Edgar Filing: AMERICAN STATES WATER CO

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

for the quarterly period ended June 30, 2010

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

for the transition period from to

Commission file number 001-14431

American States Water Company

(Exact Name of Registrant as Specified in Its Charter)

California		95-4676679
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

630 E. Foothill Blvd, San Dimas, CA		91773-1212
(Address of Principal Executive Offices)		(Zip Code)

(909) 394-3600
(Registrant’s Telephone Number, Including Area Code)

Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Commission file number 001-12008

Golden State Water Company

(Exact Name of Registrant as Specified in Its Charter)

California		95-1243678
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

630 E. Foothill Blvd, San Dimas, CA		91773-1212
(Address of Principal Executive Offices)		(Zip Code)

(909) 394-3600
(Registrant’s Telephone Number, Including Area Code)

Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

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

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

American States Water Company	Yes o No o
Golden State Water Company	Yes o No o

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

American States Water Company

Large accelerated filer o

Accelerated filer x

Non-accelerated filer o

Smaller reporting company o

Golden State Water Company

Large accelerated filer o

Accelerated filer o

Non-accelerated filer x

Smaller reporting company o

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

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

As of August 4, 2010, the number of Common Shares outstanding, of American States Water Company was 18,594,118 shares. As of August 4, 2010, all of the 142 outstanding Common Shares of Golden State Water Company were owned by American States Water Company.

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

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AMERICAN STATES WATER COMPANY

and

GOLDEN STATE WATER COMPANY

FORM 10-Q

INDEX

Part I	Financial Information

Item 1:	Financial Statements	1

	Consolidated Balance Sheets of American States Water Company as of June 30, 2010 and December 31, 2009	2

	Consolidated Statements of Income of American States Water Company for the Three Months Ended June 30, 2010 and 2009	4

	Consolidated Statements of Income of American States Water Company for the Six Months Ended June 30, 2010 and 2009	5

	Consolidated Statements of Cash Flow of American States Water Company for the Six Months Ended June 30, 2010 and 2009	6

	Balance Sheets of Golden State Water Company as of June 30, 2010 and December 31, 2009	7

	Statements of Income of Golden State Water Company for the Three Months Ended June 30, 2010 and 2009	9

	Statements of Income of Golden State Water Company for the Six Months Ended June 30, 2010 and 2009	10

	Statements of Cash Flow of Golden State Water Company for the Six Months Ended June 30, 2010 and 2009	11

	Notes to Consolidated Financial Statements	12

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3:	Quantitative and Qualitative Disclosures About Market Risk	67

Item 4:	Controls and Procedures	67

Item 4T:	Controls and Procedures	67

Part II	Other Information

Item 1:	Legal Proceedings	68

Item 1A:	Risk Factors	68

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	68

Item 3:	Defaults Upon Senior Securities	68

Item 4:	[Removed and Reserved]	68

Item 5:	Other Information	68

Item 6:	Exhibits	69

	Signatures	70

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PART I

Item 1. Financial Statements

General

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

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

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

Filing Format

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

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

Forward-Looking Information

This Form 10-Q and the documents incorporated by reference 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 include statements regarding our 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 “believes,” “anticipates,” “expects,” “plans,” “estimates,” “intends,” “may” and other words that convey uncertainty of future events or outcome, we are making forward-looking statements. Such statements address future events and conditions concerning such matters as our ability to raise capital, capital expenditures, earnings, litigation, rates, water sales, water quality and other regulatory matters, adequacy of water supplies, our ability to recover electric, natural gas and water supply costs from ratepayers, contract operations, liquidity and capital resources, and accounting matters.

We caution you that any forward-looking statements made by us are not guarantees of future performance and that actual results may differ materially from those currently anticipated in such statements, by reason of factors such as: changes in utility regulation; recovery of regulatory assets not yet included in rates; future economic conditions which affect changes in customer demand and changes in water and energy supply costs; changes in pension and post-retirement benefit plan costs; future climatic conditions; delays in customer payments or price redeterminations and/or equitable adjustments on contracts executed by ASUS and its subsidiaries; potential assessments for failure to meet interim targets for the purchase of renewable energy; and legislative, legal proceedings, regulatory and other circumstances affecting anticipated revenues and costs.

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AMERICAN STATES WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)

(in thousands)	June 30, 2010			December 31, 2009
Property, Plant and Equipment
Regulated utility plant, at cost	$	1,210,699		$	1,171,618
Non utility property, at cost	5,184			4,532
Total	1,215,883			1,176,150
Less - Accumulated depreciation	(369,675		)	(354,123		)
Net property, plant and equipment	846,208			822,027

Other Property and Investments
Goodwill	1,116			1,116
Other property and investments	10,545			10,989
Total other property and investments	11,661			12,105

Current Assets
Cash and cash equivalents	6,603			1,557
Accounts receivable — customers (less allowance for doubtful accounts of $633 in 2010 and $657 in 2009)	15,844			16,193
Unbilled revenue	26,122			17,835
Receivable from the U.S. government (less allowance for doubtful accounts of $64 in 2010 and $67 in 2009)	4,310			4,245
Other accounts receivable (less allowance for doubtful accounts of $251 in 2010 and $434 in 2009)	8,162			8,334
Income taxes receivable	2,687			4,159
Materials and supplies, at average cost	2,240			1,895
Regulatory assets — current	20,456			12,267
Prepayments and other current assets	1,775			3,165
Costs and estimated earnings in excess of billings on uncompleted contracts	29,042			19,766
Deferred income taxes — current	5,311			5,307
Assets of discontinued operations (Note 10)	49,499			50,177
Total current assets	172,051			144,900

Regulatory and Other Assets
Regulatory assets	106,169			110,420
Other accounts receivable	5,919			5,717
Costs and estimated earnings in excess of billings on uncompleted contracts	7,144			7,933
Deferred income taxes	152			220
Other	10,326			9,971
Total regulatory and other assets	129,710			134,261

Total Assets	$	1,159,630		$	1,113,293

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

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AMERICAN STATES WATER COMPANY
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
(Unaudited)

(in thousands)	June 30, 2010		December 31, 2009
Capitalization
Common shares, no par value, no stated value	$	225,394	$	223,066
Earnings reinvested in the business	144,140		136,364
Total common shareholders’ equity	369,534		359,430
Long-term debt	299,935		300,221
Total capitalization	669,469		659,651

Current Liabilities
Notes payable to banks	40,200		17,400
Long-term debt — current	368		365
Accounts payable	41,233		33,746
Income taxes payable	234		72
Accrued employee expenses	8,663		7,262
Accrued interest	3,467		3,263
Regulatory liabilities - current	—		113
Unrealized loss on purchased power contracts	9,552		7,338
Billings in excess of costs and estimated earnings on uncompleted contracts	9,722		6,315
Other	14,152		23,047
Liabilities of discontinued operations (Note 10)	27,217		27,006
Total current liabilities	154,808		125,927

Other Credits
Advances for construction	78,646		79,443
Contributions in aid of construction — net	93,265		91,519
Deferred income taxes	92,628		94,341
Unamortized investment tax credits	2,109		2,154
Accrued pension and other postretirement benefits	42,901		40,158
Billings in excess of costs and estimated earnings on uncompleted contracts	17,034		11,580
Other	8,770		8,520
Total other credits	335,353		327,715

Commitments and Contingencies (Note 9)	—		—

Total Capitalization and Liabilities	$	1,159,630	$	1,113,293

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

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AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED JUNE 30, 2010 AND 2009
(Unaudited)

	Three Months Ended June 30,
(in thousands, except per share amounts)	2010			2009
Operating Revenues
Water	$	72,816		$	72,295
Electric	7,845			5,888
Contracted services	14,815			13,508
Total operating revenues	95,476			91,691

Operating Expenses
Water purchased	13,564			11,954
Power purchased for pumping	2,046			2,535
Groundwater production assessment	2,664			2,857
Power purchased for resale	2,876			2,403
Supply cost balancing accounts	4,686			3,332
Other operation expenses	7,262			6,943
Administrative and general expenses	16,569			15,268
Depreciation and amortization	8,365			7,878
Maintenance	4,375			3,783
Property and other taxes	3,281			2,643
ASUS construction expenses	8,633			7,829
Net loss on sale of property	5			—
Total operating expenses	74,326			67,425

Operating Income	21,150			24,266

Other Income and Expenses
Interest expense	(5,870		)	(5,558		)
Interest income	158			298
Other — net	(69		)	82
Total other income and expenses	(5,781		)	(5,178		)

Income from continuing operations before income tax expense	15,369			19,088
Income tax expense	6,499			7,673
Income from continuing operations	8,870			11,415

Income from discontinued operations, net of tax	105			84

Net Income	$	8,975		$	11,499

Basic Earnings Per Common Share
Income from continuing operations	$	0.47		$	0.64
Income from discontinued operations, net of tax	0.01			—
Net Income	$	0.48		$	0.64

Fully Diluted Earnings Per Share
Income from continuing operations	$	0.47		$	0.64
Income from discontinued operations, net of tax	0.01			—
Net Income	$	0.48		$	0.64

Weighted Average Number of Shares Outstanding	18,576			17,861
Weighted Average Number of Diluted Shares	18,720			17,987

Dividends Declared Per Common Share	$	0.26		$	0.25

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

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AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
(Unaudited)

	Six Months Ended June 30,
(in thousands, except per share amounts)	2010			2009
Operating Revenues
Water	$	128,873		$	127,473
Electric	18,824			14,520
Contracted services	36,245			27,691
Total operating revenues	183,942			169,684

Operating Expenses
Water purchased	21,566			19,942
Power purchased for pumping	3,603			4,102
Groundwater production assessment	5,286			5,374
Power purchased for resale	6,545			6,365
Supply cost balancing accounts	8,501			6,860
Other operation expenses	13,946			13,924
Administrative and general expenses	35,196			31,719
Depreciation and amortization	16,724			15,753
Maintenance	8,568			7,679
Property and other taxes	6,903			5,973
ASUS construction expenses	16,801			16,274
Net (gain) loss on sale of property	2			(15		)
Total operating expenses	143,641			133,950

Operating Income	40,301			35,734

Other Income and Expenses
Interest expense	(11,528		)	(10,749		)
Interest income	819			502
Other — net	(5		)	52
Total other income and expenses	(10,714		)	(10,195		)

Income from continuing operations before income tax expense	29,587			25,539
Income tax expense	12,427			9,096
Income from continuing operations	17,160			16,443

Income (loss) from discontinued operations, net of tax	305			(12		)

Net Income	$	17,465		$	16,431

Basic Earnings Per Common Share
Income from continuing operations	$	0.92		$	0.93
Income from discontinued operations, net of tax	0.02			—
Net Income	$	0.94		$	0.93

Fully Diluted Earnings Per Share
Income from continuing operations	$	0.91		$	0.92
Income from discontinued operations, net of tax	0.02			—
Net Income	$	0.93		$	0.92

Weighted Average Number of Shares Outstanding	18,561			17,588
Weighted Average Number of Diluted Shares	18,695			17,718

Dividends Declared Per Common Share	$	0.52		$	0.50

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

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AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Unaudited)

	Six Months Ended June 30,
(in thousands)	2010			2009
Cash Flows From Operating Activities:
Net income	$	17,465		$	16,431
Adjustments for non-cash items:
Depreciation and amortization	17,690			16,748
Provision for doubtful accounts	553			530
Deferred income taxes and investment tax credits	(931		)	1,108
Stock-based compensation expense	952			825
Other — net	673			755
Changes in assets and liabilities:
Accounts receivable — customers	(113		)	(2,121		)
Unbilled revenue	(8,415		)	(6,946		)
Other accounts receivable	(93		)	1,849
Receivable from the U.S. government	(65		)	1,624
Materials and supplies	(345		)	337
Prepayments and other current assets	1,376			714
Regulatory assets — supply cost balancing accounts	8,501			6,860
Costs and estimated earnings in excess of billings on uncompleted contracts	(8,487		)	(2,657		)
Other assets	(10,559		)	(6,950		)
Accounts payable	4,967			1,271
Income taxes receivable/payable	1,751			1,035
Billings in excess of costs and estimated earnings on uncompleted contracts	8,861			2,759
Accrued pension and other postretirement benefits	2,743			2,655
Other liabilities	(6,983		)	2,286
Net cash provided	29,541			39,113

Cash Flows From Investing Activities:
Construction expenditures	(38,345		)	(36,940		)
Proceeds from sale of property	86			16
Net cash used	(38,259		)	(36,924		)

Cash Flows From Financing Activities:
Proceeds from issuance of Common Shares, net of issuance costs	946			34,887
Proceeds from stock option exercises	370			10
Receipt of advances for and contributions in aid of construction	2,674			852
Refunds on advances for construction	(2,653		)	(2,389		)
Repayments of long-term debt	(283		)	(181		)
Proceeds from issuance of long-term debt, net of issuance costs	—			39,777
Net change in notes payable to banks	22,800			(63,850		)
Dividends paid	(9,651		)	(8,660		)
Other — net	(142		)	(164		)
Net cash provided	14,061			282
Net increase in cash and cash equivalents	5,343			2,471
Cash and cash equivalents, beginning of period	1,685			7,283
Cash and cash equivalents, end of period	7,028			9,754
Less cash and cash equivalents of discontinued operations	425			235
Cash and cash equivalents of continuing operations	$	6,603		$	9,519

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

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GOLDEN STATE WATER COMPANY
BALANCE SHEETS
ASSETS
(Unaudited)

(in thousands)	June 30, 2010			December 31, 2009
Utility Plant
Utility plant, at cost	$	1,210,699		$	1,171,618
Less - Accumulated depreciation	(367,798		)	(352,574		)
Net utility plant	842,901			819,044

Other Property and Investments	8,297			8,738

Current Assets
Cash and cash equivalents	147			1,096
Accounts receivable-customers (less allowance for doubtful accounts of $633 in 2010 and $657 in 2009)	15,844			16,193
Unbilled revenue	26,122			17,835
Inter-company receivable	314			372
Other accounts receivable (less allowance for doubtful accounts of $245 in 2010 and $431 2009)	5,842			8,044
Income taxes receivable from Parent	2,058			2,496
Materials and supplies, at average cost	1,905			1,679
Regulatory assets — current	20,456			12,267
Prepayments and other current assets	1,751			3,144
Deferred income taxes — current	5,167			5,146
Total current assets	79,606			68,272

Regulatory and Other Assets
Regulatory assets	106,169			110,420
Other accounts receivable	5,919			5,717
Other	9,747			9,654
Total regulatory and other assets	121,835			125,791

Total Assets	$	1,052,639		$	1,021,845

The accompanying notes are an integral part of these financial statements

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GOLDEN STATE WATER COMPANY
BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
(Unaudited)

(in thousands)	June 30, 2010		December 31, 2009
Capitalization
Common shares, no par value, no stated value	$	216,625	$	195,821
Earnings reinvested in the business	137,731		135,709
Total common shareholder’s equity	354,356		331,530
Long-term debt	299,935		300,221
Total capitalization	654,291		631,751

Current Liabilities
Long-term debt — current	368		365
Accounts payable	32,463		26,829
Inter-company payable	12,977		7,551
Income tax payable to Parent	400		—
Accrued employee expenses	7,653		6,338
Accrued interest	3,412		3,256
Regulatory liabilities - current	—		113
Unrealized loss on purchased power contracts	9,552		7,338
Other	13,126		22,136
Total current liabilities	79,951		73,926

Other Credits
Advances for construction	78,646		79,443
Contributions in aid of construction - net	93,265		91,519
Deferred income taxes	92,772		94,418
Unamortized investment tax credits	2,109		2,154
Accrued pension and other postretirement benefits	42,901		40,158
Other	8,704		8,476
Total other credits	318,397		316,168

Commitments and Contingencies (Note 9)	—		—

Total Capitalization and Liabilities	$	1,052,639	$	1,021,845

The accompanying notes are an integral part of these financial statements

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GOLDEN STATE WATER COMPANY
STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED JUNE 30, 2010 AND 2009
(Unaudited)

	Three Months Ended June 30,
(in thousands)	2010			2009
Operating Revenues
Water	$	72,816		$	72,295
Electric	7,845			5,888
Total operating revenues	80,661			78,183

Operating Expenses
Water purchased	13,564			11,955
Power purchased for pumping	2,047			2,535
Groundwater production assessment	2,664			2,857
Power purchased for resale	2,876			2,403
Supply cost balancing accounts	4,686			3,332
Other operating expenses	6,369			6,215
Administrative and general expenses	13,476			12,289
Depreciation and amortization	8,181			7,721
Maintenance	4,001			2,996
Property and other taxes	3,013			2,357
Net loss on sale of property	5			—
Total operating expenses	60,882			54,660

Operating Income	19,779			23,523

Other Income and Expenses
Interest expense	(5,752		)	(5,423		)
Interest income	156			296
Other	(65		)	63
Total other income and expenses	(5,661		)	(5,064		)

Income from operations before income tax expense	14,118			18,459

Income tax expense	6,024			7,545

Net Income	$	8,094		$	10,914

The accompanying notes are an integral part of these financial statements

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GOLDEN STATE WATER COMPANY
STATEMENTS OF INCOME
FOR THE SIX MONTHS
ENDED JUNE 30, 2010 AND 2009
(Unaudited)

	Six Months Ended June 30,
(in thousands)	2010			2009
Operating Revenues
Water	$	128,873		$	127,473
Electric	18,824			14,520
Total operating revenues	147,697			141,993

Operating Expenses
Water purchased	21,566			19,942
Power purchased for pumping	3,603			4,102
Groundwater production assessment	5,286			5,374
Power purchased for resale	6,545			6,365
Supply cost balancing accounts	8,501			6,860
Other operating expenses	12,258			12,284
Administrative and general expenses	28,373			26,098
Depreciation and amortization	16,363			15,434
Maintenance	7,599			6,037
Property and other taxes	6,160			5,366
Net (gain) loss on sale of property	5			(15		)
Total operating expenses	116,259			107,847

Operating Income	31,438			34,146

Other Income and Expenses
Interest expense	(11,332		)	(10,419		)
Interest income	306			495
Other	(8		)	41
Total other income and expenses	(11,034		)	(9,883		)

Income from operations before income tax expense	20,404			24,263

Income tax expense	8,746			9,656

Net Income	$	11,658		$	14,607

The accompanying notes are an integral part of these financial statements

Table of Contents

GOLDEN STATE WATER COMPANY
STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Unaudited)

	Six Months Ended June 30,
(in thousands)	2010			2009
Cash Flows From Operating Activities:
Net income	$	11,658		$	14,607
Adjustments for non-cash items:
Depreciation and amortization	16,363			15,434
Provision for doubtful accounts	526			507
Deferred income taxes and investment tax credits	(948		)	1,509
Stock-based compensation expense	690			621
Other — net	905			486
Changes in assets and liabilities:
Accounts receivable — customers	(84		)	(2,066		)
Unbilled revenue	(8,287		)	(6,876		)
Other accounts receivable	1,907			(15		)
Materials and supplies	(226		)	(113		)
Prepayments and other current assets	1,393			728
Regulatory assets — supply cost balancing accounts	8,501			6,860
Other assets	(10,564		)	(6,981		)
Accounts payable	2,924			2,976
Inter-company receivable/payable	51			(343		)
Income taxes receivable/payable from/to Parent	838			1,348
Accrued pension and other postretirement benefits	2,743			2,655
Other liabilities	(7,349		)	2,346
Net cash provided	21,041			33,683

Cash Flows From Investing Activities:
Construction expenditures	(37,451		)	(35,966		)
Proceeds from sale of property	83			16
Net cash used	(37,368		)	(35,950		)

Cash Flows From Financing Activities:
Proceeds from issuance of Common Shares to Parent	20,000			—
Receipt of advances for and contributions in aid of construction	2,601			852
Refunds on advances for construction	(2,653		)	(2,369		)
Proceeds from the issuance of long-term debt, net of issuance costs	—			39,777
Repayments of long-term debt	(283		)	(182		)
Net change in inter-company borrowings	5,400			(16,200		)
Dividends paid	(9,600		)	(19,400		)
Other — net	(87		)	(135		)
Net cash provided	15,378			2,343

Net increase (decrease) in cash and cash equivalents	(949		)	76
Cash and cash equivalents, beginning of period	1,096			3,812
Cash and cash equivalents, end of period	$	147		$	3,888

The accompanying notes are an integral part of these financial statements

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AMERICAN STATES WATER COMPANY
AND
GOLDEN STATE WATER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 — Summary of Significant Accounting Policies:

General/Nature of Operations: American States Water Company (“AWR”) is the parent company of Golden State Water Company (“GSWC”), Chaparral City Water Company (“CCWC”) and American States Utility Services, Inc. (“ASUS”) (and its subsidiaries, Fort Bliss Water Services Company (“FBWS”), Terrapin Utility Services, Inc. (“TUS”), Old Dominion Utility Services, Inc. (“ODUS”), Palmetto State Utility Services, Inc. (“PSUS”) and Old North Utility Services, Inc. (“ONUS”)). AWR and its subsidiaries may be collectively referred to herein as “Registrant” or the “Company”. The subsidiaries of ASUS may be collectively referred to herein as the “Military Utility Privatization Subsidiaries.”

GSWC is a public utility engaged principally in the purchase, production, distribution and sale of water in California serving approximately 255,000 water customers. GSWC also distributes electricity in several San Bernardino Mountain communities serving approximately 23,000 electric customers. The California Public Utilities Commission (“CPUC”) regulates GSWC’s water and electric business, including properties, rates, services, facilities and other matters. CCWC is a public utility regulated by the Arizona Corporation Commission (“ACC”) serving over 13,000 customers in the Town of Fountain Hills, Arizona and a portion of the City of Scottsdale, Arizona. On June 7, 2010, AWR entered into a stock purchase agreement with EPCOR Water (USA) Inc. to sell all of the common shares of CCWC for a total purchase price of $35 million, including the assumption of approximately $6 million of long-term debt as more fully described in Note 10. ASUS performs water and wastewater services and operations on a contract basis. Through its wholly owned subsidiaries, ASUS has entered into agreements with the U.S. government to operate and maintain the water and/or wastewater systems at various military bases pursuant to 50-year fixed price contracts, which are subject to periodic price redeterminations and modifications for changes in circumstances, changes in laws and regulations and changes in wages and fringe benefits to the extent provided in each of the contracts. There is no direct regulatory oversight by either the CPUC or the ACC of AWR or the operation or rates of the contracted services provided by ASUS or any of its wholly owned subsidiaries. AWR’s assets and operating income are primarily those of GSWC.

Basis of Presentation: The consolidated financial statements and notes thereto are being presented in a combined report being filed by two separate Registrants: AWR and GSWC. References in this report to “Registrant” are to AWR and GSWC, collectively, unless otherwise specified. Certain prior period amounts have been reclassified to conform to the 2010 financial statement presentation related to discontinued operations described in Note 10.

The consolidated financial statements of AWR include the accounts of AWR and its subsidiaries, all of which are wholly owned. These financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. Inter-company transactions and balances have been eliminated in the AWR consolidated financial statements. Investments in partially-owned affiliates are accounted for by the equity method when Registrant’s ownership interest exceeds 20%. The consolidated financial statements included herein have been prepared by Registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America for annual financial statements have been condensed or omitted pursuant to such rules and regulations. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, all adjustments, consisting of normal, recurring items and estimates necessary for a fair statement of the results for the interim periods, have been made. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Form 10-K for the year ended December 31, 2009 filed with the SEC.

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GSWC’s Related Party Transactions: GSWC and other subsidiaries provide and receive various services to and from their parent, AWR, and among themselves. In addition, AWR has a $100 million syndicated credit facility. AWR borrows under this facility and provides funds to its subsidiaries, including GSWC, in support of their operations. Amounts owed to AWR for borrowings under this facility are included in inter-company payables on GSWC’s balance sheets as of June 30, 2010 and December 31, 2009. The interest rate charged to GSWC and other affiliates is sufficient to cover AWR’s interest cost under the credit facility. GSWC also allocates certain corporate office administrative and general costs to its affiliates using allocation factors mandated by the CPUC. On May 26, 2010, the Board of Directors approved the issuance of eight additional GSWC Common Shares to AWR for $20.0 million. Proceeds from the issuance were used to pay down GSWC’s intercompany borrowings due to AWR.

Notes Payable to Banks: On May 27, 2010, AWR entered into the third amendment to the credit agreement in order to extend the expiration date of the syndicated credit facility to May 27, 2013 from June 3, 2010. The maximum amount that may be borrowed under this facility was reduced from $115,000,000 to $100,000,000. AWR may, under the terms of the amended credit agreement, elect to increase the aggregate bank commitments by up to an additional $40,000,000. The aggregate effective amount that may be outstanding under letters of credit has been increased to $25,000,000 from $20,000,000. The rates at which AWR may borrow under this facility have been increased due to market conditions and the lenders have consented to modifications to certain of the covenants in the amended credit agreement requested by AWR.

Sales and Use Taxes: GSWC bills certain sales and use taxes levied by state or local governments to its customers. Included in these sales and use taxes are franchise fees, which GSWC pays to various municipalities (based on ordinances adopted by these municipalities) in order to use public right of way for utility purposes. GSWC bills these franchise fees to its customers based on a CPUC-authorized rate. These franchise fees, which are required to be paid regardless of GSWC’s ability to collect from the customer, are accounted for on a gross basis. GSWC’s franchise fees billed to customers and recorded as operating revenue were approximately $715,000 and $708,000 for the three months ended June 30, 2010 and 2009, respectively, and $1,400,000 and $1,334,000 for the six months ended June 30, 2010 and 2009, respectively. When GSWC acts as an agent, and the tax is not required to be remitted if it is not collected from the customer, the taxes are accounted for on a net basis.

Depending on the state in which the operations are conducted, ASUS and its subsidiaries are also subject to certain state non-income tax assessments generally computed on a “gross receipts” or “gross revenues” basis. These non-income tax assessments are required to be paid regardless of whether the subsidiary is reimbursed by the U.S. government for these assessments under its 50-year contracts with the U.S. government. The non-income tax assessments are accounted for on a gross basis and totaled $144,000 and $159,000 during the three months ended June 30, 2010 and 2009, respectively, and $439,000 and $329,000 for the six months ended June 30, 2010 and 2009, respectively.

Recently Adopted Accounting Pronouncements: In June 2009, the Financial Accounting Standards Board (“FASB”) issued revised guidance which enhances information reported to users of financial statements by providing greater transparency about transfers of financial assets and a company’s continuing involvement in transferred assets. Generally accepted accounting principles no longer include the concept of qualifying special purpose entity. The revised guidance also changes the requirements for derecognizing financial assets and requires additional disclosures about a transferor’s continuing involvement in transferred financial assets. This revised guidance was effective for the Company beginning January 1, 2010 and did not have any impact on Registrant’s consolidated results of operations, financial position or cash flows.

In June 2009, the FASB amended the guidance on consolidation for variable interest entities. The new guidance requires a company to perform a qualitative analysis when determining whether it must consolidate a variable interest entity. This guidance also amends how to determine whether an entity is a variable interest entity. A company must now disclose how its involvement with a variable interest entity affects the company’s financial statements and disclose any significant judgments and assumptions made in determining whether it must consolidate a variable interest entity. This guidance was effective for the Company beginning January 1, 2010 and did not have any impact on the Registrant’s consolidated results of operations, financial position or cash flows.

In October 2009, the FASB issued an update to the accounting standards and provided amendments to the criteria of Accounting Standards Codification Topic 605, “Revenue Recognition”, for separately recognizing consideration in multiple-deliverable arrangements. The amendments establish a selling price hierarchy for

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determining the selling price of a deliverable. This guidance is effective for financial statements issued for fiscal years beginning on or after June 15, 2010. Registrant is currently evaluating the effects this statement may have on its consolidated financial statements, but does not expect the adoption will have a material impact on its consolidated financial statements.

In January 2010, the FASB issued an update to the accounting standards and amended the disclosure guidance with respect to fair value measurements. Specifically, the new guidance requires disclosure of amounts transferred in and out of Levels 1 and 2 fair value measurements, a reconciliation presented on a gross basis rather than a net basis of activity in Level 3 fair value measurements, greater disaggregation of the assets and liabilities for which fair value measurements are presented and more robust disclosure of the valuation techniques and inputs used to measure Level 2 and 3 fair value measurements. This guidance is currently effective, with the exception of the new guidance for Level 3 activity reconciliations. The adoption of the effective portion of the guidance had no impact on Registrant’s consolidated financial statements. Certain Level 3 activities disclosure requirements of this guidance will be effective for fiscal years beginning after December 15, 2010. Registrant is currently evaluating the impact of Level 3 disclosure of this guidance, but does not expect the adoption will have a material impact on its consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on Registrant’s consolidated financial statements upon adoption.

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Note 2 — Regulatory Matters:

In accordance with accounting principles for rate-regulated enterprises, Registrant records regulatory assets, which represent probable future revenue associated with certain costs that will be recovered from customers through the ratemaking process, and regulatory liabilities, which represent probable future reductions in revenue associated with amounts that are to be credited to customers through the ratemaking process. At June 30, 2010, Registrant had approximately $46.7 million of regulatory assets not accruing carrying costs. Of this amount, $27.0 million relates to the underfunded positions of the pension and other post-retirement obligations, $5.9 million relates to deferred income taxes representing accelerated tax benefits flowed through to ratepayers, which will be included in rates concurrently with recognition of the associated future tax expense, and $9.6 million relates to a memorandum account authorized by the CPUC to track unrealized gains and losses on GSWC’s purchase power contracts over the life of the contract. The remainder relates to other expenses that do not provide for recovery of carrying costs that Registrant expects to recover in rates over a short period. Regulatory assets, less regulatory liabilities, included in the consolidated balance sheets for continuing operations are as follows:

(In thousands)	June 30, 2010			December 31, 2009
GSWC
Electric supply cost balancing account	$	10,984		$	13,111
Water supply cost balancing accounts	3,618			4,717
Water revenue adjustment mechanism, net of modified cost balancing accounts	29,603			21,168
Aerojet litigation memorandum account	19,305			19,676
Pensions and other postretirement obligations	26,968			27,833
Derivative unrealized loss	9,551			7,338
Flow-through taxes, net	5,897			6,661
Electric transmission line abandonment costs	2,735			2,828
Asset retirement obligations	3,994			3,826
Low income rate assistance balancing accounts	5,631			4,764
Santa Maria adjudication memorandum accounts	3,814			3,895
Deferred rate case costs	3,399			3,642
Refund of water right lease revenues	(1,587		)	(1,806		)
Other regulatory assets, net	2,713			4,921
Total	$	126,625		$	122,574

Regulatory matters are discussed in detail in the consolidated financial statements and the notes thereto included in the Form 10-K for the year ended December 31, 2009 filed with the SEC. The discussion below focuses on significant matters and changes since December 31, 2009.

Electric Supply Cost Balancing Accounts:

Electric power costs incurred by GSWC’s Bear Valley Electric Service (“BVES”) division continue to be charged to its electric supply cost balancing account. The under-collection in the electric supply cost balancing account is $11.0 million at June 30, 2010. For the six months ended June 30, 2010 and 2009, the under-collection decreased by approximately $2.1 million and $2.0 million, respectively, primarily as a result of a payment of a surcharge by its customers of 2.2¢ per kilowatt hour, which is currently scheduled to run through August 2011. In addition, BVES is allowed to include its actual recorded purchased energy costs up to a weighted annual average cost of $77 per megawatt-hour (“MWh”) through August 2011 in its electric supply cost balancing account. BVES began receiving power under a new purchased power contract in January 1, 2009. The main product under the new contract provides for 13 megawatts (“MW”) of electric energy at a fixed price of $67.85 per MWh during 2010 as compared to the $77 per MWh included in rates. The reduction in the actual price of purchased power helps decrease the under-collection balance in the electric supply cost balancing account. To the extent that the actual weighted average annual cost for power purchased exceeds the $77 per MWh amount, GSWC will not be able to include these amounts in its balancing account and such amounts will be expensed. There were no amounts expensed over the $77 per MWh cap during the three months and six months ended June 30, 2010 and 2009.

As of June 30, 2010, the electric supply cost balancing account consists of $4.1 million for costs of abandonment of a transmission line upgrade and $6.9 million for changes in purchased energy and power system delivery costs.

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Water Supply Cost Balancing Accounts:

Prior to the implementation of the Modified Cost Balancing Account (“MCBA”) further discussed below, Registrant maintained water supply cost balancing accounts for GSWC to account for under-collections and over-collections of revenues designed to recover such costs. These supply cost balancing accounts tracked differences between the current cost for supply items (water, power and pump taxes) charged by GSWC’s suppliers and the cost for those items incorporated into GSWC’s rates. Under-collections (recorded as regulatory assets) occurred when the current cost exceeded the amount in rates for these items and, conversely, over-collections (recorded as regulatory liabilities) occurred when the current cost of these items were less than the amount in rates. Typically, under-collections or over-collections, when they occur, were tracked in the supply cost balancing accounts for future recovery through a surcharge (in the event of an under-collection) or refund through a surcredit (in the event of an over-collection) on customers’ bills. Registrant accrues interest on its supply cost balancing accounts at the rate prevailing for 90-day commercial paper. Registrant does not maintain a supply cost balancing account for CCWC.

As of June 30, 2010, there is a $3.6 million net under-collection remaining in the water supply cost balancing accounts. Of this amount, approximately $1.1 million relates to GSWC’s Region III customer service area, $2.4 million relates to GSWC’s Region I customer service areas and $115,000 relates to GSWC’s Region II customer service area. Currently, there are surcharges in place in Region I and Region III to recover these under-collections. When these surcharges expire, any unrecovered balances will be included in future filings for recovery.

On August 21, 2008, the CPUC issued a final decision approving a settlement agreement between GSWC and the CPUC’s Division of Ratepayer Advocates (“DRA”) regarding conservation rate design. As a result of this decision, GSWC established an MCBA that permits GSWC to recover supply costs related to changes in water supply mix in addition to rate changes by GSWC’s suppliers. GSWC implemented this MCBA in November 2008 for Regions II and III and in September 2009 for Region I. This account replaces the water supply cost balancing account procedure for costs incurred after the modified supply cost balancing account was implemented.

Water Revenue Adjustment Mechanism (“WRAM”) and Modified Cost Balancing Account (“MCBA”):

With the adoption of the WRAM and the MCBA effective November 25, 2008 for Regions II and III and September 1, 2009 for Region I’s ratemaking areas, GSWC began recording the difference between what is billed to its water customers and that which is authorized by the CPUC. Under the WRAM, GSWC records the adopted level of volumetric revenues as authorized by the CPUC for metered accounts (adopted volumetric revenues). While the WRAM tracks volumetric-based revenues, the revenue requirements approved by the CPUC include service charges, flat rate charges, and other items that are not subject to the WRAM. The adopted volumetric revenues consider the seasonality of consumption of water based upon historical averages. The variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts is recorded as a component of revenue with an offsetting entry to an asset or liability balancing account (tracked individually for each rate making area). The variance amount may be positive or negative and represents amounts that will be billed or refunded to customers in the future. The WRAM only applies to customer classes with conservation rates in place. Currently, the majority of GSWC’s water customers have conservation tiered rate billing structures.

Under the MCBA, GSWC began tracking adopted expense levels for purchased water, purchased power and pump taxes, as established by the CPUC. Variances (which include the effects of changes in both rate and volume) between adopted and actual purchased water, purchased power, and pump tax expenses are recorded as a component of the supply cost balancing account provision, as the amount of such variances will be recovered from or refunded to GSWC’s customers at a later date. This is reflected with an offsetting entry to an asset or liability balancing account (tracked individually for each rate-making area). Unlike the WRAM, the MCBA applies to all customer classes.

The balances in the WRAM and MCBA assets and liabilities accounts will fluctuate on a monthly basis depending upon the variance between adopted and actual results. The recovery or refund of the WRAM is netted against the MCBA over- or under-collection for the corresponding rate-making area and is interest bearing at the current 90-day commercial paper rate. When the net amount at the end of the calendar year for Regions II, III or any of the Region I ratemaking areas achieves a pre-determined level (i.e., at least 2.5 percent over- or under-recovery of the approved revenue requirement), GSWC will seek approval from the CPUC to refund or collect the balance in the accounts. Account balances less than those levels may be refunded or collected in GSWC’s general rate case

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proceedings or aggregated with future calendar year balances for comparison with the pre-determined recovery level of 2.5 percent of adopted revenues.

In March 2010, GSWC filed an advice letter with the CPUC for recovery of the Region II and III WRAM, net of the MCBA and supply cost balancing accounts, of $18.3 million. A surcharge was put in place in March 2010 which is expected to recover the amounts accumulated, as of December 31, 2009, in Regions II and III’s WRAM, net of MCBA and supply cost balancing accounts. In April and May 2010, surcharges were implemented for recovery of $2.1 million of the Region I WRAM accounts, net of the MCBA. For the three and six months ended June 30, 2010, approximately $1.5 million of surcharges were billed to customers to decrease previously incurred under-collections in the WRAM, net of MCBA balancing accounts. Going forward, GSWC will seek recovery of its WRAM, net of MCBA, on an annual basis. As of June 30, 2010, GSWC has a net aggregated regulatory asset of $29.6 million which is comprised of a $37.3 million under-collection in the WRAM accounts and $7.7 million over-collection in the MCBA accounts.

Aerojet Litigation Memorandum Account:

On July 21, 2005, the CPUC authorized GSWC to collect 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, new rates went into effect to begin amortizing the memorandum account over a 20-year period. A rate surcharge generating approximately $211,000 and $252,000 was billed to customers during the three months ended June 30, 2010 and 2009, respectively, and approximately $392,000 and $463,000 for the six months ended June 30, 2010 and 2009, respectively. GSWC will keep the Aerojet memorandum account open until the earlier of full amortization of the balance or 20 years. However, no costs will be added to the memorandum account, other than on-going interest charges approved by the CPUC decision. Pursuant to the decision, additional interest of approximately $13,000 was added to the Aerojet litigation memorandum account for the three months ended June 30, 2010 and 2009, and $21,000 and $33,000 for the six months ended June 30, 2010 and 2009, respectively.

Aerojet has 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. The Westborough development is within the defined area in the settlement agreement. It is management’s intention to offset certain proceeds from the housing development by Aerojet in the Westborough areas, pursuant to the settlement agreement, 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 by 2025.

Derivative Gains and Losses on Purchased Power Contracts Memorandum Account:

GSWC’s BVES division began receiving power under a new purchased power contract on January 1, 2009 at a fixed cost over three and five year terms depending on the amount of power and period during which the power will be purchased under the contract. This contract is subject to accounting guidance as amended for derivative instruments and hedging activities and requires mark-to-market derivative accounting. In May 2009, the CPUC authorized GSWC to establish a non-interest bearing regulatory memorandum account to track unrealized gains and losses on this contract. Accordingly, all unrealized gains and losses generated from this contract will be deferred on a monthly basis into the memorandum account and, as a result, do not impact GSWC’s earnings. As of June 30, 2010, $9.6 million of unrealized losses have been included in this memorandum account. This unrealized loss increased since December 31, 2009 as a result of decreasing quoted market prices for energy over the duration of the contract.

Deferred Rate Case Costs:

As of June 30, 2010, GSWC has deferred rate case costs totaling $3.4 million. These are direct costs consisting primarily of outside consulting services, which have been incurred in connection with the preparation and processing of a general rate case. Historically, GSWC has deferred these costs as a regulatory asset which are then recovered in rates and amortized over the term of a rate case cycle once the new rates go into effect. In the current general rate case for Regions II and III and the general office, the DRA is challenging GSWC’s historical practice of deferring these costs with subsequent recovery upon the effective date of the new rates. Instead, DRA believes that

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rate case costs should be projected for future periods and recovered prospectively. Management believes that DRA’s rationale and recommendations are inconsistent with GSWC’s historical practice of deferring and recovering rate case expenses associated with the current general rate case. This practice has not been challenged by the CPUC in prior rate cases. GSWC will vigorously defend its position. However, if DRA prevails, GSWC may be required to write off approximately $2.1 million of costs deferred as of June 30, 2010 related to the current water rate case. The final resolution of this issue is expected in October 2010 as part of the CPUC’s final decision in the Regions II and III and the general office rate case. At this time, GSWC is unable to predict the outcome of this matter.

Other Regulatory Assets/Liabilities:

Bear Valley Electric Service:

As part of the CPUC’s final decision in October 2009 on the BVES general rate case, GSWC was authorized to establish a Base Revenue Requirement Adjustment Mechanism (“BRRAM”) account effective November 2, 2009. With the adoption of the BRRAM account, GSWC began recording the difference between the base rate revenue portion of its charges on customers’ bills and the amount of base rate costs authorized for recovery in rates by the CPUC. The variance between adopted electric base rate revenue and actual billed base rate revenue will be recorded as a component of electric revenue with an offsetting entry to an asset or liability balancing account. The variance amount may be positive or negative and represents amounts that will be billed or refunded to electric customers in the future and is interest bearing at the current 90-day commercial paper rate. When the amount of the under- or over-collection is equal to or greater than five percent of the adopted base rate revenue requirement established for the previous twelve months, GSWC intends to seek approval from the CPUC to refund or collect the balance in the account. As of June 30, 2010, GSWC has included in other regulatory assets $789,000 related to the BRRAM. Management will evaluate the anticipated recovery of this under-collection and will provide for allowances and/or reserves as deemed necessary.

Included in other regulatory assets as of June 30, 2010 is a BVES memorandum account totaling $925,000. In June 2009, the CPUC authorized BVES to track the difference between the 2007 adopted general office cost allocation to BVES and the 1996 adopted general office cost allocation to BVES, until the 2007 costs were incorporated into BVES’ rates. From June 4, 2009 to October 31, 2009, when the 2007 costs were incorporated into BVES’ rates, $958,000 was recorded in the memorandum account. However, the decision issued on October 15, 2009 did not address the disposition of this memorandum account. In November 2009, GSWC filed a petition for modification to seek clarification from the CPUC on the treatment and recovery of this memorandum account. In March 2010, the CPUC approved for recovery this memorandum account through a surcharge over a 24-month period effective May 1, 2010. Accordingly, during the first quarter of 2010, GSWC recorded a regulatory asset and a corresponding increase to earnings for amounts included in this memorandum account. The October 2009 decision in the general rate case for BVES also allows for an update to BVES’ rates in 2010 for the corporate headquarters’ costs based on the CPUC’s adoption of new rates for GSWC’s current Regions II and III general rate case including the recovery of expenses associated with its corporate headquarters. For the three and six months ended June 30, 2010, a surcharge generating approximately $33,000 was billed to BVES customers.

In January 2010, the City of Big Bear Lake and surrounding areas of San Bernardino County experienced a series of snow storms, which damaged many BVES power lines, poles, transformers, and other facilities and caused temporary interruption of service to many BVES customers. As a result of these storms, BVES has incurred additional operating costs to repair equipment and restore electric service to its customers. While service has been restored to BVES customers, costs are still being incurred to repair equipment affected by the storms. In February 2010, GSWC informed the CPUC that it will track these costs in a Catastrophic Event Memorandum Account (“CEMA”). Once all work resulting from these storms is completed, GSWC intends to file an advice letter with the CPUC for recovery of these costs through a surcharge. The incremental costs include BVES labor, outside services assistance, equipment, materials, facilities damages and related snow removal services. Management believes these incremental costs will be approved by the CPUC for recovery through the CEMA. As of June 30, 2010, approximately $403,000 has been incurred as a result of the storms and has been included in the CEMA account within other regulatory assets.

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Excess Usage Charges - Refund to Customers:

In July 2009, GSWC began receiving reduced water allocations from member agencies of the Metropolitan Water District of Southern California (“MWD”). As a result, in July 2009, GSWC began implementing water rationing, restrictions, and excess usage charges to its customers in several of its service areas. The excess usage charges were being collected in the event that penalties were required to be paid to MWD for exceeding GSWC’s water allocations. As of June 30, 2010, GSWC has billed its customers excess usage charges totaling $3.3 million. Because GSWC was able to comply with the reduced water allocations from MWD, it will not have to remit to MWD these excess usage charges collected from its customers. Accordingly, these amounts will be refunded to customers and have been included in other regulatory assets/liabilities as of June 30, 2010.

Other Regulatory Liabilities at CCWC:

Fountain Hills Sanitary District (“FHSD”) is a political subdivision of the State of Arizona that provides sanitary sewer service to customers residing within CCWC’s water service area. In connection with its sanitary system, FHSD constructed a recharge system whereby it recharges treated effluent through multiple injection wells. In order for FHSD to secure an Aquifer Protection Permit for its recharge system, FHSD requested CCWC to permanently cease using one of its wells. As a possible replacement for this well, FHSD constructed a new well adjacent to the community center (“Community Center Well”). However, this well was not able to produce an equivalent amount of water to CCWC’s well that was taken out of production. Accordingly, in February 2005, CCWC entered into an agreement with FHSD whereby CCWC agreed to permanently remove from service this well and in return CCWC received a settlement fee of $1,520,000 from FHSD.

In 2005, CCWC recognized a net gain of $760,000 related to this settlement agreement and established a regulatory liability for the remaining $760,000 pending ACC review of this matter. On October 8, 2009, the ACC made a final ruling ordering CCWC to treat the entire gain of $1,520,000 from the settlement agreement with FHSD as a reduction to rate base. As a result, CCWC recorded a loss of $760,000 during the third quarter of 2009. This effectively reversed the original gain recorded in 2005. In November 2009, CCWC filed an application for rehearing on several issues including the sharing of this gain from the settlement proceeds. The ACC granted CCWC’s request to hold a rehearing on the issues. In January 2010, a procedural conference was held with the judge and the staff of the ACC involved in the rate case to address a schedule for the rehearing. The rehearing was held in April 2010 and a final decision by the ACC is expected later this year. At this time, management cannot predict the final outcome of this matter.

Other Regulatory Matters:

La Serena Plant Improvement Project:

In January 2008, the CPUC approved Region I’s general rate case effective for years 2008, 2009, and 2010. On March 3, 2008, the DRA filed an application for rehearing of this decision on various legal grounds. As permitted by the CPUC, GSWC filed a response to DRA’s application. In September 2008, the CPUC granted a limited rehearing in order to consider whether it is reasonable to include in Region I’s rate base approximately $3.5 million of costs incurred in connection with the La Serena Plant Improvement Project. The project is currently in rate base and the earnings have been included in rates since January 1, 2008. If DRA prevails, GSWC may be required to write off the costs incurred to date and also refund amounts collected from customers since January 1, 2008. At this time, management cannot predict the final outcome of this matter or a range of loss, if any. The final resolution of this issue is expected in October 2010 as part of the CPUC’s final decision in the Regions II and III and the general office rate case.

CPUC Subpoena:

On February 15, 2007, the CPUC issued a subpoena to GSWC in connection with an investigation of certain work orders and charges paid to a specific contractor used by GSWC for numerous construction projects estimated to total $24.0 million. The CPUC’s investigation focuses on whether GSWC was overcharged for these construction projects and whether these overcharges were approved in customer rates. The construction projects completed by this specific contractor related primarily to work on water treatment and pumping plants which have been placed in service and are used and useful. In June 2007, GSWC received notification from the CPUC that it was instituting an audit. The purpose of the audit was to examine for the period 1994 to the present, GSWC’s policies, procedures, and practices throughout all of its Regions regarding the granting or awarding of construction

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contracts or jobs. GSWC is currently responding to data requests submitted by the CPUC including recent data requests which asked for information prior to 1994. Should the CPUC investigation result in a proposed disallowance of certain previously capitalized costs, such costs, and potentially any return earned on such costs, may be required to be refunded to the customers upon settlement of the proposed disallowance, if any, resulting in a charge to operating income. In addition to the disallowance of previously capitalized costs, the CPUC may seek to recover amounts previously recovered in rates relating to such costs and also has the authority to assess fines and penalties. Management is unable to predict whether and the extent to which the CPUC may disallow such capitalized costs, seek recovery of previously paid rates or assess fines and penalties. However, any such disallowance, refunds to customers and/or assessment, if imposed could have a material adverse effect on AWR and GSWC.

In January 2009, the ACC staff requested information regarding the CPUC subpoena and on-going audit. GSWC has been working with the ACC staff and has provided responsive materials, including but not limited to, materials that are relevant to CCWC. Although the ACC has issued a decision in the CCWC general rate case, it has held the docket open pending resolution of the staff’s review of the CPUC subpoena documents. In the first quarter of 2010, the ACC staff issued a report recommending that proper controls be established in CCWC’s procurement policies and procedures, and that status reports of the CPUC’s investigation and resolution be filed with the ACC periodically. The staff’s report did not result in any financial impact to CCWC. The ACC will still need to act on the staff’s recommendations. Management cannot predict the outcome of the ACC’s final decision on this matter.

Bear Valley Electric Service

GSWC’s BVES division has been regularly filing compliance reports with the CPUC regarding its purchases of energy from renewable energy resources. The filings have indicated that BVES has not achieved interim target purchase levels of renewable energy resources and thus, on its face, might be subject to a potential penalty. However, BVES expects that the CPUC will waive any potential fines in accordance with the flexible compliance rules. Accordingly, no provision for loss has been recorded in the financial statements as of June 30, 2010. At this time, management cannot determine if interim targets for the 2010 year will be met. BVES is continuing its efforts to procure renewable resources. In November 2009, GSWC entered into a ten-year contract to purchase renewable energy created from landfill gas. The contract is subject to CPUC approval. On June 8, 2010, GSWC filed an application with the CPUC seeking approval of this contract. If approved, the contract will provide up to 3 megawatts for ten years at a fixed price of $110.0 per MWh. In November 2009, GSWC also entered into a ten-year contract to purchase biogas to power BVES’s gas-fueled 8.4 MW generation facility. This contract is also subject to CPUC approval. On July 8, 2010, GSWC filed an application with the CPUC seeking approval of this contract.

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Note 3 — Earnings per Share/Capital Stock:

In accordance with the accounting guidance for participating securities and earnings per share (“EPS”), Registrant uses the “two-class” method of computing EPS. The “two-class” method is an earnings allocation formula that determines EPS for each class of common stock and participating security. AWR has participating securities related to stock options and restricted stock units that earn dividend equivalents on an equal basis with AWR’s Common Shares (the “Common Shares”) that have been issued under AWR’s 2000 and 2008 Employee Plans and the 2003 Directors Plan. In applying the “two-class” method, undistributed earnings are allocated to both common shares and participating securities. The following is a reconciliation of Registrant’s net income and weighted average Common Shares outstanding for calculating basic net income per share:

Basic			For The Three Months Ended June 30,				For The Six Months Ended June 30,
(in thousands, except per share amounts)			2010		2009		2010		2009
Net income from continuing operations			$	8,870	$	11,415	$	17,160	$	16,443
Net income (loss) from discontinued operations			105		84		305		(12		)
Total net income			8,975		11,499		17,465		16,431
Less: (a)		Distributed earnings to common shareholders	4,830		4,465		9,652		8,794
		Distributed earnings to participating securities	26		23		48		43
Undistributed earnings			4,119		7,011		7,765		7,594

(b)	Undistributed earnings allocated to common shareholders		4,098		6,976		7,727		7,558
	Undistributed earnings allocated to participating securities		21		35		38		36

Total income available to common shareholders, basic (a)+(b)			$	8,928	$	11,441	$	17,379	$	16,352

Weighted average Common Shares outstanding, basic			18,576		17,861		18,561		17,588

Basic earnings per Common Share:
Income from continuing operations			$	0.47	$	0.64	$	0.92	$	0.93
Income from discontinued operations			0.01		—		0.02		—
Net Income			$	0.48	$	0.64	$	0.94	$	0.93

Diluted EPS is based upon the weighted average number of Common Shares, including both outstanding shares and shares potentially issuable in connection with stock options granted under Registrant’s 2000 and 2008 Employee Plans, and the 2003 Directors Plan, and net income. At June 30, 2010 and 2009, there were 742,387 and 680,758 options outstanding, respectively, under these Plans. At June 30, 2010 and 2009, there were also 104,498 and 92,502 restricted stock units outstanding, respectively.

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

Diluted	For The Three Months Ended June 30,				For The Six Months Ended June 30,
(in thousands, except per share amounts)	2010		2009		2010		2009
Common shareholders earnings, basic	$	8,928	$	11,441	$	17,379	$	16,352
Undistributed earnings for dilutive stock options	21		35		38		36
Total common shareholders earnings, diluted	$	8,949	$	11,476	$	17,417	$	16,388

Weighted average common shares outstanding, basic	18,576		17,861		18,561		17,588
Stock-based compensation (1)	144		126		134		130
Weighted average common shares outstanding, diluted	18,720		17,987		18,695		17,718

Diluted earnings per Common Share:
Income from continuing operations	$	0.47	$	0.64	$	0.91	$	0.92
Income from discontinued operations	0.01		—		0.02		—
Net Income	$	0.48	$	0.64	$	0.93	$	0.92

(1) In applying the treasury stock method of reflecting the dilutive effect of outstanding stock-based

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compensation in the calculation of diluted EPS, 395,833 and 329,975 stock options at June 30, 2010 and 2009, respectively, were deemed to be outstanding in accordance with accounting guidance on earnings per share. All of the 104,498 and 92,502 restricted stock units at June 30, 2010 and 2009, respectively, were included in the calculation of diluted EPS for the six months ended June 30, 2010 and 2009.

Stock options of 112,026 and 346,349 were outstanding at June 30, 2010 and 2009, respectively, but not included in the computation of diluted EPS because the related option exercise price was greater than the average market price of AWR’s Common Shares for the six months ended June 30, 2010 and 2009. Stock options of 234,528 and 4,434 were outstanding at June 30, 2010 and 2009, respectively, but not included in the computation of diluted EPS because they were antidilutive.

During the six months ended June 30, 2010 and 2009, Registrant issued 57,299 and 38,073 Common Shares, for approximately $1,316,000 and $915,000, respectively, under Registrant’s Common Share Purchase and Dividend Reinvestment Plan, the 401(k) Plan, and the stock incentive plans. In addition, Registrant purchased 67,241 and 13,593 Common Shares on the open market during the six months ended June 30, 2010 and 2009, respectively, under Registrant’s 401(k) Plan and the Common Share Purchase and Dividend Reinvestment Plan. The Common Shares purchased by Registrant were used to satisfy the requirements of these plans.

During the three months ended June 30, 2010 and 2009, AWR paid quarterly dividends of approximately $4.8 million, or $0.26 per share and $4.3 million, or $0.25 per share, respectively. During the six months ended June 30, 2010 and 2009, AWR paid quarterly dividends to shareholders of approximately $9.7 million, or $0.52 per share and $8.7 million, or $0.50 per share.

On May 26, 2010, the Board of Directors approved the issuance of eight additional GSWC Common Shares to AWR for $20.0 million. Proceeds from the issuance were used to pay down GSWC’s intercompany borrowings due to AWR.

Note 4 — Derivative Instruments:

Most of the electric energy sold by BVES to its customers is purchased from others. To mitigate exposure to spot-market prices, Registrant has entered into purchased power contracts, which are subject to derivative accounting, to serve its BVES customer service area. By entering into these fixed-priced purchased power contracts, Registrant has been able to limit the amount of risk and uncertainty due to spot-market price variability. Changes in electricity costs are outside of management’s control, therefore, the purpose of entering into these fixed price contracts is to stabilize purchased power costs. Except for the resale of small amounts of power in the spot market that are in excess of BVES’ customers’ then immediate needs, the power purchased under the contracts is only used to service BVES customers’ demand.

Registrant has a block-forward purchase power contract that has been and is subject to the accounting guidance for derivative instruments and hedging activities, as amended. A derivative financial instrument or other contract derives its value from another investment or designated benchmark. Accounting guidance requires companies to record derivatives on the balance sheet as assets and liabilities, and to measure those instruments at their fair value.

In October 2008, GSWC executed a purchased power contract that permits GSWC to purchase power 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 contract. The contract is subject to the accounting guidance for derivatives and requires mark-to-market derivative accounting. GSWC began receiving power under this contract on January 1, 2009. In May 2009, the CPUC issued a final decision approving the contract and authorized GSWC to establish a regulatory asset and liability memorandum account to offset the entries required by the accounting guidance. Accordingly, all unrealized gains and losses generated from the new purchased power contract will be deferred on a monthly basis into a non-interest bearing regulatory memorandum account that will track the changes in fair value of the derivative throughout the term of the contract. As of June 30, 2010 there was a $9.6 million cumulative unrealized loss which has been included in the memorandum account. This memorandum account does not impact GSWC’s earnings.

On a monthly basis, the related asset or liability is adjusted to reflect the fair market value at the end of the month. Registrant adopted accounting guidance for fair value measurements effective January 1, 2008 for financial assets and liabilities measured on a recurring basis. This guidance applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. There was no impact in the adoption of this

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accounting guidance to the consolidated financial statements. However, the accounting guidance requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The guidance requires fair value measurements to be classified and disclosed in one of the following three categories:

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

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

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

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

The following table presents changes in the fair value of the derivative for the three and six months ended June 30, 2010 and 2009.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(dollars in thousands)	2010			2009			2010			2009
Balance, at beginning of the period	$	(10,038	)	$	(8,428	)	$	(7,338	)	$	—
Unrealized gain (loss) on purchased power contracts	486			(119		)	(2,214		)	(8,547		)
Balance, at end of the period	$	(9,552	)	$	(8,547	)	$	(9,552	)	$	(8,547	)

For the three and six months ended June 30, 2010 and 2009, the unrealized gains and losses were included in regulatory assets due to regulatory mechanisms in place effective January 1, 2009.

Note 5 — Fair Value of Financial Instruments:

For cash and cash equivalents, accounts receivable, accounts payable and short-term debt, the carrying amount is assumed to approximate fair value due to the short-term nature of the amounts. The table below estimates the fair value of long-term debt held by the continuing utility subsidiaries. Rates available to the continuing utility subsidiaries at June 30, 2010 and December 31, 2009 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.

	June 30, 2010				December 31, 2009
(dollars in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial liabilities:
Long-term debt—GSWC	$	300,303	$	336,846	$	300,586	$	335,217

Note 6 — Military Privatization:

ASUS, through its wholly owned subsidiaries, has entered into agreements with the U.S. government to operate and maintain the water and/or wastewater systems at various military bases pursuant to 50-year fixed price contracts, subject to periodic prospective price redeterminations and modifications for changes in circumstances.

The amounts charged by the Military Utility Privatization Subsidiaries for water and/or wastewater services at the respective military bases are based upon the terms of the 50-year contracts between ASUS or its subsidiaries and the U.S. government. Under the terms of these agreements, the Military Utility Privatization Subsidiaries agreed to operate and maintain the water and/or wastewater systems at the respective bases for a monthly net fixed price for operation and maintenance, and for an amount to cover renewals and replacements for the first two years of the contract. Under the terms of each of these contracts, prices are to be redetermined at the end of the initial two year period and every three years thereafter, unless otherwise agreed to by the parties to a contract. In addition, prices may be equitably adjusted for changes in law and other circumstances. These adjustments can be retrospective and/or prospective. The Military Utility Privatization Subsidiaries have experienced delays in obtaining readjustment of prices and equitable adjustments as required by the terms of these contracts.

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In March 2009, ONUS filed a request for equitable adjustment related to a joint inventory report which indicated the quantity of the Fort Bragg infrastructure to be greater than what was estimated by the U.S. government as part of its solicitation for this contract. On January 22, 2010, the U.S. government approved a $6.5 million equitable adjustment regarding this inventory. As a result of this contract modification, ASUS recorded $3.1 million of revenues and operating income during the first quarter of 2010 (approximately $2.8 million of which is retroactive from the commencement of the contract in March 2008 to December 31, 2009). The remaining $3.4 million, related to renewal and replacement funds, was recorded as billings in excess of costs and estimated earnings on uncompleted contracts in the first quarter of 2010. The deferred revenue will be recognized in construction revenues (along with the related construction costs) when the work is performed.

In March 2008, FBWS filed a request for equitable adjustment as a claim with the U.S. government seeking an adjustment in the contract after it was determined that the infrastructure at Fort Bliss was substantially more than originally estimated by the U.S. government as part of its solicitation for this contract. In January 2010, FBWS and the U.S. government entered into a settlement agreement pursuant to which the U.S. government agreed to pay FBWS retroactive operation and maintenance management fees and retroactive renewal and replacement fees from the contract commencement date, October 1, 2004. In March 2010, the U.S. government issued a $6 million contract modification funding a majority of the settlement agreement. As a result, ASUS recorded $2.5 million in revenues and pretax operating income and $510,000 in interest income during the first quarter of 2010. The remaining $3.0 million, related to renewal and replacement funds, was recorded as billings in excess of costs and estimated earnings on uncompleted contracts. The deferred revenue will be recognized in construction revenues (along with the related construction costs) as the work is performed. An additional modification funding the balance of the settlement amount was received in June 2010. As a result, for the second quarter of 2010, ASUS recorded additional revenues of $85,000 and a reduction in administrative and general expense of $117,000 for reimbursement of costs incurred to prepare the request for equitable adjustment filing.

On July 22, 2010, ASUS was served with a subpoena issued in connection with a Grand Jury investigation related to ODUS’ water and wastewater privatization contract at the TRADOC bases, and the wastewater utility privatization contract at Fort Lee. The investigation is in its early stages and ASUS is in the process of producing documents requested in the subpoena. At this time, management cannot predict the final outcome of the investigation or a range of loss, if any.

Note 7 — Income Taxes:

As a regulated utility, GSWC treats certain temporary differences as flow-through adjustments in computing its income tax provision consistent with the income tax approach approved by the CPUC for ratemaking purposes. Flow-through adjustments increase or decrease tax expense in one period, with an offsetting increase or decrease occurring in another period. Giving effect to these temporary differences as flow-through adjustments typically results in a greater variance between the effective tax rate (“ETR”) and the statutory federal income tax rate in any given period than would otherwise exist if GSWC were not required to account for its income taxes as a regulated enterprise. The GSWC ETR for the three months ended June 30, 2010 was 42.7% as compared to 40.9% applicable to the three months ended June 30, 2009. The GSWC ETR for the six months ended June 30, 2010 was 42.9% as compared to 39.8% applicable to the six months ended June 30, 2009. The GSWC ETR deviated from the federal statutory rate primarily due to changes between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements (principally plant-, rate-case- and compensation-related items).

Registrant’s policy is to classify interest on income tax over/underpayments in interest income/expense and penalties in operating expenses.

AWR (parent) receives a tax benefit for expenses incurred at the parent-company level. For the six months ended June 30, 2009, the taxes recorded at AWR (parent) also include the effect of changes in California law relating to state unitary tax principles during the first quarter of 2009. Management intends to elect, commencing with the 2011 tax year, an alternative apportionment method made available by tax law changes in 2009. As a result of management’s intention to apply the alternative method, AWR adjusted its deferred tax balances in the first quarter of 2009 to reflect the expected amount at which it will realize its California deferred taxes consistent with the change in tax law, and refined certain related estimates. This resulted in the recording of a benefit of approximately $918,000, or $0.05 per share, during the first quarter of 2009. While the effect of the tax law changes will continue to affect AWR’s state taxes, the future effects may be beneficial or detrimental depending on a

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combination of the profitability of AWR’s non-California activities as well as the relative proportion of the factor(s) applied by its apportionment method. Periodically, management will assess its intention to apply the alternative method and will adjust its deferred tax balances accordingly.

GSWC continues to compute its state tax provision as if it were autonomous and not a member of AWR’s unitary group. This approach is consistent with the methodology used for ratemaking purposes. Given that all of GSWC’s activities are conducted within California, GSWC’s state tax provision does not reflect apportionment of its income; consequently, the change in California law has had no effect upon GSWC’s state taxes.

Note 8 — Employee Benefit Plans:

The components of net periodic benefit costs, before allocation to the overhead pool, for Registrant’s pension plan, postretirement plan, and Supplemental Executive Retirement Plan (“SERP”) for the three and six months ended June 30, 2010 and 2009 are as follows:

	For The Three Months Ended June 30,
	Pension Benefits						Other Postretirement Benefits						SERP
(dollars in thousands)	2010			2009			2010			2009			2010		2009
Components of Net Periodic Benefits Cost:
Service cost	$	1,199		$	1,119		$	102		$	85		$	108	$	82
Interest cost	1,526			1,426			159			161			89		80
Expected return on plan assets	(1,313		)	(974		)	(63		)	(52		)	—		—
Amortization of transition	—			—			105			105			—		—
Amortization of prior service cost (benefit)	30			29			(50		)	(50		)	40		40
Amortization of actuarial loss (gain)	293			572			—			—					—
Net periodic pension cost	$	1,735		$	2,172		$	253		$	249		$	237	$	202

	For The Six Months Ended June 30,
	Pension Benefits						Other Postretirement Benefits						SERP
(dollars in thousands)	2010			2009			2010			2009			2010		2009
Components of Net Periodic Benefits Cost:
Service cost	$	2,398		$	2,238		$	204		$	171		$	216	$	175
Interest cost	3,052			2,852			318			321			178		166
Expected return on plan assets	(2,626		)	(1,948		)	(126		)	(104		)	—		—
Amortization of transition	—			—			210			210			—		—
Amortization of prior service cost (benefit)	60			58			(100		)	(100		)	80		80
Amortization of actuarial loss (gain)	586			1,144			—			—			—		—
Net periodic pension cost	$	3,470