##### 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, 2003 or

|  |  |                                                                                                                                            
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|o |  | Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________to ________

Commission file number 333-47647

American States Water Company

---

(Exact Name of Registrant as Specified in Its Charter)


|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|California                                                     |  | 95-4676679                       
|                                                               |  |                                  
|(State or Other Jurisdiction of Incorporation or Organization) |  | (IRS Employer Identification No.)
|                                                               |  |                                  
|630 East Foothill Boulevard, San Dimas                         |  | 91773                            
|                                                               |  |                                  
|(Address of Principal Executive Offices)                       |  | (Zip Code)                       

(909) 394-3600

---

(Registrants Telephone Number, Including Area Code)


Not Applicable

---

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


Commission file number 000-01121

Southern California Water Company

(Exact Name of Registrant as Specified in Its Charter)


|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|California                                                     |  | 95-1243678                       
|                                                               |  |                                  
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (IRS Employer Identification No.)
|                                                               |  |                                  
|630 East Foothill Boulevard, San Dimas                         |  | 91773                            
|                                                               |  |                                  
|(Address of Principal Executive Offices)                       |  | (Zip Code)                       

(909) 394-3600

---

(Registrants Telephone Number, Including Area Code)


Not Applicable

---

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


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

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

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

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

As of November 14, 2003, the number of Common Shares outstanding of American
States Water Company was 15,202,152 shares.

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





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TABLE OF CONTENTS



|             |                                                                                              |                                                                                       |  |  |  |  |  | 
|------------ | -------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- |  |  |  |  |  | 
|PART I      
|             | Item 1. Financial Statements                                                                
|             |                                                                                              | AMERICAN STATES WATER COMPANY CONSOLIDATED BALANCE SHEETS                            
|             |                                                                                              | AMERICAN STATES WATER COMPANY CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS 
|             |                                                                                              | AMERICAN STATES WATER COMPANY CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS  
|             |                                                                                              | AMERICAN STATES WATER COMPANY CONSOLIDATED STATEMENTS OF INCOME FOR THE TWELVE MONTHS
|             |                                                                                              | AMERICAN STATES WATER COMPANY CONSOLIDATED CASH FLOW STATEMENTS                      
|             |                                                                                              | SOUTHERN CALIFORNIA WATER COMPANY BALANCE SHEETS                                     
|             |                                                                                              | SOUTHERN CALIFORNIA WATER COMPANY STATEMENTS OF INCOME FOR THE THREE MONTHS          
|             |                                                                                              | SOUTHERN CALIFORNIA WATER COMPANY STATEMENTS OF INCOME FOR THE NINE MONTHS           
|             |                                                                                              | SOUTHERN CALIFORNIA WATER COMPANY STATEMENTS OF INCOME FOR THE TWELVE MONTHS         
|             |                                                                                              | SOUTHERN CALIFORNIA WATER COMPANY CASH FLOW STATEMENTS                               
|             |                                                                                              | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                           
|             | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation
|             | Item 3. Quantitative and Qualitative Disclosures About Market Risk                          
|             | Item 4. Controls and Procedures                                                             
|PART II     
|             | Item 1. Legal Proceedings                                                                   
|             | Item 2. Changes in Securities                                                               
|             | Item 3. Defaults Upon Senior Securities                                                     
|             | Item 4. Submission of Matters to a Vote of Security Holders                                 
|             | Item 5. Other Information                                                                   
|             | Item 6. Exhibits and Reports on Form 8-K                                                    
|SIGNATURE   
|EXHIBIT 10.1
|EXHIBIT 31.1
|EXHIBIT 31.2
|EXHIBIT 32.1
|EXHIBIT 32.2



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##### Table of Contents



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

INDEX

|        |  |                                                                                      |  |                                                                                                                                               |    |          |    | 
|------- |  | ------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------- | -- | -------- | -- | 
|        |  |                                                                                      |  |                                                                                                                                               |    | Page No.
|        |  |                                                                                      |  |                                                                                                                                               |    |         
|Part I  |  | Financial Information                                                                |  |                                                                                                                                               |    |         
|Item 1: |  | Financial Statements                                                                 |  |                                                                                                                                               | 1  |         
|        |  |                                                                                      |  | Consolidated Balance Sheets of American States Water Company as of
September 30, 2003 and December 31, 2002                                   |    |          | 2  | 
|        |  |                                                                                      |  | Consolidated Statements of Income of American States Water Company for the
Three Months Ended September 30, 2003 and September 30, 2002       |    |          | 4  | 
|        |  |                                                                                      |  | Consolidated Statements of Income of American States Water Company for the
Nine Months Ended September 30, 2003 and September 30, 2002        |    |          | 5  | 
|        |  |                                                                                      |  | Consolidated Statements of Income of American States Water Company for the
Twelve Months Ended September 30, 2003 and September 30, 2002      |    |          | 6  | 
|        |  |                                                                                      |  | Consolidated Statements of Cash Flow of American States Water Company for the
Nine Months Ended September 30, 2003 and September 30, 2002     |    |          | 7  | 
|        |  |                                                                                      |  | Consolidated Balance Sheets of Southern California Water Company as of
September 30, 2003 and December 31, 2002                               |    |          | 8  | 
|        |  |                                                                                      |  | Consolidated Statements of Income of Southern California Water Company for the
Three Months Ended September 30, 2003 and September 30, 2002   |    |          | 10 | 
|        |  |                                                                                      |  | Consolidated Statements of Income of Southern California Water Company for the
Nine Months Ended September 30, 2003 and September 30, 2002    |    |          | 11 | 
|        |  |                                                                                      |  | Consolidated Statements of Income of Southern California Water Company for the
Twelve Months Ended September 30, 2003 and September 30, 2002  |    |          | 12 | 
|        |  |                                                                                      |  | Consolidated Statements of Cash Flow of Southern California Water Company for the
Nine Months Ended September 30, 2003 and September 30, 2002 |    |          | 13 | 
|        |  |                                                                                      |  | Notes to Consolidated Financial Statements                                                                                                    |    |          | 14 | 
|Item 2: |  | Managements Discussion and Analysis of Financial Condition and Results of Operation |  |                                                                                                                                               | 23 |         
|Item 3: |  | Quantitative and Qualitative Disclosures About Market Risks                          |  |                                                                                                                                               | 59 |         
|Item 4: |  | Controls and Procedures                                                              |  |                                                                                                                                               | 60 |         
|Part II |  | Other Information                                                                    |  |                                                                                                                                               |    |         
|Item 1: |  | Legal Proceedings                                                                    |  |                                                                                                                                               | 61 |         
|Item 2: |  | Changes in Securities                                                                |  |                                                                                                                                               | 64 |         
|Item 3: |  | Defaults Upon Senior Securities                                                      |  |                                                                                                                                               | 65 |         
|Item 4: |  | Submission of Matters to a Vote of Security Holders                                  |  |                                                                                                                                               | 65 |         
|Item 5: |  | Other Information                                                                    |  |                                                                                                                                               | 65 |         
|Item 6: |  | Exhibits and Reports on Form 8-K                                                     |  |                                                                                                                                               | 65 |         
|        |  |                                                                                      |  | Signature                                                                                                                                     |    |          | 66 | 
|        |  |                                                                                      |  | Certifications                                                                                                                                |    |          | 67 | 

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 accounting principles
generally accepted in the United States of America, have been condensed or
omitted pursuant to such rules and regulations, although Registrant believes
that the disclosures are adequate to make the information presented not
misleading. In the opinion of management, all adjustments necessary for a fair
statement of results for the interim period have been made.

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

Filing Format

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

1



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##### Table of Contents






AMERICAN STATES WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)

|                                            |                                                                                                       |                        |         |               |         |              |         |          |         | 
|------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ---------------------- | ------- | ------------- | ------- | ------------ | ------- | -------- | ------- | 
|                                            |                                                                                                       |                        |         | September 30, |         | December 31,
|(in thousands)                              |                                                                                                       | 2003                   |         | 2002         
|                                            |                                                                                                       |                        |         |              
|Utility Plant, at cost                      |                                                                                                       |                        |         |               |         |              |         |         
|                                            | Water                                                                                                 |                        | $       | 708,779       |         |              | $       | 693,949  |        
|                                            | Electric                                                                                              |                        |         | 41,519        |         |              |         | 41,017   |        
|                                            |                                                                                                       |                        |         |               |         |              |         |          |        
|                                            |                                                                                                       |                        | 750,298 |               |         |              | 734,966 |         
|                                            | Less - Accumulated depreciation                                                                       |                        |         | (220,295      | )       |              |         | (206,873 | )      
|                                            |                                                                                                       |                        |         |               |         |              |         |          |        
|                                            |                                                                                                       |                        | 530,003 |               |         |              | 528,093 |         
|                                            | Construction work in progress                                                                         |                        |         | 54,369        |         |              |         | 35,218   |        
|                                            |                                                                                                       |                        |         |               |         |              |         |          |        
|                                            |                                                                                                       | Net utility plant      |         |               | 584,372 |              |         |          | 563,311 | 
|Other Property and Investments              |                                                                                                       |                        | 22,035  |               |         |              | 22,670  |         
|                                            |                                                                                                       |                        |         |               |         |              |         |          |        
|Current Assets                              |                                                                                                       |                        |         |               |         |              |         |         
|                                            | Cash and cash equivalents                                                                             |                        |         | 11,368        |         |              |         | 18,397   |        
|                                            | Accounts receivable-customers (less allowance for doubtful
accounts of $950 at 2003 and $769 at 2002) |                        |         | 13,193        |         |              |         | 10,833   |        
|                                            | Unbilled revenue                                                                                      |                        |         | 15,459        |         |              |         | 12,277   |        
|                                            | Other accounts receivable                                                                             |                        |         | 1,732         |         |              |         | 2,411    |        
|                                            | Taxes receivable                                                                                      |                        |         |              |         |              |         | 557      |        
|                                            | Materials and supplies, at average cost                                                               |                        |         | 1,525         |         |              |         | 936      |        
|                                            | Supply cost balancing accounts - current                                                              |                        |         | 4,190         |         |              |         | 3,215    |        
|                                            | Prepayments and other                                                                                 |                        |         | 2,455         |         |              |         | 3,220    |        
|                                            |                                                                                                       |                        |         |               |         |              |         |          |        
|                                            |                                                                                                       | Total current assets   |         |               | 49,922  |              |         |          | 51,846  | 
|                                            |                                                                                                       |                        |         |               |         |              |         |          |        
|Deferred Charges and Other Long-Term Assets |                                                                                                       |                        |         |               |         |              |         |         
|                                            | Regulatory tax-related assets                                                                         |                        |         | 13,916        |         |              |         | 12,828   |        
|                                            | Supply cost balancing accounts                                                                        |                        |         | 21,257        |         |              |         | 24,255   |        
|                                            | Other accounts receivable                                                                             |                        |         | 3,370         |         |              |         | 3,370    |        
|                                            | Other                                                                                                 |                        |         | 28,336        |         |              |         | 23,370   |        
|                                            |                                                                                                       |                        |         |               |         |              |         |          |        
|                                            |                                                                                                       | Total deferred charges |         |               | 66,879  |              |         |          | 63,823  | 
|                                            |                                                                                                       |                        |         |               |         |              |         |          |        
|                                            |                                                                                                       | Total Assets           |         | $             | 723,208 |              |         | $        | 701,650 | 
|                                            |                                                                                                       |                        |         |               |         |              |         |          |        

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

2



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

|                                       |                                            |                                      |   |               |         |              |   |         |         | 
|-------------------------------------- | ------------------------------------------ | ------------------------------------ | - | ------------- | ------- | ------------ | - | ------- | ------- | 
|                                       |                                            |                                      |   | September 30, |         | December 31,
|(in thousands)                         |                                            | 2003                                 |   | 2002         
|                                       |                                            |                                      |   |              
|Capitalization                         |                                            |                                      |   |               |         |              |   |        
|                                       | Common shareholders equity                |                                      | $ | 217,404       |         |              | $ | 213,279 |        
|                                       | Long-term debt                             |                                      |   | 230,121       |         |              |   | 231,089 |        
|                                       |                                            |                                      |   |               |         |              |   |         |        
|                                       |                                            | Total capitalization                 |   |               | 447,525 |              |   |         | 444,368 | 
|                                       |                                            |                                      |   |               |         |              |   |         |        
|Current Liabilities                    |                                            |                                      |   |               |         |              |   |        
|                                       | Notes payable to banks                     |                                      |   | 33,000        |         |              |   | 35,000  |        
|                                       | Long-term debt - current                   |                                      |   | 13,305        |         |              |   | 13,305  |        
|                                       | Accounts payable                           |                                      |   | 11,514        |         |              |   | 11,600  |        
|                                       | Taxes payable                              |                                      |   | 2,074         |         |              |   |        |        
|                                       | Accrued employee expenses                  |                                      |   | 6,059         |         |              |   | 5,105   |        
|                                       | Accrued interest                           |                                      |   | 5,119         |         |              |   | 1,941   |        
|                                       | Other                                      |                                      |   | 10,990        |         |              |   | 12,569  |        
|                                       |                                            |                                      |   |               |         |              |   |         |        
|                                       |                                            | Total current liabilities            |   |               | 82,061  |              |   |         | 79,520  | 
|                                       |                                            |                                      |   |               |         |              |   |         |        
|Other Credits                          |                                            |                                      |   |               |         |              |   |        
|                                       | Advances for construction                  |                                      |   | 74,586        |         |              |   | 70,208  |        
|                                       | Contributions in aid of construction - net |                                      |   | 49,744        |         |              |   | 47,751  |        
|                                       | Accumulated deferred income taxes - net    |                                      |   | 60,382        |         |              |   | 53,817  |        
|                                       | Unamortized investment tax credits         |                                      |   | 2,723         |         |              |   | 2,791   |        
|                                       | Regulatory tax-related liability           |                                      |   | 1,987         |         |              |   | 2,011   |        
|                                       | Other                                      |                                      |   | 4,200         |         |              |   | 1,184   |        
|                                       |                                            |                                      |   |               |         |              |   |         |        
|                                       |                                            | Total other credits                  |   |               | 193,622 |              |   |         | 177,762 | 
|                                       |                                            |                                      |   |               |         |              |   |         |        
|Commitments and Contingencies (Note 7) |                                            |                                      |  |               |         |              |  |        
|                                       |                                            |                                      |   |               |         |              |   |         |        
|                                       |                                            | Total Capitalization and Liabilities |   | $             | 723,208 |              |   | $       | 701,650 | 
|                                       |                                            |                                      |   |               |         |              |   |         |        

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

3



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##### Table of Contents






AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2003 AND 2002
(Unaudited)

|                                              |                                                 |                           |        |                    |        |   |        |        |        | 
|--------------------------------------------- | ----------------------------------------------- | ------------------------- | ------ | ------------------ | ------ | - | ------ | ------ | ------ | 
|                                              |                                                 |                           |        | Three Months Ended
|                                              |                                                 |                           |        | September 30,     
|                                              |                                                 |                           |        |                   
|(in thousands, except per share amounts)      |                                                 | 2003                      |        | 2002              
|                                              |                                                 |                           |        |                   
|Operating Revenues                            |                                                 |                           |        |                    |        |   |        |       
|                                              | Water                                           |                           | $      | 57,574             |        |   | $      | 55,866 |       
|                                              | Electric                                        |                           |        | 5,906              |        |   |        | 5,529  |       
|                                              | Other                                           |                           |        | 245                |        |   |        | 217    |       
|                                              |                                                 |                           |        |                    |        |   |        |        |       
|                                              |                                                 |                           | 63,725 |                    |        |   | 61,612 |       
|                                              |                                                 |                           |        |                    |        |   |        |        |       
|Operating Expenses                            |                                                 |                           |        |                    |        |   |        |       
|                                              | Water purchased                                 |                           |        | 13,740             |        |   |        | 14,205 |       
|                                              | Power purchased for pumping                     |                           |        | 3,330              |        |   |        | 3,327  |       
|                                              | Power purchased for resale                      |                           |        | 3,382              |        |   |        | 3,645  |       
|                                              | Unrealized loss on purchased power contracts    |                           |        | 420                |        |   |        |       |       
|                                              | Groundwater production assessment               |                           |        | 2,089              |        |   |        | 1,831  |       
|                                              | Supply cost balancing accounts                  |                           |        | 650                |        |   |        | (428   | )     
|                                              | Other operating expenses                        |                           |        | 4,805              |        |   |        | 4,883  |       
|                                              | Administrative and general expenses             |                           |        | 10,058             |        |   |        | 7,848  |       
|                                              | Depreciation and amortization                   |                           |        | 4,944              |        |   |        | 4,622  |       
|                                              | Maintenance                                     |                           |        | 2,181              |        |   |        | 2,546  |       
|                                              | Taxes on income                                 |                           |        | 3,915              |        |   |        | 5,207  |       
|                                              | Other taxes                                     |                           |        | 2,032              |        |   |        | 2,062  |       
|                                              |                                                 |                           |        |                    |        |   |        |        |       
|                                              |                                                 | Total operating expenses  |        |                    | 51,546 |   |        |        | 49,748 | 
|                                              |                                                 |                           |        |                    |        |   |        |        |       
|Operating Income                              |                                                 |                           | 12,179 |                    |        |   | 11,864 |       
|Other Income (Loss)                           |                                                 |                           |        |                    |        |   |        |       
|                                              | Other income - net                              |                           |        | 128                |        |   |        | 157    |       
|                                              |                                                 |                           |        |                    |        |   |        |        |       
|                                              |                                                 | Total other income (loss) |        |                    | 128    |   |        |        | 157    | 
|Interest Charges                              |                                                 |                           |        |                    |        |   |        |       
|                                              | Interest on long-term debt                      |                           |        | 4,229              |        |   |        | 4,213  |       
|                                              | Other interest and amortization of debt expense |                           |        | 282                |        |   |        | 169    |       
|                                              |                                                 |                           |        |                    |        |   |        |        |       
|                                              |                                                 | Total interest charges    |        |                    | 4,511  |   |        |        | 4,382  | 
|Net Income                                    |                                                 |                           | 7,796  |                    |        |   | 7,639  |       
|                                              | Dividends on Preferred Shares                   |                           |        |                   |        |   |        |       |       
|                                              |                                                 |                           |        |                    |        |   |        |        |       
|Earnings Available for Common Shareholders    |                                                 | $                         | 7,796  |                    |        | $ | 7,639  |       
|                                              |                                                 |                           |        |                    |        |   |        |        |       
|Weighted Average Number of Shares Outstanding |                                                 |                           | 15,202 |                    |        |   | 15,154 |       
|Basic Earnings Per Common Share               |                                                 | $                         | 0.51   |                    |        | $ | 0.50   |       
|Weighted Average Number of Diluted Shares     |                                                 |                           | 15,244 |                    |        |   | 15,170 |       
|Fully Diluted Earnings Per Share              |                                                 | $                         | 0.51   |                    |        | $ | 0.50   |       
|Dividends Declared Per Common Share           |                                                 | $                         | 0.221  |                    |        | $ | 0.217  |       

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

4



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##### Table of Contents






AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2003 AND 2002
(Unaudited)

|                                              |                                                 |                          |         |                   |         |   |         |         |         | 
|--------------------------------------------- | ----------------------------------------------- | ------------------------ | ------- | ----------------- | ------- | - | ------- | ------- | ------- | 
|                                              |                                                 |                          |         | Nine Months Ended
|                                              |                                                 |                          |         | September 30,    
|                                              |                                                 |                          |         |                  
|(in thousands, except per share amounts)      |                                                 | 2003                     |         | 2002             
|                                              |                                                 |                          |         |                  
|Operating Revenues                            |                                                 |                          |         |                   |         |   |         |        
|                                              | Water                                           |                          | $       | 143,206           |         |   | $       | 143,722 |        
|                                              | Electric                                        |                          |         | 18,263            |         |   |         | 14,574  |        
|                                              | Other                                           |                          |         | 749               |         |   |         | 603     |        
|                                              |                                                 |                          |         |                   |         |   |         |         |        
|                                              |                                                 |                          | 162,218 |                   |         |   | 158,899 |        
|                                              |                                                 |                          |         |                   |         |   |         |         |        
|Operating Expenses                            |                                                 |                          |         |                   |         |   |         |        
|                                              | Water purchased                                 |                          |         | 32,098            |         |   |         | 32,523  |        
|                                              | Power purchased for pumping                     |                          |         | 7,696             |         |   |         | 7,767   |        
|                                              | Power purchased for resale                      |                          |         | 10,052            |         |   |         | 13,973  |        
|                                              | Unrealized gain on purchased power contracts    |                          |         | (854              | )       |   |         |        |        
|                                              | Groundwater production assessment               |                          |         | 5,485             |         |   |         | 5,427   |        
|                                              | Supply cost balancing accounts                  |                          |         | 2,109             |         |   |         | (6,243  | )      
|                                              | Other operating expenses                        |                          |         | 13,931            |         |   |         | 12,811  |        
|                                              | Administrative and general expenses             |                          |         | 29,472            |         |   |         | 24,291  |        
|                                              | Depreciation and amortization                   |                          |         | 14,836            |         |   |         | 13,728  |        
|                                              | Maintenance                                     |                          |         | 6,430             |         |   |         | 6,632   |        
|                                              | Taxes on income                                 |                          |         | 7,700             |         |   |         | 12,355  |        
|                                              | Other taxes                                     |                          |         | 6,110             |         |   |         | 5,967   |        
|                                              |                                                 |                          |         |                   |         |   |         |         |        
|                                              |                                                 | Total operating expenses |         |                   | 135,065 |   |         |         | 129,231 | 
|                                              |                                                 |                          |         |                   |         |   |         |         |        
|Operating Income                              |                                                 |                          | 27,153  |                   |         |   | 29,668  |        
|Other Income (Loss)                           |                                                 |                          |         |                   |         |   |         |        
|                                              | Other income - net                              |                          |         | 159               |         |   |         | 326     |        
|                                              |                                                 |                          |         |                   |         |   |         |         |        
|                                              |                                                 | Total other income       |         |                   | 159     |   |         |         | 326     | 
|Interest Charges                              |                                                 |                          |         |                   |         |   |         |        
|                                              | Interest on long-term debt                      |                          |         | 12,704            |         |   |         | 12,717  |        
|                                              | Other interest and amortization of debt expense |                          |         | 911               |         |   |         | 396     |        
|                                              |                                                 |                          |         |                   |         |   |         |         |        
|                                              |                                                 | Total interest charges   |         |                   | 13,615  |   |         |         | 13,113  | 
|Net Income                                    |                                                 |                          | 13,697  |                   |         |   | 16,881  |        
|                                              | Dividends on Preferred Shares                   |                          |         |                  |         |   |         | (29     | )      
|                                              |                                                 |                          |         |                   |         |   |         |         |        
|Earnings Available for Common Shareholders    |                                                 | $                        | 13,697  |                   |         | $ | 16,852  |        
|                                              |                                                 |                          |         |                   |         |   |         |         |        
|Weighted Average Number of Shares Outstanding |                                                 |                          | 15,198  |                   |         |   | 15,135  |        
|Basic Earnings Per Common Share               |                                                 | $                        | 0.90    |                   |         | $ | 1.11    |        
|Weighted Average Number of Diluted Shares     |                                                 |                          | 15,230  |                   |         |   | 15,153  |        
|Fully Diluted Earnings Per Share              |                                                 | $                        | 0.90    |                   |         | $ | 1.11    |        
|Dividends Declared Per Common Share           |                                                 | $                        | 0.663   |                   |         | $ | 0.651   |        

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

5



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##### Table of Contents






AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWELVE MONTHS ENDED
SEPTEMBER 30, 2003 AND 2002
(Unaudited)

|                                              |                                                 |                           |         |                     |         |   |         |          |         | 
|--------------------------------------------- | ----------------------------------------------- | ------------------------- | ------- | ------------------- | ------- | - | ------- | -------- | ------- | 
|                                              |                                                 |                           |         | Twelve Months Ended
|                                              |                                                 |                           |         | September 30,      
|                                              |                                                 |                           |         |                    
|(in thousands, except per share amounts)      |                                                 | 2003                      |         | 2002               
|                                              |                                                 |                           |         |                    
|                                              |                                                 |                           |         |                     |         |   |         | Restated
|                                              |                                                 |                           |         |                     |         |   |         | Note 2  
|Operating Revenues                            |                                                 |                           |         |                     |         |   |         |         
|                                              | Water                                           |                           | $       | 186,544             |         |   | $       | 187,144  |        
|                                              | Electric                                        |                           |         | 24,988              |         |   |         | 18,885   |        
|                                              | Other                                           |                           |         | 991                 |         |   |         | 813      |        
|                                              |                                                 |                           |         |                     |         |   |         |          |        
|                                              |                                                 |                           | 212,523 |                     |         |   | 206,842 |         
|                                              |                                                 |                           |         |                     |         |   |         |          |        
|Operating Expenses                            |                                                 |                           |         |                     |         |   |         |         
|                                              | Water purchased                                 |                           |         | 42,434              |         |   |         | 40,190   |        
|                                              | Power purchased for pumping                     |                           |         | 10,506              |         |   |         | 10,565   |        
|                                              | Power purchased for resale                      |                           |         | 11,896              |         |   |         | 18,530   |        
|                                              | Unrealized loss on purchased power contracts    |                           |         | 1,676               |         |   |         |         |        
|                                              | Groundwater production assessment               |                           |         | 7,474               |         |   |         | 7,150    |        
|                                              | Supply cost balancing accounts                  |                           |         | 4,947               |         |   |         | (9,444   | )      
|                                              | Other operating expenses                        |                           |         | 18,103              |         |   |         | 16,939   |        
|                                              | Administrative and general expenses             |                           |         | 35,191              |         |   |         | 36,927   |        
|                                              | Depreciation and amortization                   |                           |         | 19,410              |         |   |         | 18,216   |        
|                                              | Maintenance                                     |                           |         | 9,636               |         |   |         | 9,206    |        
|                                              | Taxes on income                                 |                           |         | 8,293               |         |   |         | 14,228   |        
|                                              | Other taxes                                     |                           |         | 7,824               |         |   |         | 7,654    |        
|                                              |                                                 |                           |         |                     |         |   |         |          |        
|                                              |                                                 | Total operating expenses  |         |                     | 177,390 |   |         |          | 170,161 | 
|                                              |                                                 |                           |         |                     |         |   |         |          |        
|Operating Income                              |                                                 |                           | 35,133  |                     |         |   | 36,681  |         
|Other Income (Loss)                           |                                                 |                           |         |                     |         |   |         |         
|                                              | Other income - net                              |                           |         | 224                 |         |   |         | 39       |        
|                                              |                                                 |                           |         |                     |         |   |         |          |        
|                                              |                                                 | Total other income (loss) |         |                     | 224     |   |         |          | 39      | 
|Interest Charges                              |                                                 |                           |         |                     |         |   |         |         
|                                              | Interest on long-term debt                      |                           |         | 16,959              |         |   |         | 16,311   |        
|                                              | Other interest and amortization of debt expense |                           |         | 1,242               |         |   |         | 776      |        
|                                              |                                                 |                           |         |                     |         |   |         |          |        
|                                              |                                                 | Total interest charges    |         |                     | 18,201  |   |         |          | 17,087  | 
|Net Income                                    |                                                 |                           | 17,156  |                     |         |   | 19,633  |         
|                                              | Dividends on Preferred Shares                   |                           |         |                     |         |   |         | (50      | )      
|                                              |                                                 |                           |         |                     |         |   |         |          |        
|Earnings Available for Common Shareholders    |                                                 | $                         | 17,156  |                     |         | $ | 19,583  |         
|                                              |                                                 |                           |         |                     |         |   |         |          |        
|Weighted Average Number of Shares Outstanding |                                                 |                           | 15,192  |                     |         |   | 15,131  |         
|Basic Earnings Per Common Share               |                                                 | $                         | 1.13    |                     |         | $ | 1.29    |         
|Weighted Average Number of Diluted Shares     |                                                 |                           | 15,222  |                     |         |   | 15,146  |         
|Fully Diluted Earnings Per Share              |                                                 | $                         | 1.13    |                     |         | $ | 1.29    |         
|Dividends Declared Per Common Share           |                                                 | $                         | 0.884   |                     |         | $ | 0.868   |         

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, 2003 AND 2002
(Unaudited)

|                                                |                                                                      |                                                  |                   |         |                   |        |         |         |         |        | 
|----------------------------------------------- | -------------------------------------------------------------------- | ------------------------------------------------ | ----------------- | ------- | ----------------- | ------ | ------- | ------- | ------- | ------ | 
|                                                |                                                                      |                                                  |                   |         | Nine Months Ended
|                                                |                                                                      |                                                  |                   |         | September 30,    
|                                                |                                                                      |                                                  |                   |         |                  
|(in thousands)                                  |                                                                      | 2003                                             |                   | 2002   
|                                                |                                                                      |                                                  |                   |        
|Cash Flows From Operating Activities:           |                                                                      |                                                  |                   |         |                   |        |         |        
|                                                | Net income                                                           |                                                  | $                 | 13,697  |                   |        | $       | 16,881  |        
|                                                | Adjustments for non-cash items:                                      |                                                  |                   |         |                   |        |         |         |        
|                                                |                                                                      | Depreciation and amortization                    |                   |         | 14,836            |        |         |         | 13,728  |       
|                                                |                                                                      | Deferred income taxes and investment tax credits |                   |         | 5,385             |        |         |         | 5,205   |       
|                                                |                                                                      | Unrealized gain on purchased power contracts     |                   |         | (854              | )      |         |         |        |       
|                                                |                                                                      | Other - net                                      |                   |         | 1,282             |        |         |         | 2,099   |       
|                                                | Changes in assets and liabilities:                                   |                                                  |                   |         |                   |        |         |         |        
|                                                |                                                                      | Accounts receivable - customers                  |                   |         | (2,360            | )      |         |         | (3,549  | )     
|                                                |                                                                      | Unbilled revenue                                 |                   |         | (3,182            | )      |         |         | (3,082  | )     
|                                                |                                                                      | Other accounts receivable                        |                   |         | 679               |        |         |         | (370    | )     
|                                                |                                                                      | Prepayments and other current assets             |                   |         | 176               |        |         |         | 332     |       
|                                                |                                                                      | Supply cost balancing accounts                   |                   |         | 2,109             |        |         |         | (6,243  | )     
|                                                |                                                                      | Deferred charges and other assets                |                   |         | (2,828            | )      |         |         | (3,936  | )     
|                                                |                                                                      | Accounts payable                                 |                   |         | (86               | )      |         |         | 4,088   |       
|                                                |                                                                      | Taxes payable                                    |                   |         | 2,631             |        |         |         | 1,685   |       
|                                                |                                                                      | Other current liabilities                        |                   |         | 1,868             |        |         |         | 1,470   |       
|                                                |                                                                      |                                                  |                   |         |                   |        |         |         |        
|                                                |                                                                      |                                                  | Net cash provided |         |                   | 33,353 |         |         |         | 28,308 | 
|                                                |                                                                      |                                                  |                   |         |                   |        |         |         |        
|Cash Flows From Investing Activities:           |                                                                      |                                                  |                   |         |                   |        |         |        
|                                                | Construction expenditures                                            |                                                  |                   | (33,904 | )                 |        |         | (32,313 | )      
|                                                |                                                                      |                                                  |                   |         |                   |        |         |         |        
|                                                |                                                                      | Net cash used                                    |                   |         | (33,904           | )      |         |         | (32,313 | )     
|                                                |                                                                      |                                                  |                   |         |                   |        |         |         |        
|Cash Flows From Financing Activities:           |                                                                      |                                                  |                   |         |                   |        |         |        
|                                                | Proceeds from issuance of common shares                              |                                                  |                   | 505     |                   |        |         | 1,100   |        
|                                                | Receipt of advances for and contributions in aid of construction     |                                                  |                   | 7,687   |                   |        |         | 5,828   |        
|                                                | Refunds on advances for construction                                 |                                                  |                   | (3,165  | )                 |        |         | (3,455  | )      
|                                                | Cash received on financing portion of purchased power contracts      |                                                  |                   | 1,539   |                   |        |         |        |        
|                                                | Redemption of preferred shares                                       |                                                  |                   |        |                   |        |         | (1,880  | )      
|                                                | Repayment of long-term debt                                          |                                                  |                   | (968    | )                 |        |         | (542    | )      
|                                                | Net change in notes payable to banks                                 |                                                  |                   | (2,000  | )                 |        |         | (6,000  | )      
|                                                | Common and preferred dividends paid                                  |                                                  |                   | (10,076 | )                 |        |         | (9,869  | )      
|                                                |                                                                      |                                                  |                   |         |                   |        |         |         |        
|                                                |                                                                      | Net cash used                                    |                   |         | (6,478            | )      |         |         | (14,818 | )     
|                                                |                                                                      |                                                  |                   |         |                   |        |         |         |        
|Net decrease in cash and cash equivalents       |                                                                      |                                                  | (7,029            | )       |                   |        | (18,823 | )      
|Cash and cash equivalents, beginning of period  |                                                                      |                                                  | 18,397            |         |                   |        | 30,496  |        
|                                                |                                                                      |                                                  |                   |         |                   |        |         |         |        
|Cash and cash equivalents, end of period        |                                                                      | $                                                | 11,368            |         |                   | $      | 11,673  |        
|                                                |                                                                      |                                                  |                   |         |                   |        |         |         |        
|Non-cash activities - supplemental disclosures: |                                                                      |                                                  |                   |         |                   |        |         |        
|                                                | Adoption of new accounting standard for asset retirement obligtions: |                                                  |                   |         |                   |        |         |         |        
|                                                |                                                                      | Cumulative
effect of adoption - Regulatory asset |                   | $       | 2,495             |        |         |         |        |       
|                                                |                                                                      | Utility plant, net                               |                   |         | 223               |        |         |         |        |       
|                                                |                                                                      | Asset retirement obligations                     |                   |         | (2,718            | )      |         |         |        |       

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

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##### Table of Contents






SOUTHERN CALIFORNIA WATER COMPANY
BALANCE SHEETS
ASSETS
(Unaudited)

|                                            |                                                                                                       |                        |         |               |         |              |         |          |         | 
|------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ---------------------- | ------- | ------------- | ------- | ------------ | ------- | -------- | ------- | 
|                                            |                                                                                                       |                        |         | September 30, |         | December 31,
|(in thousands)                              |                                                                                                       | 2003                   |         | 2002         
|                                            |                                                                                                       |                        |         |              
|Utility Plant, at cost                      |                                                                                                       |                        |         |               |         |              |         |         
|                                            | Water                                                                                                 |                        | $       | 670,538       |         |              | $       | 656,331  |        
|                                            | Electric                                                                                              |                        |         | 41,519        |         |              |         | 41,017   |        
|                                            |                                                                                                       |                        |         |               |         |              |         |          |        
|                                            |                                                                                                       |                        | 712,057 |               |         |              | 697,348 |         
|                                            | Less - Accumulated depreciation                                                                       |                        |         | (209,384      | )       |              |         | (196,660 | )      
|                                            |                                                                                                       |                        |         |               |         |              |         |          |        
|                                            |                                                                                                       |                        | 502,673 |               |         |              | 500,688 |         
|                                            | Construction work in progress                                                                         |                        |         | 51,555        |         |              |         | 33,705   |        
|                                            |                                                                                                       |                        |         |               |         |              |         |          |        
|                                            |                                                                                                       | Net utility plant      |         |               | 554,228 |              |         |          | 534,393 | 
|                                            |                                                                                                       |                        |         |               |         |              |         |          |        
|Other Property and Investments              |                                                                                                       |                        | 7,382   |               |         |              | 8,018   |         
|                                            |                                                                                                       |                        |         |               |         |              |         |          |        
|Current Assets                              |                                                                                                       |                        |         |               |         |              |         |         
|                                            | Cash and cash equivalents                                                                             |                        |         | 6,935         |         |              |         | 11,677   |        
|                                            | Accounts receivable-customers (less allowance for doubtful
accounts of $899 at 2003 and $729 at 2002) |                        |         | 12,903        |         |              |         | 10,609   |        
|                                            | Unbilled revenue                                                                                      |                        |         | 15,170        |         |              |         | 12,060   |        
|                                            | Intercompany receivable                                                                               |                        |         | 448           |         |              |         | 1,044    |        
|                                            | Other accounts receivable                                                                             |                        |         | 1,608         |         |              |         | 2,234    |        
|                                            | Materials and supplies, at average cost                                                               |                        |         | 1,495         |         |              |         | 905      |        
|                                            | Supply cost balancing accounts - current                                                              |                        |         | 4,190         |         |              |         | 3,215    |        
|                                            | Prepayments and other                                                                                 |                        |         | 2,325         |         |              |         | 3,005    |        
|                                            |                                                                                                       |                        |         |               |         |              |         |          |        
|                                            |                                                                                                       | Total current assets   |         |               | 45,074  |              |         |          | 44,749  | 
|                                            |                                                                                                       |                        |         |               |         |              |         |          |        
|Deferred Charges and Other Long-Term Assets |                                                                                                       |                        |         |               |         |              |         |         
|                                            | Regulatory tax-related assets                                                                         |                        |         | 13,916        |         |              |         | 12,828   |        
|                                            | Supply cost balancing accounts                                                                        |                        |         | 21,257        |         |              |         | 24,255   |        
|                                            | Other accounts receivable                                                                             |                        |         | 3,370         |         |              |         | 3,370    |        
|                                            | Other                                                                                                 |                        |         | 27,447        |         |              |         | 22,398   |        
|                                            |                                                                                                       |                        |         |               |         |              |         |          |        
|                                            |                                                                                                       | Total deferred charges |         |               | 65,990  |              |         |          | 62,851  | 
|                                            |                                                                                                       |                        |         |               |         |              |         |          |        
|                                            |                                                                                                       | Total Assets           |         | $             | 672,674 |              |         | $        | 650,011 | 
|                                            |                                                                                                       |                        |         |               |         |              |         |          |        

The accompanying notes are an integral part of these financial statements

8



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##### Table of Contents



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

|                                       |                                       |                                      |   |               |         |              |   |         |         | 
|-------------------------------------- | ------------------------------------- | ------------------------------------ | - | ------------- | ------- | ------------ | - | ------- | ------- | 
|                                       |                                       |                                      |   | September 30, |         | December 31,
|(in thousands)                         |                                       | 2003                                 |   | 2002         
|                                       |                                       |                                      |   |              
|Capitalization                         |                                       |                                      |   |               |         |              |   |        
|                                       | Common shareholders equity           |                                      | $ | 211,151       |         |              | $ | 207,562 |        
|                                       | Long-term debt                        |                                      |   | 222,048       |         |              |   | 222,725 |        
|                                       |                                       |                                      |   |               |         |              |   |         |        
|                                       |                                       | Total capitalization                 |   |               | 433,199 |              |   |         | 430,287 | 
|                                       |                                       |                                      |   |               |         |              |   |         |        
|Current Liabilities                    |                                       |                                      |   |               |         |              |   |        
|                                       | Long-term debt - current              |                                      |   | 12,780        |         |              |   | 12,780  |        
|                                       | Accounts payable                      |                                      |   | 10,885        |         |              |   | 10,576  |        
|                                       | Intercompany payable                  |                                      |   | 11,000        |         |              |   | 13,000  |        
|                                       | Taxes payable                         |                                      |   | 4,776         |         |              |   | 1,099   |        
|                                       | Accrued employee expenses             |                                      |   | 5,934         |         |              |   | 5,033   |        
|                                       | Accrued interest                      |                                      |   | 4,898         |         |              |   | 1,843   |        
|                                       | Other                                 |                                      |   | 10,652        |         |              |   | 12,276  |        
|                                       |                                       |                                      |   |               |         |              |   |         |        
|                                       |                                       | Total current liabilities            |   |               | 60,925  |              |   |         | 56,607  | 
|                                       |                                       |                                      |   |               |         |              |   |         |        
|Other Credits                          |                                       |                                      |   |               |         |              |   |        
|                                       | Advances for construction             |                                      |   | 64,263        |         |              |   | 59,640  |        
|                                       | Contributions in aid of construction  |                                      |   | 49,471        |         |              |   | 47,480  |        
|                                       | Accumulated deferred income taxes-net |                                      |   | 57,208        |         |              |   | 51,195  |        
|                                       | Unamortized investment tax credits    |                                      |   | 2,723         |         |              |   | 2,791   |        
|                                       | Regulatory tax-related liability      |                                      |   | 1,987         |         |              |   | 2,011   |        
|                                       | Other credits                         |                                      |   | 2,898         |         |              |   |        |        
|                                       |                                       |                                      |   |               |         |              |   |         |        
|                                       |                                       | Total other credits                  |   |               | 178,550 |              |   |         | 163,117 | 
|                                       |                                       |                                      |   |               |         |              |   |         |        
|Commitments and Contingencies (Note 7) |                                       |                                      |  |               |         |              |  |        
|                                       |                                       |                                      |   |               |         |              |   |         |        
|                                       |                                       | Total Capitalization and Liabilities |   | $             | 672,674 |              |   | $       | 650,011 | 
|                                       |                                       |                                      |   |               |         |              |   |         |        

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 MONTHS
ENDED SEPTEMBER 30, 2003 AND 2002
(Unaudited)

|                                              |                                                 |                                 |        |                    |        |   |        |        |        | 
|--------------------------------------------- | ----------------------------------------------- | ------------------------------- | ------ | ------------------ | ------ | - | ------ | ------ | ------ | 
|                                              |                                                 |                                 |        | Three Months Ended
|                                              |                                                 |                                 |        | September         
|                                              |                                                 |                                 |        |                   
|(in thousands, except per share amounts)      |                                                 | 2003                            |        | 2002              
|                                              |                                                 |                                 |        |                   
|Operating Revenues                            |                                                 |                                 |        |                    |        |   |        |       
|                                              | Water                                           |                                 | $      | 55,777             |        |   | $      | 54,052 |       
|                                              | Electric                                        |                                 |        | 5,906              |        |   |        | 5,529  |       
|                                              |                                                 |                                 |        |                    |        |   |        |        |       
|                                              |                                                 |                                 | 61,683 |                    |        |   | 59,581 |       
|                                              |                                                 |                                 |        |                    |        |   |        |        |       
|Operating Expenses                            |                                                 |                                 |        |                    |        |   |        |       
|                                              | Water purchased                                 |                                 |        | 13,572             |        |   |        | 14,025 |       
|                                              | Power purchased for pumping                     |                                 |        | 3,168              |        |   |        | 3,187  |       
|                                              | Power purchased for resale                      |                                 |        | 3,383              |        |   |        | 3,645  |       
|                                              | Unrealized loss on purchased power contracts    |                                 |        | 420                |        |   |        |       |       
|                                              | Groundwater production assessment               |                                 |        | 2,089              |        |   |        | 1,831  |       
|                                              | Supply cost balancing accounts                  |                                 |        | 650                |        |   |        | (428   | )     
|                                              | Other operating expenses                        |                                 |        | 4,441              |        |   |        | 4,505  |       
|                                              | Administrative and general expenses             |                                 |        | 8,602              |        |   |        | 7,003  |       
|                                              | Depreciation and amortization                   |                                 |        | 4,709              |        |   |        | 4,387  |       
|                                              | Maintenance                                     |                                 |        | 2,101              |        |   |        | 2,488  |       
|                                              | Taxes on income                                 |                                 |        | 4,153              |        |   |        | 5,283  |       
|                                              | Other taxes                                     |                                 |        | 1,979              |        |   |        | 1,939  |       
|                                              |                                                 |                                 |        |                    |        |   |        |        |       
|                                              |                                                 | Total operating expenses        |        |                    | 49,267 |   |        |        | 47,865 | 
|                                              |                                                 |                                 |        |                    |        |   |        |        |       
|Operating Income                              |                                                 |                                 | 12,416 |                    |        |   | 11,716 |       
|Other Income (Loss)                           |                                                 |                                 |        |                    |        |   |        |       
|                                              | Other income - net                              |                                 |        | 113                |        |   |        | 141    |       
|                                              |                                                 |                                 |        |                    |        |   |        |        |       
|                                              |                                                 | Total other income (loss) - net |        |                    | 113    |   |        |        | 141    | 
|Interest Charges                              |                                                 |                                 |        |                    |        |   |        |       
|                                              | Interest on long-term debt                      |                                 |        | 4,114              |        |   |        | 4,106  |       
|                                              | Other interest and amortization of debt expense |                                 |        | 159                |        |   |        | 21     |       
|                                              |                                                 |                                 |        |                    |        |   |        |        |       
|                                              |                                                 | Total interest charges          |        |                    | 4,273  |   |        |        | 4,127  | 
|Net Income                                    |                                                 | $                               | 8,256  |                    |        | $ | 7,730  |       
|                                              |                                                 |                                 |        |                    |        |   |        |        |       
|Weighted Average Number of Shares Outstanding |                                                 |                                 | 110    |                    |        |   | 110    |       
|Basic Earnings Per Common Share               |                                                 | $                               | 75,055 |                    |        | $ | 70,273 |       
|Dividends Declared Per Common Share           |                                                 | $                               | 35,000 |                    |        | $ | 40,000 |       

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 MONTHS
ENDED SEPTEMBER 30, 2003 AND 2002
(Unaudited)

|                                              |                                                 |                           |         |                   |         |   |         |         |         | 
|--------------------------------------------- | ----------------------------------------------- | ------------------------- | ------- | ----------------- | ------- | - | ------- | ------- | ------- | 
|                                              |                                                 |                           |         | Nine Months Ended
|                                              |                                                 |                           |         | September 30,    
|                                              |                                                 |                           |         |                  
|(in thousands, except per share amounts)      |                                                 | 2003                      |         | 2002             
|                                              |                                                 |                           |         |                  
|Operating Revenues                            |                                                 |                           |         |                   |         |   |         |        
|                                              | Water                                           |                           | $       | 138,636           |         |   | $       | 138,854 |        
|                                              | Electric                                        |                           |         | 18,263            |         |   |         | 14,574  |        
|                                              |                                                 |                           |         |                   |         |   |         |         |        
|                                              |                                                 |                           | 156,899 |                   |         |   | 153,428 |        
|                                              |                                                 |                           |         |                   |         |   |         |         |        
|Operating Expenses                            |                                                 |                           |         |                   |         |   |         |        
|                                              | Water purchased                                 |                           |         | 31,566            |         |   |         | 31,999  |        
|                                              | Power purchased for pumping                     |                           |         | 7,339             |         |   |         | 7,444   |        
|                                              | Power purchased for resale                      |                           |         | 10,052            |         |   |         | 13,973  |        
|                                              | Unrealized gain on purchased power contracts    |                           |         | (854              | )       |   |         |        |        
|                                              | Groundwater production assessment               |                           |         | 5,485             |         |   |         | 5,427   |        
|                                              | Supply cost balancing accounts                  |                           |         | 2,109             |         |   |         | (6,243  | )      
|                                              | Other operating expenses                        |                           |         | 12,959            |         |   |         | 11,955  |        
|                                              | Administrative and general expenses             |                           |         | 25,609            |         |   |         | 21,719  |        
|                                              | Depreciation and amortization                   |                           |         | 14,140            |         |   |         | 13,038  |        
|                                              | Maintenance                                     |                           |         | 6,203             |         |   |         | 6,448   |        
|                                              | Taxes on income                                 |                           |         | 8,601             |         |   |         | 12,698  |        
|                                              | Other taxes                                     |                           |         | 5,845             |         |   |         | 5,612   |        
|                                              |                                                 |                           |         |                   |         |   |         |         |        
|                                              |                                                 | Total operating expenses  |         |                   | 129,054 |   |         |         | 124,070 | 
|                                              |                                                 |                           |         |                   |         |   |         |         |        
|Operating Income                              |                                                 |                           | 27,845  |                   |         |   | 29,358  |        
|Other Income (Loss)                           |                                                 |                           |         |                   |         |   |         |        
|                                              | Other income - net                              |                           |         | 131               |         |   |         | 289     |        
|                                              |                                                 |                           |         |                   |         |   |         |         |        
|                                              |                                                 | Total other income (loss) |         |                   | 131     |   |         |         | 289     | 
|Interest Charges                              |                                                 |                           |         |                   |         |   |         |        
|                                              | Interest on long-term debt                      |                           |         | 12,361            |         |   |         | 12,378  |        
|                                              | Other interest and amortization of debt expense |                           |         | 474               |         |   |         | (71     | )      
|                                              |                                                 |                           |         |                   |         |   |         |         |        
|                                              |                                                 | Total interest charges    |         |                   | 12,835  |   |         |         | 12,307  | 
|Net Income                                    |                                                 | $                         | 15,141  |                   |         | $ | 17,340  |        
|                                              |                                                 |                           |         |                   |         |   |         |         |        
|Weighted Average Number of Shares Outstanding |                                                 |                           | 110     |                   |         |   | 110     |        
|Basic Earnings Per Common Share               |                                                 | $                         | 137,645 |                   |         | $ | 157,636 |        
|Dividends Declared Per Common Share           |                                                 | $                         | 105,000 |                   |         | $ | 100,000 |        

The accompanying notes are an integral part of these financial statements

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SOUTHERN CALIFORNIA WATER COMPANY
STATEMENTS OF INCOME
FOR THE TWELVE MONTHS
ENDED SEPTEMBER 30, 2003 AND 2002
(Unaudited)

|                                              |                                                 |                                 |         |                     |         |   |         |          |         |  
|--------------------------------------------- | ----------------------------------------------- | ------------------------------- | ------- | ------------------- | ------- | - | ------- | -------- | ------- | -
|                                              |                                                 |                                 |         | Twelve Months Ended
|                                              |                                                 |                                 |         | September 30,      
|                                              |                                                 |                                 |         |                    
|(in thousands, except per share amounts)      |                                                 | 2003                            |         | 2002               
|                                              |                                                 |                                 |         |                    
|                                              |                                                 |                                 |         |                     |         |   |         | Restated
|                                              |                                                 |                                 |         |                     |         |   |         | Note 2  
|Operating Revenues                            |                                                 |                                 |         |                     |         |   |         |         
|                                              | Water                                           |                                 | $       | 180,685             |         |   | $       | 180,746  |        
|                                              | Electric                                        |                                 |         | 24,988              |         |   |         | 18,885   |        
|                                              |                                                 |                                 |         |                     |         |   |         |          |        
|                                              |                                                 |                                 | 205,673 |                     |         |   | 199,631 |         
|                                              |                                                 |                                 |         |                     |         |   |         |          |        
|Operating Expenses                            |                                                 |                                 |         |                     |         |   |         |         
|                                              | Water purchased                                 |                                 |         | 41,749              |         |   |         | 39,494   |        
|                                              | Power purchased for pumping                     |                                 |         | 10,062              |         |   |         | 10,105   |        
|                                              | Power purchased for resale                      |                                 |         | 11,896              |         |   |         | 18,530   |        
|                                              | Unrealized loss on purchased power contracts    |                                 |         | 1,676               |         |   |         |         |        
|                                              | Groundwater production assessment               |                                 |         | 7,474               |         |   |         | 7,150    |        
|                                              | Supply cost balancing accounts                  |                                 |         | 4,947               |         |   |         | (9,444   | )      
|                                              | Other operating expenses                        |                                 |         | 16,826              |         |   |         | 15,840   |        
|                                              | Administrative and general expenses             |                                 |         | 30,064              |         |   |         | 34,007   |        
|                                              | Depreciation and amortization                   |                                 |         | 18,487              |         |   |         | 17,215   |        
|                                              | Maintenance                                     |                                 |         | 9,357               |         |   |         | 8,949    |        
|                                              | Taxes on income                                 |                                 |         | 9,509               |         |   |         | 14,591   |        
|                                              | Other taxes                                     |                                 |         | 7,600               |         |   |         | 7,126    |        
|                                              |                                                 |                                 |         |                     |         |   |         |          |        
|                                              |                                                 | Total operating expenses        |         |                     | 169,647 |   |         |          | 163,563 |  
|                                              |                                                 |                                 |         |                     |         |   |         |          |        
|Operating Income                              |                                                 |                                 | 36,026  |                     |         |   | 36,068  |         
|Other Income (Loss)                           |                                                 |                                 |         |                     |         |   |         |         
|                                              | Other income (loss) - net                       |                                 |         | 161                 |         |   |         | (32      | )      
|                                              |                                                 |                                 |         |                     |         |   |         |          |        
|                                              |                                                 | Total other income (loss) - net |         |                     | 161     |   |         |          | (32     | )
|Interest Charges                              |                                                 |                                 |         |                     |         |   |         |         
|                                              | Interest on long-term debt                      |                                 |         | 16,503              |         |   |         | 15,812   |        
|                                              | Other interest and amortization of debt expense |                                 |         | 662                 |         |   |         | 136      |        
|                                              |                                                 |                                 |         |                     |         |   |         |          |        
|                                              |                                                 | Total interest charges          |         |                     | 17,165  |   |         |          | 15,948  |  
|Net Income                                    |                                                 | $                               | 19,022  |                     |         | $ | 20,088  |         
|                                              |                                                 |                                 |         |                     |         |   |         |          |        
|Weighted Average Number of Shares Outstanding |                                                 |                                 | 110     |                     |         |   | 110     |         
|Basic Earnings Per Common Share               |                                                 | $                               | 172,927 |                     |         | $ | 182,618 |         
|Dividends Declared Per Common Share           |                                                 | $                               | 138,000 |                     |         | $ | 130,000 |         

The accompanying notes are an integral part of these financial statements

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SOUTHERN CALIFORNIA WATER COMPANY
CASH FLOW STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(Unaudited)

|                                                |                                                                      |                                                  |        |                   |         |   |         |         |         |  
|----------------------------------------------- | -------------------------------------------------------------------- | ------------------------------------------------ | ------ | ----------------- | ------- | - | ------- | ------- | ------- | -
|                                                |                                                                      |                                                  |        | Nine Months Ended
|                                                |                                                                      |                                                  |        | September 30,    
|                                                |                                                                      |                                                  |        |                  
|(in thousands)                                  |                                                                      | 2003                                             |        | 2002             
|                                                |                                                                      |                                                  |        |                  
|Cash Flows From Operating Activities:           |                                                                      |                                                  |        |                   |         |   |         |        
|Net income                                      |                                                                      | $                                                | 15,141 |                   |         | $ | 17,340  |        
|Adjustments for non-cash items:                 |                                                                      |                                                  |        |                   |         |   |         |        
|                                                | Depreciation and amortization                                        |                                                  |        | 14,140            |         |   |         | 13,038  |        
|                                                | Deferred income taxes and investment tax credits                     |                                                  |        | 4,833             |         |   |         | 5,052   |        
|                                                | Unrealized gain on purchased power contracts                         |                                                  |        | (854              | )       |   |         |        |        
|                                                | Other - net                                                          |                                                  |        | 1,056             |         |   |         | 2,302   |        
|Changes in assets and liabilities:              |                                                                      |                                                  |        |                   |         |   |         |        
|                                                | Accounts receivable - customers                                      |                                                  |        | (2,294            | )       |   |         | (3,338  | )      
|                                                | Unbilled revenue                                                     |                                                  |        | (3,110            | )       |   |         | (2,995  | )      
|                                                | Other accounts receivable                                            |                                                  |        | 626               |         |   |         | (269    | )      
|                                                | Prepayments and other current assets                                 |                                                  |        | 90                |         |   |         | 200     |        
|                                                | Supply cost balancing accounts                                       |                                                  |        | 2,109             |         |   |         | (6,243  | )      
|                                                | Deferred charges and other assets                                    |                                                  |        | (2,809            | )       |   |         | (3,951  | )      
|                                                | Accounts payable                                                     |                                                  |        | 309               |         |   |         | 3,815   |        
|                                                | Intercompany payable                                                 |                                                  |        | (1,404            | )       |   |         | (7,325  | )      
|                                                | Taxes payable                                                        |                                                  |        | 3,677             |         |   |         | 1,559   |        
|                                                | Other current liabilities                                            |                                                  |        | 1,647             |         |   |         | 1,254   |        
|                                                |                                                                      |                                                  |        |                   |         |   |         |        
|                                                |                                                                      | Net Cash Provided                                |        |                   | 33,157  |   |         |         | 20,439  |  
|                                                |                                                                      |                                                  |        |                   |         |   |         |        
|Cash Flows From Investing Activities:           |                                                                      |                                                  |        |                   |         |   |         |        
|                                                | Construction expenditures                                            |                                                  |        | (31,974           | )       |   |         | (31,685 | )      
|                                                |                                                                      |                                                  |        |                   |         |   |         |        
|                                                |                                                                      | Net Cash Used                                    |        |                   | (31,974 | ) |         |         | (31,685 | )
|                                                |                                                                      |                                                  |        |                   |         |   |         |        
|Cash Flows From Financing Activities:           |                                                                      |                                                  |        |                   |         |   |         |        
|                                                | Receipt of advances for and contributions in aid of construction     |                                                  |        | 7,576             |         |   |         | 5,723   |        
|                                                | Refunds on advances for construction                                 |                                                  |        | (2,811            | )       |   |         | (3,089  | )      
|                                                | Cash received on financing portion of purchased power contracts      |                                                  |        | 1,539             |         |   |         |        |        
|                                                | Repayments of long-term debt                                         |                                                  |        | (679              | )       |   |         | (236    | )      
|                                                | Common and preferred dividends paid                                  |                                                  |        | (11,550           | )       |   |         | (11,000 | )      
|                                                |                                                                      |                                                  |        |                   |         |   |         |        
|                                                |                                                                      | Net Cash Used                                    |        |                   | (5,925  | ) |         |         | (8,602  | )
|                                                |                                                                      |                                                  |        |                   |         |   |         |        
|Net decrease in cash and cash equivalents       |                                                                      |                                                  | (4,742 | )                 |         |   | (19,848 | )      
|Cash and cash equivalents, beginning of period  |                                                                      |                                                  | 11,677 |                   |         |   | 26,079  |        
|                                                |                                                                      |                                                  |        |                   |         |   |         |        
|Cash and cash equivalents, end of period        |                                                                      | $                                                | 6,935  |                   |         | $ | 6,231   |        
|                                                |                                                                      |                                                  |        |                   |         |   |         |        
|Non-cash activities - supplemental disclosures: |                                                                      |                                                  |        |                   |         |   |         |        
|                                                | Adoption of new accounting standard for asset retirement obligtions: |                                                  |        |                   |         |   |         |         |        
|                                                |                                                                      | Cumulative effect of adoption - Regulatory asset |        | $                 | 2,479   |   |         |         |        |  
|                                                |                                                                      | Utility plant, net                               |        |                   | 221     |   |         |         |        |  
|                                                |                                                                      | Asset retirement obligations                     |        |                   | (2,700  | ) |         |         |        |  

The accompanying notes are an integral part of these financial statements

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AMERICAN STATES WATER COMPANY
AND
SOUTHERN CALIFORNIA WATER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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

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

Note 2 - Restatement of Previously Issued Financial Statements:In
connection with a deferred tax analysis of Registrants tax accounts performed
in 2002, Registrant determined that it had miscalculated its net accumulated
deferred income taxes over several years, resulting in taxes on income not
being recognized in the proper period, and overstating Registrants net
deferred tax liabilities and current taxes payable. Registrant further
determined that the amount of the overstatements, which totaled approximately
$4.7 million and $4.9 million as of December 31, 2001 for AWR and SCW,
respectively, arose in prior years and that prior years financial statements
should be restated to reduce net accumulated deferred income taxes, taxes
payable and the related tax expense to reflect amounts currently due and
deferred. The financial information for the twelve months ended September 30,
2002 included in these consolidated financial statements has been adjusted to
give effect to the restatement. Although the total amount of the restatement
was $4.9 million to AWR as of December 31, 2001, the impact to the twelve
months ended September 30, 2002 of this restatement was to increase taxes on
income and decrease net income by $70,000. Basic and diluted earnings per
share decreased $0.01 for the twelve months ended September 30, 2002 as a
result of the restatement.

Note 3 - Earnings Per Share:Basic earnings per common share are
calculated pursuant to Statement of Financial Accounting Standards (SFAS) No.
128, Earnings per Share,and are based on the weighted average number of
common shares outstanding during each period and net income after deducting
preferred dividend requirements. Under the American States Water Company 2000
Stock Incentive Plan, stock options are granted to certain eligible employees.
As a result, fully diluted earnings per share amounts are shown. Earnings per
share for all periods presented also reflect a three-for-two split of
Registrants common shares effective June 7, 2002. In addition, during the
nine months ended September 30, 2003, Registrant issued approximately 20,000
shares of common stock pursuant to its Dividend Reinvestment Plan and the
401(k) Investment Incentive Program for total proceeds of approximately
$505,000.

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Note
4  Stock Incentive Plan:Registrant has a Stock Incentive Plan and
applies Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock
Issued to Employees, in accounting for its stock options. Accordingly, no
compensation cost for the Plan has been recognized for options granted at fair
value at the date of grant. Registrant has also adopted the disclosure only
requirements of SFAS No. 123, Accounting for Stock-Based Compensation.If
Registrant had elected to adopt the optional recognition provisions of SFAS No.
123 for its stock options, net income and earnings per share applicable to
common shareholders would have been changed to the pro forma amounts indicated
below.

|                                |  |                                                                                                      |             |      |                    |      |                   |      |       |      |  |   |        |      |  |   |        |      | 
|------------------------------- |  | ---------------------------------------------------------------------------------------------------- | ----------- | ---- | ------------------ | ---- | ----------------- | ---- | ----- | ---- |  | - | ------ | ---- |  | - | ------ | ---- | 
|                                |  |                                                                                                      |             |      | Three
Months Ended |      | Nine
Months Ended
|                                |  |                                                                                                      |             |      | September 30,      |      | September 30,    
|                                |  |                                                                                                      |             |      |                    |      |                  
|dollars in thousands except EPS |  | 2003                                                                                                 |             | 2002 |                    | 2003 |                   | 2002
|                                |  |                                                                                                      |             |      |                    |      |                   |     
|Earnings available  common:    |  |                                                                                                      |             |      |                    |      |                   |      |       |      |  |   |        |      |  |  
|                                |  | As reported                                                                                          |             | $    | 7,796              |      |                   | $    | 7,639 |      |  | $ | 13,697 |      |  | $ | 16,852 |     
|                                |  | Add: Stock-based
compensation expense
included in reported
net income, net of tax                    |             |      |                   |      |                   |      |      |      |  |   |       |      |  |   |       |     
|                                |  | Less: Stock-based
compensation expense
determined under the
fair-value accounting
method, net of tax |             |      | (88                | )    |                   |      | (60   | )    |  |   | (265   | )    |  |   | (181   | )   
|                                |  |                                                                                                      |             |      |                    |      |                   |      |       |      |  |   |        |      |  |   |        |     
|                                |  | Pro forma                                                                                            |             | $    | 7,708              |      |                   | $    | 7,579 |      |  | $ | 13,432 |      |  | $ | 16,671 |     
|                                |  |                                                                                                      |             |      |                    |      |                   |      |       |      |  |   |        |      |  |  
|                                |  | Basic earnings per share:                                                                            |             |      |                    |      |                   |      |       |      |  |   |        |      |  |   |        |     
|                                |  |                                                                                                      | As reported |      | $                  | 0.51 |                   |      | $     | 0.50 |  |   | $      | 0.90 |  |   | $      | 1.11 | 
|                                |  |                                                                                                      | Pro forma   |      | $                  | 0.51 |                   |      | $     | 0.50 |  |   | $      | 0.88 |  |   | $      | 1.10 | 
|                                |  |                                                                                                      |             |      |                    |      |                   |      |       |      |  |   |        |      |  |  
|                                |  | Diluted earnings per
share:                                                                          |             |      |                    |      |                   |      |       |      |  |   |        |      |  |   |        |     
|                                |  |                                                                                                      | As reported |      | $                  | 0.51 |                   |      | $     | 0.50 |  |   | $      | 0.90 |  |   | $      | 1.11 | 
|                                |  |                                                                                                      | Pro forma   |      | $                  | 0.51 |                   |      | $     | 0.50 |  |   | $      | 0.88 |  |   | $      | 1.10 | 

Note 5 - Regulatory Matters:

Changes in Rates:

Step increases of approximately $321,600 for four of seven ratemaking
districts in SCWs Region I were implemented in January 2002. Region I also
received attrition increases of $219,400 effective January 2003.

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

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Note 5 - Regulatory Matters (Continued):

Balancing Accounts:

As permitted by the CPUC, SCW has historically maintained water supply
balancing accounts prior to November 29, 2001 and electric supply balancing
accounts to account for under-collections and over-collections of revenues
designed to recover such costs. Costs are recorded in income and charged to
balancing accounts when such costs are incurred. The balancing accounts are
reversed when such costs are recovered through rate adjustments or through
refunds of previously incurred costs. SCW accrues interest on its supply cost
balancing accounts at the rate prevailing for 90-day commercial paper. CCWC
does not maintain a supply cost balancing account.

Water Balancing Account On November 29, 2001, the CPUC ordered water
utilities with existing water supply balancing accounts to cease booking
amounts to such accounts. In its place, water utilities are now required to
establish a memorandum supply cost account. The over- or under-collection of
water supply costs is recorded in this memorandum account in a manner similar
to the balancing account. The income statements of SCW will no longer include
entries reflecting differences between authorized water supply unit costs
included in rates and actual water supply costs. As a result, any changes in
water supply costs as well as any future authorized revenue increases for
supply expenses may directly impact earnings.

In a decision issued on June 19, 2003 related to the memorandum supply
cost account, the CPUC concluded that (i) if a utility is within its 3-year
rate case cycle and does not earn in excess of its authorized rate of return,
the utility is entitled to recover its costs in the memorandum supply cost
account, subject to a reasonableness review by the CPUC; (ii) if a utility is
either within or outside of its rate case cycle and earns in excess of its
authorized rate-of-return, the utilitys recovery of expenses from the
memorandum supply cost account will be reduced by the amount exceeding the
authorized rate-of- return, and (iii) a utility is required to seek review of
under and over collections by filing an advice letter annually by March 31.
Pursuant to the resolution, SCW filed advice letters on September 12, 2003
seeking recovery of an under-collected balance of $2.6 million for the period
November 29, 2001 through December 31, 2002. Upon receiving approval from the
CPUC, SCW will recognize the authorized under-collected amount as supply cost
balancing accounts on its books. As of September 30, 2003, SCW has an
under-collection of approximately $5.7 million in its memorandum supply cost
account, including the $2.6 million filed with the CPUC. SCW intends to file
advice letters annually by March 31. Amounts included in the memorandum supply
cost account are not capitalized until a rate order is received from the CPUC.

With respect to pre-November 29, 2001 water supply balancing accounts, SCW
has a net under-collection position of $2.2 million recorded at September 30,
2003. Of this amount, recovery of approximately $2.1 million has been included
in rates authorized on June 19, 2003. The remaining $75,000 has been deferred
to Region Is next rate case.

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##### Table of Contents



Note 5 - Regulatory Matters (Continued):

Electric Balancing Account Electric power costs incurred by SCWs Bear
Valley Electric division continue to be charged to its electric supply cost
balancing account. The under-collection in the electric balancing account is
$23.2 million at September 30, 2003. The CPUC has authorized SCW to collect a
surcharge from its customers of 2.2¢ per kilowatt hour for a period of up to
ten years to enable SCW to recover the under-collection. SCW sold 30,069,000,
98,041,000 and 131,874,000 kilowatt hours of electricity to its Bear Valley
Electric division customers for the three, nine and twelve months ended
September 30, 2003, respectively, and 30,815,000, 97,994,000 and 130,057,000
kilowatt hours for the comparable periods in 2002. SCW anticipates electricity
sales to be sufficient during a ten year period for it to recover the amount of
the under-collection. SCW is allowed to only include up to a weighted annual
energy purchase cost of $77 per MWh each year for 10 years in its electric
supply cost balancing account. To the extent that actual weighted average
annual cost for power purchased exceeds the $77 per MWh amount, SCW will not be
able to include these amounts in its balancing account and such amounts will be
expensed. During the nine months ended September 30, 2003, approximately
$145,000 was expensed.

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

Note 6 - New Accounting Pronouncements:

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

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

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Note 6 - New Accounting Pronouncements (Continued):

|    |  |                                      |           |             |  |             |        |           |  |      |   |               |  |  |         |  |  |            |           | 
|--- |  | ------------------------------------ | --------- | ----------- |  | ----------- | ------ | --------- |  | ---- | - | ------------- |  |  | ------- |  |  | ---------- | --------- | 
|    |  | Nine Months Ended September 30, 2003
|    |  |                                     
|    |  |                                      |           |             |  |             |        |           |  |      |   |               |  |  |         |  |  | Balance At
|    |  | Balance at Adoption                  |           | Liabilities |  | Liabilities |        |           |  |      |   | September 30,
|    |  | January 1, 2003                      |           | Incurred    |  | Settled     |        | Accretion |  | 2003
|    |  |                                      |           |             |  |             |        |           |  |     
|ARO |  | $                                    | 2,718,079 |             |  |             | 60,000 |           |  |      |  |               |  |  | 160,314 |  |  | $          | 2,938,393 | 

In April 2003, the Financial Accounting Standards Board (FASB) issued SFAS
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. This Statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under SFAS 133,
Accounting for Derivative Instruments and Hedging Activities. This Statement
is effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. All provisions of this
Statement will be applied prospectively. Registrant has not entered into or
modified any contracts or designated any hedging relationships after June 30,
2003. This Statement also requires that any financing element of a derivative
contract should be included in cash flows from financing activities in the
Statement of Cash Flows. For the nine months ended September 30, 2003,
Registrant has reflected in its Statement of Cash Flows approximately $1.5
million of cash received related to the financing portion of the purchased
power contracts with Pinnacle West.

In June 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity.
This Statement specifies that instruments within its scope embody obligations
of the issuer and that, therefore, the issuer must classify them as
liabilities. This Statement was effective July 1, 2003. Registrant does not
have any financial instruments with characteristics of both liabilities and
equity.

Note
7  Contingencies

SCW has been named as a defendant in twenty two lawsuits that allege that
SCW and other water utilities, delivered unsafe water to their customers.
Plaintiffs in these actions seek damages, including general, special, and
punitive damages, according to proof at trial, as well as attorneys fees on
certain causes of action, costs of suit, and other unspecified relief. Nineteen
of the lawsuits involve customer service areas located in Los Angeles County in
the southern portion of California; three of the lawsuits involve a customer
service area located in Sacramento County in northern California. On September
1, 1999, the Court of Appeal in San Francisco held that the CPUC had preemptive
jurisdiction over regulated public utilities and ordered dismissal of a series
of these lawsuits. On October 11, 1999, one group of plaintiffs appealed the
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 alleging 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 claims based on allegations of
violation of federal and state drinking water standards.

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Note 7  Contingencies (Continued)

On October 25, 1999, SCW sued Aerojet-General Corporation (Aerojet) for
causing the contamination of the Sacramento County Groundwater Basin servicing
SCW wells. A cross complaint in 2000 filed by Aerojet against SCW for
negligence and constituting a public nuisance was dismissed by the court in
October 2002. On October 10, 2003 Registrant entered into a
confidential memorandum of understanding with the Aerojet-General
subsidiary of GenCorp, Inc. for the settlement of legal actions
brought by SCW. The memorandum of understanding outlines the present
financial terms of a settlement. A final settlement agreement
incorporating the terms of the memorandum of understanding is
underway and being negotiated at the date of this filing. As the
parties continue to address issues related and additional to the
memorandum of understanding, certain disagreements have developed.
The parties continue to negotiate in an attempt to resolve those
issues. However, no complete, documented agreement has been reached
and it is presently impossible to predict when a final settlement of
all issues will be reached.

In a separate case, also filed on October 25, 1999, SCW filed a lawsuit
against the State of California and its State Water Resources Control Board,
Central Valley Regional Water Quality Control Board, and Department of Toxic
Substances Control (collectively, the State) alleging that the State had
substantially participated in a project to inject chemical pollution into
portions of the Sacramento County Groundwater Basin and that pollution is
progressively destroying the groundwater supply in SCWs Rancho Cordova water
system. SCW and the State have entered into a comprehensive $2,475,000
settlement for all of SCWs claims against the State, contingent upon the
courts approval of the good faith of the settlement, which Registrant received
in full during the third quarter of 2003.

The CPUC has authorized memorandum accounts to allow for recovery, from
customers, of costs incurred by SCW in prosecuting the cases against the State
and Aerojet, less any recovery from the defendants or others. As of September
30, 2003, approximately $14.9 million has been recorded as Other Deferred
Charges. The CPUC has authorized SCW to increase rates, effective April 28,
2001, for recovery over a six-year period of approximately $1.8 million, in
expenses that were incurred on or before August 31, 2000. SCW has filed to
replace the current six year amortization to reflect the current memorandum
account balance, net of any reimbursement amount, and maintain a long-term
amortization period in the abbreviated general rate case application for its
Region I. 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. As previously mentioned, SCW has entered into a
confidential memorandum agreement with Aerojet pending final negotiations and
the necessary approvals. It is managements intention to offset any settlement
that may occur from these actions against the balance in the memorandum
accounts at the time of settlement.

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 gas service station. Although the owner
of the service station has attempted remediation with funds provided through
the California Underground Storage Tank Fund (CUSTF), it appears there will
be insufficient funds from the CUSTF to complete remediation sufficient to
return the well to service. In order to prevent the running of the statute of
limitations, on August 12, 2002 SCW filed suit in the Superior Court of the
State of California for the County of San Luis Obispo against the operators and
owners of the service station facility, and Chevron USA Products, Inc., the
supplier. A settlement with Chevron has been reached and a filing has been made
for dismissal by the Court. The impacted well may need to be removed
permanently from service and the settlement with Chevron is expected to afford
SCW sufficient funds to commence siting and construction of a replacement well.

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Note 7  Contingencies (Continued)

Volatile Organic Compounds (VOC) and perchlorate have been detected in two
wells servicing SCWs San Gabriel System. SCW filed suit, along with two other
affected water purveyors and the San Gabriel Basin Water Quality Authority
(WQA), in the federal court against some of those responsible for the
contamination. Some of the other potential defendants settled with SCW, other
water purveyors and the WQA on VOC related issues, prior to the filing of the
lawsuit. In response to the filing of the Federal lawsuit, the Potentially
Responsible Party (PRP) defendants filed motions to dismiss the suit or strike
certain portions of the suit. The judge issued a ruling on April 1, 2003
granting in part and denying in part the defendants motions. A key ruling of
the court was that the water purveyors, including the Registrant, by virtue of
their ownership of wells contaminated with hazardous chemicals are themselves
PRPs under the Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA). Registrant amended its suit to claim certain
affirmative defenses as an innocent party under CERCLA. Registrant is
presently unable to predict the outcome of this ruling on its ability to fully
recover from the PRPs future costs associated with the treatment of these
wells.

On August 29, 2003, the US Environmental Protection Agency issued
Unilateral Administrative Orders (UAO) against 41 parties deemed responsible
for polluting the groundwater in that portion of the San Gabriel Valley from
which SCWs two impacted wells draw water. SCW was not named as a party to the
UAO. The UAO requires that these parties remediate the contamination. As a
result of the issuance of the UAO, these parties have begun settlement
discussions regarding the Federal lawsuits with SCW, the other two affected
water purveyors and WQA. Registrant is presently unable to predict the
ultimate outcome of these settlement discussions.

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 as well as
for violations of good faith and fair dealing, negligent misrepresentation,
intentional misrepresentation and unjust enrichment. Subsequently, Edison filed
a cross-complaint against SCW for breach of contract, anticipatory breach, and
quantum meruit. To date, SCW has spent approximately $3.0 million in this
matter, all of which has been expensed. SCW has attended two mediation meetings
with Edison in this matter, and is discussing a settlement proposal. The
parties have not, however, yet reached a mutually agreeable definitive
settlement of the issues.

The laws of the State of California provide for the acquisition of public
utility property by governmental agencies through their power of eminent
domain, also know as condemnation, where doing so is in the public interest. In
addition, however, the laws of the State of California also provide: (1) that
the owner of the utility property may contest whether the condemnation is
actually in the public interest; and (2) that the owner is entitled to receive
the fair market value of its property if the property is ultimately taken.
Although the City of Claremont, California located in SCWs Region III has not
initiated the formal condemnation process pursuant to California law, the City
has authorized the hiring of a consultant to perform an appraisal of the value
of Registrants water system serving that city. SCW intends to vigorously
defend itself against any condemnation action initiated by the City.

Registrant is also subject to ordinary routine litigation incidental to
its business. Other than those disclosed above, no other legal proceedings are
pending, which are believed to be material. Management believes that proper
insurance coverage and reserves are in place to insure against property,
general liability and workers compensation claims incurred in the ordinary
course of business.

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Note 8  Business Segments:

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

|                                            |  |                                                         |         |          |  |       |        |           |  |              |        |              |  |   |        |   |  |  |      |   |  |   |         | 
|------------------------------------------- |  | ------------------------------------------------------- | ------- | -------- |  | ----- | ------ | --------- |  | ------------ | ------ | ------------ |  | - | ------ | - |  |  | ---- | - |  | - | ------- | 
|(dollars in thousands)                      |  | As Of And For The Three Months Ended September 30, 2003
|                                            |  |                                                        
|                                            |  | SCW                                                     |         |          |  |       |        |           |  |              |        |              |  |   |        |   |  | 
|                                            |  |                                                         |         | CCWC     |  | Non-  |        |           |  |              |        | Consolidated
|                                            |  | Water                                                   |         | Electric |  | Water |        | Regulated |  | Eliminations |        | AWR         
|                                            |  |                                                         |         |          |  |       |        |           |  |              |        |             
|Operating revenues                          |  | $                                                       | 55,777  |          |  | $     | 5,906  |           |  | $            | 1,818  |              |  | $ | 245    |   |  |  | ($21 | ) |  | $ | 63,725  | 
|Operating income
(loss) before income
taxes |  |                                                         | 16,989  |          |  |       | (420   | )         |  |              | 548    |              |  |   | (1,023 | ) |  |  |      |   |  |   | 16,094  | 
|Interest expense, net                       |  |                                                         | 3,923   |          |  |       | 350    |           |  |              | 121    |              |  |   | 117    |   |  |  |      |   |  |   | 4,511   | 
|Identifiable assets                         |  |                                                         | 521,327 |          |  |       | 32,901 |           |  |              | 30,045 |              |  |   | 99     |   |  |  |      |   |  |   | 584,372 | 
|Depreciation expense                        |  |                                                         | 4,317   |          |  |       | 392    |           |  |              | 230    |              |  |   | 5      |   |  |  |      |   |  |   | 4,944   | 
|Capital additions                           |  |                                                         | 9,395   |          |  |       | 6,235  |           |  |              | 815    |              |  |   | 4      |   |  |  |      |   |  |   | 16,449  | 

|                                            |  |                                                         |         |          |  |       |        |           |  |              |        |              |  |   |      |   |  |  |  |  |  |   |         | 
|------------------------------------------- |  | ------------------------------------------------------- | ------- | -------- |  | ----- | ------ | --------- |  | ------------ | ------ | ------------ |  | - | ---- | - |  |  |  |  |  | - | ------- | 
|(dollars in thousands)                      |  | As Of And For The Three Months Ended September 30, 2002
|                                            |  |                                                        
|                                            |  | SCW                                                     |         |          |  |       |        |           |  |              |        |              |  |   |      |   |  | 
|                                            |  |                                                         |         | CCWC     |  | Non-  |        |           |  |              |        | Consolidated
|                                            |  | Water                                                   |         | Electric |  | Water |        | Regulated |  | Eliminations |        | AWR         
|                                            |  |                                                         |         |          |  |       |        |           |  |              |        |             
|Operating revenues                          |  | $                                                       | 54,052  |          |  | $     | 5,529  |           |  | $            | 1,814  |              |  | $ | 217  |   |  |  |  |  |  | $ | 61,612  | 
|Operating income
(loss) before income
taxes |  |                                                         | 16,452  |          |  |       | 547    |           |  |              | 578    |              |  |   | (506 | ) |  |  |  |  |  |   | 17,071  | 
|Interest expense, net                       |  |                                                         | 3,789   |          |  |       | 338    |           |  |              | 112    |              |  |   | 143  |   |  |  |  |  |  |   | 4,382   | 
|Identifiable assets                         |  |                                                         | 502,402 |          |  |       | 27,402 |           |  |              | 28,573 |              |  |   | 16   |   |  |  |  |  |  |   | 558,393 | 
|Depreciation expense                        |  |                                                         | 4,019   |          |  |       | 368    |           |  |              | 235    |              |  |   |     |   |  |  |  |  |  |   | 4,622   | 
|Capital additions                           |  |                                                         | 10,957  |          |  |       | 434    |           |  |              | 230    |              |  |   | 15   |   |  |  |  |  |  |   | 11,636  | 

|                                            |  |                                                        |         |          |  |       |        |           |  |              |        |              |  |   |        |   |  |  |      |   |  |   |         | 
|------------------------------------------- |  | ------------------------------------------------------ | ------- | -------- |  | ----- | ------ | --------- |  | ------------ | ------ | ------------ |  | - | ------ | - |  |  | ---- | - |  | - | ------- | 
|(dollars in thousands)                      |  | As Of And For The Nine Months Ended September 30, 2003
|                                            |  |                                                       
|                                            |  | SCW                                                    |         |          |  |       |        |           |  |              |        |              |  |   |        |   |  | 
|                                            |  |                                                        |         | CCWC     |  | Non-  |        |           |  |              |        | Consolidated
|                                            |  | Water                                                  |         | Electric |  | Water |        | Regulated |  | Eliminations |        | AWR         
|                                            |  |                                                        |         |          |  |       |        |           |  |              |        |             
|Operating revenues                          |  | $                                                      | 138,636 |          |  | $     | 18,263 |           |  | $            | 4,632  |              |  | $ | 749    |   |  |  | ($62 | ) |  | $ | 162,218 | 
|Operating income
(loss) before income
taxes |  |                                                        | 35,990  |          |  |       | 456    |           |  |              | 1,031  |              |  |   | (2,624 | ) |  |  |      |   |  |   | 34,853  | 
|Interest expense, net                       |  |                                                        | 11,785  |          |  |       | 1,050  |           |  |              | 363    |              |  |   | 417    |   |  |  |      |   |  |   | 13,615  | 
|Identifiable assets                         |  |                                                        | 521,327 |          |  |       | 32,901 |           |  |              | 30,045 |              |  |   | 99     |   |  |  |      |   |  |   | 584,372 | 
|Depreciation expense                        |  |                                                        | 12,965  |          |  |       | 1,175  |           |  |              | 690    |              |  |   | 6      |   |  |  |      |   |  |   | 14,836  | 
|Capital additions                           |  |                                                        | 24,360  |          |  |       | 7,614  |           |  |              | 1,893  |              |  |   | 37     |   |  |  |      |   |  |   | 33,904  | 

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Note 8 - Business Segments (Continued):

|                                            |  |                                                        |         |          |  |       |        |           |  |              |        |              |  |   |        |   |  |  |  |  |  |   |         | 
|------------------------------------------- |  | ------------------------------------------------------ | ------- | -------- |  | ----- | ------ | --------- |  | ------------ | ------ | ------------ |  | - | ------ | - |  |  |  |  |  | - | ------- | 
|(dollars in thousands)                      |  | As Of And For The Nine Months Ended September 30, 2002
|                                            |  |                                                       
|                                            |  | SCW                                                    |         |          |  |       |        |           |  |              |        |              |  |   |        |   |  | 
|                                            |  |                                                        |         | CCWC     |  | Non-  |        |           |  |              |        | Consolidated
|                                            |  | Water                                                  |         | Electric |  | Water |        | Regulated |  | Eliminations |        | AWR         
|                                            |  |                                                        |         |          |  |       |        |           |  |              |        |             
|Operating revenues                          |  | $                                                      | 138,854 |          |  | $     | 14,574 |           |  | $            | 4,868  |              |  | $ | 603    |   |  |  |  |  |  | $ | 158,899 | 
|Operating income
(loss) before income
taxes |  |                                                        | 41,457  |          |  |       | 599    |           |  |              | 1,500  |              |  |   | (1,533 | ) |  |  |  |  |  |   | 42,023  | 
|Interest expense, net                       |  |                                                        | 11,300  |          |  |       | 1,007  |           |  |              | 359    |              |  |   | 447    |   |  |  |  |  |  |   | 13,113  | 
|Identifiable assets                         |  |                                                        | 502,402 |          |  |       | 27,402 |           |  |              | 28,573 |              |  |   | 16     |   |  |  |  |  |  |   | 558,393 | 
|Depreciation expense                        |  |                                                        | 11,935  |          |  |       | 1,103  |           |  |              | 690    |              |  |   |       |   |  |  |  |  |  |   | 13,728  | 
|Capital additions                           |  |                                                        | 30,284  |          |  |       | 1,401  |           |  |              | 613    |              |  |   | 15     |   |  |  |  |  |  |   | 32,313  | 

|                                            |  |                                                          |         |          |  |       |        |           |  |              |        |              |  |   |        |   |  |  |      |   |  |   |         | 
|------------------------------------------- |  | -------------------------------------------------------- | ------- | -------- |  | ----- | ------ | --------- |  | ------------ | ------ | ------------ |  | - | ------ | - |  |  | ---- | - |  | - | ------- | 
|(dollars in thousands)                      |  | As Of And For The Twelve Months Ended September 30, 2003
|                                            |  |                                                         
|                                            |  | SCW                                                      |         |          |  |       |        |           |  |              |        |              |  |   |        |   |  | 
|                                            |  |                                                          |         | CCWC     |  | Non-  |        |           |  |              |        | Consolidated
|                                            |  | Water                                                    |         | Electric |  | Water |        | Regulated |  | Eliminations |        | AWR         
|                                            |  |                                                          |         |          |  |       |        |           |  |              |        |             
|Operating revenues                          |  | $                                                        | 180,685 |          |  | $     | 24,988 |           |  | $            | 5,921  |              |  | $ | 991    |   |  |  | ($62 | ) |  | $ | 212,523 | 
|Operating income
(loss) before income
taxes |  |                                                          | 42,511  |          |  |       | 3,024  |           |  |              | 1,277  |              |  |   | (3,386 | ) |  |  |      |   |  |   | 43,426  | 
|Interest expense, net                       |  |                                                          | 15,761  |          |  |       | 1,404  |           |  |              | 486    |              |  |   | 550    |   |  |  |      |   |  |   | 18,201  | 
|Identifiable assets                         |  |                                                          | 521,327 |          |  |       | 32,901 |           |  |              | 30,045 |              |  |   | 99     |   |  |  |      |   |  |   | 584,372 | 
|Depreciation expense                        |  |                                                          | 16,945  |          |  |       | 1,542  |           |  |              | 917    |              |  |   | 6      |   |  |  |      |   |  |   | 19,410  | 
|Capital additions                           |  |                                                          | 32,657  |          |  |       | 7,120  |           |  |              | 2,380  |              |  |   | 89     |   |  |  |      |   |  |   | 42,246  | 

|                                            |  |                                                          |         |          |  |       |        |           |  |              |        |              |  |   |        |   |  |  |  |  |  |   |         | 
|------------------------------------------- |  | -------------------------------------------------------- | ------- | -------- |  | ----- | ------ | --------- |  | ------------ | ------ | ------------ |  | - | ------ | - |  |  |  |  |  | - | ------- | 
|(dollars in thousands)                      |  | As Of And For The Twelve Months Ended September 30, 2002
|                                            |  |                                                         
|                                            |  | SCW                                                      |         |          |  |       |        |           |  |              |        |              |  |   |        |   |  | 
|                                            |  |                                                          |         | CCWC     |  | Non-  |        |           |  |              |        | Consolidated
|                                            |  | Water                                                    |         | Electric |  | Water |        | Regulated |  | Eliminations |        | AWR         
|                                            |  |                                                          |         |          |  |       |        |           |  |              |        |             
|Operating revenues                          |  | $                                                        | 180,746 |          |  | $     | 18,885 |           |  | $            | 6,398  |              |  | $ | 813    |   |  |  |  |  |  | $ | 206,842 | 
|Operating income
(loss) before income
taxes |  |                                                          | 53,778  |          |  |       | (3,119 | )         |  |              | 1,790  |              |  |   | (1,540 | ) |  |  |  |  |  |   | 50,909  | 
|Interest expense, net                       |  |                                                          | 14,643  |          |  |       | 1,305  |           |  |              | 532    |              |  |   | 607    |   |  |  |  |  |  |   | 17,087  | 
|Identifiable assets                         |  |                                                          | 502,402 |          |  |       | 27,402 |           |  |              | 28,573 |              |  |   | 16     |   |  |  |  |  |  |   | 558,393 | 
|Depreciation expense                        |  |                                                          | 15,751  |          |  |       | 1,464  |           |  |              | 1,001  |              |  |   |       |   |  |  |  |  |  |   | 18,216  | 
|Capital additions                           |  |                                                          | 42,017  |          |  |       | 1,775  |           |  |              | 683    |              |  |   | 15     |   |  |  |  |  |  |   | 44,490  | 

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

Forward-Looking Information

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

General

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

SCW served 249,810 water customers and 22,199 electric customers at
September 30, 2003, or a total of 272,009 customers, compared with 268,057
total customers at September 30, 2002.

SCWs utility operations exhibit seasonal trends. Although SCWs water
utility operations have a diversified customer base, residential and commercial
customers account for the majority of SCWs water sales and revenues. Revenues
derived from commercial and residential water customers accounted for
approximately 86.4%, 88.9% and 91.1% of total water revenues for the three,
nine and twelve months ended September 30, 2003, respectively, as compared to
87.8%, 89.0% and 91.2% for the three, nine and twelve months ended September
30, 2002, respectively.

AWR also owns two other subsidiaries. American States Utility Services,
Inc. (ASUS) was formed to lease, operate and maintain water and wastewater
systems owned by others and to provide related services, such as billing and
meter reading. ASUS currently provides related services to approximately 91,500
accounts. Chaparral City Water Company (CCWC) is an Arizona public utility
company serving 12,067 customers as of September 30, 2003, compared with 11,683
customers at September 30, 2002, in the town of Fountain Hills, Arizona and a
portion of the City of Scottsdale, Arizona. The majority of CCWCs customers
are residential. The Arizona Corporation Commission (ACC) regulates CCWC.

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

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Introduction

As described in Note 2 to the accompanying consolidated financial
statements, Registrant has restated its financial statements for the twelve
months ended September 30, 2002. In connection with a deferred tax analysis of
Registrants tax accounts performed in 2002, Registrant determined that it had
miscalculated its net accumulated deferred income taxes and current tax payable
account over several years, resulting in taxes on income not being recognized
in the proper period, and overstating Registrants net deferred tax liabilities
and current taxes payable. Registrant further determined that the amount of the
overstatements, which totaled approximately $4.7 million and $4.9 million as of
December 31, 2001 for AWR and SCW, respectively, arose in prior years and prior
years financial statements should be restated. The financial information for
the twelve months ended September 30, 2002 included in these consolidated
financial statements has been adjusted to give effect to the restatement.
Although the total amount of the restatement was $4.9 million to AWR as of
December 31, 2001, the impact to the twelve months ended September 30, 2002 of
this restatement was to increase taxes on income and decrease net income by
$70,000. Basic and diluted earnings per share decreased $0.01 for the twelve
months ended September 30, 2002 as a result of the restatement.

Results of Operation

RESULTS OF THIRD QUARTER 2003 OPERATIONS

|                          |                  |                                              |                          |        |         |        |         |        |        |        |        |       |        |       |       |      |       |     |  
|------------------------- | ---------------- | -------------------------------------------- | ------------------------ | ------ | ------- | ------ | ------- | ------ | ------ | ------ | ------ | ----- | ------ | ----- | ----- | ---- | ----- | --- | -
|                          |                  |                                              |                          |        | 3 MOS   |        | 3 MOS   |        |        |        |        |       |        |       |      
|                          |                  |                                              |                          |        | ENDED   |        | ENDED   |        | $      |        | %     
|                          |                  |                                              |                          |        | 9/30/03 |        | 9/30/02 |        | CHANGE |        | CHANGE
|                          |                  |                                              |                          |        |         |        |         |        |        |        |       
|OPERATING REVENUES        |                  |                                              |                          |        |         |        |         |        |        |        |        |       |        |       |       |     
|                          | Water            |                                              | $                        | 57,574 |         |        | $       | 55,866 |        |        | $      | 1,708 |        |       |       | 3.1  | %    
|                          | Electric         |                                              |                          | 5,906  |         |        |         | 5,529  |        |        |        | 377   |        |       |       | 6.8  | %    
|                          | Other            |                                              |                          | 245    |         |        |         | 217    |        |        |        | 28    |        |       |       | 12.9 | %    
|                          |                  |                                              |                          |        |         |        |         |        |        |        |        |       |        |       |       |      |      
|                          |                  | Total operating revenues                     |                          |        | 63,725  |        |         |        | 61,612 |        |        |       | 2,113  |       |       |      | 3.4   | %  
|                          |                  |                                              |                          |        |         |        |         |        |        |        |        |       |        |       |       |      |      
|OPERATING EXPENSES        |                  |                                              |                          |        |         |        |         |        |        |        |        |       |        |       |       |     
|                          |                  | Water purchased                              |                          |        | 13,740  |        |         |        | 14,205 |        |        |       | (465   | )     |       |      | -3.3  | %  
|                          |                  | Power purchased for pumping                  |                          |        | 3,330   |        |         |        | 3,327  |        |        |       | 3      |       |       |      | 0.1   | %  
|                          |                  | Power purchased for resale                   |                          |        | 3,382   |        |         |        | 3,645  |        |        |       | (263   | )     |       |      | -7.2  | %  
|                          |                  | Unrealized loss on purchased power contracts |                          |        | 420     |        |         |        |       |        |        |       | 420    |       |       |      | 100.0 | %  
|                          |                  | Groundwater production assessment            |                          |        | 2,089   |        |         |        | 1,831  |        |        |       | 258    |       |       |      | 14.1  | %  
|                          |                  | Supply cost balancing accounts               |                          |        | 650     |        |         |        | (428   | )      |        |       | 1,078  |       |       |      | 251.9 | %  
|                          |                  | Other operating expenses                     |                          |        | 4,805   |        |         |        | 4,883  |        |        |       | (78    | )     |       |      | -1.6  | %  
|                          |                  | Administrative and general expenses          |                          |        | 10,058  |        |         |        | 7,848  |        |        |       | 2,210  |       |       |      | 28.2  | %  
|                          |                  | Depreciation and amortization                |                          |        | 4,944   |        |         |        | 4,622  |        |        |       | 322    |       |       |      | 7.0   | %  
|                          |                  | Maintenance                                  |                          |        | 2,181   |        |         |        | 2,546  |        |        |       | (365   | )     |       |      | -14.3 | %  
|                          |                  | Taxes on income                              |                          |        | 3,915   |        |         |        | 5,207  |        |        |       | (1,292 | )     |       |      | -24.8 | %  
|                          |                  | Other taxes                                  |                          |        | 2,032   |        |         |        | 2,062  |        |        |       | (30    | )     |       |      | -1.5  | %  
|                          |                  |                                              |                          |        |         |        |         |        |        |        |        |       |        |       |       |      |      
|                          |                  |                                              | Total operating expenses |        |         | 51,546 |         |        |        | 49,748 |        |       |        | 1,798 |       |      |       | 3.6 | %
|                          |                  |                                              |                          |        |         |        |         |        |        |        |        |       |        |       |       |      |      
|                          | Operating income |                                              |                          | 12,179 |         |        |         | 11,864 |        |        |        | 315   |        |       |       | 2.7  | %    
|                          |                  |                                              |                          |        |         |        |         |        |        |        |        |       |        |       |       |      |      
|OTHER INCOME (LOSS) - NET |                  |                                              | 128                      |        |         |        | 157     |        |        |        | (29    | )     |        |       | -18.5 | %   
|                          |                  |                                              |                          |        |         |        |         |        |        |        |        |       |        |       |       |      |      
|INTEREST CHARGES          |                  |                                              | 4,511                    |        |         |        | 4,382   |        |        |        | 129    |       |        |       | 2.9   | %   
|                          |                  |                                              |                          |        |         |        |         |        |        |        |        |       |        |       |       |      |      
|NET INCOME                |                  | $                                            | 7,796                    |        |         | $      | 7,639   |        |        | $      | 157    |       |        |       | 2.1   | %   
|                          |                  |                                              |                          |        |         |        |         |        |        |        |        |       |        |       |       |      |      

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Third quarter net income increased 2.1% to $7.8 million, equivalent to
$0.51 per common share on a basic and fully diluted basis, compared to $7.6
million or $0.50 per share earned in 2002s third quarter.

Operating Revenues

For the three months ended September 30, 2003, revenues from water
operations increased 3.1% to $57.6 million compared to $55.9 million for the
three months ended September 30, 2002. The increase was due to two rate
increases for SCWs Region II that were effective on January 21, 2003 and
February 4, 2003, respectively. These two rate increases are expected to
generate additional revenues of approximately $6.2 million annually. The rate
increases were offset by a 2.8% decrease in water consumption resulting from
wetter and cooler temperatures in most of SCWs service areas. Differences in
temperature and rainfall in Registrants service areas impact sales of water to
customers causing fluctuations in Registrants revenues and earnings between
comparative periods.

For the three months ended September 30, 2003, revenues from electric
operations increased by 6.8% to $5.9 million compared to $5.5 million for the
three months ended September 30, 2002. The increase reflects rate increases
authorized by the CPUC at the end of July 2002, which subsequently became
effective, to cover purchased power costs under various power supply
agreements. Offsetting the increase was kilowatt-hour sales decreasing by 2.4%.

Operating Expenses

For the three months ended September 30, 2003, purchased water costs
decreased by 3.3% to $13.7 million compared to $14.2 million for the three
months ended September 30, 2002. The decrease was primarily due to a decrease
in the costs of leased water rights to pump in SCWs Region II and an
adjustment of approximately $350,000 to decrease purchased water in SCWs
Orange County customer service area due to the in-lieu program. The in-lieu
program has been implemented by the Metropolitan Water District of Southern
California (MWD) to help preserve groundwater level in the areas, which allows
SCW to purchase treated water from MWD essentially at SCWs groundwater pumping
cost. The decreases are partially offset by additional purchased water volume
necessary during the third quarter of 2003 to replace pumped water supply lost
due to wells being temporarily removed from service as a result of water
quality issues and mechanical problems. For the three months ended September
30, 2003, 47% of our supply mix was purchased water as compared to 46%
purchased for the three months ended September 30, 2002.

For the three months ended September 30, 2003, cost of power purchased for
pumping increased slightly by 0.1% to $3.33 million compared to $3.32 million
for three months ended September 30, 2002.

For the three months ended September 30, 2003, cost of power purchased for
resale to customers in SCWs Bear Valley Electric division decreased by 7.2% to
$3.4 million compared to $3.6 million for the three months ended September 30,
2002. The decrease is primarily due to lower power costs at a price of $74.65
per megawatt hour (MWh) effective November 2002 under SCWs power supply
agreements with Pinnacle West Capital Corporation (PWCC) as compared to $95 per
MWh for energy purchased from Mirant Americas Energy Marketing, LP (Mirant)
under then existing contracts in the same period of 2002.

The entry for unrealized gain and loss on purchased power contracts
represents gains and losses recorded for SCWs power purchase agreements, with
PWCC, which qualify as derivative instruments under Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and
Hedging Activities. The $420,000 pre-tax unrealized loss for the three months
ended September 30, 2003 is due to decreases in current forward market prices.
This results in an increase in SCWs cumulative unrealized loss on these
contracts which totaled $1.7 million as of September 30, 2003. There is no cash
flow impact from these gains and losses. Management is evaluating alternatives
to

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minimize future unrealized losses. Unrealized gains and losses at Bear
Valley Electric will continue to impact earnings during the life of the
contract with PWCC. Management expects there to be no cumulative impact on
SCWs Bear Valley electric division earnings at the end of the contract period,
in 2008.

For the three months ended September 30, 2003, groundwater production
assessments increased by 14.1% to $2.1 million compared to $1.8 million for the
three months ended September 30, 2002 due primarily to increases in assessment
rates levied against groundwater production effective July 2003 and an
adjustment to increase pumped cost resulting from the in-lieu program as
mentioned previously under purchased water.

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. An increase in the
provision of supply cost balancing accounts of $1.1 million for the three
months ended September 30, 2003 when compared to the three months ended
September 30, 2002, primarily reflects new rates authorized in July of 2002 to
recover electric power costs at SCWs Bear Valley electric division. At
September 30, 2003, Registrant had a combined net under-collected position of
$25.4 million in both its water and electric supply balancing accounts due
primarily to the previous increases in energy costs.

For the three months ended September 30, 2003, other operating expenses
decreased by 1.6% to $4.8 million compared to $4.9 million for the three months
ended September 30, 2002. The decrease was due primarily to lower chemicals and
water treatment costs.

For the three months ended September 30, 2003, administrative and general
expenses increased by 28.2% to $10.1 million compared to $7.8 million for the
three months ended September 30, 2002. The increase was due primarily to (i) a
$745,000 increase in outside consulting and legal services in connection with
new business development primarily related to privatization of water and
wastewater systems at various military bases, and the Edison lawsuit for Bear
Valley Electric, (ii) higher labor cost, and (iii) approximately $373,000
increase in pensions and benefits due to actuarial assumption changes in the
discount rate and expected long-term rate of return on plan assets, and
increases in various benefit costs.

For the three months ended September 30, 2003, depreciation expense
increased by 7.0% to $4.9 million compared to $4.6 million for the three months
ended September 30, 2002. The increase reflects, among other things, the
effects of recording approximately $51 million in utility plant during 2002,
depreciation on which began in January 2003.

For the three months ended September 30, 2003, maintenance expense
decreased by 14.3% to $2.2 million compared to $2.5 million due principally to
costs of approximately $408,000 incurred in connection with the trucking of
water in SCWs Wrightwood customer service area due to a sudden and unexplained
drop in groundwater levels in the area during the early part of the third
quarter of 2002. There were no comparable costs during the three months ended
September 30, 2003.

For the three months ended September 30, 2003, taxes on income decreased
by 24.8% to $3.9 million compared to $5.2 million for the three months ended
September 30, 2002 due primarily to a decrease in the estimated effective rate,
the effects of flow-through adjustments, and lower pre-tax operating income.

For the three months ended September 30, 2003, other taxes decreased
slightly by 1.5% to $2 million compared to $2.1 million for the three months
ended September 30, 2002 reflecting decreases in property taxes at Registrants
Arizona facility due to an adjustment based on actual property tax statements.

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Other Income (Loss)

For the three months ended September 30, 2003, other income decreased by
18.5% to $128,000 net income compared to a net income of $157,000 for the three
months ended September 30, 2002 reflecting increases in taxes and expenses
associated with SCWs 500 acre foot entitlement to water from the State Water
Project.

Interest Charges

For the three months ended September 30, 2003, interest expense increased
by 2.9% to $4.5 million compared to $4.4 million for the three months ended
September 30, 2002 due primarily to higher short-term borrowings incurred to
finance capital expenditures.

RESULTS OF NINE MONTHS ENDED SEPTEMBER 30, 2003

|                          |                  |                                              |                          |         |         |         |         |         |         |         |        |        |        |       |       |      |        |     |  
|------------------------- | ---------------- | -------------------------------------------- | ------------------------ | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------ | ------ | ------ | ----- | ----- | ---- | ------ | --- | -
|                          |                  |                                              |                          |         | 9 MOS   |         | 9 MOS   |         |         |         |        |        |        |       |      
|                          |                  |                                              |                          |         | ENDED   |         | ENDED   |         | $       |         | %     
|                          |                  |                                              |                          |         | 9/30/03 |         | 9/30/02 |         | CHANGE  |         | CHANGE
|                          |                  |                                              |                          |         |         |         |         |         |         |         |       
|OPERATING REVENUES        |                  |                                              |                          |         |         |         |         |         |         |         |        |        |        |       |       |     
|                          | Water            |                                              | $                        | 143,206 |         |         | $       | 143,722 |         |         | $      | (516   | )      |       |       | -0.4 | %     
|                          | Electric         |                                              |                          | 18,263  |         |         |         | 14,574  |         |         |        | 3,689  |        |       |       | 25.3 | %     
|                          | Other            |                                              |                          | 749     |         |         |         | 603     |         |         |        | 146    |        |       |       | 24.2 | %     
|                          |                  |                                              |                          |         |         |         |         |         |         |         |        |        |        |       |       |      |       
|                          |                  | Total operating revenues                     |                          |         | 162,218 |         |         |         | 158,899 |         |        |        | 3,319  |       |       |      | 2.1    | %  
|                          |                  |                                              |                          |         |         |         |         |         |         |         |        |        |        |       |       |      |       
|OPERATING EXPENSES        |                  |                                              |                          |         |         |         |         |         |         |         |        |        |        |       |       |     
|                          |                  | Water purchased                              |                          |         | 32,098  |         |         |         | 32,523  |         |        |        | (425   | )     |       |      | -1.3   | %  
|                          |                  | Power purchased for pumping                  |                          |         | 7,696   |         |         |         | 7,767   |         |        |        | (71    | )     |       |      | -0.9   | %  
|                          |                  | Power purchased for resale                   |                          |         | 10,052  |         |         |         | 13,973  |         |        |        | (3,921 | )     |       |      | -28.1  | %  
|                          |                  | Unrealized gain on purchased power contracts |                          |         | (854    | )       |         |         |        |         |        |        | (854   | )     |       |      | -100.0 | %  
|                          |                  | Groundwater production assessment            |                          |         | 5,485   |         |         |         | 5,427   |         |        |        | 58     |       |       |      | 1.1    | %  
|                          |                  | Supply cost balancing accounts               |                          |         | 2,109   |         |         |         | (6,243  | )       |        |        | 8,352  |       |       |      | 133.8  | %  
|                          |                  | Other operating expenses                     |                          |         | 13,931  |         |         |         | 12,811  |         |        |        | 1,120  |       |       |      | 8.7    | %  
|                          |                  | Administrative and general expenses          |                          |         | 29,472  |         |         |         | 24,291  |         |        |        | 5,181  |       |       |      | 21.3   | %  
|                          |                  | Depreciation and amortization                |                          |         | 14,836  |         |         |         | 13,728  |         |        |        | 1,108  |       |       |      | 8.1    | %  
|                          |                  | Maintenance                                  |                          |         | 6,430   |         |         |         | 6,632   |         |        |        | (202   | )     |       |      | -3.0   | %  
|                          |                  | Taxes on income                              |                          |         | 7,700   |         |         |         | 12,355  |         |        |        | (4,655 | )     |       |      | -37.7  | %  
|                          |                  | Other taxes                                  |                          |         | 6,110   |         |         |         | 5,967   |         |        |        | 143    |       |       |      | 2.4    | %  
|                          |                  |                                              |                          |         |         |         |         |         |         |         |        |        |        |       |       |      |       
|                          |                  |                                              | Total operating expenses |         |         | 135,065 |         |         |         | 129,231 |        |        |        | 5,834 |       |      |        | 4.5 | %
|                          |                  |                                              |                          |         |         |         |         |         |         |         |        |        |        |       |       |      |       
|                          | Operating income |                                              |                          | 27,153  |         |         |         | 29,668  |         |         |        | (2,515 | )      |       |       | -8.5 | %     
|                          |                  |                                              |                          |         |         |         |         |         |         |         |        |        |        |       |       |      |       
|OTHER INCOME (LOSS) - NET |                  |                                              | 159                      |         |         |         | 326     |         |         |         | (167   | )      |        |       | -51.2 | %   
|                          |                  |                                              |                          |         |         |         |         |         |         |         |        |        |        |       |       |      |       
|INTEREST CHARGES          |                  |                                              | 13,615                   |         |         |         | 13,113  |         |         |         | 502    |        |        |       | 3.8   | %   
|                          |                  |                                              |                          |         |         |         |         |         |         |         |        |        |        |       |       |      |       
|NET INCOME                |                  | $                                            | 13,697                   |         |         | $       | 16,881  |         |         | $       | (3,184 | )      |        |       | -18.9 | %   
|                          |                  |                                              |                          |         |         |         |         |         |         |         |        |        |        |       |       |      |       

Net income for the nine months ended September 30, 2003 decreased 18.9% to
$13.7 million, equivalent to $0.90 per common share on a basic and fully
diluted basis, compared to $16.9 million or $1.11 per share for the nine months
ended September 30, 2002.

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Operating Revenues

For the nine months ended September 30, 2003, revenues from water
operations decreased slightly by 0.4% to $143.2 million compared to $143.7
million for the nine months ended September 30, 2002. The decrease was due to a
4.7% decrease in water consumption resulting from wetter and cooler
temperatures in most of SCWs service areas, offset by two rate increases for
SCWs Region II that were effective on January 21, 2003 and February 4, 2003,
respectively. As mentioned earlier, these two rate increases are expected to
generate additional water revenues of approximately $6.2 million annually.
Differences in temperature and rainfall in Registrants service areas impact
sales of water to customers causing fluctuations in Registrants revenues and
earnings between comparative periods.

For the nine months ended September 30, 2003, revenues from electric
operations increased by 25.3% to $18.3 million compared to $14.6 million for
the nine months ended September 30, 2002. The increase reflects rate increases
in July 2002 authorized by the CPUC to cover purchased power costs under
various power supply agreements.

Operating Expenses

For the nine months ended September 30, 2003, purchased water costs
decreased slightly by 1.3% to $32.1 million compared to $32.5 million for the
nine months ended September 30, 2002. These results reflect a 4.7% decrease in
water consumption, offset by an increase in the costs of water rights pumped in
SCWs Region II. For the nine months ended September 30, 2003, 45% of our
supply mix was purchased water as compared to 44% purchased water for the nine
months ended September 30, 2002.

For the nine months ended September 30, 2003, cost of power purchased for
pumping decreased slightly by 0.9% to $7.7 million compared to $7.8 million for
the nine months ended September 30, 2002 due to lower consumption and
additional wells down for maintenance and water quality issues. The effect of
wells being offline was partially offset by increased power rates.

For the nine months ended September 30, 2003, cost of power purchased for
resale to customers in SCWs Bear Valley Electric division decreased by 28.1%
to $10.1 million compared to $14.0 million for nine months ended September 30,
2002. This significant decrease is due primarily to (i) lower power costs at a
price of $74.65 per megawatt hour (MWh) effective November 2002 under SCWs
power supply agreements with PWCC as compared to $95 per MWh for energy
purchased from Mirant under then existing contracts in the same period of 2002,
and (ii) additional accruals of $2.2 million for purchased power costs based on
adjusted invoices received in April of 2002 from Dynegy for purchased power
incurred during prior periods. There were no comparable accruals during the
nine months ended September 30, 2003.

The $854,000 pre-tax unrealized gain on purchased power contracts for the
nine months ended September 30, 2003 is due to an increase in the current
forward market prices since December 31, 2002. There is no cash flow impact
from the gains and losses on the purchased power contracts.

For the nine months ended September 30, 2003, groundwater production
assessments increased by 1.1% to $5.5 million compared to $5.4 million for the
nine months ended September 30, 2002 due primarily to increases in assessment
rates levied against groundwater production effective July 2003.

An increase of $8.4 million during the nine months ended September 30,
2003 in the provision for supply cost balancing accounts when compared to the
nine months ended September 30, 2002 primarily reflects new rates authorized in
2002 to recover electric power costs, and additional accruals of $2.2 million
for purchased power costs recorded in April 2002 as discussed under power
purchased for resale.

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For the nine months ended September 30, 2003, other operating expenses
increased by 8.7% to $13.9 million compared to $12.8 million for the nine
months ended September 30, 2002 due primarily to (i) higher labor costs which
increased by almost $670,000, (ii) approximately $165,000 of refunds for a
sewer service overpayment in June 2002 for which there was no counterpart in
2003; and (iii) reimbursements totaling $205,000 received during the nine
months ended September 30, 2002 from settling parties for expenses incurred in
the San Gabriel basin to meet water quality standards for which there was no
counterpart in 2003.

For the nine months ended September 30, 2003, administrative and general
expenses increased by 21.3% to $29.5 million compared to $24.3 million for the
nine months ended September 30, 2002 due primarily to (i) approximately $3.6
million increase in outside legal and consulting services incurred in
connection with new business development, most specifically in the area of
privatization of water and wastewater systems at military bases, and in
defense of the Edison lawsuit for Bear Valley Electric, (ii) the write-off of
$680,000 in legal costs incurred to obtain water storage rights in SCWs
Central basin area due to an unfavorable court decision that will likely result
in SCWs inability to obtain the rights, and (iii) approximately $775,000
increase in pensions and benefits due to actuarial assumption changes in the
discount rate and expected long-term rate of return on plan assets, and
increases in various benefit costs.

For the nine months ended September 30, 2003, depreciation expense
increased by 8.1% to $14.8 million compared to $13.7 million for the nine
months ended September 30, 2002 reflecting, among other things, the effects of
recording approximately $51 million in utility plant during 2002, depreciation
on which began in January 2003.

For the nine months ended September 30, 2003, maintenance expense
decreased by 3.0% to $6.4 million compared to $6.6 million for the nine months
ended September 30, 2002 due principally to costs of approximately $408,000
incurred in connection with the trucking of water in SCWs Wrightwood customer
service area due to a sudden and unexplained drop in groundwater levels in the
area during the early part of the third quarter of 2002. There were no
comparable costs during the nine months ended September 30, 2003.

For the nine months ended September 30, 2003, taxes on income decreased by
37.7% to $7.7 million compared to $12.4 million for nine months ended September
30, 2002 due primarily to lower pre-tax operating income and the effects of
flow-through adjustments.

For the nine months ended September 30, 2003, other taxes increased by
2.4% to $6.1 million compared to $6.0 million for the nine months ended
September 30, 2002 reflecting additional property taxes resulting from higher
assessed values, and increases in payroll taxes based on increased labor costs.

Other Income (Loss)

For the nine months ended September 30, 2003, other income decreased to
$159,000 compared to $326,000 for the nine months ended September 30, 2002. The
net decrease reflects the sale of a parcel of non-operating property in Region
II of SCW in the first quarter of 2002 for which there was a gain of
approximately $506,000, offset by the recording of certain non-regulated
expenses to administrative and general expenses of ASUS, a non-regulated
subsidiary, and a decrease in taxes.

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Interest Charges

For the nine months ended September 30, 2003, interest expense increased
by 3.8% to $13.6 million compared to $13.1 million for the nine months ended
September 30, 2002 due primarily to higher short-term borrowings incurred to
finance capital expenditures.

RESULTS OF TWELVE MONTHS ENDED SEPTEMBER 30, 2003

|                          |                  |                          |                                              |         |         |         |         |         |         |         |        |        |       |        |       |      |     |       |  
|------------------------- | ---------------- | ------------------------ | -------------------------------------------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------ | ------ | ----- | ------ | ----- | ---- | --- | ----- | -
|                          |                  |                          |                                              |         | 12 MOS  |         | 12 MOS  |         |         |         |        |        |       |        |      
|                          |                  |                          |                                              |         | ENDED   |         | ENDED   |         | $       |         | %     
|                          |                  |                          |                                              |         | 9/30/03 |         | 9/30/02 |         | CHANGE  |         | CHANGE
|                          |                  |                          |                                              |         |         |         |         |         |         |         |       
|OPERATING REVENUES        |                  |                          |                                              |         |         |         |         |         |         |         |        |        |       |        |       |     
|                          | Water            |                          | $                                            | 186,544 |         |         | $       | 187,144 |         |         | $      | (600   | )     |        |       | -0.3 | %  
|                          | Electric         |                          |                                              | 24,988  |         |         |         | 18,885  |         |         |        | 6,103  |       |        |       | 32.3 | %  
|                          | Other            |                          |                                              | 991     |         |         |         | 813     |         |         |        | 178    |       |        |       | 21.9 | %  
|                          |                  |                          |                                              |         |         |         |         |         |         |         |        |        |       |        |       |      |    
|                          |                  |                          | Total operating revenues                     |         |         | 212,523 |         |         |         | 206,842 |        |        |       | 5,681  |       |      |     | 2.7   | %
|                          |                  |                          |                                              |         |         |         |         |         |         |         |        |        |       |        |       |      |    
|OPERATING EXPENSES        |                  |                          |                                              |         |         |         |         |         |         |         |        |        |       |        |       |     
|                          |                  |                          | Water purchased                              |         |         | 42,434  |         |         |         | 40,190  |        |        |       | 2,244  |       |      |     | 5.6   | %
|                          |                  |                          | Power purchased for pumping                  |         |         | 10,506  |         |         |         | 10,565  |        |        |       | (59    | )     |      |     | -0.6  | %
|                          |                  |                          | Power purchased for resale                   |         |         | 11,896  |         |         |         | 18,530  |        |        |       | (6,634 | )     |      |     | -35.8 | %
|                          |                  |                          | Unrealized loss on purchased power contracts |         |         | 1,676   |         |         |         |        |        |        |       | 1,676  |       |      |     | 100.0 | %
|                          |                  |                          | Groundwater production assessment            |         |         | 7,474   |         |         |         | 7,150   |        |        |       | 324    |       |      |     | 4.5   | %
|                          |                  |                          | Supply cost balancing accounts               |         |         | 4,947   |         |         |         | (9,444  | )      |        |       | 14,391 |       |      |     | 152.4 | %
|                          |                  |                          | Other operating expenses                     |         |         | 18,103  |         |         |         | 16,939  |        |        |       | 1,164  |       |      |     | 6.9   | %
|                          |                  |                          | Administrative and general expenses          |         |         | 35,191  |         |         |         | 36,927  |        |        |       | (1,736 | )     |      |     | -4.7  | %
|                          |                  |                          | Depreciation and amortization                |         |         | 19,410  |         |         |         | 18,216  |        |        |       | 1,194  |       |      |     | 6.6   | %
|                          |                  |                          | Maintenance                                  |         |         | 9,636   |         |         |         | 9,206   |        |        |       | 430    |       |      |     | 4.7   | %
|                          |                  |                          | Taxes on income                              |         |         | 8,293   |         |         |         | 14,228  |        |        |       | (5,935 | )     |      |     | -41.7 | %
|                          |                  |                          | Other taxes                                  |         |         | 7,824   |         |         |         | 7,654   |        |        |       | 170    |       |      |     | 2.2   | %
|                          |                  |                          |                                              |         |         |         |         |         |         |         |        |        |       |        |       |      |    
|                          |                  | Total operating expenses |                                              |         | 177,390 |         |         |         | 170,161 |         |        |        | 7,229 |        |       |      | 4.2 | %    
|                          |                  |                          |                                              |         |         |         |         |         |         |         |        |        |       |        |       |      |    
|                          | Operating income |                          |                                              | 35,133  |         |         |         | 36,681  |         |         |        | (1,548 | )     |        |       | -4.2 | %  
|                          |                  |                          |                                              |         |         |         |         |         |         |         |        |        |       |        |       |      |    
|OTHER INCOME (LOSS) - NET |                  |                          | 224                                          |         |         |         | 39      |         |         |         | 185    |        |       |        | 474.4 | %   
|                          |                  |                          |                                              |         |         |         |         |         |         |         |        |        |       |        |       |      |    
|INTEREST CHARGES          |                  |                          | 18,201                                       |         |         |         | 17,087  |         |         |         | 1,114  |        |       |        | 6.5   | %   
|                          |                  |                          |                                              |         |         |         |         |         |         |         |        |        |       |        |       |      |    
|NET INCOME                |                  | $                        | 17,156                                       |         |         | $       | 19,633  |         |         | $       | (2,477 | )      |       |        | -12.6 | %   
|                          |                  |                          |                                              |         |         |         |         |         |         |         |        |        |       |        |       |      |    

Net income for the twelve months ended September 30, 2003 decreased 12.6%
to $17.2 million, equivalent to $1.13 per common share on a basic and fully
diluted basis, compared to $19.6 million or $1.29 per share for the twelve
months ended September 30, 2002.

Operating Revenues

For the twelve months ended September 30, 2003, revenues from water
operations decreased slightly by 0.3% to $186.5 million compared to $187.1
million for the twelve months ended September 30, 2002. The decrease was due
primarily to a decrease of 3.6% in water consumption, and the termination of a
surcharge totaling approximately $600,000, which was authorized to decrease the
balancing account under-collection in SCWs Metropolitan customer service area.
These decreases were offset by rate

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increases in Region II as discussed
earlier, and step and attrition rate increases in the customer service areas
that comprise SCWs Region I which were effective January 2002 and January
2003, respectively.

For the twelve months ended September 30, 2003, revenues from electric
operations increased by 32.3% to $24.9 million compared to $18.9 million for
the twelve months ended September 30, 2002. As discussed earlier, the increase
reflects rate increases in July 2002 authorized by the CPUC to cover purchased
power costs under various power supply agreements. In addition, there was an
increase of 1.4% in kilowatt-hour consumption, primarily due to heavier use of
snow making machines at ski resorts in the area in the fourth quarter of 2002.

Operating Expenses

For the twelve months ended September 30, 2003, purchased water costs
increased by 5.6% to $42.4 million compared to $40.2 million for the twelve
months ended September 30, 2002. The increase was due to an increase in
purchased water volume resulting from additional purchased water necessary
during the twelve months ended September 30, 2003 to replace pumped water
supply lost due to wells being temporarily removed from service as a result of
water quality issues and mechanical problems, particularly in SCWs
Arden/Cordova and Foothill districts. For the twelve months ended September 30,
2003, 44% of the supply mix was purchased as compared to 43% purchased water
for the twelve months ended September 30, 2002. In addition, the twelve-months
ended September 30, 2003 include costs of approximately $1.4 million, incurred
in connection with the purchasing and trucking of water, in SCWs Wrightwood
customer service area due to a sudden and unexplained drop in groundwater level
in the area during the early part of the third quarter of 2002. The water
hauling ended in January 2003.

For the twelve months ended September 30, 2003, cost of power purchased
for pumping decreased slightly by 0.6% to $10.5 million compared to $10.6
million for the twelve months ended September 30, 2002 due to lower consumption
and additional wells down for maintenance and water quality issues. The effect
of wells being offline was partially offset by increased power rates.
Additionally, a credit of $440,000 recorded in the fourth quarter of 2001 for
the sale of groundwater in the Chino Basin also impacted the twelve-month
comparison. There was no similar credit in the comparable period of 2003.

For the twelve months ended September 30, 2003, cost of power purchased
for resale to customers in SCWs Bear Valley Electric division decreased by
35.8% to $11.9 million compared to $18.5 million for the twelve months ended
September 30, 2002. This significant decrease is due to (i) lower power costs
at a price of $74.65 per megawatt hour (MWh) effective November 2002 under
SCWs power supply agreements with PWCC as compared to $95 per MWh for energy
purchased from Mirant under then existing contracts in the same period of 2002,
(ii) additional accruals of $2.2 million for purchased power costs based on
adjusted invoices received in April of 2002 from Dynegy for purchased power
incurred during prior periods; there were no comparable accruals during the
twelve months ended September 30, 2003; and (iii) the reversal of an accrual
totaling approximately $2.2 million in October 2002 resulting from a settlement
with Dynegy.

For the twelve months ended September 30, 2003, the $1.7 million pre-tax
unrealized loss on purchased power contracts resulted from the contract prices
with PWCC being higher than current forward market prices. There is no cash
flow impact of this loss.

For the twelve months ended September 30, 2003, groundwater production
assessments increased by 4.5% to $7.5 million compared to $7.2 million for the
twelve months ended September 30, 2002 due primarily to higher assessments
levied against production for the water year 2002-2003 as compared with the
previous year.

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An increase of $14.4 million during the twelve months ended September 30,
2003 in the provision for supply cost balancing accounts when compared to the
twelve months ended September 30, 2002 primarily reflects new rates and
surcharges authorized in 2001 and 2002 to recover electric power costs and
under-collection in the electric balancing account. Factors impacting power
purchased for resale as previously discussed also impact the supply cost
balancing accounts.

For the twelve months ended September 30, 2003, other operating expenses
increased by 6.9% to $18.1 million compared to $16.9 million for the twelve
months ended September 30, 2002 due primarily to higher water treatment costs
and labor costs which increased by almost $1 million.

For the twelve months ended September 30, 2003, administrative and general
expenses decreased by 4.7% to $35.2 million compared to $36.9 million for the
twelve months ended September 30, 2002 due primarily to the reversal of the
remaining reserve of $6.5 million in the fourth quarter of 2002 for potential
non-recovery of electric power costs incurred to serve customers at SCWs Bear
Valley Electric customer service area. The reserve was established in late
2001, which also impact the comparison between periods, to offset future
impacts to earnings for the difference between authorized rates and SCWs
actual electric power costs under its agreement with Mirant. The agreements SCW
entered into with PWCC in September 2002 enable it to purchase power at a cost
lower than that authorized by the CPUC, thereby removing the need for the
reserve. The decrease was offset by an increase totaling approximately $6.2
million in outside services primarily for new business development, legal costs
incurred in defense of the Edison lawsuit for Bear Valley Electric, and legal
costs for resolution of amounts charged under various power purchase contracts.
In addition, there was an approximate $1.6 million increase in pensions and
benefits due to actuarial assumption changes in the discount rate and expected
long-term rate of return on plan assets, and increases in various benefit
costs. The twelve month comparison is also impacted by increased expenses
related to privatization of water and wastewater systems at military bases.

For the twelve months ended September 30, 2003, depreciation expense
increased by 6.6% to $19.4 million compared to $18.2 million for the twelve
months ended September 30, 2002 reflecting, among other things, the effects of
recording approximately $51 million in utility plant during 2002, depreciation
on which began in January 2003.

For the twelve months ended September 30, 2003, maintenance expense
increased by 4.7% to $9.6 million compared to $9.2 million for the twelve
months ended September 30, 2002 due principally to the termination of SCWs
Cash Preservation Program (CPP) in August 2002 following the CPUCs approval
of rate increases permitting SCW to begin recovery of power costs incurred
during the energy crisis of 2000-2001 to serve customers of its Bear Valley
Electric division. The CPP was initially implemented in 2001 to control costs
and temporarily limit capital and maintenance expenditures principally to those
projects that were believed necessary to meet public safety and health
requirements or otherwise provide for continued service. The CPP impacted both
the electric and water businesses of SCW.

For the twelve months ended September 30, 2003, taxes on income decreased
by 41.7% to $8.3 million compared to $14.2 million for the twelve months ended
September 30, 2002 due primarily to lower pre-tax operating income and the
effects of flow-through adjustments.

For the twelve months ended September 30, 2003, other taxes increased by
2.2% to $7.8 million compared to $7.7 million for the twelve months ended
September 30, 2002 reflecting additional property taxes resulting from higher
assessed values, and increases in payroll taxes based on increased labor costs.

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Other Income (Loss)

For the twelve months ended September 30, 2003, other income increased to
$224,000 compared to $39,000 for the twelve months ended September 30, 2002 due
to recording of certain non-regulated expenses to administrative and general
expenses of ASUS, a non-regulated subsidiary which totaled approximately
$400,000, and the write-off of approximately $312,000 in expenses associated
with the termination of the acquisition of Peerless Water Co. in the fourth
quarter of 2001. These increases were offset by the sale of a parcel of
non-operating property in Region II of SCW in the first quarter of 2002 for
which there was a gain of approximately $506,000.

Interest Charges

For the twelve months ended September 30, 2003, interest expense increased
by 6.5% to $18.2 million compared to $17.1 million for the twelve months ended
September 30, 2002 due primarily to the issuance of $50 million in long-term
debt by SCW in December 2001.

Accounting for Supply Costs

As permitted by the CPUC, SCW has historically maintained water supply
balancing accounts prior to November 29, 2001 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 supply cost
account. The over- or under-collection of water supply costs is recorded in
this memorandum account in a manner similar to the balancing account. However,
the income statements of SCW no longer include entries reflecting differences
between authorized water supply unit costs included in rates and actual water
supply costs. As a result, any changes in water supply costs as well as any
future revenue increases that may be authorized for supply expenses may
directly impact earnings. SCWs basic earnings per share for the three, nine
and twelve months ended September 30, 2003 were $0.04, $0.11 and $0.22,
respectively, less than they would have been if the November 2001 CPUC order
had not been issued.

In a decision issued on June 19, 2003 related to the memorandum supply
cost account, the CPUC concluded that (i) if a utility is within its 3-year
rate case cycle and does not earn in excess of its authorized rate of return,
the utility is entitled to recover its costs in the memorandum supply cost
account, subject to a reasonableness review by the CPUC; (ii) if a utility is
either within or outside of its rate case cycle and earns in excess of its
authorized rate-of-return, the utilitys recovery of expenses from the
memorandum supply cost account will be reduced by the amount exceeding the
authorized rate-of- return, and (iii) a utility is required to seek review of
under and over collections by filing an advice letter annually by March 31.
Pursuant to the resolution, SCW filed advice letters on September 12, 2003
seeking recovery of an under-collected balance of $2.6 million for the period
November 29, 2001 through December 31, 2002. Upon receiving approval from the
CPUC, SCW will recognize the authorized under-collected amount as supply cost
balancing accounts on its books. As of September 30, 2003, SCW had an
under-collection of approximately $5.7 million in its memorandum supply cost
account, including the $2.6 million filed with the CPUC. SCW intends to file
advice letters annually by March 31. Amounts included in the memorandum supply
cost account are not capitalized until a rate order is received from the CPUC.

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With respect to pre-November 29, 2001 water supply balancing accounts, SCW
has a net under-collection position of $2.2 million recorded at September 30,
2003. Of this amount, recovery of approximately $2.1 million has been included
in rates authorized on June 19, 2003. The remaining $75,000 has been deferred
to Region Is next rate case.

Electric power costs incurred by SCWs Bear Valley Electric division
continue to be charged to its electric supply cost balancing account. The
under-collection in the electric balancing account is $23.2 million at
September 30, 2003. The CPUC has authorized SCW to collect a surcharge from its
customers of 2.2¢ per kilowatt hour for a period of up to ten years to enable
SCW to recover the under-collection. SCW sold 30,069,000, 98,041,000 and
131,874,000 kilowatt hours of electricity to its Bear Valley Electric division
customers for the three, nine and twelve months ended September 30, 2003,
respectively, and 30,815,000, 97,994,000 and 130,057,000 kilowatt hours for the
comparable periods in 2002. SCW anticipates electricity sales to be sufficient
during a ten year period for it to recover the amount of the under-collection.
SCW is allowed to only include up to a weighted annual energy purchase cost of
$77 per MWh each year for 10 years in its electric supply cost balancing
account. To the extent that actual weighted average annual cost for power
purchased exceeds the $77 per MWh amount, SCW will not be able to include these
amounts in its balancing account and such amounts will be expensed. During the
nine months ended September 30, 2003, approximately $145,000 was expensed. For
further information, see the sections entitled Regulatory Matters and
Electric Energy Situation in California included in Part I, Item 2 in
Managements Discussion and Analysis of Financial Condition and Results of
Operation.

Critical Accounting Policies

Critical accounting policies are those that are important to the portrayal
of AWRs financial condition, results of operations and cash flows, and require
the most difficult, subjective or complex judgments of AWRs management. The
need to make estimates about the effect of items that are uncertain is what
makes these judgments difficult, subjective and/or complex. Management makes
subjective judgments about the accounting and regulatory treatment of many
items. The following are examples of accounting policies that are critical to
the financial statements of AWR.

Accounting for Rate Regulation



| |  | Management believes that regulation and the effects of regulatory
accounting have the most significant impact on the financial statements.
When either SCW or CCWC file for adjustments to rates, capital 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 AWRs results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The utility subsidiaries, SCW and CCWC, have incurred various costs and
received various credits reflected as regulatory assets and liabilities.
Accounting for such costs and credits as regulatory assets and liabilities
is in accordance with Statement of Financial Accounting Standards (SFAS)
No. 71, Accounting for the Effects of Certain Types of
Regulation. This
statement sets forth the application of generally accepted accounting
principles for those companies whose rates are established by or are
subject to approval by an independent third-party regulator. Under SFAS
71, utility companies defer costs and credits on the balance sheet as
regulatory assets and liabilities when it is probable that those costs and
credits will be recognized in the rate making process in a period
different from the period in which they would have been reflected in
income by an unregulated company. These deferred regulatory assets and
liabilities are then reflected in the income statement in the period in
which the same amounts are reflected in the rates charged for service. If
rate recovery is no longer probable, Registrant is required to write off
the related regulatory asset.

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| |  | Registrants income tax calculations require estimates due principally to
the regulated nature of the operations of SCW and CCWC, 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 or changes
in law, could have a material impact on the financial position and results
of operations of Registrant.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Depreciation is computed at composite rates, based on depreciable plant
at the beginning of each year, 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.
Depreciation is computed on the straight-line, remaining-life basis.                                                                                                                                                                                                                                                                                                                      
| 
| |  | 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, and
taxes, as overhead construction costs included in SCW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.                                                                                                                                                                                                                                                                                                                                                                                    

Accounting for Derivative Instruments

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. A derivative financial instrument or other
contract derives its value from another investment or designated benchmark.
SFAS No. 133 requires companies to record derivatives on the balance sheet as
assets and liabilities, and to measure those instruments at their fair value.
SCW is a party to various block-forward purchase power contracts. Certain of
these contracts qualify as an exception provided under SFAS No. 133 for
activities that are considered normal purchases and normal sales. These
contracts are reflected in the statements of income at the time of contract
settlement. Contracts that do not qualify for the normal purchases and normal
sales exception have been recognized at fair market value on the balance sheet
as an asset or liability and an unrealized gain or loss against earnings. On a
quarterly basis, the related asset or liability will be adjusted to reflect the
fair market value at the end of the quarter. As these contracts are settled,
the realized gains or losses will be recorded and the unrealized gains or
losses will be reversed.

The unrealized gains of $854,000 for the nine months ended September 30,
2003 resulted from increases in the current forward market prices since
December 31, 2002, causing a decrease in the cumulative unrealized loss for the
contracts. For the three and twelve months ended September 30, 2003, the
unrealized loss of $420,000 and $1,676,000, respectively, resulted from the
contract prices with PWCC being higher than current forward market prices.
There is no cash flow impact for the gains and losses. Management is evaluating
alternatives to minimize future unrealized loss. These unrealized gains and
losses at Bear Valley Electric will continue to impact earnings during the life
of the contract with PWCC; both negatively and positively. SCW projects that
there will be no cumulative impact on Bear Valley Electric earnings at the end
of the contract period, in 2008.

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Accounting for Asset Retirement Obligations

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

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

|    |  |                                              |           |             |  |             |        |           |  |      |   |               |  |  |         |  |  |            |           | 
|--- |  | -------------------------------------------- | --------- | ----------- |  | ----------- | ------ | --------- |  | ---- | - | ------------- |  |  | ------- |  |  | ---------- | --------- | 
|    |  | For the Nine Months Ended September 30, 2003
|    |  |                                             
|    |  |                                              |           |             |  |             |        |           |  |      |   |               |  |  |         |  |  | Balance At
|    |  | Balance at Adoption                          |           | Liabilities |  | Liabilities |        |           |  |      |   | September 30,
|    |  | January 1, 2003                              |           | Incurred    |  | Settled     |        | Accretion |  | 2003
|    |  |                                              |           |             |  |             |        |           |  |     
|ARO |  | $                                            | 2,718,079 |             |  |             | 60,000 |           |  |      |  |               |  |  | 160,314 |  |  | $          | 2,938,393 | 

Accounting for Pension and Other Postretirement Benefits

Registrant records plan assets, obligations and expenses related to its
pension and other postretirement benefit plans based on actuarial valuations.
Key assumptions in these valuations include discount rates, expected returns on
plan assets, compensation increases and health care cost trend rates.
Registrant believes that the assumptions utilized in recording obligations
under the plans are reasonable based on prior experience, market conditions and
the advice of its plan actuary. Net periodic pension cost is expected to
increase from $1.8 million for the plan year ended December 2002 to $3.0
million for the year ending December 31, 2003 due to actuarial assumption
changes in discount rate and expected long-term rate of return on plan assets.
Postretirement benefit cost is also expected to increase. The increases are
generally recovered through rates. Net periodic pension and postretirement
benefit costs for 2003 were computed using a discount rate and expected
long-term rate of return on plan assets of 6.75% and 7.0%, respectively, as
compared to 7.25% and 8.0% in 2002. Both pension and postretirement
liabilities, and future pension and postretirement expense increase as the
discount rate is reduced. In addition, pension and postretirement expense
increase as the expected rate of return on plan assets decreases.

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Unbilled Revenues

SCW and CCWC record water and electric utility operating revenues when the
service is provided to customers. Operating revenues include unbilled revenues
which are earned (service has been provided) but not billed by the end of each
accounting period. By using the billed revenues based on the last meter reading
and billed customer numbers, an average amount billed per customer is used to
estimate the unbilled revenues for estimated average remaining days to the end
of the reporting period. Unbilled revenues are recorded for both monthly and
bi-monthly customers.

Liquidity and Capital Resources

AWR

Net cash provided by operating activities was $33.4 million for the nine
months ended September 30, 2003 as compared to $28.3 million for the nine
months ended September 30, 2002. The increase of $5.1 million in cash provided
by operations was primarily attributable to new electric rates and surcharges
to decrease under-collected electric supply cost balancing account balances,
and favorable changes in other operating assets and liabilities between the two
periods, offset by the decrease in net income, and by an unrealized gain on
purchased power contracts.

Net cash used in investing activities was $33.9 million for the nine
months ended September 30, 2003 as compared to $32.3 million for the nine
months ended September 30, 2002 due to higher capital expenditures.

Net cash used in financing activities was $6.5 million for the nine months
ended September 30, 2003 as compared to $14.8 million for the nine months ended
September 30, 2002. The decrease was due primarily to (i) the redemption of
preferred shares in 2002 totaling $1.9 million, (ii) a reduction of $4 million
in payments made to banks for notes payable, (iii) increases of $1.9 million in
receipt of advances for and contributions in aid of construction, and (iv) the
receipt of $1.5 million of cash related to the financing portion of SCWs
purchased power contracts with Pinnacle West.

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,
2003, approximately $31.1 million remained for issuance under this Registration
Statement. AWR intends to issue shares sufficient to utilize the remaining
$31.1 million pursuant to this Registration Statement within the fourth quarter
of this year. The net proceeds will be used to make equity investments in SCW
and ASUS.

In June 2002, AWR established a $75 million revolving credit facility that
matures in June 2005. Up to $15 million of this facility may be used for
letters of credit. As of September 30, 2003, an aggregate of $33 million in
cash borrowing was outstanding. Approximately $8 million of letters of credit
were outstanding under this facility.

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

SCW

Net cash provided by operating activities was $33.2 million for the nine
months ended September 30, 2003 as compared to $20.4 million for the nine
months ended September 30, 2002. The increase of $12.8 million in cash provided
by operations was primarily attributable to new electric rates and

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surcharges to decrease under-collected electric supply cost balancing
account balances, and favorable changes in other operating assets and
liabilities between the two periods, offset by the decrease in net income, and
by an unrealized gain on purchased power contracts.

Net cash used in investing activities increased slightly to $32.0 million
for the nine months ended September 30, 2003 as compared to $31.7 million for
the same period of 2002.

Net cash used in financing activities was $5.9 million for the nine months
ended September 30, 2003 as compared to $8.6 million for the nine months ended
September 30, 2002, reflecting increases in receipt of advances for and
contributions in aid of construction, and the receipt of $1.5 million of cash
related to the financing portion of SCWs purchased power contracts with
Pinnacle West.

SCW funds the majority of its operating expenses, payments on its debt,
and dividends on its outstanding common shares through internal sources.
Internal sources of cash flow are provided primarily by retention of a portion
of earnings from operating activities. Internal cash generation is influenced
by factors such as weather patterns, environmental regulation, litigation,
changes in supply costs and regulatory decisions affecting SCWs ability to
recover these supply costs, and timing of rate relief. For further information,
see the sections entitled Risk Factors and Electric Energy Situation in
California included in Part I, Item 2 in Managements Discussion and Analysis
of Financial Condition and Results of Operation.

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

Outstanding debt of SCW issued in the
public markets is rated by both Moodys Investor Services and
Standard & Poors Corporation. Ratings assigned by
these agencies are subject to periodic review of various factors
including, but not limited to, the effects of regulation. SCW
management will hold its annual review with each of the agencies
before year-end 2003. Following the annual review, each agency will
determine if the current rating will remain in place, be upgraded or
downgraded. A downgrade in SCWs rating will likely result in an
increase in the cost of borrowing from current levels.

CCWC

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

ASUS

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

Contractual Obligations and Other Commitments

In addition to contractual maturities, Registrant has certain debt
instruments that contain annual sinking fund or other principal payments.
Registrant believes that it will be able to refinance debt instruments at their
maturity through public issuance, or private placement, of debt or equity.
Annual principal payments are generally made from cash flow from operations. In
the case of the $12,500,000 in notes due October 2003, SCW intends to refinance
this obligation through issuance of equity by its parent, AWR, or through
additional long-term debt issuance.

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The following table reflects Registrants contractual obligations and
commitments to make future payments pursuant to contracts as of September 30,
2003. All obligations and commitments are obligations and commitments of SCW
unless otherwise noted.

|                             |  |                                        |         |      |  |             |        |           |  |               |        |  |  |   |        |  |  |   |         | 
|---------------------------- |  | -------------------------------------- | ------- | ---- |  | ----------- | ------ | --------- |  | ------------- | ------ |  |  | - | ------ |  |  | - | ------- | 
|($ in thousands)             |  | Payments/Commitments Due by Period (1)
|                             |  |                                       
|                             |  |                                        |         |      |  | Less than 1 |        |           |  |               |        |  |  |   |        |  |  |  
|                             |  | Total                                  |         | Year |  | 1-3 Years   |        | 4-5 Years |  | After 5 Years
|                             |  |                                        |         |      |  |             |        |           |  |              
|Notes/Debentures(2)          |  | $                                      | 185,600 |      |  | $           | 12,500 |           |  |               |       |  |  |   |       |  |  | $ | 173,100 | 
|Private Placement Notes(3)   |  |                                        | 28,000  |      |  |             |       |           |  |               |       |  |  |   |       |  |  |   | 28,000  | 
|Tax-Exempt Obligations(4)    |  |                                        | 18,887  |      |  |             | 91     |           |  | $             | 194    |  |  | $ | 218    |  |  |   | 18,384  | 
|Other Debt Instruments(5)    |  |                                        | 2,341   |      |  |             | 195    |           |  |               | 404    |  |  |   | 453    |  |  |   | 1,289   | 
|Purchased Power Contracts(6) |  |                                        | 63,295  |      |  |             | 12,014 |           |  |               | 23,988 |  |  |   | 23,947 |  |  |   | 3,347   | 
|Operating Leases (7)         |  |                                        | 6,674   |      |  |             | 2,023  |           |  |               | 4,062  |  |  |   | 589    |  |  |   |        | 
|Other Commitments (8)        |  |                                        | 75,753  |      |  |             |       |           |  |               |       |  |  |   |       |  |  |   |        | 
|Chaparral City Water Co. (9) |  |                                        | 8,598   |      |  |             | 550    |           |  |               | 913    |  |  |   | 550    |  |  |   | 6,585   | 
|                             |  |                                        |         |      |  |             |        |           |  |               |        |  |  |   |        |  |  |   |         | 
|TOTAL                        |  | $                                      | 389,148 |      |  | $           | 27,373 |           |  | $             | 29,561 |  |  | $ | 25,757 |  |  | $ | 230,705 | 

(1)  Excludes interest, dividends, commitments 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.

(4)  Consists of obligations under a loan agreement supporting $8 million in
debt issued by the California Pollution Control Financing Authority, $6 million
in obligations supporting $6 million in certificates of participation issued by
the Three Valleys Municipal Water District and $5.0 million of obligations
incurred by SCW with respect to its 500 acre foot entitlement to water from the
State Water Project (SWP). Except as described in paragraph (6) below, these
obligations do not contain any financial covenants believed to be material to
Registrant or any cross default provisions. SCWs obligations with respect to
the certificates of participation issued by the Three Valleys Municipal Water
District are supported by a letter of credit issued by Wells Fargo Bank. In
regards to its SWP entitlement, SCW has entered into agreements with various
developers for 439 acre-feet, in aggregate, of its 500 acre-foot entitlement to
water from the SWP.

(5)  Consists of $1.5 million outstanding under a fixed rate obligation incurred
to fund construction of water storage and delivery facilities with the Three
Valleys Municipal Water District, $0.5 million outstanding under a variable
rate obligation incurred to fund construction of water delivery facilities with
the Three Valleys Municipal Water District and an aggregate of $0.3 million
outstanding under capital lease obligations. These obligations do not contain
any financial covenants believed to be material to Registrant or any cross
default provisions.

(6)  Consists of $63.3 million of purchased power contracts until December 2008.

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

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(8)  Other commitments of Registrant consist of (i) $75 million syndicated
revolving credit facility, expiring in June 2005, (ii) 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), (iii) 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 (iv) an irrevocable letter of credit that expires
June 30, 2005 for its energy scheduling agreement with Automated Power Exchange
as security for the purchase of power; the amount of the credit is $585,000 for
the months from November to March, and $270,000 to cover the months from April
to October, and (v) outstanding performance bonds of $11,450 to secure
performance under franchise agreements with governmental agencies. All of the
letters of credit are issued pursuant to the syndicated revolving credit
facility. The syndicated revolving credit facility contains restrictions on
prepayments, deposition of property, mergers, liens and negative pledges,
indebtedness and guaranty obligations, transactions with affiliates, minimum
interest coverage requirements, a maximum debt to capitalization ratio, and a
minimum debt rating. Pursuant to the Credit Agreement, AWR must maintain a
minimum interest coverage ratio of 3.25 times interest expense, a maximum total
funded debt ratio of 0.65 to 1.00 and a minimum debt rating of Baa1 or BBB+.

(9)  Consists of $7.9 million of obligations under a loan agreement supporting
Industrial Development Revenue Bonds due in 2006 and a $0.7 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 and PWCC, SCW
is required to post security, at the request of the seller, if SCW is in
default under the terms of the contract and the future value of the contract is
greater than the future value of contracts of a similar term on the date of
default. SCW will be in default under the terms of these contracts if its debt
is rated less than BBB- by Standard & Poors Ratings Service (S&P) or Fitch,
Inc. (Fitch) or less than Baa3 by Moodys Investor Services, Inc (Moodys).
SCW currently has a rating of A+ by S & P and A2 by Moodys. Fitch does not
rate SCW.

S&P debt ratings range from AAA (highest rating possible) to D (obligation
is in default). Moodys debt ratings range from Aaa (best quality) to C (lowest
quality). Securities ratings are not recommendations to buy, sell or hold a
security and are subject to change or withdrawal at any time by the rating
agency.

Electric Energy Situation in California

Background Information

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

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market and market manipulation through the withholding of generation and a
variety of gaming strategies.

As of September 30, 2003, SCW had accrued $23.2 million in under-collected
power costs that SCW mostly incurred during the energy crisis in connection
with providing service to its Bear Valley Electric customers. In addition, SCW
established $7.9 million in reserves in 2001 for potential non-recovery of
these power costs. In 2002, SCW charged $1.7 million against the reserves due
to its inability to recover all of its costs associated with entering into a
long-term power contract with Mirant in March 2001. In the fourth quarter of
2002, SCW reversed the remaining reserves due to various new contracts entered
into with PWCC in September 2002 as discussed below.

On July 17, 2002, the FERC extended and modified the mitigation measures
that were set to expire on September 30, 2002, citing delays in construction of
new generation resources in California and throughout the West, delays in
adopting a new market design and market rules by the Cal ISO, transmission line
constraints, constraints on natural gas pipeline capacity and continuing
dysfunctions in the California power market. It remains unclear how long the
FERC will leave its mitigation measures in place. The premature termination of
such mitigation measures could result in substantial increases in spot market
prices and the prices of long-term contracts for power and capacity. In
addition, FERC is considering a number of market reforms, some of which could
materially increase SCWs costs for power. Increased costs would be included in
SCWs electric supply cost balancing account. However, as mentioned
previously, SCW is only allowed to include up to a weighted annual energy
purchase cost of $77 per MWh each year for 10 years in its electric supply cost
balancing account. To the extent that actual weighted average annual cost for
power purchased exceeds the $77 per MWh amount, SCW will not be able to include
these amounts in its balancing account and such amounts will be expensed.

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. Under the terms of contracts
with Dynegy that expired on April 30, 2002, Dynegy provided electric energy to
SCW, acted as scheduling coordinator and provided other ancillary services.
Various disputes arose between the parties regarding the services provided by
Dynegy and the amounts charged by Dynegy. As a result of these disputes, SCW
withheld payment from Dynegy of certain amounts invoiced by Dynegy. On November
1, 2002, Dynegy accepted $3.5 million from SCW as payment in full for the
disputed amounts.

SCW entered into a five-year and nine-month, block forward purchase
contract with Mirant for 15 MWs of electric energy at a price of $95 per MWh
beginning April 1, 2001 through December 31, 2006. On December 20, 2001, SCW
filed a complaint with FERC seeking to reduce the amount charged by Mirant
under the terms of this contract to a just and reasonable price. In June 2003,
the FERC issued a final order denying SCWs complaint. On November 10, 2003,
the FERC denied SCWs rehearing request. SCW is currently reviewing its
options with respect to the FERCs latest order denying rehearing and is
determining if it will appeal the decision in Federal Court.

In June 2001, SCW executed an agreement with PWCC for an additional 8 MWs
of electric energy to meet peak winter demands. The contract provided for
pricing of $75 per MWh from November 1, 2001 to September 30, 2002, $48 per MWh
from November 1, 2002 to September 30, 2003, and $36 per MWh from November 1,
2003 to June 30, 2004.

In September 2002, SCW entered into a series of purchased power contracts
with PWCC. Under the agreements, SCW will sell 15 MWs to PWCC of electric
energy at a price of $95 per MWh beginning November 1, 2002 through December
31, 2006, and the 8 MWs of electric energy covered under the energy purchase
agreement with PWCC discussed previously. In return, PWCC will supply SCW with
15 MWs of electric energy at a price of $74.65 per MWh beginning November 1,
2002 through December

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31, 2008, and an additional 8 MWs at $74.65 per MWh beginning on November
1, 2002 through September 30, 2003 and each succeeding November 1 through March
31 period through June 30, 2008, and for the period November 1, 2008 through
December 31, 2008. These contracts do not qualify for the normal purchases and
normal sales exception, under SFAS No. 133, and have been recognized at fair
market value on the balance sheet as a liability of $1.7 million at September
30, 2003 and an unrealized loss of $420,000 for the three months ended
September and an unrealized gain of $854,000 for the nine months ended
September 30, 2003.

The average minimum load at SCWs Bear Valley Electric customer service
area has been approximately 12 MWs. The average winter load has been 18 MWs
with a winter peak of 39 MWs when the snowmaking machines at the ski resorts
are operating. In addition to the power purchase contracts, SCW buys additional
energy from the spot market to meet peak demand and sells surplus power to the
spot market as well. The average cost of power purchased, including the
transactions in the spot market, was approximately $76.4, $78.3 and $79.9 per
MWh, respectively, for the three, nine and twelve months ended September 30,
2003. SCWs average energy costs will be impacted by pricing fluctuations on
the spot market.

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 (Edison) to transmit
this power. On December 27, 2000, SCW filed a lawsuit against Edison for breach
of contract as a result of delays in upgrading these transmission facilities as
well as for violations of good faith and fair dealing, negligent
misrepresentation, intentional misrepresentation and unjust enrichment. It is
unlikely that the transmission upgrade will occur as a result of the delays and
the pending litigation. As previously mentioned, SCW has attended two
mediation meetings with Edison in this matter, and is discussing a settlement
proposal. The parties have not, however, yet reached a mutually agreeable
definitive settlement of the issues. Therefore, SCW is constructing a natural
gas-fueled 8.4 MW generation facility to be owned by SCW as a means of meeting
these increasing demands for energy. A Certificate of Public Convenience and
Necessity filed with the CPUC seeking authorization for construction of the
generation facility was approved on July 10, 2003. It is expected that the
generator will be on line during the second quarter of 2004, and should assist
SCW in controlling its spot purchase prices, as discussed above.

Southern California Wild Fires

The October 2003 wild fires in Southern California have had some impact on
certain of our Southern California Water Company units. We have several water
customer service areas where fires were present. SCW has had minimal damage to
its water facilities. In our Bear Valley Electric area, located in the
mountains north of Los Angeles, our people have stayed on the job to make
certain that electric service continues; this in spite of isolated damage to
certain electric distribution facilities. We will be filing with the CPUC for
recovery of the extra expenses incurred in meeting these community needs.
These costs will be accumulated in Catastrophic Event Memorandum Accounts and
amortized pursuant to prescribed procedures after review by the CPUC.

Construction Program

SCW maintains an ongoing water distribution main replacement program
throughout its customer service areas based on the priority of leaks detected,
fire protection enhancement and a reflection of the underlying replacement
schedule. In addition, SCW upgrades its electric and water supply facilities in
accordance with industry standards, local requirements and CPUC requirements.
SCWs Board of Directors has approved anticipated net capital expenditures of
approximately $81.6 million for 2003

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principally reflecting the 2003 infrastructure replacement program in
SCWs Metropolitan customer service area, a water treatment plant upgrade,
water supply related projects, and security related costs.

CCWCs Board of Directors has approved a net capital budget of $3.0
million for 2003 primarily reflecting improvement and upgrade of a water
treatment plant. It is anticipated that CCWCs capital budget may be increased
by up to $600,000 if it is determined by the ACC that CCWC should construct
additional water infrastructure to serve new development in its service
territory without developer advances.

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.

Registrant does not have any material capital expenditures for specific
environmental control facilities or measures.

Registrant currently has formalized procedures covering the bidding of
capital projects. These procedures are designed to achieve the lowest bid
price from qualified contractors as well as to promote diversity among
contractors. The procedures also provide for bypass of a formal bid process
for emergency situations. In response to a recent review, Registrant has
discovered that a greater than anticipated percentage of contracts in certain
areas were being let on an emergency basis and to fewer than anticipated
contractors. Registrant is currently evaluating its procedures and may, based
on the results of this review, modify those procedures in order to ensure that
the objectives are being met in a consistently applied manner.

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.

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

For rate-making purposes, the 22 customer service areas of SCW are grouped
into 9 water districts and 1 electric district. Water rates vary among the 9
water ratemaking districts due to differences in operating conditions and
costs. SCW monitors operations on a regional basis in each of these districts
so that applications for rate changes may be filed, when warranted. Under the
CPUCs practices, rates may be increased by three methods: (i) general rate
case increases (GRCs), (ii) offsets for certain expense increases,

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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 year and
attrition increases for the third year. Rates are based on a forecast of
expenses and capital costs. GRCs have a typical regulatory lag of one year.
Offset rate increases and advice letter filings typically have a two to four
month regulatory lag. In addition, recovery of water supply costs incurred
after November 29, 2001 will be considered as part of GRCs.

Changes in Rates

Step increases of approximately $321,600 for four of seven ratemaking
districts in SCWs Region I were implemented in January 2002. Region I also
received attrition increases of $219,400 effective January 2003.

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

As of September 30, 2003, SCW had accrued approximately $23.6 million in
under-collected purchased power costs included in the electric balancing
account. In 2001, the CPUC approved two Advice Letters which allow SCW to
collect a surcharge of 2.2¢ per kilowatt hour, for recovery of its
under-collection in the electric balancing account for costs incurred during
the energy crisis.

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

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

SCW previously established approximately $7.9 million in reserves against
potential non-recovery of electric power costs. In 2002, $1.7 million was
written off against the reserve based on the settlement with the CPUC as
previously discussed. In September 2002, SCW entered into various agreements
with PWCC, which enable SCW to purchase energy at a lower cost. As a result,
the remaining reserve of $6.5 million was reversed into income in 2002.

The settlement requires SCW to pursue its complaint filed with FERC in
which SCW has requested FERC to reduce the prices in its power purchase
contract with Mirant to a just and reasonable price. If SCW is ultimately
successful in obtaining a reduction in prices under this contract, SCW is
required, based on the settlement, to file an Advice Letter to notify the CPUC
within 30 days of the resolution of its complaint. In June 2003 the FERC issued
a final order denying SCWs complaint. On November 10,
2003, the FERC denied SCWs rehearing request. SCW is currently
reviewing its options with respect to the FERCs latest order
denying rehearing and is determining if it will appeal the decision
in Federal Court.

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Pending Rate Requests

On July 10, 2003, the CPUC approved the Certificate of Public Convenience
and Necessity (CPCN) filed by SCW in March 2002 seeking authorization to
construct an 8.4 MW natural gas-fueled generation facility on a portion of its
property in the City of Big Bear Lake. The capital cost of the generating
facility is estimated to be approximately $13 million. The CPUCs order
authorizes construction and enables SCW to file a rate application to generate
an annual revenue increase of about $2.4 million. SCW will file for increased
rates using a special filing called a Major Adjustment Clause or MAC filing
that should result in at least 75% of the revenue requirement related to this
facility being included in rates. The remainder will be subject to recovery in
a general rate case filing.

In October 2002, SCW filed an application to increase water rates in the
customer service areas that comprise Region III. SCW also filed a concurrent
application requesting a rate increase applicable to SCWs entire customer base
to recover costs associated with the general office functions of SCW. With a
proposed return on equity of 12.45%, the new water rates in these filings, as
stipulated by SCW, would generate an initial annual increase in revenues of
approximately $12.9 million for the Region III customer service areas. However,
the CPUC staff has not yet stipulated to this return on equity. Due to
unresolved differences between SCWC and the CPUC staff, we cannot predict the
increases. A final decision on these applications is anticipated in the fourth
quarter of 2003.

We filed an application to increase water rates in the Region II customer
service areas on September 11, 2003, which was accepted by the CPUC on October
6, 2003. The new water rates in this filing, if approved, would generate an
initial annual increase in revenues of $15.4 million. A decision is not
expected until the third quarter of 2004.

On October 27, 2003, SCW also filed an abbreviated application to the CPUC
to request for an inflationary increase in three of the Region I customer
services areas. As part of the Region I filing, SCW requested a long-term
amortization of the balance of costs included in the Aerojet litigation
memorandum account, net of any reimbursement amount. For more information, see
the section entitled Other Water Quality Litigations included in Part I, Item
3 in Legal Proceedings.

In 1993, the CPUC disallowed $1.6 million of costs incurred in
construction of a water treatment facility in SCWs Clearlake customer service
area and Registrant wrote off the disallowed amount at that time. Based on new
water quality standards, in 2000, SCW re-applied to the CPUC for inclusion of
the disallowed amount in rate base. A draft decision issued on March 30, 2001
by the CPUC would have allowed SCW to include $500,000 of the $1.6 million in
the regulated rate base. An alternate draft decision issued by one of the CPUC
Commissioners proposed to deny the relief sought by SCW in its application. An
Administrative Law Judge subsequently reopened the proceeding in August 2001
requiring additional information. We cannot predict when the final order will
be issued, nor can we give assurance that the CPUC will ultimately allow
recovery of all or any of the remaining costs through rates.

Other Regulatory Matters

On November 29, 2001, the CPUC adopted an Order Instituting Rulemaking
(OIR) to (i) evaluate existing practices and policies, (ii) determine whether
new procedures or policies for processing offset rate increases and balancing
accounts should be made and (iii) determine whether the new memorandum account
procedures adopted on November 29, 2001 should be made permanent.

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Pursuant to a resolution issued by the CPUC on December 17, 2002, SCW
filed advice letters on March 17, 2003 requesting recovery of $2.2 million
under-collections remaining in the balancing accounts for water supply costs
incurred prior to November 29, 2001. On June 19, 2003, the CPUC authorized
increases in rates in total of $2.1 million, effective June 24, 2003, for SCW
to recover the pre-November 29, 2001 balances. The remaining $75,000 is to be
deferred to the rate case of Region I.

In a decision issued on June 19, 2003, the CPUC concluded that (i) if a
utility is within its rate case cycle and does not earn over its authorized
rate of return, the utility shall recover its account subject to reasonableness
review by the CPUC; (ii) if a utility is either within or outside of its rate
case cycle and earns over the authorized return, the utilitys recovery of
expenses from the accounts will be reduced by the amount exceeding the
authorized rate of return; and (iii) a utility is required to seek review of
under and over collections by filing an advice letter annually by March 31.
Pursuant to the resolution, SCW filed advice letters, on September 12, 2003,
seeking recovery for under-collected balance of $2.6 million for the period of
November 29, 2001 through December 31, 2002. For more information, see the
section entitled Accounting for Supply Costs included in Part I, Item 2 in
Managements Discussion and Analysis of Financial Condition and Results of
Operation

Environmental Matters

1996 Amendments to Federal Safe Drinking Water Act

The U.S. Environmental Protection Agency (EPA) can only regulate
contaminants that may have adverse health effects, are known or likely to occur
at levels of public health concern, and the regulation of which will provide a
meaningful opportunity for health risk reduction. The EPA has published a list
of contaminants for possible regulation and must update that list every five
years. In addition, every five years, the EPA must select at least five
contaminants on that list and determine whether to regulate them. This law
allows the EPA to bypass the selection process and adopt interim regulations
for contaminants in order to address urgent health threats. The California
Department of Health Services (DOHS), acting on behalf of the EPA, administers
the EPAs program in California.

The EPA may 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 Safe Drinking Water Act (SDWA). Water from wells
found to contain levels of contaminants above the established MCLs is treated
to reduce contaminants to acceptable levels before it is delivered to
customers. If treatment is not possible, the wells are shut down. Since the
SDWA became effective, SCW and CCWC have experienced increased operating costs
for testing to determine the levels, if any, of the constituents in their
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 and/or CCWC 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 applicable.

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Enhanced Surface Water Treatment Rules

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

Regulation of Disinfection/Disinfection By-Products

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

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

Ground Water Rule

On May 10, 2000, the EPA published the proposed Ground Water Rule (GWR),
which establishes multiple barriers to protect against bacteria and viruses in
drinking water systems that use ground water. The proposed rule will apply to
all U.S. public water systems that use ground water as a source. The proposed
GWR includes system sanitary surveys conducted by the state to identify
significant deficiencies; hydrogeologic sensitivity assessments for
undisinfected systems; source water microbial monitoring by systems that do not
disinfect and draw from hydrogeologically sensitive aquifers or have detected
fecal indicators within a distribution system; corrective action; and
compliance monitoring for systems which disinfect to ensure that they reliably
achieve 4-log (99.99%) inactivation or removal of viruses. The GWR is scheduled
to be issued as a final regulation by the end of 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 the
majority of their groundwater systems.

Regulation of Radon and Arsenic

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

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

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

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

Unregulated Contaminants Monitoring Rule

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

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

Fluoridation of Water Supplies

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

Perchlorate Action Level Activities

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

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Nitrosodimethylamine (NDMA) Action Level

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

Matters Relating to SCWs Arden-Cordova Water System

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

On
October 10, 2003 Registrant entered into a confidential
memorandum of understanding with the Aerojet-General subsidiary of
GenCorp, Inc. for the settlement of legal actions brought by SCW. The
memorandum of understanding outlines the present financial terms of a settlement. A final settlement agreement incorporating the terms of
the memorandum of understanding is underway and being negotiated at
the date of this filing. As the parties continue to address issues
related and additional to the memorandum of understanding, certain
disagreements have developed. The parties continue to negotiate in an
attempt to resolve those issues. However, no complete, documented
agreement has been reached and it is presently impossible to predict
when a final settlement of all issues will be reached.

To date, Aerojet has reimbursed SCW for constructing a pipeline to
interconnect with the City of Folsom water system to provide an alternative
source of water supply in SCWs Rancho-Cordova customer service area and has
reimbursed SCW for costs associated with the drilling and equipping of new
wells. As of September 30, 2003, Aerojet had previously reimbursed SCW $4.5
million of the approximately $20.6 million in costs SCW has incurred. The
remainder of the costs is subject to further reimbursement pending outcome of
the settlement negotiation previously discussed. Reimbursements received from
Aerojet have been applied directly to reduce SCWs costs of utility plant and
purchased water. For further information regarding litigation related to
contamination of ground water in Sacramento County, see the section entitled
Other Water Quality Litigation included in Part II, Item 3, Legal
Proceedings.

Matters Relating to SCWs Culver City Water System

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

On September 22, 1999, the U.S. EPA and the Los Angeles Regional Water
Quality Control Board ordered Shell Oil Company, Shell Oil Products Company,
Equilon Enterprises LLC and others to provide replacement drinking water to
both SCW and the City of Santa Monica due to MTBE contamination in the Charnock
Basin. The EPA has ordered Shell Oil and others to reimburse SCW for water
replacement costs. In March 2002, SCW reached a settlement agreement with the
City of Santa Monica, in which SCW assigned its rights against all the
potentially responsible parties, who stored, transported and dispensed gasoline
containing methyl tertiary butyl ether (MTBE) in underground storage

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tanks, pipelines or other related infrastructure, and its water rights in
the Charnock Basin to the City of Santa Monica and Santa Monica took over the
prosecution against the potentially responsible parties in exchange for an
assignment payment. On May 8, 2003, the CPUC issued a decision approving the
settlement agreement. Pursuant to the resolution, SCW has subsequently filed a
report that sets forth specific details as to SCWs plans to reinvest the net
proceeds from the settlement agreement with the City of Santa Monica.

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 currently inactive, and to date the
third well has not shown MTBE above the DOHS secondary standard of 5.0 ppb. SCW
has constructed an interconnection with the Metropolitan Water District of
Southern California to provide for the needed supply for this system in the
event the third well experiences levels of detection in excess of the DOHS
standard.

SCW has met with the Regional Water Quality Control Board, the Orange
County Water District, (OCWD), the City of Anaheim, the DOHS and three
potentially responsible parties (PRPs) to define the extent of the MTBE
contamination plume and assess the contribution from the PRPs. The PRPs have
voluntarily initiated a work plan for regional investigation. While there have
not been significant disruptions to the water supply in Yorba Linda at this
point in time, no assurances can be given that MTBE contamination will not
increase in the future. Negotiations with the PRPs on reimbursement of costs
incurred to date and recovery of potential future costs associated with MTBE
contamination have resulted in an agreement in principal on these and related
issues. The parties anticipate execution of a definitive settlement agreement
by the end of November 2003.

Matters Relating to SCWs Los Osos Water System

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

Matters Relating to SCWs San Gabriel Water Systems

Volatile Organic Compounds (VOC) and perchlorate have been detected in 2
wells servicing SCWs San Gabriel System. SCW filed suit, along with two other
affected water purveyors and the San Gabriel Basin Water Quality Authority
(WQA), in federal court against some of those responsible for the
contamination. Some of the other potential defendants settled with SCW, other
water purveyors and the WQA on VOC related issues prior to the filing of the
lawsuit resulting in reimbursement to SCW of the $1 million in capital cost of
VOC treatment facilities and contribution of approximately $380,000 towards
future operating and maintenance (O&M) costs of the facilities.

In response to the filing of the Federal lawsuit, the Potentially
Responsible Party (PRP) defendants filed motions to dismiss the suit or strike
certain portions of the suit. Following a hearing on these motions on March 31,
2003, the judge issued a ruling on April 1, 2003 granting in part and denying
in part the defendants motions. A key ruling of the court was that the water
purveyors, including the

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Registrant, by virtue of their ownership of wells contaminated with
hazardous chemicals are themselves PRPs under the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA). Registrant has, pursuant to
permission of the court, amended its suit to claim certain affirmative defenses
as an innocent party under CERCLA. Registrant is presently unable to predict
the outcome of this ruling on its ability to fully recover from the PRPs future
costs associated with the treatment of these wells.

On August 29, 2003, the US Environmental Protection Agency issued
Unilateral Administrative Orders (UAO) against 41 parties deemed responsible
for polluting the groundwater in that portion of the San Gabriel Valley from
which SCWs two impacted wells draw water. SCW was not named as a party to the
UAO. The UAO requires that these parties remediate the contamination. As a
result of the issuance of the UAO, these parties have begun settlement
discussions regarding the Federal lawsuits with SCW, the other two affected
water purveyors and WQA. Registrant is presently unable to predict the
ultimate outcome of these settlement discussions.

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

Bark Beetle Infestation in SCWs Bear Valley Electric Service Area

In a Proclamation issued on March 7, 2003 Governor Gray Davis declared a
State of Emergency with respect to a severe fire risk caused by dead and dying
trees plagued by drought and a major bark beetle infestation in the counties of
Riverside, San Bernardino, and San Diego of the State of California. The threat
is continuing and shows no sign of abating. The CPUC issued on April 3, 2003 an
order requiring Southern California Edison Company, San Diego Gas & Electric
Company and Bear Valley Electric to take all reasonable and necessary actions
to mitigate the increased fire hazard by removing dead, dying or diseased trees
from falling or contacting distribution and transmission lines within their
rights of way and to ensure compliance with existing vegetation clearance
statutes and regulations. The utilities, including Bear Valley Electric (BVE),
are authorized to make annual advice letter filings requesting recovery of the
costs of removal and mitigation. SCW has determined the scope and magnitude of
the bark beetle infestation in its BVE service territory to date and has
formulated a course of action to mitigate the fire potential in its
rights-of-way. Estimated costs, of dead tree removal based on experiences with
other utility vegetation management programs and current information gathered
and assessed for the Big Bear Lake area, totals $620,000. These costs
represent only the cost of addressing the problem to date. If the drought
continues, the infestation will likely spread and costs mitigation costs may
increase. SCW is confident that current and future costs incurred in
remediation of Bark Beetle Infestation will be recoverable in rates through the
annual Advice Letter filings, as the April 2003 order issued by the CPUC
contained cost recovery provisions.

Security Issues

Since the tragic events of September 11, 2001, water utilities, including
Registrant, have been advised to increase security at key facilities in order
to avoid contamination of water supplies and other disruptions of service. In
compliance with The Public Health Security and Bioterrorism Preparedness Act
of 2002 (HR 3448),Registrant has continued to implement measures to increase
security, which includes a vulnerability assessment of its large systems. In
addition to large system assessments, all systems operated by Registrant were
assessed to identify potential areas requiring enhancements. These assessments
resulted in a prioritized listing of recommended facility upgrades to enhance
the safety of water system operations. Costs associated with capital
improvements identified as a result of the assessment process, of approximately
$15 million, have been included in an application filed with the CPUC in
October 2002.

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Water Supply

SCWs Water Supply

For the three months ended September 30, 2003, SCW supplied a total of
27,826,000 ccf of water. Of this amount, approximately 50.2% came from pumped
sources and 46.1% was purchased from others, principally the Metropolitan Water
District of Southern California (MWD). SCW supplied 27,971,000 ccf of water for
the same period of 2002, 51.9% of which came from pumped sources, 44.6% was
purchased. The Bureau of Reclamation (the Bureau) supplied the remaining amount
under a no-cost contract.

For the nine months ended September 30, 2003, SCW supplied a total of
65,672,000 ccf of water 53.3% of which came from pumped sources, 43.2% was
purchased. During the nine months ended September 30, 2002, SCW produced
68,777,000 ccf of water. Of this amount 55.5% came from pumped sources, 41.9%
was purchased and the remainder was provided by the Bureau.

For the twelve months ended September 30, 2003, SCW supplied a total of
84,805,000 ccf of water. Of this amount, approximately 54.0% came from pumped
sources and 42.4% was purchased from others. For the twelve months ended
September 30, 2002, SCW supplied 87,521,000 ccf of water, 57.0% of which came
from pumped sources, 40.7% was purchased, and the Bureau supplied the
remainder.

The MWD is a water district organized under the laws of the State of
California for the purpose of delivering imported water to areas within its
jurisdiction. Registrant has 58 connections to the water distribution
facilities of MWD and other municipal water agencies. MWD imports water from
two principal sources: the Colorado River and the SWP. Available water supplies
from the Colorado River and the SWP have historically been sufficient to meet
most of MWDs requirements.

On October 17, 2003 Federal government, State government, and four
Southern California water agency officials, including the MWD, met to sign the
Quantification Settlement Agreement (QSA) which divides up Californias share
of the Colorado River. Under the QSA, MWD will have access (as in the past) to
Colorado River water and up to 1.6 million acre feet of additional water from
the state that the Imperial Irrigation District proposes to conserve and sell
to the state. With the signing of this agreement California once again has
access to excess Colorado River water for the next 13 years. However for the
near term, excess water may not be available due to the recent drought in the
Colorado watershed. MWD has also publicly stated that it is stepping up a
number of efforts including desalination, conservation, recycling, transfer and
storage, to increase water supplies.

SCWs water supply and revenues are significantly affected, both in the
short-run and the long run, by changes in meteorological conditions. The 2003
water year, October 2002 to September 2003, has been a better water year than
the 2002 water year. California experienced the third wettest April in 80 years
of recorded history. April 2003 precipitation was 203% of normal. Overall for
the water year California had 112% of normal precipitation. At the end of
September California reservoirs were at 81% of normal. Statewide the seasonal
runoff was 45,536,000 acre feet, which was 101% of average, as opposed to only
33,030,000 acre feet, 73% of average, last year. The National Oceanic and
Atmospheric Association predicts that slightly warmer-than-average conditions
are likely to persist for the next several months. The National Weather Service
outlook for this winter is also warmer than normal temperatures with below
normal precipitation levels for the West.

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

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A sudden and unexplained drop in groundwater water supply severely
impacted SCWs Wrightwood customer service area in the third quarter of 2002.
In response to this emergency situation, SCW undertook a number of steps to
provide water service, including trucking water into the area from nearby
sources, bringing a formerly shut down well into service, taking steps to
increase capacity at existing wells and expediting the drilling and equipping
of a new well. SCW experienced increased operating costs associated with the
trucking of water of approximately $1.4 million (approximately $1.26 million
was incurred in 2002 and $166,000 in the first quarter of 2003). Due to the
actions of SCW and conservation efforts of consumers, the situation has
stabilized and the water hauling ceased at end of January 2003. Management is
unable to predict the extent to which additional costs may be incurred or the
extent to which additional problems may be encountered. Additional wells and
filtration equipment have been installed during the past 12 months and, along
with voluntary conservation by the community, water supplies have been
sustained throughout 2003. 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

Arizona precipitation level for the water year were between 70% and 89% of
normal with the Colorado River area getting 82%. However this was a marked
improvement over 2002 when precipitation was almost nonexistent. Of the four
major reservoirs in Arizona only the San Carlos reservoir is extremely low at
10% of average. The Lake Pleasant and Verde River Reservoir System are well
above normal at 191% and 179% respectively. For the water year the Colorado
River inflow into Lake Mead was 48% of normal as compared to 23% for 2002.
However, in spite of the increase flow, the long drought has brought the
Colorado River storage to only 29,932,700 acre feet as compared to 33,702,300
acre feet at this time last year.

The Arizona Water Banking Authority (AWBA) was created to store Arizonas
unused Colorado River water entitlement in western, central and southern
Arizona to develop long-term storage credits to: (i) firm existing water
supplies for municipal and industrial users during Colorado River shortages or
Central Arizona Project (CAP) service interruptions; (ii) help meet the water
management objectives of the Arizona Groundwater Code; and (iii) assist in the
settlement of American Indian water rights claims. The ABWA successfully banked
up to Arizonas full allocation of Colorado River entitlement in 2002, and
expects the same result in 2003 as a hedge against drought conditions. Further,
the first curtailment of CAP deliveries in the event of shortage would occur to
non-Indian agricultural users. Such users accounted for 36% of CAP deliveries
in 2002, creating a buffer for users such as CCWC. Though it is difficult to
predict drought conditions with certainty, the activities of AWBA, and the
priority for users of CAP, such as CCWC, provides an improved outlook for CCWC
supplies.

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

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

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CCWC has received a letter from the Arizona Department of Water Resources
(ADWR) stating that the current and committed demand for water in CCWCs
service area has exceeded CCWCs supply of water in their proven assured water
supply account by 400 acre-feet per year. ADWRs letter requires CCWC to make
up this accounting deficit by securing additional water supplies and/or
providing information to ADWR that would allow ADWR to issue a new decision
that CCWCs current and committed demands are within the proven available
supplies in CCWCs assured water supply account.

Although CCWC had quickly lined up 1,000 acre-feet of CAP supply, the ADWR
determined that the supply offered was not assured for 100 years. To meet the
ADWR requirements, CCWC is reviewing the following options: (i) proving up the
sufficiency of ADWRs calculations through a hydro-geological study, (ii)
developing a method for developers in CCWC s service area to secure their own
certificates of assured supply, (iii) securing recharge credits from the
Fountain Hills Sanitary District, and (iv) contracting with agencies and
neighboring utilities to purchase needed supply.

The ADWR letter is part of a routine administrative review of all water
providers. ADWRs review will have no impact on CCWCs ability to deliver
water to its existing customers. In cooperation with the Town of Fountain
Hills and with ADWRs consent, CCWC will continue to review and approve
subdivision plats within its service area but will temporarily suspend the
plats recordation until CCWC secures a new decision from ADWR that CCWCs
current and committed demands are within the proven available supplies in
CCWCs assured water supply account.

CCWC is working with ADWR to secure additional water supplies, including
possibly excess Central Arizona Project (CAP) capacity, to make up the
accounting deficit identified in ADWRs letter.

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 earnings could be adversely affected by changes in
water supply costs

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

On November 29, 2001, the CPUC ordered us to suspend the use of the
current water balancing account, and instead started a memorandum account for
each offsettable expense of purchased water, purchased power and pump tax for
our water service areas. Changes in water supply costs compared to the
authorized amount, as well as any future authorized offset increases may
directly affect our earnings. SCWs earnings were reduced by $0.04, $0.11 and
$0.22 per share, respectively, for the three, nine and twelve months ended
September 30, 2003 as a result of this change in the methodology for recovering
water supply costs. In June 2003, we received the CPUCs authorization to
increase our rates to recover the pre November 29, 2001 balance in our supply
costs balancing account.

In a decision issued on June 19, 2003, the CPUC concluded that our
recovery of deferred water supply costs for providing water service will be
reduced if we are earning more than our authorized rate of return. Pursuant to
the resolution, we filed advice letters, on September 12, 2003, seeking
recovery for under-collected balance of $2.6 million for the period of November
29, 2001 through December 31, 2002. Future recovery of the under-collected
balances is subject to the earning tests and the CPUCs review of

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the reasonableness of the cost. For more information, see the section
entitled Accounting for Supply Costs included in Part I, Item 2 in
Managements Discussion and Analysis of Financial Condition and Results of
Operation

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

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

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

The purchased power agreements with PWCC enable SCW to purchase a
contractual volume of power at $74.65 per megawatt hour (MWh). SCW also buys
additional energy from the spot market to meet peak demand and sell surplus
power to the spot market from time to time. SCW should be able to recover these
costs up to the annual recovery cap of $77, unless the CPUC determines that the
costs incurred by SCW for purchasing power are not reasonable. The CPUC has not
yet reviewed the purchased power agreements with PWCC or SCWs spot market
practices for reasonableness.

Significant claims have been asserted against us in water quality
litigation

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

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

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

Persons that are potentially responsible for causing the contamination of
groundwater supplies have also been increasingly asserting claims against water
distributors on a variety of theories and have thus far successfully brought
them within the class of potentially responsible parties thereby increasing the
costs of seeking recovery from the potentially responsible parties and the
risks associated with seeking recovery of these costs.

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

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

In some cases, potentially responsible parties have reimbursed us for our
costs. In other cases, we have taken legal action against parties that we
believe to be potentially responsible for the contamination. To date, the CPUC
has also permitted SCW to establish memorandum accounts for recovery of these
types of costs, but actual recovery of these costs from ratepayers has been
limited to filing only with a General Rate Case, generally every 3 years.

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

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



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

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SCW and CCWC may be able to recover costs incurred to comply with these
regulations through the ratemaking process. We may also be able to recover
certain of these costs under our contractual arrangements with municipalities.
In certain circumstances, we may be able to recover costs from parties
responsible or potentially responsible for contamination, either voluntarily or
through specific court action.

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

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



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

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

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

Water shortages may affect us in a variety of ways:



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

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

Our earnings are greatly affected by weather during different seasons

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

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unseasonably warm weather during a skiing season may result in
temperatures too high for snowmaking conditions also reducing 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 filed for increased
water rates to recover operating costs from customers in all our water regions
as well as for costs associated with general office activities. In addition, we
will be seeking CPUC authorization to recover in rates for constructing 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 its supply
costs has and will directly impact our earnings since the recovery of deferred
water supply costs is reduced if we are earning an amount in excess of our
authorized rate of return. We have also been adversely affected by electric
restructuring in California and the limitations that have been placed on our
ability to recover these costs in rates.

Our costs have increased as a result of increasing environmental
regulation, requirements to increase security at our water facilities and
requirements to mitigate fire hazard risks in our Bear Valley Electric service
area arising out of the drought and a major bark beetle infestation.

Our business requires significant capital expenditures

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

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

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New Accounting Pronouncements

We are subject to newly issued as well as changes in existing requirements
issued by the Financial Accounting Standard Board. Differences in financial
reporting between periods could occur unless and until the CPUC and the ACC
approve such changes for conformity through regulatory proceedings. See Note 6
of Notes to Consolidated Financial Statements.

Condemnation Actions

The laws of the State of California provide for the acquisition of public
utility property by governmental agencies through their power of eminent
domain, also know as condemnation, where doing so is in the public interest. In
addition, however, the laws of the State of California also provide: (1) that
the owner of the utility property may contest whether the condemnation is
actually in the public interest; and (2) that the owner is entitled to receive
the fair market value of its property if the property is ultimately taken.
Although the City of Claremont, California located in SCWs Region III has not
initiated the formal condemnation process pursuant to California law, the City
has authorized the hiring of a consultant to perform an appraisal of the value
of Registrants water system serving that city. SCW intends to vigorously
defend itself against any condemnation action if initiated by the City.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

Registrant has certain block-forward purchase power contracts that qualify
as derivative instruments under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities.A derivative financial instrument or other
contract derives its value from another investment or designated benchmark. SCW
is a party to various block-forward purchase power contracts. Power purchase
contracts with Mirant and PWCC executed in 2001 qualify for the exception
provided under SFAS No. 133 for activities that are considered normal purchases
and normal sales. These contracts are reflected in the statements of income at
the time of contract settlement. Contracts with PWCC executed in September
2002, however, do not qualify for the normal purchases and normal sales
exception and, as a result, have been recognized at fair market value on the
balance sheet as of September 30, 2003. This resulted in a pre-tax unrealized
loss of $420,000 and a pre-tax unrealized gain of $854,000,
respectively, for the three and nine months ended September 30, 2003. On a quarterly basis, the related
asset or liability will be adjusted to reflect the fair market value at the end
of each quarter. As this contract is settled, the realized gains or losses will
be recorded and the unrealized gains or losses will be reversed.

Under the terms of its power purchase contracts with Mirant and PWCC, SCW
is required to post security, at the request of the seller, if SCW is in
default under the terms of the applicable contract. In addition, SCWs
liquidity, and in certain circumstances, earnings could be adversely affected
by increases in electricity prices in California. For further information, see
the section entitled Critical Accounting Policies and Electric Energy
Situation in Californiaincluded in Part I, Item 2 in Managements Discussion
and Analysis of Financial Condition and Results of Operation.

Except as discussed above, Registrant has no other derivative financial
instruments, financial instruments with significant off-balance sheet risks or
financial instruments with concentrations of credit risk.

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Item 4. Controls and Procedures

Registrant has established disclosure controls and procedures that are
designed to provide reasonable assurance 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. In accordance with Exchange Act Rules 13a-15 and 15d-15, Registrant
carried out an evaluation, under the supervision and with the participation of
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of our disclosure controls and procedures as of the end of
the period covered by this report. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the disclosure
controls and procedures were effective as of September 30, 2003 to provide
reasonable assurance that information required to be disclosed in the reports
filed or submitted under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms.

As noted earlier, Registrant is reviewing certain of its existing capital
project contracting policies and procedures. However, there has been no change
in the internal controls over financial reporting that occurred during the
three months ended September 30, 2003 that has materially affected, or is
reasonably likely to materially affect, the internal controls over financial
reporting other than the weakness described in Controls and Procedures
included in Part III, Item 14 of Registrants Form 10K filed for the year ended
December 31, 2002, which Registrant is in the process of
correcting. Certain corrective actions, including the employment of
qualified managerial staff, have already been taken.

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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 that have been filed in Los Angeles Superior Court:
Robert Arenas, et al. v. Suburban Water Systems, Inc., et al., Case No.
KC037559, Anthony John Bell, et al. v. City of Pomona, et al., Case No.
KC038796, Adler, et al. v. Southern California Water Company, et al., Case No.
BC169892, Santamaria, et al. v. Suburban Water Systems, et al., Case No.
KC025995, Georgianna Dominguez et al. v. Southern California Water Company, et
al., Case No. GC021657, Anderson, et al. v. Suburban Water Company, et al.,
Case No. KC028524, Abarca, et al. v. City of Pomona, et al., Case No. K027795,
Celi, et al. v. San Gabriel Valley Water Company, Case No. GC020622, Boswell et
al. v. Suburban Water Systems, et al., Case No. KC027318, Demciuc et al. v.
Suburban Water Systems, et al., Case No. KC028732, Antoinette Adejare, et al.
v. City of Pomona, et al., Case No. KC031096, 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 its wells,
several of which are located in an area of the San Gabriel Valley that has been
designated a federal superfund site, that the maintenance of this contaminated
well water has resulted in contamination of the soil, subsurface soil and
surrounding air with solvents and other substances, and that plaintiffs have
been injured and their property damaged as a result. Three of the lawsuits
involve a customer service area located in Sacramento County that have been
filed in Sacramento County Superior Court: Nathaniel Allen, Jr. v.
Aerojet-General Corporation, et al., Case No. 97AS06295, Daphne Adams, et al.
v. Aerojet-General Corporation, et al., Case No. 98AS01025, and Wallace Andrew
Pennington et al. v. Aerojet-General Corporation, et al., Case No. 00AS02622.
The lawsuits filed in Sacramento County Superior Court are based on the
allegations that SCW and other defendants have delivered water to plaintiffs
that are contaminated with a number of chemicals, including trichloroethylene,
perchloroethylene, carbon tetrachloride, perchlorate, Freon-113, hexavalent
chromium and other unnamed chemicals and that plaintiffs have been injured and
their property damaged as a result.

On September 1, 1999, the Court of Appeals in San Francisco held that the
CPUC had preemptive jurisdiction over regulated public utilities with respect
to water quality matters and ordered dismissal of a series of these lawsuits.
On October 11, 1999, one group of plaintiffs appealed this decision to the
California Supreme Court. On February 4, 2002, the California Supreme Court
concluded that (i) the CPUC had preemptive jurisdiction over claims seeking
injunctive relief and claims based on the theory that a public utility
regulated by the CPUC provided unsafe drinking water even though it had
complied with federal and state drinking water standards, but (ii) the CPUC did
not have preemptive jurisdiction over damage claims based on allegations of
violations of federal and state drinking water standards by public utilities
regulated by the CPUC. As a result, damage claims based on allegations of
violations of federal and state drinking water standards may proceed while the
other claims must be dismissed.

In light of the breadth of plaintiffs claims, the lack of factual
information regarding plaintiffs claims and injuries, if any, the impact of
the California Supreme Court decision on plaintiffs claims and the fact that
investigation is presently underway, SCW is unable at this time to determine
what, if any, potential liability it may have with respect to these claims.
Based upon the information currently available

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to it, Registrant believes that these claims are without merit and intends
to vigorously defend against these claims.

SCW is subject to self-insured retention provisions in its applicable
insurance policies and has either expensed the self-insured amounts or has
reserved against payment of these amounts as appropriate. SCWs various
insurance carriers have, to date, provided reimbursement for costs incurred
above the self-insured amounts for defense against these lawsuits, subject to a
reservation of rights.

Order Instituting Investigation (OII)

In March 1998, the CPUC issued an OII to regulated water utilities in the
state of California, including SCW. The purpose of the OII was to determine
whether existing standards and policies regarding drinking water quality
adequately protect the public health and whether those standards and policies
were being uniformly complied with by those water utilities. On November 2,
2000, a final decision from the CPUC concluded that the CPUC has the
jurisdiction to regulate the service of water utilities with respect to the
health and safety of that service; that the California Department of Health
Services requirements governing drinking water quality adequately protect the
public health and safety; and that, based on an extensive review of 25 years of
water quality records, regulated water utilities, including SCW, have
satisfactorily complied with past and present drinking water quality
requirements, except for one small unrelated water utility in Northern
California.

The CPUC had previously authorized establishment of memorandum accounts to
capture expenses related to the OII. Under the memorandum account procedure,
SCW may recover litigation costs from ratepayers to the extent authorized by
the CPUC. As of September 30, 2003, SCW had incurred a net cost of $890,000
related to the OII, for which a reserve of the same amount was established. SCW
filed for recovery of these amounts, through a special condition surcharge,
with the CPUC in its application filing for its Region III and general office
functions. See the section entitled Regulatory Matters in Part I, Item 2 in
Managements Discussion and Analysis of Financial Conditions and Results of
Operation.

Other Water Quality Litigation

On October 25, 1999, SCW filed a lawsuit against the State of California
and its State Water Resources Control Board, Central Valley Regional Water
Quality Control Board, and Department of Toxic Substances Control
(collectively, the State) alleging that the State had substantially
participated in a project to inject chemical pollution into portions of the
Sacramento County groundwater basin and that pollution is progressively
destroying the groundwater supply in SCWs Rancho Cordova water system. SCW
and the State have entered into a comprehensive $2,475,000 settlement for all
of SCWs claims against the State, contingent upon the courts approval of the
good faith of the settlement, which SCW received in full during the third
quarter of 2003.

In a separate case, also filed on October 25, 1999, SCW sued
Aerojet-General Corporation (Aerojet) for causing the contamination of eastern
portions of the Sacramento County groundwater basin. A cross complaint filed by
Aerojet against SCW for negligence and constituting a public nuisance was
dismissed by the court in October 2002. On October 10, 2003 Registrant entered
into a confidential memorandum of understanding with the Aerojet-General
subsidiary of GenCorp, Inc. for the settlement of legal actions brought by SCW.
The memorandum of understanding outlines the present financial terms
of a settlement. A final settlement agreement incorporating the terms of the
memorandum of understanding is underway and being negotiated at the
date of this filing. As the parties continue to address issues
related and additional to the memorandum of understanding, certain
disagreements have developed. The parties continue to negotiate in an
attempt to resolve those issues. However, no complete, documented
agreement has been reached and it is presently impossible to predict
when a final settlement of all issues will be reached.

The CPUC has authorized memorandum accounts to allow for recovery, from
customers, of costs incurred by SCW in prosecuting the suits filed against the
State and Aerojet, less any recovery from the

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defendants or others. As of September 30, 2003, approximately $14.9
million in legal related costs has been recorded as Other Deferred Charges.

The CPUC has authorized SCW to increase rates, effective April 28, 2001,
for recovery over a six-year period of approximately $1.8 million, in expenses
that were incurred on or before August 31, 2000, in the Aerojet matter.
Management believes these costs, net of any reimbursement or settlement result
are recoverable based on past practices of the CPUC but cannot give assurance
that the CPUC will ultimately allow recovery of all or any of the remaining
costs through rates.

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

Volatile Organic Compounds (VOC) and perchlorate have been detected in two
wells servicing SCWs San Gabriel System. SCW filed suit, along with two other
affected water purveyors and the San Gabriel Basin Water Quality Authority
(WQA), in the federal court against some of those responsible for the
contamination. Some of the other potential defendants settled with SCW, other
water purveyors and the WQA on VOC related issues prior to the filing of the
lawsuit. In response to the filing of the Federal lawsuit, the Potentially
Responsible Party (PRP) defendants filed motions to dismiss the suit or strike
certain portions of the suit. The judge issued a ruling on April 1, 2003
granting in part and denying in part the defendants motions. A key ruling of
the court was that the water purveyors, including the Registrant, by virtue of
their ownership of wells contaminated with hazardous chemicals are themselves
PRPs under the Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA). Registrant has, pursuant to permission of the court,
amended its suit to claim certain affirmative defenses as an innocent party
under CERCLA. Registrant is presently unable to predict the outcome of this
ruling on its ability to fully recover from the PRPs future costs associated
with the treatment of these wells.

On August 29, 2003, the US Environmental Protection Agency issued
Unilateral Administrative Orders (UAO) against 41 parties deemed responsible
for polluting the groundwater in that portion of the San Gabriel Valley from
which SCWs two impacted wells draw water. SCW was not named as a party to the
UAO. The UAO requires that these parties remediate the contamination. As a
result of the issuance of the UAO, these parties have begun settlement
discussions regarding the Federal lawsuits with SCW, the other two affected
water purveyors and WQA. Registrant is presently unable to predict the
ultimate outcome of these settlement discussions.

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, violations
of good faith and fair dealing, negligent misrepresentation, intentional
misrepresentation and unjust enrichment. Subsequently Edison filed a
cross-complaint against SCW for breach of contract, anticipatory breach, and
quantum meruit. SCW has also sought declaratory relief from Edisons claims. To
date, SCW has spent approximately $3.0 million

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in this matter, all of which has been expensed. SCW has attended two
mediation meetings with Edison in this matter and is discussing a settlement
proposal. The parties have not, however, yet reached a mutually agreeable
definitive settlement of the issues.

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, 2003, earned surplus amounted to $89,953,000.

Neither AWR nor ASUS is subject to any contractual restriction on its
ability to pay dividends. SCWs maximum ability to pay dividends is restricted
by certain Note Agreements. Approximately $159.9 million was available to pay
dividends by SCW to AWR, after giving effect to these restrictions, at
September 30, 2003.

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 California law. A California corporation may
generally pay a dividend to its shareholders if (i) the amount of its retained
earnings immediately prior to the payment of the dividend equals or exceeds the
amount of the dividend, or (ii) the sum of its assets (exclusive of goodwill,
capitalized research and development expenses and deferred charges) would be at
least equal to 1-1/4 times its liabilities (not including deferred taxes,
deferred income and other deferred credits).

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 $4.2 million was available to pay
dividends from CCWC to AWR at September 30, 2003.

There are 709,379 and 63,906 Common Shares authorized but unissued under
the Dividend Reinvestment and Stock Purchase Plan (DRP) and the 401(k) Plan,
respectively, at September 30, 2003. Shares reserved for the 401(k) Plan are in
relation to Company matching contributions and for investment purposes by
participants.

Under Registrants 2000 Stock Incentive Plan, stock options representing a
total of 405,145 Common Shares upon exercise have been granted to certain
eligible employees. An additional 1,050 shares are subject to grants of
restricted stock. As of September 30, 2003, a total of 748,950 Common Shares
is authorized but unissued under the 2000 Stock Incentive Plan.

AWR implemented a three-for-two split of AWRs common shares 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, AWR redeemed the 4% and 4-1/4% 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.

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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, 2003, the Board of Directors of Registrant declared a
regular quarterly dividend of $0.221 per common share. The dividend will be
paid December 1, 2003 to shareholders of record as of the close of business on
November 8, 2003.




Item 6. Exhibits and Reports on Form 8-K



|(a) |  | The following documents are filed as Exhibits to this report:
|--- |  | -------------------------------------------------------------

| |       |                                                                                                   
| | ----- | --------------------------------------------------------------------------------------------------
| | *10.1 | American States Water Company 2000 Stock Incentive Plan (As
Amended April 2003)                   
| |       |                                                                                                   
| | 31.1  | Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
| |       |                                                                                                   
| | 31.2  | Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
| |       |                                                                                                   
| | 32.1  | Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
| |       |                                                                                                   
| | 32.2  | Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002



|* |  | This is a compensatory plan.
|- |  | ----------------------------



|(b) |  | On July 29, 2003, Registrant furnished a Form 8-K to the Securities and
Exchange Commission announcing its earnings release for the three and
twelve months ended June 30, 2003, and its quarterly dividend payment.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Dated: November 14, 2003

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