Day In, Day Out
2 0 2 1 A N N U A L R E P O R T
Commitment
that
never quits.
A M E R I C A N S T A T E S W A T E R C O M P A N Y is the parent of Golden State Water Company, Bear Valley Electric
Service, Inc. and American States Utility Services, Inc., serving over one million people in nine states. Through its
water utility subsidiary, Golden State Water Company, the company provides water service to approximately 262,800
customer connections located within more than 80 communities in Northern, Coastal and Southern California. Through
its electric utility subsidiary, Bear Valley Electric Service, Inc., the company distributes electricity to approximately 24,700
customer connections in the City of Big Bear Lake 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 distribution, wastewater collection, and treatment facilities located on eleven
military bases throughout the country under 50-year privatization contracts with the U.S. government.
Commitment
that
never quits.
W H E N I S A G O O D T I M E F O R Y O U R W A T E R T O S T O P W O R K I N G ?
W H A T ’ S A C O N V E N I E N T M O M E N T F O R A P O W E R O U T A G E ?
T H E A N S W E R , O F C O U R S E , I S N E V E R .
Our customers live and work around the clock and expect the
services we provide to be there when they need them. Amid
the challenges of the past two years—when home has also
served as workplace and classroom, and when our business
customers have needed any advantage they can get—the
reliability of our services has been more critical than ever.
Building reliability into the utilities that over a million people
count on every day is what we do. It is what our customers
expect, and what we expect of ourselves. As a publicly traded
company, providing safe and reliable service is also the best
way to provide a reasonable return to our shareholders. For
nearly a century, working continually to serve our customers
and our shareholders alike has been the “win-win” proposition
we’re committed to, in every facet of our company—day in,
and day out.
1
Regulated Utilities
investment per customer connection
6
9
5
,
7
$
8
3
1
,
7
$
7
5
7
,
6
$
2019
2020
2021
Capital Investments –
Regulated Utilities
in millions
$121.0
$136.2
$123.4
$142.6
2017
2018
2019
2020
2021
5-Year Total: $634.6
Most of us turn on our faucets and flip our light switches without giving much thought to all that makes
on-demand utilities possible. But dependable service in all of our business units only happens because of our
teams working around the clock behind the scenes—installing new pipes, testing water quality, answering our
customers’ questions, working with state regulators, and much more.
2
It starts
with
infrastructure.
D A Y I N , D A Y O U T
It starts
with
infrastructure.
R E L I A B I L I T Y I S R O O T E D I N P I P E S I N T H E G R O U N D .
Or it can come from power lines overhead or buried underground. Maintaining, repairing
and replacing the water, wastewater and electric infrastructure is at the core of what
we do, and is key to the value of our company. In 2021, we spent a record high $142.6
million on infrastructure in our regulated utility businesses, or nearly $500 per customer.
That marked an increase of 15.5% over 2020 for infrastructure investment. We back
our rigorous infrastructure program with contingency planning to ensure uninterrupted
service even when there is drought, wildfire, or other disruptions. We’re prepared for
virtually every eventuality, so even when the unexpected happens, our customers can
still expect us to be there for them.
3
D A Y I N , D A Y O U T
Running
things right.
O P E R A T I N G A D E P E N D A B L E A N D S U S T A I N A B L E B U S I N E S S
R E Q U I R E S M O R E T H A N B L A C K I N K O N T H E B O T T O M L I N E .
It also demands responsibility, accountability and foresight—for employees, for
the environment and for the communities we serve. Our environmental, social and
governance (ESG) actions in 2021 included publishing our first Diversity & Inclusion
Policy, meeting our spending goal with diverse suppliers, continuing to reduce
customer water and electric usage compared to 2007 before tiered conservation rates
went into effect for our water customers, and based on our efforts during the year,
establishing a greenhouse gas reduction target in early 2022. And weaved throughout
the year, we received external awards and recognition for the work and charitable
contributions we’ve made to the communities we serve.
4
Our teams at the U.S. military bases served by our ASUS business know something about doing things right:
In 2021, they continued to proudly provide dependable services for America’s service personnel and their
families, receive high marks for their customer service, exceed the U.S. government’s requirements to hire
small businesses to perform work on the bases it serves, and support veteran employees and others in the
military-connected community. ASUS was also awarded nearly 12% more new capital upgrade projects over
last year.
Running
things right.
Construction Expenses – ASUS
in millions
2017
$53.9
2018
$55.7
2019
$62.4
2020
$56.9
2021
5-Year Total: $278.7
5
10-Year Compound
Annual Return
AWR STOCK
22.1%
S & P 5 0 0
16.5%
10-Year Growth in Annual
Dividend Payments
per share
9 . 8 % C
R
G
A
0
4
.
1
$
2011
12
13
14
15
16
17
18
19
20
2021
Targeting a compound annual growth rate (CAGR) of more than 7% over the long-term.
A key factor in our history of delivering for shareholders is our working relationship with the California
Public Utilities Commission. By carefully navigating the regulatory process, we’re able to set rates that are
fair to customers and provide a reasonable return on investment. In 2021, we reached an agreement with the
Commission’s Public Advocates Office on our most recent water rate case, which, if approved, authorizes Golden
State Water to invest nearly $405 million over three years in infrastructure for our customers.
6
D A Y I N , D A Y O U T
Returns
as reliable as
our service.
S I N C E 1 9 2 9 , W E ’ V E B E E N A S D E P E N D A B L E F O R
I N V E S T O R S A S F O R T H E P E O P L E W E S E R V E .
This year, we delivered a dividend increase for the 67th consecutive year. (To put that
in perspective: The last time we didn’t increase the dividend, The Lone Ranger was still
on the radio, the Korean War was ending, the Yankees beat the Brooklyn Dodgers in the
World Series, and Chevrolet’s first Corvette was rolling off the assembly line.) In 2021,
we achieved earnings per share of $2.55, a record high for the company. We delivered
a 5-year total shareholder return on our stock of 148%, or a compound annual return
of 20%. And our quarterly dividend has grown at a compound annual growth rate
of nearly 10% over the last ten years. Our strong returns demonstrate a simple truth:
By first taking care of our customers, we’re able to take care of our shareholders, too.
7
D A Y I N , D A Y O U T
Financial Highlights
in thousands, except per share and per customer amounts (in thousands, exc2021
2020
Variance Change
I N C O M E S T A T E M E N T I N F O R M A T I O N
Total Operating Revenues
Total Operating Expenses
Operating Income
Interest Charges (Net)
Net Income
Basic Earnings per Common Share
Fully Diluted Earnings per Common Share
$ 498,853
$ 488,243
$ 10,610
2.2%
357,876
357,744
132 0.0%
140,977
130,499
10,478
8.0%
21,341
94,347
$ 2.55
$ 2.55
20,730
86,425
$ 2.34
$ 2.33
611
2.9%
7,922
9.2%
$ 0.21
9.0%
$ 0.22
9.4%
Dividends Paid per Common Share
$ 1.400
$ 1.280
$ 0.120
9.4%
Average Number of Shares Outstanding
Average Number of Diluted Shares Outstanding
36,921
37,010
36,880
36,995
41
15
0.1%
0.0%
B A L A N C E S H E E T I N F O R M A T I O N
Total Assets
Net Utility Plant
$ 1,900,983
$ 1,791,603 $ 109,380
1,626,004
1,512,043
113,961
6.1 %
7.5%
Common Shareholders’ Equity
685,947
641,673
44,274
6.9%
Long-Term Debt 1
Total Capitalization
412,176
440,348
(28,172) -6.4%
1,098,123
1,082,021
16,102
1.5%
Book Value per Common Share
$ 18.57
$ 17.39
$ 1.18
6.8%
1 In May 2021, GSWC redeemed its 9.56% private placement notes totaling $28 million. GSWC funded the redemption by borrowing from its parent,
American States Water Company (AWR). AWR, in turn, funded this borrowing from its revolving credit facility. GSWC passes on to customers
the cost savings from redeeming higher interest rate debt.
8
Financial Highlights
We’re pleased to report financial results for 2021 that improve upon our results in 2020. This year’s results
bring our 5-year CAGR for earnings per share to 9.5% for the period 2017-2021. We have consistently delivered
positive results for shareholders by executing on our primary business strategies, which include growing the
regulated and non-regulated businesses, delivering outstanding customer service, driving operational efficiency,
making prudent capital investments, and pursuing new military base awards.
Earnings Per Share
G S W C
73.3%
$1.87
Golden State
Water Company
(GSWC)
A S U S
18.8%
$0.48
B V E S I
8.2%
$0.21
American States
Utility Services, Inc.
(ASUS)
Bear Valley
Electric Service, Inc.
(BVESI)
Total
$2.55*
* Also includes the parent company 2021 results of -$0.01 per share
9
D A Y I N , D A Y O U T
Letter to Our Shareholders
D E A R S H A R E H O L D E R S ,
In another year that was less than predictable, American
States Water Company and its subsidiaries remained a
steady and reliable presence, providing uninterrupted water,
wastewater and electric service to our customers, and solid
returns for our investors. We credit our dependability to the
commitment of our teams, and to the consistent execution of
business strategies that have proven to make us a company
that communities can count on and shareholders can be
confident in—day in, and day out.
F I N A N C I A L R E S U L T S
We are pleased to report strong results for 2021. American
States Water earned $2.55 per fully diluted share, compared
to $2.33 in 2020, an increase of 9.4%, driven largely by $0.21
per share higher earnings at our water utility subsidiary
Golden State Water Company (GSWC). Our other first-tier
subsidiaries, American States Utility Services, Inc. (ASUS)
and Bear Valley Electric Service, Inc. (BVESI), also increased
earnings, with each company up one cent per share over the
previous year.
We achieved a consolidated return on equity of 14.2%,
the highest of the publicly traded water utilities from
continuing businesses, and increased our dividend for the
67th consecutive year with an increase of 9%. Our dividend
growth is consistent with our policy of achieving a compound
annual dividend growth rate of more than 7% over the long-term.
K E Y D E V E L O P M E N T S I N 2 0 2 1
• In November, GSWC and the Public Advocates Office
at the California Public Utilities Commission (CPUC) filed
a joint motion to adopt a settlement agreement between
the two parties in connection with the pending general
rate case application filed in July 2020. The rate case
will determine GSWC’s water rates for the three years
2022 - 2024.
If approved, the settlement will resolve all issues related
to the calculation of the 2022 annual revenue requirement
in GSWC’s general rate case application, leaving only
three unresolved issues.1 It will authorize GSWC to invest
$404.8 million in capital infrastructure over the three-year
rate cycle. The settlement also authorizes GSWC to
complete certain advice letter projects approved in the
last general rate case, which have recently been completed
for a total capital investment of $9.4 million. The additional
annual revenue requirements generated from these capital
investments are $1.2 million and became effective February
15, 2022. The settlement, if approved, would increase
GSWC’s adopted operating revenues for 2022 by $30.3
million, as compared to the 2021 adopted revenues,
and increase the adopted supply costs by $9.7 million,
excluding the advice-letter project revenues. And finally,
the settlement allows for potential additional increases
in adopted revenues for 2023 and 2024 subject to an
earnings test and changes to the forecasted inflationary
index values.
The CPUC is expected to issue a proposed decision during
the first half of 2022. When approved, the new rates are
expected to be retroactive to January 1, 2022.
• Our regulated utilities’ spend on company-funded capital
work for 2021 was $142.6 million, the highest in American
States’ history. We are especially pleased that these capital
projects were completed in spite of several COVID-related
delays.
• The federal government awarded ASUS $17.3 million
in new capital upgrade projects, an increase over the $15.5
million in projects awarded in 2020.
• As confirmation of our efforts to operate safe and responsible
businesses, the CPUC approved BVESI’s most recent
Wildfire Mitigation Plan, and The Office of Energy
Infrastructure Safety under the California Natural Resources
Agency approved BVESI’s latest safety certification filing
through September 2022. Under California legislation,
a safety certification improves electric utilities’ ability
to recover wildfire costs.
• We maintained strong credit ratings, as we have for many
years. Our credit rating at the end of 2021 from S&P was
A+ for both American States Water Company (AWR)
and GSWC, with a negative outlook, and Moody’s awarded
us an A2 rating with a stable outlook on GSWC.
• Our regulated utilities’ spending with diverse suppliers
was 31.3%, exceeding the CPUC’s target of 21.5% for the
ninth consecutive year.
• We continued to maintain a strong Environmental, Social
Responsibility and Governance (ESG) profile by increasing
the breadth and depth of our ESG-related disclosures. In
early 2022, we also set the goal of reducing our greenhouse
gas emissions by 60% by 2035. This is an important step
in doing our part to reduce the effects of climate change.
• We continued to strive for diversity and inclusion across
our company, including our board of directors. With 56%
1 The three unresolved issues in the rate case will be addressed when the CPUC issues a decision on the settlement, and relate to GSWC’s requests for a medical cost
balancing account, a general liability insurance cost balancing account, and the consolidation of two of GSWC’s service areas for rate-making purposes.
10
Letter to Our Shareholders
D A Y I N , D A Y O U T
of our board comprised of women, our company was
recognized as “gender-balanced” by the 50/50 Women
on Boards™ organization—a designation that only 8%
of Russell 3000 companies have achieved.2 We also
published our first-ever Diversity & Inclusion policy,
formalizing our commitment and underscoring our sound
diversity policies already in place.
Delivering outstanding customer service
Customer service continues to be a top priority, and our
incentive compensation plans are tied to customer satisfaction.
We have been putting customers first for more than 92 years,
providing us with excellent opportunities to engage with,
learn from, and build trust. Customer service is more than
just what we do; it’s who we are.
• We continued to practice and promote effective conservation
efforts. Since 2007, customer water usage is down 29% –
while customers have increased in number and spent
more time at home because of the pandemic.
• Our teams effectively navigated the COVID-19 pandemic
for the second year, prioritizing the health and safety
of our customers, employees and contractors.
C O N T I N U I N G T O O U T P A C E T H E M A R K E T
I N L O N G - T E R M S H A R E H O L D E R R E T U R N S
Our stock achieved a total shareholder return of 32.3%
in 2021, and higher than the S&P 500’s performance
of 28.7%. We delivered a 5-year total shareholder return
of 148%, or a compound annual return (CAR) of 20%. AWR
was second best of the eight publicly traded water utilities
on a ten-year basis, with a CAR of 22.1% that bested the S&P
500’s CAR of 16.5% during the same period. Put another
way: A $1,000 investment made in our stock at the end
of 2011 would have increased to $7,359 by the end of 2021,
assuming the reinvestment of dividends.
Robert J. Sprowls
President and CEO
6 7 T H C O N S E C U T I V E Y E A R
O F A N N U A L D I V I D E N D I N C R E A S E S
In July, our board of directors increased our annual dividend
from $1.34 per share to $1.46 per share, an increase of 9%.
Over the last decade, our board has raised the dividend
at a compound annual growth rate (CAGR) of almost 10%,
consistent with our dividend policy of providing a CAGR
of more than 7% over the long-term. We’ve paid a dividend
to shareholders every year since 1931, and our unbroken,
67-year series of annual dividend increases places us
in an exclusive group of companies listed on the New
York Stock Exchange.
R E G U L A T E D U T I L I T I E S :
A S T R A T E G Y T H A T C O N T I N U E S T O S U C C E E D
GSWC is our largest subsidiary, contributing 69.6% of
consolidated revenues and 73.3% of consolidated earnings
per share in 2021. BVESI contributed 7.7% of consolidated
revenues and 8.2% of consolidated earnings per share.
Driving operational efficiency and minimizing customer costs
Our focus on cost control initiatives continued throughout
2021. We review our processes regularly to ensure their
efficiency. The aggregate of other operation, maintenance,
and administrative and general expenses at our regulated
utilities were flat as compared to 2020.
GSWC redeemed its 9.56% private placement notes early 3
in the amount of $28.0 million, with a maturity date in 2031.
Cost savings from redeeming higher interest rate debt are
passed on to customers.
Making prudent capital additions and infrastructure investments
As mentioned above, our regulated utilities’ spending on
company-funded capital work during 2021 was $142.6
million, the highest in our history. GSWC’s adopted average
water rate base from 2018 to 2021 reflected a CAGR of 9.2%,
growing from $752.2 million to $980.4 million. Based on
the water general rate case settlement agreement, the 2022
rate base amount is $1.152 billion, which, if approved, would
result in a CAGR of 11.3% since 2018. The rate base amounts
for 2021 and 2022 do not include any rate recovery for advice
letter projects.
Under the current electric rate cycle, which covers the years
2018 to 2022 and allows BVESI to construct all $44 million
in capital projects requested in its last rate case application,
BVESI’s adopted average electric rate base is expected to
grow from $47.2 million in 2018 to almost $80 million for 2022,
a CAGR of 14%. These amounts do not include capital projects
completed under BVESI’s wildfire mitigation plans, which
are expected to be approved in the next general rate case.
Maintaining a strong water supply portfolio
We continue to closely monitor our water supplies to ensure
a robust supply portfolio for the future. GSWC owns 70,900
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.
Key tenets of strategies for our regulated utilities continue
to include: (i) delivering outstanding customer service;
(ii) driving operational efficiency and minimizing customer
costs; (iii) making prudent capital additions and infrastructure
investments; (iv) maintaining a strong water supply portfolio;
(v) providing the right customer incentives for conservation;
and (vi) purchasing goods and services from diverse vendors.
On average, about 50% of the water GSWC uses to serve its
customers comes from its own groundwater sources. About
45% is purchased from member agencies of The Metropolitan
Water District, imported from the California State Water
Project and the Colorado River. About 5% comes from surface
water under contracts with the U.S. Bureau of Reclamation
and the Sacramento Municipal Utility District.
2 Source: www.5050wob.com
3 Prior to 2021, the notes could only be repaid early at a substantial premium
11
D A Y I N , D A Y O U T
Providing the right customer incentives for conservation
California, where we serve our regulated utility customers,
has experienced severe drought conditions intermittently
for years, including in 2021. That’s why we’ve implemented
strong conservation programs, encouraging customers to
use less water. We continue to heavily promote conservation
through tiered rates, education, free conservation kits,
customer rebates, and meter installation during the year.
Almost all of our customers are on conservation tiered rates.
With the help of our incentive programs and the public’s
awareness of the need to conserve, since 2007 our customers
have used less water – 29% less – while customers have
increased in number and spent more time at home because
of the pandemic.
In 2021, the governor of California signed an executive order
asking all Californians to voluntarily reduce water usage by
15% from the year prior. The CPUC has called on all investor-
owned water utilities to implement voluntary conservation
measures to help meet this goal, and GSWC has done this
in most of its ratemaking areas, with mandatory rationing in
some areas where the water supplies are more constrained.
To promote conservation, the California Legislature passed
two laws in 2018 that provide a framework for long-term
water-use efficiency standards and drought planning
and resiliency. These laws establish indoor and outdoor
water use standards as well as water loss standards. They
are focused on stretching existing water supplies to increase
water supply reliability and mitigate the impact of future
droughts. State agencies, water suppliers and other entities
are working to meet the water use standards of these laws.
GSWC continues to be involved in the development and
implementation of these standards, which will be phased
in over time.
Conservation saves more than just water. Moving and treating
water requires significant electricity. When our customers
can use less water, it helps to conserve energy as well.
Our customers are also conserving electricity in their homes
and businesses. Total usage by BVESI customers is down
by 5% since 2007, while the number of customers has
increased. In addition, BVESI has a strategy of procuring
a mix of renewable energy credits and renewable energy,
which will allow the company to meet the CPUC’s Renewables
Portfolio Standard requirements. In 2021, renewable power
represented 35.8% of BVESI’s total electric supply purchases.
In addition, BVESI has implemented CPUC-approved energy
efficiency and solar-initiative programs, and is considering
developing a solar generation facility.
A M E R I C A N S T A T E S U T I L I T Y S E R V I C E S :
R E C O R D R E S U L T S , A N D P O S I T I O N E D F O R G R O W T H
ASUS has 50-year contracts with the U.S government to
perform operations, maintenance, and capital construction
activities on water and wastewater systems at 11 military
bases and provides American States Water Company with
opportunities to grow, diversify risk, and improve companywide
returns. It also contributes to our ability to deliver dividends
to shareholders and provides us with the opportunity to
proudly serve military personnel and their families.
The key components of ASUS’s strategy include: (i) delivering
outstanding customer service; (ii) strong financial performance
and future service opportunities on current bases we serve;
and (iii) pursuing new bases.
Delivering outstanding customer service
We continue to enhance our relationship with the U.S.
government, consistently receiving high marks for our
customer service, socioeconomic utilization, business relations,
and adherence to schedules for capital construction.
Our government clients view our local ground force as
“among the best boots on the ground” in delivering superior
utility support.
Record financial performance and future service
opportunities on current bases we serve
ASUS achieved record net income of $17.7 million and a record
earnings per share contribution of $0.48 in 2021. Unlike GSWC,
which earns a return on its rate base, ASUS earns a profit
on its operation, maintenance, and construction activities.
In addition to ongoing renewal and replacement construction
projects, ASUS receives funding from the U.S. government
for new capital upgrade projects at the military bases we
serve, and despite pandemic-related delays, was awarded
$17.3 million in 2021. Some of the projects were completed
in 2021, while the majority are expected to be completed in
2022. ASUS collaborates with the government on necessary
new projects that will enhance system reliability, improve
sustainability, expand the service footprint, and lay the
groundwork to meet the future demand. At the same time,
we focus on the operational efficiency of these projects to
continually improve the level of service we provide as well
as our financial performance.
Pursuing new bases
Winning new military base privatizations is an important
goal for the success of the growth initiatives for both ASUS
and the consolidated company. During 2021, ASUS continued
to focus its efforts to win new base contracts. We remain
confident in ASUS’s positioning for future growth as new
privatization contracts become available.
Purchasing goods and services from diverse vendors
As mentioned above, 2021 marked the ninth consecutive
year that our regulated utilities exceeded the CPUC goal
for spending with diverse suppliers. Spending was 31.3%
for 2021, exceeding the CPUC’s target of 21.5%.
C O M M U N I T Y A N D S O C I A L R E S P O N S I B I L I T Y
Engaging with our communities
We continue to emphasize community engagement.
With many of our live events on hold due to the COVID-19
12
D A Y I N , D A Y O U T
pandemic, we engaged customers and community leaders
through our social media platforms, online venues and meetings,
and charitable contributions to non-profit organizations.
One example: Our GSWC team takes pride in donating
to organizations that participate in Operation Gobble,
an effort that provides Thanksgiving turkeys in communities
GSWC serves.
BVESI engaged with customers by providing education
on safety and other service matters. BVESI personnel also
met with community leaders and representatives of other
utility companies to increase cooperation in the event
of natural disasters.
ASUS was able to hold a significant amount of community-
engagement events and continued its scholarship program
for the children of U.S. military members and veterans at the
bases it serves.
Diversity and inclusion
One of our closely held corporate values is “Valuing diversity
and treating all stakeholders with fairness.” As a company,
we seek to promote the benefits of diversity in all of our
business activities and oppose discrimination of any kind
with a formal nondiscrimination policy. We believe that
diverse perspectives and open lines of communication help
create employee motivation, customer satisfaction, greater
return on investment for shareholders, and better communities
in which to work and live.
In 2021, we published our first Diversity & Inclusion policy
to formalize our efforts and policies. Our commitment
to diversity and inclusion includes recruiting, hiring,
and retaining employees from diverse backgrounds
and experiences, creating awareness of diversity issues
and benefits, and fostering a supportive environment where
inclusivity is expected.
We are proud that five of our eight independent board members
are female. Our workforce is representative of the U.S.
workforce population in terms of ethnic diversity, and the
percentage of women in our organization is closely aligned
with the norms in our industries.
Our commitment to ESG
Our commitment to environmental, social responsibility
and governance (ESG) issues remains fundamental to our
transparency, fairness and accountability. Key goals such
as customer satisfaction, employee safety and supplier
diversity are all included in our incentive compensation
plans. We are proud of our record of providing high quality
and reliable water, wastewater and electric services to over
one million people, as well as our commitments to conservation,
environmental stewardship, employee safety and well-being,
diversity and inclusion, and sound governance practices.
In 2021 and early 2022, we developed a greenhouse gas
inventory, set a baseline, and set a 60% emissions reduction
goal by 2035. This is a substantial reduction, and one that
will take much commitment, planning, and action to accomplish.
We will continue to focus on our ESG commitments, which benefit
our customers,suppliers, employees, broader communities
and ultimately, our shareholders. For a comprehensive view
of the company’s ESG efforts, please visit our website.
A W I N N I N G S T R A T E G Y , D A Y I N A N D D A Y O U T
Results like those we delivered in 2021 don’t happen overnight.
They are the product of years of disciplined execution, a product
of the same foresight and steadfastness that make us a
dependable utility provider for our customers. With nearly
a century of history behind us, we are proud to be here for
the long haul, with an unflagging commitment to deliver value
for all of our stakeholders and earn their trust in the process.
On behalf of our board of directors and our employees, thank
you for your investment in American States Water.
Anne M. Holloway
Chairman of the Board
Robert J. Sprowls
President and CEO
13
American States Water Company
and subsidiaries
G O L D E N S T A T E W A T E R C O M P A N Y
Golden State Water Company provides water
service to 10 counties in Northern, Coastal
and Southern California. Our customers
reside in the following areas:
California
Northern District
Arden / Rancho Cordova
Bay Point
Clearlake
Coastal District
Los Osos
Santa Maria
Simi Valley
Central District – Los Angeles County
Central Basin East
Central Basin West
Culver City
Customers
17,114
5,099
2,170
3,300
15,160
13,838
20,359
20,566
9,786
Southwest District – Los Angeles County
Southwest
53,588
CA
Foothill District
Claremont
San Dimas
San Gabriel
Mountain/Desert District
Apple Valley / Victorville
Barstow
Calipatria
Morongo Valley
Wrightwood
Orange County District
Los Alamitos
Placentia
11,381
16,321
12,601
3,074
9,248
1,194
994
2,797
28,542
15,638
262,770
B E A R V A L L E Y E L E C T R I C S E R V I C E , I N C .
Bear Valley Electric Service, Inc. distributes
electricity to customers in the Big Bear
recreational area of California.
24,656
14
Headquarters
A W R / G S W C / A S U S
B V E S I
NM
KS
TX
KS
TX
MD
VA
NC
SC
FL
A M E R I C A N S T A T E S U T I L I T Y S E R V I C E S , I N C .
American States Utility Services, Inc. provides
operation and maintenance and capital construction
and improvements (collectively, “services”) of potable
water, wastewater, and treatment systems under
50-year privatization contracts with the U.S.
government as identified below:
Maryland
Terrapin Utility Services, Inc. provides services to the
United States Air Force and Navy at Joint Base Andrews.
Virginia
Old Dominion Utility Services, Inc. provides services
to the United States Air Force and Army at Joint Base
Langley-Eustis, the United States Navy and Army at Joint
Expeditionary Base Little Creek-Fort Story, along with
wastewater services to the United States Army at Fort Lee.
North Carolina
Old North Utility Services, Inc. provides services to the
United States Army 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.
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.
Florida
Emerald Coast Utility Services, Inc. provides services
to the United States Air Force at Eglin Air Force Base.
Kansas
Fort Riley Utility Services, Inc. provides services to the
United States Army at Fort Riley.
1 1 M I L I T A R Y B A S E S
15
5-year
statistical review
5-Year Statistical Review
in thousands, except per share and per customer amounts
2021
2020
2019
2018
2017 1
F I N A N C I A L I N F O R M A T I O N
Revenues by Segment
Water Revenues
Electric Revenues
Contracted Services Revenues
Total Operating Revenues
Net Income
Diluted Earnings per Common Share
Dividends Paid per Common Share
Total Assets
Net Utility Plant
Capital Additions
Long-term Debt, net of Issuance Costs
Investment per Customer Connection2
O P E R AT I N G I N F O R M AT I O N
Water Sold by Classification (mg)
Residential and Commercial
Industrial
Fire Service and Other
Total Water
$
37,024
120,582
488,243
38,345
113,396
498,853
347,112 $ 330,637 $ 319,830 $ 295,258 $ 306,332
33,969
39,548
100,302
114,491
440,603
473,869
$ 94,347 $ 86,425 $ 84,342 $ 63,871 $ 69,367
1.88
0.994
34,350
107,208
436,816
2.55
1.400
2.33
1.280
1.72
1.060
2.28
1.160
$ 1,900,983 $ 1,791,603 $ 1,641,331 $ 1,501,433 $ 1,416,734
1,204,992
113,126
321,039
6,082
1,626,004
144,515
412,176
7,596
1,296,310
126,561
281,087
6,446
1,512,043
130,423
440,348
7,138
1,415,705
151,940
280,996
6,757
37,569
350
4,729
42,647
37,747
329
4,417
42,492
35,870
326
4,179
40,374
37,874
381
4,673
42,928
37,889
380
4,442
42,711
Total Electric Sales (mwh)
134,228
136,821
132,036
128,041
127,985
Water Production by Source (mg)
Purchased
Pumped
Surface
Total Supply
Customers by Classification3
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
21,048
23,958
1,215
46,221
253,751
328
8,691
262,770
24,656
287,426
2,860
808
20,849
25,502
757
47,108
252,957
335
8,504
261,796
24,545
286,341
2,795
841
20,110
22,960
1,445
44,515
19,985
25,794
1,564
47,343
20,035
24,896
1,436
46,367
252,091
337
8,280
260,708
24,420
285,128
251,451
337
8,131
259,919
24,353
284,272
250,541
342
8,066
258,949
24,274
283,223
2,791
841
2,789
813
2,783
754
mg = millions of gallons // mwh = mega-watt hours
1 Includes a gain on the sale of assets of $8.3 million, or $0.13 per share.
2 Regulated Utilities
3 In addition, as of December 31, 2021 the company had eight contracts with the U.S. government for its contracted services business.
16
2021
1 0 - K
T H I S P A G E I N T E N T I O N A L L Y L E F T B L A N K
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:1409) Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2021 or
(cid:1407) Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to
Commission
File Number
001-14431
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
IRS Employer
Identification No.
95-4676679
001-12008
Golden State Water Company
95-1243678
Incorporated in California
630 E. Foothill Boulevard, San Dimas
CA
91773-1212
Securities registered pursuant to Section 12(b) of the Act:
(909) 394-3600
Title of Each Class
Trading Symbol
American States Water Company Common Shares
AWR
Securities registered pursuant to Section 12(g) of the Act: None
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.
No
American States Water Company
No
Golden State Water Company
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
No
American States Water Company
No
Golden State Water Company
Yes
Yes
Yes
Yes
(cid:1409)
(cid:1407)
(cid:1407)
(cid:1407)
(cid:1407)
(cid:1409)
(cid:1409)
(cid:1409)
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
Yes
No
No
(cid:1407)
(cid:1407)
(cid:1409)
(cid:1409)
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
Yes
No
No
(cid:1407)
(cid:1407)
(cid:1409)
(cid:1409)
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:1409)
Accelerated filer (cid:1407) Non-accelerated filer
Golden States Water Company
Large accelerated filer
(cid:1407)
Accelerated filer (cid:1407) Non-accelerated filer
(cid:1407) Smaller reporting company
(cid:1407) Emerging growth company (cid:1407)
(cid:1409) Smaller reporting company
(cid:1407) Emerging growth company (cid:1407)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.(cid:133)
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report.(cid:3)(cid:1409)
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
Yes
No
No
(cid:1409)
(cid:1409)
(cid:1407)
(cid:1407)
The aggregate market value of all voting and non-voting Common Shares held by non-affiliates of American States Water Company was approximately
$2,938,292,000 on June 30, 2021, the last business day of the registrant's most recently completed second fiscal quarter, based on the closing price per
Common Share of American States Water Company as traded on the New York Stock Exchange. As of February 18, 2022, the number of Common Shares of
American States Water Company outstanding was 36,945,434. As of that same date, American States Water Company owned all 170 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, 2021.
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
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
Reserved
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
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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
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.
Item 9C
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Exhibits, Financial Statement Schedules
Item 16.
Form 10-K Summary
Schedule I — Condensed Financial Information of Parent and Notes
3
9
23
24
25
25
26
28
29
58
59
114
114
114
114
115
115
115
115
115
116
118
121
2
PART I
Item 1. Business
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
Nominating and Governance Committee, Compensation Committee and Audit and Finance Committee through its website or
by calling (877) 463-6297. 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 this Form 10-K for fiscal 2021.
Overview
AWR is the parent company of GSWC, Bear Valley Electric Service, Inc. ("BVESI") and American States Utility
Services, Inc. (“ASUS”) (and its wholly owned subsidiaries: Fort Bliss Water Services Company (“FBWS”), Terrapin Utility
Services, Inc. (“TUS”), Old Dominion Utility Services, Inc. (“ODUS”), Palmetto State Utility Services, Inc. (“PSUS”), Old
North Utility Services, Inc. (“ONUS”), Emerald Coast Utility Services, Inc. (“ECUS”) and Fort Riley Utility Services, Inc.
(“FRUS”)). On July 1, 2020, GSWC completed the transfer of the electric utility assets and liabilities from its electric division
to BVESI, in exchange for common shares of BVESI. GSWC then immediately distributed all of BVESI's common shares to
AWR, whereupon BVESI became wholly owned directly by AWR. This reorganization did not result in any substantive
changes to AWR's operations and business segments.
AWR has three reportable segments: water, electric and contracted services. Within the segments, AWR has three
principal business units, water and electric service utility operations conducted through its regulated utilities GSWC and
BVESI, respectively, and contracted services conducted through ASUS and its subsidiaries. FBWS, TUS, ODUS, PSUS,
ONUS, ECUS and FRUS may be referred to herein collectively as the “Military Utility Privatization Subsidiaries.”
GSWC is a public water utility engaged 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”). BVESI is a public electric
utility that distributes electricity in several San Bernardino County mountain communities in California, and is also regulated
by the CPUC. Additional information regarding public utility regulation is discussed in Item 7. "Management's Discussion and
Analysis of Financial Condition" and Results of Operation" under the section titled "Regulatory Matters."
AWR's regulated utilities served 262,770 water customers and 24,656 electric customers at December 31, 2021, or a
total of 287,426 customers, compared with 261,796 water customers and 24,545 electric customers at December 31, 2020, or a
total of 286,341 customers. Both GSWC’s and BVESI's operations exhibit seasonal trends. Although both have diversified
customer bases, residential and commercial customers account for the majority of water and electric sales and revenues.
Revenues derived from commercial and residential customers accounted for approximately 90% of total water and electric
revenues for the years ended December 31, 2021, 2020 and 2019.
ASUS, itself or through the Military Utility Privatization 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 U.S. 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 ASUS subsidiary performing the contract. The price for each of these contracts is subject to annual
economic price adjustments. Contracts are also subject to 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. AWR guarantees
performance of ASUS’s military privatization contracts.
3
Pursuant to the terms of the 50-year contracts with the U.S. government, the Military Utility Privatization Subsidiaries
operate the following water and wastewater systems:
Subsidiary
FBWS
Military Base
Fort Bliss
Joint Base Andrews
Fort Lee
TUS
ODUS
ODUS
PSUS
ONUS
ECUS
FRUS
Joint-Base Langley Eustis and Joint
Expeditionary Base Little Creek-Fort Story
Fort Jackson
Fort Bragg, Pope Army Airfield and Camp
Mackall
Eglin Air Force Base
Fort Riley
Type of System
Water and Wastewater
Water and Wastewater
Wastewater
Water and Wastewater
Location
Texas and New Mexico
Maryland
Virginia
Virginia
Water and Wastewater
Water and Wastewater
South Carolina
North Carolina
Water and Wastewater
Water and Wastewater
Collection and Treatment
Florida
Kansas
Certain financial information for each of AWR’s business segments - water distribution, electric distribution, and
contracted services - is set forth in Note 17 to the Notes to Consolidated Financial Statements of American States Water
Company and its subsidiaries. While AWR’s water and electric utility 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.
Seasonality
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 has adopted regulatory mechanisms at GSWC that help mitigate fluctuations in
revenues due to changes in water consumption by our customers in California, which currently remain in effect through the
year 2024.
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 snow making 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 snow
making conditions, which also reduces our electric revenues. The CPUC has also adopted regulatory mechanisms 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 BVESI’s customers.
Environmental Regulation
AWR’s subsidiaries are subject to extensive environmental regulations. GSWC is required to comply with safe
drinking water requirements, including testing to determine constituents in its water supply and customer notification
requirements if certain contaminants exceed maximum levels or advisory levels, and requirements to address issues relating to
known contamination. The subsidiaries of ASUS are subject to similar requirements in connection with their water and
wastewater operations on military bases. GSWC is also responsible for clean-up and remediation at a plant site that contained
an underground storage tank. As mandated by legislation enacted in California, BVESI is required to submit wildfire
mitigation plans to the CPUC for approval. California requires all electric utilities to prepare plans on constructing,
maintaining, and operating their electrical lines and equipment to minimize the risk of catastrophic wildfire.
ASUS’s subsidiaries are responsible for ensuring compliance with the reduction and/or removal of all constituents
required under its wastewater treatment plant operating permits. ASUS works closely with state regulators and industry
associations to stay current with emergent issues and proactively addresses any change in wastewater treatment regulation to
ensure permit compliance.
The regulated utilities spent approximately $15.5 million in 2021 and expect to spend approximately $23.5 million in
2022 for capital expenditures on environmental control facilities. During 2021, ASUS performed construction activities (for the
benefit of the U.S. government) related to environmental control facilities with a contract value of $3.4 million. ASUS expects
to perform construction activities related to environmental control facilities with a contract value of $1.6 million in 2022. In
addition, various other capital expenditures at the regulated utilities and construction projects at ASUS are incurred for purposes
4
other than environmental control facilities, but may also have some environmental benefits. An environmental control facilit y
is any facility that is reasonably expected to abate, reduce or aid in the prevention, measurement, control of monitoring of noise,
air or water pollutants, solid waste, thermal pollution, radiation or other pollutants.
Environmental matters and compliance with such laws and regulations are discussed further in Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of Operation” under the section titled “Environmental Matters.”
Climate Change Planning, Risks and Opportunities
Climate change is one area that we focus on as we develop and execute our business strategy and financial planning,
both in the short- and long-term and is subject to the oversight of the Board of Directors and senior management. First and
foremost, designing and implementing efficient and resilient infrastructure and operational processes not only addresses climate
change, but also reduces costs. Our capital investment programs are critical to ensure we can continue delivering reliable, high-
quality water, wastewater and electric services without interruption. As a utility company, our operating strategy is dependent
on having a reliable infrastructure in place.
The risks posed by climate variability increase the need for us to plan for and address supply resiliency. We address
these risks by planning, assessing, mitigating, and investing in our infrastructure for the long-term benefit of our communities.
As a provider of an essential product and service, our primary goal is to ensure service is uninterrupted.
GSWC considers the potential impacts of climate change in its water supply portfolio planning and its overall
infrastructure replacement plans. We evaluate how water supplies, water quality and water demands may change, including
mitigation strategies to ensure water continues to reach our customers.
We seek to minimize our greenhouse gas (GHG) emissions to assist in reducing the effects of climate change. We
studied our GHG emissions levels, set a 2020 baseline, and developed a GHG emissions reduction target of 60% by 2035 from
the 2020 baseline. To accomplish this, Registrant has developed a phased approach, which includes short-, medium- and long-
term actions. Our priorities include reductions in energy use and increasing purchases of green energy for our water operations,
increasing purchases of green energy for distribution to our electric customers, and reviewing our vehicle fleet needs and
electrification. Achievement of this reduction target is contingent on certain external factors, which include the ongoing
development of technology, and successful achievement by the state of California in reaching its Renewables Portfolio Standard
goal for this period.
Water Utility
There are risks to maintaining adequate water quality and/or supply, either from climate variability or other events.
They include droughts, changes in weather patterns, natural disasters, wildfires, decisions or actions restricting the use of water
from our sources, and/or pumping of groundwater, and contamination or acts of terrorism or vandalism. We include these
potential events in our strategic planning process as we aim to avoid service interruptions and compromised water quality.
Our goal is to maintain adequate and high-quality water supplies. We do this in a number of ways, including
monitoring water levels, short- and long-term water supply planning, having a diverse water supply portfolio, developing
contingency plans, water efficiency and conservation efforts, and maintaining a strong infrastructure. Additional information
on GSWC’s water supplies is discussed further in Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operation” under the section titled “Water Supplies.”
Electric Utility
Climate change has also impacted electric utilities in California due to an increase in wildfires. BVESI's compliance
with its wildfire mitigation plans have resulted in an increase in capital expenditures for wildfire mitigation projects. BVESI
will not be able to recover the costs incurred to make capital improvements included in BVESI’s current wildfire mitigation
plans from ratepayers until the CPUC approves recovery of these costs in its next general rate case filing, which is scheduled to
be filed in 2022 to set new rates beginning in 2023. Power supplies may also become more constrained and more expensive
due to regulation of power plants using fossil fuels.
California has established a cap-and-trade program applicable to greenhouse gas emissions. While BVESI’s power-
plant emissions are below the reporting threshold, as a “Covered Entity” BVESI has an obligation to file a report with the
California Air Resources Board (CARB) in June of each year under the Greenhouse Gas Mandatory Reporting Regulation. The
report will become available publicly in the last quarter of 2022.
5
The State of California and the CPUC have established renewable energy procurement targets. BVESI has entered
into a CPUC-approved ten-year contract for renewable energy credits. Because of this agreement, BVESI believes it will
comply through at least 2023 with California’s renewable energy statutes that address this issue.
In 2021, BVESI’s renewable power represented 35.8% of total electric supply purchases. Renewable Energy
Procurement requirements continue to escalate, reaching 50% by 2026 and 100% carbon free by 2045. BVESI anticipates filing
an application with the CPUC to construct a solar generation facility in the near future. If approved and constructed, the project
will provide a clean, local energy solution for the service territory.
BVESI offers a Distributed Generation Program, which benefits customers who install a solar or wind-generating
facility that produces renewable energy. Those customers can receive a bill credit if their monthly renewable energy production
exceeds their on-site use. BVESI also has a number of customers on its Net Energy Metering Program (NEM), which was the
previous renewable energy program. NEM customers can receive a bill credit if their annual renewable energy production
exceeds their on-site use. Approximately 5% of the energy consumed by our BVESI customers is now generated by customer-
owned renewable sources (solar).
BVESI is also required to comply with the CPUC’s greenhouse gas emission performance standards. Under these
standards, BVESI must file an annual attestation with the CPUC stating that BVESI has no new ownership investment in
generation facilities exceeding the emission performance standards and no long-term commitments for generation exceeding
the standards. In February 2022, BVESI filed an attestation that BVESI complied with the standards for 2021. At this time,
management cannot estimate the impact, if any, that these regulations may have on future costs over BVESI’s power plant
operations or the cost of BVESI’s purchased power from third party providers.
COVID-19
GSWC, BVESI and ASUS have continued their operations throughout the COVID-19 pandemic given that their water,
wastewater and electric utility services are deemed essential. AWR's responses take into account orders issued by the CPUC,
and the guidance provided by federal, state, and local health authorities and other government officials for the COVID-19
pandemic.
Some of the actions taken by GSWC and BVESI included suspending service disconnections for nonpayment pursuant
to CPUC and state orders, and telecommuting by employees. The suspension of water-service disconnections at GSWC were
implemented in response to an executive order from the governor of California, as well as CPUC orders. Pursuant to a CPUC
July 2021 decision, the moratorium on water-service disconnections due to non-payment of past-due amounts billed to
residential customers expired on February 1, 2022. However, water service cannot be disconnected so long as customers make
timely payments on current bills, and are provided and adhere to payment plans to pay down past-due bills resulting from the
pandemic. The moratorium on electric customer service disconnections ended on September 30, 2021. However, electric-
service disconnections for non-payment can only be done after taking into account other matters, such as average daily
temperatures under certain conditions.
The COVID-19 pandemic has caused significant volatility in financial markets. The continued economic impact could
adversely impact the value of GSWC’s pension and other retirement plan assets due to possible declines in security prices.
The COVID-19 pandemic has placed a strain on supply chains to sufficiently meet demand of the materials and
supplies necessary to complete some capital expenditure projects at our regulated utilities, as well as some construction projects
at our contracted services segment. While we may purchase materials and supplies upfront when appropriate, there can be no
assurance that our efforts will prevent delays or disruptions to our capital investments or construction projects. Furthermore,
Registrant has experienced increased costs due to the impacts of inflation. The regulated utilities may update their costs as part
of general rate case proceedings, and ASUS may update prices annually through economic price adjustments. However, until
we receive increased funding to offset higher costs, our liquidity may be negatively impacted.
Additional information regarding the impact of COVID-19 on GSWC and BVESI is provided in Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operation” under the section titled COVID-19.
Competition
The businesses of GSWC and BVESI are substantially free from direct and indirect competition with other public
utilities, municipalities and other public agencies within their existing service territories. However, GSWC and BVESI may be
subject to eminent domain proceedings in which governmental agencies, under state law, may acquire GSWC’s water systems
or BVESI's electric system 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
6
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 quality of service and price.
AWR Workforce
AWR and its subsidiaries had a total of 808 employees as of December 31, 2021. GSWC had 500 employees as of
December 31, 2021. BVESI had 46 employees, eighteen of which are covered by a collective bargaining agreement with the
International Brotherhood of Electrical Workers, which expires in December 2025. All of the employees of GSWC and BVESI
are located in California. At times, GSWC and BVESI use temporary and contract workers for a finite period of time and in a
limited capacity to continue a project or workflow until they can hire a permanent employee. It is also common for those
temporary workers to be hired on as a regular, full-time employee.
ASUS and its subsidiaries had a total of 262 employees as of December 31, 2021. Thirteen of FBWS's employees are
covered by a collective bargaining agreement with the International Union of Operating Engineers. This agreement expires in
September 2022.
Our businesses requires a combination of complex infrastructure, regulatory expertise and customer service. Ongo ing
development of our talent across the organization to meet critical business needs is a continual focus, and includes (i) building a
culture such that high-potential talent is identified and further developed, (ii) creating career paths that not only move up a
specialized ladder, but across the organization, and (iii) offering opportunities for employees to accept new challenges through
stretch assignments.
Attracting Diverse Candidates
We understand that strength comes from having a diverse employee population. We strive to hire from our local
communities and have a workforce that is representative, at all job levels, of the communities we serve. This begins with the
recruitment process. We strive to have all aspects of employment, including the decision to hire, promote, discipline, or
discharge, be based on merit, competence, performance, and business needs. It is our policy not to discriminate on the basis of
race, color, religion, marital status, age, national origin, ancestry, physical or mental disability, medical condition, pregnancy,
genetic information, gender, sexual orientation, gender identity or expression, veteran status, or any other status protected under
federal, state, or local laws.
Compensation and Benefits
We pay employees a competitive and fair wage, as benchmarked with other leading companies and the market.
Consistent with our principle of valuing personal mastery, we reward employees for improving their skills and capabilities. Our
benefits include a defined benefit pension plan for employees hired prior to January 1, 2011, a defined contribution plan for
hires or rehires after December 31, 2010, a 401(k) plan, healthcare and insurance benefits, health savings and flexible spending
accounts.
Safety and Training
Strong Occupational Health and Safety practices reduce injuries, keep our workforce healthy, and reduce operating
costs. A safe workforce translates into better performance company-wide. We work to create a safety-focused culture in which
each individual feels personally responsible for their own safety, the safety of their co-workers, as well as the safety of the
communities they serve. Safety performance is included as a metric in the officer and manager compensation programs.
Employees attend training in various mandated safety programs that are applicable to their operations. In addition, there are
regulatory safety training requirements as well as training requirements for the Department of Transportation and training
requirements for compliance with local, state, and federal environmental laws.
To reinforce our safety efforts and protocols, company-wide safety inspections at GSWC and BVESI are conducted
with supervisors. The inspection reports are forwarded to management for review, allocation of resources are made (if needed),
and corrective actions are taken. ASUS has a dedicated Safety Coordinator located at each military base installation served.
The onsite Safety Coordinator is responsible for regulatory compliance, as well as beneficial health and safety monitoring
functions.
Learning and Development
Compliance training is required each year, for each employee. Other types of training are offered on an optional basis.
Examples of optional programs include ongoing water operations competencies and education, supervisor development,
knowledge capture and management, feedback and measurements to show the value of learning solutions, and administrative
oversight for various business competencies relative to mandated training and compliance requirements. We pay for approved
7
external business-related seminars and workshops. Certain positions require employees to maintain all of their job-specific
certifications, licenses and continuing education credits.
On a regular and ongoing basis, we require all employees to certify that they have reviewed and understand our Code
of Conduct as well as our Employee Handbook. We provide harassment and prevention awareness training for all employees.
Succession Planning
On an annual basis, our senior management team completes a roadmap for improving human capital management by
developing succession plans with the goal of achieving the most efficient alignment of resources and talent to meet business
needs. This includes identifying key succession positions and potential successors for top-level positions, such as Vice
Presidents, for the next ten years.
Recruiting, developing and retaining the right talent is key to our long-term success. With 28% of our employees eligible
for retirement in the next five years, we are focused on transferring institutional knowledge, continue succession planning and
pursue recruitment and development strategies to attract qualified talent.
Cybersecurity
Cyberattacks represent an increasing threat to water, wastewater and electric utility systems and thereby the safety and
security of our communities. There have also been increasing threats to the information that companies maintain that have
resulted in the unauthorized disclosure of private customer, employee, director and corporate financial information.
We have increased our investments in information technology to monitor and address these threats and attempted
cyber-attacks, and to improve our posture in addressing security vulnerabilities. We have adopted multi-layered safeguards and
educational measures to protect our operations, assets and digital information. Cybersecurity updates are given to the Board of
Directors on a quarterly basis. Quarterly cybersecurity training is required for all employees, with the topics varying each
quarter. We also conduct specialized training for employees annually on protecting certain types of information relating to the
work we do with the U.S. government. While we have increased our investments in information technology to address security
vulnerabilities, there can be no assurance that these measures and our efforts will prevent a cyber-attack.
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, are described in the following section.
8
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.
Overview of Risk Factors
We have three business segments, water utility, electric utility and contracted services, each of which are subject to
different risks as further discussed below. We are also subject to risks frequently encountered by businesses of our size.
Regulated Water and Electric Utility Operations
GSWC’s and BVESI’s revenues depend substantially on the rates and charges we are permitted to recover from our
customers and the timing of that recovery as authorized by the CPUC. Decisions of the CPUC could also result in impairment
charges and customer refunds, and delays in recovering costs in rates. Some of the factors impacting our ability to obtain rate
recovery on a timely basis include opposition to rate increases arising out of increased costs for replacing aging infrastructure
and increased costs associated with addressing climate change risks, such as drought and wildfires in California, costs incurred
in connection with complying with water quality regulations, costs incurred in connection with complying with the COVID-19
pandemic, and costs incurred in connection with obtaining and complying with franchise agreements with local governmental
agencies and costs of obtaining permits from local, state and federal governmental agencies. There may also be increased
customer opposition to rate increases due to customer dissatisfaction with conservation rate structures, public safety power
shutdowns and the closure of some customer service offices due to COVID-19 governmental shut-down orders.
Our water and electric utility services are provided in California. As a result, our financial results are largely subject to
political, water supply, labor, utility cost and regulatory risks, economic conditions, natural disasters (which may increase as a
result of climate change), and other risks affecting California businesses. Our assets are also subject to condemnation in
California.
Contract Services Operations
All of our utility privatization contract services are provided to the U.S. government pursuant to the terms of 50-year
firm, fixed-price contracts subject to annual economic price adjustments. These contracts may be terminated or services
suspended at any time for convenience of the government. We are subject to penalties for failure to conform or comply with
U.S. government regulations and the terms of our contracts, and may be suspended or debarred for such failure to comply. The
fees that we may charge are adjusted annually and in response to our requests for equitable adjustments. We have experienced
delays in obtaining price and equitable adjustments, as well as delays in being paid by the U.S. government.
We are also responsible for complying with water quality and wastewater quality regulations on military bases.
We compete with other companies in bidding on providing utility services on military bases. We submit bids on new
U.S. government contracts for military bases based on estimates of cost and potential profit. Our estimates and judgment are
important, for in the event we overpay to obtain a contract, we could incur losses on it.
Other Business Risks
We may be subject to financial losses, penalties and other liabilities if we fail to operate and maintain safe work sites,
equipment and facilities, including losses, damages, penalties and other liabilities arising from wildfires, other natural disasters
and terrorist activities. We may not be able to recover all these losses from insurance or from ratepayers or may experience
delays in obtaining recovery for these losses.
We are also subject to other business risks typical of our business, including:
•
•
•
Security risks, data protection and cyber-attacks that could disrupt our operations, increase our expenses, result in
liabilities to third parties and damage to our reputation;
Failure to attract, train, develop and transition key employees with the necessary skills to replace employees who are
retiring or otherwise terminate employment or to fill new positions needed to respond to the increase in public utility
and environmental regulations;
Failure to make accurate estimates about financing and accounting matters, and in filing requests for rate increases
with the CPUC or requests for price adjustments with the U.S. government or in bids on military privatization
contracts;
9
•
•
•
•
Our ability to finance the significant capital expenditures required by our businesses, which could be adversely
impacted by general economic and market conditions;
Changes in accounting, public utility, environmental and tax laws and regulations impacting our business;
Our inability to comply with debt covenants in our debt agreements, and
Final determination of our income tax liability by the federal and applicable state governments.
As a holding company, AWR is dependent upon dividends from its subsidiaries to pay dividends to its shareholders.
The ability of its subsidiaries to pay dividends is dependent upon compliance with state laws governing the payment of
dividends and the terms of the debt agreements with the applicable subsidiary.
Climate Change
Climate change has resulted in increased frequency and duration of droughts, potential degradation of water quality,
and changes in demand for services. More frequent and extended California drought conditions may cause increased stress on
surface water supplies and groundwater basins, as well as allocations of water from the State Water Project and the Colorado
River. Wholesale water suppliers may not have adequate supply during extended periods of drought, which may result in
increases in prices for water delivered to us. In addition, GSWC could experience an increased use of reclaimed or recycled
water by GSWC customers, in lieu of GSWC supplying potable water to these customers. Reclaimed water generally has lower
tariff rates than potable water. Prolonged droughts may also result in state-ordered mandatory or voluntary conservation efforts
by customers, changes in customer conservation patterns and imposition of new regulations impacting such things as
landscaping and irrigation patterns.
These drought conditions have contributed to increases in wildfires, which has resulted in new California legislation
requiring electric utilities to adopt and implement wildfire safety and mitigation plans. BVESI is incurring increased capital
expenditures related to the creation and implementation of these plans. We anticipate that the costs of capital improvements
necessary to implement this program will continue to increase. BVESI is also required to implement a public safety power
shut-off program during high wildfire threat conditions. Shut-offs can reduce BVESI's liquidity and decrease customer
satisfaction. Abnormal weather patterns created by climate change can also impact electricity demand at BVESI. The demand
for electricity at our electric segment is greatly affected by winter snow levels. An increase in winter snow levels reduces the
use of snow making 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 snow making conditions, which also
reduces our liquidity. Furthermore, potential future legislation efforts to ban gas powered power plants as a response to climate
change may require us to replace our current 8.4 MW natural gas powered generator before its useful life is completed.
Risks Associated with Regulated Public Utility and Contracted Services Operations
Our businesses are heavily regulated and, as a result, decisions by regulatory agencies or the U.S. government can
significantly affect our businesses
GSWC's and BVESI's revenues depend substantially on the rates and fees they charge their customers and their ability
to recover costs on a timely basis as authorized by the CPUC, 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
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.
Regulatory decisions affecting GSWC and/or BVESI 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. On August 27, 2020, the CPUC issued a final decision
in the first phase of the CPUC’s Order Instituting Rulemaking evaluating the low income ratepayer assistance and affordability
objectives contained in the CPUC’s 2010 Water Action Plan, which also addressed the continued use of the Water Revenue
Adjustment Mechanism ("WRAM") and the Modified Cost Balancing Account ("MCBA") by California water utilities. Based
on the final decision, any general rate case application filed by GSWC and the other California water utilities after the
August 27, 2020 effective date of this decision, may not include a proposal to continue the use of the WRAM or MCBA, but
10
may instead include a proposal to use a limited price adjustment mechanism (the Monterey-Style WRAM) and an incremental
supply cost balancing account. GSWC's next water general rate case application will be filed in 2023 to establish new rates for
the years 2025 – 2027. GSWC is permitted to keep the use of the WRAM and MCBA through the year 2024. GSWC and other
California water utilities have requested review of this decision by the California Supreme Court.
Management continually evaluates the anticipated recovery of regulatory assets, settlement of 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 or settlement 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 over the recovery of regulatory assets including a future disallowance of previously granted regulatory mechanisms,
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, 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.
Changes in laws, regulations and policies of regulatory agencies can significantly affect our business
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 economic price adjustments, which
could adversely affect our anticipated rates of return at our contracted services business.
We may also be subject to fines or penalties if a regulatory agency or the U.S. government determine 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 recovery of certain costs if they determine they may no longer be
recovered in rates, or if audit findings determine that we have failed to comply with our policies and procedures for
procurement or other practices.
Our liquidity and earnings may be adversely affected by maintenance costs
Some of our infrastructure in California is aging. 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 environmental regulations. Our electrical systems have also required upgrades due to aging and new wildfire safety
and other compliance requirements. While we spend significant amounts on maintenance each year, these costs can increase
substantially and unexpectedly.
We include estimated increases in maintenance costs for future years in each water and electric general rate case filed
by GSWC and BVESI, respectively, for possible recovery. To the extent that these estimates understate our actual costs, we
may be unable to recover all maintenance costs in rates.
Our assets at our regulated utilities 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
temporarily 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 taken
or be able to recover all charges associated with the condemnation of such assets. In addition, we would no longer be entitled
to any portion of the revenues 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 and BVESI operate have granted them franchises to construct, maintain and use
pipes, wires and appurtenances in or along 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 our operations
within the boundaries of the city or unincorporated areas of the counties in which we operate. Our regulated utilities may also
be required from time to time to relocate existing infrastructure in order to accommodate local infrastructure improvement
11
projects. Cities and counties have also been imposing new fees on our 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 and BVESI for the increased costs of regulation by local
governments. These trends may adversely affect our ability to recover in rates the costs of providing water and electric services
and to efficiently manage capital expenditures and operating and maintenance expenses within CPUC-authorized levels.
We have also experienced instances of increased costs and delays in obtaining permits that we need in order to install,
maintain, repair, and replace some of our aging water and electric utility infrastructure and upgrades needed to comply with
changes in laws and regulations or otherwise necessary to harden our infrastructure as a result of drought, wildfires and
increases in the frequency and duration of more extreme weather events due to climate change.
Adverse publicity and reputational risks can lead to increased regulatory oversight or sanctions
As a utility company, we have a large customer base and are therefore, subject to public criticism regarding, among
other things, the quality and reliability of our water and electricity services, and the accuracy, timeliness and format of bills that
are provided to our customers for such services. Adverse publicity and negative customer sentiment may cause regulatory
authorities, including the CPUC, and other governing bodies to view us unfavorably and cause us to be susceptible to increased
oversight and more stringent regulations and economic requirements.
Risks Associated with Health, Safety and Liability Matters
The outbreak of COVID-19 and its impact on business and economic conditions could negatively affect our
financial condition.
The COVID-19 outbreak, the resulting pandemic, and the impact on the economy and financial markets could
adversely affect the Company’s financial condition. We have continued our operations given that water, wastewater, and
electric utility services are deemed essential, and have implemented health and safety measures such as implementing worker-
distancing measures and using a remote workforce where possible. However, there is no assurance that the continued spread of
COVID-19 and efforts to contain the virus (including, but not limited to, voluntary and mandatory quarantines, restrictions on
travel, limiting gatherings of people, and reduced operations and extended closures of many businesses) will not materially
impact our financial condition. In particular, the continued spread of COVID-19 and efforts to contain the virus could:
•
•
•
•
•
•
•
•
reduce the availability and productivity of our employees;
have an adverse impact on our business activities due to the ongoing shortage of skilled trade labor as well as
engineering and professional staff;
cause us to experience an increase in costs as a result of our emergency measures, delayed payments from our
customers and uncollectible accounts as a result of the impact on our customers' ability to pay bills due to voluntary
and mandatory stay-at-home orders;
impact our liquidity position and cost of and ability to access funds from financial institutions and capital markets;
cause delays in capital expenditures activity due to, among other things, delays in obtaining permits from local
governments or local mandated restrictions on shutting off service as part of the response to the pandemic;
have an adverse impact on the value of our pension and retirement assets;
increase customer dissatisfaction due to an increase in customer wait times resulting from a rise in customer calls, and
general anxiety due to personal circumstances arising from the pandemic; and
cause our contractors, suppliers and other business partners to be unable to fulfill their contractual obligations in the
ordinary course of business or otherwise disrupt our supply chain.
The COVID-19 pandemic has impacted supply chains, with restrictions and limitations on business activities and
impacts of the COVID-19 pandemic causing labor shortages, capacity constraints, disruptions and delays. These issues may
place a strain on supply chains to sufficiently meet demand of the materials and supplies necessary to complete capital
expenditure projects at our regulated utilities, or construction projects at our contracted services segment. While we may
purchase materials and supplies upfront when appropriate, there can be no assurance that our efforts will prevent delays or
disruptions to our capital investments or construction projects.
Additionally, current supply chain challenges are driving price increases for materials commonly used for construction
projects. Combined with raising labor costs, the current inflationary market is leading to an increase in total cost for our capital
12
expenditure projects. Our regulated utilities update costs as part of general rate case proceedings, and ASUS updates prices
annually through economic price adjustments. However, until we receive increased funding to offset higher costs, our liquidity
may be negatively impacted.
The CPUC has authorized GSWC and BVESI to track incremental costs, including bad debt expense in excess of what
is included in their respective revenue requirements, incurred as a result of the pandemic in COVID-19-related memorandum
accounts to be filed with the CPUC for future recovery.
Our liquidity and earnings may be adversely affected by wildfires
It is possible that wildfires may occur more frequently, be of longer duration or impact larger areas as a result of
drought-damaged plants and trees, lower humidity or higher winds that may occur as result of changing weather patterns. Our
liquidity, earnings and operations may be materially adversely affected by wildfires. We may be required to (i) incur greater
costs to relocate lines or increase our trimming of trees and other plants near our electric facilities to avoid wildfires, (ii) make
significant additional capital expenditures to fund the projects in BVESI's wildfire and safety mitigation plans, and (iii) bear the
costs of damages to property or injuries to the public if it is determined that our power lines or other electrical equipment was a
cause of such damages or injuries. In addition, wildfires may result in reduced demand if structures are destroyed or unusable
following a wildfire, and may adversely affect our ability to provide water or electric service in our service areas due to public
safety power shutdowns or any of our water or electric utility infrastructure is damaged by a wildfire.
Losses by insurance companies resulting from wildfires in California have caused insurance coverage for wildfire risks
to become more expensive and coverage could become unavailable on reasonable terms, and our insurance may be inadequate
to recover all our losses incurred in a wildfire. We might not be allowed to recover in our rates any increased costs of wildfire
insurance or the costs of any uninsured wildfire losses.
Electric utilities in California are authorized to shut off power for public safety reasons, such as during periods of
extreme fire hazard, if the utility reasonably believes that there is an imminent and significant risk that strong winds may topple
power lines or cause vegetation to come into contact with power lines leading to increased risk of fire. Shut-offs can reduce
BVESI's liquidity and decrease customer satisfaction.
These shut-offs can also adversely affect GSWC’s water utility operations if the electric utilities that provide electric
service to GSWC’s water operations shut off power lines that deliver electricity to GSWC’s water plant and equipment, thereby
adversely affecting its ability to provide water service to its customers.
We may be held strictly liable for damages to property caused by our equipment even if we are not negligent
Utilities in California may be held strictly liable for damages caused by their property, such as mains, fire hydrants,
power lines and other equipment, even though they were not negligent in the operation and maintenance of that property, under
a doctrine known as inverse condemnation. Our liquidity, earnings and operations may be adversely affected if we are unable
to recover the costs of paying claims for damages caused by the non-negligent operation and maintenance of our property from
customers or through insurance.
We may be subject to financial losses, penalties and other liabilities if we fail to maintain safe work sites, equipment
or facilities
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 aim to comply with such health and safety standards, it is unlikely that we will
be able to avoid all accidents or other events resulting in damage to property or the public.
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 in any respect 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.
Our operations involve the handling and storage of hazardous chemicals that, 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
13
health, safety, and environmental work procedures throughout our organization, including construction sites and maintenance
sites, a failure to comply with such regulations in any respect could subject us to liability.
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, sparking during high-wind events or equipment malfunctions. Injuries and
property damage caused by such events may subject BVESI 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.
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. Generally, our insurance policies cover property, workers' compensation, general liability, automobile liability, and
other risks. Insurance coverage may not cover certain claims involving punitive damages. Each policy includes deductibles or
self-insured retentions and policy limits for covered claims. Our insurance policies also contain exclusions and other
limitations that may not cover our potential liabilities. Furthermore, due to insurance market conditions resulting in t ighter
underwriting and increased premiums along with reductions in capacity, we have experienced increased costs and difficulties in
obtaining certain insurance coverages, particularly along the general liability, umbrella and cyber insurance lines. We may
experience further increased insurance costs and/or coverage reductions in future years. As a result, we may sustain losses that
exceed or that are excluded from our insurance coverage or for which we are not insured.
Uninsured losses and increases in the cost of insurance may not be recoverable or fully recoverable in customer rates.
A loss which is not insured or not fully insured or cannot be recovered in customer rates could materially affect our financial
condition and results of operations.
We operate in areas subject to natural disasters
We operate in areas that are prone to earthquakes, fires, mudslides, hurricanes, tornadoes, flooding or other natural
disasters. While we maintain insurance policies to help reduce our financial exposure, a significant seismic event in southern
California, where our regulated water and electric operations are concentrated, wildfires 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 and BVESI, the CPUC has historically allowed utilities to
establish a catastrophic event memorandum account to potentially recover such incremental costs not covered in rates. With
respect to the Military Utility Privatization Subsidiaries, costs associated with responding to natural disasters have been
recoverable through requests for equitable adjustment.
Our operations may be the target of terrorist activities
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.
14
Water Quality Regulatory Risks
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 may 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, handling and storing hazardous chemicals, compliance-monitoring activities and securing alternative
supplies when necessary. GSWC may be able to recover these costs from customers through the ratemaking process. We may
also be able to recover these costs from certain third parties under settlement and contractual arrangements. Our capital and
operating costs may also increase as a result of changes in laboratory detection capabilities and drinking water notification and
response levels for certain substances, such as perfluoroalkyl substances (“PFAS”) used to make certain fabrics and other
materials, certain fire suppression agents and used in various industrial processes.
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 facilitate remediation 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 have arisen.
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.
Water Supply Risks
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;
the amount of water used by our customers and others;
water quality;
legal limitations on production, diversion, storage, conveyance and use; and
climate change.
•
•
•
•
•
•
•
More frequent and extended California drought conditions and changes in weather patterns cause 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
15
of water that the 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, as appropriate, in order to encourage water conservation. We
have also implemented programs to assist customers in complying with water usage reductions. Over the long term, we are
acting to secure additional supplies, which may include supplies from desalination and increased 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 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 their supply from wholesale suppliers; some systems obtain their supply from treating surface water sources; and other
systems obtain their supply from a combination of wells, surface water sources and/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 since much of the balance we recognize in the MCBA is collected from or refunded to customers
primarily through surcharges or surcredits, respectively, generally over twelve- to twenty-four-months.
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 customers based on
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 customer base does not occur to the extent necessary to offset per-customer 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-customer water usage due to factors such as:
•
•
•
conservation efforts to reduce costs;
drought conditions resulting in additional water conservation;
the use of more efficient household fixtures and appliances by customers to save water;
16
•
•
•
voluntary or mandatory changes in landscaping and irrigation patterns;
recycling of water by our customers; and
mandated water-use restrictions.
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 water, even if our sources of supply are sufficient to serve our customers during such
drought conditions.
We implemented the CPUC-approved WRAM at GSWC, which has the effect of stabilizing revenues at the adopted
level thereby reducing the potential adverse earnings impact of our customers’ conservation efforts. However, cash flows from
operations can be significantly affected since much of the balance we recognize in the WRAM account is collected from or
refunded to customers generally over twelve-, eighteen- or twenty-four-month periods. In addition, based on a CPUC decision
effective August 27, 2020, any general rate case application filed after that date may not include a proposal to use the WRAM
or MCBA, but may instead include a proposal to use a limited price adjustment mechanism and an incremental supply cost
balancing account. Replacing the WRAM and MCBA could result in increased earnings volatility.
Electric Segment Operations Risks
Our electric segment operates in a high wildfire risk area
BVESI is required to adopt and implement a wildfire safety and mitigation plan that is submitted periodically to, and
subject to the approval of, the CPUC. The recovery of costs incurred to implement this plan are not approved by the CPUC at
the time of its approval of the wildfire mitigation plan, but will only be approved by the CPUC in a subsequent general rate
case. We anticipate that the costs of capital improvements necessary to implement this program will increase substantially.
BVESI is also required to implement a public safety power shut-off program during high wildfire threat conditions.
The CPUC may assess penalties if BVESI shuts-down power to its customers and the CPUC determines that the shutdown was
not reasonably necessary in the circumstances.
BVESI has also obtained a safety certificate, which must be renewed annually by the CPUC. Even with an approved
safety certificate, BVESI could be found liable for deaths, injuries and property damage if BVESI’s electric equipment is found
to have caused a catastrophic wildfire. BVESI may not be able to recover the costs of all liabilities from such a wildfire from
insurance or from ratepayers.
Our liquidity may be adversely affected by increases in electricity and natural gas prices in California
We 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
authorization of new purchase power 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, BVESI has implemented a CPUC-approved supply-cost balancing account to
mitigate the impact to earnings from fluctuations in supply costs.
Unexpected generator downtime at our 8.4 megawatt natural-gas-fueled generator 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 since 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 for BVESI 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 enables 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
17
procurement requirements. We may be subject to fines and penalties by the CPUC if it determines that we are not in
compliance with the renewable resource procurement rules.
Utility Privatization Contract Risks
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 firm,
fixed-priced 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 is based on a number of assumptions, including assumptions about the condition and amount of
infrastructure at the military bases, 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 annual economic price adjustments or other changes permitted by the terms of the
contracts. Prices are also subject to equitable adjustment based upon changes in circumstances, laws or regulations and service-
requirement changes 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 that result in higher than estimated costs, higher than anticipated infrastructure
levels, and required emergency work at the time such expenses occur. We recognize additional revenue for such work as, and
to the extent that, our economic price adjustments and/or requests for equitable adjustments are approved. Delays in obtaining
approval of 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 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 political priorities, budget
constraints, the timing and amount of tax receipts, government shutdowns and the overall level of government expenditures.
Our contracts for the construction of infrastructure improvements on military bases create risks that are different
from those of our public utility 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 contract revenues from these types of contracts over time using input methods to measure
progress towards satisfying a performance obligation. The measurement of performance over time is based on cost incurred
relative to total estimated costs, 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
Entering into contracts with the U.S. government subjects us to a number of operational and compliance risks over our
performance of contracted services on military bases. We are periodically 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
18
operations of GSWC or BVESI. 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 adjustments
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.
Moreover, we are subject to potential government investigations of our business practices and compliance with
government procurement and security regulations. If we are charged with wrongdoing as a result of an investigation, or 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, our existing contracts could be terminated or we could be suspended or barred from
future U.S. government contracts for a period of time, and be subject to possible damages, fines and penalties as well as damage
to our reputation in the water and wastewater industry, which could have a material adverse effect on our results of operations
and cash flows.
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), and/or 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 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 bids, 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 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 subcontractors include certain
protective provisions, which may include the assessment of liquidated damages. We also 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.
We may not be fully reimbursed for all of our construction costs or may only receive payment on a delayed basis
Unlike GSWC and BVESI, who recover their capital investments from customers over the life of the assets through
annual depreciation and earn a return on such investments through the ratemaking process, ASUS is reimbursed for the cost of
ongoing renewal and replacement construction projects plus a profit through the collection of a monthly cash stream under each
of the 50-year contracts with the U.S. government. ASUS also receives funding from the U.S. government for initial and other
new construction projects at the military bases it serves that, in many cases, are outside the scope of the 50-year contracts and
are granted through firm-fixed contract modifications. Our Military Utility Privatization Subsidiaries expect to continue
incurring significant construction costs. Reimbursement by the U.S government for these construction costs may not be fully
reimbursable if the costs incurred are greater than the amounts estimated and approved by the U.S. government, or payments
may be delayed awaiting government funding and processing, which could significantly affect our cash flows from operations.
19
Other Contracted Services Segment Risks
Risks associated with wastewater systems are different from those of our water distribution operations
The wastewater-collection-system operations of our ASUS subsidiaries providing wastewater services on military
bases are subject to substantial regulation and involve significant environmental risks. If collection, treatment or disposal
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. These risks may be increased as a result of an
increase in the duration and frequency of storms due to climate change. 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 or covered by
insurance policies. We may also find it difficult to secure insurance for this business in the future at acceptable rates.
We may have responsibility for water quality at the military bases we serve
While it is the responsibility of the U.S. government to provide the source of water supply to meet the Military Utility
Privatization Subsidiaries’ water distribution system requirements under their 50-year contracts, the Military Utility
Privatization Subsidiaries, as the water system permit holders for most of the bases they serve, are responsible for ensuring the
continued compliance of the provided source of supply with all federal, state and local regulations. We believe, however, that
the terms of the contracts between the Military Utility Privatization Subsidiaries and the U.S. government provide the
opportunity for us to recover costs incurred in the treatment or remediation of any quality issue that arises from the source of
water supply.
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 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.
We face intense competition for new military privatization contracts
An important part of our growth strategy is the expansion of our contracted services business through new contract
awards to serve additional military bases for the U.S. government. ASUS competes with other investor-owned utilities,
municipalities, and other entities for these contracts.
Additionally, the U.S. government periodically reviews the cost and overall effectiveness of the military privatization
program. Should these reviews prompt a decision to curtail or eliminate the issuance of solicitations for future military
privatization contract awards, the potential for growth in this segment could be negatively impacted.
Information Technology Risk Factors
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 administrative and operating expenses, retention of
sufficiently skilled personnel to implement and operate the new systems, and other risks and costs of delays or difficult ies 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.
20
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 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, cyber-attacks 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 and could result in liabilities not covered by insurance or recoverable in
rates for misappropriation of assets or sensitive information, corruption of data and the impact of operational disruptions on our
customers.
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 at risk to damage or interruption from:
•
•
•
•
•
supply chain attacks;
ransomware;
malware;
hacking; and
denial of service actions.
We have implemented security measures and will continue to devote significant resources to improve our security
posture to address any security vulnerabilities in an effort to prevent cyber-attacks. Despite our efforts, due to the evolving
nature of cyber-attacks and vulnerabilities, 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 security breach affects our systems or results in the unauthorized release of
sensitive data, our reputation could be materially damaged. We may not discover any security breach and loss of informat ion
for a significant period of time after the security breach. We could also be exposed to a risk of loss or litigation and possible
liability. In addition, pursuant to U.S. government regulations regarding cyber-security of government contractors, we might be
subject to fines, penalties or other actions, including debarment, with respect to current contracts or with respect to future
contract opportunities. We maintain cybersecurity insurance to provide coverage for a portion of the losses and damages that
may result from a security breach, but such insurance is subject to a number of exclusions and may not cover the total loss
caused by a breach. Other costs associated with cyber events may not be covered by insurance or recoverable in rates. The
market for cybersecurity insurance continues to evolve and may affect the future availability of cyber insurance at reasonable
rates.
In addition, we must comply with privacy rights regulations such as The California Consumer Privacy Act (“CCPA”),
a state statute that became effective January 1, 2020, which enhances the privacy rights and consumer protections for California
residents. Among other things, the CCPA establishes statutory damages for victims of data security breaches, and provides
additional rights for consumers to obtain their data from any business that has their personally identifying information. Any
actual or perceived failure to comply with the CCPA could lead to investigations, claims, and proceedings by governmental
entities and private parties, damages for breach, and other significant costs, penalties, and other liabilities, as well as harm to
our reputation.
Human Capital Management and Supply Risks
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, regulatory, 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. This is especially
challenging for us since approximately 28% of our employees will be eligible to retire in the next five years. The failure to
successfully hire key employees or the loss of a material number of key employees could have a significant impact on the
21
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.
Failure of our employees to maintain required certifications and licenses or to complete required compliance
training could adversely impact our ability to operate and maintain our utility systems and provide services to our customers
Many of our employees must have specialized certifications and licenses in order to perform their duties and
periodically complete required compliance training. Our business could be adversely affected if our employees do not maintain
their certifications and licenses or we are unable to attract employees with the necessary certifications and licenses.
Other Business Risk Factors
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:
•
•
•
•
•
•
timing of recovering 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.
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
other post-retirement 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 cash flows. 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 post-retirement benefit plans.
Market conditions also affect the values of the assets that are held in trusts to satisfy significant future obligations
under our pension and other post-retirement 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 other post-
retirement benefit plan assets will increase the funding requirements under these plans if future returns on these assets are
insufficient to offset the decline in value. Future increases in pension and other post-retirement 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 accounts authorized by the
CPUC, which permits us to track differences between forecasted annual pension expense adopted in water and electric rates and
actual pension expenses for future recovery or refund to customers.
Our business requires significant capital expenditures and our inability to access the capital or financial markets
could affect our ability to meet our liquidity needs and long-term commitments, which could adversely impact our operations
and financial results
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 regulated utilities. We obtain funds for these capital projects from
operations, contributions by developers and others, and refundable advances from developers (which are repaid over a period of
time). We also periodically borrow money or issue equity for these purposes. In addition, we have revolving credit facilities
that are 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.
22
As our capital investment program continues to increase, coupled with the elimination of bonus depreciation for
regulated utilities due to tax reform, we will need access to external financing more often, which increases our exposure to
market conditions. In addition to cash flow from operations, we rely primarily on our credit facilities and long-term private
placement notes to satisfy our liquidity needs. Changes in market conditions, including events beyond our control, could also
limit our ability to access capital on terms favorable to us or at all, including credit facilities with the borrowing capacities
needed as well as issuing long-term debt. As a result, the amount of capital available may not be sufficient to meet all our
liquidity needs at a reasonable cost at all of our subsidiaries.
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: changes in interest rates; regulatory developments; general economic conditions and trends; price and
volume fluctuations in the overall stock market; 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; major catastrophic events, or
sales of large blocks of our stock.
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 the 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.
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
AWR's credit facility. Our subsidiaries only pay dividends if and when declared by the respective subsidiary board. Moreover,
GSWC and BVESI are obligated to give first priority to their own capital requirements and to maintain capital structures
consistent with those determined to be reasonable by the CPUC in its most recent decisions on capital structure for both GSWC
and BVESI 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.
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 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.
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.
Our operations are geographically concentrated in California
Although we operate water and wastewater facilities in a number of states under our contracted services business, our
regulated water and electric 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 conditio ns,
natural disasters (which may increase as a result of climate change) and other risks affecting California. Our financial results
may also be impacted by population growth or decline in our service areas.
Item 1B. Unresolved Staff Comments
None.
23
Item 2. Properties
Water Properties
As of December 31, 2021, GSWC’s physical properties consisted of water transmission and distribution systems,
which included 2,860 miles of pipeline together with services, meters and fire hydrants, and approximately 450 parcels of land
generally less than 1 acre each, on which are located wells, pumping plants, reservoirs and other water utility facilities,
including three 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, 2021, GSWC owned 240 wells, of which 159 are active operable wells equipped with pumps with
an aggregate production capacity of approximately 161 million gallons per day. GSWC has 58 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 114.6 million gallons. GSWC owns no dams. The following table provides, in greater
detail, information regarding the water utility plant of GSWC:
Pumps
Well
Booster
Mains*
Distribution Facilities
Services
Hydrants
Tanks
Capacity*
Reservoirs
240
385
2,860
262,770
26,684
142
114.6 (1)
* Reservoir capacity is measured in millions 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 per day from a
treatment plant owned by Contra Costa Water District. GSWC also has additional reservoir capacity through an exclusive right-to-use all
of one 8 million gallon reservoir, one-half of another 8 million gallon reservoir, and one-half of a treatment plant’s capacity, all owned by
Three Valleys Municipal Water District.
Electric Properties
BVESI's properties are located in the Big Bear area of San Bernardino County, California. As of December 31, 2021,
BVESI owned and operated approximately 87.8 miles of overhead 34.5 kilovolt (kv) sub-transmission lines, 6.49 miles of
underground 34.5 kv sub-transmission lines, 491.4 miles of overhead 4.16 kv or 2.4 kv distribution lines, 113.6 miles of
underground cable, 13 sub-stations and a natural gas-fueled 8.4 MW peaking generation facility. BVESI 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 established through comprehensive
litigation in the courts, and the annual extraction quantities and use of the adjudicated rights are often subject to the provisions
of the judgment for that particular groundwater basin. Additionally, as a result of the adjudication, many of these groundwater
basins are managed by a watermaster that is charged with enforcing the provisions of the judgment, which may include
determining operating safe yields based on the water supply conditions of the groundwater basin.
GSWC actively manages its adjudicated groundwater rights portfolio with the goal of optimizing and making this
source of supply sustainable. Unadjudicated rights are subject to further regulation by the State Water Resources Control Board
(“SWRCB”) and the California Department of Water Resources. Surface water rights are quantified and managed by the
SWRCB, unless the surface water rights originated prior to 1914. As of December 31, 2021, GSWC had adjudicated
groundwater rights and surface water rights of 70,941 and 11,335 acre-feet per year, respectively. GSWC also has a number of
unadjudicated groundwater rights, which have not been quantified, but are typically measured by historical usage.
Office Buildings
GSWC owns its general headquarters facility in San Dimas, California. GSWC also owns and leases customer service
offices and office space throughout California. BVESI owns office space in California. ASUS leases office facilities in
Georgia, Virginia, Texas and North Carolina, and owns service centers in Florida, Maryland, South Carolina, Virginia, Texas,
North Carolina and Kansas.
24
Mortgage and Other Liens
As of December 31, 2021, neither AWR, GSWC, BVESI, ASUS, nor any of its subsidiaries, had any mortgage debt or
liens securing indebtedness outstanding. Under the terms of certain debt instruments, AWR, GSWC and BVESI 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 constitutes a more necessary use. In
addition, these laws provide that the owner of utility property (i) may contest whether the condemnation is actually necessary,
and (ii) is entitled to receive the fair market value of its property if the property is ultimately taken.
Item 3. Legal Proceedings
Registrant is subject to ordinary routine litigation incidental to its business, some of which may include claims for
compensatory and punitive damages. Management believes that rate recovery, proper insurance coverage and reserves are in
place to insure against, among other things, property, general liability, employment, and workers’ compensation claims incurred
in the ordinary course of business. Insurance coverage may not cover certain claims involving punitive damages.
Item 4. Mine Safety Disclosure
Not applicable.
25
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 of American States Water Company's Common Shares
with the cumulative total returns of the S&P 500 index and a customized peer group of seven water utilities that includes:
American Water Works Company Inc., Essential Utilities Inc., Artesian Resources Corporation, California Water Service
Group, Middlesex Water Co, York Water Co. and SJW Group. In accordance with SEC guidance, the returns of the seven
utilities included in the peer group are weighted according to their respective market capitalizations.
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, 2016. Relative performance is tracked through
December 31, 2021.
12/2016
12/2017
12/2018
12/2019
12/2020
12/2021
American States Water Company $
S&P 500
$
Peer Group
$
100.00 $
100.00 $
100.00 $
129.76 $
121.83 $
128.06 $
153.01 $
116.49 $
126.59 $
200.73 $
153.17 $
170.84 $
187.16 $
181.35 $
199.95 $
247.53
233.41
246.86
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
26
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 intraday high and low NYSE prices on the Common Shares for each quarter during the past two years were:
2021
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2020
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Stock Prices
High
Low
$
$
$
$
$
$
$
$
83.05 $
83.75 $
94.96 $
103.77 $
96.64 $
91.11 $
82.19 $
80.94 $
70.07
75.34
79.57
84.93
65.11
72.88
69.25
71.84
The closing price of the Common Shares of American States Water Company on the NYSE on February 18, 2022
was $86.03.
Approximate Number of Holders of Common Shares
As of February 18, 2022, there were 2,011 holders of record of the 36,945,434 outstanding Common Shares of
American States Water Company. AWR owns all of the outstanding Common Shares of GSWC, BVESI 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
2021
2020
0.335 $
0.335 $
0.365 $
0.365 $
1.400 $
0.305
0.305
0.335
0.335
1.280
$
$
$
$
$
AWR’s ability to pay dividends is subject to the requirement in its revolving credit facility to maintain compliance
with all covenants described in Note 9 Bank Debt included in Part II, Item 8, in the Notes to Consolidated Financial Statements.
GSWC is prohibited under the terms of its 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
$661.4 million to invoke this covenant as of December 31, 2021.
Under California law, AWR, GSWC, BVESI 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 $685.9 million was available to pay dividends to
AWR’s common shareholders and repurchase shares from AWR’s common shareholders at December 31, 2021. Approximately
$615.7 million was available for GSWC to pay dividends to AWR at December 31, 2021, and approximately $70.7 million was
available for BVESI to pay dividends to AWR at December 31, 2021. BVESI has a separate revolving credit facility, and its
ability to pay dividends is subject to the requirement in the credit agreement to maintain compliance with all covenants
described in Note 9 Bank Debt.
27
ASUS's ability to pay dividends to AWR is dependent upon the ability of each of the Military Utility Privatization
Subsidiaries to pay dividends to ASUS under applicable state law as well as ASUS's ability to pay dividends under
California law.
AWR paid $51.7 million in dividends to shareholders for the year ended December 31, 2021, as compared to $47.2
million for the year ended December 31, 2020. GSWC paid dividends of $38.3 million and $22.5 million to AWR in 2021 and
2020, respectively. BVESI did not pay dividends during 2021, and paid dividends of $12.4 million to AWR in 2020. ASUS did
not pay dividends in 2021, and paid dividends of $12.4 million to AWR in 2020.
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 2021.
The following table provides information about AWR repurchases of its Common Shares during the fourth quarter
of 2021:
Period
October 1 - 31, 2021
November 1 - 30, 2021
December 1 - 31, 2021
Total
Total Number of
Shares Purchased
401
8,078
$
$
2,275
10,754 (2) $
$
Average Price Paid
per Share
88.48
92.60
96.07
93.18
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)
—
—
—
—
—
—
(1) None of the Common Shares were repurchased pursuant to any publicly announced stock repurchase program.
(2) Of these amounts, 7,554 Common Shares were acquired on the open market for employees pursuant to the 401(k) Plan. The
remainder of the shares were acquired on the open market for participants in the Common Share Purchase and Dividend
Reinvestment Plan.
(3) Neither the 401(k) plan nor the Common Share Purchase and Dividend Reinvestment Plan contains a maximum number of common
shares that may be purchased in the open market.
Item 6. (Reserved)
28
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, BVESI and ASUS and its
subsidiaries, and AWR (parent) where applicable. On July 1, 2020, GSWC completed the transfer of the electric utility assets
and liabilities from its electric division to BVESI in exchange for common shares of BVESI. GSWC then immediately
distributed all of BVESI's common shares to AWR, whereupon BVESI became wholly owned directly by AWR. The
reorganization did not result in any substantive changes to AWR's operations or business segments.
Included in the following analysis is a discussion of Registrant’s operations in terms of earnings per share by business
segment and AWR (parent), which equals each business segment's earnings divided by Registrant's weighted average number of
diluted common shares. This item is derived from consolidated financial information but is not presented in our financial
statements that are prepared in accordance with Generally Accepted Accounting Principles (GAAP) in the United States. This
item constitutes a "non-GAAP financial measure" under the Securities and Exchange Commission rules.
Registrant believes that the disclosure of earnings per share by business segment provides investors with clarity
surrounding the performance of its segments. Registrant reviews this measurement regularly and compares it to historical
periods and to its operating budget. However, this measure, which is not presented in accordance with GAAP, may not be
comparable to similarly titled measures used by other enterprises and should not be considered as an alternative to earnings per
share, which is determined in accordance with GAAP. A reconciliation to AWR’s consolidated diluted earnings per share is
included in the discussion under the sections titled “Summary Results by Segment.”
Overview
Factors affecting our financial performance are summarized under the Overview section in Item 1. Business and
Item 1A. Risk Factors.
Water and Electric Segments:
GSWC's and BVESI's revenues, operating income, and cash flows are earned primarily through delivering potable
water to homes and businesses in California and electricity in the Big Bear area of San Bernardino County, California,
respectively. Rates charged to GSWC and BVESI customers are determined by the CPUC. These rates are intended to allow
recovery of operating costs and a reasonable rate of return on capital. GSWC and BVESI plan to continue seeking additional
rate increases in future years from the CPUC to recover operating and supply costs, and receive reasonable returns on invested
capital. Capital expenditures in future years at GSWC and BVESI are expected to remain at substantially higher levels than
depreciation expense. When necessary, GSWC and BVESI may obtain funds from external sources in the capital markets and
through bank borrowings.
General Rate Case Filings and Other Matters:
Water General Rate Case for years 2022 - 2024:
On July 15, 2020, GSWC filed a general rate case application for all of its water regions and its general office. This
general rate case will determine new water rates for the years 2022 – 2024. In November 2021, GSWC and the Public
Advocates Office at the CPUC ("Public Advocates") filed with the CPUC a joint motion to adopt a settlement agreement
between GSWC and Public Advocates on this general rate case application. The settlement agreement, if approved, resolves all
issues related to the 2022 annual revenue requirement in the general rate case application, leaving only three unresolved issues.
Among other things, the settlement authorizes GSWC to invest approximately $404.8 million in capital infrastructure over the
three-year cycle. The settlement also authorizes GSWC to complete certain advice letter capital projects approved in the last
general rate case, which have recently been completed for a total capital investment of $9.4 million. The additional annual
revenue requirements generated from these capital investments are $1.2 million and became effective February 15, 2022.
Advice letter projects are filed for revenue recovery only when those projects are completed. Excluding the advice letter project
revenues, the amounts included in the settlement agreement would increase the 2022 adopted revenues by approximately $30.3
million as compared to the 2021 adopted revenues, and increase the 2022 adopted supply costs by $9.7 million as compared to
the 2021 adopted supply costs. The settlement agreement also allows for potential additional increases in adopted revenues for
2023 and 2024 subject to an earnings test and changes to the forecasted inflationary index values.
The three remaining unresolved issues relate to GSWC's requests for: (i) a medical cost balancing account, (ii) a
general liability insurance cost balancing account, and (iii) the consolidation of two of GSWC's customer service areas. GSWC
and Public Advocates have filed briefs with the CPUC on these unsettled issues. A proposed decision is expected in mid-2022,
and would address the three unresolved issues along with the settlement agreement filed by GSWC and Public Advocates.
29
Pending a final decision on this general rate case application, GSWC filed with the CPUC for interim rates, which will make
new 2022 rates, once approved in a CPUC final decision, retroactively effective January 1, 2022.
Water General Rate Case for years 2019 – 2021:
In May 2019, the CPUC issued a final decision in GSWC's water general rate case for the years 2019 – 2021, with
rates retroactive to January 1, 2019. Among other things, the final decision authorized GSWC to invest approximately $334.5
million over the rate cycle. The $334.5 million of infrastructure investment included $20.4 million of capital projects to be
filed for revenue recovery through advice letters when those projects are completed. Due to changes in circumstances,
including permitting delays, scope adjustments and constraints out of GSWC's control, not all the anticipated advice letter
projects have been completed during this rate cycle. The majority of the $20.4 million of advice letter capital projects were
included in GSWC’s water general rate case for the years 2022 – 2024.
The final decision also allowed for water rate increases in 2020 and 2021, subject to an earnings test. Effective
January 1, 2020, GSWC received its full second-year step increase, which it achieved because of passing an earnings test at all
of its ratemaking areas. The full step increase generated an additional $9.6 million in water revenues for 2020. Adopted supply
costs for 2020 were $789,000 lower than the 2019 adopted supply costs. The CPUC also approved all of the third-year rate
increases effective January 1, 2021, which generated an additional increase in the adopted water revenues of approximately
$16.4 million in 2021. Adopted water supply costs for 2021 were $5.3 million higher than the 2020 adopted supply costs.
Final Decision in the First Phase of the Low-Income Affordability Rulemaking:
On August 27, 2020, the CPUC issued a final decision in the first phase of the CPUC’s Order Instituting Rulemaking
evaluating the low income ratepayer assistance and affordability objectives contained in the CPUC’s 2010 Water Action Plan.
This decision also addressed other issues, including the continued use of the Water Revenue Adjustment Mechanism
("WRAM") and the Modified Cost Balancing Account ("MCBA"). The MCBA is a full-cost balancing account used to track
the difference between adopted and actual water supply costs (including the effects of changes in both rates and volume).
Based on the final decision, any general rate case application filed by GSWC and the other California water utilities after
August 27, 2020 may not include a proposal to continue the use of the WRAM or MCBA, but may instead include a proposal to
use a limited price adjustment mechanism and an incremental supply cost balancing account.
The final decision did not have any impact on GSWC's WRAM or MCBA balances during the 2019 – 2021 rate cycle.
In February 2021, the assigned administrative law judge in the pending general rate case proceeding confirmed that GSWC may
continue using the WRAM and MCBA through the year 2024. GSWC’s next general rate case application will be filed in 2023
to establish new rates for the years 2025 – 2027, which may not include the WRAM or MCBA for those years.
Since its implementation in 2008, the WRAM and MCBA have helped mitigate fluctuations in GSWC’s earnings due
to changes in water consumption by its customers or changes in water supply mix. Replacing them with mechanisms
recommended in the final decision will likely result in more volatility in GSWC’s future earnings and could result in less than,
or more than, full recovery of its authorized revenue and supply costs. In October 2020, GSWC, certain other California water
utilities, and the California Water Association filed separate applications for rehearing on this matter. Due to the delay in the
CPUC issuing a decision on any of these applications for rehearing, GSWC filed a petition for writ of review to the California
Supreme Court in May 2021, requesting the Court to review the CPUC's final decision on this matter. The CPUC requested
that the Court hold GSWC’s request in abeyance until such time as the CPUC acts on the pending request for rehearing. In
September 2021, the CPUC issued a decision denying all the October 2020 applications for rehearing. In October 2021, GSWC
re-filed its writ of review to the California Supreme Court, requesting the Court to review the CPUC's final decision on this
matter. Certain other California water utilities, and the California Water Association also filed separate writs of review with the
Court. On January 28, 2022, the CPUC served its response to GSWC’s and other parties petitions requesting the Court to deny
the requests. Management cannot currently predict the final outcome of this matter.
Final Decision in the Second Phase of the Low-Income Affordability Rulemaking:
On July 15, 2021, the CPUC issued a final decision in the second phase of the Low-Income Affordability Rulemaking.
Among other things, the decision extended the suspension of water-service disconnection implemented during the COVID-19
pandemic due to non-payment of past-due amounts billed to residential customers until February 1, 2022. The final decision
also requires that amounts tracked in GSWC's COVID-19 Catastrophic Event Memorandum Account ("CEMA") account for
unpaid customer bills be first offset by any (i) federal or state relief for customers' utility bill debt, and (ii) customer payments
through payment-plan arrangements prior to receiving recovery from customers at large. In January 2022, GSWC received
$9.5 million from the state of California of relief funding for customers' unpaid water bills incurred during the pandemic, which
it is applying to its delinquent customers' eligible balances as discussed later under the section titled COVID-19. In August
30
2021, GSWC, in addition to three other parties, filed separate applications to the CPUC for rehearing on certain aspects of this
final decision. In January 2022, the California Water Association filed a writ of review to the California Supreme Court, urging
the Court to review the CPUC's final decision on the second phase of the Low-Income Affordability Rulemaking. Management
cannot currently predict the final outcome of this matter.
Cost of Capital Proceeding:
Investor-owned water utilities serving California are required to file their cost of capital applications on a triennial
basis. GSWC filed a cost of capital application with the CPUC in May 2021 requesting a capital structure of 57% equity and
43% debt, a return on equity of 10.5%, and a return on rate base of 8.18%. Hearings on this proceeding are scheduled for the
second quarter of 2022. A proposed decision on this proceeding is expected in the second half of 2022. A final decision on this
proceeding, once issued by the CPUC, is expected to have an effective date retroactive to January 1, 2022. GSWC's last
authorized rate of return on rate base of 7.91% remained applicable through December 31, 2021.
Electric Segment:
On August 15, 2019, the CPUC issued a final decision on the electric general rate case. Among other things, the
decision (i) extended the rate cycle by one year (new rates were effective for 2018 - 2022); (ii) allows the electric segment to
construct all the capital projects requested in its application, which are dedicated to improving system safety and reliability and
total approximately $44 million over the 5-year rate cycle; and (iii) increased the adopted electric revenues by $1.2 million for
each of the years 2019 and 2020, by $1.1 million in 2021, and by $1.0 million in 2022. The rate increases for 2019 – 2022 are
not subject to an earnings test. The decision authorized a return on equity for the electric segment of 9.6% and included a
capital structure and debt cost that is consistent with those approved by the CPUC in March 2018 in connection with GSWC's
water segment cost of capital proceeding. The rate case decision continues to apply to BVESI.
Contracted Services Segment:
ASUS's revenues, operating income and cash flows are earned by providing water and/or wastewater services,
including operation and maintenance services and construction of facilities at the water and/or wastewater systems at various
military installations, pursuant to 50-year firm fixed-price contracts. The contract price for each of these 50-year contracts is
subject to annual economic price adjustments. Additional revenues generated by contract operations are primarily dependent on
new construction activities under contract modifications with the U.S. government or agreements with other third-party prime
contractors.
COVID-19:
GSWC, BVESI and ASUS have continued their operations throughout the COVID-19 pandemic given that their water,
wastewater and electric utility services are deemed essential. AWR's responses take into account orders issued by the CPUC,
and the guidance provided by federal, state, and local health authorities and other government officials for the COVID-19
pandemic. Some of the actions taken by GSWC and BVESI included suspending service disconnections for nonpayment
pursuant to CPUC and state orders, and telecommuting by employees. The suspension of water-service disconnections at
GSWC was implemented in response to an executive order from the governor of California, as well as CPUC orders. Pursuant
to the CPUC's July 15, 2021 decision in the Second Phase of the Low-Income Affordability Rulemaking discussed previously,
the moratorium on water-service disconnections due to non-payment of past-due amounts billed to residential customers
expired on February 1, 2022. However, water service cannot be disconnected so long as customers make timely payments on
current bills, and are provided and adhere to payment plans to pay down past-due bills resulting from the pandemic. The
moratorium on electric customer service disconnections ended on September 30, 2021. However, electric-service
disconnections for non-payment can only be done after taking into account certain conditions such as average daily
temperatures.
The pandemic has caused volatility in financial markets resulting in fluctuations in the fair value of plan assets in
GSWC's pension and other retirement plans. In addition, the economic impact of the pandemic has also significantly increased
the amount of delinquent customer accounts receivable, resulting in both GSWC and BVESI increasing their allowance for
doubtful accounts throughout the pandemic. However, the CPUC has authorized GSWC and BVESI to track incremental costs,
including bad debt expense in excess of what is included in their respective revenue requirements, incurred as a result of the
pandemic in COVID-19-related memorandum accounts to be filed with the CPUC for future recovery.
On July 12, 2021, the governor of California approved SB-129 Budget Act of 2021, in which nearly $1 billion in relief
funding for overdue water customer bills, and nearly $1 billion in relief funding for overdue electric customer bills were
included. The water customer relief funding is being managed by the State Water Resources Control Board ("SWRCB")
31
through the California Water and Wastewater Arrearage Payment Program to provide assistance to customers for their water
debt accrued during the COVID-19 pandemic by remitting federal funds that the state received from the American Rescue Plan
Act of 2021 to the utility on behalf of eligible customers. In December 2021, GSWC received SWRCB approval for
$9.5 million of relief funding of customers' unpaid water bills incurred during the pandemic. In January 2022, GSWC received
these funds, which it is applying to its delinquent customers' eligible balances. Accordingly, as of December 31, 2021, GSWC
has reflected these relief funds as a reduction to its COVID-19 CEMA account, as well as a reduction to its estimated customer
bad debt reserve. In February 2022, BVESI received $321,000 from the state of California for similar customer relief funding
for unpaid electric bills incurred during the pandemic.
GSWC and BVESI continue to experience delinquent account activity because of the ongoing pandemic. As of
December 31, 2021, GSWC and BVESI had approximately $1.7 million and $302,000, respectively, in regulatory asset
accounts related to bad debt expense in excess of their revenue requirements, the purchase of personal protective equipment,
additional printing costs, and other incremental COVID-19-related costs. The CPUC requires that amounts tracked in GSWC's
and BVESI's COVID-19 memorandum accounts for unpaid customer bills be first offset by any (i) federal or state relief for
customers' utility bill debt, and (ii) customer payments through payment-plan arrangements prior to receiving recovery from
customers at large. After these offsets are made, GSWC and BVESI will each file with the CPUC for recovery of any
remaining balances.
By tracking incremental COVID-19-related costs in the CPUC-approved memorandum accounts, GSWC and BVESI
can later ask for recovery of these costs from the CPUC. The CEMA and other emergency-type memorandum accounts are
established as a result of a state or federally declared emergency, and are therefore recognized as regulatory assets for future
recovery. As a result, the amounts recorded in the COVID-19-related memorandum accounts have not impacted GSWC's and
BVESI's earnings during the pandemic. ASUS has experienced delays in receiving contract modifications from the U.S.
government for additional construction projects due to government staffing shortages resulting from the COVID-19 pandemic
but this has not had a material impact on its current operations.
In September 2021, the president of the United States issued orders and instructions on mandatory COVID-19
vaccination of all federal employees, federal contractors and employees of companies with 100 or more employees. On
January 13, 2022, the U.S. Supreme Court ruled to stop the president's administration from enforcing a requirement that
employees at businesses with at least 100 employees be vaccinated against COVID-19 or undergo weekly testing and wear a
mask on the job. Therefore, there is no COVID-19 vaccination mandate for Registrant’s regulated utilities workforce.
However, although the federal contractor COVID-19 mandate has been challenged, it was not addressed in the January 13,
2022 ruling from the U.S. Supreme Court and, therefore, its applicability to Registrant’s non-regulated workforce remains
uncertain at this time.
32
Summary Results by Segment
The table below sets forth a comparison of the diluted earnings per share contribution by business segment and for the
parent company for the years ended December 31, 2021 and 2020.
Water
Electric
Contracted services
AWR (parent)
$
Consolidated fully diluted earnings per share, as reported (GAAP)
$
Diluted Earnings per Share
Year Ended
12/31/2021
12/31/2020
CHANGE
1.87 $
0.21
0.48
(0.01)
2.55 $
1.66 $
0.20
0.47
—
2.33 $
0.21
0.01
0.01
(0.01)
0.22
The following is a computation and reconciliation of diluted earnings per share from the measure of operating income
by business segment as disclosed in Note 17 to the Consolidated Financial Statements, to AWR’s consolidated fully diluted
earnings per common share for the year ended December 31, 2021 and 2020:
Water
Electric
Contracted Services
AWR (Parent)
Consolidated (GAAP)
2021
In 000's except per share
amounts
Operating income (Note 17) $ 107,573 $
16,263
Other income and expense
22,095
Income tax expense (benefit)
69,215 $
Net income (loss)
$
Weighted Average Number
37,010
of Diluted Shares
1.87 $
Diluted earnings per share
$
2020
97,896 $
15,817
20,515
61,564 $
36,995
1.66 $
2021
10,738 $
(101)
2,975
7,864 $
37,010
0.21 $
2020
10,303 $
336
2,689
7,278 $
36,995
0.20 $
2021
22,675 $
(488)
5,434
17,729 $
37,010
0.48 $
2020
22,309 $
(358)
5,201
17,466 $
36,995
0.47 $
2021
2020
2021
2020
(9) $
533
(81)
(461) $
37,010
(0.01) $
(9) $ 140,977 $ 130,499
15,877
16,207
82
28,197
30,423
(208)
86,425
94,347 $
117 $
36,995
— $
37,010
2.55 $
36,995
2.33
Water Segment:
Diluted earnings per share from the water segment for the year ended December 31, 2021 increased by $0.21 per share
as compared to 2020. Included in the results for 2021 were gains on investments held to fund one of the Company's retirement
plans totaling $4.3 million, or $0.08 per share, as compared to $3.0 million, or $0.06 per share, in gains generated during 2020
largely due to market conditions. Excluding these gains from both years, adjusted diluted earnings at the water segment for
2021 were $1.79 per share as compared to adjusted diluted earnings of $1.60 per share for 2020. This adjusted increase of
$0.19 per share was due to the following items:
• An increase in the water segment’s operating revenues of $16.5 million, largely as a result of new rates authorized by
the CPUC. GSWC received its full third-year step increase effective January 1, 2021 as well as mid-year increases to
reflect higher water supply costs. Due to regulatory mechanisms in place for water supply costs, the increase in operating
revenues includes the full recovery of increases in supply costs discussed below.
• An increase in water supply costs of $4.1 million, which consist of purchased water, purchased power for pumping,
groundwater production assessments and changes in the water supply cost balancing accounts. Actual water supply
costs are tracked and passed through to customers on a dollar-for-dollar basis by way of the CPUC-approved water
supply cost balancing accounts. The increase in water supply costs results in a corresponding increase in water operating
revenues and has no net impact on the water segment’s profitability.
• An overall increase in operating expenses (excluding supply costs and a gain on the sale of assets) of $3.1 million,
which negatively impacted the water segment's earnings. The increase was primarily due to higher chemical and water
treatment costs, conservation costs, regulatory costs, insurance costs, depreciation expense, and property and other
taxes as compared to 2020, partially offset by a decrease in maintenance expense.
• The sale of non-utility-related land at the water segment resulted in a gain of $409,000 recorded during 2021, with no
equivalent item in 2020.
33
• An overall increase in interest expense (net of interest and other income) of $1.7 million, which negatively impacted
earnings. GSWC issued $160 million of long-term debt in July 2020 and used the proceeds to pay down its
intercompany borrowings (as required by the CPUC); intercompany borrowings bear lower short-term rates. There
was also a decrease in interest income earned on regulatory assets at the water segment bearing interest at the current
90-day commercial paper rate, which decreased compared to 2020, as well as a decrease in the receipt of other income
amounts owed by developers.
• A decrease in the effective income tax rate, which favorably impacted earnings. The decrease resulted primarily from
changes in certain flow-through taxes and permanent items during 2021 as compared to 2020. As a regulated utility,
GSWC treats certain temporary differences as flow-through in computing its income tax expense consistent with the
income tax method used in its CPUC-jurisdiction ratemaking. Changes in the magnitude of flow-through items either
increase or decrease tax expense, thereby affecting diluted earnings per share.
Electric Segment:
Diluted earnings from the electric segment was $0.21 per share for 2021, as compared to $0.20 per share recorded for
2020, an increase of $0.01 per share. There was an increase in electric revenues due to CPUC-approved rate increases effective
January 1, 2021, as well as lower interest expense as compared to 2020. The decrease in interest expense was due primarily to
the elimination of interest expense allocated from GSWC effective July 1, 2020 as a result of the spin-off of GSWC's electric
division to BVESI. These increases to net earnings were partially offset by an increase in electric supply costs and other operating
expenses. Due to regulatory mechanisms in place, the increase in electric supply costs results in a corresponding increase in
electric operating revenues and has no net impact on the electric segment’s profitability.
Contracted Services Segment:
Diluted earnings from the contracted services segment was $0.48 per share, as compared to $0.47 per share for 2020,
an increase of $0.01 per share. This was due to an increase in management fee revenue, as well as a decrease in overall
operating expenses, partially offset by overall lower construction activity as compared to 2020. The decrease in overall
operating expenses was due to, among other things, lower legal and outside services costs and other non-income taxes.
AWR (Parent):
For the year ended December 31, 2021, diluted earnings from AWR (parent) decreased $0.01 per share compared to
2020 due primarily to changes in state unitary taxes.
The following discussion and analysis for the years ended December 31, 2021 and 2020 provide information on AWR’s
consolidated operations and assets and, where necessary, includes specific references to AWR’s individual segments and
subsidiaries: GSWC, BVESI and ASUS and its subsidiaries.
34
Consolidated Results of Operations - Years Ended December 31, 2021 and 2020 (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
(Gain) loss on sale of assets
Total operating expenses
Year Ended Year Ended
12/31/2021 12/31/2020 CHANGE
$
%
CHANGE
$ 347,112 $ 330,637 $
37,024
120,582
488,243
38,345
113,396
498,853
16,475
1,321
(7,186)
10,610
77,914
11,103
19,412
11,240
(11,421)
34,738
83,547
39,596
12,781
22,522
56,909
(465)
357,876
74,554
10,134
20,392
10,423
(11,803)
33,236
83,615
36,850
15,702
22,199
62,411
31
357,744
3,360
969
(980)
817
382
1,502
(68)
2,746
(2,921)
323
(5,502)
(496)
132
5.0%
3.6%
-6.0 %
2.2%
4.5%
9.6%
-4.8 %
7.8%
-3.2 %
4.5%
-0.1 %
7.5%
-18.6 %
1.5%
-8.8 %
*
— %
OPERATING INCOME
140,977
130,499
10,478
8.0%
OTHER INCOME AND EXPENSES
Interest expense
Interest income
Other, net
(22,834)
1,493
5,134
(16,207)
(22,531)
1,801
4,853
(15,877)
(303)
(308)
281
(330)
1.3%
-17.1 %
5.8%
2.1%
INCOME FROM OPERATIONS BEFORE INCOME TAX
EXPENSE
124,770
114,622
10,148
Income tax expense
NET INCOME
Basic earnings per Common Share
Fully diluted earnings per Common Share
* not meaningful
30,423
28,197
2,226
94,347 $
86,425 $
7,922
2.55 $
2.34 $
0.21
2.55 $
2.33 $
0.22
$
$
$
8.9%
7.9%
9.2%
9.0%
9.4%
35
Operating Revenues
General
GSWC and BVESI rely upon approvals by the CPUC of rate increases to recover operating expenses and to provide
for a return on invested and borrowed capital used to fund utility plant. ASUS relies on economic price and equitable
adjustments by the U.S. government in order to recover operating expenses and provide a profit margin for ASUS. Current
operating revenues and earnings may be negatively impacted if the Military Utility Privatization Subsidiaries do not receive
adequate price adjustments in a timely manner. ASUS’s earnings are also impacted by the level of 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, 2021, revenues from water operations increased by $16.5 million to $347.1 million,
compared to the year ended December 31, 2020 as a result of full third-year step increases for 2021 approved by the CPUC.
These increases were partially offset by lower CPUC-approved surcharges billed in 2021 to recover previously incurred costs.
These surcharges are largely offset by corresponding decreases in operating expenses, resulting in no impact to earnings.
Billed water consumption for the year ended December 31, 2021 increased slightly compared to 2020. In general,
changes in consumption do not have a significant impact on recorded revenues due to the CPUC-approved WRAM accounts in
place in the majority of GSWC's rate-making areas. GSWC records the difference between what it bills its water customers and
that which is currently authorized by the CPUC in the WRAM accounts as regulatory assets or liabilities. The August 2020
CPUC decision on the First Phase of the Low-Income Affordability Rulemaking eliminates the continued use of the WRAM
beginning with the next general rate case application that will be filed in 2023 and will set new rates for the years 2025 – 2027.
Electric
For the year ended December 31, 2021, revenues from electric operations were $38.3 million as compared to $37.0
million for the year ended December 31, 2020. This increase was due to new CPUC-approved electric rates effective
January 1, 2021, partially offset by a 2% decrease in electric usage as compared to the same period in 2020. Due to the CPUC-
approved Base Revenue Requirement Adjustment Mechanism, which adjusts certain revenues to adopted levels authorized by
the CPUC, changes in usage do not have an 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, 2021, total revenues from contracted services were $113.4 million as compared to $120.6 million for
2020. The decrease was due to an overall decrease in construction activity as compared to 2020, partially offset by an increase
in management fees resulting from the successful resolution of various economic price adjustments and other filings at the
military bases served.
ASUS's subsidiaries continue to enter into U.S. government-awarded contract modifications and agreements with
third-party prime contractors for new construction projects at the military bases served. During 2021, ASUS was awarded
approximately $17.3 million in new construction projects, some of which have been completed during 2021. The majority of
the remainder are expected to be completed in 2022. Furthermore, in September 2021, ASUS received a contract modification
that provided for additional infrastructure assets located at Joint Base Andrews to be operated and maintained by ASUS under
its utility privatization contract with the U.S. government. The operation and maintenance, and renewal and replacement of
these assets is expected to contribute additional revenue of approximately $41.0 million over the remaining life of the 50-year
contract, through January 2056. 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
Total supply costs comprise the largest segment of total operating expenses. Supply costs accounted for 30.2% and
29.0% of total operating expenses for the years ended December 31, 2021 and 2020, respectively.
Water segment supply costs
Two of the principal factors affecting water supply costs are the amount of water produced and the source of the water.
Generally, the variable cost of producing water from wells is less than the cost of water purchased from wholesale suppliers.
36
The overall actual percentages for purchased water for the years ended December 31, 2021 and 2020 was 45% and 44%,
respectively, as compared to the adopted percentages of 34% for 2021 and 2020. The higher actual percentages of purchased
water as compared to adopted percentages resulted primarily from several wells being out of service.
Under the CPUC-approved Modified Cost Balancing Account ("MCBA"), GSWC tracks adopted and actual expense
levels for purchased water, power purchased for pumping and pump taxes. GSWC records the variances (which include the
effects of changes in both rate and volume) between adopted and actual purchased water, purchased power and pump tax
expenses. GSWC recovers from, or refunds to, customers the amount of such variances. GSWC tracks these variances
individually for each water ratemaking area. The August 2020 CPUC decision on the First Phase of the Low-Income
Affordability Rulemaking, which eliminates the continued use of the WRAM, also eliminates the MCBA for GSWC beginning
in the year 2025.
Supply costs for the water segment consist of purchased water, purchased power for pumping, groundwater production
assessments and changes in the water supply cost balancing accounts. For the years ended December 31, 2021 and 2020, water
supply costs consisted of the following amounts (in thousands):
Water purchased
Power purchased for pumping
Groundwater production assessment
Water supply cost balancing accounts *
Total water supply costs
Year
Ended
12/31/2021
Year
Ended
12/31/2020
$
$
77,914 $
11,103
19,412
(11,295)
97,134 $
74,554 $
10,134
20,392
(12,060)
93,020 $
$
CHANGE
%
CHANGE
3,360
969
(980)
765
4,114
4.5%
9.6%
-4.8 %
-6.3 %
4.4%
* The sum of water and electric supply-cost balancing accounts are shown on AWR’s Consolidated Statements of Income and
totaled $(11,421,000) and $(11,803,000) for 2021 and 2020, respectively.
Purchased water costs for 2021 increased to $77.9 million as compared to $74.6 million for 2020 primarily due to the
higher mix of purchased water as compared to pumped water and an increase in wholesale water costs. The cost of power
purchased for pumping increased to $11.1 million in 2021 as compared to $10.1 million for 2020, due to increased electricity
costs. Groundwater production assessments decreased to $19.4 million in 2021 as compared to $20.4 million in 2020 due to a
higher amount of purchased water versus pumped water.
The under-collection in the water supply cost balancing account decreased $765,000 during 2021 as compared to 2020
due to rate increases to specifically cover increases in supply costs experienced in these areas, partially offset by higher costs
related to purchased water.
Electric segment supply costs
Supply costs for the electric segment consist primarily of purchased power for resale, the cost of natural gas used by
BVESI’s generating unit, the cost of renewable energy credits and changes in the electric supply cost balancing account. For
the years ended December 31, 2021 and 2020, electric supply costs consisted of the following amounts (in thousands):
Power purchased for resale
Electric supply cost balancing account *
Total electric supply costs
Year
Ended
12/31/2021
Year
Ended
12/31/2020
$
$
11,240 $
(126)
11,114 $
10,423 $
257
10,680 $
$
CHANGE
%
CHANGE
817
(383)
434
7.8%
-149.0 %
4.1%
* The sum of water and electric supply-cost balancing accounts are shown on AWR’s Consolidated Statements of Income and
totaled $(11,421,000) and $(11,803,000) for 2021 and 2020, respectively.
For 2021, the cost of power purchased for resale to BVESI's customers was $11.2 million as compared to $10.4
million for 2020 due to an increase in the average price per megawatt-hour ("MWh"). The average price per MWh, including
fixed costs, increased to $71.94 per MWh in 2021 from $67.52 per MWh in 2020. This increase in price resulted in an under-
collection of $126,000 recorded in the electric supply balancing account during 2021 as compared to an over-collection of
$257,000 during 2020.
37
Other Operation
The primary components of other operation expenses include payroll, materials and supplies, chemicals and water-
treatment costs, and outside service costs of operating the regulated water and electric systems, including the costs associated
with 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, 2021 and 2020, other operation expenses by business segment consisted of the following amounts (in thousands):
Water Services
Electric Services
Contracted Services
Total other operation
Year
Ended
12/31/2021
Year
Ended
12/31/2020
$
$
25,781 $
3,011
5,946
34,738 $
23,690 $
2,705
6,841
33,236 $
$
CHANGE
%
CHANGE
2,091
306
(895)
1,502
8.8%
11.3 %
-13.1 %
4.5%
For the year ended December 31, 2021, other operation costs at the water segment increased due to increases in
chemical and water treatment costs including outside service costs associated with the water treatment processes, as well as
increases in water conservation costs incurred to address current drought conditions.
Other operation expenses for the electric segment increased primarily due to higher operation-related labor and outside
services costs.
The change in other operation expenses for contracted services was primarily due to (i) higher bad debt expense
experienced in 2020 related to certain receivable balances due from other prime contractors working for the U.S. government,
and (ii) lower pre-contract costs incurred in 2021 as compared to 2020.
Administrative and General
Administrative and general expenses include payroll related to administrative and general functions, all employee-
related benefits, insurance expenses, outside legal and consulting fees, regulatory utility commission expenses, expenses
associated with being a public company and general corporate expenses charged to expense accounts. For the years ended
December 31, 2021 and 2020, 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
Year
Ended
12/31/2021
Year
Ended
12/31/2020
$
CHANGE
%
CHANGE
$
$
55,552 $
8,694
19,292
9
83,547 $
55,067 $
8,639
19,900
9
83,615 $
485
55
(608)
—
(68)
0.9%
0.6%
-3.1 %
— %
-0.1 %
For the year ended December 31, 2021, administrative and general expenses at the water segment increased $485,000.
Excluding the impact of a reduction in billed surcharges, administrative and general expenses increased $739,000 due to higher
employee-related benefits, insurance costs, and regulatory costs. Decreases in billed surcharges have a corresponding decrease
in administrative and general expenses, resulting in no impact to earnings.
For the year ended December 31, 2021, administrative and general expenses for contracted services decreased by
$608,000 due to lower legal and other outside services as compared to 2020. Legal and outside services tend to fluctuate from
period to period.
38
Depreciation and Amortization
For the years ended December 31, 2021 and 2020, 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
12/31/2021
Year
Ended
12/31/2020
$
$
33,384 $
2,572
3,640
39,596 $
30,969 $
2,479
3,402
36,850 $
$
CHANGE
%
CHANGE
2,415
93
238
2,746
7.8%
3.8%
7.0%
7.5%
The increases in depreciation expense resulted primarily from additions to utility plant and other fixed assets
since 2020.
Maintenance
For the years ended December 31, 2021 and 2020, maintenance expense by segment consisted of the following
amounts (in thousands):
Water Services
Electric Services
Contracted Services
Total maintenance
Year
Ended
12/31/2021
Year
Ended
12/31/2020
$
$
9,056 $
697
3,028
12,781 $
11,737 $
985
2,980
15,702 $
$
CHANGE
%
CHANGE
(2,681)
(288)
48
(2,921)
-22.8 %
-29.2 %
1.6%
-18.6 %
Maintenance expense decreased at the water segment due largely to lower unplanned maintenance incurred as
compared to 2020. The need for unplanned maintenance activities for the water segment were significantly higher in 2020 than
in 2021.
The decrease in maintenance at the electric segment was due to a decrease in billed surcharges as compared to 2020,
which has a corresponding decrease in maintenance expense and, therefore, no earnings impact.
Property and Other Taxes
For the years ended December 31, 2021 and 2020, 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
12/31/2021
Year
Ended
12/31/2020
$
$
19,041 $
1,519
1,962
22,522 $
18,261 $
1,232
2,706
22,199 $
$
CHANGE
%
CHANGE
780
287
(744)
323
4.3%
23.3%
-27.5 %
1.5%
Property and other taxes at the water and electric segments increased during 2021 as compared to 2020 due, in large
part, to an increase in property taxes resulting from capital additions and the associated higher assessed property values. The
decrease at the contracted services segment was due to lower non-income tax assessments and fees as compared to 2020.
39
ASUS Construction
For the year ended December 31, 2021, construction expenses for contracted services were $56.9 million, decreasing
by $5.5 million compared to 2020 due to an overall decrease in construction activity.
(Gain) Loss on Sale of Assets
The gain on sale of assets in 2021 was related primarily to the sale of a parcel of non-utility-related land at the water
segment with no equivalent item in 2020. The loss on sale of assets in 2020 related to the sale of fixed assets at the contracted
services segment.
Interest Expense
For the years ended December 31, 2021 and 2020, 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
12/31/2021
Year
Ended
12/31/2020
$
CHANGE
%
CHANGE
$
$
21,474 $
259
370
731
22,834 $
20,946 $
767
478
340
22,531 $
528
(508)
(108)
391
303
2.5%
-66.2 %
-22.6 %
115.0 %
1.3%
Registrant's borrowings consist of bank debts under revolving credit facilities and long-term debt issuances at GSWC.
Consolidated interest expense increased as compared to 2020 resulting from an overall increase in total borrowing levels to
support, among other things, the capital expenditures program at the regulated utilities. In July 2020, GSWC issued unsecured
private placement notes totaling $160.0 million. The increase in borrowing levels was partially offset by an overall decrease in
average interest rates due, in part, from the early redemption in May 2021 of GSWC's 9.56% private placement notes in the
amount of $28 million.
Interest Income
For the years ended December 31, 2021 and 2020, 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
12/31/2021
Year
Ended
12/31/2020
$
CHANGE
%
CHANGE
$
$
428 $
118
1,007
(60)
1,493 $
634 $
183
974
10
1,801 $
(206)
(65)
33
(70)
(308)
-32.5 %
-35.5 %
3.4%
-700.0 %
-17.1 %
For the year ended December 31, 2021, overall interest income decreased by $308,000 as compared to 2020 due
primarily to lower interest income earned on regulatory assets at the water segment bearing interest at the current 90-day
commercial paper rate, which decreased compared to 2020.
40
Other Income and (Expense), net
For the years ended December 31, 2021 and 2020, other income and (expense) 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
12/31/2021
Year
Ended
12/31/2020
$
CHANGE
%
CHANGE
$
$
4,783 $
242
(149)
258
5,134 $
4,495 $
248
(138)
248
4,853 $
288
(6)
(11)
10
281
6.4%
-2.4 %
8.0%
4.0%
5.8%
For the year ended December 31, 2021, other income increased mostly as a result of larger gains generated and
recorded on investments held to fund one of Registrant's retirement plans as compared to 2020 due to market conditions. This
increase was partially offset by a decrease in the receipt of other income amounts owed by developers, and an increase in the
non-service cost components of net periodic benefit costs related to Registrant's defined benefit pension plans and other
retirement benefits as compared to 2020. Because of GSWC's and BVESI's two-way pension balancing accounts authorized by
the CPUC, changes in pension costs have no material impact to net earnings at the regulated utilities.
Income Tax Expense
For the years ended December 31, 2021 and 2020, 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
12/31/2021
Year
Ended
12/31/2020
$
CHANGE
%
CHANGE
$
$
22,095 $
2,975
5,434
(81)
30,423 $
20,515 $
2,689
5,201
(208)
28,197 $
1,580
286
233
127
2,226
7.7%
10.6%
4.5%
-61.1 %
7.9%
Consolidated income tax expense for the year ended December 31, 2021 increased by $2.2 million due to an increase
in pretax income, partially offset by a lower overall effective income tax rate ("ETR"). AWR's consolidated effective ETR was
24.4% and 24.6% for 2021 and 2020, respectively. GSWC's ETR was 24.2% for 2021 as compared to 25.0% for 2020 resulting
primarily from net changes in certain flow-through and permanent items. The decrease in the tax benefit at AWR (parent) was
the result of changes in state unitary taxes.
Information comparing the consolidated results of operations for fiscal years 2020 and 2019 can be found under
Item 7, Management’s Discussion and Analysis under the heading “Consolidated Results of Operations - Years Ended
December 31, 2020 and 2019” in AWR's Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with
the SEC.
41
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 and estimates 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 GSWC and BVESI operate extensively in regulated businesses, they are
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 rate-regulated 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 of
GSWC and BVESI. When either 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 either GSWC’s or BVESI's operations are no longer
subject to the accounting guidance for the effects of certain types of regulation, they are 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 either GSWC’s or BVESI's assets are not recoverable in customer rates, management is required to determine if it
has suffered an asset impairment that would require a write-down in the asset valuation. Management continually evaluates the
anticipated recovery, settlement or refund of regulatory assets, liabilities, and revenues subject to refund and provides for
allowances and/or reserves that it believes to be necessary. In the event that management’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 were to disallow 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 and BVESI record 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.
In 2008, the CPUC granted GSWC the authority to implement revenue decoupling mechanisms through the adoption
of the WRAM. With the adoption of this alternative revenue program, GSWC adjusts revenues in the WRAM for the
difference between what is billed to its water customers and that which is authorized by the CPUC. In a final decision issued
by the CPUC in August 2020, any general rate case application filed by GSWC and the other California water utilities after the
August 27, 2020 effective date of this decision, may not include a proposal to continue the use of the WRAM. Instead they
include a proposal to use a limited price adjustment mechanism (the Monterey-Style WRAM). The final decision will not have
any impact on GSWC's WRAM balances during the rate cycle covering the years 2019 – 2021, nor the pending general rate
case application filed in July 2020 that will set new rates for the years 2022 – 2024. However, the next general rate case
application in 2023 covering the years 2025 – 2027 is currently not permitted to include the continued use of the WRAM. The
CPUC also granted BVESI a revenue decoupling mechanism through the BRRAM. BVESI adjusts revenues in the BRRAM
for the difference between what is billed to its electric customers and that which is authorized by the CPUC.
As required by the accounting guidance for alternative revenue programs, GSWC and BVESI are required to collect
their WRAM and BRRAM balances, respectively, within 24 months following the year in which they are recorded. The CPUC
has 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. As a result of the
42
accounting guidance and CPUC-adopted recovery periods, Registrant must estimate if any WRAM and BRRAM revenues will
be collected beyond the 24-month period. This can affect the timing of when such revenues are recognized.
ASUS's 50-year firm fixed-price contracts with the U.S. government are considered service concession arrangements
under ASC 853 Service Concession Arrangements. Accordingly, the services under these contracts are accounted for under
Topic 606 Revenue from Contracts with Customers and the water and/or wastewater systems are not recorded as Property, Plant
and Equipment on Registrant’s balance sheet. Revenues for ASUS's 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. This approach is 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 and BVESI, 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 regulated utilities, GSWC and BVESI treat certain temporary differences as flow-through adjustments in
computing their 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 or BVESI were not required to account for its income taxes as regulated enterprises. As of
December 31, 2021, Registrant’s total amount of unrecognized tax benefits was zero.
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 the pension plan's assets was 6.00% for 2021 and 6.25% for 2020.
For the pension plan obligation, Registrant increased the discount rate to 2.89% as of December 31, 2021 from 2.55%
as of December 31, 2020 to reflect market interest-rate conditions at December 31, 2021. A hypothetical 25-basis point
decrease in the assumed discount rate would have increased total net periodic pension expense for 2021 by approximately $1.1
million, or 23.0%, and would have increased the projected benefit obligation (“PBO”) and accumulated benefit obligation
(“ABO”) at December 31, 2021 by a total of $9.9 million, or 3.8%. A 25-basis point decrease in the long-term return on
pension-plan-asset assumption would have increased 2021 pension cost by approximately $523,000, or 10.8%.
In addition, changes in the fair value of plan assets will impact future pension cost and the Plan’s funded
status. Changes in market conditions can affect the value of plan assets held to fund future long-term pension benefits. Any
43
reductions in the value of plan assets will result in increased future expense, an increase in the underfunded position, and
increase the required future contributions.
The CPUC has authorized GSWC and BVESI to each maintain a two-way balancing account to track differences
between their forecasted annual pension expenses adopted in rates and the actual annual expense to be recorded in accordance
with the accounting guidance for pension costs. As of December 31, 2021, GSWC has a $261,000 under-collection in its two-
way pension balancing account for the general office and water regions. As of December 31, 2021, BVESI has a $246,000
over-collection in its two-way pension balancing account.
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 2022 the pension contribution is expected to be approximately $3.1 million. 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, 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 materially increase.
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 plan. Mortality assumptions are a critical
component of benefit obligation amounts and a key factor in determining the expected length of time for annuity payments.
Assuming no 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. Employees hired or rehired
after December 31, 2010 are eligible to participate in a defined contribution plan instead of the pension plan.
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 and BVESI will continue to
be recovered through water and electric rates charged to customers.
AWR funds its operating expenses and pays dividends on its outstanding Common Shares primarily through dividends
from its wholly owned subsidiaries. The ability of GSWC and BVESI to pay dividends to AWR is restricted by California law.
Under these restrictions, approximately $615.7 million was available for GSWC to pay dividends to AWR on December 31,
2021. Approximately $70.7 million was available for BVESI to pay dividends to AWR as of December 31, 2021. ASUS's
ability to pay dividends to AWR is dependent upon state laws in which each Military Utility Privatization Subsidiary operates,
as well as ASUS's ability to pay dividends under California law.
When necessary, Registrant obtains funds from external sources in the capital markets and through bank borrowings
under revolving credit facilities. 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 currently has access to a $200.0 million credit facility and borrows under this facility, which
expires in May 2023, to provide funds to GSWC and ASUS in support of their operations. The interest rate charged to GSWC
and ASUS is sufficient to cover AWR’s interest expense under the credit facility. As of December 31, 2021, there was $174.5
million outstanding under this facility. Registrant expects to issue long-term debt through GSWC prior to May 2023 and use
the debt proceeds to pay off borrowings under this facility. This facility has interest rates generally based on the London
Interbank Offered Rate ("LIBOR"), which will cease immediately after June 30, 2023. In connection with the May 2023
expiration of this credit facility, as well as the pending discontinuation of LIBOR, Registrant anticipates renewing or
entering into a new credit facility prior to May 2023, with interest rates based on other benchmark rates, such as the Secured
Overnight Financing Rate ("SOFR"). Registrant does not believe the change in benchmark rates will have a material impact on
financing costs.
44
BVESI has a $35.0 million revolving credit facility, which was amended in December 2021 to reduce the interest rate
and fees charged, as well as extend the maturity date by one year to July 1, 2024. As of December 31, 2021, there was $31.0
million outstanding under this facility. Borrowings made under this facility support BVESI's operations and capital
expenditures. Under the terms of the credit agreement, BVESI has the option to increase the facility by an additional $15.0
million, subject to lender approval. Interest rates under this facility are generally based on LIBOR. Under the terms of the
December 2021 amendment, upon discontinuation of a benchmark rate such as LIBOR, the lender may replace LIBOR with a
benchmark rate replacement such as SOFR. Registrant does not believe the change from LIBOR to a new benchmark rate will
have a material impact on financing costs. Registrant does not have any other borrowings or debt indexed to LIBOR.
In 2019, the CPUC issued a decision approving BVESI's authority to issue long-term financing not to exceed
$75 million. The CPUC requires BVESI to completely pay off all borrowings under its revolving credit facility within a 24-
month period. The next 24-month period in which BVESI is required to pay off its borrowings from the facility ends in July
2022. Accordingly, the $31.0 million outstanding under BVESI's credit facility has been classified as a current liabilit y in
AWR's Consolidated Balance Sheet as of December 31, 2021. BVESI expects to fund this repayment through the issuance of
long term debt during the first half of 2022.
In May 2021, GSWC redeemed its 9.56% private placement notes in the amount of $28.0 million, which pursuant to
the note agreement included a redemption premium of 3.0% on par value, or $840,000. GSWC recovers redemption premiums
in its embedded cost of debt as filed in cost of capital proceedings where the cost savings from redeeming higher interest rate
debt are passed on to customers. Accordingly, the redemption premium has been deferred as a regulatory asset. Prior to
May 15, 2021, the notes were subject to a make whole premium. GSWC funded the redemption by borrowing from AWR
parent. AWR, in turn, funded this borrowing from its revolving credit facility.
The economic impact of the COVID-19 pandemic has significantly increased the amount of delinquent customer
accounts receivable, resulting in both GSWC and BVESI increasing their allowance for doubtful accounts throughout the
pandemic. This has affected cash flows from operating activities at the regulated utilities and has increased the need to borrow
under AWR's and BVESI's credit facilities. However, the CPUC has authorized GSWC and BVESI to track incremental costs,
including bad debt expense in excess of what is included in their respective revenue requirements, incurred as a result of the
pandemic in COVID-19-related memorandum accounts to be filed with the CPUC for future recovery. Furthermore, in
January 2022, GSWC received $9.5 million from the state of California of relief funding for customers' unpaid water bills
incurred during the pandemic, as previously discussed. As of December 31, 2021, GSWC has reflected these relief funds as a
reduction to its COVID-19 related memorandum account, as well as a reduction to GSWC's estimated customer bad debt
reserve. In February 2022, BVESI received $321,000 from the state of California for similar customer relief funding for unpaid
electric bills incurred during the pandemic. However, GSWC and BVESI continue to experience delinquent account activity
because of the ongoing pandemic.
In March 2021, Standard and Poor’s Global Ratings (“S&P”) affirmed an A+ credit rating for both AWR and GSWC.
S&P also revised its rating outlook to negative from stable for both companies. S&P’s debt ratings range from AAA (highest
possible) to D (obligation is in default). In November 2021, Moody's Investors Service ("Moody's") affirmed its A2 rating with
a stable outlook for GSWC. Securities ratings are not recommendations to buy, sell or hold a security, and are subject to change
or withdrawal at any time by the rating agencies. Management believes that AWR’s sound capital structure and A+ credit
rating, combined with its financial discipline, will enable Registrant to access the debt and equity markets. However,
unpredictable financial market conditions in the future may limit its access or impact the timing of when to access the market,
in which case Registrant may choose to temporarily reduce its capital spending.
AWR’s ability to pay cash dividends on its Common Shares outstanding depends primarily upon cash flows from its
subsidiaries. AWR intends to continue paying quarterly cash dividends 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. On February 1, 2022, AWR's Board of Directors approved a first quarter dividend of $0.365 per
share on AWR's Common Shares. Dividends on the Common Shares will be paid on March 1, 2022 to shareholders of record at
the close of business on February 15, 2022. AWR has paid dividends on its Common Shares for over 82 consecutive years, and
has increased the dividends received by shareholders each calendar year for 67 consecutive years. This places AWR in an
exclusive group of companies on the New York Stock Exchange that have achieved that result. Registrant's current policy is to
achieve a compound annual growth rate in the dividend of more than 7% over the long-term. The Company has achieved
nearly a 10% compound annual growth rate in its calendar year dividend payments from 2011–2021.
45
Registrant's current liabilities may at times exceed its current assets. Management believes that internally generated
cash flows from operations, borrowings from AWR's and BVESI's credit facilities, and access to long-term financing from
capital markets will be adequate to provide sufficient capital to maintain normal operations and to meet its capital and financing
requirements.
Cash Flows from Operating Activities:
Cash flows from operating activities have generally provided sufficient cash to fund operating requirements, including
a portion of construction expenditures at GSWC and BVESI, and construction expenses at ASUS, and to pay dividends.
Registrant’s future cash flows from operating activities are expected to be affected by a number of factors, including utility
regulation; changes in tax law; maintenance expenses; inflation; compliance with environmental, health and safety standards;
production costs; customer growth; per-customer usage of water and electricity; weather and seasonality; conservation efforts;
compliance with local governmental requirements, including mandatory restrictions on water use; the impact of the COVID-19
pandemic on its customers' ability to pay utility bills and required cash contributions to pension and post-retirement plans.
Future cash flows from contracted services subsidiaries will depend on new business activities, existing operations, the
construction of new and/or replacement infrastructure at military bases, timely economic price and equitable adjustment of
prices, and timely collection of payments from the U.S. government and other prime contractors operating at the military bases
and any adjustments arising out of an audit or investigation by federal governmental agencies.
ASUS funds its operating expenses primarily through internal operating sources, which include U.S. government
funding under 50-year contracts for operations and maintenance costs and construction activities, as well as investments by, or
loans from, AWR. ASUS, in turn, provides funding to its subsidiaries. ASUS's subsidiaries may also from time to time provide
funding to ASUS or its subsidiaries.
Cash flows from operating activities are primarily generated by net income, adjusted for non-cash expenses such as
depreciation and amortization. Cash generated by operations varies during the year. Net cash provided by operating activities
was $115.6 million for 2021 as compared to $122.2 million for 2020. The decrease was due primarily to different timing of
income tax installment payments between the two years, as well as a decrease in billed surcharges to recover regulatory assets
at GSWC. The decrease was also due to timing differences of when vendor payments are made for construction work
performed at military bases and the billing of and cash receipts from the U.S. government for work completed. The billings
(and cash receipts) for this construction work generally occur at completion of the work or in accordance with a billing
schedule contractually agreed to with the U.S. government and/or other prime contractors. Thus, cash flow from construction-
related activities may fluctuate from period to period with such fluctuations representing timing differences of when the work is
being performed and when the cash is received for payment of the work. These decreases were partially offset by an
improvement in cash from accounts receivable related to utility customers due, in part, to improved economic conditions as
compared to 2020, which were more affected by the COVID-19 pandemic. The timing of cash receipts and disbursements
related to other working capital items also affected the change in net cash provided by operating activities.
Cash Flows from Investing Activities:
Net cash used in investing activities was $145.1 million for the year ended December 31, 2021 as compared to $131.6
million used in 2020 largely due to an increase in capital expenditures at the regulated utilities. Registrant invests capital to
provide essential services to its regulated customer base, while working with the CPUC to have the opportunity to earn a fair
rate of return on investment. 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, supply and
delivery facilities are constructed). The regulated utilities may also be required from time to time to relocate existing
infrastructure in order to accommodate local infrastructure improvement projects. Projected capital expenditures and other
investments are subject to periodic review and revision. Cash used for other investments consists primarily of cash invested in
a trust for a retirement benefit plan.
During 2022, the regulated utilities' company-funded capital expenditures are expected to be between $140 million and
$160 million, barring any delays resulting from changes in capital improvement schedules due to supply chain issues or the
effects of the COVID-19 pandemic. Projected capital expenditures and other investments are subject to periodic review and
revision.
46
Cash Flows from Financing Activities:
Registrant’s financing activities include primarily: (i) the proceeds from the issuance of Common Shares, (ii) the
issuance and repayment of long-term debt and notes payable to banks, and (iii) the payment of dividends on Common Shares.
In order to finance new infrastructure, GSWC also receives customer advances (net of refunds) for, and contributions in aid of,
construction. Borrowings on AWR's and BVESI's credit facilities are used to fund GSWC and BVESI capital expenditures,
respectively, until long-term financing is arranged. Overall debt levels are expected to increase to fund a portion of the costs of
the capital expenditures that will be made by the regulated utilities.
Net cash used by financing activities was $2.3 million for 2021 as compared to cash provided of $44.8 million for
2020. During 2021, GSWC redeemed its 9.56% private placement notes in the amount of $28.0 million. This decrease in cash
flows was offset by an increase in net borrowings on AWR's credit facility during 2021 to fund the redemption and support
other operating and investing activities. In 2020, GSWC issued unsecured private placement notes totaling $160.0 million. As
required by the CPUC, GSWC used the proceeds from the notes to pay down a majority of its intercompany borrowings from
AWR. AWR used the proceeds from GSWC to pay down amounts outstanding under its credit facility.
GSWC
GSWC funds its operating expenses, payments on its debt, dividends on its outstanding common shares, and a portion
of its construction expenditures through internal sources. Internal sources of cash flow are provided primarily by retention of a
portion of earnings from operating activities. Internal cash generation is influenced by factors such as weather patterns,
conservation efforts, environmental regulation, litigation, changes in tax law and deferred taxes, changes in supply costs and
regulatory decisions affecting GSWC’s ability to recover these supply costs, timing of rate relief, increases in maintenance
expenses and capital expenditures, surcharges authorized by the CPUC to enable GSWC to recover expenses previously
incurred from customers, and CPUC requirements to refund amounts previously charged to customers. Internal cash flows may
also be impacted by delays in receiving payments from GSWC customers due to the economic impact of the COVID-19
pandemic.
GSWC may, at times, utilize external sources for long-term financing, as well as obtain funds from equity investments
and intercompany borrowings from its parent, AWR, to help fund a portion of its operations and construction expenditures. In
July 2020, GSWC completed the issuance of long-term unsecured private placement notes totaling $160.0 million. In addition,
AWR borrows under a revolving credit facility and provides funds to GSWC in support of its operations under intercompany
borrowing arrangements. This credit facility expires in May 2023. However, the CPUC requires GSWC to completely pay off
all intercompany borrowings it has from AWR within a 24-month period. The next 24-month period in which GSWC is
required to pay off its intercompany borrowings from AWR ends in May 2023.
In addition, GSWC receives advances and contributions from customers, home builders and real estate developers to
fund construction necessary to extend service to new areas. Advances for construction are generally refundable at a rate of
2.5% in equal annual installments over 40 years. Utility plant funded by advances and contributions is excluded from rate base.
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 share issuances to AWR, will be adequate to provide sufficient capital to enable GSWC to maintain
normal operations and to meet its capital and financing requirements pending recovery of costs in rates.
On July 1, 2020, GSWC completed the transfer of the net assets from its electric utility division to BVESI. As a result
of this transfer, from July 1, 2020 onward, the cash flows of the electric segment are no longer included in GSWC's statement
of cash flows, but continue to be included in AWR's consolidated statement of cash flows.
Cash Flows from Operating Activities:
Net cash provided by operating activities was $100.3 million for 2021 as compared to $110.3 million for 2020. The
decrease was due primarily to different timing of income tax installment payments between the two years, as well as a decrease
in billed surcharges to recover regulatory assets. This decrease was partially offset by an improvement in cash from accounts
receivable related to utility customers due, in part, to improved economic conditions as compared to 2020, which were more
affected by the COVID-19 pandemic. The timing of cash receipts and disbursements related to other working capital items also
affected the change in net cash provided by operating activities.
47
Cash Flows from Investing Activities:
Net cash used in investing activities was $124.3 million for the year ended December 31, 2021 as compared to $117.7
million for the same period in 2020. During the years ended December 31, 2021 and 2020, cash paid for capital expenditures
was $123.5 million and $116.4 million, respectively. Due to the electric utility reorganization effective July 1, 2020, GSWC's
cash flows from investing activities during 2021 do not include the electric segment's capital expenditures, whereas the cash
flows for 2020 include six months of electric utility capital expenditures.
In October 2020, AWR issued an interest bearing promissory note to GSWC, which expires in May 2023. Under the
terms of the note, AWR may borrow from GSWC amounts up to $30 million for working capital purposes. AWR agrees to pay
any unpaid principal amounts outstanding under this note, plus accrued interest. During 2021 and 2020, AWR borrowed and
repaid a total of $26 million and $6 million, respectively, from GSWC under the terms of the note. As of December 31, 2021,
there were no amounts outstanding under this note.
Cash Flows from Financing Activities:
Net cash used in financing activities was $11.1 million for 2021 as compared to net cash provided of $42.5 million for
2020. During 2021, GSWC redeemed early its 9.56% private placement notes in the amount of $28.0 million. In addition,
GSWC paid $38.3 million in dividends to AWR parent in 2021 as compared to $22.5 million of dividends paid in 2020. These
decreases in cash flows were partially offset by an increase in net intercompany borrowings from AWR to fund the redemption
and support other operating and investing activities. During 2020, GSWC issued unsecured private placement notes totaling
$160.0 million, and also issued five additional of GSWC common shares to AWR for $60.0 million. GSWC used these
proceeds to pay down intercompany borrowings during 2020 as required by the CPUC.
48
Contractual Obligations and Commitments
Registrant has various contractual obligations, which are recorded as liabilities in the consolidated financial
statements. Other items, such as certain purchase commitments, are not recognized as liabilities in the consolidated financial
statements but are required to be disclosed. In addition to contractual maturities, Registrant has certain debt instruments that
contain annual sinking funds or other principal payments. Registrant believes that it will be able to refinance debt instruments
at their maturity through public issuance or private placement of debt or equity. Annual payments to service debt are generally
made from cash flows from operations.
The following table reflects Registrant’s contractual obligations and commitments to make future payments pursuant
to contracts as of December 31, 2021. The table reflects only financial obligations and commitments. Therefore, performance
obligations associated with our 50-year firm, fixed-price contracts with the U.S. government at our contracted services segment
are not included in the amounts below. Registrant believes that it will be able to refinance debt instruments at their maturity
through public issuance or private placement of debt or equity. Annual payments to service debt are generally made from cash
flows from operations.
($ 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 Expenditures (10)
Water Purchase Agreements (11)
Operating Leases (12)
Employer Contributions (13)
SUB-TOTAL
Other Commitments (14)
TOTAL
(1) Excludes dividends and facility fees.
$
$
$
Payments/Commitments Due (1)
Less than 1
Year
Total
187,000 $
215,000
10,769
3,019
415,788 $
228,112 $
70,337
1,239
14,479
86,163
3,390
12,412
3,079
419,211
—
—
167
210
377
20,206
3,610
619
5,513
86,163
436
2,548
3,079
122,174
215,275
31,000
$ 1,050,274 $
153,551
(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) Consists of GSWC senior private placement notes totaling $215.0 million issued to various banks, including $160.0 million of
unsecured private placement notes issued in July 2020. Under the terms of each 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 ratio of more than 8-to-1.
GSWC is in compliance with all of its covenant provisions as of December 31, 2021. GSWC does not currently have any
outstanding mortgages or other liens on indebtedness on its properties.
(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) $3.0 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 regard 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 the outstanding debt portion of funds received under the American Recovery and Reinvestment Act 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.
(6) Consists of expected interest expense payments based on the assumption that GSWC’s long-term debt remains outstanding until
maturity.
49
(7) Advances for construction represent contract refunds mostly from 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 BVESI to purchase renewable energy credits through 2023. These renewable energy credits are
used to meet California's renewables portfolio standard.
(9) Consists of BVESI fixed-cost purchased power contracts executed in September 2019 with Exelon Generation Company, LLC
and Morgan Stanley Capital Group Inc.
(10) Consists primarily of capital expenditures estimated to be required under signed contracts at GSWC and BVESI as of
December 31, 2021.
(11) Water purchase agreements consist of (i) a remaining amount of $1.7 million under an agreement expiring in 2028 to use water
rights from a third party, and (ii) an aggregate amount of $1.7 million of other water purchase commitments with other third
parties, which expire between 2025 through 2038.
(12) Reflects future minimum payments under noncancelable operating leases for both GSWC and ASUS.
(13) Consists of expected contributions to Registrant's defined benefit pension plan for the year 2022. Contributions to the pension
plan are expected to be the higher of the minimum required contributions under the Employee Retirement Income Security Act
(“ERISA”) or the 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 $200 million revolving credit facility under AWR, of which $174.5 million was
outstanding as of December 31, 2021; (ii) a $35 million revolving credit facility under BVESI, of which $31 million was
outstanding as of December 31, 2021; (iii) $9.7 million in asset retirement obligations of GSWC that reflect the retirement of
wells by GSWC, which by law need to be properly capped at the time of removal; (iv) irrevocable letters of credit in the amount
of $440,000 for the deductible in Registrant’s business automobile insurance policies; and (v) a $15,000 irrevocable letter of
credit issued on behalf of GSWC pursuant to a franchise agreement with the City of Rancho Cordova. All of the letters of credit
are issued pursuant to AWR's revolving credit facility. Pursuant to CPUC rules, BVESI must completely pay off all borrowings
under its revolving credit facility within a 24-month period. The next 24-month period in which BVESI is required to pay off its
borrowings from the facility ends in July 2022. Accordingly, the $31 million outstanding under BVESI's credit facility has been
classified as a current liability in AWR's Consolidated Balance Sheet as of December 31, 2021. BVESI expects to fund this
repayment through the issuance of long-term debt during the first half of 2022.
BVESI Power-Supply Arrangements
BVESI purchases power pursuant to purchased power contracts approved by the CPUC effective in the fourth quarter
of 2019 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. In addition to the purchased power contracts, BVESI buys additional energy to meet peak
demand as needed and sells surplus power when necessary. The average price per MWh, including fixed costs, increased to
$71.94 per MWh in 2021 from $67.52 per MWh for 2020. BVESI’s average energy costs are impacted by pricing fluctuations
on the spot market. However, BVESI has 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 and BVESI upgrade their facilities in
accordance with industry standards, local and CPUC requirements, and new legislation. California requires investor-owned
electric utilities to submit an annual wildfire mitigation plan to the CPUC for approval, and requires all electric utilities to
prepare plans on constructing, maintaining, and operating their electrical lines and equipment to minimize the risk of
catastrophic wildfires.
As of December 31, 2021, GSWC and BVESI have unconditional purchase obligations for capital projects of
approximately $86.2 million. During the years ended December 31, 2021, 2020 and 2019, GSWC and BVESI had capital
expenditures of $150.6 million, $130.4 million and $140.8 million, respectively. A portion of these capital expenditures was
funded by developers through contributions in aid of construction, which are not required to be repaid, and refundable
advances. During the years ended December 31, 2021, 2020 and 2019, capital expenditures funded by developers were
$8.0 million, $7.0 million and $4.7 million, respectively. During 2022, the water and electric segments' company-funded
capital expenditures are estimated to be approximately $140 – $160 million, barring any delays resulting from changes in
capital improvement schedules due to supply chain issues or the effects of the COVID-19 pandemic. These amounts include
approximately $13 million estimated to be spent by BVESI on wildfire mitigation projects.
50
Contracted Services
Under the terms of the current and future utility privatization contracts with the U.S. government, each contract's price
is subject to an economic price adjustment (“EPA”) on an annual basis. In the event that ASUS (i) is managing more assets at
specific military bases than were included in the U.S. government’s request for proposal, (ii) is managing assets that are in
substandard condition as compared to what was disclosed in the request for proposal, (iii) prudently incurs costs not
contemplated under the terms of the utility privatization contract, and/or (iv) becomes subject to new regulatory requirements,
such as more stringent water-quality standards, ASUS is permitted to file, and has filed, requests for equitable adjustment
(“REAs”). The timely filing for and receipt of EPAs and/or REAs continues to be critical in order for the Military Utility
Privatization Subsidiaries to recover increasing costs of operating, maintaining, renewing and replacing the water and/or
wastewater systems at the military bases it serves.
Under the Budget Control Act of 2011 (the “2011 Act”), substantial automatic spending cuts, known as
"sequestration," have impacted the expected levels of Department of Defense budgeting. The Military Utility Privatization
Subsidiaries have not experienced any earnings impact to their existing operations and maintenance and renewal and
replacement services, as utility privatization contracts are an "excepted service" within the 2011 Act. With the expiration of the
2011 Act at the end of government fiscal year 2021, there are currently no discretionary spending caps in fiscal year 2022 and
beyond. However, similar issues may arise as part of the fiscal uncertainty and/or future debt-ceiling limits imposed by
Congress. Any future impact on ASUS and its operations through the Military Utility Privatization Subsidiaries will likely be
limited to (a) the timing of funding to pay for services rendered, (b) delays in the processing of EPAs and/or REAs, (c) the
timing of the issuance of contract modifications for new construction work not already funded by the U.S. Government, and/or
(d) delays in solicitation for and/or awarding of new contracts under the Department of Defense utility privatization program.
At times, the DCAA and/or the DCMA may, at the request of a contracting officer, perform audits/reviews of
contractors for compliance with certain government guidance and regulations, such as the Federal Acquisition Regulations and
Defense Federal Acquisition Regulation Supplements. Certain audit/review findings, such as system deficiencies for
government-contract-business-system requirements, may result in delays in the resolution of filings submitted to and/or the
ability to file new proposals with the U.S. government.
Below is a summary of current and projected EPA filings for price adjustments to operations and maintenance fees and
renewal and replacement fees for the Military Utility Privatization Subsidiaries in fiscal 2022.
Military Base
EPA period
Filing Date
Fort Bliss (FBWS)
Joint Base Andrews (TUS)
Fort Lee (ODUS)
Joint Base Langley Eustis and Joint Expeditionary Base Little
Creek Fort Story (ODUS)
Fort Jackson (PSUS)
Fort Bragg (ONUS)
Eglin Air Force Base (ECUS)
Fort Riley (FRUS)
October 2021 - September 2022
February 2022 - January 2023
February 2022 - January 2023
Third Quarter 2021
Fourth Quarter 2021
Fourth Quarter 2021
April 2022 - March 2023
First Quarter of 2022
February 2022 - January 2023
Fourth Quarter 2021
March 2022 - February 2023
June 2022 - May 2023
July 2022 - June 2023
First Quarter 2022
Second Quarter 2022
Second Quarter 2022
51
Regulatory Matters
A discussion on various regulatory matters is included] in the section titled “Overview” in this Form 10-K's
"Management’s Discussion and Analysis of Financial Condition and Results of Operations". The discussion below focuses on
other regulatory matters and developments.
Certificates of Public Convenience and Necessity
GSWC and BVESI hold Certificates of Public Convenience and Necessity (“CPCN”) granted by the CPUC in each of
the ratemaking areas they serve. ASUS is regulated, if applicable, by the state in which it primarily conducts water and/or
wastewater operations. FBWS holds a CPCN from the Public Utilities Commission of Texas. 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. ECUS and FRUS are not subject to
regulation by their respective states' utility commissions.
GSWC and BVESI are 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 and BVESI are 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 application every three years according to a schedule established by
the CPUC. General rate cases typically include an increase in the first test year with inflation-rate adjustments for expenses for
the second and third years of the rate case cycle. For capital projects, there are two test years. Rates are based on a forecast of
expenses and capital costs for each test year. GSWC's cost of capital is determined in a separate proceeding. Investor-owned
water utilities serving California are required to file their cost of capital applications on a triennial basis. BVESI's general rate
cases 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 of AWR nor the operations and rates of ASUS are directly regulated by the CPUC. The CPUC
does, however, regulate certain transactions between GSWC, BVESI and ASUS and between GSWC and BVESI and AWR.
General Rate Cases and Other Regulatory Matters
Water Segment
Changes in Rates:
Rates that GSWC is authorized to charge are determined by the CPUC in general rate cases. The last approved general
rate case covered new water rates for the years 2019 – 2021. Effective January 1, 2021, the CPUC approved GSWC's full third-
year step increase, which it achieved as a result of passing an earnings test. The higher water rates generated an addit ional
increase in the adopted water revenues of approximately $16.4 million in 2021. Adopted water supply costs for 2021 were $5.3
million higher than the 2020 adopted supply costs.
GSWC has a pending general rate case that will determine new water rates for the years 2022 – 2024. In November
2021, GSWC and Public Advocates filed with the CPUC a joint motion to adopt a settlement agreement between GSWC and
Public Advocates on this general rate case application. The settlement agreement, if approved, resolves all issues related to the
2022 annual revenue requirement in the general rate case application, leaving only three unresolved issues. Among other
things, the settlement authorizes GSWC to invest approximately $404.8 million in capital infrastructure over the three-year
cycle. The settlement also authorizes GSWC to complete certain advice letter capital projects approved in the last general rate
case, which have recently been completed for a total capital investment of $9.4 million. The additional annual revenue
requirements generated from these capital investments are $1.2 million and became effective February 15, 2022. Advice letter
52
projects are filed for revenue recovery only when those projects are completed. Excluding the advice letter project revenues,
the amounts included in the settlement agreement would increase the 2022 adopted revenues by approximately $30.3 million as
compared to the 2021 adopted revenues, and increase the 2022 adopted supply costs by $9.7 million as compared to the 2021
adopted supply costs. The settlement agreement also allows for potential additional increases in adopted revenues for 2023 and
2024 subject to an earnings test and changes to the forecasted inflationary index values. GSWC has filed with the CPUC for
interim rates pending a final decision on this general rate case application, and will recognize revenues in 2022 based on 2021
adopted rates until the CPUC issues a final decision on the general rate case application, which is expected to be effective and
retroactive to January 1, 2022.
Cost of Capital Proceeding:
GSWC filed a cost of capital application with the CPUC in May 2021 requesting a capital structure of 57% equity and
43% debt, a return on equity of 10.5%, and a return on rate base of 8.18%. Hearings on this proceeding are scheduled for the
second quarter of 2022. A proposed decision on this proceeding is expected in the second half of 2022. A final decision on this
proceeding, once issued by the CPUC, is expected to have an effective date retroactive to January 1, 2022.
Electric Segment
Completion of Electric Utility Reorganization Plan:
As authorized by the CPUC and FERC, on July 1, 2020, GSWC completed the transfer of the electric utility assets and
liabilities from its electric division to BVESI in exchange for common shares of BVESI. GSWC then immediately distributed
all of BVESI's common shares to AWR, whereupon BVESI became wholly owned directly by AWR. The reorganization did
not result in any substantive changes to AWR's operations or business segments.
Recent Changes in Rates:
In August 2019, the CPUC issued a final decision on the electric general rate case, which set new rates for the years
2018 – 2022. Among other things, the final decision increased the adopted electric revenues by $1.1 million for 2021, and will
increase adopted revenues by $1.0 million for 2022 (the electric rate increases are not subject to an earnings test). The rate case
decision continues to apply for BVESI.
Vegetation Management, Wildfire Mitigation Plans and Legislation:
The August 2019 final decision also authorized BVESI to record incremental costs related to vegetation management,
such as costs for increased minimum clearances around electric power lines, in a CPUC-approved account for future recovery.
As of December 31, 2021, BVESI has approximately $5.8 million in incremental vegetation management costs recorded as a
regulatory asset. BVESI will seek future recovery of the costs accumulated in this memorandum account in its next general rate
case filing. BVESI is scheduled to file a general rate case application with the CPUC in 2022 to determine new rates for the
years 2023 through 2026.
California legislation enacted in September 2018 requires all investor-owned electric utilities to submit an annual
wildfire mitigation plan (WMP) to the CPUC for approval. The WMP must include a utility's plans on constructing,
maintaining, and operating its electrical lines and equipment to minimize the risk of catastrophic wildfire. In September 2021,
the CPUC approved BVESI's most recent WMP submission. Capital expenditures and other costs incurred as a result of the
WMP are subject to CPUC audit. As a result, the CPUC’s Wildfire Safety Division (now part of the California Natural
Resources Agency effective July 1, 2021) engaged an independent accounting firm to conduct examinations of the expenses and
capital investments identified in the 2019 and 2020 WMPs for each of the investor-owned electric utilities, including BVESI.
As of December 31, 2021, BVESI has approximately $2.8 million related to expenses accumulated in its WMP memorandum
accounts that have been recognized as regulatory assets for future recovery. In December 2021, the independent accounting
firm issued its final examination report, which contains the auditors' results and recommendations. While the final report did
not identify any findings of inappropriate costs included in the WMP memorandum accounts under review, the report suggested
that the CPUC should evaluate whether some of the costs recorded in the WMP memorandum accounts are incremental to what
is being recovered in customer rates when BVESI seeks recovery in a future proceeding. At this time, BVESI considers the
auditor's examination complete and does not expect further developments. In the future, the CPUC may refer to the
recommendations in the final report when BVESI seeks recovery of the WMP memorandum accounts. All capital expenditures
and other costs incurred through December 31, 2021 as a result of BVESI's WMPs are not currently in rates and are expected to
be filed for future recovery in BVESI's next general rate case application.
Additionally, the governor of California approved Assembly Bill ("AB") 1054 in July 2019, which among other things,
changed the burden of proof applicable in CPUC proceedings in which an electric utility with a valid safety certification seeks
53
to recover wildfire costs. Previously, an electric utility seeking to recover costs had the burden to prove that it acted reasonably.
Under AB 1054, if an electric utility has a valid safety certification, it will be presumed to have acted reasonably unless a party
to the relevant proceeding creates a “serious doubt” as to the reasonableness of the utility’s conduct. In September 2021, the
Office of Energy Infrastructure Safety under the California Natural Resources Agency approved BVESI's latest safety
certification filing, which is valid through September 2022.
For more information regarding significant regulatory matters, see Note 3 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. GSWC is required to comply with the safe
drinking water standards established by the U.S. Environmental Protection Agency (“U.S. EPA”) and the Division of Drinking
Water ("DDW"), under the State Water Resources Control Board ("SWRCB"). The U.S. EPA regulates contaminants that may
have adverse health effects that are known or likely to occur at levels of public health concern, and the regulation of which will
provide a meaningful opportunity for health risk reduction. The DDW, acting on behalf of the U.S. EPA, administers the U.S.
EPA’s program in California. Similar state agencies administer these rules in the other states in which Registrant operates.
GSWC currently tests its water supplies and water systems according to, among other things, requirements listed in the
Federal Safe Drinking Water Act (“SDWA”). GSWC works proactively with third parties and governmental agencies to
address issues relating to known contamination threatening GSWC water sources. GSWC also incurs operating costs for
testing to determine the levels, if any, of the constituents in its sources of supply and additional expense to treat contaminants in
order to meet the federal and state maximum contaminant level standards and consumer demands. GSWC expects to incur
additional capital costs as well as increased operating costs to maintain or improve the quality of water delivered to its
customers in light of anticipated stress on water resources associated with watershed and aquifer pollution, as well as to meet
future water quality standards and consumer expectations. The CPUC ratemaking process provides GSWC with the
opportunity to recover prudently incurred capital and operating costs in future filings associated with achieving water quality
standards. Management believes that such incurred and expected future costs should be authorized for recovery by the CPUC.
Matters Relating to Environmental Cleanup
GSWC has been involved in environmental remediation and cleanup at one of its plant sites that contained an
underground storage tank that 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, 2021, the total amount spent to clean up and remediate GSWC’s plant facility was approximately
$6.1 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, 2021, GSWC has a
regulatory asset and an accrued liability for the estimated additional cost of $1.3 million to complete the cleanup at the site. The
estimate includes costs for continued activities of groundwater cleanup and monitoring, future soil treatment, and site closure
related activities. The ultimate cost may vary as there are many unknowns in remediation of underground gasoline spills and
this is an estimate based on currently available information. Management also believes it is probable that the estimated
additional costs will continue to be approved for inclusion in rate base by the CPUC.
Drinking Water Notification and Response Levels
In July 2018, DDW issued drinking water notification levels for certain fluorinated organic chemicals used to make
certain fabrics and other materials, and used in various industrial processes. These chemicals were also present in certain fire
suppression agents. These chemicals are referred to as perfluoroalkyl substances (PFAS). Notification levels are health-based
advisory levels established for contaminants in drinking water for which maximum contaminant levels have not been
established. The US EPA has also established health advisory levels for these compounds. Notification to consumers and
stakeholders is required when the advisory levels or notification levels are exceeded. Assembly Bill 756, signed into law in
July 2019 and effective in January 2020, requires, among other things, additional notification requirements for water systems
detecting levels of PFAS above response levels. GSWC is in the process of collecting and analyzing samples for PFAS under
the direction of DDW. GSWC has removed some wells from service, and expects to incur additional treatment costs to treat
impacted wells. GSWC has provided customers with information regarding PFAS detections, and provided updated
information via its website. In February 2020, DDW established new response levels for two of the PFAS compounds: 10 parts
per trillion for perfluorooctanoic acid (PFOA) and 40 parts per trillion for perfluorooctanesulfonic acid (PFOS). On March 5,
54
2021, DDW issued a drinking water notification level and response level of 0.5 parts per billion (ppb) and 5 ppb, respectively
for perfluorobutane sulfonic acid (PFBS).
Lead and Copper Rule Revisions
On December 16, 2021, the U.S. EPA announced the Lead and Copper Rule Revisions under Executive Order 13990
which will go into effect effective immediately with a compliance date of October 16, 2024. Additionally, the EPA announced
its intention to develop a new proposed rule, the Lead and Copper Rule Improvements (LCRI) that will further strengthen the
regulatory framework prior to the October 2024 compliance date. There are still many unknowns regarding the implementation
of the rule. The details of the requirements will be better understood over the next year once the LCRI is published.
Matters Relating to Military Utility 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 operations and maintenance and renewal and replacement
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.
Security Issues
We have physical and information security policies throughout our operations. Training on these matters begins
during employee orientation and is ongoing through a series of training courses in addition to periodic, unannounced training
exercises. We collaborate with various agencies, associations and third parties regarding information on possible threats and
security measures for our operations. Risk assessments are conducted periodically to evaluate the effectiveness of exist ing
security controls. These assessments provide areas for additional security focus, new controls, and policy changes.
Both GSWC and BVESI have security systems and infrastructure in place intended to prevent unlawful intrusion,
service disruption and cyber-attacks. GSWC and BVESI utilize a variety of physical security measures to protect their
facilities. These measures consider advances in security and emergency preparedness technology and relevant industry
developments in developing their respective capital-improvement plans, and both intend to seek approval of the CPUC to
recover any additional costs that either may incur in enhancing the security, reliability and resiliency of their utility systems.
On October 23, 2018, America’s Water Infrastructure Act (AWIA) became law. GSWC must now conduct additional
risk and resilience assessments and develop emergency response plans for each of our water systems. These assessments and
plans include natural hazards as well as malevolent acts. The first such assessments were completed in 2020. They will be
reviewed and resubmitted every five years.
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.
Registrant has evaluated its cyber-security systems and continues to address identified areas of improvement with
respect to U.S. government regulations regarding cyber-security of government contractors. These improvements include the
physical security at all of the office and employee facilities it operates. Registrant believes it is in compliance with these
regulations.
Despite its efforts, Registrant cannot guarantee that intrusions, cyber-attacks or other attacks 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.
55
Water Supply
GSWC
During 2021, GSWC delivered approximately 61.8 million hundred cubic feet (“ccf”) of water to its customers, which
is an average of about 389 acre-feet per day or 127 million gallons per day (an acre-foot is approximately 435.6 ccf or 326,000
gallons). Approximately 53% of GSWC's supply came from groundwater produced from wells situated throughout GSWC’s
service areas. GSWC supplemented its groundwater production with wholesale purchases from Metropolitan Water District
("MWD") member agencies and regional water suppliers (roughly 44% of total demand) and with authorized diversions from
rivers (roughly 3%) under agreements with the United States Bureau of Reclamation (“Bureau”) and the Sacramento Municipal
Utility District (“SMUD”). GSWC also utilizes recycled water supplies to serve recycled water customers in several service
areas. GSWC continually assesses its water rights and groundwater storage assets to maximize use of lower cost groundwater
sources where available.
Groundwater
GSWC has a diverse water supply portfolio which includes adjudicated groundwater rights, surface water rights, 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 natural replenishment from snow-melt or rainfall, the
availability of imported replenishment water, the amount of water previously stored in groundwater basins, natural or man-
made contamination, legal production limitations, and the amount and seasonality of water use by GSWC’s customers and
others. GSWC actively participates in efforts to protect groundwater basins from over-use and from contamination. In some
periods, these efforts may require reductions in groundwater pumping and increased reliance on alternative water resources.
GSWC also participates in implementation of California’s Sustainable Groundwater Management Act.
From time to time, GSWC may purchase or temporarily use water rights from others for delivery to customers.
GSWC has contracts to purchase water or water rights for an aggregate amount of $3.4 million as of December 31,
2021. Included in the $3.4 million is a remaining commitment of $1.7 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 may exercise an option to renew this agreement for 10 additional years. The remaining
$1.7 million is for commitments for purchased water with other third parties, which expire through 2038.
Imported Water
GSWC also manages a portfolio of water supply arrangements with water wholesalers who may import water from
outside the immediate service area. For example, GSWC has contracts with various governmental entities (principally MWD
member agencies) and other parties to purchase water through a total of 58 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 45 connections to MWD’s water distribution facilities and those of
member agencies. GSWC purchases MWD water through six separate member agencies aggregating 52,732 acre-feet annually.
MWD sources its supplies from the Colorado River from Northern California via the State Water Project through the Colorado
River Aqueduct, which it owns and operates, and from local programs and transfer arrangements.
MWD currently has storage reserve levels of 2.5 million acre-feet (MAF) with annual demands of approximately 1.75
MAF. MWD has available access to store more than 1.65 MAF of water in Lake Mead as part of an intentionally created
surplus program developed under a 2007 Interim Shortage agreement and is available for use during dry years. In addition,
MWD, along with the seven other Basin states which use water from the Colorado River, developed and agreed to the Drought
Contingency Plan in 2019 where each lower Basin state which diverts water from the Colorado River below Lees Ferry agrees
to store defined amounts of water in Lake Mead to prevent both Lake Mead and Lake Powell from reaching critically low
levels. Initial State Water Project allocations have been set at a zero percent allocation. On January 20, 2022, the Department
of Water Resources increased the allocation to 15% due to improving water storage and snowpack from a series of winter
storms in December and early January. California is a lower Basin state.
Drought Impact
In May 2018, the California Legislature passed two bills that provide a framework for long-term water-use efficiency
standards and drought planning and resiliency. The initial steps in implementation of this legislation has been laid out in a
summary document by the California Department of Water Resources ("DWR") and State Water Resources Control Board
("SWRCB"). Over the next several years, State agencies, water suppliers and other entities will be working to meet the
56
requirements and timelines of plan implementation. A notable milestone is the establishment of an indoor water use standard of
55 gallons per capita per day (gpcd) until 2025 at which time the standard may be reduced to 52.5 gpcd or other standard as
recommend by DWR. A recent report prepared by DWR for the California legislature, recommends reducing the standard to 42
gpcd by 2030. Legislation has been introduced in the current legislative session to reduce the standard to this value.
California's recent period of multi-year drought resulted in reduced recharge to the state's groundwater basins. GSWC
utilizes groundwater from numerous groundwater basins throughout the state. Several of these basins, especially smaller
basins, experienced lower groundwater levels because of the drought. Several of GSWC's service areas rely on groundwater as
their only source of supply. Given the critical nature of the groundwater levels in California’s Central Coast area, GSWC
implemented mandatory water restrictions in certain service areas, in accordance with CPUC procedures. In the event of water
supply shortages beyond the locally available supply, GSWC would need to transport additional water from other areas,
increasing the cost of water supply.
The 2021 water year ended as a critically dry period with the second driest single year for statewide precipitation and
the second warmest year in statewide mean temperature. Precipitation to date in 2022 has been above average with several
storm systems bringing the statewide snowpack up to about 150% of average. These values are approximately 50% of the April
1 average values. Should conditions remain dry up through April 1, 2022 the State will see on-going challenges in terms of
water availability. As of February 15, 2022, the U.S. Drought Monitor reported that only 1.4% of California was considered in
"Extreme Drought" as compared to 31% one year ago. This improvement was largely due to several storm systems experienced
in late 2021. However, approximately 66% of California is considered to be in “Severe Drought” as compared to
approximately 58% one year ago. Due to local conditions, water-use restrictions and allocations remain in place for customers
in some of GSWC’s service areas. GSWC continues assessing water supply conditions and water-use restrictions in these
service areas and intends to make appropriate adjustments as needed.
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. Once received from the
U.S. government, ASUS's subsidiaries are responsible for ensuring the continued compliance of the provided source of supply
with all federal, state and local regulations. Furthermore, ASUS’s subsidiaries are responsible for ensuring compliance with the
reduction and/or removal of all constituents required under its wastewater treatment plant operating permits. ASUS works
closely with state regulators and industry associations to stay current with emergent issues and proactively addresses any
change in wastewater treatment regulation to ensure permit compliance.
New Accounting Pronouncements
Registrant is subject to newly issued accounting requirements as well as changes in existing requirements issued by the
Financial Accounting Standards Board. See Note 1 of Notes to Consolidated Financial Statements.
57
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 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, 2021,
the fair value of Registrant’s long-term debt was $490.9 million. A hypothetical ten percent change in market interest rates
would result in an increase or decrease of approximately $12.5 million in the fair value of Registrant’s long-term debt.
At December 31, 2021, 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
BVESI is exposed to commodity price risk primarily relating to changes in the market price of electricity. To manage
its exposure to energy price risk, BVESI 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 2019, BVESI began taking power under 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 2019 qualify for derivative accounting treatment. Among other things, the CPUC
authorized BVESI to establish a regulatory 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
Registrant's earnings. As of December 31, 2021, there was a $4.4 million unrealized gain on these contracts, with a
corresponding regulatory liability in the memorandum account, as a result of an increase in energy prices since the execution of
the contracts.
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.
58
Item 8. Financial Statements and Supplementary Data
American States Water Company
Reports of Independent Registered Public Accounting Firm (PCAOB ID 238)
Consolidated Balance Sheets - December 31, 2021 and 2020
Consolidated Statements of Capitalization - December 31, 2021 and 2020
Consolidated Statements of Income - For the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Changes in Common Shareholders’ Equity - For the years ended
December 31, 2021, 2020 and 2019
Consolidated Statements of Cash Flows - For the years ended December 31, 2021, 2020 and 2019
Golden State Water Company
Balance Sheets - December 31, 2021 and 2020
Statements of Capitalization - December 31, 2021 and 2020
Statements of Income - For the years ended December 31, 2021, 2020 and 2019
Statements of Changes in Common Shareholder’s Equity - For the years ended
December 31, 2021, 2020 and 2019
Statements of Cash Flows - For the years ended December 31, 2021, 2020 and 2019
Notes to Consolidated Financial Statements
60
64
66
67
68
69
70
72
73
74
75
76
59
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of American States Water Company
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets and statements of capitalization of American States Water
Company and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of
income, of changes in common shareholders' equity and of cash flows for each of the three years in the period ended
December 31, 2021, including the related notes and the financial statement schedule listed in the index appearing under Item
15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal
control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, 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 appearing under Item 9A. Our responsibility is to
express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. 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.
Definition and Limitations of Internal Control over Financial Reporting
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.
60
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.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Accounting for the Effects of Rate Regulation
As described in Notes 1 and 3 to the consolidated financial statements, the Company records regulatory assets, which represent
probable future recoveries 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. Accounting for such activities as
regulatory assets and liabilities is in accordance with the guidance for accounting for the effects of rate regulation. In
determining the probability of costs being recognized in other periods, management considers regulatory rules and decisio ns,
past practices and other facts or circumstances that would indicate if recovery is probable. As of December 31, 2021, there
were $71 million of regulatory assets and $94 million of regulatory liabilities.
The principal considerations for our determination that performing procedures relating to accounting for the effects of rate
regulation is a critical audit matter are the significant judgment by management in the accounting for regulatory assets and
liabilities related to assessing the probability that costs will be recovered or that amounts will be refunded, the timing of
recognition of regulatory assets and liabilities as a result of established practice, new or changes in regulatory and legislative
proceedings, or other relevant facts and circumstances. This in turn led to significant auditor judgment, subjectivity and effort in
performing audit procedures and evaluating audit evidence obtained relating to management’s accounting for regulatory assets
and liabilities.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to
management’s assessment and consideration of regulatory and legislative proceedings and other evidence informing the
probability that costs will be recovered, and amounts will be refunded, and the timing of the inclusion of these deferrals in rates
as well as the disclosure impacts. These procedures also included, among others, evaluating the reasonableness of
management’s judgments regarding the probability and timing of recovery of regulatory assets and refund of regulatory
liabilities based on the Company’s correspondence with regulators, status of regulatory proceedings, past practices, and other
relevant information; evaluating the related accounting and disclosure implications; and calculating regulatory assets and
liabilities balances based on provisions and formulas outlined in rate orders and other correspondence with the Company’s
regulator.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
February 22, 2022
We have served as the Company’s auditor since 2002.
61
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholder of Golden State Water Company
Opinion on the Financial Statements
We have audited the accompanying balance sheets and statements of capitalization of Golden State Water Company (the
“Company”) as of December 31, 2021 and 2020, and the related statements of income, of changes in common shareholder’s
equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes
(collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally
accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control
over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are
material to the financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Accounting for the Effects of Rate Regulation
As described in Notes 1 and 3 to the financial statements, the Company records regulatory assets, which represent probable
future recoveries 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. Accounting for such activities as regulatory
assets and liabilities is in accordance with the guidance for accounting for the effects of rate regulation. In determining the
probability of costs being recognized in other periods, management considers regulatory rules and decisions, past practices and
other facts or circumstances that would indicate if recovery is probable. As of December 31, 2021, there were $57 million of
regulatory assets and $81 million of regulatory liabilities.
The principal considerations for our determination that performing procedures relating to accounting for the effects of rate
regulation is a critical audit matter are the significant judgment by management in the accounting for regulatory assets and
liabilities related to assessing the probability that costs will be recovered or that amounts will be refunded, the timing of
recognition of regulatory assets and liabilities as a result of established practice, new or changes in regulatory and legislative
proceedings, or other relevant facts and circumstances. This in turn led to significant auditor judgment, subjectivity and effort in
62
performing audit procedures and evaluating audit evidence obtained relating to management’s accounting for regulatory assets
and liabilities.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the financial statements. These procedures included testing the effectiveness of controls relating to management’s
assessment and consideration of regulatory and legislative proceedings and other evidence informing the probability that costs
will be recovered, and amounts will be refunded, and the timing of the inclusion of these deferrals in rates as well as the
disclosure impacts. These procedures also included, among others, evaluating the reasonableness of management’s judgments
regarding the probability and timing of recovery of regulatory assets and refund of regulatory liabilities based on the
Company’s correspondence with regulators, status of regulatory proceedings, past practices, and other relevant information;
evaluating the related accounting and disclosure implications; and calculating regulatory assets and liabilities balances based on
provisions and formulas outlined in rate orders and other correspondence with the Company’s regulator.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
February 22, 2022
We have served as the Company's auditor since 2002.
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 (Note 2)
Receivable from U.S. government, less allowance for doubtful accounts (Note 2)
Other accounts receivable, less allowance for doubtful accounts
Income taxes receivable
Materials and supplies
Regulatory assets — current
Prepayments and other current assets
Contract assets (Note 2)
Unrealized gain on purchase power contracts
Total current assets
Other Assets
Unbilled revenue — receivable from U.S. government
Receivable from U.S. government (Note 2)
Contract assets (Note 2)
Operating lease right-of-use assets
Regulatory assets
Other
Total other assets
Total Assets
December 31,
2021
2020
$ 1,898,817 $ 1,784,402
112,507
1,896,909
33,315
1,930,224
(568,326)
1,361,898
150,145
1,512,043
116,472
2,015,289
37,064
2,052,353
(594,264)
1,458,089
167,915
1,626,004
1,116
40,806
41,922
1,116
35,318
36,434
4,963
34,416
27,147
27,827
6,510
236
12,163
8,897
5,317
6,135
4,441
138,052
36,737
29,162
25,836
25,182
3,960
103
8,619
13,088
5,555
8,873
—
157,115
9,671
51,991
3,452
10,479
3,182
16,230
95,005
9,945
49,488
1,384
11,146
3,451
10,597
86,011
$ 1,900,983 $ 1,791,603
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
Regulatory liabilities
Contract liabilities (Note 2)
Operating lease liabilities
Other
Total current liabilities
Other Credits
Notes payable to banks
Advances for construction
Contributions in aid of construction — net
Deferred income taxes
Regulatory liabilities
Unamortized investment tax credits
Accrued pension and other post-retirement benefits
Operating lease liabilities
Other
Total other credits
Commitments and Contingencies (Notes 14 and 15)
December 31,
2021
2020
$
685,947 $
412,176
1,098,123
641,673
440,348
1,082,021
31,000
377
65,902
4,662
17,137
16,256
4,545
—
1,896
257
2,044
11,498
155,574
174,500
66,727
147,482
140,290
32,979
1,153
61,365
8,920
13,870
647,286
—
358
63,788
6,783
11,902
15,122
4,832
1,537
—
1,800
2,013
10,437
118,572
134,200
63,374
140,332
131,172
—
1,224
95,639
9,636
15,433
591,010
Total Capitalization and Liabilities
$ 1,900,983 $ 1,791,603
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: 36,936,285 shares in 2021 and 36,889,103 shares in 2020
Reinvested earnings 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
2.17% notes due 2030
2.90% notes due 2040
Tax-Exempt Obligations:
5.50% notes due 2026
State Water Project due 2035
Other Debt Instruments:
American Recovery and Reinvestment Act Obligation due 2033
Less: Current maturities
Debt issuance costs
Total Capitalization
December 31,
2021
2020
$
258,442 $
427,505
685,947
256,666
385,007
641,673
15,000
40,000
20,000
50,000
62,000
15,000
—
40,000
85,000
75,000
7,730
3,039
15,000
40,000
20,000
50,000
62,000
15,000
28,000
40,000
85,000
75,000
7,730
3,322
3,019
415,788
(377)
(3,235)
412,176
3,219
444,271
(358)
(3,565)
440,348
$ 1,098,123 $ 1,082,021
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
(Gain) loss on sale of assets
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,
2020
2021
2019
$
347,112 $
38,345
113,396
498,853
330,637 $
37,024
120,582
488,243
319,830
39,548
114,491
473,869
77,914
11,103
19,412
11,240
(11,421)
34,738
83,547
39,596
12,781
22,522
56,909
(465)
357,876
74,554
10,134
20,392
10,423
(11,803)
33,236
83,615
36,850
15,702
22,199
62,411
31
357,744
72,289
8,660
18,962
11,796
(7,026)
32,756
83,034
35,397
15,466
20,042
55,673
(253)
346,796
140,977
130,499
127,073
(22,834)
1,493
5,134
(16,207)
(22,531)
1,801
4,853
(15,877)
(24,586)
3,249
3,276
(18,061)
Income before income tax expense
124,770
114,622
109,012
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 Paid Per Common Share
30,423
28,197
24,670
$
94,347 $
86,425 $
84,342
36,921
2.55 $
36,880
2.34 $
37,010
2.55 $
36,995
2.33 $
36,814
2.28
36,964
2.28
1.40 $
1.28 $
1.16
$
$
$
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, 2018
Add:
Net income
Exercise of stock options and other issuance of Common Shares
Stock-based compensation, net of taxes paid from shares
withheld from employees related to net share settlements
Dividend equivalent rights on stock-based awards not paid in
cash
Deduct:
Common Shares
Number
Of
Shares
Amount
Reinvested
Earnings
in the
Business
Total
36,758 $ 253,689 $ 304,534 $ 558,223
89
519
1,148
210
84,342
84,342
519
1,148
210
Dividends on Common Shares
Dividend equivalent rights on stock-based awards not paid in
42,702
210
42,702
210
cash
Balances at December 31, 2019
Add:
Net income
Exercise of stock options and other issuance of Common Shares
Stock-based compensation, net of taxes paid from shares
withheld from employees related to net share settlements
Dividend equivalent rights on stock-based awards not paid in
cash
Deduct:
36,847
255,566
345,964
601,530
42
30
894
176
86,425
86,425
30
894
176
Dividends on Common Shares
Dividend equivalent rights on stock-based awards not paid in
47,206
176
47,206
176
cash
Balances at December 31, 2020
Add:
Net income
Exercise of stock options and other issuance of Common Shares
Stock-based compensation, net of taxes paid from shares
withheld from employees related to net share settlements
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, 2021
36,889
256,666
385,007
641,673
47
—
1,616
160
94,347
94,347
—
1,616
160
51,689
160
51,689
160
36,936 $ 258,442 $ 427,505 $ 685,947
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:
For the years ended December 31,
2020
2021
2019
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
94,347 $
86,425 $
84,342
Depreciation and amortization
Provision for doubtful accounts
Deferred income taxes and investment tax credits
Stock-based compensation expense
(Gain) loss on sale of assets
Gain on investments held in a trust
Other — net
Changes in assets and liabilities:
Accounts receivable — customers
Unbilled revenue — receivable
Other accounts receivable
Receivables from the U.S. government
Materials and supplies
Prepayments and other assets
Contract assets
Regulatory assets/liabilities
Accounts payable
Income taxes receivable/payable
Contract liabilities
Accrued pension and other post-retirement benefits
Other liabilities
Net cash provided
Cash Flows From Investing Activities:
Capital expenditures
Proceeds from sale of assets
Other investments
Net cash used
Cash Flows From Financing Activities:
Proceeds from stock option exercises
Receipt of advances for and contributions in aid of construction
Refunds on advances for construction
Retirement or repayments of long-term debt
Proceeds from the issuance of long-term debt, net of issuance costs
Net change in notes payable to banks
Dividends paid
Other
Net cash (used) provided
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
39,974
1,119
3,561
2,566
(465)
(4,287)
84
(4,688)
(1,037)
(1,422)
(4,713)
(3,544)
1,323
235
(5,842)
(2,881)
(2,254)
(1,543)
3,051
2,000
115,584
37,204
1,433
2,243
2,463
31
(3,024)
(908)
(13,272)
(6,678)
(1,204)
(3,889)
(2,190)
1,686
(588)
10,150
5,348
12,270
(9,367)
1,444
2,593
122,170
35,713
608
6,623
2,517
(253)
(3,580)
526
1,882
(5,515)
214
1,144
(654)
3,978
3,979
(11,597)
(249)
(3,786)
3,637
1,994
(4,659)
116,864
(144,515)
565
(1,142)
(145,092)
(130,423)
88
(1,275)
(131,610)
(151,940)
169
(1,424)
(153,195)
—
12,432
(4,666)
(28,356)
—
71,300
(51,689)
(1,287)
(2,266)
(31,774)
36,737
30
9,338
(3,729)
(336)
159,413
(70,800)
(47,206)
(1,867)
44,843
35,403
1,334
519
10,171
(5,005)
(40,325)
—
109,500
(42,702)
(1,634)
30,524
(5,807)
7,141
$
4,963 $
36,737 $
1,334
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
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 — receivable
Other accounts receivable, less allowance for doubtful accounts
Intercompany receivable
Materials and supplies
Regulatory assets — current
Prepayments and other current assets
Total current assets
Other Assets
Operating lease right-of-use assets
Regulatory assets
Other
Total other assets
Total Assets
December 31,
2021
2020
$ 1,898,817 $ 1,784,402
(502,283)
1,282,119
118,370
1,400,489
(522,672)
1,376,145
123,600
1,499,745
38,659
38,659
525
31,870
20,525
3,791
—
5,384
8,897
4,223
75,215
33,240
33,240
35,578
26,920
19,330
3,255
1,107
3,659
11,325
4,114
105,288
10,439
—
14,424
24,863
11,103
1,048
9,614
21,765
$ 1,638,482 $ 1,560,782
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
Long-term debt — current
Accounts payable
Income taxes payable to Parent
Accrued other taxes
Accrued employee expenses
Accrued interest
Operating lease liabilities
Other
Total current liabilities
Other Credits
Intercompany payables
Advances for construction
Contributions in aid of construction — net
Deferred income taxes
Regulatory liabilities
Unamortized investment tax credits
Accrued pension and other post-retirement benefits
Operating lease liabilities
Other
Total other credits
Commitments and Contingencies (Notes 14 and 15)
December 31,
2021
2020
$
615,686 $
412,176
1,027,862
583,298
440,348
1,023,646
377
50,627
2,972
14,960
12,867
4,210
2,029
10,505
98,547
49,280
66,707
145,848
132,314
32,979
1,153
61,170
8,891
13,731
512,073
358
45,613
4,612
10,382
12,351
4,545
1,956
9,403
89,220
—
63,354
138,691
124,581
—
1,224
95,570
9,636
14,860
447,916
Total Capitalization and Liabilities
$ 1,638,482 $ 1,560,782
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:
Authorized: 1,000 shares
Outstanding: 170 shares in 2021 and 170 shares in 2020
Reinvested earnings 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
2.17% notes due 2030
2.90% notes due 2040
Tax-Exempt Obligations:
5.50% notes due 2026
State Water Project due 2035
Other Debt Instruments:
American Recovery and Reinvestment Act Obligation due 2033
Less: Current maturities
Debt issuance costs
Total Capitalization
December 31,
2021
2020
$
356,530 $
259,156
615,686
354,906
228,392
583,298
15,000
40,000
20,000
50,000
62,000
15,000
—
40,000
85,000
75,000
7,730
3,039
15,000
40,000
20,000
50,000
62,000
15,000
28,000
40,000
85,000
75,000
7,730
3,322
3,019
415,788
(377)
(3,235)
412,176
3,219
444,271
(358)
(3,565)
440,348
$ 1,027,862 $ 1,023,646
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 (Note 20)
Total operating revenues
Operating Expenses (Note 20)
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
Gain on sale of assets
Total operating expenses
Operating Income (Note 20)
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 (Note 20)
For the years ended December 31,
2020
2021
2019
$
347,112 $
—
347,112
330,637 $
18,647
349,284
319,830
39,548
359,378
77,914
11,103
19,412
—
(11,295)
25,781
55,552
33,384
9,056
19,041
(409)
239,539
74,554
10,134
20,392
5,010
(11,749)
25,194
59,385
32,184
12,424
18,860
—
246,388
72,289
8,660
18,962
11,796
(7,026)
26,336
59,905
32,441
12,843
18,168
(88)
254,286
107,573
102,896
105,092
(21,474)
428
4,783
(16,263)
(21,495)
718
4,556
(16,221)
(23,399)
1,867
3,280
(18,252)
91,310
86,675
86,840
22,095
21,704
20,177
$
69,215 $
64,971 $
66,663
The accompanying notes are an integral part of these financial statements.
73
GOLDEN STATE WATER COMPANY
STATEMENTS OF CHANGES IN
COMMON SHAREHOLDER’S EQUITY
(in thousands, except number of shares)
Balances at December 31, 2018
Add:
Net income
Stock-based compensation, net of taxes paid from shares
withheld from employees related to net share settlements
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, 2019
Add:
Net income
Issuance of Common Shares to Parent
Stock-based compensation, net of taxes paid from shares
withheld from employees related to net share settlements
Dividend equivalent rights on stock-based awards not paid in
cash
Deduct:
Dividends on Common Shares
Distribution of BVESI common shares to AWR parent (Note 20)
Dividend equivalent rights on stock-based awards not paid in
cash
Balances at December 31, 2020
Add:
Net income
Stock-based compensation, net of taxes paid from shares
withheld from employees related to net share settlements
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, 2021
Common Shares
Reinvested
Earnings
in the
Business
Total
Amount
Number
of
Shares
165 $ 292,412 $ 211,163 $ 503,575
66,663
66,663
1,150
192
1,150
192
20,200
20,200
192
192
165
293,754
257,434
551,188
5
60,000
64,971
983
169
64,971
60,000
983
169
22,500
71,344
22,500
71,344
169
169
170
354,906
228,392
583,298
69,215
69,215
1,473
151
1,473
151
38,300
38,300
151
170 $ 356,530 $ 259,156 $ 615,686
151
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
activities:
For the years ended December 31,
2021
2020
2019
$
69,215 $
64,971 $
66,663
Depreciation and amortization
Provision for doubtful accounts
Deferred income taxes and investment tax credits
Stock-based compensation expense
Gain on sale of assets
Gain on investments held in a trust
Other — net
Changes in assets and liabilities:
Accounts receivable — customers
Unbilled revenue — receivable
Other accounts receivable
Materials and supplies
Prepayments and other assets
Regulatory assets/liabilities
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
Proceeds from sale of assets
Other investments
Net cash used
Cash Flows From Financing Activities:
Proceeds from issuance of Common Shares to Parent
Receipt of advances for and contributions in aid of construction
Refunds on advances for construction
Retirement or repayments of long-term debt
Proceeds from the issuance of long-term debt, net of issuance costs
Net change in inter-company borrowings
Dividends paid
Other
Net cash (used) provided
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
33,643
1,018
2,308
2,313
(409 )
)
(4,287
)
200
)
(4,287
)
)
(1,195
)
592
)
(1,725
)
1,860
)
(2,854
)
(10 )
1,479
)
(1,640
)
2,908
1,165
100,294
)
(123,526
)
)
(26,000
)
26,000
409
)
(1,142
))
(124,259
)
)
—
12,397
)
(4,666
)
)
(28,356
)
—
49,000
)
(38,300
)
)
(1,163
)
)
(11,088
)
)
(35,053
)
35,578
$
525 $
32,477
1,018
1,181
2,349
—
)
(3,024
)
(576 )
)
(12,126
)
)
(1,693
)
)
(1,364
)
)
(2,166
)
1,124
13,278
1,810
(1,911 )
12,339
1,390
1,260
110,337
)
(116,409
)
)
(6,000
)
6,000
—
)
(1,275
)
(117,684
)
)
60,000
9,338
)
(3,729
)
(336 )
159,413
)
(158,000
)
)
(22,500
)
)
(1,662
)
42,524
35,177
401
35,578 $
32,757
606
5,081
2,253
(88)
(3,580)
58
1,882
(744)
311
(123)
4,230
(11,597)
1,558
1,056
(2,110)
1,994
(3,579)
96,628
(142,852)
—
—
88
(1,424)
(144,188)
—
10,171
(5,005)
(40,325)
—
100,500
(20,200)
(1,367)
43,774
(3,786)
4,187
401
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”), Bear Valley Electric Service Inc. ("BVESI"), and American States Utility Services, Inc. (“ASUS”) (and
its wholly owned subsidiaries, Fort Bliss Water Services Company (“FBWS”), Terrapin Utility Services, Inc. (“TUS”), Old
Dominion Utility Services, Inc. (“ODUS”), Palmetto State Utility Services, Inc. (“PSUS”), Old North Utility Services, Inc.
(“ONUS”), Emerald Coast Utility Services, Inc. (“ECUS”), and Fort Riley Utility Services, Inc. ("FRUS")). 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.” On July 1, 2020, GSWC completed the transfer of the electric
utility assets and liabilities from its electric division to BVESI, a separate legal entity and wholly owned subsidiary of AWR
(Note 20). This reorganization did not result in any substantive changes to AWR's operations and business segments. AWR,
through its wholly owned subsidiaries, serves over one million people in nine states.
GSWC and BVESI are both California public utilities, with GSWC engaged in the purchase, production, distribution
and sale of water throughout California serving approximately 262,800 customers, while BVESI distributes electricity in
several San Bernardino County mountain communities in California serving approximately 24,700 customers. The California
Public Utilities Commission (“CPUC”) regulates GSWC’s and BVESI's businesses in matters including properties, rates,
services, facilities, and transactions between GSWC, BVESI, and their affiliates.
ASUS, through its Military Utility Privatization Subsidiaries, operates, maintains and performs construction activities
(including renewal and replacement capital work) on water and/or wastewater systems at various U.S. military bases pursuant
to 50-year firm fixed-price contracts. These contracts are subject to annual economic price adjustments and modifications for
changes in circumstances, changes in laws and regulations and additions to the contract value for new construction of facilities
at the military bases.
There is no direct regulatory oversight by the CPUC over AWR or the operations, rates or services provided by ASUS
or the Military Utility Privatization Subsidiaries.
Basis of Presentation: The consolidated financial statements and notes thereto are presented in a combined report filed
by two separate Registrants: AWR and GSWC. References in this report to “Registrant” are to AWR and GSWC, collectively,
unless otherwise specified.
AWR owns all of the outstanding Common Shares of GSWC, BVESI 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. These financial statements are prepared in conformity with accounting principles
generally accepted in the United States of America. Intercompany transactions and balances have been eliminated in the AWR
consolidated financial statements.
Related-Party Transactions: GSWC, BVESI 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
affiliates BVESI and ASUS using allocation factors approved by the CPUC. During the years ended December 31, 2021, 2020
and 2019, GSWC allocated to ASUS approximately $5.3 million, $4.9 million and $4.7 million, respectively, of corporate office
administrative and general costs. During the years ended December 31, 2021 and 2020, GSWC allocated corporate office
administrative and general costs to BVESI of approximately $2.8 million and $1.3 million, respectively. BVESI assumed
operations of the electric segment on July 1, 2020.
Furthermore, AWR borrows under a credit facility, which expires in May 2023, and provides funds to GSWC and
ASUS in support of their operations. The interest rate charged to GSWC and ASUS is sufficient to cover AWR’s interest
expense under the credit facility. As of December 31, 2021, GSWC had $49.3 million outstanding under its intercompany
borrowing arrangement with AWR. The intercompany borrowing agreement with AWR is considered a short-term debt
arrangement by the CPUC. GSWC has been authorized by the CPUC to borrow under this arrangement for a term of up to 24
months. Borrowings under this arrangement are, therefore, required to be fully paid off within a 24-month period. GSWC’s
next pay-off period for its intercompany borrowings from AWR ends in May 2023. Accordingly, the $49.3 million outstanding
has been classified as a non-current liability under “Other Credits” in GSWC’s Balance Sheet as of December 31, 2021.
In October 2020, AWR issued an interest bearing promissory note to GSWC, which expires in May 2023. Under the
terms of the note, AWR may borrow from GSWC amounts up to $30 million for working capital purposes. AWR agrees to pay
any unpaid principal amounts outstanding under this note, plus accrued interest. During 2021, AWR borrowed and repaid a
76
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
total of $26 million from GSWC under the terms of the note. As of December 31, 2021, there were no amounts outstanding
under this note.
COVID-19 Impact: GSWC, BVESI and ASUS have continued their operations throughout the COVID-19 pandemic
given that their water, wastewater and electric utility services are deemed essential. AWR's responses take into account orders
issued by the CPUC, and the guidance provided by federal, state, and local health authorities and other government officials for
the COVID-19 pandemic. Some of the actions taken by GSWC and BVESI included suspending service disconnections for
nonpayment pursuant to CPUC and state orders, and telecommuting by employees. The suspension of water-service
disconnections at GSWC were implemented in response to an executive order from the governor of California, as well as
CPUC orders. Pursuant to a CPUC decision issued in July 2021, the moratorium on water-service disconnections due to non-
payment of past-due amounts billed to residential customers expired on February 1, 2022. However, water service cannot be
disconnected so long as customers make timely payments on current bills, and are provided and adhere to payment plans to pay
down past-due bills resulting from the pandemic. The moratorium on electric customer service disconnections ended on
September 30, 2021. However, electric-service disconnections for non-payment can only be done after taking into account
certain matters, such as average daily temperatures under certain conditions.
The pandemic has caused volatility in financial markets resulting in fluctuations in the fair value of plan assets in
GSWC's pension and other retirement plans. In addition, the economic impact of the pandemic has also significantly increased
the amount of delinquent customer accounts receivable, resulting in both GSWC and BVESI increasing their allowance for
doubtful accounts throughout the pandemic. However, the CPUC has authorized GSWC and BVESI to track incremental costs,
including bad debt expense in excess of what is included in their respective revenue requirements, incurred as a result of the
pandemic in COVID-19-related memorandum accounts to be filed with the CPUC for future recovery.
On July 12, 2021, the governor of California approved SB-129 Budget Act of 2021, in which nearly $1 billion in relief
funding for overdue water customer bills, and nearly $1 billion in relief funding for overdue electric customer bills were
included. The water customer relief funding is being managed by the State Water Resources Control Board ("SWRCB")
through the California Water and Wastewater Arrearage Payment Program to provide assistance to customers for their water
debt accrued during the COVID-19 pandemic by remitting federal funds that the state received from the American Rescue Plan
Act of 2021 to the utility on behalf of eligible customers. In December 2021, GSWC received SWRCB approval for $9.5
million of relief funding of customers' unpaid water bills incurred during the pandemic. In January 2022, GSWC received these
funds, which it is applying to its delinquent customers' eligible balances. Accordingly, as of December 31, 2021, GSWC has
reflected these relief funds as a reduction to its COVID-19 memorandum account, as well as a reduction to its estimated
customer bad debt reserve. In February 2022, BVESI received $321,000 from the state of California for similar customer relief
funding for unpaid electric customer bills incurred during the pandemic.
GSWC and BVESI continue to experience delinquent account activity because of the ongoing pandemic. As of
December 31, 2021, GSWC and BVESI had approximately $1.7 million and $302,000, respectively, in regulatory asset
accounts related to bad debt expense in excess of their revenue requirements, the purchase of personal protective equipment,
additional incurred printing costs, and other incremental COVID-19-related costs. The CPUC requires that amounts tracked in
GSWC's and BVESI's COVID-19 memorandum accounts for unpaid customer bills be first offset by any (i) federal or state
relief for customers' utility bill debt, and (ii) customer payments through payment-plan arrangements prior to receiving
recovery from customers at large. After these offsets are made, GSWC and BVESI will each file with the CPUC for recovery
of any remaining balances.
By tracking incremental COVID-19-related costs in the CPUC-approved memorandum accounts, GSWC and BVESI
can later ask for recovery of these costs from the CPUC. The COVID-19 memorandum account and other emergency-type
memorandum accounts are established as a result of a state or federally declared emergency, and are therefore recognized as
regulatory assets for future recovery. As a result, the amounts recorded in the COVID-19-related memorandum accounts have
not impacted GSWC's and BVESI's earnings during the pandemic. ASUS has experienced some delays in receiving contract
modifications from the U.S. government for additional construction projects due to government staffing shortages resulting
from the COVID-19 pandemic but this has not had a material impact on its current operations.
Utility Accounting: Registrant’s accounting policies conform to accounting principles generally accepted in the
United States of America ("GAAP"), including the accounting principles for rate-regulated enterprises, which reflect the
ratemaking policies of the CPUC and, to the extent applicable, the Federal Energy Regulatory Commission. GSWC and
BVESI have incurred various costs and received various credits reflected as regulatory assets and liabilities. Accounting for
77
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 GAAP 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 or refunded over a
period exceeding one year are classified as long-term assets and liabilities as of December 31, 2021 and 2020.
Property and Depreciation: Registrant's property consists primarily of regulated utility plant at GSWC and BVESI.
GSWC and BVESI capitalize, as utility plant, the cost of construction and the cost of additions, betterments and replacements
of retired units of property. Such costs 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 depreciation is
recorded to accumulated depreciation. The difference between the estimated original cost, less accumulated depreciation, and
the purchase price, if recognized by the CPUC, is recorded as an acquisition adjustment within utility plant.
Depreciation for the regulated utilities is computed on the straight-line, remaining-life basis, group method, in
accordance with the applicable ratemaking process. The provision for depreciation expressed as a percentage of the aggregate
depreciable asset balances for regulated utilities was 2.2% for each of the years 2021, 2020 and 2019. Depreciation expense for
regulated utilities, excluding amortization expense and depreciation on transportation equipment, totaled $35.5 million, $32.9
million and $31.7 million for the years ended December 31, 2021, 2020 and 2019, respectively. Depreciation computed on
regulated utilities’ transportation equipment is recorded in other operating expenses and totaled $379,000, $353,000 and
$316,000 for the years 2021, 2020 and 2019, respectively. Expenditures for maintenance and repairs are expensed as
incurred. Retired property costs, including costs of removal, are charged to the accumulated provision for depreciation.
Estimated useful lives of regulated utilities’ 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
Non-regulated property consists primarily of equipment utilized by ASUS and its subsidiaries for its operations. This
property is stated at cost, net of accumulated depreciation, which is calculated using the straight-line method over the useful
lives of the assets.
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,
recoverability of GSWC’s asset retirement obligations are reflected as a regulatory asset. GSWC also reflects the loss or gain 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 there is no legal obligation to do
so. 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 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
78
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 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. Revisions in estimates for
timing or estimated cash flows are recognized as changes in the carrying amount of the liability and the related capitalized
asset. 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 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, 2021, 2020 and 2019, no impairment loss was incurred.
Goodwill: At December 31, 2021 and 2020, 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 2021 and 2020, AWR’s assessment of qualitative factors did not
indicate that an impairment had occurred for goodwill 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 expected losses
rather than incurred losses. 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.
Receivables from the U.S. government include amounts due under contracts with the U.S. government to operate and
maintain, and/or provide construction services for the water and/or wastewater systems at military bases. Other accounts
receivable consist primarily 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 other third-party prime government
contractors pursuant to agreements for construction of water and/or wastewater facilities for such third-party prime contractors.
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 18.
Materials and Supplies: Materials and supplies are stated at the lower of cost or net realizable value. Cost is
computed using weighted average cost. Major classes of materials include pipe, meters, 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. At times, 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
or BVESI may accrue an allowance for funds used during construction (“AFUDC”) on the incurred expenditures to offset the
cost of financing project construction. For the year ended December 31, 2021 and 2020, BVESI recorded $216,000 and
$200,000, respectively in AFUDC. For the year ended December 31, 2019, the amount of AFUDC recorded was immaterial.
79
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Debt Issuance Costs and Redemption Premiums: Original debt issuance costs are deducted from the carrying value of
the associated debt liability and amortized over the lives of the respective issues. Premiums paid on the early redemption of
debt are deferred as regulatory assets and amortized over the period that GSWC recovers such costs in rates, which is generally
over the term of the new debt issued to finance the early redemption. At December 31, 2021 and 2020, all of Registrant’s long-
term debt have been issued by GSWC.
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 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. Contributions in aid of construction are similar to advances but require no
refunding. Generally, GSWC and BVESI depreciate contributed property and amortize contributions in aid of construction at
the composite rate of the related property. Utility plant funded by advances and contributions is excluded from rate base.
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, 2021 and 2020
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.
(dollars in thousands)
Long-term debt—GSWC (1)
2021
Carrying Amount
$
415,788 $
2020
Fair Value
Carrying Amount
Fair Value
490,852 $
444,271 $
559,752
(1) Excludes debt issuance costs and redemption premiums.
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 on
its publicly issued notes, private placement notes and other long-term debt using current U.S. corporate bond yields for similar
debt instruments. Under the fair value guidance, these are classified as Level 2, which consists of 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.
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, 2021:
(dollars in thousands)
Long-term debt—GSWC
Level 1
Level 2
Level 3
— $
490,852
— $
Total
490,852
Stock-Based Awards: AWR has issued stock-based awards to its employees under stock incentive plans. AWR has
also issued stock-based awards to its Board of Directors under non-employee directors stock plans. Registrant applies the
provisions in the accounting guidance for share-based payments in accounting for all of its stock-based awards. See Note 13
for further discussion.
Recently Issued Accounting Pronouncements:
Accounting Pronouncements Adopted in 2021
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update
("ASU") No. 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes. The amendments in this
update simplify the accounting for income taxes by removing certain exceptions and clarifying certain requirements regarding
franchise taxes, goodwill, consolidated tax expenses, and annual effective tax rate calculations. The adoption of this guidance
effective January 1, 2021 did not have a material impact on Registrant's financial statements or disclosures.
80
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Revenues
Most of Registrant's revenues are accounted for under the revenue recognition accounting standard, "Revenue from
Contracts with Customers - (Topic 606)."
GSWC and BVESI provide utility services to customers as specified by the CPUC. The transaction prices for water
and electric revenues are based on tariff rates authorized by the CPUC, which include both quantity-based and flat-rate charges.
Tariff revenues represent the adopted revenue requirement authorized by the CPUC intended to provide GSWC and BVESI
with an opportunity to recover its costs and earn a reasonable return on its net capital investment. The annual revenue
requirements are comprised of supply costs, operation and maintenance costs, administrative and general costs, depreciation
and taxes in amounts authorized by the CPUC, and a return on rate base consistent with the capital structure authorized by
the CPUC.
Water and electric revenues are recognized over time as customers simultaneously receive and use the utility services
provided. Water and electric revenues include amounts billed to customers on a cyclical basis, nearly all of which are based on
meter readings for services provided. Customer bills also include surcharges for cost-recovery activities, which represent
CPUC-authorized balancing and memorandum accounts that allow for the recovery of previously incurred operating costs.
Revenues from these surcharges do not impact earnings as they are offset by corresponding increases in operating expenses to
reflect the recovery of the associated costs. Customer payment terms are approximately 20 business days from the billing date.
Unbilled revenues are amounts estimated to be billed for usage since the last meter-reading date to the end of the accounting
period. The most recent customer billed usage forms the basis for estimating unbilled revenue.
GSWC and BVESI bill 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 are paid to various municipalities and counties (based on their ordinances) in
order to use public rights of way for utility purposes. GSWC and BVESI bill these franchise fees to its customers based on a
CPUC-authorized rate for each ratemaking area as applicable. These franchise fees, which are required to be paid regardless of
GSWC’s or BVESI's ability to collect them from its customers, are accounted for on a gross basis. Franchise fees billed to
customers and recorded as operating revenue were approximately $4.2 million, $3.8 million and $4.0 million for the years
ended December 31, 2021, 2020 and 2019, respectively. When GSWC or BVESI act as an agent, and a tax is not required to be
remitted if it is not collected from customers, the tax is accounted for on a net basis.
As currently authorized by the CPUC, GSWC and BVESI record 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. For GSWC, the difference is tracked under the Water Revenue Adjustment Mechanism
(“WRAM”) regulatory accounts, and for BVESI the difference is tracked in the Base Revenue Requirement Adjustment
Mechanism ("BRRAM") regulatory account. If this difference results in an under-collection of revenues, additional revenue is
recorded only to the extent that the difference is expected to be collected within 24 months following the year in which they are
recorded in accordance with Accounting Standards Codification ("ASC") Topic 980, Regulated Operations.
ASUS's 50-year firm fixed-price contracts with the U.S. government are considered service concession arrangements
under ASC 853 Service Concession Arrangements. Accordingly, the services under these contracts are accounted for under
Topic 606 Revenue from Contracts with Customers and the water and/or wastewater systems are not recorded as Property, Plant
and Equipment on Registrant’s balance sheet. For ASUS, performance obligations consist of (i) performing ongoing operation
and maintenance of the water and/or wastewater systems and treatment plants for each military base served, and (ii) performing
construction activities (including renewal and replacement capital work) on each military base served. The transaction price for
each performance obligation is either delineated in, or initially derived from, the applicable 50-year contract and/or any
subsequent contract modifications. Depending on the state in which operations are conducted, the Military Utility Privatization
Subsidiaries are also subject to certain state non-income tax assessments, which are accounted for on a gross basis and have
been immaterial to date.
The ongoing performance of operation and maintenance of the water and/or wastewater systems and treatment plants
is viewed as a single performance obligation for each 50-year contract with the U.S. government. Registrant recognizes
revenue for operations and maintenance fees monthly using the "right to invoice" practical expedient under ASC Topic 606.
ASUS has a right to consideration from the U.S. government in an amount that corresponds directly to the value to the U.S.
government of ASUS’s performance completed to-date. The contractual operations and maintenance fees are firm-fixed, and
the level of effort or resources expended in the performance of the operations-and-maintenance-fees performance obligation is
largely consistent over the 50-year term. Therefore, Registrant has determined that the monthly amounts invoiced for operations
81
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and maintenance performance are a fair reflection of the value transferred to the U.S. government. Invoices to the U.S.
government for operations and maintenance service, as well as construction activities, are due upon receipt.
ASUS's construction activities consist of various projects to be performed. Each of these projects' transaction prices
are delineated either in the 50-year contract or through a specific contract modification for each construction project, which
includes the transaction price for that project. Each construction project is viewed as a separate, single performance obligation.
Therefore, it is generally unnecessary to allocate a construction transaction price to more than one construction performance
obligation. Revenues for construction activities are recognized over time, with progress toward completion measured based on
the input method using costs incurred relative to the total estimated costs (cost-to-cost method). Due to the nature of these
construction projects, Registrant has determined the cost-to-cost input measurement to be the best method to measure progress
towards satisfying its construction contract performance obligations, as compared to using an output measurement such as units
produced. Changes in job performance, job site conditions, change orders and/or estimated profitability may result in revisions
to costs and income for ASUS, and are recognized in the period in which any such revisions are determined. Pre-contract costs
for ASUS, which consist of design and engineering labor costs, are deferred if recovery is probable, and are expensed as
incurred if recovery is not probable. Deferred pre-contract costs have been immaterial to date.
Contracted services revenues recognized during the years ended December 31, 2021, 2020 and 2019 and from
performance obligations satisfied in previous periods were not material.
Although GSWC and BVESI have a diversified base of residential, commercial, industrial and other customers,
revenues derived from residential and commercial customers account for nearly 90% of total water revenues, and 90% of total
electric revenues. The vast majority of ASUS's revenues are from the U.S. government. For the years ended December 31,
2021, 2020, and 2019, disaggregated revenues from contracts with customers by segment are as follows:
For The Year Ended
December 31, 2021
For The Year Ended
December 31, 2020
For The Year Ended
December 31, 2019
(dollar in thousands)
Water:
Tariff-based revenues
CPUC-approved surcharges (cost-recovery activities)
Other
Water revenues from contracts with customers
WRAM (over)/under-collection (alternative revenue
program)
Total water revenues
Electric:
Tariff-based revenues
CPUC-approved surcharges (cost-recovery activities)
Electric revenues from contracts with customers
BRRAM under-collection (alternative revenue program)
Total electric revenues
Contracted services:
Water
Wastewater
$
$
345,562
3,280
2,227
351,069
(3,957)
347,112
37,124
310
37,434
911
38,345
71,210
42,186
329,670 $
3,736
2,100
335,506
(4,869)
330,637
35,283
686
35,969
1,055
37,024
74,898
45,684
Contracted services revenues from contracts with
customers
Total revenues
113,396
120,582
$
498,853
$
488,243 $
82
305,244
4,322
2,006
311,572
8,258
319,830
36,628
410
37,038
2,510
39,548
59,868
54,623
114,491
473,869
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The opening and closing balances of the receivable from the U.S. government, contract assets and contract liabilities
from contracts with customers, which related entirely to ASUS, are as follows:
(dollar in thousands)
Unbilled receivables
Receivable from the U.S. government
Contract assets
Contract liabilities
December 31, 2021
December 31, 2020
14,924
74,670
10,257
1,800
14,835 $
79,818 $
9,587 $
257 $
$
$
$
$
Unbilled receivables and Receivable from the U.S. government represent receivables where the right to payment is
conditional only by the passage of time.
Contract Assets - Contract assets are those of ASUS and consist of unbilled revenues recognized from work-in-
progress construction projects where the right to payment is conditional on something other than the passage of time. The
classification of this asset as current or noncurrent is based on the timing of when ASUS expects to bill these amounts.
Contract Liabilities - Contract liabilities are those of ASUS and consist of billings in excess of revenue recognized.
The classification of this liability as current or noncurrent is based on the timing of when ASUS expects to recognize revenue.
The majority of contract liabilities at the beginning of the period were recognized as revenues for the year ended
December 31, 2021.
As of December 31, 2021, Registrant's aggregate remaining performance obligations, all of which are for the
contracted services segment, was $3.3 billion. Registrant expects to recognize revenue on these remaining performance
obligations over the remaining terms of each of the 50-year contracts, which range from 33 to 47 years. Each of the contracts
with the U.S. government is subject to termination, in whole or in part, prior to the end of its 50-year term for the convenience
of the U.S. government.
Note 3 — Regulatory Matters
In accordance with accounting principles for rate-regulated enterprises, Registrant records regulatory assets, which
represent probable future recovery of costs from customers through the ratemaking process, and regulatory liabilities, which
represent probable future refunds that are to be credited to customers through the ratemaking process. At December 31, 2021,
Registrant had approximately $61.4 million of regulatory liabilities, net of regulatory assets, not accruing carrying costs. Of
this amount, (i) $77.0 million of regulatory liabilities relates to the creation of an excess deferred income tax liability brought
about by a lower federal income tax rate as a result of the 2017 Tax Cuts and Jobs Act ("TCJA") that is expected to be refunded
to customers (Note 11), (ii) $6.3 million of net regulatory liabilities relates to flow-through deferred income taxes including the
gross-up portion on the deferred tax resulting from the excess deferred income tax regulatory liability (Note 11), and (iii) $24.9
million of regulatory assets relates to the underfunded position in Registrant's pension and other post-retirement obligations
(excluding the two-way pension balancing accounts). The remainder relates to other items that do not provide for or incur
carrying costs.
Regulatory assets represent costs incurred by GSWC and BVESI for which either has received or expects to receive
rate recovery in the future. In determining the probability of costs being recognized in other periods, GSWC and BVESI
consider regulatory rules and decisions, past practices, and other facts or circumstances that would indicate if recovery is
probable. If the CPUC determines that a portion of either GSWC’s or BVESI's assets are not recoverable in customer rates, the
applicable entity must determine if it has suffered an asset impairment that requires it to write down the asset's value.
Regulatory assets are offset against regulatory liabilities within each ratemaking area. Amounts expected to be collected or
refunded in the next twelve months have been classified as current assets and current liabilities by ratemaking area.
83
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Regulatory liabilities, less regulatory assets, included in the consolidated balance sheets are as follows:
(dollars in thousands)
GSWC
Water Revenue Adjustment Mechanism, net of the Modified Cost Balancing Account
Costs deferred for future recovery on Aerojet case
Pensions and other post-retirement obligations (Note 12)
COVID-19 memorandum account
Other regulatory assets
Excess deferred income taxes (Note 11)
Flow-through taxes, net (Note 11)
Various refunds to customers
Total GSWC
BVESI
Derivative unrealized (gain) loss (Note 5)
Other regulatory assets
Various refunds to customers
Total AWR
Alternative-Revenue Programs:
December 31,
2021
2020
$
$
$
13,326 $
5,210
25,212
1,663
11,739
(73,000)
(5,552)
(2,680)
(24,082) $
(4,441)
13,916
(8,189)
(22,796) $
13,741
6,751
65,576
4,119
10,670
(74,185)
(9,722)
(4,577)
12,373
1,537
9,451
(6,822)
16,539
GSWC records the difference between what it bills its water customers and that which is authorized by the CPUC
using the Water Revenue Adjustment Mechanism ("WRAM") and the Modified Cost Balancing Account (“MCBA”) accounts
approved by the CPUC. The over- or under-collection of the WRAM is aggregated with the MCBA over- or under-collection
for the corresponding ratemaking area and bears interest at the current 90-day commercial-paper rate. During the year ended
December 31, 2021, $7.5 million of pre-2021 WRAM/MCBA balances were recovered through surcharges. During 2021,
GSWC recorded an additional $7.1 million net under-collection in the WRAM/MCBA. The majority of this balance represents
an under-collection of supply costs incurred and recorded in the MCBA due to a higher volume of purchased water as compared
to adopted. As of December 31, 2021, GSWC had an aggregated regulatory asset of $13.3 million, which is comprised of a
$3.8 million over-collection in the WRAM accounts and a $17.1 million under-collection in the MCBA accounts.
As required by the accounting guidance for alternative revenue programs, GSWC is required to collect its WRAM
balances within 24 months following the year in which an under-collection is recorded. As of December 31, 2021, there were
no WRAM under-collections that were estimated to be collected over more than 24 months.
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-General Corporation ("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.
84
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pensions and Other Post-Retirement Obligations:
A regulatory asset has been recorded at December 31, 2021 and 2020 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 post-
retirement benefit plans because the cost of these plans has historically been recovered through rates. As discussed in Note 12,
as of December 31, 2021, Registrant’s underfunded position for these plans that have been recorded as a regulatory asset totaled
$25.0 million. Registrant expects this regulatory asset to be recovered through rates in future periods.
The CPUC has authorized GSWC and BVESI to each use two-way balancing accounts to track differences between
the forecasted annual pension expenses adopted in their respective customer rates and the actual annual expense to be recorded
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, 2021, GSWC has a $261,000 under-collection related to the general office and
water regions, and BVESI has a $246,000 over-collection in its two-way balancing account.
COVID-19 Memorandum Accounts:
The CPUC has approved GSWC and BVESI to activate memorandum accounts, such as a Catastrophic Event
Memorandum Account ("CEMA"), to track incremental COVID-19-related costs, including bad debt expense in excess of what
is included in their respective revenue requirements. As previously discussed, in December 2021, GSWC received approval
from the SWRCB for $9.5 million of relief funding of customers' unpaid water bills incurred during the pandemic, and
subsequently received the funds from the state of California in January of 2022. As of December 31, 2021, GSWC has
reflected these relief funds as a reduction to its CEMA account, as well as a reduction to its estimated customer bad debt
reserve. However, GSWC continues to experience delinquent account activity because of the ongoing pandemic. As of
December 31, 2021, GSWC has approximately $1.7 million in regulatory asset accounts related to bad debt expense in excess
of its revenue requirements, the purchase of personal protective equipment, additional incurred printing costs, and other
incremental COVID-19 related costs.
In February 2022, BVESI received $321,000 from the state of California for similar customer relief funding for
unpaid electric bills incurred during the pandemic. As of December 31, 2021, BVESI has approximately $302,000 in a
regulatory asset account related to bad debt expense in excess of BVESI’s revenue requirements, and other incremental
COVID-19 related costs. This balance takes into consideration the relief funds received in 2022 for unpaid electric bills.
The CPUC requires that amounts tracked in GSWC's and BVESI's COVID-19 memorandum accounts for unpaid
customer bills be first offset by any (i) federal or state relief for customers' utility bill debt, and (ii) customer payments through
payment-plan arrangements prior to receiving recovery from customers at large. After these offsets are made, GSWC and
BVESI will each file with the CPUC for recovery of any remaining balances.
Other BVESI Regulatory Assets:
Vegetation Management, Wildfire Mitigation Plans and Legislation
In August 2019, the CPUC issued a final decision on the electric general rate case, which set new rates for the years
2018 - 2022. Among other things, the decision authorized BVESI to record incremental costs related to vegetation
management, such as costs for increased minimum clearances around electric power lines, in a CPUC-approved account for
future recovery. As of December 31, 2021, BVESI has approximately $5.8 million in incremental vegetation management costs
recorded as a regulatory asset, which BVESI intends to include for recovery in its next general rate case application scheduled
to be filed with the CPUC in 2022 to set new rates for the years 2023 through 2026.
California legislation enacted in September 2018 requires all investor-owned electric utilities to submit an annual
wildfire mitigation plan (WMP) to the CPUC for approval. The WMP must include a utility's plans on constructing,
maintaining, and operating its electrical lines and equipment to minimize the risk of catastrophic wildfire. In September 2021,
the CPUC approved BVESI's most recent WMP submission. Capital expenditures and other costs incurred as a result of the
WMP are subject to CPUC audit. As a result, the CPUC’s Wildfire Safety Division (now part of the California Natural
Resources Agency effective July 1, 2021) engaged an independent accounting firm to conduct examinations of the expenses and
capital investments identified in the 2019 and 2020 WMPs for each of the investor-owned electric utilities, including BVESI.
As of December 31, 2021, BVESI has approximately $2.8 million related to expenses accumulated in its WMP memorandum
accounts that have been recognized as regulatory assets for future recovery. In December 2021, the independent accounting
firm issued its final examination report, which contains the auditors' results and recommendations. While the final report did
not identify any findings of inappropriate costs included in the WMP memorandum accounts under review, the report suggested
85
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
that the CPUC should evaluate whether some of the costs recorded in the WMP memorandum accounts are incremental to what
is being recovered in customer rates when BVESI seeks recovery in a future proceeding. At this time, BVESI considers the
auditor's examination complete and does not expect further developments. In the future, the CPUC may refer to the
recommendations of the final report when BVESI seeks recovery of the WMP memorandum accounts. All capital expenditures
and other costs incurred through December 31, 2021 as a result of BVESI's WMPs are not currently in rates and are expected to
be filed for future recovery in BVESI's next general rate case application.
BVESI Winter Storm Regulatory Asset
BVESI activated a memorandum account to track the incremental costs incurred in response to a severe winter storm
that occurred in February 2019 and resulted in the declaration of an emergency by the governor of California. Incremental
costs of approximately $455,000 were included in the winter storm memorandum account and recorded as a regulatory asset.
BVESI subsequently filed for recovery of these costs. In May 2021, the CPUC issued a final decision denying BVESI’s
request for recovery, claiming that BVESI did not adequately demonstrate that the costs incurred were incremental and beyond
costs already included in BVESI’s revenue requirement, but permits BVESI to file a new application solely on the issue of
incrementality, BVESI believes the storm costs were incremental and beyond what was included in its revenue requirement, and
in October 2021 filed a new application to continue pursuing recovery. As a result, the costs in this memorandum account
remain a regulatory asset at December 31, 2021 as BVESI continues to believe the incremental costs were properly tracked and
included in the memorandum account consistent with the CPUC's well-established past practices, and that these costs are
probable of recovery. However, if BVESI does not ultimately prevail in obtaining recovery, it will result in a charge to earnings
from a write-off of this regulatory asset of approximately $455,000.
Other Regulatory Assets:
Other regulatory assets represent costs incurred by GSWC or BVESI 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.
86
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 — Utility Plant and Intangible Assets
The following table shows Registrant’s utility plant (regulated utility plant and non-regulated utility property) by
major asset class:
(dollars in thousands)
Water
Land
Intangible assets
Source of water supply
Pumping
Water treatment
Transmission and distribution
Other
Electric (Note 20)
Transmission and distribution
Generation
Other (1)
AWR
December 31,
GSWC
December 31,
2021
2020
2021
2020
$
18,207 $
29,028
98,244
209,936
83,922
1,356,649
139,895
1,935,881
18,234 $
28,906
92,166
190,901
81,272
1,277,361
128,877
1,817,717
18,207 $
29,028
98,244
209,936
83,922
1,356,649
102,831
1,898,817
18,234
28,906
92,166
190,901
81,272
1,277,361
95,562
1,784,402
90,491
12,583
13,398
116,472
87,461
12,583
12,463
112,507
—
—
—
—
—
—
—
—
Less — accumulated depreciation
Construction work in progress
Net utility plant
(594,264)
167,915
1,.626,004 $
(568,326)
150,145
1,512,043 $
(522,672)
123,600
1,499,745 $
(502,283)
118,370
1,400,489
$
(1) Includes intangible assets of $1.2 million for the years ended December 31, 2021 and 2020 for studies performed in association with the
electric segment.
As of December 31, 2021 and 2020, intangible assets consist of the following:
(dollars in thousands)
Intangible assets:
Conservation programs
Water and service rights (2)
Water planning studies
Total intangible assets
Less — accumulated amortization
Intangible assets, net of amortization
Weighted Average
Amortization
Period
AWR
December 31,
GSWC
December 31,
2021
2020
2021
2020
3 years
30 years
14 years
$ 9,486 $
8,695
12,258
30,439
(26,401)
$ 4,038 $
9,486 $
8,694
12,141
30,321
(24,460)
5,861 $
9,486
8,124
11,019
28,629
(25,109)
3,520
$
$
$
9,486
8,124
10,898
28,508
(24,305)
4,203
399
Intangible assets not subject to amortization (3)
$
400 $
399 $
399
(2) Includes intangible assets of $571,000 for contracted services included in "Other Property and Investments" on the consolidat ed
balance sheets as of December 31, 2021 and 2020.
(3) The intangible assets not subject to amortization primarily consist of organization and consent fees.
For the years ended December 31, 2021, 2020 and 2019, amortization of intangible assets was $700,000, $654,000 and
$1.3 million, respectively, for both AWR and GSWC.
87
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Estimated future consolidated amortization expense related to intangible assets for the succeeding five years are (in
thousands):
2022
2023
2024
2025
2026
Total
Asset Retirement Obligations:
$
$
672
672
672
672
672
3,360
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, 2021 and 2020:
(dollars in thousands)
Obligation at December 31, 2019
Additional liabilities incurred
Liabilities settled
Accretion
$
Obligation at December 31, 2020
Additional liabilities incurred
Liabilities settled
Accretion
Obligation at December 31, 2021
Note 5 — Derivative Instruments
$
$
GSWC
8,863
165
(58)
350
9,320
148
(120)
369
9,717
BVESI purchases power under 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. These long-term contracts are subject to
the accounting guidance for derivatives and require mark-to-market derivative accounting. Among other things, the CPUC
authorized BVESI 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, these unrealized gains and losses do not impact
Registrant’s earnings. As of December 31, 2021, there was a $4.4 million unrealized gain asset with a corresponding regulatory
liability in the memorandum account for the three and five-year purchased power contract as a result of the fixed prices being
lower than the futures energy prices. The notional volume of derivatives remaining under these long-term contracts as of
December 31, 2021 was approximately 350,000 megawatt hours.
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 contracts. The
market prices used to determine the fair value for these derivative instruments were estimated based on independent sources
such as broker quotes and publications that are not observable in or corroborated by the market. When such inputs have a
significant impact on the measurement of fair value, the instrument is categorized as Level 3. Accordingly, the valuation of the
derivatives on Registrant’s purchased power contracts have been classified as Level 3 for all periods presented. The unrealized
gain as of December 31, 2021 as compared to an unrealized loss in as of December 31, 2020 was due to an increase in energy
prices since the execution of the contracts. The following table presents changes in the fair value of BVESI’s derivatives for
the years 2021 and 2020:
(dollars in thousands)
Balance, at beginning of the period
2021
2020
$
Unrealized gain on purchased power contracts
Balance, at end of the period
$
88
(1,537) $
5,978
4,441 $
(3,171)
1,634
(1,537)
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 — Military Privatization
Each of the Military Utility Privatization Subsidiaries have entered into a service contract(s) 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 renewal 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 subject to an economic price adjustment ("EPA") provision, on
an annual basis. Prices may also be equitably adjusted for changes in law and other circumstances. ASUS is permitted to file,
and has filed, requests for equitable adjustment. 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 a Military
Utility Privatization Subsidiary.
ASUS has experienced delays in receiving EPAs as provided for under its 50-year contracts. Because of the delays,
EPAs, when finally approved, are retroactive. During 2021, the U.S. government approved EPAs at eight of the bases served.
In some cases, these EPAs included retroactive operation and maintenance management fees for prior periods. For the years
ended December 31, 2021, 2020 and 2019, retroactive operation and maintenance management fees related to prior periods
were immaterial.
Note 7 — Earnings Per Share and Capital Stock
In accordance with the accounting guidance for participating securities and earnings per share (“EPS”), Registrant uses
the “two-class” method of computing EPS. The “two-class” method is an earnings allocation formula that determines EPS for
each class of common stock and participating security. AWR has participating securities related to restricted stock units that
earn dividend equivalents on an equal basis with AWR’s Common Shares that have been issued under AWR’s 2016 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
Total income available to common shareholders, basic (a)+(b)
Weighted average Common Shares outstanding, basic
Basic earnings per Common Share
For The Years Ended December 31,
2020
2021
2019
$
$
$
94,347 $
51,689
134
42,524
42,414
110
94,103 $
86,425 $
47,206
158
39,061
38,930
131
86,136 $
84,342
42,702
180
41,460
41,285
175
83,987
36,921
36,880
36,814
2.55 $
2.34 $
2.28
Diluted EPS is based upon the weighted average number of Common Shares, including both outstanding shares and
shares potentially issuable in connection with restricted stock units granted under AWR’s 2016 employee plans, and the 2003
and 2013 directors' plans, and net income. At December 31, 2021, there were also 100,020 restricted stock units outstanding,
including performance shares awarded to officers of the Registrant.
89
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:
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,
2020
2021
2019
$
$
94,103 $
110
94,213 $
86,136 $
131
86,267 $
36,921
89
37,010
36,880
115
36,995
83,987
175
84,162
36,814
150
36,964
Diluted earnings per Common Share
$
2.55 $
2.33 $
2.28
(1) In applying the treasury stock method of reflecting the dilutive effect of outstanding stock-based compensation in the calculation of
diluted EPS, 100,020 restricted stock units, including performance awards, at December 31, 2021 were deemed to be outstanding in
accordance with accounting guidance on earnings per share.
During the years ended December 31, 2021, 2020 and 2019, AWR issued Common Shares totaling 47,182, 42,489 and
88,772, respectively, under AWR's employee stock incentive plans and the non-employee directors' plans. In addition, during
the years 2020 and 2019, AWR issued 1,800 and 30,998 Common Shares for approximately $30,000 and $519,000,
respectively, as a result of the exercise of stock options. No shares were issued during 2021 as a result of the exercise of stock
options. During 2021, 2020 and 2019, no cash proceeds received by AWR as a result of the exercise of stock options were
distributed to any of AWR's subsidiaries. AWR has not issued any Common Shares during 2021, 2020 and 2019 under AWR's
Common Share Purchase and Dividend Reinvestment Plan ("DRP") and the 401(k) Plan. Shares reserved for the 401(k) Plan
are in relation to AWR’s matching contributions and investment by participants. As of December 31, 2021, there were
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.
During 2020, GSWC issued five Common Shares to AWR for $60 million. The majority of the proceeds from these
stock issuances were used by GSWC to pay down its intercompany borrowings from AWR. The CPUC requires GSWC to
pay down all intercompany borrowings from AWR within a 24-month period. No shares were issued by GSWC during 2021
and 2019.
During the years ended December 31, 2021, 2020 and 2019, AWR and GSWC made payments to taxing authorities on
employees' behalf for shares withheld related to net share settlements. These payments are included in the stock-based
compensation caption of the statements of equity. 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 8 — Dividend Limitations
GSWC is 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 $38.3 million, $22.5 million and
$20.2 million were paid to AWR by GSWC during the years 2021, 2020 and 2019, respectively.
The ability of AWR, GSWC, BVESI and ASUS to pay dividends is also restricted by California law. Under California
law, AWR, GSWC, BVESI 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 $685.9 million was available to pay dividends to AWR’s shareholders
at December 31, 2021. Approximately $615.7 million was available for GSWC to pay dividends to AWR at
December 31, 2021.
90
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 — Bank Debt
AWR has access to a $200.0 million credit facility expiring in May 2023 in order to provide funds to GSWC and
ASUS in support of their operations on terms that are similar to that of the credit facility. At December 31, 2021, there was
$174.5 million outstanding under the credit facility. The aggregate effective amount that may be outstanding under letters of
credit is $25.0 million. AWR has obtained letters of credit for AWR and GSWC, in the aggregate amount of $455,000 at fees of
0.65%. Letters of credit outstanding reduce the amount that may be borrowed under the revolving credit facility. AWR is not
required to maintain any compensating balances.
Loans may be obtained under this credit facility at the option of AWR and bear interest at rates based on credit ratings
and LIBOR benchmark replacement rate margins. In March 2021, Standard and Poor’s Global Ratings (“S&P”) affirmed an
A+ credit rating for both AWR and GSWC. S&P also revised its rating outlook to negative from stable for both companies.
S&P’s debt ratings range from AAA (highest possible) to D (obligation is in default). In November 2021, Moody's Investors
Service ("Moody's") affirmed its A2 rating with a stable outlook for GSWC.
BVESI has access to a $35.0 million revolving credit facility, which was amended in December 2021 to reduce the
interest rate and fees, as well as extend the maturity date by a year to July 1, 2024. As of December 31, 2021, there was $31.0
million outstanding under this facility. Borrowings made under this facility support the electric segment's operations and
capital expenditures. Under the terms of the credit agreement, BVESI has the option to increase in the facility by an additional
$15 million, subject to lender approval. BVESI’s revolving credit facility is considered a short-term debt arrangement by the
CPUC. BVESI has been authorized by the CPUC to borrow under this credit facility for a term of up to 24 months. Borrowings
under this credit facility are, therefore, required to be fully paid off within a 24-month period. BVESI’s pay-off period for its
credit facility ends in July 2022. Accordingly, the $31.0 million outstanding under BVESI's credit facility has been classified as
a current liability in AWR's Consolidated Balance Sheet as of December 31, 2021.
Registrant’s borrowing activities (excluding letters of credit) for the years ended December 31, 2021 and 2020 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
$
$
$
December 31,
2021
205,500
0.78% ~ 1.61%
165,167
$
$
1.05 %
205,500
$
2020
134,200
1.19% ~ 1.90%
162,995
1.47 %
249,200
All of the letters of credit are issued pursuant to AWR's revolving credit facility. The 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, 2021, 2020 and 2019, AWR was in compliance with these
requirements. As of December 31, 2021, AWR had an interest coverage ratio of 8.21 times interest expense, a debt ratio of 0.47
to 1.00 and a debt rating of A+ by S&P.
Pursuant to BVESI's credit facility agreement, BVESI must maintain a minimum interest coverage ratio of 4.5 times
interest expense and a maximum consolidated total debt to consolidated total capitalization ratio of 0.65 to 1.00. As of
December 31, 2021 and 2020, BVESI was in compliance with these requirements, with an actual interest coverage ratio of 58.6
times interest expense and a total funded debt ratio of 0.30 to 1.00 as of December 31, 2021. In addition, BVESI is required to
have a current safety certification issued by the CPUC, which it currently has.
91
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 — Long-Term Debt
Registrant’s long-term debt consists 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.
On May 24, 2021, GSWC redeemed its 9.56% private placement notes in the amount of $28 million, which pursuant
to the note agreement included a redemption premium of 3.0% on par value, or $840,000. GSWC recovers redemption
premiums in its embedded cost of debt as filed in cost of capital proceedings where the cost savings from redeeming higher
interest rate debt are passed on to customers. Accordingly, the redemption premium has been deferred as a regulatory asset.
GSWC funded the redemption by borrowing from AWR parent. AWR, in turn, funded this borrowing from its revolving credit
facility.
In 2020, GSWC issued unsecured private placement notes totaling $160.0 million. In connection with this financing,
GSWC issued (i) $85.0 million aggregate principal amount of Series A Senior Notes at a coupon rate of 2.17% due
July 8, 2030, and (ii) $75.0 million aggregate principal amount of Series B Senior Notes at a coupon rate of 2.90% due
July 8, 2040. Interest on the Notes is payable semiannually. The Notes are unsecured and rank equally with GSWC’s
unsecured and unsubordinated debt. GSWC may, at its option, redeem all or portions of the Notes at any time upon written
notice, subject to payment of a make-whole premium based on 50 basis points above the applicable treasury yield. The make-
whole premiums and covenant requirements under these notes are similar to the terms of the $15.0 million 3.45% senior private
placement notes due in 2029 and the $40.0 million 5.87% senior private placement notes due in 2028. Pursuant to the terms of
each 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, 2021, GSWC had a total indebtedness to capitalization ratio of 0.4288-to-1 and a total indebtedness to EBITDA
of 3.2-to-1.
In October 2009, GSWC entered into an agreement with the California Department of Public 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.
Annual maturities of all long-term debt at December 31, 2021 are as follows (in thousands):
2022
2023
2024
2025
2026
Thereafter
Total
$
$
377
400
421
441
460
413,689
415,788
92
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 — Taxes on Income
Registrant records deferred income taxes for temporary differences pursuant to the accounting guidance that addresses
items recognized for income tax purposes in a different period from when these items are reported in the financial statements.
These items include differences in net asset basis (primarily related to differences in depreciation lives and methods, and
differences in capitalization methods) and the treatment of certain regulatory balancing accounts and construction contributions
and advances. The accounting guidance for income taxes requires that rate-regulated enterprises record deferred income taxes
and offsetting regulatory liabilities and assets for temporary differences where the rate regulator has prescribed flow-through
treatment for ratemaking purposes (Note 3). Deferred investment tax credits (“ITC”) are amortized ratably to deferred tax
expense over the remaining lives of the property that gave rise to these credits.
GSWC is included in both AWR’s consolidated federal income tax and its combined California state franchise tax
returns. The impact of California’s unitary apportionment on the amount of AWR’s California income tax liability is a function
of both the profitability of AWR’s non-California activities and the proportion of AWR’s California sales to its total sales.
GSWC’s income tax expense is computed as if GSWC were autonomous and separately files its income tax returns, which is
consistent with the method adopted by the CPUC in setting GSWC’s customer rates.
On November 15, 2021, the Infrastructure Investment and Jobs Act (“IIJA”) was signed into federal law. Among its
significant provisions, IIJA restores, on a retroactive basis to January 1, 2021, the provision that treats contributions in aid of
construction provided to regulated water utilities as non-taxable, which TCJA had repealed. Further, IIJA broadens the
provision to also treat government grants for water infrastructure as non-taxable.
The significant components of the deferred tax assets and liabilities as reflected in the balance sheets at December 31,
2021 and 2020 are:
(dollars in thousands)
Deferred tax assets:
Regulatory-liability-related (1)
Contributions and advances
Other
Total deferred tax assets
Deferred tax liabilities:
Fixed assets
Regulatory-asset-related: depreciation and other
Balancing and memorandum accounts (non-flow-through)
Total deferred tax liabilities
Accumulated deferred income taxes, net
AWR
December 31,
2021
2020
GSWC
December 31,
2021
2020
$
$
32,220 $
6,850
5,324
44,394 $
32,640 $
6,390
6,092
45,122 $
30,410 $
7,227
5,689
43,326 $
30,782
6,771
6,663
44,216
$ (150,290) $ (146,688) $ (144,719) $ (141,422)
(21,060)
(6,315)
(168,797)
$ (140,290) $ (131,172) $ (132,314) $ (124,581)
(22,205)
(7,401)
(176,294)
(25,914)
(8,480)
(184,684)
(24,858)
(6,063)
(175,640)
(1) Primarily represents the gross-up portion of the deferred income tax (on the excess-deferred-tax regulatory liability) brought about by
TCJA’s reduction in the federal income tax rate.
93
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 (benefit) expense
Total income tax expense
(dollars in thousands)
Current
Federal
State
Total current tax expense
Deferred
Federal
State
Total deferred tax (benefit) expense
Total income tax expense
AWR
Year Ended December 31,
2020
2021
2019
19,592 $
7,270
26,862 $
2,802 $
759
3,561
30,423 $
19,240 $
6,714
25,954 $
1,814 $
429
2,243
28,197 $
12,507
5,540
18,047
6,407
216
6,623
24,670
GSWC
Year Ended December 31,
2020
2021
2019
13,698 $
6,089
19,787 $
2,251 $
57
2,308
22,095 $
14,674 $
5,849
20,523 $
949 $
232
1,181
21,704 $
9,616
5,480
15,096
4,924
157
5,081
20,177
$
$
$
$
$
$
$
$
The differences between AWR’s and GSWC’s effective tax rates and the federal statutory rate are mostly attributable
to (i) state taxes; (ii) permanent differences including the excess tax benefits from share-based payments, which are reflected in
the income statements and reduced income tax expense; (iii) continuing amortization of the excess deferred income tax liability,
and (iv) differences between book and taxable income that are treated as flow-through adjustments in accordance with
regulatory requirements (principally from plant, rate-case, and compensation expenses). As a regulated utility, GSWC treats
certain temporary differences as flow-through in computing its income tax expense consistent with the income tax method used
in its CPUC-jurisdictional ratemaking. Flow-through items either increase or decrease tax expense and thus impact the ETR.
94
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)
Federal taxes on pretax income at statutory rate
Increase (decrease) in taxes resulting from:
State income tax, net of federal benefit
Excess deferred tax amortization
Flow-through on fixed assets
Flow-through on removal costs
Investment tax credit
Other – net
Total income tax expense from operations
Pretax income from operations
Effective income tax rate
(dollars in thousands)
Federal taxes on pretax income at statutory rate
Increase (decrease) in taxes resulting from:
State income tax, net of federal benefit
Excess deferred tax amortization
Flow-through on fixed assets
Flow-through on removal costs
Investment tax credit
Other – net
Total income tax expense from operations
Pretax income from operations
Effective income tax rate
AWR
Year Ended December 31,
2020
2019
2021
$ 26,202
$ 24,071
$ 22,872
5,764
(1,550)
1,056
(1,031)
(71)
(42)
4,758
(1,579)
1,244
(1,582)
(71)
(972)
6,425
(1,356)
1,069
(1,962)
(71)
116
$ 30,423
$ 124,770
$ 28,197
$ 114,622
$ 24,670
$ 109,012
24.4 %
24.6 %
22.6 %
GSWC
Year Ended December 31,
2020
2019
2021
$ 19,175
$ 18,202
$ 18,236
4,923
(1,184)
1,008
(1,954)
(71)
198
$ 22,095
$ 91,310
4,920
(1,477)
1,042
(1,026)
(71)
114
$ 21,704
$ 86,675
4,656
(1,579)
1,244
(1,582)
(71)
(727)
$ 20,177
$ 86,840
24.2 %
25.0 %
23.2 %
AWR and GSWC had no unrecognized tax benefits at December 31, 2021, 2020 and 2019.
Registrant’s policy is to classify interest on income tax over/underpayments in interest income/expense and penalties
in “other operating expenses.” Registrant did not have any material interest receivables/payables from/to taxing authorities as
of December 31, 2021 and 2020, nor did it recognize any material interest income/expense or accrue any material tax-related
penalties during the years ended December 31, 2021, 2020 and 2019.
Registrant files federal, California and various other state income tax returns. AWR's 2018—2020 tax years remain
subject to examination by the Internal Revenue Service. AWR filed refund claims with the California Franchise Tax Board
("FTB") for the 2005 through 2008 and 2011 through 2016 tax years in connection with the matters reflected on prior federal
refund claims along with other state tax items. The FTB continues to review the claims, and the 2009, 2010, and 2017—2020
tax years remain subject to examination by the FTB.
Note 12 — 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 5 highest consecutive years’ average earnings multiplied by the number of years of credited service, up to a
95
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2021, Registrant had 918 participants in the Pension Plan.
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 ranging from 3% to 5.25% of eligible pay each pay period into investment vehicles
offered by the plan’s trustee. Full vesting under this plan occurs upon 3 years of service. Employees hired before
January 1, 2011 continue to participate in and accrue benefits under the terms of the Pension 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 cost each year and in the rate-making process.
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, 2021
and 2020:
Pension Benefits
Post-Retirement Medical
Benefits
(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
2021
2020
2021
2020
$ 272,786 $ 231,852 $
5,558
6,316
7,880
6,833
35,453
(17,682)
(8,502)
(7,957)
$259,751 $ 272,786 $
5,906 $
149
110
(3,165)
(314)
2,686 $
7,395
171
208
(1,604)
(264)
5,906
$213,147 $ 192,477 $
24,909
25,390
3,718
3,489
(8,502)
(7,957)
$ 233,524 $ 213,147 $
12,313 $
1,773
242
(555)
13,773 $
11,271
1,307
269
(534)
12,313
$(26,227) $
(59,639) $
11,087 $
6,407
The decrease in the underfunded status of the pension was due to an increase in the discount rate, which increased
from 2.55% as of December 31, 2020 to 2.89% as of December 31, 2021, as well as improved asset performance.
96
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars 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:
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)
New prior service cost
Amortization of prior service (cost) credit
Amortization of net gain (loss)
Total change in regulatory asset
Regulatory asset (liability) at end of year
Pension Benefits
Post-Retirement
Medical Benefits
2021
2020
2021
2020
$
$
—
—
$ 11,087
—
(26,227) (59,639)
—
$ (26,227) $ (59,639) $ 11,087
—
—
$ 6,407
—
—
$ 6,407
$ 2,323
23,368
25,691
536
$ 26,227
$
$ 2,757
57,716
60,473
(834)
$
—
(9,839)
(9,839)
(1,248)
—
(6,855)
(6,855)
448
$ 59,639
$ (11,087)
$ (6,407)
$ 40,500
$ 60,473
(30,531) 22,343
—
(435)
(1,935)
—
(434)
(3,817)
(34,782) 19,973
$ 60,473
$ 25,691
$ (6,855) $ (5,432)
(2,400)
—
—
977
(1,423)
$ (9,839) $ (6,855)
(4,401)
—
—
1,417
(2,984)
Net periodic pension costs
Change in regulatory asset
$ 4,010
$ 4,859
(34,782) 19,973
$ (1,695) $ (1,108)
(1,423)
(2,984)
Total recognized in net periodic pension cost and regulatory asset
(liability)
$ (29,923) $ 23,983
$ (4,679) $ (2,531)
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
$ 259,751
$ 243,412
$ 233,524
$ 272,786
$ 253,108
$ 213,147
$ 2,686
N/A
$ 13,773
$ 5,906
N/A
$ 12,313
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%.
2.89 %
*
2.55 %
*
2.46 %
N/A
2.20 %
N/A
97
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of net periodic pension and post-retirement benefits cost, before allocation to the overhead pool,
for 2021, 2020 and 2019 are as follows:
(dollars in thousands, except percent)
Components of Net Periodic Benefits Cost:
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost (credit)
Amortization of actuarial (gain) loss
Net periodic pension cost under accounting
standards
Regulatory adjustment
Total expense recognized, before surcharges and
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
Pension Benefits
2020
2021
2019
2021
Post-Retirement
Medical Benefits
2020
2019
$ 5,558
$ 6,316
6,833
7,880
(12,541) (11,798)
435
1,935
434
3,817
$ 4,441
8,527
(10,374)
434
1,419
$ 149
110
(537)
$ 171
208
(510) (449)
$ 186
285
—
(1,417)
—
—
(977) (801)
$ 4,859
(1,277)
$ 4,010
$ 4,447
$ (1,695) $ (1,108) $ (779)
—
—
(593) —
(483)
$ 3,582
$ 3,527
$ 3,854
$ (1,695) $ (1,108) $ (779)
2.55 %
6.00 %
**
3.43 %
6.25 %
**
4.43 %
6.50 %
**
2.20 %
*
N/A
3.12 %
*
N/A
4.20 %
*
N/A
*5.75% for union plan and 4.0% for non-union (net of income taxes) in 2021, and 6.0% for union plan and 4.2% for non-union
(net of income taxes) in 2020 and 2019.
** Age-graded ranging from 3.0% to 8.0%.
Regulatory Adjustment:
The CPUC authorized GSWC and BVESI to track differences between the forecasted annual pension expenses
adopted in rates and the actual annual expenses to be recorded in accordance with the accounting guidance for pension costs in
a two-way pension balancing account. During the years ended December 31, 2021, 2020 and 2019, GSWC's actual expense
was higher than the amounts included in customer rates by $1.3 million, $483,000 and $593,000, respectively. The cumulative
amount recorded in GSWC's two-way pension balancing account is included within the pensions and other post-retirement
obligations regulatory asset discussed in Note 3. During the years ended December 31, 2021, 2020 and 2019, BVESI's actual
expense was lower than the amounts included in electric rates by $246,000, $200,000 and $205,000, respectively. These over-
collections were recorded as a reduction to electric revenues.
Plan Funded Status:
The Pension Plan was underfunded at December 31, 2021 and 2020. 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 Pension 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 underfunded status for the Pension
Plan has been offset by a regulatory asset pursuant to guidance on the accounting for the effects of certain types of regulation.
98
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, 2021 and 2020, by asset category are as follows:
Asset Category
Actual Asset Allocations:
Equity securities
Debt securities
Real Estate Funds
Cash equivalents
Total
Pension Benefits
2021
2020
Post-Retirement
Medical Benefits
2021
2020
56 %
38 %
6 %
— %
100 %
59 %
36 %
5 %
— %
100 %
60 %
39 %
— %
1 %
100 %
63 %
36 %
— %
1 %
100 %
Equity securities did not include AWR’s Common Shares as of December 31, 2021 and 2020.
Target Asset Allocations:
Equity securities
Debt securities
Total
Pension Benefits
60 %
40 %
100 %
Post-retirement
Medical Benefits
60 %
40 %
100 %
The Pension Plan assets are in collective trust funds managed by a management firm appointed by the Committee.
The fair value of these collective trust funds is 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 is not categorized in the fair value hierarchy as of December 31, 2021 and 2020.
99
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth the fair value, measured by net asset value, of the pension investment assets as of
December 31, 2021 and 2020:
(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
(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.
Net Asset Value as of December 31, 2021
Fair Value
Unfunded
Commitments
$
637
87,760
Redemption
Frequency
N/A
Daily
Redemption
Notice Period
N/A
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
—
—
—
—
—
—
—
—
58,451
22,143
50,961
131,555
13,572
233,524
$
$
$
Net Asset Value as of December 31, 2020
Fair Value
Unfunded
Commitments
589
76,221
21,837
53,677
50,488
126,002
10,335
213,147
—
—
—
—
—
—
—
Redemption
Frequency
N/A
Daily
Redemption
Notice Period
N/A
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
Daily
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 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. 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 post-retirement medical plan 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 1 to 20 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 plan's investment assets
measured at fair value as of December 31, 2021 and 2020:
(dollars in thousands)
Fair Value of Post-Retirement Plan Assets:
Cash equivalents
Fixed income
U.S. equity securities
Total investments measured at fair value
Level 1
Fair Value as of December 31, 2021
Level 2
Level 3
Total
$
$
92
5,409
8,272
13,773
—
—
—
—
— $
—
—
— $
92
5,409
8,272
13,773
100
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Fair Value of Post-Retirement Plan Assets:
Cash equivalents
Fixed income
U.S. equity securities
Total investments measured at fair value
Plan Contributions:
Fair Value as of December 31, 2020
Level 1
Level 2
Level 3
Total
$
$
169
4,436
7,707
12,312
—
—
—
—
— $
—
—
— $
169
4,436
7,707
12,312
During 2021, Registrant contributed $3.5 million to its pension plan and did not make a contribution to the post-
retirement medical plan. Registrant expects to contribute approximately $3.1 million to its pension plan in 2022. 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 while also complying with ERISA's funding requirements.
Benefit Payments:
Estimated future benefit payments at December 31, 2021 for the next five years and thereafter are as follows (in
thousands):
2022
2023
2024
2025
2026
Thereafter
Total
Assumptions:
Pension Benefits
Post-Retirement
Medical Benefits
$
$
8,983 $
9,598
10,347
10,844
11,280
64,368
115,420 $
327
314
292
285
260
869
2,347
Certain actuarial assumptions, such as the discount rate, long-term rate of return on plan assets, mortality, 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.
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 are intended to 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 5.75% long-term rate of
return on assets assumption for the union plan and 4.0% (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. Registrant uses the latest mortality tables published by the
Society of Actuaries. Accordingly, the benefit obligation amounts as of December 31, 2021 and 2020 have incorporated recent
updates to the mortality tables.
101
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Healthcare Cost Trend Rate — The assumed health care cost trend rate for 2022 starts at 5.2% grading down to 4.3%
in 2037 for those under age 65, and at 5.2% grading down to 4.3% in 2025 for those 65 and over. Assumed health care cost
trend rates have a significant effect on the amounts reported for the health care plans.
Supplemental Executive Retirement Plan:
Registrant has a supplemental executive retirement plan (“SERP”) that is intended to restore retirement benefits to
certain key employees and officers of Registrant that are limited by Sections 415 and 401(a)(17) of the Internal Revenue Code
of 1986, as amended. 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, 2021, the balance in the Rabbi Trust totaled $31.5 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, 2021 and 2020:
(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, 2021
Level 1
Level 2
Level 3
Total
8
12,442
19,018
31,468
—
—
—
—
— $
—
—
— $
8
12,442
19,018
31,468
Level 1
Fair Value as of December 31, 2020
Level 2
Level 3
Total
8
10,201
15,703
25,912
—
—
—
—
— $
—
—
— $
8
10,201
15,703
25,912
The following provides a reconciliation of benefit obligations, funded status of the SERP, as well as a summary o f
significant estimates at December 31, 2021 and 2020:
(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 and end of year
Funded Status:
Net amount recognized as accrued cost
102
2021
2020
$
$
36,602 $
1,392
915
(2,213)
(607)
36,089 $
29,703
1,029
988
5,479
(597)
36,602
—
—
$
(36,089) $
(36,602)
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2021
2020
$
(949) $
(35,140)
(602)
(36,000)
$ (36,089) $ (36,602)
$
—
$
9,097
9,097
—
12,988
12,988
26,992
$ 36,089
23,614
$ 36,602
$ 12,988
8,352
5,479
$
(2,213)
—
(1,678)
(3,891)
9,097
—
(843)
4,636
$ 12,988
$
$
$
$
3,985
(3,891)
$
94
2,860
4,636
7,496
$ 36,089
31,835
$ 36,602
30,428
—
—
2.87 %
*
2.52 %
4.00 %
(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 regulatory asset
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
* Age graded from 4.5% to 4.0% per year.
103
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of SERP expense, before allocation to the overhead pool, for 2021, 2020 and 2019 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
Weighted-average assumptions used to determine net periodic cost:
Discount rate
Rate of compensation increase
* Age graded from 4.5% to 4.0% per year.
2021
2020
2019
$
$
1,392
915
—
1,678
$
3,985
$
1,029
988
—
843
2,860
$
$
1,193
1,069
—
471
2,733
2.52 %
*
3.36 %
4.00 %
4.40 %
4.00 %
Benefit Payments: Estimated future benefit payments for the SERP at December 31, 2021 for the next five years and
thereafter are as follows (in thousands):
2022
2023
2024
2025
2026
Thereafter
Total
$
$
949
944
1,195
1,187
2,154
11,444
17,873
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 for the
years ended December 31, 2021, 2020 and 2019 were $2.7 million, $2.7 million and $2.5 million, respectively. The Investment
Incentive Program also incorporates the defined contribution plan for employees hired on or after January 1, 2011. The cash
contributions to the defined contribution plan for the years ended December 31, 2021, 2020 and 2019 were $1.9 million, $1.9
million and $1.6 million, respectively.
Note 13 — Stock-Based Compensation Plans
Summary Description of Stock Incentive Plans
As of December 31, 2021, AWR had three active stock incentive plans: the 2016 stock incentive plan for its
employees, and the 2003 and 2013 non-employee directors plans for its Board of Directors, each more fully described below.
2016 Employee Plans — AWR adopted this employee plan, following shareholder approval, to provide stock-based
incentive awards in the form of restricted stock units, stock options 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 customers and
shareholders. The 2016 employee plan also provides for the grant of performance awards. There are no stock options or
restricted stock grants currently outstanding. 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. Restricted stock units may also vest upon retirement if the grantee is at least 55 and the sum of the grantee's age and
years of service are equal to or greater than 75, or upon death or total disability. In addition, restricted stock units may vest
following a change in control if the applicable subsidiary of AWR terminates the grantee other than for cause or the employee
104
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
terminates employment for good reason. Each restricted stock unit is non-voting and entitles the holder of the restricted stock
unit to receive one Common Share.
The Compensation Committee also has the authority to determine the 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. 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. The amount of the performance award paid to an employee depends upon
satisfaction of performance criteria following the end of a three-year performance period. Performance awards may also vest
and be payable upon retirement if the grantee is at least 55 and the sum of the grantee's age and years of service are equal to or
greater than 75, or upon death or total disability. In addition, performance awards may vest following a change in control if the
applicable subsidiary of AWR terminates the grantee other than for cause or the employee terminates employment for good
reason. The amount of the payment for performance awards granted will be at target in the event of death or a termination of
employment (other than for cause) by the applicable subsidiary of AWR or termination by the employee for good reason within
24 months after a change in control. In all other circumstances, adjustments will be made to the amount of the payment to take
into account the shortened performance period
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. New grants may not be made under the 2003 directors plan. Under the 2013 non-
employee directors plan, non-employee directors are entitled to receive restricted stock units equal to two times the then current
annual retainer for services as a director divided by the fair market value of AWR's Common Shares on the date preceding the
annual meeting. Such units are convertible into AWR's Common Shares 90 days after the grant date.
All non-employee directors of AWR who were directors of AWR at the 2003 annual meeting have also received
restricted stock units, which will be distributed upon termination of the director's service as a director.
All 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 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
occurs 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 pre-vesting forfeitures will be minimal, and recognizes pre-vesting 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, 2021, 2020 and
2019. These expenses resulting from restricted stock units, including performance awards, are included in administrative and
general expenses in AWR's and GSWC’s statements of income:
(in thousands)
Stock-based compensation related to:
Restricted stock units
Total stock-based compensation expense
AWR
For The Years Ended December 31,
2019
2020
2021
GSWC
For The Years Ended December 31,
2019
2020
2021
$
$
2,566 $
2,566 $
2,463 $
2,463 $
2,517 $
2,517 $
2,313 $
2,313 $
2,349 $
2,349 $
2,253
2,253
Equity-based compensation cost capitalized as part of utility plant for the years ended December 31, 2021, 2020 and
2019 was $336,000, $299,000 and $265,000, respectively, for both AWR and GSWC. For the years ended December 31, 2021,
2020 and 2019, approximately $1.4 million, $1.2 million and $1.8 million, respectively, of tax benefits from stock-based
awards were recorded for both AWR and GSWC.
Registrant amortizes stock-based compensation over the requisite (vesting) period for the entire award. Time-vesting
restricted stock units vest and become non-forfeitable 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 non-forfeitable in installments
105
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of 33% the first two years and 34% in the third year and are distributed at the end of the performance period if the
Compensation Committee determines that the performance criteria set forth in the award agreement have been satisfied.
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, 2021,
and changes during the year ended December 31, 2021, is presented below:
Restricted share units at January 1, 2021
Granted
Vested
Forfeited
Restricted share units at December 31, 2021
Number of
Restricted Share
Units
Weighted Average
Grant-Date Value
53.33
79.38
74.15
82.87
47.83
69,339 $
21,765
(38,208)
(1,786)
51,110 $
As of December 31, 2021, there was approximately $507,000 of total unrecognized compensation cost related to time-
vested restricted stock units granted under AWR’s employee stock plans. That cost is expected to be recognized over a
weighted average period of 1.49 years.
Restricted Stock Units (Performance Awards) – During the years ended December 31, 2021, 2020 and 2019, 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 the Compensation Committee
determines that specified performance goals have been met over the performance period specified in the grant (generally three
years). Each grantee of any outstanding performance award may earn between 0% and 200% of the target amount, which
varies by target, depending on Registrant's performance against performance goals, which are determined by the Compensation
Committee on the date of grant. As determined by the Compensation Committee, the performance awards granted during the
years ended December 31, 2021, 2020 and 2019 included various performance-based conditions and one market-based
condition related to total shareholder return ("TSR") that will be earned based on Registrant’s TSR compared to the TSR for a
specific peer group of investor-owned water companies.
A summary of the status of Registrant’s outstanding performance awards to officers as of December 31, 2021, and
changes during the year ended December 31, 2021, is presented below:
Performance awards at January 1, 2021
Granted
Performance criteria adjustment
Vested
Forfeited
Performance awards at December 31, 2021
Number of
Performance
awards
Weighted Average
Grant-Date Value
66.40
79.43
109.09
56.49
79.29
75.23
57,960 $
19,873
(1,775)
(26,258)
(890)
48,910 $
A portion of the fair value of performance awards was estimated at the grant date based on the probability of satisfying
the market-based condition using a Monte-Carlo simulation model, which assesses the probabilities of various outcomes of the
market condition. 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 Common Shares 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. Unlike the awards with performance-based conditions, for the portion
based on the market-based condition, compensation cost is recognized, and not reversed, even if the market condition is not
achieved, as required by the accounting guidance for share-based awards. As of December 31, 2021, $115,000 of unrecognized
compensation costs related to performance awards is expected to be recognized over a weighted average period of 1.50 years.
106
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 — Commitments
GSWC’s Water Supply:
GSWC has contracts to purchase water or water rights for an aggregate amount of $3.4 million as of
December 31, 2021. Included in the $3.4 million is a commitment of $1.7 million to use water rights from a third party
under an agreement, which expires in 2028. The remaining $1.7 million is for commitments for purchased water with other
third parties, which expire from 2025 through 2038.
GSWC’s estimated future minimum payments under these purchased water supply commitments at
December 31, 2021 are as follows (in thousands):
2022
2023
2024
2025
2026
Thereafter
Total
Bear Valley Electric Service, Inc.:
Purchased Power Contracts:
$
$
436
436
436
391
346
1,345
3,390
Generally, BVESI 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. BVESI began taking power
pursuant to purchased power contracts approved by the CPUC effective in the fourth quarter of 2019 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, 2021, BVESI has remaining commitments under these contracts of $5.5 million, $4.9 million and $4.1 million
for the years 2022, 2023 and 2024 respectively.
Renewables Portfolio Standard:
BVESI is subject to the renewables portfolio standard (“RPS”) law, which requires BVESI to meet certain targets for
purchases of energy from qualified renewable energy resources. BVESI has an agreement with a third party to purchase
renewable energy credits (“RECs”) whereby BVESI agreed to purchase approximately 578,000 RECs over a ten-year period
through 2023, which will be used towards BVESI meeting California's RPS requirements. As of December 31, 2021, BVESI
has purchased sufficient RECs to be in compliance for all periods through 2021, and has remaining commitments under this
contract of $619,000 for each of the years 2022 and 2023. Accordingly, management does not believe any provision for loss or
potential penalties is required as of December 31, 2021. The cost of these RECs has been included as part of the electric supply
cost balancing account as of December 31, 2021.
See Note 16 for Registrant’s future minimum payments under long-term non-cancelable operating leases.
107
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15 — Contingencies
Environmental Clean-Up and Remediation:
GSWC has been involved in environmental remediation and cleanup at one of its plant sites that contained an
underground storage tank, which was used to store gasoline for its vehicles. This tank was removed from the ground in
July 1990 along with the dispenser and ancillary piping. Since then, GSWC has been involved in various remediation activities
at this site. Analysis indicates that offsite monitoring wells may also be necessary to document effectiveness of remediation.
As of December 31, 2021, the total spent to clean-up and remediate the plant site was approximately $6.1 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, 2021, GSWC has a regulatory asset
and an accrued liability for the estimated remaining cost of $1.3 million to complete the cleanup at the site. The estimate
includes costs for 2 years of continued activities of groundwater cleanup and monitoring, future soil treatment and site-closure-
related activities. The ultimate cost may vary as there are many unknowns in remediation of underground gasoline spills and
this is an estimate based on currently available information. Management also believes it is probable that the estimated
additional costs will continue to be approved in rate base by the CPUC.
Condemnation of Properties:
The laws of the State of California provide for the acquisition of public utility property by governmental agencies
through their power of eminent domain, also known as condemnation, where doing so is necessary and in the public interest. In
addition, these laws provide that the owner of utility property (i) may contest whether the condemnation is necessary and in the
public interest, and (ii) is entitled to receive the fair market value of its property if the property is ultimately taken.
Other Litigation:
Registrant is also subject to other ordinary routine litigation incidental to its business, some of which may include
claims for compensatory and punitive damages. Management believes that rate recovery, proper insurance coverage and
reserves are in place to insure against, among other things, property, general liability, employment and workers’ compensation
claims incurred in the ordinary course of business. Insurance coverage may not cover certain claims involving, among other
things, punitive damages. However, Registrant does not believe the outcome from any pending suits or administrative
proceedings will have a material effect on Registrant's consolidated results of operations, financial position or cash flows.
Note 16 — Leases
Right-of-use ("ROU") assets represent the right to use an underlying asset for the lease term, and lease liabilities
represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease
commencement date based on the estimated present value of lease payments over the lease term. As of December 31, 2021,
Registrant has right-of-use assets of $10.5 million, short-term operating lease liabilities of $2.0 million and long-term operating
lease liabilities of $8.9 million. Currently, Registrant does not have any financing leases.
Significant assumptions and judgments made as part of the adoption of this new lease standard include determining
(i) whether a contract contains a lease, (ii) whether a contract involves an identified asset, and (iii) which party to the contract
directs the use of the asset. The discount rates used to calculate the present value of lease payments were determined based on
hypothetical borrowing rates available to Registrant over terms similar to the lease terms.
Registrant’s leases consist of real estate and equipment leases, which are mostly GSWC's. Most of Registrant's leases
require fixed lease payments. Some real estate leases have escalation payments which depend on an index. Variable lease costs
were not material. Lease terms used to measure the lease liability include options to extend the lease if the option is reasonably
certain to be exercised. Lease and non-lease components were combined to measure lease liabilities.
108
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Registrant's supplemental lease information for the year ended December 31, 2021 is as follows (in thousands, except
for weighted average data):
Operating lease costs
Short-term lease costs
Weighted average remaining lease term (in years)
Weighted-average discount rate
Non-cash transactions:
For The Year Ended
December 31, 2021
For The Year Ended
December 31, 2020
$2,627
273
5.99
3.7%
$2,873
143
6.62
3.6%
Lease liabilities arising from obtaining right-of-use assets
$1,430
$27
For the years 2021, 2020 and 2019, Registrant’s consolidated rent expense was approximately $2.5 million, $2.6
million and $2.8 million, respectively.
Registrant’s future minimum payments under long-term non-cancelable operating leases as of December 31, 2021
are as follows (in thousands):
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: imputed interest
Total lease obligations
Less: current obligations
Long-term lease obligations
$
$
2,548
2,135
1,821
1,651
1,456
2,801
12,412
1,448
10,964
2,044
8,920
The consolidated operations of AWR and the operations of GSWC in regard to future minimum payments under long-
term non-cancelable operating leases are not materially different.
Note 17 — Business Segments
AWR has 3 reportable segments, water, electric and contracted services. Since July 1, 2020, GSWC has 1 segment,
water. Prior to July 1, 2020, GSWC also had an electric segment. On July 1, 2020, GSWC completed the transfer of the electric
utility assets and liabilities from its electric division to BVESI, now a wholly owned direct subsidiary of AWR. As a result of
this transfer, from July 1, 2020 onward, operating results and cash flows of the electric segment, as well as its assets and
liabilities as of December 31, 2021 and 2020, are no longer included in GSWC's financial statements, but continue to be
included in AWR's consolidated financial statements (Note 20). On a stand-alone basis, AWR has no material assets other than
its equity investments in its subsidiaries and notes receivable therefrom, and deferred taxes.
All activities of GSWC and BVESI are geographically located within California. Activities of ASUS and the Military
Utility Privatization Subsidiaries are conducted in California, Florida, Georgia, Kansas, Maryland, New Mexico, North
Carolina, South Carolina, Texas and Virginia. Each of the Military Utility Privatization Subsidiaries is regulated, if applicable,
by the state in which the subsidiary primarily conducts water and/or wastewater operations. Fees charged for operations and
109
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 the water and electric operating segments, ASUS and the Military
Utility Privatization Subsidiaries and other matters. The utility plant balances 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 and BVESI.
(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/(benefit)
Capital additions
____________________________
As Of And For The Year Ended December 31, 2021
Water
$ 347,112 $
107,573
21,046
1,499,745
33,384
22,095
123,526
Electric
ASUS
38,345 $ 113,396 $
22,675
10,738
(637)
141
19,751
106,508
3,640
2,572
5,434
2,975
1,130
19,859
AWR
Parent
Consolidated
AWR
— $ 498,853
(9)
140,977
791
21,341
— 1,626,004
—
39,596
(81)
30,423
—
144,515
As Of And For The Year Ended December 31, 2020
Water
Electric
$ 330,637 $ 37,024 $
10,303
584
89,308
2,479
2,689
18,393
97,896
20,312
1,400,489
30,969
20,515
107,355
ASUS
120,582 $
22,309
(496)
22,246
3,402
5,201
4,675
AWR
Parent
Consolidated
AWR
— $ 488,243
(9)
130,499
330
20,730
— 1,512,043
—
36,850
(208)
28,197
—
130,423
As Of And For The Year Ended December 31, 2019
GSWC
Water
$ 319,830 $
93,895
20,304
1,322,062
29,956
17,295
131,353
Electric
39,548 $
11,197
1,228
72,680
2,485
2,882
11,499
ASUS
114,491 $
21,990
(734)
20,963
2,956
5,202
9,088
AWR
Parent
Consolidated
AWR
— $ 473,869
(9)
127,073
539
21,337
— 1,415,705
—
35,397
(709)
24,670
—
151,940
(1) Depreciation computed on regulated utilities' transportation equipment is recorded in other operating expenses and totaled $379,000,
$353,000 and $316,000 for the years ended December 31, 2021, 2020 and 2019, respectively.
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
110
December 31,
2021
1,626,004 $
274,979
1,900,983 $
2020
1,512,043
279,560
1,791,603
$
$
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18 — Allowance for Doubtful Accounts
Registrant adopted ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments, effective January 1, 2020. The guidance requires estimated credit losses on financial instruments,
such as Registrant's trade and other receivables, be based on expected credit losses rather than incurred losses.
Registrant's allowance for doubtful accounts as of December 31, 2021 was developed based on the observed effects of
the economic impact from the COVID-19 pandemic on GSWC's and BVESI's aging of utility customer accounts receivable, as
well as economic data and other considerations that may impact customers' ability to pay their bills. However, the CPUC has
authorized GSWC and BVESI to track incremental costs, including bad debt expense in excess of what is included in their
respective revenue requirements, incurred as a result of the pandemic in COVID-19 related memorandum accounts to be filed
with the CPUC for future recovery. The allowance for doubtful accounts as of December 31, 2021 also reflects management's
consideration of the December 2021 approval from the SWRCB for $9.5 million of relief funding for customers' unpaid water
bills incurred during the pandemic. Pursuant to CPUC requirements, as of December 31, 2021, GSWC has reflected these relief
funds as a reduction to its COVID-19 memorandum account, as well as a reduction to its estimated allowance for doubtful
accounts. In January 2022, GSWC received the relief funds from the state of California, which are being applied to delinquent
customers' eligible balances incurred during the COVID-19 pandemic. In February 2022, BVESI received $321,000 from the
state of California for similar relief funding for unpaid electric bills incurred during the pandemic.
Other accounts receivable consist primarily 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 other third-
party prime government contractors pursuant to agreements for construction of water and/or wastewater facilities for such third-
party prime contractors. Thus far, the COVID-19 pandemic has not materially impacted the collectability of these other
accounts receivable.
The table below presents Registrant’s provision for doubtful accounts charged to expense and accounts written off, net
of recoveries. Provisions included in 2021, 2020 and 2019 for AWR and GSWC are as follows:
(dollars in thousands)
Balance at beginning of year
Provision charged (1)
Accounts written off, net of recoveries (2)
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
AWR
December 31,
2020
2019
2021
$
$
$
$
5,316 $
8,150
(9,897)
3,569 $
916 $
5,016
(616)
5,316 $
3,516 $
53
3,569 $
5,263 $
53
5,316 $
951
609
(644)
916
857
59
916
(1)
Includes amounts in excess of GSWC's and BVESI's respective revenue requirements incurred during the COVID-19 pandemic. These
incremental amounts are recorded as regulatory assets.
(2) Reflects consideration of government relief funds received in 2022 from the state of California for unpaid water and electric utility bills
incurred during the pandemic. A total of $9.5 million and $321,000 was received in 2022 for unpaid water and electric utility bills,
respectively.
111
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Balance at beginning of year
Provision charged (3)
Balance transfer to BVESI (Note 20)
Accounts written off, net of recoveries (4)
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
GSWC
December 31,
2020
2019
2021
$
$
$
$
4,960 $
7,732
—
(9,471)
3,221 $
916 $
4,703
(79)
(580)
4,960 $
3,168 $
53
3,221 $
4,907 $
53
4,960 $
951
607
—
(642)
916
857
59
916
(3)
Includes amounts in excess of GSWC's revenue requirement incurred during the COVID-19 pandemic. This incremental amount was
recorded as a regulatory asset.
(4) Reflects consideration of government relief funds received in 2022 from the state of California for unpaid water utility bills incurred
during the pandemic. A total of $9.5 million was received in January 2022 for unpaid water utility bills.
Note 19 — Supplemental Cash Flow Information
The following table sets forth non-cash financing and investing activities and other cash flow information (in
thousands):
Taxes and Interest Paid:
Income taxes paid, net
$
Interest paid, net of capitalized interest
Non-Cash Transactions:
Accrued payables for investment in
utility plant
Property installed by developers and
conveyed
Transfer of electric segment net assets
(net of cash) for BVESI common
shares (Note 20)
Distribution of BVESI common shares
to AWR parent (Note 20)
AWR
December 31,
2020
2021
2019
2021
GSWC
December 31,
2020
2019
29,153 $
22,540
13,684 $
19,941
22,496 $
25,080
21,428 $
21,156
8,184 $
19,681
17,206
23,925
32,855
27,861
23,736
30,656
25,633
23,736
7,222
3,102
6,220
7,222
3,102
6,220
—
—
—
—
71,324
—
—
—
—
71,344
—
—
112
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 20 — Completion of Electric Utility Reorganization Plan
On July 1, 2020, GSWC completed the transfer of approximately $71.3 million in net assets and equity (based on their
recorded amounts) from its electric utility division to BVESI in exchange for common shares of BVESI of equal value. As a
result of this transfer, from July 1, 2020 onward, operating results and cash flows of the electric segment, as well as its assets
and liabilities as of December 31, 2021 and 2020, are no longer included in GSWC's financial statements, but continue to be
included in AWR's consolidated financial statements. GSWC's statement of income for 2020 includes the electric segment's
results through June 30, 2020. The table below sets forth selected information relating to the electric segment's results of
operations for 2021, and for the six month periods ended June 30, 2020 and December 31, 2020 (in thousands):
Twelve months ended
December 31, 2021
(Subsidiary of AWR)
Six months ended
June 30, 2020
(Division of GSWC)
Six months ended
December 31, 2020
(Subsidiary of AWR)
Twelve months ended
December 31, 2020
Electric revenues
Operating expenses
Operating income
Net income
$
$
38,345 $
27,607
10,738
7,864 $
18,647 $
13,647
5,000
3,408 $
18,377 $
13,074
5,303
3,870 $
37,024
26,721
10,303
7,278
The table below sets forth selected information relating to the electric segment's cash flows for 2021, as well as the
six months ended December 31, 2020. Prior to July 1, 2020, the electric segment's cash flows were included in GSWC's
cash flows.
Net cash provided from operating activities
Net cash used in investing activities (capital expenditures)
Net cash provided from financing activities (1)
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
For the Twelve Months
Ended December 31, 2021
(Subsidiary of AWR)
Six Months Ended
December 31, 2020
(Subsidiary of AWR)
$
$
9,128 $
(19,859)
10,827
96
367
463 $
1,887
(9,339)
7,799
347
20
367
(1) BVESI has access to a $35.0 million revolving credit facility, which expires July 1, 2024. As of December 31, 2021, there was
$31.0 million outstanding under this facility. Borrowings made under this facility support the electric segment's operations and
capital expenditures. Under the terms of the credit agreement, BVESI has the option to request an increase in the facility by an
additional $15.0 million, subject to bank approval.
113
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, 2021.
(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, 2021 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 2021 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
114
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 is incorporated herein by reference pursuant to
General Instruction G(3).
Securities Authorized for Issuance under Equity Compensation Plans:
AWR has made stock awards to its executive officers and managers under the 2008 and 2016 employee plans. It has
also made stock awards to its non-employee directors under the 2003 and 2013 director plans. Information regarding the
securities, which have been issued and which are available for issuance under these plans is set forth in the table below as of
December 31, 2021. This table does not include any AWR Common Shares that may be issued under our 401(k) plan.
Number of securities
to be issued upon exercise
of
outstanding options,
warrants and rights(1)
Weighted-average
exercise price of
outstanding options,
warrants and rights(2)
Number of securities remaining available
for future issuance under equity
compensation plans
(excluding securities reflected in the first
column)(3)
151,540
—
151,540
N/A
—
N/A
1,150,988
—
1,150,988
Plan Category
Equity compensation plans
approved by shareholders
Equity compensation plans not
approved by shareholders
Total
____________________________
(1) Amount shown in this column consists of 29,427 time-vested restricted stock units outstanding under the 2016 employee plan
(including dividend equivalents thereon with respect to declared dividends), 100,430 performance awards at the maximum level
(including dividend equivalents thereon with respect to declared dividends) outstanding under the 2016 employee plan, and 21,683
restricted stock units (including dividend equivalents thereon with respect to declared dividends) outstanding under the 2003
directors plan.
(2) Amount shown in this column is for options granted only. As of December 31, 2021 there were no options outstanding.
(3) Amount shown in this column consists of 193,014 shares available under the 2003 directors plan, 111,482 shares available under the
2013 directors plan, and 846,492 shares available under the 2016 employee plan. The only shares that may be issued under the
2003 directors plan are pursuant to dividend equivalent rights on dividends not yet declared with respect to restricted stock units
granted under the 2003 directors plan. No additional stock awards may be granted under the 2003 directors plan.
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 3: Ratification of Auditors” and is incorporated herein
by reference pursuant to General Instruction G(3).
115
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as a part of this Annual Report on Form 10-K:
PART IV
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 American States Water Company Parent at December 31, 2021 and
2020 and for the years ended December 31, 2021, 2020 and 2019. Schedules II, III, IV, and V are omitted as they are
not applicable.
See page 121.
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
10.6
10.7
By-Laws of American States Water Company incorporated by reference to Exhibit 3.1 of Registrant's Form 10-Q,
filed August 6, 2012 (File No. 1-14431)
By-laws of Golden State Water Company incorporated by reference to Exhibit 3.2 of Registrant's Form 8-K filed
May 13, 2011 (File No. 1-14431)
Amended and Restated Articles of Incorporation of American States Water Company, as amended, incorporated
by reference to Exhibit 3.1 of Registrant's Form 8-K filed June 19, 2013
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 (File No. 333-156112)
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)
Description of Common Shares incorporated by reference to Exhibit 4.3 to Registrant's Form 10-K for the year
ended December 31, 2019
Description of Debt Securities (1)
Second Sublease dated October 5, 1984 between Golden State Water Company and Three Valleys Municipal
Water District incorporated herein by reference to Registrant's Registration Statement on Form S-2, Registration
No. 33-5151
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)
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 10.4 to Registrant's Form 8-K filed on May 20, 2015 (File No. 1-14431) (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 (File No. 1-14431)
Form of Amended and Restated Change in Control Agreement between American States Water Company or a
subsidiary and certain executives incorporated herein by reference to Exhibit 10.4 to Registrant's Form 8-K filed
on November 21, 2014 (File No. 1-14431) (2)
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)
116
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
10.25
10.26
10.27
10.28
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 8-K dated June 21, 2021
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)
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)
Officer Relocation Policy incorporated herein by reference to Exhibit 10.5 to the Registrant's Form 8-K filed on
July 31, 2009 (2)
Form of Indemnification Agreement for directors incorporated by reference herein to Exhibit 10.35 to the
Registrant's Form 10-K for the period ended December 31, 2012 (1) (2)
2016 Stock Incentive Plan incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on
May 19, 2016 (2)
2013 Non-Employee Directors Plan incorporated by reference herein to Exhibit 10.2 to the Registrant's Form 8-K
filed on March 25, 2016 (2)
Form of Restricted Stock Award Agreement for officers with respect to time-vested restricted stock awards under
the 2016 Stock Incentive Plan after December 31, 2017 incorporated by reference to Exhibit 10.1 of Form 8-K
filed on November 3, 2017 (2)
Performance Incentive Plan incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on
May 20, 2015 (2)
Note Purchase Agreement dated July 8, 2020 incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K
filed July 14, 2020
Form of 2019 Performance Award Agreement incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K
filed on February 1, 2019 (2)
Separation Agreement and General Release of All Claims incorporated by reference to Exhibit 10.24 to
Registrant's Form 10-K filed on February 24, 2020 (2)
Form of 2020 Performance Award Agreement incorporated by reference to Exhibit 10.1 of Registrant's Form 8-K
filed January 31, 2020 (2)
Form of Restricted Stock Award Agreement for officers with respect to time-vested restricted stock awards under
the 2016 Stock Incentive Plan after December 31, 2017 incorporated by reference to Exhibit 10.1 of Form 8-K
filed on November 3, 2017 (2)
Form of 2021 Performance Award Agreement incorporated by reference to Exhibit 10.1 of Registrant's Form 8-K
filed February 5, 2021 (2)
2021 Short-Term Incentive Program incorporated by reference to Exhibit 10.1 of Registrant's Form 8-K filed on
April 1, 2021 (2)
Form of Award Agreement for the 2021 Short-Term Incentive Program incorporated by reference to Exhibit 10.2
of Registrant's Form 8-K filed on April 1, 2021 (2)
Contract for Professional Services effective July 10, 2021 incorporated by reference from Exhibit 10.1 to Form
8-K filed on July 15, 2021 (2)
Separation Agreement and General Release of Claims dated August 10, 2021 incorporated by reference to
Exhibit 10.1 to Registrant’s Form 8-K filed on August 13, 2021 (2)
Retirement Agreement and General Release of Claims effective January 14, 2022, incorporated by reference to
Exhibit 10.1 to Registrant's Form 8-K filed on January 21, 2022 (2)
Contract for Professional Services effective January 15, 2022, incorporated by reference to Exhibit 10.2 to
Registrant's Form 8-K filed on January 21, 2022 (2)
117
10.29
21
23.1
31.1
31.1.1
31.2
31.2.1
32.1
32.2
Form of 2022 Performance Award Agreement incorporated by reference to Exhibit 10.1 of Registrant's Form 8-K
filed February 4, 2022 (2)
Subsidiaries of Registrant (1)
Consent of Independent Registered Public Accounting Firm for AWR (1)
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for AWR (1)
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for GSWC (1)
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for AWR (1)
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for GSWC (1)
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 - the instance document does not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document.
101.SCH XBRL Taxonomy Extension Schema (3)
101.CAL XBRL Taxonomy Extension Calculation Linkbase (3)
101.DEF XBRL Taxonomy Extension Definition Linkbase (3)
101.LAB XBRL Taxonomy Extension Label Linkbase (3)
104
Cover Page Interactive Data File - (formatted as Inline XBRL and contained in Exhibit 101)
(c) See Item 15(a)(2)
(1) Filed concurrently herewith
(2) Management contract or compensatory arrangement
(3) Furnished concurrently herewith
Item 16. Form 10-K Summary
None.
118
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
By:
By:
AMERICAN STATES WATER COMPANY (“AWR”):
/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 22, 2022
119
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.
Date:
February 22, 2022
February 22, 2022
February 22, 2022
/s/ ANNE M. HOLLOWAY
Anne M. Holloway
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/SARAH. J. ANDERSON
Sarah. J. Anderson
Director of AWR and GSWC
/s/ DIANA M. BONTÁ
Diana M. Bontá
Director of AWR and GSWC
/s/ STEVEN D. DAVIS
Steven D. Davis
Director of AWR and GSWC
/s/ JOHN R. FIELDER
John R. Fielder
Director of AWR and GSWC
/s/ MARY ANN HOPKINS
Mary Ann Hopkins
Director of AWR and GSWC
/s/ C. JAMES LEVIN
C. James Levin
Director of AWR and GSWC
/s/ JANICE F. WILKINS
Janice F. Wilkins
Director of AWR and GSWC
February 22, 2022
February 22, 2022
February 22, 2022
February 22, 2022
February 22, 2022
February 22, 2022
February 22, 2022
120
AMERICAN STATES WATER COMPANY
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF PARENT
CONDENSED BALANCE SHEETS
(in thousands)
Assets
Cash and equivalents
Income taxes receivable
Intercompany note receivables
Total current assets
Investments in subsidiaries
Deferred taxes and other assets
Total assets
Liabilities and Capitalization
Income taxes payable
Other liabilities
Total current liabilities
Notes payable to bank
Deferred taxes and other liabilities
Total other liabilities
Common shareholders’ equity
Total capitalization
$
$
$
December 31,
2021
2020
51 $
—
79,722
79,773
774,751
9,620
864,144 $
1,765 $
309
2,074
174,500
1,623
176,123
685,947
685,947
441
72
32,819
33,332
716,627
9,757
759,716
2,123
272
2,395
114,000
1,648
115,648
641,673
641,673
Total liabilities and capitalization
$
864,144 $
759,716
The accompanying condensed notes are an integral part of these condensed financial statements.
121
AMERICAN STATES WATER COMPANY
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF PARENT
CONDENSED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Operating revenues and other income
Operating expenses and other expenses
Income before equity in earnings of subsidiaries and income taxes
For the Years Ended December 31,
2020
2019
2021
$
— $
542
(542)
— $
90
(90)
—
314
(314)
Equity in earnings of subsidiaries
94,808
86,307
83,947
Income before income taxes
94,266
86,217
83,633
Income tax 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
(81)
(208)
(709)
$
94,347 $
86,425 $
84,342
36,921
2.55 $
36,880
2.34 $
36,814
2.28
37,010
2.55 $
36,995
2.33 $
36,964
2.28
$
$
Dividends Paid Per Common Share
$ 1.40 $ 1.28 $ 1.16
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 CASH FLOWS
(in thousands)
Cash Flows From Operating Activities
Cash Flows From Investing Activities:
Loans (made to)/repaid from, wholly-owned subsidiaries
Increase in investment of subsidiary
Net cash (used) provided in investing activities
Cash Flows From Financing Activities:
Proceeds from stock option exercises
Net change in notes payable to banks
Proceeds from note payable to GSWC
Repayment of note payable to GSWC
Dividends paid
Net cash provided (used) in financing activities
Change in cash and equivalents
Cash and equivalents at beginning of period
Cash and equivalents at the end of period
For the Years Ended December 31,
2020
2019
2021
$
36,799 $
47,307 $
40,459
(46,000)
—
(46,000)
151,000
(60,000)
91,000
(107,500)
—
(107,500)
—
60,500
(26,000)
26,000
(51,689)
8,811
(390)
441
$
51 $
30
(91,000)
(6,000)
6,000
(47,206)
(138,176)
131
310
441 $
519
109,500
—
—
(42,702)
67,317
276
34
310
The accompanying condensed notes are an integral part of these condensed financial statements.
123
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”), Bear Valley Electric Service, Inc. ("BVESI") 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) currently has access to a $200.0 million
revolving credit facility, which expires in May 2023. AWR (parent) borrows under this facility and provides funds to GSWC
and ASUS 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 2020, AWR (parent) issued an interest bearing promissory note to GSWC, which expires in May 2023.
Under the terms of the note, AWR (parent) may borrow from GSWC amounts up to $30 million for working capital purposes.
AWR (parent) agrees to pay any unpaid principal amounts outstanding under this note, plus accrued interest. During 2021 and
2020, AWR borrowed and repaid a total of $26 million and $6 million, respectively, from GSWC under the terms of the note.
As of December 31, 2021, there were no amounts outstanding under this note.
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 currently has access to a $200.0 million credit facility expiring in May 2023 in order to provide funds to GSWC
and ASUS in support of their operations on terms that are similar to that of the credit facility. At December 31, 2021, there was
$174.5 million outstanding under the credit facility. The aggregate effective amount that may be outstanding under letters of
credit is $25.0 million. AWR has obtained letters of credit, for AWR and GSWC, in the aggregate amount of $455,000 at fees
of 0.65%. Letters of credit outstanding reduce the amount that may be borrowed under the revolving credit facility. AWR is not
required to maintain any compensating balances.
Loans may be obtained under this credit facility at the option of AWR and bear interest at rates based on credit ratings
and LIBOR margins. In March 2021, Standard and Poor’s Global Ratings (“S&P”) affirmed an A+ credit rating for both AWR
and GSWC. S&P also revised its rating outlook to negative from stable for both companies. S&P’s debt ratings range from
AAA (highest possible) to D (obligation is in default).
AWR’s (parent) borrowing activities (excluding letters of credit) for the years ended December 31, 2021 and 2020
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
December 31,
2021
174,500
$
$
0.78 %
139,926
0.91 %
2020
114,000
1.19 %
160,495
1.47 %
$
174,500
$
249,000
All of the letters of credit are issued pursuant to the revolving credit facility. The 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, 2021, 2020 and 2019, AWR was in compliance with these covenants. As of
December 31, 2021, AWR had an interest coverage ratio of 8.21 times interest expense, a debt ratio of 0.47 to 1.00 and a debt
rating of A+ by S&P.
124
AMERICAN STATES WATER COMPANY
NOTES TO CONDENSED FINANCIAL INFORMATION OF PARENT
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.
Note 4 — Dividend from Subsidiaries
Cash dividends in the amount of $38.3 million, $47.3 million and $42.7 million were paid to AWR (parent) by its
wholly owned subsidiaries during the years ended December 31, 2021, 2020 and 2019, respectively.
125
T H I S P A G E I N T E N T I O N A L L Y L E F T B L A N K
Board of Directors
A M E R I C A N S T A T E S W A T E R
C O M P A N Y A N D G O L D E N S T A T E
W A T E R C O M P A N Y
Anne M. Holloway
(Chairman of the Board of Directors)
Retired, Partner
Navigant Consulting, Inc.
Director since 1998
Non-voting ex-officio member
of all committees
Sarah J. Anderson (A&F)
(Chair of the Audit and Finance
Committee)
Retired, Partner
Ernst & Young LLP
Director since 2012
Diana M. Bontá (C,N&G)
(Chair of the Nominating
and Governance Committee)
President & CEO
The Bontá Group
Director since 2007
Steven D. Davis (C,N&G)
Retired, Corporate Group President,
Utilities
Sempra Energy
Director since 2021
John R. Fielder (A&F,AS)
(Chair of the ASUS Committee)
Retired, President
Southern California Edison Company
Director since 2013
Mary Ann Hopkins (C,AS)
Chief Growth Officer
Arcadis NV
Director since 2019
C. James Levin (C,N&G,AS)
(Chair of the Compensation
Committee)
Retired, Partner
Winston & Strawn LLP
Director since 2020
Janice F. Wilkins (A&F,AS)
Retired, Vice President of Finance
and Director of Internal Audit
Intel Corporation
Director since 2011
Robert J. Sprowls (AS)
President and Chief Executive Officer
Director since 2009
(C) Member – Compensation Committee
(N&G) Member – Nominating and Governance
Committee
(A&F) Member – Audit and Finance Committee
(AS) Member – ASUS Committee
Information as of March 18, 2022
Officers
A M E R I C A N S T A T E S W A T E R C O M P A N Y
Robert J. Sprowls (17)
President and Chief Executive Officer
Eva G. Tang (25)
Senior Vice President – Finance, Chief
Financial Officer, Corporate Secretary
and Treasurer
Gladys M. Farrow (19)
Assistant Secretary
Board of Directors
A M E R I C A N S T A T E S U T I L I T Y
S E R V I C E S , I N C . A N D S U B S I D I A R I E S
John R. Fielder
(Chairman of the Board of Directors)
Director since 2020
Anne M. Holloway
Director since 2018
Robert J. Sprowls
President and Chief Executive Officer
Director since 2009
Officers
G O L D E N S T A T E W A T E R C O M P A N Y
Officers
Robert J. Sprowls (17)
President and Chief Executive Officer
A M E R I C A N S T A T E S U T I L I T Y
S E R V I C E S , I N C . A N D S U B S I D I A R I E S
Paul J. Rowley (14)
Senior Vice President – Regulated Water
Utility
Eva G. Tang (25)
Senior Vice President – Finance, Chief
Financial Officer and Secretary
Gladys M. Farrow (19)
Vice President – Finance, Treasurer
and Assistant Secretary
Patrick M. Kubiak (3)
Vice President – Asset Management
Jon G. Pierotti (7)
Vice President – Regulatory Affairs
Sunil K. Pillai (18)
Vice President – Environmental Quality
Board of Directors
BEAR VALLEY ELECTRIC SERVICE, INC.
John K. Hawks
(Chairman of the Board of Directors)
Retired, Executive Director
California Water Association
Director since 2020
Harry I. Scarborough
Chief Education Officer/California
Campus President
Northwest Lineman College –
A Division of Quanta Energy Services
Director since 2020
Paul A. Marconi
President, Treasurer and Secretary
Director since 2020
Robert J. Sprowls (17)
President and Chief Executive Officer
Christopher H. Connor (<1)
Senior Vice President
Eva G. Tang (25)
Senior Vice President – Finance,
Chief Financial Officer and Secretary
Granville R. Hodges, Jr. (43)
Vice President – Operations
Gladys M. Farrow (19)
Treasurer and Assistant Secretary
(#) Years of Service with Corporation
Corporate Information
S H A R E H O L D E R A S S I S T A N C E
For shareholder questions related
to your AWR shares, contact:
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
Toll Free: (888) 816-6998
www.Computershare.com
I N D E P E N D E N T R E G I S T E R E D
P U B L I C A C C O U N T I N G F I R M
PricewaterhouseCoopers LLP
601 South Figueroa Street
Los Angeles, California 90017
S T O C K E X C H A N G E
Common shares of American States
Water Company are traded on the New
York Stock Exchange (NYSE) under
the symbol AWR.
Officers
BEAR VALLEY ELECTRIC SERVICE, INC.
Paul A. Marconi (7)
President, Treasurer and Secretary
I N V E S T O R I N F O R M A T I O N
F R O M T H E C O M P A N Y
Call (877) 463-6297 (INFOAWR)
investorinfo@aswater.com
www.aswater.com
630 East Foothill Boulevard San Dimas, CA 91773 909.394.3600 ASWATER.COM