10-Q: American States Water Company and Golden State Water Company Report Mixed Results in Q2 2024

American States Water Company and Golden State Water Company's second quarter results show a decrease in earnings per share compared to the same period last year, impacted by various factors including regulatory adjustments and increased operating costs.

Summary

• American States Water Company (AWR) and its subsidiary Golden State Water Company (GSWC) have released their second quarter 2024 results, showing a decrease in consolidated diluted earnings per share to $0.85, compared to $1.04 in the same period last year.
• The water segment's diluted earnings per share decreased to $0.67 from $0.91 year-over-year, impacted by the reversal of previously recorded revenues and increased operating expenses.
• The electric segment saw a decrease in diluted earnings per share to $0.01 from $0.03, due to the absence of new rates and increased operating costs.
• The contracted services segment experienced an increase in diluted earnings per share to $0.19 from $0.12, driven by higher management fees and construction activity.
• AWR's consolidated operating revenues decreased to $155.3 million from $157.4 million year-over-year, while operating expenses increased to $103.6 million from $98.5 million.
• GSWC's water revenues decreased to $110.4 million from $116.9 million, and operating expenses increased to $69.9 million from $66.4 million.
• The company sold 455,648 common shares through an at-the-market offering program, raising $33 million net of commissions.
• GSWC issued $65 million in unsecured private placement notes with a 5.50% coupon rate, maturing in 2027.
• The company is awaiting decisions on general rate case applications for both its water and electric segments, which will impact future revenues.

Sentiment

Score: 4

Explanation: The document presents mixed results with a clear downturn in earnings, particularly in the water segment. While there are positive aspects such as new financing and contract wins, the overall tone is cautious due to regulatory uncertainties and increased costs. The sentiment is therefore slightly negative.

Positives

• The contracted services segment showed improved performance with increased earnings per share.
• GSWC successfully issued $65 million in private placement notes, strengthening its financial position.
• AWR raised $33 million through an at-the-market offering program, providing additional capital.
• The company is actively pursuing new contracts and projects, including the acquisition of San Juan Oaks Mutual Water Company.
• The company is actively working with the CPUC to resolve pending rate cases and financing applications.

Negatives

• Consolidated diluted earnings per share decreased by $0.19 year-over-year.
• The water segment experienced a significant decrease in earnings per share, impacted by regulatory adjustments and increased operating costs.
• The electric segment's earnings per share also decreased due to the absence of new rates and increased operating costs.
• Overall operating revenues decreased while operating expenses increased.
• The company is facing delays in receiving decisions on pending general rate case applications.

Risks

• Delays in receiving approvals for general rate cases from the CPUC could negatively impact future revenues and earnings.
• The company faces risks related to the recovery of costs through regulated rates, including increased costs associated with climate change and water quality regulations.
• The company is subject to potential government audits and investigations, which could result in fines and penalties.
• The company is exposed to risks related to water supply, including droughts and groundwater contamination.
• The company is subject to cybersecurity risks that could disrupt operations and critical information technology systems.
• The company is exposed to risks related to changes in interest rates and its ability to borrow funds on reasonable terms.
• The company is exposed to risks related to inflation and supply chain disruptions on its operational costs and costs of capital.

Future Outlook

The company anticipates continued capital expenditures and is seeking rate increases from the CPUC to recover costs. The company also expects to continue to pursue new contracts and projects, including the acquisition of San Juan Oaks Mutual Water Company. The company is awaiting decisions on general rate case applications for both its water and electric segments, which will impact future revenues.

Industry Context

The report reflects the challenges faced by regulated utilities in California, including the need to balance infrastructure investments with customer rate increases, and the impact of regulatory decisions on revenue and earnings. The company is also navigating the complexities of climate change, water quality regulations, and cybersecurity threats, which are common issues in the utility sector.

Comparison to Industry Standards

• The decrease in earnings per share is a concern, as many utilities aim for stable or growing earnings. However, the company's continued investment in infrastructure is consistent with industry trends.
• The company's reliance on regulatory approvals for rate increases is typical for regulated utilities, but the delays in receiving decisions are a challenge.
• The company's efforts to address climate change and water quality issues are in line with industry best practices, but the costs associated with these efforts are significant.
• The company's use of an at-the-market offering program and private placement notes for financing is a common practice in the utility sector.
• The company's dividend policy of increasing dividends annually for 70 consecutive years is a strong positive compared to industry standards.

Related Party Transactions

• GSWC allocates certain corporate office administrative and general costs to its affiliates, BVES and ASUS.
• AWR borrows and provides funds to ASUS in support of its operations.

Stakeholder Impact

• Shareholders are impacted by the decrease in earnings per share and the need for additional capital raises.
• Customers may face increased rates to cover the costs of infrastructure investments and regulatory compliance.
• Employees may be affected by changes in operations and potential cost-cutting measures.
• Suppliers and creditors may be impacted by the company's financial performance and ability to meet its obligations.

Next Steps

• The company will continue to pursue decisions on pending general rate case applications with the CPUC.
• The company will continue to monitor and address water supply and quality issues.
• The company will continue to invest in infrastructure and cybersecurity.
• The company will continue to seek new contracts and projects.
• The company will continue to monitor and address the impact of climate change on its operations.

Key Dates

Keywords

water utility, electric utility, contracted services, rate case, earnings per share, revenue, operating expenses, capital expenditures, regulatory assets, debt financing, at-the-market offering, private placement notes, CPUC, PFAS, wildfire mitigation