- American States Water Company received proposed decision
adopting a settlement agreement in its entirety in the water
utility general rate case
- Settlement agreement authorizes nearly $405 million in
capital investment
- $0.55 per share increase in recorded first quarter
consolidated diluted EPS compared to first quarter of 2022, or a
$0.13 per share increase as adjusted
- First quarter results reflect the impact of retroactive
rates of $0.36 per share related to the full year of 2022 because
of receiving the proposed decision in the water utility general
rate case.
- First quarter results also reflect a favorable variance of
$0.06 per share from gains on investments held to fund a retirement
plan compared to losses during same period in 2022.
American States Water Company (NYSE:AWR) today reported basic
and fully diluted earnings per share of $0.93 for the quarter ended
March 31, 2023, as compared to basic and fully diluted earnings per
share of $0.38 for the quarter ended March 31, 2022, an increase of
$0.55 per share. The increase includes the impact of retroactive
rates of $0.36 per share related to the full 2022 year and the
estimated second-year rate increases for the three months ended
March 31, 2023 as a result of receiving a proposed decision in the
water utility general rate case that sets new rates for the years
2022 – 2024, as discussed immediately below.
On April 13, 2023, AWR’s regulated water utility segment, Golden
State Water Company (“GSWC”), received a proposed decision from the
assigned administrative law judge at the California Public
Utilities Commission (“CPUC”) on GSWC's water general rate case
with rates retroactive to January 1, 2022. Among other things, the
proposed decision approves and adopts in its entirety the
settlement agreement between GSWC and the Public Advocates Office
at the CPUC (“Public Advocates”) that had been filed with the CPUC
in November 2021, and resolves all issues related to the 2022
annual revenue requirement in the general rate case application and
allows for additional increases in adopted revenues for 2023. The
proposed decision also addressed the three remaining unresolved
issues and approves GSWC’s requests for a medical insurance cost
balancing account and a general liability insurance cost balancing
account, but denied GSWC’s requested consolidation of two of its
customer service areas. A final decision by the CPUC is expected
during the second quarter of 2023.
The settlement agreement approved in the proposed decision (i)
authorizes GSWC to invest approximately $404.8 million in capital
infrastructure over the three-year cycle (excluding advice letter
projects); (ii) increases the 2022 adopted revenues (excluding the
advice letter project revenues) by approximately $30.3 million, or
$0.59 per share, as compared to the 2021 adopted revenues, and
increases the 2022 adopted supply costs by $9.6 million, or $0.19
per share, as compared to the 2021 adopted supply costs, which
combined is an increase of $0.40 per share; (iii) adopts new
operating expense levels for 2022 including a higher depreciation
expense resulting from overall higher composite depreciation rates
based on a new depreciation study adopted in the proposed decision;
and (iv) allows for additional increases in adopted revenues for
2023 and 2024 subject to an earnings test and changes to the
forecasted inflationary index values. Actual increases for 2023 and
2024 will be determined when the filings to implement the new rate
increases for those years are approved by the CPUC, and will be
calculated based on an earnings test and using the inflationary
index values at that time.
As a result of receiving a proposed decision that approves the
settlement agreement in its entirety, the impact of retroactive
rates for the full year of 2022 and the estimated second-year rate
increases for the three months ended March 31, 2023 have been
reflected in the 2023 first quarter results as it became probable
that the approved retroactive rates for the full year of 2022 and
the first three months of 2023 would be permitted to be billed to
customers in the future. The increases in adopted revenues for 2023
have been estimated at this time using inflationary index values as
of March 31, 2023. Actual increases for 2023 will be determined
when the filings to implement the new rate increases are approved
by the CPUC, and will be calculated using the inflationary index
values at that time. GSWC will file for the 2023 increases once the
CPUC approves the final decision.
First Quarter 2023 Results
The impact of retroactive rates for the year 2022 of $0.36 per
share that resulted from the proposed decision is shown on a
separate line in the table below, of which $0.08 relates to the
first quarter of 2022. Excluding the impact of retroactive rates,
adjusted consolidated diluted earnings for the three months ended
March 31, 2023 were $0.57 per share.
Furthermore, included in the results for the first quarter ended
March 31, 2023 were gains of $1.6 million, or $0.03 per share, on
investments held to fund one of the company's retirement plans, as
compared to losses of $1.7 million, or $0.03 per share, for the
same period in 2022, both due to financial market conditions.
Excluding the gains and losses on investments from both periods,
and the impact of retroactive rates of $0.36 per share for 2022,
adjusted consolidated diluted earnings for the first quarter of
2023 were $0.54 per share as compared to adjusted diluted earnings
of $0.41 per share for the same period in 2022, an adjusted
increase of $0.13 per share largely due to the 2023 estimated
second-year rate increases recorded as a result of receiving the
proposed decision.
The table below sets forth a comparison of the first quarter
2023 diluted earnings per share contribution recorded by business
segment and for the parent company with amounts recorded during the
same period in 2022.
Diluted Earnings per
Share
Three Months Ended
3/31/2023
3/31/2022
CHANGE
Water, adjusted (2023 excludes the impact
of retroactive rates related to 2022 from the CPUC proposed
decision in the general rate case)
$
0.38
$
0.23
$
0.15
Electric
0.06
0.07
(0.01
)
Contracted services
0.15
0.08
0.07
AWR (parent)
(0.02
)
—
(0.02
)
Consolidated fully diluted earnings per
share, as adjusted
0.57
0.38
0.19
Impact of retroactive rates related to the
full year of 2022 from the proposed decision in the water general
rate case (approximately $0.08 per share relates to first quarter
of 2022)
0.36
—
0.36
Consolidated diluted earnings per share,
as recorded
$
0.93
$
0.38
$
0.55
Water Segment:
For the three months ended March 31, 2023, recorded diluted
earnings from the water utility segment were $0.74 per share, as
compared to $0.23 per share for the same period in 2022, an
increase of $0.51 per share. As discussed previously, the increase
includes the impact of retroactive rates for the year 2022 of $0.36
per share recorded in the first quarter of 2023 resulting from the
proposed decision, as shown separately in the table above, and
included: (i) the increase in 2022’s adopted revenues and supply
costs that is consistent with the settlement agreement, or $0.40
per share; (ii) a reduction to revenues of $1.1 million, or $0.02
per share, to reflect the incremental impact of revenues subject to
refund from the new 2022 rates as a result of the lower cost of
debt in the pending cost of capital proceeding; and (iii) higher
overall depreciation expense for 2022 of approximately $790,000, or
$0.02 per share, resulting from higher composite depreciation rates
adopted in the proposed decision and which are reflected in the
2022 adopted revenue requirement. Furthermore, and also discussed
above, GSWC recorded gains of $1.6 million, or $0.03 per share,
during the first quarter of 2023 on investments held to fund one of
the company’s retirement plans, as compared to losses of $1.7
million, or approximately $0.03 per share, recorded for the same
period in 2022.
Excluding the gains and losses on investments from both periods,
and excluding the impact of retroactive rates related to the full
year of 2022, adjusted diluted earnings for the first quarter of
2023 at the water segment were $0.35 per share as compared to
adjusted diluted earnings of $0.26 per share for the same period in
2022, an adjusted increase at the water segment of $0.09 per share
due primarily to the following items:
- An increase in water operating revenues of approximately $9.0
million largely as a result of the estimated second-year rate
increases for 2023 that will be effective as of January 1, 2023 and
have been reflected in the 2023 first quarter results. Approved
2023 rates will be subject to an earnings test and changes to
inflationary index values. Because water revenues recorded during
the three months ended March 31, 2022 were based on 2021 adopted
rates, the increase in water revenues during the first quarter of
2023 represents the difference from the 2021 adopted rates and the
2023 estimated second-year rate increases for the three months
period ended March 31, 2023.
- An increase in water supply costs of $1.6 million, which
consist of purchased water, purchased power for pumping,
groundwater production assessments and changes in the water supply
cost balancing accounts. Adopted supply costs for the first quarter
of 2023 were based on 2023 authorized amounts, pending a final
decision by the CPUC in the water general rate case application.
Actual water supply costs are tracked and passed through to
customers on a dollar-for-dollar basis by way of the CPUC-approved
water supply cost balancing accounts. 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 of $1.3 million
(excluding supply costs) mainly due to increases in (i) overall
labor costs, (ii) other operation expenses resulting primarily from
higher water treatment and transportation costs, (iii)
administrative and general expenses largely from higher
employee-related expenses and outside-service costs, and (iv)
depreciation and amortization expenses resulting from additions to
utility plant and the higher composite depreciation rates based on
a revised depreciation study approved in the proposed decision on
the water general rate case.
- An increase in interest expense (net of interest income) of
$1.1 million resulting primarily from an increase in interest
rates, as well as an overall increase in total borrowing levels to
support, among other things, the capital expenditures program at
GSWC, partially offset by higher interest income earned on
regulatory assets bearing interest at the current 90-day
commercial-paper rate, which increased compared to 2022’s rates, as
well as an increase in the level of regulatory assets recorded
resulting, in large part, from the proposed decision on the water
general rate case.
- An overall increase in other expenses (net of other income) of
$1.1 million due primarily to an increase in the non-service cost
components related to GSWC’s benefit plans resulting from changes
in actuarial assumptions including expected returns on plan assets.
However, as a result of GSWC’s two-way pension balancing accounts
authorized by the CPUC, changes in total net periodic benefit costs
related to the pension plan have no material impact to
earnings.
- Changes in certain flowed-through taxes and permanent items
included in GSWC’s income tax expense for the three months ended
March 31, 2023 as compared to the same period in 2022 that
favorably impacted water earnings. As a regulated utility, GSWC
treats certain temporary differences as being flowed-through in
computing its income tax expense consistent with the income tax
method used in its CPUC-jurisdiction rate making. Changes in the
magnitude of flowed-through items either increase or decrease tax
expense, thereby affecting diluted earnings per share.
Electric Segment:
Diluted earnings from the electric utility segment decreased by
$0.01 per share for the three months ended March 31, 2023 as
compared to the same period in 2022, largely resulting from not
having new rates in 2023 while awaiting the processing of the
pending electric general rate case that will set new rates for 2023
– 2026, while also experiencing continued increases in overall
operating expenses and interest costs. When a decision is issued in
the electric general rate case, new rates are expected to be
retroactive to January 1, 2023 and cumulative adjustments will be
recorded at that time.
Contracted Services Segment:
Diluted earnings from the contracted services segment increased
by $0.07 per share for the three months ended March 31, 2023 as
compared to the same period in 2022, largely due to an increase in
construction activity due to timing differences of when
construction work was performed in 2023 as compared to the same
period in 2022, and an increase in management fee revenue resulting
from the resolution of various economic price adjustments,
partially offset by higher overall operating expenses and interest
costs as compared to the same period of 2022. The contracted
services segment is expected to contribute $0.45 to $0.49 per share
for the full 2023 year.
AWR (Parent):
For the three months ended March 31, 2023, diluted earnings from
AWR (parent) decreased $0.02 per share compared to the same period
in 2022 due primarily to an increase in interest expense resulting
from higher short-term interest rates on borrowings made under
AWR’s revolving credit facility, and changes in state unitary
taxes.
Regulatory Matters
GSWC filed a cost of capital application with the CPUC in May
2021 currently pending final approval, which requested a capital
structure of 57% equity and 43% debt, a return on equity of 10.5%,
an embedded cost of debt of 5.1%, and a return on rate base of
8.18%. Hearings on this proceeding occurred in May 2022 and briefs
were filed in June 2022. On May 9, 2023, GSWC received a proposed
decision from the assigned administrative law judge at the CPUC on
the cost of capital proceeding. Among other things, the proposed
decision (i) adopts GSWC’s requested capital structure and cost of
debt filed in the application; (ii) adopts a return on equity of
8.85% for GSWC as compared to 8.9% previously authorized; (iii)
allows for the continuation of the Water Cost of Capital Mechanism
(“WCCM”); and (iv) adopts the new cost of capital for the
three-year period commencing January 1, 2022, through December 31,
2024. Comments on the proposed decision are due on May 30. In March
2023, the CPUC issued a decision that approved an extension of the
statutory deadline for a final decision in the cost of capital
proceeding to August 10, 2023.
The 5.1% cost of debt adopted in the proposed decision is lower
than the previously authorized amount of 6.6% that is presently
being billed to water customers until a final decision is issued,
and which is expected to lower 2023 and 2022 adopted water
revenues. Based on management's analysis of this regulatory
proceeding and the associated accounting in 2022 and through March
31, 2023, GSWC has recorded the estimated revenues subject to
refund from the pending cost of capital proceeding covering the
period January 1, 2022 through March 31, 2023. However, management
cannot predict the ultimate outcome and any changes that may be
made to the final decision in the cost of capital application, and
the associated impact on 2023 and 2022 revenues. Changes in
estimates will be made, if necessary, as more information in this
proceeding becomes available.
Furthermore, the proposed decision continues the WCCM for the
years 2023 and 2024, which adjusts the return on equity and rate of
return on rate base between the three-year cost of capital
proceedings only if there is a positive or negative change of more
than 100 basis points in the average of the Moody’s Aa utility bond
rate as measured over the period October 1 through September 30. If
there is a positive or negative change of more than 100 basis
points, the return on equity is adjusted by one-half of the
difference. For the period from October 1, 2021 through September
30, 2022, the Moody’s rate increased by 103 basis points from the
benchmark, which triggers the WCCM adjustment. GSWC recognized
revenues for the first quarter of 2023 and all of 2022 based on the
previously authorized return on equity of 8.9% pending a final
decision in the cost of capital proceeding.
Dividends
On May 8, 2023, AWR’s Board of Directors approved a second
quarter dividend of $0.3975 per share on AWR’s Common Shares.
Dividends on the Common Shares will be paid on June 1, 2023 to
shareholders of record at the close of business on May 19, 2023.
AWR has paid common dividends every year since 1931, and has
increased the dividends received by shareholders each calendar year
for 68 consecutive years, which places it in an exclusive group of
companies on the New York Stock Exchange that have achieved that
result. The company has achieved a 9.2% compound annual growth rate
(“CAGR”) in its calendar year dividend payments for 2012 – 2022.
AWR's current policy is to achieve a CAGR in the dividend of more
than 7% over the long-term.
Non-GAAP Financial Measures
This press release includes a discussion on AWR’s operations in
terms of diluted earnings per share by business segment, which is
each business segment’s earnings divided by the company’s weighted
average number of diluted common shares. Furthermore, the gains and
losses generated on the investments held to fund one of the
company's retirement plans during the three months ended March 31,
2023 and 2022 have been excluded when communicating the results to
help facilitate comparisons of the company’s performance from
period to period. Also, the impact of retroactive rates related to
the full year 2022 recorded in the three months ended March 31,
2023 resulting from the proposed decision on the water general rate
case has been excluded when communicating AWR’s consolidated and
water segment’s results for the three months ended March 31, 2023
and 2022 to help facilitate comparisons of AWR’s performance from
period to period. Diluted earnings per share by business segment
and adjusted diluted earnings per share constitute “non-GAAP
financial measures” under the Securities and Exchange Commission
rules, which supplement our GAAP disclosures but should not be
considered as an alternative to the respective GAAP measures.
Furthermore, the non-GAAP financial measures may not be comparable
to similarly titled non-GAAP financial measures of other
registrants. All of these measures are derived from consolidated
financial information of the Registrant, but are not presented in
our financial statements that are prepared in accordance with
GAAP.
The company uses earnings per share by business segment as an
important measure in evaluating its operating results and believes
this measure is a useful internal benchmark in evaluating the
performance of its operating segments. The company reviews this
measurement regularly and compares it to historical periods and to
the operating budget. The company has provided the computations and
reconciliations of diluted earnings per share from the measure of
operating income by business segment to AWR’s consolidated fully
diluted earnings per share in this press release.
Forward-Looking Statements
Certain matters discussed in this press release with regard to
the company’s expectations may be forward-looking statements that
involve risks and uncertainties. The assumptions and risk factors
that could cause actual results to differ materially include those
described in the company’s most recent Form 10-Q and Form 10-K
filed with the Securities and Exchange Commission.
Conference Call
Robert Sprowls, president and chief executive officer, and Eva
Tang, senior vice president and chief financial officer, will host
a conference call to discuss these results at 2:00 p.m. Eastern
Time (11:00 a.m. Pacific Time) on Thursday, May 11. There will be a
question and answer session as part of the call. Interested parties
can listen to the live conference call and view accompanying slides
on the internet at www.aswater.com. The call will be archived on
the website and available for replay beginning May 11, 2023 at 5:00
p.m. Eastern Time (2:00 p.m. Pacific Time) through May 18,
2023.
About American States Water Company
American States Water Company 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
263,400 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 11 military bases throughout
the country under 50-year privatization contracts with the U.S.
government.
American States Water
Company
Consolidated
Comparative Condensed Balance
Sheets (Unaudited)
(in thousands)
March 31, 2023
December 31, 2022
Assets
Net Property, Plant and Equipment
$
1,780,461
$
1,753,766
Goodwill
1,116
1,116
Other Property and Investments
38,408
36,907
Current Assets
139,690
151,294
Other Assets
100,697
91,291
Total Assets
$
2,060,372
$
2,034,374
Capitalization and Liabilities
Capitalization
$
1,307,279
$
1,156,096
Current Liabilities
307,690
396,522
Other Credits
445,403
481,756
Total Capitalization and
Liabilities
$
2,060,372
$
2,034,374
Condensed Statements of
Income
Three Months Ended
March 31,
(in thousands,
except per share amounts)
2023
2022
(Unaudited)
Operating Revenues
Water
$
112,712
$
73,906
Electric
12,904
11,892
Contracted services
35,807
22,772
Total operating revenues
161,423
108,570
Operating Expenses
Water purchased
14,304
17,848
Power purchased for pumping
2,354
2,374
Groundwater production assessment
3,833
4,211
Power purchased for resale
4,986
5,166
Supply cost balancing accounts
11,566
(6,343
)
Other operation
10,116
8,667
Administrative and general
23,547
22,972
Depreciation and amortization
11,203
10,114
Maintenance
3,150
3,140
Property and other taxes
6,295
5,853
ASUS construction
18,904
10,203
Total operating expenses
110,258
84,205
Operating income
51,165
24,365
Other Income and Expenses
Interest expense
(9,481
)
(5,606
)
Interest income
1,864
283
Other, net
1,611
(419
)
Total other income and expenses,
net
(6,006
)
(5,742
)
Income Before Income Tax
Expense
45,159
18,623
Income tax expense
10,752
4,461
Net Income
$
34,407
$
14,162
Weighted average shares outstanding
36,968
36,944
Basic earnings per Common Share
$
0.93
$
0.38
Weighted average diluted shares
37,047
37,019
Fully diluted earnings per Common
Share
$
0.93
$
0.38
Dividends paid per Common Share
$
0.3975
$
0.365
Computation and Reconciliation of Non-GAAP Financial Measure
(Unaudited)
Below are the computation and reconciliation of diluted earnings
per share from the measure of operating income by business segment
to AWR’s consolidated fully diluted earnings per share for the
three months ended March 31, 2023 and 2022.
Water
Electric
Contracted Services
AWR (Parent)
Consolidated (GAAP)
In 000's except per
share amounts
Q1 2023
Q1 2022
Q1 2023
Q1 2022
Q1 2023
Q1 2022
Q1 2023
Q1 2022
Q1 2023
Q1 2022
Operating income (loss)
$
40,239
$
16,999
$
3,631
$
3,598
$
7,296
$
3,770
$
(1
)
$
(2
)
$
51,165
$
24,365
Other (income) and expense
3,866
5,743
560
(30
)
257
(171
)
1,323
200
6,006
5,742
Income tax expense (benefit)
8,910
2,689
701
952
1,685
944
(544
)
(124
)
10,752
4,461
Net income (loss)
$
27,463
$
8,567
$
2,370
$
2,676
$
5,354
$
2,997
$
(780
)
$
(78
)
$
34,407
$
14,162
Weighted Average Number of Diluted
Shares
37,047
37,019
37,047
37,019
37,047
37,019
37,047
37,019
37,047
37,019
Diluted earnings per share
$
0.74
$
0.23
$
0.06
$
0.07
$
0.15
$
0.08
$
(0.02
)
$
—
$
0.93
$
0.38
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230508005803/en/
Eva G. Tang Senior Vice President-Finance, Chief Financial
Officer, Corporate Secretary and Treasurer Telephone: (909)
394-3600, ext. 707
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