share for the
year ended December 31, 2014 as compared to the same period in 2013. Impacting the comparability of the two periods were
the following items:
• An increase in the water gross margin of $0.05 per share, primarily resulting from second-year rate increases and
additional revenues approved by the CPUC for advice letter capital projects. There was also a decrease of
approximately $580,000 in revenues with a corresponding decrease in operating expenses representing lower
surcharges billed to customers to recover previously incurred costs. These surcharges had no impact on net earnings.
• Excluding supply costs, the one-time recovery of previously incurred costs and the impact of the surcharges discussed
above, there was an increase in operating expenses of approximately $2.1 million, or $0.03 per share, due primarily to
increases in outside service costs, depreciation expense and property taxes. These increases were partially offset by
lower planned maintenance.
• A decrease in interest expense and other non-operating expenses (net of interest income), increasing earnings by $0.01
per share due primarily to the refinance of certain long-term notes with notes at a lower interest rate as well as other
debt maturing during the fourth quarter of 2013 and 2014.
• An increase in the effective income tax rate for the water segment during the year ended December 31, 2014 as
compared to 2013, which decreased earnings by approximately $0.01 per share. The change in the tax rate is
primarily due to changes between book and taxable income from items that are treated as flow-through adjustments in
accordance with regulatory requirements as well as changes in permanent items.
For the year ended December 31, 2014, diluted earnings from the electric segment increased by $0.01 per share as
compared to 2013 due primarily to an overall decrease in operating expenses and a lower electric effective income tax rate.
The decrease in expenses in 2014 was partially offset by the recovery of legal and outside services costs in connection with the
CPUC's renewables portfolio standard approved by the CPUC in May 2013. As a result, in the second quarter of 2013, GSWC
recorded an $834,000 reduction in legal and outside services costs, increasing earnings by $0.01 per share. There was no
similar reduction in 2014. The final decision on BVES's general rate case approved by the CPUC in November 2014 did not
have a significant impact on BVES's earnings for 2014.
For the year ended December 31, 2014, diluted earnings from contracted services were $0.31 per share, compared to
$0.30 per share for the same period in 2013. Impacting the comparability of the two periods were the following items:
• An increase in management fees as a result of successful resolutions of various price redeterminations received during
the third quarter of 2014, increasing earnings by $0.05 per share for 2014. Included in this increase were retroactive
amounts totaling $1.7 million, or $0.03 per share, related to prior years.
• An increase of $0.02 per share due to the recording of additional revenues during the close-out of a large pipe
replacement construction project at Fort Bragg. ONUS began work on this large project in 2010, which was
completed and closed-out during the fourth quarter of 2014.
• An overall decrease in construction activity reducing earnings by $0.03 per share due to significant work on several
projects being substantially completed during 2013, with less work performed during 2014.
• A decrease of $0.03 per share as compared to 2013 as a result of cumulative tax deductions taken in 2013 related to
certain construction activities for years 2013 and prior. There was no similar cumulative amount deducted for 2014.
36
Diluted earnings from AWR (parent) decreased $0.03 per share as compared to the same period in 2013 due primarily
to a cumulative tax benefit recorded during the third quarter of 2013 for deductions related to an employee benefit program,
with no similar cumulative benefit recorded in 2014.
The following discussion and analysis for the years ended December 31, 2014 and 2013 provides information on
AWR’s consolidated operations and assets and, where necessary, includes specific references to AWR’s individual segments
and/or other subsidiaries: GSWC and ASUS and its subsidiaries.
Operating Revenues
Water
For the year ended December 31, 2014, revenues from water operations increased by $6.5 million to $326.7 million,
compared to $320.1 million for the year ended December 31, 2013. During 2014, the CPUC approved an increase in rates to
specifically cover increases in supply costs experienced in certain rate-making areas. This $3.5 million increase in revenues for
the year ended December 31, 2014 is offset by a corresponding increase in supply cost, resulting in no impact to the water gross
margin. There were also second-year rate increases approved by the CPUC effective January 1, 2014 for certain rate-making
areas as well as increases related to advice letter filings. These increases were partially offset by a decrease of approximately
$580,000 in surcharges during the year ended December 31, 2014 to recover previously incurred costs approved by the CPUC.
The decrease in revenues from these surcharges is offset by a corresponding decrease in operating expenses (primarily
administrative and general) resulting in no impact to pretax operating income.
Billed water consumption for the year ended December 31, 2014 decreased by approximately 2.8% as compared to the
same period in 2013. Changes in consumption do not have a significant impact on revenues due to the CPUC-approved
WRAM account in place in all three water regions. GSWC records the difference between what it bills its water customers and
that which is authorized by the CPUC in the WRAM accounts as regulatory assets or liabilities.
Electric
For the year ended December 31, 2014, revenues from electric operations were $34.4 million compared to $38.4
million for 2013. In November 2014, the CPUC issued a final decision on BVES's general rate case which sets new rates for
the years 2013—2016. The new rates were retroactive to January 1, 2013. Prior to the decision, electric revenues for 2013 and
2014 were recorded based on 2012 adopted levels. The new adopted revenues for years 2013 through 2016 are lower than
revenues in the previous rate cycle resulting from a revised return on equity of 9.95%, as well as lower depreciation and certain
other operating expenses. As a result of the decision, a $2.2 million cumulative reduction in revenues was recorded during the
fourth quarter of 2014, along with a cumulative reduction in depreciation expense. The impact of the retroactive effect of the
new rates to BVES's 2014 net earnings was not significant. There was also a $936,000 decrease in surcharges to recover
previously incurred costs during 2014 as compared to 2013, with a corresponding $936,000 decrease in operating expenses
resulting in no impact to pretax income. The remaining decrease in electric revenues was primarily due to lower electric usage,
resulting in lower revenues and lower electric supply costs.
Billed electric usage for the year ended December 31, 2014 decreased 5.4% as compared to 2013. The winter
experienced in the Big Bear area during the first quarter of 2014 was too warm for snowmaking, resulting in less electric usage
than in the prior year. Due to the CPUC-approved base revenue requirement adjustment mechanism, which adjusts certain
revenues to adopted levels authorized by the CPUC, this change in usage did not have a significant impact on earnings.
Contracted Services
Revenues from contracted services are composed of construction revenues and management fees for operating and
maintaining the water and/or wastewater systems at military bases. For the year ended December 31, 2014, revenues from
contracted services decreased to $104.7 million as compared to $113.5 million for 2013. The decrease was mainly due to lower
construction activity at various military bases, including a reduction in initial capital upgrade work at Fort Bragg and the
military bases in Virginia. In addition, ASUS subsidiaries completed or are nearing completion of significant work on major
capital projects at Fort Bliss and Fort Bragg, resulting in less revenue during the year ended December 31, 2014 as compared to
the same period in 2013. The decrease in construction activity was partially offset by the resolution of price redeterminations at
Fort Bragg, Fort Jackson and Joint Base Andrews resulting in increased management fee revenues during the third quarter of
2014, including retroactive amounts related to prior years totaling $1.7 million. Additionally, ASUS recorded $1.6 million of
additional revenues during the fourth quarter of 2014 in conjunction with the close-out of a large construction project at Fort
Bragg. ONUS began work on this large project in 2010, which was completed and closed-out during the fourth quarter of
2014.
37
Operating Expenses:
Supply Costs
Supply costs accounted for 29.1% and 27.6% of total operating expenses for the years ended December 31, 2014 and
2013, respectively.
The table below provides the amounts of increases (decreases), percent changes in supply costs, and gross margins
during the years ended December 31, 2014 and 2013 (dollar amounts in thousands):
WATER OPERATING REVENUES (1)
WATER SUPPLY COSTS:
Water purchased (1)
Power purchased for pumping (1)
Groundwater production assessment (1)
Water supply cost balancing accounts (1)
TOTAL WATER SUPPLY COSTS
WATER GROSS MARGIN (2)
PERCENT MARGIN - WATER
ELECTRIC OPERATING REVENUES (1)
ELECTRIC SUPPLY COSTS:
Power purchased for resale (1)
Electric supply cost balancing accounts (1)
TOTAL ELECTRIC SUPPLY COSTS
ELECTRIC GROSS MARGIN (2)
PERCENT MARGIN - ELECTRIC
Year
Ended
12/31/2014
$ 326,672
Year
Ended
12/31/2013
$ 320,131
$
%
CHANGE
$
6,541
CHANGE
2.0 %
57,790
10,700
16,450
1,378
86,318
$
$ 240,354
73.6 %
58,930
9,518
15,541
(1,958)
82,031
$
$ 238,100
$
$
74.4%
(1,140)
1,182
909
3,336
4,287
2,254
-1.9 %
12.4 %
5.8 %
-170.4 %
5.2 %
0.9 %
$
34,387
$
38,409
$
(4,022)
-10.5 %
9,649
4,968
14,617
19,770
$
$
57.5 %
13,392
2,172
15,564
22,845
$
$
59.5%
$
$
(3,743)
2,796
(947)
(3,075)
-27.9 %
128.7 %
-6.1 %
-13.5 %
(1) As reported on AWR’s Consolidated Statements of Income, except for supply-cost balancing accounts. The sums of water and electric
supply-cost balancing accounts in the table above is shown on AWR’s Consolidated Statements of Income and totaled $6,346,000 and
$214,000 for the years ended December 31, 2014 and 2013, respectively. Revenues include surcharges, which increase both revenues
and operating expenses by corresponding amounts, thus having no net earnings impact.
(2) Water and electric gross margins do not include depreciation and amortization, maintenance, administrative and general, property and
other taxes, and other operation expenses.
The overall actual percentages for purchased water for the years ended December 31, 2014 and 2013 approximated the
adopted overall percentage of 35%. The overall water gross margin percent was 73.6% for the year ended December 31, 2014
as compared to 74.4% in the same period of 2013. The decrease in the overall water gross margin as a percentage of total water
revenue was primarily due to CPUC-approved increases in rates implemented in the second and third quarters of 2014
specifically intended to cover increases in supply costs experienced in certain rate-making areas, increasing revenues by $3.5
million for the year ended December 31, 2014 as compared to the same period in 2013. This increase in revenues was offset by
a corresponding increase in supply cost, resulting in no impact to the water gross dollar margin but lowering the gross margin
as a percentage of total water revenues. There was also a $580,000 decrease in surcharge revenues as compared to the year
ended December 31, 2013, with a corresponding decrease in operating expenses, resulting in no impact to pretax operating
income.
Purchased water costs for the year ended December 31, 2014 decreased by 1.9% to $57.8 million as compared to
$58.9 million in 2013 primarily due to a decrease in customer usage, partially offset by increases in wholesale water costs.
For the year ended December 31, 2014, the cost of power purchased for pumping increased to $10.7 million as
compared to $9.5 million for 2013 primarily due to an increase in average electric costs. Groundwater production assessments
were $16.5 million in 2014 as compared to $15.5 million in 2013 due to an increase in rates levied by government agencies.
38
The water-supply-cost balancing account increased $3.3 million during the year ended December 31, 2014 as
compared to the same period in 2013 due to an increase in rates specifically to cover increases in supply costs for certain rate-
making areas, as previously discussed. This increase in revenues is offset by a corresponding increase in the water-supply-cost
balancing account, resulting in no impact to the water gross margin.
For the year ended December 31, 2014, the cost of power purchased for resale to customers in GSWC’s BVES
division decreased to $9.6 million, as compared to $13.4 million for the year ended December 31, 2013, due primarily to a
decrease in the average price per MWh during the year ended December 31, 2014. The average price per MWh decreased from
$62.18 per MWh for the year ended December 31, 2013 to $48.00 per MWh for the same period in 2014. There was also a
5.4% decrease in customer usage as compared to the year ended December 31, 2013. The electric-supply-cost balancing
account included in total supply costs increased by $2.8 million due to the decrease in the average price per MWh.
Other Operation
For the years ended December 31, 2014 and 2013, other operation expenses by segment consisted of the following
(dollar amounts in thousands):
Water Services
Electric Services
Contracted Services
Total other operation expenses
Year
Ended
12/31/2014
Year
Ended
12/31/2013
$
%
CHANGE
CHANGE
$
$
22,871 $
2,677
2,740
28,288 $
22,356 $
2,754
2,657
27,767 $
515
(77)
83
521
2.3 %
-2.8 %
3.1 %
1.9 %
For the year ended December 31, 2014, other operation expense for water services increased by $515,000 as compared
to 2013. As part of the CPUC's final decision on the water rate case approved in May 2013, during the first quarter of 2013
GSWC recorded a $1.0 million reduction in other operation expense as a result of the CPUC approval for recovery of certain
previously expensed costs. There was no similar reduction in 2014. Excluding the impact of this item, other operation expense
for water services decreased by approximately $485,000 due primarily to a decrease in labor resulting from a lower number of
employees, and a decrease in conservation and outside service costs.
Administrative and General
For the years ended December 31, 2014 and 2013, administrative and general expenses by segment, including AWR
(parent), consisted of the following (dollar amounts in thousands):
Water Services
Electric Services
Contracted Services
AWR (parent)
Total administrative and general expenses
Year
Ended
12/31/2014
Year
Ended
12/31/2013
$
%
CHANGE
CHANGE
$
$
57,729 $
8,085
12,406
48
78,268 $
55,053 $
9,592
12,637
7
77,289 $
2,676
(1,507)
(231)
41
979
4.9 %
-15.7 %
-1.8 %
585.7 %
1.3 %
For the year ended December 31, 2014, administrative and general expenses for water services increased by $2.7
million compared to 2013. During the first quarter of 2013, as part of the CPUC's final decisions on the water rate case, GSWC
recorded a $1.7 million reduction in administrative and general expenses as a result of the CPUC approval of recovery of
certain previously expensed costs. There was no similar reduction in 2014. Additionally, during the year ended December 31,
2014, there was a decrease of $547,000 in surcharges billed for the recovery of various administrative and general costs
previously incurred, as compared to the same period in 2013. As these costs are recovered in revenue through surcharges, a
corresponding dollar amount is recorded to administrative and general expenses, having no impact on pretax operating income.
39
Excluding the effect of these two items, administrative and general expenses for water services increased by
approximately $1.5 million due primarily to an increase in legal and outside service costs, partially offset by lower general
liability and workers' compensation reserves and pension expense. Registrant expects pension expense to increase during 2015
as a result of lower discount rates and new mortality tables. CPUC-approved rate increases effective January 1, 2015 are
expected to provide adequate rate recovery for these expected increases. In addition, for the water and electric segments,
differences between actual pension expense and forecasted pension expense included in rates are tracked in the two-way
pension balancing accounts, resulting in no impact to pretax income.
For the year ended December 31, 2014, administrative and general expenses for electric services decreased by $1.5
million compared to 2013. Surcharges billed in 2014 for the recovery of various previously incurred administrative and general
costs decreased by $501,000 as compared to the same period in 2013. As discussed previously, as these surcharges are
recorded as revenue, a corresponding dollar amount is recorded to administrative and general expenses, having no impact on
pretax operating income. In May 2013 the CPUC approved recovery of $834,000 in legal and outside service costs related to
compliance with the CPUC's renewables portfolio standard. There was no similar reduction in 2014. Excluding the impact of
these items, administrative and general expenses for electric services decreased by $1.8 million due primarily to decreases in
legal and outside service costs, pension expense and workers' compensation and general liability reserves.
Depreciation and Amortization
For the years ended December 31, 2014 and 2013, depreciation and amortization by segment consisted of the
following (dollar amounts in thousands):
Water Services
Electric Services
Contracted Services
Total depreciation and amortization
Year
Ended
Year
Ended
$
%
12/31/2014
12/31/2013
CHANGE
CHANGE
$
$
38,388 $
1,466
1,219
41,073 $
36,636 $
2,316
1,138
40,090 $
1,752
(850)
81
983
4.8%
-36.7%
7.1%
2.5%
For the year ended December 31, 2014, depreciation and amortization expense for water services increased by $1.8
million due primarily to approximately $91 million of additions to utility plant during 2013, partially offset by approximately
$11 million of asset retirements.
For the year ended December 31, 2014, depreciation and amortization expense for electric services decreased by
$850,000 primarily due to lower depreciation composite rates approved by the CPUC in the electric general rate case in
November 2014.
Maintenance
For the years ended December 31, 2014 and 2013, maintenance expense by segment consisted of the following (dollar
amounts in thousands):
Water Services
Electric Services
Contracted Services
Total maintenance
Year
Ended
12/31/2014
Year
Ended
12/31/2013
$
%
CHANGE
CHANGE
$
$
13,067 $
878
2,147
16,092 $
14,994 $
829
1,949
17,772 $
(1,927)
49
198
(1,680)
-12.9 %
5.9 %
10.2 %
-9.5 %
For the year ended December 31, 2014, maintenance expense for water services decreased by $1.9 million compared
to the year ended December 31, 2013 due to a higher level of planned maintenance performed in 2013.
For the year ended December 31, 2014, maintenance expense for contracted services increased by $198,000 due to
increased maintenance activities performed at various military bases as compared to the same period in 2013.
40
Property and Other Taxes
For the years ended December 31, 2014 and 2013, property and other taxes by segment, consisted of the following
(dollar amounts in thousands):
Water Services
Electric Services
Contracted Services
Total property and other taxes
Year
Ended
12/31/2014
Year
Ended
12/31/2013
$
%
CHANGE
CHANGE
$
$
14,285 $
936
1,501
16,722 $
13,130 $
942
1,793
15,865 $
1,155
(6)
(292)
857
8.8 %
-0.6 %
-16.3 %
5.4 %
For the year ended December 31, 2014, property and other taxes for water services increased by $1.2 million due
primarily to increases in property taxes of approximately $985,000 resulting from capital additions and associated higher
assessed property values. There was also an increase in franchise fees.
For the year ended December 31, 2014, property and other taxes for contracted services decreased by $292,000 due to
lower accrued gross receipt taxes for the military bases in Virginia as a result of lower construction activity, and also at Fort
Bragg as a result of the elimination of the gross receipt tax in North Carolina effective July 1, 2014.
ASUS Construction
For the year ended December 31, 2014, construction expenses for contracted services were $65.4 million, decreasing
by $11.3 million compared to the same period in 2013 due to lower overall construction activity, primarily at FBWS, ONUS
and ODUS, partially offset by higher construction activity at TUS. As previously discussed, ASUS subsidiaries completed or
are nearing completion of significant work on major capital projects at Fort Bliss and Fort Bragg, resulting in less construction
expenses during the year ended December 31, 2014 as compared to the same period in 2013.
Interest Expense
For the years ended December 31, 2014 and 2013, interest expense by segment, including AWR (parent), consisted of
the following (dollar amounts in thousands):
Water Services
Electric Services
Contracted Services
AWR (parent)
Total interest expense
Year
Ended
12/31/2014
Year
Ended
12/31/2013
$
%
CHANGE
CHANGE
$
$
20,260 $
1,264
151
(58)
21,617 $
20,849 $
1,438
286
(158)
22,415 $
(589)
(174)
(135)
100
(798)
-2.8 %
-12.1 %
-47.2 %
-63.3 %
-3.6 %
Overall, interest expense for the year ended December 31, 2014 decreased by $798,000 as compared to 2013 due
primarily to the redemption of $15.0 million of certain long-term notes in July 2014, as well as other debt maturing during the
fourth quarter of 2013 totaling $3.1 million. This was partially offset by an increase in short-term borrowings under the credit
facility. The average bank balances under Registrant's revolving credit facility was $6.2 million during 2014. There were no
borrowings under the credit facility during 2013. The average interest rate on short-term borrowings was 0.81% during 2014.
41
Interest Income
For the years ended December 31, 2014 and 2013, interest income by segment, including AWR (parent) consisted of
the following (dollar amounts in thousands):
Water Services
Electric Services
Contracted Services
AWR (parent)
Total interest income
Year
Ended
12/31/2014
Year
Ended
12/31/2013
$
%
CHANGE
CHANGE
$
$
890 $
4
9
24
927 $
613 $
2
22
70
707 $
277
2
(13)
(46)
220
45.2 %
100.0 %
-59.1 %
-65.7 %
31.1 %
Interest income increased by $220,000 for the year ended December 31, 2014 as compared to 2013 due primarily to
interest collected on certain outstanding balances owed to GSWC. There was no similar item in 2013.
Other, net
For the year ended December 31, 2014, other income decreased by $354,000 primarily due to lower accrued interest
related to GSWC's allowance for funds used during construction and lower gains on investments held for a retirement benefit
plan as compared to the same period in 2013.
Income Tax Expense
For the years ended December 31, 2014 and 2013, income tax expense by segment, including AWR (parent), consisted
of the following (dollar amounts in thousands):
Water Services
Electric Services
Contracted Services
AWR (parent)
Total income tax expense
Year
Ended
12/31/2014
Year
Ended
12/31/2013
$
%
CHANGE
CHANGE
$
$
30,410 $
1,596
7,038
(996)
38,048 $
30,679 $
2,455
4,911
(2,262)
35,783 $
(269)
(859)
2,127
1,266
2,265
-0.9 %
-35.0 %
43.3 %
-56.0 %
6.3 %
Consolidated income tax expense for the year ended December 31, 2014 increased by $2.3 million due primarily to an
overall higher effective income tax rate ("ETR") and higher pre-tax income. AWR's consolidated ETR was 38.4% for the year
ended December 31, 2014 as compared to 36.3% for 2013. The consolidated ETR increased primarily as a result of certain
cumulative tax deductions taken at ASUS and at AWR (parent) in 2013, with no similar cumulative benefit recorded in 2014.
These deductions related to certain construction activities at ASUS and an employee benefit program at AWR (parent). The
ETR at GSWC decreased slightly to 40.1% in 2014 as compared to 40.5% in 2013.
42
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. The
following are accounting policies that are critical to the financial statements of AWR. For more information regarding the
significant accounting policies of Registrant, see Note 1 of “Notes to Financial Statements” included in Part II, Item 8, in
Financial Statements and Supplementary Data.
Accounting for Rate Regulation — Because the Registrant operates extensively in a regulated business, it is subject to
the authoritative guidance for accounting for the effects of certain types of regulation. Application of this guidance requires
accounting for certain transactions in accordance with regulations adopted by the regulatory commissions of the states in which
operations are conducted. Utility companies defer costs and credits on the balance sheet as regulatory assets and liabilities
when it is probable that those costs and credits will be recognized in the ratemaking process in a period different from the
period in which they would have been reflected in income by an unregulated company. These deferred regulatory assets and
liabilities are then reflected in the income statement in the period in which the same amounts are reflected in the rates charged
for service.
Regulation and the effects of regulatory accounting have the most significant impact on the financial statements.
When GSWC files for adjustments to rates, the capital assets, operating costs and other matters are subject to review, and
disallowances may occur. In the event that a portion of the Registrant’s operations is no longer subject to the accounting
guidance for the effects of certain types of regulation, Registrant is required to write off related regulatory assets that are not
specifically recoverable and determine if other assets might be impaired. If the CPUC determines that a portion of the
Registrant’s assets are not recoverable in customer rates, Registrant is required to determine if it has suffered an asset
impairment that would require a write-down in the asset valuation. At December 31, 2015, the consolidated balance sheet
included net regulatory assets of approximately $132.7 million. Management continually evaluates the anticipated recovery of
regulatory assets, liabilities, and revenues subject to refund and will provide for allowances and/or reserves as necessary. In the
event that Registrant’s assessment as to the probability of the inclusion in the ratemaking process is incorrect, the associated
regulatory asset or liability will be adjusted to reflect the change in assessment or the impact of regulatory approval of rates.
Reviews by the CPUC may also result in additional regulatory liabilities to refund previously collected revenues to customers if
the CPUC disallows costs included in the ratemaking process.
Registrant also reviews its utility plant in service for possible impairment in accordance with accounting guidance for
regulated entities for abandonments and disallowances of plant costs.
Revenue Recognition — GSWC records water and electric utility operating revenues when the service is provided to
customers. Operating revenues include unbilled revenues that are earned (i.e., the service has been provided) but not billed by
the end of each accounting period. Unbilled revenues are calculated based on the number of days and total usage from each
customer’s most recent billing record that was billed prior to the end of the accounting period and is used to estimate unbilled
consumption as of the year-end reporting period. Unbilled revenues are recorded for both monthly and bi-monthly customers.
The CPUC granted GSWC the authority to implement revenue decoupling mechanisms through the adoption of the
WRAM and the Base Revenue Requirement Adjustment Mechanism (“BRRAM”). With the adoption of these alternative
revenue programs, GSWC adjusts revenues in the WRAM and BRRAM for the difference between what is billed to its
regulated customers and that which is authorized by the CPUC.
As required by the accounting guidance for alternative revenue programs, GSWC is required to collect its WRAM
balances, net of its MCBA, within 24 months following the year in which they are recorded. In April 2012, the CPUC set the
recovery period for under-collected balances that are up to 15% of adopted annual revenues at 18 months or less. For net
WRAM under-collected balances greater than 15%, the recovery period is 19 to 36 months. In addition to adopting an
amortization schedule, the CPUC set a cap on total net WRAM/MCBA surcharges in any given calendar year of 10% of the last
authorized revenue requirement. As a result of the accounting guidance and CPUC-adopted recovery periods, Registrant must
estimate if any WRAM and BRRAM revenues will be collected beyond the 24-month requirement, which can affect the timing
of when such revenues are recognized.
43
Revenues for operations and maintenance contracts are recognized when services have been rendered to the U.S.
government pursuant to 50-year contracts. Revenues from construction activities are recognized based on either the
percentage-of-completion or cost-plus methods of accounting. In accordance with GAAP, revenue recognition under these
methods requires management to estimate the progress toward completion on a contract in terms of efforts (such as costs
incurred) or, in the case of the percentage-of-completion method, in terms of results achieved (such as units
constructed). These approaches are used because management considers it to be the best available measure of progress on
these contracts. Changes in job performance, job conditions, change orders and estimated profitability, including those arising
from any contract penalty provisions, and final contract settlements may result in revisions to costs and income and are
recognized in the period in which the revisions are determined. Unbilled receivables from the U.S. government represent
amounts to be billed for construction work completed and/or for services rendered pursuant to the 50-year contracts with the
U.S government, which are not presently billable but which will be billed under the terms of the contracts.
Income Taxes — Registrant’s income tax calculations require estimates due principally to the regulated nature of the
operations of GSWC, the multiple states in which Registrant operates, and potential future tax rate changes. Registrant uses the
asset and liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. Changes in
regulatory treatment, or significant changes in tax-related estimates, assumptions or law, could have a material impact on the
financial position and results of operations of Registrant.
As a regulated utility, GSWC treats certain temporary differences as flow-through adjustments in computing its
income tax expense consistent with the income tax approach approved by the CPUC for ratemaking purposes. Flow-through
adjustments increase or decrease tax expense in one period, with an offsetting decrease or increase occurring in another period.
Giving effect to these temporary differences as flow-through adjustments typically results in a greater variance between the
effective tax rate and the statutory federal income tax rate in any given period than would otherwise exist if GSWC were not
required to account for its income taxes as a regulated enterprise. As of December 31, 2015, Registrant’s total amount of
unrecognized tax benefits was zero. In addition, effective January 1, 2014, the Company changed its tax method of accounting
for certain repairs and maintenance expenditures pursuant to regulations issued by the U.S. Treasury Department in September
2013. The new tax regulations allow the Company to deduct a significant amount of linear asset costs previously capitalized
for tax purposes. The Company completed its analysis of this deduction for 2014 and prior years and recorded the cumulative
effect in 2014. See Note 10 (Income Taxes) of Notes to Consolidated Financial Statements.
Pension Benefits — Registrant’s pension benefit obligations and related costs are calculated using actuarial concepts
within the framework of accounting guidance for employers' accounting for pensions and post-retirement benefits other than
pensions. Two critical assumptions, the discount rate and the expected return on plan assets, are important elements of expense
and/or liability measurement. We evaluate these critical assumptions annually. Other assumptions include employee
demographic factors such as retirement patterns, mortality, turnover and rate of compensation increase. The discount rate
enables Registrant to state expected future cash payments for benefits as a present value on the measurement date. The
guideline for setting this rate is a high-quality, long-term corporate bond rate. Registrant’s discount rates were determined by
considering the average of pension yield curves constructed using a large population of high-quality corporate bonds. The
resulting discount rates reflect the matching of plan liability cash flows to the yield curves. A lower discount rate increases the
present value of benefit obligations and increases periodic pension expense. Conversely, a higher discount rate decreases the
present value of benefit obligations and decreases periodic pension expense. To determine the expected long-term rate of return
on the plan assets, Registrant considers the current and expected asset allocation, as well as historical and expected returns on
each plan asset class. A lower expected rate of return on plan assets will increase pension expense. The long-term expected
return on plan assets was 7.00% in 2015 and 2014 for the pension plan.
For the pension plan obligation, Registrant increased the discount rate to 4.65% as of December 31, 2015 from 4.25%
as of December 31, 2014 to reflect market interest-rate conditions at December 31, 2015. A 25 basis point decrease in the
assumed discount rate would have increased total net periodic pension expense for 2015 by approximately $797,000, or 13.1%,
and would have increased the projected benefit obligation (“PBO”) and accumulated benefit obligation (“ABO”) at
December 31, 2015 by a total of $6.4 million, or 3.8%. A 25 basis point decrease in the long-term return on pension plan asset
assumption would have increased 2015 pension cost by approximately $350,000, or 5.8%.
44
In addition, changes in the fair value of plan assets will impact future pension cost and the Plan’s funded
status. Volatile market conditions can affect the value of AWR’s trust established to fund its future long-term pension benefits.
Any reductions in the value of plan assets will result in increased future expense, an increase in the underfunded position and
increased future contributions.
Previous CPUC decisions in the water and electric general rate cases have authorized GSWC to continue using a two-
way balancing account to track differences between the forecasted annual pension expenses adopted in rates and the actual
annual expense to be recorded by GSWC in accordance with the accounting guidance for pension costs. As of December 31,
2015, GSWC has a net $2.2 million under-collection in the two-way pension balancing accounts, consisting of a $2.5 million
under-collection related to the general office and water regions, and a $319,000 over-collection related to BVES.
Funding requirements for qualified defined benefit pension plans are determined by government regulations. In
establishing the contribution amount, Registrant has considered the potential impact of funding-rule changes under the Pension
Protection Act of 2006. Registrant contributes the minimum required contribution as determined by government regulations or
the forecasted annual pension cost authorized by the CPUC and included in customer rates, whichever is higher. In accordance
with this funding policy, for 2016 the pension contribution is expected to be at least $5.5 million. As previously discussed, any
differences between the forecasted annual pension costs in rates and the actual pension costs are included in the two-way
pension balancing accounts.
Additionally, our pension plan liabilities are sensitive to changes in interest rates. As interest rates decrease, thereby
reducing returns, our liabilities increase, potentially increasing benefit expense and funding requirements. In addition, market
factors can affect assumptions we use in determining funding requirements with respect to our pension plan. For example, a
relatively modest change in our assumptions regarding discount rates can materially affect our calculation of funding
requirements. To the extent that market data compels us to reduce the discount rate used in our assumptions, our benefit
obligations could be materially increased.
Changes in demographics, including increased numbers of retirees or increases in life expectancy assumptions may
also increase the funding requirements of our obligations related to the pension and other postretirement benefit
plans. Mortality assumptions are a critical component of benefit obligation amounts and a key factor in determining the
expected length of time for annuity payments. In 2014, the Society of Actuaries released new mortality tables for pension
plans. Beginning with 2014, the benefit obligation amounts assume a longer life expectancy of participants as a result of the
actuarial update to mortality tables. The update to the mortality tables increases future annual net periodic costs. Assuming no
other changes in actuarial assumptions or plan amendments, the costs over the long term are expected to decrease due to the
closure of Registrant’s defined benefit pension plan to new employees as of January 1, 2011. In January 2011, the Board of
Directors approved an amendment to the pension plan, closing the plan to employees hired after December 31,
2010. Employees hired or rehired after December 31, 2010 are eligible to participate in a defined contribution plan.
45
Liquidity and Capital Resources
AWR
Registrant’s regulated business is capital intensive and requires considerable capital resources. A portion of these
capital resources is provided by internally generated cash flows from operations. AWR anticipates that interest expense will
increase in future periods due to the need for additional external capital to fund its construction program, and as market interest
rates increase. AWR believes that costs associated with capital used to fund construction at GSWC will continue to be
recovered through water and electric rates charged to customers.
AWR funds its operating expenses and pays dividends on its outstanding Common Shares primarily through dividends
from GSWC. The ability of GSWC to pay dividends to AWR is restricted by California law. Under these restrictions,
approximately $184.9 million was available on December 31, 2015 to pay dividends to AWR.
When necessary, Registrant obtains funds from external sources in the capital markets and through bank borrowings.
Access to external financing on reasonable terms depends on the credit ratings of AWR and GSWC and current business
conditions, including that of the water utility industry in general as well as conditions in the debt and equity capital markets.
AWR also has access to a $100.0 million revolving credit facility which expires in May 2018. AWR may elect to increase the
aggregate commitment by up to an additional $50.0 million. AWR borrows under this facility and provides funds to its
subsidiaries, including GSWC, in support of their operations. Any amounts owed to AWR for borrowings under this facility are
included in inter-company payables on GSWC’s balance sheet. The interest rate charged to GSWC and other affiliates is
sufficient to cover AWR’s interest cost under the credit facility. As of December 31, 2015, there were $28.0 million of
outstanding borrowings under this facility and $10.4 million of letters of credit outstanding. As of December 31, 2015, AWR
had $61.6 million available to borrow under the credit facility.
In May 2015, Standard & Poor’s Rating Services (“S&P”) affirmed the A+ credit rating on both American States
Water Company and its wholly owned subsidiary, Golden State Water Company. S&P also revised its rating outlook to stable
from positive for both companies as a result of the announcement of the second stock repurchase program. S&P debt ratings
range from AAA (highest rating possible) to D (obligation is in default). In December 2015, Moody’s Investors Service
(“Moody’s”) affirmed its A2 rating with a stable outlook for GSWC. Securities ratings are not recommendations to buy, sell or
hold a security and are subject to change or withdrawal at any time by the rating agency. Registrant believes that AWR’s sound
capital structure and A+ credit rating, combined with its financial discipline, will enable AWR to access the debt and/or equity
markets. However, unpredictable financial market conditions in the future may limit its access or impact the timing of when to
access the market, in which case, Registrant may choose to temporarily reduce its capital spending. During 2016, GSWC's
company-funded capital expenditures are estimated to be approximately $85—$95 million, which may change once a decision
is issued by the CPUC on the pending water rate case.
AWR’s ability to pay cash dividends on its Common Shares outstanding depends primarily upon cash flows from
GSWC. AWR intends to continue paying quarterly cash dividends in the future, on or about March 1, June 1, September 1 and
December 1, subject to earnings and financial conditions, regulatory requirements and such other factors as the Board of
Directors may deem relevant. Registrant has paid dividends on its Common Shares for over 75 consecutive years. On
January 26, 2016, AWR's Board of Directors approved a first quarter dividend of $0.224 per share on AWR's Common Shares.
Dividends on the Common Shares will be paid on March 1, 2016 to shareholders of record at the close of business on
February 16, 2016.
AWR's Board of Directors approved a stock repurchase program in each of 2014 and 2015, authorizing AWR to
repurchase up to 2.45 million shares of AWR's Common Shares. Under these programs, Registrant repurchased 1,905,000 and
545,000 Common Shares on the open market during 2015 and 2014, respectively. Both stock repurchase programs were
completed in 2015. The repurchase programs were intended to enable AWR to achieve a consolidated shareholders’ equity
ratio as a percentage of total capitalization that is more reflective of the current CPUC-authorized equity ratio for GSWC and
an equity ratio for ASUS that is more consistent with the government contracting industry. As of December 31, 2015, the ratio
is 59% equity and 41% debt. Based upon current expectations, including the projected infrastructure needs of GSWC and the
expected growth of ASUS, which is currently not capital intensive, management does not anticipate AWR will conduct a
secondary offering of its Common Shares in the near term.
46
Cash Flows from Operating Activities:
Cash flows from operating activities have generally generated sufficient cash to fund operating requirements,
including a portion of construction expenditures, and pay dividends. Registrant’s future cash flows from operating activities
are expected to be affected by a number of factors, including utility regulation; infrastructure investment; maintenance
expenses; inflation; compliance with environmental, health and safety standards; production costs; customer growth; per
customer usage of water and electricity; weather and seasonality; conservation efforts; compliance with local governmental
requirements, including mandatory restrictions on water use; and required cash contributions to pension and post-retirement
plans. Cash flows are also affected by drought-related costs resulting from the California Governor's order to reduce overall
water usage by an aggregate statewide reduction of 25% as compared to 2013. GSWC has been authorized by the CPUC to
track incremental drought-related costs incurred in a memorandum account for possible future recovery. In addition, future
cash flows from contracted services subsidiaries will depend on new business activities, existing operations, the construction of
new and/or replacement infrastructure at military bases, timely redetermination, 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.
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 was $95.1 million for the year ended December 31, 2015 as compared to $163.3 million for the
year ended December 31, 2014, and $135.7 million for the year ended December 31, 2013. The decrease in operating cash
flow during 2015 was due, in large part, to a decrease in customer water usage resulting from conservation efforts, which
lowered customer billings at GSWC and increased the WRAM regulatory assets. There was also a decrease in cash generated
by ASUS due to the timing of billing and cash receipts for construction work at military bases during the year ended
December 31, 2015 as compared to the same period in 2014. The billings (and cash receipts) for construction work at ASUS
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. During the year ended December 31, 2014, cash payments were received for the
completion of several large capital upgrade projects that did not recur during the same period in 2015. Cash flow from
construction-related activities will fluctuate from period to period with such fluctuations representing timing differences of
when the work is performed and when the cash is received for payment of such work. These decreases were partially offset by
lower income tax payments made during 2015 mainly due to the implementation of new tax repair regulations during the fourth
quarter of 2014.
The increase in net cash provided by operating activities during 2014 compared to 2013 was primarily due to cash
generated by contracted services resulting from the billing of and cash receipts for several large capital upgrade projects at
military bases. The timing of cash receipts and disbursements related to other working capital items also affected the changes
in net cash provided by operating activities.
Cash Flows from Investing Activities:
Net cash used in investing activities was $90.1 million for the year ended December 31, 2015 as compared to $74.1
million used in 2014 and $98.8 million used in 2013. The capital expenditures incurred in 2015 were consistent with GSWC’s
capital investment program and were higher than in 2014. Capital expenditures during 2014 were lower due to project delays
for several projects at GSWC. Project delays in 2014 resulted from new paving moratoriums, additional paving requirements
imposed by local cities and a delay in drilling a well because suitable groundwater was not found in the area. Registrant
expects 2016 company-funded capital expenditures to be between $85 and $95 million, which may change once a decision is
issued by the CPUC on the pending water rate case.
Registrant invests capital to provide essential services to its regulated customer base, while working with its regulators
to have the opportunity to earn a fair rate of return on investment. Registrant’s infrastructure investment plan consists of both
infrastructure renewal programs, where infrastructure is replaced, as needed, and major capital investment projects, where new
water treatment and delivery facilities are constructed. GSWC may also be required from time to time to relocate existing
infrastructure in order to accommodate local infrastructure improvement projects. Projected capital expenditures and other
investments are subject to periodic review and revision.
ASUS funds its operating expenses primarily through internal operating sources, which include U.S. government
funding under 50-year contracts for operations and maintenance costs and construction activities, as well as investments by, or
loans from, AWR. ASUS, in turn, provides funding to its subsidiaries.
Cash used for other investments consists primarily of cash invested in a trust for a retirement benefit plan.
47
Cash Flows from Financing Activities:
Registrant’s financing activities include primarily: (i) the sale proceeds from, and repurchase of, Common Shares and
stock option exercises and short-term and long-term debt; (ii) the issuance and repayment of long-term debt and notes payable
to banks; and (iii) the payment of dividends on Common Shares. In order to finance new infrastructure, Registrant also
receives customer advances (net of refunds) for, and contributions in aid of, construction. Short-term borrowings are used to
fund capital expenditures until long-term financing is arranged.
Net cash used in financing activities was $76.6 million for the year ended December 31, 2015 as compared to $51.4
million and $22.2 million for the same periods in 2014 and 2013, respectively. The increase in cash used during 2015 and 2014
as compared to 2013 was primarily due to the repurchase of approximately $72.9 million and $17.2 million, respectively, in
AWR Common Shares as part of the stock repurchase programs approved by the Board of Directors. Additionally, GSWC
repaid $21.3 million of long-term debt, including the redemption of $15 million in certain long-term notes, in 2014. There
were also decreases in cash receipts from advances for, and contributions in aid of, construction for the years ended
December 31, 2015 and 2014 as compared to the same period in 2013. The amount of cash receipts from advances for, and
contributions in aid of, construction will fluctuate from period to period depending on the level of activities from developers.
AWR also increased the dividend payment in 2015 and 2014 as compared to the year ended December 31, 2013. These
increases in cash used in financing activities were partially offset by proceeds from an increase in short-term borrowings under
Registrant's revolving credit line of $28.0 million in 2015 and the issuance of long-term debt, net of issuance costs, of $14.8
million in 2014.
GSWC
GSWC funds the majority of its operating expenses, payments on its debt, and dividends on its outstanding common
shares and a portion of its construction expenditures through internal sources. Internal sources of cash flow are provided
primarily by retention of a portion of earnings from operating activities. Internal cash generation is influenced by factors such
as weather patterns, conservation efforts, environmental regulation, litigation, 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. As previously discussed,
GSWC has been authorized by the CPUC to track incremental drought-related costs incurred in a memorandum account for
possible future recovery.
GSWC may, at times, utilize external sources, including equity investments and short-term borrowings from AWR,
and long-term debt to help fund a portion of its construction expenditures. In addition, GSWC receives advances and
contributions from customers, home builders and real estate developers to fund construction necessary to extend service to new
areas. Advances for construction are generally refundable at a rate of 2.5% in equal annual installments over 40
years. Amounts which are no longer refundable are reclassified to contributions in aid of construction. Utility plant funded by
advances and contributions is excluded from rate base. Generally, GSWC amortizes contributions in aid of construction at the
same composite rate of depreciation for the related property.
As is often the case with public utilities, GSWC’s current liabilities may at times exceed its current
assets. Management believes that internally generated funds along with the proceeds from the issuance of long-term debt,
borrowings from AWR and Common Shares issuances to AWR will be adequate to provide sufficient capital to enable GSWC
to maintain normal operations and to meet its capital and financing requirements pending recovery of costs in rates.
Cash Flows from Operating Activities:
Net cash provided by operating activities was $97.5 million for the year ended December 31, 2015 as compared to
$132.7 million and $138.2 million for the same periods in 2014 and 2013, respectively. The decrease in 2015 compared to
2014 is primarily due to a decrease in customer water usage resulting from conservation efforts, which lowers customer billings
and increases the WRAM regulatory assets. This was partially offset by lower income tax payments made during 2015 mainly
due to the implementation of new tax repair regulations during the fourth quarter of 2014.
48
The decrease in 2014 compared to 2013 was partly due to the expiration of certain CPUC-approved water surcharges
implemented in mid-2013 in connection with the CPUC's May 2013 final decision on the water general rate case. The CPUC
approved recovery of previously incurred costs in the general rate case final decision. There was also an increase in pension
contributions during 2014 as compared to 2013. These items were partially offset by lower tax payments made during 2014 as
a result of a tax method change for repairs and maintenance deductions. The timing of cash receipts and disbursements related
to working capital items affected the changes in net cash provided by operating activities.
Cash Flows from Investing Activities:
Net cash used in investing activities was $89.0 million for the year ended December 31, 2015 as compared to $72.0
million and $98.6 million for the same periods in 2014 and 2013, respectively. As previously discussed, the capital
expenditures incurred in 2015 were consistent with GSWC’s capital investment program. Capital expenditures were lower
during 2014 due to project delays for several projects at GSWC. Registrant expects 2016 company-funded capital expenditures
to be between $85 and $95 million, which may change once a decision is issued by the CPUC on the pending water rate case.
During the years ended December 31, 2015, 2014 and 2013, GSWC had capital expenditures of $86.1 million, $70.9 million
and $96.7 million, respectively.
During 2013, GSWC executed an interest-bearing note from AWR which expires in May 2018, whereby AWR may
borrow up to $20.0 million for working capital purposes. This amount was increased to $40.0 million in 2015. During 2013,
AWR borrowed $18.2 million from GSWC, of which $17.7 million was repaid by AWR during that year. During 2014, AWR
temporarily borrowed $8.3 million from GSWC, all of which was repaid during 2014. During 2015, AWR temporarily
borrowed $20.7 million from GSWC, all of which was repaid during 2015. As of December 31, 2015, there were no amounts
outstanding under this note.
Cash Flows from Financing Activities:
Net cash used in financing activities was $50.0 million for the year ended December 31, 2015 as compared to cash
used of $54.6 million and $24.3 million for the same periods in 2014 and 2013, respectively. The increase in cash used in
financing activities during 2015 and 2014 as compared to 2013 was due to an increase in dividends paid by GSWC to AWR and
a decrease in cash receipts from advances for, and contributions in aid of, construction. Additionally, GSWC repaid $21.3
million of long-term debt, including the redemption of $15 million in certain long-term notes, in 2014. These increases in cash
used in financing activities were partially offset by proceeds from inter-company borrowings from AWR of $12.0 million in
2015.
49
Contractual Obligations, Commitments and Off-Balance-Sheet Arrangements
Registrant has various contractual obligations which are recorded as liabilities in the consolidated financial
statements. Other items, such as certain purchase commitments and operating leases are not recognized as liabilities in the
consolidated financial statements, but are required to be disclosed.
In addition to contractual maturities, Registrant has certain debt instruments that contain annual sinking fund or other
principal payments. Registrant believes that it will be able to refinance debt instruments at their maturity through public
issuance, or private placement, of debt or equity. Annual payments to service debt are generally made from cash flows from
operations.
The following table reflects Registrant’s contractual obligations and commitments to make future payments pursuant
to contracts as of December 31, 2015. All obligations and commitments are obligations and commitments of GSWC unless
otherwise noted.
Payments/Commitments Due by Period (1)
($ in thousands)
Notes/Debentures (2)
Private Placement Notes (3)
Tax-Exempt Obligations (4)
Other Debt Instruments (5)
Total AWR Long-Term Debt
Interest on Long-Term Debt (6)
Advances for Construction (7)
Renewable Energy Credit Agreement (8)
Purchased Power Contracts (9)
Capital Expenditure Commitments (10)
Water Purchase Agreements (11)
Operating Leases (12)
Employer Contributions (13)
SUB-TOTAL
Other Commitments (14)
TOTAL
(1) Excludes dividends and facility fees.
Less than 1
Year
1-3 Years
— $
—
138
174
312
21,646 $
3,214
117
6,694
44,535
393
2,526
5,515
84,640 $
— $
—
286
368
654 $
43,226 $
6,429
791
12,542
—
787
3,868
9,406
77,049 $
4-5 Years
After 5 Years
— $ 187,000
83,000
11,005
3,218
40,664 $ 284,223
40,000
301
363
38,285 $ 215,765
55,183
6,429
1,858
901
5,519
—
—
—
3,570
787
830
2,439
—
—
54,360 $ 277,206
Total
$ 187,000 $
123,000
11,730
4,123
$ 325,853 $
$ 318,922 $
71,255
3,667
24,755
44,535
5,537
9,663
14,921
$ 493,255 $
14,509
$ 833,617
(2) The notes and debentures have been issued by GSWC under an Indenture dated September 1, 1993, as amended in
December 2008. The notes and debentures do not contain any financial covenants that Registrant believes to be material or
any cross default provisions.
(3) GSWC issued private placement notes in the amount of $28 million pursuant to the terms of note purchase agreements
with substantially similar terms. These agreements contain restrictions on the payment of dividends, minimum interest
coverage requirements, a maximum debt-to-capitalization ratio and a negative pledge. Pursuant to the terms of these
agreements, GSWC must maintain a minimum interest coverage ratio of two times interest expense. In addition, two senior
notes in the amount of $40 million each were issued by GSWC in October 2005 and in March 2009 to CoBank, ACB. A
senior note in the amount of $15 million was issued to The Prudential Insurance Company of America in December 2014.
Under the terms of these senior notes, GSWC may not incur any additional debt or pay any distributions to its shareholders
if, after giving effect thereto, it would have a debt to capitalization ratio in excess of 0.6667-to-1 or a debt to Earnings Before
Interest, Taxes, Depreciation and Amortization (“EBITDA”) ratio of more than 8-to-1. GSWC is in compliance with these
covenant provisions as of December 31, 2015. GSWC does not currently have any outstanding mortgages or other liens on
indebtedness on its properties.
50
(4) Consists of obligations at GSWC related to: (i) a loan agreement supporting $7.7 million in outstanding debt issued by
the California Pollution Control Financing Authority, and (ii) $4.0 million of obligations with respect to GSWC's 500 acre-
foot entitlement to water from the State Water Project (“SWP”). These obligations do not contain any financial covenants
believed to be material to Registrant or any cross default provisions. In regards to its SWP entitlement, GSWC has entered
into agreements with various developers for a portion of its 500 acre-foot entitlement to water from the SWP.
(5) Consists of (i) $4.0 million outstanding representing the debt portion of funds received under the American Recovery and
Reinvestment Act ("ARRA") for reimbursements of capital costs related to the installation of meters for conversion of non-
metered service to metered service in GSWC's Arden-Cordova District, and (ii) $89,000 outstanding under a variable rate
obligation of GSWC incurred to fund construction of water delivery facilities with the Three Valleys Municipal Water
District. These obligations do not contain any financial covenants believed to be material to Registrant or any cross default
provisions.
(6) Consists of expected interest expense payments based on the assumption that GSWC’s long-term debt remains
outstanding until maturity. Current interest rates were used to estimate expected interest expense payments on variable-rate
long-term debt.
(7) Advances for construction represent annual contract refunds by GSWC to developers for the cost of water systems paid
for by the developers. The advances are generally refundable in equal annual installments over 40-year periods.
(8) Consists of an agreement by GSWC to purchase a total of 582,000 renewable energy credits through 2023. These
renewable energy credits are used by GSWC's electric division to meet California's renewables portfolio standard.
(9) Consists of fixed-cost purchased power contracts effective January 1, 2015 between BVES and Shell Energy North
America (US), L.P. and EDF Trading North America, LLC.
(10) Consists of noncancelable commitments primarily for capital projects under signed contracts at GSWC.
(11) Water purchase agreements consist of: (i) a remaining amount of $3.0 million under an agreement expiring in 2028 to
lease water rights from a third party, and (ii) an aggregate amount of $2.5 million of other water purchase commitments with
other third parties which expire through 2038.
(12) Reflects future minimum payments under noncancelable operating leases for both GSWC and ASUS.
(13) Consists of expected contributions to Registrant's pension plan for the years 2016 through 2018. Contribution to the
pension plan will be the higher of the minimum required contribution under the Employee Retirement Income Security Act
(“ERISA”) or the contribution amounts that are recovered in customer rates and approved by the CPUC. These amounts are
estimates and are subject to change based on, among other things, the limits established for federal tax deductibility (pension
plan) and the significant impact that returns on plan assets and changes in discount rates have on such amounts.
(14) Other commitments consist primarily of: (i) a $4.2 million asset retirement obligation of GSWC that reflects the
retirement of wells by GSWC, which by law need to be properly capped at the time of removal; (ii) an irrevocable letter of
credit in the amount of $340,000 for the deductible in Registrant’s business automobile insurance policy; (iii) an irrevocable
letter of credit issued on behalf of GSWC in the amount of $585,000 as security for the purchase of power by GSWC under
an energy scheduling agreement with Automated Power Exchange; (iv) $5.8 million in letters of credit issued on behalf of
GSWC representing a percentage of total ARRA funds received for reimbursement of capital costs related to the installation
of meters for conversion of non-metered service to metered service in GSWC’s Arden-Cordova district; (v) a $15,000
irrevocable letter of credit issued on behalf of GSWC pursuant to a franchise agreement with the City of Rancho Cordova,
and (vi) an irrevocable letter of credit in the amount of $3.6 million pursuant to a settlement agreement with Southern
California Edison Company to cover GSWC’s commitment to pay the settlement amount. All of the letters of credit are
issued pursuant to the syndicated revolving credit facility. The syndicated revolving credit facility contains restrictions on
prepayments, disposition of property, mergers, liens and negative pledges, indebtedness and guaranty obligations,
transactions with affiliates, minimum interest coverage requirements, a maximum debt-to-capitalization ratio, and a
minimum debt rating. Pursuant to the credit agreement, AWR must maintain a minimum interest coverage ratio of 3.25 times
interest expense, a maximum total funded debt ratio of 0.65-to-1.00 and a minimum debt rating from Moody’s or S&P of
Baa3 or BBB-, respectively. As of December 31, 2015, AWR was in compliance with these covenants with an interest
coverage ratio of 7.68 times interest expense, a debt ratio of 0.44-to-1.00 and debt ratings of A+ and A2.
51
Off-Balance-Sheet Arrangements
As noted above, Registrant has various contractual obligations which are recorded as liabilities in the consolidated
financial statements. Other items, such as certain purchase commitments and operating leases, are not recognized as liabilities
in the consolidated financial statements, but are required to be disclosed. Except for those disclosed above in the table,
Registrant does not have any other off-balance-sheet arrangements.
Effects of Inflation
The rates of GSWC are established to provide recovery of costs and a fair return on shareholders’
investment. Recovery of the effects of inflation through higher water rates is dependent upon receiving adequate and timely
rate increases. However, authorized rates charged to customers are usually based on a forecast of expenses and capital costs for
GSWC. Rates may lag increases in costs caused by unanticipated inflation. During periods of moderate to low inflation, as has
been experienced for the past several years, the effects of inflation on operating results have not been significant. Furthermore,
the CPUC approves projections for a future test year in general rate cases which reduces the impact of inflation to the extent
that GSWC’s inflation forecasts are accurate.
For the Military Utility Privatization Subsidiaries, under the terms of the contracts with the U.S. government, the
contract price is subject to (a) price redetermination every three years after the initial two years of the contract, unless otherwise
agreed to by the parties, and include adjustments to reflect changes in operating conditions, as well as inflation in costs, or (b)
an economic price adjustment on an annual basis. ASUS has experienced delays in some of its previous redetermination of
prices. However, when adjustments are finalized, they are implemented retroactively to the effective date of the price
redetermination.
Climate Change
Water:
Based on historical data for greenhouse gas (“GHG”) emissions generated from its water operations, GSWC has
developed a baseline carbon footprint. Annually, GSWC compares the GHG emissions generated by its water operations to this
baseline as part of monitoring its carbon footprint and making efforts to reduce it. Additionally, GSWC's ongoing operations
and maintenance activities include, among other things, pump-efficiency-testing programs to monitor the performance of its
pumping facilities.
In addition, as part of the planning process, GSWC intends to continue to assess the possible impact climate change
may have on its water supply and operations.
Electric:
The California Air Resources Board (“CARB”) published regulations in December 2011 establishing a California cap-
and-trade program under which the first compliance period commenced with the 2013 GHG Emissions Report. While BVES’s
power-plant emissions are below the reporting threshold, as a “Covered Entity” BVES has an obligation to file a report in June
of each year under the program.
The CPUC issued a final decision in December 2011 establishing renewable-energy-procurement-requirement
timelines. BVES has entered into a ten-year contract for renewable energy credits that was approved by the CPUC. As a result
of this agreement, BVES believes it will be in compliance with both the CPUC's past renewable-energy-procurement
requirements and future requirements through 2023.
BVES is also required to comply with the CPUC’s emission performance standards (“EPS”) regarding GHG
emissions. Under these standards, BVES must file an annual attestation with the CPUC stating that BVES is in compliance
with the EPS. Specifically, BVES must attest to having no new ownership investment in generation facilities or no long-term
commitments for generation. In January 2016, BVES filed with the CPUC stating that BVES was in compliance with the EPS
for 2015.
At this time, management cannot estimate the impact, if any, that these regulations may have on the cost of BVES’s
power plant operations or the cost of BVES’s purchased power from third party providers.
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BVES Power-Supply Arrangements
BVES began taking power effective January 1, 2015 at a fixed cost over three and five year terms depending on the
amount of power and period during which the power is purchased under contracts approved by the CPUC in December 2015.
During 2014, BVES's power purchases were based on month-to-month arrangements, as the previous purchase power contract
had expired in 2013.
In addition to the purchased power contracts, BVES buys additional energy to meet peak demand and sells surplus
power as needed. The average cost of power purchased, including the transactions in the spot market, was approximately
$46.39 per MWh for the year ended December 31, 2015 as compared to $48.00 per MWh for the same period of 2014. BVES’s
average energy costs are impacted by pricing fluctuations on the spot market. However, BVES has implemented an electric-
supply-cost balancing account, as approved by the CPUC, to alleviate any impacts to earnings.
Construction Program
GSWC maintains an ongoing water distribution main replacement program throughout its customer service areas
based on the age and type of distribution-system materials, priority of leaks detected, remaining productive life of the
distribution system and an underlying replacement schedule. In addition, GSWC upgrades its electric and water supply
facilities in accordance with industry standards, local requirements and CPUC requirements. As of December 31, 2015, GSWC
has unconditional purchase obligations for capital projects of approximately $44.5 million. During the years ended
December 31, 2015, 2014 and 2013, GSWC had capital expenditures of $95.5 million, $65.4 million and $104.8 million,
respectively. A portion of these capital expenditures is funded by developers through advances, which must be repaid, or
contributions in aid of construction, which are not required to be repaid. During the years ended December 31, 2015, 2014 and
2013, capital expenditures funded by developers were $4.4 million, $4.6 million and $5.9 million, respectively. During 2016,
GSWC's company-funded capital expenditures are estimated to be approximately $85—$95 million, which may change once a
decision is issued by the CPUC on the pending water rate case.
Contracted Services
Under the terms of the current utility privatization contracts with the U.S. government, each contract's price is subject
to (a) price redetermination every three years after the initial two years of the contract, unless otherwise agreed to by the
parties, or (b) an economic price adjustment on an annual basis. In the event that ASUS (i) is managing more assets at specific
military bases than were included in the U.S. government’s request for proposal; (ii) is managing assets that are in substandard
condition as compared to what was disclosed in the request for proposal; (iii) prudently incurs costs not contemplated under the
terms of the utility privatization contract; and/or (iv) becomes subject to new regulatory requirements, such as more stringent
water-quality standards, ASUS is permitted to file, and has filed, requests for equitable adjustment (“REA”). The timely filing
for and receipt of price redeterminations and/or economic price adjustments continues to be critical in order for ASUS to
recover increasing costs of operating and maintaining, and renewing and replacing, the water and/or wastewater systems at the
military bases it serves.
In 2011, Congress enacted the Budget Control Act (the “Act”) which committed the U.S. government to significantly
reduce the federal deficit over ten years. The Act called for very substantial automatic spending cuts, known as "sequestration,"
that have impacted the expected levels of Department of Defense budgeting. ASUS has not experienced any earnings impact to
its existing operations and maintenance and renewal and replacement services, as utility privatization contracts are an "excepted
service" within the Act. While the ongoing effects of sequestration have been mitigated through the passage of a fiscal year
2016 Department of Defense budget, similar issues may arise as part of fiscal uncertainty and/or future debt-ceiling-limit
debates in Congress. However, any future impact on ASUS and its operations will likely be limited to the timing of funding to
pay for services rendered, delays in the processing of price redeterminations or economic price adjustments, issuance of
contract modifications for new construction work not already funded by the U.S. government, and/or delays in the solicitation
and/or awarding of new utility privatization opportunities under the Department of Defense utility privatization program.
The timing of future filings of price redeterminations may be impacted by government actions, including audits or
reviews by the DCAA and/or the DCMA. Both DCAA and DCMA conduct, at times at the request of a contracting officer,
audits/reviews of contractors for compliance with government guidance and regulations such as Federal Acquisition
Regulations ("FAR"), Defense Federal Acquisition Regulation Supplements (“DFARS”) and, as applicable, Cost Accounting
Standards ("CAS"). If the DCAA/DCMA believes ASUS and/or its subsidiaries have accounted for costs in a manner
inconsistent with the requirements of FAR, DFARS or applicable CAS, the auditor may recommend to the U.S. government
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administrative contracting officer that such costs be disallowed. In addition, certain audit findings such as system deficiencies
for government-contract-business-system requirements may result in delays in the timing of resolution of price redetermination
filings and/or the ability to file new proposals with the U.S. government. At times, the processing of our filing of price
redeterminations and requests for equitable adjustment may be delayed pending the outcome of such audits/reviews or upon
mutual agreement with the U.S. government.
Below is a summary of significant projects, price redeterminations, REAs, and other filings by subsidiaries of ASUS.
With the issuance of modifications on price redeterminations as noted below, ASUS is current on all such filings for contracts at
all of the Military Utility Privatization Subsidiaries.
• FBWS - A filing to operate and maintain the East Bliss area at Fort Bliss was finalized in the third quarter of 2014,
which, in addition to providing additional funding for operations and maintenance ("O&M") and renewal and
replacement ("R&R"), included approximately $2.9 million of funding for East Bliss capital upgrade modifications,
which were approximately 93.2% complete as of December 31, 2015. The fourth price redetermination for Fort Bliss
was filed in the third quarter of 2015 and is expected to be finalized in the first quarter of 2016.
• TUS - The second price redetermination, covering the period February 2011 through January 2014, was approved in
September 2014. This agreement, which included a true-up of infrastructure to be operated by TUS, provided for an
annualized increase in O&M and R&R fees. The third price redetermination, for the period February 2014 through
January 2017, was finalized through the issuance of a contract modification in July 2015.
• ODUS - The second and third price redeterminations for the Fort Lee privatization contract in Virginia, for the six-
year period beginning February 2011, and for the other bases that ODUS operates in Virginia, for the six-year period
beginning April 2011, were finalized through the issuance of contract modifications in September 2015.
REA filings were made in 2015 to recover costs associated with work done at Joint-Base Langley Eustis, VA, under a
new capital upgrade project. The REAs covered work that was approved to be performed by the base and included
requests for additional revenue totaling $630,000. These REAs are expected to be resolved in the first quarter of 2016.
ODUS filed an REA to recover added costs incurred for a major R&R project. These costs had been included in the
previously mentioned redeterminations but were withdrawn to be included in this REA. ODUS expects this filing to
be resolved early in the first quarter of 2016.
• PSUS - The first price redetermination for PSUS was approved in September 2014. The approved agreement provided
for an annual increase in operations and maintenance fees above the previously approved level. The second
redetermination for Fort Jackson, covering the period mid-February 2013 through mid-February 2016, was finalized
through the issuance of a contract modification in September 2015.
• ONUS - The second price redetermination for the period covering March 2013 through February 2016 was approved
in September 2014, resulting in an annualized increase in operations and maintenance fees as well as an annualized
increase in R&R funding.
In March 2012, ONUS received a contract modification based on a request for equitable adjustment regarding
installation of new water meters at Fort Bragg. The contract modification provided for a reduction in the number of
water meters to be installed and reduced the price associated with the revised scope. This project commenced during
the second quarter of 2012 and was completed in the fourth quarter of 2015.
Regulatory Matters
Certificates of Public Convenience and Necessity
GSWC holds Certificates of Public Convenience and Necessity (“CPCN”) granted by the CPUC in each of the
ratemaking areas it serves. FBWS holds a CPCN from the Texas Commission on Environmental Quality. The Virginia State
Corporation Commission exercises jurisdiction over ODUS as a public service company. The Maryland Public Service
Commission approved the right of TUS to operate as a water and wastewater utility at Joint Base Andrews, Maryland, based on
certain conditions. The South Carolina Public Service Commission exercises jurisdiction over PSUS as a public service
company. ONUS is regulated by the North Carolina Public Service Commission.
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Rate Regulation
GSWC is subject to regulation by the CPUC, which has broad authority over service and facilities, rates, classification
of accounts, valuation of properties, the purchase, disposition and mortgaging of properties necessary or useful in rendering
public utility service, the issuance of securities, the granting of certificates of public convenience and necessity as to the
extension of services and facilities and various other matters.
Rates that GSWC is authorized to charge are determined by the CPUC in general rate cases and are derived using rate
base, cost of service and cost of capital, as projected for a future test year. Rates charged to customers vary according to
customer class and rate jurisdiction and are generally set at levels allowing for recovery of prudently incurred costs, including a
fair return on rate base. Rate base generally consists of the original cost of utility plant in service, plus certain other assets,
such as working capital and inventory, less accumulated depreciation on utility plant in service, deferred income tax liabilities
and certain other deductions.
GSWC is required to file a water general rate case (“GRC”) application every three years according to a schedule
established by the CPUC. GRCs typically include an increase in the first test year with inflation-rate adjustments for expenses
for the second and third years of the GRC cycle. For capital projects, there are two test years. Rates are based on a forecast of
expenses and capital costs for each test year. Electric GRCs are typically filed every four years.
Rates may also be increased by offsets for certain expense increases, including, but not limited to, supply-cost offset
and balancing-account amortization, advice letter filings related to certain plant additions and other operating cost increases.
Neither the operations nor rates of AWR and ASUS are directly regulated by the CPUC. The CPUC does, however,
regulate certain transactions between GSWC and ASUS and between GSWC and AWR.
Changes in Rates
In May 2013, the CPUC issued a final decision on GSWC’s water general rate case approving rates for 2013 through
2015 at GSWC’s three water regions, and which include recovery of costs incurred at the general office. The rates were
retroactive to January 1, 2013 and generated approximately $10 million in additional annual revenues in 2013 as compared to
2012 adopted revenues. The adopted water gross margin increased by approximately $14 million, or 6.6%, when compared to
the 2012 CPUC-adopted water gross margin. The CPUC also approved attrition year rate increases for five rate-making areas
effective January 1, 2014. Attrition rate increases are based on an earnings test and inflation factors.
During 2014, the CPUC also approved rate increases at two of GSWC's largest rate-making areas related to supply-
cost increases experienced in those rate-making areas, which on an annual basis are expected to increase revenue by
approximately $6 million. These increases in revenues are offset by a corresponding increase in supply cost, resulting in no
impact to earnings.
Changes in Rates for 2015
The CPUC approved third-year water rate increases effective January 1, 2015. These increases, in addition to rate
increases for approval of advice letters for the completion of certain capital projects, as well as for supply-cost increases,
increased adopted water revenues by $5.7 million as compared to 2014 and increased the adopted water gross margin for 2015
by approximately $2.6 million as compared to the gross margin in 2014. Attrition rate increases are based on an earnings test
and inflation factors.
For BVES, the CPUC-approved base revenues for 2015, including approval of advice letters for the completion of
certain capital projects, generated an additional $500,000 in revenues as compared to the adopted 2014 base revenues.
Pending Rate Requests
In July 2014, GSWC filed a GRC for all of its water regions and the general office. The application will determine
rates for the years 2016—2018. GSWC’s requested capital budgets in the application average approximately $90 million a year
for the three-year period. The 2016 water gross margin is expected to decrease as compared to the currently adopted levels due,
in part, to a decrease in annual depreciation expense resulting from an updated depreciation study and other expenses.
Hearings for the rate case were completed in June 2015, and settlements for certain items and legal briefs were filed in July
2015. The consumption levels used to calculate rates for 2016—2018 and incorporated into the settlement with the CPUC's
Office of Ratepayer Advocates ("ORA") reflect the state-mandated conservation targets for each ratemaking area. In April
2015, a special phase of the rate case was authorized by the CPUC in order to address a specific matter within one of GSWC's
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service areas. In September 2015, a settlement was reached between GSWC and ORA, whereby GSWC agreed to additional
reporting requirements. The CPUC issued a decision adopting the settlement.
In July 2015, GSWC filed a motion with the CPUC for interim water rates to be effective January 1, 2016 in the event
the CPUC did not issue a final decision on the water GRC by January 1, 2016. As part of the filing, GSWC also requested
authorization to establish a memorandum account to track the difference between the interim rates, which GSWC proposed to
remain at current levels, and final rates once approved by the CPUC. The CPUC approved this filing in October 2015. A final
decision on this rate case is expected by the end of the second quarter of 2016, with new rates retroactive to January 1, 2016.
Cost of Capital Proceedings for Water Regions
In July 2012, the CPUC issued a decision on GSWC’s last water cost-of-capital proceeding. Among other things, the
decision authorized GSWC to continue the Water Cost of Capital Mechanism (“WCCM”). The WCCM adjusts ROE and rate
of return on rate base between the three-year cost of capital proceedings only if there is a positive or negative change of more
than 100 basis points in the average of the Moody’s Aa utility bond rate as measured over the period October 1 through
September 30. If the average Moody’s rate for this period changes by over 100 basis points from the benchmark, the ROE will
be adjusted by one half of the difference. Since 2012, there has not been a change by more than 100 basis points from the
benchmark. As a result, GSWC's current water ROE of 9.43% remained unchanged from 2013 through 2015.
GSWC was scheduled to file its next cost-of-capital application in March 2016 based on an extension previously
granted. In December 2015, GSWC, along with three other Class A California water companies, filed a request with the CPUC
for a further extension by which each of them is required to file its next cost-of-capital application. The water companies
requested approval to postpone this filing date by one additional year until March 31, 2017, with a corresponding effective date
of January 1, 2018 in compliance with the CPUC's rate case plan. GSWC believes that the current economic environment is
such that a change from the currently adopted return on equity would be small. On February 1, 2016, the CPUC approved the
one-year extension, until March 31, 2017, by which date each Class A Utility must file its next cost-of-capital application.
BVES General Rate Case
In BVES's previous GRC decision, the CPUC adopted an uncontested settlement agreement between BVES, ORA and
three other parties, which resolved many of the issues in that GRC proceeding. Included in the settlement adopted by the
CPUC was a provision that BVES would file its next GRC application on or prior to January 31, 2016. In November 2015,
BVES filed a petition to modify the GRC decision requesting a change to the provision of the settlement that would defer the
GRC filing by one year, to January 31, 2017. In February 2016, the administrative law judge issued a proposed decision
granting BVES's request to defer the GRC to January 31, 2017. The CPUC is expected to vote on the proposed decision during
the first quarter of 2016.
Nipomo Supplemental Water Project
In November 2015, GSWC filed an application to recover the costs of a water supply project intended to deliver water
to the Nipomo Mesa area in GSWC’s Santa Maria ratemaking area. In February 2016, GSWC and ORA jointly filed a motion
to adopt a settlement, which would resolve all of the cost-recovery issues in GSWC’s application.
Other Regulatory Matters
New Service Territory Application, Sutter County:
On June 26, 2014, the CPUC approved a CPCN application granting GSWC the authority to provide water utility
services to an area to be developed near Sacramento, in Sutter County, California, called Sutter Pointe. The CPUC's decision
approved a settlement that was jointly filed by GSWC, Sutter County, the Sutter Pointe Developers, and a coalition of Sutter
County residents. With the CPUC's approval, GSWC will create a water service district to supply the Sutter Pointe
development with groundwater and surface water from the Sacramento River. The project will involve the construction of
underground infrastructure and groundwater wells with a treatment plant and storage facility to serve retail, industrial and
approximately 17,000 residential customers at final build-out. The decision also sets a cap on the revenue requirement per
Sutter Pointe customer during the first two rate cycles. As part of the agreement, GSWC will also request approval from the
CPUC to acquire the water system that currently serves the community of Robbins in Sutter County. In August 2014, ORA
filed an application for rehearing on the application. In 2015, the CPUC, in response to ORA's Application for Rehearing,
granted a limited rehearing. The rehearing is limited to the single issue of the rate cap adopted by the CPUC. GSWC is
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scheduled to file testimony on that issue in March 2016, with hearings scheduled later in 2016. At this time, management
cannot predict the outcome of any rehearing.
New Service Territory Application, Westborough Development, Sacramento County:
On October 12, 2004, GSWC and Aerojet-General Corporation (“Aerojet”) reached a settlement relating to
groundwater contamination impacting GSWC’s Arden-Cordova Water System. Portions of the settlement called for GSWC to
serve new territory, subject to CPUC approval, on property owned by Aerojet known as Westborough. Aerojet and GSWC are
working cooperatively to identify and implement the best alternative to meet the long-term water supply needs of GSWC’s
Rancho Cordova customers within the Arden-Cordova service area as well as supply for the new Westborough development
area owned by Aerojet. The County of Sacramento and the City of Folsom, through various arrangements, have agreed not to
protest GSWC’s application to the CPUC for a CPCN for this territory.
GSWC intends to file with the CPUC to incorporate the Westborough development in Sacramento County into the
Rancho Cordova service area and to provide water service to that new development following completion of a water supply
solution for the area.
Affiliate Transaction Rules:
Rules adopted by the CPUC regarding affiliate transactions and use of regulated assets establish a standard set of
rules to govern transactions between a regulated water utility, its parent, and other affiliated companies. Registrant monitors its
cost allocation and management of the regulated and non-regulated segments for compliance with these rules.
Balanced Rates Order Instituting Ratemaking:
In April 2015, the CPUC issued a ruling establishing a second phase to its on-going rulemaking addressing the
CPUC's Water Action Plan objective of setting rates that balance investment, conservation, and affordability. The intended
purpose of the second phase is to review the CPUC’s water-conservation rate structure, tiered rates, forecasting methods,
accounting mechanisms and other standards and programs that guide water investor-owned utility rates, charges, and cost
recovery. In September 2015, the assigned Administrative Law Judge issued a ruling setting a schedule, including workshops,
and indicated that the CPUC would like to explore realignment of the utility ratemaking process. At the conclusion of the
workshops in October 2015, the CPUC suspended the remaining schedule for the proceeding until further notice. GSWC
cannot predict the final outcome of this proceeding.
For more information regarding significant regulatory matters, see Note 2 of “Notes to Financial Statements” included
in Part II, Item 8, in Financial Statements and Supplementary Data.
Environmental Matters
AWR’s subsidiaries are subject to stringent environmental regulations, including the 1996 amendments to the Federal
Safe Drinking Water Act.
GSWC is required to comply with the safe drinking water standards established by the U.S. Environmental Protection
Agency (“EPA”) and the Division of Drinking Water ("DDW"), under the State Water Resources Control Board
(“SWRCB”). The 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 EPA, administers the EPA’s program in California. Similar state agencies administer these
rules in the other states in which Registrant operates.
GSWC currently tests its water supplies and water systems according to, among other things, requirements listed in
the Federal Safe Drinking Water Act (“SDWA”). In compliance with the SDWA and to assure a safe drinking water supply to
its customers, GSWC has incurred operating costs for testing to determine the levels, if any, of the constituents in its sources of
supply and additional expense to treat contaminants in order to meet the federal and state maximum contaminant level
(“MCL”) standards and consumer demands. GSWC expects to incur additional capital costs as well as increased operating
costs to maintain or improve the quality of water delivered to its customers in light of anticipated stress on water resources
associated with watershed and aquifer pollution, as well as to meet future water quality standards. The CPUC ratemaking
process provides GSWC with the opportunity to recover prudently incurred capital and operating costs in future filings
associated with achieving water quality standards. Management believes that such incurred and expected future costs should
be authorized for recovery by the CPUC.
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Matters Relating to GSWC’s Arden-Cordova Water System
In GSWC’s Arden-Cordova system, several wells have been removed from service and destroyed due to perchlorate,
and/or nitrosodimethylamine levels that exceed the regulatory standards or notification levels.
It is believed that this contamination is related to the activities of Aerojet who has, in the past, used ammonium
perchlorate in oxidizing rocket fuels.
On October 12, 2004, GSWC and Aerojet reached a settlement relating to this contamination. Under the terms of the
settlement, Aerojet paid GSWC $8.7 million in 2004 and paid an additional $8 million over a period of five years from 2009
through 2013, plus interest. These payments offset GSWC’s costs of utility plant and purchased water of $16 million and
$735,000, respectively incurred in addressing the water supply impacted by this contamination .
GSWC and Aerojet are developing alternatives to meet the water supply needs of GSWC to ensure a continued
reliable and safe water supply for GSWC’s Rancho Cordova customers within the Arden-Cordova service area as well as
supply for the new Westborough development area owned by Aerojet.
Matters Relating to GSWC’s Florence Graham Water System
Perchlorate has been detected in three wells servicing GSWC’s Florence-Graham System. Two of these wells
exceeded the perchlorate drinking water standard and were removed from service. Continued monitoring shows that
perchlorate levels are increasing in these wells. The Water Replenishment District of Southern California is partnering with the
Department of Toxic Substances Control to examine the perchlorate contamination in this area and is trying to determine the
source(s) of the plume.
To maintain reliable water supply within the Florence-Graham system, GSWC used blending and treatment to return
the two wells to service in 2014.
Matters Relating to GSWC’s Norwalk Water System
Volatile Organic Compounds (“VOCs”) have been detected in seven wells in GSWC’s Norwalk Water System. Three
of these wells are equipped with granular-activated carbon-filter treatment for VOC removal, three wells are run through an air-
stripper treatment unit for VOC removal and one well is on stand-by. These wells are located within a Superfund site that the
EPA has designated as the Omega Operable Unit 2. EPA is currently working on a remediation project to clean up the VOC
plume. Recent modeling data have shown that at least three GSWC wells, and potentially more, are impacted by the Omega
plume. GSWC intends to work closely with the EPA to ensure that the remediation plan proposed by the EPA will address
GSWC’s concerns regarding impacts to its water supply.
Matters Relating to Environmental Cleanup
GSWC has been involved in environmental remediation and cleanup at a plant site (“Chadron Plant”) that contained
an underground storage tank which was used to store gasoline for its vehicles. This tank was removed from the ground in
July 1990 along with the dispenser and ancillary piping. Since then, GSWC has been involved in various remediation activities
at this site. As of December 31, 2015, the total spent to cleanup and remediate GSWC’s plant facility was approximately $4.9
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 December 31, 2015, GSWC has a
regulatory asset and an accrued liability for the estimated additional cost of $1.4 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.
Matters Relating to Military Privatization Contracts
Each of the Military Utility Privatization Subsidiaries is responsible for testing the water and wastewater systems on
the military bases on which it operates in accordance with applicable law.
Each of the Military Utility Privatization Subsidiaries has the right to seek an equitable adjustment to its contract in
the event that there are changes in environmental laws, a change in the quality of water used in providing water service or
wastewater discharged by the U.S. government or contamination of the air or soil not caused by the fault or negligence of the
Military Utility Privatization Subsidiary. These changes can impact O&M and R&R costs under the contracts. The U.S.
government is responsible for environmental contamination due to its fault or negligence and for environmental contamination
that occurred prior to the execution of a contract.
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Security Issues
GSWC has implemented measures to increase security in accordance with a vulnerability assessment of its water
systems and has upgraded its facilities to enhance the safety of water system operations. GSWC also has security systems and
infrastructure in place intended to prevent cyber-attacks. Despite its efforts, GSWC cannot be assured that a cyber or terrorist
attack will not cause water or electric system problems, disrupt service to customers, compromise important data or systems or
result in unintended release of customer or employee information.
GSWC periodically revises its Emergency Response Plan and periodically conducts operational security exercises for
all of its water systems. GSWC also considers advances in security technology and relevant industry developments in
developing its capital-improvement plans. GSWC intends to seek approval of the CPUC to recover any additional costs that it
incurs in enhancing the security of its water systems.
The Military Utility Privatization Subsidiaries operate facilities within the boundaries of military bases which provide
limited access to the general public. To further enhance security, in prior years, certain upgrades were completed at various
military bases through contract modifications funded by the U.S. government.
California Drought
In response to the ongoing drought experienced in California, in April 2015, the Governor of California passed an
Executive Order directing the SWRCB to impose water-use restrictions to achieve an aggregate statewide 25% reduction in
urban water use through February 2016, which has now been extended through October 31, 2016. In May 2015, the SWRCB
adopted additional emergency regulations to meet the Governor’s executive order. The reductions required by the SWRCB
vary by area, depending on historical water use per capita and reductions through 2013. The emergency regulations also
include mandatory restrictions on certain outdoor urban water uses. Any violation of these uses is considered a criminal
offense with possible fines of up to $500 per day. In addition, urban water suppliers are required to implement their Water
Shortage Contingency Plans at a level that meets the SWRCB mandated reductions. Failure to comply with this requirement
may result in potential fines of $10,000 per day issued by the SWRCB.
In June 2015, GSWC filed updated drought response actions with the CPUC for each service area to meet the new
mandates. In July 2015, the CPUC approved the filings. As a result, all of GSWC's water service areas are currently in Stage 1
of the Staged Mandatory Water Conservation and Rationing Plan, which outlines restrictions for outdoor irrigation for GSWC
water customers. Failure to comply with these restrictions could result in a written warning, installation of a flow restrictor
(including fees for installation/removal) or termination of water service. If Stage 1 restrictions are deemed insufficient to
achieve water use reductions, water allocations may be implemented as part of Stage 2, or higher, of the Staged Mandatory
Water Conservation and Rationing Plan. Compliance with the mandatory reductions may result in higher costs to customers
and general dissatisfaction with the supply reduction mandates, resulting in increased complaints.
As previously mentioned, in February 2016 the SWRCB extended the mandatory restrictions through October 31,
2016. In addition, the SWRCB amended the required reductions, allowing limited allowances for warmer climate regions as
well as credit for certain drought-resilient water-supply investments. Additional amendments to the allocations may be granted
to account for growth in customers since January 1, 2013. Water suppliers must request amended reductions through
application to the SWRCB by March 15, 2016. GSWC plans to apply for the amended reductions in certain of its service
territories. GSWC intends to implement Stage 2 or higher of the Staged Mandatory Conservation and Rationing Plan in those
areas which have not met their cumulative targets once the final allocations are determined based on the amended
regulations. Based on GSWC's drought response actions and customers’ conservation efforts to date, at this time, management
does not believe GSWC will be subject to SWRCB penalties for failure to implement a Water Shortage Contingency Plan.
The U.S. Drought Monitor lists 86 percent of California in the rank of “Severe Drought.” Reduced rainfall results in
reduced recharge to the State’s groundwater basins. Water levels in several of these basins, especially smaller basins, are
dropping. GSWC utilizes groundwater from seventeen groundwater basins throughout the State. Several GSWC service areas
rely on groundwater as their only source of supply. In the event of water-supply shortages beyond the mandated reductions,
GSWC would need to transport additional water from other areas, increasing the cost of water supply.
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GSWC’s Water Supply
During 2015, GSWC delivered approximately 58,848,000 hundred cubic feet (“ccf”) of water to its customers, which
is an average of about 370 acre-feet per day. An acre-foot is approximately 435.6 ccf or 326,000 gallons. Approximately 65%
of GSWC's supply came from groundwater production wells situated throughout GSWC’s service areas. GSWC supplemented
groundwater production with wholesale purchases from MWD member agencies and regional water suppliers (roughly 37% of
total demand) and with authorized diversions from rivers (roughly 5%) under contracts with the United States Bureau of
Reclamation (“Bureau”) and the Sacramento Municipal Utility District (“SMUD”). During 2014, GSWC supplied 69,248,000
ccf of water, approximately 60% of which was produced from groundwater sources and 40% was purchased from regional
wholesalers and surface water diversions under contracts with the Bureau and SMUD. GSWC continually assesses its water
rights and groundwater storage assets.
Groundwater
Over the years, population growth in GSWC’s service areas and increases in the amount of groundwater used have
resulted in both cooperative and judicially enforced regimes for owning water rights and managing groundwater basins for
long-term sustainability. GSWC management actively participates in efforts to protect groundwater basins from over-use and
from contamination and to protect its water rights. In some periods, these efforts require reductions in groundwater pumping
and increased reliance on alternative water resources.
GSWC owns approximately 86,000 acre-feet of adjudicated water rights, mostly groundwater, and a number of
unadjudicated water rights to help meet supply requirements. The productivity of GSWC’s groundwater resources varies from
year to year depending upon a variety of factors, including the amount, duration, length and location of rainfall, the availability
of imported replenishment water, the amount of water previously stored in groundwater basins, the amount and seasonality of
water use by GSWC’s customers and others, evolving challenges to water quality, and a variety of legal limitations on use, if a
groundwater basin is, or may be, in an overdrafted condition.
On September 16, 2014, California Governor Edmund G. Brown, Jr. signed a package of three bills, which taken
together are known as the “Sustainable Groundwater Management Act.” The purpose of the act is to provide local agencies
with tools and authority to manage groundwater basins in a sustainable manner over the long term. Local “Groundwater
Sustainability Agencies” are to be formed for each defined groundwater basin, and Groundwater Sustainability Plans must be
completed for those basins considered in critical overdraft. The Act contains numerous provisions to protect existing water
rights, and is not anticipated to infringe upon or otherwise alter existing surface water or groundwater rights under current
law. GSWC intends to cooperate to the fullest extent allowed in the development of these Groundwater Sustainability Agencies
and resulting Groundwater Sustainability Plans to protect its interests in proper management of these groundwater basins.
Imported Water
GSWC also manages a portfolio of water supply arrangements with water wholesalers. For example, GSWC has
contracts with various governmental entities (principally MWD’s member agencies) and other parties to purchase water
through a total of 63 connections for distribution to customers, in addition to numerous emergency connections. MWD is a
public agency organized and managed to provide a supplemental, imported supply to its member public agencies. There are 26
such member agencies, consisting of 14 cities, 11 municipal water districts and one county water authority. GSWC has 46
connections to MWD’s water distribution facilities and those of member agencies. GSWC purchases MWD water through six
separate member agencies aggregating 50,527 acre-feet annually. MWD’s principal source of water is the SWP, which conveys
water from northern California and the Colorado River.
GSWC has contracts to purchase water or water rights for an aggregate amount of $5.5 million as of December 31,
2015. Included in the $5.5 million is a remaining commitment of $3.0 million under an agreement with the City of Claremont
(“the City”) to lease water rights that were ascribed to the City as part of the Six Basins adjudication. The initial term of the
agreement expires in 2028. GSWC can exercise an option to renew this agreement for 10 additional years. The remaining $2.5
million are commitments for purchased water with other third parties which expire through 2038.
60
Metropolitan Water District / State Water Project
Water supplies available to the MWD through the SWP vary from year to year based on several
factors. Historically, weather was the primary factor in determining annual deliveries. However, biological opinions issued in
late 2007 have limited water diversions through the Sacramento/San Joaquin Delta (“Delta”) resulting in pumping restrictions
on the SWP. Even with variable SWP deliveries, MWD has been able to provide sufficient quantities of water to satisfy the
needs of its member agencies and their customers. Under its Integrated Resources Plan, MWD estimates that it can meet its
member agencies’ demands over at least the next 20 years.
Every year, the California Department of Water Resources ("DWR") establishes the SWP allocation for water
deliveries to the state water contractors. DWR generally establishes a percentage allocation of delivery requests based on a
number of factors, including weather patterns, snow-pack levels, reservoir levels and biological diversion restrictions. The
SWP is a major source of water for the MWD.
Given the status of the current drought, MWD has implemented a mandatory reduction in overall supply delivery of
15%, effective July 1, 2015. The actual reduction will vary by member agency, and agencies exceeding their allocated
reduction will face a surcharge per acre-foot of additional water, up to four times the normal MWD rate. For GSWC, these
increases may result in increased purchase water costs, which would be included in the MCBA.
Colorado River
On October 17, 2003, the Federal government, acting through the Bureau in its capacity as Colorado River
watermaster, the state of California, and four Southern California water agencies, including MWD, reached an agreement,
known as the Quantification Settlement Agreement (“QSA”). The QSA allocates California’s annual 4.4 million acre-feet
(“MAF”) share of the Colorado River among those agencies and provides the framework for accounting and transfers among
them.
Potential Additional Sources of Supply
GSWC continues to assess additional water supply opportunities to expand and firm up its water supply portfolio for
service to customers. In June 2010, GSWC signed an agreement with Cadiz Inc. giving GSWC the right to acquire an annual
supply of Cadiz water once Cadiz secures appropriate transport and conveyance facilities and necessary agreements to move
water from Cadiz’s property in Fenner Valley in San Bernardino County to metropolitan Southern California.
In March 2010, GSWC signed a nonbinding Letter of Intent with Poseidon Resources to purchase desalinated water
from a seawater desalination plant under consideration for construction by Poseidon Resources in the City of Huntington
Beach.
Military Utility Privatization Subsidiaries
The U.S. government is responsible for providing the source of supply for all water on each of the bases served by the
Military Utility Privatization Subsidiaries at no cost to the Military Utility Privatization Subsidiaries.
New Accounting Pronouncements
Registrant is subject to newly issued requirements as well as changes in existing requirements issued by the Financial
Accounting Standards Board. Differences in financial reporting between periods could occur unless and until the CPUC
approves such changes for conformity through regulatory proceedings. See Note 1 of Notes to Consolidated Financial
Statements.
61
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Registrant is exposed to certain market risks, including fluctuations in interest rates, and commodity price risk
primarily relating to changes in the market price of electricity. Market risk is the potential loss arising from adverse changes in
prevailing market rates and prices.
Interest Rate Risk
A significant portion of Registrant’s capital structure is comprised primarily of fixed-rate debt. Market risk related to
our fixed-rate debt is deemed to be the potential increase in fair value resulting from a decrease in interest rates. At
December 31, 2015, the fair value of Registrant’s long-term debt was $403.8 million. A hypothetical ten percent decrease in
market interest rates would have resulted in a $17.5 million increase in the fair value of Registrant’s long-term debt.
Market risk related to Registrant’s variable-rate debt is estimated as the potential decrease in pretax earnings resulting
from an increase in interest rates. As of December 31, 2015, Registrant had $89,000 in variable-interest-rate debt outstanding.
A hypothetical one percent rise in interest rates would not result in a material impact to earnings.
At December 31, 2015, Registrant did not believe that its short-term debt was subject to interest-rate risk due to the
fair market value being approximately equal to the carrying value.
Commodity/Derivative Risk
BVES is exposed to commodity price risk primarily relating to changes in the market price of electricity. To manage
its exposure to energy price risk, BVES from time to time executes purchased power contracts that qualify as derivative
instruments, requiring mark-to-market derivative accounting under the accounting guidance for derivatives. A derivative
financial instrument or other contract derives its value from another investment or designated benchmark.
In December 2014, the CPUC approved an application, which allowed BVES to immediately execute long-term
purchased power contracts with energy providers, which became effective on January 1, 2015. BVES began taking power
under these long-term contracts at a fixed cost over three and five year terms depending on the amount of power and period
during which the power is purchased under the contracts.
The long-term contracts executed in December 2014 qualify for derivative accounting treatment. Among other things,
the CPUC approval in December 2014 also authorized BVES to establish a regulatory asset and liability memorandum account
to offset the mark-to-market entries required by the accounting guidance. Accordingly, all unrealized gains and losses
generated from these 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 term of the contract. As a result, the
unrealized gains and losses on these contracts do not impact BVES’s earnings. As of December 31, 2015, there was a $7.1
million unrealized loss in the memorandum account for the new purchased power contracts as a result of the recent drop in
energy prices.
Except as discussed above, Registrant has had no other derivative financial instruments, financial instruments with
significant off-balance sheet risks or financial instruments with concentrations of credit risk.
62
Item 8. Financial Statements and Supplementary Data
American States Water Company
Consolidated Balance Sheets - December 31, 2015 and 2014
Consolidated Statements of Capitalization - December 31, 2015 and 2014
Consolidated Statements of Income - For the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Changes in Common Shareholders’ Equity - For the years ended December
31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows - For the years ended December 31, 2015, 2014 and 2013
Golden State Water Company
Balance Sheets - December 31, 2015 and 2014
Statements of Capitalization - December 31, 2015 and 2014
Statements of Income - For the years ended December 31, 2015, 2014 and 2013
Statements of Changes in Common Shareholder’s Equity - For the years ended December 31, 2015,
2014 and 2013
Statements of Cash Flows - For the years ended December 31, 2015, 2014 and 2013
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Report from Management on the Responsibility for Financial Statements
64
66
67
68
69
70
72
73
74
75
75
111
113
63
AMERICAN STATES WATER COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands)
Assets
Utility Plant
Regulated utility plant, at cost:
Water
Electric
Total
Non-regulated utility property, at cost
Total utility plant, at cost
Less — accumulated depreciation
Construction work in progress
Net utility plant
Other Property and Investments
Goodwill
Other property and investments
Total other property and investments
Current Assets
Cash and cash equivalents
Accounts receivable-customers, less allowance for doubtful accounts
Unbilled revenue
Receivable from U.S. government, less allowance for doubtful accounts
Other accounts receivable, less allowance for doubtful accounts
Income taxes receivable
Materials and supplies
Regulatory assets — current
Prepayments and other current assets
Costs and estimated earnings in excess of billings on contracts
Deferred income taxes — current
Total current assets
Regulatory and Other Assets
Regulatory assets
Costs and estimated earnings in excess of billings on contracts
Other
Total regulatory and other assets
Total Assets
December 31,
2015
2014
$
1,428,024 $
88,481
1,516,505
11,032
1,527,537
(529,698)
997,839
62,955
1,060,794
1,363,074
81,636
1,444,710
10,706
1,455,416
(500,239)
955,177
48,343
1,003,520
1,116
18,710
19,826
4,364
18,940
19,490
5,861
2,302
10,793
5,415
30,134
3,229
32,169
—
132,697
1,116
17,536
18,652
75,988
18,814
21,422
6,709
4,843
20,993
3,588
12,379
2,745
34,535
7,435
209,451
102,562
21,330
11,391
135,283
1,348,600 $
118,829
15,741
12,105
146,675
1,378,298
$
The accompanying notes are an integral part of these consolidated financial statements.
64
AMERICAN STATES WATER COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands)
Capitalization and Liabilities
Capitalization
Common shareholders’ equity
Long-term debt
Total capitalization
Current Liabilities
Notes payable to banks
Long-term debt — current
Accounts payable
Income taxes payable
Accrued other taxes
Accrued employee expenses
Accrued interest
Unrealized loss on purchased power contracts
Billings in excess of costs and estimated earnings on contracts
Other
Total current liabilities
Other Credits
Advances for construction
Contributions in aid of construction — net
Deferred income taxes
Unamortized investment tax credits
Accrued pension and other post-retirement benefits
Other
Total other credits
Commitments and Contingencies (Notes 13 and 14)
December 31,
2015
2014
$
465,945 $
325,541
791,486
506,801
325,798
832,599
28,000
312
50,585
68
8,142
11,748
3,626
7,053
3,764
10,209
123,507
68,041
117,810
192,852
1,612
42,666
10,626
433,607
—
292
41,855
638
8,602
10,519
3,549
3,339
11,736
18,760
99,290
68,328
116,629
191,209
1,699
61,773
6,771
446,409
Total Capitalization and Liabilities
$
1,348,600 $
1,378,298
The accompanying notes are an integral part of these consolidated financial statements.
65
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(in thousands, except share data)
Common Shareholders’ Equity:
Common Shares, no par value:
Authorized: 60,000,000 shares
Outstanding: 36,501,914 shares in 2015 and 38,286,626 shares in 2014
Earnings reinvested in the business
Long-Term Debt (All are of GSWC)
Notes/Debentures:
6.81% notes due 2028
6.59% notes due 2029
7.875% notes due 2030
7.23% notes due 2031
6.00% notes due 2041
Private Placement Notes:
3.45% notes due 2029
9.56% notes due 2031
5.87% notes due 2028
6.70% notes due 2019
Tax-Exempt Obligations:
5.50% notes due 2026
State Water Project due 2035
Other Debt Instruments:
Variable Rate Obligation due 2018
American Recovery and Reinvestment Act Obligation due 2033
Less: Current maturities
Total Capitalization
December 31,
2015
2014
$
245,022 $
220,923
465,945
253,199
253,602
506,801
15,000
40,000
20,000
50,000
62,000
15,000
28,000
40,000
40,000
7,730
4,000
15,000
40,000
20,000
50,000
62,000
15,000
28,000
40,000
40,000
7,730
4,077
89
4,034
325,853
(312)
325,541
791,486 $
125
4,158
326,090
(292)
325,798
832,599
$
The accompanying notes are an integral part of these consolidated financial statements.
66
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Operating Revenues
Water
Electric
Contracted services
Total operating revenues
Operating Expenses
Water purchased
Power purchased for pumping
Groundwater production assessment
Power purchased for resale
Supply cost balancing accounts
Other operation
Administrative and general
Depreciation and amortization
Maintenance
Property and other taxes
ASUS construction
Total operating expenses
Operating Income
Other Income and Expenses
Interest expense
Interest income
Other, net
Total other income and expenses
Income from operations before income tax expense
Income tax expense
Net Income
Weighted Average Number of Shares Outstanding
Basic Earnings Per Common Share
Weighted Average Number of Diluted Shares
Fully Diluted Earnings Per Share
Dividends Declared Per Common Share
For the years ended December 31,
2015
2014
2013
$
328,511 $
36,039
94,091
458,641
326,672 $
34,387
104,732
465,791
62,726
8,988
13,648
10,395
7,785
28,429
79,817
42,033
16,885
16,636
52,810
340,152
57,790
10,700
16,450
9,649
6,346
28,288
78,268
41,073
16,092
16,722
65,368
346,746
320,131
38,409
113,537
472,077
58,930
9,518
15,541
13,392
214
27,767
77,289
40,090
17,772
15,865
76,627
353,005
118,489
119,045
119,072
(21,088 )
458
356
(20,274 )
98,215
37,731
(21,617)
927
751
(19,939)
99,106
38,048
(22,415)
707
1,105
(20,603)
98,469
35,783
$
60,484 $
61,058 $
62,686
37,389
1.61 $
37,614
1.60 $
38,658
1.57 $
38,880
1.57 $
38,639
1.61
38,869
1.61
0.874 $
0.831 $
0.760
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
67
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF CHANGES
IN COMMON SHAREHOLDERS’ EQUITY
(in thousands)
Balances at December 31, 2012
Add:
Net income
Exercise of stock options and other issuance of Common Shares
Tax benefit from employee stock-based awards
Compensation on stock-based awards
Dividend equivalent rights on stock-based awards not paid in
cash
Deduct:
Dividends on Common Shares
Dividend equivalent rights on stock-based awards not paid in
cash
Balances at December 31, 2013
Add:
Net income
Exercise of stock options and other issuance of Common Shares
Tax benefit from employee stock-based awards
Compensation on stock-based awards
Dividend equivalent rights on stock-based awards not paid in
cash
Deduct:
Repurchase of Common Shares
Dividends on Common Shares
Dividend equivalent rights on stock-based awards not paid in
cash
Balances at December 31, 2014
Add:
Net income
Exercise of stock options and other issuance of Common Shares
Tax benefit from employee stock-based awards
Compensation on stock-based awards
Dividend equivalent rights on stock-based awards not paid in
cash
Deduct:
Repurchase of Common Shares
Dividends on Common Shares
Dividend equivalent rights on stock-based awards not paid in
cash
Balances at December 31, 2015
Common Shares
Number
of
Shares
38,474 $
Amount
249,322 $
Earnings
Reinvested
in the
Business
205,257 $
62,686
247
2,111
1,026
1,362
140
29,360
140
Total
454,579
62,686
2,111
1,026
1,362
140
29,360
140
38,721
253,961
238,443
492,404
111
589
533
1,508
197
545
3,589
61,058
13,591
32,111
197
61,058
589
533
1,508
197
17,180
32,111
197
38,287
253,199
253,602
506,801
120
1,198
877
2,168
270
1,905
12,690
60,484
60,203
32,690
270
60,484
1,198
877
2,168
270
72,893
32,690
270
36,502 $
245,022 $
220,923 $
465,945
The accompanying notes are an integral part of these consolidated financial statements.
68
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash Flows From Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
For the years ended December 31,
2015
2014
2013
$
60,484 $
61,058 $
62,686
Depreciation and amortization
Provision for doubtful accounts
Deferred income taxes and investment tax credits
Stock-based compensation expense
Other — net
Changes in assets and liabilities:
Accounts receivable — customers
Unbilled revenue
Other accounts receivable
Receivables from the U.S. government
Materials and supplies
Prepayments and other assets
Costs and estimated earnings in excess of billings on contracts
Regulatory assets
Accounts payable
Income taxes receivable/payable
Billings in excess of costs and estimated earnings on contracts
Accrued pension and other post-retirement benefits
Other liabilities
Net cash provided
Cash Flows From Investing Activities:
Capital expenditures
Other investments
Proceeds from sale of property
Net cash used
Cash Flows From Financing Activities:
Proceeds from stock option exercises
Repurchase of Common Shares
Tax benefits from stock-based awards
Receipt of advances for and contributions in aid of construction
Refunds on advances for construction
Retirement or repayments of long-term debt
Proceeds from issuance of long-term debt, net of issuance costs
Net change in notes payable to banks
Dividends paid
Other
Net cash used
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
42,674
870
10,423
2,754
838
(923)
1,932
1,243
848
(1,827)
1,580
(3,223)
(26,422)
679
9,630
(7,972)
616
941
95,145
(87,323)
(2,869)
54
(90,138)
41,751
991
32,316
2,222
—
3,979
(2,870)
1,029
397
970
973
6,159
26,385
(1,622)
(11,648)
4,884
(2,356)
(1,348)
163,270
(72,553)
(1,568)
62
(74,059)
1,198
(72,893)
877
3,731
(3,660)
(237)
—
28,000
(32,690)
(957)
(76,631)
(71,624)
75,988
4,364 $
589
(17,180)
533
7,598
(3,469)
(21,287)
14,846
—
(32,111)
(968)
(51,449)
37,762
38,226
75,988 $
$
40,967
1,145
16,112
2,009
(440)
(5,306)
(2,405)
2,503
5,799
790
3,001
(13,761)
11,667
1,815
7,329
(5,720)
4,396
3,124
135,711
(97,379)
(1,408)
12
(98,775)
2,111
—
1,026
12,133
(3,711)
(3,474)
60
—
(29,360)
(981)
(22,196)
14,740
23,486
38,226
The accompanying notes are an integral part of these consolidated financial statements.
69
GOLDEN STATE WATER COMPANY
BALANCE SHEETS
(in thousands)
Assets
Utility Plant, at cost
Water
Electric
Total
Less — accumulated depreciation
Construction work in progress
Net utility plant
Other Property and Investments
Current Assets
Cash and cash equivalents
Accounts receivable-customers, less allowance for doubtful accounts
Unbilled revenue
Inter-company receivable
Other accounts receivable, less allowance for doubtful accounts
Income taxes receivable from Parent
Materials and supplies
Regulatory assets — current
Prepayments and other current assets
Deferred income taxes — current
Total current assets
Regulatory and Other Assets
Regulatory assets
Other
Total regulatory and other assets
Total Assets
December 31,
2015
2014
$
1,428,024 $
88,481
1,516,505
(522,749)
993,756
62,360
1,056,116
1,363,074
81,636
1,444,710
(494,000 )
950,710
48,170
998,880
16,581
16,581
2,501
18,940
18,181
54
1,455
11,000
4,860
30,134
2,793
—
89,918
15,395
15,395
44,005
18,814
17,733
499
3,795
29,580
2,791
12,379
2,507
6,500
138,603
102,562
11,343
113,905
1,276,520 $
118,829
10,667
129,496
1,282,374
$
The accompanying notes are an integral part of these financial statements.
70
GOLDEN STATE WATER COMPANY
BALANCE SHEETS
(in thousands)
Capitalization and Liabilities
Capitalization
Common shareholder’s equity
Long-term debt
Total capitalization
Current Liabilities
Inter-company payable
Long-term debt — current
Accounts payable
Accrued other taxes
Accrued employee expenses
Accrued interest
Unrealized loss on purchased power contracts
Other
Total current liabilities
Other Credits
Advances for construction
Contributions in aid of construction — net
Deferred income taxes
Unamortized investment tax credits
Accrued pension and other post-retirement benefits
Other
Total other credits
Commitments and Contingencies (Notes 13 and 14)
December 31,
2015
2014
$
423,730 $
325,541
749,271
435,190
325,798
760,988
12,000
312
39,610
7,830
10,630
3,599
7,053
9,921
90,955
68,041
117,810
195,658
1,612
42,666
10,507
436,294
—
292
29,619
8,442
9,591
3,593
3,339
18,659
73,535
68,328
116,629
192,787
1,699
61,773
6,635
447,851
Total Capitalization and Liabilities
$
1,276,520 $
1,282,374
The accompanying notes are an integral part of these financial statements.
71
GOLDEN STATE WATER COMPANY
STATEMENTS OF CAPITALIZATION
(in thousands, except share data)
Common Shareholder’s Equity:
Common Shares, no par value, Outstanding: 146 shares in 2015 and 2014
Earnings reinvested in the business
Long-Term Debt
Notes/Debentures:
6.81% notes due 2028
6.59% notes due 2029
7.875% notes due 2030
7.23% notes due 2031
6.00% notes due 2041
Private Placement Notes:
3.45% notes due 2029
9.56% notes due 2031
5.87% notes due 2028
6.70% notes due 2019
Tax-Exempt Obligations:
5.50% notes due 2026
State Water Project due 2035
Other Debt Instruments:
Variable rate obligation due 2018
American Recovery and Reinvestment Act Obligation due 2033
Less: Current maturities
Total Capitalization
December 31,
2015
2014
$
238,795 $
184,935
423,730
235,607
199,583
435,190
15,000
40,000
20,000
50,000
62,000
15,000
28,000
40,000
40,000
7,730
4,000
15,000
40,000
20,000
50,000
62,000
15,000
28,000
40,000
40,000
7,730
4,077
89
4,034
325,853
(312)
325,541
749,271 $
125
4,158
326,090
(292)
325,798
760,988
$
The accompanying notes are an integral part of these financial statements.
72
GOLDEN STATE WATER COMPANY
STATEMENTS OF INCOME
(in thousands)
Operating Revenues
Water
Electric
Total operating revenues
Operating Expenses
Water purchased
Power purchased for pumping
Groundwater production assessment
Power purchased for resale
Supply cost balancing accounts
Other operation
Administrative and general
Depreciation and amortization
Maintenance
Property and other taxes
Total operating expenses
Operating Income
Other Income and Expenses
Interest expense
Interest income
Other, net
Total other income and expenses
For the years ended December 31,
2015
2014
2013
$
328,511 $
36,039
364,550
326,672 $
34,387
361,059
320,131
38,409
358,540
62,726
8,988
13,648
10,395
7,785
24,892
64,877
40,893
14,693
15,244
264,141
57,790
10,700
16,450
9,649
6,346
25,548
65,814
39,854
13,945
15,221
261,317
58,930
9,518
15,541
13,392
214
25,110
64,645
38,952
15,823
14,072
256,197
100,409
99,742
102,343
(20,998 )
440
212
(20,346 )
(21,524)
894
751
(19,879)
(22,287)
615
1,105
(20,567)
Income from operations before income tax expense
80,063
79,863
81,776
Income tax expense
Net Income
32,472
32,006
33,134
$
47,591 $
47,857 $
48,642
The accompanying notes are an integral part of these financial statements.
73
GOLDEN STATE WATER COMPANY
STATEMENTS OF CHANGES IN
COMMON SHAREHOLDER’S EQUITY
Common Shares
Number
of
Shares
146 $
(in thousands, except number of shares)
Balances at December 31, 2012
Add:
Net income
Tax benefit from employee stock-based awards
Compensation on stock-based awards
Dividend equivalent rights on stock-based awards not paid in
cash
Deduct:
Dividends on Common Shares
Dividend equivalent rights on stock-based awards not paid in
cash
Balances at December 31, 2013
Add:
Net income
Tax benefit from employee stock-based awards
Compensation on stock-based awards
Dividend equivalent rights on stock-based awards not paid in
cash
Deduct:
Dividends on Common Shares
Dividend equivalent rights on stock-based awards not paid in
cash
Balances at December 31, 2014
Add:
Net income
Tax benefit from employee stock-based awards
Compensation on stock-based awards
Dividend equivalent rights on stock-based awards not paid in
cash
Deduct:
Dividends on Common Shares
Dividend equivalent rights on stock-based awards not paid in
cash
Earnings
Reinvested
in the
Amount
231,480 $
Business
184,777 $
Total
416,257
943
1,171
127
48,642
48,642
943
1,171
127
29,400
29,400
127
127
146
233,721
203,892
437,613
514
1,206
166
47,857
47,857
514
1,206
166
52,000
52,000
166
166
146
235,607
199,583
435,190
872
2,077
239
47,591
47,591
872
2,077
239
62,000
62,000
239
239
Balances at December 31, 2015
146 $
238,795 $
184,935 $
423,730
The accompanying notes are an integral part of these financial statements.
74
GOLDEN STATE WATER COMPANY
STATEMENTS OF CASH FLOWS
(in thousands)
Cash Flows From Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
For the years ended December 31,
2015
2014
2013
$
47,591 $
47,857 $
48,642
Depreciation and amortization
Provision for doubtful accounts
Deferred income taxes and investment tax credits
Stock-based compensation expense
Other — net
Changes in assets and liabilities:
Accounts receivable — customers
Unbilled revenue
Other accounts receivable
Materials and supplies
Prepayments and other assets
Regulatory assets
Accounts payable
Inter-company receivable/payable
Income taxes receivable/payable from/to Parent
Accrued pension and other post-retirement benefits
Other liabilities
Net cash provided
Cash Flows From Investing Activities:
Capital expenditures
Note receivable from AWR parent
Receipt of payment of note receivable from AWR parent
Other investing activities
Net cash used
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt, net of issuance costs
Tax benefits from stock-based awards
Receipt of advances for and contributions in aid of construction
Refunds on advances for construction
Retirement or repayments of long-term debt
Net change in inter-company borrowings
Dividends paid
Other
Net cash used
41,534
845
10,719
2,443
822
(923 )
(448 )
1,067
(2,069 )
440
(26,422 )
1,940
445
18,580
616
358
97,538
(86,144 )
(20,700 )
20,700
(2,869 )
(89,013 )
—
872
3,731
(3,660 )
(237 )
12,000
(62,000 )
(735 )
(50,029 )
40,532
1,054
34,352
1,748
(12)
3,979
819
670
(932)
583
26,386
(1,676)
219
(19,876)
(2,356)
(664)
132,683
(70,888)
(8,300)
8,800
(1,568)
(71,956)
14,846
514
7,598
(3,469)
(21,287)
—
(52,000)
(799)
(54,597)
39,829
1,056
16,051
1,647
(333)
(5,306)
(2,405)
3,251
385
4,992
11,667
2,916
1,790
6,738
4,396
2,854
138,170
(96,705)
(18,236)
17,736
(1,408)
(98,613)
60
943
12,133
(3,711)
(3,474)
—
(29,400)
(811)
(24,260)
Net increase (decrease) in cash and cash equivalents
(41,504 )
6,130
15,297
Cash and cash equivalents, beginning of year
44,005
37,875
22,578
Cash and cash equivalents, end of year
$
2,501 $
44,005 $
37,875
The accompanying notes are an integral part of these financial statements.
75
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Summary of Significant Accounting Policies
Nature of Operations: American States Water Company (“AWR”) is the parent company of Golden State Water
Company (“GSWC”) and American States Utility Services, Inc. (“ASUS”) (and its subsidiaries, Fort Bliss Water Services
Company (“FBWS”), Terrapin Utility Services, Inc. (“TUS”), Old Dominion Utility Services, Inc. (“ODUS”), Palmetto State
Utility Services, Inc. (“PSUS”) and Old North Utility Services, Inc. (“ONUS”)). AWR and its subsidiaries may be collectively
referred to as “Registrant” or “the Company.” The subsidiaries of ASUS are collectively referred to as the “Military Utility
Privatization Subsidiaries.”
GSWC is a public utility engaged principally in the purchase, production, distribution and sale of water in California
serving approximately 260,000 customers. GSWC also distributes electricity in several San Bernardino County Mountain
communities in California serving approximately 24,000 electric customers through its Bear Valley Electric Service (“BVES”)
division. Although Registrant has a diversified base of residential, industrial and other customers, revenues derived from
commercial and residential water customers accounted for approximately 90% of total water revenues in 2015, 2014 and 2013.
The California Public Utilities Commission (“CPUC”) regulates GSWC’s water and electric businesses in matters including
properties, rates, services, facilities, and transactions by GSWC with its affiliates. AWR’s assets and operating income are
primarily those of GSWC.
ASUS, through its wholly owned subsidiaries, operates, maintains and performs construction activities (including
renewal and replacement capital work) on water and/or wastewater systems at various United States military bases pursuant to
50-year firm fixed-price contracts. These contracts are subject to periodic price redeterminations or 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.
Basis of Presentation: The consolidated financial statements and notes thereto are presented in a combined report filed
by two separate Registrants: AWR and GSWC. References in this report to “Registrant” are to AWR and GSWC, collectively,
unless otherwise specified. Certain prior-period amounts in the Consolidated and GSWC Statements of Cash Flow have been
reclassified to conform to the 2015 presentation of "Regulatory Assets" as a separate line item.
AWR owns all of the outstanding Common Shares of GSWC and ASUS. ASUS owns all of the outstanding Common
shares of the Military Utility Privatization Subsidiaries. The consolidated financial statements of AWR include the accounts of
AWR and its subsidiaries, all of which are wholly owned. These financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America. Inter-company transactions and balances have been
eliminated in the AWR consolidated financial statements.
Related Party Transactions: GSWC and ASUS provide and/or receive various support services to and from their
parent, AWR, and among themselves. GSWC also allocates certain corporate office administrative and general costs to its
affiliate, ASUS, using allocation factors approved by the CPUC. During the years ended December 31, 2015, 2014 and 2013,
GSWC allocated to ASUS approximately $2.6 million, $2.7 million and $2.6 million, respectively, of corporate office
administrative and general costs. In addition, AWR has a $100.0 million syndicated credit facility. AWR borrows under this
facility and provides funds to its subsidiaries, including GSWC, in support of their operations. The interest rate charged to
GSWC and ASUS is sufficient to cover AWR’s interest cost under the credit facility. Amounts owed to GSWC by AWR,
including for allocated expenses, are included in GSWC's inter-company receivables as of December 31, 2015 and 2014.
In October 2015, AWR issued interest bearing promissory notes (the "Notes") to GSWC and ASUS for $40 million
and $10 million, respectively, which expire on May 23, 2018. Under the terms of the Notes, AWR may borrow from GSWC
and ASUS amounts up to $40 million and $10 million, respectively, for working capital purposes. AWR agrees to pay any
unpaid principal amounts outstanding under these notes, plus accrued interest. As of December 31, 2015, there were no
amounts outstanding under these Notes.
76
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Utility Accounting: Registrant’s accounting policies conform to accounting principles generally accepted in the
United States of America ("U.S. GAAP"), including the accounting principles for rate-regulated enterprises, which reflect the
ratemaking policies of the CPUC and the Federal Energy Regulatory Commission. GSWC has incurred various costs and
received various credits reflected as regulatory assets and liabilities. Accounting for such costs and credits as regulatory assets
and liabilities is in accordance with the guidance for accounting for the effects of certain types of regulation. This guidance
sets forth the application of accounting principles generally accepted in the United States of America for those companies
whose rates are established by or are subject to approval by an independent third-party regulator.
Under such accounting guidance, rate regulated entities defer costs and credits on the balance sheet as regulatory
assets and liabilities when it is probable that those costs and credits will be recognized in the ratemaking process in a period
different from the period in which they would have been reflected in income by an unregulated company. These regulatory
assets and liabilities are then recognized in the income statement in the period in which the same amounts are reflected in the
rates charged for service. The amounts included as regulatory assets and liabilities that will be collected over a period
exceeding one year are classified as long-term assets and liabilities as of December 31, 2015 and 2014.
Property and Depreciation: GSWC capitalizes, as utility plant, the cost of construction and the cost of additions,
betterments and replacements of retired units of property. Such cost includes labor, material and certain indirect charges.
Water systems acquired are recorded at estimated original cost of utility plant when first devoted to utility service and the
applicable accumulated depreciation is recorded to accumulated depreciation. The difference between the estimated original
cost, less accumulated depreciation, and the purchase price, if recognized by the regulator, is recorded as an acquisition
adjustment within utility plant.
Depreciation is computed on the straight-line, remaining-life basis, group method, based on depreciable plant in
accordance with the applicable ratemaking process. GSWC's provision for depreciation expressed as a percentage of the
aggregate depreciable asset balances was 3.2% for 2015 and 2014, and 3.4% for 2013. Depreciation computed on GSWC’s
transportation equipment is recorded in other operating expenses and totaled $641,000, $678,000 and $877,000 for the years
ended December 31, 2015, 2014 and 2013, respectively. Expenditures for maintenance and repairs are expensed as
incurred. Replaced or retired property costs, including cost of removal, are charged to the accumulated provision for
depreciation. Property owned and depreciation recorded by ASUS and its subsidiaries are not material to Registrant’s financial
statements.
Estimated useful lives of GSWC’s utility plant, as authorized by the CPUC, are as follows:
Source of water supply
Pumping
Water treatment
Transmission and distribution
Generation
Other plant
30 years to 50 years
25 years to 40 years
20 years to 35 years
25 years to 55 years
40 years
7 years to 40 years
Asset Retirement Obligations: GSWC has a legal obligation for the retirement of its wells, which by law need to be
properly capped at the time of removal. As such, GSWC incurs asset retirement obligations. GSWC records the fair value of a
liability for these asset retirement obligations in the period in which they are incurred. When the liability is initially recorded,
GSWC capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted
to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement
of the liability, GSWC either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. Retirement
costs have historically been recovered through rates subsequent to the retirement costs being incurred. Accordingly, GSWC’s
asset retirement obligations are reflected as a regulatory asset. GSWC also reflects the gain or loss at settlement as a regulatory
asset or liability on the balance sheet.
With regards to removal costs associated with certain other long-lived assets, such as water mains, distribution and
transmission assets, asset retirement obligations have not been recognized as GSWC believes that it will not be obligated to
retire these assets. There are no CPUC rules or regulations that require GSWC to remove any of its other long-lived assets. In
addition, GSWC’s water pipelines are not subject to regulation by any federal regulatory agency. GSWC has franchise
77
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
agreements with various municipalities in order to use the public right of way for utility purposes (i.e., operate water
distribution and transmission assets), and if certain events occur in the future, GSWC could be required to remove or relocate
certain of its pipelines. However, it is not possible to estimate an asset retirement amount since the timing and the amount of
assets that may be required to be removed, if any, is not known.
Amounts recorded for asset retirement obligations are subject to various assumptions and determinations, such as
determining whether a legal obligation exists to remove assets, and estimating the fair value of the costs of removal, when final
removal will occur and the credit-adjusted risk-free interest rates to be utilized on discounting future liabilities. Changes that
may arise over time with regard to these assumptions will change amounts recorded in the future. The estimated fair value of
the costs of removal was based on third party costs.
Impairment of Long-Lived Assets: Long-lived assets are reviewed for impairment annually or whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable in accordance with
accounting guidance for impairment or disposal of long-lived assets. Registrant would recognize an impairment loss on its
regulated assets only if the carrying value amount of a long-lived asset is not recoverable from customer rates authorized by the
CPUC. Impairment loss is measured as the excess of the carrying value over the amounts recovered in customer rates. For the
years ended December 31, 2015, 2014 and 2013, no impairment loss was incurred.
Goodwill: At December 31, 2015 and 2014, AWR had approximately $1.1 million of goodwill. The $1.1 million
goodwill arose from ASUS’s acquisition of a subcontractor’s business at some of the Military Utility Privatization
Subsidiaries. In accordance with the accounting guidance for testing goodwill, AWR annually assesses qualitative factors to
determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair
value of a reporting unit is less than its carrying amount. For 2015, AWR’s assessment of qualitative factors did not indicate
that an impairment had occurred for the goodwill amount of $1.1 million at ASUS.
Cash and Cash Equivalents: Cash and cash equivalents include short-term cash investments with an original maturity
of three months or less. At times, cash and cash equivalent balances may be in excess of federally insured limits. Cash and
cash equivalents are held with financial institutions with high credit standings.
Accounts Receivable: Accounts receivable is reported on the balance sheet net of any allowance for doubtful
accounts. The allowance for doubtful accounts is Registrant’s best estimate of the amount of probable credit losses in
Registrant’s existing accounts receivable from its water and electric customers, and is determined based on historical write-off
experience and the aging of account balances. Registrant reviews the allowance for doubtful accounts quarterly. Account
balances are written off against the allowance when it is probable the receivable will not be recovered. When utility customers
request extended payment terms, credit is extended based on regulatory guidelines, and collateral is not required. Other
accounts receivable consist of amounts due from third parties (non-utility customers) for various reasons, including amounts
due from contractors, amounts due under settlement agreements, and amounts due from the U.S. government or other third-
party prime government contractors pursuant to modifications or contracts thereto or agreements to operate and maintain,
and/or provide construction services for the water and/or wastewater systems at military bases. The allowance for these other
accounts receivable is based on Registrant’s evaluation of the receivable portfolio under current conditions and a review of
specific problems and such other factors that, in Registrant’s judgment, should be considered in estimating losses. Allowances
for doubtful accounts are disclosed in Note 16.
Materials and Supplies: Materials and supplies are stated at the lower of cost or market. Cost is computed using
average cost. Major classes of materials include pipe, hydrants and valves.
Interest: Interest incurred during the construction of capital assets has generally not been capitalized for financial
reporting purposes as such policy is not followed in the ratemaking process. Interest expense is generally recovered through
the regulatory process. However, the CPUC has authorized certain capital projects to be filed for revenue recovery with advice
letters when those projects are completed. During the time that such projects are under development and construction, GSWC
may accrue an allowance for funds used during construction (“AFUDC”) on the incurred expenditures to offset the cost of
financing project construction. For the years ended December 31, 2015, 2014 and 2013, GSWC recorded $694,000, $24,000
and $270,000, respectively, of AFUDC related to these capital projects based on a weighted cost of capital of 8.34% for water
and a cost of debt of 6.96% for electric, as approved by the CPUC.
78
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Water and Electric Operating Revenues: GSWC records water and electric utility operating revenues when the service
is provided to customers. Revenues include amounts billed to customers on a cycle basis based on meter reading for services
provided and unbilled revenues representing estimated amounts to be billed for usage from the last meter reading date to the
end of the accounting period. Unbilled revenues are based on historic customer usage to estimate unbilled usage. Flat-rate
customers are billed in advance at the beginning of the service period. Revenue from flat-rate customers is deferred and
adjustments are calculated to determine the revenue related to the applicable period.
Alternative-Revenue Programs: As authorized by the CPUC, GSWC records in revenues the difference between the
adopted level of volumetric revenues as authorized by the CPUC for metered accounts (volumetric revenues) and the actual
volumetric revenues recovered in customer rates. If this difference results in an under-collection of revenues, GSWC records
the additional revenue only to the extent that they are expected to be collected within 24 months following the year in which
they are recorded in accordance with the accounting guidance for alternative-revenue programs.
Contracted Services Revenues: Revenues from ASUS contract operations and maintenance agreements are recognized
on a monthly basis when services have been rendered to the customers under such agreements. Revenues from firm, fixed-
price construction contracts are recognized based on the percentage-of-completion and cost-plus methods of accounting. In
accordance with GAAP, revenue recognition under these methods require ASUS to estimate the progress toward completion on
a contract in terms of efforts (such as costs incurred) or, in the case of the percentage of completion method, in terms of results
achieved (such as units constructed). These approaches are used because management considers them to be the best available
measure of progress on these contracts. Revenues from cost-plus-profit contracts of ASUS are recognized on the basis of costs
incurred during the period plus the profit earned, measured by the cost-to-cost method. Unbilled receivables from the U.S.
government represent amounts to be billed for construction work completed and/or for services rendered pursuant to 50-year
contracts with the U.S government, which are not presently billable but which will be billed under the terms of those contracts.
Construction costs for ASUS include all direct material and labor costs charged by subcontractors and those indirect
costs related to contract performance, such as indirect labor, supplies, and tools. The factors considered in including such costs
in revenues and expenses are that ASUS and/or its subsidiaries: (i) are the primary obligor in these arrangements with the U.S.
government and the third party prime contractors, (ii) have latitude in establishing pricing, and (iii) bear credit risk in the
collection of receivables. Administrative and general costs are charged to expense as incurred. Precontract costs for ASUS,
which consist of design and engineering labor costs, are deferred if they are probable of recovery and are expensed as incurred
if they are not probable of recovery. Deferred precontract costs have been immaterial to date. Provisions for estimated losses
on uncompleted contracts are made in the period in which such losses are determined.
Changes in job performance, job conditions, change orders and estimated profitability, including those arising from
contract penalty provisions, and final contract settlements may result in revisions to costs and income for ASUS and are
recognized in the period in which the revisions are determined.
The asset, “Costs and estimated earnings in excess of billings on contracts,” represents revenues recognized in excess
of amounts billed. The liability, “Billings in excess of costs and estimated earnings on contracts,” represents billings in excess
of revenues recognized. Amounts expected to be earned/collected in the next 12-months have been classified as current.
Debt Issuance Costs and Redemption Premiums: Original debt issuance costs are capitalized and amortized over the
lives of the respective issues. Premiums paid on the early redemption of debt, which is reacquired through refunding, are
deferred and amortized over the life of the debt issued to finance the refunding as Registrant normally receives recovery of
these costs in rates.
Advances for Construction and Contributions in Aid of Construction: Advances for construction represent amounts
advanced by developers for the cost to construct water system facilities in order to extend water service to their properties.
Advances are generally refundable in equal annual installments, generally over 40 years. In certain instances, GSWC makes
refunds on these advances over a specific period of time based on operating revenues related to the main or as new customers
are connected to receive service from the main. Utility plant funded by advances and contributions is excluded from rate
base. Generally, GSWC depreciates contributed property and amortizes contributions in aid of construction at the composite
rate of the related property. Contributions in aid of construction are similar to advances, but require no refunding.
79
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Financial Instruments: For cash and cash equivalents, accounts receivable, accounts payable and short-
term debt, the carrying amount is assumed to approximate fair value due to the short-term nature of the amounts. The table
below estimates the fair value of long-term debt issued by GSWC. Rates available to GSWC at December 31, 2015 and 2014
for debt with similar terms and remaining maturities were used to estimate fair value for long-term debt. Changes in the
assumptions will produce differing results.
2015
2014
(dollars in thousands)
Long-term debt—GSWC
Carrying Amount
Fair Value
Carrying Amount
Fair Value
$
325,853 $
403,844 $
326,090 $
417,057
The accounting guidance for fair value measurements applies to all financial assets and financial liabilities that are
being measured and reported on a fair value basis. Under the accounting guidance, GSWC makes fair value measurements that
are classified and disclosed in one of the following three categories:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for
substantially the full term of the asset or liability; or
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and
unobservable (i.e., supported by little or no market activity).
Publicly issued notes, private placement notes and other long-term debt are measured using current U.S. corporate
bond yields for similar debt instruments and are classified as Level 2. The following table sets forth by level, within the fair
value hierarchy, GSWC’s long-term debt measured at fair value as of December 31, 2015:
(dollars in thousands)
Long-term debt—GSWC
Level 1
Level 2
Level 3
— $
403,844
— $
Total
403,844
Stock Awards: AWR has issued stock awards to its employees under the 2000 Stock Incentive Plan, or 2000 employee
plan, and the 2008 Stock Incentive Plan, or 2008 employee plan, and to directors under the 2003 Non-Employee Directors
Stock Plan, or 2003 directors plan, and the 2013 Non-Employee Directors Plan, or 2013 directors plan. Registrant applies the
provisions in the accounting guidance for share-based payments in accounting for all of its stock-based awards. See Note 12
for further discussion.
Sales and Use Taxes: GSWC bills certain sales and use taxes levied by state or local governments to its customers.
Included in these sales and use taxes are franchise fees, which GSWC pays to various municipalities (based on ordinances
adopted by these municipalities) in order to use public rights of way for utility purposes. GSWC bills these franchise fees to its
customers based on a CPUC-authorized rate for each rate-making area as applicable. These franchise fees, which are required
to be paid regardless of GSWC’s ability to collect them from its customers, are accounted for on a gross basis. GSWC’s
franchise fees billed to customers and recorded as operating revenue were approximately $3.8 million, $3.7 million and $3.6
million for the years ended December 31, 2015, 2014 and 2013, respectively. When GSWC acts as an agent, and the tax is not
required to be remitted if it is not collected from the customer, the taxes are accounted for on a net basis.
Depending on the state in which its subsidiary operations are conducted, ASUS is also subject to certain state non-
income tax assessments generally computed on a “gross receipts” or “gross revenues” basis. These non-income tax
assessments are required to be paid regardless of whether the subsidiary is reimbursed by the U.S. government for these
assessments under its 50-year contracts. The non-income tax assessments are accounted for on a gross basis and totaled
$367,000, $490,000 and $864,000 during the years ended December 31, 2015, 2014 and 2013, respectively.
80
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recently Issued Accounting Pronouncements: In May 2014, the Financial Accounting Standards Board ("FASB")
issued updated accounting guidance on revenue recognition. The guidance will replace most existing revenue recognition
guidance in U.S. GAAP when it becomes effective. Under this guidance, an entity will recognize revenue when it transfers
promised goods or services to customers in an amount that reflects what the entity expects in exchange for the goods or
services. The guidance also requires more detailed disclosures to enable users of financial statements to understand the nature,
amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, the FASB
decided to delay the effective date of the new revenue standard by one year. The guidance is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2017, and adoption is not permitted earlier than the original
effective date, that is, no earlier than 2017. The guidance allows entities to select one or two methods of adoption, either the
full retrospective approach, meaning the guidance would be applied to all periods presented, or modified retrospective
approach, meaning the cumulative effect of applying the guidance would be recognized as an adjustment to opening retained
earnings at January 1, 2018, along with providing certain additional disclosures. Registrant will adopt this guidance in the
fiscal year beginning January 1, 2018. Management has not yet selected a transition method nor has it determined the effect of
the standard on the Company's ongoing financial reporting.
In April 2015, the FASB issued Accounting Standard Update 2015-03, Simplifying the Presentation of Debt Issuance
Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of
the associated debt liability, rather than as an asset. The standard does not affect the recognition and measurement of debt
issuance costs. The guidance is effective January 1, 2016. In August 2015, the FASB issued Accounting Standard Update
2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements,
which provided additional guidance for presentation of debt issuance costs related to line-of-credit arrangements. Under this
guidance, entities may present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs
ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-
of-credit arrangement. As of December 31, 2015, Registrant had $4.7 million in debt issuance costs reflected under "Other
Noncurrent Assets."
In May 2015, the FASB issued Accounting Standards Update 2015-07, Fair Value Measurements (Topic 820):
Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (of Its Equivalent). Under the new
guidance, investments measured at net asset value ("NAV"), as a practical expedient for fair value, are excluded from the fair
value hierarchy. The FASB also amended ASC 715, Compensation - Retirement Benefits, to clarify that a plan sponsor's
pension assets are eligible to be measured at NAV as a practical expedient and that those investments are not required to be
categorized in the fair value hierarchy. The new guidance is effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2015, however early adoption is permitted. Registrant has adopted this guidance as of
December 31, 2015, whereby all pension assets measured at NAV are excluded from the fair value hierarchy within Note 11.
In November 2015, the FASB issued Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred
Taxes, which requires that all deferred tax assets and liabilities, along with any related allowance, be classified as noncurrent on
the balance sheet. The guidance may be applied either prospectively, for all deferred tax assets and liabilities, or retrospectively
(i.e. by reclassifying the comparative balance sheet). If applied prospectively, entities are required to include a statement that
prior periods were not retrospectively adjusted. If applied retrospectively, entities are also required to include quantitative
information about the effects of the change on prior periods. The guidance is effective January 1, 2017, however early adoption
is permitted. Registrant has adopted this guidance as of December 31, 2015 on a prospective basis, whereby all deferred tax
assets and liabilities are classified as noncurrent on Registrant's balance sheets. The adoption of this guidance did not have a
material impact to Registrant's balance sheets. Prior periods were not retrospectively adjusted.
Note 2 — Regulatory Matters
In accordance with accounting principles for rate-regulated enterprises, Registrant records regulatory assets, which
represent probable future recovery of costs from customers through the ratemaking process, and regulatory liabilities, which
represent probable future refunds that are to be credited to customers through the ratemaking process. At December 31, 2015,
Registrant had approximately $48.9 million of regulatory assets, net of regulatory liabilities, not accruing carrying costs. Of
this amount, $19.8 million relates to the underfunded position in Registrant's pension and other post-retirement obligations,
$7.1 million relates to a memorandum account authorized by the CPUC to track unrealized gains and losses on BVES's
purchase power contracts over the term of the contracts, and $16.2 million relates to deferred income taxes representing
81
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
accelerated tax benefits flowed through to customers, which will be included in rates concurrently with recognition of the
associated future tax expense. The remainder relates to other items that do not provide for or incur carrying costs.
Regulatory assets represent costs incurred by GSWC for which it has received or expects to receive rate recovery in
the future. In determining the probability of costs being recognized in other periods, GSWC considers regulatory rules and
decisions, past practices, and other facts or circumstances that would indicate if recovery is probable. If the CPUC determines
that a portion of GSWC’s assets are not recoverable in customer rates, GSWC 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
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 rate-making area. Regulatory assets, less regulatory liabilities, included in the consolidated
balance sheets are as follows:
(dollars in thousands)
GSWC
Water Revenue Adjustment Mechanism, net of Modified Cost Balancing Account
$
Base Revenue Requirement Adjustment Mechanism
Costs deferred for future recovery on Aerojet case
Pensions and other post-retirement obligations (Note 11)
Derivative unrealized loss (Note 4)
Flow-through taxes, net (Note 10)
Low income rate assistance balancing accounts
Other regulatory assets
Various refunds to customers
Total
Alternative-Revenue Programs:
$
December 31,
2015
2014
45,171 $
3,714
12,699
21,996
7,053
16,176
8,699
21,954
(4,766 )
132,696 $
9,369
7,761
13,629
43,426
3,339
17,612
9,109
23,259
(1,800)
125,704
Under the Water Revenue Adjustment Mechanism (“WRAM”), GSWC records the difference between the adopted
level of volumetric revenues as authorized by the CPUC for metered accounts (adopted volumetric revenues) and the actual
volumetric revenues recovered in customer rates. While the WRAM tracks volumetric-based revenues, the revenue
requirements approved by the CPUC include service charges, flat rate charges, and other items that are not subject to the
WRAM. The adopted volumetric revenues consider the seasonality of consumption of water based upon historical averages.
The variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts is recorded as a
component of revenue with an offsetting entry to an asset or liability balancing account (tracked individually for each rate
making area). The variance amount may be positive or negative and represents amounts that will be billed or refunded to
customers in the future. The WRAM only applies to customer classes with conservation rates in place. The majority of
GSWC’s water customers have conservation rate structures.
Under the Modified Cost Balancing Account (“MCBA”), GSWC tracks adopted expense levels for purchased water,
purchased power and pump taxes, as established by the CPUC. Variances (which include the effects of changes in both rate and
volume) between adopted and actual purchased water, purchased power, and pump tax expenses are recorded as a component
of the MCBA to be recovered from or refunded to GSWC’s customers at a later date. This is reflected with an offsetting entry
to an asset or liability balancing account (tracked individually for each rate-making area). Unlike the WRAM, the MCBA
applies to all customer classes.
The recovery or refund of the WRAM is netted against the MCBA over- or under-collection for the corresponding
rate-making area and bears interest at the current 90-day commercial-paper rate. GSWC has implemented surcharges to
recover its WRAM/MCBA balances as of December 31, 2014. During the year ended December 31, 2015, surcharges of $3.1
million were billed to customers to decrease previously incurred under-collections in the pre-2015 WRAM, net of MCBA
accounts. Also during the year ended December 31, 2015, GSWC recorded an additional $38.9 million under-collection in the
WRAM account, net of the MCBA. As of December 31, 2015, GSWC had a net aggregated regulatory asset of $45.2 million,
which is comprised of a $46.7 million under-collection in the WRAM accounts and a $1.5 million over-collection in the MCBA
accounts. The increase in the WRAM balance during 2015 was due, in large part, to water conservation by customers in
82
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
response to the ongoing drought conditions in California. Due to the state-mandated water-conservation targets, lower water
usage has resulted in an increase in under-collections recorded in the WRAM accounts.
As required by the accounting guidance for alternative revenue programs, GSWC is required to collect its WRAM
balances, net of its MCBA, within 24 months following the year in which an under-collection is recorded. In April 2012, the
CPUC issued a final decision which, among other things, sets the recovery period for under-collected balances that are up to
15% of adopted annual revenues at 18 months or less. For under-collected balances greater than 15%, the recovery period is 19
to 36 months. In addition to adopting a new amortization schedule, the final decision sets a cap on total net WRAM/MCBA
surcharges in any given calendar year of 10% of the last authorized revenue requirement. As of December 31, 2015, the
recovery periods for the majority of GSWC's WRAM/MCBA balances were primarily within the 12 to 18 month period;
however, there were some ratemaking areas that had recovery periods greater than 24 months. Based on the current CPUC-
stipulated recovery periods, GSWC estimates that approximately $1.4 million of its 2015 WRAM under-collection will not be
collected within 24 months as required for revenue recognition under the accounting guidance for alternative revenue
programs. As a result, during the fourth quarter of 2015, GSWC did not record $1.4 million of the 2015 WRAM under-
collection balance as revenue. This amount will be recognized as revenue in future periods when it is determined that the
amounts will be collected within 24 months. In February 2016, GSWC filed with the CPUC for recovery of the 2015 WRAM
balances, including the $1.4 million.
For BVES, the CPUC-approved the Base Revenue Requirement Adjustment Mechanism ("BRRAM"), which adjusts
certain revenues to adopted levels. Surcharges are currently in place to recover the BRRAM under-collections recorded
through 2014. The BRRAM under-collection recorded in 2015 was not material and will be filed with the CPUC for recovery
in March 2016.
Costs Deferred for Future Recovery:
The CPUC authorized a memorandum account to allow for the recovery of costs incurred by GSWC related to
contamination lawsuits brought against Aerojet and the state of California. In July 2005, the CPUC authorized GSWC to
recover approximately $21.3 million of the Aerojet litigation memorandum account, through a rate surcharge, which will
continue for no longer than 20 years. Beginning in October 2005, a surcharge went into effect to begin amortizing the
memorandum account over a 20-year period.
Aerojet also agreed to reimburse GSWC $17.5 million, plus interest accruing from January 1, 2004, for GSWC’s past
legal and expert costs, which is included in the Aerojet litigation memorandum account. The reimbursement of the $17.5
million is contingent upon the issuance of land use approvals for development in a defined area within Aerojet property in
Eastern Sacramento County and the receipt of certain fees in connection with such development. It is management’s intention
to offset any proceeds from the housing development by Aerojet in this area against the balance in this litigation memorandum
account.
At this time, management believes the full balance of the Aerojet litigation memorandum account will be collected
either from customers or Aerojet.
Pensions and Other Postretirement Obligations:
A regulatory asset has been recorded at December 31, 2015 and 2014 for the costs that would otherwise be charged to
“other comprehensive income” within shareholders’ equity for the underfunded status of Registrant’s pension and other
postretirement benefit plans because the cost of these plans has historically been recovered through rates. As discussed in
Note 11, as of December 31, 2015, Registrant’s underfunded position for these plans that have been recorded as a regulatory
asset totaled $19.8 million. Registrant expects this regulatory asset to be recovered through rates in future periods.
Previous CPUC decisions in the water and electric general rate cases have authorized GSWC to continue using a two-
way balancing account to track differences between the forecasted annual pension expenses adopted in rates and the actual
annual expense to be recorded by GSWC in accordance with the accounting guidance for pension costs. The two-way
balancing accounts bear interest at the current 90-day commercial paper rate. As of December 31, 2015, GSWC has a net $2.2
million under-collection in the two-way pension balancing accounts, consisting of a $2.5 million under-collection related to the
general office and water regions, and a $319,000 over-collection related to BVES.
83
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Low Income Balancing Accounts:
This regulatory asset reflects primarily the costs of implementing and administering the California Alternate Rates for
Water program in GSWC’s water regions and the California Alternate Rate for Energy program in GSWC’s BVES division.
These programs mandated by the CPUC provide a discount of a fixed dollar amount which is intended to represent a 15%
discount based on a typical customer bill for qualified low-income water customers and 20% for qualified low-income electric
customers. GSWC accrues interest on its low income balancing accounts at the prevailing rate for 90-day commercial
paper. As of December 31, 2015, there is an aggregate $8.7 million under-collection in the low income balancing accounts.
Surcharges have been implemented to recover the costs included in these balancing accounts.
Other Regulatory Assets:
Other regulatory assets represent costs incurred by GSWC for which it has received or expects to receive rate recovery
in the future. These regulatory assets are supported by regulatory rules and decisions, past practices, and other facts or
circumstances that indicate recovery is probable.
Other Regulatory Matters:
Procurement Audits:
In December 2011, the CPUC issued a final decision adopting a settlement between GSWC and the CPUC on its
investigation of certain work orders and charges paid to a specific contractor used previously for numerous construction
projects primarily in one of GSWC’s three main geographic water regions. As part of the settlement reached with the CPUC on
this matter, GSWC agreed to be subject to three separate independent audits of its procurement practices over a period of 10
years from the date the settlement was approved by the CPUC. The audits cover GSWC’s procurement practices for contracts
with other contractors from 1994 forward. The first audit started in 2014 and covered almost a 20-year period from January 1,
1994 through September 30, 2013.
In March 2015, the accounting firm engaged by the CPUC to conduct the first independent audit issued its final report
to the CPUC’s Division of Water and Audits (“DWA”). The final report, which was issued on a confidential basis, included
GSWC's responses to the accounting firm’s findings, as well as the firm’s responses to GSWC's comments. DWA informed
GSWC that it does not intend to pursue further investigation, refunds, or penalties in respect of past procurement activities as a
result of the final report. Furthermore, in June 2015 the CPUC's Office of Ratepayer Advocates ("ORA") notified the
administrative law judge in the ongoing general rate case that, having reviewed the final audit report, its potential concerns with
the audit report were satisfied and, as such, ORA withdrew its request to have further review of this matter in the pending
general rate case. At this time, GSWC does not believe that a loss associated with any disallowances and/or penalties from this
first audit is likely.
Renewables Portfolio Standard:
BVES is subject to the renewables portfolio standard (“RPS”) law, which requires meeting certain targets of purchases
of energy from renewable energy resources. In December 2012, GSWC entered into a ten-year agreement with a third party to
purchase renewable energy credits (“RECs”) whereby GSWC agreed to purchase approximately 582,000 RECs over a 10 -year
period, which would be used towards meeting the CPUC’s RPS procurement requirements. As of December 31, 2015, GSWC
has purchased sufficient RECs to be in compliance for all periods through 2015. Accordingly, no provision for loss or potential
penalties has been recorded in the financial statements as of December 31, 2015. GSWC intends to file its 2015 compliance
report with the CPUC by the August 2016 deadline. The cost of these RECs has been included as part of the electric supply
cost balancing account as of December 31, 2015.
In October 2015, the governor of California signed a bill into law requiring, among other things, electric utilities to
generate half of their electricity from renewable energy sources by 2030. The new requirement is in addition to the existing
requirement for electric utilities to generate one third of their electricity from renewable sources by 2020. BVES is currently
assessing various renewable energy opportunities to be in compliance with these requirements.
Rural Acquisition
In October 2015, GSWC completed the acquisition of Rural Water Company, which is near GSWC's Santa Maria
customer service area in Coastal California. The acquisition was approved by the CPUC in June 2015 and is not material to
Registrant's financial statements.
84
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 — Utility Plant and Intangible Assets
The following table shows Registrant’s utility plant by major asset class:
(dollars in thousands)
Water
Land
Intangible assets
Source of water supply
Pumping
Water treatment
Transmission and distribution
General
Electric
Transmission and distribution
Generation
General (1)
GSWC
December 31,
AWR
December 31,
2015
2014
2015
2014
$
15,299 $
34,830
86,914
161,668
72,238
941,651
115,424
1,428,024
15,423 $
34,063
80,614
155,802
71,519
894,789
110,864
1,363,074
15,299 $
34,848
86,914
161,668
72,238
941,651
126,438
1,439,056
66,121
12,563
9,797
88,481
60,035
12,547
9,054
81,636
66,121
12,563
9,797
88,481
15,423
34,081
80,614
155,802
71,519
894,789
121,552
1,373,780
60,035
12,547
9,054
81,636
Less — accumulated depreciation
Construction work in progress
Net utility plant
(522,749)
62,360
1,056,116 $
(494,000)
48,170
998,880 $
(529,698)
62,955
1,060,794 $
(500,239)
48,343
1,003,520
$
(1) Includes intangible assets of $1.2 million for the years ended December 31, 2015 and 2014 for studies performed in
association with the electricity segment of the Registrant’s operations.
As of December 31, 2015 and 2014, intangible assets consist of the following:
(dollars in thousands)
Intangible assets:
Conservation
Water and service rights (2)
Water planning studies
Total intangible assets
Less — accumulated amortization
Intangible assets, net of amortization
Intangible assets not subject to amortization (3)
Weighted Average
Amortization
Period
GSWC
December 31,
AWR
December 31,
2015
2014
2015
2014
30 years
30 years
14 years
$
$
$
9,496 $
8,124
18,044
35,664
(26,196)
9,468 $
9,496 $
8,124
17,277
34,897
(24,373)
10,524 $
9,496 $
8,695
18,044
36,235
(26,291 )
9,944 $
9,496
8,695
17,277
35,468
(24,456)
11,012
409 $
409 $
427 $
427
(2) Includes intangible assets of $571,000 for contracted services included in "Other Property and Investments" on the
consolidated balance sheets as of December 31, 2015 and 2014.
(3) The intangible assets not subject to amortization primarily consist of organization and consent fees.
85
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2015, 2014 and 2013, amortization of intangible assets was $1.8 million, $1.9
million and $1.9 million, respectively, for AWR and GSWC. Estimated future consolidated amortization expenses related to
intangible assets for the succeeding five years are (in thousands):
2016
2017
2018
2019
2020
Total
Amortization
Expense
1,772
1,741
1,732
1,499
1,374
8,118
$
$
There is no material difference between the consolidated operations of AWR and the operations of GSWC in regards
to the future amortization expense of intangible assets.
Asset Retirement Obligations:
The following is a reconciliation of the beginning and ending aggregate carrying amount of asset retirement
obligations, which are included in “Other Credits” on the balance sheets as of December 31, 2015 and 2014:
(dollars in thousands)
Obligation at December 31, 2013
Additional liabilities incurred
Liabilities settled
Accretion
Obligation at December 31, 2014
Additional liabilities incurred
Liabilities settled
Accretion
Revision of previous estimates
Obligation at December 31, 2015
GSWC
3,095
6
(66)
199
3,234
7
—
209
707
4,157
$
$
$
Registrant follows the accounting guidance for asset retirement obligations. Because retirement costs have historically
been recovered through rates at the time of retirement, upon implementing this guidance, the cumulative effect of the adoption
of the authoritative guidance was reflected as a regulatory asset.
Note 4 — Derivative Instruments
BVES purchases power under long-term contracts at a fixed cost depending on the amount of power and the period
during which the power is purchased under such contracts. In December 2014, the CPUC approved an application that allowed
BVES to immediately execute new long-term purchased power contracts with energy providers on December 9, 2014. BVES
began taking power under these long-term contracts effective January 1, 2015 at a fixed cost over three and five year terms
depending on the amount of power and period during which the power is purchased under the contracts.
The long-term contracts executed in December 2014 are subject to the accounting guidance for derivatives and require
mark-to-market derivative accounting. Among other things, the CPUC also authorized GSWC to establish a regulatory asset
and liability memorandum account to offset the mark-to-market entries required by the accounting guidance. Accordingly, all
unrealized gains and losses generated from the purchased power contracts executed in December 2014 are deferred on a
monthly basis into a non-interest bearing regulatory memorandum account that tracks the changes in fair value of the derivative
throughout the term of the contract. As a result, these unrealized gains and losses do not impact GSWC’s earnings. As of
December 31, 2015, there was a $7.1 million unrealized loss in the memorandum account for the purchased power contracts as
a result of the recent drop in energy prices.
86
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As previously discussed in Note 1, the accounting guidance for fair value measurements establishes a framework for
measuring fair value and requires fair value measurements to be classified and disclosed in one of three levels. Registrant’s
valuation model utilizes various inputs that include quoted market prices for energy over the duration of the contract. The
market prices used to determine the fair value for this derivative instrument were estimated based on independent sources such
as broker quotes and publications that are not observable in or corroborated by the market. Registrant received one broker
quote to determine the fair value of its derivative instrument. When such inputs have a significant impact on the measurement
of fair value, the instrument is categorized in Level 3. Accordingly, the valuation of the derivative on Registrant’s purchased
power contract has been classified as Level 3 for all periods presented.
The following table presents changes in the fair value of GSWC’s derivatives for the years ended December 31, 2015
and 2014:
(dollars in thousands)
Balance, at beginning of the period
Unrealized loss on purchased power contracts
Balance, at end of the period
Note 5 — Military Privatization
2015
2014
$
$
(3,339) $
(3,714)
(7,053) $
—
(3,339)
(3,339)
Each of the Military Utility Privatization Subsidiaries have entered into a service contract with the U.S. government to
operate and maintain, as well as perform construction activities to renew and replace, the water and/or wastewater systems at a
military base or bases. The amounts charged for these services are based upon the terms of the 50-year contract between the
Military Utility Privatization Subsidiaries and the U.S. government. Under the terms of each of these agreements, the Military
Utility Privatization Subsidiaries agree to operate and maintain the water and/or wastewater systems for: (i) a monthly net
fixed-price for operation and maintenance, and (ii) an amount to cover renewals and replacement capital work. In addition,
these contracts may also include firm, fixed-priced initial capital upgrade projects to upgrade the existing infrastructure.
Contract modifications are also issued for other necessary capital upgrades to the existing infrastructure approved by the U.S.
government.
Under the terms of each of these contracts, prices are to be redetermined every three years, following the first two
years of the contract, or upon conversion to an Economic Price Adjustment contract, on an annual basis. Prices may also be
equitably adjusted for changes in law and other circumstances. Each of the contracts may be subject to termination, in whole or
in part, prior to the end of the 50-year term for convenience of the U.S. government or as a result of default or nonperformance
by the Military Utility Privatization Subsidiaries.
ASUS has experienced delays in redetermining prices as required by the terms of these 50-year contracts. Interim rate
increases have, at times, been implemented pending the outcome of these price redeterminations. Because of the delays, price
redeterminations, when finally approved, can be retrospective and prospective. During the third quarter of 2015, the U.S.
government approved various price redeterminations, as well as an asset transfer at two of the bases served. ASUS received
contract modifications from the U.S. government for these price redeterminations and asset transfers, which included
retroactive operation and maintenance management fees for prior periods. As such, ASUS recorded approximately $3.0 million
of retroactive revenues and pretax operating income during 2015 in connection with these contract modifications related to
periods prior to 2015. Similarly, in September 2014, the U.S. government approved various price redeterminations, which also
included retroactive operation and maintenance management fees for prior periods. ASUS recorded approximately $1.7 million
of retroactive revenues and pretax operating income during 2014 related to periods prior to 2014.
87
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Costs and estimated earnings contracts and amounts due from the U.S. government as of December 31, 2015 and 2014
are as follows:
(dollars in thousands)
Revenues (costs and estimated earnings) recognized on contracts
Less: Billings to date on contracts
Included in the accompanying balance sheets under the following captions:
Costs and estimated earnings in excess of billings on contracts
Billings in excess of costs and estimated earnings on contracts
Receivables from the U.S. government:
Billed receivables from the U.S. government
Unbilled receivables from the U.S. government (current)
Less: allowance for doubtful accounts
Total
Note 6 — Earnings Per Share and Capital Stock
2015
2014
$
$
$
$
$
$
111,397 $
(61,662)
49,735 $
53,499 $
(3,764)
49,735 $
5,861 $
1,309
—
7,170 $
94,654
(56,114)
38,540
50,276
(11,736)
38,540
6,709
3,689
—
10,398
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 that have been issued under AWR’s 2000 and 2008
employee plans and the 2003 and 2013 directors 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 for
calculating basic net income per share:
Basic
(in thousands, except per share amounts)
Net income
Less: (a) Distributed earnings to common shareholders
Distributed earnings to participating securities
Undistributed earnings
(b) Undistributed earnings allocated to common shareholders
Undistributed earnings allocated to participating securities
$
For The Years Ended December 31,
2015
2014
2013
60,484 $
32,690
207
27,587
27,414
173
61,058 $
32,125
177
28,756
28,599
157
62,686
29,366
171
33,149
32,958
191
Total income available to common shareholders, basic (a)+(b)
$
60,104 $
60,724 $
62,324
Weighted average Common Shares outstanding, basic
37,389
38,658
38,639
Basic earnings per Common Share:
$
1.61 $
1.57 $
1.61
Diluted EPS is based upon the weighted average number of Common Shares, including both outstanding shares and
shares potentially issuable in connection with stock options and restricted stock units granted under AWR’s 2000 and 2008
employee plans, and the 2003 and 2013 directors plans, and net income. At December 31, 2015, there were 150,606 stock
options outstanding under these Plans. At December 31, 2015, there were also 243,288 restricted stock units outstanding
including performance shares awarded to officers of the Registrant.
88
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a reconciliation of Registrant’s net income and weighted average Common Shares outstanding for
calculating diluted net income per share reflecting the two-for-one stock split effective September 3, 2013:
Diluted
(in thousands, except per share amounts)
Common shareholders earnings, basic
Undistributed earnings for dilutive stock options and restricted stock units
Total common shareholders earnings, diluted
$
$
Weighted average Common Shares outstanding, basic
Stock-based compensation (1)
Weighted average Common Shares outstanding, diluted
For The Years Ended December 31,
2015
2014
2013
60,104 $
173
60,277 $
60,724 $
157
60,881 $
37,389
225
37,614
38,658
222
38,880
62,324
191
62,515
38,639
230
38,869
Diluted earnings per Common Share
$
1.60 $
1.57 $
1.61
(1) In applying the treasury stock method of reflecting the dilutive effect of outstanding stock-based compensation in the
calculation of diluted EPS, 150,606 stock options and 243,288 restricted stock units, including performance awards, at
December 31, 2015 were deemed to be outstanding in accordance with accounting guidance on earnings per share.
During the years ended December 31, 2015, 2014 and 2013, AWR issued Common Shares totaling 53,612, 74,145 and
114,821, respectively, under AWR’s Common Share Purchase and Dividend Reinvestment Plan (“DRP”), the 2000 and 2008
employee plans and the 2003 and 2013 directors plans. As of December 31, 2015, there are 1,055,948 and 387,300 Common
Shares authorized for issuance directly by AWR but unissued under the DRP and the 401(k) Plan, respectively. Shares reserved
for the 401(k) Plan are in relation to AWR’s matching contributions and investment by participants. In addition, during the
years ended December 31, 2015, 2014 and 2013, AWR issued 66,458, 37,006 and 131,448 Common Shares for approximately
$1,198,000, $589,000 and $2,111,000, respectively, as a result of the exercise of stock options. During 2015, 2014 and 2013,
no cash proceeds received by AWR as a result of the exercise of stock options were distributed to any subsidiaries of AWR.
In 2014 and 2015, AWR's Board of Directors approved two stock repurchase programs, authorizing AWR to
repurchase up to 2.45 million shares of its Common Shares. Both programs were completed during 2015. Under these
programs, Registrant repurchased 1,905,000 and 545,000 Common Shares on the open market during 2015 and 2014,
respectively. The repurchase of Common Shares is restricted by California law under the same standards which apply to
dividend distributions. See Note 7 (Dividend Limitations) of Notes to Consolidated Financial Statements.
GSWC’s outstanding Common Shares are owned entirely by its parent, AWR. To the extent GSWC does not
reimburse AWR for stock-based compensation awarded under various stock compensation plans, such amounts increase the
value of GSWC’s common shareholder’s equity.
Note 7 — Dividend Limitations
GSWC is subject to contractual restrictions on its ability to pay dividends. GSWC’s maximum ability to pay
dividends is restricted by certain Note Agreements to the sum of $21.0 million plus 100% of consolidated net income from
various dates plus the aggregate net cash proceeds received from capital stock offerings or other instruments convertible into
capital stock from various dates. Under the most restrictive of the Note Agreements, $353.3 million was available to pay
dividends to AWR as of December 31, 2015. GSWC is also prohibited from paying dividends if, after giving effect to the
dividend, its total indebtedness to capitalization ratio (as defined) would be more than 0.6667-to-1. Dividends in the amount of
$62.0 million, $52.0 million and $29.4 million were paid to AWR by GSWC during the years ended December 31, 2015, 2014
and 2013, respectively.
89
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The ability of AWR, ASUS and GSWC to pay dividends is also restricted by California law. Under California law,
AWR, GSWC and ASUS are each permitted to distribute dividends to its shareholders so long as the Board of Directors
determines, in good faith, that either: (i) the value of the corporation’s assets equals or exceeds the sum of its total liabilities
immediately after the dividend, or (ii) its retained earnings equals or exceeds the amount of the distribution. Under the least
restrictive of the California tests, approximately $220.9 million was available to pay dividends to AWR’s shareholders at
December 31, 2015. Approximately $184.9 million was available for GSWC to pay dividends to AWR at December 31, 2015.
The ability of each of the subsidiaries of ASUS to pay dividends to ASUS may also be restricted under the law of the applicable
state of formation of each subsidiary.
Note 8 — Bank Debt
AWR has access to a $100.0 million syndicated credit facility which expires in May 2018. AWR may, under the terms
of the facility, elect to increase the aggregate commitment by up to an additional $50.0 million. The aggregate effective amount
that may be outstanding under letters of credit is $25.0 million. AWR has obtained letters of credit, primarily for GSWC, in the
aggregate amount of $10.4 million, with fees of 0.65% including: (i) a $5.8 million letter of credit representing a percentage of
the outstanding American Recovery and Reinvestment Act (“ARRA”) funds received by GSWC for reimbursement of capital
costs related to the installation of meters in GSWC’s Arden-Cordova water system; (ii) letters of credit in an aggregate amount
of $340,000 as security for GSWC’s business automobile insurance policy; (iii) a letter of credit, in an amount of $585,000 as
security for the purchase of power; (iv) a $15,000 irrevocable letter of credit pursuant to a franchise agreement with the City of
Rancho Cordova, and (v) an irrevocable letter of credit in the amount of $3.6 million, pursuant to a settlement agreement with
Southern California Edison Company to cover GSWC’s commitment to pay the settlement amount. Letters of credit
outstanding reduce the amount that may be borrowed under the revolving credit facility. There were no compensating balances
required.
Loans can be obtained at the option of AWR and bear interest at rates based on credit ratings and Euro rate
margins. In May 2015, Standard & Poor’s Rating Services (“S&P”) affirmed the ‘A+’ credit rating on both American States
Water Company and its wholly owned subsidiary, Golden State Water Company. S&P also revised its rating outlook to stable
from positive for both companies. S&P debt ratings range from AAA (highest rating possible) to D (obligation is in
default). In December 2015, Moody’s Investors Service (“Moody’s”) affirmed its ‘A2’ rating with a stable outlook for GSWC.
At December 31, 2015, there was $28.0 million outstanding under this facility. At times, AWR borrows under this
facility and provides loans to its subsidiaries in support of their operations, on terms that are similar to that of the credit facility.
AWR’s short-term borrowing activities (excluding letters of credit) for the last three years were as follows:
(in thousands, except percent)
Balance Outstanding at December 31,
Interest Rate at December 31,
Average Amount Outstanding
Weighted Average Annual Interest Rate
Maximum Amount Outstanding
$
$
$
2015
28,000
$
1.09%
4,112
0.92%
$
December 31,
2014
2013
$
$
—
0.82%
6,181
0.81%
—
0.82%
—
1.02%
—
37,000
$
24,000
$
All of the letters of credit are issued pursuant to the syndicated revolving credit facility. The syndicated revolving
credit facility contains restrictions on prepayments, disposition of property, mergers, liens and negative pledges, indebtedness
and guaranty obligations, transactions with affiliates, minimum interest coverage requirements, a maximum debt to
capitalization ratio and a minimum debt rating. Pursuant to the credit agreement, AWR must maintain a minimum interest
coverage ratio of 3.25 times interest expense, a maximum total funded debt ratio of 0.65 to 1.00 and a minimum Moody’s
Investor Service or S&P debt rating of Baa3 or BBB-, respectively. As of December 31, 2015, 2014 and 2013, AWR was in
compliance with these requirements. As of December 31, 2015, AWR had an interest coverage ratio of 7.68 times interest
expense, a debt ratio of 0.44 to 1.00 and a debt rating of A+ by S&P.
90
Note 9 — Long-Term Debt
Registrant’s long-term debt consists primarily of Notes and Debentures of GSWC. Registrant summarizes its long-
term debt in the Statements of Capitalization. GSWC does not currently have any outstanding mortgages or other
encumbrances on its properties. GSWC’s leases and other similar financial arrangements are not material.
Private placement notes issued by GSWC in the amount of $28 million contain restrictions on the payment of
dividends, minimum interest coverage requirements, a maximum debt to capitalization ratio and a negative pledge. Pursuant to
the terms of these agreements, GSWC must maintain a minimum interest coverage ratio of two times interest expense. As of
December 31, 2015, GSWC had an interest coverage ratio of over four times interest expense.
On July 15, 2014, GSWC redeemed its $5,000,000, 6.87% Medium-Term Notes Series A due 2023, and $10,000,000,
7.00% Medium-Term Notes Series A, also due 2023. The notes were redeemed at a price of 100% of the outstanding principal
amount of the notes, plus interest. In December 2014, GSWC replaced these notes with lower interest rate debt and issued
$15,000,000 in 3.45% Senior Notes due December 23, 2029. Pursuant to the terms of these notes, GSWC must maintain a total
indebtedness to capitalization ratio (as defined) of less than 0.6667 to 1 and a total indebtedness to earnings before income
taxes, depreciation and amortization (EBITDA) of less than 8 to 1. As of December 31, 2015, GSWC had a total indebtedness
to capitalization ratio of 0.4511-to-1 and a total indebtedness to EBITDA of 2.4-to-1.
Certain long-term debt issues outstanding as of December 31, 2015 can be redeemed, in whole or in part, at the option
of GSWC subject to redemption schedules embedded in the agreements particular to each redeemable issue. With the
exception of the 9.56% Notes and Senior Notes issued to Co-Bank, as of December 31, 2015, the redemption premiums in
effect are now zero. The 9.56% Notes are subject to a make-whole premium based on 55 basis points above the applicable
Treasury Yield if redeemed prior to 2021. After 2021, the maximum redemption premium is 3% of par value. The Senior
Notes with Co-Bank are subject to a make-whole premium based on the difference between Co-Bank’s cost of funds on the
date of purchase and Co-Bank’s cost of funds on the date of redemption, plus 0.5%. The $15,000,000, 3.45% Senior Notes due
December 23, 2029, have similar redemption premiums.
In October 2009, GSWC entered into an agreement with the California Department of Health (“CDPH”) whereby
CDPH agreed to provide funds to GSWC of up to $9.0 million under the American Recovery and Reinvestment Act. Proceeds
from the funds received were used to reimburse GSWC for capital costs incurred to install water meters to convert customers in
GSWC’s Arden-Cordova district from non-metered service to metered service. GSWC received a total of $8.6 million in
reimbursements from the CDPH, half of which was recorded as a contribution in aid of construction and the other half as long-
term debt in accordance with the terms of the agreement. The loan portion bears interest at a rate of 2.5% and is payable over
20 years beginning in 2013. A surcharge to recover from customers the debt service cost on this loan was approved by the
CPUC and implemented in 2013. Pursuant to the agreement, GSWC also issued letters of credit to CDPH equal to 80% of the
amount loaned to GSWC. As of December 31, 2015, GSWC has a total of $5.8 million in letters of credit issued to CDPH.
Annual maturities of all long-term debt, including capitalized leases, are as follows for each fiscal year through
December 31, 2020 and thereafter (in thousands):
2016
2017
2018
2019
2020
Thereafter
Total
Maturity as of
December 31,
312
330
324
40,320
344
284,223
325,853
$
$
91
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 — Taxes on Income
Registrant provides deferred income taxes for temporary differences under the accounting guidance for income taxes
for certain transactions which are recognized for income tax purposes in a period different from that in which they are reported
in the financial statements. The most significant items are the tax effects of differences in asset basis (including accelerated
depreciation and capitalization methods), certain regulatory balancing accounts and advances for, and contributions in aid of,
construction. The accounting guidance for income taxes also requires that rate-regulated enterprises record deferred income
taxes for temporary differences given flow-through treatment at the direction of a regulatory commission. The resulting
deferred tax assets and liabilities are recorded at the expected cash flow to be reflected in future rates. Given that the CPUC
has consistently permitted the recovery of flowed-through tax effects, GSWC has established regulatory liabilities and assets
offsetting such deferred tax assets and liabilities (Note 2). Deferred investment tax credits (“ITC”) are amortized ratably to
deferred tax expense over the lives of the property giving rise to the credits.
GSWC is included in AWR’s consolidated federal income tax and combined California state franchise tax
returns. California unitary apportionment provides a benefit or detriment to AWR’s state taxes, depending on a combination of
the profitability of AWR’s non-California activities as well as the proportion of its California sales to total sales. Consistent
with the method adopted for regulatory purposes, GSWC’s tax expense is computed as if GSWC were autonomous and files
separate returns. Given that all of GSWC’s activities are conducted within California, GSWC’s state tax expense does not
reflect apportionment of its income.
As a regulated utility, GSWC treats certain temporary differences as flow-through adjustments in computing
its income tax provision consistent with the income tax approach approved by the CPUC for ratemaking purposes. Flow-
through adjustments increase or decrease tax expense in one period, with an offsetting decrease or increase occurring in another
period. Giving effect to these temporary differences as flow-through adjustments typically results in a greater
variance between the effective tax rate (“ETR”) and the statutory federal income tax rate in any given period than would
otherwise exist if GSWC were not required to account for its income taxes as a regulated enterprise. The GSWC ETRs deviate
from the statutory rate primarily due to state taxes and differences between book and taxable income that are treated as flow-
through adjustments in accordance with regulatory requirements (principally plant-, rate-case- and compensation-related
items). The ETR at the AWR consolidated level also fluctuates as a result of ASUS's state income taxes, which vary among the
jurisdictions in which it operates, and certain permanent differences.
Changes in Tax Law
In December 2015, the Protecting Americans From Tax Hikes Act of 2015 extended bonus depreciation for qualifying
property through 2019. For 2015 through 2017, bonus depreciation was extended at a 50% rate. For 2018-2019, bonus
depreciation will be phased down to 40% and 30%, respectively. Although the change in law reduces AWR’s current taxes
payable over these years, it does not reduce its total income tax expense or ETR.
During the fourth quarter of 2014, the Company reflected a change in its tax method of accounting for certain repair
and maintenance expenditures pursuant to regulations issued by the U.S. Treasury Department in September 2013. In
connection with filing its 2014 federal tax return during the third quarter of 2015, the Company filed an application for an
automatic change in tax accounting method with the Internal Revenue Service ("IRS") for the 2014 tax year to implement the
new method (effective January 1, 2014). The tax accounting method change included a cumulative adjustment for 2013 and
prior years, and permits the expensing of certain utility asset replacement costs that were previously being capitalized and
depreciated for book and tax purposes. As a result of the change, the Company will deduct a significant amount of asset costs,
which consist primarily of water mains and connections.
During the fourth quarter of 2014, GSWC recorded a cumulative adjustment for 2013 and prior years as well as the
2014 estimated deduction, and recognized a total deferred income tax liability of $30.8 million for federal and state repair-and-
maintenance deductions as of December 31, 2014. Although this change reduces AWR’s current taxes payable, it does not
reduce total income tax expense or the ETR.
92
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The significant components of the deferred tax assets and liabilities as reflected in the balance sheets at December 31,
2015 and 2014 are:
(dollars in thousands)
Deferred tax assets:
Regulatory-liability-related: ITC
Regulatory-liability-related: California Corp Franchise Tax
Other non-property-related
Contributions and advances
Deferred tax liabilities:
Fixed assets
Regulatory-asset-related: depreciation and other
California Corp Franchise Tax
Other property-related
Balancing and memorandum accounts
Deferred charges
Accumulated deferred income taxes - net
$
$
$
AWR
December 31,
GSWC
December 31,
2015
2014
2015
2014
952 $
4,530
2,486
8,026
15,994 $
1,001 $
4,328
2,395
8,335
16,059 $
952 $
4,530
1,997
8,026
15,505 $
1,001
4,328
2,136
8,335
15,800
(178,004) $
(21,658)
(2,440)
(66)
(1,824)
(4,849)
(163,232) $
(22,941)
(4,069)
(59)
(4,071)
(5,461)
(179,660) $
(21,658)
(3,051)
(65)
(1,824)
(4,905)
(164,724)
(22,941)
(4,831)
(59)
(4,071)
(5,461)
(208,841)
(192,847) $
(199,833)
(183,774) $
(211,163)
(195,658) $
(202,087)
(186,287)
$
The current and deferred components of income tax expense are as follows:
(dollars in thousands)
Current
Federal
State
Total current tax expense
Deferred
Federal
State
Total deferred tax expense
Total income tax expense
(dollars in thousands)
Current
Federal
State
Total current tax expense
Deferred
Federal
State
Total deferred tax expense
Total income tax expense
AWR
Year Ended December 31,
2015
2014
2013
21,866 $
5,442
27,308 $
8,948 $
1,475
10,423
37,731 $
5,595 $
137
5,732 $
24,815 $
7,501
32,316
38,048 $
13,741
5,930
19,671
14,769
1,343
16,112
35,783
GSWC
Year Ended December 31,
2015
2014
2013
16,196 $
5,557
21,753 $
8,536 $
2,183
10,719
32,472 $
408 $
(2,754 )
(2,346) $
24,373 $
9,979
34,352
32,006 $
10,768
6,315
17,083
14,691
1,360
16,051
33,134
$
$
$
$
$
$
$
$
93
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The reconciliations of the effective tax rates to the federal statutory rate are as follows:
(dollars in thousands, except percent)
Federal taxes on pretax income at statutory rate
Increase (decrease) in taxes resulting from:
State income tax, net of federal benefit
Flow-through on fixed assets
Flow-through on pension costs
Flow-through on removal costs
Domestic production activities deduction
Investment tax credit
Other – net
Total income tax expense from operations
Pretax income from operations
Effective income tax rate
(dollars in thousands, except percent)
Federal taxes on pretax income at statutory rate
Increase (decrease) in taxes resulting from:
State income tax, net of federal benefit
Flow-through on fixed assets
Flow-through on pension costs
Flow-through on removal costs
Domestic production activities deduction
Investment tax credit
Other – net
Total income tax expense from operations
Pretax income from operations
Effective income tax rate
AWR
Year Ended December 31,
2015
34,375
$
2014
34,687
$
2013
34,464
$
4,843
626
267
(929)
(1,560)
(88)
197
37,731
98,215
$
$
4,781
651
(507)
(1,571)
(643)
(91)
741
38,048
99,106
$
$
5,111
646
612
(2,141 )
(2,944 )
(91 )
126
35,783
98,469
38.4%
38.4%
36.3 %
$
$
GSWC
Year Ended December 31,
2015
28,022
$
2014
27,952
$
2013
28,622
$
5,151
626
267
(929)
(1,268)
(88)
691
32,472
80,063
$
$
4,693
651
(507)
(1,571)
(55)
(91)
934
32,006
79,863
$
$
5,372
646
612
(2,141 )
(1,316 )
(91 )
1,430
33,134
81,776
40.6%
40.1%
40.5 %
$
$
AWR and GSWC had no unrecognized tax benefits at December 31, 2015, 2014 and 2013.
Registrant’s policy is to classify interest on income tax over/underpayments in interest income/expense and penalties
in “other operating expenses.”
At December 31, 2015, 2014 and 2013, AWR included $504,000, $504,000 and $757,000, respectively, of net interest
receivables from taxing authorities in other current and noncurrent assets. AWR recognized no interest income or expense
during the year ended December 31, 2015, and recognized $19,000 and $99,000 of interest income during the years ended
December 31, 2014 and 2013, respectively. At December 31, 2015, 2014 and 2013, GSWC included $512,000, $472,000 and
$704,000, respectively, of net interest receivables from taxing authorities in other current and noncurrent assets. GSWC
recognized $3,000 of interest expense, and $14,000 and $21,000 of interest income from taxing authorities during the years
ended December 31, 2015, 2014 and 2013, respectively.
At December 31, 2015, 2014 and 2013, Registrant had no significant accruals for income-tax-related penalties and had
no significant income-tax-related penalties recognized during the years ended December 31, 2015, 2014 and 2013.
Registrant files federal and various state income tax returns. AWR’s federal 2010 through 2012 refund claims were
examined during 2015, and the Internal Revenue Service (“IRS”) completed its examination of them in February 2016. Its
2012-2014 tax years remain subject to examination by the IRS. AWR has filed protective refund claims with the applicable
state taxing authority for the 2002 through 2008 tax years in connection with the matters on the federal claims for these years
and other state tax matters. During 2012, the California Franchise Tax Board commenced examining these claims. The 2009-
2014 tax years remain subject to examination by state taxing authorities.
94
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 — Employee Benefit Plans
Pension and Post-Retirement Medical Plans:
Registrant maintains a defined benefit pension plan (the “Pension Plan”) that provides eligible employees (those aged 21
and older, hired before January 1, 2011) monthly benefits upon retirement based on average salaries and length of service. The
eligibility requirement to begin receiving these benefits is 5 years of vested service. The normal retirement benefit is equal to 2%
of the five highest consecutive years’ average earnings multiplied by the number of years of credited service, up to a maximum of
40, reduced by a percentage of primary social security benefits. There is also an early retirement option. Annual contributions are
made to the Pension Plan, which comply with the funding requirements of the Employee Retirement Income Security Act
(“ERISA”). At December 31, 2015, Registrant had 969 participants in the Pension Plan.
In January 2011, the Board of Directors approved an amendment to the Pension Plan, closing the plan to new employees
hired after December 31, 2010. Employees hired or rehired after December 31, 2010 are eligible to participate in a defined
contribution plan. Registrant's existing 401(k) Investment Incentive Program was amended to include this defined contribution
plan. Under this plan, Registrant provides a contribution of 5.25% of eligible pay each pay period into investment vehicles offered
by the plan’s trustee. Participants will be fully vested in this plan once the employee attains three years of service. Employees
hired before January 1, 2011 continue to participate in and accrue benefits under the terms of the defined benefit plan.
Registrant also provides post-retirement medical benefits for all active employees hired before February of 1995, through
a medical insurance plan. Eligible employees, who retire prior to age 65, and/or their spouses, are able to retain the benefits under
the plan for active employees until reaching age 65. Eligible employees upon reaching age 65, and those eligible employees
retiring at or after age 65, and/or their spouses, receive coverage through a Medicare supplement insurance policy paid for by
Registrant subject to an annual cap limit. Registrant’s post-retirement medical plan does not provide prescription drug benefits to
Medicare-eligible employees and is not affected by the Medicare Prescription Drug Improvement and Modernization Act of 2003.
In accordance with the accounting guidance for the effects of certain types of regulation, Registrant has established a
regulatory asset for its underfunded position in its pension and post-retirement medical plans that is expected to be recovered
through rates in future periods. The changes in actuarial gains and losses, prior service costs and transition assets or obligations
pertaining to the regulatory asset are recognized as an adjustment to the regulatory asset account as these amounts are recognized
as components of net periodic pension costs each year.
During 2015, Registrant updated key assumptions used for the valuation of the pension, post-retirement and supplemental
executive retirement plans. These updates included: (i) an increase in the discount rates; (ii) updates in demographic assumptions,
such as retirement and termination rates, to reflect recent changes in participant behavior, and (iii) salary increases based on
Registrant’s recent and future expected experience. These updates resulted in actuarial gains in the benefit obligations for the
pension, post-retirement and supplemental executive retirement plans in 2015.
The following table sets forth the Pension Plan’s and post-retirement medical plan’s funded status and amounts recognized
in Registrant’s balance sheets and the components of net pension cost and accrued liability at December 31, 2015 and 2014:
(dollars in thousands)
Change in Projected Benefit Obligation:
Projected benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Benefits/expenses paid
Projected benefit obligation at end of year
Changes in Plan Assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Benefits/expenses paid
Fair value of plan assets at end of year
Funded Status:
Net amount recognized as accrued pension cost
Pension Benefits
Post-Retirement Medical
Benefits
2015
2014
2015
2014
$
$
$
$
185,184 $
6,276
7,686
(24,413)
(5,799)
168,934 $
140,561 $
673
6,739
(5,799)
142,174 $
152,680 $
5,643
7,520
24,339
(4,998)
185,184 $
127,534 $
9,816
8,209
(4,998)
140,561 $
12,326 $
340
435
(3,375)
(333)
9,393 $
10,723 $
115
109
(333)
10,614 $
11,388
348
495
437
(342)
12,326
9,873
951
241
(342)
10,723
$
(26,760) $
(44,623) $
1,221 $
(1,603)
95
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Amounts recognized on the balance sheets:
Non-current assets
Current liabilities
Non-current liabilities
Net amount recognized
Amounts recognized in regulatory assets consist of:
Initial net obligation
Prior service cost (credit)
Net (gain) loss
Regulatory assets (liabilities)
Unfunded accrued pension cost
Net liability (asset) recognized
Changes in plan assets and benefit obligations recognized in
regulatory assets:
Regulatory asset at beginning of year
Net loss (gain)
Amortization of initial net obligation
Amortization of prior service (cost) credit
Amortization of net gain (loss)
Total change in regulatory asset
Regulatory asset (liability) at end of year
Net periodic pension costs
Change in regulatory asset
$
$
$
$
$
$
$
Pension Benefits
Post-Retirement
Medical Benefits
2015
2014
2015
2014
$
—
—
(26,760)
(26,760) $
$
—
—
(44,623)
(44,623) $
1,221
—
—
1,221
$
$
—
49
21,921
21,970
4,790
26,760
$
$
—
167
39,003
39,170
5,453
44,623
$
$
$
—
(34 )
(5,572 )
(5,606 )
4,385
(1,221) $
—
—
(1,603)
(1,603)
—
(234)
(2,891)
(3,125)
4,728
1,603
$
$
39,170
(15,292)
—
(118)
(1,790)
(17,200)
21,970
15,866
23,422
—
(118)
—
23,304
39,170
$
$
(3,125) $
(2,997 )
—
200
316
(2,481 )
(5,606) $
(3,175)
(61)
(419)
200
330
50
(3,125)
6,075
(17,200)
$
4,383
23,304
$
(234) $
(2,481 )
278
50
Total recognized in net periodic pension cost and regulatory asset
(liability)
$
(11,125) $
27,687
$
(2,715) $
328
Estimated amounts that will be amortized from regulatory asset
over the next fiscal year:
Initial net obligation
Prior service (cost) credit
Net gain (loss)
$
$
$
—
$
(49) $
(510) $
—
$
(118) $
(1,878) $
—
34
599
$
$
$
—
200
213
Additional year-end information for plans with an accumulated
benefit obligation in excess of plan assets:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
$ 168,934
$ 155,469
$ 142,174
$ 185,184
$ 160,510
$ 140,561
$
$
9,393
N/A
10,614
$
$
12,326
N/A
10,723
Weighted-average assumptions used to determine benefit
obligations at December 31:
Discount rate
Rate of compensation increase
* Age-graded ranging from 3.0% to 8.0%.
96
4.65%
*
4.25%
4.00%
4.25 %
N/A
3.80%
N/A
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consistent with decisions from the CPUC and in accordance with regulatory accounting principles, Registrant capitalizes
a portion of its pension and other post-retirement costs in the overhead pool included in Utility Plant. The components of net
periodic pension and post-retirement benefits cost, before allocation to the overhead pool, for 2015, 2014 and 2013 are as follows:
(dollars in thousands, except percent)
2015
2014
2013
2015
Pension Benefits
Post-Retirement
Medical Benefits
2014
2013
Components of Net Periodic Benefits Cost:
Service cost
Interest cost
Expected return on plan assets
Amortization of transition
Amortization of prior service cost (credit)
Amortization of actuarial (gain) loss
Net periodic pension cost under accounting
standards
Regulatory adjustment - over/(under) collection
Total expense recognized, before allocation to
overhead pool
Weighted-average assumptions used to
determine net periodic cost:
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
$
$ 6,276
7,686
(9,795)
—
118
1,790
$ 5,643
7,520
(8,898)
—
118
—
$ 6,967
6,907
(7,574)
—
118
2,878
$
340
435
(493)
—
(200)
(316)
348
495
(453)
418
(200)
(330)
$ 407
439
(382)
419
(200)
(7)
$ 6,075
523
$ 4,383
1,622
$ 9,296
$
(1,920)
(234) $
—
278
—
$ 676
—
$ 6,598
$ 6,005
$ 7,376
$
(234) $
278
$ 676
4.25%
7.00%
4.00%
5.10%
7.00%
4.00%
4.30%
7.00%
4.00%
3.80%
*
N/A
4.65%
*
N/A
3.75%
*
N/A
*7.0% for union plan, 4.2% for non-union, net of income taxes in 2015, 2014 and 2013.
Regulatory Adjustment:
As previously discussed in Note 2, the CPUC authorized GSWC to track differences between the forecasted annual
pension expenses adopted in rates for its water regions and the general office and the actual annual expense to be recorded by
GSWC in accordance with the accounting guidance for pension costs. During the years ended December 31, 2015 and 2014,
GSWC's actual expense was lower than the amounts included in water and electric customer rates by $523,000 and $1.6 million,
respectively. During the year ended December 31, 2013, GSWC's actual expense was greater than the amounts included in rates
by $1.9 million. These over and under-collections have been recorded in the two-way pension balancing accounts included in
regulatory assets. As of December 31, 2015, the pension balancing account had a $2.2 million net under-collection included in
regulatory assets.
Plan Funded Status:
Registrant’s pension and post-retirement plans were underfunded at December 31, 2015 and 2014. Registrant’s market
related value of plan assets is equal to the fair value of plan assets. Past volatile market conditions have affected the value of
GSWC’s trust established to fund its future long-term pension benefits. These benefit plan assets and related obligations are
measured annually using a December 31 measurement date. Changes in the plan’s funded status will affect the assets and
liabilities recorded on the balance sheet in accordance with accounting guidance on employers’ accounting for defined benefit
pension and other post-retirement plans. Due to Registrant’s regulatory recovery treatment, the recognition of the funded status is
offset by a regulatory asset pursuant to guidance on accounting for the effects of certain types of regulation.
97
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Plan Assets:
The assets of the pension and post-retirement medical plans are managed by a third party trustee. The investment policy
allocation of the assets in the trust was approved by Registrant’s Administrative Committee (the “Committee”) for the pension and
post-retirement medical funds, which has oversight responsibility for all retirement plans. The primary objectives underlying the
investment of the pension and post-retirement plan assets are: (i) attempt to maintain a fully funded status with a cushion for
unexpected developments, possible future increases in expense levels, and/or a reduction in the expected return on investments;
(ii) seek to earn long-term returns that compare favorably to appropriate market indexes, peer group universes and the policy asset
allocation index; (iii) seek to provide sufficient liquidity to pay current benefits and expenses; (iv) attempt to limit risk exposure
through prudent diversification; and (v) seek to limit costs of administering and managing the plans.
The Committee recognizes that risk and volatility are present to some degree with all types of investments. High levels of
risk may be avoided through diversification by asset class, style of each investment manager and sector and industry
limits. Investment managers are retained to manage a pool of assets and allocate funds in order to achieve an appropriate,
diversified and balanced asset mix. The Committee’s strategy balances the requirement to maximize returns using potentially
higher return generating assets, such as equity securities, with the need to control the risk of its benefit obligations with less
volatile assets, such as fixed income securities.
The Committee approves the target asset allocations. Registrant’s pension and post-retirement plan weighted-average
asset allocations at December 31, 2015 and 2014, by asset category are as follows:
Asset Category
Actual Asset Allocations:
Equity securities
Debt securities
Real Estate Funds
Cash equivalents
Total
Pension Benefits
Post-Retirement
Medical Benefits
2015
2014
2015
2014
55%
40%
5%
—%
100%
61%
39%
—%
—%
100%
60%
38%
—%
2%
100%
60%
38%
—%
2%
100%
Equity securities did not include AWR’s stock as of December 31, 2015 and 2014.
Target Asset Allocations for 2016:
Equity securities
Debt securities
Total
Pension Benefits
Post-retirement
Medical Benefits
60%
40%
100%
60%
40%
100%
The Committee appointed a management firm to manage the pension plan assets effective February 2015. During 2015,
the pension plan assets were allocated to collective trust funds managed by the management firm. The fair value of these
collective trust funds are measured using net asset value per share. In accordance with ASU 2015-07 Disclosures for Investments
in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalents), the fair value of the collective trust funds are not
categorized in the fair value hierarchy as of December 31, 2015. The following table sets forth the fair value, measured by net
asset value, of the pension investment assets as of December 31, 2015:
(dollars in thousands)
Cash equivalents
Fixed income fund
Equity securities:
U.S. small/mid cap funds
U.S. large cap funds
International funds
Total equity funds
Real estate funds
Total
Fair Value
Unfunded
Commitments
$
$
469
56,218
21,219
42,395
14,455
78,069
7,418
142,174
98
—
—
—
—
—
—
—
—
Redemption
Frequency
N/A
Daily
Redemption
Notice Period
N/A
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The collective trust funds may be invested or redeemed daily, and generally do not have any significant restrictions to
redeem the investments.
As previously discussed in Note 4, accounting guidance for fair value measurements establishes a framework for
measuring fair value and requires fair value measurements to be classified and disclosed in one of three levels. As required by the
accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the
fair value measurement. All equity investments in the pension plan (prior to 2015) and post-retirement plans are Level 1
investments in mutual funds. The fixed income category includes corporate bonds and notes. The majority of fixed income
investments range in maturities from less than one to twenty years. The fair values of these investments are based on quoted
market prices in active markets.
The following tables set forth by level, within the fair value hierarchy, the post-retirement plans’ investment assets
measured at fair value as of December 31, 2015 and 2014, as well as the pension plan investment assets as of December 31, 2014:
(dollars in thousands)
Fair Value of Post-Retirement Plan Assets:
Cash equivalents
Fixed income
U.S. equity securities (large cap stocks)
Total investments measured at fair value
(dollars in thousands)
Fair Value of Pension Plan Assets:
Cash equivalents
Fixed income securities
Equity securities:
U.S. small/mid cap stocks
U.S. large cap stocks
International funds
Real estate funds
Total equity securities
Total investments measured at fair value
Fair Value of Post-Retirement Plan Assets:
Cash equivalents
Fixed income
U.S. equity securities (large cap stocks)
Total investments measured at fair value
Plan Contributions:
Fair Value as of December 31, 2015
Level 1
Level 2
Level 3
Total
31
4,182
6,401
10,614
—
—
—
—
— $
—
—
— $
31
4,182
6,401
10,614
Fair Value as of December 31, 2014
Level 1
Level 2
Level 3
Total
497
54,865
22,325
42,886
11,318
8,670
85,199
140,561
185
4,105
6,433
10,723
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
— $
— $
—
—
— $
497
54,865
0
22,325
42,886
11,318
8,670
85,199
140,561
185
4,105
6,433
10,723
$
$
$
$
$
$
During 2015, Registrant contributed $6.7 million and $109,000 to its pension and post-retirement medical plans,
respectively. Registrant currently expects to contribute at least $5.5 million to its pension plan in 2016. Registrant’s policy is to
fund the plans annually at a level which is deductible for income tax purposes and is consistent with amounts recovered in
customer rates.
99
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Benefit Payments:
Registrant’s estimated future benefit payments at December 31, 2015 for the next five years and thereafter are as follows
(in thousands):
2016
2017
2018
2019
2020
Thereafter
Total
Assumptions:
$
$
Pension Benefits
Post-Retirement
Medical Benefits
535
568
626
676
722
4,318
7,445
5,857 $
6,381
6,865
7,393
7,980
48,469
82,945 $
Certain actuarial assumptions, such as the discount rate, long-term rate of return on plan assets, life expectancy, and the
healthcare cost trend rate have a significant effect on the amounts reported for net periodic benefit cost as well as the related
benefit obligation amounts. During 2015, Registrant updated key assumptions used for the valuation of the pension, post-
retirement and supplemental executive retirement plans. These updates included: (i) an increase in the discount rates; (ii) updates
in demographic assumptions, such as retirement and termination rates, to reflect recent changes in participant behavior, and (iii)
salary increases based on Registrant’s recent and future expected experience. These updates resulted in actuarial gains in the
benefit obligations for the pension, post-retirement and supplemental executive retirement plans in 2015.
Discount Rate — The assumed discount rate for pension and post-retirement medical plans reflects the market rates for
high-quality corporate bonds currently available. Registrant’s discount rates were determined by considering the average of
pension yield curves constructed of a large population of high quality corporate bonds. The resulting discount rate reflects the
matching of plan liability cash flows to the yield curves.
Expected Long-Term Rate of Return on Assets — The long-term rate of return on plan assets represents an estimate of
long-term returns on an investment portfolio consisting of a mixture of equities, fixed income and other investments. To develop
the expected long-term rate of return on assets assumption for the pension plan, Registrant considered the historical returns and the
future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. Registrant’s policy
is to fund the medical benefit trusts based on actuarially determined amounts as allowed in rates approved by the CPUC.
Registrant has invested the funds in the post-retirement trusts that will achieve a desired return and minimize amounts necessary to
recover through rates. The mix is expected to provide for a return on assets similar to the Pension Plan and to achieve Registrant’s
targeted allocation. This resulted in the selection of the 7.0% long-term rate of return on assets assumption for the union plan and
4.2% (net of income taxes) for the non-union plan portion of the post retirement plan.
Mortality — Mortality assumptions are a critical component of benefit obligation amounts and a key factor in determining
the expected length of time for annuity payments. In 2014, the Society of Actuaries released new mortality tables for pension
plans. Beginning with 2014, the benefit obligation amounts assume a longer life expectancy of participants as a result of the
actuarial update to mortality tables. The update to the mortality tables increases future annual net periodic costs.
Healthcare Cost Trend Rate — The assumed health care cost trend rate for 2016 starts at 6.3% grading down to 4.6% in
2038 for those under age 65, and at 6.7% grading down to 4.5% in 2037 for those 65 and over. Assumed health care cost trend
rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health
care cost trend rates would have the following effects on the post-retirement medical plan:
(dollars in thousands)
Effect on total of service and interest cost components
Effect on post-retirement benefit obligation
1-Percentage-Point
Increase
1-Percentage-Point
Decrease
$
$
78 $
1,021 $
(66)
(879)
100
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplemental Executive Retirement Plan:
Registrant has a supplemental executive retirement plan (“SERP”) that provides additional retirement benefits to certain
key employees and officers of Registrant by making up benefits, which are limited by Sections 415 and 401(a)(17) of the Internal
Revenue Code of 1986, as amended, and certain additional benefits. The Board of Directors approved the establishment of a
Rabbi Trust created for the SERP. Assets in a Rabbi Trust can be subject to the claims of creditors; therefore, they are not
considered as an asset for purposes of computing the SERP’s funded status. As of December 31, 2015, the balance in the Rabbi
Trust totaled $9.9 million and is included in Registrant’s other property and investments.
All equity investments in the Rabbi Trust are Level 1 investments in mutual funds. The fixed income category includes
corporate bonds and notes. The fair values of these investments are based on quoted market prices in active markets. The
following tables set forth by level, within the fair value hierarchy, the Rabbi Trust investment assets measured at fair value as of
December 31, 2015 and 2014:
(dollars in thousands)
Fair Value of Assets held in Rabbi Trust:
Cash equivalents
Fixed income securities
Equity securities
Total investments measured at fair value
(dollars in thousands)
Fair Value of Assets held in Rabbi Trust:
Cash equivalents
Fixed income securities
Equity securities
Total investments measured at fair value
Fair Value as of December 31, 2015
Level 1
Level 2
Level 3
Total
39
3,903
5,924
9,866
—
—
—
—
— $
—
—
— $
39
3,903
5,924
9,866
Fair Value as of December 31, 2014
Level 1
Level 2
Level 3
Total
29
3,454
5,282
8,765
—
—
—
—
— $
—
—
— $
29
3,454
5,282
8,765
$
$
$
$
The following provides a reconciliation of benefit obligations, funded status of the SERP, as well as a summary of
significant estimates at December 31, 2015 and 2014:
(dollars in thousands)
Change in Benefit Obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Benefit obligation at end of year
Changes in Plan Assets:
Fair value of plan assets at beginning of year
Fair value of plan assets at end of year
Funded Status:
Net amount recognized as accrued cost
101
2015
2014
$
$
15,926 $
814
653
(683)
(393)
16,317 $
12,296
768
615
2,497
(250)
15,926
—
—
—
—
$
(16,317) $
(15,926)
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Amounts recognized on the balance sheets:
Current liabilities
Non-current liabilities
Net amount recognized
Amounts recognized in regulatory assets consist of:
Prior service cost
Net loss
Regulatory assets
Unfunded accrued cost
Net liability recognized
Changes in plan assets and benefit obligations recognized in regulatory assets consist of:
Regulatory asset at beginning of year
Net (gain) loss
Amortization of prior service credit
Amortization of net loss
Total change in regulatory asset
Regulatory asset at end of year
Net periodic pension cost
Change in regulatory asset
Total recognized in net periodic pension and net income
Estimated amounts that will be amortized from regulatory asset over the next fiscal year:
Initial net asset (obligation)
Prior service cost
Net loss
Additional year-end information for plans with an accumulated benefit obligation in
excess of plan assets:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Weighted-average assumptions used to determine benefit obligations:
Discount rate
Rate of compensation increase
$
$
$
$
$
$
$
$
$
2015
2014
$
(411) $
(15,906 )
(16,317) $
(379)
(15,547)
(15,926)
36
3,416
3,452
12,865
16,317
$
$
153
4,530
4,683
11,243
15,926
$
4,683
(683 )
(117 )
(431 )
(1,231 )
3,452
$
$
$
2,015
(1,231 )
784
2,486
2,497
(161)
(139)
2,197
4,683
1,683
2,197
3,880
$
—
(25 )
(292 )
—
(117)
(431)
$
16,317
14,533
—
15,926
13,992
—
4.61 %
4.00 %
4.15%
4.00%
The components of SERP expense, before allocation to the overhead pool, for 2015, 2014 and 2013 are as follows:
(dollars in thousands, except percent)
Components of Net Periodic Benefits Cost:
Service cost
Interest cost
Amortization of prior service cost
Amortization of net loss
Net periodic pension cost
2015
2014
2013
$
$
814
653
117
431
2,015
$
$
768
615
161
139
1,683
$
$
803
514
161
339
1,817
Weighted-average assumptions used to determine net periodic cost:
Discount rate
Rate of compensation increase
4.15%
4.00%
5.05 %
4.00 %
4.20%
4.00%
102
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Benefit Payments:
Registrant’s estimated future benefit payments for the SERP at December 31, 2015 for the next ten years are as follows (in
thousands):
2016
2017
2018
2019
2020
Thereafter
Total
$
$
411
484
635
693
1,093
5,567
8,883
401(k) Investment Incentive Program:
Registrant has a 401(k) Investment Incentive Program under which employees may invest a percentage of their pay, up to
a maximum investment prescribed by law, in an investment program managed by an outside investment manager. Registrant’s cash
contributions to the 401(k) are based upon a percentage of individual employee contributions and totaled $2.1 million for the year
ended December 31, 2015, and $1.9 million for each of the years ended December 31, 2014 and 2013. In 2011, this program was
amended to incorporate the defined contribution plan previously discussed. Contributions to the defined contribution plan for the
years ended December 31, 2015, 2014 and 2013 were $755,000, $568,000 and $394,000, respectively.
Affordable Care Act:
In 2010, the Patient Protection and Affordable Care Act ("Affordable Care Act") was passed and was to become effective
in 2014. In July 2013, compliance with the employer mandate and certain reporting requirements under the Affordable Care Act
were delayed until 2015. Registrant's health care plan meets the current requirements of the Affordable Care Act. Registrant
continues to assess the impact of the Affordable Care Act on its health care benefit costs.
Note 12 — Stock-Based Compensation Plans
Summary Description of Stock Incentive Plans
AWR currently has four stock incentive plans: the 2000 and 2008 employee plans for its employees, and the 2003 and
2013 directors plans for directors, each more fully described below.
2000 and 2008 Employee Plans — AWR adopted the 2000 and 2008 employee plans to provide stock-based incentive
awards in the form of stock options, restricted stock units and restricted stock to employees as a means of promoting the
success of Registrant by attracting, retaining and more fully aligning the interests of employees with those of shareholders
generally. The 2008 Employee Plan also provides for the grant of performance awards. No additional grants may be made
under the 2000 employee plan.
For stock options, Registrant’s Compensation Committee of the Board of Directors (“Compensation Committee”)
determines, among other things, the date of grant, the form, term, option exercise price, vesting and exercise terms of each
option. Stock options granted by AWR have been in the form of nonqualified stock options, expire ten years from the date of
grant, vest over a period of three years and are subject to earlier termination as provided in the form of option agreement
approved by the Compensation Committee. The option price per share is determined by the Compensation Committee at the
time of grant, but may not be less than the fair market value of Common Shares on the date of grant.
For restricted stock unit awards, the Compensation Committee determines the specific terms, conditions and
provisions relating to each restricted stock unit. Each employee who has been granted a time-vested restricted stock unit is
entitled to dividend equivalent rights in the form of additional restricted stock units until vesting of the time-vested restricted
stock units. In general, time-vested restricted stock units vest over a period of three years. Each restricted stock unit is non-
voting and entitles the holder of the restricted stock unit to receive one Common Share.
103
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Compensation Committee also has the authority to determine the size, number, amount or value of performance
awards, the duration of the performance period or performance periods applicable to the award and the performance criteria
applicable to each performance award for each performance period. The grant and/or vesting of the performance awards are
contingent, in whole or in part, upon the attainment of specified performance criteria or the occurrence of any event or events
involving a change in control event, death or total disability as the Compensation Committee may determine. In its discretion,
the Compensation Committee may grant dividend equivalent rights on performance awards upon the terms and conditions set
forth in the award agreement. Each outstanding performance award granted by the Compensation Committee has been in the
form of restricted stock units that generally vest over a period of three years as provided in the performance award agreement.
Each employee who has been granted a performance award is entitled to dividend equivalent rights in the form of additional
restricted stock units until payment of the performance award.
2003 and 2013 Directors Plans — The Board of Directors and shareholders of AWR have approved the 2003 and 2013
directors plans in order to provide the non-employee directors with supplemental stock-based compensation to encourage them
to increase their stock ownership in AWR. No more grants may be made under the 2003 directors plan.
Commencing in 2009, non-employee directors have received restricted stock units equal to two times the annual
retainer. One-third of the restricted stock units granted in 2009-2012 are payable to each non-employee director at the earlier of
the first, second and third anniversaries of the date of grant and the date of termination of service as a director. Each non-
employee director is entitled to receive restricted stock units granted after 2012 ninety days after the grant date. Restricted
stock units credited to each non-employee director’s restricted stock unit account are at all times fully vested and non-
forfeitable.
The stock options granted under the 2003 directors plan are nonqualified stock options which must be exercised within
ten years after the date of grant. The exercise price of the stock options is equal to the fair market value of Common Shares on
the date of grant. Stock options granted under the 2003 directors plan are fully vested and exercisable upon the date of
grant. Restricted stock units with respect to dividend equivalent rights on stock options credited to the non-employee director
are payable in Common Shares on the earlier of the date on which the stock option is exercised and three years from the date of
grant of the stock option. No stock options have been granted to directors since AWR’s 2006 annual meeting and no stock
options may be granted to directors under the 2013 directors plan.
All stock options, restricted stock units and performance awards have been granted with dividend equivalent rights
payable in the form of additional restricted stock units.
Recognition of Compensation Expense
Registrant recognizes compensation expense related to the fair value of stock-based compensation awards. Share-
based compensation cost is measured by the Registrant at the grant date, based on the calculated fair value of the award, and is
recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant).
Immediate vesting does occur if the employee is at least 55 years old and the sum of the employee’s age and years of
employment is equal to or greater than 75. Registrant assumes that forfeitures will be minimal, and recognizes forfeitures as
they occur, which results in a reduction in compensation expense.
The following table presents share-based compensation expenses for the years ended December 31, 2015, 2014 and
2013. These expenses resulting from stock options and restricted stock units, including performance awards, are included in
administrative and general expenses in AWR and GSWC’s statements of income:
(in thousands)
Stock-based compensation related to:
Stock options
Restricted stock units
Total stock-based compensation expense
AWR
GSWC
For The Years Ended
December 31,
2014
2015
2013
2015
For The Years Ended
December 31,
2014
2013
$
$
— $
2,754
2,754 $
— $
2,222
2,222 $
9 $
2,000
2,009 $
— $
2,443
2,443 $
— $
1,748
1,748 $
8
1,639
1,647
104
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Equity-based compensation cost, capitalized as part of utility plant for the years ended December 31, 2015, 2014 and
2013 was $369,000, $255,000 and $334,000, respectively, for both AWR and GSWC. For the years ended December 31, 2015,
2014 and 2013, AWR realized approximately $877,000, $533,000 and $1,026,000, respectively, of tax benefits from stock-
based awards. For the years ended December 31, 2015, 2014 and 2013, GSWC realized approximately $872,000, $514,000
and $943,000, respectively, of tax benefits from stock-based awards.
Registrant amortizes stock-based compensation over the requisite (vesting) period for the entire award. Options issued
pursuant to the 2000 employee plan vest and are exercisable in installments of 33% the first two years and 34% in the third
year, starting one year from the date of the grant and expire 10 years from the date of the grant. No stock options have been
granted under the 2008 plan. Time-vesting restricted stock units vest and become nonforfeitable in installments of 33% the
first two years and 34% in the third year, starting one year from the date of the grant. Outstanding performance awards vest
and become nonforfeitable in installments of 33% the first two years and 34% in the third year, and are distributed at the end of
the performance period if the performance criteria set forth in the award agreement are satisfied.
Stock Options — There were no stock options granted during the years 2015, 2014 or 2013. A summary of stock
option activity as of December 31, 2015 and changes during the year ended December 31, 2015, are presented below:
Number of
Options
Weighted
Average
Exercise Price
Weighted Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
Options outstanding at January 1, 2015
Granted
Exercised
Forfeited or expired
Options outstanding at December 31, 2015
Options exercisable at December 31, 2015
222,580 $
—
(66,458)
(5,516)
150,606 $
150,606 $
17.47
—
18.02
12.96
17.39
17.39
2.74 $
2.74 $
3,699,468
3,699,468
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between
the closing price of the Common Shares on the last trading day of the 2015 calendar year and the exercise price, times the
number of shares) that would have been received by the option holders had all option holders exercised their option on
December 31, 2015. This amount changes if the fair market value of the Common Shares changes. The total intrinsic value of
options exercised during the years ended December 31, 2015, 2014 and 2013 was approximately $1,457,000, $596,000 and
$1,402,000, respectively.
During the years ended December 31, 2015, 2014 and 2013, Registrant received approximately $1,198,000, $589,000
and $2,111,000, respectively, in cash proceeds from the exercise of its stock options.
Restricted Stock Units (Time-Vested) — A restricted stock unit (“RSU”) represents the right to receive a share of
AWR’s Common Shares and are valued based on the fair market value of AWR's Common Shares on the date of grant. The fair
value of RSUs were determined based on the closing trading price of Common Shares on the grant date. A summary of the
status of Registrant’s outstanding RSUs, excluding performance awards, to employees and directors as of December 31, 2015,
and changes during the year ended December 31, 2015, is presented below:
Restricted share units at January 1, 2015
Granted
Vested
Forfeited
Restricted share units at December 31, 2015
105
Number of
Restricted Share
Units
Weighted Average
Grant-Date Value
21.61
40.31
24.87
31.13
26.21
145,475 $
41,100
(73,523)
(1,717)
111,335 $
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2015, there was approximately $753,000 of total unrecognized compensation cost related to
restricted stock units granted under AWR’s employee and director’s stock plans. That cost is expected to be recognized over a
remaining period ranging from 0.08 to 2.82 years.
Restricted Stock Units (Performance Awards) – During the years ended December 31, 2015, 2014 and 2013, the
Compensation Committee granted performance awards in the form of restricted stock units to officers of the Registrant. A
performance award represents the right to receive a share of AWR's Common Shares if specified performance goals are met
over the performance period specified in the grant (generally three years), subject to certain exceptions through the
performance period. Each grantee of any outstanding performance award may earn between 0% and 200% of the target amount
depending on Registrant's performance against performance goals, which are determined by the Compensation Committee on
the date of grant. A summary of the status of Registrant’s outstanding performance awards to officers as of December 31, 2015,
and changes during the year ended December 31, 2015, is presented below:
Performance awards at January 1, 2015
Granted
Performance criteria adjustment
Vested
Performance awards at December 31, 2015
Number of
Performance
awards
Weighted Average
Grant-Date Value
27.78
41.24
28.44
36.87
30.66
75,827 $
29,597
30,798
(4,269)
131,953 $
A portion of the fair value of performance awards was estimated at the grant date based on the probability of satisfying
the market-based conditions. The portion of the fair value of the performance awards associated with performance-based
conditions was based on the fair market value of AWR's stock at the grant date. The fair value of each outstanding performance
award grant is amortized into compensation expense in installments of 33% the first two years and 34% in the third year of
their respective vesting periods, which is generally over 3 years unless earlier vested pursuant to the terms of the agreement.
The accrual of compensation costs is based on the estimate of the final expected value of the award, and is adjusted as required
for the portion based on the performance-based condition. As of December 31, 2015, $874,000 of unrecognized compensation
costs related to performance awards is expected to be recognized over a weighted average period ranging from 1 to 2 years.
Restricted Stock - AWR has no restricted stock outstanding as of December 31, 2015.
Note 13 - Commitments
GSWC’s Water Supply:
GSWC obtains its water supply from its operating wells and purchases from others, principally member agencies of
the Metropolitan Water District of Southern California (“MWD”). MWD is a public agency and quasi-municipal corporation
created in 1928 by a vote of the electorates of several Southern California cities. MWD’s primary purpose was and is to
provide a supplemental supply of water for domestic and municipal uses and purposes at wholesale rates to its member public
agencies. GSWC has connections to MWD’s water distribution facilities and those of other member water agencies. MWD’s
principal sources of water are the State Water Project and the Colorado River.
GSWC has contracts to purchase water or water rights for an aggregate amount of $5.5 million as of December 31,
2015. Included in the $5.5 million is a commitment of $3.0 million to lease water rights from a third party under an agreement
which expires in 2028. The remaining $2.5 million are commitments for purchased water with other third parties which expire
through 2038.
106
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GSWC’s estimated future minimum payments under these purchased water supply commitments at December 31,
2015 are as follows (in thousands):
2016
2017
2018
2019
2020
Thereafter
Total
Bear Valley Electric:
$
$
393
393
394
393
394
3,570
5,537
Generally, GSWC’s electric division purchases power at a fixed cost, under long-term purchased power contracts,
depending on the amount of power and the period during which the power is purchased under such contracts. During 2014,
GSWC's power purchases were based on month-to-month arrangements, as the previous long-term purchase power contract
expired in 2013. However, GSWC began taking power pursuant to new purchased power contracts approved by the CPUC
effective January 1, 2015 at a fixed cost over three and five year terms depending on the amount of power and period during
which the power is purchased under the contracts. As of December 31, 2015, GSWC's commitment under these contracts
totaled approximately $24.8 million.
The ability of GSWC to deliver purchased power to customers in its BVES service area is limited by the ability of the
transmission facilities owned by Southern California Edison Company to transmit this power.
Operating Leases:
Registrant leases equipment and facilities primarily for its Regional and District offices and ASUS operations under
non-cancelable operating leases with varying terms, provisions and expiration dates. Rent expense for leases that contain
scheduled rent increases are recorded on a straight-line basis. During 2015, 2014 and 2013, Registrant’s consolidated rent
expense was approximately $2,740,000, $2,982,000 and $2,982,000, respectively. Registrant’s future minimum payments
under long-term non-cancelable operating leases at December 31, 2015 are as follows (in thousands):
2016
2017
2018
2019
2020
Thereafter
Total
$
$
2,526
2,151
1,717
1,345
1,094
830
9,663
There is no material difference between the consolidated operations of AWR and the operations of GSWC in regards
to the future minimum payments under long-term non-cancelable operating leases.
Construction Program:
GSWC maintains an ongoing water distribution main replacement program throughout its customer service areas
based on the age and type of distribution system materials, priority of leaks detected, remaining productive life of the
distribution system and an underlying replacement schedule. In addition, GSWC upgrades its electric and water supply
facilities in accordance with industry standards, local requirements and CPUC requirements. As of December 31, 2015, GSWC
has unconditional purchase obligations for capital projects of approximately $44.5 million.
107
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 - Contingencies
Condemnation of Properties:
The laws of the state of California provide for the acquisition of public utility property by governmental agencies
through their power of eminent domain, also known as condemnation, where doing so is necessary and in the public interest.
In addition, these laws provide that the owner of utility property (i) may contest whether the condemnation is actually
necessary and in the public interest, and (ii) is entitled to receive the fair market value of its property if the property is
ultimately taken.
Claremont System:
On November 4, 2014, voters in the City of Claremont ("Claremont" or "the City") approved a measure authorizing
the issuance of $135.0 million in water revenue bonds by the City to finance the acquisition of GSWC's Claremont water
system. On December 9, 2014, the City filed an eminent domain lawsuit against GSWC. GSWC does not believe the seizure
is necessary and continues to vigorously defend against the potential condemnation. The eminent domain Right to Take trial is
scheduled to begin on June 13, 2016. At this time, management cannot predict the outcome of the eminent domain proceeding.
The Claremont water system has a net book value of approximately $49.3 million. GSWC serves approximately 11,000
customers in Claremont.
Ojai System:
In March 2013, the Casitas Municipal Water District ("CMWD") passed resolutions under the Mello-Roos
Communities Facilities District Act of 1982 ("Mello-Roos Act") authorizing the establishment of a Community Facilities
District, and the issuance of bonds to finance the potential acquisition of GSWC’s Ojai system through eminent domain. At
this time, management cannot predict the outcome of the eminent domain proceeding. GSWC serves approximately 3,000
customers in Ojai.
Environmental Clean-Up and Remediation:
GSWC has been involved in environmental remediation and cleanup at a plant site (“Chadron Plant”) that contained
an underground storage tank 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 offsite monitoring wells may also be necessary to document effectiveness of remediation.
As of December 31, 2015, the total spent to clean-up and remediate GSWC’s plant facility was approximately $4.9
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 December 31, 2015, GSWC has a
regulatory asset and an accrued liability for the estimated additional cost of $1.4 million to complete the cleanup at the site.
The estimate includes costs for two years of continued activities of groundwater cleanup and monitoring, future soil treatment
and site-closure-related activities. The ultimate cost may vary as there are many unknowns in remediation of underground
gasoline spills and this is an estimate based on currently available information. Management also believes it is probable that
the estimated additional costs will be approved in rate base by the CPUC.
Other Litigation:
Registrant is also subject to other ordinary routine litigation incidental to its business. Management believes that rate
recovery, proper insurance coverage and reserves are in place to insure against property, general liability and workers’
compensation claims incurred in the ordinary course of business. Registrant is unable to predict an estimate of the loss, if any,
resulting from any pending suits or administrative proceedings.
108
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15 - Business Segments
AWR has 3 reportable segments, water, electric and contracted services, whereas GSWC has 2 segments, water and
electric. AWR has no material assets other than its investments in its subsidiaries on a stand-alone basis.
All activities of GSWC, a rate-regulated utility, are geographically located within California. Activities of ASUS and
its subsidiaries are conducted in California, Georgia, Maryland, New Mexico, North Carolina, South Carolina, Texas and
Virginia. Each of ASUS’s wholly owned subsidiaries is 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 GSWC’s operating segments, ASUS and its subsidiaries and other
matters. Total assets by segment are not presented below, as certain of Registrant’s assets are not tracked by segment. The
utility plants are net of respective accumulated provisions for depreciation. Capital additions reflect capital expenditures paid
in cash and exclude U.S. government-funded and third-party prime funded capital expenditures for ASUS and property
installed by developers and conveyed to GSWC.
As Of And For The Year Ended December 31, 2015
(dollars in thousands)
Operating revenues
Operating income (loss)
Interest expense, net
Utility Plant
Depreciation and amortization expense (1)
Income tax expense/(benefit)
Capital additions
(dollars in thousands)
Operating revenues
Operating income (loss)
Interest expense, net
Utility Plant
Depreciation and amortization expense (1)
Income tax expense/(benefit)
Capital additions
(dollars in thousands)
Operating revenues
Operating income (loss)
Interest expense, net
Utility Plant
Depreciation and amortization expense (1)
Income tax expense
Capital additions
GSWC
ASUS
$
Water
328,511 $
94,213
19,468
1,005,114
39,190
30,302
77,440
Electric
Contracts
36,039 $
6,196
1,090
51,002
1,703
2,170
8,704
94,091 $
18,091
26
4,678
1,140
6,069
1,179
AWR
Parent
Consolidated
— $
(11)
46
—
—
(810)
—
AWR
458,641
118,489
20,630
1,060,794
42,033
37,731
87,323
As Of And For The Year Ended December 31, 2014
GSWC
ASUS
AWR
Consolidated
Water
$
326,672 $
94,014
19,370
953,678
38,388
30,410
66,304
Electric
Contracts
34,387 $
5,728
1,260
45,202
1,466
1,596
4,584
104,732 $
19,351
142
4,640
1,219
7,038
1,665
Parent
AWR
— $
465,791
119,045
(48)
20,690
(82)
— 1,003,520
41,073
—
38,048
(996)
72,553
—
Water
$
As Of And For The Year Ended December 31, 2013
GSWC
ASUS
Electric
Contracts
AWR
Parent
Consolidated
320,131 $
95,932
20,236
936,386
36,636
30,679
94,581
38,409 $
6,411
1,436
40,908
2,316
2,455
2,124
113,537 $
16,737
264
4,183
1,138
4,911
674
— $
(8)
(228)
—
—
(2,262)
—
AWR
472,077
119,072
21,708
981,477
40,090
35,783
97,379
(1) Depreciation computed on GSWC’s transportation equipment is recorded in other operating expenses and totaled $641,000,
$678,000 and $877,000 for the years ended December 31, 2015, 2014 and 2013, respectively.
109
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reconciles total utility plant (a key figure for rate-making) to total consolidated assets (in
thousands):
Total utility plant
Other assets
Total consolidated assets
$
$
2015
1,060,794 $
287,806
1,348,600 $
December 31,
2014
1,003,520 $
374,778
1,378,298 $
2013
981,477
328,706
1,310,183
Note 16 — Allowance for Doubtful Accounts
The table below presents Registrant’s provision for doubtful accounts charged to expense and accounts written off, net
of recoveries. Provisions included in 2015, 2014 and 2013 for AWR and GSWC are as follows:
(dollars in thousands)
Balance at beginning of year
Provision charged to expense
Accounts written off, net of recoveries
Balance at end of year
Allowance for doubtful accounts related to accounts receivable-customer
Allowance for doubtful accounts related to other accounts receivable
Total allowance for doubtful accounts
(dollars in thousands)
Balance at beginning of year
Provision charged to expense
Accounts written off, net of recoveries
Balance at end of year
Allowance for doubtful accounts related to accounts receivable-customer
Allowance for doubtful accounts related to other accounts receivable
Total allowance for doubtful accounts
Note 17 — Supplemental Cash Flow Information
AWR
December 31,
2015
2014
2013
892 $
869
(817)
944 $
790 $
154
944 $
1,187 $
991
(1,286 )
892 $
803 $
89
892 $
GSWC
December 31,
1,228
1,145
(1,186)
1,187
755
432
1,187
2015
2014
2013
892 $
844
(817)
919 $
790 $
129
919 $
1,114 $
1,055
(1,277 )
892 $
803 $
89
892 $
1,177
1,056
(1,119)
1,114
755
359
1,114
$
$
$
$
$
$
$
$
The following table sets forth non-cash financing and investing activities and other cash flow information (in
thousands).
AWR
December 31,
GSWC
December 31,
2015
2014
2013
2015
2014
2013
Taxes and Interest Paid:
Income taxes paid
Interest paid, net of capitalized interest
$
14,817 $
21,822
15,984 $
22,236
10,880 $
22,144
1,541 $
21,797
16,500 $
22,184
7,083
22,144
Non-Cash Transactions:
Accrued payables for investment in
utility plant
Property installed by developers and
conveyed
$
20,655 $
13,147 $
19,515 $
20,655 $
13,141 $
19,515
3,284
800
2,819
3,284
800
2,819
110
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
American States Water Company
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the
financial position of American States Water Company and its subsidiaries (“the Company”) at December 31, 2015 and
December 31, 2014, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in Item 15(a)(2) presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial
statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting
under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and
on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits
of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our
opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
February 24, 2016
111
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Shareholder of Golden State Water Company
In our opinion, the financial statements listed in the accompanying index present fairly, in all material respects, the financial
position of Golden State Water Company (the “Company”) at December 31, 2015 and December 31, 2014, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting
principles generally accepted in the United States of America. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
February 24, 2016
112
Report from Management on the Responsibility for Financial Statements
The consolidated financial statements contained in the annual report were prepared by the management of American States
Water Company, which is responsible for their integrity and objectivity. The consolidated financial statements were prepared in
accordance with accounting principles generally accepted in the United States of America and include, where necessary,
amounts based upon management’s best estimates and judgments. All other financial information in the annual report is
consistent with the consolidated financial statements and is also the responsibility of management.
The Audit Committee, composed of three outside directors, exercises oversight of management’s discharge of its
responsibilities regarding the systems of internal control and financial reporting. The committee periodically meets with
management, the internal auditor and the independent accountants to review the work and findings of each. The committee also
reviews the qualifications of, and recommends to the board of directors, a firm of independent registered public accountants.
Registrant’s independent registered public accounting firm, PricewaterhouseCoopers LLP, is engaged to audit the consolidated
financial statements included in this report in accordance with the standards of the Public Company Accounting Oversight
Board (United States) and to express an opinion on whether those consolidated financial statements fairly present, in all
material respects, Registrant’s results of operations, financial position and cash flows. In addition, the effectiveness of AWR’s
internal control over financial reporting as of December 31, 2015 has been audited by PricewaterhouseCoopers LLP. The result
of their work is expressed in their Report of Independent Registered Public Accounting Firm.
/s/
ROBERT J. SPROWLS
Robert J. Sprowls
President and Chief Executive Officer
/s/
EVA G. TANG
Eva G. Tang
Chief Financial Officer,
Senior Vice President - Finance,
Treasurer and Corporate Secretary
February 24, 2016
113
Selected Quarterly Financial Data (Unaudited)
The quarterly financial information presented below is unaudited. The business of Registrant is of a seasonal nature
and it is management’s opinion that comparisons of earnings for the quarterly periods do not reflect overall trends and changes
in Registrant’s operations.
(in thousands, except per share amounts)
Operating revenues
Operating income
Net income
Basic earnings per share
Diluted earnings per share
AWR
$
First
Quarter
100,933 $
24,890
12,149
0.32
0.32
For The Year Ended December 31, 2015
Fourth
Third
Second
Quarter
Quarter
Quarter
110,115 $
132,975 $
114,618 $
21,884
41,185
30,530
11,608
21,079
15,648
0.31
0.57
0.41
0.31
0.56
0.41
GSWC
(in thousands)
Operating revenues
Operating income
Net income
First
Quarter
$
82,473 $
22,473
10,385
For The Year Ended December 31, 2015
Fourth
Third
Second
Quarter
Quarter
Quarter
105,219 $
34,081
16,243
95,470 $
27,235
12,949
81,388 $
16,620
8,014
Year
458,641
118,489
60,484
1.61
1.60
Year
364,550
100,409
47,591
(in thousands, except per share amounts)
Operating revenues
Operating income
Net income
Basic earnings per share*
Diluted earnings per share*
(in thousands)
Operating revenues
Operating income
Net income
AWR
For The Year Ended December 31, 2014
$
First
Quarter
101,945 $
22,768
11,021
0.28
0.28
Second
Quarter
115,641 $
31,000
15,354
0.39
0.39
Third
Quarter
138,327 $
39,895
21,171
0.54
0.54
Fourth
Quarter
109,878 $
25,382
13,512
0.35
0.35
Year
465,791
119,045
61,058
1.57
1.57
GSWC
For The Year Ended December 31, 2014
First
Quarter
Second
Quarter
$
81,213 $
20,430
9,347
94,560 $
28,575
13,456
Third
Quarter
105,314 $
32,346
16,079
Fourth
Quarter
79,972 $
18,391
8,975
Year
361,059
99,742
47,857
* The sum of the quarterly 2014 basic and diluted earnings per share amounts do not agree to the yearly totals due to rounding.
114
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and
principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under
Rule 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Based on this evaluation, our principal executive officer and our principal financial officer concluded that the disclosure
controls and procedures of AWR and GSWC were effective as of the end of the period covered by this annual report.
(b) Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in
Internal Control - Integrated Framework, our management concluded that the internal control over financial reporting of AWR
and GSWC was effective as of December 31, 2015.
(c) Attestation Report of the Independent Registered Public Accounting Firm
The effectiveness of our internal control over financial reporting of AWR as of December 31, 2015 has been audited
by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included
herein.
(d) Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-
15(f) or 15d(f) under the Exchange Act) of AWR and GSWC that occurred during the fourth quarter of 2015 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
115
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information responsive to Part III, Item 10 is included in the Proxy Statement, to be filed by AWR with the SEC
pursuant to Regulation 14A, under the captions therein entitled: (i) “Proposal 1: Election of Directors”; (ii) “Executive
Officers”; (iii) “Governance of the Company”; (iv) “Stock Ownership”; (v) “Nominating and Governance Committee”;
(vi) “Audit and Finance Committee;” and (vii) “Obtaining Additional Information From Us” and is incorporated herein by
reference pursuant to General Instruction G(3).
Item 11. Executive Compensation
Information responsive to Part III, Item 11 is included in the Proxy Statement, to be filed by AWR with the SEC
pursuant to Regulation 14A, under the captions therein entitled: (i) “Proposal 1: Election of Directors”; (ii) “ Executive
Officers;” and (iii) “Compensation Committee” and is incorporated herein by reference pursuant to General Instruction G(3).
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information responsive to Part III, Item 12 is included in the Proxy Statement, to be filed by AWR with the SEC
pursuant to Regulation 14A, under the caption entitled “Stock Ownership”, and “Proposal 2 Approval of the 2016 Stock
Incentive Plan- What securities have been authorized for issuance under equity compensation plans of the company?” and is
incorporated herein by reference pursuant to General Instruction G(3).
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information responsive to Part III, Item 13 is included in the Proxy Statement, to be filed by AWR with the SEC
pursuant to Regulation 14A, under the caption therein entitled “Governance of the Company” and is incorporated herein by
reference pursuant to General Instruction G(3).
Item 14. Principal Accounting Fees and Services
Information responsive to Part III, Item 14 is included in the Proxy Statement, to be filed by AWR with the SEC
pursuant to Regulation 14A, under the caption therein entitled “Proposal 4: Ratification of Auditors” and is incorporated herein
by reference pursuant to General Instruction G(3).
116
Item 15. Exhibits, Financial Statement Schedules
PART IV
(a) The following documents are filed as a part of this Annual Report on Form 10-K:
1. Reference is made to the Financial Statements incorporated herein by reference to Part II, Item 8 hereof.
2. Schedule I — Condensed Financial Information of AWR. Schedules II, III, IV, and V are omitted as they are not
applicable.
3. Reference is made to Item 15(b) of this Annual Report on Form 10-K.
(b) Exhibits:
3.1
3.2
3.3
3.4
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
10.5
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. 1-4431)
By-laws of Golden State Water Company incorporated by reference to Exhibit 3.1 of Registrant’s Form 8-K filed
May 13, 2011
Amended and Restated Articles of Incorporation of American States Water Company incorporated by reference to
Exhibit 3.1 of Registrant’s Form 8-K filed June 19, 2013
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)
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
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)
Note Purchase Agreement dated as of March 10, 2009 between Golden State Water Company and Co-Bank, ACB,
incorporated herein by reference to Exhibit 10.16 to Registrant’s Form 10-K filed on March 13, 2009 (File No. 1-
14431)
Indenture dated as of December 1, 1998 between American States Water Company and The Bank of New York
Mellon Trust Company, N.A., as supplemented by the First Supplemental Indenture dated as of July 31, 2009
incorporated herein by reference to Exhibit 4.1 of American States Water Company’s Form 10-Q for the quarter
ended June 30, 2009 (File No. 1-14431)
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
Note Agreement dated as of May 15, 1991 between Golden State Water Company and Transamerica Occidental
Life Insurance Company incorporated herein by reference to Registrant’s Form 10-Q with respect to the quarter
ended June 30, 1991 (File No. 1-14431)
Schedule of omitted Note Agreements, dated May 15, 1991, between Golden State Water Company and
Transamerica Annuity Life Insurance Company, and Golden State Water Company and First Colony Life Insurance
Company incorporated herein by reference to Registrant’s Form 10-Q with respect to the quarter ended June 30,
1991 (File No. 1-14431)
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)
Agreement for Financing Capital Improvement dated as of June 2, 1992 between Golden State Water Company
and Three Valleys Municipal Water District incorporated herein by reference to Registrant’s Form 10-K with
respect to the year ended December 31, 1992 (File No. 1-14431)
117
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
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)
2003 Non-Employee Directors Stock Purchase Plan, as amended, incorporated herein by reference to Exhibit 10.1
to Registrant’s Form 8-K filed on January 30, 2009 (2)
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
Form of Amended and Restated Change in Control Agreement between American States Water Company or a
subsidiary and certain executives incorporated herein by reference to Exhibit 10.4 to Registrant’s Form 8-K filed
on November 11, 2014 (2)
Golden State Water Company Pension Restoration Plan, as amended, incorporated herein by reference to
Exhibit 10.1 to the Registrant’s Form 8-K filed on May 21, 2009 (File No. 1-14431) (2)
American States Water Company 2000 Stock Incentive Plan, as amended, incorporated by reference to
Exhibit 10.2 of Registrant’s Form 8-K filed May 23, 2008 (File No. 1-14431) (2)
Amended and Restated Credit Agreement between American States Water Company dated June 3, 2005 with Wells
Fargo Bank, N.A., as Administrative Agent, as amended, incorporated by reference to Exhibit 10.1 to Registrant’s
Form 8-K filed March 27, 2014
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)
Form of Non-Qualified Stock Option Plan Agreement for officers and key employees for the 2000 Stock Incentive
Plan incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on January 7, 2005 (File No. 1-
14431) (2)
Form of Non-Qualified Stock Option Plan Agreement for officers and key employees for the 2000 Stock Incentive
Plan incorporated by reference to Exhibit 10.1 of Registrant’s Form 10-Q for the period ended March 31, 2006
(File No. 1-14431) (2)
Form of Director’s Non-Qualified Stock Option Agreement incorporated by reference to Exhibit 10.1 to
Registrant’s Form 10-Q for the period ended September 30, 2006 (File No. 1-14431) (2)
Form of Restricted Stock Unit Award Agreement for officers and key employees under the 2008 Stock Incentive
Plan for restricted stock unit awards prior to January 1, 2011 but before January 1, 2015 incorporated by reference
to Exhibit 10.4 of Registrant’s Form 8-K filed on November 5, 2008 (File No. 1-14431) (2)
2008 Stock Incentive Plan, as amended, incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed
March 21, 2014 (2)
Form of Nonqualified Stock Option Agreement for officers and key employees for the 2008 Stock Incentive Plan
incorporated herein by reference to Exhibit 10.3 to Registrant’s Form 8-K filed November 21, 2014 (2)
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)
Performance Incentive Plan incorporated herein by reference to Exhibit 10.4 to the Registrant’s Form 8-K filed on
July 31, 2009 (File No. 1-14431) (2)
Officer Relocation Policy incorporated herein by reference to Exhibit 10.5 to the Registrant’s Form 8-K filed on
July 31, 2009 (File No. 1-14431) (2)
Form of Non-Qualified Stock Option Award Agreement for officers and key employees under the 2008 Stock
Incentive Plan for stock options granted after December 31, 2010 but prior to January 1, 2015 incorporated by
reference to Exhibit 10.2 of Registrant’s Form 8-K filed on February 4, 2011 (2)
Form of Restricted Stock Unit Award Agreement for officers and key employees under the 2008 Stock Incentive
Plan for restricted stock unit awards after December 31, 2010 but prior to January 1, 2015 incorporated by
reference to Exhibit 10.1 to Registrant’s Form 8-K filed on February 4, 2011 (File No. 1-14431) (2)
10.25
Form of Indemnification Agreement for directors incorporated by reference to Exhibit 10.35 to Registrant’s Form
10-K for the period ended December 31, 2012 (1)(2)
118
10.26
10.27
10.28
10.29
10.3
10.31
10.32
10.33
10.34
10.35
2013 Short-Term Incentive Program incorporated by reference herein to Exhibit 10.1 to Registrant’s Form 8-K
filed on March 28, 2013 (2)
Form of 2013 Short-Term Incentive Award Agreement incorporated by reference to Exhibit 10.2 to the Registrant’s
Form 8-K filed March 28, 2013 (2)
Form of 2013 Performance Award Agreement incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K
filed on March 15, 2013 (2)
Form of 2014 Performance Award Agreement incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K
filed January 1, 2014 (2)
2013 Non-Employee Directors Plan incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed May
22, 2014 (2)
2014 Short-Term Incentive Program incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on
April 2, 2014 (2)
Form of 2014 Short-Term Incentive Agreement incorporated by reference to Exhibit 10.2 to Registrant’s Form 8-
K filed April 2, 2014 (2)
Form of Restricted Stock Unit Agreement for grants after December 31, 2014 incorporated by reference to Exhibit
10.1 to Registrant’s Form 8-K filed November 21, 2014 (2)
Form of 2015 Performance Award Agreement incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K
filed January 30, 2015 (2)
Form of 2016 Performance Award Agreement incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K
filed January 29, 2016 (2)
21
23.1
Subsidiaries of Registrant (1)
Consent of Independent Registered Public Accounting Firm for AWR (1)
23.1.1
Consent of Independent Registered Public Accounting Firm for GSWC (1)
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for AWR (1)
31.1.1
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
32.2
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3)
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3)
101.INS
XBRL Instance Document (3)
101.SCH
XBRL Taxonomy Extension Schema (3)
101.CAL
XBRL Taxonomy Extension Calculation Linkbase (3)
101.DEF
XBRL Taxonomy Extension Definition Linkbase (3)
101.LAB
XBRL Taxonomy Extension Label Linkbase (3)
101.PRE
XBRL Taxonomy Extension Presentation Linkbase (3)
(c) See Item 15(a)(2)
(1)
(2)
(3)
Filed concurrently herewith
Management contract or compensatory arrangement
Furnished concurrently herewith
119
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrants have duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
AMERICAN STATES WATER COMPANY (“AWR”):
By:
By:
/s/ EVA G. TANG
Eva G. Tang
Senior Vice President-Finance, Chief Financial
Officer, Treasurer and Corporate Secretary
GOLDEN STATE WATER COMPANY (“GSWC”):
/s/ EVA G. TANG
Eva G. Tang
Senior Vice President-Finance, Chief Financial
Officer and Secretary
Date: February 24, 2016
120
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of Registrants and in the capacities and on the dates indicated.
/s/ LLOYD E. ROSS
Lloyd E. Ross
Chairman of the Board and Director of AWR and GSWC
/s/ ROBERT J. SPROWLS
Robert J. Sprowls
Principal Executive Officer, President and Chief Executive
Officer of AWR and GSWC and Director of AWR and GSWC
/s/ EVA G. TANG
Eva G. Tang
Principal Financial and Accounting Officer, Senior Vice
President-Finance, Chief Financial Officer, Treasurer and
Corporate Secretary of AWR; and Principal Financial and
Accounting Officer, Senior Vice President-Finance, Chief
Financial Officer and Secretary of GSWC
/s/ JAMES L. ANDERSON
James L. Anderson
Director of AWR and GSWC
/s/SARAH. J. ANDERSON
Sarah. J. Anderson
Director of AWR and GSWC
/s/ DIANA M. BONTÁ
Diana M. Bontá
Director of AWR and GSWC
/s/ JOHN R. FIELDER
John R. Fielder
Director of AWR and GSWC
/s/ ANNE M. HOLLOWAY
Anne M. Holloway
Director of AWR and GSWC
/s/ JAMES F. MCNULTY
James F. McNulty
Director of AWR and GSWC
/s/ JANICE F. WILKINS
Janice F. Wilkins
Director of AWR and GSWC
Date:
February 24, 2016
February 24, 2016
February 24, 2016
February 24, 2016
February 24, 2016
February 24, 2016
February 24, 2016
February 24, 2016
February 24, 2016
February 24, 2016
121
AMERICAN STATES WATER COMPANY
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF PARENT
CONDENSED BALANCE SHEETS
(in thousands)
Assets
Cash and equivalents
Inter-company note receivables
Deferred tax assets
Income taxes receivable and other receivables
Total current assets
Investments in subsidiaries
Deferred taxes and other assets
Total assets
Liabilities and Capitalization
Notes payable to bank
Income taxes payable
Intercompany payables
Deferred taxes and other liabilities
Total current liabilities
Deferred taxes
Income taxes payable and other liabilities
Total other liabilities
Common shareholders’ equity
Total capitalization
Total liabilities and capitalization
December 31,
2015
2014
$
836 $
12,000
—
11
12,847
31,629
1,445
503
44
33,621
$
$
479,397
5,604
497,848 $
478,677
4,948
517,246
28,000 $
2,579
474
28
31,081
734
88
822
—
9,902
—
154
10,056
100
289
389
465,945
465,945
506,801
506,801
$
497,848 $
517,246
The accompanying condensed notes are an integral part of these condensed financial statements.
122
AMERICAN STATES WATER COMPANY
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF PARENT
CONDENSED STATEMENTS OF INCOME
n thousands, except per share amounts)
Operating revenues and other income
Operating expenses and other expenses
Income (loss) before equity in earnings of subsidiaries and income taxes
Equity in earnings of subsidiaries
Income before income taxes
Income tax expense (benefit)
Net income
Weighted Average Number of Common Shares Outstanding
Basic Earnings Per Common Share
Weighted Average Number of Diluted Common Shares Outstanding
Fully Diluted Earnings per Common Share
For the Years Ended December 31,
2015
2014
2013
98 $
11
87
81 $
48
33
227
8
219
59,587
60,029
60,205
59,674
60,062
60,424
(810)
(996 )
(2,262 )
60,484 $
61,058 $
62,686
37,389
1.61 $
37,614
1.60 $
38,658
1.57 $
38,880
1.57 $
38,639
1.61
38,869
1.61
$
$
$
$
The accompanying condensed notes are an integral part of these condensed financial statements.
123
AMERICAN STATES WATER COMPANY
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF PARENT
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Cash Flows From Operating Activities
Cash Flows From Investing Activities:
Loans (made to)/repaid from, wholly-owned subsidiaries
Net cash provided (used) in investing activities
For the Years Ended December 31,
2015
2014
2013
$
57,682 $
61,092 $
32,645
(12,000 )
(12,000 )
19,668
19,668
(6,100)
(6,100)
Cash Flows From Financing Activities:
Repurchase of Common Shares
Proceeds from note payable to GSWC
Repayment of note payable to GSWC
Proceeds from stock option exercises
Net change in notes payable to banks
Dividends paid
Other
Net cash used in financing activities
Change in cash and equivalents
Cash and equivalents at beginning of period
(72,893 )
20,700
(20,700 )
1,198
28,000
(32,690 )
(90 )
(76,475 )
(30,793 )
31,629
(17,180)
8,300
(8,800)
589
—
(32,111)
(36)
(49,238)
31,522
107
Cash and equivalents at the end of period
$
836 $
31,629 $
The accompanying condensed notes are an integral part of these condensed financial statements.
—
18,236
(17,736)
2,111
—
(29,360)
—
(26,749)
(204)
311
107
124
AMERICAN STATES WATER COMPANY
NOTES TO CONDENSED FINANCIAL INFORMATION OF PARENT
Note 1 — Basis of Presentation
The accompanying condensed financial statements of AWR (parent) should be read in conjunction with the
consolidated financial statements and notes thereto of American States Water Company and subsidiaries (“Registrant”)
included in Part II, Item 8 of this Form 10-K. AWR’s (parent) significant accounting policies are consistent with those of
Registrant and its wholly-owned subsidiaries, Golden State Water Company (“GSWC”) and American States Utility Services,
Inc. ("ASUS"), except that all subsidiaries are accounted for as equity method investments.
Related Party Transactions:
As further discussed in Note 2 — Notes Payable to Banks, AWR (parent) has access to a $100.0 million syndicated
credit facility. AWR (parent) borrows under this facility and provides funds to its subsidiaries, in support of their operations.
Any amounts owed to AWR (parent) for borrowings under this facility are reflected as inter-company receivables on the
condensed balance sheets. The interest rate charged to the subsidiaries is sufficient to cover AWR (parent)’s interest cost under
the credit facility.
In October 2015, AWR issued interest bearing promissory notes (the "Notes") to GSWC and ASUS for $40 million
and $10 million, respectively, which expire on May 23, 2018. Under the terms of the Notes, AWR may borrow from GSWC
and ASUS amounts up to $40 million and $10 million, respectively, for working capital purposes. AWR agrees to pay any
unpaid principal amounts outstanding under these notes, plus accrued interest. As of December 31, 2015, there were no
amounts outstanding under these Notes.
AWR (parent) guarantees performance of ASUS's military privatization contracts and agrees to provide necessary
resources, including financing, which are necessary to assure the complete and satisfactory performance of such contracts.
Note 2 — Note Payable to Banks
AWR (parent) has access to a $100.0 million syndicated credit facility which expires in May 2018. AWR may, under
the terms of the agreement, elect to increase the aggregate commitment by up to an additional $50.0 million. The aggregate
effective amount that may be outstanding under letters of credit is $25.0 million. AWR has obtained letters of credit, primarily
for GSWC, in the aggregate amount of $10.4 million, with fees of 0.65% including: (i) a $5.8 million letter of credit
representing a percentage of the outstanding American Recovery and Reinvestment Act (“ARRA”) funds received by GSWC
for reimbursement of capital costs related to the installation of meters in GSWC’s Arden-Cordova water system; (ii) letters of
credit in an aggregate amount of $340,000 as security for GSWC’s business automobile insurance policy; (iii) a letter of credit
in an amount of $585,000 as security for the purchase of power; (iv) a $15,000 irrevocable letter of credit pursuant to a
franchise agreement with the City of Rancho Cordova; and (v) an irrevocable letter of credit in the amount of $3.6 million,
pursuant to a settlement agreement with Southern California Edison Company to cover GSWC’s commitment to pay the
settlement amount. Letters of credit outstanding reduce the amount that may be borrowed under the revolving credit facility.
There were no compensating balances required.
Loans can be obtained at the option of AWR and bear interest at rates based on credit ratings and Euro rate
margins. In May 2015, Standard & Poor’s Rating Services (“S&P”) affirmed the ‘A+’ credit rating on both American States
Water Company and its wholly owned subsidiary, Golden State Water Company. S&P also revised its rating outlook to stable
from positive for both companies as a result of the announcement of the second stock repurchase program. S&P debt ratings
range from AAA (highest rating possible) to D (obligation is in default). In December 2015, Moody’s Investors Service
(“Moody’s”) affirmed its ‘A2’ rating with a stable outlook for GSWC.
At December 31, 2015, there was $28.0 million outstanding under this facility. At times, AWR (parent) borrows under
this facility and provides loans to its subsidiaries in support of its operations, under terms that are similar to that of the credit
facility.
125
AMERICAN STATES WATER COMPANY
NOTES TO CONDENSED FINANCIAL INFORMATION OF PARENT
AWR’s (parent) short-term borrowing activities (excluding letters of credit) for the last three years were as follows:
December 31,
(in thousands, except percent)
Balance Outstanding at December 31,
Interest Rate at December 31,
Average Amount Outstanding
Weighted Average Annual Interest Rate
Maximum Amount Outstanding
$
$
$
2015
28,000
$
1.09%
4,112
0.92%
$
2014
2013
$
$
—
0.82%
6,181
0.81%
—
0.82%
—
1.02 %
—
37,000
$
24,000
$
All of the letters of credit are issued pursuant to the syndicated revolving credit facility. The syndicated revolving
credit facility contains restrictions on prepayments, disposition of property, mergers, liens and negative pledges, indebtedness
and guaranty obligations, transactions with affiliates, minimum interest coverage requirements, a maximum debt to
capitalization ratio and a minimum debt rating. Pursuant to the credit agreement, AWR must maintain a minimum interest
coverage ratio of 3.25 times interest expense, a maximum total funded debt ratio of 0.65 to 1.00 and a minimum debt rating
from Moody’s or S&P of Baa3 or BBB-, respectively. As of December 31, 2015, AWR was in compliance with these
covenants with an interest coverage ratio of 7.68 times interest expense, a debt ratio of 0.44 to 1.00 and a debt rating of A+.
Note 3 — Income Taxes
AWR (parent) receives a tax benefit for expenses incurred at the parent-company level. AWR (parent) also recognizes
the effect of AWR’s consolidated California unitary apportionment, which is beneficial or detrimental depending on a
combination of the profitability of AWR’s consolidated non-California activities as well as the proportion of its consolidated
California sales to total sales.
During the year ended December 31, 2013, AWR (parent) recorded a cumulative tax benefit of $1.5 million related to
an employee benefit plan for deductions taken on recently filed tax returns and amounts taken, and to be taken, on amended
income tax returns.
Note 4 — Dividend from Subsidiaries
Dividends in the amount of $62.0 million, $52.0 million and $29.4 million were paid to AWR (parent) by its wholly-
owned subsidiaries during the years ended December 31, 2015, 2014 and 2013, respectively.
126
Board of Directors
Officers
Board of Directors
American States Water Company
and Golden State Water Company
American States Water Company
American States Utility Services,
Inc. and Subsidiaries
COMPANY INFORMATION
Lloyd E. Ross
(Chairman of the Board of Directors)
Retired, Principal
L. Ross Consulting
Director since 1995
Non-voting ex-officio member of
all committees
James L. Anderson (A,B)
(Chairperson of the Compensation
Committee)
Senior Vice President
Americo Life Inc.
Director since 1997
Sarah J. Anderson (C)
(Chairperson of the Audit & Finance
Committee)
Retired, Partner
Ernst & Young LLP
Director since 2012
Diana M. Bontá (A,B)
President & CEO
The Bontá Group
Director since 2007
John R. Fielder (C,D)
Retired, President
Southern California Edison Company
Director since 2013
Anne M. Holloway (A,B)
(Chairperson of the Nominating
& Governance Committee)
Retired, Partner
Navigant Consulting, Inc.
Director since 1998
James F. McNulty (A,D)
(Chairperson of the ASUS Committee)
Retired, Chairman & CEO
Parsons Corporation
Director since 2010
Janice F. Wilkins (C,D)
Retired, Vice President of Finance
and Director of Internal Audit
Intel Corporation
Director since 2011
Robert J. Sprowls (D)
President and Chief Executive Officer
Director since 2009
(A) Member – Compensation Committee
(B) Member – Nominating & Governance
(C) Member – Audit & Finance Committee
(D) Member – ASUS Committee
Robert J. Sprowls (11)
President and Chief Executive Officer
Eva G. Tang (19)
Senior Vice President – Finance, Chief
Financial Officer, Corporate Secretary
and Treasurer
Gladys M. Farrow (13)
Assistant Secretary
Officers
James F. McNulty
(Chairman of the Board of Directors)
Director since 2012
Lloyd E. Ross
Director since 1998
Robert J. Sprowls
President and Chief Executive Officer
Director since 2009
Golden State Water Company
Officers
Robert J. Sprowls (11)
President and Chief Executive Officer
Denise L. Kruger (23)
Senior Vice President – Regulated Utilities
Eva G. Tang (19)
Senior Vice President – Finance, Chief
Financial Officer and Secretary
Gladys M. Farrow (13)
Vice President – Finance, Treasurer and
Assistant Secretary
William C. Gedney (18)
Vice President – Environmental Quality
Paul J. Rowley (8)
Vice President – Water Operations1
Patrick R. Scanlon (37)
Vice President – Water Operations 2
Bryan K. Switzer (15)
Vice President – Regulatory Affairs
Shareholder Assistance
For shareholder questions related to your
AWR shares, you should contact:
Computershare Investor Services
Attn: Shareholder Relations Dept.
250 Royal Street
Canton, MA 02021
Telephone (888) 816-6998
Annual Meeting
10:00 a.m. Pacific Daylight time
Tuesday, May 17, 2016
The Langham Hotel
1401 South Oak Knoll Ave,
Pasadena, California 91106
American States Utility Services,
Inc. and Subsidiaries
Robert J. Sprowls (11)
President and Chief Executive Officer
James C. Cotton III (7)
Senior Vice President and Procurement
Officer
Eva G. Tang (19)
Senior Vice President – Finance, Chief
Financial Officer and Secretary
James B. Gallagher (28)
Vice President – Management Services
Granville R. Hodges, Jr. (37)
Vice President – Operations
Gladys M. Farrow (13)
Treasurer and Assistant Secretary
(#) Years of Service with Corporation
1 For Northern and Mountain/Desert Districts;
Director of Procurement Services
2 For Coastal, Central, Southwest, Foothill,
and Orange County Districts
Independent Registered Public
Accounting Firm
PricewaterhouseCoopers, LLP
601 South Figueroa Street
Los Angeles, California 90017
Stock Exchange
Common shares of American States Water
Company are traded on the New York Stock
Exchange (NYSE) under the symbol AWR.
For Investor Information From
The Company
Call (877) 463-6297 (INFOAWR)
investorinfo@aswater.com
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630 East Foothill Boulevard
San Dimas, CA 91773
909.394.3600
aswater.com