AMERICAN STATES WATER : Management's Discussion and Analysis of Financial Condition and Results of Operation (form 10-K)

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 its subsidiaries: GSWC, BVESI and ASUS and its
subsidiaries, and AWR (parent) where applicable.  On July 1, 2020, GSWC
completed the transfer of the electric utility assets and liabilities from its
electric division to BVESI in exchange for common shares of BVESI. GSWC then
immediately distributed all of BVESI's common shares to AWR, whereupon BVESI
became wholly owned directly by AWR. The reorganization is not expected to
result in any substantive changes to AWR's operations or business segments.
Included in the following analysis is a discussion of water and electric gross
margins.  Water and electric gross margins are computed by subtracting total
supply costs from total revenues.  Registrant uses these gross margins as
important measures in evaluating its operating results.  Registrant believes
these measures are useful internal benchmarks in evaluating the performance of
GSWC and BVESI. The discussions and tables included in the following analysis
also present Registrant's operations in terms of earnings per share by business
segment and AWR (parent), which equals each business segment's earnings divided
by Registrant's weighted average number of diluted common shares.  Furthermore,
the retroactive earnings impact related to fiscal 2018 resulting from the CPUC's
final decision on the electric general rate case issued in August 2019, has been
excluded when communicating the electric segment's 2019 financial results to
help facilitate comparisons of Registrant's performance from period to period.
All of these items are derived from consolidated financial information but are
not presented in our financial statements that are prepared in accordance with
Generally Accepted Accounting Principles (GAAP) in the United States. These
items constitute "non-GAAP financial measures" under the Securities and Exchange
Commission rules.
Registrant believes that the disclosure of the water and electric gross margins,
and earnings per share by business segment provide investors with clarity
surrounding the performance of its segments.  Registrant reviews these
measurements regularly and compares them to historical periods and to its
operating budget. However, these measures, which are not presented in accordance
with GAAP, may not be comparable to similarly titled measures used by other
enterprises 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 is 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 sections titled "Summary
Results by Segment."
Overview
Factors affecting our financial performance are summarized under Forward-Looking
Information.
Water and Electric Segments:
GSWC's and BVESI's revenues, operating income, and cash flows are earned
primarily through delivering potable water to homes and businesses in California
and electricity in the Big Bear area of San Bernardino County, California,
respectively. Rates charged to GSWC and BVESI customers are determined by the
CPUC. These rates are intended to allow recovery of operating costs and a
reasonable rate of return on capital.  GSWC and BVESI plan to continue seeking
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 and BVESI are expected to remain at
substantially higher levels than depreciation expense. When necessary, GSWC and
BVESI may obtain funds from external sources in the capital markets and through
bank borrowings.
General Rate Case Filings and Other Matters:
Water General Rate Case for years 2022 - 2024:
On July 15, 2020, GSWC filed a general rate case application for all of its
water regions and its general office. This general rate case will determine new
water rates for the years 2022 - 2024. Among other things, GSWC requested
capital budgets in this application of approximately $450.6 million for the
three-year rate cycle, and another $11.4 million of capital projects to be filed
for revenue recovery only through advice letters when those projects are
completed. A decision in the water general rate case is scheduled for the fourth
quarter of 2021, with new rates to become effective January 1, 2022.
Water General Rate Case for years 2019 - 2021:
In May 2019, the CPUC issued a final decision on GSWC's water general rate case,
which determined new rates for the years 2019 - 2021 with rates retroactive to
January 1, 2019. Among other things, the final decision authorized GSWC to
invest approximately $334.5 million over the rate cycle. The $334.5 million of
infrastructure investment included $20.4 million of capital projects to be filed
for revenue recovery through advice letters when those projects are completed.
Due to changes in circumstances, not all the anticipated advice letter projects
have been completed during this rate cycle.
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The final decision also allowed for water gross margin increases in 2020 and
2021, subject to an earnings test. Effective January 1, 2020, GSWC received its
full second-year step increase, which it achieved because of passing an earnings
test at all of its ratemaking areas. The full step increase generated an
additional $10.4 million in water gross margin for 2020. The CPUC also approved
all of the third-year rate increases effective January 1, 2021, which are
expected to generate an additional increase in the water gross margin of
approximately $11.1 million in 2021.
Final Decision on Low-Income Affordability Rulemaking:
On August 27, 2020, the CPUC issued a final decision in the first phase of the
CPUC's Order Instituting Rulemaking evaluating the low income ratepayer
assistance and affordability objectives contained in the CPUC's 2010 Water
Action Plan, which also addressed other issues, including the continued use of
the Water Revenue Adjustment Mechanism ("WRAM") by California water utilities.
The final decision also addressed the continued use of the Modified Cost
Balancing Account ("MCBA"), which is a full-cost balancing account used to track
the difference between adopted and actual water supply costs (including the
effects of changes in both rates and volume). Based on the final decision, any
general rate case application filed by GSWC and the other California water
utilities after the August 27, 2020 effective date of this decision, may not
include a proposal to continue the use of the WRAM or MCBA, but may instead
include a proposal to use a limited price adjustment mechanism (the
Monterey-Style WRAM) and an incremental supply cost balancing account.
The final decision will not have any impact on GSWC's WRAM or MCBA balances
during the current rate cycle (2019 - 2021). In addition, management believes
that the decision supports GSWC's position that it does not apply to its general
rate case application filed in July 2020 that will set new rates for the years
2022 - 2024. In February 2021, a procedural hearing in this pending general rate
case was held, and the assigned administrative law judge in the proceeding
agreed that GSWC is entitled to keep the use of the WRAM and MCBA through the
year 2024. GSWC's next general rate case application will be filed in 2023 to
establish new rates for the years 2025 - 2027 and, based on the August 27, 2020
decision, may not include the WRAM or MCBA for those years. Since its
implementation in 2008, the WRAM and MCBA have helped mitigate fluctuations in
GSWC's earnings due to changes in water consumption by its customers or changes
in water supply mix. Replacing them with mechanisms recommended in the final
decision will likely result in more volatility in GSWC's future earnings and
could result in less than or more than full recovery of its authorized water
gross margin. On or prior to October 5, 2020, GSWC, other California water
utilities, and the California Water Association filed separate applications for
rehearing on this matter. At this time, management cannot predict the outcome of
this matter.
Cost of Capital Proceeding:
Investor-owned water utilities serving California are required to file their
cost of capital applications on a triennial basis. GSWC's next cost of capital
application is scheduled to be filed by May 1, 2021 for the years 2022 - 2024.
However, GSWC, along with three other investor-owned water utilities in
California, filed a joint request with the CPUC on January 5, 2021 to postpone
the cost of capital applications by another year. Last year the utilities sought
a one-year deferral of the May 2020 cost of capital applications, which was
approved in March 2020. Similar to that deferral, this year's joint request
asked that the utilities keep the cost of capital parameters as authorized in
2018 in effect through 2022, and file new cost of capital applications by May 1,
2022 to set the cost of debt, return on equity and capital structure starting
January 1, 2023. GSWC's current authorized rate of return on rate base is 7.91%,
based on its weighted cost of capital, which will continue in effect through
December 31, 2022 if the additional deferral is approved. At this time,
management cannot predict the outcome of this request.
Electric Segment:
On August 15, 2019, the CPUC issued a final decision on the electric general
rate case. Among other things, the decision (i) extended the rate cycle by one
year (new rates were effective for 2018 - 2022); (ii) increased the electric
gross margin for 2018 by approximately $2.3 million compared to the 2017 adopted
electric gross margin, adjusted for tax reform changes; (iii) allows the
electric segment to construct all the capital projects requested in its
application, which are dedicated to improving system safety and reliability and
total approximately $44 million over the 5-year rate cycle; and (iv) increased
the adopted electric gross margin by $1.2 million for each of the years 2019 and
2020, by $1.1 million in 2021, and by $1.0 million in 2022. The rate increases
for 2019 - 2022 are not subject to an earnings test. The decision authorized a
return on equity for the electric segment of 9.6% and included a capital
structure and debt cost that is consistent with those approved by the CPUC in
March 2018 in connection with GSWC's water segment cost of capital proceeding.
The rate case decision continues to apply to BVESI.
Due to the delay in finalizing the electric general rate case, electric revenues
recognized during the first six months of 2019 were based on 2017 adopted rates.
Because the August 2019 CPUC final decision is retroactive to January 1, 2018,
the cumulative retroactive earnings impact was recorded as part of fiscal 2019
results, including $0.04 per share for the full year ended December 31, 2018 had
the new 2018 and 2019 rates been in place at those times.
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Contracted Services Segment:
ASUS's revenues, operating income and cash flows are earned by providing water
and/or wastewater services, including operation and maintenance services and
construction of facilities at 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 50-year contracts is subject to annual economic
price adjustments. 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.
COVID-19:
GSWC, BVESI, and ASUS have continued their operations given that their water,
wastewater, and electric utility services are deemed essential. AWR's responses
to the COVID-19 pandemic take into account orders issued by the CPUC, and the
guidance provided by federal, state, and local health authorities and other
government officials. The response of GSWC and BVESI has included: (i)
suspending service disconnections for nonpayment pursuant to CPUC orders; (ii)
increasing the number of employees telecommuting; and (iii) delaying some
capital improvement projects at the water segment. In February 2021, the CPUC
adopted a resolution that extended the existing emergency customer protections
previously established by the CPUC through June 30, 2021, including the
suspension of service disconnections for non-payment, in response to the
on-going COVID-19 pandemic. Among other things, the resolution also extends the
COVID-19-related memorandum accounts established to track incremental costs
associated with complying with the resolution, and requires utilities in
California to file transition plans to address the eventual discontinuance of
the emergency customer protections. The goal of the transition plan is to
effectively ease customers through a transition off the emergency customer
protections by proactively communicating with customers to enroll them in
programs to manage their utility bills and informing them of the changes to
programs in which they are already enrolled. GSWC and BVESI are in the process
of developing their transition plans, which are required to be finalized and
filed with the CPUC by April 1, 2021.
The pandemic has caused significant volatility in financial markets, resulting
in significant fluctuations throughout 2020 in the fair value of plan assets in
GSWC's pension and other retirement plans, which could continue. Furthermore,
due to expected future credit losses on utility customer bills, GSWC and BVESI
have increased their allowance for doubtful accounts as of December 31, 2020.
However, the CPUC has authorized GSWC and BVESI to track incremental costs,
including bad debt expense in excess of what is included in their respective
revenue requirements, incurred as a result of the pandemic in COVID-19-related
memorandum accounts, such as a Catastrophic Event Memorandum Account ("CEMA"),
to be filed with the CPUC for future recovery. Through December 31, 2020, AWR
has recorded approximately $4.4 million in regulatory asset accounts related to
bad debt expense in excess of GSWC's and BVESI's revenue requirements, the
purchase of personal protective equipment, and additional incurred printing
costs and other incremental miscellaneous costs. By tracking these costs in the
CPUC-approved memorandum accounts, GSWC and BVESI can later ask for recovery of
these costs from the CPUC. CEMA and other emergency-type memorandum accounts are
established as a result of a state/federal declared emergency, and are therefore
recognized as regulatory assets for future recovery. As a result, the amounts
recorded in the COVID-19-related memorandum accounts have not impacted GSWC's
and BVESI's earnings in 2020. Thus far, the COVID-19 pandemic has not had a
material impact on ASUS's operations.
Summary Results by Segment
The table below sets forth a comparison of the diluted earnings per share
contribution by business segment and for the parent company for the years ended
December 31, 2020 and 2019.
                                                                        Diluted Earnings per Share
                                                                      Year Ended
                                                           12/31/2020               12/31/2019              CHANGE
Water                                                $       1.66                 $       1.61          $      0.05
Electric, adjusted (2019 excludes retroactive impact
of CPUC decision in the general rate case related to
2018)                                                        0.20                         0.15                 0.05
Contracted services                                          0.47                         0.47                    -
AWR (parent)                                                    -                         0.01                (0.01)
Consolidated diluted earnings per share, adjusted            2.33                         2.24                 0.09

Retroactive impact of CPUC decision in the electric general rate case related to the full year of 2018

              -                         0.04                (0.04)
Totals from operations, as reported                  $       2.33

$ 2.28 $ 0.05

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Water Segment:
Diluted earnings per share from the water segment for the year ended
December 31, 2020 increased by $0.05 per share as compared to the same period in
2019. Included in the results for 2019 was the impact of the May 2019 CPUC final
decision on the water general rate case, which approved the recovery of
previously incurred costs that were being tracked in CPUC-authorized memorandum
accounts and resulted in a reduction to administrative and general expense in
2019 of approximately $1.1 million, or $0.02 per share. There was no equivalent
item in 2020. Excluding this item, diluted earnings per share from the water
segment for 2020 increased by $0.07 per share due to the following items
(excluding billed surcharges):
•An overall increase in the water gross margin, which favorably impacted
earnings by approximately $0.20 per share due largely to new rates authorized by
the CPUC. The water segment received its full second-year step increase
effective January 1, 2020, which resulted in an additional $10.4 million in
water gross margin for 2020.
•An overall increase in operating expenses (excluding supply costs), which
negatively impacted earnings by approximately $0.08 per share due primarily to
increases in overall labor costs and other employee-related benefits, chemical
and water treatment costs, insurance costs, regulatory costs, depreciation
expense, and property taxes.
•An increase in the effective income tax rate resulting from changes in certain
flow-through taxes and permanent items for 2020 as compared to 2019, which
negatively impacted earnings at the water segment by approximately $0.05 per
share. As a regulated utility, GSWC treats certain temporary differences as
flow-through in computing its income tax expense consistent with the income tax
method used in its CPUC-jurisdiction ratemaking. Changes in the magnitude of
flow-through items either increase or decrease tax expense, thereby affecting
diluted earnings per share.
  A decrease in interest expense resulting from lower interest rates in 2020
compared to 2019 was largely offset by an overall net decrease in interest and
other income including lower gains earned on investments held to fund one of the
Company's retirement plans during 2020 as compared to 2019. As previously
discussed, the COVID-19 pandemic has, among other things, increased volatility
in the financial markets, which resulted in fluctuations throughout 2020 in the
fair value of these investments.
Electric Segment:
Diluted earnings per share from the electric segment for 2020 was $0.20 per
share as compared to $0.19 per share recorded for 2019. The CPUC's August 2019
final decision on the electric general rate case set new rates for 2018 through
2022 and was retroactive to January 1, 2018. As a result, the retroactive impact
of the new electric rates for all of fiscal 2018 was included in the results for
2019. Of the electric segment's $0.19 per share earnings contribution for 2019,
approximately $0.04 per share related to the full year ended December 31, 2018,
which is shown on a separate line in the table above.
Excluding the retroactive impact related to 2018 from 2019 earnings due to the
CPUC's August 2019 final rate case decision, diluted earnings from the electric
segment for 2020 were $0.20 per share as compared to $0.15 per share for 2019.
The increase was due to a higher electric gross margin as a result of new rates
authorized by the CPUC's August 2019 final decision, as well as lower interest
expense and a lower effective income tax rate due to changes in certain
flow-through taxes as compared to 2019. These increases to earnings were
partially offset by an overall increase in operating expenses.
Contracted Services Segment:
For both years ended December 31, 2020 and 2019, diluted earnings from
contracted services were $0.47 per share. Included in the results for 2019 were
retroactive revenues resulting from the successful resolution of an economic
price adjustment at one of the military bases served, which totaled
approximately $0.01 per share and related to periods prior to 2019. Excluding
this retroactive amount, diluted earnings from the contracted services segment
for 2020 increased by $0.01 per share as compared to 2019 largely due to an
increase in management fee and construction revenues, and lower overall
operating expenses, partially offset by higher construction costs.
AWR (Parent):
For the year ended December 31, 2020, diluted earnings from AWR (parent)
decreased $0.01 per share compared to 2019 due primarily to changes in state
unitary taxes.
The following discussion and analysis for the years ended December 31, 2020 and
2019 provides information on AWR's consolidated operations and assets and, where
necessary, includes specific references to AWR's individual segments and
subsidiaries: GSWC, BVESI and ASUS and its subsidiaries.
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Consolidated Results of Operations - Years Ended December 31, 2020 and 2019 (amounts in thousands, except per share amounts):

                                                    Year Ended          Year Ended              $                   %
                                                    12/31/2020          12/31/2019           CHANGE               CHANGE
OPERATING REVENUES
Water                                              $  330,637          $  319,830          $ 10,807                    3.4  %
Electric                                               37,024              39,548            (2,524)                  -6.4  %
Contracted services                                   120,582             114,491             6,091                    5.3  %
Total operating revenues                              488,243             473,869            14,374                    3.0  %

OPERATING EXPENSES
Water purchased                                        74,554              72,289             2,265                    3.1  %
Power purchased for pumping                            10,134               8,660             1,474                   17.0  %
Groundwater production assessment                      20,392              18,962             1,430                    7.5  %
Power purchased for resale                             10,423              11,796            (1,373)                 -11.6  %
Supply cost balancing accounts                        (11,803)             (7,026)           (4,777)                  68.0  %
Other operation                                        33,236              32,756               480                    1.5  %
Administrative and general                             83,615              83,034               581                    0.7  %
Depreciation and amortization                          36,850              35,397             1,453                    4.1  %
Maintenance                                            15,702              15,466               236                    1.5  %
Property and other taxes                               22,199              20,042             2,157                   10.8  %
ASUS construction                                      62,411              55,673             6,738                   12.1  %
Loss (gain) on sale of assets                              31                (253)              284                 -112.3  %
Total operating expenses                              357,744             346,796            10,948                    3.2  %

OPERATING INCOME                                      130,499             127,073             3,426                    2.7  %

OTHER INCOME AND EXPENSES
Interest expense                                      (22,531)            (24,586)            2,055                   -8.4  %
Interest income                                         1,801               3,249            (1,448)                 -44.6  %
Other, net                                              4,853               3,276             1,577                   48.1  %
                                                      (15,877)            (18,061)            2,184                  -12.1  %

INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE      114,622             109,012             5,610                    5.1  %

Income tax expense                                     28,197              24,670             3,527                   14.3  %

NET INCOME                                         $   86,425          $   84,342          $  2,083                    2.5  %

Basic earnings per Common Share                    $     2.34          $     2.28          $   0.06                    2.6  %

Fully diluted earnings per Common Share            $     2.33          $     2.28          $   0.05                    2.2  %



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Operating Revenues
General
GSWC and BVESI rely upon approvals by the CPUC for rate increases to recover
operating expenses and to provide for a return on invested and borrowed capital
used to fund utility plant. ASUS relies on economic price and equitable
adjustments by the U.S. government in order to recover operating expenses and
provide a profit margin.  Current operating revenues and earnings can be
negatively impacted if the Military Utility Privatization Subsidiaries do not
receive adequate price increases or adjustments in a timely manner.  ASUS's
earnings are also impacted by the level of additional construction projects at
the Military Utility Privatization Subsidiaries, which may or may not continue
at current levels in future periods.
Water
For the year ended December 31, 2020, revenues from water operations increased
by $10.8 million to $330.6 million, compared to the year ended December 31, 2019
as a result of new rates authorized by the CPUC. Effective January 1, 2020, GSWC
received its full second-year step increase, as a result of passing an earnings
test. This increase was partially offset by lower surcharges billed during 2020
related to CPUC-approved surcharges to recover previously incurred costs. These
surcharges were largely offset by corresponding decreases in operating expenses,
resulting in no impact to earnings.
Billed water consumption for the year ended December 31, 2020 increased
approximately 5% as compared to 2019. In general, changes in consumption do not
have a significant impact on recorded revenues due to the CPUC-approved WRAM
accounts in place in the majority of GSWC's rate-making areas. GSWC records the
difference between what it bills its water customers and that which is currently
authorized by the CPUC in the WRAM accounts as regulatory assets or liabilities.
The August 2020 CPUC decision previously discussed eliminates the continued use
of the WRAM beginning with the next general rate case application that will be
filed in 2023 and will set new rates for the years 2025 - 2027.
Electric
For the year ended December 31, 2020, revenues from electric operations were
$37.0 million as compared to $39.5 million for the year ended December 31, 2019.
This decrease was primarily due to the retroactive revenue impact resulting from
the final CPUC decision issued in the August 2019 in the electric general rate
case. The cumulative 2018 impact of the final decision was reflected in 2019's
electric revenues. This decrease was partially offset by an increase in base
rates effective for 2020 also authorized by the CPUC's August 2019 final
decision.
Billed electric usage for the year ended December 31, 2020 increased 4% as
compared to the same period in 2019.  Due to the CPUC-approved base revenue
requirement adjustment mechanism ("BRRAM"), which adjusts base revenues to
adopted levels authorized by the CPUC, changes in usage do not have a
significant impact on earnings.
Contracted Services
Revenues from contracted services are composed of construction revenues
(including renewal and replacements) and management fees for operating and
maintaining the water and/or wastewater systems at various military bases.  For
the year ended December 31, 2020, revenues from contracted services were $120.6
million as compared to $114.5 million for 2019.  The increase was primarily due
to an overall increase in construction activity, and an increase in management
fees resulting from the successful resolution of various economic price
adjustments at the military bases served. Offsetting these increases were
retroactive revenues included in 2019's revenues resulting from the successful
resolution of an economic price adjustment at one of the military bases served,
which totaled approximately $500,000 and related to periods prior to 2019. There
was no equivalent item during 2020.
ASUS's 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 bases served. During 2020, ASUS was
awarded approximately $15.5 million in new construction projects for completion
in 2020 and 2021. 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.
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Operating Expenses:
Supply Costs
Supply costs for the water segment consist of purchased water, purchased power
for pumping, groundwater production assessments and changes in the water supply
cost balancing accounts. Supply costs for the electric segment consist primarily
of purchased power for resale, the cost of natural gas used by BVESI's
generating unit, the cost of renewable energy credits and changes in the
electric supply cost balancing account. Water and electric gross margins are
computed by subtracting total supply costs from total revenues. Registrant uses
these gross margins and related percentages as an important measure in
evaluating its operating results. Registrant believes these measures are useful
internal benchmarks 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, these
measures, which are not presented in accordance with GAAP, may not be comparable
to similarly titled measures used by other enterprises 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 29.0% and 30.2% of total operating expenses for the
years ended December 31, 2020 and 2019, respectively. The table below provides
the amounts (in thousands) of increases (decreases) and percent changes in water
and electric revenues, supply costs and gross margins during the years ended
December 31, 2020 and 2019. There was a decrease of $585,000 in water
surcharges, and an increase of $276,000 in electric surcharges to recover
previously incurred costs. Surcharges to recover previously incurred costs are
recorded to revenues when billed to customers and are offset by a corresponding
amount in operating expenses, resulting in no impact to earnings. In addition,
included in 2019 was approximately $2.3 million of retroactive electric revenues
representing the fiscal 2018 increase in revenues approved by the CPUC in the
August 2019 general electric rate case decision.
                                               Year Ended      Year Ended         $             %
                                               12/31/2020      12/31/2019       CHANGE       CHANGE
WATER OPERATING REVENUES (1)                  $  330,637      $  319,830      $ 10,807         3.4  %
WATER SUPPLY COSTS:
Water purchased (1)                               74,554          72,289         2,265         3.1  %
Power purchased for pumping (1)                   10,134           8,660         1,474        17.0  %
Groundwater production assessment (1)             20,392          18,962         1,430         7.5  %
Water supply cost balancing accounts (1)         (12,060)         (8,153)       (3,907)       47.9  %
TOTAL WATER SUPPLY COSTS                      $   93,020      $   91,758      $  1,262         1.4  %
WATER GROSS MARGIN (2)                        $  237,617      $  228,072      $  9,545         4.2  %

ELECTRIC OPERATING REVENUES (1)               $   37,024      $   39,548      $ (2,524)       -6.4  %
ELECTRIC SUPPLY COSTS:
Power purchased for resale (1)                    10,423          11,796        (1,373)      -11.6  %
Electric supply cost balancing accounts (1)          257           1,127          (870)      -77.2  %
TOTAL ELECTRIC SUPPLY COSTS                   $   10,680      $   12,923      $ (2,243)      -17.4  %
ELECTRIC GROSS MARGIN (2)                     $   26,344      $   26,625      $   (281)       -1.1  %




(1)     As reported on AWR's Consolidated Statements of Income, except for
supply-cost-balancing accounts. The sums of water and electric supply-cost
balancing accounts in the table above are shown on AWR's Consolidated Statements
of Income and totaled $(11,803,000) and $(7,026,000) for the years ended
December 31, 2020 and 2019, respectively. Revenues include surcharges that have
no net earnings impact because they increase both revenues and operating
expenses by corresponding amounts.
(2)     Water and electric gross margins do not include depreciation and
amortization, maintenance, administrative and general, property and other taxes,
and other operation expenses.
Two of the principal factors affecting water supply costs are the amount of
water produced and the source of the water. Generally, the variable cost of
producing water from wells is less than the cost of water purchased from
wholesale suppliers. Under the CPUC-approved Modified Cost Balancing Account
("MCBA"), GSWC tracks adopted and actual expense levels for purchased water,
power purchased for pumping and pump taxes. GSWC records the variances (which
include the effects of changes in both rate and volume) between adopted and
actual purchased water, purchased power and pump tax expenses. GSWC recovers
from, or refunds to, customers the amount of such variances.  GSWC tracks these
variances individually for each water ratemaking area. The August 2020 CPUC
decision previously discussed, which eliminates the continued use of the
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WRAM, also eliminates the MCBA beginning with the next general rate case
application that will be filed in 2023 and will set new rates for the years 2025
- 2027.
The overall actual percentages for purchased water for each of the years ended
December 31, 2020 and 2019 was 44%, as compared to the adopted percentages of
34% and 36% for 2020 and 2019, respectively. The higher actual percentages of
purchased water as compared to adopted percentages resulted primarily from
several wells being out of service. Purchased water costs for the year ended
December 31, 2020 increased to $74.6 million as compared to $72.3 million for
the same period in 2019 primarily due to the higher mix of purchased water as
compared to pumped water and an increase in wholesale water costs.
The cost of power purchased for pumping increased to $10.1 million in 2020 as
compared to $8.7 million for the same period in 2019, and groundwater production
assessments increased to $20.4 million in 2020 as compared to $19.0 million in
2019. The increases in both of these areas were due to increased rates and pump
taxes as compared to 2019. The under-collection in the water supply cost
balancing account increased $3.9 million during 2020 as compared to 2019 due to
the higher than adopted supply costs.
For the year ended December 31, 2020, the cost of power purchased for resale to
BVESI's customers was $10.4 million as compared to $11.8 million for the same
period in 2019 due to a decrease in the average price per megawatt-hour ("MWh").
The average price per MWh, including fixed costs, decreased to $67.52 per MWh in
2020 from $75.47 per MWh for the year ended December 31, 2019.
Other Operation
The primary components of other operation expenses include payroll, materials
and supplies, chemicals and water-treatment costs, and outside service costs of
operating the regulated water and electric systems, including the costs
associated with transmission and distribution, pumping, water quality, meter
reading, billing, and operations of district offices.  Registrant's contracted
services operations incur many of the same types of expenses.  For the years
ended December 31, 2020 and 2019, other operation expenses by business segment
consisted of the following amounts (in thousands):
                            Year             Year
                            Ended            Ended           $           %
                         12/31/2020       12/31/2019       CHANGE      CHANGE
Water Services          $    23,690      $    23,664      $   26        0.1  %
Electric Services             2,705            2,672          33        1.2  %
Contracted Services           6,841            6,420         421        6.6  %
Total other operation   $    33,236      $    32,756      $  480        1.5  %


For the year ended December 31, 2020, there was a $967,000 decrease in billed
surcharges at the water segment related to the recovery of previously incurred
other operation-related expenses. This decrease in billed surcharges has a
corresponding decrease in other operation expense, resulting in no impact to
earnings. Excluding this decrease, other operation costs increased by $993,000
due to an increase in chemical and water treatment costs, and an increase in bad
debt expense due to expected increases in delinquent customer payments as a
result of the COVID-19 pandemic. However, bad debt expense in excess of what is
included in GSWC's water revenue requirement has been included in the
CPUC-approved catastrophic event memorandum account to be filed for future
recovery.
For the year ended December 31, 2020, other operation expenses for contracted
services increased primarily due to an increase in bad debt expense related to
certain non-U.S. government receivable balances.
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Administrative and General
Administrative and general expenses include payroll related to administrative
and general functions, all employee-related benefits, insurance expenses,
outside legal and consulting fees, regulatory utility commission expenses,
expenses associated with being a public company and general corporate expenses
charged to expense accounts. For the years ended December 31, 2020 and 2019,
administrative and general expenses by business segment, including AWR (parent),
consisted of the following amounts (in thousands):
                                        Year             Year
                                        Ended            Ended            $            %
                                     12/31/2020       12/31/2019       CHANGE       CHANGE
Water Services                      $    55,067      $    51,755      $ 3,312         6.4  %
Electric Services                         8,639            8,150          489         6.0  %
Contracted Services                      19,900           23,120       (3,220)      -13.9  %
AWR (parent)                                  9                9            -           -  %

Total administrative and general $ 83,615 $ 83,034 $ 581 0.7 %

For the year ended December 31, 2020, administrative and general expenses at the
water segment increased due, in part, to a $1.1 million reduction recorded in
2019 to reflect the CPUC's approval in May 2019 for recovery of previously
incurred costs that were being tracked in CPUC-authorized memorandum accounts.
Excluding this item and surcharges, administrative and general expenses at the
water segment increased by $2.2 million as a result of increases in labor costs
and other employee-related benefits, insurance costs, and regulatory costs
incurred in connection with the pending general rate case.
For the year ended December 31, 2020, administrative and general expenses at the
electric segment include an increase of $145,000 in billed surcharges, with a
corresponding and offsetting increase in administrative and general expenses.
The remaining increase was due to higher labor costs and other employee-related
benefits, and outside service costs as compared to 2019.
For the year ended December 31, 2020, administrative and general expenses for
contracted services decreased by $3.2 million due to lower (i) legal and other
outside services, (ii) labor costs and other employee-related benefit, and (iii)
travel and related costs resulting from the impact of COVID-19, as compared to
the same period in 2019.
Depreciation and Amortization
For the years ended December 31, 2020 and 2019, depreciation and amortization
expense by segment consisted of the following amounts (in thousands):
                                           Year             Year
                                           Ended            Ended            $           %
                                        12/31/2020       12/31/2019       CHANGE       CHANGE
Water Services                         $    30,969      $    29,956      $ 1,013        3.4  %
Electric Services                            2,479            2,485           (6)      -0.2  %
Contracted Services                          3,402            2,956        

446 15.1 % Total depreciation and amortization $ 36,850 $ 35,397 $ 1,453 4.1 %

The increases in depreciation expense resulted mostly from additions to utility
plant and other fixed assets. Included in 2019's depreciation expense for the
electric segment was the impact of the August 2019 CPUC decision in the electric
general rate case, which was retroactive to January 1, 2018.
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Maintenance

For the years ended December 31, 2020 and 2019, maintenance expense by segment consisted of the following amounts (in thousands):

                          Year             Year
                          Ended            Ended           $           %
                       12/31/2020       12/31/2019       CHANGE      CHANGE
Water Services        $    11,737      $    11,850      $ (113)      -1.0  %
Electric Services             985              993          (8)      -0.8  %
Contracted Services         2,980            2,623         357       13.6  %
Total maintenance     $    15,702      $    15,466      $  236        1.5  %


Maintenance increased at the contracted services segment due to higher planned
maintenance performed as compared to 2019.
Property and Other Taxes
For the years ended December 31, 2020 and 2019, property and other taxes by
segment, consisted of the following amounts (in thousands):
                                       Year             Year
                                       Ended            Ended            $           %
                                    12/31/2020       12/31/2019       CHANGE       CHANGE
Water Services                     $    18,261      $    17,034      $ 1,227        7.2  %
Electric Services                        1,232            1,134           98        8.6  %
Contracted Services                      2,706            1,874         

832 44.4 % Total property and other taxes $ 22,199 $ 20,042 $ 2,157 10.8 %

Property and other taxes increased overall by $2.2 million during 2020 as
compared to 2019 due, in large part, from an increase in property taxes
resulting from capital additions and the associated higher assessed property
values. There was also an increase in non-income tax assessments and fees due to
an increase in gross revenues at the contracted services segment.
ASUS Construction
For the year ended December 31, 2020, construction expenses for contracted
services were $62.4 million, increasing by $6.7 million compared to 2019 due to
an overall increase in construction activity, as well as additional costs
incurred on certain construction projects.
Interest Expense
For the years ended December 31, 2020 and 2019, interest expense by segment,
including AWR (parent), consisted of the following amounts (in thousands):
                              Year             Year
                              Ended            Ended            $             %
                           12/31/2020       12/31/2019        CHANGE       CHANGE
Water Services            $    20,946      $    21,966      $ (1,020)       -4.6  %
Electric Services                 767            1,433          (666)      -46.5  %
Contracted Services               478              587          (109)      -18.6  %
AWR (parent)                      340              600          (260)      -43.3  %
Total interest expense    $    22,531      $    24,586      $ (2,055)       -8.4  %


An overall decrease in interest expense resulted from the benefits of lower
interest rates in 2020 compared to 2019, partially offset by higher overall
borrowing levels. In July 2020, GSWC issued new unsecured long-term private
placement notes totaling $160.0 million. As a result, interest expense at the
water segment is expected to increase consistent with its capital expenditures
program. In addition, the decrease in interest expense at the electric segment
is due, in part, to the recording of allowance for funds used during
construction on certain construction projects. However, interest expense is also
expected to increase at the electric segment as a result of increased capital
expenditures anticipated in connection with its wildfire mitigation plans.
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Interest Income
For the years ended December 31, 2020 and 2019, interest income by business
segment, including AWR (parent), consisted of the following amounts (in
thousands):
                            Year             Year
                            Ended            Ended            $             %
                         12/31/2020       12/31/2019        CHANGE       CHANGE
Water Services          $       634      $     1,662      $ (1,028)      -61.9  %
Electric Services               183              205           (22)      -10.7  %
Contracted Services             974            1,321          (347)      -26.3  %
AWR (parent)                     10               61           (51)      -83.6  %
Total interest income   $     1,801      $     3,249      $ (1,448)      -44.6  %


For the year ended December 31, 2020, interest income decreased overall by $1.4
million as compared to 2019 due primarily to lower interest income earned on
regulatory assets at the water segment bearing interest at the current 90-day
commercial paper rate, which decreased compared to 2019, as well as lower
regulatory asset balances resulting from the recovery of such balances through
surcharges in place. There was also a decrease in interest income recognized on
certain initial construction projects performed at the contracted services
segment.
Other Income and (Expense), net
For the years ended December 31, 2020 and 2019, other income and (expense) by
business segment, including AWR (parent), consisted of the following amounts (in
thousands):
                            Year             Year
                            Ended            Ended            $            %
                         12/31/2020       12/31/2019       CHANGE       CHANGE
Water Services          $     4,495      $     3,257      $ 1,238        38.0  %
Electric Services               248               23          225              *
Contracted Services            (138)            (238)         100       -42.0  %
AWR (parent)                    248              234           14         6.0  %
Total interest income   $     4,853      $     3,276      $ 1,577        48.1  %


* not meaningful
For the year ended December 31, 2020, other income increased by $1.6 million
primarily due primarily to a decrease in the non-service cost components of net
periodic benefit costs related to Registrant's defined benefit pension plans and
other retirement benefits as compared to 2019. Because of GSWC's and BVESI's
two-way pension balancing accounts authorized by the CPUC, changes in pension
costs have no material impact to net earnings at the regulated utilities. The
decrease in the non-service cost components was partially offset by lower gains
recognized on investments held for a retirement benefit plan because of recent
market conditions, as compared to 2019.
Income Tax Expense
For the years ended December 31, 2020 and 2019, income tax expense by segment,
including AWR (parent), consisted of the following amounts (in thousands):
                                Year             Year
                                Ended            Ended            $            %
                             12/31/2020       12/31/2019       CHANGE       CHANGE
Water Services              $    20,515      $    17,295      $ 3,220        18.6  %
Electric Services                 2,689            2,882         (193)       -6.7  %
Contracted Services               5,201            5,202           (1)          -  %
AWR (parent)                       (208)            (709)         501       -70.7  %
Total income tax expense    $    28,197      $    24,670      $ 3,527        14.3  %


Consolidated income tax expense for the year ended December 31, 2020 increased
by $3.5 million due to an increase in pretax income and a higher overall
effective income tax rate ("ETR"). AWR's consolidated effective ETR was 24.6%
and 22.6% for the years ended December 31, 2020 and 2019, respectively. The
increase was due primarily to the increase in GSWC's ETR, which was 25.0% for
2020 as compared to 23.2% for 2019 resulting primarily from net changes in
certain flow-through and permanent items. The decrease in the tax benefit at AWR
(parent) was the result of changes in state unitary taxes.
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Information comparing the consolidated results of operations for fiscal years
2019 and 2018 can be found under Item 7, Management's Discussion and Analysis
under the heading "Consolidated Results of Operations-Years Ended December 31,
2019 and 2018" in AWR's Annual Report on Form 10-K for the fiscal year ended
December 31, 2019 filed with the SEC.
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Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that are important to the
portrayal of AWR's financial condition, results of operations and cash flows,
and require the most difficult, subjective or complex judgments of AWR's
management. The need to make estimates about the effect of items that are
uncertain is what makes these judgments difficult, subjective and/or complex.
Management makes subjective judgments about the accounting and regulatory
treatment of many items. The following are accounting policies that are critical
to the financial statements of AWR. For more information regarding the
significant accounting policies of Registrant, see Note 1 of "  Notes to
Financial Statements  " included in Part II, Item 8, in Financial Statements and
Supplementary Data.
Accounting for Rate Regulation - Because GSWC and BVESI operate extensively in
regulated businesses, they are subject to the authoritative guidance for
accounting for the effects of certain types of regulation.  Application of this
guidance requires accounting for certain transactions in accordance with
regulations adopted by the regulatory commissions of the states in which
rate-regulated operations are conducted.  Utility companies defer costs and
credits on the balance sheet as regulatory assets and liabilities when it is
probable that those costs and credits will be recognized in the ratemaking
process in a period different from the period in which they would have been
reflected in income by an unregulated company. These deferred regulatory assets
and liabilities are then reflected in the income statement in the period in
which the same amounts are reflected in the rates charged for service.
Regulation and the effects of regulatory accounting have the most significant
impact on the financial statements of GSWC and BVESI. When either files for
adjustments to rates, the capital assets, operating costs and other matters are
subject to review, and disallowances may occur. In the event that a portion of
either GSWC's or BVESI's operations are no longer subject to the accounting
guidance for the effects of certain types of regulation, they are required to
write-off related regulatory assets that are not specifically recoverable and
determine if other assets might be impaired.  If the CPUC determines that a
portion of either GSWC's or BVESI's assets are not recoverable in customer
rates, management is required to determine if it has suffered an asset
impairment that would require a write-down in the asset valuation.  Management
continually evaluates the anticipated recovery, settlement or refund of
regulatory assets, liabilities, and revenues subject to refund and provides for
allowances and/or reserves that it believes to be necessary.  In the event that
management's assessment as to the probability of the inclusion in the ratemaking
process is incorrect, the associated regulatory asset or liability will be
adjusted to reflect the change in assessment or the impact of regulatory
approval of rates. Reviews by the CPUC may also result in additional regulatory
liabilities to refund previously collected revenues to customers if the CPUC
were to disallow costs included in the ratemaking process.
Registrant also reviews its utility plant in-service for possible impairment in
accordance with accounting guidance for regulated entities for abandonments and
disallowances of plant costs.
Revenue Recognition - GSWC and BVESI record water and electric utility operating
revenues when the service is provided to customers. Operating revenues include
unbilled revenues that are earned (i.e., the service has been provided) but not
billed by the end of each accounting period. Unbilled revenues are calculated
based on the number of days and total usage from each customer's most recent
billing record that was billed prior to the end of the accounting period and is
used to estimate unbilled consumption as of the year-end reporting period.
Unbilled revenues are recorded for both monthly and bi-monthly customers.
In 2008, the CPUC granted GSWC the authority to implement revenue decoupling
mechanisms through the adoption of the WRAM.  With the adoption of this
alternative revenue program, GSWC adjusts revenues in the WRAM for the
difference between what is billed to its water customers and that which is
authorized by the CPUC. In a final decision issued by the CPUC in August 2020,
any general rate case application filed by GSWC and the other California water
utilities after the August 27, 2020 effective date of this decision, may not
include a proposal to continue the use of the WRAM, but may instead include a
proposal to use a limited price adjustment mechanism (the Monterey-Style WRAM).
The final decision will not have any impact on GSWC's WRAM balances during the
current rate cycle covering the years 2019 - 2021, nor the pending general rate
case application filed in July 2020 that will set new rates for the years 2022 -
2024. However, the next general rate case application in 2023 covering the years
2025 - 2027 will not include the continued use of the WRAM. The CPUC also
granted BVESI a revenue decoupling mechanism through the BRRAM. BVESI adjusts
revenues in the BRRAM for the difference between what is billed to its electric
customers and that which is authorized by the CPUC.
As required by the accounting guidance for alternative revenue programs, GSWC
and BVESI are required to collect their WRAM and BRRAM balances, respectively,
within 24 months following the year in which they are recorded.  The CPUC has
set the recovery period for under-collected balances that are up to 15% of
adopted annual revenues at 18 months or less.  For net WRAM under-collected
balances greater than 15%, the recovery period is 19 to 36 months. As a result
of the accounting guidance and CPUC-adopted recovery periods, Registrant must
estimate if any WRAM and BRRAM revenues will be collected beyond the 24-month
period, which can affect the timing of when such revenues are recognized.
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ASUS's 50-year firm fixed-price contracts with the U.S. government are
considered service concession arrangements under ASC 853 Service Concession
Arrangements. Accordingly, the services under these contracts are accounted for
under Topic 606 Revenue from Contracts with Customers and the water and/or
wastewater systems are not recorded as Property, Plant and Equipment on
Registrant's balance sheet. Revenues for ASUS's operations and maintenance
contracts are recognized when services have been rendered to the U.S. government
pursuant to 50-year contracts. Revenues from construction activities are
recognized based on either the percentage-of-completion or cost-plus methods of
accounting.  In accordance with GAAP, revenue recognition under these methods
requires management to estimate the progress toward completion on a contract in
terms of efforts, such as costs incurred.  This approach is used because
management considers it to be the best available measure of progress on these
contracts. Changes in job performance, job conditions, change orders and
estimated profitability, including those arising from any contract penalty
provisions, and final contract settlements may result in revisions to costs and
income, and are recognized in the period in which the revisions are determined.
Unbilled receivables from the U.S. government represent amounts to be billed for
construction work completed and/or for services rendered pursuant to the 50-year
contracts with the U.S government, which are not presently billable but which
will be billed under the terms of the contracts.
Income Taxes - Registrant's income tax calculations require estimates due
principally to the regulated nature of the operations of GSWC and BVESI, the
multiple states in which Registrant operates, and potential future tax rate
changes. Registrant uses the asset and liability method of accounting for income
taxes under which deferred tax assets and liabilities are recognized for future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which these temporary
differences are expected to be recovered or settled. Changes in regulatory
treatment, or significant changes in tax-related estimates, assumptions or law,
could have a material impact on the financial position and results of operations
of Registrant.
As regulated utilities, GSWC and BVESI treat certain temporary differences as
flow-through adjustments in computing their income tax expense 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 and the statutory federal income
tax rate in any given period than would otherwise exist if GSWC or BVESI were
not required to account for its income taxes as regulated enterprises. As of
December 31, 2020, Registrant's total amount of unrecognized tax benefits was
zero.
Pension Benefits - Registrant's pension benefit obligations and related costs
are calculated using actuarial concepts within the framework of accounting
guidance for employers' accounting for pensions and post-retirement benefits
other than pensions.  Two critical assumptions, the discount rate and the
expected return on plan assets, are important elements of expense and/or
liability measurement. We evaluate these critical assumptions annually. Other
assumptions include employee demographic factors such as retirement patterns,
mortality, turnover and rate of compensation increase. The discount rate enables
Registrant to state expected future cash payments for benefits as a present
value on the measurement date. The guideline for setting this rate is a
high-quality, long-term corporate bond rate. Registrant's discount rates were
determined by considering the average of pension yield curves constructed using
a large population of high-quality corporate bonds. The resulting discount rates
reflect the matching of plan liability cash flows to the yield curves.  A lower
discount rate increases the present value of benefit obligations and increases
periodic pension expense. Conversely, a higher discount rate decreases the
present value of benefit obligations and decreases periodic pension expense.  To
determine the expected long-term rate of return on the plan assets, Registrant
considers the current and expected asset allocation, as well as historical and
expected returns on each plan asset class. A lower expected rate of return on
plan assets will increase pension expense. The long-term expected return on the
pension plan's assets was 6.25% for 2020 and 6.5% for 2019.
For the pension plan obligation, Registrant decreased the discount rate to 2.55%
as of December 31, 2020 from 3.43% as of December 31, 2019 to reflect market
interest-rate conditions at December 31, 2020. A hypothetical 25-basis point
further decrease in the assumed discount rate would have increased total net
periodic pension expense for 2020 by approximately $933,000, or 23.3%, and would
have increased the projected benefit obligation ("PBO") and accumulated benefit
obligation ("ABO") at December 31, 2020 by a total of $10.9 million, or 4.0%.  A
25-basis point further decrease in the long-term return on pension-plan-asset
assumption would have increased 2020 pension cost by approximately $472,000, or
11.8%.
In addition, changes in the fair value of plan assets will impact future pension
cost and the Plan's funded status.  Volatile market conditions can affect the
value of plan assets held to fund its future long-term pension benefits. Any
reductions in the value of plan assets will result in increased future expense,
an increase in the underfunded position, and increase the required future
contributions.
The CPUC has authorized GSWC and BVESI to each maintain a two-way balancing
account to track differences between their forecasted annual pension expenses
adopted in rates and the actual annual expense to be recorded in accordance with
the accounting guidance for pension costs.  As of December 31, 2020, GSWC has a
$1.0 million over-collection in its two-
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way pension balancing account for the general office and water regions. As of
December 31, 2020, BVESI has a $206,000 over-collection in its two-way pension
balancing account.
Funding requirements for qualified defined benefit pension plans are determined
by government regulations.  In establishing the contribution amount, Registrant
has considered the potential impact of funding-rule changes under the Pension
Protection Act of 2006. Registrant contributes the minimum required contribution
as determined by government regulations or the forecasted annual pension cost
authorized by the CPUC and included in customer rates, whichever is higher. In
accordance with this funding policy, for 2021 the pension contribution is
expected to be approximately $3.6 million. Any differences between the
forecasted annual pension costs in rates and the actual pension costs are
included in the two-way pension balancing accounts.  Additionally, market
factors can affect assumptions we use in determining funding requirements with
respect to our pension plan. For example, a relatively modest change in our
assumptions regarding discount rates can materially affect our calculation of
funding requirements. To the extent that market data compels us to reduce the
discount rate used in our assumptions, our benefit obligations could materially
increase.
Changes in demographics, including increased numbers of retirees or increases in
life expectancy assumptions may also increase the funding requirements of our
obligations related to the pension plan.  Mortality assumptions are a critical
component of benefit obligation amounts and a key factor in determining the
expected length of time for annuity payments. Assuming no changes in actuarial
assumptions or plan amendments, the costs over the long term are expected to
decrease due to the closure of Registrant's defined benefit pension plan to new
employees as of January 1, 2011.  Employees hired or rehired after December 31,
2010 are eligible to participate in a defined contribution plan.
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Liquidity and Capital Resources
AWR
Registrant's regulated business is capital intensive and requires considerable
capital resources. A portion of these capital resources is provided by
internally generated cash flows from operations. AWR anticipates that interest
expense will increase in future periods due to the need for additional external
capital to fund its construction program and as market interest rates increase.
In addition, as the capital investment program continues to increase, coupled
with the elimination of bonus depreciation for regulated utilities due to tax
reform enacted in 2017, AWR and its subsidiaries anticipate they will need to
access external financing more often. AWR believes that costs associated with
capital used to fund construction at GSWC and BVESI will continue to be
recovered through water and electric rates charged to customers.
AWR funds its operating expenses and pays dividends on its outstanding Common
Shares primarily through dividends from its wholly owned subsidiaries. The
ability of GSWC and BVESI to pay dividends to AWR is restricted by California
law. Under these restrictions, approximately $583.3 million was available for
GSWC to pay dividends to AWR on December 31, 2020. Approximately $62.8 million
was available for BVESI to pay dividends to AWR as of December 31, 2020. ASUS's
ability to pay dividends to AWR is dependent upon state laws in which each
Military Utility Privatization Subsidiary operates, as well as ASUS's ability to
pay dividends under California law.
When necessary, Registrant obtains funds from external sources in the capital
markets and through bank borrowings under revolving credit facilities. Access to
external financing on reasonable terms depends on the credit ratings of AWR and
GSWC and current business conditions, including that of the water utility
industry in general, as well as conditions in the debt and equity capital
markets. AWR currently has access to a $200.0 million credit facility and
borrows under this facility, which expires in May 2023, to provide funds to GSWC
and ASUS in support of their operations.  The interest rate charged to GSWC and
ASUS is sufficient to cover AWR's interest expense under the credit facility. As
of December 31, 2020, there was $134.2 million outstanding under this facility.
BVESI has a 3-year, $35.0 million revolving credit facility. As of December 31,
2020, there was $20.2 million outstanding under this facility. Borrowings made
under this facility support BVESI's operations and capital expenditures. Under
the terms of the credit agreement, BVESI has the option to request an increase
in the facility by an additional $15.0 million. Furthermore, the CPUC issued a
decision in December 2019 approving, among other things, BVESI's authority to
issue long-term financing not to exceed $75 million.
On May 7, 2020, the CPUC also approved GSWC's finance application filed in
November 2019 requesting authority to issue additional long-term debt and equity
securities not to exceed $465 million to support its water operations. Following
the CPUC's approval, on July 8, 2020, GSWC completed the issuance of unsecured
private placement notes totaling $160.0 million. This financing consisted of
GSWC issuing $85.0 million in 2.17% senior notes which mature in 2030, and $75.0
million in 2.90% senior notes which mature in 2040. GSWC used the proceeds from
the notes to pay down a majority of its intercompany borrowings from AWR. AWR
used the proceeds from GSWC to pay down amounts outstanding under its credit
facility. Previously, AWR had amended the credit facility to temporarily
increase the borrowing capacity up to $260 million in order to meet the
operational needs of GSWC and ASUS. Following the issuance of GSWC's notes and
effective July 15, 2020, AWR reduced the aggregate borrowing capacity back down
to $200 million pursuant to the terms of the revolving credit facility
agreement.
As part of the response to the COVID-19 pandemic, GSWC and BVESI have suspended,
through June 30, 2021, service disconnections for non-payment pursuant to CPUC
orders. This is expected to reduce Registrant's cash flows from operating
activities and increase borrowings under AWR's and BVESI's credit facilities.
The magnitude of the reduction to cash flows is difficult to predict at this
time, and is dependent on variables such as the duration of any stay-at-home
orders issued by state and local governments and the associated impact such
orders have on the economy, how successful such measures would be in containing
the outbreak, and the nature and effectiveness of government assistance.
In June 2020, Standard and Poor's Global Ratings ("S&P") affirmed an A+ credit
rating with a stable outlook on both AWR and GSWC. S&P's debt ratings range from
AAA (highest possible) to D (obligation is in default). Also in June 2020,
Moody's Investors Service ("Moody's") reaffirmed its A2 rating with a stable
outlook for GSWC. Securities ratings are not recommendations to buy, sell or
hold a security, and are subject to change or withdrawal at any time by the
rating agencies. Registrant believes that AWR's sound capital structure and A+
credit rating, combined with its financial discipline, will enable Registrant to
access the debt and equity markets. However, unpredictable financial market
conditions in the future may limit its access or impact the timing of when to
access the market, in which case Registrant may choose to temporarily reduce its
capital spending.
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AWR's ability to pay cash dividends on its Common Shares outstanding depends
primarily upon cash flows from its subsidiaries. AWR intends to continue paying
quarterly cash dividends in the future, on or about March 1, June 1, September 1
and December 1, subject to earnings and financial conditions, regulatory
requirements and such other factors as the Board of Directors may deem relevant.
On February 2, 2021, AWR's Board of Directors approved a first quarter dividend
of $0.335 per share on AWR's Common Shares. Dividends on the Common Shares will
be paid on March 2, 2021 to shareholders of record at the close of business on
February 16, 2021. AWR has paid dividends on its Common Shares for over 81
consecutive years, and has increased the dividends received by shareholders each
calendar year for 66 consecutive years, which places it in an exclusive group of
companies on the New York Stock Exchange that have achieved that result.
Registrant's current policy is to achieve a compound annual growth rate in the
dividend of more than 7% over the long-term.
Registrant's current liabilities may at times exceed its current assets.
Management believes that internally generated cash flows from operations,
borrowings from AWR's and BVESI's credit facilities, and access to long-term
financing from capital markets will be adequate to provide sufficient capital to
maintain normal operations and to meet its capital and financing requirements.
Cash Flows from Operating Activities:
Cash flows from operating activities have generally provided sufficient cash to
fund operating requirements, including a portion of construction expenditures at
GSWC and BVESI, and construction expenses at ASUS, and to pay dividends.
Registrant's future cash flows from operating activities are expected to be
affected by a number of factors, including utility regulation; changes in tax
law; maintenance expenses; inflation; compliance with environmental, health and
safety standards; production costs; customer growth; per-customer usage of water
and electricity; weather and seasonality; conservation efforts; compliance with
local governmental requirements, including mandatory restrictions on water use;
the impact of the COVID-19 pandemic on its customers' ability to pay utility
bills and required cash contributions to pension and post-retirement plans.
Future cash flows from contracted services subsidiaries will depend on new
business activities, existing operations, the construction of new and/or
replacement infrastructure at military bases, timely economic price and
equitable adjustment of prices, and timely collection of payments from the U.S.
government and other prime contractors operating at the military bases and any
adjustments arising out of an audit or investigation by federal governmental
agencies.
ASUS funds its operating expenses primarily through internal operating sources,
which include U.S. government funding under 50-year contracts for operations and
maintenance costs and construction activities, as well as investments by, or
loans from, AWR. ASUS, in turn, provides funding to its subsidiaries. ASUS's
subsidiaries may also from time to time provide funding to ASUS or its
subsidiaries.
Cash flows from operating activities are primarily generated by net income,
adjusted for non-cash expenses such as depreciation and amortization.  Cash
generated by operations varies during the year. Net cash provided by operating
activities was $122.2 million for the year ended December 31, 2020 as compared
to $116.9 million for the year ended December 31, 2019.  The increase in cash
was due, in part, to the refunding of $7.2 million to water customers during the
third quarter of 2019 related to the 2017 Tax Cuts and Jobs Act. There were no
equivalent refunds made during the same period in 2020. There was also an
increase in customer rates effective January 1, 2020 as well as higher water
customer usage during 2020, which reduced the WRAM under-collection as compared
to 2019. These increases were partially offset by a decrease in cash flows from
accounts receivable from utility customers due to the economic impact of the
COVID-19 pandemic, and the CPUC-mandated suspension of service disconnections to
customers for non-payment. There were also decreases in cash flows resulting
from the timing in billing of and cash receipts for construction work at
military bases during the year ended December 31, 2020. The billings (and cash
receipts) for construction work at our contracted services segment generally
occur at completion of the work or in accordance with a billing schedule
contractually agreed to with the U.S. government and/or other prime contractors.
Thus, cash flow from construction-related activities may fluctuate from period
to period with such fluctuations representing timing differences of when the
work is being performed and when the cash is received for payment of the work.
The timing of cash receipts and disbursements related to other working capital
items also affected the change in net cash provided by operating activities.
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Cash Flows from Investing Activities:
Net cash used in investing activities was $131.6 million for the year ended
December 31, 2020 as compared to $153.2 million used in 2019 largely due to a
decrease in capital expenditures at GSWC, partially offset by an increase in
capital expenditures at BVESI. GSWC's capital expenditures activity has been
negatively affected by the COVID-19 pandemic, including among other things,
local mandated restrictions on shutting off service as part of the response to
the pandemic. These restrictions have impacted pipeline replacement projects,
which require temporary service shut-offs in order to complete them. There has
also been delays in obtaining permits from local cities and governments.
Registrant invests capital to provide essential services to its regulated
customer base, while working with its regulators to have the opportunity to earn
a fair rate of return on investment. Registrant's infrastructure investment plan
consists of both infrastructure renewal programs (where infrastructure is
replaced, as needed) and major capital investment projects (where new water
treatment, supply and delivery facilities are constructed). GSWC may also be
required from time to time to relocate existing infrastructure in order to
accommodate local infrastructure improvement projects. Projected capital
expenditures and other investments are subject to periodic review and revision.
During 2021, the regulated utilities' company-funded capital expenditures are
expected to be between $120 and $135 million. Cash used for other investments
consists primarily of cash invested in a trust for a retirement benefit plan.
Cash Flows from Financing Activities:
Registrant's financing activities include primarily: (i) the sale proceeds from
the issuance of Common Shares; (ii) the issuance and repayment of long-term debt
and notes payable to banks; and (iii) the payment of dividends on Common
Shares.  In order to finance new infrastructure, GSWC also receives customer
advances (net of refunds) for, and contributions in aid of, construction.
Borrowings on AWR's and BVESI's credit facilities are used to fund GSWC and
BVESI capital expenditures, respectively, until long-term financing is arranged.
Overall debt levels are expected to increase to fund a portion of the costs of
the capital expenditures that will be made by Registrant.
Net cash provided by financing activities was $44.8 million for the year ended
December 31, 2020 as compared to $30.5 million provided for 2019. The increase
in cash provided by financing activities in 2020 was due to the issuance by GSWC
of new unsecured private placement notes totaling $160.0 million. There were
also net borrowings on BVESI's credit facility, which was established in July of
2020. These increases in cash were partially offset by the pay down in
borrowings on AWR's credit facility using the proceeds from GSWC's $160.0
million debt issuance. A portion of the net borrowings from AWR's credit
facility during 2019 was used to fund the repayment of $40.0 million senior
notes, which matured in March 2019.
GSWC
GSWC funds its operating expenses, payments on its debt, dividends on its
outstanding common shares, and a portion of its construction expenditures
through internal sources. Internal sources of cash flow are provided primarily
by retention of a portion of earnings from operating activities. Internal cash
generation is influenced by factors such as weather patterns, conservation
efforts, environmental regulation, litigation, changes in tax law and deferred
taxes, changes in supply costs and regulatory decisions affecting GSWC's ability
to recover these supply costs, timing of rate relief, increases in maintenance
expenses and capital expenditures, surcharges authorized by the CPUC to enable
GSWC to recover expenses previously incurred from customers, and CPUC
requirements to refund amounts previously charged to customers. Internal cash
flows may also be impacted from delays in receiving payments from GSWC customers
due to the economic impact of the COVID-19 pandemic and state legislation
suspending customer disconnections for non-payment.
GSWC may, at times, utilize external sources for long-term financing, as well as
obtain funds from equity investments and intercompany borrowings from AWR to
help fund a portion of its operations and construction expenditures. On July 8,
2020, GSWC completed the issuance of unsecured private placement notes totaling
$160.0 million. Furthermore, AWR borrows under a revolving credit facility,
which expires in May 2023, and provides funds to GSWC in support of its
operations under intercompany borrowing arrangements.
In addition, GSWC receives advances and contributions from customers,
homebuilders and real estate developers to fund construction necessary to extend
service to new areas. Advances for construction are generally refundable at a
rate of 2.5% in equal annual installments over 40 years.  Amounts that are no
longer subject to refund are reclassified to contributions in aid of
construction. Utility plant funded by advances and contributions is excluded
from rate base. Generally, GSWC amortizes contributions in aid of construction
at the same composite rate of depreciation for the related property.
As is often the case with public utilities, GSWC's current liabilities may at
times exceed its current assets.  Management believes that internally generated
funds, along with the proceeds from the issuance of long-term debt, borrowings
from AWR and common share issuances to AWR, will be adequate to provide
sufficient capital to enable GSWC to maintain normal operations and to meet its
capital and financing requirements pending recovery of costs in rates.
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The CPUC requires GSWC to completely pay down all intercompany borrowings from
AWR within a 24-month period. The end of the next 24-month period in which GSWC
was required to completely pay down its intercompany borrowings was in November
2020. On October 27, 2020, the Board of Directors approved the issuance of five
additional GSWC common shares to AWR for $60.0 million. The five GSWC shares
were issued to AWR during the fourth quarter of 2020. GSWC used a portion of the
proceeds from the issuance to pay down intercompany borrowings owed to AWR. AWR
parent used these proceeds from GSWC to pay down amounts outstanding under its
credit facility.
On July 1, 2020, GSWC completed the transfer of the net assets from its electric
utility division to BVESI. As a result of this transfer, from July 1, 2020
onward, the cash flows of the electric segment are no longer included in GSWC's
statement of cash flows, but continue to be included in AWR's consolidated
statement of cash flows.
Cash Flows from Operating Activities:
Net cash provided by operating activities was $110.3 million for the year ended
December 31, 2020 as compared to $96.6 million for the same period in 2019. 

The

increase in cash was due, in part, to the refunding of $7.2 million to water
customers during the third quarter of 2019 related to the 2017 Tax Cuts and Jobs
Act. There were no equivalent refunds made during 2020. There was also an
increase in customer water rates effective January 1, 2020 as well as higher
water customer usage during 2020, which reduced the WRAM under-collection as
compared to 2019. These increase were partially offset by a decrease in cash
flows from accounts receivable from utility customers due to the economic impact
of the COVID-19 pandemic, and the CPUC-mandated suspension of customer service
disconnections for nonpayment. The timing of cash receipts and disbursements
related to other working capital items also affected the change in net cash
provided by operating activities.
Cash Flows from Investing Activities:
Net cash used in investing activities was $117.7 million for the year ended
December 31, 2020 as compared to $144.2 million for the same period in 2019.
During the years ended December 31, 2020 and 2019, cash paid for capital
expenditures was $116.4 million and $142.9 million, respectively. Due to the
electric utility reorganization effective July 1, 2020, GSWC's cash flows from
investing activities during 2020 include six months of electric utility capital
expenditures, as compared to twelve months of capital expenditures in 2019. In
addition, capital expenditures activity at GSWC has been negatively affected by
the COVID-19 pandemic, including among other things, local mandated restrictions
on shutting off service as part of the response to the pandemic, as well as
delays in obtaining permits from local cities and governments. These
restrictions have impacted pipeline replacement projects, which require
temporary service shut-offs in order to complete them.
In October 2020, AWR issued an interest bearing promissory note to GSWC, which
expires in May 2023. Under the terms of this note, AWR may borrow from GSWC
amounts up to $30 million for working capital purposes. AWR agrees to pay any
unpaid principal amounts outstanding under this note, plus accrued interest. In
November 2020, AWR borrowed $6 million from GSWC under the terms of the note,
which was subsequently repaid in December 2020. As of December 31, 2020, there
were no amounts outstanding under this note.
Cash Flows from Financing Activities:
Net cash provided by financing activities was $42.5 million for 2020 as compared
to $43.8 million for 2019. The decrease was largely due to an increase in
dividends paid to AWR parent in 2020 as compared to 2019. These dividends as
well as the pay down of intercompany borrowings from AWR were largely funded
through the issuance by GSWC of unsecured private placement notes totaling
$160.0 million, as well as the issuance of five additional GSWC common shares to
AWR for $60.0 million. In 2019, there were net intercompany borrowings from AWR
used to partially fund capital expenditures and to repay $40.0 million of GSWC
debt, which matured in 2019.
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Contractual Obligations, Commitments and Off-Balance-Sheet Arrangements
Registrant has various contractual obligations, which are recorded as
liabilities in the consolidated financial statements.  Other items, such as
certain purchase commitments, are not recognized as liabilities in the
consolidated financial statements but are required to be disclosed. In addition
to contractual maturities, Registrant has certain debt instruments that contain
annual sinking funds or other principal payments. Registrant believes that it
will be able to refinance debt instruments at their maturity through public
issuance or private placement of debt or equity. Annual payments to service debt
are generally made from cash flows from operations.
The following table reflects Registrant's contractual obligations and
commitments to make future payments pursuant to contracts as of December 31,
2020. The table reflects only financial obligations and commitments. Therefore,
performance obligations associated with our 50-year firm, fixed-price contracts
with the U.S. government at our contracted services segment are not included in
the amounts below.
                                                                                       Payments/Commitments Due by Period (1)
                                                                                Less than 1
($ in thousands)                                             Total                 Year              1-3 Years          4-5 Years           After 5 Years
Notes/Debentures (2)                                     $   187,000

$ - $ - $ - $ 187,000 Private Placement Notes (3)

                                  243,000                     -                  -                  -                

243,000

Tax-Exempt Obligations (4)                                    11,052                   159                357                405                 

10,131

Other Debt Instruments (5)                                     3,219                   199                431                474                   2,115
Total AWR Long-Term Debt                                 $   444,271          $        358                788          $     879          $      442,246

Interest on Long-Term Debt (6)                           $   276,106

$ 22,898 $ 45,752 $ 45,683 $ 161,773 Advances for Construction (7)

                                 66,777                 3,423              6,825              6,693                  

49,836

Renewable Energy Credit Agreement (8)                          1,858                   620              1,238                  -                       -
Purchased Power Contracts (9)                                 20,123                 5,644             10,419              4,060                       -
Capital Expenditures (10)                                     12,317                12,317                  -                  -                       -
Water Purchase Agreements (11)                                 3,762                   426                852                809                   1,675
Operating Leases (12)                                         13,456                 2,561              4,143              2,827                   3,925
Employer Contributions (13)                                   27,826                 3,626             14,840              9,360
SUB-TOTAL                                                $   422,225          $     51,515          $  84,069          $  69,432          $      217,209

Other Commitments (14)                                       144,109

TOTAL                                                    $ 1,010,605




(1) Excludes dividends and facility fees.
(2) The notes and debentures have been issued by GSWC under an Indenture dated
September 1, 1993, as amended in December 2008. The notes and debentures do not
contain any financial covenants that Registrant believes to be material or any
cross-default provisions.
(3) GSWC issued private placement notes in 1991 in the amount of $28.0 million
pursuant to the terms of note purchase agreements with substantially similar
terms. These agreements contain restrictions on the payment of dividends,
minimum interest coverage requirements, a maximum debt-to-capitalization ratio,
and a negative pledge. Pursuant to the terms of these agreements, GSWC must
maintain a minimum interest coverage ratio of two times interest expense.  In
addition, senior private placement notes totaling $215.0 million have been
issued to various banks, including $160.0 million of unsecured private placement
notes issued in July 2020. Under the terms of each of these senior notes, GSWC
may not incur any additional debt or pay any distributions to its shareholders
if, after giving effect thereto, it would have a debt to capitalization ratio in
excess of 0.6667-to-1 or a debt to earnings before interest, taxes, depreciation
and amortization ratio of more than 8-to-1. GSWC is in compliance with all of
its covenant provisions as of December 31, 2020.  GSWC does not currently have
any outstanding mortgages or other liens on indebtedness on its properties.
(4) Consists of obligations at GSWC related to (i) a loan agreement supporting
$7.7 million in outstanding debt issued by the California Pollution Control
Financing Authority, and (ii) $3.3 million of obligations with respect to GSWC's
500 acre-foot entitlement to water from the State Water Project ("SWP"). These
obligations do not contain any financial covenants believed to be material to
Registrant or any cross-default provisions. In regard to its SWP entitlement,
GSWC has entered into agreements with various developers for a portion of its
500 acre-foot entitlement to water from the SWP.
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(5) Consists of the outstanding debt portion of funds received under the
American Recovery and Reinvestment Act for reimbursements of capital costs
related to the installation of meters for conversion of non-metered service to
metered service in GSWC's Arden-Cordova District.
(6) Consists of expected interest expense payments based on the assumption that
GSWC's long-term debt remains outstanding until maturity.
(7) Advances for construction represent contract refunds mostly from GSWC to
developers for the cost of water systems paid for by the developers. The
advances are generally refundable in equal annual installments over 40-year
periods.
(8) Consists of an agreement by BVESI to purchase renewable energy credits
through 2023. These renewable energy credits are used to meet California's
renewables portfolio standard.
(9) Consists of BVESI fixed-cost purchased power contracts executed in September
2019 with Exelon Generation Company, LLC and Morgan Stanley Capital Group Inc.
(10) Consists primarily of capital expenditures estimated to be required under
signed contracts at GSWC and BVESI as of December 31, 2020.
(11) Water purchase agreements consist of (i) a remaining amount of $1.9 million
under an agreement expiring in 2028 to use water rights from a third party, and
(ii) an aggregate amount of $1.9 million of other water purchase commitments
with other third parties, which expire between 2025 through 2038.
(12) Reflects future minimum payments under noncancelable operating leases for
both GSWC and ASUS.
(13) Consists of expected contributions to Registrant's defined benefit pension
plan for the years 2021 through 2024. Contributions to the pension plan are
expected to be the higher of the minimum required contributions under the
Employee Retirement Income Security Act ("ERISA") or the amounts that are
recovered in customer rates and approved by the CPUC. These amounts are
estimates and are subject to change based on, among other things, the limits
established for federal tax deductibility (pension plan) and the significant
impact that returns on plan assets and changes in discount rates have on such
amounts.
(14) Other commitments consist primarily of (i) a $200 million revolving credit
facility under AWR, of which $134.2 million was outstanding as of December 31,
2020; (ii) a $35.0 million revolving credit facility under BVESI, of which $20.2
million was outstanding as of December 31, 2020; (iii) a $9.3 million asset
retirement obligations of GSWC that reflect the retirement of wells by GSWC,
which by law need to be properly capped at the time of removal; (iv) irrevocable
letters of credit in the amount of $440,000 for the deductible in Registrant's
business automobile insurance policies; and (v) a $15,000 irrevocable letter of
credit issued on behalf of GSWC pursuant to a franchise agreement with the City
of Rancho Cordova. All of the letters of credit are issued pursuant to AWR's
revolving credit facility.
Off-Balance-Sheet Arrangements
Registrant has various contractual obligations that are recorded as liabilities
in the consolidated financial statements.  Other items, such as certain purchase
commitments, are not recognized as liabilities in the consolidated financial
statements but are required to be disclosed.  Except for those disclosed above
in the table, Registrant does not have any other off-balance-sheet arrangements.
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Effects of Inflation
The rates of GSWC and BVESI are established to provide recovery of costs and a
fair return on shareholders' investment.  Recovery of the effects of inflation
through higher water and electric rates is dependent upon receiving adequate and
timely rate increases; however, authorized rates charged to customers are
usually based on a forecast of expenses and capital costs. Rates may lag
increases in costs caused by unanticipated inflation.  During periods of
moderate to low inflation, as has been experienced for the last several years,
the effects of inflation on operating results have not been significant.
Furthermore, the CPUC approves projections for a future test year in general
rate cases which reduces the impact of inflation to the extent that GSWC's or
BVESI's inflation forecasts are accurate.
For the Military Utility Privatization Subsidiaries, under the terms of the
50-year contracts with the U.S. government, the contract price is subject to an
economic price adjustment on an annual basis.  ASUS has experienced delays in
some of its economic price adjustments. However, when adjustments are finalized,
they are implemented retroactively to the effective date of the economic price
adjustment.
Climate Change
Water - GSWC considers the potential impacts of climate change in its water
supply portfolio planning and its overall infrastructure replacement plans. In
addition, GSWC considers the impacts of greenhouse gas emissions and other
environmental concerns in its operations and infrastructure investments.
Electric - California has established a cap-and-trade program applicable to
greenhouse gas emissions.  While BVESI's power-plant emissions are below the
reporting threshold, as a "Covered Entity" BVESI has an obligation to file a
report in June of each year under the Greenhouse Gas Mandatory Reporting
Regulation.
The State of California and the CPUC have also established renewable energy
procurement targets. BVESI has entered into a CPUC-approved ten-year contract
for renewable energy credits. Because of this agreement, BVESI believes it will
comply through at least 2023 with California's renewable energy statutes that
address this issue.
BVESI is also required to comply with the CPUC's greenhouse gas emission
performance standards. Under these standards, BVESI must file an annual
attestation with the CPUC stating that BVESI is in compliance. Specifically,
BVESI must attest to having no new ownership investment in generation facilities
exceeding the emission performance standards and no long-term commitments for
generation exceeding the standards. In February 2021, BVESI filed an attestation
that BVESI complied with the standards for 2020. At this time, management cannot
estimate the impact, if any, that these regulations may have on future costs
over BVESI's power plant operations or the cost of BVESI's purchased power from
third party providers.
BVESI Power-Supply Arrangements
BVESI purchases power pursuant to purchased power contracts approved by the CPUC
effective in the fourth quarter of 2019 at a fixed cost over three and five-year
terms depending on the amount of power and period during which the power is
purchased under the contracts. In addition to the purchased power contracts,
BVESI buys additional energy to meet peak demand as needed and sells surplus
power when necessary. The average price per MWh, including fixed costs,
decreased to $67.52 per MWh in 2020 from $75.47 per MWh for 2019. BVESI's
average energy costs are impacted by pricing fluctuations on the spot market.
However, BVESI has implemented an electric-supply-cost balancing account, as
approved by the CPUC, to alleviate any impacts to earnings.
Construction Program
GSWC maintains an ongoing water distribution main replacement program throughout
its customer service areas based on the age and type of distribution-system
materials, priority of leaks detected, remaining productive life of the
distribution system and an underlying replacement schedule. In addition, GSWC
and BVESI upgrade their facilities in accordance with industry standards, local
and CPUC requirements, and new legislation.  In September 2018, the California
legislature enacted Senate Bill (SB) 901 mandating investor-owned electric
utilities to submit an annual wildfire mitigation plan to the CPUC for approval.
SB 901 requires all electric utilities to prepare plans on constructing,
maintaining, and operating their electrical lines and equipment to minimize the
risk of catastrophic wildfires.
As of December 31, 2020, GSWC and BVESI have unconditional purchase obligations
for capital projects of approximately $12.3 million.  During the years ended
December 31, 2020, 2019 and 2018, GSWC and BVESI had capital expenditures of
$130.4 million, $140.8 million and $125.1 million, respectively.  A portion of
these capital expenditures was funded by developers through contributions in aid
of construction, which are not required to be repaid, and refundable advances.
During the years ended December 31, 2020, 2019 and 2018, capital expenditures
funded by developers were $7.0 million, $4.7 million and $4.1 million,
respectively. During 2021, the water and electric segments' company-funded
capital expenditures are estimated to be approximately $120 - $135 million,
including approximately $12.2 million estimated to be spent by BVESI on wildfire
mitigation projects.
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Contracted Services
Under the terms of the current and future utility privatization contracts with
the U.S. government, each contract's price is subject to an economic price
adjustment ("EPA") on an annual basis. In the event that ASUS (i) is managing
more assets at specific military bases than were included in the U.S.
government's request for proposal, (ii) is managing assets that are in
substandard condition as compared to what was disclosed in the request for
proposal, (iii) prudently incurs costs not contemplated under the terms of the
utility privatization contract, and/or (iv) becomes subject to new regulatory
requirements, such as more stringent water-quality standards, ASUS is permitted
to file, and has filed, requests for equitable adjustment ("REAs"). The timely
filing for and receipt of EPAs and/or REAs continues to be critical in order for
the Military Utility Privatization Subsidiaries to recover increasing costs of
operating, maintaining, renewing, and replacing the water and/or wastewater
systems at the military bases it serves.
Under the Budget Control Act of 2011 (the "2011 Act"), substantial automatic
spending cuts, known as "sequestration," have impacted the expected levels of
Department of Defense budgeting. The Military Utility Privatization Subsidiaries
have not experienced any earnings impact to their existing operations and
maintenance and renewal and replacement services, as utility privatization
contracts are an "excepted service" within the 2011 Act. While the ongoing
effects of sequestration have been mitigated through the passage of the
Bipartisan Budget Act of 2019 for fiscal years 2020 and 2019, similar issues may
arise as part of fiscal uncertainty and/or future debt-ceiling limits imposed by
Congress. However, any future impact on ASUS and its operations through the
Military Utility Privatization Subsidiaries will likely be limited to (a) the
timing of funding to pay for services rendered, (b) delays in the processing of
EPAs and/or REAs, (c) the timing of the issuance of contract modifications for
new construction work not already funded by the U.S. government, and/or (d)
delays in the solicitation for and/or awarding of new contracts under the
Department of Defense utility privatization program.
At times, the DCAA and/or the DCMA may, at the request of a contracting officer,
perform audits/reviews of contractors for compliance with certain government
guidance and regulations, such as the Federal Acquisition Regulations and
Defense Federal Acquisition Regulation Supplements. Certain audit/review
findings, such as system deficiencies for government-contract-business-system
requirements, may result in delays in the resolution of filings submitted to
and/or the ability to file new proposals with the U.S. government.
Below is a summary of current and projected EPA filings for price adjustments to
operations and maintenance fees and renewal and replacement fees for the
Military Utility Privatization Subsidiaries in fiscal 2021.
                    Military Base                                  EPA period                     Filing Date
                                                                 October 2020 -
Fort Bliss (FBWS)                                                September 2021               Third Quarter 2020
                                                                February 2021 -
Joint Base Andrews (TUS)                                          January 2022                Fourth Quarter 2020
                                                                February 2021 -
Fort Lee (ODUS)                                                   January 2022                Fourth Quarter 2020

Joint Base Langley Eustis and Joint Expeditionary Base April 2021 - March Little Creek Fort Story (ODUS)

                                        2022                   First Quarter of 2021
                                                                February 2021 -
Fort Jackson (PSUS)                                               January 2022                Fourth Quarter 2020
                                                             March 2021 - 

February

Fort Bragg (ONUS)                                                     2022                    First Quarter 2021
Eglin Air Force Base (ECUS)                                   June 2021 - May 2022            Second Quarter 2021
Fort Riley (FRUS)                                            July 2021 - June 2022            Second Quarter 2021



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Regulatory Matters
Certificates of Public Convenience and Necessity
GSWC and BVESI hold Certificates of Public Convenience and Necessity ("CPCN")
granted by the CPUC in each of the ratemaking areas they serve. ASUS is
regulated, if applicable, by the state in which it primarily conducts water
and/or wastewater operations. FBWS holds a CPCN from the Public Utilities
Commission of Texas.  The Virginia State Corporation Commission exercises
jurisdiction over ODUS as a public service company. The Maryland Public Service
Commission approved the right of TUS to operate as a water and wastewater
utility at Joint Base Andrews, Maryland, based on certain conditions. The South
Carolina Public Service Commission exercises jurisdiction over PSUS as a public
service company.  ONUS is regulated by the North Carolina Public Service
Commission. ECUS and FRUS are not subject to regulation by their respective
states' utility commissions.
Rate Regulation
GSWC and BVESI are subject to regulation by the CPUC which has broad authority
over service and facilities, rates, classification of accounts, valuation of
properties, the purchase, disposition and mortgaging of properties necessary or
useful in rendering public utility service, the issuance of securities, the
granting of certificates of public convenience and necessity as to the extension
of services and facilities and various other matters.
Rates that GSWC and BVESI are authorized to charge are determined by the CPUC in
general rate cases and are derived using rate base, cost of service and cost of
capital, as projected for a future test year. Rates charged to customers vary
according to customer class and rate jurisdiction and are generally set at
levels allowing for recovery of prudently incurred costs, including a fair
return on rate base.  Rate base generally consists of the original cost of
utility plant in service, plus certain other assets, such as working capital and
inventory, less accumulated depreciation on utility plant in service, deferred
income tax liabilities and certain other deductions.
GSWC is required to file a water general rate case application every three years
according to a schedule established by the CPUC. General rate cases typically
include an increase in the first test year with inflation-rate adjustments for
expenses for the second and third years of the rate case cycle.  For capital
projects, there are two test years. Rates are based on a forecast of expenses
and capital costs for each test year. BVESI's general rate cases are typically
filed every four years. Rates may also be increased by offsets for certain
expense increases, including, but not limited to, supply-cost offset and
balancing-account amortization, advice letter filings related to certain plant
additions and other operating cost increases.
Neither the operations of AWR nor the operations and rates of ASUS are directly
regulated by the CPUC. The CPUC does, however, regulate certain transactions
between GSWC, BVESI and ASUS and between GSWC and BVESI and AWR.
General Rate Cases and Other Regulatory Matters
Water Segment:
Recent Changes in Rates
The CPUC approved water rate increases effective January 1, 2021. These
increases are expected to generate an additional $11.1 million in the adopted
water gross margin for 2021 as compared to the adopted water gross margin in
2020.
Pending General Rate Case
On July 15, 2020, GSWC filed a general rate case application for all of its
water regions and the general office. This general rate case will determine new
water rates for the years 2022 - 2024. Among other things, GSWC's requested
capital budgets in this application of approximately $450.6 million for the
three-year rate cycle, and another $11.4 million of capital projects to be filed
for revenue recovery through advice letters when those projects are completed. A
decision in the water general rate case is scheduled for the fourth quarter of
2021, with new rates to become effective January 1, 2022.
Final Decision on Low-Income Affordability Rulemaking
On August 27, 2020, the CPUC issued a final decision in the first phase of the
CPUC's Order Instituting Rulemaking evaluating the low income ratepayer
assistance and affordability objectives contained in the CPUC's 2010 Water
Action Plan, which also addressed the continued use of the WRAM as well as the
continued use of the MCBA, which is a full-cost balancing account used to track
the difference between adopted and actual water supply costs (including the
effects of changes in both rates and volume). Based on the final decision, any
general rate case application filed by GSWC and the other California water
utilities after the August 27, 2020 effective date of this decision, may not
include a proposal to continue the use of the WRAM or MCBA, but may instead
include a proposal to use a limited price adjustment mechanism (the
Monterey-Style WRAM) and an incremental supply cost balancing account.
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The final decision will not have any impact on GSWC's WRAM or MCBA balances
during the current rate cycle (2019 - 2021). In addition, management believes
that the decision supports GSWC's position that it does not apply to its general
rate case application filed in July 2020 that will set new rates for the years
2022 - 2024. In February 2021, a procedural hearing in this pending general rate
case was held, and the assigned administrative law judge in the proceeding
agreed that GSWC is entitled to keep the use of the WRAM and MCBA through the
year 2024. GSWC's next general rate case application will be filed in 2023 to
establish new rates for the years 2025 - 2027 and, based on the August 27, 2020
decision, may not include the WRAM or MCBA for those years. Since its
implementation in 2008, the WRAM and MCBA have helped mitigate fluctuations in
GSWC's earnings due to changes in water consumption by its customers or changes
in water supply mix. Replacing them with mechanisms recommended in the final
decision would result in more volatility in GSWC's future earnings and could
result in less than or more than full recovery of its authorized water gross
margin. On or prior to October 5, 2020, GSWC, other California water utilities,
and the California Water Association filed separate applications for rehearing
on this matter. At this time, management cannot predict the outcome of this
matter.
Finance Application
In November 2019, GSWC filed a finance application with the CPUC requesting,
among other things, authorization to issue additional long-term debt and equity
securities not to exceed $465 million to support its water operations. On May 7,
2020, the CPUC approved the finance application. Following the CPUC's approval,
on July 8, 2020, GSWC completed the issuance of unsecured private placement
notes totaling $160.0 million.
Cost of Capital Proceeding
Investor-owned water utilities serving California are required to file their
cost of capital applications on a triennial basis. GSWC's next cost of capital
application is scheduled to be filed by May 1, 2021 for the years 2022 - 2024.
However, GSWC, along with three other investor-owned water utilities in
California, filed a joint request with the CPUC on January 5, 2021 to postpone
the cost of capital applications by another year. Last year the utilities sought
a one-year deferral of the May 2020 cost of capital applications, which was
approved in March 2020. Similar to that deferral, this year's joint request
asked that the utilities keep the cost of capital parameters as authorized in
2018 in effect through 2022, and file new cost of capital applications by May 1,
2022 to set the cost of debt, return on equity and capital structure starting
January 1, 2023. GSWC's current authorized rate of return on rate base is 7.91%,
based on its weighted cost of capital, which will continue in effect through
December 31, 2022 if the additional deferral is approved. At this time,
management cannot predict the outcome of this request.
Electric Segment:
Completion of Electric Utility Reorganization Plan
On July 1, 2020, GSWC completed the transfer of the electric utility assets and
liabilities from its electric division to BVESI in exchange for common shares of
BVESI. GSWC then immediately distributed all of BVESI's common shares to AWR,
whereupon BVESI became wholly owned directly by AWR. The reorganization is not
expected to result in any substantive changes to AWR's operations or business
segments.
Recent Changes in Rates
On August 15, 2019, the CPUC issued a final decision on the electric segment's
general rate case which, among other things, increases the adopted electric
gross margin by $1.2 million for 2020, by $1.1 million for 2021, and by $1.0
million for 2022 (the electric rate increases are not subject to an earnings
test). The rate case decision continues to apply for BVESI.
Wildfire Mitigation Plan and New California Legislation
In September 2018, the California legislature enacted Senate Bill (SB) 901
mandating investor-owned electric utilities to submit an annual wildfire
mitigation plan (WMP) to the CPUC for approval. SB 901 requires all electric
utilities to prepare plans on constructing, maintaining, and operating their
electrical lines and equipment to minimize the risk of catastrophic wildfire. In
February 2019, the electric segment filed its first WMP, which was subsequently
approved by the CPUC in June 2019. Among other things, the WMP approves capital
projects and programs dedicated to improving system safety and reliability and,
specifically, aimed at reducing the possibility of wildfires. Upon approval in
June 2019, the electric segment commenced executing its WMP immediately. BVESI's
second WMP filed with the CPUC in 2020 was approved in January 2021. Capital
expenditures and other costs incurred as a result of the WMP are subject to CPUC
audit.
Additionally, the California legislature enacted Assembly Bill (AB) 1054 in July
2019, which among other things, changed the burden of proof applicable in CPUC
proceedings in which an electric utility with a valid safety certification seeks
to recover wildfire costs. Traditionally, an electric utility seeking to recover
costs had the burden to prove that it acted
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reasonably. Under AB 1054, if an electric utility has a valid safety
certification, it will be presumed to have acted reasonably unless a party to
the relevant proceeding creates a "serious doubt" as to the reasonableness of
the utility's conduct. GSWC received an initial safety certification for its
electric division from the CPUC in February 2020. Following the reorganization,
the CPUC approved the transfer of the safety certification to BVESI in August
2020.
Solar Energy Project
In December 2019, the electric segment filed an application with the CPUC for
the development of a turn-key 7.9-megawatt solar generation project to be
constructed by a third party and connected directly with BVESI's existing
distribution system. However, due to the results of an independent hydrology and
inundation report, it was determined that the solar project site is subject to
flooding. As a result, in September 2020, BVESI filed a motion to withdraw the
project application. BVESI is considering whether or not to propose a new solar
project at a different location.
For more information regarding significant regulatory matters, see   Note 3 

of

"Notes to Financial Statements" included in Part II, Item 8, in Financial
Statements and Supplementary Data.
Environmental Matters
AWR's subsidiaries are subject to stringent environmental regulations. GSWC is
required to comply with the safe drinking water standards established by the
U.S. Environmental Protection Agency ("U.S. EPA") and the Division of Drinking
Water ("DDW"), under the State Water Resources Control Board ("SWRCB").  The
U.S. EPA regulates contaminants that may have adverse health effects that are
known or likely to occur at levels of public health concern, and the regulation
of which will provide a meaningful opportunity for health risk reduction. The
DDW, acting on behalf of the U.S. EPA, administers the U.S. EPA's program in
California. Similar state agencies administer these rules in the other states in
which Registrant operates.
GSWC currently tests its water supplies and water systems according to, among
other things, requirements listed in the Federal Safe Drinking Water Act
("SDWA"). GSWC works proactively with third parties and governmental agencies to
address issues relating to known contamination threatening GSWC water sources.
GSWC also incurs operating costs for testing to determine the levels, if any, of
the constituents in its sources of supply and additional expense to treat
contaminants in order to meet the federal and state maximum contaminant level
standards and consumer demands. GSWC expects to incur additional capital costs
as well as increased operating costs to maintain or improve the quality of water
delivered to its customers in light of anticipated stress on water resources
associated with watershed and aquifer pollution, as well as to meet future water
quality standards and consumer expectations. The CPUC ratemaking process
provides GSWC with the opportunity to recover prudently incurred capital and
operating costs in future filings associated with achieving water quality
standards. Management believes that such incurred and expected future costs
should be authorized for recovery by the CPUC.
Matters Relating to Environmental Cleanup
GSWC has been involved in environmental remediation and cleanup at one of its
plant sites that contained an underground storage tank that 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.
As of December 31, 2020, the total amount spent to clean up and remediate GSWC's
plant facility was approximately $6.4 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 December 31, 2020, GSWC has a regulatory asset and an accrued liability for
the estimated additional cost of $1.3 million to complete the cleanup at the
site. The estimate includes costs for continued activities of groundwater
cleanup and monitoring, future soil treatment, and site closure related
activities. 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 continue to be approved for inclusion in rate
base by the CPUC.
Drinking Water Notification and Response Levels
In July 2018, DDW issued drinking water notification levels for certain
fluorinated organic chemicals used to make certain fabrics and other materials,
and used in various industrial processes.  These chemicals were also present in
certain fire suppression agents. These chemicals are referred to as
perfluoroalkyl substances (PFAS). Notification levels are health-based advisory
levels established for contaminants in drinking water for which maximum
contaminant levels have not been established. The US EPA has also established
health advisory levels for these compounds. Notification to consumers and
stakeholders is required when the advisory levels or notification levels are
exceeded.  Assembly Bill 756, signed into law in July 2019 and effective in
January 2020, requires, among other things, additional notification requirements
for water systems detecting levels of PFAS above response levels. GSWC is in the
process of collecting and analyzing samples for PFAS under the direction of DDW.
GSWC has removed some wells from service, and expects to incur additional
treatment costs to treat impacted wells. GSWC has provided customers with
information regarding PFAS detections, and provided updated
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information via its website. In February 2020, DDW established new response
levels for two of the PFAS compounds: 10 parts per trillion for
perfluorooctanoic acid (PFOA) and 40 parts per trillion for
perfluorooctanesulfonic acid (PFOS).
Matters Relating to Military Utility Privatization Contracts
Each of the Military Utility Privatization Subsidiaries is responsible for
testing the water and wastewater systems on the military bases on which it
operates in accordance with applicable law.
Each of the Military Utility Privatization Subsidiaries has the right to seek an
equitable adjustment to its contract in the event that there are changes in
environmental laws, a change in the quality of water used in providing water
service or wastewater discharged by the U.S. government, or contamination of the
air or soil not caused by the fault or negligence of the Military Utility
Privatization Subsidiary. These changes can impact operations and maintenance
and renewal and replacement costs under the contracts. The U.S. government is
responsible for environmental contamination due to its fault or negligence and
for environmental contamination that occurred prior to the execution of a
contract.
Security Issues
We have physical and information security policies throughout our operations.
Training on these matters begins during employee orientation and is ongoing
through a series of training courses in addition to periodic, unannounced
training exercises. We collaborate with various agencies, associations and third
parties regarding information on possible threats and security measures for our
operations. Risk assessments are conducted periodically to evaluate the
effectiveness of existing security controls. These assessments provide areas for
additional security focus, new controls, and policy changes.
Both GSWC and BVESI have security systems and infrastructure in place intended
to prevent unlawful intrusion, service disruption and cyber-attacks.  GSWC and
BVESI utilize a variety of physical security measures to protect their
facilities.  These measures consider advances in security and emergency
preparedness technology and relevant industry developments in developing their
respective capital-improvement plans, and both intend to seek approval of the
CPUC to recover any additional costs that either may incur in enhancing the
security, reliability and resiliency of their utility systems.
On October 23, 2018, America's Water Infrastructure Act (AWIA) became law. GSWC
must now conduct additional risk and resilience assessments and develop
emergency response plans for each of our water systems. These assessments and
plans include natural hazards as well as malevolent acts. The first such
assessments were completed in 2020. They will be reviewed and resubmitted every
five years.
The Military Utility Privatization Subsidiaries operate facilities within the
boundaries of military bases, which provide limited access to the general
public.  To further enhance security, in prior years, certain upgrades were
completed at various military bases through contract modifications funded by the
U.S. government.
Registrant has evaluated its cyber-security systems and continues to address
identified areas of improvement with respect to U.S. government regulations
regarding cyber-security of government contractors. These improvements include
the physical security at all of the office and employee facilities it operates.
Registrant believes it is in compliance with these regulations.
Despite its efforts, Registrant cannot guarantee that intrusions, cyber-attacks
or other attacks will not cause water or electric system problems, disrupt
service to customers, compromise important data or systems or result in
unintended release of customer or employee information.
GSWC's Water Supply
During 2020, GSWC delivered approximately 63.0 million hundred cubic feet
("ccf") of water to its customers, which is an average of about 396 acre-feet
per day or 129 million gallons per day (an acre-foot is approximately 435.6 ccf
or 326,000 gallons).  Approximately 55% of GSWC's supply came from groundwater
produced from wells situated throughout GSWC's service areas. GSWC supplemented
its groundwater production with wholesale purchases from Metropolitan Water
District ("MWD") member agencies and regional water suppliers (roughly 43% of
total demand) and with authorized diversions from rivers (roughly 2%) under
contracts with the United States Bureau of Reclamation ("Bureau") and the
Sacramento Municipal Utility District ("SMUD"). GSWC also utilizes recycled
water supplies to serve recycled water customers in several service areas. GSWC
continually assesses its water rights and groundwater storage assets to maximize
use of lower cost groundwater sources where available.
Groundwater
GSWC has a diverse water supply portfolio which includes adjudicated groundwater
rights, surface water rights, and a number of unadjudicated water rights to help
meet supply requirements. The productivity of GSWC's groundwater resources
varies from year to year depending upon a variety of factors, including natural
replenishment from snow-melt or rainfall, the availability of imported
replenishment water, the amount of water previously stored in groundwater
basins, natural or man-
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made contamination, legal production limitations, and the amount and seasonality
of water use by GSWC's customers and others. GSWC actively participates in
efforts to protect groundwater basins from over-use and from contamination. In
some periods, these efforts may require reductions in groundwater pumping and
increased reliance on alternative water resources. GSWC also participates in
implementation of California's Sustainable Groundwater Management Act.
From time to time, GSWC may purchase or temporarily use water rights from others
for delivery to customers. GSWC has contracts to purchase water or water rights
for an aggregate amount of $3.8 million as of December 31, 2020.  Included in
the $3.8 million is a remaining commitment of $1.9 million under an agreement
with the City of Claremont ("the City") to lease water rights that were ascribed
to the City as part of the Six Basins adjudication. The initial term of the
agreement expires in 2028. GSWC may exercise an option to renew this agreement
for 10 additional years. The remaining $1.9 million is for commitments for
purchased water with other third parties, which expire through 2038.
Imported Water
GSWC also manages a portfolio of water supply arrangements with water
wholesalers who may import water from outside the immediate service area.  For
example, GSWC has contracts with various governmental entities (principally MWD
member agencies) and other parties to purchase water through a total of 58
connections for distribution to customers, in addition to numerous emergency
connections.  MWD is a public agency organized and managed to provide a
supplemental, imported supply to its member public agencies.  There are 26 such
member agencies, consisting of 14 cities, 11 municipal water districts and one
county water authority.  GSWC has 45 connections to MWD's water distribution
facilities and those of member agencies. GSWC purchases MWD water through six
separate member agencies aggregating 51,237 acre-feet annually.  MWD sources its
supplies from the Colorado River from Northern California via the State Water
Project through the Colorado River Aqueduct, which it owns and operates, and
from local programs and transfer arrangements. MWD currently has storage reserve
levels of 3.2 million acre-feet (MAF) with annual demands of approximately 1.6
MAF. MWD has available access to store more than 1.65 MAF of water in Lake Mead
as part of an intentionally created surplus (ICS) program developed under a 2007
Interim Shortage agreement and is available for use during dry years. In
addition, MWD, along with the seven other Basin states which use water from the
Colorado River,developed and agreed to the Drought Contingency Plan (DCP) in
2019 where each lower state which diverts water from the Colorado River below
Lees Ferry agrees to store defined amounts of water in Lake Mead to prevent both
Lake Mead and Lake Powell from reaching critically low levels.
Drought Impact
In May 2018, the California Legislature passed two bills that provide a
framework for long-term water-use efficiency standards and drought planning and
resiliency. The initial steps in implementation of this legislation has been
laid out in a summary document by the California Department of Water Resources
("DWR") and State Water Resources Control Board ("SWRCB"). Over the next several
years, State agencies, water suppliers and other entities will be working to
meet the requirements and timelines of plan implementation. A notable milestone
is the establishment of an indoor water use standard of 55 gallons per capita
per day (gpcd) until 2025 at which time the standard may be reduced to 52.5 gpcd
or other standard as recommend by DWR.
California's recent period of multi-year drought resulted in reduced recharge to
the state's groundwater basins. GSWC utilizes groundwater from numerous
groundwater basins throughout the state. Several of these basins, especially
smaller basins, experienced lower groundwater levels because of the drought.
Several of GSWC's service areas rely on groundwater as their only source of
supply. Given the critical nature of the groundwater levels in California's
Central Coast area, GSWC implemented mandatory water restrictions in certain
service areas, in accordance with CPUC procedures. In the event of water supply
shortages beyond the locally available supply, GSWC would need to transport
additional water from other areas, increasing the cost of water supply.
For the 2019-2020 water year, precipitation was below normal, with rainfall in
northern California being very dry while southern California saw normal levels.
Precipitation to date in 2021 has continued below normal levels with statewide
snowpack at about 50% of average. As of February 16, 2021, the U.S. Drought
Monitor reported that approximately 31% of California was considered in "Extreme
Drought" and approximately 58% of California was considered to be in "Severe
Drought" as compared to approximately 0% for both categories one year ago. These
dry conditions are more pronounced in northern and eastern portions of
California, Coastal and Southern California has been experiencing abnormally dry
to moderate drought conditions. If these dry conditions continue or worsen, the
SWRCB or other regulatory agencies may impose emergency drought actions. Due to
local conditions, water-use restrictions and allocations remain in place for
customers in some of GSWC's service areas. GSWC continues assessing water supply
conditions and water-use restrictions in these service areas and intends to make
appropriate adjustments as needed.
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Military Utility Privatization Subsidiaries
The U.S. government is responsible for providing the source of supply for all
water on each of the bases served by the Military Utility Privatization
Subsidiaries at no cost to the Military Utility Privatization Subsidiaries. Once
received from the U.S. government, ASUS's subsidiaries are responsible for
ensuring the continued compliance of the provided source of supply with all
federal, state and local regulations.
New Accounting Pronouncements
Registrant is subject to newly issued accounting requirements as well as changes
in existing requirements issued by the Financial Accounting Standards Board. See

Note 1 of Notes to Consolidated Financial Statements.

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