Business Overview and History
American States Water Company (AWR) is a diversified utility provider that has established a strong foothold in the water and electric utility markets. With a history spanning over a century, the company has consistently demonstrated its ability to navigate industry challenges and deliver reliable services to its customers.
American States Water Company was founded in 1929 and is headquartered in San Dimas, California. The company operates through three primary business segments: water distribution, electric distribution, and contracted services.
The water distribution segment, operated through the company's wholly-owned subsidiary Golden State Water Company (GSWC), serves approximately 264,600 customer connections across 10 counties in California. GSWC has a long-standing history, tracing its roots back to 1929 when it was established as a public water utility. Over the years, the company has grown organically and through strategic acquisitions, solidifying its position as a leading water provider in the state.
The electric distribution segment, operated through Bear Valley Electric Service, Inc. (BVES), serves approximately 24,900 customer connections in the Big Bear area of San Bernardino County, California. BVES was founded in 1929 and has been providing reliable electric service to several San Bernardino County mountain communities since then.
The contracted services segment, operated through the company's wholly-owned subsidiary American States Utility Services, Inc. (ASUS), provides water and/or wastewater services to various U.S. military installations under long-term, firm fixed-price contracts. ASUS was founded in 2003 and has been successfully operating and maintaining water and wastewater systems at military bases since then, leveraging its expertise and strong track record to secure new contract awards.
American States Water Company serves over one million people in ten states, primarily through its regulated utility operations in California. Both GSWC and BVES are regulated by the California Public Utilities Commission (CPUC), while ASUS does not have direct regulatory oversight by the CPUC.
Throughout its history, AWR has faced challenges common to regulated utility companies, such as managing rising operating costs, complying with evolving environmental regulations, and seeking timely rate relief from regulators. In the early 2000s, GSWC encountered groundwater contamination issues that required costly remediation efforts. More recently, BVES has had to invest significantly in wildfire mitigation programs in response to California legislation. Despite these challenges, AWR has maintained a strong financial position and operational performance.
Through strategic capital investments, operational excellence, and effective regulatory relationships, AWR has been able to consistently provide safe, reliable utility services to its customers while delivering value to shareholders. The company's diversified business model, with both regulated and contracted services operations, has enabled it to navigate industry changes and uncertainties over its long history.
Financial Performance and Ratios
American States Water Company has consistently demonstrated strong financial performance, showcasing its ability to generate stable cash flows and deliver shareholder value.
For the fiscal year 2024, AWR reported the following financial results:
- Annual Revenue: $595.46 million - Annual Net Income: $119.27 million - Annual Operating Cash Flow: $198.73 million - Annual Free Cash Flow: -$33.23 million
In the most recent quarter (Q4 2024), the company reported:
- Quarterly Revenue: $143.10 million - Quarterly Net Income: $28.44 million
The company's year-over-year growth in Q4 2024 revenue was 14.3% compared to Q4 2023, primarily due to an increase in water and electric utility revenues.
The company's financial ratios further highlight its financial strength and stability:
- Current Ratio: 0.82 - Quick Ratio: 0.76 - Debt-to-Equity Ratio: 1.02 - Cash and Cash Equivalents: $26.66 million
These figures underline American States Water Company's robust financial position, which has enabled the company to make strategic investments in its infrastructure and pursue growth opportunities.
AWR's regulated water and electric utility segments have experienced a compound annual growth rate (CAGR) of 10.3% in Golden State Water's average water rate base from 2018 to 2024, demonstrating consistent growth in its core business.
Regulatory Environment and Growth Initiatives
American States Water Company operates in a highly regulated industry, with its water and electric utility subsidiaries subject to oversight by the California Public Utilities Commission (CPUC). The company has a proven track record of navigating the regulatory landscape, working collaboratively with the CPUC to secure favorable rate decisions and recover prudently incurred costs.
In the company's most recent general rate case decisions, the CPUC authorized significant capital investments for both GSWC and BVES. Specifically, the CPUC approved $573.1 million in capital infrastructure investments for GSWC over the 2025-2027 period and $75.6 million in capital projects for BVES from 2023 to 2026. These investments will enable the company to continue upgrading and maintaining its water and electric distribution systems, ensuring the delivery of reliable services to its growing customer base.
Furthermore, the CPUC's decisions also addressed the company's regulatory mechanisms, with GSWC transitioning to a modified rate adjustment mechanism and an incremental cost balancing account for supply costs, and BVES receiving approval for the recovery of costs related to its wildfire mitigation plan. These regulatory developments provide the company with increased visibility and flexibility in managing its operations and recovering its investments.
In the contracted services segment, ASUS has continued to expand its footprint, securing new long-term contracts to operate and maintain water and wastewater systems at military installations. In 2024, ASUS was awarded $56.5 million in new capital upgrade projects, further strengthening its position in this business line.
For 2025, AWR projects ASUS to contribute $0.59 to $0.63 per share to the company's earnings. Additionally, AWR plans to invest $170 million to $210 million in company-funded capital expenditures at its regulated utilities in 2025, demonstrating its commitment to infrastructure improvement and growth.
Segment Performance
AWR's three reportable business segments - water, electric, and contracted services - have shown varying performance in the most recent fiscal year:
Water Segment: In 2024, the water segment's operating revenues were $417.41 million, down 3.7% from $433.47 million in 2023, mainly due to the impact of retroactive revenues recorded in 2023 related to the full year of 2022. Excluding the retroactive revenue impact, the water segment's 2024 operating revenues increased by $22.30 million, or 5.7%, driven by higher authorized rates and an increase in return on rate base. The water segment's net income for 2024 was $94.46 million, down from $102.71 million in 2023, primarily due to higher operating expenses, interest costs, and a decrease in the effective income tax rate, partially offset by the increase in operating revenues.
Electric Segment: In 2024, the electric segment's operating revenues were $51.65 million, up 23.5% from $41.83 million in 2023, largely due to the impact of retroactive electric rates for the full year of 2023 and the second-year rate increases in 2024, which were approved in the segment's recent general rate case. The electric segment's net income for 2024 was $7.75 million, up from $7.48 million in 2023, as the increase in revenues was partially offset by higher operating expenses and interest costs associated with the segment's wildfire mitigation investments.
Contracted Services Segment: In 2024, the contracted services segment's operating revenues were $126.40 million, up 5.0% from $120.39 million in 2023, driven by an increase in management fee revenues from the commencement of operations at new military bases. The segment's net income for 2024 was $20.64 million, up from $18.60 million in 2023, largely due to the increase in management fee revenues, partially offset by higher operating expenses.
Risks and Challenges
While American States Water Company has demonstrated resilience and adaptability, the company faces various risks and challenges that warrant consideration:
1. Regulatory Risks: As a heavily regulated utility, the company is subject to the decisions and policies of the CPUC, which can have a significant impact on its financial performance and growth prospects.
2. Environmental Compliance: The company must comply with stringent environmental regulations, including water quality standards and wastewater discharge requirements, which can result in increased operating costs and capital expenditures.
3. Weather and Climate Variability: Drought conditions, wildfires, and other extreme weather events in California can disrupt the company's water and electric operations, potentially affecting its ability to serve customers and recover costs.
4. Competition and Eminent Domain: While the company's water and electric utility segments operate in largely exclusive service territories, they may face competition from governmental agencies or other utilities in certain areas. Additionally, the company's assets are subject to the risk of eminent domain proceedings.
5. Military Contract Risks: The contracted services segment's reliance on the U.S. government as its primary customer exposes the company to the risk of contract termination, delays in price adjustments, and compliance with government regulations.
Outlook and Conclusion
American States Water Company's diversified business model, strong regulatory relationships, and focus on infrastructure investments position the company for continued growth and success. The company's recent general rate case decisions and new contract awards in the contracted services segment demonstrate its ability to navigate industry challenges and capitalize on opportunities.
AWR reported earnings per share (EPS) of $3.17 for the full year 2024, which was $0.32 higher than the adjusted 2023 EPS of $2.85. The increase in adjusted earnings for 2024 was primarily driven by rate increases in both the water and electric utilities, the commencement of water and wastewater operations at 2 new military bases, and successful economic price adjustments in the contracted services business (ASUS). The company achieved a return on equity of 14.1% for 2024, showcasing its ability to generate value for shareholders.
Looking ahead, AWR's at-the-market equity offering program is expected to raise an additional $60 million or so in 2025, providing additional capital for growth initiatives. The company's quarterly dividend rate has grown at a compound annual growth rate of 8.8% over the last 5 years through 2024, and AWR aims to achieve a compound annual growth rate in the dividend of more than 7% over the long term, demonstrating its commitment to returning value to shareholders.
As the company continues to invest in its water and electric distribution systems, it is well-equipped to provide reliable and efficient services to its growing customer base. Additionally, the company's strong financial position and prudent capital allocation strategies suggest that American States Water Company is poised to generate sustainable long-term value for its shareholders.
Overall, American States Water Company's diversified business mix, regulatory expertise, and commitment to infrastructure development make it a compelling investment opportunity in the utility sector. The company's focus on both regulated utilities and contracted services provides a balanced approach to growth and risk management, positioning AWR for continued success in the evolving utility landscape.