##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

|          
|----------
|(Mark One)

|  |                                                                                                 
|- | ------------------------------------------------------------------------------------------------
|x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the 
|  | quarterly period ended March 31, 2003 or                                                        
|  |                                                                                                 
|o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the
|  | transition period from     to                                                                   

|                                                 |  | 
|------------------------------------------------ |  | 
|Commission file number                 333-47647 |  | 

American States Water Company

(Exact Name of Registrant as Specified in Its Charter)


|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|California                                                     |  | 95-4676679                       
|                                                               |  |                                  
|(State or Other Jurisdiction of Incorporation or Organization) |  | (IRS Employer Identification No.)

|                                         |  |            |  | 
|---------------------------------------- |  | ---------- |  | 
|630 East Foothill Boulevard, San Dimas   |  | 91773     
|                                         |  |           
|(Address of Principal Executive Offices) |  | (Zip Code)

(909) 394-3600




(Registrants Telephone Number, Including Area Code)


Not Applicable




(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)


|                                                |  | 
|----------------------------------------------- |  | 
|Commission file number                000-01121 |  | 



| |                                  
| | ---------------------------------
| | Southern California Water Company

(Exact Name of Registrant as Specified in Its Charter)


|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|California                                                     |  | 95-1243678                       
|                                                               |  |                                  
|(State or Other Jurisdiction of Incorporation or Organization) |  | (IRS Employer Identification No.)

|                                         |  |            |  | 
|---------------------------------------- |  | ---------- |  | 
|630 East Foothill Boulevard, San Dimas   |  | 91773     
|                                         |  |           
|(Address of Principal Executive Offices) |  | (Zip Code)

(909) 394-3600




(Registrants Telephone Number, Including Area Code)


Not Applicable




(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)


Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

|                                  |  |      |  |    
|--------------------------------- |  | ---- |  | ---
|American States Water Company     |  | Yesx |  | Noo
|Southern California Water Company |  | Yesx |  | Noo

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.).

|                                  |  |      |  |    
|--------------------------------- |  | ---- |  | ---
|American States Water Company     |  | Yesx |  | Noo
|Southern California Water Company |  | Yeso |  | Nox

As of May 14, 2003, the number of Common Shares outstanding, no par value with
stated value of $2.50, of American States Water Company was 15,194,865 shares.

As of May 14, 2003, all of the 110 outstanding Common Shares of Southern
California Water Company were owned by American States Water Company.





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TABLE OF CONTENTS



|               |                                                                                              |                                                                           |  |  |  |  |  | 
|-------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- |  |  |  |  |  | 
|PART I        
|               | Item 1. Financial Statements                                                                
|               |                                                                                              | CONSOLIDATED BALANCE SHEETS OF AMERICAN STATES WATER COMPANY             
|               |                                                                                              | CONSOLIDATED STATEMENTS OF INCOME OF AMERICAN STATES WATER COMPANY       
|               |                                                                                              | CONSOLIDATED STATEMENTS OF INCOME OF AMERICAN STATES WATER COMPANY       
|               |                                                                                              | CONSOLIDATED STATEMENTS OF CASH FLOW OF AMERICAN STATES WATER COMPANY    
|               |                                                                                              | CONSOLIDATED BALANCE SHEETS OF SOUTHERN CALIFORNIA WATER COMPANY         
|               |                                                                                              | CONSOLIDATED STATEMENTS OF INCOME OF SOUTHERN CALIFORNIA WATER COMPANY   
|               |                                                                                              | CONSOLIDATED STATEMENTS OF INCOME OF SOUTHERN CALIFORNIA WATER COMPANY   
|               |                                                                                              | CONSOLIDATED STATEMENTS OF CASH FLOW OF SOUTHERN CALIFORNIA WATER COMPANY
|               |                                                                                              | NOTES TO FINANCIAL STATEMENTS                                            
|               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation
|               | Item 3. Quantitative and Qualitative Disclosures About Market Risk                          
|               | Item 4. Controls and Procedures                                                             
|PART II       
|               | Item 1. Legal Proceedings                                                                   
|               | Item 2. Changes in Securities                                                               
|               | Item 3. Defaults Upon Senior Securities                                                     
|               | Item 4. Submission of Matters to a Vote of Security Holders                                 
|               | Item 5. Other Information                                                                   
|               | Item 6. Exhibits and Reports on Form 8-K                                                    
|SIGNATURE     
|CERTIFICATIONS



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##### Table of Contents



AMERICAN STATES WATER COMPANY
and
SOUTHERN CALIFORNIA WATER COMPANY
FORM 10-Q

INDEX

|        |  |                                                                                                                                       |  |  |       |          |  | 
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------- |  |  | ----- | -------- |  | 
|        |  |                                                                                                                                       |  |  |       | Page No.
|        |  |                                                                                                                                       |  |  |       |         
|Part I  |  | Financial Information                                                                                                                 |  |  |       |         
|Item 1: |  | Financial Statements                                                                                                                  |  |  | 1     |         
|        |  | Consolidated Balance Sheets of American States Water Company as of
March 31, 2003 and December 31, 2002                               |  |  | 2-3   |         
|        |  | Consolidated Statements of Income of American States
Water Company for the
Three Months Ended March 31, 2003 and March 31, 2002       |  |  | 4     |         
|        |  | Consolidated Statements of Income of American States Water Company for the
Twelve Months Ended March 31, 2003 and March 31, 2002      |  |  | 5     |         
|        |  | Consolidated Statements of Cash Flow of American States Water Company for the
Three Months Ended March 31, 2003 and March 31, 2002    |  |  | 6     |         
|        |  | Consolidated Balance Sheets of Southern California Water Company as of
March 31, 2003 and December 31, 2002                           |  |  | 7-8   |         
|        |  | Consolidated Statements of Income of Southern California Water Company for the
Three Months Ended March 31, 2003 and March 31, 2002   |  |  | 9     |         
|        |  | Consolidated Statements of Income of Southern California Water Company for the
Twelve Months Ended March 31, 2003 and March 31, 2002  |  |  | 10    |         
|        |  | Consolidated Statements of Cash Flow of Southern California Water Company for the
Nine Months Ended March 31, 2003 and March 31, 2002 |  |  | 11    |         
|        |  | Notes to Consolidated Financial Statements                                                                                            |  |  | 12-17 |         
|Item 2: |  | Managements Discussion and Analysis of Financial Condition and Results of Operation                                                  |  |  | 18-43 |         
|Item 3: |  | Quantitative and Qualitative Disclosures About Market Risks                                                                           |  |  | 43-44 |         
|Item 4: |  | Controls and Procedures                                                                                                               |  |  | 44    |         
|Part II |  | Other Information                                                                                                                     |  |  |       |         
|Item 1: |  | Legal Proceedings                                                                                                                     |  |  | 44-47 |         
|Item 2: |  | Changes in Securities                                                                                                                 |  |  | 47-48 |         
|Item 3: |  | Defaults Upon Senior Securities                                                                                                       |  |  | 48    |         
|Item 4: |  | Submission of Matters to a Vote of Security Holders                                                                                   |  |  | 48    |         
|Item 5: |  | Other Information                                                                                                                     |  |  | 48    |         
|Item 6: |  | Exhibits and Reports on Form 8-K                                                                                                      |  |  | 48    |         
|        |  | Signature                                                                                                                             |  |  | 49    |         
|        |  | Certifications                                                                                                                        |  |  | 50-51 |         

i



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##### Table of Contents






PART I




Item 1. Financial Statements

General

The basic financial statements included herein have been prepared by
Registrant, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission.

Certain information and footnote disclosures normally included in
financial statements, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations, although Registrant believes that the disclosures are adequate to
make the information presented not misleading. In the opinion of management,
all adjustments necessary for a fair statement of results for the interim
period have been made.

It is suggested that these financial statements be read in conjunction
with the financial statements and notes thereto in the latest Annual Report on
Form 10-K of American States Water Company and its wholly owned subsidiary,
Southern California Water Company.

Filing Format

This quarterly report on Form 10-Q is a combined report being filed by two
separate Registrants: American States Water Company (hereinafter AWR) and
Southern California Water Company (hereinafter SCW). For more information,
please see Note 1 to the Notes to Financial Statementsand the heading entitled
Generalin Item 2 - Managements Discussion and Analysis of Financial Condition
and Results of Operation.References in this report to Registrant are to AWR
and SCW, collectively unless otherwise specified. SCW makes no representations
as to the information contained in this report relating to AWR and its
subsidiaries, other than SCW.

1



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##### Table of Contents



AMERICAN STATES WATER COMPANY




CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)


|                                            |                                                                                                       |                        |         |           |         |              |         |          |         | 
|------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ---------------------- | ------- | --------- | ------- | ------------ | ------- | -------- | ------- | 
|                                            |                                                                                                       |                        |         | March 31, |         | December 31,
|(in thousands)                              |                                                                                                       | 2003                   |         | 2002     
|                                            |                                                                                                       |                        |         |          
|Utility Plant, at cost                      |                                                                                                       |                        |         |           |         |              |         |         
|                                            | Water                                                                                                 |                        | $       | 698,579   |         |              | $       | 693,949  |        
|                                            | Electric                                                                                              |                        |         | 40,998    |         |              |         | 41,017   |        
|                                            |                                                                                                       |                        |         |           |         |              |         |          |        
|                                            |                                                                                                       |                        | 739,577 |           |         |              | 734,966 |         
|                                            | Less - Accumulated depreciation                                                                       |                        |         | (212,371  | )       |              |         | (206,873 | )      
|                                            |                                                                                                       |                        |         |           |         |              |         |          |        
|                                            |                                                                                                       |                        | 527,206 |           |         |              | 528,093 |         
|                                            | Construction work in progress                                                                         |                        |         | 39,943    |         |              |         | 35,218   |        
|                                            |                                                                                                       |                        |         |           |         |              |         |          |        
|                                            |                                                                                                       |                        | 567,149 |           |         |              | 563,311 |         
|Other Property and Investments              |                                                                                                       |                        | 22,610  |           |         |              | 22,670  |         
|                                            |                                                                                                       |                        |         |           |         |              |         |          |        
|Current Assets                              |                                                                                                       |                        |         |           |         |              |         |         
|                                            | Cash and cash equivalents                                                                             |                        |         | 16,415    |         |              |         | 18,397   |        
|                                            | Accounts receivable-customers (less allowance for doubtful
accounts of $735 in 2003 and $769 in 2002) |                        |         | 10,387    |         |              |         | 10,833   |        
|                                            | Unbilled revenue                                                                                      |                        |         | 11,066    |         |              |         | 12,277   |        
|                                            | Other accounts receivable                                                                             |                        |         | 2,006     |         |              |         | 2,411    |        
|                                            | Taxes receivable                                                                                      |                        |         |          |         |              |         | 557      |        
|                                            | Materials and supplies, at average cost                                                               |                        |         | 1,007     |         |              |         | 936      |        
|                                            | Supply
cost balancing accounts - current                                                              |                        |         | 3,171     |         |              |         | 3,215    |        
|                                            | Prepayments and other                                                                                 |                        |         | 2,677     |         |              |         | 3,220    |        
|                                            |                                                                                                       |                        |         |           |         |              |         |          |        
|                                            |                                                                                                       |                        | 46,729  |           |         |              | 51,846  |         
|                                            |                                                                                                       |                        |         |           |         |              |         |          |        
|Deferred Charges and Other Long-Term Assets |                                                                                                       |                        |         |           |         |              |         |         
|                                            | Regulatory tax-related assets                                                                         |                        |         | 13,028    |         |              |         | 12,828   |        
|                                            | Supply cost balancing accounts                                                                        |                        |         | 24,589    |         |              |         | 25,248   |        
|                                            | Other accounts receivable                                                                             |                        |         | 3,370     |         |              |         | 3,370    |        
|                                            | Other                                                                                                 |                        |         | 26,075    |         |              |         | 22,377   |        
|                                            |                                                                                                       |                        |         |           |         |              |         |          |        
|                                            |                                                                                                       | Total deferred charges |         |           | 67,062  |              |         |          | 63,823  | 
|                                            |                                                                                                       |                        |         |           |         |              |         |          |        
|                                            |                                                                                                       | Total Assets           |         | $         | 703,550 |              |         | $        | 701,650 | 
|                                            |                                                                                                       |                        |         |           |         |              |         |          |        

The accompanying notes are an integral part of these consolidated financial statements

2



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AMERICAN STATES WATER COMPANY

CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
(Unaudited)


|                              |                                            |                                      |   |           |         |              |   |         |         | 
|----------------------------- | ------------------------------------------ | ------------------------------------ | - | --------- | ------- | ------------ | - | ------- | ------- | 
|                              |                                            |                                      |   | March 31, |         | December 31,
|(in thousands)                |                                            | 2003                                 |   | 2002     
|                              |                                            |                                      |   |          
|Capitalization                |                                            |                                      |   |           |         |              |   |        
|                              | Common shareholders equity                |                                      | $ | 213,315   |         |              | $ | 213,279 |        
|                              | Long-term debt                             |                                      |   | 230,887   |         |              |   | 231,089 |        
|                              |                                            |                                      |   |           |         |              |   |         |        
|                              |                                            | Total capitalization                 |   |           | 444,202 |              |   |         | 444,368 | 
|                              |                                            |                                      |   |           |         |              |   |         |        
|Current Liabilities           |                                            |                                      |   |           |         |              |   |        
|                              | Notes payable to banks                     |                                      |   | 30,000    |         |              |   | 35,000  |        
|                              | Long-term debt - current                   |                                      |   | 13,305    |         |              |   | 13,305  |        
|                              | Accounts payable                           |                                      |   | 8,385     |         |              |   | 11,600  |        
|                              | Taxes payable                              |                                      |   | 962       |         |              |   |        |        
|                              | Accrued employee expenses                  |                                      |   | 5,091     |         |              |   | 5,105   |        
|                              | Accrued interest                           |                                      |   | 5,110     |         |              |   | 1,941   |        
|                              | Other                                      |                                      |   | 11,929    |         |              |   | 12,569  |        
|                              |                                            |                                      |   |           |         |              |   |         |        
|                              |                                            | Total current liabilities            |   |           | 74,782  |              |   |         | 79,520  | 
|                              |                                            |                                      |   |           |         |              |   |         |        
|Other Credits                 |                                            |                                      |   |           |         |              |   |        
|                              | Advances for construction                  |                                      |   | 70,923    |         |              |   | 70,208  |        
|                              | Contributions in aid of construction - net |                                      |   | 48,532    |         |              |   | 47,751  |        
|                              | Accumulated deferred income taxes - net    |                                      |   | 56,375    |         |              |   | 53,817  |        
|                              | Unamortized investment tax credits         |                                      |   | 2,769     |         |              |   | 2,791   |        
|                              | Regulatory tax-related liability           |                                      |   | 2,005     |         |              |   | 2,011   |        
|                              | Other                                      |                                      |   | 3,962     |         |              |   | 1,184   |        
|                              |                                            |                                      |   |           |         |              |   |         |        
|                              |                                            | Total other credits                  |   |           | 184,566 |              |   |         | 177,762 | 
|                              |                                            |                                      |   |           |         |              |   |         |        
|Commitments and Contingencies |                                            |                                      |  |           |         |              |  |        
|                              |                                            |                                      |   |           |         |              |   |         |        
|                              |                                            | Total Capitalization and Liabilities |   | $         | 703,550 |              |   | $       | 701,650 | 
|                              |                                            |                                      |   |           |         |              |   |         |        

The accompanying notes are an integral part of these consolidated financial statements

3



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AMERICAN STATES WATER COMPANY




CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED MARCH 31, 2003 AND 2002
(Unaudited)


|                                              |                                                 |                          |        |                    |        |   |        |        |        | 
|--------------------------------------------- | ----------------------------------------------- | ------------------------ | ------ | ------------------ | ------ | - | ------ | ------ | ------ | 
|                                              |                                                 |                          |        | Three Months Ended
|                                              |                                                 |                          |        | March 31,         
|                                              |                                                 |                          |        |                   
|(in thousands, except per share amounts)      |                                                 | 2003                     |        | 2002              
|                                              |                                                 |                          |        |                   
|Operating Revenues                            |                                                 |                          |        |                    |        |   |        |       
|                                              | Water                                           |                          | $      | 39,425             |        |   | $      | 39,091 |       
|                                              | Electric                                        |                          |        | 7,004              |        |   |        | 5,206  |       
|                                              | Other                                           |                          |        | 247                |        |   |        | 188    |       
|                                              |                                                 |                          |        |                    |        |   |        |        |       
|                                              |                                                 |                          | 46,676 |                    |        |   | 44,485 |       
|                                              |                                                 |                          |        |                    |        |   |        |        |       
|Operating Expenses                            |                                                 |                          |        |                    |        |   |        |       
|                                              | Water purchased                                 |                          |        | 7,888              |        |   |        | 7,572  |       
|                                              | Power purchased for pumping                     |                          |        | 1,956              |        |   |        | 1,975  |       
|                                              | Power purchased for resale                      |                          |        | 3,856              |        |   |        | 4,816  |       
|                                              | Unrealized loss on purchased power contracts    |                          |        | 283                |        |   |        |       |       
|                                              | Groundwater production assessment               |                          |        | 1,667              |        |   |        | 1,795  |       
|                                              | Supply cost balancing accounts                  |                          |        | 958                |        |   |        | (2,326 | )     
|                                              | Other operating expenses                        |                          |        | 4,040              |        |   |        | 3,776  |       
|                                              | Administrative and general expenses             |                          |        | 7,524              |        |   |        | 7,564  |       
|                                              | Depreciation and amortization                   |                          |        | 4,947              |        |   |        | 4,568  |       
|                                              | Maintenance                                     |                          |        | 1,950              |        |   |        | 1,892  |       
|                                              | Taxes on income                                 |                          |        | 1,995              |        |   |        | 3,013  |       
|                                              | Other taxes                                     |                          |        | 2,057              |        |   |        | 1,922  |       
|                                              |                                                 |                          |        |                    |        |   |        |        |       
|                                              |                                                 | Total operating expenses |        |                    | 39,121 |   |        |        | 36,567 | 
|                                              |                                                 |                          |        |                    |        |   |        |        |       
|Operating Income                              |                                                 |                          | 7,555  |                    |        |   | 7,918  |       
|Other Income                                  |                                                 |                          |        |                    |        |   |        |       
|                                              | Total other income                              |                          |        |                   |        |   |        | 256    |       
|                                              |                                                 |                          |        |                    |        |   |        |        |       
|                                              | Income before interest charges                  |                          |        | 7,555              |        |   |        | 8,174  |       
|Interest Charges                              |                                                 |                          |        |                    |        |   |        |       
|                                              | Interest on long-term debt                      |                          |        | 4,255              |        |   |        | 4,256  |       
|                                              | Other interest and amortization of debt expense |                          |        | 310                |        |   |        | 111    |       
|                                              |                                                 |                          |        |                    |        |   |        |        |       
|                                              |                                                 | Total interest charges   |        |                    | 4,565  |   |        |        | 4,367  | 
|Net Income                                    |                                                 |                          | 2,990  |                    |        |   | 3,807  |       
|                                              | Dividends on Preferred Shares                   |                          |        |                   |        |   |        | (21    | )     
|                                              |                                                 |                          |        |                    |        |   |        |        |       
|Earnings Available for Common Shareholders    |                                                 | $                        | 2,990  |                    |        | $ | 3,786  |       
|                                              |                                                 |                          |        |                    |        |   |        |        |       
|Weighted Average Number of Shares Outstanding |                                                 |                          | 15,188 |                    |        |   | 15,120 |       
|Basic Earnings Per Common Share               |                                                 | $                        | 0.20   |                    |        | $ | 0.25   |       
|Weighted Average Number of Diluted Shares     |                                                 |                          | 15,194 |                    |        |   | 15,129 |       
|Fully Diluted Earnings Per Share              |                                                 | $                        | 0.20   |                    |        | $ | 0.25   |       
|Dividends Declared Per Common Share           |                                                 | $                        | 0.221  |                    |        | $ | 0.217  |       

The accompanying notes are an integral part of these consolidated financial statements

4



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##### Table of Contents






AMERICAN STATES WATER COMPANY

CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWELVE MONTHS
ENDED MARCH 31, 2003 AND 2002
(Unaudited)


|                                              |                                                 |                                |         |                     |         |          |         |         |         | 
|--------------------------------------------- | ----------------------------------------------- | ------------------------------ | ------- | ------------------- | ------- | -------- | ------- | ------- | ------- | 
|                                              |                                                 |                                |         | Twelve Months Ended
|                                              |                                                 |                                |         | March 31,          
|                                              |                                                 |                                |         |                    
|(in thousands, except per share amounts)      |                                                 | 2003                           |         | 2002               
|                                              |                                                 |                                |         |                    
|                                              |                                                 |                                |         |                     |         | Restated
|                                              |                                                 |                                |         |                     |         | Note 2  
|Operating Revenues                            |                                                 |                                |         |                     |         |         
|                                              | Water                                           |                                | $       | 187,394             |         |          | $       | 184,420 |        
|                                              | Electric                                        |                                |         | 23,097              |         |          |         | 16,500  |        
|                                              | Other                                           |                                |         | 905                 |         |          |         | 789     |        
|                                              |                                                 |                                |         |                     |         |          |         |        
|                                              |                                                 |                                | 211,396 |                     |         |          | 201,709 |        
|                                              |                                                 |                                |         |                     |         |          |         |        
|Operating Expenses                            |                                                 |                                |         |                     |         |          |         |        
|                                              | Water purchased                                 |                                |         | 43,174              |         |          |         | 38,689  |        
|                                              | Power purchased for pumping                     |                                |         | 10,557              |         |          |         | 10,037  |        
|                                              | Power purchased for resale                      |                                |         | 14,857              |         |          |         | 16,745  |        
|                                              | Unrealized loss on power purchased contracts    |                                |         | 2,813               |         |          |         |        |        
|                                              | Groundwater production assessment               |                                |         | 7,289               |         |          |         | 7,169   |        
|                                              | Supply cost balancing accounts                  |                                |         | (122                | )       |          |         | (10,740 | )      
|                                              | Other operating expenses                        |                                |         | 17,248              |         |          |         | 16,810  |        
|                                              | Administrative and general expenses             |                                |         | 29,969              |         |          |         | 36,093  |        
|                                              | Depreciation and amortization                   |                                |         | 18,682              |         |          |         | 18,036  |        
|                                              | Maintenance                                     |                                |         | 9,897               |         |          |         | 8,319   |        
|                                              | Taxes on income                                 |                                |         | 11,931              |         |          |         | 15,027  |        
|                                              | Other taxes                                     |                                |         | 7,817               |         |          |         | 7,485   |        
|                                              |                                                 |                                |         |                     |         |          |         |        
|                                              |                                                 | Total operating expenses       |         |                     | 174,112 |          |         |         | 163,670 | 
|                                              |                                                 |                                |         |                     |         |          |         |        
|Operating Income                              |                                                 |                                | 37,284  |                     |         |          | 38,039  |        
|Other Income/(Loss)                           |                                                 |                                |         |                     |         |          |         |        
|                                              | Total other income (loss)                       |                                |         | 135                 |         |          |         | (69     | )      
|                                              |                                                 |                                |         |                     |         |          |         |        
|                                              |                                                 | Income before interest charges |         |                     | 37,419  |          |         |         | 37,970  | 
|Interest Charges                              |                                                 |                                |         |                     |         |          |         |        
|                                              | Interest on long-term debt                      |                                |         | 16,970              |         |          |         | 14,523  |        
|                                              | Other interest and amortization of debt expense |                                |         | 927                 |         |          |         | 1,659   |        
|                                              |                                                 |                                |         |                     |         |          |         |        
|                                              |                                                 | Total interest charges         |         |                     | 17,897  |          |         |         | 16,182  | 
|Net Income                                    |                                                 |                                | 19,522  |                     |         |          | 21,788  |        
|                                              | Dividends on Preferred Shares                   |                                |         | (9                  | )       |          |         | (83     | )      
|                                              |                                                 |                                |         |                     |         |          |         |        
|Earnings Available for Common Shareholders    |                                                 | $                              | 19,513  |                     |         | $        | 21,705  |        
|                                              |                                                 |                                |         |                     |         |          |         |        
|Weighted Average Number of Shares Outstanding |                                                 |                                | 15,161  |                     |         |          | 15,120  |        
|Basic Earnings Per Common Share               |                                                 | $                              | 1.29    |                     |         | $        | 1.44    |        
|Weighted Average Number of Diluted Shares     |                                                 |                                | 15,181  |                     |         |          | 15,125  |        
|Fully Diluted Earnings Per Share              |                                                 | $                              | 1.29    |                     |         | $        | 1.44    |        
|Dividends Declared Per Common Share           |                                                 | $                              | 0.876   |                     |         | $        | 0.867   |        

The accompanying notes are an integral part of these financial statements

5



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##### Table of Contents



AMERICAN STATES WATER COMPANY




CONSOLIDATED CASH FLOW STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(Unaudited)


|                                                |                                                                      |                                                  |                   |        |                    |        |         |         |         |        | 
|----------------------------------------------- | -------------------------------------------------------------------- | ------------------------------------------------ | ----------------- | ------ | ------------------ | ------ | ------- | ------- | ------- | ------ | 
|                                                |                                                                      |                                                  |                   |        | Three Months Ended
|                                                |                                                                      |                                                  |                   |        | March 31,         
|                                                |                                                                      |                                                  |                   |        |                   
|(in thousands)                                  |                                                                      | 2003                                             |                   | 2002  
|                                                |                                                                      |                                                  |                   |       
|Cash Flows From Operating Activities:           |                                                                      |                                                  |                   |        |                    |        |         |        
|                                                | Net income                                                           |                                                  | $                 | 2,990  |                    |        | $       | 3,807   |        
|                                                | Adjustments for non-cash items:                                      |                                                  |                   |        |                    |        |         |         |        
|                                                |                                                                      | Depreciation and amortization                    |                   |        | 4,947              |        |         |         | 4,568   |       
|                                                |                                                                      | Deferred income taxes and investment tax credits |                   |        | 2,330              |        |         |         | 2,286   |       
|                                                |                                                                      | Other - net                                      |                   |        | 240                |        |         |         | (886    | )     
|                                                | Changes in assets and liabilities:                                   |                                                  |                   |        |                    |        |         |         |        
|                                                |                                                                      | Accounts
receivable - customers                  |                   |        | 446                |        |         |         | 885     |       
|                                                |                                                                      | Unbilled revenue                                 |                   |        | 1,211              |        |         |         | 796     |       
|                                                |                                                                      | Other accounts receivable                        |                   |        | 405                |        |         |         | 75      |       
|                                                |                                                                      | Prepayments and other current assets             |                   |        | 472                |        |         |         | 365     |       
|                                                |                                                                      | Supply cost balancing accounts                   |                   |        | 703                |        |         |         | (2,326  | )     
|                                                |                                                                      | Deferred charges and other assets                |                   |        | (1,327             | )      |         |         | (1,141  | )     
|                                                |                                                                      | Accounts payable                                 |                   |        | (3,215             | )      |         |         | 2,465   |       
|                                                |                                                                      | Taxes payable                                    |                   |        | 1,519              |        |         |         | (1,050  | )     
|                                                |                                                                      | Other current liabilities                        |                   |        | 2,515              |        |         |         | 3,211   |       
|                                                |                                                                      |                                                  |                   |        |                    |        |         |         |        
|                                                |                                                                      |                                                  | Net cash provided |        |                    | 13,236 |         |         |         | 13,055 | 
|                                                |                                                                      |                                                  |                   |        |                    |        |         |         |        
|Cash Flows From Investing Activities:           |                                                                      |                                                  |                   |        |                    |        |         |        
|                                                | Construction expenditures                                            |                                                  |                   | (8,409 | )                  |        |         | (8,159  | )      
|                                                |                                                                      |                                                  |                   |        |                    |        |         |         |        
|                                                |                                                                      | Net cash used                                    |                   |        | (8,409             | )      |         |         | (8,159  | )     
|                                                |                                                                      |                                                  |                   |        |                    |        |         |         |        
|Cash Flows From Financing Activities:           |                                                                      |                                                  |                   |        |                    |        |         |        
|                                                | Proceeds from issuance of common shares                              |                                                  |                   | 402    |                    |        |         | 58      |        
|                                                | Receipt of advances for and contributions in aid of
construction     |                                                  |                   | 1,780  |                    |        |         | 974     |        
|                                                | Refunds on advances for construction                                 |                                                  |                   | (433   | )                  |        |         | (449    | )      
|                                                | Repayment of long-term debt                                          |                                                  |                   | (202   | )                  |        |         | (227    | )      
|                                                | Net change in notes payable to banks                                 |                                                  |                   | (5,000 | )                  |        |         | (20,000 | )      
|                                                | Common and preferred dividends paid                                  |                                                  |                   | (3,356 | )                  |        |         | (3,296  | )      
|                                                |                                                                      |                                                  |                   |        |                    |        |         |         |        
|                                                |                                                                      | Net cash used                                    |                   |        | (6,809             | )      |         |         | (22,940 | )     
|                                                |                                                                      |                                                  |                   |        |                    |        |         |         |        
|Net decrease in cash and cash equivalents       |                                                                      |                                                  | (1,982            | )      |                    |        | (18,044 | )      
|Cash and cash equivalents, beginning of period  |                                                                      |                                                  | 18,397            |        |                    |        | 30,496  |        
|                                                |                                                                      |                                                  |                   |        |                    |        |         |         |        
|Cash and cash equivalents, end of period        |                                                                      | $                                                | 16,415            |        |                    | $      | 12,452  |        
|                                                |                                                                      |                                                  |                   |        |                    |        |         |         |        
|Non-cash activities - supplemental disclosures: |                                                                      |                                                  |                   |        |                    |        |         |        
|                                                | Adoption of new accounting standard for asset retirement obligtions: |                                                  |                   |        |                    |        |         |         |        
|                                                |                                                                      | Cumulative effect of adoption - Regulatory asset |                   | $      | 2,495              |        |         |         |        |       
|                                                |                                                                      | Utility plant, net                               |                   |        | 223                |        |         |         |        |       
|                                                |                                                                      | Asset retirement obligations                     |                   |        | (2,718             | )      |         |         |        |       

The accompanying notes are an integral part of these consolidated financial statements

6



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##### Table of Contents



SOUTHERN CALIFORNIA WATER COMPANY




BALANCE SHEETS
ASSETS
(Unaudited)


|                                            |                                                                                                       |                        |         |           |         |              |         |          |         | 
|------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ---------------------- | ------- | --------- | ------- | ------------ | ------- | -------- | ------- | 
|                                            |                                                                                                       |                        |         | March 31, |         | December 31,
|(in thousands)                              |                                                                                                       | 2003                   |         | 2002     
|                                            |                                                                                                       |                        |         |          
|Utility Plant, at cost                      |                                                                                                       |                        |         |           |         |              |         |         
|                                            | Water                                                                                                 |                        | $       | 660,408   |         |              | $       | 656,331  |        
|                                            | Electric                                                                                              |                        |         | 40,998    |         |              |         | 41,017   |        
|                                            |                                                                                                       |                        |         |           |         |              |         |          |        
|                                            |                                                                                                       |                        | 701,406 |           |         |              | 697,348 |         
|                                            | Less - Accumulated depreciation                                                                       |                        |         | (201,923  | )       |              |         | (196,660 | )      
|                                            |                                                                                                       |                        |         |           |         |              |         |          |        
|                                            |                                                                                                       |                        | 499,483 |           |         |              | 500,688 |         
|                                            | Construction work in progress                                                                         |                        |         | 38,597    |         |              |         | 33,705   |        
|                                            |                                                                                                       |                        |         |           |         |              |         |          |        
|                                            |                                                                                                       |                        | 538,080 |           |         |              | 534,393 |         
|                                            |                                                                                                       |                        |         |           |         |              |         |          |        
|Other Property and Investments              |                                                                                                       |                        | 7,961   |           |         |              | 8,018   |         
|                                            |                                                                                                       |                        |         |           |         |              |         |          |        
|Current Assets                              |                                                                                                       |                        |         |           |         |              |         |         
|                                            | Cash and cash equivalents                                                                             |                        |         | 7,239     |         |              |         | 11,677   |        
|                                            | Accounts receivable-customers (less allowance for doubtful
accounts of $693 in 2003 and $729 in 2002) |                        |         | 10,207    |         |              |         | 10,609   |        
|                                            | Unbilled revenue                                                                                      |                        |         | 10,879    |         |              |         | 12,060   |        
|                                            | Intercompany receivable                                                                               |                        |         | 3,142     |         |              |         | 1,044    |        
|                                            | Other accounts receivable                                                                             |                        |         | 1,831     |         |              |         | 2,234    |        
|                                            | Materials and supplies, at average cost                                                               |                        |         | 977       |         |              |         | 905      |        
|                                            | Supply cost balancing accounts - current                                                              |                        |         | 3,171     |         |              |         | 3,215    |        
|                                            | Prepayments and other                                                                                 |                        |         | 2,537     |         |              |         | 3,005    |        
|                                            |                                                                                                       |                        |         |           |         |              |         |          |        
|                                            |                                                                                                       |                        | 39,983  |           |         |              | 44,749  |         
|                                            |                                                                                                       |                        |         |           |         |              |         |          |        
|Deferred Charges and Other Long-Term Assets |                                                                                                       |                        |         |           |         |              |         |         
|                                            | Regulatory tax-related assets                                                                         |                        |         | 13,028    |         |              |         | 12,828   |        
|                                            | Supply cost balancing accounts                                                                        |                        |         | 24,589    |         |              |         | 25,248   |        
|                                            | Other accounts receivable                                                                             |                        |         | 3,370     |         |              |         | 3,370    |        
|                                            | Other                                                                                                 |                        |         | 25,126    |         |              |         | 21,405   |        
|                                            |                                                                                                       |                        |         |           |         |              |         |          |        
|                                            |                                                                                                       | Total deferred charges |         |           | 66,113  |              |         |          | 62,851  | 
|                                            |                                                                                                       |                        |         |           |         |              |         |          |        
|                                            |                                                                                                       | Total Assets           |         | $         | 652,137 |              |         | $        | 650,011 | 
|                                            |                                                                                                       |                        |         |           |         |              |         |          |        

The accompanying notes are an integral part of these financial statements

7



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##### Table of Contents



SOUTHERN CALIFORNIA WATER COMPANY

BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
(Unaudited)


|                              |                                       |                                      |         |           |         |              |         |         |         | 
|----------------------------- | ------------------------------------- | ------------------------------------ | ------- | --------- | ------- | ------------ | ------- | ------- | ------- | 
|                              |                                       |                                      |         | March 31, |         | December 31,
|(in thousands)                |                                       | 2003                                 |         | 2002     
|                              |                                       |                                      |         |          
|Capitalization                |                                       |                                      |         |           |         |              |         |        
|                              | Common shareholders equity           |                                      | $       | 206,836   |         |              | $       | 207,562 |        
|                              | Long-term debt                        |                                      |         | 222,668   |         |              |         | 222,725 |        
|                              |                                       |                                      |         |           |         |              |         |         |        
|                              |                                       | Total capitalization                 |         |           | 429,504 |              |         |         | 430,287 | 
|                              |                                       |                                      |         |           |         |              |         |         |        
|Current Liabilities           |                                       |                                      |         |           |         |              |         |        
|                              | Long-term debt - current              |                                      |         | 12,780    |         |              |         | 12,780  |        
|                              | Accounts payable                      |                                      |         | 7,973     |         |              |         | 10,576  |        
|                              | Intercompany payable                  |                                      |         | 8,000     |         |              |         | 13,000  |        
|                              | Taxes payable                         |                                      |         | 2,603     |         |              |         | 1,099   |        
|                              | Accrued employee expenses             |                                      |         | 5,013     |         |              |         | 5,033   |        
|                              | Accrued interest                      |                                      |         | 4,916     |         |              |         | 1,843   |        
|                              | Other                                 |                                      |         | 11,636    |         |              |         | 12,276  |        
|                              |                                       |                                      |         |           |         |              |         |         |        
|                              |                                       | Total current liabilities            |         |           | 52,921  |              |         |         | 56,607  | 
|                              |                                       |                                      |         |           |         |              |         |         |        
|Other Credits                 |                                       |                                      |         |           |         |              |         |        
|                              | Advances for construction             |                                      |         | 60,270    |         |              |         | 59,640  |        
|                              | Contributions in aid of construction  |                                      |         | 48,250    |         |              |         | 47,480  |        
|                              | Accumulated deferred income taxes-net |                                      |         | 53,678    |         |              |         | 51,195  |        
|                              | Unamortized investment tax credits    |                                      |         | 2,769     |         |              |         | 2,791   |        
|                              | Regulatory tax-related liability      |                                      |         | 2,005     |         |              |         | 2,011   |        
|                              | Other credits                         |                                      |         | 2,740     |         |              |         |        |        
|                              |                                       |                                      |         |           |         |              |         |         |        
|                              |                                       |                                      | 169,712 |           |         |              | 163,117 |        
|                              |                                       |                                      |         |           |         |              |         |         |        
|Commitments and Contingencies |                                       |                                      |        |           |         |              |        |        
|                              |                                       |                                      |         |           |         |              |         |         |        
|                              |                                       | Total Capitalization and Liabilities |         | $         | 652,137 |              |         | $       | 650,011 | 
|                              |                                       |                                      |         |           |         |              |         |         |        

The accompanying notes are an integral part of these financial statements

8



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##### Table of Contents



SOUTHERN CALIFORNIA WATER COMPANY




STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED MARCH 31, 2003 AND 2002
(Unaudited)


|                                              |                                                 |                                |        |                    |        |   |        |        |        | 
|--------------------------------------------- | ----------------------------------------------- | ------------------------------ | ------ | ------------------ | ------ | - | ------ | ------ | ------ | 
|                                              |                                                 |                                |        | Three Months Ended
|                                              |                                                 |                                |        | March 31,         
|                                              |                                                 |                                |        |                   
|(in thousands, except per share amounts)      |                                                 | 2003                           |        | 2002              
|                                              |                                                 |                                |        |                   
|Operating Revenues                            |                                                 |                                |        |                    |        |   |        |       
|                                              | Water                                           |                                | $      | 38,169             |        |   | $      | 37,734 |       
|                                              | Electric                                        |                                |        | 7,004              |        |   |        | 5,206  |       
|                                              |                                                 |                                |        |                    |        |   |        |        |       
|                                              |                                                 |                                | 45,173 |                    |        |   | 42,940 |       
|                                              |                                                 |                                |        |                    |        |   |        |        |       
|Operating Expenses                            |                                                 |                                |        |                    |        |   |        |       
|                                              | Water purchased                                 |                                |        | 7,710              |        |   |        | 7,415  |       
|                                              | Power purchased for pumping                     |                                |        | 1,890              |        |   |        | 1,904  |       
|                                              | Power purchased for resale                      |                                |        | 3,856              |        |   |        | 4,816  |       
|                                              | Unrealized loss on power purchased contracts    |                                |        | 283                |        |   |        |       |       
|                                              | Groundwater production assessment               |                                |        | 1,667              |        |   |        | 1,795  |       
|                                              | Supply cost balancing accounts                  |                                |        | 958                |        |   |        | (2,326 | )     
|                                              | Other operating expenses                        |                                |        | 3,753              |        |   |        | 3,542  |       
|                                              | Administrative and general expenses             |                                |        | 7,010              |        |   |        | 6,828  |       
|                                              | Depreciation and amortization                   |                                |        | 4,718              |        |   |        | 4,341  |       
|                                              | Maintenance                                     |                                |        | 1,872              |        |   |        | 1,822  |       
|                                              | Taxes on income                                 |                                |        | 2,090              |        |   |        | 3,150  |       
|                                              | Other taxes                                     |                                |        | 1,949              |        |   |        | 1,802  |       
|                                              |                                                 |                                |        |                    |        |   |        |        |       
|                                              |                                                 | Total operating expenses       |        |                    | 37,756 |   |        |        | 35,089 | 
|                                              |                                                 |                                |        |                    |        |   |        |        |       
|Operating Income                              |                                                 |                                | 7,417  |                    |        |   | 7,851  |       
|Other Income/(Loss)                           |                                                 |                                |        |                    |        |   |        |       
|                                              | Total other income (loss) - net                 |                                |        | (3                 | )      |   |        | 263    |       
|                                              |                                                 |                                |        |                    |        |   |        |        |       
|                                              |                                                 | Income before interest charges |        |                    | 7,414  |   |        |        | 8,114  | 
|Interest Charges                              |                                                 |                                |        |                    |        |   |        |       
|                                              | Interest on long-term debt                      |                                |        | 4,140              |        |   |        | 4,136  |       
|                                              | Other interest and amortization of debt expense |                                |        | 150                |        |   |        | (36    | )     
|                                              |                                                 |                                |        |                    |        |   |        |        |       
|                                              |                                                 | Total interest charges         |        |                    | 4,290  |   |        |        | 4,100  | 
|Net Income                                    |                                                 | $                              | 3,124  |                    |        | $ | 4,014  |       
|                                              |                                                 |                                |        |                    |        |   |        |        |       
|Weighted Average Number of Shares Outstanding |                                                 |                                | 110    |                    |        |   | 110    |       
|Basic Earnings Per Common Share               |                                                 | $                              | 28,400 |                    |        | $ | 36,491 |       
|Dividends Declared Per Common Share           |                                                 | $                              | 35,000 |                    |        | $ | 30,000 |       

The accompanying notes are an integral part of these financial statements

9



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##### Table of Contents



SOUTHERN CALIFORNIA WATER COMPANY




STATEMENTS OF INCOME
FOR THE TWELVE MONTHS
ENDED MARCH 31, 2003 AND 2002
(Unaudited)


|                                              |  |                                                 |                                |      |                     |          |         |   |         |         | 
|--------------------------------------------- |  | ----------------------------------------------- | ------------------------------ | ---- | ------------------- | -------- | ------- | - | ------- | ------- | 
|                                              |  |                                                 |                                |      | Twelve Months Ended
|                                              |  |                                                 |                                |      | March 31,          
|                                              |  |                                                 |                                |      |                    
|(in thousands, except per share amounts)      |  | 2003                                            |                                | 2002
|                                              |  |                                                 |                                |     
|                                              |  |                                                 |                                |      |                     | Restated
|                                              |  |                                                 |                                |      |                     | Note 2  
|Operating Revenues                            |  |                                                 |                                |      |                     |          |         |  
|                                              |  | Water                                           |                                | $    | 181,338             |          |         | $ | 178,133 |        
|                                              |  | Electric                                        |                                |      | 23,097              |          |         |   | 16,500  |        
|                                              |  |                                                 |                                |      |                     |          |         |  
|                                              |  |                                                 | 204,435                        |      |                     |          | 194,633 |  
|                                              |  |                                                 |                                |      |                     |          |         |  
|Operating Expenses                            |  |                                                 |                                |      |                     |          |         |  
|                                              |  | Water purchased                                 |                                |      | 42,477              |          |         |   | 38,179  |        
|                                              |  | Power purchased for pumping                     |                                |      | 10,154              |          |         |   | 9,601   |        
|                                              |  | Power purchased for resale                      |                                |      | 14,857              |          |         |   | 16,746  |        
|                                              |  | Unrealized loss on power purchased contracts    |                                |      | 2,813               |          |         |   |        |        
|                                              |  | Groundwater production assessment               |                                |      | 7,289               |          |         |   | 7,169   |        
|                                              |  | Supply cost balancing accounts                  |                                |      | (122                | )        |         |   | (10,740 | )      
|                                              |  | Other operating expenses                        |                                |      | 16,035              |          |         |   | 15,754  |        
|                                              |  | Administrative and general expenses             |                                |      | 26,355              |          |         |   | 34,444  |        
|                                              |  | Depreciation and amortization                   |                                |      | 17,761              |          |         |   | 16,877  |        
|                                              |  | Maintenance                                     |                                |      | 9,652               |          |         |   | 8,087   |        
|                                              |  | Taxes on income                                 |                                |      | 12,545              |          |         |   | 14,972  |        
|                                              |  | Other taxes                                     |                                |      | 7,515               |          |         |   | 6,993   |        
|                                              |  |                                                 |                                |      |                     |          |         |  
|                                              |  |                                                 | Total operating expenses       |      |                     | 167,331  |         |   |         | 158,082 | 
|                                              |  |                                                 |                                |      |                     |          |         |  
|Operating Income                              |  |                                                 | 37,104                         |      |                     |          | 36,551  |  
|Other Income/(Loss)                           |  |                                                 |                                |      |                     |          |         |  
|                                              |  | Total other income (loss) - net                 |                                |      | 52                  |          |         |   | (151    | )      
|                                              |  |                                                 |                                |      |                     |          |         |  
|                                              |  |                                                 | Income before interest charges |      |                     | 37,156   |         |   |         | 36,400  | 
|Interest Charges                              |  |                                                 |                                |      |                     |          |         |  
|                                              |  | Interest on long-term debt                      |                                |      | 16,523              |          |         |   | 14,048  |        
|                                              |  | Other interest and amortization of debt expense |                                |      | 303                 |          |         |   | 785     |        
|                                              |  |                                                 |                                |      |                     |          |         |  
|                                              |  |                                                 | Total interest charges         |      |                     | 16,826   |         |   |         | 14,833  | 
|Net Income                                    |  | $                                               | 20,330                         |      |                     | $        | 21,567  |  
|                                              |  |                                                 |                                |      |                     |          |         |  
|Weighted Average Number of Shares Outstanding |  |                                                 | 110                            |      |                     |          | 110     |  
|Basic Earnings Per Common Share               |  | $                                               | 184,818                        |      |                     | $        | 196,064 |  
|Dividends Declared Per Common Share           |  | $                                               | 138,000                        |      |                     | $        | 123,000 |  

The accompanying notes are an integral part of these financial statements

10



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##### Table of Contents



SOUTHERN CALIFORNIA WATER COMPANY




CASH FLOW STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(Unaudited)


|                                                |                                                                      |                                                  |        |                    |        |   |         |         |        |  
|----------------------------------------------- | -------------------------------------------------------------------- | ------------------------------------------------ | ------ | ------------------ | ------ | - | ------- | ------- | ------ | -
|                                                |                                                                      |                                                  |        | Three Months Ended
|                                                |                                                                      |                                                  |        | March 31,         
|                                                |                                                                      |                                                  |        |                   
|(in thousands)                                  |                                                                      | 2003                                             |        | 2002              
|                                                |                                                                      |                                                  |        |                   
|Cash Flows From Operating Activities:           |                                                                      |                                                  |        |                    |        |   |         |        
|Net income                                      |                                                                      | $                                                | 3,124  |                    |        | $ | 4,014   |        
|Adjustments for non-cash items:                 |                                                                      |                                                  |        |                    |        |   |         |        
|                                                | Depreciation and amortization                                        |                                                  |        | 4,718              |        |   |         | 4,341   |       
|                                                | Deferred income taxes and investment tax credits                     |                                                  |        | 2,255              |        |   |         | 2,591   |       
|                                                | Other - net                                                          |                                                  |        | 171                |        |   |         | (572    | )     
|Changes in assets and liabilities:              |                                                                      |                                                  |        |                    |        |   |         |        
|                                                | Accounts receivable - customers                                      |                                                  |        | 402                |        |   |         | 1,096   |       
|                                                | Unbilled revenue                                                     |                                                  |        | 1,181              |        |   |         | 801     |       
|                                                | Other accounts receivable                                            |                                                  |        | 403                |        |   |         | 110     |       
|                                                | Prepayments and other current assets                                 |                                                  |        | 396                |        |   |         | 319     |       
|                                                | Supply cost balancing accounts                                       |                                                  |        | 703                |        |   |         | (2,326  | )     
|                                                | Deferred charges and other assets                                    |                                                  |        | (1,322             | )      |   |         | (110    | )     
|                                                | Accounts payable                                                     |                                                  |        | (2,603             | )      |   |         | (416    | )     
|                                                | Intercompany payable                                                 |                                                  |        | (7,098             | )      |   |         | (19,687 | )     
|                                                | Taxes payable                                                        |                                                  |        | 1,504              |        |   |         | 3,065   |       
|                                                | Other current liabilities                                            |                                                  |        | 2,413              |        |   |         | (824    | )     
|                                                |                                                                      |                                                  |        |                    |        |   |         |        
|                                                |                                                                      | Net Cash Provided                                |        |                    | 6,247  |   |         |         | (7,598 | )
|                                                |                                                                      |                                                  |        |                    |        |   |         |        
|Cash Flows From Investing Activities:           |                                                                      |                                                  |        |                    |        |   |         |        
|                                                | Construction expenditures                                            |                                                  |        | (8,029             | )      |   |         | (8,029  | )     
|                                                |                                                                      |                                                  |        |                    |        |   |         |        
|                                                |                                                                      | Net Cash Used                                    |        |                    | (8,029 | ) |         |         | (8,029 | )
|                                                |                                                                      |                                                  |        |                    |        |   |         |        
|Cash Flows From Financing Activities:           |                                                                      |                                                  |        |                    |        |   |         |        
|                                                | Receipt of advances for and contributions in aid of
construction     |                                                  |        | 1,684              |        |   |         | 969     |       
|                                                | Refunds on advances for construction                                 |                                                  |        | (433               | )      |   |         | (449    | )     
|                                                | Repayments of long-term debt                                         |                                                  |        | (57                | )      |   |         | (93     | )     
|                                                | Common and preferred dividends paid                                  |                                                  |        | (3,850             | )      |   |         | (3,300  | )     
|                                                |                                                                      |                                                  |        |                    |        |   |         |        
|                                                |                                                                      | Net Cash Used                                    |        |                    | (2,656 | ) |         |         | (2,873 | )
|                                                |                                                                      |                                                  |        |                    |        |   |         |        
|Net decrease in cash and cash equivalents       |                                                                      |                                                  | (4,438 | )                  |        |   | (18,500 | )      
|Cash and cash equivalents, beginning of period  |                                                                      |                                                  | 11,677 |                    |        |   | 26,079  |        
|                                                |                                                                      |                                                  |        |                    |        |   |         |        
|Cash and cash equivalents, end of period        |                                                                      | $                                                | 7,239  |                    |        | $ | 7,579   |        
|                                                |                                                                      |                                                  |        |                    |        |   |         |        
|Non-cash activities - supplemental disclosures: |                                                                      |                                                  |        |                    |        |   |         |        
|                                                | Adoption of new accounting standard for asset retirement obligtions: |                                                  |        |                    |        |   |         |         |       
|                                                |                                                                      | Cumulative effect of adoption - Regulatory asset |        | $                  | 2,479  |   |         |         |       |  
|                                                |                                                                      | Utility plant, net                               |        |                    | 221    |   |         |         |       |  
|                                                |                                                                      | Asset retirement obligations                     |        |                    | (2,700 | ) |         |         |       |  

The accompanying notes are an integral part of these financial statements

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AMERICAN STATES WATER COMPANY
AND
SOUTHERN CALIFORNIA WATER COMPANY




NOTES TO FINANCIAL STATEMENTS
(Unaudited)


American States Water Company (AWR), incorporated in 1998, is the parent
company of Southern California Water Company (SCW), American States Utility
Services, Inc. (ASUS) and Chaparral City Water Company (CCWC). More than 90% of
AWRs assets consist of the common stock of SCW. SCW is a public utility
company engaged principally in the purchase, production, distribution and sale
of water in California. In addition, SCW distributes and sells electric energy
in several mountain communities in California. Unless otherwise stated in this
report, the term Registrant applies to both AWR and SCW, collectively.

Note
1 - Basis of Presentation:The consolidated financial statements
included herein have been prepared by AWR, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles for annual
financial statements have been condensed or omitted pursuant to such rules and
regulations. The preparation of the consolidated financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates. In the opinion of management, all adjustments, consisting of normal
recurring items and estimates necessary for a fair statement of the results for
the interim periods, have been made. It is suggested that these consolidated
financial statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the Form 10-K for the year ended
December 31, 2002 filed with the SEC. Certain prior year amounts have been
reclassified to conform to current year presentation.

Note
2 - Restatement of Previously Issued Financial Statements:In
connection with a deferred tax analysis of Registrants tax accounts performed
in 2002, Registrant determined that it had miscalculated its net accumulated
deferred income taxes over several years, resulting in taxes on income not
being recognized in the proper period, and overstating Registrants net
deferred tax liabilities and current taxes payable. Registrant further
determined that the amount of the overstatements, which totaled approximately
$4.7 million and $4.9 million as of December 31, 2001 for AWR and SCW,
respectively, arose in prior years and that prior years financial statements
should be restated to reduce net accumulated deferred income taxes, taxes
payable and the related tax expense to reflect amounts currently due and
deferred. The financial information for the twelve months ended March 31, 2002
included in these consolidated financial statements has been adjusted to give
effect to the restatement. The following tables summarize the effects of the
restatement on Registrants twelve months ended March 31, 2002:

|                             |                            |            |                                    |          |     |          |   |            |  |  |   |         |  |  |   |         | 
|---------------------------- | -------------------------- | ---------- | ---------------------------------- | -------- | --- | -------- | - | ---------- |  |  | - | ------- |  |  | - | ------- | 
|                             |                            |            | Twelve Months Ended March 31, 2002
|                             |                            |            |                                   
|                             |                            |            | AWR                                |          | SCW
|                             |                            |            |                                    |          |    
|(dollars in thousands except |                            | Previously |                                    |          |     |          |   | Previously |  |  |   |        
|EPS)                         |                            | Reported   |                                    | Restated |     | Reported |   | Restated  
|                             |                            |            |                                    |          |     |          |   |           
|Statements of Income:        |                            |            |                                    |          |     |          |   |            |  |  |   |         |  |  |   |        
|                             | Taxes on income            |            | $                                  | 15,679   |     |          | $ | 15,027     |  |  | $ | 15,624  |  |  | $ | 14,972  | 
|                             | Operating income           |            |                                    | 37,387   |     |          |   | 38,039     |  |  |   | 35,899  |  |  |   | 36,551  | 
|                             | Net income                 |            |                                    | 21,136   |     |          |   | 21,788     |  |  |   | 20,915  |  |  |   | 21,567  | 
|                             | Basic earnings per share   |            | $                                  | 1.40     |     |          | $ | 1.44       |  |  | $ | 190,136 |  |  | $ | 196,064 | 
|                             | Diluted earnings per share |            | $                                  | 1.40     |     |          | $ | 1.44       |  |  |   | N/A     |  |  |   | N/A     | 

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Note
3 - Earnings Per Share:Basic earnings per common share are
calculated pursuant to Statement of Financial Accounting Standards (SFAS) No.
128, Earnings per Share,and are based on the weighted average number of common
shares outstanding during each period and net income after deducting preferred
dividend requirements. Under the American States Water Company 2000 Stock
Incentive Plan, stock options representing 68,153 common shares were granted to
certain eligible employees on May 1, 2000, stock options representing an
additional 68,486 common shares were granted on January 2, 2001, stock options
representing 116,775 common shares and 1,050 restricted stock shares were
granted on February 4, 2002, and stock options representing 150,400 common
shares were granted on January 1, 2003. As a result, fully diluted earnings per
share amounts are shown. Earnings per share also reflect a three-for-two split
of Registrants common shares effective June 7, 2002.

Note
4 - Regulatory Matters:

Changes in Rates:

Step increases of approximately $321,600 for four of seven ratemaking
districts in SCWs Region I were implemented in January 2002.

On January 16, 2003, the California Public Utilities Commission (CPUC)
approved rate increases of approximately $2.7 million annually, effective
January 22, 2003, in SCWs Metropolitan district to recover costs associated
with an increase in Region II rate base due to SCWs 2002 infrastructure
replacement program and, additionally, to recover general increases in
operating expenses. On January 31, 2003, the CPUC also approved SCWs Advice
Letter filed for the Region II 2003 infrastructure replacement program with
rate increases of $3.5 million annually effective February 4, 2003.

Balancing Accounts:

As permitted by the CPUC, SCW has historically maintained water and
electric supply balancing accounts to account for under-collections and
over-collections of revenues designed to recover such costs. Costs are recorded
in income and charged to balancing accounts when such costs are incurred. The
balancing accounts are reversed when such costs are recovered through rate
adjustments or through refunds of previously incurred costs. SCW accrues
interest on its supply cost balancing accounts at the rate prevailing for
90-day commercial paper. CCWC does not maintain a supply cost balancing
account.

Water Balancing Account On November 29, 2001, the CPUC ordered water
utilities with existing water supply balancing accounts to cease booking
amounts to such accounts. In its place, water utilities are now required to
establish a memorandum account. The over- or under-collection of water supply
costs are recorded in this memorandum account in a manner similar to the
balancing account. However, the CPUC has not issued a final decision regarding
the mechanism for recovery of costs recorded in the newly established
memorandum account. SCWs recovery of deferred water supply costs for
providing water service may be reduced if SCW is earning more than its
authorized rate of return on a weather normalized basis. The income statements
of SCW will no longer include entries reflecting differences between authorized
water supply unit costs included in rates and actual water supply costs. As a
result, any changes in water supply costs as well as any future authorized
revenue increases for supply expenses may directly impact earnings. SCWs
basic earnings per share for the quarter and the twelve months ended March 31,
2003 were $0.04 and $0.19, respectively, less than they would have been if the
November 2001 CPUC order had not been issued. SCW anticipates recovering the
under-collection tracked in the water supply cost memorandum account as part of
its Region III rate case application filing submitted to the CPUC in October
2002. SCW may not, however, be able to fully recover the under-collection of
supply costs if it is earning a rate of return in excess of that allowed. SCW
had a net under-collection position of approximately $2.5 million recorded in
its water supply balancing account at March 31, 2003 related to pre-November
29, 2001 activities. Of these amounts, recovery of approximately $0.2
million is currently included in rates. On December 17, 2002, the CPUC
issued an order authorizing water

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utilities, including SCW, to file advice
letters, within 90 days, requesting recovery of the balancing accounts prior to
November 29, 2001. SCW filed such advice letters for the unrecovered balance of
$2.3 million on March 17, 2003.

Electric Balancing Account Electric power costs incurred by SCWs Bear
Valley Electric division continue to be charged to its electric supply cost
balancing account. The under-collection in the electric balancing account is
$23.9 million at March 31, 2003. The CPUC has authorized SCW to collect a
surcharge from its customers of 2.2¢ per kilowatt hour for a period of up to
ten years to enable SCW to recover this under-collection. SCW sold 39,685,000
and 39,197,000 kilowatt hours of electricity to its Bear Valley Electric
division customers during the three months ended March 31, 2003 and 2002,
respectively, and 132,314,000 and 128,499,000 kilowatt hours, respectively, for
the twelve months ended March 31, 2003 and 2002. SCW anticipates that
electricity sales during the ten year period will be sufficient to enable SCW
to recover the amount of this under-collection during this ten year period.

CCWC, subject to regulation by the Arizona Corporation Commission (ACC),
does not maintain balancing accounts and increases in costs are normally
expensed as incurred and recovered through adjustments in general rate case
applications.

Note
5 - New Accounting Pronouncements:

Effective January 1, 2003, Registrant adopted SFAS No. 143, Accounting for
Asset Retirement Obligations, which requires businesses to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. When the liability is initially recorded, the entity
capitalizes a cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement.
Registrants legal obligations for retirement reflect principally the
retirement of wells, which by law need to be disposed of at removal. As such,
the regulated subsidiaries of AWR incur asset retirement obligations.
Retirement cost has historically been recovered through rates at the time of
retirement. Accordingly, at implementation of SFAS No. 143, the cumulative
effect has been reflected as a regulatory asset. Registrant will also reflect
the gain or loss at settlement as a regulatory asset or liability on the
balance sheet.

Upon adoption of SFAS No. 143 on January 1, 2003, Registrant recorded the
fair value of the asset retirement obligation of $13.2 million at its net
present value of $2.7 million, increased depreciable assets by $0.4 million for
asset retirement costs, increased regulatory assets by $2.5 million and
increased accumulated depreciation by $0.2 million. Amounts recorded under
SFAS 143 are subject to various assumptions and determinations, such as
determining whether a legal obligation exists to remove assets, and estimating
the fair value of the costs of removal, when final removal will occur and the
credit-adjusted risk-free interest rates to be utilized on discounting future
liabilities. Changes that may arise over time with regard to these assumptions
will change amounts recorded in the future. The following is a reconciliation
of the beginning and ending aggregate carrying amount of the asset retirement
obligations (ARO):

|    |  |                                           |           |             |  |             |   |           |  |                |   |            |  |  |        |  |  |   |           | 
|--- |  | ----------------------------------------- | --------- | ----------- |  | ----------- | - | --------- |  | -------------- | - | ---------- |  |  | ------ |  |  | - | --------- | 
|    |  | For The Three Months Ended March 31, 2003
|    |  |                                          
|    |  | Balance at Adoption                       |           | Liabilities |  | Liabilities |   |           |  |                |   | Balance At
|    |  | January 1, 2003                           |           | Incurred    |  | Settled     |   | Accretion |  | March 31, 2003
|    |  |                                           |           |             |  |             |   |           |  |               
|ARO |  | $                                         | 2,718,079 |             |  |             |  |           |  |                |  |            |  |  | 40,927 |  |  | $ | 2,759,006 | 

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Note
5 - New Accounting Pronouncements (Continued):

In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 145, Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13, and
Technical Corrections. Among other things, SFAS No. 145 rescinds various
pronouncements regarding early extinguishment of debt and allows extraordinary
accounting treatment for early extinguishment only when the provisions of APB
No. 30 are met. This Statement also amends SFAS No. 13 to require
sale-leaseback accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. SFAS No. 145
provisions were effective for fiscal years beginning after May 15, 2002. The
adoption of SFAS No. 145 did not have a material impact on Registrants
financial position, results of operations or cash flows.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This Statement addresses
significant issues regarding the recognition, measurement, and reporting of
costs associated with exit or disposal activities, and nullifies Emerging
Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). Costs addressed by SFAS No. 146 include
costs to terminate a contract that is not a capital lease, costs of involuntary
employee termination benefits pursuant to a one-time benefit arrangement, costs
to consolidate facilities, and costs to relocate employees. This Statement will
be effective for exit or disposal activities that are initiated after December
31, 2002. The adoption of SFAS No. 146 did not have an effect on Registrants
financial position, results of operations or cash flows as Registrant did not
exit, discontinue or restructure any of its operations.

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. This Statement amends SFAS
No. 123, Accounting for Stock-Based Compensation, to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. Registrant was required to comply with the
requirements of SFAS 148 beginning January 1, 2003; however, Registrant has
elected to continue to apply the recognition and measurement provisions of APB
25. Therefore, SFAS No. 148 did not have any impact on Registrants financial
position, results of operations or cash flows. In addition, interim
disclosures are not presented since pro forma net income and earnings per share
do not materially differ from reported amounts.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS 133, Accounting for Derivative Instruments and
Hedging Activities. This Statement is effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after
June 30, 2003. All provisions of this Statement will be applied prospectively.
The Company has not yet determined the financial statement impact of adopting
the new Statement.

In November 2002, the FASB also issued FASB Interpretation No. (FIN) 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. This interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under certain guarantees that it has
issued and requires that they be recorded at fair value. The initial
recognition and measurement provisions of this interpretation are to be applied
only on a prospective basis to guarantees issued or modified after December 31,
2002. The disclosure requirements of this interpretation are effective for
financial
statements of interim or annual periods ending after December 15, 2002. The
adoption of FIN 45 did not have a material impact on Registrants financial
position, results of operations or cash flows.

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Note
5 - New Accounting Pronouncements (Continued):

FIN 46, Consolidation of Variable Interest Entities was issued in
January 2003. This interpretation expands upon existing guidance that addresses
when a company should include in its financial statements the assets and
liabilities of another entity. The primary objectives of FIN 46 are to provide
guidance on the identification of entities for which control is achieved
through means other than through voting rights (variable interest entities)
and to determine when and which business enterprise should consolidate the
variable interest entity (the primary beneficiary). FIN 46 requires that
both the primary beneficiary and all other enterprises with a significant
variable interest make additional disclosures. The transitional disclosure
requirements of FIN 46 are effective immediately. The effective date of the
consolidation requirements of FIN 46 depends on the date the variable interest
entity was created. FIN 46 is applicable immediately for variable interest
entities created after January 31, 2003. For variable interest entities created
prior to January 31, 2003, the provisions of FIN 46 are applicable no later
than July 31, 2003. Registrant does not expect the adoption of Interpretation
46 to have an effect on its financial position, results of operations or cash
flows.

Note
6 - Business Segments:AWR has three principal business units: water
and electric distribution units, through its SCW subsidiary, a water service
utility operation conducted through its CCWC unit, and a non-regulated activity
unit through the ASUS subsidiary. All activities of SCW currently are
geographically located within California. All activities of CCWC are located in
the state of Arizona. Both SCW and CCWC are regulated utilities. On a
stand-alone basis, AWR has no material assets other than its investments in its
subsidiaries. The tables below set forth information relating to SCWs water
and electric operating segments, CCWC, and non-regulated businesses, consisting
of ASUS and AWR corporate expenses. Included in the amounts set forth, certain
assets, revenues and expenses have been allocated. The identifiable assets are
net of respective accumulated provisions for depreciation. Capital additions
reflect capital expenditures paid in cash and exclude property installed by
developers and conveyed to the Company.

|                                            |  |                                           |         |          |  |       |        |              |  |     |        |  |  |   |      |   |  |   |         | 
|------------------------------------------- |  | ----------------------------------------- | ------- | -------- |  | ----- | ------ | ------------ |  | --- | ------ |  |  | - | ---- | - |  | - | ------- | 
|                                            |  | For The Three Months Ended March 31, 2003
|                                            |  |                                          
|                                            |  | SCW                                       |         |          |  |       |        |             
|                                            |  |                                           |         | CCWC     |  | Non-  |        | Consolidated
|(dollars in thousands)                      |  | Water                                     |         | Electric |  | Water |        | Regulated    |  | AWR
|                                            |  |                                           |         |          |  |       |        |              |  |    
|Operating revenues                          |  | $                                         | 38,169  |          |  | $     | 7,004  |              |  | $   | 1,256  |  |  | $ | 247  |   |  | $ | 46,676  | 
|Operating income
(loss) before income
taxes |  |                                           | 9,704   |          |  |       | (197   | )            |  |     | 177    |  |  |   | (134 | ) |  |   | 9,550   | 
|Interest expense, net                       |  |                                           | 3,939   |          |  |       | 351    |              |  |     | 121    |  |  |   | 154  |   |  |   | 4,565   | 
|Identifiable assets                         |  |                                           | 511,190 |          |  |       | 26,890 |              |  |     | 29,012 |  |  |   | 57   |   |  |   | 567,149 | 
|Depreciation expense                        |  |                                           | 4,326   |          |  |       | 392    |              |  |     | 229    |  |  |   |     |   |  |   | 4,947   | 
|Capital additions                           |  |                                           | 7,294   |          |  |       | 735    |              |  |     | 390    |  |  |   | (10  | ) |  |   | 8,409   | 

|                                            |  |                                           |         |          |  |       |        |              |  |     |        |  |  |   |      |   |  |   |         | 
|------------------------------------------- |  | ----------------------------------------- | ------- | -------- |  | ----- | ------ | ------------ |  | --- | ------ |  |  | - | ---- | - |  | - | ------- | 
|                                            |  | For The Three Months Ended March 31, 2002
|                                            |  |                                          
|                                            |  | SCW                                       |         |          |  |       |        |             
|                                            |  |                                           |         | CCWC     |  | Non-  |        | Consolidated
|(dollars in thousands)                      |  | Water                                     |         | Electric |  | Water |        | Regulated    |  | AWR
|                                            |  |                                           |         |          |  |       |        |              |  |    
|Operating revenues                          |  | $                                         | 37,734  |          |  | $     | 5,206  |              |  | $   | 1,357  |  |  | $ | 188  |   |  | $ | 44,485  | 
|Operating income
(loss) before income
taxes |  |                                           | 10,181  |          |  |       | 820    |              |  |     | 320    |  |  |   | (390 | ) |  |   | 10,931  | 
|Interest expense, net                       |  |                                           | 3,765   |          |  |       | 335    |              |  |     | 126    |  |  |   | 141  |   |  |   | 4,367   | 
|Identifiable assets                         |  |                                           | 487,454 |          |  |       | 27,172 |              |  |     | 28,558 |  |  |   |     |   |  |   | 543,184 | 
|Depreciation expense                        |  |                                           | 3,979   |          |  |       | 362    |              |  |     | 227    |  |  |   |     |   |  |   | 4,568   | 
|Capital additions                           |  |                                           | 6,376   |          |  |       | 1,653  |              |  |     | 130    |  |  |   |     |   |  |   | 8,159   | 

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Note
6 - Business Segments (Continued):

|                                            |  |                                            |         |          |  |       |        |              |  |     |        |  |  |   |        |   |  |   |         | 
|------------------------------------------- |  | ------------------------------------------ | ------- | -------- |  | ----- | ------ | ------------ |  | --- | ------ |  |  | - | ------ | - |  | - | ------- | 
|                                            |  | For The Twelve Months Ended March 31, 2003
|                                            |  |                                           
|                                            |  | SCW                                        |         |          |  |       |        |             
|                                            |  |                                            |         | CCWC     |  | Non-  |        | Consolidated
|(dollars in thousands)                      |  | Water                                      |         | Electric |  | Water |        | Regulated    |  | AWR
|                                            |  |                                            |         |          |  |       |        |              |  |    
|Operating revenues                          |  | $                                          | 181,338 |          |  | $     | 23,097 |              |  | $   | 6,056  |  |  | $ | 905    |   |  | $ | 211,396 | 
|Operating income
(loss) before income
taxes |  |                                            | 46,498  |          |  |       | 3,151  |              |  |     | 1,605  |  |  |   | (2,038 | ) |  |   | 49,216  | 
|Interest expense, net                       |  |                                            | 15,450  |          |  |       | 1,376  |              |  |     | 477    |  |  |   | 594    |   |  |   | 17,897  | 
|Identifiable assets                         |  |                                            | 511,190 |          |  |       | 26,890 |              |  |     | 29,012 |  |  |   | 57     |   |  |   | 567,149 | 
|Depreciation expense                        |  |                                            | 16,267  |          |  |       | 1,494  |              |  |     | 921    |  |  |   |       |   |  |   | 18,682  | 
|Capital additions                           |  |                                            | 42,380  |          |  |       | 1,261  |              |  |     | 1,385  |  |  |   | 57     |   |  |   | 45,083  | 

|                                            |  |                                            |         |          |  |       |        |              |  |     |        |  |  |   |      |   |  |   |         | 
|------------------------------------------- |  | ------------------------------------------ | ------- | -------- |  | ----- | ------ | ------------ |  | --- | ------ |  |  | - | ---- | - |  | - | ------- | 
|                                            |  | For The Twelve Months Ended March 31, 2002
|                                            |  |                                           
|                                            |  | SCW                                        |         |          |  |       |        |             
|                                            |  |                                            |         | CCWC     |  | Non-  |        | Consolidated
|(dollars in thousands)                      |  | Water                                      |         | Electric |  | Water |        | Regulated    |  | AWR
|                                            |  |                                            |         |          |  |       |        |              |  |    
|Operating revenues                          |  | $                                          | 178,134 |          |  | $     | 16,499 |              |  | $   | 6,287  |  |  | $ | 789  |   |  | $ | 201,709 | 
|Operating income
(loss) before income
taxes |  |                                            | 55,911  |          |  |       | (4,388 | )            |  |     | 1,918  |  |  |   | (375 | ) |  |   | 53,066  | 
|Interest expense, net                       |  |                                            | 13,621  |          |  |       | 1,213  |              |  |     | 517    |  |  |   | 831  |   |  |   | 16,182  | 
|Identifiable assets                         |  |                                            | 487,454 |          |  |       | 27,172 |              |  |     | 28,558 |  |  |   |     |   |  |   | 543,184 | 
|Depreciation expense                        |  |                                            | 15,494  |          |  |       | 1,383  |              |  |     | 1,159  |  |  |   |     |   |  |   | 18,036  | 
|Capital additions                           |  |                                            | 44,546  |          |  |       | 2,072  |              |  |     | 549    |  |  |   |     |   |  |   | 47,167  | 

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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation

Forward-Looking Information

Certain matters discussed in this report (including the documents
incorporated herein by reference) are forward-looking statements intended to
qualify for the safe harbor from liability established by the Private
Securities Litigation Reform Act of 1995. These forward-looking statements can
generally be identified as such because the context of the statement will
include words such as Registrant believes, anticipates, expects or words
of similar import. Similarly, statements that describe Registrants future
plans, objectives, estimates or goals are also forward-looking statements. Such
statements address future events and conditions concerning capital
expenditures, earnings, litigation, rates, water quality and other regulatory
matters, adequacy of water supplies, SCWs ability to recover electric and
water supply costs from ratepayers, liquidity and capital resources, and
accounting matters. Actual results in each case could differ materially from
those currently anticipated in such statements, by reason of factors such as
changes in utility regulation, including ongoing local, state and federal
activities; future economic conditions, including changes in customer demand
and changes in water and energy supply cost; future climatic conditions; and
legislative, regulatory and other circumstances affecting anticipated revenues
and costs. See the section entitled Risk Factors for more information.

General

American States Water Company (AWR), incorporated in 1998, is engaged in
the business of holding, for investment, the stock primarily of utility
companies. AWRs principal investment is the stock of SCW. SCW is a California
public utility company engaged principally in the purchase, production,
distribution and sale of water (SIC No. 4941). SCW also distributes electricity
in one customer service area (SIC No. 4911). SCW is regulated by the Public
Utilities Commission of the State of California (CPUC) and was incorporated on
December 31, 1929. SCW is organized into one electric customer service area and
three water service regions operating within 75 communities in 10 counties in
the State of California and provides water service in 21 customer service
areas. Region I incorporates 7 customer service areas in northern and central
California; Region II has 4 customer service areas located in Los Angeles
County; Region III incorporates 10 water customer service areas in eastern Los
Angeles County, and in Orange, San Bernardino and Imperial counties. SCW also
provides electric service to the City of Big Bear Lake and surrounding areas in
San Bernardino County through its Bear Valley electric service division.

SCW served 248,942 water customers and 22,010 electric customers at March
31, 2003, or a total of 270,952 customers, compared with 269,399 total
customers at March 31, 2002.

SCWs utility operations exhibit seasonal trends. Although SCWs water
utility operations have a diversified customer base, residential and commercial
customers account for the majority of SCWs water sales and revenues. Revenues
derived from commercial and residential water customers accounted for
approximately 94.7% and 91.2% of total water revenues for the three and twelve
months ended March 31, 2003, respectively, as compared to 94.7% and 90.8% for
the three and twelve months ended March 31, 2002, respectively.

AWR also owns two other subsidiaries. American States Utility Services,
Inc. (ASUS) contracts to lease, operate and maintain water and wastewater
systems owned by others and to provide related services, such as billing and
meter reading, to approximately 90,000 accounts. Chaparral City Water Company
(CCWC) is an Arizona public utility company serving 11,910 customers as of
March 31, 2003, compared with 11,625 customers at March 31, 2002, in the town
of Fountain Hills, Arizona and a portion of the City of Scottsdale, Arizona.
The majority of CCWCs customers are residential. The Arizona Corporation
Commission (ACC) regulates CCWC.

Neither AWR nor ASUS is directly regulated by either the CPUC or the ACC.

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Introduction

As described in Note 2 to the accompanying consolidated financial
statements, Registrant has restated its financial statements for the twelve
months ended March 31, 2002. In connection with a deferred tax analysis of
Registrants tax accounts performed in 2002, Registrant determined that it had
miscalculated its net accumulated deferred income taxes and current tax payable
account over several years, resulting in taxes on income not being recognized
in the proper period, and overstating Registrants net deferred tax liabilities
and current taxes payable. Registrant further determined that the amount of
the overstatements, which totaled approximately $4.7 million and $4.9 million
as of December 31, 2001 for AWR and SCW, respectively, arose in prior years and
that prior years financial statements should be restated to reduce net
accumulated deferred income taxes, taxes payable and the related tax expense to
reflect amounts currently due and deferred. The financial information for the
twelve months ended March 31, 2002 included in these consolidated financial
statements has been adjusted to give effect to the restatement. The following
table summarizes the effects of the restatement on Registrants twelve months
ended March 31, 2002:

|                             |                            |            |                                    |          |     |          |   |            |  |  |   |         |  |  |   |         | 
|---------------------------- | -------------------------- | ---------- | ---------------------------------- | -------- | --- | -------- | - | ---------- |  |  | - | ------- |  |  | - | ------- | 
|                             |                            |            | Twelve Months Ended March 31, 2002
|                             |                            |            |                                   
|                             |                            |            | AWR                                |          | SCW
|                             |                            |            |                                    |          |    
|(dollars in thousands except |                            | Previously |                                    |          |     |          |   | Previously |  |  |   |        
|EPS)                         |                            | Reported   |                                    | Restated |     | Reported |   | Restated  
|                             |                            |            |                                    |          |     |          |   |           
|Statements of Income:        |                            |            |                                    |          |     |          |   |            |  |  |   |         |  |  |   |        
|                             | Taxes on income            |            | $                                  | 15,679   |     |          | $ | 15,027     |  |  | $ | 15,624  |  |  | $ | 14,972  | 
|                             | Operating income           |            |                                    | 37,387   |     |          |   | 38,039     |  |  |   | 35,899  |  |  |   | 36,551  | 
|                             | Net income                 |            |                                    | 21,136   |     |          |   | 21,788     |  |  |   | 20,915  |  |  |   | 21,567  | 
|                             | Basic earnings per share   |            | $                                  | 1.40     |     |          | $ | 1.44       |  |  | $ | 190,136 |  |  | $ | 196,064 | 
|                             | Diluted earnings per share |            | $                                  | 1.40     |     |          | $ | 1.44       |  |  |   | N/A     |  |  |   | N/A     | 

Results of Operation

Basic earnings per common share for the three months ended March 31, 2003
decreased by 20% to $0.20 per share as compared to $0.25 per share for the
comparable period last year. As compared to the twelve months ended March 31,
2002, basic earnings decreased by 10.4% to $1.29 per share from $1.44 per
share. The decreases in the recorded results primarily reflect the increased
water supply costs, unrealized losses for power purchased contracts since
November 2002, higher interest expenses and various other reasons as discussed
below. All earnings per share presented reflect a three-for-two split of
Registrants common shares to holders of record on May 15, 2002.

Fully diluted earnings for the three and twelve months ended March 31,
2003 were $0.20 and $1.29 per share, respectively, as compared to $0.25 and
$1.44 per share for the comparable periods of 2002.

As compared to the three and twelve months ended March 31, 2002, revenues
from water operations increased by 0.9% and 1.6%, respectively, for the same
periods ended March 31, 2003 due to two rate increases for SCWs Region II that
were effective on January 21, 2003 and February 4, 2003, respectively. The
twelve-month comparison also reflects an increase of 2.8% in consumption and
step rate increases in the customer service areas that comprise SCWs Region I
were effective January 1, 2002. The increases were partially offset by the
termination of a surcharge, which was authorized to decrease the balancing
account under-collection in SCWs Metropolitan customer service area.
Differences in temperature and rainfall in Registrants service areas will
impact sales of water to customers and may cause fluctuations in Registrants
revenues and earnings between comparative periods. See the section entitled
Regulatory Mattersincluded in Part I, Item 2 in Managements Discussion and
Analysis of Financial Condition and Results of Operation for more information.

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Revenues from electric operations increased by 34.6% and 40.0%,
respectively, for the three and twelve months ended March 31, 2003 as compared
to the same periods ended March 31, 2002. The increases reflect (i) a rate
increase of 12.5% effective May 24, 2001 and an additional 14.8% increase
effective August 23, 2001 authorized by the CPUC to recover previously
under-collected energy costs, and (ii) rate increases in July 2002 authorized
by the CPUC to cover purchased power costs under various power supply
agreements. The twelve-month comparison is also impacted by an increase of
3.0% in kilowatt-hour consumption, primarily due to heavier use of snow making
machines at ski resorts in the area in the fourth quarter of 2002. See the
section entitled Regulatory Mattersand Electric Energy Situation in
Californiaincluded in Part I, Item 2 in Managements Discussion and Analysis
of Financial Condition and Results of Operation for more information.

Purchased water costs increased by 4.2% and 11.6%, respectively, for the
three and twelve months ended March 31, 2003 as compared to the same periods
ended March 31, 2002 due to an increase in purchased water volume resulting
from (i) slightly higher water consumption and (ii) additional purchased water
necessary during each of the comparable periods for 2003 to replace pumped
water supply lost due to wells being removed from service as a result of water
quality issues and mechanical problems, particularly in SCWs Orange County and
Foothill districts. The twelve-month comparison also reflects refunds received
from SCWs wholesale water suppliers in December 2001 of approximately $777,000
for which there was no counterpart during the twelve-months ended March 31,
2003. In addition, the twelve-months ended March 31, 2003 include costs of
approximately $1.4 million, incurred in connection with the purchasing and
trucking of water, in SCWs Wrightwood customer service area due to a sudden
and unexplained drop in groundwater level in the area during the early part of
the third quarter of 2002. The water hauling ended in January 2003.

Cost of power purchased for pumping decreased slightly by 1% for the three
months ended March 31, 2003 as compared to the three months ended March 31,
2002 due to additional wells down for maintenance and water quality issues.
The effect of wells being offline was partially offset by increased power rates
and increased pumping costs in SCWs Region I associated with the treatment and
distribution of surface water in lieu of groundwater. For the twelve-months
ended March 31, 2003, cost of power purchased for pumping increased by 5.2% as
compared to the twelve-months ended March 31, 2002 due to the rate increases
implemented in 2001 by SCWs energy suppliers, in particular Southern
California Edison Company and Pacific Gas and Electric Company. In 2001, the
CPUC approved a portion of SCWs advice letters to increase revenues by
approximately $1.4 million annually to recover the costs of purchased power for
certain of its water ratemaking districts. A credit of $440,000 recorded in the
fourth quarter of 2001 for the sale of groundwater in the Chino Basin also
impacted the twelve-month comparison. For further information, see the
sections entitled Regulatory Matters and Electric Energy Situation in
California included in Part I, Item 2 in Managements Discussion and Analysis
of Financial Condition and Results of Operation.

Costs of power purchased for resale to customers in SCWs Bear Valley
Electric division decreased by 14.1% for the three months ended March 31, 2003
due primarily to lower power costs, $74.65 per megawatt hour (MWh), effective
November 2002 under SCWs power supply agreements with Pinnacle West Capital
Corporation (PWCC) as compared to $95 per MWh for energy purchased from Mirant
Americas Energy Marketing, LP (Mirant) under then existing contracts in the
same period of 2002. Costs of power purchased for resale decreased by 11.3% for
the twelve months ended March 31, 2003 due primarily to (i) decreased purchased
power costs as discussed previously, and (ii) a one-time sale of energy on the
spot market that generated a $644,000 gain in April 2001. The gain is the
subject of a complaint filed at the Federal Energy Regulatory Commission by
Mirant where Mirant, the purchaser of the energy, is seeking to be refunded all
or a portion of the gain. The sale of excess energy on the spot market in 2001
was enabled by a one-month overlap of energy purchase agreements. For further
information, see the sections entitled Electric Energy Situation in
California included in Part I, Item 2, Managements Discussion and Analysis of
Financial Condition and Results of Operation and Quantitative and Qualitative
Disclosures About Market Riskincluded in Part I, Item 3.

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The entry for unrealized loss on power purchased contracts represent
losses recorded for SCWs power purchase agreements, effective November 2002
with PWCC, which qualify as derivative instruments under Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities. The unrealized loss resulted from the contract prices
with PWCC being higher than current forward market prices. Based on forward
market pricing and discount rate as of March 31, 2003, Registrant anticipates
recording an additional unrealized loss of $2 million for the year 2003. There is
no cash flow impact. Management is evaluating alternatives to minimize future
unrealized loss. This extraordinary item (unrealized loss at Bear Valley
Electric) will continue to impact earnings during the life of the contract with
Pinnacle West; both negatively and positively. The end result is projected to
be a net zero impact on Bear Valley Electric earnings at the end of the
contract period, in 2008.

Groundwater production assessments for the three months ended March 31,
2003 decreased by 7.1% as compared to the three months ended March 31, 2002 due
primarily to wells in the Foothill and Orange County Districts being down for
maintenance and water quality reasons, which resulted in increased purchased
water and less pumping. For the twelve-months ended March 31, 2003 groundwater
production assessments increased by 1.7% as compared to the same period ended
March 31, 2002 reflecting an increase in well production and higher assessments
levied against production for the water year 2002/2003 as compared with the
previous year in SCWs Metropolitan customer service area, partially offset by
revenues from leases of unused water rights to third parties in SCWs Barstow
customer service area.

A positive entry for the provision for supply cost balancing accounts
reflects recovery of previously under-collected supply costs. Conversely, a
negative entry for the provision for supply cost balancing accounts reflects an
under-collection of previously incurred supply costs. A decrease in the
positive entry for the three and twelve months ended March 31, 2003 when
compared to the same period last year, primarily reflects new rates and
surcharges authorized in 2001 and 2002 to recover electric power costs and
under-collection in the electric balancing account. At March 31, 2003,
Registrant had a combined net under-collected position of $26.5 million in both
its water and electric balancing accounts primarily due to the increases in
energy costs. For further information, see the sections entitled Accounting
for Supply Costs, Liquidity and Capital Resources, Regulatory Matters and
Electric Energy Situation in California included in Part I, Item 2 in
Managements Discussion and Analysis of Financial Condition and Results of
Operation.

Other operating expenses increased by 7% for the three months ended March
31, 2003 as compared to the same period of last year due to increased accrual
for bad debt and higher labor costs. Other operating expenses increased by 2.6%
for the twelve months ended March 31, 2003 as compared to the same periods of
last year. The increases reflected higher labor costs, partially offset by a
refund for a sewer service overpayment, reimbursement received from
settling parties and the San Gabriel Basin Water Quality Authority
for expenses incurred in the San Gabriel basin at one company-owned
water treatment plant to meet water
quality standards, and a decrease in the accrual for bad debt.

Administrative and general expenses decreased slightly by 0.5% for the
three months ended March 31, 2003. Administrative and general expenses
decreased by 16.9% for the twelve-months ended March 31, 2003 reflecting the
reversal of the remaining reserve of $6.5 million in the fourth quarter of 2002
for potential non-recovery of electric power costs incurred to serve customers
at SCWs Bear Valley Electric customer service area. The reserve was
established in late 2001 to offset future impacts to earnings for the
difference between authorized rates and SCWs actual electric power costs under
its agreement with Mirant Americas Energy Marketing, LP. The agreements SCW
entered into with PWCC in September 2002 enable it to purchase power at a cost
lower than that authorized by the CPUC, thereby removing the need for the
reserve. The decrease was partially offset by increased benefits related costs,
and higher outside service expenses. For further information, see the sections
entitled Regulatory Matters

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and Electric Energy Situation in California in Part I, Item 2 in
Managements Discussion and Analysis of Financial Condition and Results of
Operation.

Depreciation expense increased by 8.3% and 3.6%, respectively, for the
three and twelve months ended March 31, 2003 reflecting, among other things,
the effects of recording approximately $51 million in utility plant during
2002, depreciation on which began in January 2003. For the twelve-months ended
March 31, 2003 the comparison was also impacted by the elimination, effective
January 1, 2002, of amortization of the goodwill recorded in AWRs acquisition
of CCWC. Amortization of this goodwill was approximately $248,300 for the
twelve months ended March 31, 2002.

As compared to the three and twelve months ended March 31, 2002,
maintenance expense increased by 3.1% and 19%, respectively, due principally to
the termination of SCWs Cash Preservation Program (CPP) in August 2002
following the CPUCs approval of rate increases permitting SCW to begin
recovery of power costs incurred during the energy crisis of 2000-2001 to serve
customers of its Bear Valley Electric division. The CPP was initially
implemented in 2001 to control costs and temporarily limit capital and
maintenance expenditures principally to those projects that were believed
necessary to meet public safety and health requirements or otherwise provide
for continued service. The CPP impacted both the electric and water businesses
of SCW.

Taxes on income decreased by 33.8% and 20.6%, respectively, as compared to
the three and twelve months ended March 31, 2002, due to lower pre-tax
operating income for the comparable periods ended March 31, 2003.

Other taxes increased by 7% and 4.4%, respectively, for the three and
twelve months ended March 31, 2003 reflecting additional property taxes
resulting from higher assessed values, and increases in payroll taxes based on
increased labor costs.

As compared to the three and twelve months ended March 31, 2002,
respectively, the change in other income for the same periods ended March 31,
2003 reflects (i) the sale of a parcel of non-operating property in Region II
of SCW in the first quarter of 2002, (ii) recording certain non-regulated
expenses to administrative and general expenses of ASUS, a non-regulated
subsidiary, and (iii) the write-off of approximately $312,000 in expenses
associated with the termination of the acquisition of Peerless Water Company in
the fourth quarter of 2001.

Interest expense increased by 4.5% and 10.6%, respectively, for the three
and twelve months ended March 31, 2003 as compared to the same periods ended
March 31, 2002. The increases reflected the issuance of $50 million in
long-term debt by SCW in December 2001, partially offset by a reduction in
short-term borrowing.

Accounting for Supply Costs

As permitted by the CPUC, SCW has historically maintained water and
electric supply balancing accounts to account for under-collections and
over-collections of revenues designed to recover such costs. Costs have been
recorded in income and charged to balancing accounts when such costs were
incurred. The balancing accounts were reversed when such costs were recovered
through rate adjustments or through refunds of previously incurred costs. SCW
accrued interest on its supply cost balancing accounts at the rate prevailing
for 90-day commercial paper. CCWC does not maintain a supply cost balancing
account.

On November 29, 2001, the CPUC ordered water utilities with existing water
supply balancing accounts to cease booking amounts to such accounts. In its
place, water utilities are now required to establish a memorandum account. The
over- or under-collection of water supply costs are recorded in this

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memorandum account in a manner similar to the balancing account. However, the
CPUC has not issued a final decision regarding the mechanism for recovery of
costs recorded in the newly established memorandum account. SCWs recovery of
deferred water supply costs for providing water service may be reduced if SCW
is earning more than its authorized rate of return on a weather normalized
basis. The income statements of SCW will no longer include entries reflecting
differences between authorized water supply unit costs included in rates and
actual water supply costs. As a result, any changes in water supply costs as
well as any future authorized revenue increases for supply expenses may
directly impact earnings. SCWs basic earnings per share for the three and
twelve months ended March 31, 2003 were $0.04 and $0.19, respectively, less
than they would have been if the November 2001 CPUC order had not been issued.
SCW anticipates recovering the under-collection tracked in the water supply
cost memorandum account as part of Region III rate case application filing
submitted in October 2002. SCW may not, however, be able to fully recover the
under-collection of supply costs if it is earning a rate of return in excess of
that allowed.

SCW had a net under-collection position of $2.5 million recorded in its
water supply balancing account at March 31, 2003 related to pre-November 29,
2001 activities. Of these amounts, recovery of approximately $0.2 million is
currently included in rates. On December 17, 2002, the CPUC issued an order
authorizing water utilities, including SCW, to file advice letters, within 90
days, requesting recovery of the balancing accounts prior to November 29, 2001.
SCW filed such advice letters for the unrecovered balance of $2.3 million on
March 17, 2003.

Electric power costs incurred by SCWs Bear Valley Electric division
continue to be charged to its electric supply cost balancing account. The
under-collection in the electric balancing account is $24 million at March 31,
2003. The CPUC has authorized SCW to collect a surcharge from its customers of
2.2¢ per kilowatt hour for a period of up to ten years to enable SCW to recover
this under-collection. SCW sold 39,685,000 and 132,314,000 kilowatt hours of
electricity, respectively, to its Bear Valley Electric division customers for
the three and twelve months ended March 31, 2003, and 39,197,000 and
128,499,000 kilowatt hours for the comparable periods in 2002, respectively.
SCW anticipates that electricity sales during the ten year period will be
sufficient to enable it to recover the amount of this under-collection during
this ten year period. For further information, see the sections entitled
Regulatory Matters and Electric Energy Situation in California included in
Part I, Item 2 in Managements Discussion and Analysis of Financial Condition
and Results of Operation.

Critical Accounting Policies

Critical accounting policies 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 is a critical accounting policy adopted during the quarter
ended March 31, 2003:

Accounting for Asset Retirement Obligations

SFAS No. 143, Accounting for Asset Retirement Obligations, requires
businesses to record the fair value of a liability for a legal obligation to
retire an asset in the period in which the liability is incurred. A legal
obligation is a liability that a party is required to settle as a result of an
existing or enacted law, statute, ordinance or contract. When the liability is
initially recorded, the entity capitalizes the cost by increasing the carrying
amount of the related long-lived asset. Over time, the liability is accreted to
its present value each period, and the capitalized cost is depreciated over the
useful life of the related asset. Upon settlement of the liability, an entity
either settles the obligation for its recorded amount or incurs a gain or loss
upon settlement. Registrant adopted SFAS No. 143 on January 1, 2003, as
required. Registrants legal obligations for retirement reflect principally the
retirement of wells, which by

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law need to be disposed of at removal. As such, the regulated subsidiaries
of Registrant incur asset retirement obligations. Retirement cost has
historically been recovered through rates at the time of retirement. As a
result, the cumulative effect upon adoption was reflected as a regulatory asset
or liability. Accordingly, Registrant will also reflect the gain or loss at
settlement as a regulatory asset or liability on the balance sheet.

Upon adoption on January 1, 2003, Registrant recorded an asset retirement
obligation of $13.2 million at its net present value of $2.7 million, increased
depreciable assets by $0.4 million for asset retirement costs, increased
regulatory assets by $2.5 million and increased accumulated depreciation by
$0.2 million. Amounts recorded under SFAS 143 are subject to various
assumptions and determinations, such as determining whether a legal obligation
exists to remove assets, and estimating the fair value of the costs of removal,
when final removal will occur and the credit-adjusted risk-free interest rates
to be utilized on discounting future liabilities. Changes that may arise over
time with regard to these assumptions will change amounts recorded in the
future. The following is a reconciliation of the beginning and ending aggregate
carrying amount of the asset retirement obligations (ARO):

|    |  |                                           |           |                     |  |                    |   |           |  |                           |   |  |  |  |        |  |  |   |           | 
|--- |  | ----------------------------------------- | --------- | ------------------- |  | ------------------ | - | --------- |  | ------------------------- | - |  |  |  | ------ |  |  | - | --------- | 
|    |  | For The Three Months Ended March 31, 2003
|    |  |                                          
|    |  | Balance at Adoption
January 1, 2003       |           | LiabilitiesIncurred |  | LiabilitiesSettled |   | Accretion |  | Balance At
March 31, 2003
|    |  |                                           |           |                     |  |                    |   |           |  |                          
|ARO |  | $                                         | 2,718,079 |                     |  |                    |  |           |  |                           |  |  |  |  | 40,927 |  |  | $ | 2,759,006 | 

Liquidity and Capital Resources

AWR

AWR funds its operating expenses and pays dividends on its outstanding
Common Shares primarily through dividends from its subsidiaries, principally
SCW. AWR has a Registration Statement on file with the Securities and Exchange
Commission (SEC) for issuance, from time to time, of up to $60 million in
Common Shares, Preferred Shares and/or debt securities. As of March 31, 2003,
approximately $31.1 million remained for issuance under this Registration
Statement.

During 2001, AWR maintained a $25 million credit facility, $20 million of
which was outstanding at December 31, 2001. This credit facility expired on
January 2, 2002. In June 2002, AWR established a $75 million revolving credit
facility which matures in June 2005. Up to $15 million of this facility may be
used for letters of credit. As of March 31, 2003, an aggregate of $30 million
in cash borrowing was outstanding. Approximately $8 million of letters of
credit were outstanding under this facility.

On April 19, 2002, AWR completed the redemption of all of its outstanding
4%, 41⁄4% and 5% series of preferred shares.

SCW

SCW funds the majority of its operating expenses, payments on its debt,
and dividends on its outstanding Common Shares 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, environmental regulation, litigation,
changes in supply costs and regulatory decisions affecting SCWs ability to
recover these supply costs, and timing of rate relief. For further information,
see the sections entitled Risk Factors and Electric Energy Situation in
California included in Part I, Item 2 in Managements Discussion and Analysis
of Financial Condition and Results of Operation.

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SCW also relies on external sources, including equity investments and
short-term borrowings from AWR, long-term debt,
contributions-in-aid-of-construction, advances for construction and
install-and-convey advances, to fund the majority of its construction
expenditures. On March 30, 2001, AWR made an additional $25 million equity
investment in SCW. On November 14, 2001, SCW filed a Registration Statement
with the SEC for issuance, from time to time, of up to $100 million in debt
securities. In December 2001, SCW issued $50 million of long-term debt under
this Registration Statement that initially reduced bank borrowings incurred to
fund capital expenditures and purchased power costs.

CCWC

CCWC funds the majority of its operating expenses, payments on its debt
and dividends, if any, through internal sources. CCWC also relies on external
sources, including long-term debt, contributions-in-aid-of-construction,
advances for construction and install-and-convey advances, to fund the majority
of its construction expenditures.

ASUS

ASUS funds its operating expenses primarily through contractual management
fees and investments by or loans from AWR.

Contractual Obligations and Other Commitments

In addition to contractual maturities, Registrant has certain debt
instruments that contain annual sinking fund 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 principal payments are generally made from cash flow from operations. In
the case of the $12,500,000 in notes due October 2003, SCW intends to refinance
this obligation through issuance of notes in the public or private markets.

The following table reflects Registrants contractual obligations and
commitments to make future payments pursuant to contracts as of March 31, 2003.
All obligations and commitments are obligations and commitments of SCW unless
otherwise noted.

|                                 |  |                                        |         |                  |  |           |        |           |  |               |        |  |  |   |        |  |  |   |         | 
|-------------------------------- |  | -------------------------------------- | ------- | ---------------- |  | --------- | ------ | --------- |  | ------------- | ------ |  |  | - | ------ |  |  | - | ------- | 
|($ in thousands)                 |  | Payments/Commitments Due by Period (1)
|                                 |  |                                       
|                                 |  | Total                                  |         | Less than 1 Year |  | 1-3 Years |        | 4-5 Years |  | After 5 Years
|Notes/Debentures(2)              |  | $                                      | 185,600 |                  |  | $         | 12,500 |           |  |               |       |  |  |   |       |  |  | $ | 173,100 | 
|Private Placement Notes(3)       |  |                                        | 28,000  |                  |  |           |       |           |  |               |       |  |  |   |       |  |  |   | 28,000  | 
|Tax-Exempt Obligations(4)        |  |                                        | 19,453  |                  |  |           | 91     |           |  |               | 194    |  |  |   | 218    |  |  |   | 18,950  | 
|Other Debt Instruments(5)        |  |                                        | 2,396   |                  |  |           | 188    |           |  |               | 404    |  |  |   | 453    |  |  |   | 1,350   | 
|Purchased Power Contracts(6)     |  |                                        | 68,213  |                  |  |           | 12,014 |           |  |               | 23,988 |  |  |   | 23,947 |  |  |   | 8,265   | 
|Operating leases (7)             |  |                                        | 6,382   |                  |  |           | 1,794  |           |  |               | 3,257  |  |  |   | 1,331  |  |  |   |        | 
|Other Commitments (8)            |  |                                        | 77,257  |                  |  |           |       |           |  |               |       |  |  |   |       |  |  |   |        | 
|Chaparral City Water Company (9) |  |                                        | 8,744   |                  |  |           | 526    |           |  |               | 1,158  |  |  |   | 620    |  |  |   | 6,440   | 
|TOTAL                            |  | $                                      | 396,045 |                  |  | $         | 27,113 |           |  | $             | 29,001 |  |  | $ | 26,569 |  |  | $ | 236,105 | 

(1)  Excludes interest, dividends, commitment, and facility fees.

(2)  The Notes and Debentures are issued under an Indenture dated as of
September 1, 1993. The Notes and Debentures do not contain any financial
covenants that Registrant believes to be material, or cross default provisions.

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(3)  The private placement notes are issued pursuant to the terms of Note
Agreements with substantially similar terms. The Note Agreements contain
restrictions on the payment of dividends, minimum interest coverage
requirements, maximum debt to capitalization ratio and a negative pledge.
Pursuant to the Note Agreements, SCW must maintain a minimum interest coverage
ratio of two times interest expense. SCW does not currently have any
outstanding mortgages or other encumbrances on its properties.

(4)  Consists of obligations under a loan agreement supporting $8 million in
debt issued by the California Pollution Control Financing Authority, $6 million
in obligations supporting $6 million in certificates of participation issued by
the Three Valleys Municipal Water District and $5.5 million of obligations
incurred by SCW with respect to its 500 acre foot entitlement to water from the
State Water Project (SWP). Except as described in paragraph (6) below, these
obligations do not contain any financial covenants believed to be material to
Registrant or any cross default provisions. SCWs obligations with respect to
the certificates of participation issued by the Three Valleys Municipal Water
District are supported by a letter of credit issued by Wells Fargo Bank. In
regards to its SWP entitlement, SCW has entered into agreements with various
developers for 422 acre-feet, in aggregate, of its 500 acre-foot entitlement to
water from the SWP.

(5)  Consists of $1.5 million outstanding under a fixed rate obligation incurred
to fund construction of water storage and delivery facilities with the Three
Valleys Municipal Water District, $0.5 million outstanding under a variable
rate obligation incurred to fund construction of water delivery facilities with
the Three Valleys Municipal Water District and an aggregate of $0.4 million
outstanding under capital lease obligations. These obligations do not contain
any financial covenants believed to be material to Registrant or any cross
default provisions.

(6)  Consists of $68.2 million purchased power contracts with Pinnacle West
Capital Corporation until December 2008.

(7)  Reflects Registrants future minimum payments under non-cancelable
operating leases.

(8)  Other commitments of Registrant consist of (i) $75 million syndicated
revolving credit facility, expiring in June 2005, (ii) a $966,534 irrevocable
letter of credit, which is reviewed at the end of each year for adjustment, for
its self-insured workers compensation plan, (iii) an amount of $296,000 with
respect to a $6,296,000 irrevocable letter of credit issued by Wells Fargo Bank
to support the certificates of participation of Three Valleys Municipal Water
District (the other $6,000,000 is reflected under tax-exempt obligations), (iv)
an irrevocable letter of credit in the amount of $400,000 that expires on
October 2003 for the deductible in Registrants business automobile insurance
policy (v) an irrevocable letter of credit that expires March 31, 2005 for its
energy scheduling agreement with Automated Power Exchange as security for the
purchase of power; the amount of the credit is $585,000 for the months from
November to March, and $270,000 to cover the months from April to October, and
(vi) outstanding performance bonds of $9,075 to secure performance under
franchise agreements with governmental agencies. All of the letters of credit
are issued pursuant to the syndicated revolving credit facility. The syndicated
revolving credit facility contains restrictions on prepayments, deposition of
property, mergers, liens and negative pledges, indebtedness and guaranty
obligations, transactions with affiliates, minimum interest coverage
requirements, a maximum debt to capitalization ratio, and a minimum debt
rating. Pursuant to the Credit Agreement, AWR must maintain a minimum interest
coverage ratio of 3.25 times interest expense, a maximum total funded debt
ratio of 0.65 to 1.00 and a minimum debt rating of Baa1 or BBB+.

(9)  Consists of $7.9 million of obligations under a loan agreement supporting
Industrial Development Revenue Bonds due in 2006 and a $1.0 million repayment
obligation to the United States Bureau of Reclamation. The loan agreement
contains provisions that establishes a maximum of 65% debt in the capital
structure, limits cash distributions when the percentage of debt in the capital
structure exceeds 55% and requires a debt service coverage ratio of two times.
The Bureau of Reclamation obligation does not contain any financial covenants
believed to be material to Registrant or any cross default provisions.

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Under the terms of its power purchase contracts with Mirant Americas
Energy Marketing, LP and Pinnacle West Capital Corporation, SCW is required to
post security, at the request of the seller, if SCW is in default under the
terms of the contract and the future value of the contract is greater than the
future value of contracts of a similar term on the date of default. SCW will be
in default under the terms of these contracts if its debt is rated less than
BBB- by Standard & Poors Ratings Service (S&P) or Fitch, Inc. (Fitch) or
less than Baa3 by Moodys Investor Services, Inc (Moodys). SCW currently has
a rating of A+ by S & P and A2 by Moodys. Fitch does not rate SCW.

S&P debt ratings range from AAA (highest rating possible) to D (obligation
is in default). Moodys debt ratings range from Aaa (best quality) to C (lowest
quality). 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
agency.

Electric Energy Situation in California

Background Information

On January 17, 2001, the Governor of the State of California proclaimed a
state of emergency in California due to shortages of electricity available to
certain of Californias utilities (resulting in blackouts), the unanticipated
and dramatic increases in electricity prices and the insufficiency of
electricity available from certain of Californias utilities to prevent
disruption of electric service in California. The Federal Energy Regulatory
Commission (FERC) also implemented a number of changes to the tariff for the
California Independent Operator System (Cal ISO) beginning in December 15,
2000 in an attempt to stabilize the market. The reasons for the high cost of
energy are under investigation but are reported to include, among other things,
limited supply caused by a lack of investment in new power plants to meet
growth in demand, planned and unplanned outages of power plants, decreased
availability of hydroelectric power from the Pacific Northwest due to lower
than usual precipitation and higher demand for electricity in the region,
transmission line constraints, increased prices for natural gas, the fuel used
in many of the power plants serving the region, a dysfunctional power market
and market manipulation through the withholding of generation and a variety of
gaming strategies.

As of March 31, 2003, SCW had accrued $24 million in under-collected power
costs that SCW mostly incurred during the energy crisis in connection with
providing service to its Bear Valley Electric customers. In addition, SCW
established $7.9 million in reserves in 2001 for potential non-recovery of
these power costs. In 2002, SCW charged $1.7 million against the reserves due
to its inability to recover all of its costs associated with entering into a
long-term power contract with Mirant Americas Energy Marketing, LP (Mirant) in
March 2001, and reversed the balance due to various new contracts entered into
with Pinnacle West Capital Corporation (PWCC) in September 2002 as discussed
below.

On July 17, 2002, the FERC extended and modified the mitigation measures
that were set to expire on September 30, 2002, citing delays in construction of
new generation resources in California and throughout the West, delays in
adopting a new market design and market rules by the Cal ISO, transmission line
constraints, constraints on natural gas pipeline capacity and continuing
dysfunctions in the California power market. It remains unclear how long the
FERC will leave its mitigation measures in place. The premature termination of
such mitigation measures could result in a substantial increase in spot market
prices and the prices of long-term contracts for power and capacity. In
addition, FERC is considering a number of market reforms, some of which could
materially increase SCWs costs for power.

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Power Supply Arrangements at SCWs Bear Valley Electric Service Area

All electric energy sold by SCW to customers in its Bear Valley Electric
customer service area is purchased from others. In May 2000, SCW entered into a
one-year, block forward purchase contract with Dynegy Power Marketing, Inc.
(DYPM) for 12 MWs of electric energy at a price of $35.50 per MWh. This
contract expired April 30, 2001. Under the terms of contracts with DYPM that
expired on April 30, 2002, DYPM provided electric energy to SCW, acted as
scheduling coordinator and provided other ancillary services. Various disputes
arose between the parties regarding the services provided by DYPM and the
amounts charged by DYPM. As a result of these disputes, SCW withheld payment
from DYPM of certain amounts invoiced by DYPM. On November 1, 2002, DYPM
accepted a payment of $3.5 million from SCW as payment in full for the disputed
amounts.

SCW entered into a five-year nine-month, block forward purchase contract
with Mirant for 15 MWs of electric energy at a price of $95 per MWh beginning
April 1, 2001 through December 31, 2006. On December 20, 2001, SCW filed a
complaint with FERC seeking to reduce the amount charged by Mirant under the
terms of this contract to a just and reasonable price. A hearing was conducted
on this matter in October 2002. On December 19, 2002, the administrative law
judge issued an initial decision denying SCWs request to reduce the charges
under the contract. SCW has appealed the initial decision which results in the
complaint being reviewed by the full Commission. SCW anticipates that it is
unlikely that FERC will grant its request to reduce these charges.

In June 2001, SCW executed an agreement with PWCC for an additional 8 MWs
of electric energy to meet peak winter demands. The contract provided for
pricing of $75 per MWh from November 1, 2001 to March 31, 2002, $48 per MWh
from November 1, 2002 to March 31, 2003, and $36 per MWh from November 1, 2003
to March 31, 2004.

In September 2002, SCW entered into a series of purchased power contracts
with PWCC. Under the agreements, SCW will sell 15 MWs to PWCC of electric
energy at a price of $95 per MWh beginning November 1, 2002 through December
31, 2006, and the 8 MWs of electric energy covered under the energy purchase
agreement with PWCC discussed previously. In return, PWCC will supply SCWs BVE
customer service area with 15 MWs of electric energy at a price of $74.65 per
MWh beginning November 1, 2002 through December 31, 2008, and an additional 8
MWs at $74.65 per MWh beginning on November 1, 2002 through March 31, 2003 and
each succeeding November 1 through March 31 period through March 31, 2008, and
for the period November 1, 2008 through December 31, 2008. These contracts do
not qualify for the normal purchases and normal sales exception, under the
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, and have been recognized at fair market
value on the balance sheet as a liability of $2.8 million at March 31, 2003 and
an unrealized loss of $283,000 against earnings for the first quarter of 2003,
which is anticipated to accumulate to approximately $2 million for calendar
year 2003 based on forward market pricing and discount rate as of March 31,
2003. This extraordinary item (unrealized loss at Bear Valley Electric) will
continue to impact earnings during the life of the contract with Pinnacle West;
both negatively and positively. The end result is projected to be a net zero
impact on Bear Valley Electric earnings at the end of the contract period, in
2008.

The average minimum load at SCWs Bear Valley Electric customer service
area has been approximately 12 MWs. The average winter load has been 18 MWs
with a winter peak of 39 MWs when the snowmaking machines at the ski resorts
are operating. In addition to the power purchase contracts, SCW buys additional
energy from the spot market to meet peak demand and sells surplus power to the
spot market as well. The average cost of power purchased including the
transactions in the spot market was approximately $81.2 and $87.4 per MWh,
respectively, for the three and twelve months ended March 31, 2003. SCWs
average energy cost can be impacted by pricing fluctuation at the spot market.

SCW is a party to the FERC proceedings in which refunds are being sought
on purchases of power in the spot market in California from October 2, 2000
through June 2001. It is anticipated that a decision will be issued by FERC by
the end of the second quarter of 2003. SCW was not a direct
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participant in the spot market. As a result, SCW has not yet been able to
determine what, if any effect this decision will have on SCW.

Transmission Constraints

Demand for energy in SCWs Bear Valley Electric customer service area
generally has been increasing. However, the ability of SCW to deliver purchased
power to these customers is limited by the ability of the transmission
facilities owned by Southern California Edison Company to transmit this power.
On December 27, 2000, SCW filed a lawsuit against Edison for breach of contract
as a result of delays in upgrading these transmission facilities as well as for
violations of good faith and fair dealing, negligent misrepresentation,
intentional misrepresentation and unjust enrichment. As a result of the delays
and the pending litigation, it is highly unlikely that the transmission upgrade
will occur. Therefore, SCW is considering the construction of a natural
gas-fueled 8.4 MW generation facility to be owned by SCW as a means of meeting
these increasing demands for energy. A Certificate of Public Convenience and
Necessity was filed on March 28, 2002 seeking the CPUCs authorization for
construction of the generation facility. If approved, it will result in the
need to file for further increases in electric energy prices for customers of
SCWs Bear Valley Electric customer service area. For more information, see the
section entitled Regulatory Matters-Pending Rate Changes included in Part I,
Item 2 in Managements Discussion and Analysis of Financial Condition and
Results of Operation.

Construction Program

SCW maintains an ongoing water distribution main replacement program
throughout its customer service areas based on the priority of leaks detected,
fire protection enhancement and a reflection of the underlying replacement
schedule. In addition, SCW upgrades its electric and water supply facilities in
accordance with industry standards, local requirements and CPUC requirements.
SCWs Board of Directors has approved anticipated net capital expenditures of
approximately $81.6 million for 2003 principally reflecting the 2003
infrastructure replacement program in SCWs Metropolitan customer service area,
a water treatment plant upgrade, water supply related projects, and security
related costs. However, approved capital expenditures may be limited pending
CPUC approval of SCWs general rate case filings. For further information, see
the section entitled Regulatory Matters-Pending Rate Changesincluded in Part
I, Item 2 in Managements Discussion and Analysis of Financial Condition and
Results of Operation.

CCWCs Board of Directors has approved a net capital budget of $3.0
million for 2003 primarily reflecting improvement and upgrade of a water
treatment plant. AWR and ASUS have no material capital commitments. However,
ASUS actively seeks opportunities to own, lease or operate water and wastewater
systems for governmental entities, which may involve significant capital
commitments.

Neither SCW nor CCWC has material capital expenditures for specific
environmental control facilities or measures.

Regulatory Matters

Rate Regulation

SCW is subject to regulation by the CPUC, which has broad powers with
respect to service and facilities, rates, classifications 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. CCWC is
subject to regulation by the ACC.

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Rates that SCW and CCWC are authorized to charge are determined by the
CPUC and the ACC, respectively, in general rate cases and are derived using
rate base, cost of service and cost of capital, as projected for a future test
year in California and using an historical test year, as adjusted in Arizona.
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 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.

Neither AWR nor ASUS are directly regulated by the CPUC. The CPUC does,
however, regulate certain transactions between SCW and its affiliates. The ACC
also regulates certain transactions between CCWC and its affiliates.

For rate-making purposes, the 22 customer service areas of SCW are grouped
into 9 water districts and 1 electric district. Water rates vary among the 9
water ratemaking districts due to differences in operating conditions and
costs. SCW monitors operations on a regional basis in each of these districts
so that applications for rate changes may be filed, when warranted. Under the
CPUCs practices, rates may be increased by three methods: (i) general rate
case increases (GRCs), (ii) offsets for certain expense increases including
but not limited to supply cost offset and balancing account amortization, and
(iii) advice letter filings related to certain plant additions and other
operating cost increases. GRCs are typically for three-year periods, which
include step increases for the second and third year. Rates are based on a
forecast of expenses and capital costs. GRCs have a typical regulatory lag of
one year. Offset rate increases and advice letter filings typically have a two
to four month regulatory lag. In addition, recovery of water supply costs
incurred after November 29, 2001 will be considered as part of GRCs.

Changes in Rates

Step increases of approximately $321,600 for four of seven ratemaking
districts in SCWs Region I were implemented in January 2002.

On January 16, 2003, the CPUC approved rate increases of approximately
$2.7 million annually, effective January 22, 2003, in SCWs Metropolitan
district to recover costs associated with an increase in Region II rate base
due to SCWs 2002 infrastructure replacement program and, additionally, to
recover general increases in operating expenses. On January 31, 2003, the CPUC
also approved SCWs Advice Letter filed for the 2003 infrastructure replacement
program with rate increases of $3.5 million annually effective February 4,
2003.

In March 2001, the CPUC approved SCWs Advice Letters to recover increased
costs of purchased power by $761,351 incurred to pump water for its water
customers included in base water rates for each of its ratemaking districts. In
April 2001, SCW filed additional Advice Letters by ratemaking areas to increase
water rates by approximately $2.3 million company-wide to recover additional
electric base rate increases, authorized by the CPUC for the Southern
California Edison Company and the Pacific Gas and Electric Company. The CPUC
approved in the fourth quarter of 2001 increases of approximately $672,900 in
base water rates. For further information, see the section Electric Energy
Situation in Californiaincluded in Part I, Item 2 in Managements Discussion
and Analysis of Financial Condition and Results of Operation. The remaining
Advice Letters filed by SCW to recover increased power costs used for pumping
were rejected by the CPUC due to the change in procedures for collections of
water supply costs on November 29, 2001. See the section entitled Accounting
for Supply Costs included in Part I, Item 2 in Managements Discussion and
Analysis of Financial Condition and Results of Operation.

As of March 31, 2003, SCW had accrued approximately $24 million in
under-collected purchased power costs included in the electric balancing
account. In 2001, the CPUC approved two Advice Letters
30Table of Contents

which allow SCW to collect $11.1 million in aggregate over five years,
equivalent to 2.2¢ per kilowatt hour, for recovery of its under-collection in
the electric balancing account.

On August 17, 2001, SCW filed an application with the CPUC seeking
recovery of an average cost of $87 per megawatt hour (MWh) for electric energy
purchased pursuant to power purchase contracts with Mirant Americas Energy
Marketing, LP and Pinnacle West Capital Corporation (PWCC). On July 17, 2002,
CPUC approved a settlement agreement reached among SCW, all intervening parties
and the Office of Ratepayer Advocates (ORA). The authorization permits SCW to
recover $77 per MWh of purchased power costs through rates. SCW is allowed to
include its actual purchased power costs up to an average annual weighted cost
of $77 per MWh each year, through August 2011, for 10 years in its balancing
account. To the extent SCWs actual average annual weighted cost for purchased
power is less than $77 per MWh, the differential would offset amounts included
in the electric supply balancing account. Conversely, to the extent that actual
average annual weighted costs for power purchased exceed the $77 per MWh
amount, SCW would not be able to include these amounts in its balancing account
and such amounts would be expensed against income.

The CPUC settlement also extended the previously approved surcharges of
2.2¢ per kilowatt hour for an additional five years through August of 2011 to
allow SCW an opportunity to collect amounts remaining in its electric cost
balancing account. SCW anticipates that electricity sales will be sufficient to
enable SCW to fully recover the under-collection in its balancing account
during this ten year period.

SCW previously established approximately $8.2 million in reserves against
potential non-recovery of electric power costs. In 2002, $1.7 million was
written off against the reserve based on the settlement with the CPUC as
previously discussed. In September 2002, SCW entered into various agreements
with PWCC, which enable SCW to purchase energy at a lower cost. As a result,
the remaining reserve of $6.5 million was reversed into income in 2002.

The settlement requires SCW to pursue its complaint filed with FERC in
which SCW has requested FERC to reduce the prices in its power purchase
contract with Mirant to a just and reasonable price. If FERC rules a price
reduction, SCW is required, based on the settlement, to file an Advice Letter
to notify the CPUC within 30 days of the ruling. On December 19, 2002, the
Administrative Law Judge issued an initial decision denying SCWs request to
reduce the charges under the contract. SCW has appealed the initial decision
which results in the complaint being reviewed by all member commissions at the
FERC. SCW anticipates that it is unlikely that FERC will grant its request to
reduce these charges. See the section entitled Electric Energy Situation in
California included in Part I, Item 2 in Managements Discussion and Analysis
of Financial Condition and Results of Operation.

Pending Rate Changes

On March 28, 2002, SCW filed for a Certificate of Public Convenience and
Necessity (CPCN) seeking the CPUCs authorization to construct an 8.4 MW
natural gas-fueled generation facility on a portion of its property in the City
of Big Bear Lake. The capital cost of the generating facility is estimated to
be approximately $13 million, which, if approved by the CPUC, will authorize
construction and enable SCW to file a rate application subsequently, to
generate an annual revenue increase of about $2.4 million. The rate application
will be subject to additional review by the CPUC.

In October 2002, SCW filed an Application to increase water rates in the
customer service areas that comprise Region III. SCW also filed a concurrent
application requesting a rate increase applicable to SCWs entire customer base
to recover costs associated with the general office functions of SCW. With a
proposed return on equity of 12.45%, the new water rates in these filings, if
fully approved by the CPUC, would generate an initial annual increase in
revenues of approximately $19.8 million for the Region III customer service
areas, and $6.0 million for all the other customer service areas of SCW. A
final decision on these applications is not anticipated until the third quarter
of 2003.

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On January 31, 2003, SCW also filed Notices of Intent to the CPUC to
increase water rates in the customer service areas that comprise its Region I
and Region II. New rates, if approved by the CPUC, are not anticipated until
the second quarter of 2004. As part of the Region I filing, SCW requested
amortization of the balance of costs included in the Aerojet litigation
memorandum account. For more information, see the section entitled Other Water
Quality Litigations included in Part I, Item 3 in Legal Proceedings.

In 1993, the CPUC disallowed $1.6 million of costs incurred in
construction of a water treatment facility in SCWs Clearlake customer service
area and Registrant wrote off the disallowed amount at that time. Based on new
water quality standards, in 2000, SCW re-applied to the CPUC for inclusion of
the disallowed amount in rate base. A draft decision issued on March 30, 2001
by the CPUC would have allowed SCW to include $500,000 of the $1.6 million in
the regulated rate base. An alternate draft decision issued by one of the CPUC
Commissioners proposed to deny the relief sought by SCW in its application. An
Administrative Law Judge subsequently reopened the proceeding in August 2001
requiring additional information. A final order is anticipated during 2003.

Other Regulatory Matters

On November 29, 2001, the CPUC adopted an Order Instituting Rulemaking
(OIR) to (i) evaluate existing practices and policies, (ii) determine whether
new procedures or policies for processing offset rate increases and balancing
accounts should be made and (iii) determine whether the new memorandum account
procedures adopted on November 29, 2001 should be made permanent. On December
17, 2002, the CPUC issued an order authorizing water utilities, including SCW,
to file advice letters within 90 days requesting recovery of any
under-collections remaining in the balancing accounts for water supply costs
incurred prior to November 29, 2001. On March 17, 2003, SCW filed advice
letters seeking recovery of $2.3 million. For more information, see the section
entitled Accounting for Supply Costs included in Part I, Item 2 in
Managements Discussion and Analysis of Financial Condition and Results of
Operation.

There are no active regulatory proceedings affecting CCWC or its
operations.

Environmental Matters

1996 Amendments to Federal Safe Drinking Water Act

On August 6, 1996, amendments (the 1996 SDWA amendments) to the Safe
Drinking Water Act (the SDWA) were signed into law. The 1996 SDWA amendments
revised the 1986 amendments to the SDWA with a new process for selecting and
regulating contaminants. The U.S. Environmental Protection Agency (EPA) can
only regulate contaminants that may have adverse health effects, 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 EPA has
published a list of contaminants for possible regulation and must update that
list every five years. In addition, every five years, the EPA must select at
least five contaminants on that list and determine whether to regulate them.
This law allows the EPA to bypass the selection process and adopt interim
regulations for contaminants in order to address urgent health threats. The
California Department of Health Services (DOHS), acting on behalf of the EPA,
administers the EPAs program in California.

The 1996 SDWA amendments allow the EPA to base primary drinking water
regulations on risk assessment and cost/benefit considerations and on
minimizing overall risk. The EPA must base regulations on best available,
peer-reviewed science and data from best available methods. For proposed
regulations that involve the setting of maximum contaminant levels (MCLs), the
EPA must use, and seek public comment on, an analysis of quantifiable and
non-quantifiable risk-reduction benefits and costs for each such MCL.

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SCW and CCWC currently test their wells and water systems according to
requirements listed in the SDWA. Water from wells found to contain levels of
contaminants above the established MCLs is treated to reduce contaminants to
acceptable levels before it is delivered to customers. If treatment is not
possible, the wells are shut down. Since the SDWA became effective, SCW has
experienced increased operating costs for testing to determine the levels, if
any, of the constituents in SCWs sources of supply and additional expense to
lower the level of any contaminants in order to meet the MCL standards. Such
costs and the costs of controlling any other contaminants may cause SCW to
experience additional capital costs as well as increased operating costs. The
CPUC and ACC ratemaking processes provide SCW and CCWC with the opportunity to
recover prudently incurred capital and operating costs associated with water
quality. Management believes that such incurred and expected future costs
should be authorized for recovery by the CPUC and ACC, as appropriate.

Enhanced Surface Water Treatment Rules

The EPA has adopted Enhanced Surface Water Treatment Rules (ESWTR), which
require increased surface-water treatment to decrease the risk of microbial
contamination. These rules apply to each of SCWs five surface water treatment
plants and CCWCs surface water treatment plant. Registrant anticipates that
all plants will achieve compliance within the three-year to five-year time
frames identified by EPA. Registrant is required to be in compliance by June 1,
2006. SCW is planning to build a new treatment plant in the Calipatria-Niland
customer service area (see further discussion below under Regulation of
Disinfectant/Disinfection By-Products) to bring that facility into compliance.
Once this project is completed, all the surface water plants in SCW and CCWC
should be in compliance with these rules.

Regulation of Disinfection/Disinfection By-Products

SCW and CCWC are also subject to regulations concerning
disinfection/disinfection by-products (DBPs). Stage I of the regulations was
effective in November 1998 with full compliance required for systems serving
10,000 or more persons by 2002 and for systems serving fewer than 10,000
persons by 2004. Stage I requires reduction of trihalomethane contaminants from
100 micrograms per liter to 80 micrograms per liter. SCW has already
implemented modifications to the treatment process in its Bay Point and Cordova
systems to achieve compliance and the Calipatria plant is undergoing treatment
modifications, which will also address the requirements under the ESWTR, in
order to comply with the DBPs by 2004.

The EPA is not allowed to use the new cost/benefit analysis provided for
in the 1996 SDWA amendments for establishing the Stage II rules applicable to
DBPs but may utilize the regulatory negotiating process provided for in the
1996 SDWA amendments to develop the Stage II rule. The final rule is not
expected until 2004.

Ground Water Rule

On May 10, 2000, the EPA published the proposed Ground Water Rule (GWR),
which establishes multiple barriers to protect against bacteria and viruses in
drinking water systems that use ground water. The proposed rule will apply to
all U.S. public water systems that use ground water as a source. The proposed
GWR includes system sanitary surveys conducted by the state to identify
significant deficiencies; hydrogeologic sensitivity assessments for
undisinfected systems; source water microbial monitoring by systems that do not
disinfect and draw from hydrogeologically sensitive aquifers or have detected
fecal indicators within a distribution system; corrective action; and
compliance monitoring for systems which disinfect to ensure that they reliably
achieve 4-log (99.99%) inactivation or removal of viruses. The GWR is scheduled
to be issued as a final regulation during 2003. While no assurance can be given
as to the nature and cost of any additional compliance measures, if any, SCW
and CCWC do not
33Table of Contents

believe that such regulations will impose significant compliance costs,
since they already currently engage in disinfection of the majority of their
groundwater systems.

Regulation of Radon and Arsenic

On October 31, 2001, EPA announced that the arsenic standard in drinking
water would be 10 parts per billion (ppb). Compliance with an MCL of 10 ppb
will require implementation of wellhead treatment remedies for eight affected
wells in SCWs system and two wells in CCWCs system. The effective date for
utilities to comply with the standard will be January 2006. In California, the
Office of Environmental Health Hazard Assessment (OEHHA) issued a Public Health
Goal for arsenic of 4 parts per trillion in March 2003 that may result in
California adopting a lower MCL for arsenic.

The EPA has proposed new radon regulations following a National Academy of
Sciences risk assessment and study of risk-reduction benefits associated with
various mitigation measures. The National Academy of Sciences study is in
agreement with much of EPAs original findings but has slightly reduced the
ingestion risk initially assumed by EPA. EPA established an MCL of 300 Pico
Curies per liter based on the findings and has also established an alternative
MCL of 4000 Pico Curies per liter, based upon potential mitigation measures for
overall radon reduction. Registrant is currently waiting for the EPA to
establish a MCL to determine the impact.

Voluntary Efforts to Provide Treated Surface Water Below Minimum Surface
Water Treatment Requirements

SCW is a voluntary member of the EPAs Partnership for Safe Water, a
national program designed to further protect the public from diseases caused by
cryptosporidium and other microscopic organisms. As a volunteer in the program,
SCW commits to treat surface water to levels much lower than the minimum
operating requirements governing surface water treatment, optimize surface
water treatment plant operations and seeks to have its surface water treatment
facilities perform as efficiently as possible.

Unregulated Contaminants Monitoring Rule

EPA has revised the Unregulated Contaminant Monitoring Rule (UCMR), as
required by the 1996 SDWA amendments. The data generated by the UCMR will be
used to evaluate and prioritize contaminants on the Drinking Water Contaminant
Candidate List, a list of contaminants EPA is considering for possible new
drinking water standards. This data will help to ensure that future decisions
on drinking water standards are based on sound science.

A tiered approach will be utilized with the three monitoring lists to
provide the maximum capability to monitor up to the statutory limit of no more
than 30 contaminants in any 5-year monitoring cycle. Therefore, as List 3
contaminants are found to occur in public water systems, they may move up to
List 2, and likewise, List 2 contaminants may move up to List 1, in 2004, when
the UCMR is revised again. The law requires that EPA publish a new
contaminant-monitoring list every 5 years.When the EPA adds contaminants to
their list, they will also include a compliance date. Registrant will evaluate
the impact and necessary actions once the EPA makes its new announcement.

Fluoridation of Water Supplies

SCW is required to fluoridate water supplies for public water systems
serving more than 10,000 service connections if funds have been made available
to cover capital and operating costs. The CPUC is required to authorize cost
recovery through rates should funds for the operation of fluoridation
facilities, once installed, become unavailable in future years.Currently,
funds have been made available to public agencies only. SCW has not been
offered any funding and has not installed any fluoridation facilities.

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Perchlorate Action Level Activities

In January 2002, DOHS reduced the action level from 18 ppb to a level of 4
ppb, based upon new reference dose for health risk information from EPA. The
Governor in California recently signed into law a bill requiring DOHS to
establish a MCL for perchlorate by January 1, 2004. SCW has removed eight wells
from service in its Rancho Cordova system and six additional wells in various
other systems since they contained perchlorate in amounts in excess of this
reduced action level of 4 ppb. On December 6, 2002, the OEHHA published a
revised draft perchlorate Public Health Goal of 2 to 6 ppb. This is the first
step in the establishment of an MCL in California. SCW is continuing to
periodically monitor all of its wells to determine that levels of perchlorate
are below the action level currently in effect. Perchlorate is known to be used
in oxidizing rocket fuels.

Nitrosodimethylamine (NDMA) Action Level

In February 2002, DOHS increased the action level from 2 parts per
trillion (ppt) to 10 ppt. NDMA is an additional by-product from the production
and use of rocket fuels.

Matters Relating to SCWs Arden-Cordova Water System

In SCWs Rancho Cordova system, four wells have been removed from service
and destroyed due to contamination from perchlorate. The supply has been
replaced for three of these wells. An additional four wells are currently out
of service due to perchlorate levels above the reduced action level of 4 ppb,
and four wells are out of service due to detectable levels of NDMA. SCW
continues to monitor all of its active groundwater wells in the Rancho Cordova
system for perchlorate and NDMA level. Aerojet-General Corp. (Aerojet) has, in
the past, used ammonium perchlorate in oxidizing rocket fuels. NDMA is an
additional by-product from the production of rocket fuels and it is believed
that such contamination is also related to the activities of Aerojet. SCW has
filed suit against Aerojet for contamination of SCWs ground water supply in
its Rancho Cordova system.

To date, Aerojet has reimbursed SCW for constructing a pipeline to
interconnect with the City of Folsom water system to provide an alternative
source of water supply in SCWs Rancho-Cordova customer service area and has
reimbursed SCW for costs associated with the drilling and equipping of new
wells. As of March 31, 2003, Aerojet had previously reimbursed SCW $4.5 million
of the approximately $19 million in costs SCW has incurred. The remainder of
the costs is subject to further reimbursement pending outcome of the litigation
previously discussed. Reimbursements received from Aerojet have been applied
directly to reduce SCWs costs of utility plant and purchased water. For
further information regarding litigation related to contamination of ground
water in Sacramento County, see the section entitled Other Water Quality
Litigation included in Part II, Item 3, Legal Proceedings.

The EPA issued an order to Aerojet in August 2002 that requires Aerojet to
ultimately restore the contaminated aquifer and minimize further loss of water
supply wells, and requires Aerojet to provide an alternative water supply if
more water supply wells are lost.

Matters Relating to SCWs Culver City Water System

The compound, methyl tertiary butyl ether (MTBE), an oxygenate used in
reformulated fuels, has been detected in the Charnock Basin, located in the
vicinity of the City of Santa Monica and within SCWs Culver City customer
service area. At the request of the Regional Water Quality Control Board, the
City of Santa Monica and the California Environmental Protection Agency, SCW
removed two of its wells in the Culver City water system from service in
October 1996 to help in efforts to avoid further spread of the MTBE
contamination plume. Neither of these wells has been found to be contaminated
with MTBE. SCW is purchasing water from the Metropolitan Water District of
Southern California (MWD) at an increased cost to replace the water supply
formerly pumped from the two wells removed from service.

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On September 22, 1999, the U.S. EPA and the Los Angeles Regional Water
Quality Control Board ordered Shell Oil Company, Shell Oil Products Company,
Equilon Enterprises LLC and others to provide replacement drinking water to
both SCW and the City of Santa Monica due to MTBE contamination in the Charnock
Basin. The EPA has ordered Shell Oil and others to reimburse SCW for water
replacement costs. In March 2002, SCW reached a settlement agreement with the
City of Santa Monica, in which SCW assigns its rights against all the
potentially responsible parties, who stored, transported and dispensed gasoline
containing methyl tertiary butyl ether (MTBE) in underground storage tanks,
pipelines or other related infrastructure, and its water rights in the Charnock
Basin to the City of Santa Monica and Santa Monica takes over the prosecution
against the potentially responsible parties in exchange for an assignment
payment. The settlement agreement has been approved by the CPUC on
May 8, 2003. The order also directs SCW to file a new
proceeding within 30 days that sets forth specific details as to SCWs plans
to reinvest the net proceeds from the settlement agreement with the City of
Santa Monica. The Office of Ratepayer Advocates may comment on
SCWs proposal, within 10 days of receipt of SCWs filing.

Matters Relating to SCWs Yorba Linda Water System

The compound MTBE has been detected in three wells serving SCWs Yorba
Linda water system. Two of the wells are standby wells and to date the third
well has not shown MTBE above the DOHS secondary standard of 5.0 ppb. SCW has
constructed an interconnection with the Metropolitan Water District of Southern
California to provide for the needed supply for this system in the event the third well
experiences levels of detection in excess of the DOHS standard.

SCW has met with the Regional Water Quality Control Board, the Orange
County Water District (OCWD), the City of Anaheim, the DOHS and three potentially
responsible parties (PRPs) to define the extent of the MTBE contamination
plume and assess the contribution from the PRPs. The PRPs have voluntarily
initiated a work plan for regional investigation. While there have not been
significant disruptions to the water supply in Yorba Linda at this point in
time, no assurances can be given that MTBE contamination will not increase in
the future. Negotiations with the PRPs on reimbursement of costs
incurred to date and recovery of potential future costs associated
with MTBE contamination continue.

On
May 6, 2003, OCWD filed a lawsuit in Orange County Superior
Court seeking recovery of past and future costs associated with the
investigation, monitoring and removal of MTBE and other gasoline
oxygenate additives from Orange County groundwater supplies managed
by OCWD. Registrant is not a party to this action and is unable to
predict its outcome or impact on its operations. In addition,
Registrant is unable to predict what impact, if any, this action will
have on its continuing separate negotiations with the PRPs.

Matters Relating to SCWs Los Osos Water System

The compound MTBE has been detected in a well serving SCWs Los Osos water
system. For some time SCW has been working with the Regional Water Quality
Control Board as well as the owner of a service station. Although the owner of
the service station has attempted remediation with funds provided through the
California Underground Storage Tank Fund (CUSTF), it appears there will be
insufficient funds from the CUSTF to complete remediation sufficient to return
the well to service. In order to prevent the running of the statute of
limitations, on August 12, 2002 SCW filed suit in the Superior Court of the
State of California for the County of San Luis Obispo against the operators and
owners of the service station facility, and Chevron USA Products, Inc., the
supplier.

Matters Relating to SCWs San Gabriel Water Systems

Volatile Organic Compounds (VOC) and perchlorate have been detected in 2
wells servicing SCWs San Gabriel System. SCW filed suit, along with two other
affected water purveyors and the San Gabriel Basin Water Quality Authority
(WQA), in federal court against some of those responsible for the
contamination. Some of the other potential defendants settled with SCW, other
water purveyors and the WQA on VOC related issues prior to the filing of the
lawsuit resulting in reimbursement to SCW of the $1 million in capital cost of
VOC treatment facilities and contribution of approximately $450,000 towards
future operating and maintenance (O&M) costs of operating the facilities.

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In response to the filing of the Federal lawsuit, the Potentially
Responsible Party (PRP) defendants filed motions to dismiss the suit or strike
certain portions of the suit. Following a hearing on these motions on March 31,
2003, the judge issued a ruling on April 1, 2003 granting in part and denying
in part the defendants motions. A key ruling of the court was that the water
purveyors, including the Registrant, by virtue of their ownership of wells
contaminated with hazardous chemicals are themselves PRPs under the
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).
Registrant has, pursuant to permission of the court, amended its suit to
claim certain affirmative defenses as an innocent party under CERCLA.
Registrant is presently unable to predict the outcome of this ruling on its
ability to fully recover from the PRPs future costs associated with the
treatment of these wells.

Three other wells serving customers in SCWs San Gabriel customer service
area are also impacted by VOC contamination. A settlement with several
potentially responsible parties together with federal funds administered by WQA
resulted in reimbursement of 100% of the $1.1 million in capital costs,
$205,000 of past O&M costs and 100% of future O&M costs for a period of up to
30 years for VOC treatment facilities at these wells.

Security Issues

Since the tragic events of September 11, 2001, water utilities, including
Registrant, have been advised to increase security at key facilities in order
to avoid contamination of water supplies and other disruptions of service. In
compliance with The Public Health Security and Bioterrorism Preparedness Act
of 2002 (HR 3448),Registrant has continued to implement measures to increase
security, which includes conducting vulnerability assessments for its large
systems by March 31, 2003. Large systems are defined as systems serving a
population of 100,000 or more. These formal assessments will be submitted in
accordance with the Federal deadline. In addition to large system assessments,
all systems operated by Registrant were assessed to identify potential areas
requiring enhancements. These assessments resulted in a prioritized listing of
recommended facility upgrades to enhance the safety of water system operations.
Costs associated with capital improvements identified as a result of the
assessment process, approximately $15 million, has been included in an
application filed with the CPUC in October 2002. Registrant is unable to
predict if the CPUC will authorize recovery of any or all of these costs.

Water Supply

SCWs Water Supply

For the three months ended March 31, 2003, SCW supplied a total of
16,449,000 CCF of water. Of this amount, approximately 56.4% came from pumped
sources and 41.3% was purchased from others, principally the Metropolitan Water
District of Southern California (MWD). The Bureau of Reclamation (the Bureau)
supplied the remaining amount under a no-cost contract. SCW supplied 17,212,000
CCF of water for the same period of 2002, 62.5% of which came from pumped
sources, 37.5% was purchased, and the Bureau supplied the remainder.

For the twelve months ended March 31, 2003, SCW supplied a total of
86,992,000 CCF of water. Of this amount, approximately 54.6% came from pumped
sources and 42% was purchased from others, principally the Metropolitan Water
District of Southern California (MWD). The Bureau of Reclamation (the Bureau)
supplied the remaining 3.4%. For the twelve months ended March 31, 2002, SCW
supplied 858,898,000 CCF of water, 58% of which came from pumped sources, 40.1%
was purchased, and the Bureau supplied the remainder.

The MWD is a water district organized under the laws of the State of
California for the purpose of delivering imported water to areas within its
jurisdiction. Registrant has 58 connections to the water distribution
facilities of MWD and other municipal water agencies. MWD imports water from
two

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principal sources: the Colorado River and the State Water Project (SWP).
Available water supplies from the Colorado River and the SWP have historically
been sufficient to meet most of MWDs requirements. However, California missed
a federal deadline of December 31, 2002 to demonstrate how it will reduce the
Colorado River water that it takes beyond its legal entitlement after
negotiations on how to divide the water in Southern California broke down. The
federal government began to cut Southern Californias Colorado River supplies
in January 2003. MWD has publicly stated that Southern California should have
ample water supplies for 20 years despite this cut by stepping up a number of
efforts including desalination, conservation, recycling, transfer and storage.
In addition, efforts are under way to resolve the impasse that led to the
reduction in Colorado River supplies to Southern California.

SCWs water supply and revenues are significantly affected, both in the
short-run and the long run, by changes in meteorological conditions. Current
weather conditions have been favorable. Precipitation for current water year
from October 2002 to March 2003 in California has been 100% of normal with
April levels well above normal. At the beginning of April statewide snow pack
water equivalence was only 65% of normal and at the end of April it was 117% of
normal. Runoff thru March was at 95% of normal and given Aprils snowfall
spring runoff should be above the 65% forecast at the beginning of April.
Overall water year runoff is forecasted to be 90%.

Although overall groundwater conditions remain at adequate levels, certain
of SCWs groundwater supplies have been affected to varying degrees by various
forms of contamination which, in some cases, have caused increased reliance on
purchased water in its supply mix. For further information, see Part II, Item 1
in Legal Proceedings.

A sudden and unexplained drop in groundwater water supply severely
impacted SCWs Wrightwood customer service area in the third quarter of 2002.
In response to this emergency situation, SCW undertook a number of steps to
provide water service, including trucking water into the area from nearby
sources, bringing a formerly shut down well into service, taking steps to
increase capacity at existing wells and expediting the drilling and equipping
of a new well. SCW experienced increased operating costs associated with the
trucking of water of approximately $1.4 million, approximately $1.26 incurred
in 2002 and $166,000 in January 2003. Due to the actions of SCW and
conservation efforts of consumers, the situation has stabilized and the water
hauling stopped at end of January 2003. Management is unable to predict the
extent to which additional costs may be incurred or the extent to which
additional problems may be encountered. The cause of the unexplained and sudden
drop in groundwater supply has not been identified, but it may be
drought-related.

CCWCs Water Supply

The Arizona outlook is more optimistic with drought conditions expected to
end or at least ameliorate. Precipitation through March 2003 has brought level
up to near normal, statewide 78.6% of normal level. Reservoirs at the end of
March were at 87% of normal with Lake Powell at 71% and Lake Mead at 82% with
inflow into Lake Powell at 67% of normal.

El Nino conditions continue to slowly decay but still persist in the
Pacific. The National Oceanic and Atmospheric Association (NOAA) forecasts
continued mild El Nino conditions which will mean normal precipitation levels
for California and Arizona from May to June. However given the severity of the
drought in Arizona drought conditions will persist while California should
return to normal. Longer term there is the possibility of La Nina conditions
developing later in the year which would mean reduced precipitation levels for
California and Arizona but no definite pattern has emerged.

The Arizona Water Banking Authority (AWBA) was created to store Arizonas
unused Colorado River water entitlement in western, central and southern
Arizona to develop long-term storage credits to: (i) firm existing water
supplies for municipal and industrial users during Colorado River shortages or
Central Arizona Project (CAP) service interruptions; (ii) help meet the water
management objectives of

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the Arizona Groundwater Code; and (iii) assist in the settlement of
American Indian water rights claims. The ABWA successfully banked up to
Arizonas full allocation of Colorado River entitlement in 2002, and expects
the same result in 2003 as a hedge against drought conditions. Further, the
first curtailment of CAP deliveries in the event of shortage would occur to
non-Indian agricultural users. Such users accounted for 36% of CAP deliveries
in 2002, creating a buffer for users such as CCWC. Though it is difficult to
predict drought conditions with certainty, the activities of AWBA, and the
priority for users of CAP, such as CCWC, provides an improved outlook for CCWC
supplies.

CCWC obtains its water supply from three operating wells and from Colorado
River water delivered by the CAP. The majority of CCWCs water supply is
obtained from its CAP allocation and well water is used for peaking capacity in
excess of treatment plant capability, during treatment plant shutdown, and to
keep the well system in optimal operating condition.

CCWC has an Assured Water Supply designation, by decision and order of the
Arizona Department of Water Resources, providing in part that, subject to its
requirements, CCWC currently has a sufficient supply of ground water and CAP
water which is physically, continuously and legally available to satisfy
current and committed demands of its customers, plus at least two years of
predicted demands, for 100 years. Notwithstanding such a designation, CCWCs
water supply may be subject to interruption or reduction, in particular owing
to interruption or reduction of CAP water. In the event of interruption or
reduction of CAP water, CCWC can currently rely on its well water supplies for
short-term periods. However, in any event, the quantity of water CCWC supplies
to some or all of its customers may be interrupted or curtailed, pursuant to
the provisions of its tariffs.

Risk Factor Summary

You should carefully read the risks described below and other information
in this Form 10-K in order to understand certain of the risks of our business.

Our liquidity and earnings could be adversely affected by increases in
water supply costs

Prior to November 29, 2001, we recovered certain water supply costs
through a balancing account mechanism. Water supply costs include the cost of
purchased water and power and groundwater production assessments. Changes in
the unit costs did not directly affect earnings. The balancing account was not,
however, designed to insulate SCWs earnings against changes in supply mix. As
a result, SCW was not permitted to recover increased costs due to increased use
of purchased water, which is generally more expensive than groundwater, through
the balancing account mechanism. Increased cost of this nature are only
recoverable, on a prospective basis, through the filing of a general rate case.

On November 29, 2001, the CPUC ordered us to suspend the use of the
current water balancing account, and instead started a memorandum account for
each offsettable expense of purchased water, purchased power and pump tax for
its water service areas. However, the CPUC has not issued a final decision
regarding the mechanism for recovery of costs recorded in the newly established
memorandum account. Our recovery of deferred water supply costs for providing
water service could be reduced if we are earning more than our authorized rate
of return on a weather normalized basis. Additionally, changes in water supply
costs compared to the authorized amount, as well as any future authorized
offset increases may directly affect our earnings. SCWs earnings were reduced
by $0.04 and $0.19 per share, respectively, for the three and twelve months
ended March 31, 2003 as a result of this change in the methodology for
recovering water supply costs. While we cannot determine the outcome, SCW has
filed various rate cases which include requests to recover the above mentioned
memorandum account dollars.

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Our liquidity, and in certain circumstances, earnings, could be adversely
affected by increases in electricity prices in California

Under California law, we are permitted to file for a rate increase to
recover electric power costs not being recovered in current rates. Increases in
electric power costs generally have no direct impact on profit margins, unless
recovery of these costs is disallowed, but do affect cash flows and can
therefore impact the amount of our capital resources. Electric power costs
increased substantially in California during the fall of 2000 until the summer
of 2001. On July 17, 2002, the FERC extended and modified the mitigation
measures that were set to expire on September 30, 2002, citing delays in
construction of new generation resources in California and throughout the West,
delays in adopting a new market design and market rules by the Cal ISO,
transmission line constraints, constraints on natural gas pipeline capacity and
continuing dysfunctions in the power market. It remains unclear how long the
FERC will leave its mitigation measures in place. The premature termination of
such mitigation measures could result in a substantial increase in spot market
prices and the prices of long-term contracts for power and capacity. In
addition, a number of market reforms are under consideration at FERC. Certain
of these reforms, if adopted, could result in significantly increased electric
supply reserve requirements that have the potential for further cost increases.

On July 17, 2002, the CPUC approved a settlement authorizing us to include
$0.077 per kilowatt-hour (KWh) in rates to recover electric power costs at our
Bear Valley Electric operation. If our actual annual costs exceed this amount,
we cannot recover the excess and the amount will be expensed against income. If
our actual annual energy costs are less than $0.077 per KWh, we can use this
difference to collect amounts previously included in the balancing account. The
new rates have been in effect since July 17, 2002. As of March 31, 2003, we
have accrued $24 million in under-collected power costs in our electric supply
balancing account. The CPUC has authorized SCW to collect a surcharge from its
customers of 2.2¢ per Kwh for a period of up to ten years to enable SCW to
recover this under-collection. SCW anticipates that the 2.2¢ surcharge on its
electricity sales during the ten year period will be sufficient to enable SCW
to recover the amount of this under-collection, with interest, during this ten
year period.

The purchased power agreements with Pinnacle West Capital Corporation
(PWCC) enable SCW to purchase a contractual volume of power at $74.65 per
megawatt hour (MWh). The agreements with PWCC have not been reviewed by the
CPUC and we are unable to predict if the regulatory body will authorize
recovery of any or all of these costs.

SCW still needs to buy additional energy from the spot market to meet peak
demand and sell surplus power to the spot market from time to time. The average
cost of power purchased including the transactions in the spot market was
approximately $81.2 and $87.4 per MWh, respectively, for the three and twelve
months ended March 31, 2003. SCWs energy cost can be impacted by pricing
fluctuation, and amount of energy purchased and sold at any given time in the
spot market.

Significant claims have been asserted against us in water quality
litigation

SCW and others have been sued in twenty-two water quality related lawsuits
alleging personal injury and property damage as a result of the delivery of
water that was allegedly contaminated. Nineteen of the lawsuits involve
plaintiffs who received water from two groundwater basins in Los Angeles
County. The other lawsuits involve plaintiffs in Sacramento County.

In March 1998, the CPUC issued an Order Instituting Investigation as a
result of water quality lawsuits being filed against water utilities in
California. On November 2, 2000, the CPUC issued a final order concluding that
(i) the CPUC has jurisdiction to regulate the service of water utilities with
respect to the health and safety of that service; (ii) DOHS requirements
governing drinking water quality adequately protect the public health and
safety; and (iii) regulated water utilities, including SCW, have satisfactorily
complied with past and present drinking water quality requirements.

On February 5, 2002, the California Supreme Court ruled that water
utilities regulated by the CPUC may only be sued for damages based on
allegations and ultimate proof that the utility failed to

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comply with federal and state safe drinking water requirements. As a
result, plaintiffs may proceed on their claims against SCW to the extent that
these claims are based on violations of federal and state law. The extent which
SCW and other CPUC regulated water utilities may be subject to liability under
the ruling is currently being addressed by the trial court in the area that
gave rise to the Supreme Court ruling.

SCW is unable to predict the outcome of any of this litigation or the
extent to which it will be able to recover its litigation costs from ratepayers
or other third parties.

Our operating costs have increased and are expected to continue to
increase as a result of groundwater contamination

SCWs operations have been impacted by groundwater contamination in
certain of its service territories. We have taken a number of steps to address
this contamination, including the removal of wells from service, the
construction of water treatment facilities and securing alternative sources of
supply from other areas not affected by the contamination.

In some cases, potentially responsible parties have reimbursed us for our
costs. In other cases, we have taken legal action against parties that we
believe to be potentially responsible for the contamination.

The Potentially Responsible Parties, i.e. the polluters, have raised the
possibility that water producers, such as SCW and CCWC, may have liability
under certain environmental statutes if their pumping operations affect the
movement of the contamination. SCW has been required to remove certain wells
from service because its pumping activities might affect the movement of
contamination. Currently, neither the Environmental Protection Agency nor any
other governmental agency has identified SCW or, to our knowledge, any other
water producer, as a potentially responsible party. However, a
Federal Court judge has ruled that certain water producers in the San
Gabriel Valley, including SCW, are PRPs due to their ownership of
groundwater production wells contaminated with hazardous chemicals.
We are not able to predict how this designation might impact us,
however, our future results of operations could be adversely
affected if either SCW or CCWC is required to pay clean-up costs and is not
allowed to recover such costs in rates. To date, the CPUC has permitted SCW to
establish memorandum accounts for recovery of these types of costs, but actual
recovery of these costs from ratepayers has been limited to filing only with a
General Rate Case, generally every 3 years.

Environmental regulation has increased, and is expected to continue to
increase our operating costs

SCW and CCWC are subject to increasingly stringent environmental
regulations that will result in increasing capital and operating costs. These
regulations include:



| |  |  | The 1996 amendments to the Safe Drinking Water Act that
require increased testing and treatment of water to reduce
specified contaminants to maximum contaminant levels                                
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Approved regulations requiring increased surface-water
treatment to decrease the risk of microbial contamination; these
regulations affect SCWs five surface water treatment plants and
one CCWC plant
|
| |  |  | Additional regulation of disinfection/disinfection
byproducts                                                                                                                                          
|
| |  |  | Additional regulations expected to be adopted requiring
disinfection of certain groundwater systems                                                                                                    
|
| |  |  | Regulation of arsenic and radon                                                                                                                                                                        
|
| |  |  | Changes in the action level and the proposed adoption
of maximum contamination levels for perchlorate                                                                                                  

SCW and CCWC may be able to recover costs incurred to comply with these
regulations through the ratemaking process. We may also be able to recover
certain of these costs under our contractual arrangements with municipalities.
In certain circumstances, we may be able to recover costs from parties

41



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##### Table of Contents



responsible or potentially responsible for contamination, either
voluntarily or through specific court action.

The adequacy of our water supplies depends upon a variety of factors
beyond our control

The adequacy of our water supplies varies from year to year depending upon
a variety of factors, including:



| |  |  | Rainfall                                                       
| | - |  | ---------------------------------------------------------------
|
| |  |  | Availability of Colorado River water                           
|
| |  |  | The amount of water stored in reservoirs and groundwater basins
|
| |  |  | The amount of water used by our customers and others           
|
| |  |  | Water quality                                                  
|
| |  |  | Legal limitations on use                                       

Population growth and increases in the amount of water used have increased
limitations on use to prevent over-drafting of groundwater basins. The import
of water from the Colorado River, one of SCWs important sources of supply, is
expected to decrease in future years due to the requirements of the Central
Arizona Project (CAP) and disputes affecting the amount of water that the
Metropolitan Water District of Southern California is entitled to take from the
Colorado River. We have also taken wells out of service due to groundwater
contamination.

CCWC obtains its water supply from operating wells and from the Colorado
River through the CAP. CCWCs water supply may be subject to interruption or
reduction if there is an interruption or reduction in CAP water.

Water shortages may affect us in a variety of ways:



| |  |  | They adversely affect supply mix by causing us to rely
on more expensive purchased water.                                                                                                    
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | They adversely affect operating costs.                                                                                                                                                       
|
| |  |  | They may result in an increase in capital expenditures
for building pipelines to connect to alternative sources of
supplies and reservoirs and other facilities to conserve or
reclaim water.

We may be able to recover increased operating and construction costs for
our regulated systems through the ratemaking process. We may also be able to
recover certain of these costs from third parties that may be responsible, or
potentially responsible, for groundwater contamination.

Our earnings are greatly affected by weather during different seasons

The demand for water and electricity varies by season. Therefore, the
results of operations for one period may not indicate results to be expected in
another period. For instance, most water consumption occurs during the third
quarter of each year when weather tends to be hot and dry. On warm days, use of
water by residential and commercial customers may be significantly greater than
on cold days because of the increased use of water for outdoor landscaping.
Likewise the demand for electricity in our Big Bear service area is greatly
affected by winter snows. An increase in winter snows reduces the use of snow
making machines at ski resorts in the Big Bear area and, as a result reduces
electric revenues. Likewise, unseasonably warm weather during a skiing season
may result in temperatures too high for snowmaking conditions also reducing
electric revenues.

42



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##### Table of Contents



Variability of weather from normal temperatures or changes in snow or
rainfall can materially impact results of operations. As a result, weather has
been and will continue to be one of the dominant factors in our financial
performance.

Our business is heavily regulated and, as a result, decisions by
regulatory agencies and changes in laws and regulations can significantly
affect our business

Our revenues depend substantially on the rates that we are permitted to
charge our customers and our ability to recover our costs in these rates,
including the ability to recover the costs of purchased water, groundwater
assessments and electric power costs in rates. We have filed for increased
water rates to recover operating costs from customers in Region III as well as
from all customers for costs associated with general office activities. We also
filed Notices of Intent to increase rates in Region I and Region II. In
addition, we are seeking CPUC authorization to construct an 8.4 MW natural
gas-fueled generator facility to meet increasing demand in our Bear Valley
customer service area. The CPUCs resolution ordering SCW to suspend the use of
the current water balancing account, and instead to start a memorandum account
for our supply costs has and will directly impact our earnings. The recovery of
deferred water supply costs may be reduced if we are earning an amount in
excess of our authorized rate of return.

We have been adversely affected by electric restructuring in California
and the escalation of energy costs that we have only recently begun recovering
in rates. SCW has also filed a complaint with FERC seeking a reduction of the
rates in its power purchase contract with Mirant Americas Energy Marketing,
L.P. (Mirant) to a just and reasonable price, which SCW expects to be denied.
There is a complaint by Mirant against us pending at the FERC. There are also
proceedings pending before FERC to restructure the California energy markets.

Our business requires significant capital expenditures

The utility business is capital intensive. On an annual basis, we spend
significant sums for additions to or replacement of property, plant and
equipment. During calendar years 2002, 2001 and 2000, we spent $40,655,000,
$47,570,000, and $46,091,000, respectively, for these purposes. Our budgeted
capital expenditures for calendar year 2003 for these purposes are
approximately $84,637,000. There is no capital expenditure for environmental
control facilities budgeted for 2003.

We obtain funds for these capital projects from operations, contributions
by developers and others and advances from developers (which must be repaid).
We also periodically borrow money or issue equity for these purposes. In
addition, we secured a syndicated bank facility that we can use for these
purposes. We cannot assure you that these sources will continue to be adequate
or that the cost of funds will remain at levels permitting us to earn a
reasonable rate of return.

New Accounting Pronouncements

We are subject to newly issued as well as changes in existing requirements
issued by the Financial Accounting Standard Board. Differences in financial
reporting between periods could occur unless and until the CPUC and the ACC
approve such changes for conformity through regulatory proceedings. See Note 5
of Notes to Consolidated Financial Statements.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

Registrant has certain block-forward purchase power contracts that qualify
as derivative instruments under Statement of Financial Account Standards No.
133 (SFAS No. 133), Accounting for Derivative Instruments and Hedging
Activities. A derivative financial instrument or other contract derives its
value from another investment or designated benchmark. SCW is a party to
various block-
43Table of Contentsforward purchase power contracts. Power purchase contracts with Mirant
America Energy Marketing, L.P. (Mirant) and Pinnacle West Capital Corporation
(PWCC) executed in 2001 qualify for the exception provided under SFAS No. 133
for activities that are considered normal purchases and normal sales. These
contracts are reflected in the statements of income at the time of contract
settlement. Contracts with PWCC executed in September 2002, however, do not
qualify for the normal purchases and normal sales exception and, as a result,
has been recognized at fair market value on the balance sheet as of March 31,
2003. This resulted in a pre-tax unrealized loss of $2.5 million in 2002 and
$283,000 for the first quarter ended March 31, 2003 recorded as a component of
Power Purchased for Resale. On a quarterly basis, the related asset or
liability will be adjusted to reflect the fair market value at the end of the
quarter. As this contract is settled, the realized gains or losses will be
recorded and the unrealized gain or loss will be reversed.Under the terms of its power purchase contracts with Mirant and PWCC, SCW
is required to post security, at the request of the seller, if SCW is in
default under the terms of the applicable contract. In addition, SCWs
liquidity, and in certain circumstances, earnings could be adversely affected
by increases in electricity prices in California. For further information, see
the section entitled Critical Accounting Policies and Electric Energy
Situation in Californiaincluded in Part I, Item 2 in Managements Discussion
and Analysis of Financial Condition and Results of Operation.Except as discussed above, Registrant has no other derivative financial
instruments, financial instruments with significant off-balance sheet risks or
financial instruments with concentrations of credit risk.
Item 4. Controls and ProceduresWithin ninety days prior to the filing of this report, we carried out an
evaluation, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures. Disclosure controls and procedures are
designed to ensure that information required to be disclosed in our periodic
reports filed or submitted under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commissions rules and forms. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective. There have been no
significant changes, deficiences or material weakness in our internal
controls other than the weakness described in
"Controls and Procedures" included in Part III, Item 14 of
Registrants Form 10K filed for the year ended December 31,
2002, which we are in the process of correcting including acquiring
appropriate tax software and adding qualified staff as needed.
PART II
Item 1. Legal ProceedingsWater Quality-Related LitigationSCW is a defendant in twenty-two lawsuits involving claims pertaining to
water quality. Nineteen of the lawsuits involve customer service areas located
in Los Angeles County in the southern portion of the State of California that
have been filed in Los Angeles Superior Court: Robert Arenas, et al. v.
Suburban Water Systems, Inc., et al., Case No. KC037559, Anthony John Bell, et
al. v. City of Pomona, et al., Case No. KC038796, Adler, et al. v. Southern
California Water Company, et al., Case No. BC169892, Santamaria, et al. v.
Suburban Water Systems, et al., Case No. KC025995, Georgianna Dominguez et al.
v. Southern California Water Company, et al., Case No. GC021657, Anderson, et
al. v. Suburban Water Company, et al., Case No. KC028524, Abarca, et al. v.
City of Pomona, et al., Case No. K027795, Celi, et al. v. San Gabriel Valley
Water Company, Case No. GC020622, Boswell et al. v. Suburban Water Systems, et
al., Case No. KC027318, Demciuc et al. v. Suburban Water Systems, et al., Case
No. KC028732, Antoinette Adejare, et al. v. City of Pomona, et al., Case No.
KC031096, Almelia44Table of ContentsBrooks, et al. v. Suburban Water System, et al., Case No. KC032915, Lori
Alexander, et al. v. Suburban Water Systems, et al., Case No. KC031130, David
Arnold, et al. v. City of Pomona, et al., Case No. KC034636, Gilda
Ambrose-Dubre, et al. v. City of Pomona, et al., Case No. KC032906, Melissa
Garrity Alvarado, et al. v. Suburban Water Systems et al., Case No. KC034953 ,
Charles Alexander, et al. v. City of Pomona, et al., Case No KC035526, Criner,
et al. v. San Gabriel Valley Water Company, et al., Case No. GC021658, and
Donerson, et al. v. City of Pomona, et al., Case No. KC035987. The lawsuits
filed in Los Angeles County Superior Court are based on the allegations that
SCW and the other defendants have provided and continue to provide plaintiffs
with contaminated water from its wells, several of which are located in an area
of the San Gabriel Valley that has been designated a federal superfund site,
that the maintenance of this contaminated well water has resulted in
contamination of the soil, subsurface soil and surrounding air with solvents
and other substances, and that plaintiffs have been injured and their property
damaged as a result. Three of the lawsuits involve a customer service area
located in Sacramento County in northern California that have been filed in
Sacramento County Superior Court: Nathaniel Allen, Jr. v. Aerojet-General
Corporation, et al., Case No. 97AS06295, Daphne Adams, et al. v.
Aerojet-General Corporation, et al., Case No. 98AS01025, and Wallace Andrew
Pennington et al. v. Aerojet-General Corporation, et al., Case No. 00AS02622.
The lawsuits filed in Sacramento County Superior Court are based on the
allegations that SCW and other defendants have delivered water to plaintiffs
that are contaminated with a number of chemicals, including trichloroethylene,
perchloroethylene, carbon tetrachloride, perchlorate, Freon-113, hexavalent
chromium and other unnamed chemicals and that plaintiffs have been injured and
their property damaged as a result.On September 1, 1999, the Court of Appeals in San Francisco held that the
CPUC had preemptive jurisdiction over regulated public utilities with respect
to water quality matters and ordered dismissal of a series of these lawsuits.
On October 11, 1999, one group of plaintiffs appealed this decision to the
California Supreme Court. On February 4, 2002, the California Supreme Court
concluded that (i) the CPUC had preemptive jurisdiction over claims seeking
injunctive relief and claims based on the theory that a public utility
regulated by the CPUC provided unsafe drinking water even though it had
complied with federal and state drinking water standards, but (ii) the CPUC did
not have preemptive jurisdiction over damage claims based on allegations of
violations of federal and state drinking water standards by public utilities
regulated by the CPUC. As a result, damage claims based on allegations of
violations of federal and state drinking water standards may proceed while the
other claims must be dismissed.In light of the breadth of plaintiffs claims, the lack of factual
information regarding plaintiffs claims and injuries, if any, the impact of
the California Supreme Court decision on plaintiffs claims and the fact that
investigation is presently underway, SCW is unable at this time to determine
what, if any, potential liability it may have with respect to these claims.
Based upon the information currently available to it, Registrant believes that
these claims are without merit and intends to vigorously defend against these
claims.SCW is subject to self-insured retention provisions in its applicable
insurance policies and has either expensed the self-insured amounts or has
reserved against payment of these amounts as appropriate. SCWs various
insurance carriers have, to date, provided reimbursement for costs incurred
above the self-insured amounts for defense against these lawsuits, subject to a
reservation of rights.Order Instituting Investigation (OII)In March 1998, the CPUC issued an OII to regulated water utilities in the
state of California, including SCW. The purpose of the OII was to determine
whether existing standards and policies regarding drinking water quality
adequately protect the public health and whether those standards and policies
were being uniformly complied with by those water utilities. On November 2,
2000, a final decision from the CPUC concluded that the CPUC has the
jurisdiction to regulate the service of water utilities with respect to the
health and safety of that service; that the California Department of Health
Services requirements governing drinking water quality adequately protect the
public health and safety;45Table of Contentsand that, based on an extensive review of 25 years of water quality
records, regulated water utilities, including SCW, have satisfactorily complied
with past and present drinking water quality requirements, except for one small
unrelated water utility in Northern California.The CPUC had previously authorized establishment of memorandum accounts to
capture expenses related to the OII. Under the memorandum account procedure,
SCW may recover litigation costs from ratepayers to the extent authorized by
the CPUC. As of March 31, 2003, SCW had incurred a net cost of $890,000 related
to the OII, for which a reserve of the same amount was established. SCW filed
for recovery of these amounts, through a special condition surcharge, with the
CPUC in its application filing for its Region III and general office functions.
See the section entitled Regulatory Matters in Part I, Item 2 in Managements
Discussion and Analysis of Financial Conditions and Results of Operation.Other Water Quality LitigationOn October 25, 1999, SCW filed a lawsuit against the State of California
and its State Water Resources Control Board, Central Valley Regional Water
Quality Control Board, and Department of Toxic Substances Control
(collectively, the State) alleging that the State had substantially
participated in a project to inject chemical pollution into portions of the
Sacramento County groundwater basin and that pollution is progressively
destroying the groundwater supply in SCWs Rancho Cordova water system. SCW and
the State have entered into a comprehensive $2,475,000 settlement of all of
SCWs claims against the State, contingent upon the courts approval of the
good faith of the States settlement offer.In a separate case, also filed on October 25, 1999, SCW sued
Aerojet-General Corporation (Aerojet) for causing the contamination of eastern
portions of the Sacramento County groundwater basin. A cross complaint filed by
Aerojet against SCW for negligence and constituting a public nuisance was
dismissed by the court in October 2002.The CPUC has authorized memorandum accounts to allow for recovery, from
customers, of costs incurred by SCW in prosecuting the suits filed against the
State and Aerojet, less any recovery from the defendants or others. As of March
31, 2003, approximately $14.6 million in legal and other related costs has been
recorded in the deferred charges.The CPUC has authorized SCW to increase rates, effective April 28, 2001,
for recovery over a six-year period of approximately $1.8 million, in expenses
that were incurred on or before August 31, 2000, in the Aerojet matter. The
remaining costs were included in SCWs January 31, 2003 filing with the CPUC of
its Notice of Intent to increase rates in Region I. Management believes these
costs are recoverable based on past practices of the CPUC but cannot give
assurance that the CPUC will ultimately allow recovery of all or any of the
remaining costs through rates.The compound MTBE has been detected in a well serving SCWs Los Osos water
system. For some time SCW has been working with the Regional Water Quality
Control Board as well as the owner of a service station. Although the owner of
the service station has attempted remediation with funds provided through the
California Underground Storage Tank Fund (CUSTF), it appears there will be
insufficient funds from the CUSTF to complete remediation sufficient to return
the well to service. In order to prevent the running of the statute of
limitations, on August 12, 2002 SCW filed suit in the Superior Court of the
State of California for the County of San Luis Obispo against the operators and
owners of the service station facility, and Chevron USA Products, Inc., the
supplier.Volatile Organic Compounds (VOC) and perchlorate have been detected in 2
wells servicing SCWs San Gabriel System. SCW filed suit, along with two other
affected water purveyors and the San Gabriel Basin Water Quality Authority
(WQA), in the federal court against some of those responsible for the
contamination. Some of the other potential defendants settled with SCW, other
water purveyors and46Table of Contentsthe WQA on VOC related issues prior to the filing of the lawsuit. In
response to the filing of the Federal lawsuit, the Potentially Responsible
Party (PRP) defendants filed motions to dismiss the suit or strike certain
portions of the suit. Following a hearing on these motions on March 31, 2003,
the judge issued a ruling on April 1, 2003 granting in part and denying in part
the defendants motions. A key ruling of the court was that the water
purveyors, including the Registrant, by virtue of their ownership of wells
contaminated with hazardous chemicals are themselves PRPs under the
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).
Registrant, pursuant to permission of the court, amended its suit to
claim certain affirmative defenses as an innocent party under CERCLA.
Registrant is presently unable to predict the outcome of this ruling on its
ability to fully recover from the PRPs future costs associated with the
treatment of these wells.Electric Service LitigationSCW has been, in conjunction with the Southern California Edison (Edison)
unit of Edison International, planning to upgrade transmission facilities to
115kv (the 115kv Project) in order to meet increased energy and demand
requirements for SCWs Bear Valley Electric Service area. On December 27, 2000,
SCW filed a lawsuit against Edison for declaratory relief and seeking damages
for breach of contract as a result of delays in the 115kv Project, violations
of good faith and fair dealing, negligent misrepresentation, intentional
misrepresentation and unjust enrichment. Subsequently Edison filed a cross-complaint against SCW for
breach of contract, anticipatory breach, and quantum meruit. SCW has also
sought declaratory relief from Edisons claims. To date, SCW has spent
approximately $1.7 million in this matter, all of which has been expensed. This
matter is expected to go to trial during the second quarter of 2003.Other LitigationRegistrant is also subject to ordinary routine litigation incidental to
its business. Other than as disclosed above, no other legal proceedings are
pending, which are believed to be material.
Item 2. Changes in SecuritiesAs of March 31, 2003, earned surplus amounted to $86,444,000.Neither AWR nor ASUS is subject to any contractual restriction on its
ability to pay dividends. SCWs maximum ability to pay dividends is restricted
by certain Note Agreements to the sum of $21 million plus 100% of consolidated
net income plus the aggregate net cash proceeds received from capital stock
offerings or other instruments convertible into capital stock after 1991.AWRs ability to pay dividends on its Common Shares is dependent upon the
payment of dividends from SCW. The ability of AWR, ASUS and SCW to pay
dividends is also restricted by its retained earnings, respectively, under
California law.CCWC is subject to contractual restrictions on its ability to pay
dividends. CCWCs maximum ability to distribute dividends is limited to
maintenance of no more than 55% debt in the capital structure for the quarter
immediately preceding the distribution. The ability of CCWC to pay dividends is
also restricted by Arizona law. Approximately $3.9 million was available to pay
dividends from CCWC to AWR at March 31, 2003.There are 709,379 and 63,906 Common Shares authorized but unissued under
the DRP and the 401(k) Plan, respectively, at March 31, 2003. Shares reserved
for the 401(k) Plan are in relation to Company matching contributions and for
investment purposes by participants. During the first quarter of 2003, 12,649
common shares were issued pursuant to the terms of the DRP and the 401(k)
Plans.47Table of ContentsUnder Registrants 2000 Stock Incentive Plan, stock options representing a
total of 405,145 Common Shares upon exercise have been granted to certain
eligible employees An additional 1,050 shares are subject to grants of
restricted stock.Registrant implemented a three-for-two split of Registrants common stock
payable on June 7, 2002 to holders of record on May 15, 2002. Fractional shares
were paid in cash. As a result of the stock split, the total number of Common
Shares outstanding increased from approximately 10.1 million to 15.1 million.On April 5, 2002, Registrant redeemed the 4% and 4% series of $25
Preferred Shares at the redemption price $27.00 and $26.50 per share,
respectively, plus accrued and unpaid dividends to the redemption date.
Subsequently on April 19, 2002, the 5% Series was redeemed at $25.25 per share
plus accrued and unpaid dividends to the redemption date.
Item 3. Defaults Upon Senior SecuritiesNone.
Item 4. Submission of Matters to a Vote of Security HoldersNo items were submitted during the first quarter of the fiscal year
covered by this report to a vote of security holders through the solicitation
of proxies or otherwise. However, on or about April 15, 2003, common and
preferred shareholders of AWR were mailed a Notice of Annual Meeting and a
Proxy Statement. Shareholders were requested to vote their shares for the
election of a slate of three Class I directors to serve for a two-year term
expiring at the end of the Annual Meeting of Shareholders in 2005, or until
their successors are elected and qualified. Shareholders were also requested
to: approve amendments to Registrants 2000 Stock Incentive Plan; approve an
increase in authorized New Preferred Shares; approve an increase in the voting
rights of the Common Shares to one vote per share; approve deletion of certain
restrictions on Registrants ability to pay dividends on Common Shares; approve
elimination of all references to stated value in Registrants Articles of
Incorporation; ratify the appointment of PricewaterhouseCoopers, LLP as the
independent auditors; and to transact any other business, which may properly
come before the meeting or any adjournment thereof.The Annual Meeting will be held on May 20, 2003.
Item 5. Other InformationOn May 8, 2003, the Board of Directors of Registrant declared a regular
quarterly dividend of $0.221 per common share. The dividend will be paid June
1, 2003 to shareholders of record as of the close of business on
May 19, 2003.The certifications of Registrants Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, were filed as correspondence
with the Securities and Exchange Commission concurrent with this Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K(a)
    There are no Exhibits during the period covered by this report.(b)
    Registrant filed a Form 8-K with the Securities and Exchange
Commission (SEC) on March 31, 2003 announcing late filing of its
Form 10-K with the SEC for the period ending  December 31, 2002, and
restatements for the years ended December 31, 2001 and 2000 in
connection with a deferred tax study. Registrant filed its Form
10-K with the SEC on  April 8, 2003.48Table of Contents
SIGNATUREPursuant to the requirements of Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized and as its principal financial officer.

|                    |                                   |                                               
|------------------- | --------------------------------- | ----------------------------------------------
|                    | AMERICAN STATES WATER COMPANY    
|                    | and its subsidiary               
|                    | SOUTHERN CALIFORNIA WATER COMPANY
|                    |                                   |                                               
|                    | By:                               | /s/ McClellan Harris III                      
|                    |                                   |                                               
|                    |                                   | McClellan Harris III                          
|                    |                                   | Senior Vice President-Finance, Chief Financial
|                    |                                   | Officer, Treasurer and Corporate Secretary    
|                    |                                   |                                               
|Dated: May 15, 2003 |                                   |                                               

49



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##### Table of Contents






CERTIFICATIONS

I, Floyd E. Wicks, Chief Executive Officer of the Registrant, certify that:



|1) |  | I have reviewed this quarterly report on Form 10-Q for the period
ended March 31, 2003 (this quarterly report);                                                                                                                                                                                                             
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2) |  | Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
|  
|3) |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the Registrant as of, and for, the periods presented
in this quarterly report;                   
|  
|4) |  | The Registrants other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Section 240.13a-14of the General Rules and Regulations
promulgated under the Securities Exchange Act of 1934) for the
Registrant and we have:                             



| | a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the Registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5) |  | The Registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the Registrants auditors and
the audit committee of Registrants board of directors (or persons
performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrants
ability to record, process, summarize and report financial data and
have identified for the Registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the Registrants
internal controls; and                                                                                                                                        



|6) |  | The Registrants other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    |  |     |  |                        
|------------------- |  | --- |  | -----------------------
|Dated: May 15, 2003 |  | By: |  | /s/ FLOYD E. WICKS     
|                    |  |     |  |                        
|                    |  |     |  | Floyd E. Wicks         
|                    |  |     |  | Chief Executive Officer

50



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##### Table of Contents



CERTIFICATIONS

I, McClellan Harris III, Chief Financial Officer of the Registrant, certify
that:



|1) |  | I have reviewed this quarterly report on Form 10-Q for the period
ended March 31, 2003 (this quarterly report);                                                                                                                                                                                                             
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2) |  | Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
|  
|3) |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the Registrant as of, and for, the periods presented
in this quarterly report;                   
|  
|4) |  | The Registrants other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Section 240.13a-14of the General Rules and Regulations
promulgated under the Securities Exchange Act of 1934) for the
Registrant and we have:                             



| | a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the Registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5) |  | The Registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the Registrants auditors and
the audit committee of Registrants board of directors (or persons
performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrants
ability to record, process, summarize and report financial data and
have identified for the Registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the Registrants
internal controls; and                                                                                                                                        



|6) |  | The Registrants other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    |  |     |  |                                                
|------------------- |  | --- |  | -----------------------------------------------
|Dated: May 15, 2003 |  | By: |  | /s/ McCLELLAN HARRIS III                       
|                    |  |     |  |                                                
|                    |  |     |  | McClellan Harris III                           
|                    |  |     |  | Chief
Financial Officer, Senior Vice President-
|                    |  |     |  | Finance, and Corporate Secretary               

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