AWR-2014.03.31-10Q
Table of Contents

 

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 March 31, 2014
or
¨
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 ¨
Golden State Water Company
 
Yes x No ¨
 
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).


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

 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 x
 
Accelerated filer ¨
 
Non-accelerated filer ¨
 
Smaller reporting company ¨
Golden State Water Company
Large accelerated filer ¨
 
Accelerated filer ¨
 
Non-accelerated filer x
 
Smaller reporting company ¨

 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 ¨ Nox
Golden State Water Company
 
Yes ¨ Nox
As of May 5, 2014, the number of Common Shares outstanding, of American States Water Company was 38,778,608 shares. As of May 5, 2014, all of the 146 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.
 



AMERICAN STATES WATER COMPANY
and
GOLDEN STATE WATER COMPANY
FORM 10-Q
 
INDEX


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents

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”) 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 of 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 herein contain forward-looking statements intended to qualify for the “safe harbor” from liability established by the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are based on current estimates, expectations and projections about future events and assumptions regarding these events and include statements regarding management’s goals, beliefs, plans or current expectations, taking into account the information currently available to management.  Forward-looking statements are not statements of historical facts.  For example, when we use words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “may” and other words that convey uncertainty of future events or outcomes, we are making forward-looking statements.  We are not able to predict all the factors that may affect future results.  We caution you that any forward-looking statements made by us are not guarantees of future performance and those actual results may differ materially from those in our forward-looking statements.  Some of the factors that could cause future results to differ materially from those expressed or implied by our forward-looking statements or from historical results include, but are not limited to: 

The outcome of pending and future regulatory, legislative or other proceedings, investigations or audits, including decisions in our general rate cases and the results of independent audits of our construction contracting procurement practices or other independent audits of our costs
 
Changes in the policies and procedures of the California Public Utilities Commission ("CPUC")
 
Timeliness of CPUC action on rates

Availability of water supplies, which may be adversely affected by the California drought, changes in weather patterns in the West, contamination and court decisions or other governmental actions restricting the use of water from the Colorado River, the California State Water Project, and/or pumping of groundwater

Our ability to efficiently manage capital expenditures and operating and maintenance expenses within CPUC authorized levels and timely recovery of our costs through rates

The impact of increasing opposition to GSWC rate increases on our ability to recover our costs through rates and on the size of our customer base


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Our ability to forecast the costs of maintaining GSWC’s aging water and electric infrastructure

Our ability to recover increases in permitting costs and in costs associated with negotiating and complying with the terms of our franchise agreements with cities and counties and other demands made upon us by the cities and counties in which GSWC operates

Changes in accounting valuations and estimates, including changes resulting from changes in our assessment of anticipated recovery of regulatory assets, liabilities and revenues subject to refund or regulatory disallowances

Changes in environmental laws and water and wastewater quality requirements and increases in costs associated with complying with these laws and requirements

Our ability to obtain adequate, reliable and cost-effective supplies of chemicals, electricity, fuel, water and other raw materials that are needed for our water and wastewater operations
 
Our ability to recover the costs associated with the contamination of GSWC’s groundwater supplies from parties responsible for the contamination or through the ratemaking process, and the time and expense incurred by us in obtaining recovery of such costs
 
Adequacy of our electric division's power supplies and the extent to which we can manage and respond to the volatility of electric and natural gas prices
 
Our ability to comply with the CPUC’s renewable energy procurement requirements
 
Changes in GSWC long-term customer demand due to changes in customer usage patterns as a result of conservation efforts, regulatory changes affecting demand such as new landscaping or irrigation requirements, recycling of water by the customer or purchase of recycled water supplied by other parties, unanticipated population growth or decline, changes in climate conditions, general economic and financial market conditions and cost increases
 
Changes in accounting treatment for regulated utilities

Changes in estimates used in ASUS’s revenue recognition under the percentage of completion method of accounting for construction activities at our contracted services business
 
Termination, in whole or in part, of our contracts to provide water and/or wastewater services at military bases by one or more of the Military Utility Privatization Subsidiaries for the convenience of the U.S. government or for default

Failure of the U.S. government to make timely payments to ASUS for water and/or wastewater services at military bases as a result of fiscal uncertainties over the funding of the U.S. government
 
Delays in obtaining redetermination of prices or equitable adjustments to our prices on one or more of our contracts to provide water and/or wastewater services at military bases

Disallowance of costs on any of our contracts to provide water and/or wastewater services at military bases as a result of audits, cost reviews or investigations by contracting agencies
 
Inaccurate assumptions used in preparing bids in our contracted services business

Failure of the collection or sewage systems that we operate on military bases resulting in untreated wastewater or contaminants spilling into nearby properties, streams or rivers

Failure to comply with the terms of our military privatization contracts

Failure of any of our subcontractors to perform services for us in accordance with the terms of our military privatization contracts
 
Implementation, maintenance and upgrading of our information technology systems
 
General economic conditions which may impact our ability to recover infrastructure investments and operating costs from customers

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Explosions, fires, accidents, mechanical breakdowns, the disruption of information technology and telecommunication systems, human error and similar events that may occur while operating and maintaining water and electric systems in California or operating and maintaining water and wastewater systems on military bases under varying geographic conditions
 
The impact of storms, earthquakes, floods, mudslides, drought, wildfires, disease and similar natural disasters, or acts of terrorism or vandalism, that affect customer demand or that damage or disrupt facilities, operations or information technology systems owned by us, our customers or third parties on whom we rely
 
Potential costs, lost revenues, or other consequences resulting from misappropriation of assets or sensitive information, corruption of data, or operational disruption in connection with a cyber-attack or other cyber incident
 
Restrictive covenants in our debt instruments or changes to our credit ratings on current or future debt that may increase our financing costs or affect our ability to borrow or make payments on our debt

Our ability to access capital markets and other sources of credit in a timely manner on acceptable terms
 
Please consider our forward-looking statements in light of these risks (which are more fully disclosed in our 2013 Annual Report on Form 10-K) as you read this Form 10-Q.  We qualify all of our forward-looking statements by these cautionary statements.

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AMERICAN STATES WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)



(in thousands)
 
March 31,
2014
 
December 31, 2013
Property, Plant and Equipment
 
 

 
 

Regulated utility plant, at cost
 
$
1,449,437

 
$
1,443,623

Non-utility property, at cost
 
10,254

 
9,519

Total
 
1,459,691

 
1,453,142

Less - Accumulated depreciation
 
(475,762
)
 
(471,665
)
Net property, plant and equipment
 
983,929

 
981,477

 
 
 
 
 
Other Property and Investments
 
 

 
 

Goodwill
 
1,116

 
1,116

Other property and investments
 
15,828

 
15,806

Total other property and investments
 
16,944

 
16,922

 
 
 
 
 
Current Assets
 
 

 
 

Cash and cash equivalents
 
74,936

 
38,226

Accounts receivable — customers (less allowance for doubtful accounts of $777 in 2014 and $755 in 2013)
 
19,902

 
23,829

Unbilled revenue
 
16,038

 
18,552

Receivable from the U.S. government
 
7,717

 
7,106

Other accounts receivable (less allowance for doubtful accounts of $348 in 2014 and $432 in 2013)
 
2,670

 
4,914

Income taxes receivable
 
3,718

 
9,214

Materials and supplies, at average cost
 
4,319

 
4,558

Regulatory assets — current
 
22,905

 
27,676

Prepayments and other current assets
 
4,876

 
2,481

Costs and estimated earnings in excess of billings on uncompleted contracts
 
46,623

 
45,508

Deferred income taxes — current
 
9,538

 
9,553

Total current assets
 
213,242

 
191,617

 
 
 
 
 
Regulatory and Other Assets
 
 

 
 

Regulatory assets
 
96,745

 
95,005

Costs and estimated earnings in excess of billings on uncompleted contracts
 
6,350

 
7,823

Receivable from the U.S. government
 
2,956

 
3,104

Other
 
13,605

 
14,235

Total regulatory and other assets
 
119,656

 
120,167

 
 
 
 
 
Total Assets
 
$
1,333,771

 
$
1,310,183

 
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)
 
March 31,
2014
 
December 31,
2013
Capitalization
 
 

 
 

Common shares, no par value
 
$
254,217

 
$
253,961

Earnings reinvested in the business
 
241,582

 
238,443

Total common shareholders’ equity
 
495,799

 
492,404

Long-term debt
 
326,010

 
326,079

Total capitalization
 
821,809

 
818,483

 
 
 
 
 
Current Liabilities
 
 

 
 

Notes payable to bank
 
24,000

 

Long-term debt — current
 
6,291

 
6,298

Accounts payable
 
42,593

 
49,787

Income taxes payable
 
655

 
507

Accrued other taxes
 
7,102

 
9,802

Accrued employee expenses
 
12,655

 
10,801

Accrued interest
 
6,248

 
3,897

Billings in excess of costs and estimated earnings on uncompleted contracts
 
6,496

 
6,852

Other
 
13,036

 
12,962

Total current liabilities
 
119,076

 
100,906

 
 
 
 
 
Other Credits
 
 

 
 

Advances for construction
 
69,272

 
69,332

Contributions in aid of construction - net
 
115,166

 
114,916

Deferred income taxes
 
159,846

 
159,506

Unamortized investment tax credits
 
1,768

 
1,790

Accrued pension and other postretirement benefits
 
40,317

 
38,726

Other
 
6,517

 
6,524

Total other credits
 
392,886

 
390,794

 
 
 
 
 
Commitments and Contingencies (Note 7)
 

 

 
 
 
 
 
Total Capitalization and Liabilities
 
$
1,333,771

 
$
1,310,183

 
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 MARCH 31, 2014 AND 2013
(Unaudited)

 
 
Three Months Ended 
 March 31,
(in thousands, except per share amounts)
 
2014
 
2013
Operating Revenues
 
 

 
 

Water
 
$
70,757

 
$
69,233

Electric
 
10,456

 
10,734

Contracted services
 
20,732

 
30,585

Total operating revenues
 
101,945

 
110,552

 
 
 
 
 
Operating Expenses
 
 

 
 

Water purchased
 
11,224

 
10,732

Power purchased for pumping
 
1,964

 
1,639

Groundwater production assessment
 
3,540

 
3,187

Power purchased for resale
 
2,699

 
3,680

Supply cost balancing accounts
 
818

 
1,371

Other operation
 
6,947

 
5,454

Administrative and general
 
20,184

 
17,907

Depreciation and amortization
 
10,530

 
9,816

Maintenance
 
3,489

 
3,934

Property and other taxes
 
4,325

 
4,148

ASUS construction
 
13,457

 
20,733

Net gain on sale of property
 

 
(12
)
Total operating expenses
 
79,177

 
82,589

 
 
 
 
 
Operating Income
 
22,768

 
27,963

 
 
 
 
 
Other Income and Expenses
 
 

 
 

Interest expense
 
(5,627
)
 
(5,778
)
Interest income
 
112

 
187

Other, net
 
125

 
342

Total other income and expenses
 
(5,390
)
 
(5,249
)
 
 
 
 
 
Income from operations before income tax expense
 
17,378

 
22,714

 
 
 
 
 
Income tax expense
 
6,357

 
9,249

 
 
 
 
 
Net Income
 
$
11,021

 
$
13,465

 
 
 
 
 
Weighted Average Number of Common Shares Outstanding
 
38,747

 
38,529

Basic Earnings Per Common Share
 
$
0.28

 
$
0.35

 
 
 
 
 
Weighted Average Number of Diluted Shares
 
38,944

 
38,772

Fully Diluted Earnings Per Common Share
 
$
0.28

 
$
0.35

 
 
 
 
 
Dividends Paid Per Common Share
 
$
0.2025

 
$
0.1775


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 THREE MONTHS ENDED MARCH 31, 2014 AND 2013
(Unaudited)

 
 
Three Months Ended 
 March 31,
(in thousands)
 
2014
 
2013
Cash Flows From Operating Activities:
 
 

 
 

Net income
 
$
11,021

 
$
13,465

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Depreciation and amortization
 
10,802

 
10,066

Provision for doubtful accounts
 
326

 
188

Deferred income taxes and investment tax credits
 
(415
)
 
270

Stock-based compensation expense
 
805

 
661

Other — net
 
165

 
(172
)
Changes in assets and liabilities:
 
 

 
 

Accounts receivable — customers
 
3,628

 
1,998

Unbilled revenue
 
2,514

 
1,625

Other accounts receivable
 
2,735

 
1,585

Receivable from the U.S. government
 
(463
)
 
8,251

Materials and supplies
 
239

 
(1,862
)
Prepayments and other current assets
 
(2,395
)
 
140

Regulatory assets — supply cost balancing accounts
 
818

 
1,371

Costs and estimated earnings in excess of billings on uncompleted contracts
 
358

 
(5,080
)
Other assets (including other regulatory assets)
 
2,872

 
(13,147
)
Accounts payable
 
(630
)
 
2,229

Income taxes receivable/payable
 
5,644

 
15,111

Billings in excess of costs and estimated earnings on uncompleted contracts
 
(356
)
 
(9,870
)
Accrued pension and other postretirement benefits
 
1,692

 
3,021

Other liabilities
 
1,572

 
1,155

Net cash provided
 
40,932

 
31,005

 
 
 
 
 
Cash Flows From Investing Activities:
 
 

 
 

Construction expenditures
 
(20,531
)
 
(18,425
)
Other investments
 
(116
)
 

Proceed from sale of property
 

 
12

Net cash used
 
(20,647
)
 
(18,413
)
 
 
 
 
 
Cash Flows From Financing Activities:
 
 

 
 

Proceeds from issuance of common shares and stock option exercises
 
201

 
625

Receipt of advances for and contributions in aid of construction
 
1,516

 
4,151

Refunds on advances for construction
 
(452
)
 
(430
)
Repayments of long-term debt
 
(76
)
 
(22
)
Increase in notes payable to bank
 
24,000

 

Dividends paid
 
(7,846
)
 
(6,838
)
Other — net
 
(918
)
 
(770
)
Net cash provided (used)
 
16,425

 
(3,284
)
Net increase in cash and cash equivalents
 
36,710

 
9,308

Cash and cash equivalents, beginning of period
 
38,226

 
23,486

Cash and cash equivalents, end of period
 
$
74,936

 
$
32,794



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)
 
March 31,
2014
 
December 31,
2013
Utility Plant
 
 

 
 

Utility plant, at cost
 
$
1,449,437

 
$
1,443,623

Less - Accumulated depreciation
 
(470,140
)
 
(466,329
)
Net utility plant
 
979,297

 
977,294

 
 
 
 
 
Other Property and Investments
 
13,678

 
13,653

 
 
 
 
 
Current Assets
 
 

 
 

Cash and cash equivalents
 
43,567

 
37,875

Accounts receivable-customers (less allowance for doubtful accounts of $777 in 2014 and $755 in 2013)
 
19,902

 
23,829

Unbilled revenue
 
16,038

 
18,552

Inter-company receivable
 
531

 
718

Other accounts receivable (less allowance for doubtful accounts of $276 in 2014 and $359 in 2013)
 
2,000

 
3,570

Income taxes receivable from Parent
 
4,700

 
9,704

Note receivable from Parent
 

 
500

Materials and supplies, at average cost
 
2,228

 
1,859

Regulatory assets — current
 
22,905

 
27,676

Prepayments and other current assets
 
3,967

 
2,218

Deferred income taxes — current
 
8,621

 
8,573

Total current assets
 
124,459

 
135,074

 
 
 
 
 
Regulatory and Other Assets
 
 

 
 

Regulatory assets
 
96,745

 
95,005

Other accounts receivable
 
395

 
913

Other
 
11,346

 
11,442

Total regulatory and other assets
 
108,486

 
107,360

 
 
 
 
 
Total Assets
 
$
1,225,920

 
$
1,233,381

 
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)
 
March 31,
2014
 
December 31, 2013
Capitalization
 
 

 
 

Common shares, no par value
 
$
233,698

 
$
233,721

Earnings reinvested in the business
 
200,207

 
203,892

Total common shareholder’s equity
 
433,905

 
437,613

Long-term debt
 
326,010

 
326,079

Total capitalization
 
759,915

 
763,692

 
 
 
 
 
Current Liabilities
 
 

 
 

Long-term debt — current
 
6,291

 
6,298

Accounts payable
 
30,677

 
37,611

Accrued other taxes
 
6,540

 
9,299

Accrued employee expenses
 
11,012

 
9,536

Accrued interest
 
6,246

 
3,897

Other
 
12,891

 
12,880

Total current liabilities
 
73,657

 
79,521

 
 
 
 
 
Other Credits
 
 

 
 

Advances for construction
 
69,272

 
69,332

Contributions in aid of construction — net
 
115,166

 
114,916

Deferred income taxes
 
159,452

 
158,994

Unamortized investment tax credits
 
1,768

 
1,790

Accrued pension and other postretirement benefits
 
40,317

 
38,726

Other
 
6,373

 
6,410

Total other credits
 
392,348

 
390,168

 
 
 
 
 
Commitments and Contingencies (Note 7)
 

 

 
 
 
 
 
Total Capitalization and Liabilities
 
$
1,225,920

 
$
1,233,381

 
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 MARCH 31, 2014 AND 2013
(Unaudited)


 
 
Three Months Ended 
 March 31,
(in thousands)
 
2014
 
2013
Operating Revenues
 
 

 
 

Water
 
$
70,757

 
$
69,233

Electric
 
10,456

 
10,734

Total operating revenues
 
81,213

 
79,967

 
 
 
 
 
Operating Expenses
 
 

 
 

Water purchased
 
11,224

 
10,732

Power purchased for pumping
 
1,964

 
1,639

Groundwater production assessment
 
3,540

 
3,187

Power purchased for resale
 
2,699

 
3,680

Supply cost balancing accounts
 
818

 
1,371

Other operation
 
6,356

 
4,797

Administrative and general
 
16,985

 
14,234

Depreciation and amortization
 
10,240

 
9,522

Maintenance
 
3,061

 
3,493

Property and other taxes
 
3,896

 
3,716

Total operating expenses
 
60,783

 
56,371

 
 
 
 
 
Operating Income
 
20,430

 
23,596

 
 
 
 
 
Other Income and Expenses
 
 

 
 

Interest expense
 
(5,611
)
 
(5,748
)
Interest income
 
109

 
178

Other, net
 
124

 
342

Total other income and expenses
 
(5,378
)
 
(5,228
)
 
 
 
 
 
Income from operations before income tax expense
 
15,052

 
18,368

 
 
 
 
 
Income tax expense
 
5,705

 
7,663

 
 
 
 
 
Net Income
 
$
9,347

 
$
10,705

 
The accompanying notes are an integral part of these financial statements





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GOLDEN STATE WATER COMPANY
STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
(Unaudited)

 
 
 
Three Months Ended 
 March 31,
(in thousands)
 
2014
 
2013
Cash Flows From Operating Activities:
 
 

 
 

Net income
 
$
9,347

 
$
10,705

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Depreciation and amortization
 
10,512

 
9,772

Provision for doubtful accounts
 
326

 
188

Deferred income taxes and investment tax credits
 
(361
)
 
279

Stock-based compensation expense
 
564

 
400

Other — net
 
150

 
(159
)
Changes in assets and liabilities:
 
 

 
 

Accounts receivable — customers
 
3,628

 
1,998

Unbilled revenue
 
2,514

 
1,625

Other accounts receivable
 
2,061

 
2,441

Materials and supplies
 
(369
)
 
(80
)
Prepayments and other current assets
 
(1,749
)
 
544

Regulatory assets — supply cost balancing accounts
 
818

 
1,371

Other assets (including other regulatory assets)
 
2,873

 
(13,102
)
Accounts payable
 
(370
)
 
730

Inter-company receivable/payable
 
187

 
(2,822
)
Income taxes receivable/payable from/to Parent
 
5,004

 
13,654

Accrued pension and other postretirement benefits
 
1,692

 
3,021

Other liabilities
 
1,040

 
808

Net cash provided
 
37,867

 
31,373

 
 
 
 
 
Cash Flows From Investing Activities:
 
 

 
 

Construction expenditures
 
(19,796
)
 
(18,111
)
Note receivable from AWR parent
 
(8,300
)
 

Receipt of payment of note receivable from AWR parent
 
8,800

 

Other investments
 
(116
)
 

Net cash used
 
(19,412
)
 
(18,111
)
 
 
 
 
 
Cash Flows From Financing Activities:
 
 

 
 

Receipt of advances for and contributions in aid of construction
 
1,516

 
4,151

Refunds on advances for construction
 
(452
)
 
(430
)
Repayments of long-term debt
 
(76
)
 
(22
)
Dividends paid
 
(13,000
)
 
(6,800
)
Other — net
 
(751
)
 
(604
)
Net cash used
 
(12,763
)
 
(3,705
)
 
 
 
 
 
Net increase in cash and cash equivalents
 
5,692

 
9,557

Cash and cash equivalents, beginning of period
 
37,875

 
22,578

Cash and cash equivalents, end of period
 
$
43,567

 
$
32,135

 
The accompanying notes are an integral part of these financial statements

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


Note 1 — Summary of Significant Accounting Policies:
 
Nature of Operations: American States Water Company (“AWR”) is the parent company of Golden State Water Company (“GSWC”) 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”)).  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 257,000 customers. GSWC also distributes electricity in several San Bernardino County mountain communities in California serving approximately 24,000 customers through its Bear Valley Electric Service (“BVES”) division. Although Registrant has a diversified base of residential, industrial and other customers, revenues derived from commercial and residential water customers accounted for approximately 90% of total water revenues during the three months ended March 31, 2014 and 2013. The California Public Utilities Commission (“CPUC”) regulates GSWC’s water and electric businesses, including properties, rates, services, facilities and other matters, and transactions by GSWC with its affiliates.  AWR’s assets and operating income are primarily those of GSWC.
 
ASUS, through its wholly-owned subsidiaries, operates, maintains and performs construction activities (including renewal and replacement capital work) on water and/or wastewater systems at various United States military bases pursuant to 50-year firm fixed-price contracts. These contracts are subject to periodic price redeterminations and modifications for changes in circumstances and changes in laws and regulations.

There is no direct regulatory oversight by the CPUC over AWR or the operation, rates or services provided by ASUS or any of its wholly owned subsidiaries.
 
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.
 
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.
 
On May 20, 2013, AWR's Board of Directors approved a two-for-one stock split of the Company's common shares.  In September 2013, shareholders of record received one additional share for each AWR common share they owned.  This two-for-one stock split has been retroactively applied to these financial statements, resulting in an increase in the number of shares outstanding for all periods presented.

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”).  The December 31, 2013 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles ("GAAP"). 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, 2013 filed with the SEC.
 
GSWC's Related Party Transactions: In May 2013, AWR issued an interest bearing promissory note (the "Note") to GSWC for $20.0 million which expires on May 23, 2018. Under the terms of the Note, AWR may borrow from GSWC amounts up to $20.0 million for working capital purposes. AWR agrees to pay any unpaid principal amounts outstanding under the Note, plus accrued interest. As of March 31, 2014, AWR had no amounts outstanding to GSWC under this Note.


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GSWC and ASUS provide and receive various services to and from their parent, AWR, and among themselves. In addition, AWR has a $100.0 million syndicated credit facility. AWR borrows under this facility and provides funds to its subsidiaries, including GSWC, in support of their operations.  During the three months ended March 31, 2014, AWR borrowed $24 million under this credit facility, which AWR then provided to ASUS. The interest rate charged to GSWC and ASUS is sufficient to cover AWR’s interest cost under the credit facility. GSWC also allocates certain corporate office administrative and general costs to its affiliate, ASUS, using allocation factors approved by the CPUC.  Amounts owed to GSWC by its parent, AWR, or for allocated expenses are included in inter-company receivables as of March 31, 2014 and December 31, 2013.
 
Notes Payable to Banks: On May 23, 2013, AWR entered into a fourth amendment to its revolving credit agreement to, among other things, extend the expiration date of the syndicated credit facility to May 23, 2018, reduce the amount of interest and fees paid by the Company, and update certain representations and covenants in the credit agreement.  The aggregate amount that may be borrowed under this facility is unchanged at $100.0 million.  The Company may, under the terms of the fourth amendment, elect to increase the aggregate commitment by up to an additional $50.0 million. As of March 31, 2014, $24.0 million was outstanding under this credit facility.
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 $845,000 and $811,000 for the three months ended March 31, 2014 and 2013, 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 $149,000 and $162,000 during the three months ended March 31, 2014 and 2013, respectively.
 
Recently Issued Accounting Pronouncements: In July 2013 the Financial Accounting Standards Board issued updated accounting guidance on the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The update requires an entity to present in certain cases, an unrecognized tax benefit, or portion of an unrecognized tax benefit in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when settlement is available in this manner under the tax law. The updated guidance is effective for reporting periods beginning after December 15, 2013. The adoption of the guidance did not, and is not expected to, have a material impact on the Company’s consolidated results of operations or consolidated balance sheet.
 
Note 2 — Regulatory Matters:
 
In accordance with accounting principles for rate-regulated enterprises, Registrant records regulatory assets, which represent probable future recovery of costs from customers through the ratemaking process, and regulatory liabilities, which represent probable future refunds that are to be credited to customers through the ratemaking process. At March 31, 2014, Registrant had approximately $36.8 million of regulatory assets, net of regulatory liabilities not accruing carrying costs. Of this amount, $15.1 million relates to the underfunding of pension and other post-retirement obligations and $16.3 million relates to deferred income taxes representing accelerated tax benefits flowed through to customers, which will be included in rates concurrently with recognition of the associated future tax expense. The remainder relates to other items that do not provide for or incur carrying costs.
 

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Regulatory assets represent costs incurred by GSWC for which it has received or expects to receive rate recovery in the future. In determining the probability of costs being recognized in other periods, GSWC considers regulatory rules and decisions, past practices, and other facts or circumstances that would indicate if recovery is probable. If the CPUC determines that a portion of GSWC’s assets are not recoverable in customer rates, GSWC must determine if it has suffered an asset impairment that would require a write-down in the assets’ valuation. Regulatory assets, less regulatory liabilities, included in the consolidated balance sheets are as follows:
 
(dollars in thousands)
 
March 31,
2014
 
December 31,
2013
GSWC
 
 
 
 
Water Revenue Adjustment Mechanism, net of Modified Cost Balancing Account
 
$
18,077

 
$
16,345

Base Revenue Requirement Adjustment Mechanism
 
9,088

 
8,725

Costs deferred for future recovery on Aerojet case
 
14,561

 
14,763

Pensions and other post-retirement obligations (Note 6)
 
19,452

 
20,241

Flow-through taxes, net (Note 5)
 
16,938

 
16,189

Low income rate assistance balancing accounts
 
9,992

 
9,979

General rate case memorandum accounts
 
12,993

 
15,645

Other regulatory assets
 
22,124

 
25,086

Various refunds to customers
 
(3,575
)
 
(4,292
)
Total
 
$
119,650

 
$
122,681

 
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, 2013 filed with the SEC. The discussion below focuses on significant matters and developments since December 31, 2013.
 
Alternative-Revenue Programs:
GSWC records the difference between what it bills its water customers and that which is authorized by the CPUC using the Water Revenue Adjustment Mechanism (“WRAM”) and Modified Cost Balancing Account (“MCBA”) accounts approved by the CPUC.  GSWC has implemented surcharges to recover all of its WRAM, net of the MCBA balances, as of December 31, 2013.  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.  Based on CPUC guidelines, recovery periods relating to the majority of GSWC’s WRAM/MCBA balances range between 18 and 24 months.  For the three months ended March 31, 2014 and 2013, surcharges (net of surcredits) of approximately $1.8 million and $3.6 million, respectively, were billed to customers to recover previously incurred under-collections in the WRAM, net of MCBA accounts.  As of March 31, 2014, GSWC has a net aggregated regulatory asset of $18.1 million which is comprised of an $18.4 million under-collection in the WRAM accounts and $303,000 over-collection in the MCBA accounts.
 
For BVES, the CPUC approved the Base Revenue Requirement Adjustment Mechanism (“BRRAM”) which adjusts certain revenues to adopted levels.  Pending a final decision on the BVES general rate case, the 2013 and 2014 BRRAM balances have been recorded using 2012 adopted levels authorized by the CPUC. As of March 31, 2014, GSWC had a regulatory asset of $9.1 million under-collection in the BRRAM.
 
General Rate Case Memorandum Accounts:
The balance in the general rate case memorandum accounts represents the revenue differences between interim rates and final rates authorized by the CPUC due to delays in receiving decisions on various general rate case applications. As of March 31, 2014, there is an aggregate $13.0 million in the general rate case memorandum accounts, $8.9 million of which is for retroactive rate increases effective January 1, 2013 as a result of the final decision issued by the CPUC in May 2013 on GSWC’s water general rate case. Surcharges ranging from 12 to 24 months, with the majority being 12 months, were implemented during the third quarter of 2013 to recover the retroactive adopted revenues related to the May 2013 CPUC decision.
 



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Other Regulatory Matters:
 
CPUC Rehearing Matter:
In July 2011, the CPUC issued an order granting the rehearing of certain issues from the Region II, Region III and general office rate case approved in November 2010.  Among the issues in the rehearing was the La Serena plant improvement project included in rate base totaling approximately $3.5 million.  In March 2013, GSWC and the Office of Ratepayer Advocates ("ORA") reached a settlement agreement, subject to CPUC approval, to resolve all the issues in the rehearing.  In March 2013, GSWC filed for CPUC approval of the settlement agreement. The settlement agreement, if approved, will resolve all issues arising from the rehearing. As a result of the CPUC's decision in November 2010 and the settlement agreement reached in March 2013, GSWC recorded pretax charges during 2010 and 2012 totaling $2.6 million related to this matter, which includes the disallowance of a portion of the La Serena capital costs and the related revenues earned on those capital costs to be refunded to customers.
Procurement Audits:
In December 2011, the CPUC issued a final decision on its investigation of certain work orders and charges paid to a specific contractor used previously for numerous construction projects. As part of the CPUC decision, GSWC agreed to be subject to three separate independent audits of its procurement practices over a period of ten years from the date the settlement was approved by the CPUC.  The audits will cover GSWC’s procurement practices related to contracts with other contractors from 1994 forward and could result in disallowances of costs. The cost of the audits will be borne by shareholders and may not be recovered by GSWC in rates to customers. The first audit is currently underway. At this time, management cannot predict the outcome of these audits or determine an estimated loss or range of loss, if any, resulting from these audits.
 BVES General Rate Case:
In February 2012, BVES filed its general rate case (“GRC”) for new rates in years 2013 through 2016.  In August 2012, ORA issued its report on the GRC, which included recommendations for BVES to record a $2.0 million retroactive ratemaking proposal to increase BVES’ accumulated depreciation balance, and for one-half of deferred rate case costs to be borne by shareholders rather than entirely by customers, as has been authorized by the CPUC in prior rate cases.  As of March 31, 2014, GSWC had a $1.6 million regulatory asset representing deferred rate case costs for the current BVES general rate case, which the CPUC has historically allowed utilities to recover. At this time, GSWC does not believe a potential loss is probable.
 
BVES has been in settlement negotiations with all of the parties involved in this rate case. Those negotiations have resulted in an agreement in principle and BVES anticipates that a settlement agreement will be filed with the CPUC during the second quarter. A final decision from the CPUC is expected in late 2014.

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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 its stock-based awards that earn dividend equivalents on an equal basis with AWR’s Common Shares (the “Common Shares”).  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 used for calculating basic net income per share:
Basic:
 
 For The Three Months Ended 
 March 31,
 
(in thousands, except per share amounts)
 
2014
 
2013
 
Net income
 
$
11,021

 
13,465

 
Less: (a)
 
Distributed earnings to common shareholders
 
7,846

 
6,839

 
 
 
Distributed earnings to participating securities
 
43

 
45

 
Undistributed earnings
 
3,132

 
6,581

 
 
 
 
 
 
 
 
 
(b)
 
Undistributed earnings allocated to common shareholders
 
3,114

 
6,539

 
 
 
Undistributed earnings allocated to participating securities
 
18

 
42

 
 
 
 
 
 
 
 
 
Total income available to common shareholders, basic (a)+(b)
 
$
10,960

 
$
13,378

 
 
 
 
 
 
 
Weighted average Common Shares outstanding, basic
 
38,747

 
38,529

 
Basic earnings per Common Share
 
$
0.28

 
$
0.35

 
 
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 Stock Incentive Plans, the 2003 Non-Employee Directors Plan, and net income. At March 31, 2014 and 2013, there were 247,064 and 352,096 options outstanding, respectively, under these Plans. At March 31, 2014 and 2013, there were also 237,174 and 290,416 restricted stock units outstanding, respectively, under these plans and the 2013 Non-Employee Directors Plan.
 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 
 March 31,
(in thousands, except per share amounts)
 
2014
 
2013
Common shareholders earnings, basic
 
$
10,960

 
$
13,378

Undistributed earnings for dilutive stock options
 
18

 
42

Total common shareholders earnings, diluted
 
$
10,978

 
$
13,420

 
 
 
 
 
Weighted average Common Shares outstanding, basic
 
38,747

 
38,529

Stock-based compensation (1)
 
197

 
243

Weighted average Common Shares outstanding, diluted
 
38,944

 
38,772

 
 
 
 
 
Diluted earnings per Common Share
 
$
0.28

 
$
0.35

 
(1)       In applying the treasury stock method of reflecting the dilutive effect of outstanding stock-based compensation in the calculation of diluted EPS, 247,064 stock options and 352,096 restricted stock units at March 31, 2014 and 2013, respectively, were deemed to be outstanding in accordance with accounting guidance on earnings per share.  All of the 237,174 and 290,416 restricted stock units at March 31, 2014 and 2013, respectively, were included in the calculation of diluted EPS for the three months ended March 31, 2014 and 2013.

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No stock options outstanding at March 31, 2014 had an exercise price greater than the average market price of AWR’s Common Shares for the three months ended March 31, 2014. There were no stock options outstanding at March 31, 2014 or 2013 that were anti-dilutive.
 
During the three months ended March 31, 2014 and 2013, Registrant issued 57,249 and 92,586 Common Shares, for approximately $201,000 and $625,000, respectively, under Registrant’s common share Purchase and Dividend Reinvestment Plan (“DRP”), the 401(k) Plan, the 2000 and 2008 Stock Incentive Plans, and the 2003 and 2013 Non-Employee Directors Stock Plans. In addition, Registrant purchased 159,754 and 85,194 Common Shares on the open market during the three months ended March 31, 2014 and 2013, respectively, under Registrant’s 401(k) Plan and the DRP. The Common Shares purchased by Registrant were used to satisfy the requirements of these plans.
 
During the three months ended March 31, 2014 and 2013, AWR paid quarterly dividends of approximately $7.8 million, or $0.2025 per share, and $6.8 million, or $0.1775 per share, respectively.

On March 27, 2014, AWR's Board of Directors approved a stock repurchase program, authorizing the Company to repurchase up to 1.25 million shares of the Company's Common Shares from time to time through June 30, 2016. During the three months ended March 31, 2014, there were no repurchases made under this program.

Note 4 — 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. Investments held in a Rabbi Trust for the supplemental executive retirement plan are measured at fair value and totaled $6.9 million as of March 31, 2014. All equity investments in the Rabbi Trust are Level 1 investments in mutual funds. The investments held in the Rabbi Trust are included in Other Property and Investments on Registrant's balance sheets. As a result of the expiration in November 2013 of BVES's purchased power contracts, Registrant has no derivative instruments as of March 31, 2014 and December 31, 2013.

The accounting guidance for fair value measurements applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. Under the accounting guidance, GSWC makes fair value measurements that are 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).

The table below estimates the fair value of long-term debt held by GSWC. The fair values as of March 31, 2014 and December 31, 2013 have been determined using rates for similar financial instruments of the same duration utilizing level 2 methods and assumptions. The interest rates used for the March 31, 2014 valuation increased as compared to December 31, 2013, decreasing the fair value of long-term debt as of March 31, 2014. Changes in the assumptions will produce differing results.
 
 
March 31, 2014
 
December 31, 2013
(dollars in thousands)
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Financial liabilities:
 
 

 
 

 
 

 
 

Long-term debt—GSWC
 
$
332,301

 
$
415,895

 
$
332,377

 
$
412,590



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Note 5 — 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 decrease or increase occurring in another period. Giving effect to these temporary differences as flow-through adjustments typically results in a greater variance between the effective tax rate (“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 was 37.9% and 41.7% for the three months ended March 31, 2014 and 2013, respectively. The GSWC ETRs deviated from the statutory rate primarily due to state taxes and differences between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements (primarily related to plant, rate-case and compensation items), as well as permanent items.
 Changes in Tax Law:
In September 2013, the U.S. Treasury Department issued final regulations related to the tax treatment of tangible property, including guidance on expensing certain repair and maintenance expenditures.  The regulations are effective for tax years beginning on or after January 1, 2014. Registrant’s current tax treatment of tangible property continues to be permitted; however, Registrant is evaluating its water-pipeline tax repair-cost method, as well as other tax-method changes pursuant to these regulations. If Registrant adopts new methods, the impact to total income tax expense and the effective tax rate is not expected to be significant.
In January 2013, the American Taxpayer Relief Act of 2012 extended 50% bonus depreciation for qualifying property through 2013.  Although this change in law reduced AWR’s current taxes payable, it did not reduce its total income tax expense or ETR.

Note 6 — 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 months ended March 31, 2014 and 2013 are as follows:
 
 
For The Three Months Ended March 31,
 
 
Pension Benefits
 
Other
Postretirement
Benefits
 
SERP
(dollars in thousands)
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Components of Net Periodic Benefits Cost:
 
 

 
 

 
 

 
 

 
 

 
 

Service cost
 
$
1,487

 
$
1,864

 
$
99

 
$
106

 
$
192

 
$
201

Interest cost
 
1,915

 
1,731

 
130

 
113

 
154

 
129

Expected return on plan assets
 
(2,215
)
 
(1,893
)
 
(113
)
 
(95
)
 

 

Amortization of transition
 

 

 
104

 
105

 

 

Amortization of prior service cost (benefit)
 
30

 
30

 
(50
)
 
(50
)
 
40

 
40

Amortization of actuarial (gain) loss
 
7

 
711

 
(66
)
 

 
35

 
85

Net periodic pension cost under accounting standards
 
1,224

 
2,443

 
104

 
179

 
421

 
455

Regulatory adjustment — deferred
 
300

 
(510
)
 

 

 

 

Total expense recognized, before allocation to overhead pool
 
$
1,524

 
$
1,933

 
$
104

 
$
179

 
$
421

 
$
455

Registrant expects to contribute approximately $8.4 million to the pension plan during 2014.
Regulatory Adjustment:
In May 2013, the CPUC issued a final decision that authorized GSWC to establish a two-way balancing account for its water regions and the general office to track differences between the forecasted annual pension expenses adopted in rates and the actual annual expense recorded by GSWC in accordance with the accounting guidance for pension costs.  As of March 31, 2014, GSWC has a $4.4 million under-collection in the two-way pension balancing account included as part of the pension regulatory asset (Note 2). A surcharge is currently in place to recover a portion of this under-collection.
Affordable Care Act:
In 2010, the Patient Protection and Affordable Care Act ("Affordable Care Act") was passed and was to become effective in 2014.  In July 2013, compliance with the employer mandate and certain reporting requirements under the Affordable Care Act

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were delayed until 2015. Registrant’s health care plan meets the current requirements of the Affordable Care Act for the majority of its employees. Registrant is evaluating alternatives to address those employees for which the plan may not currently meet the requirements. Registrant continues to assess the impact of the Affordable Care Act on its health care benefit costs, but does not expect it to have a material impact in the near future on the Registrant's consolidated financial position, results of operations or cash flows.     

Note 7 — Contingencies:

Condemnation of Properties:
 
The laws of the State of California provide for the acquisition of public utility property by governmental agencies through their power of eminent domain, also known as condemnation, where doing so is necessary and in the public interest. In addition, these laws provide: (i) that the owner of utility property may contest whether the condemnation is actually necessary and in the public interest, and (ii) that the owner is entitled to receive the fair market value of its property if the property is ultimately taken.
 
The City of Claremont (“Claremont”) located in GSWC’s Region III, has expressed various concerns to GSWC about rates charged by GSWC and the effectiveness of the CPUC’s rate-setting procedures. In November 2012 and again in September 2013, Claremont made an offer to acquire GSWC’s water system servicing Claremont. GSWC rejected both offers and informed the City that the system is not for sale.  Claremont continues to express a desire to potentially take the system by eminent domain. GSWC serves approximately 11,000 customers in Claremont.
 
In April 2011, an organization called Ojai FLOW ("Friends of Locally Owned Water") started a local campaign for the Casitas Municipal Water District (“CMWD”) to purchase GSWC’s Ojai water system.  In March 2013, CMWD passed resolutions authorizing the establishment of a Community Facilities District, an entity authorized pursuant to the Mello-Roos Community Facilities District Act of 1982 (“Mello-Roos Act”) and the issuance of bonds to finance the potential acquisition of GSWC’s Ojai system by eminent domain. In August 2013, Ojai residents approved the levying of a special tax to satisfy the planned bond obligations. GSWC filed a petition in the Superior Court, Ventura County, which, among other things, challenged the legality of CMWD’s effort to utilize the Mello-Roos Act to acquire property by eminent domain and to fund legal and expert costs of the planned condemnation. Ojai FLOW members filed a motion with the Superior Court asking that all residents of GSWC’s Ojai service area be certified as class defendants in GSWC's pending action. They contend that the class would later be entitled to sue GSWC for damages if GSWC's challenge is denied.  Without deciding whether such a lawsuit would be permitted, the Court granted the motion for class certification.  On March 13, 2014, the Court denied GSWC's petition. On April 9, 2014, GSWC filed a Notice of Appeal. GSWC is unable to predict the outcome of the appeal at this time. GSWC serves approximately 3,000 customers in Ojai.
  
Environmental Clean-Up and Remediation:
 
GSWC has been involved in environmental remediation and clean-up at a plant site (“Chadron Plant”) that contained an underground storage tank which was used to store gasoline for its vehicles. This tank was removed from the ground in July 1990 along with the dispenser and ancillary piping. Since then, GSWC has been involved in various remediation activities at this site.  Recent monitoring results show gasoline has been reduced to a sheen on top of the groundwater surface.  Testing has recently been conducted to determine if alternative remediation will be effective in reducing the contamination further.  As of March 31, 2014, the total spent to clean-up and remediate GSWC’s plant facility was approximately $3.5 million, of which $1.5 million has been paid by the State of California Underground Storage Tank Fund. Amounts paid by GSWC have been included in rate base and approved by the CPUC for recovery.
 
As of March 31, 2014, GSWC has a regulatory asset and an accrued liability for the estimated additional cost of $1.0 million to complete the clean-up at the site. The ultimate cost may vary as there are many unknowns in remediation of underground gasoline spills and this is an estimate based on currently available information. Management also believes it is probable that the estimated additional costs will be approved in rate base by the CPUC.
 
Other Litigation:
 
Registrant is also subject to other ordinary routine litigation incidental to its business. Management believes that rate recovery, proper insurance coverage and reserves are in place to insure against property, general liability and workers’ compensation claims incurred in the ordinary course of business. Registrant is unable to predict an estimate of the loss, if any, resulting from any pending suits or administrative proceedings.


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Table of Contents

Note 8 — Business Segments:
 
AWR has three reportable segments, water, electric and contracted services, whereas GSWC has two segments, water and electric. AWR has no material assets other than cash and its investments in its subsidiaries on a stand-alone basis.  All activities of GSWC are geographically located within California.
 
Activities of ASUS and its subsidiaries are conducted in California, Georgia, Maryland, New Mexico, North Carolina, South Carolina, Texas and Virginia.  Each of ASUS’s wholly-owned subsidiaries is regulated by the state in which the subsidiary primarily conducts water and/or wastewater operations.  Fees charged for operations and maintenance and renewal and replacement services are based upon the terms of the contracts with the U.S. government which have been filed with the regulatory commissions in the states in which ASUS’ subsidiaries are incorporated.
 
The tables below set forth information relating to GSWC’s operating segments, ASUS and its subsidiaries and other matters. Total assets by segment are not presented below, as certain of Registrant’s assets are not tracked by segment.  The utility plant amounts are net of respective accumulated provisions for depreciation. Capital additions reflect capital expenditures paid in cash and exclude property installed by developers and conveyed to GSWC.
 
 
As Of And For The Three Months Ended March 31, 2014
 
 
GSWC
 
ASUS
 
AWR
 
Consolidated
(dollars in thousands)
 
Water
 
Electric
 
Contracts
 
Parent
 
AWR
Operating revenues
 
$
70,757

 
$
10,456

 
$
20,732

 
$

 
$
101,945

Operating income (loss)
 
18,395

 
2,035

 
2,384

 
(46
)
 
22,768

Interest expense, net
 
5,168

 
334

 
67

 
(54
)
 
5,515

Utility plant
 
938,744

 
40,553

 
4,632

 

 
983,929

Depreciation and amortization expense (1)
 
9,563

 
677

 
290

 

 
10,530

Income tax expense (benefit)
 
4,958

 
747

 
823

 
(171
)
 
6,357

Capital additions
 
19,324

 
472

 
735

 

 
20,531


 
 
As Of And For The Three Months Ended March 31, 2013
 
 
GSWC
 
ASUS
 
AWR
 
Consolidated
(dollars in thousands)
 
Water
 
Electric
 
Contracts
 
Parent
 
AWR
Operating revenues
 
$
69,233

 
$
10,734

 
$
30,585

 
$

 
$
110,552

Operating income
 
21,763

 
1,833

 
4,367

 

 
27,963

Interest expense, net
 
5,194

 
376

 
60

 
(39
)
 
5,591

Utility plant
 
883,863

 
40,963

 
4,712

 

 
929,538

Depreciation and amortization expense (1)
 
8,930

 
592

 
294

 

 
9,816

Income tax expense (benefit)
 
6,941

 
722

 
1,666

 
(80
)
 
9,249

Capital additions
 
17,878

 
233

 
314

 

 
18,425

 
(1)         Depreciation expense computed on GSWC’s transportation equipment of $272,000 and $250,000 for the three months ended March 31, 2014 and 2013, respectively, is recorded in administrative and general expenses.

The following table reconciles total utility plant (a key figure for rate-making) to total consolidated assets (in thousands):
 
 
March 31,
 
 
2014
 
2013
Total utility plant
 
$
983,929

 
$
929,538

Other assets
 
349,842

 
359,976

Total consolidated assets
 
$
1,333,771

 
$
1,289,514


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Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
General
 
The following discussion and analysis provides information on AWR’s consolidated operations and assets and where necessary, includes specific references to AWR’s individual segments and/or other subsidiaries: GSWC and ASUS and its subsidiaries.  Included in the following analysis is a discussion of water and electric gross margins.  Water and electric gross margins are computed by taking total revenues, less total supply costs.  Registrant uses these gross margins and related percentages as an important measure in evaluating its operating results.  Registrant believes this measure is a useful internal benchmark in evaluating the performance of GSWC.
 
The discussions and tables included in the following analysis also present Registrant’s operations in terms of earnings per share by business segment.  Registrant believes that the disclosure of earnings per share by business segment provides investors with clarity surrounding the performance of our differing services.  Registrant reviews these measurements regularly and compares them to historical periods and to our operating budget. However, these measures, which are not presented in accordance with generally accepted accounting principles (“GAAP”), may not be comparable to similarly titled measures used by other entities and should not be considered as an alternative to operating income or earnings per share, which are determined in accordance with GAAP. A reconciliation of water and electric gross margins to the most directly comparable GAAP measures are included in the table under the section titled “Operating Expenses: Supply Costs.”  Reconciliations to AWR’s diluted earnings per share are included in the discussions under the section titled “Summary of First Quarter Results by Segment.

Overview
 
GSWC's revenues, operating income and cash flows are earned primarily through delivering potable water to homes and businesses in California and the delivery of electricity in the Big Bear area of San Bernardino County, California. Rates charged to GSWC customers are determined by the CPUC. These rates are intended to allow recovery of operating costs and a reasonable rate of return on capital.  Factors affecting the financial performance of GSWC are described under Forward-Looking Information and include: the process and timing of setting rates charged to customers; the ability to recover, and the process for recovering in rates, the costs of distributing water and electricity and overhead costs; pressures on water supply caused by the drought in California, changing weather patterns in the West, population growth, more stringent water quality standards and deterioration in water quality and water supply from a variety of causes; fines, penalties and disallowances by the CPUC arising from failures to comply with regulatory requirements; the impact of increased water quality standards and environmental regulations on the cost of operations and capital expenditures; changes in long-term customer demand due to changes in usage patterns as a result of conservation efforts, mandatory regulatory changes impacting the use of water, such as new landscaping or irrigation requirements, recycling of water by the customer and purchases of recycled water by customers from other third parties; capital expenditures needed to upgrade water systems and increased costs and risks associated with litigation relating to water quality and water supply, including suits initiated by GSWC to protect its water supply. GSWC plans to continue to seek additional rate increases in future years from the CPUC to recover operating and supply costs and receive reasonable returns on invested capital. Capital expenditures in future years at GSWC are expected to remain at much higher levels than depreciation expense. When necessary, GSWC obtains funds from external sources in the capital markets and through bank borrowings.

ASUS' revenues, operating income and cash flows are earned by providing water and/or wastewater services, including the operation, maintenance, and construction (including renewal and replacement) of the water and/or wastewater systems, at various military installations pursuant to 50-year firm, fixed-price contracts. The contract price for each of these contracts is subject to prospective price redeterminations. Additional revenues generated by contract operations are primarily dependent on new construction activities under contract modifications with the U.S. government or agreements with other third party prime contractors. As a result, ASUS is subject to risks that are different than those of GSWC. Factors affecting the financial performance of our Military Utility Privatization Subsidiaries are described under Forward-Looking Information and include delays in receiving payments from and the redetermination and equitable adjustment of prices under the contracts with the U.S. government; fines, penalties or disallowance of costs by the U.S. government; and termination of contracts and suspension or debarment for a period of time from contracting with the government due to violations of federal law or regulations in connection with military utility privatization activities.  ASUS' financial performance is also dependent upon its ability to accurately estimate costs in bidding on firm fixed-price construction contracts and the costs of seeking new contracts for the operation and maintenance and renewal and replacement of water and/or wastewater services at military bases and for additional construction work at existing bases.  ASUS is actively pursuing utility privatization contracts of other military bases to expand the contracted services segment.


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Table of Contents

In 2008, GSWC filed an application with the CPUC requesting a Certificate of Public Convenience and Necessity ("CPCN") to provide water services in a portion of Sutter County, California. In November 2013, the administrative law judge over the proceeding issued a proposed decision granting GSWC’s request for the CPCN and authorizing GSWC’s proposed infrastructure financing. In April 2014, an alternate proposed decision was issued by one of the other Commissioners. The alternate proposed decision grants GSWC’s request for a CPCN, but proposes changes to the infrastructure financing proposal. GSWC has met with commissioner advisors to express its support for the proposed decision. GSWC anticipates that the full commission will consider the two proposed decisions and adopt a final decision in the second quarter of 2014.

Summary of First Quarter Results by Segment
 
The table below sets forth the first quarter diluted earnings per share by business segment:
 
 
Diluted Earnings per Share
 
 
Three Months Ended
 
 
 
 
3/31/2014
 
3/31/2013
 
CHANGE
Water
 
$
0.22

 
$
0.26

 
$
(0.04
)
Electric
 
0.02

 
0.02

 

Contracted services
 
0.04

 
0.07

 
(0.03
)
Consolidated diluted earnings per share, as reported
 
$
0.28

 
$
0.35

 
$
(0.07
)
 
For the three months ended March 31, 2014, diluted earnings from the water segment were $0.22 per share, as compared to $0.26 per share for the same period of 2013.  In May 2013, the CPUC issued a final decision on GSWC's water rate case which approved, among other things, recovery of $3.1 million of previously incurred costs. The approval of these items increased earnings for the first quarter of 2013 by $0.05 per share, with no similar item in 2014. Excluding this $0.05 per share impact, diluted earnings from the water segment increased $0.01 per diluted share during the first quarter of 2014 as compared to the same period in 2013 due to the following items:
An increase in the water gross margin of approximately $578,000, or $0.01 per share, due primarily to second-year rate increases approved by the CPUC. There was also an increase of $1.3 million in revenues with a corresponding increase in operating expenses, representing surcharges billed to customers during the three months ended March 31, 2014 to recover previously incurred costs. These surcharges had no impact on net earnings.  
Excluding supply costs, the one-time recovery of previously incurred costs and the impact of the $1.3 million surcharges discussed above, there was an increase in operating expenses of approximately $900,000, or $0.01 per share, primarily due to increases in chemical and water treatment costs, outside services costs and depreciation expense. These increases were partially offset by lower maintenance expense.
A decrease in the water effective income tax rate for the three months ended March 31, 2014 as compared to the same period in 2013, increasing earnings by $0.01 per share.  The change in the tax rate is primarily due to changes between book and taxable income from items that are treated as flow-through adjustments in accordance with regulatory requirements.

For the three months ended March 31, 2014 and 2013, diluted earnings from the electric segment were $0.02 per share. In February 2012, GSWC filed its BVES rate case for new rates in years 2013 through 2016. BVES has been in settlement negotiations with all of the parties involved in this rate case. Those negotiations have resulted in an agreement in principle and BVES anticipates that a settlement agreement will be filed with the CPUC during the second quarter. A final decision from the CPUC is expected in late 2014. Pending a final decision on the BVES rate case, electric revenues have been recorded using 2012 adopted levels authorized by the CPUC.
  
Diluted earnings from contracted services decreased by $0.03 per share as compared to the same period in 2013, mainly as a result of a reduction in planned renewal and replacement ("R&R") capital work, primarily at the Fort Bliss and Fort Jackson military bases. Overall construction activity is expected to increase during the remainder of 2014 as compared to the first quarter; however, R&R construction will continue to vary from year-to-year over the remaining term of the 50-year contracts with the U.S. government. The decrease in construction activity resulting in lower earnings was partially offset by a decrease in outside services expense as compared to the same period in 2013.

The following discussion and analysis provides information on AWR’s consolidated operations and, where necessary, includes specific references to AWR’s individual segments and/or other subsidiaries: GSWC and ASUS and its subsidiaries.


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Table of Contents

Consolidated Results of Operations — Three Months Ended March 31, 2014 and 2013 (amounts in thousands, except per share amounts):
 
 
Three Months Ended 
 March 31, 2014
 
Three Months Ended 
 March 31, 2013
 
$
CHANGE
 
%
CHANGE
OPERATING REVENUES
 
 

 
 

 
 

 
 

Water
 
$
70,757

 
$
69,233

 
$
1,524

 
2.2
 %
Electric
 
10,456

 
10,734

 
(278
)
 
(2.6
)%
Contracted services
 
20,732

 
30,585

 
(9,853
)
 
(32.2
)%
Total operating revenues
 
101,945

 
110,552

 
(8,607
)
 
(7.8
)%
 
 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 

 
 

 
 

 
 

Water purchased
 
11,224

 
10,732

 
492

 
4.6
 %
Power purchased for pumping
 
1,964

 
1,639

 
325

 
19.8
 %
Groundwater production assessment
 
3,540

 
3,187

 
353

 
11.1
 %
Power purchased for resale
 
2,699

 
3,680

 
(981
)
 
(26.7
)%
Supply cost balancing accounts
 
818

 
1,371

 
(553
)
 
(40.3
)%
Other operation
 
6,947

 
5,454

 
1,493

 
27.4
 %
Administrative and general
 
20,184

 
17,907

 
2,277

 
12.7
 %
Depreciation and amortization
 
10,530

 
9,816

 
714

 
7.3
 %
Maintenance
 
3,489

 
3,934

 
(445
)
 
(11.3
)%
Property and other taxes
 
4,325

 
4,148

 
177

 
4.3
 %
ASUS construction
 
13,457

 
20,733

 
(7,276
)
 
(35.1
)%
Net gain on sale of property
 

 
(12
)
 
12

 
(100
)%
Total operating expenses
 
79,177

 
82,589

 
(3,412
)
 
(4.1
)%
 
 
 
 
 
 
 
 
 
OPERATING INCOME
 
22,768

 
27,963

 
(5,195
)
 
(18.6
)%
 
 
 
 
 
 
 
 
 
OTHER INCOME AND EXPENSES
 
 

 
 

 
 

 
 

Interest expense
 
(5,627
)
 
(5,778
)
 
151

 
(2.6
)%
Interest income
 
112

 
187

 
(75
)
 
(40.1
)%
Other, net
 
125

 
342

 
(217
)
 
(63.5
)%
 
 
(5,390
)
 
(5,249
)
 
(141
)
 
2.7
 %
 
 
 
 
 
 
 
 
 
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE
 
17,378

 
22,714

 
(5,336
)
 
(23.5
)%
Income tax expense
 
6,357

 
9,249

 
(2,892
)
 
(31.3
)%
 
 
 
 
 
 
 
 
 
NET INCOME
 
$
11,021

 
$
13,465

 
$
(2,444
)
 
(18.2
)%
 
 
 
 
 
 
 
 
 
Basic earnings per Common Share
 
$
0.28

 
$
0.35

 
$
(0.07
)
 
(20.0
)%
 
 
 
 
 
 
 
 
 
Fully diluted earnings per Common Share
 
$
0.28

 
$
0.35

 
$
(0.07
)
 
(20.0
)%


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Table of Contents

Operating Revenues:
 
General
 
Registrant relies upon approvals by the CPUC of rate increases to recover operating expenses and to provide for a return on invested and borrowed capital used to fund utility plant for GSWC. Registrant relies on price redeterminations and equitable adjustments by the U.S. government in order to recover operating expenses and provide a profit margin for ASUS.  If adequate rate relief and price redeterminations are not granted in a timely manner, operating revenues and earnings can be negatively impacted.  ASUS’s earnings have also been positively impacted by additional construction projects at the Military Utility Privatization Subsidiaries.
 
Water
 
For the three months ended March 31, 2014, revenues from water operations increased $1.5 million to $70.8 million.  The increase in water revenues is primarily due to a $1.3 million increase in surcharges during the three months ended March 31, 2014 to recover previously incurred costs approved by the CPUC. The increase in revenues from these surcharges is offset by a corresponding increase in operating expenses (primarily administrative and general) resulting in no impact to pretax operating income. There were also second-year rate increases approved by the CPUC effective January 1, 2014 for certain rate-making areas.
 
Billed water consumption for the first quarter of 2014 increased by approximately 6% as compared to the same period in 2013 due to the dry winter experienced in California. A change in consumption does not have a significant impact on earnings due to the CPUC-approved Water Revenue Adjustment Mechanism (“WRAM”) account in place in all three water regions. GSWC records the difference between what it bills its water customers and that which is authorized by the CPUC in the WRAM accounts as regulatory assets or liabilities.
 
Electric
 
For the three months ended March 31, 2014, revenues from electric operations were $10.5 million as compared to $10.7 million for the same period in 2013.  As previously discussed, pending a final decision on the BVES rate case, electric revenues have been recorded using 2012 adopted levels authorized by the CPUC.
 
Billed electric usage decreased by approximately 8% during the three months ended March 31, 2014 as compared to the three months ended March 31, 2013.  The winter experienced in California during the first quarter of 2014 was too warm for snowmaking, resulting in less electric usage in the Big Bear area than in prior years. Due to the CPUC approved Base Revenue Requirement Adjustment Mechanism, which adjusts certain revenues to adopted levels authorized by the CPUC, this change in usage did not have a significant impact on earnings.
 
Contracted Services
 
Revenues from contracted services are composed of construction revenues (including renewals and replacements) and management fees for operating and maintaining the water and/or wastewater systems at military bases.  For the three months ended March 31, 2014, revenues from contracted services were $20.7 million as compared to $30.6 million for the same period in 2013. This was mainly due to a reduction in planned R&R capital work, primarily at Fort Bliss and Fort Jackson, as previously discussed. Overall construction activity at these and other ASUS subsidiaries is expected to increase during the remainder of 2014 as compared to the first quarter; however, R&R construction will continue to vary from year-to-year over the remaining term of the 50-year contracts with the U.S. government. In addition, ASUS subsidiaries completed significant work on other capital projects at Fort Bliss, Fort Jackson and the military bases in Virginia during the first quarter of 2013. No projects were completed at these bases in the first quarter of 2014. 

ASUS subsidiaries continue to enter into U.S. government awarded contract modifications and agreements with third-party prime contractors for new construction projects at the Military Utility Privatization Subsidiaries. Earnings and cash flows from modifications to the original 50-year contracts with the U.S. government and agreements with third-party prime contractors for additional construction projects may or may not continue in future periods.

 

24

Table of Contents

Operating Expenses:
 
Supply Costs
 
Supply costs for the water segment consist of purchased water, purchased power for pumping, groundwater production assessments and water supply cost balancing accounts. Supply costs for the electric segment consist of purchased power for resale, the cost of natural gas used by BVES’ generating unit, the costs of renewable energy credits and the electric supply cost balancing account. Water and electric gross margins are computed by taking total revenues, less total supply costs. Registrant uses these gross margins and related percentages as an important measure in evaluating its operating results. Registrant believes this measure is a useful internal benchmark in evaluating the utility business performance within its water and electric segments. Registrant reviews these measurements regularly and compares them to historical periods and to its operating budget. However, this measure, which is not presented in accordance with GAAP, may not be comparable to similarly titled measures used by other entities and should not be considered as an alternative to operating income, which is determined in accordance with GAAP.
 
Total supply costs comprise the largest segment of total operating expenses. Supply costs accounted for approximately 25.6% and 25.0% of total operating expenses for the three months ended March 31, 2014 and 2013, respectively.
 
The table below provides the amount of increases (decreases) and percent changes in water and electric revenues, supply costs and gross margin during the three months ended March 31, 2014 and 2013 (dollar amounts in thousands):
 
 
Three Months Ended 
 March 31, 2014
 
Three Months Ended 
 March 31, 2013
 
$
CHANGE
 
%
CHANGE
WATER OPERATING REVENUES (1)
 
$
70,757

 
$
69,233

 
$
1,524

 
2.2
 %
WATER SUPPLY COSTS:
 
 

 
 

 
 

 
 

Water purchased (1)
 
$
11,224

 
$
10,732

 
$
492

 
4.6
 %
Power purchased for pumping (1)
 
1,964

 
1,639

 
325

 
19.8
 %
Groundwater production assessment (1)
 
3,540

 
3,187

 
353

 
11.1
 %
Water supply cost balancing accounts (1)
 
(871
)
 
203

 
(1,074
)
 
(529.1
)%
TOTAL WATER SUPPLY COSTS
 
$
15,857

 
$
15,761

 
$
96

 
0.6
 %
WATER GROSS MARGIN (2)
 
$
54,900

 
$
53,472

 
$
1,428

 
2.7
 %
PERCENT MARGIN - WATER
 
77.6
%