<PAGE>
                                                                   EXHIBIT 10.17


                          AMERICAN STATES WATER COMPANY
                              ANNUAL INCENTIVE PLAN







                            AS AMENDED APRIL 29, 2002


<PAGE>


                          AMERICAN STATES WATER COMPANY
                              ANNUAL INCENTIVE PLAN
                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S>               <C>                                                                    <C>
ARTICLE I         THE PLAN.................................................................I-1
         1.1      Purpose..................................................................I-1
         1.2      Definitions..............................................................I-1
         1.3      Administration and Authorization; Power and Procedure....................I-3
         1.4      Payment/Grant of Awards..................................................I-4
         1.5      Non-Transferability......................................................I-4
         1.6      Beneficiary Designation..................................................I-4

ARTICLE II        AWARDS..................................................................II-1
         2.1      Award Determination.....................................................II-1
         2.2      Vesting.................................................................II-2
         2.3      Award Payment...........................................................II-2
         2.4      Acceleration of Awards upon Change in Control...........................II-2

ARTICLE III       OTHER PROVISIONS.......................................................III-1
         3.1      Rights of Eligible Employees, Participants and Beneficiaries...........III-1
         3.2      Compliance with Laws...................................................III-1
         3.3      Withholding; Payroll Taxes.............................................III-1
         3.4      Plan Amendment, Termination and Suspension.............................III-1
         3.5      Effective Date of the Plan.............................................III-1
         3.6      Governing Law..........................................................III-1
         3.7      Captions...............................................................III-2
         3.8      Terms..................................................................III-2
         3.9      Non-Exclusivity of Plan................................................III-2
</TABLE>


<PAGE>


                          AMERICAN STATES WATER COMPANY
                              ANNUAL INCENTIVE PLAN

I.      THE PLAN

        1.1    Purpose: The purpose of this Plan is to promote the success of
               the Company by contributing to a team culture, focusing attention
               on increasing shareholder value, and creating an incentive
               program that will support future growth.

        1.2    Definitions: For purposes of this Plan, the following terms shall
               have the meanings indicated below:

               (a)   "Actual Return on Rate Base" shall mean the Company's
                     actual annual rate of return on net assets included in the
                     Company's rate filings, determined on a consolidated basis.

               (b)   "Authorized Return on Rate Base" shall mean the composite
                     annual rate of return on equity authorized for the Company
                     during the Plan Year by the California Public Utilities
                     Commission. The Authorized Rate of Return shall be
                     calculated by the Company in accordance with the rules
                     and/or examples approved by the Committee, and will be
                     reviewed by the Company's external auditors.

               (c)   "Award" shall mean an award of a specified amount of cash
                     or restricted stock to a Participant under the Plan.

               (d)   "Base Compensation" shall mean the salary and hourly wages,
                     exclusive of overtime and bonuses, paid to an Eligible
                     Employee during the calendar year proceeding the
                     Determination Date.

               (e)   "Board" shall mean the Board of Directors of the Company.

               (f)   "Change in Control Event": Shall have the meaning given
                     such term in the Company's 2000 Stock Incentive Plan.

               (g)   "Code" shall mean the Internal Revenue Code of 1986, as
                     amended from time to time.

               (h)   "Committee" shall mean the Compensation Committee of the
                     Board of Directors.


                                      I-1
<PAGE>


               (i)   "Company" shall mean American States Water Company.

               (j)   "Consolidated Total Operating Revenues" shall be as set
                     forth in the Company's audited consolidated financial
                     statements.

               (k)   "Determination Date" shall mean the last day of each Plan
                     Year.

               (l)   "Eligible Employee" shall mean an employee of the Company,
                     or a Subsidiary, designated by the Committee at the
                     beginning of a Plan Year as eligible to receive an Award
                     under this Plan.

               (m)   "Employer" shall mean the Company, or a Subsidiary of the
                     Company which directly employs an Eligible Employee.

               (n)   "Financial Performance" shall mean the Company's Actual
                     Return on Rate Base as a percentage of its Authorized
                     Return on Rate Base, determined on a consolidated basis.

               (o)   "Individual Adjustment" shall be the adjustment determined
                     in accordance with section 2.1(a)(iv) of this document.

               (p)   "Increase in Total Operating Revenues from Acquisition"
                     shall mean the projected increase in Consolidated Total
                     Operating Revenues from the Company's acquisition of
                     another firm during the Plan Year.

               (q)   "Maintenance Adjustment" shall be calculated in accordance
                     with section 2.1(a)(ii) of this document.

               (r)   "Participant" shall mean an Eligible Employee whose last
                     performance appraisal was satisfactory.

               (s)   "Personal Representative" shall mean the person or persons
                     who, upon the Total Disability or incompetence of a
                     Participant, shall have acquired on behalf of the
                     Participant, by legal proceeding or otherwise, the power to
                     exercise the rights or receive benefits under this Plan and
                     who shall have become the legal representative of the
                     Participant.

               (t)   "Plan" shall mean this Annual Incentive Plan.

               (u)   "Plan Year" shall mean the calendar year.

               (v)   "Restricted Stock" shall mean shares of the common stock of
                     the Company that are non-transferable and subject to
                     forfeiture upon termination of employment within a
                     specified period of time following the date of grant.


                                      I-2
<PAGE>


               (w)   "Strategic Adjustment" shall be a factor based on Company
                     performance. At the beginning of each plan year the
                     Committee will establish performance criteria reflecting
                     progress towards the Company's strategic goals. The
                     Committee will, at that time, also establish the amount of
                     the adjustment (no more than 50% in total) to be made to
                     Awards otherwise payable under the Plan based on the
                     achievement of these criteria.

               (x)   "Subsidiary" shall mean any corporation or other entity a
                     majority of whose outstanding voting stock or voting power
                     is beneficially owned directly or indirectly by the
                     Company.

               (y)   "Target Award" shall mean the amount equal to a
                     Participant's Base Compensation multiplied by a percentage
                     determined at the beginning of each Plan Year by the
                     Committee. For 2002, the target award for managers is 12.5%
                     equally weighted between the Company's financial
                     performance and the manager's individual performance. For
                     2002, 2003 and 2004, the target award for the Chief
                     Executive Officer is 24%, 18% and 12%, respectively and the
                     target award for Vice Presidents in 2002, 2003 and 2004 is
                     20%, 15% and 10%, respectively.

        1.3    Administration and Authorization; Power and Procedure:

               (a)   Committee: This Plan shall be administered by, and all
                     granting of Awards to Eligible Employees shall be
                     authorized by, the Committee. Action with respect to the
                     administration of this Plan shall be the sole and absolute
                     discretion and responsibility of the Committee.

               (b)   Plan Awards; Interpretation; Powers of Committee: Subject
                     to the express provisions of this Plan, the Committee shall
                     have the sole and absolute authority:

                    (i)   to determine which employees are eligible to
                          participate in the Plan for a Plan Year;

                    (ii)  to determine the amount of the Award payable to each
                          Participant for a Plan Year;

                    (iii) to construe and interpret this Plan and any agreements
                          defining the rights and obligations of the Company and
                          Participants under this Plan, further define the terms
                          used in this Plan, and prescribe, amend and rescind
                          rules and regulations relating to the administration
                          of this Plan;

                    (iv)  to make all other determinations and take such other
                          action as contemplated by this Plan or as may be
                          necessary or advisable for the administration of this
                          Plan and the effectuation of its purposes.

               (c)   Binding Determinations: The Committee shall have full
                     discretion to construe and interpret the terms and
                     provisions of the Plan, which interpretation or
                     construction shall be final and binding on all parties,


                                      I-3
<PAGE>


                     including but not limited to the Company, any Subsidiary
                     and any Participants or Beneficiaries. Any action taken by,
                     or inaction of, the Company, or the Committee relating or
                     pursuant to this Plan shall be within the absolute
                     discretion of that entity or body and shall be conclusive
                     and binding upon all persons. No member of the Committee,
                     or officer of the Company, shall be liable for any such
                     action or inaction of the entity or body, of another person
                     or, except in circumstances involving bad faith, of himself
                     or herself.

               (d)   Reliance on Experts: In making any determination or in
                     taking or not taking any action under this Plan, the
                     Committee may obtain and may rely upon the advice of
                     experts, including professional advisors to the Company.

               (e)   Delegation: The Committee may delegate ministerial,
                     non-discretionary functions to individuals who are officers
                     or employees of the Company or a Subsidiary.

               (f)   Absence of Liability; Indemnity: No member of the
                     Committee, director, officer or agent of the Company shall
                     be liable for any action or determination taken, made or
                     omitted in good faith. To the extent permitted under
                     applicable state law, the Company shall indemnify and hold
                     harmless the members of the Committee and any delegate
                     against any and all claims, loss, damage, expense or
                     liability arising from any action or failure to act with
                     respect to this Plan, except in the case of gross
                     negligence or willful misconduct.

        1.4    Payment/Grant of Awards: Subject to the express provisions of
               this Plan, the Committee shall determine the amount of each
               Award.

        1.5    Non-Transferability: Neither a Participant nor any other person
               shall have the right to commute, sell, assign, transfer, pledge,
               anticipate, mortgage or otherwise encumber, transfer, hypothecate
               or convey in advance of actual receipt of the amounts, if any,
               payable hereunder, or any part thereof, part thereof, which are,
               and all rights to which are, expressly declared to be
               unassignable and non-transferable. No part of the amounts payable
               shall, prior to actual payment, be subject to seizure or
               sequestration for the payment of any debts, judgments, alimony or
               separate maintenance owed by a Participant or any other person,
               nor be transferable by operation of law in the event of a
               Participant's or any other person's bankruptcy or insolvency.

        1.6    Beneficiary Designation:

               (a)   "Beneficiary" or "Beneficiaries" shall mean the person or
                     persons, including a trustee, Personal Representative or
                     other fiduciary, last designated in writing by a
                     Participant in accordance with procedures established by
                     the Committee to receive the benefits, if any, specified
                     hereunder in the event of the Participant's death. No
                     beneficiary designation shall become effective


                                      I-4
<PAGE>


                    until it is filed with the Committee, and no Beneficiary
                    designation of someone other than the Participant's spouse
                    shall be effective unless such designation is consented to
                    by the Participant's spouse on a form provided by and in
                    accordance with procedures established by the Committee. If
                    there is no valid Beneficiary designation in effect, or if
                    there is no surviving designated Beneficiary, then the
                    Participant's surviving spouse shall be the Beneficiary. If
                    there is no surviving spouse to receive any benefits payable
                    in accordance with the preceding sentence, the duly
                    appointed and currently acting personal representative of
                    the Participant's estate (which shall include either the
                    Participant's probate estate or living trust) shall be the
                    Beneficiary. In any case where there is no such personal
                    representative of the Participant's estate duly appointed
                    and acting in that capacity within 90 days after the
                    Participant's death (or such extended period as the
                    Committee determines is reasonably necessary to allow such
                    personal representative to be appointed but not to exceed
                    180 days after the Participant's death), then Beneficiary
                    shall mean the person or persons who can verify by affidavit
                    or court order to the satisfaction of the Committee that
                    they are legally entitled to receive the benefits specified
                    hereunder. In the event any amount is payable under the Plan
                    to a minor, payment shall not be made to the minor, but
                    instead be paid (a) to that person's living parent(s) to act
                    as custodian, (b) if that person's parents are then
                    divorced, and one parent is the sole custodial parent, to
                    such custodial parent, or (c) if no parent of that person is
                    then living, to a custodian selected by the Committee to
                    hold the funds for the minor under the Uniform Transfers of
                    Gifts to Minors Act in effect in the jurisdiction in which
                    the minor resides. If no parent is living and the Committee
                    decides not to select another custodian to hold the funds
                    for the minor, then payment shall be made to the duly
                    appointed and currently acting guardian of the estate for
                    the minor or, if no guardian of the estate for the minor is
                    duly appointed and currently acting within 60 days after the
                    date the amount becomes payable, payment shall be deposited
                    with the court having jurisdiction over the estate of the
                    minor.

               (b)   Effect of Payment: The payment to the Beneficiary or deemed
                     Beneficiary, in accordance with the provisions of this
                     Plan, shall completely discharge all obligations under this
                     Plan of the Committee, the Company and any Subsidiary.


                                      I-5
<PAGE>


II.     AWARDS

        2.1    Award Determination:

               (a)   Performance Evaluation:

                    (i)  Financial Performance: Performance shall first be
                         evaluated based on the Company's Actual Return on Rate
                         Base, determined on a consolidated basis, as a
                         percentage of its Authorized Return on Rate Base as
                         determined by the California Public Utilities
                         Commission. In 2001, the following schedule shall
                         apply:

<TABLE>
<CAPTION>
                         Actual/Authorized Return          Financial Performance Percentage
                         ------------------------          --------------------------------
                         <S>                               <C>
                                Greater than 120%               At Committee's Discretion
                                       120%                                120%
                                       115%                                115%
                                       110%                                110%
                                       105%                                105%
                                  Equal to 100%                            100%
</TABLE>

                         Note: Percentages will be interpolated for performance
                         between levels.

                    (ii)  Maintenance Adjustment: If the Company's maintenance
                          costs are significantly less than estimated for rate
                          base purposes (more than .5% of the Authorized Return
                          on Rate Base), the Actual Return on Rate Base will be
                          adjusted downwards by the amount of the shortfall.

                    (iii) Strategic Adjustment: For Executives (Vice Presidents
                          and above), the Company's Financial Performance shall
                          be adjusted (up or down) based on factors including
                          the achievement of strategic goals such as
                          acquisitions of other firms. The maximum adjustment
                          for strategic performance in one year shall be capped
                          at 50%. In 2001, the following schedule shall apply:

<TABLE>
<CAPTION>
                          Increase in Total Operating Revenues
                                      from Acquisition            Strategic Adjustment
                          ------------------------------------    --------------------
                          <S>                                     <C>
                                     Less than 10%                          0%
                                          10%                              10%
                                          13%                              12%
                                          16%                              14%
                                          19%                              16%
                                          22%                              18%
                                          25%                              20%
                                          28%                              22%
                                          31%                              24%
                                    Greater than 33%                       25%
</TABLE>


                                      II-1
<PAGE>


                    (iv)  Individual Adjustment: For Managers, the individual
                          award consists of two equal parts - a Financial
                          Performance component and an Individual Performance
                          component. The Individual Performance component shall
                          be based on the accomplishment of goals that are
                          established by the Employer at the beginning of each
                          Plan Year. The degree to which goals are accomplished
                          could impact one-half of the Award for managers from
                          0% to 100%.

               (b)   Determination of Individual Awards: For Executives, the
                     Award to be paid to any Participant will be equal to (i)
                     the Participant's base salary times (i) the applicable
                     Target Award times (ii) the Financial Performance
                     adjustment factor times (iii) the Strategic Adjustment
                     factor. For Managers, the Award to be paid to any
                     Participant is determined in two parts. One-half of the
                     Award will be equal to (i) the Participant's bases salary
                     times (ii) the Financial Performance Adjustment factor
                     times (iii) 50% of the applicable Target Award; and
                     one-half of the Award will be equal to (i) the
                     Participant's base salary times (ii) the Individual
                     Adjustment factor times (iii) 50% of the applicable Target
                     Award.

               (c)   Participant's Award: A Participant's Award shall be
                     pro-rated in the event he/she participates in the Plan for
                     less than the full year, moves into a position covered
                     under a different schedule of awards, and/or moves into or
                     from a position not currently included under this Plan. The
                     pro-rated amount will be calculated by multiplying the
                     Award otherwise payable to the Participant for the entire
                     year by a fraction, the numerator of which is the number
                     months completed by the Participant during the Plan Year ,
                     and the denominator of which is 12.

        2.2    Vesting: There is no vested right to receive an Award and no
               Award is earned until paid. A Participant who terminates
               employment for any reason before the payment of the Awards shall
               forfeit any unpaid Awards, except in the cases of death or
               disability.

        2.3    Award Payment: Awards will be paid by the Employer following the
               completion of the audit of the financials, normally within 75
               days of the end of the fiscal year. Payment shall be provided in
               cash and/or Restricted Stock. All payments less than 20% of Base
               Compensation shall be paid cash. Payments above 20% of Base
               Compensation may be paid, at the discretion of the Committee, in
               Restricted Stock issued in accordance with the provisions of the
               American States Water Company Long-Term Incentive Plan (the
               "Long-Term Incentive Plan"). The number of shares of Restricted
               Stock (if any) to be issued shall equal the difference between
               the amount of the Award and the amount paid in cash divided by
               the Fair Market Value (as defined in the Long-Term Incentive
               Plan) of a share of the Company common stock determined as of the
               Determination Date. Unless the Committee otherwise provides, the
               rights of a Participant with respect to Restricted Stock issued
               hereunder shall vest, and the applicable restrictions shall


                                      II-2
<PAGE>


               lapse, in a series of three successive equal annual installments
               commencing on the first anniversary of the Determination Date.

        2.4    Acceleration of Awards upon Change in Control: Notwithstanding
               the foregoing, unless prior to a Change in Control Event the
               Committee determines that, upon its occurrence, benefits under
               any or all Awards shall not be accelerated or determines that
               only certain or limited benefits under any or all Awards shall be
               accelerated and the extent to which they shall be accelerated,
               then upon the occurrence of a Change in Control Event, the Awards
               shall be vested and the Participant shall be entitled to the
               payment thereof within 75 days after the Change in Control Event.
               The Award to be paid to any Participant will be equal to (i) the
               Financial Performance for the 12 month period preceding the
               Change in Control Event times (ii) one hundred percent (100%)
               plus the Strategic Adjustment or Individual Adjustment, whichever
               is applicable, for the 12 month period preceding the Change in
               Control Event, times the Target Award times (iii) a fraction, the
               numerator of which is the number of months completed by the
               Participant during the Plan Year, and the denominator of which is
               12. Any discretion with respect to these events shall be limited
               to the extent required by applicable accounting requirements in
               the case of a transaction intended to be accounted for as a
               pooling of interests transaction. The Committee may override the
               limitations on acceleration and may accord any Participant the
               right to refuse any acceleration in such circumstances as the
               Committee may approve.


                                      II-3
<PAGE>


III.    OTHER PROVISIONS

        3.1    Rights of Eligible Employees, Participants and Beneficiaries:

               (a)   Employment Status: Status as an Eligible Employee shall not
                     be construed as a commitment that any Award will be made
                     under this Plan to an Eligible Employee or to Eligible
                     Employees generally.

               (b)   No Employment Contract: Nothing contained in this Plan (or
                     in any other documents related to this Plan or to any
                     Award) shall confer upon any Eligible Employee or
                     Participant any right to continue in the employ or other
                     service of the Company, or any Subsidiary, or constitute
                     any contract or agreement of employment or other service,
                     nor shall interfere in any way with the right of the
                     Company, or any Subsidiary, to change such person's
                     compensation or other benefits or to terminate the
                     employment of such person, with or without cause, but
                     nothing contained in this Plan or any document related
                     hereto shall adversely affect any independent contractual
                     right of such person without his or her consent thereto.

        3.2    Compliance with Laws: This Plan, the granting and vesting of
               Awards under this Plan and the payment of money under this Plan
               or under Awards granted hereunder are subject to compliance with
               all, applicable federal and state laws, rules and regulations and
               to such approvals by any listing, regulatory or governmental
               authority as may, in the opinion of counsel for the Company, be
               necessary or advisable in connection therewith.

        3.3    Withholding; Payroll Taxes: The Employer shall withhold from
               payments made hereunder any taxes required to be withheld from
               such payments under federal, state or local law.

        3.4    Plan Amendment, Termination and Suspension:

               (a)   Board Authorization: The Board may, at any time, terminate
                     or, from time to time, amend, modify or suspend this Plan,
                     in whole or in part. Any Restricted Stock outstanding at
                     that time will be governed by the terms of the American
                     States Water Company Long-Term Incentive Plan.

        3.5    Effective Date of the Plan: This Plan shall be effective as of
               January 1, 1999.

        3.6    Governing Law: Severability

               (a)  Choice of Law: This Plan shall be governed by, and construed
                    in accordance with the laws of the State of California
                    applicable to contracts made and performed within such
                    State, except as such laws may be preempted by the


                                     III-1
<PAGE>


                    laws of the United States of America, which laws shall then
                    govern its effect and its construction to the extent they
                    preempt California law.

               (b)  Severability: If any provision shall be held by a court of
                    competent jurisdiction to be invalid and unenforceable, the
                    remaining provisions of this Plan shall continue in effect.

        3.7    Captions: Captions and headings are given to the sections and
               subsections of this Plan solely as a convenience to facilitate
               reference. Such headings shall not be deemed in any way material
               or relevant to the construction or interpretation of the Plan or
               any provision thereof.

        3.8    Terms: Whenever any words are used herein in the masculine, they
               shall be construed as though they were used in the feminine in
               all cases where they would so apply; and wherever any words are
               used herein in the singular or plural, they shall be construed as
               though they were used in the plural or the singular, as the case
               may be, in all cases where they would so apply.

        3.9    Non-Exclusivity of Plan: Nothing in this Plan shall limit or be
               deemed to limit the authority of the Board or the Committee to
               grant awards or authorize any other compensation.



EXECUTED this 29th day of April 2002.



        AMERICAN STATES WATER COMPANY

        By:
            -------------------------------------

        Title:
               ----------------------------------


                                     III-2