##### Table of Contents



SECURITIES AND EXCHANGE
 COMMISSION

Washington, D.C. 20549


FORM 10-Q

(Mark One)



|x | Quarterly report pursuant to
 Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended September 30, 2002 or    
|- | -------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                  
|o | Transition report pursuant to
 Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from _________ to ___________



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



|American States Water Company                          
|-------------------------------------------------------
|                                                       
|(Exact Name of Registrant
 as Specified in Its Charter)



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



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



|(909) 394-3600                                       
|-----------------------------------------------------
|                                                     
|(Registrants
 Telephone Number, Including Area Code)



|Not Applicable                                                                     
|-----------------------------------------------------------------------------------
|                                                                                   
|(Former Name,
 Former Address and Former Fiscal Year, if Changed Since Last Report)



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



|Southern California Water Company                      
|-------------------------------------------------------
|                                                       
|(Exact Name of Registrant
 as Specified in Its Charter)



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



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



|(909) 394-3600                                       
|-----------------------------------------------------
|                                                     
|(Registrants
 Telephone Number, Including Area Code)



|Not Applicable                                                                     
|-----------------------------------------------------------------------------------
|                                                                                   
|(Former Name,
 Former Address and Former Fiscal Year, if Changed Since Last Report)

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

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

As of November 8, 2002, the number of Common
 Shares outstanding, no par value with stated value of $2.50, of American States
 Water Company was 15,167,149 shares.

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



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TABLE OF CONTENTS



|                          |                                                                                              |                                   |  |  |  |  |  | 
|------------------------- | -------------------------------------------------------------------------------------------- | --------------------------------- |  |  |  |  |  | 
|PART I                   
|                          | Item 1. Financial Statements                                                                
|                          |                                                                                              | CONSOLIDATED BALANCE SHEETS      
|                          |                                                                                              | CONSOLIDATED STATEMENTS OF INCOME
|                          |                                                                                              | CONSOLIDATED STATEMENTS OF INCOME
|                          |                                                                                              | CONSOLIDATED STATEMENTS OF INCOME
|                          |                                                                                              | CONSOLIDATED CASH FLOW STATEMENTS
|                          |                                                                                              | BALANCE SHEETS                   
|                          |                                                                                              | STATEMENTS OF INCOME             
|                          |                                                                                              | STATEMENTS OF INCOME             
|                          |                                                                                              | STATEMENTS OF INCOME             
|                          |                                                                                              | 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                          
|                          | Item 4. Controls and Procedures                                                             
|PART II Other Information
|                          | Item 1. Legal Proceedings                                                                   
|                          | Item 2. Changes in Securities                                                               
|                          | Item 3. Defaults Upon Senior Securities                                                     
|                          | Item 4. Submission of Matters to a Vote of Security Holders                                 
|                          | Item 5. Other Information                                                                   
|                          | Item 6. Exhibits and Reports on Form 8-K                                                    
|SIGNATURE                
|CERTIFICATIONS           



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##### Table of Contents



AMERICAN STATES WATER
 COMPANYandSOUTHERN CALIFORNIA WATER COMPANYFORM 10-Q

INDEX

|         |                                                                                                                                                | Page No.
|-------- | ---------------------------------------------------------------------------------------------------------------------------------------------- | --------
|         |                                                                                                                                                |         
|Part
 I  | Financial
 Information                                                                                                                         |         
|Item 1:  | Financial
 Statements                                                                                                                          |         
|         | Consolidated
 Balance Sheets of American States Water Company as of September
 30, 2002 and December 31, 2001                                  |         
|         | Consolidated
 Statements of Income of American States Water Company for the Three Months
 Ended September 30, 2002 and September 30, 2001      |         
|         | Consolidated
 Statements of Income of American States Water Company for the Nine Months
 Ended September 30, 2002 and September 30, 2001       |         
|         | Consolidated
 Statements of Income of American States Water Company for the Twelve
 Months Ended September 30, 2002 and September 30, 2001     |         
|         | Consolidated
 Statements of Cash Flow of American States Water Company for the Nine Months
 Ended September 30, 2002 and September 30, 2001    |         
|         | Consolidated
 Balance Sheets of Southern California Water Company as of September
 30, 2002 and December 31, 2001                              |         
|         | Consolidated
 Statements of Income of Southern California Water Company for the Three Months
 Ended September 30, 2002 and September 30, 2001  |         
|         | Consolidated
 Statements of Income of Southern California Water Company for the Nine Months
 Ended September 30, 2002 and September 30, 2001   |         
|         | Consolidated
 Statements of Income of Southern California Water Company for the Twelve
 Months Ended September 30, 2002 and September 30, 2001 |         
|         | Consolidated
 Statements of Cash Flow of Southern California Water Company for the Nine Months
 Ended September 30, 2002 September 30, 2001    |         
|         | 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 Risks                                                                                   |         
|Item 4.  | Controls
 and Procedures                                                                                                                       |         
|Part
 II | Other
 Information                                                                                                                             |         
|Item 1:  | Legal Proceedings                                                                                                                              |         
|Item 2:  | Changes
 in Securities                                                                                                                         |         
|Item 3:  | Defaults
 Upon Senior Securities                                                                                                               |         
|Item 4:  | Submission
 of Matters to a Vote of Security Holders                                                                                           |         
|Item 5:  | Other Information                                                                                                                              |         
|Item 6:  | Exhibits
 and Reports on Form 8-K                                                                                                              |         
|         | Signature                                                                                                                                      |         
|         | Certifications                                                                                                                                 |         

i



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##### Table of Contents






PART I




Item 1. Financial Statements



General




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




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




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




Filing Format




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


1



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##### Table of Contents



AMERICAN STATES
 WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS(Unaudited)



|(in thousands)                                                                | September 30,2002 |   | December 31,2001
|----------------------------------------------------------------------------- | ----------------- | - | ----------------
|                                                                              |                   |   |                 
|Utility Plant, at cost                                                        |                   |   |                 
|Water                                                                         |                   | $ | 684,248         
|Electric                                                                      |                   |   | 39,136          
|                                                                              |                   |   |                 
|                                                                              |                   |   | 723,384         
|Less - Accumulated depreciation                                               |                   |   | (204,955        
|                                                                              |                   |   |                 
|                                                                              |                   |   | 518,429         
|Construction work in progress                                                 |                   |   | 39,964          
|                                                                              |                   |   |                 
|                                                                              |                   |   | 558,393         
|Other Property and Investments                                                |                   |   | 24,000          
|                                                                              |                   |   |                 
|Current Assets                                                                |                   |   |                 
|Cash and cash equivalents                                                     |                   |   | 11,673          
|Accounts receivable-Customers, less reserves
 of $1,035 in 2002; $972 in 2001 |                   |   | 14,106          
|Other accounts receivable                                                     |                   |   | 5,676           
|Unbilled revenue                                                              |                   |   | 15,223          
|Materials and supplies, at average cost                                       |                   |   | 1,098           
|Supply cost balancing accounts - current                                      |                   |   | 5,486           
|Prepayments and other                                                         |                   |   | 2,035           
|                                                                              |                   |   |                 
|                                                                              |                   |   | 55,297          
|                                                                              |                   |   |                 
|Deferred Charges and Other Long-Term Assets                                   |                   |   |                 
|Regulatory tax-related assets                                                 |                   |   | 14,510          
|Other deferred charges                                                        |                   |   | 20,211          
|Supply cost balancing accounts                                                |                   |   | 25,347          
|                                                                              |                   |   |                 
|                                                                              |                   |   | 60,068          
|                                                                              |                   |   |                 
|Total Assets                                                                  |                   | $ | 697,758         
|                                                                              |                   |   |                 

The accompanying notes
 are an integral part of these financial statements

2



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##### Table of Contents



AMERICAN STATES
 WATER COMPANYCONSOLIDATED BALANCE SHEETSCAPITALIZATION AND
 LIABILITIES(Unaudited)



|(in thousands)                                                 | September 30,2002 |   | December 31,2001
|-------------------------------------------------------------- | ----------------- | - | ----------------
|                                                               |                   |   |                 
|Capitalization                                                 |                   |   |                 
|Common shareholders equity                                    |                   | $ | 208,095         
|Preferred shares                                               |                   |   |                
|Preferred shares subject to mandatory
 redemption requirements |                   |   |                
|Long-term debt                                                 |                   |   | 245,190         
|                                                               |                   |   |                 
|                                                               |                   |   | 453,285         
|                                                               |                   |   |                 
|Current Liabilities                                            |                   |   |                 
|Notes payable to banks                                         |                   |   | 14,000          
|Long-term debt and preferred
 shares due within one year       |                   |   | 760             
|Accounts payable                                               |                   |   | 18,139          
|Taxes payable                                                  |                   |   | 7,074           
|Accrued interest                                               |                   |   | 5,023           
|Reserves for potential disallowance
 of power costs            |                   |   | 6,388           
|Other accrued liabilities                                      |                   |   | 13,452          
|                                                               |                   |   |                 
|                                                               |                   |   | 64,836          
|                                                               |                   |   |                 
|Other Credits                                                  |                   |   |                 
|Advances for construction                                      |                   |   | 69,770          
|Contributions in aid of construction                           |                   |   | 46,510          
|Accumulated deferred income taxes-net                          |                   |   | 57,418          
|Unamortized investment tax credits                             |                   |   | 2,814           
|Regulatory tax-related liability                               |                   |   | 1,739           
|Other                                                          |                   |   | 1,386           
|                                                               |                   |   |                 
|                                                               |                   |   | 179,637         
|                                                               |                   |   |                 
|Total Capitalization and Liabilities                           |                   | $ | 697,758         
|                                                               |                   |   |                 

3



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##### Table of Contents



AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2002 AND 2001
(Unaudited)



|                                              | Three Months EndedSeptember 30,
|--------------------------------------------- | -------------------------------
|(in thousands, except per share amounts)      |                                
|                                              |                                
|Operating Revenues                            |                                
|Water                                         |                                
|Electric                                      |                                
|Other                                         |                                
|                                              |                                
|                                              |                                
|                                              |                                
|Operating Expenses                            |                                
|Water purchased                               |                                
|Power purchased for pumping                   |                                
|Power purchased for resale                    |                                
|Groundwater production assessment             |                                
|Supply cost balancing accounts                |                                
|Other operating expenses                      |                                
|Administrative and general expenses           |                                
|Depreciation and amortization                 |                                
|Maintenance                                   |                                
|Taxes on income                               |                                
|Other taxes                                   |                                
|                                              |                                
|                                              |                                
|                                              |                                
|Operating income                              |                                
|Other Income/(Loss)                           |                                
|                                              |                                
|Income before interest charges                |                                
|Interest Charges                              |                                
|                                              |                                
|Net Income                                    |                                
|Dividends on Preferred Shares                 |                                
|                                              |                                
|Earnings Available for Common Shareholders    |                                
|                                              |                                
|Weighted Average Number of Shares Outstanding |                                
|Basic Earnings Per Common Share               |                                
|Weighted Average Number of Diluted Shares     |                                
|Fully Diluted Earnings Per Share              |                                
|Dividends Declared Per Common Share           |                                

The accompanying notes are an integral part of these financial statements

4



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##### Table of Contents



AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2002 AND 2001
(Unaudited)



|                                              | Nine Months EndedSeptember 30,
|--------------------------------------------- | ------------------------------
|(in thousands, except per share amounts)      |                               
|                                              |                               
|Operating Revenues                            |                               
|Water                                         |                               
|Electric                                      |                               
|Other                                         |                               
|                                              |                               
|                                              |                               
|                                              |                               
|Operating Expenses                            |                               
|Water purchased                               |                               
|Power purchased for pumping                   |                               
|Power purchased for resale                    |                               
|Groundwater production assessment             |                               
|Supply cost balancing accounts                |                               
|Other operating expenses                      |                               
|Administrative and general expenses           |                               
|Depreciation and amortization                 |                               
|Maintenance                                   |                               
|Taxes on income                               |                               
|Other taxes                                   |                               
|                                              |                               
|                                              |                               
|                                              |                               
|Operating income                              |                               
|Other Income/(Loss)                           |                               
|                                              |                               
|Income before interest charges                |                               
|Interest Charges                              |                               
|                                              |                               
|Net Income                                    |                               
|Dividends on Preferred Shares                 |                               
|                                              |                               
|Earnings Available for Common Shareholders    |                               
|                                              |                               
|Weighted Average Number of Shares Outstanding |                               
|Basic Earnings Per Common Share               |                               
|Weighted Average Number of Diluted Shares     |                               
|Fully Diluted Earnings Per Share              |                               
|Dividends Declared Per Common Share           |                               

The accompanying notes are an integral part of these financial statements

5



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##### Table of Contents



AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWELVE MONTHSENDED SEPTEMBER 30, 2002 AND 2001(Unaudited)



|                                              |  | Twelve
 Months EndedSeptember 30,
|--------------------------------------------- |  | ---------------------------------
|(in thousands, except per share amounts)      |  | 2002                             
|                                              |  |                                  
|Operating Revenues                            |  |                                  
|Water                                         |  | $                                
|Electric                                      |  |                                  
|Other                                         |  |                                  
|                                              |  |                                  
|                                              |  |                                  
|                                              |  |                                  
|Operating Expenses                            |  |                                  
|Water purchased                               |  |                                  
|Power purchased for pumping                   |  |                                  
|Power purchased for resale                    |  |                                  
|Groundwater production assessment             |  |                                  
|Supply cost balancing accounts                |  |                                  
|Other operating expenses                      |  |                                  
|Administrative and general expenses           |  |                                  
|Depreciation and amortization                 |  |                                  
|Maintenance                                   |  |                                  
|Taxes on income                               |  |                                  
|Other taxes                                   |  |                                  
|                                              |  |                                  
|                                              |  |                                  
|                                              |  |                                  
|Operating income                              |  |                                  
|Other Income/(Loss)                           |  |                                  
|                                              |  |                                  
|Income before interest charges                |  |                                  
|Interest Charges                              |  |                                  
|                                              |  |                                  
|Net Income                                    |  |                                  
|Dividends on Preferred Shares                 |  |                                  
|                                              |  |                                  
|Earnings Available for Common Shareholders    |  | $                                
|                                              |  |                                  
|Weighted Average Number of Shares Outstanding |  |                                  
|Basic Earnings Per Common Share               |  | $                                
|Weighted Average Number of Diluted Shares     |  |                                  
|Fully Diluted Earnings Per Share              |  | $                                
|Dividends Declared Per Common Share           |  | $                                

The accompanying notes are an integral part of
 these financial statements

6



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##### Table of Contents



AMERICAN STATES WATER COMPANY
CONSOLIDATED CASH FLOW STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001(Unaudited)



|                                                                    |  | Nine Months
 EndedSeptember 30,
|------------------------------------------------------------------- |  | -------------------------------
|(in thousands)                                                      |  | 2002                           
|                                                                    |  |                                
|Cash Flows From Operating Activities:                               |  |                                
|Net income                                                          |  | $                              
|Adjustments for non-cash items:                                     |  |                                
|Depreciation and amortization                                       |  |                                
|Deferred income taxes and investment tax credits                    |  |                                
|Other - net                                                         |  |                                
|Changes in assets and liabilities:                                  |  |                                
|Accounts receivable                                                 |  |                                
|Prepayments                                                         |  |                                
|Supply cost balancing accounts                                      |  |                                
|Accounts payable                                                    |  |                                
|Taxes payable                                                       |  |                                
|Unbilled revenue                                                    |  |                                
|Other                                                               |  |                                
|                                                                    |  |                                
|Net Cash Provided                                                   |  |                                
|                                                                    |  |                                
|Investing Activities:                                               |  |                                
|Construction expenditures                                           |  |                                
|                                                                    |  |                                
|Net Cash Used                                                       |  |                                
|                                                                    |  |                                
|Financing Activities:                                               |  |                                
|Issuance of securities                                              |  |                                
|Receipt of advances and contributions                               |  |                                
|Repayments of long-term debt, net of redemption of preferred shares |  |                                
|Refunds on advances for construction                                |  |                                
|Changes in notes payable to banks                                   |  |                                
|Common and preferred dividends paid                                 |  |                                
|                                                                    |  |                                
|Net Cash Provided (Used)                                            |  |                                
|                                                                    |  |                                
|Net Increase (Decrease) in Cash and Cash Equivalents                |  |                                
|Cash and Cash Equivalents, Beginning of period                      |  |                                
|                                                                    |  |                                
|Cash and Cash Equivalents, End of period                            |  | $                              
|                                                                    |  |                                

The accompanying notes are an integral part of
 these financial statements

7



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##### Table of Contents



SOUTHERN CALIFORNIA WATER COMPANY
BALANCE SHEETS
ASSETS
(Unaudited)



|                                                                            | September 30, |          | December 31,
|--------------------------------------------------------------------------- | ------------- | -------- | ------------
|(in thousands)                                                              | 2002          |          | 2001        
|                                                                            |               |          |             
|Utility Plant, at cost                                                      |               |          |             
|Water                                                                       | $             | 647,051  |             
|Electric                                                                    |               | 39,136   |             
|                                                                            |               |          |             
|                                                                            |               | 686,187  |             
|Less - Accumulated depreciation                                             |               | (194,972 | )           
|                                                                            |               |          |             
|                                                                            |               | 491,215  |             
|Construction work in progress                                               |               | 38,590   |             
|                                                                            |               |          |             
|                                                                            |               | 529,805  |             
|                                                                            |               |          |             
|Other Property and Investments                                              |               | 9,351    |             
|                                                                            |               |          |             
|Current Assets                                                              |               |          |             
|Cash and cash equivalents                                                   |               | 6,231    |             
|Accounts receivable-Customers, less
 reserves of $998 in 2002; $498 in 2001 |               | 13,566   |             
|Other accounts receivable                                                   |               | 5,471    |             
|Intercompany receivable                                                     |               | 7,299    |             
|Unbilled revenue                                                            |               | 14,935   |             
|Materials and supplies, at average cost                                     |               | 1,065    |             
|Supply cost balancing accounts - current                                    |               | 5,486    |             
|Prepayments and other                                                       |               | 1,930    |             
|                                                                            |               |          |             
|                                                                            |               | 55,983   |             
|                                                                            |               |          |             
|Deferred Charges and Other Long-Term Assets                                 |               |          |             
|Regulatory tax-related assets                                               |               | 14,510   |             
|Other
 deferred charges                                                     |               | 19,186   |             
|Supply cost balancing accounts                                              |               | 25,347   |             
|                                                                            |               |          |             
|                                                                            |               | 59,043   |             
|                                                                            |               |          |             
|Total Assets                                                                | $             | 654,182  |             
|                                                                            |               |          |             

The accompanying notes are an integral part of
 these financial statements

8



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##### Table of Contents



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



|                                                        | September 30, |         | December 31,
|------------------------------------------------------- | ------------- | ------- | ------------
|(in thousands)                                          | 2002          |         | 2001        
|                                                        |               |         |             
|Capitalization                                          |               |         |             
|Common
 shareholders equity                            | $             | 202,447 |             
|Long-term debt                                          |               | 236,571 |             
|                                                        |               |         |             
|                                                        |               | 439,018 |             
|                                                        |               |         |             
|Current Liabilities                                     |               |         |             
|Long-term debt and preferred shares due within one year |               | 260     |             
|Accounts payable                                        |               | 17,494  |             
|Intercompany payable                                    |               |        |             
|Taxes payable                                           |               | 7,160   |             
|Accrued interest                                        |               | 4,878   |             
|Reserves for potential disallowance of power costs      |               | 6,388   |             
|Other accrued liabilities                               |               | 13,091  |             
|                                                        |               |         |             
|                                                        |               | 49,271  |             
|                                                        |               |         |             
|Other Credits                                           |               |         |             
|Advances for construction                               |               | 59,200  |             
|Contributions in aid of construction                    |               | 46,246  |             
|Accumulated deferred income taxes-net                   |               | 55,894  |             
|Unamortized investment tax credits                      |               | 2,814   |             
|Regulatory tax-related liability                        |               | 1,739   |             
|                                                        |               | 165,893 |             
|                                                        |               |         |             
|Total Capitalization and Liabilities                    | $             | 654,182 |             
|                                                        |               |         |             

The accompanying notes are an integral part of
 these financial statements

9



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##### Table of Contents



SOUTHERN
 CALIFORNIA WATER COMPANY
STATEMENTS OF INCOME
FOR THE THREE MONTHSENDED SEPTEMBER 30, 2002 AND
 2001(Unaudited)



|                                               | Three Months EndedSeptember 30,
|---------------------------------------------- | -------------------------------
|(in thousands, except
 per share amounts)      | 2002                           
|                                               |                                
|Operating Revenues                             |                                
|Water                                          | $                              
|Electric                                       |                                
|                                               |                                
|                                               |                                
|                                               |                                
|Operating Expenses                             |                                
|Water purchased                                |                                
|Power
 purchased for pumping                   |                                
|Power purchased for resale                     |                                
|Groundwater production assessment              |                                
|Supply cost balancing accounts                 |                                
|Other operating expenses                       |                                
|Administrative and general expenses            |                                
|Depreciation and amortization                  |                                
|Maintenance                                    |                                
|Taxes on income                                |                                
|Other taxes                                    |                                
|                                               |                                
|                                               |                                
|                                               |                                
|Operating income                               |                                
|Other Income/(Loss)                            |                                
|                                               |                                
|Income before interest charges                 |                                
|Interest Charges                               |                                
|                                               |                                
|Net Income                                     |                                
|Dividends on Preferred Shares                  |                                
|                                               |                                
|Earnings Available for
 Common Shareholders    | $                              
|                                               |                                
|Weighted Average
 Number of Shares Outstanding |                                
|Basic Earnings Per Common Share                | $                              
|Dividends Declared Per Common Share            | $                              

The accompanying notes
 are an integral part of these financial statements

10



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##### Table of Contents



SOUTHERN
 CALIFORNIA WATER COMPANY
STATEMENTS OF INCOME
FOR THE NINE MONTHSENDED SEPTEMBER 30, 2002 AND
 2001(Unaudited)



|                                               | Nine Months EndedSeptember 30,
|---------------------------------------------- | ------------------------------
|(in
 thousands, except per share amounts)      | 2002                          
|                                               |                               
|Operating Revenues                             |                               
|Water                                          | $                             
|Electric                                       |                               
|                                               |                               
|                                               |                               
|                                               |                               
|Operating Expenses                             |                               
|Water purchased                                |                               
|Power purchased for pumping                    |                               
|Power purchased for resale                     |                               
|Groundwater production assessment              |                               
|Supply cost balancing accounts                 |                               
|Other operating expenses                       |                               
|Administrative and general expenses            |                               
|Depreciation and amortization                  |                               
|Maintenance                                    |                               
|Taxes on income                                |                               
|Other taxes                                    |                               
|                                               |                               
|                                               |                               
|                                               |                               
|Operating income                               |                               
|Other Income/(Loss)                            |                               
|                                               |                               
|Income before interest charges                 |                               
|Interest Charges                               |                               
|                                               |                               
|Net Income                                     |                               
|Dividends on Preferred Shares                  |                               
|                                               |                               
|Earnings Available for
 Common Shareholders    | $                             
|                                               |                               
|Weighted Average Number
 of Shares Outstanding |                               
|Basic Earnings Per Common Share                | $                             
|Dividends Declared Per Common Share            | $                             

The accompanying notes
 are an integral part of these financial statements

11



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##### Table of Contents



SOUTHERN CALIFORNIA WATER
 COMPANY
STATEMENTS OF INCOME
FOR THE TWELVE MONTHSENDED SEPTEMBER 30, 2002
 AND 2001(Unaudited)

|                                              | Twelve Months EndedSeptember 30,
|--------------------------------------------- | --------------------------------
|(in thousands, except per share amounts)      | 2002                            
|                                              |                                 
|Operating Revenues                            |                                 
|Water                                         | $                               
|Electric                                      |                                 
|                                              |                                 
|                                              |                                 
|                                              |                                 
|Operating Expenses                            |                                 
|Water purchased                               |                                 
|Power purchased for pumping                   |                                 
|Power purchased for resale                    |                                 
|Groundwater production assessment             |                                 
|Supply cost balancing accounts                |                                 
|Other operating expenses                      |                                 
|Administrative and general expenses           |                                 
|Depreciation and amortization                 |                                 
|Maintenance                                   |                                 
|Taxes on income                               |                                 
|Other taxes                                   |                                 
|                                              |                                 
|                                              |                                 
|                                              |                                 
|Operating income                              |                                 
|Other Income/(Loss)                           |                                 
|                                              |                                 
|Income before interest charges                |                                 
|Interest Charges                              |                                 
|                                              |                                 
|Net Income                                    |                                 
|Dividends on Preferred Shares                 |                                 
|                                              |                                 
|Earnings Available for Common Shareholders    | $                               
|                                              |                                 
|Weighted Average Number of Shares Outstanding |                                 
|Basic Earnings Per Common Share               | $                               
|Dividends Declared Per Common Share           | $                               
|                                              |                                 

The accompanying notes
 are an integral part of these financial statements

12



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##### Table of Contents



SOUTHERN CALIFORNIA WATER COMPANY
CASH FLOW STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Unaudited)

|                                                                           | Nine Months EndedSeptember 30,
|-------------------------------------------------------------------------- | ------------------------------
|                                                                           |                               
|(in thousands)                                                             | 2002                          
|                                                                           |                               
|Cash Flows From Operating Activities:                                      |                               
|Net income                                                                 | $                             
|Adjustments for non-cash items:                                            |                               
|Depreciation and amortization                                              |                               
|Deferred income taxes and investment tax credits                           |                               
|Other - net                                                                |                               
|Changes in assets and liabilities:                                         |                               
|Accounts receivable                                                        |                               
|Prepayments                                                                |                               
|Supply cost balancing accounts                                             |                               
|Accounts payable                                                           |                               
|Intercompany payable                                                       |                               
|Taxes payable                                                              |                               
|Unbilled revenue                                                           |                               
|Other                                                                      |                               
|                                                                           |                               
|Net Cash Provided                                                          |                               
|                                                                           |                               
|Investing Activities:                                                      |                               
|Construction expenditures                                                  |                               
|                                                                           |                               
|Net Cash Used                                                              |                               
|                                                                           |                               
|Financing Activities:                                                      |                               
|Issuance of securities                                                     |                               
|Receipt of advances and contributions                                      |                               
|Repayments of long-term debt, net of redemption of preferred shares        |                               
|Refunds on advances for construction                                       |                               
|Changes in notes payable to banks                                          |                               
|Common and preferred dividends paid                                        |                               
|                                                                           |                               
|Net Cash Provided (Used)                                                   |                               
|                                                                           |                               
|Net Increase (Decrease) in Cash and Cash Equivalents                       |                               
|Cash and Cash Equivalents, Beginning of period                             |                               
|                                                                           |                               
|Cash and Cash Equivalents, End of period                                   | $                             
|                                                                           |                               
|                                                                           |                               
|The accompanying notes are an integral part of these financial
 statements |                               

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##### Table of Contents



AMERICAN STATES WATER
 COMPANYANDSOUTHERN CALIFORNIA WATER COMPANY

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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



|1. | The consolidated
 financial statements included herein have been prepared by AWR, without audit, pursuant
 to the rules and regulations of the Securities and Exchange Commission (SEC). Certain
 information and footnote disclosures normally included in financial statements prepared
 in accordance with generally accepted accounting principles for annual financial
 statements have been condensed or omitted pursuant to such rules and regulations.
 The preparation of the consolidated financial statements requires management to
 make estimates and assumptions that affect the reported amounts of assets and liabilities
 and disclosure of contingent assets and liabilities at the date of the financial
 statements and the reported amounts of revenue and expenses during the reporting
 period. Actual results could differ from those estimates. In the opinion of management,
 all adjustments, consisting of normal recurring items and estimates necessary for
 a fair presentation of the results for the interim periods, have been made. It is
 suggested that these consolidated financial statements be read in conjunction with
 the consolidated financial statements and the notes thereto included in the 2001
 Form 10-K filed with the SEC on March 5, 2002. Certain prior year amounts have
 been reclassified to conform to current year presentation.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|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 68,153 common shares were
 granted to certain eligible employees on May 1, 2000, stock options representing an additional
 68,486 common shares were granted on January 2, 2001, and stock options representing 116,775
 common shares and 1,050 restricted stock shares were granted on February 4, 2002. As a result,
 fully diluted earnings per share amounts are shown. Earnings per share also reflect a
 three-for-two split of Registrants common shares payable on June 7, 2002 to holders of
 record on May 15, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|3. | New water
 rates with an annual increase of approximately $2.5 million for seven ratemaking
 districts in SCWs Region I and step increases of approximately $1.7 million
 for SCWs Region III were effective in January 2001. An attrition increase
 of approximately $2.8 million for Region II was in effect from February 2001. Step
 increases of approximately $321,600 for four of seven ratemaking districts in SCWs
 Region I were implemented in January 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4. | As permitted
 by the CPUC, SCW has historically maintained water and electric supply balancing
 accounts to account for under-collections and over-collections of revenues designed
 to recover such costs. Costs have been recorded in income and charged to balancing
 accounts when such costs were incurred. The balancing accounts were reversed when
 such costs were recovered through rate adjustments or through refunds of previously
 incurred costs. SCW accrued interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

14



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##### Table of Contents





| | 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 for water supply costs that are included in rates. 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. The negative impact this CPUC order has had
 on registrants basic earnings per share for the quarter, nine and twelve months
 ended September 30, 2002 was $0.04, $0.05 and $0.01, respectively. 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
 $2.8 million in its water supply balancing account at September 30, 2002 principally
 related to pre-November 29, 2001 activities. Of this amount, approximately $0.5
 million is currently included in rates. SCW anticipates recovering the remaining
 amount as part of a general rate case filed 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 was $27.6 million at September
 30, 2002. This is a result of the cumulative differences between wholesale purchased
 power costs and the $24 per megawatt hour (MWh) authorized in rates up to July 2002
 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, which resulted in an
 overall rate increase of 29% for customers of BVE.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 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 Corporation.
 On July 17, 2002, the CPUC approved a settlement agreement reached among SCW, all
 intervening parties and the Office of Ratepayer Advocates (ORA), which
 permits SCW to recover $77 per MWh of purchased power costs through rates, effective
 immediately thereafter. 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 a balance of $6.4 million in reserves as of
 September 30, 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.
 See the sections entitled Liquidity and Capital Resources,
 Electric Energy Situation in California, and Regulatory
 Matters included in Part I, Item 2 in Managements Discussionand Analysis of Financial Condition and Results of Operation for information
 on additional actions being taken by SCW to recover these costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

15



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##### Table of Contents





|   | 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. | In July 2001,
 the Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business Combinations,
 and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 eliminated
 the pooling-of-interests method of accounting, effective June 30, 2001. After that,
 all business combinations must be recorded under the purchase method of accounting.
 SFAS No. 142 primarily addresses the accounting for goodwill and intangible assets
 subsequent to their initial recognition. The major provisions of SFAS No. 142 (i)
 prohibit the amortization of goodwill and indefinite-lived intangible assets, (ii)
 require that goodwill and indefinite-lived intangibles assets be tested annually
 for impairment (and in interim periods if certain events occur indicating that the
 carrying value of goodwill and/or indefinite-lived intangible assets may be impaired),
 (iii) require that reporting units be identified for the purpose of assessing potential
 future impairments of goodwill, and (iv) remove the forty-year limitation on the
 amortization period of intangible assets that have finite lives



| | In October
 2000, AWR completed the acquisition of the common stock of CCWC for an aggregate
 value of $31.2 million, including the assumption of approximately $12 million in
 debt. As of September 30, 2002, AWR had $12.3 million in goodwill included in Other
 Property and Investments. Registrants reporting units are generally consistent
 with the principal business units identified in Note 6. 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 adopted the provisions of SFAS 142 and ceased amortization on January
 1, 2002. In 2001, $331,073 was amortized against the goodwill.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | SFAS No. 142
 requires that goodwill be tested annually for impairment using a two-step process.
 The first step is to identify a potential impairment and, in transition, this step
 must be measured as of the beginning of the fiscal year. The second step of the
 goodwill impairment test measures the amount of the impairment loss, which is also
 measured as of January 1, 2002, if any. Registrant completed this two-step process
 in the first quarter ended March 31, 2002 and has determined that no impairment
 of this goodwill exists.                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | The following
 table reflects Registrants net income and earnings per share adjusted for
 amortizations for the three, nine and twelve months ended September 30, 2002, and
 2001, respectively:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

16



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##### Table of Contents





|                                            | Three Months    |       | Nine Months     |  | Twelve Months  
|------------------------------------------- | --------------- | ----- | --------------- |  | ---------------
|($000s except for earnings per              | Ended Sept. 30, |       | Ended Sept. 30, |  | Ended Sept. 30,
|                                            |                 |       |                 |  |                
|(share amounts)                             | 2002            |       | 2001            |  | 2002           
|                                            |                 |       |                 |  |                
|Earnings available for common shareholders: |                 |       |                 |  |                
|Reported earnings                           | $               | 7,639 |                 |  | $              
|Add back goodwill amortization              |                 |      |                 |  |                
|Less: Tax                                   |                 |      |                 |  |                
|                                            |                 |       |                 |  |                
|Adjusted earnings                           | $               | 7,639 |                 |  | $              
|                                            |                 |       |                 |  |                
|Basic earnings per share:                   |                 |       |                 |  |                
|Reported basic earnings per share           | $               | 0.50  |                 |  | $              
|Add amortization net of taxes               |                 |      |                 |  |                
|                                            |                 |       |                 |  |                
|Adjusted basic earnings per share           | $               | 0.50  |                 |  | $              
|                                            |                 |       |                 |  |                
|Diluted earnings per share:                 |                 |       |                 |  |                
|Reported diluted earnings per share         | $               | 0.50  |                 |  | $              
|Add amortization net of taxes               |                 |      |                 |  |                
|                                            |                 |       |                 |  |                
|Adjusted diluted earnings per share         | $               | 0.50  |                 |  | $              
|                                            |                 |       |                 |  |                



|   | In June 2001,
 the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which
 requires businesses to record the fair value of a liability for an asset retirement
 obligation in the period in which it is incurred. When the liability is initially
 recorded, the entity capitalizes a cost by increasing the carrying amount of the
 related long-lived asset. Over time, the liability is accreted to its present value
 each period, and the capitalized cost is depreciated over the useful life of the
 related asset. Upon settlement of the liability, an entity either settles the obligation
 for its recorded amount or incurs a gain or loss upon settlement. FASB No. 143 is
 effective for fiscal years beginning after June 15, 2002. Registrant is reviewing
 the provisions of this Statement, but does not expect it to have a material impact
 on its financial statements.     
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | In August
 2001, the FASB also issued SFAS No. 144, Accounting for the Impairment or Disposal
 of Long-Lived Assets and Discontinued Operations, which addresses the financial
 accounting and reporting for the impairment or disposal of long-lived assets. Registrant
 does not expect this Statement to materially impact its financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | In June 2002,
 the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
 Activities. This pronouncement is effective for exit or disposal activities that
 are initiated after December 31, 2002, and requires these costs to be recognized
 when the liability is incurred and not at project initiation. Registrant is reviewing
 the provisions of this Statement, but does not expect it to have a material impact
 on its financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|6. | AWR has three
 principal business units: water and electric distribution units, through its SCW
 subsidiary, a water service utility operation conducted through its CCWC unit, and
 a non-regulated activity unit through the ASUS subsidiary. All activities of SCW
 currently are geographically located within California. All activities of CCWC are
 located in the state of Arizona. Both SCW and CCWC are regulated utilities. On a
 stand-alone basis, AWR has no material assets other than its investments in its
 subsidiaries. The tables below set forth information relating to SCWs water
 and electric operating segments, CCWC, and non-regulated businesses, consisting
 of ASUS and AWR corporate expenses. Included in the amounts set forth, certain assets,
 revenues and expenses have been allocated. The identifiable assets are net of respective
 accumulated provisions for depreciation.

17



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##### Table of Contents





|(dollars in thousands)               | For The Three Months Ended September 30, 2002
|------------------------------------ | ---------------------------------------------
|                                     |                                              
|                                     | SCW                                          
|                                     |                                              
|                                     | Water                                        
|                                     |                                              
|Operating revenues                   | $                                            
|Operating income before income taxes |                                              
|Identifiable assets                  |                                              
|Depreciation expense                 |                                              
|Capital additions                    | $                                            
|                                     |                                              
|(dollars in thousands)               |                                              
|                                     |                                              
|                                     | SCW                                          
|                                     |                                              
|                                     | Water                                        
|                                     |                                              
|Operating revenues                   | $                                            
|Operating income before income taxes |                                              
|Identifiable assets                  |                                              
|Depreciation expense                 |                                              
|Capital additions                    | $                                            
|                                     |                                              
|(dollars in thousands)               |                                              
|                                     |                                              
|                                     | SCW                                          
|                                     |                                              
|                                     | Water                                        
|                                     |                                              
|Operating revenues                   | $                                            
|Operating income before income taxes |                                              
|Identifiable assets                  |                                              
|Depreciation expense                 |                                              
|Capital additions                    | $                                            
|                                     |                                              
|(dollars in thousands)               |                                              
|                                     |                                              
|                                     | SCW                                          
|                                     |                                              
|                                     | Water                                        
|                                     |                                              
|Operating revenues                   | $                                            
|Operating income before income taxes |                                              
|Identifiable assets                  |                                              
|Depreciation expense                 |                                              
|Capital additions                    | $                                            
|                                     |                                              
|(dollars in thousands)               |                                              
|                                     |                                              
|                                     | SCW                                          
|                                     |                                              
|                                     | Water                                        
|                                     |                                              
|Operating revenues                   | $                                            
|Operating income before income taxes |                                              
|Identifiable assets                  |                                              
|Depreciation expense                 |                                              
|Capital additions                    | $                                            
|                                     |                                              
|(dollars in thousands)               |                                              
|                                     |                                              
|                                     | SCW                                          
|                                     |                                              
|                                     | Water                                        
|                                     |                                              
|Operating revenues                   | $                                            
|Operating income before income taxes |                                              
|Identifiable assets                  |                                              
|Depreciation expense                 |                                              
|Capital additions                    | $                                            

18



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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, regulatory matters, adequacy of water supplies, the California energy situation,
 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 California Public Utilities Commission
 (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
 248,354 water customers and 21,906 electric customers at September 30, 2002, or
 a total of 270,260 customers, compared with 268,061 total customers at September
 30, 2001.




SCWs
 utility operations exhibit seasonal trends. SCWs water utility operations
 have a diversified customer base. Revenues derived from commercial and residential
 water customers accounted for approximately 87.8%, 89.0% and 91.2% of total water
 revenues for the three, nine and twelve months ended September 30, 2002, respectively,
 as compared to 87.1%, 89.0% and 91.1% for the three, nine and twelve months ended
 September 30, 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 11,683 customers as of September 30, 2002, compared with 11,438
 customers at September 30, 2001, in the town of Fountain Hills, Arizona and a portion
 of the City of Scottsdale, Arizona. The Arizona Corporation Commission (ACC) regulates
 CCWC.




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


19



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##### Table of Contents



Results of Operation



Basic earnings
 per common share for the three months ended September 30, 2002
decreased by 19.4%
 to $0.50 per share as compared to $0.62 per share for the comparable period last
 year. As compared to the nine months ended September 30, 2001, basic earnings decreased
 by 4.3% to $1.11 per share from $1.16 per share. Basic earnings per common share
 for the twelve months ended September 30, 2002 also decreased by 4.5% to $1.30 per
 share from $1.36 per share as compared to the twelve months ended September 30,
 2001. The decreases in the recorded results primarily reflect the impact of lack
 of water rate increases authorized by the CPUC for SCW, increased supply costs,
 higher interest expenses and various other reasons as discussed below. Earnings
 per share reflect a three-for-two split of Registrants common shares to holders
 of record on May 15, 2002.




Fully diluted
 earnings for the three, nine and twelve months ended September 30, 2002 were $0.50,
 $1.11 and $1.30 per share, respectively, as compared to $0.62, $1.15 and $1.35 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, nine and twelve months ended September 30, 2001, revenues from water
 operations increased by 0.8%, 4.1% and 4.7%, respectively, for the same periods
 ended September 30, 2002. Although water sales volumes increased by
3.4%, 4.2%
 and 3.3%, respectively, for each of the comparable periods ended September 30, 2002,
 the increase was partially offset by decreases in positive surcharges authorized
 by the CPUC to amortize previous under-collections, the majority of which expired
 in December 2001. The nine and twelve-month comparisons were also affected by 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. Attrition
 increases for the customer service areas that comprise SCWs Region II were
 effective January 27, 2001. Rate increases to recover increased electric power
 costs incurred for pumping of water were effective in the second and the fourth
 quarters of 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 45.2%, 33.2% and 29.0%, respectively, for the three,
 nine and twelve months ended September 30, 2002 as compared to the same periods
 ended September 30, 2001. The increases reflect (i) a rate increase of 12.5% effective
 May 24, 2001 to recover previously under-collected energy costs, (ii) an additional
 14.8% increase effective August 23, 2001, and (iii) another rate increase in July
 2002 authorized by the CPUC to allow SCW to recover up to a weighted annual energy
 purchase cost of $77 per megawatt hour each year. The three-month comparison is
 also impacted by an increase of 8.0% in kilowatt-hour sales principally to residential
 customers. The nine-month increase in electric revenues also reflects a 3.8% increase
 in kilowatt-hour sales due to higher utilization of snow making machines at ski
 resorts in the area during the first quarter this year. See the section entitled
 Regulatory Matters and Electric Energy Situation in
 California included in Part I, Item 2 in Managements Discussion
 and Analysis of Financial Condition and Results of Operation for more information.




Purchased
 water costs increased by 11.1%, 8.6% and 2.9%, respectively, for the three, nine
 and twelve months ended September 30, 2002 as compared to the same periods ending
 in 2001 due principally to increases in the volume of purchased water. During each
 of the comparable periods for 2002, additional purchased water was necessary to
 replace pumped water supply lost due to wells being removed from service as a result
 of water quality issues and mechanical problems, particularly in SCWs Orange
 County and San Dimas customer service areas. The twelve-month comparison also reflects
 refunds received from Registrants wholesale water suppliers in December 2001
 of approximately $770,000. There was no similar refund in the twelve months ended
 September 2001.


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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 for water supply costs that are
 included in rates. For additional information on this order, see Note 4 to Notes
 to Financial Statements included in Part I, Item 1 in Financial Statements.
 This CPUC order reduced Registrants basic earnings per share for the
 three, nine and twelve months ended September 30, 2002 by $0.04, $0.05 and $0.01,
 respectively.




Cost of power
 purchased for pumping increased by 14.3% and 20.8% for the nine and twelve months
 ended September 30, 2002, respectively, due to the rate increases implemented in
 the first quarter of 2001 by SCWs energy suppliers, in particular Southern
 California Edison Company and Pacific Gas and Electric Company. In 2001, the CPUC
 approved a portion of SCWs Advice Letters to increase revenues by approximately
 $1.4 million annually to recover the costs of purchased power for certain of its
 water ratemaking districts. For further information, see the sections
 entitledRegulatory Matters and Electric Energy Situation in
 California included in Part I, Item 2 in Managements Discussion and Analysis
 of Financial Condition and Results of Operation.




Costs of power
 purchased for resale to customers in SCWs Bear Valley Electric division decreased
 by 7.5% and 2.4%, respectively, for the nine and twelve months ended September 30,
 2002. Each of these decreases was due primarily to the significantly high cost for
 spot market energy purchased from December 2000 to March 2001. The decreases were
 offset partially by additional accruals of $2.2 million for purchased power costs
 based on adjusted invoices received by SCW in April 2002 from Dynegy Power Marketing,
 Inc. for power and ancillary services applicable to prior periods, and a one-time
 sale of energy on the spot market, resulting from a one-month overlap of energy
 purchase agreements, that generated a $644,000 gain in April 2001. As compared to
 the three months ended September 2001, cost of power purchased for resale decreased
 by 23.4% for the third quarter of 2002 due principally to an additional accrual
 of $802,000 based on adjusted invoices received by SCW from Dynegy Power Marketing,
 Inc. in August 2001 for power and ancillary services applicable to December 2000
 and January 2001. There was no similar accrual for the same period of 2002. 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 Managements Discussion and
 Analysis of Financial Condition and Results of Operation.




Groundwater
 production assessments for the three, nine and twelve months ended September 30,
 2002 increased by 7.9%, 5.9% and 4.9%, respectively, as compared to the same periods
 in 2001 reflecting increased sales volumes provided from pumped water sources and
 increased groundwater production assessments, partially offset by revenues from
 leases of unused water rights to third parties in Registrants Barstow customer
 service area. 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 2001
 also affected the nine and twelve-month comparisons.




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 September 30, 2002, Registrant
 had a combined net under-collected position of $30.3 million in both its water and
 electric balancing accounts primarily due to the increases in energy costs. For
 further information, see the sections entitled Accounting for Supply Costs,
 Liquidity and Capital Resources, Regulatory Matters
 and Electric Energy Situation in California included in Part
 I, Item 2 in Managements Discussion and Analysis of Financial
 Condition and Results of Operation.




Other operating
 expenses increased by 11% for the three months ended September 30, 2002 as compared
 to the same period of last year due to increased water treatment costs, chemical
 costs and


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higher labor costs. Other operating expenses
 decreased by 1.7%, respectively,
 for the nine and twelve months ended September 30, 2002 as compared to the same
 periods of last year. The decreases were primarily due to a refund for a sewer service
 overpayment, reimbursement received during the second quarter of 2002 from one of
 the settling parties for expenses incurred in the San Gabriel basin to meet water
 quality standards, and a decrease in the accrual for bad debt during the first quarter
 of 2002.



Administrative
 and general expenses increased by 12.8%, 8.1% and 21.1%, respectively, for the three,
 nine and twelve months ended September 30, 2002 reflecting an increase in the accrual
 for pension plan expense, increased accrual for self-insured workers compensation,
 higher labor costs, and increased outside service expenses. The twelve-month comparison
 also reflects the accrual of $7.7 million in reserves booked during the comparable
 period of 2002 for potential non-recovery of electric power costs incurred to serve
 customers at SCWs Bear Valley Electric customer service area. The reserves
 with a balance of $6.4 million at September 30, 2002 were established to offset
 future impacts to earnings for the difference between the authorized rates and SCWs
 actual costs under its energy purchase agreements. 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 3.0%, 2.0% and 3.9%, respectively, for the three, nine and
 twelve months ended September 30, 2002 reflecting, among other things, the effects
 of recording approximately $38 million in capital additions during 2001, depreciation
 on which began in January 2002. The comparisons were also impacted by the elimination,
 effective January 1, 2002, of amortization of the goodwill recorded in Registrants
 acquisition of CCWC. For further information, see Note 5 of the Notes to Financial
 Statements included in Part I, Item 1 in Financial Statements.




As compared
 to the three, nine and twelve months ended September 30, 2001, maintenance expense
 increased by 44.1%, 9.3% and 2.6%, respectively, due principally to the termination
 of Registrants cash preservation program in August 2002 following the CPUCs
 approval of rate increases permitting SCW to begin recovery of power costs,
 and costs of approximately $408,000, incurred most significantly in connection with
 the trucking of water, in SCWs Wrightwood customer service area due to a sudden
 and unexplained drop in groundwater level in the area during the early part of the
 third quarter of 2002. The cash preservation program was initially implemented in
 2001 to control costs and temporarily limit capital and maintenance expenditures
 principally to those projects that were believed necessary to meet public safety
 and health requirements or otherwise provide for continued service.




Taxes on income
 decreased by 22.7%, 9.0% and 15.2%, respectively, as compared to the three nine,
 and twelve months ended September 30, 2001, due to lower pre-tax operating income
 of 21.9%, 8.0% and 10.4%, respectively, for the comparable periods ended September
 30, 2002. The twelve-month comparison was also affected by a book-to-tax adjustment
 recorded in December 2001.




Other taxes
 increased by 3.2% and 1.7%, respectively, for the three and nine months ended September
 30, 2002 reflecting additional property taxes resulting from higher assessed values,
 and increases in payroll taxes. For the twelve months ended September 30, 2002,
 other taxes decreased by 1.2% due to an adjustment to the accrued property taxes
 in December 2001 based on actual property tax statements, partially offset by increases
 in payroll taxes.




As compared
 to the three, nine and twelve months ended September 30, 2001, respectively, the
 change in other income for the same periods ended September 30, 2002 reflects the
 sale of a parcel of non-operating property in Region II of SCW in the first quarter
 of 2002, and recording certain non-regulated expenses to administrative and general
 expenses of ASUS, a non-regulated subsidiary. 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.


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Interest expense
 increased by 13.4%, 11.5% and 11.5%, respectively, for the three, nine and twelve
 months ended September 30, 2002 as compared to the same periods ended September
 30, 2001. The increases reflected the issuance of $50 million in long-term debt
 by SCW in December 2001, partially offset by a reduction in short-term borrowing.


Accounting for Supply Costs



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




On November
 29, 2001, the CPUC ordered water utilities with existing water supply balancing
 accounts to cease booking amounts to such accounts. In its place, water utilities
 are now required to establish a memorandum account 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. The negative
 impact this CPUC order has had on registrants basic earnings per share for
 the quarter, nine and twelve months ended September 30, 2002 was $0.04, $0.05 and
 $0.01, respectively. SCW may not be able to fully recover the under-collection
 of supply costs if it is earning a rate of return in excess of that allowed. SCW
 had a net under-collection position of $2.8 million in its water supply balancing
 account at September 30, 2002 related to pre-November 29, 2001 activities. Of these
 amounts, recovery of approximately $0.5 million is currently included in rates.
 SCW anticipates recovering the remaining amount in this balancing account as well
 as the under-collection tracked in the water supply cost memorandum account as part
 of a rate case application filing submitted in October 2002.




Electric power
 costs incurred by SCWs Bear Valley Electric division will continue to be charged
 to a balancing account. The under-collection in the electric balancing account is
 $27.6 million at September 30, 2002. On July 17, 2002, the CPUC approved a settlement
 agreement among SCW, all intervening parties and the Office of Ratepayer Advocates
 of the CPUC, which allows SCW to recover up to a weighted annual energy purchase
 cost of $77 per megawatt hour each year for 10 years in its balancing account. For
 further information, see the sections entitled Regulatory Matters
 and Electric Energy Situation in California included in Part
 I, Item 2 in Discussion and Analysis of Financial Condition and Results of Operation.


Critical Accounting Policies



Critical accounting
 policies are those that are important to the portrayal of the financial condition
 and results of Registrant, and require the most difficult, subjective or complex
 judgments of management. The need to make estimates about the effect of items that
 are uncertain is what makes these judgments difficult, subjective and/or complex.
 Management makes subjective judgments about the accounting and regulatory treatment
 of many items. The following are examples of accounting policies that are critical
 to the financial statements of Registrant. For more information regarding the significant
 accounting policies of Registrant, see Notes to Financial Statements in
Part 1, Item 1.




Management
 believes that regulation and the effects of regulatory accounting have the most
 significant impact on the financial statements. When Registrant files for adjustments
 to rates, capital


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assets, operating costs and other matters are subject to review,
 and disallowances could occur. Regulatory disallowances in the past have not been
 frequent but have on occasion significantly impacted Registrants results of
 operations.



| | Water and
 electric operations of Registrant in the State of California are subject to regulation
 by the CPUC and, in the State of Arizona, the ACC regulates the water operations
 of Registrant. The accounting policies of Registrant conform to generally accepted
 accounting principles applicable to rate-regulated enterprises and reflect the effects
 of the ratemaking process. As such, Registrant is allowed to defer as regulatory
 assets, certain costs that otherwise would have been expensed if it is probable
 future recovery from customers will occur. If rate recovery is no longer probable,
 Registrant is required to write off the related regulatory asset.                                                                                                                                                                                                                                                                       
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Registrants
 income tax calculations require estimates due principally to the regulated
 nature of its operations, the multiple states in which Registrant operates, and
 potential future tax rate changes. Registrant uses the asset and liability method
 of accounting for income taxes under which deferred tax assets and liabilities are
 recognized for the future tax consequences attributable to differences between the
 financial statement carrying amounts of existing assets and liabilities and their
 respective tax bases. Deferred tax assets and liabilities are measured using enacted
 tax rates expected to apply to taxable income in the years in which those temporary
 differences are expected to be recovered or settled. A change in the regulatory
 treatment, or significant changes in tax-related estimates or assumptions, could
 have a material impact on the financial position and results of operations of Registrant.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Depreciation
 is computed at composite rates considered sufficient to amortize costs over the
 estimated remaining lives of assets. Depreciation studies are performed periodically
 and prospective changes in rates are estimated to make up for past differences.
 These studies are reviewed and approved by either the CPUC or the ACC. Changes in
 estimates of depreciable lives or changes in depreciation rates mandated by regulations
 could impact results of operations of Registrant in periods subsequent to the change.                                                                                                                                                                                                                                                                                                                                                                                                                         
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | As prescribed
 by the CPUC under its Uniform System of Accounts for Water Utilities, SCW is allowed
 to capitalize a portion of general costs such as engineering, supervision, general
 office salaries and expenses, legal expenses, insurance, injuries and damages, pensions
 and benefits, taxes and allowance for funds used during construction, as overhead
 construction costs included in Registrants Utility Plant. All overhead construction
 costs are charged to jobs on the basis of the amounts of such overhead expenses
 reasonably applicable thereto, so that each job bears its equitable proportion of
 such costs and its direct costs.                                                                                                                                                                                                                                                                                                 

Liquidity and Capital Resources



AWR




AWR funds
 its operating expenses and pays dividends on its outstanding Common Shares primarily
 through dividends from its subsidiaries, principally SCW. AWR has a Registration
 Statement on file with the Securities and Exchange Commission (SEC) for issuance,
 from time to time, of up to $60 million in Common Shares, Preferred Shares and/or
 debt securities. As of September 30, 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. In June 2002,
 AWR established a new revolving credit facility of $75 million, which matures in
 June 2005. As of September 30, 2002, an aggregate of $14 million was outstanding,
 $13 million of which was used to fund SCWs operations and $1 million was used
 to fund ASUS activities.


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On April 19,
 2002, AWR completed the redemption of all of its outstanding 4%, 4-1/4% and 5% series
 of preferred shares.




SCW




SCW funds
 the majority of its operating expenses, payments on its debt, and dividends on its
 outstanding Common Shares through internal sources. Internal sources of cash flow
 are provided primarily by retention of a portion of earnings, 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 and short-term borrowing 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 bank borrowings. On March 30, 2001, AWR made an additional
 $25 million equity investment in SCW. On November 14, 2001, SCW filed a Registration
 Statement with the SEC for issuance, from time to time, of up to $100 million in
 debt securities. In December 2001, SCW issued $50 million of long-term debt under
 this Registration Statement that initially reduced bank borrowings incurred to fund
 capital expenditures and power purchase costs.




CCWC




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




ASUS




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


Contractual Obligations and Other
 Commitments



In addition
 to contractual maturities, Registrant has certain debt instruments that contain
 annual sinking fund or other principal payments. Registrant believes that it will
 be able to refinance debt instruments at their maturity through public issuance,
 or private placement, of debt or equity. Annual principal payments are generally
 made from cash flow from operations.




The following
 table reflects Registrants contractual obligations and commitments to make
 future payments pursuant to contracts as of September 30, 2002. All obligations
 and commitments are obligations and commitments of SCW unless otherwise noted.


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|($ in thousands)                 |  | Payments/Commitments Due by Period (1)
|-------------------------------- |  | --------------------------------------
|                                 |  |                                       
|                                 |  | Total                                 
|                                 |  |                                       
|Notes/Debentures (2)             |  | $                                     
|Private Placement Notes (3)      |  |                                       
|Tax-Exempt Obligations (4)       |  |                                       
|Other Debt Instruments (5)       |  |                                       
|Other Commitments (6)            |  |                                       
|Chaparral City Water Company (7) |  |                                       
|TOTAL                            |  | $                                     

(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 on 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 $6.7 million
 of obligations incurred by SCW with respect to its 500 acre foot entitlement to
 water from the State Water Project (SWP). Except as described below, these obligations
 do not contain any financial covenants believed to be material to Registrant or
 any cross default provisions. SCWs obligations with respect to the certificates
 of participation issued by the Three Valleys Municipal Water District are supported
 by a letter of credit issued by Wells Fargo Bank. In regards to its SWP entitlement,
 SCW has entered into agreements with various developers for 422 acre-feet, in aggregate,
 of its entitlement to water from the SWP. 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) Other commitments of Registrant consist
 of (i) $75 million syndicated revolving credit facility, expiring in June 2005,
 (ii) a $966,534 irrevocable letter of credit, which is reviewed at the end of each
 year for adjustment, for its self-insured workers compensation plan, (iii) an amount
 of $296,000 with respect to a $6,296,000 irrevocable letter of credit issued by
 Wells Fargo Bank to support the certificates of participation of Three Valleys Municipal
 Water District (the other $6,000,000 is reflected under tax-exempt obligations),
 (iv) an irrevocable letter of credit in the amount of $400,000 that expires on October
 2003 for the deductible in Registrants business automobile insurance policy
 (v) an irrevocable letter of

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credit that expires June 30, 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 $14,790 to secure performance
 under franchise agreements with governmental agencies. The syndicated revolving
 credit facility contains restrictions on prepayments, deposition of property, mergers,
 liens and negative pledges, indebtedness and guaranty obligations, transactions
 with affiliates, minimum interest coverage requirements, a maximum debt to capitalization
 ratio, and a minimum debt rating. Pursuant to the Credit Agreement, AWR must maintain
 a minimum interest coverage ratio of 3.25 times interest expense, a maximum total
 funded debt ratio of 0.65 to 1.00 and a minimum debt rating of Baa1 or BBB+.

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




On July 17,
 2002, the FERC extended and modified the mitigation measures that were set to expire
 on September 30, 2002, citing delays in construction of new generation resources
 in California and throughout the West, delays in adopting a new market design and
 market rules by the Cal ISO, transmission line constraints, constraints on natural
 gas pipeline capacity and a dysfunctional power


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market. It remains unclear how long
 the FERC will leave its mitigation measures in place. The premature termination
 of such mitigation measures could result in a substantial increase in spot market
 prices and the prices of long-term contracts for power and capacity. In addition,
 FERC is considering a number of market reforms. One of the reforms that has been
 suggested by the Cal ISO is 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 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 at SCWs Bear Valley Electric Service Area




All electric
 energy sold by SCW to customers in its Bear Valley Electric customer service area
 is purchased from others. In May 2000, SCW entered into a one-year, block forward
 purchase contract with Dynegy Power Marketing, Inc. (DYPM) for 12 MWs of electric
 energy at a price of $35.50 per MWh. This contract expired April 30, 2001.




SCW entered
 into a five-year, block forward purchase contract with Mirant Americas Energy Marketing
 LP (Mirant) for 15 MWs of electric energy at a price of $95 per MWh
 beginning April 1, 2001 through December 31, 2006. On December 20, 2001, SCW filed
 a complaint with FERC seeking to reduce the amount charged by Mirant under the terms
 of this contract to a just and reasonable price. A hearing was conducted on this
 matter in October 2002. Management does not anticipate a quick resolution of this
 matter.




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




In September
 2002, SCW entered into a series of purchased power contracts with PWCC. Under the
 agreements, SCW will sell 15 MWs to PWCC of electric energy at a price of $95 per
 MWh beginning November 1, 2002 through December 31, 2006, and the 8 MWs of electric
 energy covered under the energy purchase agreement with PWCC discussed previously.
 In return, PWCC will supply SCWs BVE customer service area with 15 MWs of
 electric energy at a price of $74.65 per MWh beginning November 1, 2002 through
 December 31, 2008, and an additional 8 MWs at $74.65 per MWh beginning on November
 1, 2002 through March 31, 2003 and each succeeding November 1 through March 31 period
 through March 31, 2008 and November 1, 2008 through December 31, 2008.




Under the
 terms of a contract with DYPM that expired on April 30, 2002, DYPM provided electric
 energy to SCW in excess of the amounts it purchased under the forward block purchase
 contracts previously described, acted as scheduling coordinator and provided other
 ancillary services. DYPM has requested payment of an additional $5.6 million for
 these services for the period June 1, 2000 to February 28, 2002 based on revised
 invoices received by SCW in April 2002. The amounts set forth in the revised invoices
 are included in the electric supply balancing account at September 30, 2002. SCW
 disputed the revised invoices. On November 1, 2002, DYPM accepted a payment of $3.5
 million from SCW as payment in full for the additional charges reflected in the
 revised invoices.




SCW is a party
 to the FERC proceedings in which refunds are being sought on purchases of power
 from the California Power Exchange and the Cal ISO Management is unable to predict
 whether or


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not it will be entitled to receive any refunds
 as a result of these proceedings
 or any other investigations into the causes of the California energy crisis.



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. 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 Bear Valley Electric customer service area. For more 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.


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, only $20.4 million
 of which was spent as of September 30, 2002 due to the cash preservation plan implemented
 in 2001and discontinued in August 2002.




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, 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
 recovery of prudently incurred costs, including a return on rate base. Rate base
 generally consists of the original cost of utility plant in service, plus certain
 other assets, such as working capital and inventory, less accumulated depreciation
 on utility plant in service, deferred income tax liabilities and certain other deductions.
 For information on accounting for water supply and power costs, 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 and Note 4 to the Notes to Financial Statements
 in Part I, Item 1.


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




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 $2.5 million for seven ratemaking
 districts in SCWs Region I and step increases of approximately $1.7 million
 for SCWs Region III were effective in January 2001. An attrition increase
 of approximately $2.8 million for Region II was in effect from February 2001. Step
 increases of approximately $321,600 for four of seven ratemaking districts in SCWs
 Region I were implemented in January 2002.




As of September
 30, 2002, SCW had accrued approximately $27.6 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 in October 2001.




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 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 Corporation.




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 previously established
 approximately $8.2 million in reserves against potential non-recovery of electric
 power costs. In July 2002, $1.7 million was written off against the reserve based
 on the settlement. 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 settlement
 also requires SCW to pursue its complaint filed with


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FERC in which SCW has requested
 FERC to reduce the prices in its power purchase contract with Mirant to a just and
 reasonable price. If FERC rules a price reduction, SCW is required to file an Advice
 Letter to notify the CPUC within 30 days of the ruling. On July 17, 2002, CPUC
 approved the settlement agreement with new rates effective immediately thereafter.
 For further information, see the section entitled Electric Energy Situation
 in California included in Part I, Item 2 in Managements
 Discussion and Analysis of Financial Condition and Results of Operation and Note
 4 to the Notes to Financial Statements in Part I, Item 1.



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 Managements Discussion and Analysis of Financial
 Condition and Results of Operation. The remaining Advice Letters filed by SCW
 to recover increased power costs used for pumping were rejected by the CPUC due
 to the change in procedures for collections of water supply costs on November 29,
 2001. See the section entitled Accounting for Supply Costs included
 in Part I, Item 2 in Managements Discussion and Analysis of Financial
 Condition and Results of Operation and Note 4 to Notes to Financial Statements in Part I, Item 1.




Pending
 Rate Changes




An Advice
 Letter filed by SCW on November 13, 2001 requested the authority to increase rates
 in its Metropolitan district 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. On October 24, 2002, the
 CPUC approved SCWs motion to amend the language and SCW simultaneously filed
 an Advice Letter to increase rates by $2.7 million annually.




In April 2002,
 SCW filed for a Certificate of Public Convenience and Necessity (CPCN) seeking the
 CPUCs authorization to construct an 8.4 MW natural gas-fueled generator facility
 on a portion of its property in the City of Big Bear Lake . The 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.




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




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


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application. An Administrative Law Judge subsequently reopened the
 proceeding in August 2001 requiring additional information. A final order is not anticipated until 2003.
A final order is not anticipated until 2003.



Other
 Regulatory Matters




On November
 29, 2001, the CPUC adopted an Order Instituting Rulemaking (OIR) to evaluate existing
 practices and policies, to determine whether new procedures or policies for processing
 offset rate increases and balancing accounts should be made and to determine whether
 the new memorandum account procedures adopted on November 29, 2001 should be made
 permanent. For information on the new procedures, see Note 4 to Notes to Financial
 Statements in Part I, Item 1. A draft decision on the OIR is scheduled
 to be on the Commissions agenda on November 21, 2002.




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. This
 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.




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




Enhanced
 Surface Water Treatment Rules




The EPA has
 adopted Enhanced Surface Water Treatment Rules (ESWTR), which require increased
 surface-water treatment to decrease the risk of microbial contamination. These
 rules apply to


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each of SCWs five surface water treatment plants
 and CCWCs surface water treatment plant. It Registrant anticipates 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. SCW implemented
 modifications to the treatment process in its Bay Point and Cordova systems, the
 only two systems impacted by this rule, to achieve compliance and a third SCW plant
 will require treatment modifications in order to comply with this rule by 2004.




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




Ground
 Water Rule




On May 10,
 2000, the EPA published the proposed Ground Water Rule (GWR), which establishes
 multiple barriers to protect against bacteria and viruses in drinking water systems
 that use ground water. The proposed rule will apply to all U.S. public water systems
 that use ground water as a source. The proposed GWR includes system sanitary surveys
 conducted by the state to identify significant deficiencies; hydrogeologic sensitivity
 assessments for undisinfected systems, source water microbial monitoring by systems
 that do not disinfect and draw from hydrogeologically sensitive 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 2003. While no assurance can be given as
 to the nature and cost of any additional compliance measures, if any, SCW and CCWC
 do not 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 billion (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.




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


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most likely will not be published until late 2003. SCW and
 CCWC currently monitor
 their wells for radon in order to determine the best treatment appropriate for affected
 wells.



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




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




Unregulated
 Contaminants Monitoring Rule




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




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




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




In January
 1997, the California Department of Health Services (DOHS) established an action
 level of 18 parts per billion (ppb) for ammonium perchlorate. 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. The Governor in California
 recently signed into law a bill requiring DOHS to establish a MCL for ammonium perchlorate
 by January 1, 2004. 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 ammonium perchlorate are below
 the action level currently in effect.




Matters
 Relating to SCWs Arden-Cordova Water 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
 water system. Aerojet-General Corp. has, in the past, used ammonium perchlorate
 in oxidizing rocket fuels. SCW took


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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. Following the reduction in the action level for ammonium perchlorate
 in January 2002, SCW 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 water system. The wells have been removed from service. Since then,
 additional wells were also removed from service due to the contamination. In February
 2002, DOHS increased the action level from 2 parts per trillion (ppt) 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 September 30, 2002, Aerojet had previously
 reimbursed SCW $4.5 million of the approximately $20.7 million in costs SCW has
 incurred. The remainder of the costs is subject to further reimbursement pending
 outcome of the litigation. Reimbursements received from Aerojet reduce SCWs
 costs of utility plant and purchased water. For further information regarding litigation
 related to contamination of ground water in Sacramento County, see the section entitled
 Other Water Quality Litigation included in Part II, Item 1 in Legal Proceedings.




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




Matters
 Relating to SCWs Culver City Water System




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




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
 EPAs enforcement efforts. In March 2002, SCW reached a settlement agreement
 with the City of Santa Monica, in which SCW assigned its rights against all the
 potentially responsible parties, who stored, transported and dispensed gasoline
 containing methyl tertiary butyl ether (MTBE) in underground storage tanks, pipelines
 or other related infrastructure, and its water rights in the Charnock Basin to the
 City of


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Santa Monica and Santa Monica took over the
 prosecution against the potentially
 responsible parties in exchange for an assignment payment. The settlement agreement
 is pending the CPUCs approval.



Matters
 Relating to SCWs Yorba Linda Water System




The compound
 MTBE has been detected in three wells serving SCWs Yorba Linda water system.
 Two of the wells are standby wells and 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 Metropolitan Water District of Southern California 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.




Matters
 Relating to SCWs Los Osos Water System




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


Security



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 engaging 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.


Water
 Supply



SCWs
 Water Supply




For the three
 months ended September 30, 2002, SCW supplied a total of 27,921,000 ccf of water
 as compared to 26,962,000 ccf for the three months ended September 30, 2001. Of
 the total 27,921,000 ccf of water supplied during the third quarter of 2002, approximately
 52.0% came from pumped sources and 44.5% was purchased from others, principally
 the Metropolitan Water District of Southern California (MWD) and its member agencies.
 The remaining 3.5% of total supply came from the United States Bureau of Reclamation
 (the Bureau). For the three months ended September 30, 2001, 53.8%, 43.6% and 2.6%
 was supplied from pumped sources purchased from MWD and the Bureau, respectively.


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For the nine
 months ended September 30, 2002, SCW supplied a total of 68,665,000 ccf of water,
 55.6% of which came from pumped sources, 41.8% was purchased and 2.6% was supplied
 by the Bureau. During the nine months ended September 30, 2001, SCW produced 65,384,000
 ccf of water. Of this amount 58.2% came from pumped sources, 40.0% was purchased
 and the remainder was provided by the Bureau.




During the
 twelve months ended September 30, 2002, SCW supplied 87,384,000 ccf of water as
 compared to 84,538,000 ccf supplied during the twelve months ended September 30,
 2001. During the twelve months ended September 30, 2002, pumped sources provided
 56.5% of total supply, 41.0% was purchased from MWD and its member agencies. The
 remaining 2.5% of total supply came from the United States Bureau of Reclamation
 (the Bureau) under a no-cost contract. For the twelve months ended September 30,
 2001, 57.9%, 40.0% and 2.1%, 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 average with the statewide precipitation at 80% of
 normal level and reservoirs at 81% of normal. However Southern California has experienced
 one of the driest rainfall seasons since 1877. The South Coast basin received only
 29% of normal. Current California river levels are also low particularly in coastal
 regions and the southern Sierra, where August runoff was among the lowest in the
 last 25 years. The impacts of a dry water year were minimized by generally good
 storage in reservoirs and groundwater basins. Despite the low precipitation in the
 Southland, the MWD, which provides water to 26 municipal water agencies, has stated
 that it believes that there will be sufficient water available for both residential
 users and business owners for at least the next 10 years.




Ninety percent
 (90%) of water used in Southern California comes from the Sierra snow pack, which
 is currently believed to be sufficient to supply water to the southern part of the
 State . In addition, the National Oceanic and Atmospheric Administration is forecasting
 normal rainfall for the Southwest United States in October-November-December and
 above normal amounts for January-February-March. El Nino/Southern Oscillation conditions
 have formed in the Pacific and the next Kelvin wave of warmer water is moving towards
 South America. Also the Madden-Julian Oscillation, which has been weakening the
 easterly winds, has itself weakened allowing strengthening of the current El Nino
 conditions. The California Department of Water Resources also predicts an increased
 chance of above-average precipitation in Southern California.




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.




A sudden and
 unexplained drop in groundwater water supply severely impacted SCWs Wrightwood
 customer service area in the second quarter of 2002. In response to this emergency
 situation,


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SCW undertook taken a number of steps
 to provide water service, including
 trucking water into the area from nearby sources, bringing a formerly shut down
 well into service, taking steps to increase capacity at existing wells and expediting
 the drilling and equipping of a new well. In taking these steps to meet water demand,
 SCW experienced increased operating costs of approximately $450,000, most significantly
 associated with the cost of trucking water. However, due to the actions of SCW
 and conservation efforts of consumers the situation has stabilized. Management is
 unable to predict the extent to which additional costs may be incurred or the extent
 to which additional problems may be encountered. The cause of the unexplained and
 sudden drop in groundwater supply has not been identified, but it may be drought-related.



CCWCs
 Water Supply




Northern Arizona
 has not had significant precipitation, with the Colorado River basin receiving only
 18% of normal rainfall, placing it in extreme drought conditions. As of September
 2002, however, Lake Powell was at 70% of normal level and Lake Mead was at 83% of
 normal, even with the Colorado River inflows at only 53% of average. Outlook for
 the next few months for this area indicate that the drought will persist.




Since CCWC
 obtains its water supply from three operating wells and from Colorado River water
 delivered by the CAP, this situation will be monitored closely over the next few
 months. 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. On July 17, 2002, the FERC extended and modified the mitigation
 measures that were set to expire on September 30, 2002, citing delays in construction
 of new generation resources in California and throughout the West, delays in adopting
 a new market design and market rules by the Cal ISO, transmission line constraints,
 constraints on natural gas pipeline capacity and a dysfunctional power market. It
 remains unclear how long the FERC will leave its mitigation measures


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in place. The
 premature termination of such mitigation measures could result in a substantial
 increase in spot market prices and the prices of long-term contracts for power and
 capacity. In addition, Cal ISO has proposed a number of market reforms that could
 require us to procure substantial additional power and/or capacity. This could also
 result in an increase in the level and volatility of electric prices in California.



On July 17,
 2002, the CPUC approved a settlement authorizing 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.
 The new rates have been in effect since July 17, 2002. As of September 30, 2002,
 we have accrued $27.6 million in unrecovered power costs in our electric supply
 balancing account and have approximately $6.4 million in reserves for possible
 non-recovery of power costs.




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 the current water balancing
 account, and instead started a memorandum account for each offsettable expense of
 purchased water, purchased power and pump tax for its water service areas. 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-two water quality related lawsuits alleging personal injury
 and property damage as a result of the delivery of water that was allegedly contaminated.
 Nineteen of the lawsuits involve plaintiffs who received water from 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 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 may 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.


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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 affect SCWs five surface water treatment plants and one
 CCWC plant
| | Additional
 regulation of disinfection/disinfection byproducts; 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                                                                                                        
| | Changes in
 the action level and the proposed adoption of MCLs for ammonium perchlorate; we
 have removed 8 wells from service due to the presence of 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:




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| | Rainfall                                             
|- | -----------------------------------------------------
| | The amount
 of water stored in reservoirs            
| | 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 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. We have an Advice Letter pending before the CPUC to increase rates in our
 Metropolitan district by $2.7 million annually to offset an increase in rate base
 due to its infrastructure replacement program and offset increased costs by using
 a price index. We also have filed for increased water rates to recover operating
 costs from customers in Region III as well as


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from all customers for costs associated
 with general office activities. In addition, we are seeking CPUC authorization
 to construct an 8.4 MW natural gas-fueled generator facility to meet increasing
 demand in our Bear Valley customer service area. The CPUCs resolution ordering
 SCW to suspend the use of the current water balancing account, and instead to start
 a memorandum account for our supply costs has and will directly impact our earnings.
 We may recover certain water supply costs based on the memorandum account only if
 we are within our rate case cycle and we are not earning an amount in excess of
 our authorized rate of return.



We have been
 adversely affected by electric restructuring in California and the escalation of
 energy costs that we have recently begun recovering in rates. SCW has also filed
 a complaint with FERC seeking a reduction of the rates in its power purchase contract
 with Mirant Americas Energy Marketing, L.P. to a just and reasonable price, and
 is a party to proceedings in which load serving entities in California are seeking
 recovery of costs incurred in connection with purchasing power in the spot market
 from October 2000 through June 2001. There are also proceedings pending before FERC
 to restructure the California energy markets.




Our business
 requires significant capital expenditures.




The utility
 business is capital intensive. On an annual basis, we spend significant sums for
 additions to or replacement of property, plant and equipment. During calendar years
 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. In addition, we secured a syndicated
 bank facility that we can use for these purposes. We cannot assure you that these
 sources will continue to be adequate or that the cost of funds will remain at levels
 permitting us to remain profitable.


Accounting Standards



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.




In August
 2001, the FASB also issued SFAS No. 144, Accounting for the Impairment or Disposal
 of Long-Lived Assets, which addresses the financial accounting and reporting for
 the impairment or disposal of long-lived assets. Registrant does not expect this
 Statement to materially impact its financial statements.




In June 2002,
 the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
 Activities. This pronouncement is effective for exit or disposal activities that
 are initiated after December 31, 2002, and requires these costs to be recognized
 when the liability is incurred and not at project initiation. Registrant is reviewing
 the provisions of this Statement, but does not expect it to have a material impact
 on its financial statements.


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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 Americas
 Energy Marketing, L.P. 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 applicable contract. In addition, SCWs liquidity, and in certain circumstances,
 earnings could be adversely affected by increases in electricity prices in California.
 For further information, see the section entitled Contractual Obligations
 and Other Commitments and Risk Factor Summary included in
 Part I, Item 2 in Managements Discussion and Analysis of Financial
 Condition and Results of Operation.





Item 4. Controls and Procedures



Within ninety
 days prior to the filing of this report, we carried out an evaluation, under the
 supervision and with the participation of our Chief Executive Officer and Chief
 Financial Officer, of the effectiveness of our disclosure controls and procedures.
 Disclosure controls and procedures are designed to ensure that information required
 to be disclosed in our periodic reports filed or submitted under the Securities
 Exchange Act of 1934 is recorded, processed, summarized and reported within the
 time periods specified in the Securities and Exchange Commissions rules and
 forms. Based upon that evaluation, our Chief Executive Officer and Chief Financial
 Officer concluded that our disclosure controls and procedures are effective. There
 have been no significant changes in our internal controls or in other factors that
 could significantly affect internal controls subsequent to the date we carried out
 this evaluation.





PART II




Item 1. Legal Proceedings



Water
 Quality-Related Litigation




SCW is a defendant
 in twenty-two lawsuits involving claims pertaining to water quality. Nineteen of
 the lawsuits involve customer service areas located in Los Angeles County in the
 southern portion of the State of California that have been filed in Los Angeles
 Superior Court: Robert Arenas, et al. v. Suburban Water Systems, Inc., et al., Case
 No. KC037559, Anthony John Bell, et al. v. City of Pomona, et al., Case No. KC038796,
 Adler, et al. v. Southern California Water Company, et al., Case No. BC169892, Santamaria,
 et al. v. Suburban Water Systems, et al., Case No. CIV180894, Georgianna 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, Antoinette Adejare,
 et al. v. City of Pomona, et al., 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


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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), 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 September 30, 2002, SCW had recorded
 a net of $890,000 in this 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.


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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. A cross
 complaint filed by Aerojet against SCW for negligence and constituting a public
 nuisance was dismissed in October 2002.




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 September 30, 2002, approximately
 $10.7 million 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 $1.8 million, in expenses that were incurred on or before August
 31, 2000. The remaining costs will be included in SCWs next General Rate Case
 Application for its Region I customer service areas. 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.




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




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. Management cannot predict the likely outcome
 of this matter.




Other
 Litigation




Registrant
 is also subject to ordinary routine litigation incidental to its business. Other
 than as disclosed above, no other legal proceedings are pending, which are believed
 to be material.





Item 2. Changes in Securities



As of September
 30, 2002, earned surplus amounted to $81,557,000.


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Neither AWR
 nor ASUS is subject to any contractual restriction on its ability to pay dividends.
 SCWs maximum ability to pay dividends is restricted by certain Note Agreements
 to the sum of $21 million plus 100% of consolidated net income plus the aggregate
 net cash proceeds received from capital stock offerings or other instruments convertible
 into capital stock after 1991.




AWRs
 ability to pay dividends on its Common Shares is dependent upon the payment of dividends
 from SCW. The ability of AWR, ASUS and SCW to pay dividends is also restricted by
 its retained earnings, respectively, under California law.




CCWC is subject
 to contractual restrictions on its ability to pay dividends. CCWCs maximum
 ability to distribute dividends is limited to maintenance of no more than 55% debt
 in the capital structure for the quarter immediately preceding the distribution.
 The ability of CCWC to pay dividends is also restricted by Arizona law. Approximately
 $3.9 million was available to pay dividends from CCWC to AWR at September 30, 2002.




There are
 721,910 and 72,358 Common Shares authorized but unissued under the DRP and the 401(k)
 Plan, respectively, at September 30, 2002. Shares reserved for the 401(k) Plan are
 in relation to Company matching contributions and for investment purposes by participants.
 During the third quarter of 2002, 18,027 common shares were issued pursuant to the
 terms of the DRP and the 401(k) Plans.




There are
 375,000 Common Shares reserved for issuance under Registrants 2000 Stock Incentive
 Plan. Under the Plan, stock options representing a total of 253,413 Common Shares
 upon exercise have been granted to certain eligible employees An additional 1,050
 shares are subject to grants of restricted stock.




Registrant
 implemented a three-for-two split of Registrants common stock payable on June
 7, 2002 to holders of record on May 15, 2002. Fractional shares were paid in cash.
 As a result of the stock split, the total number of Common Shares outstanding increased
 from approximately 10.1 million to 15.1 million.




On April 5,
 2002, Registrant redeemed the 4% and 4% series of $25 Preferred Shares at the redemption
 price $27.00 and $26.50 per share, respectively, plus accrued and unpaid dividends
 to the redemption date. Subsequently on April 19, 2002, the 5% Series was redeemed
 at $25.25 per share plus accrued and unpaid dividends to the redemption date.





Item 3. Defaults Upon Senior Securities



None.





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



No items were
 submitted during the third quarter of the fiscal year covered by this report to
 a vote of security holders through the solicitation of proxies or otherwise.





Item 5. Other Information



On October
 28, 2002, the Board of Directors of Registrant declared a regular quarterly dividend
 of $0.221 per common share. The dividend will be paid December 1, 2002 to shareholders
 of record as of the close of business on November 8, 2002.




The certifications
 of Registrants Chief Executive Officer and Chief Financial Officer pursuant
 to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
 Act of 2002, were filed as correspondence with the Securities and Exchange Commission
 concurrent with this Form 10-Q.


46



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##### Table of Contents






Item 6. Exhibits and Reports on Form
 8-K



There are
 no Exhibits during the period covered by this report.




No Reports
 of Form 8-K were filed during the period covered by this report.


47



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##### Table of Contents






SIGNATURE



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 thereunto duly authorized
 and as its principal financial officer.




| | AMERICAN STATES WATER COMPANYand its subsidiarySOUTHERN CALIFORNIA WATER COMPANY
| | --------------------------------------------------------------------------------
| |                                                                                 
| |                                                                                 
| | By:s/                                                                           
| |                                                                                 
| |                                                                                 

Dated: November 12, 2002

48



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##### Table of Contents






CERTIFICATIONS

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



|1) |  | I have reviewed
 this quarterly report on Form 10-Q for the period ended September 30, 2002 (this
 quarterly report);                                                                                                                                                                                                           
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                                                                                                   
|2) |  | Based on my
 knowledge, this quarterly report does not contain any untrue statement of a material
 fact or omit to state a material fact necessary to make the statements made, in
 light of the circumstances under which such statements were made, not misleading
 with respect to the period covered by this quarterly report;
|   |  |                                                                                                                                                                                                                                                                                                                                   
|3) |  | Based on my
 knowledge, the financial statements, and other financial information included in
 this quarterly report, fairly present in all material respects the financial condition,
 results of operations and cash flows of the Registrant as of, and for, the periods
 presented in this quarterly report;                   
|   |  |                                                                                                                                                                                                                                                                                                                                   
|4) |  | The Registrants
 other certifying officers and I are responsible for establishing and maintaining
 disclosure controls and procedures (as defined in Section 240.13a-14of the General
 Rules and Regulations promulgated under the Securities Exchange Act of 1934) for
 the Registrant and we have:                             

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

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

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

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



| | Dated:
 November 12, 2002 | By: | /s/ FLOYD
 E. WICKS                     
| | ------------------------- | --- | ----------------------------------------
| |                           |     |                                         
| |                           |     | Floyd E.
 Wicks  Chief Executive Officer

49



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##### Table of Contents



CERTIFICATIONS

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



|1) |  | I have reviewed this quarterly report on Form 10-Q for the period ended September
 30, 2002 (this quarterly report);                                                                                                                                                                                                                                                                       
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                                                                                                                                                              
|2) |  | Based on my knowledge, this quarterly report does not contain any untrue statement
 of a material fact or omit to state a material fact necessary to make the statements
 made, in light of the circumstances under which such statements were made, not misleading
 with respect to the period covered by this quarterly report;                                                            
|   |  |                                                                                                                                                                                                                                                                                                                                                                                              
|3) |  | Based on my knowledge, the financial statements, and other financial information
 included in this quarterly report, fairly present in all material respects the financial
 condition, results of operations and cash flows of the Registrant as of, and for,
 the periods presented in this quarterly report;                                                                               
|   |  |                                                                                                                                                                                                                                                                                                                                                                                              
|4) |  | The Registrants other certifying officers and I are responsible for establishing
 and maintaining disclosure controls and procedures (as defined in Section 240.13a-14of
 the General Rules and Regulations promulgated under the Securities Exchange Act
 of 1934) for the Registrant and we have:                                                                                         
|   |  |                                                                                                                                                                                                                                                                                                                                                                                              
|   |  | a)                                                                                                                                                                                                                                                                                                                                                                                           
|   |  |                                                                                                                                                                                                                                                                                                                                                                                              
|   |  | b)                                                                                                                                                                                                                                                                                                                                                                                           
|   |  |                                                                                                                                                                                                                                                                                                                                                                                              
|   |  | c)                                                                                                                                                                                                                                                                                                                                                                                           
|   |  |                                                                                                                                                                                                                                                                                                                                                                                              
|5) |  | The Registrants other certifying officers and I have disclosed, based on our
 most recent evaluation, to the Registrants auditors and the audit committee
 of Registrants board of directors (or persons performing the equivalent function):                                                                                                                                             
|   |  |                                                                                                                                                                                                                                                                                                                                                                                              
|   |  | a)                                                                                                                                                                                                                                                                                                                                                                                           
|   |  | b)                                                                                                                                                                                                                                                                                                                                                                                           
|   |  |                                                                                                                                                                                                                                                                                                                                                                                              
|6) |  | The Registrants other certifying officers and I have indicated in this quarterly
 report whether or not there were significant changes in internal controls or in
 other factors that could significantly affect internal controls subsequent to the
 date of our most recent evaluation, including any corrective actions with regard
 to significant deficiencies and material weaknesses.



| | Dated:
 November 12, 2002 | By: | /s/ McCLELLAN
 HARRIS III                                                                                 
| | ------------------------- | --- | ----------------------------------------------------------------------------------------------------------
| |                           |     |                                                                                                           
| |                           |     | McClellan
 Harris III  Chief Financial Officer, Senior Vice President-  Finance,
 and Corporate
 Secretary

50