##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2002

|           |  |                                                                                                                                        |  |                   
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------
|Commission |  | Registrant and State of Incorporation                                                                                                  |  | IRS Employer      
|File No.   |  | Address and Telephone Number                                                                                                           |  | Identification No.
|           |  |                                                                                                                                        |  |                   
|333-47647  |  | American States Water Company
(A California Corporation)
630 East Foothill Boulevard
San Dimas, California 91773-9016
909-394-3600     |  | 95-4676679        
|          
|000-01121  |  | Southern California Water Company
(A California Corporation)
630 East Foothill Boulevard
San Dimas, California 91773-9016
909-394-3600 |  | 95-1243678        

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

|                                  |  |       |  |     
|--------------------------------- |  | ----- |  | ----
|American States Water Company     |  | Yes x |  | No o
|Southern California Water Company |  | Yes x |  | No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of May 8, 2002, the number of Common Shares outstanding, No Par Value with
Stated Value of $2.50, of American States Water Company was 10,085,991 all of
which are listed on the New York Stock Exchange.

As of May 8, 2002, all of the 110 outstanding Common Shares of Southern
California Water Company are owned by American States Water Company.





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TABLE OF CONTENTS



|              |                                                                                              |                                                                     |  |  |  |  |  | 
|------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- |  |  |  |  |  | 
|PART I       
|              | Item 1. Financial Statements                                                                
|              |                                                                                              | AMERICAN STATES WATER COMPANY CONSOLIDATED BALANCE SHEETS          
|              |                                                                                              | AMERICAN STATES WATER COMPANY CONSOLIDATED STATEMENTS OF INCOME    
|              |                                                                                              | AMERICAN STATES WATER COMPANY CONSOLIDATED CASH FLOW STATEMENTS    
|              |                                                                                              | SOUTHERN CALIFORNIA WATER COMPANY CONSOLIDATED BALANCE SHEETS      
|              |                                                                                              | SOUTHERN CALIFORNIA WATER COMPANY CONSOLIDATED STATEMENTS OF INCOME
|              |                                                                                              | SOUTHERN CALIFORNIA WATER COMPANY CONSOLIDATED CASH FLOW STATEMENTS
|              |                                                                                              | 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                          
|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                                                    
|SIGNATURES   
|EXHIBIT 10.17
|EXHIBIT 10.26
|EXHIBIT 99   



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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, 2002 and December 31, 2001                                |  | 2-3     
|       
|        |  | Consolidated Statements of Income of American States Water Company
for the Three Months Ended March 31, 2002 and March 31, 2001        |  | 4       
|       
|        |  | Consolidated Statements of Income of American States Water Company for the
Twelve Months Ended March 31, 2002 and March 31, 2001       |  | 5       
|       
|        |  | Consolidated Statements of Cash Flow of American States Water Company for
the Three Months Ended March 31, 2002 and March 31, 2001     |  | 6       
|       
|        |  | Consolidated Balance Sheets of Southern California Water Company as of
March 31, 2002 and December 31, 2001                            |  | 7-8     
|       
|        |  | Consolidated Statements of Income of Southern California Water Company for the
Three Months Ended March 31, 2002 and March 31, 2001    |  | 9       
|       
|        |  | Consolidated Statements of Income of Southern California Water Company for the
Twelve Months Ended March 31, 2002 and March 31, 2001   |  | 10      
|       
|        |  | Consolidated Statements of Cash Flow of Southern California Water Company
for the Three Months Ended March 31, 2002 and March 31, 2001 |  | 11      
|       
|        |  | Notes to Financial Statements                                                                                                          |  | 12-15   
|       
|Item 2: |  | Managements Discussion and Analysis of Financial Condition and Results of Operation                                                   |  | 16-39   
|       
|Item 3: |  | Quantitative and Qualitative Disclosures About Market Risks                                                                            |  | 39      
|       
|Part II |  | Other Information                                                                                                                      |  |         
|       
|Item 1: |  | Legal Proceedings                                                                                                                      |  | 39-42   
|       
|Item 2: |  | Changes in Securities                                                                                                                  |  | 42      
|       
|Item 3: |  | Defaults Upon Senior Securities                                                                                                        |  | 42      
|       
|Item 4: |  | Submission of Matters to a Vote of Security Holders                                                                                    |  | 42-43   
|       
|Item 5: |  | Other Information                                                                                                                      |  | 43      
|       
|Item 6: |  | Exhibits and Reports on Form 8-K 43                                                                                                    |  |         

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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.

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.

1Table of Contents
AMERICAN STATES WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)

|                               |                                         |                                                           |              |          |                |         |              |          |        |         | 
|------------------------------ | --------------------------------------- | --------------------------------------------------------- | ------------ | -------- | -------------- | ------- | ------------ | -------- | ------ | ------- | 
|                               |                                         |                                                           |              |          | March 31,      |         | December 31,
|                               |                                         |                                                           |              |          | 2002           |         | 2001        
|                               |                                         |                                                           |              |          |                |         |             
|                               |                                         |                                                           |              |          | (in thousands)
|UTILITY PLANT, at cost         |                                         |                                                           |              |          |                |         |              |         
|                               | Water                                   |                                                           | $            | 649,239  |                |         | $            | 645,185  |       
|                               | Electric                                |                                                           |              | 38,525   |                |         |              | 38,525   |       
|                               |                                         |                                                           |              |          |                |         |              |         
|                               |                                         |                                                           | 687,764      |          |                |         | 683,710      |         
|                               | Less  Accumulated depreciation         |                                                           |              | (195,580 | )              |         |              | (190,656 | )     
|                               |                                         |                                                           |              |          |                |         |              |         
|                               |                                         |                                                           | 492,184      |          |                |         | 493,054      |         
|                               | Construction work in progress           |                                                           |              | 51,000   |                |         |              | 46,788   |       
|                               |                                         |                                                           |              |          |                |         |              |         
|                               |                                         |                                                           | 543,184      |          |                |         | 539,842      |         
|                               |                                         |                                                           |              |          |                |         |              |         
|OTHER PROPERTY AND INVESTMENTS |                                         |                                                           | 24,284       |          |                |         | 24,104       |         
|                               |                                         |                                                           |              |          |                |         |              |         
|CURRENT ASSETS                 |                                         |                                                           |              |          |                |         |              |         
|                               | Cash and cash equivalents               |                                                           |              | 12,452   |                |         |              | 30,496   |       
|                               | Accounts receivable -                   |                                                           |              |          |                |         |              |          |       
|                               |                                         | Customers, less reserves of $864 in 2002 and $972 in 2001 |              |          | 9,672          |         |              |          | 10,557 |        
|                               |                                         | Other                                                     |              |          | 5,231          |         |              |          | 5,306  |        
|                               | Unbilled revenue                        |                                                           |              | 11,345   |                |         |              | 12,141   |       
|                               | Materials and supplies, at average cost |                                                           |              | 1,060    |                |         |              | 970      |       
|                               | Supply cost balancing accounts          |                                                           |              | 28,152   |                |         |              | 25,826   |       
|                               | Prepayments and other                   |                                                           |              | 2,128    |                |         |              | 2,493    |       
|                               | Accumulated deferred income taxes  net |                                                           |              |         |                |         |              |         |       
|                               |                                         |                                                           |              |          |                |         |              |         
|                               |                                         |                                                           | 70,040       |          |                |         | 87,789       |         
|                               |                                         |                                                           |              |          |                |         |              |         
|DEFERRED CHARGES               |                                         |                                                           |              |          |                |         |              |         
|                               | Regulatory tax-related assets           |                                                           |              | 15,330   |                |         |              | 15,843   |       
|                               | Other deferred charges                  |                                                           |              | 17,280   |                |         |              | 16,186   |       
|                               |                                         |                                                           |              |          |                |         |              |         
|                               |                                         |                                                           | 32,610       |          |                |         | 32,029       |         
|                               |                                         |                                                           |              |          |                |         |              |         
|                               |                                         |                                                           | TOTAL ASSETS |          | $              | 670,118 |              |          | $      | 683,764 | 
|                               |                                         |                                                           |              |          |                |         |              |         

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

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AMERICAN STATES WATER COMPANY
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
(Unaudited)

|                    |                                                               |                                      |         |                |         |              |         |         |         | 
|------------------- | ------------------------------------------------------------- | ------------------------------------ | ------- | -------------- | ------- | ------------ | ------- | ------- | ------- | 
|                    |                                                               |                                      |         | March 31,      |         | December 31,
|                    |                                                               |                                      |         | 2002           |         | 2001        
|                    |                                                               |                                      |         |                |         |             
|                    |                                                               |                                      |         | (in thousands)
|CAPITALIZATION      |                                                               |                                      |         |                |         |              |         |        
|                    | Common shareholders equity                                   |                                      | $       | 200,551        |         |              | $       | 199,982 |        
|                    | Preferred shares                                              |                                      |         | 1,600          |         |              |         | 1,600   |        
|                    | Preferred shares subject to mandatory
redemption requirements |                                      |         | 280            |         |              |         | 280     |        
|                    | Long-term debt                                                |                                      |         | 245,505        |         |              |         | 245,692 |        
|                    |                                                               |                                      |         |                |         |              |         |        
|                    |                                                               |                                      | 447,936 |                |         |              | 447,554 |        
|                    |                                                               |                                      |         |                |         |              |         |        
|CURRENT LIABILITIES |                                                               |                                      |         |                |         |              |         |        
|                    | Notes payable to banks                                        |                                      |         |               |         |              |         | 20,000  |        
|                    | Long-term debt and preferred shares
due within one year       |                                      |         | 800            |         |              |         | 800     |        
|                    | Accounts payable                                              |                                      |         | 14,514         |         |              |         | 13,931  |        
|                    | Taxes payable                                                 |                                      |         | 4,339          |         |              |         | 5,389   |        
|                    | Accrued interest                                              |                                      |         | 5,101          |         |              |         | 1,945   |        
|                    | Other accrued liabilities                                     |                                      |         | 21,600         |         |              |         | 21,571  |        
|                    |                                                               |                                      |         |                |         |              |         |        
|                    |                                                               |                                      | 46,354  |                |         |              | 63,636  |        
|                    |                                                               |                                      |         |                |         |              |         |        
|OTHER CREDITS       |                                                               |                                      |         |                |         |              |         |        
|                    | Advances for construction                                     |                                      |         | 70,161         |         |              |         | 69,436  |        
|                    | Contributions in aid of construction                          |                                      |         | 44,000         |         |              |         | 43,723  |        
|                    | Accumulated deferred income taxes  net                       |                                      |         | 55,699         |         |              |         | 53,444  |        
|                    | Unamortized investment tax credits                            |                                      |         | 2,860          |         |              |         | 2,882   |        
|                    | Regulatory tax-related liability                              |                                      |         | 1,761          |         |              |         | 1,773   |        
|                    | Other                                                         |                                      |         | 1,347          |         |              |         | 1,316   |        
|                    |                                                               |                                      |         |                |         |              |         |        
|                    |                                                               |                                      | 175,828 |                |         |              | 172,574 |        
|                    |                                                               |                                      |         |                |         |              |         |        
|                    |                                                               | TOTAL CAPITALIZATION AND LIABILITIES |         | $              | 670,118 |              |         | $       | 683,764 | 
|                    |                                                               |                                      |         |                |         |              |         |        

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

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AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED MARCH 31, 2002 AND 2001
(Unaudited)

|                                              |                                     |   |                       |        |      |   |        |        |  
|--------------------------------------------- | ----------------------------------- | - | --------------------- | ------ | ---- | - | ------ | ------ | -
|                                              |                                     |   | Three Months Ended   
|                                              |                                     |   | March 31,            
|                                              |                                     |   |                      
|                                              |                                     |   | 2002                  |        | 2001
|                                              |                                     |   |                       |        |     
|                                              |                                     |   | (in thousands, except
|                                              |                                     |   | per share amounts)   
|OPERATING REVENUES                            |                                     |   |                       |        |      |   |        |       
|                                              | Water                               |   | $                     | 39,091 |      |   | $      | 36,145 |  
|                                              | Electric                            |   |                       | 5,206  |      |   |        | 3,957  |  
|                                              | Other                               |   |                       | 188    |      |   |        | 189    |  
|                                              |                                     |   |                       |        |      |   |        |       
|                                              |                                     |   | 44,485                |        |      |   | 40,291 |       
|                                              |                                     |   |                       |        |      |   |        |       
|OPERATING EXPENSES                            |                                     |   |                       |        |      |   |        |       
|                                              | Water purchased                     |   |                       | 7,572  |      |   |        | 6,492  |  
|                                              | Power purchased for pumping         |   |                       | 1,975  |      |   |        | 1,530  |  
|                                              | Power purchased for resale          |   |                       | 4,816  |      |   |        | 7,733  |  
|                                              | Groundwater production assessment   |   |                       | 1,795  |      |   |        | 1,473  |  
|                                              | Supply cost balancing accounts      |   |                       | (2,326 | )    |   |        | (6,267 | )
|                                              | Other operating expenses            |   |                       | 3,776  |      |   |        | 4,128  |  
|                                              | Administrative and general expenses |   |                       | 7,564  |      |   |        | 6,580  |  
|                                              | Depreciation                        |   |                       | 4,568  |      |   |        | 4,484  |  
|                                              | Maintenance                         |   |                       | 1,892  |      |   |        | 2,213  |  
|                                              | Taxes on income                     |   |                       | 3,013  |      |   |        | 2,713  |  
|                                              | Other taxes                         |   |                       | 1,922  |      |   |        | 1,989  |  
|                                              |                                     |   |                       |        |      |   |        |       
|                                              |                                     |   | 36,567                |        |      |   | 33,068 |       
|                                              |                                     |   |                       |        |      |   |        |       
|                                              | Operating income                    |   |                       | 7,918  |      |   |        | 7,223  |  
|OTHER INCOME/(LOSS)                           |                                     |   | 256                   |        |      |   | (186   | )     
|                                              |                                     |   |                       |        |      |   |        |       
|                                              | Income before interest charges      |   |                       | 8,174  |      |   |        | 7,037  |  
|INTEREST CHARGES                              |                                     |   | 4,367                 |        |      |   | 3,920  |       
|                                              |                                     |   |                       |        |      |   |        |       
|NET INCOME                                    |                                     |   | 3,807                 |        |      |   | 3,117  |       
|DIVIDENDS ON PREFERRED SHARES                 |                                     |   | (21                   | )      |      |   | (21    | )     
|                                              |                                     |   |                       |        |      |   |        |       
|EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS    |                                     | $ | 3,786                 |        |      | $ | 3,096  |       
|                                              |                                     |   |                       |        |      |   |        |       
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |                                     |   | 10,080                |        |      |   | 10,080 |       
|Basic Earnings Per Common Share               |                                     | $ | 0.38                  |        |      | $ | 0.31   |       
|WEIGHTED AVERAGE NUMBER OF DILUTED SHARES     |                                     |   | 10,171                |        |      |   | 10,171 |       
|Fully Diluted Earnings Per Share              |                                     | $ | 0.37                  |        |      | $ | 0.30   |       
|Dividends Declared Per Common Share           |                                     | $ | 0.325                 |        |      | $ | 0.325  |       

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

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AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWELVE MONTHS
ENDED MARCH 31, 2002 AND 2001
(Unaudited)

|                                              |                                     |   |                       |         |      |   |         |         |  
|--------------------------------------------- | ----------------------------------- | - | --------------------- | ------- | ---- | - | ------- | ------- | -
|                                              |                                     |   | Twelve Months Ended  
|                                              |                                     |   | March 31,            
|                                              |                                     |   |                      
|                                              |                                     |   | 2002                  |         | 2001
|                                              |                                     |   |                       |         |     
|                                              |                                     |   | (in thousands, except
|                                              |                                     |   | per share amounts)   
|OPERATING REVENUES                            |                                     |   |                       |         |      |   |         |        
|                                              | Water                               |   | $                     | 184,420 |      |   | $       | 170,353 |  
|                                              | Electric                            |   |                       | 16,500  |      |   |         | 14,312  |  
|                                              | Other                               |   |                       | 789     |      |   |         | 837     |  
|                                              |                                     |   |                       |         |      |   |         |        
|                                              |                                     |   | 201,709               |         |      |   | 185,502 |        
|                                              |                                     |   |                       |         |      |   |         |        
|OPERATING EXPENSES                            |                                     |   |                       |         |      |   |         |        
|                                              | Water purchased                     |   |                       | 38,689  |      |   |         | 40,529  |  
|                                              | Power purchased for pumping         |   |                       | 10,037  |      |   |         | 7,579   |  
|                                              | Power purchased for resale          |   |                       | 16,745  |      |   |         | 16,422  |  
|                                              | Groundwater production assessment   |   |                       | 7,169   |      |   |         | 6,710   |  
|                                              | Supply cost balancing accounts      |   |                       | (10,740 | )    |   |         | (11,572 | )
|                                              | Other operating expenses            |   |                       | 16,810  |      |   |         | 16,986  |  
|                                              | Administrative and general expenses |   |                       | 36,093  |      |   |         | 26,805  |  
|                                              | Depreciation                        |   |                       | 18,036  |      |   |         | 16,021  |  
|                                              | Maintenance                         |   |                       | 8,319   |      |   |         | 9,937   |  
|                                              | Taxes on income                     |   |                       | 15,679  |      |   |         | 15,428  |  
|                                              | Other taxes                         |   |                       | 7,485   |      |   |         | 7,330   |  
|                                              |                                     |   |                       |         |      |   |         |        
|                                              |                                     |   | 164,322               |         |      |   | 152,175 |        
|                                              |                                     |   |                       |         |      |   |         |        
|                                              | Operating income                    |   |                       | 37,387  |      |   |         | 33,327  |  
|OTHER INCOME/(LOSS)                           |                                     |   | (69                   | )       |      |   | (298    | )      
|                                              |                                     |   |                       |         |      |   |         |        
|                                              | Income before interest charges      |   |                       | 37,318  |      |   |         | 33,029  |  
|INTEREST CHARGES                              |                                     |   | 16,182                |         |      |   | 14,721  |        
|                                              |                                     |   |                       |         |      |   |         |        
|NET INCOME                                    |                                     |   | 21,136                |         |      |   | 18,308  |        
|DIVIDENDS ON PREFERRED SHARES                 |                                     |   | (83                   | )       |      |   | (85     | )      
|                                              |                                     |   |                       |         |      |   |         |        
|EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS    |                                     | $ | 21,053                |         |      | $ | 18,223  |        
|                                              |                                     |   |                       |         |      |   |         |        
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |                                     |   | 10,080                |         |      |   | 9,658   |        
|Basic Earnings Per Common Share               |                                     | $ | 2.09                  |         |      | $ | 1.89    |        
|WEIGHTED AVERAGE NUMBER OF DILUTED SHARES     |                                     |   | 10,171                |         |      |   | 9,711   |        
|Fully Diluted Earnings Per Share              |                                     | $ | 2.07                  |         |      | $ | 1.88    |        
|Dividends Declared Per Common Share           |                                     | $ | 1.30                  |         |      | $ | 1.29    |        

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

5



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AMERICAN STATES WATER COMPANY
CONSOLIDATED CASH FLOW STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(Unaudited)

|                                                     |                       |                                    |                                                                     |                   |        |                    |         |      |         |         |         |  
|---------------------------------------------------- | --------------------- | ---------------------------------- | ------------------------------------------------------------------- | ----------------- | ------ | ------------------ | ------- | ---- | ------- | ------- | ------- | -
|                                                     |                       |                                    |                                                                     |                   |        | Three Months Ended
|                                                     |                       |                                    |                                                                     |                   |        | March 31,         
|                                                     |                       |                                    |                                                                     |                   |        |                   
|                                                     |                       |                                    |                                                                     |                   |        | 2002               |         | 2001
|                                                     |                       |                                    |                                                                     |                   |        |                    |         |     
|                                                     |                       |                                    |                                                                     |                   |        | (in thousands)    
|CASH FLOWS FROM -                                    |                       |                                    |                                                                     |                   |        |                    |         |     
|                                                     | Operating Activities: |                                    |                                                                     |                   |        |                    |         |      |        
|                                                     |                       | Net income                         |                                                                     | $                 | 3,807  |                    |         | $    | 3,117   |        
|                                                     |                       | Adjustments for non-cash items:    |                                                                     |                   |        |                    |         |      |         |        
|                                                     |                       |                                    | Depreciation and amortization                                       |                   |        | 4,568              |         |      |         | 4,484   |        
|                                                     |                       |                                    | Deferred income taxes and investment tax credits                    |                   |        | 2,286              |         |      |         | 3,730   |        
|                                                     |                       |                                    | Other  net                                                         |                   |        | (70                | )       |      |         | (776    | )      
|                                                     |                       | Changes in assets and liabilities: |                                                                     |                   |        |                    |         |      |         |        
|                                                     |                       |                                    | Accounts receivable                                                 |                   |        | 885                |         |      |         | 2,440   |        
|                                                     |                       |                                    | Prepayments                                                         |                   |        | 365                |         |      |         | 349     |        
|                                                     |                       |                                    | Supply cost balancing accounts                                      |                   |        | (2,326             | )       |      |         | (6,267  | )      
|                                                     |                       |                                    | Accounts payable                                                    |                   |        | 583                |         |      |         | (1,169  | )      
|                                                     |                       |                                    | Taxes payable                                                       |                   |        | (1,050             | )       |      |         | (2,374  | )      
|                                                     |                       |                                    | Unbilled revenue                                                    |                   |        | 796                |         |      |         | 1,565   |        
|                                                     |                       |                                    | Other                                                               |                   |        | 3,211              |         |      |         | 1,530   |        
|                                                     |                       |                                    |                                                                     |                   |        |                    |         |     
|                                                     |                       |                                    |                                                                     | Net Cash Provided |        |                    | 13,055  |      |         |         | 6,629   |  
|                                                     |                       |                                    |                                                                     |                   |        |                    |         |     
|Investing Activities:                                |                       |                                    |                                                                     |                   |        |                    |         |     
|                                                     |                       | Construction expenditures          |                                                                     |                   | (8,159 | )                  |         |      | (11,236 | )      
|                                                     |                       |                                    |                                                                     |                   |        |                    |         |     
|                                                     |                       |                                    |                                                                     | Net Cash Used     |        |                    | (8,159  | )    |         |         | (11,236 | )
|                                                     |                       |                                    |                                                                     |                   |        |                    |         |     
|                                                     | Financing Activities: |                                    |                                                                     |                   |        |                    |         |      |        
|                                                     |                       |                                    | Issuance of securities                                              |                   |        | 58                 |         |      |         | 20,000  |        
|                                                     |                       |                                    | Receipt of advances and contributions                               |                   |        | 974                |         |      |         | 368     |        
|                                                     |                       |                                    | Repayments of long-term debt, net of
redemption of preferred shares |                   |        | (227               | )       |      |         | (158    | )      
|                                                     |                       |                                    | Refunds on advances for construction                                |                   |        | (449               | )       |      |         | (442    | )      
|                                                     |                       |                                    | Changes in notes payable to banks                                   |                   |        | (20,000            | )       |      |         | (10,000 | )      
|                                                     |                       |                                    | Common and preferred dividends paid                                 |                   |        | (3,296             | )       |      |         | (3,296  | )      
|                                                     |                       |                                    |                                                                     |                   |        |                    |         |     
|                                                     |                       |                                    |                                                                     | Net Cash Provided |        |                    | (22,940 | )    |         |         | 6,472   |  
|                                                     |                       |                                    |                                                                     |                   |        |                    |         |     
|Net Increase (Decrease) in Cash and Cash Equivalents |                       |                                    | (18,044                                                             | )                 |        |                    | 1,865   |     
|Cash and Cash Equivalents, Beginning of period       |                       |                                    | 30,496                                                              |                   |        |                    | 5,808   |     
|                                                     |                       |                                    |                                                                     |                   |        |                    |         |     
|Cash and Cash Equivalents, End of period             |                       | $                                  | 12,452                                                              |                   |        | $                  | 7,673   |     
|                                                     |                       |                                    |                                                                     |                   |        |                    |         |     

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

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SOUTHERN CALIFORNIA WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)

|                               |                                         |                                                            |              |          |                |         |              |          |        |         | 
|------------------------------ | --------------------------------------- | ---------------------------------------------------------- | ------------ | -------- | -------------- | ------- | ------------ | -------- | ------ | ------- | 
|                               |                                         |                                                            |              |          | March 31,      |         | December 31,
|                               |                                         |                                                            |              |          | 2002           |         | 2001        
|                               |                                         |                                                            |              |          |                |         |             
|                               |                                         |                                                            |              |          | (in thousands)
|UTILITY PLANT, at cost         |                                         |                                                            |              |          |                |         |              |         
|                               | Water                                   |                                                            | $            | 612,042  |                |         | $            | 607,988  |       
|                               | Electric                                |                                                            |              | 38,525   |                |         |              | 38,525   |       
|                               |                                         |                                                            |              |          |                |         |              |         
|                               |                                         |                                                            | 650,567      |          |                |         | 646,513      |         
|                               | Less  Accumulated depreciation         |                                                            |              | (186,065 | )              |         |              | (181,371 | )     
|                               |                                         |                                                            |              |          |                |         |              |         
|                               |                                         |                                                            | 464,502      |          |                |         | 465,142      |         
|                               | Construction work in progress           |                                                            |              | 50,124   |                |         |              | 46,042   |       
|                               |                                         |                                                            |              |          |                |         |              |         
|                               |                                         |                                                            | 514,626      |          |                |         | 511,184      |         
|                               |                                         |                                                            |              |          |                |         |              |         
|OTHER PROPERTY AND INVESTMENTS |                                         |                                                            | 9,635        |          |                |         | 9,446        |         
|                               |                                         |                                                            |              |          |                |         |              |         
|CURRENT ASSETS                 |                                         |                                                            |              |          |                |         |              |         
|                               | Cash and cash equivalents               |                                                            |              | 7,579    |                |         |              | 26,079   |       
|                               | Accounts receivable -                   |                                                            |              |          |                |         |              |          |       
|                               |                                         | Customers, less reserves of $836 in 2002, and $951 in 2001 |              |          | 9,132          |         |              |          | 10,228 |        
|                               |                                         | Other                                                      |              |          | 5,092          |         |              |          | 5,202  |        
|                               | Intercompany receivable                 |                                                            |              | 19,661   |                |         |              |         |       
|                               | Unbilled revenue                        |                                                            |              | 11,139   |                |         |              | 11,940   |       
|                               | Materials and supplies, at average cost |                                                            |              | 973      |                |         |              | 883      |       
|                               | Supply cost balancing accounts          |                                                            |              | 28,152   |                |         |              | 25,826   |       
|                               | Prepayments and other                   |                                                            |              | 1,991    |                |         |              | 2,310    |       
|                               | Accumulated deferred income taxes  net |                                                            |              |         |                |         |              |         |       
|                               |                                         |                                                            |              |          |                |         |              |         
|                               |                                         |                                                            | 83,719       |          |                |         | 82,468       |         
|                               |                                         |                                                            |              |          |                |         |              |         
|DEFERRED CHARGES               |                                         |                                                            |              |          |                |         |              |         
|                               | Regulatory tax-related assets           |                                                            |              | 15,330   |                |         |              | 15,843   |       
|                               | Other deferred charges                  |                                                            |              | 16,539   |                |         |              | 15,433   |       
|                               |                                         |                                                            |              |          |                |         |              |         
|                               |                                         |                                                            | 31,869       |          |                |         | 31,276       |         
|                               |                                         |                                                            |              |          |                |         |              |         
|                               |                                         |                                                            | TOTAL ASSETS |          | $              | 639,849 |              |          | $      | 634,374 | 
|                               |                                         |                                                            |              |          |                |         |              |         

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

7



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##### Table of Contents



SOUTHERN CALIFORNIA WATER COMPANY
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
(Unaudited)

|                    |                                                         |                                      |         |                |         |              |         |         |         | 
|------------------- | ------------------------------------------------------- | ------------------------------------ | ------- | -------------- | ------- | ------------ | ------- | ------- | ------- | 
|                    |                                                         |                                      |         | March 31,      |         | December 31,
|                    |                                                         |                                      |         | 2002           |         | 2001        
|                    |                                                         |                                      |         |                |         |             
|                    |                                                         |                                      |         | (in thousands)
|CAPITALIZATION      |                                                         |                                      |         |                |         |              |         |        
|                    | Common shareholders equity                             |                                      | $       | 196,821        |         |              | $       | 196,107 |        
|                    | Long-term debt                                          |                                      |         | 236,751        |         |              |         | 236,804 |        
|                    |                                                         |                                      |         |                |         |              |         |        
|                    |                                                         |                                      | 433,572 |                |         |              | 432,911 |        
|                    |                                                         |                                      |         |                |         |              |         |        
|CURRENT LIABILITIES |                                                         |                                      |         |                |         |              |         |        
|                    | Notes payable to banks                                  |                                      |         |               |         |              |         |        |        
|                    | Long-term debt and preferred shares due within one year |                                      |         | 300            |         |              |         | 300     |        
|                    | Accounts payable                                        |                                      |         | 13,132         |         |              |         | 13,548  |        
|                    | Intercompany payable                                    |                                      |         |               |         |              |         | 26      |        
|                    | Taxes payable                                           |                                      |         | 4,714          |         |              |         | 5,599   |        
|                    | Accrued interest                                        |                                      |         | 4,942          |         |              |         | 1,877   |        
|                    | Other accrued liabilities                               |                                      |         | 21,321         |         |              |         | 21,320  |        
|                    |                                                         |                                      |         |                |         |              |         |        
|                    |                                                         |                                      | 44,409  |                |         |              | 42,670  |        
|                    |                                                         |                                      |         |                |         |              |         |        
|OTHER CREDITS       |                                                         |                                      |         |                |         |              |         |        
|                    | Advances for construction                               |                                      |         | 59,295         |         |              |         | 58,570  |        
|                    | Contributions in aid of construction                    |                                      |         | 43,765         |         |              |         | 43,493  |        
|                    | Accumulated deferred income taxes  net                 |                                      |         | 54,187         |         |              |         | 52,075  |        
|                    | Unamortized investment tax credits                      |                                      |         | 2,860          |         |              |         | 2,882   |        
|                    | Regulatory tax-related liability                        |                                      |         | 1,761          |         |              |         | 1,773   |        
|                    | Other                                                   |                                      |         |               |         |              |         |        |        
|                    |                                                         |                                      |         |                |         |              |         |        
|                    |                                                         |                                      | 161,868 |                |         |              | 158,793 |        
|                    |                                                         |                                      |         |                |         |              |         |        
|                    |                                                         | TOTAL CAPITALIZATION AND LIABILITIES |         | $              | 639,849 |              |         | $       | 634,374 | 
|                    |                                                         |                                      |         |                |         |              |         |        

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

8



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SOUTHERN CALIFORNIA WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED MARCH 31, 2002 AND 2001
(Unaudited)

|                                              |                                     |   |                         |        |      |   |        |        |  
|--------------------------------------------- | ----------------------------------- | - | ----------------------- | ------ | ---- | - | ------ | ------ | -
|                                              |                                     |   | Three Months Ended     
|                                              |                                     |   | March 31,              
|                                              |                                     |   |                        
|                                              |                                     |   | 2002                    |        | 2001
|                                              |                                     |   |                         |        |     
|                                              |                                     |   | ($ in thousands, except
|                                              |                                     |   | per share amounts)     
|OPERATING REVENUES                            |                                     |   |                         |        |      |   |        |       
|                                              | Water                               |   | $                       | 37,734 |      |   | $      | 34,805 |  
|                                              | Electric                            |   |                         | 5,206  |      |   |        | 3,957  |  
|                                              |                                     |   |                         |        |      |   |        |       
|                                              |                                     |   | 42,940                  |        |      |   | 38,762 |       
|                                              |                                     |   |                         |        |      |   |        |       
|OPERATING EXPENSES                            |                                     |   |                         |        |      |   |        |       
|                                              | Water purchased                     |   |                         | 7,415  |      |   |        | 6,348  |  
|                                              | Power purchased for pumping         |   |                         | 1,904  |      |   |        | 1,473  |  
|                                              | Power purchased for resale          |   |                         | 4,816  |      |   |        | 7,733  |  
|                                              | Groundwater production assessment   |   |                         | 1,795  |      |   |        | 1,473  |  
|                                              | Supply cost balancing accounts      |   |                         | (2,326 | )    |   |        | (6,267 | )
|                                              | Other operating expenses            |   |                         | 3,542  |      |   |        | 3,898  |  
|                                              | Administrative and general expenses |   |                         | 6,828  |      |   |        | 6,314  |  
|                                              | Depreciation                        |   |                         | 4,341  |      |   |        | 4,173  |  
|                                              | Maintenance                         |   |                         | 1,822  |      |   |        | 2,147  |  
|                                              | Taxes on income                     |   |                         | 3,150  |      |   |        | 2,592  |  
|                                              | Other taxes                         |   |                         | 1,802  |      |   |        | 1,897  |  
|                                              |                                     |   |                         |        |      |   |        |       
|                                              |                                     |   | 35,089                  |        |      |   | 31,781 |       
|                                              |                                     |   |                         |        |      |   |        |       
|                                              | Operating income                    |   |                         | 7,851  |      |   |        | 6,981  |  
|OTHER INCOME/(LOSS)                           |                                     |   | 263                     |        |      |   | (209   | )     
|                                              |                                     |   |                         |        |      |   |        |       
|                                              | Income before interest charges      |   |                         | 8,114  |      |   |        | 6,772  |  
|INTEREST CHARGES                              |                                     |   | 4,100                   |        |      |   | 3,844  |       
|                                              |                                     |   |                         |        |      |   |        |       
|NET INCOME                                    |                                     |   | 4,014                   |        |      |   | 2,928  |       
|DIVIDENDS ON PREFERRED SHARES                 |                                     |   |                        |        |      |   |       |       
|                                              |                                     |   |                         |        |      |   |        |       
|EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS    |                                     | $ | 4,014                   |        |      | $ | 2,928  |       
|                                              |                                     |   |                         |        |      |   |        |       
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |                                     |   | 110                     |        |      |   | 100    |       
|Basic Earnings Per Common Share               |                                     | $ | 36,491                  |        |      | $ | 29,280 |       
|Dividends Declared Per Common Share           |                                     | $ | 30,000                  |        |      | $ | 33,000 |       

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

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SOUTHERN CALIFORNIA WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWELVE MONTHS
ENDED MARCH 31, 2002 AND 2001
(Unaudited)

|                                              |                                     |   |                         |         |      |   |         |         |  
|--------------------------------------------- | ----------------------------------- | - | ----------------------- | ------- | ---- | - | ------- | ------- | -
|                                              |                                     |   | Twelve Months Ended    
|                                              |                                     |   | March 31,              
|                                              |                                     |   |                        
|                                              |                                     |   | 2002                    |         | 2001
|                                              |                                     |   |                         |         |     
|                                              |                                     |   | ($ in thousands, except
|                                              |                                     |   | per share amounts)     
|OPERATING REVENUES                            |                                     |   |                         |         |      |   |         |        
|                                              | Water                               |   | $                       | 178,133 |      |   | $       | 167,747 |  
|                                              | Electric                            |   |                         | 16,500  |      |   |         | 14,312  |  
|                                              |                                     |   |                         |         |      |   |         |        
|                                              |                                     |   | 194,633                 |         |      |   | 182,059 |        
|                                              |                                     |   |                         |         |      |   |         |        
|OPERATING EXPENSES                            |                                     |   |                         |         |      |   |         |        
|                                              | Water purchased                     |   |                         | 38,179  |      |   |         | 40,242  |  
|                                              | Power purchased for pumping         |   |                         | 9,601   |      |   |         | 7,454   |  
|                                              | Power purchased for resale          |   |                         | 16,746  |      |   |         | 16,422  |  
|                                              | Groundwater production assessment   |   |                         | 7,169   |      |   |         | 6,710   |  
|                                              | Supply cost balancing accounts      |   |                         | (10,740 | )    |   |         | (11,572 | )
|                                              | Other operating expenses            |   |                         | 15,754  |      |   |         | 16,372  |  
|                                              | Administrative and general expenses |   |                         | 34,444  |      |   |         | 26,081  |  
|                                              | Depreciation                        |   |                         | 16,877  |      |   |         | 15,457  |  
|                                              | Maintenance                         |   |                         | 8,087   |      |   |         | 9,785   |  
|                                              | Taxes on income                     |   |                         | 15,624  |      |   |         | 15,043  |  
|                                              | Other taxes                         |   |                         | 6,993   |      |   |         | 7,137   |  
|                                              |                                     |   |                         |         |      |   |         |        
|                                              |                                     |   | 158,734                 |         |      |   | 149,131 |        
|                                              |                                     |   |                         |         |      |   |         |        
|                                              | Operating income                    |   |                         | 35,899  |      |   |         | 32,928  |  
|OTHER INCOME                                  |                                     |   | (151                    | )       |      |   | (362    | )      
|                                              |                                     |   |                         |         |      |   |         |        
|                                              | Income before interest charges      |   |                         | 35,748  |      |   |         | 32,566  |  
|INTEREST CHARGES                              |                                     |   | 14,833                  |         |      |   | 14,874  |        
|                                              |                                     |   |                         |         |      |   |         |        
|NET INCOME                                    |                                     |   | 20,915                  |         |      |   | 17,692  |        
|DIVIDENDS ON PREFERRED SHARES                 |                                     |   |                        |         |      |   |        |        
|                                              |                                     |   |                         |         |      |   |         |        
|EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS    |                                     | $ | 20,915                  |         |      | $ | 17,692  |        
|                                              |                                     |   |                         |         |      |   |         |        
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |                                     |   | 110                     |         |      |   | 100     |        
|Basic Earnings Per Common Share               |                                     | $ | 190,136                 |         |      | $ | 176,920 |        
|Dividends Declared Per Common Share           |                                     | $ | 123,000                 |         |      | $ | 130,000 |        

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

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SOUTHERN CALIFORNIA WATER COMPANY
CONSOLIDATED CASH FLOW STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(Unaudited)

|                                                     |                                    |                                                                     |         |                          |         |                    |        |      |         |   |         |  
|---------------------------------------------------- | ---------------------------------- | ------------------------------------------------------------------- | ------- | ------------------------ | ------- | ------------------ | ------ | ---- | ------- | - | ------- | -
|                                                     |                                    |                                                                     |         |                          |         | Three Months Ended
|                                                     |                                    |                                                                     |         |                          |         | March 31,         
|                                                     |                                    |                                                                     |         |                          |         |                   
|                                                     |                                    |                                                                     |         |                          |         | 2002               |        | 2001
|                                                     |                                    |                                                                     |         |                          |         |                    |        |     
|                                                     |                                    |                                                                     |         |                          |         | (in thousands)    
|CASH FLOWS FROM -                                    |                                    |                                                                     |         |                          |         |                    |        |     
|                                                     | Operating Activities:              |                                                                     |         |                          |         |                    |        |      |        
|                                                     |                                    | Net income                                                          |         | $                        | 4,014   |                    |        | $    | 2,928   |  
|                                                     |                                    | Adjustments for non-cash items:                                     |         |                          |         |                    |        |      |         |  
|                                                     |                                    | Depreciation and amortization                                       |         |                          | 4,341   |                    |        |      | 4,173   |  
|                                                     |                                    | Deferred income taxes an investment tax credits                     |         |                          | 2,591   |                    |        |      | 3,745   |  
|                                                     |                                    | Other  net                                                         |         |                          | (572    | )                  |        |      | (768    | )
|                                                     | Changes in assets and liabilities: |                                                                     |         |                          |         |                    |        |      |        
|                                                     |                                    | Accounts receivable                                                 |         |                          | 1,096   |                    |        |      | 2,514   |  
|                                                     |                                    | Prepayments                                                         |         |                          | 319     |                    |        |      | 300     |  
|                                                     |                                    | Supply cost balancing accounts                                      |         |                          | (2,326  | )                  |        |      | (6,267  | )
|                                                     |                                    | Accounts payable                                                    |         |                          | (416    | )                  |        |      | (805    | )
|                                                     |                                    | Intercompany Payable                                                |         |                          | (19,687 | )                  |        |      | (4,739  | )
|                                                     |                                    | Taxes payable                                                       |         |                          | 3,065   |                    |        |      | (2,426  | )
|                                                     |                                    | Unbilled revenue                                                    |         |                          | 801     |                    |        |      | 1,564   |  
|                                                     |                                    | Other                                                               |         |                          | (824    | )                  |        |      | 1,733   |  
|                                                     |                                    |                                                                     |         |                          |         |                    |        |     
|                                                     |                                    |                                                                     |         | Net Cash Provided        |         |                    | (7,598 | )    |         |   | 1,952   |  
|                                                     |                                    |                                                                     |         |                          |         |                    |        |     
|                                                     | Investing Activities:              |                                                                     |         |                          |         |                    |        |     
|                                                     |                                    | Construction expenditures                                           |         |                          | (8,029  | )                  |        |      | (11,106 | )
|                                                     |                                    |                                                                     |         |                          |         |                    |        |     
|                                                     |                                    |                                                                     |         | Net Cash Used            |         |                    | (8,029 | )    |         |   | (11,106 | )
|                                                     |                                    |                                                                     |         |                          |         |                    |        |     
|                                                     | Financing Activities:              |                                                                     |         |                          |         |                    |        |      |        
|                                                     |                                    | Issuance of securities                                              |         |                          |        |                    |        |      | 45,000  |  
|                                                     |                                    | Receipt of advances and contributions                               |         |                          | 969     |                    |        |      | 368     |  
|                                                     |                                    | Repayments of long-term debt, net of redemption of preferred shares |         |                          | (93     | )                  |        |      | (35     | )
|                                                     |                                    | Refunds on advances for construction                                |         |                          | (449    | )                  |        |      | (442    | )
|                                                     |                                    | Changes in notes payable to banks                                   |         |                          |        |                    |        |      | (31,000 | )
|                                                     |                                    | Common and preferred dividends paid                                 |         |                          | (3,300  | )                  |        |      | (3,300  | )
|                                                     |                                    |                                                                     |         |                          |         |                    |        |     
|                                                     |                                    |                                                                     |         | Net Cash Provided (Used) |         |                    | (2,873 | )    |         |   | 10,591  |  
|                                                     |                                    |                                                                     |         |                          |         |                    |        |     
|Net Increase (Decrease) in Cash and Cash Equivalents |                                    |                                                                     | (18,500 | )                        |         |                    | 1,437  |     
|Cash and Cash Equivalents, Beginning of period       |                                    |                                                                     | 26,079  |                          |         |                    | 1,545  |     
|                                                     |                                    |                                                                     |         |                          |         |                    |        |     
|Cash and Cash Equivalents, End of period             |                                    | $                                                                   | 7,579   |                          |         | $                  | 2,982  |     
|                                                     |                                    |                                                                     |         |                          |         |                    |        |     

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

11



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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 Southern California Water Company.
SCW is a public utility company engaged principally in the purchase,
production, distribution and sale of water, and the distribution and sale of
electric energy in several mountain communities. Unless otherwise stated in
this report, the term Registrant applies to both AWR and SCW, collectively.



|1. |  | For a summary of significant accounting policies and other information
relating to these interim financial statements, reference is made to pages
37 through 46 of the Form 10-K, incorporated in the 2001 Annual Report to
Shareholders of AWR, under the caption Notes to Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Basic earnings per common share are calculated pursuant to 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 45,435
common shares were granted to certain eligible employees on May 1, 2000,
and stock options representing an additional 45,657 common shares were
granted on January 2, 2001. As a result, fully diluted earnings per share
amounts are shown.                                                                                                                                                                                                                                                                                                                                                                  
|  
|3. |  | New water rates with an annual increase of approximately $321,600 for
four of seven ratemaking districts in SCWs Region I were implemented in
January 2002. SCW is planning to submit a Notice of Intent to file an
application for the customer service areas in SCWs Region III in the
third quarter of 2002 for new water rates effective July of 2003, if
approved by the CPUC. There are no active regulatory proceedings
affecting CCWC or its operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|4. |  | As permitted by the CPUC, SCW has 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.                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | 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 that works in a manner similar to the
balancing account. As a result, the income statements of SCW will no
longer include entries reflecting differences between actual unit water
supply costs included in rates and actual water supply costs. SCW will
not be entitled to recover any deferred costs for providing water service
unless it is within its general rate case cycle and is earning less than
its authorized rate of return on a weather normalized basis. 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
may not be able to recover the under-collection of supply costs if it is
earning a

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|   |  | rate of return in excess of that allowed. SCW had a net under-collection
position of $3.3 million in its water supply balancing account at March
31, 2002 principally related to pre-November 29, 2001 activities. Of
this amount, approximately $1 million is currently included in rates.
SCW anticipates recovering the remaining amount as part of a general rate
case filing planned for the third quarter of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Electric Balancing Account Electric power costs incurred by SCWs Bear
Valley Electric division continue to be charged to a balancing account.
The amount of the under-collection in the electric balancing account has
increased to $24.8 million at March 31, 2002. This is a result of the
cumulative differences between wholesale purchased power costs and the
$24 per megawatt hour (MWh) currently authorized in rates for collection
of purchased power costs from customers. The CPUC has approved two of
SCWs Advice Letters for recovery, over a five-year period, of
approximately $11.1 million in aggregate in under-collected power costs.
In approving the $0.022 per kilowatt-hour surcharge, which resulted in an
overall rate increase of 29% for customers of BVE, the CPUC also imposed
a condition of conducting a subsequent audit on the electric balancing
account. The audit was completed and submitted to the CPUC in October of
2001. On August 17, 2001, SCW filed an application with the CPUC seeking
recovery of an average cost of $87 per MWh for electric energy purchased
pursuant to power purchase contracts with Mirant Americas Energy
Marketing, LP and Pinnacle West Capital. On February 8, 2002, a
settlement agreement among SCW, all intervening parties and the Office of
Ratepayer Advocates (ORA) was filed with the CPUC that will permit SCW
to recover $77 per MWh of purchased power costs through rates. SCW will
only be allowed to include up to a weighted annual energy purchase cost
of $77 per MWh each year 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 will recover 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 will not be able to include these amounts in its
balancing account and such amounts will be expensed against income. SCW
has established approximately $8.2 million in reserves as of March 31,
2002 against potential non-recovery of electric power costs. In addition,
the settlement extended the previously approved surcharges for an
additional five years to allow SCW an opportunity to collect amounts
remaining in its electric cost balancing account. Based on estimates,
management believes that continuation of the $0.022 per kilowatt-hour
surcharge will allow for full recovery of amounts included in the
electric balancing account. A final decision in this matter is expected
during the second quarter of 2002. Management believes the CPUC will
support the settlement agreement, but is unable to predict when or if the
CPUC will authorize recovery of any or all of the costs agreed to in the
settlement. Registrant also believes that timely actions by the CPUC to
authorize SCW to recover past and future power costs are necessary to
avoid any material adverse effect on SCWs financial condition. See the
sections entitled Liquidity and Capital Resources, Electric Energy
Situation in California, and Regulatory
Matters included in Part I,
Item 2 in Managements Discussion and Analysis of Financial Condition and
Results of Operation for information on actions being taken by SCW to
recover these costs.
|  
|   |  | CCWC, subject to regulation by the Arizona Corporation Commission (ACC),
does not maintain balancing accounts and increases in costs are normally
recovered through general rate case applications.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|5. |  | On October 2000, AWR completed the acquisition of the common stock of
CCWC for an aggregate value of $31.2 million, including assumption of
approximately $12 million in debt. As of March 31, 2002, Registrant has
$12,276,000 in goodwill included in Other Property and Investments. The
amount represents the difference between the purchase price of the common
equity of CCWC and CCWCs book equity at the time of closing and was being
amortized over a period of 40 years. Registrant ceased amortization on
December 31, 2001 pursuant to FASB No. 142, Goodwill and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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|   |  | Other Intangible Assets, as discussed in Note 7. In 2001, $331,073 was
amortized against the goodwill.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, Business Combinations, and SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 141 eliminates the pooling-of-interests
method of accounting, effective June 30, 2001. After that, all business
combinations will be recorded under the purchased method of accounting
(record goodwill for excess of costs over the net assets acquired). SFAS
No. 142 requires that companies cease amortizing goodwill, effective
January 1, 2002. Goodwill initially recognized after June 30, 2001 will
not be amortized. Goodwill on the balance sheet at June 30, 2001 will be
amortized until January 1, 2002. Under SFAS No. 142, goodwill will be
tested for impairment using a fair-value approach when events or
circumstances occur indicating that impairment might exist. A benchmark
assessment for goodwill is also required within six months of the date of
adoption of SFAS No. 142. Registrant has determined that goodwill,
$12,285,000 at December 31, 2001, associated with its acquisition of CCWC
was not impaired and effective January 1, 2002 has ceased amortizing this
goodwill. Registrant believes that it will be subject to the provisions
of FASB No. 143 and is currently analyzing the impact that implementation
of FASB No. 143, Accounting for Asset Retirement Obligations, might have
on its future financial statement presentation. The new rule 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. FASB No. 143 is effective for fiscal years beginning after
June 15, 2002.
|  
|6. |  | AWR has three principal business units: water and electric distribution
units, through its SCW subsidiary, a water service utility operation
conducted through its Chaparral City Water Company (CCWC) unit, and a
non-regulated activity unit through the American States Utilities
Services, Inc. (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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|                                     |  |                                           |         |          |  |                        |        |              |  |     |        |  |  |   |      |   |  |   |         | 
|------------------------------------ |  | ----------------------------------------- | ------- | -------- |  | ---------------------- | ------ | ------------ |  | --- | ------ |  |  | - | ---- | - |  | - | ------- | 
|                                     |  | For The Three Months Ended March 31, 2002
|                                     |  |                                          
|                                     |  | SCW                                       |         |          |  |                        |        |              |  |     |        |  |  |  
|                                     |  |                                           |         | CCWC     |  | Non-                   |        | Consolidated
|                                     |  | Water                                     |         | Electric |  | Water                  |        | Regulated    |  | AWR
|                                     |  |                                           |         |          |  |                        |        |              |  |    
|                                     |  |                                           |         |          |  | (dollars in thousands) |        |              |  |    
|Operating revenues                   |  | $                                         | 37,734  |          |  | $                      | 5,206  |              |  | $   | 1,357  |  |  | $ | 188  |   |  | $ | 44,485  | 
|Operating income
before income taxes |  |                                           | 10,181  |          |  |                        | 820    |              |  |     | 320    |  |  |   | (390 | ) |  |   | 10,931  | 
|Identifiable assets                  |  |                                           | 487,454 |          |  |                        | 27,172 |              |  |     | 28,558 |  |  |   |     |   |  |   | 543,184 | 
|Depreciation expense                 |  |                                           | 3,979   |          |  |                        | 362    |              |  |     | 227    |  |  |   |     |   |  |   | 4,568   | 
|Capital additions                    |  | $                                         | 16,296  |          |  | $                      | 1,653  |              |  | $   | 130    |  |  |   |     |   |  | $ | 18,079  | 

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|                                     |  |                                            |         |          |  |                        |        |              |  |     |        |  |  |   |      |   |  |   |         | 
|------------------------------------ |  | ------------------------------------------ | ------- | -------- |  | ---------------------- | ------ | ------------ |  | --- | ------ |  |  | - | ---- | - |  | - | ------- | 
|                                     |  | For The Three Months Ended March 31, 2001 
|                                     |  |                                           
|                                     |  | SCW                                        |         |          |  |                        |        |              |  |     |        |  |  |  
|                                     |  |                                            |         | CCWC     |  | Non-                   |        | Consolidated
|                                     |  | Water                                      |         | Electric |  | Water                  |        | Regulated    |  | AWR
|                                     |  |                                            |         |          |  |                        |        |              |  |    
|                                     |  |                                            |         |          |  | (dollars in thousands) |        |              |  |    
|Operating revenues                   |  | $                                          | 34,805  |          |  | $                      | 3,957  |              |  | $   | 1,340  |  |  | $ | 189  |   |  | $ | 40,291  | 
|Operating income
before income taxes |  |                                            | 8,306   |          |  |                        | 1,267  |              |  |     | 318    |  |  |   | 45   |   |  |   | 9,936   | 
|Identifiable assets                  |  |                                            | 460,321 |          |  |                        | 26,681 |              |  |     | 28,928 |  |  |   |     |   |  |   | 515,930 | 
|Depreciation expense                 |  |                                            | 3,812   |          |  |                        | 361    |              |  |     | 311    |  |  |   |     |   |  |   | 4,484   | 
|Capital additions                    |  | $                                          | 11,032  |          |  | $                      | 565    |              |  | $   | 130    |  |  |   |     |   |  | $ | 11,727  | 
|                                    
|                                     |  | For The Twelve Months Ended March 31, 2002
|                                     |  |                                           
|                                     |  | SCW                                        |         |          |  |                        |        |              |  |     |        |  |  |  
|                                     |  |                                            |         | CCWC     |  | Non-                   |        | Consolidated
|                                     |  | Water                                      |         | Electric |  | Water                  |        | Regulated    |  | AWR
|                                     |  |                                            |         |          |  |                        |        |              |  |    
|                                     |  |                                            |         |          |  | (dollars in thousands) |        |              |  |    
|Operating revenues                   |  | $                                          | 178,134 |          |  | $                      | 16,499 |              |  | $   | 6,287  |  |  | $ | 789  |   |  | $ | 201,709 | 
|Operating income
before income taxes |  |                                            | 55,911  |          |  |                        | (4,388 | )            |  |     | 1,918  |  |  |   | (375 | ) |  |   | 53,066  | 
|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  | 
|                                    
|                                     |  | For The Twelve Months Ended March 31, 2001
|                                     |  |                                           
|                                     |  | SCW                                        |         |          |  |                        |        |              |  |     |        |  |  |  
|                                     |  |                                            |         | CCWC     |  | Non-                   |        | Consolidated
|                                     |  | Water                                      |         | Electric |  | Water                  |        | Regulated    |  | AWR
|                                     |  |                                            |         |          |  |                        |        |              |  |    
|                                     |  |                                            |         |          |  | (dollars in thousands) |        |              |  |    
|Operating revenues                   |  | $                                          | 167,747 |          |  | $                      | 14,312 |              |  | $   | 2,606  |  |  | $ | 837  |   |  | $ | 185,502 | 
|Operating income
before income taxes |  |                                            | 43,600  |          |  |                        | 4,371  |              |  |     | 615    |  |  |   | 169  |   |  |   | 48,755  | 
|Identifiable assets                  |  |                                            | 460,321 |          |  |                        | 26,681 |              |  |     | 28,928 |  |  |   |     |   |  |   | 515,930 | 
|Depreciation expense                 |  |                                            | 14,048  |          |  |                        | 1,409  |              |  |     | 564    |  |  |   |     |   |  |   | 16,021  | 
|Capital additions                    |  | $                                          | 44,625  |          |  | $                      | 2,291  |              |  | $   | 327    |  |  |   |     |   |  | $ | 47,243  | 

15



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##### Table of Contents






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, the California energy crisis, liquidity
and capital resources, opportunities related to operations and maintenance of
water systems owned by governmental entities and other utilities and providing
related services, and accounting matters. Actual results in each case could
differ materially from those currently anticipated in such statements, by
reason of factors such as utility restructuring, 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; litigation developments; 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 Southern California Water
Company (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 three
water service regions and one electric customer service area 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 247,499 water customers and 21,900 electric customers at March
31, 2002, or a total of 269,399 customers, compared with 266,927 total
customers at March 31, 2001.

SCWs utility operations exhibit seasonal trends. Although SCWs water
utility operations have a diversified customer base, revenues derived from
commercial and residential water customers accounted for approximately 94.7%
and 90.8% of total water revenues for the three and twelve months ended March
31, 2002, respectively, as compared to 97.2% and 91.5% for the three and twelve
months ended March 31, 2001, 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 11,625 customers as of
March 31, 2002 in the town of Fountain Hills, Arizona and a portion of the City
of Scottsdale, Arizona. The Arizona Corporation Commission (ACC) regulates
CCWC.

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##### Table of Contents



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

Results of Operation

Basic earnings per common share for the three months ended March 31, 2002
increased by 22.6% to $0.38 per share as compared to $0.31 per share for the
comparable period last year. As compared to the twelve months ended March 31,
2001, basic earnings increased by 10.6% to $2.09 per share from $1.89 per
share. The increases in the recorded results primarily reflect the impact of
various rate increases authorized by the Public Utilities Commission of the
State of California (CPUC) for SCW, additional revenues generated by CCWC,
improvement in operating margins and, to some extent Registrants Cash
Preservation Plan (CPP) as discussed below.

Fully diluted earnings for the three and twelve months ended March 31,
2002 were $0.37 and $2.07 per share, respectively, as compared to $0.30 and
$1.88 per share for the comparable periods of 2001. For further information,
see the section entitled Liquidity and Capital
Resources included in Part I,
Item 2 in Managements Discussion and Analysis of Financial Condition and
Results of Operation.

As compared to the three months ended March 31, 2001, revenues from water
operations increased by 8.2% for the same period ended March 31, 2002 due to a
3.7% increase in sales and various increases in rates authorized by the CPUC.
Step increases in the customer service areas that comprise SCWs Region I were
effective January 1, 2002. The comparison is also affected by the fact that
attrition increases for the customer service areas that comprise SCWs Region
II were not effective until January 27, 2001 and rate increases to recover
increased electric power costs incurred for pumping of water were also not in
effect until after the first quarter of 2001. For the twelve months ended
March 31, 2002, revenues from water operations increased by 8.3% over the
twelve months ended March 31, 2001 reflecting various rate increases effective
at several of SCWs customer service areas as well as an additional $3.7
million in revenues generated by CCWC. Revenue growth was partially offset by a
1.8% reduction in water sales to customers of SCW due to relatively mild
weather in 2001. 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.

Revenues from electric operations increased by 31.6% and 15.3%,
respectively, for the three and twelve months ended March 31, 2002 as compared
to the same periods ended March 31, 2001. The increases reflect 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 previous under-collected
energy costs. For the three months ended March 31, 2002, the increases in
electric revenues also reflect a 4.2% increase in sales due to higher
utilization of snow making machines at ski resorts in the area during the first
quarter this year. The twelve-month increase in revenues from electric
operations was partially offset by a decrease of 3.8% in usage for the twelve
months ended March 31, 2002 due to energy conservation efforts by all classes
of customers in 2001. See the section 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 for more information.

Purchased water costs increased by 16.6% for the three months ended March
31, 2002 as compared to the same period ending in 2001 due to both an increase
in the volume of purchased water and increased costs resulting from the
amortization of leased water rights in the period. For the current quarter,
additional purchased water was necessary to replace supply lost due wells being
removed from services as a result of water quality issues and mechanical
problems, particularly in SCWs Orange County and San Dimas customer service
areas. As compared to the twelve months ended March 2001, purchased water costs
decreased by 4.5% reflecting a decrease in purchased water volume resulting
from both lower sales and less purchased water in Registrants supply mix, as
well as refunds received from

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##### Table of Contents



Registrants wholesale water suppliers in December 2001 of approximately
$770,000. There was no similar refund in the twelve months ended March 2001.

Cost of power purchased for pumping increased by 29.1% and 32.4% for the
three and twelve months ended March 31, 2002, respectively, due to the rate
increases implemented in the first quarter of 2001 by SCWs energy suppliers,
and increases in the volume of water sold from pumped sources. In 2001, the
CPUC approved 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. 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. The twelve-month comparison was also impacted by the
inclusion of approximately $311,000 in costs for power purchased to pump water
at Registrants CCWC unit.

Costs of power purchased for resale to customers in SCWs Bear Valley
Electric division for the three months ended March 31, 2002 decreased by 44.9%
due primarily to significant reductions in wholesale market prices for energy
in the State of California. As compared to the average cost of approximately
$0.20 per kilowatt-hour for the three months ended March 31, 2001, costs for
the three months ended March 31, 2002 averaged approximately $0.12 per Kwh. As
compared to the twelve months ended March 31, 2001, costs of power purchased
for resale increased by 2% reflecting lower sales and a one-time sale of energy
on the spot market that resulted in a $644,000 gain in April 2001. The sale of
excess energy on the spot market resulted from a one-month overlap of energy
purchase agreements. For further information, see the sections entitled
Liquidity and Capital Resources, 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.

Groundwater production assessments for the three months and twelve months
ended March 31, 2002 increased by 21.9% and 6.8%, respectively as compared to
the same period in 2001 reflecting increased sales volumes provided from pumped
water sources, increased groundwater production assessments, and a one-time
adjustment made in the first quarter of 2002 to account for a retroactive
billing by water purveyors for rate increases effective July of 2001.

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. The negative entries for
2001 and 2002 primarily reflect untimely-recovery of electric power costs
discussed previously. At March 31, 2002, Registrant had a net under-collected
position of $28.1 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 Managements Discussion and Analysis of Financial
Condition and Results of Operation.

Other operating expenses decreased by 8.5% and 1%, respectively for the
three and twelve months ended March 31, 2002 as compared to the same periods of
last year. The decreases were primarily due to the effects of the CPP at SCW
that reduced or deferred a number of expense items and a decrease in the
accrual for bad debt during the first quarter of 2002. The twelve-month
comparison reflected additional costs related to the inclusion of CCWC.

Administrative and general expenses increased by 15.0% for the three
months ended March 31, 2002 reflecting an increase in the accrual for pension
plan expense, an accrual for payroll expense deferred pursuant to the CPP
implementation, and outside service expenses at Registrants ASUS unit. As
compared to the twelve months ended March 31, 2001, the administrative and
general expense increased by 34.7% primarily due to the accrual of $8.3 million
in reserves established for potential non-

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##### Table of Contents



recovery of electric power costs incurred to serve customers at SCWs Bear
Valley Electric customer service area, and additional costs from CCWC. The
reserves were established to offset future impacts to earnings in the event
that SCW was unable to fully recover all of its purchased power costs through
rates. The twelve-month comparison also reflected increased reserves for
self-insured workers compensation liabilities. For further information, see
the sections entitled Regulatory Matters 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 1.9% for the three months ended March 31, 2002 reflecting, among other things, the effects of recording approximately
$50 million in capital additions at SCW during 2001, depreciation on which
began in January 2002. The comparison between the two quarters is impacted by
the elimination, effective January 1, 2002, of amortization of the goodwill
recorded in Registrants acquisition of CCWC. For further information, see
Notes 6 and 7 of the Notes to Financial Statementsincluded in
Part I, Item 1
in Financial Statements. Depreciation expense increased by 12.6% for the twelve
months ended March 31, 2002 as compared to the twelve months ended March 31,
2001 due to plant additions, additional depreciation associated with utility
plant at Registrants CCWCs unit, and amortization of goodwill as discussed
previously.

As compared to the three and twelve months ended March 31, 2001,
maintenance expense decreased by 14.5% and 16.3%, respectively, due primarily
to the implementation of Registrants CPP in April 2001. The CPP was
implemented 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 pending CPUC approval of rate increases that would permit SCW to begin
recovery of power costs incurred during California energy crisis. The CPP
impacted both the electric and water businesses of SCW. The CPP is expected to
remain in effect until SCW receives approval to increase electric rates
pursuant to the terms of the settlement agreement with us. For further
information, see the sections Electric Energy Situation in California and
Regulatory Matters included in Part I, Item 2 in Managements Discussion and
Analysis of Financial Condition and Results of Operation.

Taxes on income increased by 11.1% and 1.6%, respectively, as compared to
the three and twelve months ended March 31, 2001, due to an increase in pre-tax
operating income of 13% and 4.8%, respectively, for the comparable periods
ended March 31, 2002, offset partially by lower effective tax rates.

Other taxes decreased by 3.4% for the three months ended March 31, 2002
reflecting decreases in property assessment values at SCW and lower payroll
taxes due to company-wide hiring freeze pursuant to CPP. As compared to the
twelve months ended March 31, 2001, other taxes increased by 2.1% due to
additional property and payroll taxes at CCWC, partially offset by the
decreases in property taxes and payroll taxes at SCW unit as discussed.

As compared to the three months and twelve months ended March 31, 2001,
respectively, the change in Other income for the same periods ended March 31,
2002 was due principally to the sale of a parcel of non-operating property in
SCWs Metropolitan customer service area. The twelve-month comparison was also
impacted by the write-off of expenses associated with the termination of the
acquisition of Peerless Water Company in the fourth quarter of 2001.

Interest expense increased by 11.4% and 9.9%, respectively, for the three
and twelve months ended March 31, 2002 as compared to the same periods ended
March 31, 2001. The three-month comparison is significantly impacted by the
issuance of $50 million in long-term debt by SCW in December 2001, partially
offset by a reduction in short-term borrowing. As compared to the twelve
months ended March 31, 2001, the increases reflected (i) short-term borrowing
in 2001, (ii) the issuance

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of $20 million in long-term debt by SCW in January 2001, (iii) the
issuance of $50 million in long-term debt by SCW in December 2001, and (iii)
the inclusion of long-term debt at Registrants CCWC unit.

Accounting for Supply Costs

As permitted by the CPUC, SCW has 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 that
works in a manner similar to the balancing account. As a result, the income
statements of SCW will no longer include entries reflecting differences between
actual unit water supply costs included in rates and actual water supply costs.
SCW will not be entitled to recover any deferred costs for providing water
service unless it is within its general rate case cycle and is earning less
than its authorized rate of return on a weather normalized basis. 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 may not be able
to 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
$3.3 million in its water supply balancing account at March 31, 2002 related to
pre-November 29, 2001 activities. Of this amount, approximately $1 million is
currently included in rates. SCW anticipates recovering the remaining amount
as part of a rate case filing planned for the third quarter of 2002.

Electric power costs incurred by SCWs Bear Valley Electric division will
continue to be charged to a balancing account. Resulting from the
unanticipated and dramatic increases in electricity prices since the fourth
quarter of 2000, the amount of the under-collection in the electric balancing
account has increased from $2.8 million at December 31, 1999, to $8.6 million
at December 31, 2000, to $22.4 million at December 31, 2001, and $24.8 million
at March 31, 2002. Due to the nature of the regulatory process, there is a
risk of disallowance of full recovery of costs or additional delays in the
recovery of costs during any period in which there has been a substantial
run-up of costs. 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.

Liquidity and Capital Resources

AWR

AWR funds its operating expenses and pays dividends on its outstanding
Common and Preferred 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, 2002, 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 although AWR expects to enter into a
new credit facility in the amount of $75 million during the second quarter of
2002. On April 19, 2002, AWR completed the redemption of all of its
outstanding 4%, 4-1/4% and 5% series of preferred shares.

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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, amortization of deferred charges and depreciation expense.
Internal cash generation is influenced by factors such as weather patterns,
environmental regulation, litigation, changes in 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.

SCW also relies on external sources, including equity investments 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. In January 2001, SCW issued $20 million of long-term
debt in a public offering with the proceeds used to reduce then outstanding
bank borrowing. 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 borrowing incurred to
fund capital expenditures and power purchase costs.

Because of the seasonal nature of its water and electric operations, SCW
utilizes its short-term borrowing capacity to finance current operating
expenses, including expenses for purchased power distributed through its Bear
Valley Electric customer service area. SCW has short-term revolving credit
lines totaling an aggregate of $47 million, none of which was outstanding at
March 31, 2002. Of the aggregate amount, $13 million expires in May 2002, $10
million expires in July 2002 and $24 million expires in August 2002. SCW does
not intend to enter into any new short-term revolving credit lines in 2002.

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.

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.

The following table reflects Registrants contractual obligations and
commitments to make future payments pursuant to contracts as of March 31, 2002.
All obligations and commitments are obligations and commitments of SCW unless
otherwise noted.

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|                                 |  |                                        |         |                  |  |           |       |           |  |               |        |  |  |   |       |  |  |   |         | 
|-------------------------------- |  | -------------------------------------- | ------- | ---------------- |  | --------- | ----- | --------- |  | ------------- | ------ |  |  | - | ----- |  |  | - | ------- | 
|                                 |  | Payments/Commitments Due by Period (1)
|                                 |  |                                       
|                                 |  | Total                                  |         | Less than 1 Year |  | 1-3 Years |       | 4-5 Years |  | After 5 Years
|                                 |  |                                        |         |                  |  |           |       |           |  |              
|                                 |  | ($ in thousands)                      
|Notes/Debentures(2)              |  | $                                      | 185,600 |                  |  |           |      |           |  | $             | 12,500 |  |  |   |      |  |  | $ | 173,100 | 
|Private Placement Notes(3)       |  |                                        | 28,000  |                  |  |           |      |           |  |               |       |  |  |   |      |  |  |   | 28,000  | 
|Tax-Exempt Obligations(4)        |  |                                        | 20,820  |                  |  |           | 87    |           |  |               | 285    |  |  |   | 218   |  |  |   | 20,230  | 
|Other Debt Instruments(5)        |  |                                        | 2,591   |                  |  |           | 174   |           |  |               | 584    |  |  |   | 451   |  |  |   | 1,382   | 
|Preferred Shares (6)             |  |                                        | 1,920   |                  |  |           | 1,920 |           |  |               |       |  |  |   |      |  |  |   |        | 
|Other Commitments (7)            |  |                                        | 50,658  |                  |  |           |      |           |  |               |       |  |  |   |      |  |  |   |        | 
|Chaparral City Water Company (8) |  |                                        | 9,254   |                  |  |           | 499   |           |  |               | 1,684  |  |  |   | 620   |  |  |   | 6,451   | 
|TOTAL                            |  | $                                      | 298,843 |                  |  | $         | 2,680 |           |  | $             | 15,053 |  |  | $ | 1,289 |  |  | $ | 229,163 | 



---

|(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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|   
|   
|   
|(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. For further
information of the dividend restrictions, see discussion included in Part II,
Item 2 in Changes in Securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|   
|   
|   
|(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 $7 million of obligations
incurred by SCW with respect to its 500 acre foot entitlement to water from the
State Water Project. Except as described 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 Bank of America. SCW has
reimbursement obligations to Bank of America that incorporate by reference
SCWs obligations to Bank of America under its short-term revolving credit line
with Bank of America discussed below in paragraph (7). The letter of credit
expires on November 15, 2003. The letter of credit may be drawn if SCW has not
obtained a replacement letter of credit prior to the expiration of this letter
of credit. SCW has entered into an agreement with a developer for 350 acre-feet
of its entitlement to water from the State Water Project. For further
information, see the section entitled Regulatory
MattersDisallowance of
Costsincluded in Part I, Item 2 in Managements Discussion and Analysis of
Financial Condition and Results of Operation.
|   
|   
|   
|   
|(5) |  | Consists of $1.6 million outstanding under a fixed rate obligation incurred
to fund construction of water storage and delivery facilities with the Three
Valleys Municipal Water District, $0.6 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) |  | AWR has redeemed all of its outstanding series of Preferred Shares in April
of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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|(7) |  | Other commitments consists of (i) $47 million available for borrowing by
SCW at March 31, 2002 under short-term revolving credit loans, $13 million
expiring in May 2002, $10 million expiring in July 2002 and $24 million
expiring in August 2002, (ii) a $2,513,813 irrevocable letter of credit that
expires on April 30, 2002 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 Bank of America to support the certificates of participation of Three
Valleys Municipal Water District (the other $6,000,000 is reflected under
tax-exempt obligations) that expires on November 15, 2003, (iv) an irrevocable
letter of credit in the amount of $250,000 that expires on October 1, 2002 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; 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 $13,250
to secure performance under franchise agreements with governmental agencies.
The credit agreement with and the reimbursement obligations to Bank of America
contain limitation on indebtedness and a negative pledge. None of other
obligations contain any financial covenants believed to be material to
Registrant or any cross default provisions.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(8) |  | Consists of $8.1 million of obligations under a loan agreement supporting
Industrial Development Revenue Bonds due in 2006 and a $1.1 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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 is subject to change or withdrawal at any time by the rating
agency.

Electric Energy Situation in California

Background Information

The electric energy environment in California has changed as a result of
the December 1995 CPUC decision on restructuring of Californias electric
utility industry and state legislation passed in 1996. On September 23, 1996,
the State of California enacted legislation to provide a transition to a
competitive market structure, which was expected to provide competition and
customer choice, beginning January 1, 1998, with all consumers ultimately
participating by 2002. SCWs Bear Valley electric customer service area was
exempted by the CPUC from compliance with most of the provisions of the CPUC
order and the state legislation.

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

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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, and a dysfunctional power market.

Spot market prices dropped dramatically in the summer of 2001 and continue
to remain low. A number of factors could, however, result in a substantial
increase in spot market prices and the prices of long term contracts for power
and capacity. The mitigation measures taken by FERC expire on September 30,
2002 despite the fact that there continues to be insufficient generation
resources in California and throughout the West, transmission line constraints,
constraints on natural gas pipeline capacity and a dysfunctional power market.
In addition, the Cal ISO has proposed a number of market reforms, such as the
imposition of an available capacity obligation (ACAP) on all load-serving
entities. The purpose of the ACAP obligation is to ensure that all load-serving
entities have sufficient power resources to meet their maximum possible load.
If an ACAP obligation of the type proposed by Cal ISO is adopted, SCW could be
required to procure substantial additional power and capacity. The cost of
procuring this additional power and capacity could have a material adverse
impact on SCW if SCW is not permitted to recover the costs of procuring this
additional power and capacity from its ratepayers on a timely basis.

Power Supply Arrangements

All electric energy sold by SCW to customers in its BVE customer service
area is purchased from others. Historically, SCW purchased electric energy from
the Southern California Edison unit of Edison International. However, in order
to keep electric power costs as low as possible, SCW entered into an energy
brokerage contract with Sempra Energy Corporation. SCW purchased electric
energy for its BVE customer service area from Sempra during the period
beginning March 26, 1996 through April 30, 1999.

In May 1999, SCW entered into a one-year block forward purchase contract
with Illinova Energy Partners for 12 megawatts (MWs) of power at a price of
$28.00 per MW hour (MWh). 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 for its BVE customer service area at a price of $35.50 per
MWh. This contract expired April 30, 2001.

SCW entered into a five-year, block forward purchase contract with Mirant
Americas Energy Marketing LP (Mirant) to supply its BVE customer service area
with 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 due to the dysfunctional power market. In accordance with the
April 11, 2002 order issued by the FERC in Docket Mo. EL02-26 et.al., SCW and
Mirant have agreed to enter into mediation of the dispute pursuant to Section
34.1 and Exhibit D of the Western Systems Power Pool Agreement. Although SCW
is seeking to reformulate its contract with Mirant through the mediation
process, management is presently unable to predict what changes in the
contract, if any, will be agreed to by the parties.

In June 2001, SCW executed an agreement with Pinnacle West Capital for an
additional 8 MWs of electric energy to meet BVEs peak winter demands. The
contract provides for pricing of $75 per MWh from November 1, 2001 to March 31,
2002, $48 per MWh from November 1, 2002 to March 31,

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2003, and $36 per MWh from November 1, 2003 to March 31, 2004. 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 38 MWs when the snowmaking machines at the ski resorts are operating.
Under the terms of a contract with DYPM that expires on April 30, 2002, DYPM
has agreed to provide electric energy to SCW in excess of the amounts it has
purchased under the forward block purchase contracts previously described, to
sell excess energy purchased by SCW under the terms of these contracts, if
requested by SCW, and to act as scheduling coordinator for SCW. However, SCW
has entered into a separate agreement to have Automated Power Exchange, Inc.
act as its scheduling coordinator and will not utilize the services of DYPM.
SCW has withheld payment on approximately $3.4 million invoiced by DYPM for the
period December 20, 2000 through February 20, 2001, pending resolution of
certain disputes. In April 2002, DYPM billed SCW an additional $2.1 million.
Based on the lack of information supporting the additional billings, SCW will
require such information prior to paying the requested amounts. Based on
information presently available to it, Registrant believes the amount in
dispute may increase due to the additional amounts billed by DYPM.

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.
For further information, see Legal Proceedings in Part II for a discussion of
litigation between Edison and SCW regarding Edisons obligations to upgrade
these transmission facilities. In order to meet these increasing energy
demands, SCW is considering the construction of a gas-fueled generator facility
owned by SCW. An Advice Letter was filed to seek the CPUCs authorization. If
approved, it will result in further increases in electric energy prices for
customers of SCWs BVE customer service area. For more information, see the
section entitled Rate MattersChanges in Rates included in Part I, Item 2 in
Managements Discussion and Analysis of Financial Condition and Results of
Operation.

Construction Program

SCW maintains an ongoing 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 $55.4 million for 2002. Approved capital expenditures may be
limited pending final CPUC approval of the settlement agreement regarding
recovery of electric power costs at SCWs Bear Valley electric division. For
further information, see the section entitled Rate Matters-Changes in Rates
included in Part I, Item 2 in Managements Discussion and Analysis of Financial
Condition and Results of Operation.

CCWC has a net capital budget of $1.4 million for 2002. 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.

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,

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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.

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 all prudently
incurred costs, including a return on rate base sufficient to pay principal and
interest on debt securities, preferred stock distributions and a reasonable
rate of return on equity. 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. Adjustments for
purchased water and power are permitted in California, to a certain extent, but
generally not Arizona. For further 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.

Neither AWR nor ASUS are 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.

The 22 customer service areas of SCW are grouped into 9 water districts
and 1 electric district for ratemaking purposes. Water rates vary among the 9
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.

Changes in Rates

New water rates with an annual increase of approximately $321,600 for four
of the seven ratemaking districts in SCWs Region I were implemented in January
2002. SCW is planning to submit a Notice of Intent to file a GRC for the
customer service areas in SCWs Region III in the third quarter of 2002 for new
water rates effective July of 2003, if approved by the CPUC.

An Advice Letter filed by SCW on November 13, 2001 requests the authority
to increase rates in its Metropolitan district by $3.1 million annually to
offset an increase in rate base due to its infrastructure replacement program
and offset increased costs by using a price index. SCW has filed a motion to
amend a prior decision to clarify certain contradictory paragraphs in that
order that would allow for the requested increase. Management is unable to
predict when or if the CPUC will authorize recovery of any or all of the
increases filed by SCW.

As of Mach 31, 2002, SCW had accrued approximately $24.8 million in
under-collected purchased power costs included in the electric balancing
account. In May 2000, SCW filed an Advice Letter with the CPUC for recovery
over a five-year period of approximately $2.4 million in under-collected power
costs and removal of a negative amortization authorized by the CPUC in 1997.
The CPUC issued a final order on May 24, 2001 authorizing an overall rate
increase of 12.5%, with a condition of conducting a subsequent audit on the
expenses included in the electric balancing account. The audit has been
conducted and provided to the CPUC.

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On August 23, 2001, the CPUC also approved a second Advice Letter filed by
SCW on April 9, 2001 seeking recovery, over five years, of an additional
under-collection of $8.7 million for energy costs. Rates in SCWs BVE customer
service area have increased by approximately 14.8% as a result.

On May 11, 2001, SCW filed with the CPUC for an additional increase in
electric rates to recover energy costs under the purchase agreement with Mirant
Marketing. SCW subsequently withdrew the Advice Letter and filed an application
on August 17, 2001 with the CPUC, along with a motion requesting immediate
recovery of these costs, subject to refund after completion of the review
process. The CPUC rejected SCWs motion for immediate recovery.

On February 8, 2002, a settlement agreement among SCW, all intervening
parties and the Office of Ratepayer Advocates (ORA) was filed with the CPUC
that will permit SCW to recover $77 per MWh of purchased power costs through
rates. SCW will be allowed to include its actual purchased power costs up to an
average annual weighted cost of $77 per MWh each year 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 will 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 will not be able to include these amounts in its balancing
account and such amounts will be expensed against income. SCW has established
approximately $8.3 million in reserves as of March 31, 2002 against potential
non-recovery of electric power costs. In addition, the settlement extended the
previously approved surcharges for an additional five years to allow SCW an
opportunity to collect amounts remaining in its electric cost balancing
account. Management believes that the settlement will allow for full recovery
of amounts included in the balancing account. The proposed settlement also
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 due to the
dysfunctional power market that existed at the time the agreement was signed.
In accordance with the April 11, 2002 issued by the FERC in Docket Mo. EL02-26
et.al., SCW and Mirant have agreed to enter into mediation of the dispute.
Although SCW is seeking to reformulate its contract with Mirant through the
mediation process, management is presently unable to predict what changes in
the contract, if any, will be agreed to by the parties. Management believes
the CPUC will support the settlement agreement, but is unable to predict when
or if the CPUC will authorize recovery of any or all of the costs agreed to in
the settlement. For further information, see the sections entitled Liquidity
and Capital Resources and Electric Energy Situation in California included
in Part I, Item 2 in Managements Discussion and Analysis of Financial Condition
and Results of Operation.

In March 2001, the CPUC approved SCWs Advice Letters to increase costs of
purchased power incurred to pump water for its water customers by $761,351
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 recently 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 Managements 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 Managements Discussion and
Analysis of Financial Condition and Results of Operation.

In April 2002, SCW filed an Application to seek the CPUCs authorization
to construct an 8.4 MW natural gas-fueled generator facility on a portion of
its BVE property in the City of Big Bear Lake. The construction of this
generator is to ensure the reliability of service, eliminate transmission

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constraints and meet increasing demand in the areas. Total capital cost of
the generator facility is estimated to be approximately $13 million, which, if
approved by the CPUC, will generate an annual revenue increase of about $2.4
million. Management is unable to predict when or if the CPUC will approve the
Application.

Disallowance of Costs

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 allows SCW to include $500,000 of the $1.6 million in the regulated
rate base, although 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 not anticipated until the
fourth quarter of 2002.

On April 22, 1999, the CPUC issued an order denying SCWs application
seeking approval of its recovery through rates of costs associated with its 500
acre-foot participation in the Coastal Aqueduct Extension of the State Water
Project (SWP). SCWs participation in the SWP commits it to a 40-year
entitlement. SCWs investment of approximately $9.5 million in SWP is currently
included in Other Property and Investments. The remaining balance of the
related liability of approximately $7 million is recorded as other long-term
debt. In October 2001, SCW entered into an agreement with a developer, which
obligates the developer to make payments to SCW in exchange for SCWs
reservation and dedication of up to 350 acre-feet per year of the SWP
entitlement for a five-year period. SCW intends to recover its remaining
investment from other developers or through a sale of its remaining
entitlement. SCW believes that its full investment and on-going costs
associated with its ownership will be recovered.

Other Regulatory Matters

In December 1999, Registrant agreed to acquire Peerless Water Co., a
privately owned water company in Bellflower, California, subject to
satisfaction of certain conditions, including CPUC approval. The transaction,
however, was denied by the CPUC on November 29, 2001. As a result, the
acquisition agreement with Peerless Water Co. has been terminated.

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 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. The new law
allows the EPA to bypass the selection process and adopt interim regulations
for contaminants in order to address urgent health threats. Current
regulations, however, remain in place and are not subject to the new
standard-setting provisions. The DOHS, acting on behalf of the EPA, administers
the EPAs program in California.

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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.

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 or 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 will be authorized for recovery by the CPUC
and ACC, as appropriate.

Proposed Enhanced Surface Water Treatment Rule

On July 29, 1994, the EPA proposed an Enhanced Surface Water Treatment
Rule (ESWTR), which would require increased surface-water treatment to decrease
the risk of microbial contamination. The EPA has proposed several versions of
the ESWTR for promulgation. The version selected for promulgation will be
determined based on data collected by certain water suppliers and forwarded to
the EPA pursuant to EPAs Information Collection Rule, which requires such water
suppliers to monitor microbial and other contaminants in their water supplies
and to conduct certain tests in respect of such contaminants. The EPA has
adopted an Interim ESWTR applicable only to systems serving greater than 10,000
persons. On April 10, 2000, EPA published the proposed Long Term 1 Enhanced
Surface Water Treatment Rule and Filter Backwash Rule (LT1ESWTR) in the Federal
Register. The final Long-Term 1 Enhanced Surface Water Treatment Rule was
published in the January 14th Federal Register and applies to all public water
systems that use surface water or ground water under the direct influence of
surface water (GWUDI) and serve fewer than 10,000 persons. This proposed rule
will apply to each of SCWs five surface water treatment plants and the CCWCs
surface water treatment plant. It basically extends the requirements of the
ESWTR to systems serving less than 10,000 persons and will require some systems
to institute changes to the return of recycled filter backwash flows within the
treatment process to reduce the effects of recycled water on compromising
microbial control. Registrant is presently unable to predict the ultimate
impact of the LT1ESWTR, but it is anticipated that all plants will achieve
compliance within the three year to five-year time frames identified by EPA.

Regulation of Disinfectant/Disinfection By-Products

SCW and CCWC are also subject to regulations concerning
disinfectant/disinfection by-products (DBPs). Stage I of the regulations were
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. Two of SCWs systems are
immediately impacted by this rule. SCW implemented modifications to the
treatment process in its Bay Point and Cordova systems to achieve compliance
and a third SCW plant will require treatment modifications in order to comply
with this rule by 2004. SCW is conducting studies to determine the best
treatment methods to comply with this rule.

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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 expected in
2002.

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 aquifer or have detected
fecal indicators within the systems 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 in 2002. While no assurance can be given as
to the nature and cost of any additional compliance measures, if any, SCW and
CCWC do not believe that such regulations will impose significant compliance
costs, since they already currently engage in disinfection of their groundwater
systems.

Regulation of Radon and Arsenic

The regulation on arsenic was published in January 2001 with a new federal
standard of 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 three wells in CCWCs system. However, the EPA subsequently
withdrew the pending arsenic standard for a sixty-day review to seek
independent reviews of both the science behind the standard and of the cost
estimates to communities of implementing the rule. On October 31, 2001, EPA
announced that the arsenic standard in drinking water would be 10 parts per
ppb. The effective date for utilities to comply with the standard will be
January 2006. In California, the Office of Environmental Health Hazard
Assessment is currently preparing a Public Health Goal for arsenic that may
result in California adopting a lower MCL for arsenic. It is not clear what
will happen between now and the current effective date of the arsenic
regulation. No further actions by EPA would simply make this regulation become
effective as of that date.

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 EPAs 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. The final rule has been delayed and most likely will
not be published until late 2002. SCW and CCWC currently monitor their wells
for radon in order to determine the best treatment appropriate for affected
wells.

Voluntary Efforts to Exceed Minimum Surface Water Treatment Requirements

SCW is a voluntary member of the EPAs 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 exceed minimum operating requirements governing surface water
treatment, optimize surface water treatment plant operations and ensure that
its surface water treatment facilities are performing as efficiently as
possible.

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Fluoridation of Water Supplies

SCW is subject to State of California Assembly Bill 733, which requires
fluoridation of water supplies for public water systems serving more than
10,000 service connections. Although the bill requires affected systems to
install treatment facilities only when public funds have been made available to
cover capital and operating costs, the bill requires the CPUC to authorize cost
recovery through rates should public funds for operation of the facilities,
once installed, become unavailable in future years.

Ammonium Perchlorate Action Level Activities

The California Department of Health Services (DOHS) recently reduced the
action level for ammonium perchlorate. Although neither the EPA nor the DOHS
have established a drinking water standard for ammonium perchlorate. In January
1997 DOHS established an action level of 18 parts per billion (ppb). Action
levels are advisory in nature and are not enacted into law. In January 2002,
SCW was informed that DOHS has reduced the action level from 18 ppb to a level
of 4 ppb, based upon new reference dosage for health risk information from EPA.
SCW has removed eight wells from service in four separate systems since they
contained ammonium perchlorate in amounts in excess of this reduced action
level. On March 8, 2002, the California Office of Environmental Health Hazard
Assessment (OEHHA) published a draft Public Health Goal for perchlorate at 6
ppb. This is the first step to establishment of an MCL in California. SCW is
continuing to periodically monitor all its wells to determine that levels of
perchlorate are below the action level currently in effect.

Matters Relating to SCWs Arden-Cordova System

In January 1997, SCW was notified that ammonium perchlorate in amounts
above the state-determined action level had been detected in three of its wells
serving its Rancho-Cordova system. Aerojet-General Corp. has, in the past, used
ammonium perchlorate in oxidizing rocket fuels. SCW took the three wells
detected with ammonium perchlorate in excess of the 1997 action levels out of
service. In April 1997, SCW found ammonium perchlorate in three additional
wells and, at that time, removed those wells from service until it was
determined that the levels were below the state-determined action level. Those
wells were returned to service. SCW periodically monitors these wells to
determine that levels of ammonium perchlorate are below the action level
currently in effect. In January 2002, SCW was informed that DOHS was reducing
the action level from 18 ppb to 4 ppb and subsequently removed three wells from
service since they contained ammonium perchlorate in amounts in excess of this
reduced action level.

In February 1998, SCW was informed that nitrosodimethylamine (NDMA) had
been detected in amounts in excess of the EPA reference dosage for health risks
in four of its wells in its Rancho-Cordova system. The wells have been removed
from service. An additional well was also removed from service in September
1999 due to the contamination and another well was removed from service in
January 2002. The DOHS established an initial action level of 2 parts per
trillion (ppt). In February 2002, DOHS increased the action level to 10 ppt.
Management is investigating the impact, if any, that the increase in the action
level may have on its abilities to put certain wells back into service. NDMA is
an additional by-product from the production of rocket fuel and it is believed
that such contamination is related to the activities of Aerojet. 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 two new wells. As of March 31,
2002, Aerojet had previously reimbursed SCW $4.5 million of the approximately
$18 million in costs SCW has incurred. The remainder of the costs is subject to
further reimbursement, including interest. Reimbursements received from Aerojet
will reduce SCWs utility plant and costs of purchased water.

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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 1 in Legal Proceedings.

Matters Relating to SCWs Culver City System

The compound, methyl tertiary butyl ether (MTBE), an oxygenate used in
reformulated fuels, has been detected in the Charnock Basin, located in 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 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.

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 and
Equilon Enterprises LLC to provide replacement drinking water to both SCW and
the City of Santa Monica due to MTBE contamination of the Charnock Basin
drinking water. The EPA has ordered Shell Oil to reimburse SCW for water
replacement costs. The agencies are continuing to investigate the causes of
MTBE pollution and intend to ensure that all responsible parties contribute to
its clean up. SCW is unable to predict the outcome of the EPAs enforcement
efforts.

On April 25, 2001, Registrant filed a lawsuit 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. MTBE polluted and contaminated water existed in
areas of the basin from which SCW has pumped water through its Charnock Well
Field. As a result, SCW ceased operation of its Charnock Well Field in October
1996. In March 2002, Registrant has reached an agreement in this matter with
the City of Santa Monica that assigns the prosecution of litigation against the
potentially responsible parties to the City of Santa Monica, California (Santa
Monica). As part of the agreement executed on March 19, 2002 and in exchange
for an assignment payment, SCW granted its water rights in the Charnock Basin
to Santa Monica and Santa Monica took over the prosecution against the
potentially responsible parties. For further information, see section entitled
Other Water Quality Litigation included in
Part II, Item 1 in Legal
Proceedings.

Matters Relating to SCWs Yorba Linda System

The compound MTBE has been detected in three wells serving SCWs Yorba
Linda system. Two of the wells are standby wells and the third well has not
shown MTBE above the DOHS secondary standard of 5.0 ppb at this time. SCW has
constructed an interconnection with the MWD to provide for additional supply 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, 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.

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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.
Registrant has implemented a number of steps to address this concern, including
the engagement of a security firm to develop further protection measures and an
ongoing review of new industry and regulatory agency security measures.
Although Registrant has not experienced any material increase in costs related
to these measures, management is unable to predict what, if any, additional
measures will be implemented and what such measures may cost. Registrant
intends to seek recovery of any such costs from the CPUC and the ACC.
Management is unable to predict if these regulatory bodies will authorize
recovery of any or all of these costs.

Water Supply

SCWs Water Supply

For the three months ended March 31, 2002, SCW supplied a total of
17,212,000 ccf of water as compared to 15,588,000 ccf for the three months
ended March 31, 2001. Of the total 17,212,000 ccf of water supplied during the
first quarter of 2002, approximately 62.5% came from pumped sources and 37.5%
was purchased from others, principally the Metropolitan Water District of
Southern California (MWD) and its member agencies. The remaining 1% of total
supply came from the United States Bureau of Reclamation (the Bureau). For the
three months ended March 31, 2001, 64.1% and 35.9% was supplied from pumped
sources and purchased from MWD, respectively.

During the twelve months ended March 31, 2002, SCW supplied 85,727,000 ccf
of water as compared to 86,375,000 ccf supplied during the twelve months ended
March 31, 2001. During the twelve months ended March 31, 2002, pumped sources
provided 58.3% of total supply, 39.8% was purchased from MWD and its member
agencies. The remaining 1.9% of total supply came from the United States Bureau
of Reclamation (the Bureau) under a no-cost contract. For the twelve months
ended March 31, 2001, 56.1%, 41.9% and 2.0%, respectively, was supplied from
pumped sources, purchased from MWD and the Bureau.

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 57 connections to the water distribution
facilities of MWD and other municipal water agencies. MWD imports water from
two 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 and MWDs supplies from
these sources are anticipated to remain adequate through 2002. MWDs import of
water from the Colorado River is expected to decrease in future years due to
the requirements of the Central Arizona Project (CAP). In response, MWD has
taken a number of steps to secure additional storage capacity and to increase
available water supplies, by effecting transfers of water rights from other
sources.

Registrants water supply and revenues are significantly affected, both in
the short-run and the long run, by changes in meteorological conditions. The
average current water outlook for California is near normal levels with the
snow pack at 95% of average for April 2002 and statewide precipitation at 70%
of normal. While Northern California areas are at 100% or better of normal
precipitation levels, Southern California is suffering through a drought with
the South Coast area at 30%, South Lahontan region at 25%, and the Colorado
River-Desert at only 5% of normal. So far this water year the LA Civic Center
has gotten only 21% of normal rainfall, whereas last year the LA Civic Center
had received 127% of normal.

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Water storage, however, appears to be adequate given statewide levels are
at 100% of capacity for this time of year. In Northern California we see the
reservoirs filling due to recent precipitation and in Southern California last
years abundant rainfall helps current levels to be near or at normal.
Reservoirs in South Lahontan are at 105% and South Coast area at 85%. The
impacts of low precipitation in Southern California are minimized by generally
good storage in reservoirs. Groundwater conditions remain at adequate levels
in most of SCWs operating areas. Certain of SCWs groundwater supplies have
been affected to varying degrees by various forms of contamination and
mechanical problems caused by low water table, which, in some cases, have
caused increased reliance on purchased water in its supply mix.

CCWCs Water Supply

Storage at Lake Powell remains at 90% of average at March 2002. The
April-July inflow to Lake Powell is, however, forecasted to be only 3 million
acre-feet, which is 38% of average. The areas will remain dry until the
weather breaks probably in late summer, early fall time frame assuming that the
El Nino forms a new weather pattern.

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-Q in order to understand certain of the risks of our business.

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. As of March 31, 2002, SCW had accrued $24.8 million in unrecovered
power costs in its electric balancing accounts. FERC mitigation measures are
expected to expire on September 30, 2002. In addition, Cal ISO has proposed a
number of market reforms that could require SCW to procure substantial
additional power and/or capacity. This could result in an increase in the level
and volatility of electric prices in California.

We have been funding these power costs from our short-term borrowing
facilities. In addition, in April 2001, the Company implemented a Cash
Preservation Plan to control costs and temporarily to limit

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capital and maintenance expenditures. SCW has filed Advice Letters and an
application to recover the under-collection of power costs in its water and
electric balancing accounts and intends to continue to do so until such time as
its actual power costs are being fully recovered in rates. However, due to the
nature of the regulatory process, there is a risk of disallowance of full
recovery of supply costs during any period in which there has been a
substantial run-up in these costs. Any material disallowance of purchased power
costs could have a material adverse impact on cash flow and earnings. In
addition, we believe that timely action by the CPUC to authorize the recovery
of these costs is necessary to avoid a material adverse effect on SCWs
financial condition. Delays in obtaining regulatory approval or disallowance of
recovery of costs could also affect SCWs ability to pay dividends to AWR.
AWRs ability to pay dividends on its Common Shares is dependent upon the
payment of dividends by SCW.

We have reached a settlement with the CPUC Staff and all other intervening
parties that would authorize us to include $0.077 per kilowatt-hour (KWh) in
rates to recover our electric power costs. 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 that $0.077 per KWh,
we can use this difference to collect amounts previously included in the
balancing account. We are unable to predict if the CPUC will approve the
settlement and, if the settlement is approved, whether or not the CPUC will
implement new rates.

The Company has established approximately $8.3 million in reserves for its
Bear Valley Electric division for possible non-recovery of power costs included
in the electricity supply cost balancing accounts.

Changes in water supply costs, either unit cost change or supply mix
change, will directly impact the Companys earnings.

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. 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.

On November 29, 2001, the CPUC ordered SCW to suspend the use of all
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. We may recover certain water supply costs based on the
memorandum account if we are within our rate case cycle and we are not earning
an amount in excess of our authorized rate of return. SCW may not otherwise
recover increased costs due to increased unit cost. Additionally, changes in
water supply costs compared to the authorized amount, as well as any future
authorized offset increases may directly affect our earnings.

Significant claims have been asserted against us in water quality
litigation.

SCW and others have been sued in twenty water quality related lawsuits
alleging personal injury and property damage as a result of the delivery of
water that was allegedly contaminated. Seventeen of the lawsuits involve
plaintiffs who received water from the San Gabriel Basin 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
the CPUC has jurisdiction to regulate the service of water utilities with
respect to the health and safety of that service; that DOHS requirements
governing drinking water quality

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adequately protect the public health and safety; and that 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 might be sued for damages based on allegations
that the utility failed to 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.

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 alternatives 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.

Certain government officials have suggested 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 in other service areas. Currently,
neither the Environmental Protection Agency nor any other governmental agency
has identified the Company or, to our knowledge, any other water producer, as a
potentially responsible party. We cannot assure you, however, that SCW or CCWC
will not be identified as a potentially responsible party in the future. 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.

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 will affect SCWs five surface water treatment plants
and one CCWC plant
|
| |  |  | Additional regulation of disinfection/disinfection
byproducts expected to be adopted before the end of 2002; these
regulations will potentially affect two of SCWs systems                                 
|
| |  |  | Additional regulations expected to be adopted requiring
disinfection of certain groundwater systems                                                                                                         
|
| |  |  | Currently pending regulation of arsenic and radon                                                                                                                                                           
|
| |  |  | California customer requirements to fluoridate public
water systems serving over 10,000 customers                                                                                                           

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| |  |  | Reduction in the action level for ammonium perchlorate
to 4 ppb in 2002; we have removed 8 wells from service due to the
presence ammonium perchlorate above action levels.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

SCW and CCWC may be able to recover costs incurred to comply with these
regulations through the ratemaking process for their regulated systems. 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 responsible or potentially responsible for
contamination.

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            
|
| |  |  | The amount of water used by our customers and others
|
| |  |  | Water quality, and                                  
|
| |  |  | 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). 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 under the terms of our contractual agreements
with municipalities. In certain circumstances, we may recover 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

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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.

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. In April 1999, the CPUC denied
our request to recover through rates the costs associated with our
participation in the Coastal Aqueduct Extension of the State Water Project. We
also have an application pending before the CPUC to include an additional $1.6
million in rate base for a water treatment plant in SCWs Clearlake service
area that was previously disallowed by the CPUC in 1993. In addition, we have
an application pending to recover our current energy costs.

We have been adversely affected by electric restructuring in California
and the escalation of energy costs attributable thereto. The California
Department of Water Resources has attempted to alleviate the crisis by
purchasing electricity for Pacific Gas and Electric Company, Southern
California Edison Company and San Diego Gas and Electric Company, but does not
purchase any electricity for our Bear Valley electric division. FERC has taken
certain actions intended to stabilize the energy market in the West. These
mitigation measures expire on September 30, 2002. Registrant is unable to
predict what impact the expiration of these measures will have on electric
prices.

Cal ISO expects to propose additional market reforms that may
substantially increase the costs of SCW. This could have a material adverse
impact on SCW if SCW is unable to recover these increased costs from its
ratepayers.

SCW has filed a complaint with FERC seeking a reduction of the rates in
its power purchase contract with Mirant Marketing to a just and reasonable
price. Registrant is unable to predict the outcome of this proceeding. SCW has
also filed an Advice Letter with the CPUC seeking to recover the costs of its
power supply costs previously incurred and expected to be incurred under its
contracts with Mirant Marketing and Pinnacle West Capital. SCW has reached a
settlement regarding the recovery of a substantial portion of these costs. This
settlement has not yet been approved by the CPUC.

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 2001, 2000 and 1999, we spent $50,253,000,
$45,982,000, and $51,578,000, respectively, for these purposes. Our budgeted
capital expenditures for calendar year 2002 for these purposes are
approximately $56,774,000.

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. We
maintain bank lines of credit 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 remain profitable.

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Accounting Standard

In June of 2001, the Financial Accounting Standards Board issued SFAS No.
143, Accounting for Asset Retirement Obligations, on the accounting for
obligations associated with the retirement of long-lived assets. Registrant
believes that it will be subject to the provisions of SFAS No. 143 and is
currently analyzing the impact that implementation of FASB No. 143 might have
on its future financial statement presentation. The new rule 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. SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

Registrant has no derivative financial instruments, financial instruments
with significant off-balance sheet risks or financial instruments with
concentrations of credit risk except for the block-forward purchase power
contracts that meet the normal purchase exception rule under FASB 133,
Accounting for Derivative Instruments and Hedging Activities. Under the terms
of its power purchase contracts with Mirant Marketing and Pinnacle West
Capital, SCW is required to post security, at the request of the seller, if SCW
is in default under the terms of the contract. For further information, see the
section entitled Contractual Obligations and Other Commitmentsincluded in
Part I, Item 2 in Managements Discussion and Analysis of Financial Condition
and Results of Operation.




PART II




Item 1. Legal Proceedings

Water Quality-Related Litigation

SCW is a defendant in twenty lawsuits involving claims pertaining to water
quality. Seventeen 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: Adler v. Southern California Water
Company, et al., Case No. BC169892, Santamaria v. Suburban Water Systems, et
al., Case No. CIV180894, Georgianna v. Dominguez et al. v. Southern California
Water Company, et al., Case No. G021657, 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. C028732, Adejare, et
al. v. Southern California Water Company, Case No. KC031096, Almelia Brooks, 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
wells 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 trichloroethylene (TCE),

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perchloroethene (PCE), carbon tetrachloride and other solvents 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 is contaminated with a
number of chemicals, including, TCE, PCE, 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 plaintiffs 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 no
discovery has yet been completed, 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 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 Commission 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; and that regulated water utilities, including SCW,
have satisfactorily complied with past and present drinking water quality
requirements.

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. The CPUC has not yet authorized SCW to recover any of its litigation
costs. As of December 31, 2001, SCW had recorded a net of $888,800 in this

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memorandum account. Management believes that these expenses will be fully
recovered but is unable to predict when, or if, the CPUC will authorize
recovery of all or any of the costs.

Other Water Quality Litigation

On October 25, 1999, SCW filed a lawsuit against the California Central
Valley Regional Water Quality Control Board (CRWQCB) alleging that the CRWQCB
has willfully allowed portions of the Sacramento County Groundwater Basin to be
injected with chemical pollution that is destroying the underground water
supply in SCWs Rancho Cordova customer service area. SCW and the CRWQCB have
entered into mediation regarding this matter but management cannot predict the
likely outcome of this process or the likelihood of a favorable outcome should
this matter go to trial.

In a separate case, also filed on October 25, 1999, SCW sued
Aerojet-General Corporation (Aerojet) for causing the contamination of the
Sacramento County Groundwater Basin. On March 22, 2000, Aerojet filed a cross
complaint against SCW for negligence and constituting a public nuisance.
Registrant is unable to determine at this time what, if any, potential
liability it may have with respect to the cross complaint, but intends to
vigorously defend itself against these allegations. Management cannot predict
the likely outcome of these proceedings.

The CPUC has authorized memorandum accounts to allow for recovery of costs
incurred by SCW in prosecuting the suits filed against CRWQCB and Aerojet from
customers, less any recovery from the defendants or others. As of March 31,
2002, approximately $7,620,000 has been recorded in the memorandum accounts.
The CPUC has authorized SCW to increase rates, effective April 28, 2001, for
recovery over a six-year period of approximately $1,800,000, in expenses that
were incurred on or before August 31, 2000. SCW will continue to file
additional Advice Letters to recover the remaining costs. Management believes
these costs are recoverable but cannot give assurance that the CPUC will
ultimately allow recovery of all or any of the remaining costs through rates.

On April 25, 2001, Registrant filed a lawsuit 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. MTBE contaminated water existing in areas of the
basin from which SCW has pumped water through its Charnock Well Field. As a
result, SCW ceased operation of its Charnock Well Field in October 1996. In
March 2002, Registrant has reached an agreement in this matter that assigns the
prosecution of litigation against the potentially responsible parties to the
City of Santa Monica, California (Santa Monica). As part of the agreement
executed on March 19, 2002 and in exchange for an assignment payment, SCW
granted its water rights in the Charnock Basin to Santa Monica and Santa Monica
prosecutes the case against the potentially responsible parties.

Electric Service Litigation

SCW 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. Subsequently
Edison filed a cross-complaint against SCW for breach of contract, anticipatory
breach, and quantum meruit. Registrant has discussed various settlement options
with Edison regarding this matter. However, management cannot predict the
likely outcome of this matter.

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Other Litigation

Registrant is also subject to ordinary routine litigation incidental to
its business. Other than as disclosed above, no legal proceedings are pending,
except such incidental litigation, to which Registrant is a party or of which
any of its properties is the subject, which are believed to be material.




Item 2. Changes in Securities

As of March 31, 2002, earned surplus amounted to $75,055,000. 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. Delays in obtaining approval of the
CPUC for recovery of energy costs in rates or disallowance of the recovery of
such costs could also affect SCWs ability to pay dividends to AWR. 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. Under restrictions of the Arizona tests,
approximately $3.3 million was available to pay dividends to Common
Shareholders at March 31, 2002.

There are 492,431 and 62,400 Common Shares authorized but un-issued under
the DRP and the 401(k) Plan, respectively, at March 31, 2002. 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 2002, 1,619
common shares were issued pursuant to the terms of both the DRP and the 401(k)
Plans. There are 250,000 Common Shares reserved for issuance under
Registrants 2000 Stock Incentive Plan. Under the Plan, stock options
representing a total of 91,092 Common Shares upon exercise were granted to
certain eligible employees on May 1, 2000 and January 2, 2001.

All of the series of Preferred Shares outstanding at March 31, 2002 are
redeemable at the option of AWR. 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 Securities

None.




Item 4. Submission of Matters to a Vote of Security Holders

On or about March 22, 2002, 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 four Class II
directors to serve for a two-year term expiring at the end of the Annual
Meeting of Shareholders in 2004, or until their successors are chosen and
qualified. The table on the next page presents the voting results of the
election presented at the Annual Meeting of Shareholders held on April 30,
2002:

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|                 |  |             |         |                  |  |  |        | 
|---------------- |  | ----------- | ------- | ---------------- |  |  | ------ | 
|Name             |  | Votes
For |         | Votes
Withheld
|                 |  |             |         |                 
|Jean E. Auer     |  |             | 855,582 |                  |  |  | 9,777  | 
|N.P. Dodge, Jr.  |  |             | 854,075 |                  |  |  | 11,284 | 
|Robert F. Kathol |  |             | 855,194 |                  |  |  | 10,165 | 
|Lloyd E. Ross    |  |             | 855,330 |                  |  |  | 10,029 | 




Item 5. Other Information

On April 30, 2002, the Board of Directors of Registrant declared a regular
quarterly dividend of $0.325 per common share. The dividend will be paid June
1, 2002 to shareholders of record as of the close of business on May 8, 2002.




Item 6. Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits:
| | --- |  | ---------

|      |  |                                                                                      
|----- |  | -------------------------------------------------------------------------------------
|10.17 |  | American States Water Company Annual Incentive Plan,
as amended April 29, 2002.(1)(2)
|10.26 |  | American States Water Company Three-Year Dividend
Equivalent Right Certificate.(1)(2)
|99    |  | Managements letter pursuant to Temporary Note 3T
to Article 3 of Regulation S-X.(1) 



| | (b) |  | Registrant filed a Form 8-K with the Securities and Exchange
Commission on April 30, 2002, disclosing 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 will be paid in cash. As
a result of the stock split, the total number of Common Shares
outstanding will increase from approximately 10.1 million to
approximately 15.2 million.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---

|(1) |  | Filed concurrently herewith                    
|--- |  | -----------------------------------------------
|   
|   
|   
|   
|(2) |  | Management contract or compensatory arrangement

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SIGNATURES

Pursuant 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 duly authorized officer and chief financial officer.

| |                                                                                    |                                                                                              
| | ---------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------
| | AMERICAN STATES WATER COMPANY
and its subsidiary
SOUTHERN CALIFORNIA WATER COMPANY
|
|
| | By:                                                                                | /s/ McClellan Harris III                                                                     
| |                                                                                    |                                                                                              
| |                                                                                    | McClellan Harris III
Vice President-Finance,
Chief Financial Officer,
Treasurer and Secretary
|
|
| | By:                                                                                | /s/ Linda J. Matlick                                                                         
| |                                                                                    |                                                                                              
| |                                                                                    | Linda J. Matlick
Controller
Southern California Water Company                                

Dated: May 9, 2002

44