10-Q: American States Water Company and Golden State Water Company Report Third Quarter 2024 Results

American States Water Company and Golden State Water Company jointly released their third quarter results for 2024, showing a mixed financial performance across their segments.

Summary

• American States Water Company (AWR) and Golden State Water Company (GSWC) have released their combined report for the third quarter of 2024.
• AWR's consolidated diluted earnings per share were $0.95, compared to $0.85 in the same period of 2023.
• The water segment saw an increase in earnings per share to $0.84, up from $0.72 in the prior year, driven by rate increases and investment gains.
• The electric segment experienced a decrease in earnings per share to $0.02, down from $0.04 in the same period of 2023, due to increased interest expenses.
• The contracted services segment's earnings per share remained relatively stable at $0.11, compared to $0.12 in the prior year.
• For the nine months ended September 30, 2024, AWR's consolidated diluted earnings per share were $2.42, compared to $2.82 in the same period of 2023.
• The water segment's earnings per share for the nine months were $1.99, down from $2.36 in the prior year, impacted by retroactive rate adjustments in 2023.
• The electric segment's earnings per share for the nine months were $0.07, down from $0.14 in the prior year, due to increased operating and interest costs.
• The contracted services segment's earnings per share for the nine months increased to $0.44, up from $0.38 in the prior year, due to increased management fee revenue.
• AWR sold 791,097 common shares through its at-the-market (ATM) offering program, raising $60.0 million, net of commissions, during the first nine months of 2024.
• GSWC completed the issuance of $65.0 million in unsecured private placement notes with a 5.50% coupon rate, maturing in June 2027.
• BVES received approval to issue up to $120 million of new debt and equity securities and issued 11 common shares to AWR for $22.0 million.

Sentiment

Score: 5

Explanation: The document presents a mixed picture with some positive developments like increased water segment earnings in Q3 and successful debt issuances, but also negative trends such as decreased consolidated earnings for the nine months and delays in regulatory approvals. The overall sentiment is neutral to slightly negative.

Positives

• The water segment saw a significant increase in earnings per share in Q3 2024, driven by rate increases and investment gains.
• GSWC successfully issued $65.0 million in private placement notes, strengthening its financial position.
• BVES received approval to issue up to $120 million in new debt and equity securities, providing financial flexibility.
• AWR raised $60.0 million through its ATM offering program, enhancing its capital resources.
• The contracted services segment showed a positive increase in earnings per share for the nine months ended September 30, 2024.
• GSWC has an aggregated net regulatory asset of $44.1 million, which will be recovered through future rates.
• BVES has approximately $20.9 million in wildfire mitigation and other fire prevention related costs recorded as a regulatory asset for future recovery.

Negatives

• The electric segment experienced a decrease in earnings per share in Q3 2024 due to increased interest expenses.
• AWR's consolidated diluted earnings per share for the nine months ended September 30, 2024 decreased compared to the same period in 2023.
• The water segment's earnings per share for the nine months decreased due to retroactive rate adjustments in 2023.
• The electric segment's earnings per share for the nine months decreased due to increased operating and interest costs.
• AWR's parent company experienced a diluted loss for the nine months ended September 30, 2024.

Risks

• The company faces risks related to regulatory approvals, including delays in general rate case decisions.
• There are risks associated with the recovery of costs through regulated rates, including increased costs related to 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 faces competition in bidding on utility service contracts on military bases.
• The company is exposed to the impact of climate change and extreme weather events, which could affect operations.
• There are risks related to cybersecurity incidents and information technology outages.
• The company is subject to risks related to changes in interest rates and its ability to borrow funds on reasonable terms.
• The company is exposed to the impact of inflation and supply chain disruptions on operational costs.
• The company is subject to risks related to the adequacy of water supplies due to weather fluctuations and climate change.
• The company is subject to risks related to the geographic concentration of its operations in California.

Future Outlook

The company expects to continue seeking recovery of operating and supply costs and receive reasonable returns on invested capital. Capital expenditures are expected to remain at substantially higher levels than depreciation expense. The company anticipates needing to access external financing more often. The company expects the contracted services segment to contribute $0.54 to $0.57 per share for the full 2024 year.

Management Comments

• Management believes that rate recovery, proper insurance coverage and reserves are in place to insure against, among other things, property, general liability, employment, and workers compensation claims incurred in the ordinary course of business.
• Management believes that the regulatory assets are supported by regulatory rules and decisions, past practices, and other facts or circumstances that indicate recovery is probable.
• Management believes that the estimated additional costs for environmental clean-up and remediation will continue to be approved in rate base by the CPUC as approved historically.

Industry Context

The announcement reflects the ongoing challenges and opportunities faced by regulated utilities in California, including the need to balance infrastructure investments with customer rate increases, manage climate change risks, and comply with evolving environmental regulations. The company's contracted services segment also highlights the growing trend of private companies providing utility services on military bases.

Comparison to Industry Standards

• The company's performance is comparable to other regulated utilities in California, which are also facing challenges related to increasing costs and regulatory scrutiny.
• The company's capital expenditure plans are in line with industry trends, as utilities are investing heavily in infrastructure upgrades and renewable energy projects.
• The company's reliance on regulatory mechanisms such as WRAM and MCBA is common among California water utilities.
• The company's contracted services segment is a unique aspect of its business model, which differentiates it from other pure-play utilities.
• The company's dividend policy of increasing dividends annually for 70 consecutive years places it in an exclusive group of companies on the New York Stock Exchange.

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 will be impacted by the company's financial performance and dividend payments.
• Employees will be impacted by changes in labor costs and benefits.
• Customers will be impacted by changes in rates and service quality.
• Suppliers will be impacted by the company's purchasing decisions.
• Creditors will be impacted by the company's debt levels and ability to repay loans.

Next Steps

• GSWC will continue to pursue approval of its general rate case application for 2025-2027.
• GSWC will continue to seek approval for its financing application for the issuance and sale of additional long-term debt and equity securities.
• BVES will continue to pursue approval of its general rate case application for 2023-2026.
• BVES will work to secure long-term financing to pay off the remaining balance of its revolving credit arrangement by May 1, 2025.
• The company will continue to monitor and address the impact of climate change and environmental regulations.
• The company will continue to monitor and address cybersecurity threats.

Key Dates

Keywords

water utility, electric utility, contracted services, regulatory assets, rate case, capital expenditures, earnings per share, debt financing, military bases, wildfire mitigation, water quality, cybersecurity