Tableof Contents

 

 

 

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

** **

**(MarkOne)**

 

| x                                                  | ** ** | **Quarterly report  pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**  |
|----------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
| ** **                                         |
| **for the quarterly  period ended March 31, 2009** |
| ** **                                         |
| **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   001-14431**

** **

**American States WaterCompany**

(ExactName of Registrant as Specified in Its Charter)

 
| **California**                                                  | ** ** | **95-4676679**                     |
|-----------------------------------------------------------------|------------|------------------------------------|
| (State or Other  Jurisdiction of Incorporation or Organization) |       | (IRS Employer  Identification No.) |
| ** **                                                      | ** ** | ** **                         |
| **630 E.  Foothill Blvd, San Dimas, CA**                        | ** ** | **91773-1212**                     |
| (Address of Principal  Executive Offices)                       |       | (Zip Code)                         |

** **

**(909)394-3600**

(Registrant’s TelephoneNumber, Including Area Code)

** **

**NotApplicable**

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

 

**Commission file number   001-12008**

 

**Golden State 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 E.  Foothill Blvd, San Dimas, CA**                        | ** ** | **91773-1212**                     |
| (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 SinceLast Report)

 

Indicate by checkmark whether Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that Registrant was required to file suchreports), and (2) has been subject to such filing requirements for the past 90days.

 
| American States Water  Company |   | Yes x | No o |
|--------------------------------|--------|-------|------|
| Golden State Water  Company    |   | Yes x | No o |

 

Indicate by checkmark whether Registrant has submitted electronically and posted on itscorporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of thischapter) during the preceding 12 months (or such shorter period that theRegistrant was required to submit and post such files).

 
| American States Water  Company |   | Yes o | No o |
|--------------------------------|--------|-------|------|
| Golden State Water  Company    |   | Yes o | No o |

 

Indicateby check mark whether the Registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinition of “large accelerated filer”, “accelerated filer” and smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

**American States Water Company**

 
| Large accelerated filer o |   | Accelerated filer x |   | Non-accelerated filer o |   | Smaller reporting company o |
|---------------------------|--------|---------------------|--------|-------------------------|--------|-----------------------------|

 

**Golden State Water Company**

 
| Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer x |   | Smaller reporting company o |
|---------------------------|--------|---------------------|--------|-------------------------|--------|-----------------------------|

 

Indicate by check markwhether the Registrant is a shell company (as defined in Rule 12b-2 of theExchange Act)

 

| American States Water Company |   | Yes  ̈ | No x |
|-------------------------------|--------|------------|------|
| Golden State Water  Company   |   | Yes  ̈ | No x |

 

As of May 8, 2009, thenumber of Common Shares outstanding, of American States Water Company was17,326,742 shares. As of May 8, 2009, all of the 134 outstanding Common Sharesof Golden State Water Company were owned by American States Water Company.

 

Golden State WaterCompany meets the conditions set forth in General Instruction (H)(1)(a) and (b)of Form 10-Q and is therefore filing this Form, in part, with the reduceddisclosure format for Golden State Water Company.

 

 

 

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**AMERICAN STATES WATER COMPANY**

**and**

**GOLDEN STATE WATER COMPANY**

**FORM 10-Q**

 

### **INDEX**

 
| **Part I**  | **Financial  Information**                                                                                                | ** ** |
|-------------|---------------------------------------------------------------------------------------------------------------------------|------------|
|        | ** **                                                                                                                | ** ** |
| Item 1:     | Financial  Statements                                                                                                     | 1          |
|        |                                                                                                                      |       |
|        | Consolidated Balance Sheets of American States Water  Company as of March 31, 2009 and December 31, 2008                  | 2          |
|        |                                                                                                                      |       |
|        | Consolidated Statements of Income of American States  Water Company for the Three Months Ended March 31, 2009 and 2008    | 4          |
|        |                                                                                                                      |       |
|        | Consolidated Statements of Cash Flow of American  States Water Company for the Three Months Ended March 31, 2009 and 2008 | 5          |
|        |                                                                                                                      |       |
|        | Balance Sheets of Golden State Water Company as of March  31, 2009 and December 31, 2008                                  | 6          |
|        |                                                                                                                      |       |
|        | Statements of Income of Golden State Water Company for  the Three Months Ended March 31, 2009 and 2008                    | 8          |
|        |                                                                                                                      |       |
|        | Statements  of Cash Flow of Golden State Water Company for the Three Months Ended March 31,  2009 and 2008                | 9          |
|        |                                                                                                                      |       |
|        | Notes to Consolidated Financial Statements                                                                                | 10         |
|        |                                                                                                                      |       |
| Item 2:     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                               | 25         |
|        |                                                                                                                      |       |
| Item 3:     | Quantitative  and Qualitative Disclosures About Market Risk                                                               | 49         |
|        |                                                                                                                      |       |
| Item 4:     | Controls and  Procedures                                                                                                  | 49         |
|        |                                                                                                                      |       |
| Item 4T:    | Controls and  Procedures                                                                                                  | 49         |
|        |                                                                                                                      |       |
| **Part II** | **Other Information**                                                                                                     |       |
|        | ** **                                                                                                                | ** ** |
| Item 1:     | Legal Proceedings                                                                                                         | 50         |
|        |                                                                                                                      |       |
| Item  1A:   | Risk  Factors                                                                                                             | 50         |
|        |                                                                                                                      |       |
| Item 2:     | Unregistered  Sales of Equity Securities and Use of Proceeds                                                              | 50         |
|        |                                                                                                                      |       |
| Item 3:     | Defaults  Upon Senior Securities                                                                                          | 50         |
|        |                                                                                                                      |       |
| Item 4:     | Submission  of Matters to a Vote of Security Holders                                                                      | 50         |
|        |                                                                                                                      |       |
| Item 5:     | Other Information                                                                                                         | 50         |
|        |                                                                                                                      |       |
| Item  6:    | Exhibits                                                                                                                  | 51         |
|        |                                                                                                                      |       |
|        | Signatures                                                                                                                | 52         |

 

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#### **PART I**

####  

**Item 1. Financial Statements**

 

General

 

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

 

Certaininformation and footnote disclosures normally included in financial statements,prepared in accordance with accounting principles generally accepted in theUnited States of America, have been condensed or omitted pursuant to such rulesand regulations. In the opinion of management, all adjustments consisting ofnormal recurring items and estimates necessary for a fair statement of resultsfor the interim period have been made.

 

It issuggested that these financial statements be read in conjunction with thefinancial statements and notes thereto in the latest Annual Report on Form 10-Kof American States Water Company and its wholly-owned subsidiary, Golden StateWater Company.

 

FilingFormat

 

AmericanStates Water Company (hereinafter “AWR”) is the parent company of Golden StateWater Company (hereinafter “GSWC”), Chaparral City Water Company (hereinafter “CCWC”)and American States Utility Services, Inc. (hereinafter “ASUS”) and itssubsidiaries.

 

Thisquarterly report on Form 10-Q is a combined report being filed by two separateRegistrants: AWR and GSWC. For more information, please see Note 1 to the Notesto Consolidated Financial Statements and the heading entitled General in Item 2- Management’s Discussion and Analysis of Financial Condition and Results ofOperations. References in this report to “Registrant” are to AWR and GSWCcollectively, unless otherwise specified. GSWC makes no representations as tothe information contained in this report relating to AWR and its subsidiaries,other than GSWC.

 

**Forward-LookingInformation**

 

This Form 10-Q contains forward-looking statements intendedto qualify for the “safe harbor” from liability established by the PrivateSecurities Litigation Reform Act of 1995. Forward-looking statements include statements regarding our goals,beliefs, plans or current expectations, taking into account the informationcurrently available to management. Forward-looking statements are not statements of historical facts.   For example, when we use words such as  “believes,” “anticipates,” “expects, “ “plans”,“estimates,” “intends,” “may” and other words that convey uncertainty of futureevents or outcomes, we are making forward-looking statements. Such statementsaddress future events and conditions concerning such matters as our ability toraise capital, capital expenditures, earnings, litigation, rates, water sales,water quality and other regulatory matters, adequacy of water supplies, ourability  to recover electric, natural gasand water supply costs from ratepayers, contract operations, liquidity andcapital resources, and accounting matters. We caution you that any forward-lookingstatements made by us are not guarantees of future performance and that actualresults  may differ materially from thosecurrently anticipated in such statements, by reason of factors such as: changesin utility regulation; recovery of regulatory assets not yet included in rates;future economic conditions which affect changes in customer demand and changesin water and energy supply costs; repayment of amounts owed to us; changes inpension and postretirement benefit plan costs; future climatic conditions;delays in customer payments or price redeterminations or equitable adjustmentson contracts executed by ASUS and its subsidiaries; potential assessments forfailure to meet interim targets for the purchase of renewable energy; andlegislative, legal proceedings, regulatory and other circumstances affectinganticipated revenues and costs.

 

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**AMERICAN STATES WATER COMPANY**

**CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**(Unaudited)**

 
| **(in thousands)**                                                                                             | ** ** | **March 31,  2009** | ** ** | **December 31,  2008** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|------------------------|------------|
| **Utility Plant**                                                                                              | ** ** | ** **          | ** ** | ** **             | ** ** |
| Utility plant, at cost                                                                                         |       | $                   | 1,190,128  |                   | $          | 1,171,284 |   |
| Less - Accumulated  depreciation                                                                               |       | (353,626            | )          | (346,022               | )          |
| Net utility plant                                                                                              |       | 836,502             |       | 825,262                |       |
|                                                                                                           |       |                |       |                   |       |
| **Other Property and Investments**                                                                             | ** ** | ** **          | ** ** | ** **             | ** ** |
| Goodwill                                                                                                       |       | 4,610               |       | 4,610                  |       |
| Other property and  investments                                                                                |       | 10,600              |       | 10,689                 |       |
| Total other property  and investments                                                                          |       | 15,210              |       | 15,299                 |       |
|                                                                                                           |       |                |       |                   |       |
| **Current Assets**                                                                                             | ** ** | ** **          | ** ** | ** **             | ** ** |
| Cash and cash  equivalents                                                                                     |       | 24,893              |       | 7,283                  |       |
| Accounts receivable –  customers (less allowance for doubtful accounts of $722 in 2009 and $656 in  2008) |       | 13,633              |       | 14,315                 |       |
| Unbilled revenue                                                                                               |       | 17,971              |       | 17,958                 |       |
| Receivable from the  U.S. government (less allowance for doubtful accounts of $121 in 2009 and  2008)          |       | 5,971               |       | 8,094                  |       |
| Other accounts receivable  (less allowance for doubtful accounts of $470 in 2009 and $474 in 2008)             |       | 5,000               |       | 6,341                  |       |
| Income taxes receivable                                                                                        |       | 77                  |       | 1,526                  |       |
| Materials and supplies,  at average cost                                                                       |       | 1,857               |       | 2,109                  |       |
| Regulatory assets –  current                                                                              |       | 17,949              |       | 16,071                 |       |
| Prepayments and other  current assets                                                                          |       | 2,343               |       | 2,950                  |       |
| Costs and estimated  earnings in excess of billings on uncompleted contracts                                   |       | 15,600              |       | 11,836                 |       |
| Deferred income taxes –  current                                                                          |       | 1,967               |       | 2,131                  |       |
| Total current assets                                                                                           |       | 107,261             |       | 90,614                 |       |
|                                                                                                           |       |                |       |                   |       |
| **Regulatory and Other Assets**                                                                                | ** ** | ** **          | ** ** | ** **             | ** ** |
| Regulatory assets                                                                                              |       | 110,313             |       | 104,521                |       |
| Other accounts  receivable                                                                                     |       | 8,267               |       | 8,167                  |       |
| Costs and estimated  earnings in excess of billings on uncompleted contracts                                   |       | 7,063               |       | 6,897                  |       |
| Deferred income taxes                                                                                          |       | 291                 |       | 254                    |       |
| Other                                                                                                          |       | 10,365              |       | 10,273                 |       |
| Total regulatory and  other assets                                                                             |       | 136,299             |       | 130,112                |       |
|                                                                                                           |       |                |       |                   |       |
| **Total Assets**                                                                                               |       | $                   | 1,095,272  |                   | $          | 1,061,287 |   |

 

*The accompanying notes are an integral part ofthese consolidated financial statements*

 

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**AMERICAN STATES WATER COMPANY**

**CONSOLIDATED BALANCE SHEETS**

**CAPITALIZATION AND LIABILITIES**

**(Unaudited)**

 
| **(in thousands)**                                                           | ** ** | **March 31,  2009** | ** ** | **December 31,  2008** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------|------------|------------------------|------------|
| **Capitalization**                                                           | ** ** | ** **          | ** ** | ** **             | ** ** |
| Common shares,  no par value, no stated value                                |       | $                   | 186,270    |                   | $          | 185,499 |   |
| Earnings  reinvested in the business                                         |       | 125,587             |       | 125,004                |       |
| Total common  shareholders’ equity                                      |       | 311,857             |       | 310,503                |       |
| Long-term debt                                                               |       | 306,469             |       | 266,536                |       |
| Total  capitalization                                                        |       | 618,326             |       | 577,039                |       |
|                                                                         |       |                |       |                   |       |
| **Current Liabilities**                                                      | ** ** | ** **          | ** ** | ** **             | ** ** |
| Notes payable to  banks                                                      |       | 54,370              |       | 74,700                 |       |
| Long-term debt –  current                                               |       | 640                 |       | 636                    |       |
| Accounts payable                                                             |       | 35,974              |       | 36,582                 |       |
| Income taxes  payable                                                        |       | 1,067               |       | 974                    |       |
| Accrued employee  expenses                                                   |       | 6,545               |       | 5,625                  |       |
| Accrued interest                                                             |       | 5,331               |       | 2,463                  |       |
| Unrealized loss  on purchased power contracts                                |       | 8,428               |       | —                 |       |
| Billings in  excess of costs and estimated earnings on uncompleted contracts |       | 5,271               |       | 2,094                  |       |
| Other                                                                        |       | 13,649              |       | 14,323                 |       |
| Total current  liabilities                                                   |       | 131,275             |       | 137,397                |       |
|                                                                         |       |                |       |                   |       |
| **Other Credits**                                                            | ** ** | ** **          | ** ** | ** **             | ** ** |
| Advances for  construction                                                   |       | 87,399              |       | 86,816                 |       |
| Contributions in  aid of construction - net                                  |       | 100,706             |       | 101,593                |       |
| Deferred income  taxes                                                       |       | 83,841              |       | 84,750                 |       |
| Unamortized  investment tax credits                                          |       | 2,223               |       | 2,245                  |       |
| Accrued pension  and other postretirement benefits                           |       | 54,122              |       | 52,235                 |       |
| Regulatory  liabilities                                                      |       | 424                 |       | 425                    |       |
| Billings in  excess of costs and estimated earnings on uncompleted contracts |       | 7,987               |       | 9,866                  |       |
| Other                                                                        |       | 8,969               |       | 8,921                  |       |
| Total other  credits                                                         |       | 345,671             |       | 346,851                |       |
|                                                                         |       |                |       |                   |       |
| **Commitments and Contingencies  (Note 7)**                                  |       | —              |       | —                 |       |
|                                                                         |       |                |       |                   |       |
| **Total  Capitalization and Liabilities**                                    |       | $                   | 1,095,272  |                   | $          | 1,061,287 |   |

 

*The accompanying notes are an integral part ofthese consolidated financial statements*

 

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**AMERICAN STATES WATER COMPANY**

**CONSOLIDATED STATEMENTS OF INCOME**

**FOR THE THREE MONTHS**

**ENDED MARCH 31, 2009 AND 2008**

**(Unaudited)**

 
| ** **                                           | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------|------------|-----------------------------------|------------|
| **(in thousands, except per share amounts)**         | ** ** | **2009**                          | ** ** | **2008** | ** ** |
| **Operating Revenues**                               | ** ** | ** **                        | ** ** | ** ** | ** ** |
| Water                                                |       | $                                 | 56,794     |   | $ | 52,089 |   |
| Electric                                             |       | 8,632                             |       | 8,803 |   |
| Contracted services                                  |       | 14,183                            |       | 8,050 |   |
| Total operating  revenues                            |       | 79,609                            |       | 68,942 |   |
|                                                 |       |                              |       |   |   |
| **Operating Expenses**                               | ** ** | ** **                        | ** ** | ** ** | ** ** |
| Water purchased                                      |       | 8,214                             |       | 7,953 |   |
| Power purchased for  pumping                         |       | 1,688                             |       | 1,680 |   |
| Groundwater production  assessment                   |       | 2,517                             |       | 2,375 |   |
| Power purchased for  resale                          |       | 3,962                             |       | 4,239 |   |
| Unrealized gain on  purchased power contracts        |       | —                            |       | (2,843 | ) |
| Supply cost balancing  accounts                      |       | 3,528                             |       | (107 | ) |
| Other operating  expenses                            |       | 7,153                             |       | 7,996 |   |
| Administrative and  general expenses                 |       | 16,865                            |       | 14,827 |   |
| Depreciation and  amortization                       |       | 8,361                             |       | 7,793 |   |
| Maintenance                                          |       | 4,073                             |       | 3,772 |   |
| Property and other  taxes                            |       | 3,400                             |       | 2,920 |   |
| Construction expenses                                |       | 8,445                             |       | 3,875 |   |
| Net gain on sale of  property                        |       | (15                               | )          | — |   |
| Total operating  expenses                            |       | 68,191                            |       | 54,480 |   |
|                                                 |       |                              |       |   |   |
| **Operating Income**                                 |       | 11,418                            |       | 14,462 |   |
|                                                 |       |                              |       |   |   |
| **Other Income and Expenses**                        | ** ** | ** **                        | ** ** | ** ** | ** ** |
| Interest expense                                     |       | (5,294                            | )          | (5,378 | ) |
| Interest income                                      |       | 202                               |       | 361 |   |
| Other                                                |       | (30                               | )          | 114 |   |
| Total other income and  expenses                     |       | (5,122                            | )          | (4,903 | ) |
|                                                 |       |                              |       |   |   |
| **Income from operations before income tax expense** |       | 6,296                             |       | 9,559 |   |
|                                                 |       |                              |       |   |   |
| Income tax expense                                   |       | 1,364                             |       | 4,255 |   |
|                                                 |       |                              |       |   |   |
| **Net Income**                                       |       | $                                 | 4,932      |   | $ | 5,304 |   |
|                                                 |       |                              |       |   |   |
| **Weighted Average Number of Shares Outstanding**    |       | 17,312                            |       | 17,239 |   |
| **Basic Earnings Per Common Share**                  |       | $                                 | 0.28       |   | $ | 0.31 |   |
|                                                 |       |                              |       |   |   |
| **Weighted Average Number of Diluted Shares**        |       | 17,440                            |       | 17,357 |   |
| **Fully Diluted Earnings Per Share**                 |       | $                                 | 0.28       |   | $ | 0.30 |   |
|                                                 |       |                              |       |   |   |
| **Dividends Declared Per Common Share**              |       | $                                 | 0.250      |   | $ | 0.250 |   |

 

*The accompanying notes are an integral part ofthese consolidated financial statements*

 

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**AMERICAN STATES WATER COMPANY**

**CONSOLIDATED STATEMENTS OF CASH FLOW**

**FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND2008**

**(Unaudited)**

 
| ** **                                                                   | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| **(in thousands)**                                                      | ** ** | **2009**                                         | ** ** | **2008** | ** ** |
| **Cash Flows From Operating  Activities:**                                   | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Net income                                                                   |       | $                                                | 4,932      |   | $ | 5,304 |   |
| Adjustments for  non-cash items:                                             |       |                                             |       |   |   |
| Depreciation and  amortization                                               |       | 8,361                                            |       | 7,793 |   |
| Provision for  doubtful accounts                                             |       | 358                                              |       | 212 |   |
| Deferred income  taxes and investment tax credits                            |       | (1,194                                           | )          | 1,476 |   |
| Unrealized gain  on purchased power contracts                                |       | —                                           |       | (2,843 | ) |
| Stock-based  compensation expense                                            |       | 383                                              |       | 205 |   |
| Other – net                                                             |       | (605                                             | )          | (8 | ) |
| Changes in assets and  liabilities:                                          |       |                                             |       |   |   |
| Accounts  receivable – customers                                        |       | 324                                              |       | 1,368 |   |
| Unbilled revenue                                                             |       | (13                                              | )          | (1,145 | ) |
| Other accounts  receivable                                                   |       | 1,241                                            |       | 886 |   |
| Receivable from  the U.S. government                                         |       | 2,123                                            |       | 244 |   |
| Materials and  supplies                                                      |       | 252                                              |       | (62 | ) |
| Prepayments and  other current assets                                        |       | 607                                              |       | 533 |   |
| Regulatory  assets – supply cost balancing accounts                     |       | 3,528                                            |       | (107 | ) |
| Costs and  estimated earnings in excess of billings on uncompleted contracts |       | (3,930                                           | )          | (3,776 | ) |
| Other assets                                                                 |       | (2,760                                           | )          | 140 |   |
| Accounts payable                                                             |       | (2,406                                           | )          | (1,306 | ) |
| Income taxes  receivable/payable                                             |       | 1,542                                            |       | (1,168 | ) |
| Billings in  excess of costs and estimated earnings on uncompleted contracts |       | 1,298                                            |       | 1,027 |   |
| Accrued pension  and other postretirement benefits                           |       | 1,887                                            |       | 1,319 |   |
| Other  liabilities                                                           |       | 3,861                                            |       | 1,102 |   |
| Net cash  provided                                                           |       | 19,789                                           |       | 11,194 |   |
|                                                                         |       |                                             |       |   |   |
| **Cash Flows From Investing  Activities:**                                   | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Construction  expenditures                                                   |       | (17,682                                          | )          | (17,219 | ) |
| Business  acquisition                                                        |       | —                                           |       | (2,298 | ) |
| Net cash used                                                                |       | (17,682                                          | )          | (19,517 | ) |
|                                                                         |       |                                             |       |   |   |
| **Cash Flows From Financing  Activities:**                                   | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Proceeds from  issuance of common shares                                     |       | 462                                              |       | 216 |   |
| Proceeds from  stock option exercises                                        |       | 10                                               |       | 39 |   |
| Tax benefits  from exercise or conversion of stock-based awards              |       | —                                           |       | 7 |   |
| Receipt of  advances for and contributions in aid of construction            |       | 332                                              |       | 1,877 |   |
| Refunds on  advances for construction                                        |       | (422                                             | )          | (659 | ) |
| Repayments of  long-term debt                                                |       | (63                                              | )          | (60 | ) |
| Proceeds from  issuance of long-term debt, net of issuance cost              |       | 39,777                                           |       | — |   |
| Net change in  notes payable to banks                                        |       | (20,330                                          | )          | 10,400 |   |
| Dividends paid                                                               |       | (4,328                                           | )          | (4,309 | ) |
| Other – net                                                             |       | 65                                               |       | (121 | ) |
| Net cash  provided                                                           |       | 15,503                                           |       | 7,390 |   |
| **Net increase (decrease) in cash  and cash equivalents**                    |       | 17,610                                           |       | (933 | ) |
| **Cash and cash equivalents,  beginning of period**                          |       | 7,283                                            |       | 1,698 |   |
| **Cash and cash equivalents, end  of period**                                |       | $                                                | 24,893     |   | $ | 765 |   |

 

*Theaccompanying notes are an integral part of these consolidated financialstatements*

 

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**GOLDEN STATE WATER COMPANY**

**BALANCE SHEETS**

**ASSETS**

**(Unaudited)**

 
| **(in thousands)**                                                                                 | ** ** | **March 31,  2009** | ** ** | **December 31,  2008** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **Utility Plant**                                                                                       | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Utility plant,  at cost                                                                                 |       | $                        | 1,122,152  |                        | $          | 1,103,932 |   |
| Less -  Accumulated depreciation                                                                        |       | (332,941                 | )          | (326,089                    | )          |
| Net utility  plant                                                                                      |       | 789,211                  |       | 777,843                     |       |
|                                                                                                    |       |                     |       |                        |       |
| **Other Property and Investments**                                                                      |       | 7,641                    |       | 7,719                       |       |
|                                                                                                    |       |                     |       |                        |       |
| **Current Assets**                                                                                      | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Cash and cash  equivalents                                                                              |       | 22,477                   |       | 3,812                       |       |
| Accounts  receivable-customers (less allowance for doubtful accounts of $693 in 2009  and $632 in 2008) |       | 13,341                   |       | 13,969                      |       |
| Unbilled revenue                                                                                        |       | 17,627                   |       | 17,641                      |       |
| Inter-company  receivable                                                                               |       | 220                      |       | 309                         |       |
| Other accounts  receivable (less allowance for doubtful accounts of $443 in 2009 and 2008)              |       | 4,245                    |       | 4,348                       |       |
| Materials and  supplies, at average cost                                                                |       | 1,653                    |       | 1,543                       |       |
| Regulatory  assets – current                                                                       |       | 17,913                   |       | 16,018                      |       |
| Prepayments and  other current assets                                                                   |       | 2,145                    |       | 2,714                       |       |
| Deferred income  taxes – current                                                                   |       | 2,057                    |       | 2,144                       |       |
| Total current  assets                                                                                   |       | 81,678                   |       | 62,498                      |       |
|                                                                                                    |       |                     |       |                        |       |
| **Regulatory and Other Assets**                                                                         | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Regulatory  assets                                                                                      |       | 110,313                  |       | 104,521                     |       |
| Other accounts  receivable                                                                              |       | 8,267                    |       | 8,167                       |       |
| Other                                                                                                   |       | 9,568                    |       | 9,402                       |       |
| Total regulatory  and other assets                                                                      |       | 128,148                  |       | 122,090                     |       |
|                                                                                                    |       |                     |       |                        |       |
| **Total  Assets**                                                                                       |       | $                        | 1,006,678  |                        | $          | 970,150 |   |

 

*The accompanying notes are an integral part ofthese financial statements*

 

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**GOLDEN STATE WATER COMPANY**

**BALANCE SHEETS**

**CAPITALIZATION AND LIABILITIES**

**(Unaudited)**

 
| **(in thousands)**                            | ** ** | **March 31,  2009** | ** ** | **December 31,  2008** | ** ** |
|----------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **Capitalization**                                 | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Common shares, no par  value, no stated value      |       | $                        | 194,903    |                        | $          | 194,728 |   |
| Earnings reinvested in  the business               |       | 129,078                  |       | 129,805                     |       |
| Total common  shareholder’s equity            |       | 323,981                  |       | 324,533                     |       |
| Long-term debt                                     |       | 300,494                  |       | 260,561                     |       |
| Total capitalization                               |       | 624,475                  |       | 585,094                     |       |
|                                               |       |                     |       |                        |       |
| **Current Liabilities**                            | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Long-term debt –  current                     |       | 330                      |       | 326                         |       |
| Accounts payable                                   |       | 27,427                   |       | 25,897                      |       |
| Inter-company payable                              |       | 61                       |       | 18,392                      |       |
| Income taxes payable to  Parent                    |       | 4,637                    |       | 2,794                       |       |
| Accrued employee  expenses                         |       | 5,775                    |       | 4,940                       |       |
| Accrued interest                                   |       | 5,199                    |       | 2,391                       |       |
| Deferred income taxes –  current              |       | 34                       |       | 39                          |       |
| Unrealized loss  on purchased power contracts      |       | 8,428                    |       | —                      |       |
| Other                                              |       | 12,287                   |       | 13,245                      |       |
| Total current  liabilities                         |       | 64,178                   |       | 68,024                      |       |
|                                               |       |                     |       |                        |       |
| **Other Credits**                                  | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Advances for  construction                         |       | 81,173                   |       | 80,977                      |       |
| Contributions in aid of  construction - net        |       | 88,813                   |       | 89,519                      |       |
| Deferred income taxes                              |       | 83,362                   |       | 83,765                      |       |
| Unamortized investment  tax credits                |       | 2,223                    |       | 2,245                       |       |
| Accrued pension and  other postretirement benefits |       | 54,122                   |       | 52,235                      |       |
| Other                                              |       | 8,332                    |       | 8,291                       |       |
| Total other credits                                |       | 318,025                  |       | 317,032                     |       |
|                                               |       |                     |       |                        |       |
| **Commitments and Contingencies (Note 7)**         |       | —                   |       | —                      |       |
|                                               |       |                     |       |                        |       |
| **Total Capitalization and  Liabilities**          |       | $                        | 1,006,678  |                        | $          | 970,150 |   |

 

*The accompanying notes are an integral part ofthese financial statements*

 

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**GOLDEN STATE WATER COMPANY**

**STATEMENTS OF INCOME**

**FOR THE THREE MONTHS**

**ENDED MARCH 31, 2009 AND 2008**

**(Unaudited)**

 
| ** **                                           | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------------|------------|
| **(in thousands)**                              | ** ** | **2009**                                         | ** ** | **2008** | ** ** |
| **Operating Revenues**                               | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Water                                                |       | $                                                | 55,178     |   | $ | 50,506 |   |
| Electric                                             |       | 8,632                                            |       | 8,803 |   |
| Total operating  revenues                            |       | 63,810                                           |       | 59,309 |   |
|                                                 |       |                                             |       |   |   |
| **Operating Expenses**                               | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Water purchased                                      |       | 7,987                                            |       | 7,787 |   |
| Power purchased for  pumping                         |       | 1,567                                            |       | 1,575 |   |
| Groundwater production  assessment                   |       | 2,517                                            |       | 2,375 |   |
| Power purchased for  resale                          |       | 3,962                                            |       | 4,239 |   |
| Unrealized gain on  purchased power contracts        |       | —                                           |       | (2,843 | ) |
| Supply cost balancing  accounts                      |       | 3,528                                            |       | (107 | ) |
| Other operating  expenses                            |       | 6,069                                            |       | 6,116 |   |
| Administrative and  general expenses                 |       | 13,809                                           |       | 11,667 |   |
| Depreciation and  amortization                       |       | 7,713                                            |       | 7,242 |   |
| Maintenance                                          |       | 3,041                                            |       | 3,324 |   |
| Property and other  taxes                            |       | 3,009                                            |       | 2,761 |   |
| Net gain on sale of  property                        |       | (15                                              | )          | — |   |
| Total operating  expenses                            |       | 53,187                                           |       | 44,136 |   |
|                                                 |       |                                             |       |   |   |
| **Operating Income**                                 |       | 10,623                                           |       | 15,173 |   |
|                                                 |       |                                             |       |   |   |
| **Other Income and Expenses**                        |       |                                             |       |   |   |
| Interest expense                                     |       | (4,996                                           | )          | (5,052 | ) |
| Interest income                                      |       | 199                                              |       | 357 |   |
| Other                                                |       | (22                                              | )          | 86 |   |
| Total other  income and expenses                     |       | (4,819                                           | )          | (4,609 | ) |
|                                                 |       |                                             |       |   |   |
| **Income from operations before income tax expense** |       | 5,804                                            |       | 10,564 |   |
|                                                 |       |                                             |       |   |   |
| Income tax expense                                   |       | 2,111                                            |       | 4,646 |   |
|                                                 |       |                                             |       |   |   |
| **Net Income**                                       |       | $                                                | 3,693      |   | $ | 5,918 |   |

 

*The accompanying notes are an integral part ofthese financial statements*

 

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**GOLDEN STATE WATER COMPANY**

**STATEMENTS OF CASH FLOW**

**FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND2008**

**(Unaudited)**

 
| ** **                                                          | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| **(in thousands)**                                             | ** ** | **2009**                                         | ** ** | **2008** | ** ** |
| **Cash Flows From Operating  Activities:**                          | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Net income                                                          |       | $                                                | 3,693      |   | $ | 5,918 |   |
| Adjustments for  non-cash items:                                    |       |                                             |       |   |   |
| Depreciation and  amortization                                      |       | 7,713                                            |       | 7,242 |   |
| Provision for  doubtful accounts                                    |       | 347                                              |       | 185 |   |
| Deferred income  taxes and investment tax credits                   |       | (731                                             | )          | 1,631 |   |
| Unrealized gain  on purchased power contracts                       |       | —                                           |       | (2,843 | ) |
| Stock-based  compensation expense                                   |       | 232                                              |       | 157 |   |
| Other – net                                                    |       | (598                                             | )          | (94 | ) |
| Changes in assets and  liabilities:                                 |       |                                             |       |   |   |
| Accounts  receivable – customers                               |       | 281                                              |       | 1,312 |   |
| Unbilled revenue                                                    |       | 14                                               |       | (1,135 | ) |
| Other accounts  receivable                                          |       | 3                                                |       | 500 |   |
| Materials and  supplies                                             |       | (110                                             | )          | (49 | ) |
| Prepayments and  other current assets                               |       | 569                                              |       | 480 |   |
| Regulatory  assets – supply cost balancing accounts            |       | 3,528                                            |       | (107 | ) |
| Other assets                                                        |       | (2,768                                           | )          | 135 |   |
| Accounts payable                                                    |       | (569                                             | )          | (261 | ) |
| Inter-company  receivable/payable                                   |       | (42                                              | )          | 552 |   |
| Income taxes  receivable/payable from/to Parent                     |       | 1,843                                            |       | (888 | ) |
| Accrued pension  and other postretirement benefits                  |       | 1,887                                            |       | 1,319 |   |
| Other  liabilities                                                  |       | 3,423                                            |       | 897 |   |
| Net cash  provided                                                  |       | 18,715                                           |       | 14,951 |   |
|                                                                |       |                                             |       |   |   |
| **Cash Flows From Investing  Activities:**                          | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Construction  expenditures                                          |       | (17,176                                          | )          | (16,039 | ) |
| Net cash used                                                       |       | (17,176                                          | )          | (16,039 | ) |
|                                                                |       |                                             |       |   |   |
| **Cash Flows From Financing  Activities:**                          | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Tax benefits  from exercise or conversion of stock-based awards     |       | —                                           |       | 3 |   |
| Receipt of  advances for and contributions in aid of construction   |       | 317                                              |       | 1,709 |   |
| Refunds on  advances for construction                               |       | (395                                             | )          | (653 | ) |
| Proceeds from  the issuance of long-term debt, net of issuance cost |       | 39,777                                           |       | — |   |
| Repayments of  long-term debt                                       |       | (63                                              | )          | (60 | ) |
| Net change in  inter-company borrowings                             |       | (18,200                                          | )          | (440 | ) |
| Dividends paid                                                      |       | (4,400                                           | )          | — |   |
| Other – net                                                    |       | 90                                               |       | (110 | ) |
| Net cash  provided                                                  |       | 17,126                                           |       | 449 |   |
|                                                                |       |                                             |       |   |   |
| **Net increase (decrease) in cash  and cash equivalents**           |       | 18,665                                           |       | (639 | ) |
| **Cash and cash equivalents,  beginning of period**                 |       | 3,812                                            |       | 1,389 |   |
| **Cash and cash equivalents, end  of period**                       |       | $                                                | 22,477     |   | $ | 750 |   |

 

*The accompanying notes are an integral part ofthese financial statements*

 

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**AMERICAN STATES WATER COMPANY**

**AND**

**GOLDEN STATE WATER COMPANY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 1 —Summary of Significant Accounting Policies:**

 

General / Nature of Operations: American States Water Company (“AWR”) is the parent company of Golden State Water Company (“GSWC”), Chaparral City Water Company (“CCWC”) and American States Utility Services, Inc. (“ASUS”) and its subsidiaries, Fort Bliss Water Services Company (“FBWS”), Terrapin Utility Services, Inc. (“TUS”), Old Dominion Utility Services, Inc. (“ODUS”), Palmetto State Utility Services, Inc. (“PSUS”) and Old North Utility Services, Inc. (“ONUS”).

 

GSWC is a public utility engaged principally in the purchase, production, distribution and sale of water in California serving approximately 254,000 water customers. GSWC also distributes electricity in several San Bernardino Mountain communities serving approximately 23,000 electric customers. The California Public Utilities Commission (“CPUC”) regulates GSWC’s water and electric business, including properties, rates, services, facilities and other matters. CCWC is a public utility regulated by the Arizona Corporation Commission (“ACC”) serving over 13,000 customers in the town of Fountain Hills, Arizona and a portion of the City of Scottsdale, Arizona. ASUS performs water and wastewater related services and operations on a contract basis. Through its wholly-owned subsidiaries, ASUS has entered into agreements with the U.S. government to operate and maintain the water and/or wastewater systems at various military bases pursuant to 50-year fixed price contracts, which are subject to periodic price redeterminations and modifications for changes in circumstances. There is no direct regulatory oversight by either the CPUC or the ACC of the operation or rates of either the contracted services provided by ASUS and its wholly owned subsidiaries or AWR.  AWR’s assets, revenues and operations are primarily those of GSWC.

 

Basis of Presentation: The consolidated financial statements of AWR include the accounts of AWR and its subsidiaries, all of which are wholly owned. These financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. Inter-company transactions and balances have been eliminated in the AWR consolidated financial statements. Investments in partially-owned affiliates are accounted for by the equity method when Registrant’s ownership interest exceeds 20%. The consolidated financial statements included herein have been prepared by Registrant, 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 revenues 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, 2008 filed with the SEC.

 

GSWC’sRelated Party Transactions: GSWC and other subsidiaries provide and receivevarious services to and from their parent, AWR, and among themselves. Inaddition, AWR has a $115 million syndicated credit facility. AWR borrows underthis facility and provides funds to its subsidiaries, including GSWC, insupport of their operations. Amounts owed to AWR for borrowings under thisfacility are included in inter-company payables on GSWC’s balance sheets as of March31, 2009 and December 31, 2008. The interest rate charged to GSWC and otheraffiliates is sufficient to cover AWR’s interest cost under the creditfacility. GSWC also allocates certain corporate office administrative andgeneral costs to its affiliates using allocation factors agreed upon by theCPUC.

 

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Long-Term Debt:  A senior note was issued on March 10, 2009, to CoBank, ACB (“Co-Bank”). Under theterms of this senior note, CoBank purchased a 6.7% Senior Note due March 10,2019 in the aggregate principal amount of $40.0 million from GSWC. This notealso provides for patronage, where GSWC shares in the profits of CoBank.  If the current amount of patronage continuesto be paid, the annual cost of the note is at or below 6.0%. The proceeds havebeen used to pay down short-term borrowings, until used to fund capitalexpenditures.  The termsof the new agreement are substantially the same as the terms of a previous noteagreement with CoBank executed in October 2005.

 

Salesand Use Taxes:  GSWC bills certain sales and use taxes leviedby state or local governments to its customers. Included in these sales and usetaxes are franchise fees, which GSWC pays to various municipalities (based onordinances adopted by these municipalities) in order to use public right of wayfor utility purposes. GSWC bills these franchise fees to its customers based ona CPUC-authorized rate. These franchise fees, which are required to be paidregardless of GSWC’s ability to collect from the customer, are accounted for ona gross basis. GSWC’s franchise fees billed to customers and recorded asoperating revenue were approximately $626,000 and $698,000 for the three monthsended March 31, 2009 and 2008, respectively. When GSWC acts as an agent, andthe tax is not required to be remitted if it is not collected from thecustomer, the taxes are accounted for on a net basis.

 

Dependingon the state in which the operations are conducted, ASUS and its subsidiariesare also subject to certain state non-income tax assessments generally computedon a “gross receipts” or “gross revenues” basis.  These non-income tax assessments are requiredto be paid regardless of whether the subsidiary is reimbursed by the U.S.government for these assessments under its 50-year contracts  with the U.S. government.  The non-income tax assessments are accountedfor on a gross basis and totaled $170,000 during the three months ended March 31,2009.

 

New Accounting Pronouncements:   In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, *“Fair Value Measurements”*.  SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 was effective for financial statements issued for fiscal years beginning after November 15, 2007.   In February 2008, the FASB delayed the effective date of SFAS No. 157 for certain nonfinancial assets and liabilities until January 1, 2009.  These nonfinancial items include assets and liabilities that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis, such as Registrant’s reporting units**measured at fair value in a goodwill impairment test and asset retirement obligations.  As it applies to its financial instruments, Registrant implemented the new standard effective January 1, 2008.  As it applies to its nonfinancial items, Registrant implemented the new standard effective January 1, 2009.  The adoption of SFAS No. 157 has not had any impact on Registrant’s consolidated financial position, results of operations or cash flows.

 

In February 2007, theFASB issued SFAS No. 159, “*The Fair ValueOption for Financial Assets and Financial Liabilities”*.  SFAS No. 159 allows measurement at fair valueof eligible financial assets and liabilities that are not otherwise measured atfair value. The election to measure a financial asset or liability at fairvalue can be made on an instrument-by-instrument basis and is irrevocable.   Registrant has  elected not to apply the fair value option toany of its financial assets and liabilities. Therefore, the adoption of SFAS No.159 has not had any impact on Registrant’s consolidated financial position,results of operations or cash flows.

 

In December2007, the FASB issued SFAS No. 141(R) (revised 2007), “*Business Combinations”* which establishesprinciples and requirements for how the acquirer of a business recognizes andmeasures in its financial statements the identifiable assets acquired, theliabilities assumed, and any noncontrolling interest in the acquiree. SFAS No. 141(R)also provides guidance for recognizing and measuring the goodwill acquired inthe business combination and determines what information to disclose to enableusers of the financial statement to evaluate the nature and financial effectsof the business combination. SFAS No. 141(R) is effective for financialstatements issued for fiscal years beginning after December 15, 2008.Accordingly, any business combinations that Registrant may engage in subsequentto that date will be recorded and disclosed under the new standard.

 

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In December2007, the FASB also issued SFAS No. 160, “*NoncontrollingInterests in Consolidated Financial Statements—an amendment of ARB No. 51*”.The objective of SFAS No. 160 is to improve the relevance, comparability, andtransparency of the financial information that a reporting entity provides inits consolidated financial statements by establishing accounting and reportingstandards for the noncontrolling interest in a subsidiary and for thedeconsolidation of a subsidiary.  SFAS No.160 is effective for financial statements issued for fiscal years beginningafter December 15, 2008.  The adoption ofSFAS No. 160 did not have any impact on Registrant’s consolidated financialposition, results of operations or cash flows.

 

In March2008, the FASB issued SFAS No. 161, *“Disclosures aboutDerivative Instruments and Hedging Activities,”* (“SFAS No. 161”).  SFAS No. 161 amends and expands the disclosurerequirements of SFAS No. 133, *“Accounting for DerivativeInstruments and Hedging Activities.”*  SFAS No. 161 requires qualitative disclosuresabout objectives and strategies for using derivatives, quantitative disclosuresabout fair value amounts of gains and losses on derivative instruments anddisclosures about credit-risk-related contingent features in derivativeagreements.  This statement is effectivefor financial statements issued for fiscal years beginning after November 15,2008.  The adoption of SFAS No. 161 didnot have any impact on Registrant’s consolidated financial position, results ofoperations or cash flows.  The adoptionof the standard did result in enhanced qualitative disclosure of Registrant’sderivative instrument as discussed in Note 4.

 

In December 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 132(R)-1, “*Employers’ Disclosures about Postretirement Benefit Plan Assets*.  FSP No. FAS 132(R)-1 amends SFAS No. 132(R), *Employers’ Disclosures about Pensions and Other Postretirement Benefits”*, to require additional disclosures about plan assets held in an employer’s defined benefit pension or other postretirement plan, and to provide users of financial statements with an understanding of (i) how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies, (ii) the major categories of plan assets, (iii) the inputs and valuation techniques used to measure the fair value of plan assets including the level within the fair value hierarchy, using the guidance in SFAS No. 157, and (iv) significant concentrations of risk within plan assets. FSP No. FAS 132(R)-1 is effective for financial statements issued for fiscal years ending after December 15, 2009.  Registrant is evaluating the potential impact of FSP No. FAS 132(R)-1.

 

In April2009, the FASB issued FSP SFAS No. 107-1 and APB No. 28-1, *“InterimDisclosures about Fair Value of Financial Instruments”.*  This position requires disclosures beginningin the second quarter of 2009 about the fair value of all financialinstruments, for which it is practicable to estimate that fair value, forinterim reporting periods as well as annual statements. Registrant will adoptthis position in the second quarter of 2009 and begin including the fair valuedisclosures of its financial instruments including long-term debt, in itsquarterly filings. Since FSP SFAS No. 107-1 and APB No. 28-1 impacts disclosureonly, the adoption of this position will not have an impact on Registrant’sconsolidated results of operations, financial position or cash flows.

 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on Registrant’s consolidated financial statements upon adoption.

 

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**Note 2 —Regulatory Matters:**

 

Inaccordance with accounting principles for rate-regulated enterprises,Registrant records regulatory assets, which represent probable future revenueassociated with certain costs that will be recovered from customers through theratemaking process, and regulatory liabilities, which represent probable futurereductions in revenue associated with amounts that are to be credited tocustomers through the ratemaking process. At March 31, 2009, Registrant hadapproximately $23.2 million of regulatory assets not accruing carrying costs.Of this amount, $7.5 million relates to deferred income taxes representingaccelerated tax benefits flowed-through to ratepayers, which will be included inrates concurrently with recognition of the associated future tax expense, $8.4million related to a memorandum account authorized by the CPUC to trackunrealized gains and losses on GSWC’s purchased power contracts, and a $4.2million “non-yielding” regulatory asset related to general rate case memorandumaccounts to be recovered over 12 - 24 months. The remainder relates to other expenses that do not provide for recoveryof carrying costs that Registrant expects to recover in rates over a shortperiod.

 

Regulatoryassets, less regulatory liabilities, included in the consolidated balancesheets are as follows:

 
| **(In thousands)**                                                           | ** ** | **March 31,  2009** | ** ** | **December 31,  2008** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------|------------|------------------------|------------|
| **GSWC**                                                                     |       |                |       |                   |       |
| Electric supply  cost balancing account                                      |       | $                   | 14,968     |                   | $          | 16,077 |   |
| Water supply  cost balancing accounts                                        |       | 10,496              |       | 11,807                 |       |
| Water revenue  adjustment mechanism, net of modified cost balancing accounts |       | 3,445               |       | 825                    |       |
| Costs deferred  for future recovery on Aerojet case                          |       | 20,422              |       | 20,613                 |       |
| Pensions and  other postretirement obligations                               |       | 40,242              |       | 40,939                 |       |
| Flow-through  taxes, net                                                     |       | 7,522               |       | 7,134                  |       |
| Electric  transmission line abandonment costs                                |       | 2,959               |       | 3,001                  |       |
| Asset retirement  obligations                                                |       | 3,731               |       | 3,646                  |       |
| Low income rate  assistance balancing accounts                               |       | 4,643               |       | 4,758                  |       |
| General rate  case memorandum accounts                                       |       | 4,152               |       | 4,922                  |       |
| Santa Maria  adjudication memorandum accounts                                |       | 4,000               |       | 4,011                  |       |
| Derivative (gains)/losses  memorandum account                                |       | 8,428               |       | —                 |       |
| Refund of water  right lease revenues                                        |       | (2,248              | )          | (2,360                 | )          |
| Other regulatory  assets, net                                                |       | 5,466               |       | 5,166                  |       |
| Total GSWC                                                                   |       | $                   | 128,226    |                   | $          | 120,539 |   |
| **CCWC**                                                                     |       |                |       |                   |       |
| Asset retirement  obligations                                                |       | $                   | 56         |                   | $          | 55 |   |
| Other regulatory  liabilities, net                                           |       | (444                | )          | (427                   | )          |
| Total AWR                                                                    |       | $                   | 127,838    |                   | $          | 120,167 |   |

 

Regulatory matters are discussed in detail inthe consolidated financial statements and the notes thereto included in the Form10-K for the year ended December 31, 2008 filed with the SEC.  The discussion below focuses on significantmatters and changes since December 31, 2008.

 

***Supply Cost Balancing Accounts******:***

 

***Electric Supply Cost Balancing Account***—Electric power costs incurred by GSWC’sBear Valley Electric Service (“BVES”) division continue to be charged to itselectric supply cost balancing account. The under-collection in the electricsupply cost balancing account is $15.0 million at March 31, 2009.  For the three months ended March 31, 2009 and2008, the under-collection decreased by approximately $1.1 million and $1.0million, respectively.  As of March 31,2009, the electric supply cost balancing account consists of under-collectionsincurred during the energy crisis in late 2000 and 2001, costs of abandonmentof a transmission line upgrade and increases in purchased energy and powersystem delivery costs discussed below.

 

TheCPUC has authorized GSWC to collect a surcharge from its customers of 2.2¢ perkilowatt hour through August 2011, to enable GSWC to recover anunder-collection of approximately $23.1 million at the end of 2001 which hadbeen incurred during the energy crisis in late 2000 and 2001. GSWC sold41,607,327 and 43,697,643 kilowatt hours of electricity to its BVES customersfor the three months ended March 31, 2009 and

 

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2008, respectively.  As a result of the surcharge, the supply costbalancing account was reduced by approximately $921,000 and $970,000 for thethree months ended March 31, 2009 and 2008, respectively.  Approximately $20.9 million of the $23.1million under-collection incurred during the energy crisis in late 2000 and2001 has been recovered through this surcharge. Therefore, as of March 31, 2009 approximately $2.2 million related tothe energy crisis remains to be recovered through this surcharge.   GSWC anticipates the surcharge, based on projectedelectricity sales, to be sufficient for it to recover by August 2011 the amountof the under-collected balance incurred during the energy crisis. However, in2011, if GSWC has not fully recovered the amount of this under collection, GSWCwill seek additional recovery from the CPUC of any amounts not recoveredthrough this surcharge.

 

Changesin purchased energy and power system delivery costs as compared to CPUC authorizedrates have also impacted the electric supply cost balancing account by $9.3 millionas of March 31, 2009. The purchased energy costs that are recorded in thesupply cost balancing account are subject to a price cap by terms of a 2001settlement which was subsequently approved in a CPUC decision. The BVESdivision of GSWC is allowed to include its actual recorded purchased energycosts up to a weighted annual average cost of $77 per megawatt-hour (“MWh”)through August 2011 in its electric supply cost balancing account.  To the extent that the actual weightedaverage annual cost for power purchased exceeds the $77 per MWh amount, GSWCwill not be able to include these amounts in its balancing account and suchamounts will be expensed.  There were noamounts expensed over the $77 per MWh cap during the three months ended March 31,2009 and 2008.

 

Chargesto GSWC by Edison associated with the transportation of energy over Edison’spower system and the abandonment of a transmission line upgrade have increasedunder Edison’s tariff to levels that exceed the amounts authorized by the CPUC inBVES retail power rates to its customers. The incremental cost increase to GSWCfrom the tariff for the abandonment of a transmission line upgrade, which isnot currently included in rates, is $38,137 per month.  The incremental costs of $3.5 million at March31, 2009 not included in rates have been included in the balancing account at March31, 2009 for subsequent recovery from customers, subject to CPUC approval.

 

Powersystem delivery costs are not subject to the $77 per MWh price cap referencedabove.  Other components, such asinterest accrued on the cumulative under-collected balance and power lostduring transmission, also affect the balance of the electric supply costbalancing account.

 

***Water Supply Cost Balancing Accounts—***As permitted by the CPUC, Registrantmaintains water supply cost balancing accounts for GSWC to account forunder-collections and over-collections of revenues designed to recover suchcosts.  The supply cost balancingaccounts track differences between the current cost for supply items (water,power and pump taxes) charged by GSWC’s suppliers and the cost for those itemsincorporated into GSWC’s rates. Under-collections (recorded as regulatoryassets) occur when the current cost exceeds the amount in rates for these itemsand, conversely, over-collections (recorded as regulatory liabilities) occurwhen the current cost of these items is less than the amount in rates.  Typically, under-collections orover-collections, when they occur, are tracked in the supply cost balancingaccounts for future recovery or refund through a surcharge (in the event of anunder-collection) or through a surcredit (in the event of an over-collection)on customers’ bills.  Registrant accruesinterest on its supply cost balancing accounts at the rate prevailing for90-day commercial paper.  Registrant doesnot maintain a supply cost balancing account for CCWC.

 

Forthe three months ended March 31, 2009 and 2008, approximately $280,000 and$867,000 of under-collections (including interest), respectively, were recordedin the water supply cost balancing accounts. Amortization of surcharges that are in rates to recoverunder-collections from customers and surcredits that are in rates to refundover-collections to customers also increased or decreased the water supply costbalancing accounts, as applicable. During the three months ended March 31, 2009, approximately $1.6 millionof surcharges were billed to customers to decrease previously incurredunder-collections in the water supply cost balancing accounts.   During the three months ended March 31, 2008,approximately $295,000 was credited to customers to decrease the previouslyincurred over-collection in the water supply cost balancing accounts.

 

As of March31, 2009, there is an approximately $10.5 million net under-collection in thewater supply cost balancing accounts.  Ofthis amount, approximately $6.8 million relates to GSWC’s Region III customerservice area.  In May 2008, the CPUCapproved a surcharge to begin recovering $7.0 million of this under-collectionover 24 months.   Any remaining balances for Region III will beincluded for recovery in a future filing.  The remaining $3.7 million net under-collections in the water supplycost balancing accounts relate to GSWC’s Region I net under-collection of $2.1million and Region II’s net under-collection of $1.6 million.  Currently, there are surcharges in

 

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place in Region Iexpiring in 2009 and 2010 to recover this under-collection. Effective January andFebruary 2009, the CPUC approved surcharges in GSWC’s Regions II and III torecover under-collections in supply costs.

 

On August21, 2008, the CPUC issued a final decision which approved a settlementagreement between GSWC and the CPUC’s Division of Ratepayer Advocates (“DRA”)regarding conservation rate design.  As aresult of this decision, GSWC is permitted to establish a Modified CostBalancing Account (“MCBA”) that will permit GSWC to recover supply costsrelated to changes in water supply mix in addition to rate changes by GSWC’ssuppliers. GSWC implemented this MCBA in November 2008 for Regions II andIII.  This account replaces the currentwater supply cost balancing account procedure for costs incurred after themodified supply cost balancing account was implemented.

 

***WaterRevenue Adjustment Mechanism (“WRAM”) and Modified Cost Balancing Account:***

 

EffectiveNovember 25, 2008 with the adoption of the WRAM and the MCBA, GSWC beganrecording the difference between what is billed to its regulated customers inRegions II and III and that which is authorized by the CPUC. Under the WRAM,GSWC records the adopted level of volumetric revenues as authorized by the CPUCfor metered accounts (adopted volumetric revenues).  While the WRAM tracks volumetric-basedrevenues, the revenue requirements approved by the CPUC include servicecharges, flat rate charges, and other items that are not subject to the WRAM.The adopted volumetric revenues considers the seasonality of consumption ofwater based upon historical averages. The variance between adopted volumetricrevenues and actual billed volumetric revenues for metered accounts is recordedas a component of revenue with an offsetting entry to a regulatory asset orliability balancing account (tracked individually for Region II and III).  The variance amount may be positive(under-collection) or negative (over-collection) and represents amounts thatwill be billed or refunded to customers in the future.

 

Underthe MCBA, GSWC began tracking adopted expense levels for purchased water,purchased power and pump taxes, as established by the CPUC. Variances (whichinclude the effects of changes in both rate and volume) between adopted andactual purchased water, purchased power, and pump tax expenses are recorded asa component of the supply cost balancing account provision, as the amount ofsuch variances will be recovered from or refunded to GSWC’s customers at alater date. This is reflected with an offsetting entry to a regulatory asset orliability balancing account (tracked individually for Regions II and III).

 

Thebalances in the WRAM and MCBA assets and liabilities accounts will fluctuate ona monthly basis depending upon the variance between adopted and actual results.The recovery or refund of the WRAM is netted against the MCBA over- orunder-collection for the corresponding Region and is interest bearing at thecurrent 90 day commercial paper rate. When the net amount for Regions II andIII achieves a pre-determined level (i.e., at least 2.5 percent over- orunder-recovery of the approved revenue requirement), GSWC will seek approvalfrom the CPUC to refund or collect the balance in the accounts. Accountbalances less than those levels may be refunded or collected in GSWC’s generalrate case proceedings or aggregated with future calendar year balances forcomparison with the pre-determined recovery level of 2.5 percent of adoptedrevenues. As of March 31, 2009, GSWC has a net aggregated regulatory asset of$3.4 million which is comprised of a $5.0 million under-collection in the WRAMaccounts and $1.6 million over-collection in the MCBA accounts.

 

On May7, 2009, the CPUC approved tiered rates for Region I and the establishment of aWRAM and MCBA which will go into effect on or about September 1, 2009.

 

***CostsDeferred for Future Recovery******:***

 

In1999, GSWC sued Aerojet-General Corporation (“Aerojet”) for contaminating theSacramento County Groundwater Basin, which affected certain GSWC wells. On arelated matter, GSWC also filed a lawsuit against the State of California (the “State”).The CPUC authorized memorandum accounts to allow for recovery, from customers,of costs incurred by GSWC in prosecuting the cases against Aerojet and theState, less any recovery from the defendants or others.  On July 21, 2005, the CPUC authorized GSWC tocollect approximately $21.3 million of the Aerojet litigation memorandumaccount, through a rate surcharge, which will continue for no longer than 20years. Beginning in October 2005, new rates went into effect to beginamortizing the memorandum account over a 20-year period.  A rate surcharge generating approximately$211,000 and $213,000 was billed to customers during the three months ended March31, 2009 and 2008, respectively.  GSWCwill keep the Aerojet memorandum account open until the earlier of fullamortization of the balance or 20 years. However, no costs will be added to the

 

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memorandum account, otherthan on-going interest charges approved by the CPUC decision. Pursuant to thedecision, additional interest of approximately $20,000 and $147,000 was addedto the Aerojet litigation memorandum account during the three months ended March31, 2009 and 2008, respectively.

 

Aerojethas also agreed to reimburse GSWC $17.5 million, plus interest accruing from January1, 2004, for GSWC’s past legal and expert costs, which is included in theAerojet litigation memorandum account. The reimbursement of the $17.5 millionis contingent upon the issuance of land use approvals for development in adefined area within Aerojet property in Eastern Sacramento County and thereceipt of certain fees in connection with such development. The Westboroughdevelopment is within the defined area in the settlement agreement.  It is management’s intention to offsetcertain proceeds from the housing development by Aerojet in the Westboroughareas, pursuant to the settlement agreement, against the balance in thislitigation memorandum account.  At thistime, management believes the full balance of the Aerojet litigation memorandumaccount will be collected by 2025.

 

***Pensionsand Other Postretirement Obligations******:***

 

Therewas an increase in the pensions and other postretirement regulatory assetduring 2008 which was caused by a significant increase in the underfundedstatus of the pension plan. This increase in the underfunded status of thepension plan was primarily due to a decrease in the discount rate as well as asignificant decrease in the fair value of plan assets.  As a result of this increase, Registrant willexperience higher costs than have been estimated for inclusion in customerrates in 2009 and, if asset performance do not improve or applicable discountrates do not change in the future, Registrant may experience such a shortfallin future years, as well.

 

In March 2009, GSWC filed an adviceletter with the CPUC requesting authorization to establish a Pension CostsMemorandum Account.  If this account isapproved, GSWC will track the difference between the pension costs authorizedby the CPUC and included in customer rates, and actual pension costs.  GSWC will not record the amounts in thisaccount as a regulatory asset until they are reviewed and approved by the CPUC. If approved by the CPUC, GSWC will thenestablish a regulatory asset with a corresponding increase to earnings. Untilthen, Registrant expects that earnings will be negatively affected byincreasing pension costs. In April 2009, the CPUC’s Water Division rejectedGSWC’s filing.  GSWC has filed an appeal;however, at this time, management cannot predict the outcome of this matter asit relates to 2009.  GSWC also amendedits current rate case application to request a two-way balancing account totrack fluctuations in the forecasted annual pension expense adopted in ratesand the actual annual expense to be recorded by GSWC in 2010, 2011 and 2012 inaccordance with SFAS No. 87, *“Employers’ Accounting for Pensions”*.  If approved as filed, GSWC will establish aregulatory asset with a corresponding increase to earnings in those years, forany shortfalls.

 

***DerivativeGains and Losses on Purchased Power Contracts Memorandum Account:***

 

Asdescribed in Note 4, in October 2008 GSWC executed a new purchased powercontract.  GSWC began receiving powerunder this contract on January 1, 2009 at a fixed cost over three and five yearterms depending on the amount of power and period during which the power willbe purchased under the contract.  The newcontract is also subject to SFAS No. 133,*”Accounting for DerivativeInstruments and Hedging Activities”*, as amended by SFAS Nos. 138 and149, and requires mark-to-market derivative accounting.  In 2009, the CPUC issued a proposed decision(“PD”) approving the new purchased power contract.  In the PD, the CPUC also authorized theestablishment of a regulatory asset and liability memorandum account to offsetthe entries required by SFAS No. 133. Accordingly, all unrealized gains and losses generated from the newpurchased power contract will be deferred on a monthly basis into thenon-interest bearing regulatory memorandum account that would track the changesin fair value of the derivative throughout the term of the contract.  As of March 31, 2009, $8.4 million ofunrealized losses have been included in this memorandum account.

 

***Other Regulatory Matters******:***

 

On February15, 2007, the CPUC issued a subpoena to GSWC in connection with an investigationof certain work orders and charges paid to a specific contractor used by GSWCfor numerous construction projects totaling approximately $18.0 million. TheCPUC’s investigation focuses on whether GSWC was overcharged for theseconstruction projects and whether these overcharges were approved in customerrates.  The construction projectscompleted by this specific contractor related primarily to work on watertreatment and pumping plants which have been placed in service and are used anduseful.  In June 2007, GSWC receivednotification from the CPUC that it was instituting an audit. The purpose of theaudit was to examine for the period 1994 to the present,

 

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GSWC’s policies,procedures, and practices throughout all of its Regions regarding the grantingor awarding of construction contracts or jobs. GSWC is currently responding to data requests submitted by the CPUCincluding recent data requests which asked for information prior to 1994.  Management cannot predict the outcome of theinvestigation or audit at this time.

 

In January2009, the ACC staff requested information regarding the CPUC subpoena and on-goingaudit.  GSWC has been working with theACC staff to provide responsive materials that are relevant to CCWC.  Management cannot predict the outcome of theACC’s request and whether it could affect the processing of CCWC’s pendinggeneral rate case.

 

GSWC’sBVES division has been regularly filing compliance reports with the CPUCregarding its purchases of energy from renewable energy resources. The filingsindicated that BVES had not achieved interim target purchase levels ofrenewable energy resources and thus, on its face, might be subject to apotential penalty. The CPUC considered the future timing and applicability ofrenewable energy resource requirements as they apply to smaller energyutilities like BVES and on May 30, 2008, the CPUC issued its final decisionregarding the renewable responsibilities of small utilities (includingBVES).  The final decision affirmed therenewable obligation targets for the small utilities but also allowed for thesmall utilities to defer compliance under the CPUC’s flexible compliancerules.  BVES is continuing its efforts toprocure renewable resources each year going forward, and where that may provedifficult because the market for such resources is very constrained, then BVESwill be required to describe in detail the problems that warrant furtherdeferral, in accordance with the CPUC’s flexible compliance rules. Because thefinal decision deferred BVES’ interim target purchase levels for the years 2004through 2007, management believes that the CPUC’s decision effectivelyforecloses any exposure to financial penalties for the year 2007 andearlier.  For the 2008 year, BVES did notmeet the interim targets and expects that the CPUC will waive any potentialfines in accordance with the flexible compliance  rules.  Accordingly, no provision for loss has beenrecorded in the financial statements as of March 31, 2009.  At this time, management cannot determine ifinterim targets for the 2009 year will be met.

 

**Note 3 —Earnings per Share/Capital Stock:**

 

Registrantcomputes earnings per share (“EPS”) in accordance with Emerging Issues TaskForce (“EITF”) No. 03-06, *“Participating Securitiesand the Two-Class Method under FASB Statement No. 128”. *EITF No. 03-06 provides theaccounting guidance for the effect of participating securities on EPScalculations and the use of the “two-class” method. The guidance requires theuse of the “two-class” method of computing EPS for companies with participatingsecurities. The “two-class” method is an earnings allocations formula thatdetermines EPS for each class of common stock and participating security.  AWR has participating securities related tostock options that earn dividend equivalents on an equal basis with CommonShares that have been issued under AWR’s 2003 Non-Employee Directors Stock Planand restricted stock units under AWR’s 2000 Stock Incentive Plan, 2008 StockIncentive Plan and 2003 Non-Employee Directors Stock Plan.  In applying the “two-class” method,undistributed earnings are allocated to both Common Shares and participatingsecurities. The following is a reconciliation of Registrant’s net income andweighted average Common Shares outstanding for calculating basic net income pershare:

 
| **Basic**                                                     | ** **                                                    | **For The Three Months Ended March 31,** | ** ** |
|---------------------------------------------------------------|---------------------------------------------------------------|------------------------------------------|------------|
| **(in thousands, except per share amounts)**                  | ** **                                                    | **2009**                                 | ** ** | **2008** | ** ** |
| Net income                                                    |                                                          | $                                        | 4,932      |   | $ | 5,304 |   |
| Less: (a)                                           | Distributed  earnings to common shareholders                  |                                     | 4,328      |   | 4,310 |   |
|                                                          | Distributed  earnings to participating securities             |                                     | 25         |   | 25 |   |
| Undistributed  earnings                                       |                                                          | 579                                      |       | 969 |   |
|                                                          |                                                          |                                     |       |   |   |
| (b)                                                 | Undistributed  earnings allocated to common shareholders      |                                     | 576        |   | 964 |   |
|                                                          | Undistributed  earnings allocated to participating securities |                                     | 3          |   | 5 |   |
|                                                          |                                                          |                                     |       |   |   |
| Total income  available to common shareholders, basic (a)+(b) |                                                          | $                                        | 4,904      |   | $ | 5,274 |   |
|                                                          |                                                          |                                     |       |   |   |
| Weighted average  Common Shares outstanding, basic            |                                                          | 17,312                                   |       | 17,239 |   |
| **Basic  earnings per Common Share**                          |                                                          | $                                        | 0.28       |   | $ | 0.31 |   |
|                                                               |                                                               |                                          |            |  |  |  |  |  |  |

 

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DilutedEPS is based upon the weighted average number of Common Shares, including bothoutstanding shares and shares potentially issuable in connection with stockoptions  granted under Registrant’s 2003Non-Employee Directors Stock Plan in 2006 and restricted stock units issuedunder Registrant’s 2000 Stock Incentive Plan, 2008 Stock Incentive Plan and2003 Non-Employee Directors Stock Plan, and net income. At March 31, 2009 and2008 there were 680,008 and 567,468 options outstanding, respectively, underthese Plans. At March 31, 2009 and 2008, there were also approximately 87,373and 71,938 restricted stock units outstanding, respectively.

 

Thefollowing is a reconciliation of Registrant’s net income and weighted averageCommon Shares outstanding for calculating diluted net income per share:

 
| **Diluted**                                          | ** ** | **For The Three Months Ended March 31,** | ** ** |
|------------------------------------------------------|------------|------------------------------------------|------------|
| **(in thousands, except per share amounts)**         | ** ** | **2009**                                 | ** ** | **2008** | ** ** |
| Common  shareholders earnings, basic                 |       | $                                        | 4,904      |   | $ | 5,274 |   |
| Undistributed  earnings for dilutive stock options   |       | 3                                        |       | 3 |   |
| Total common  shareholders earnings, diluted         |       | $                                        | 4,907      |   | $ | 5,277 |   |
|                                                 |       |                                     |       |   |   |
| Weighted average  common shares outstanding, basic   |       | 17,312                                   |       | 17,239 |   |
| Stock-based  compensation (1)                        |       | 128                                      |       | 118 |   |
| Weighted average  common shares outstanding, diluted |       | 17,440                                   |       | 17,357 |   |
| **Diluted  earnings per Common Share**               |       | $                                        | 0.28       |   | $ | 0.30 |   |

 

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(1)          In applying the treasury stock method ofreflecting the dilutive effect of outstanding stock-based compensation in thecalculation of diluted EPS, 425,053 and 356,619 stock options at March 31, 2009and 2008, respectively, were deemed to be outstanding in accordance with SFAS No.128, *“Earnings Per Share”*.  All of the 87,373 and 71,938 restricted stockunits at March 31, 2009 and 2008, respectively, were included in thecalculation of diluted EPS for the three months ended March 31, 2009 and 2008.

 

Stockoptions of 254,271 and 111,711 were outstanding at March 31, 2009 and 2008,respectively, but not included in the computation of diluted EPS because therelated option exercise price was greater than the average market price of AWR’sCommon Shares for the three months ended March 31, 2009 and 2008.  Stock options of 684 and 99,138 wereoutstanding at March 31, 2009 and 2008, respectively, but not included in thecomputation of diluted EPS because they were antidilutive.

 

Duringthe three months ended March 31, 2009 and 2008, Registrant issued 19,957 and12,798 Common Shares, for approximately $472,000 and $255,000, respectively,under Registrant’s Common Share Purchase and Dividend Reinvestment Plan, the401(k) Plan, and the stock incentive plans. In addition, Registrant purchased304 Common Shares on the open market during the three months ended March 31,2009 under Registrant’s Common Share Purchase and Dividend Reinvestment Planand 14,360 Common Shares during the three months ended March 31, 2008, under Registrant’sCommon Share Purchase and Dividend Reinvestment Plan and 401(k) Plan.  The Common Shares purchased by Registrantwere used to satisfy the requirements of these plans.

 

Duringeach of the three months ended March 31, 2009 and 2008, AWR paid quarterlydividends to shareholders of approximately $4.3 million, or $0.250 per share.

 

**Note 4 — Derivative Instruments:**

 

Most of the electricenergy sold by BVES to its customers is purchased from others.  To mitigate exposure to spot-market prices,Registrant has entered into purchased power contracts, which are subject toderivative accounting, to serve its BVES customer service area.  By entering into these fixed-priced purchasedpower contracts, Registrant has been able to limit the amount of risk anduncertainty due to spot-market price variability.  Changes in electricity costs are outside ofmanagement’s control, therefore, the purpose of entering into these fixed pricecontracts is to stabilize purchased power costs.  Except for the resale of small amounts ofpower in the spot market that are in excess of BVES’ customers’ needs, thepower purchased under the contracts is only used to service BVES customers’demand.

 

Registranthad certain block-forward purchased power contracts that were subject to SFAS No.133, *“Accounting for Derivative Instruments and HedgingActivities”*, as amended by SFAS Nos. 138 and 149. During 2002, GSWCbecame a party to block-forward purchased power contracts that qualified asderivative instruments

 

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underSFAS No. 133.  As a result, unrealizedgains and losses were recorded on a monthly basis to reflect the fair marketvalue of the derivative at the end of each month. These contracts expired on December 31, 2008.  During the three months ended March 31, 2008,a $2.8 million unrealized gain on purchased power contracts was recorded.

 

InOctober 2008,  GSWC executed a new purchasedpower contract.  GSWC began receivingpower under this contract on January 1, 2009 at a fixed cost over three andfive year terms depending on the amount of power and period during which thepower will be purchased under the contract. The new contract was subject toCPUC approval and in 2009, the CPUC issued a PD approving the contract.  The new contract is also subject to SFAS No. 133and requires mark-to-market derivative accounting.  In connection with the filing to review andapprove the new contract, BVES also requested and the CPUC authorized theestablishment of a regulatory asset and liability memorandum account to offsetthe entries required by SFAS No. 133. Accordingly, all unrealized gains and losses generated from the newpurchased power contract will be deferred on a monthly basis into thenon-interest bearing regulatory memorandum account that will track the changesin fair value of the derivative throughout the term of the contract.  As a result, unrealized derivative gains andlosses from the new contract will not affect GSWC’s earnings, and will have noimpact on power purchased for resale due to regulatory accounting treatment.

 

Asa result of the new purchase power contract, on a monthly basis, the relatedasset or liability is adjusted to reflect the fair market value at the end ofthe month.  Registrant adopted SFAS No. 157effective January 1, 2008 for financial assets and liabilities measured on arecurring basis.  SFAS No. 157 applies toall financial assets and financial liabilities that are being measured andreported on a fair value basis. There was no impact in the adoption of SFAS No.157 to the consolidated financial statements. However, SFAS No. 157 requiresdisclosure that establishes a framework for measuring fair value and expandsdisclosure about fair value measurements. The statement requires fair valuemeasurements to be classified and disclosed in one of the following threecategories:

 

*Level 1*: Unadjusted quoted prices in activemarkets that are accessible at the measurement date for identical, unrestrictedassets or liabilities;

 

*Level 2*: Quoted prices in markets that are notactive, or inputs which are observable, either directly or indirectly, forsubstantially the full term of the asset or liability, or

 

*Level 3*: Prices or valuation techniques thatrequire inputs that are both significant to the fair value measurement andunobservable (i.e., supported by little or no market activity).

 

Registrant’s valuationmodel utilizes various inputs that include quoted market prices for energy overthe duration of the contracts. The market prices used to determine the fairvalue for this derivative instrument were estimated based on independentsources such as broker quotes and publications that are not observable in orcorroborated by the market. Registrant receives one broker quote to determinethe fair value of its derivative instrument. When such inputs have a significant impact on the measurement of fairvalue, the instrument is categorized in Level 3.  Accordingly, the valuation of the derivativeon Registrant’s new purchased power contract has been classified as Level 3.

 

The following tablepresents changes in the fair value of the derivative for the three months endedMarch 31, 2009 and 2008.

 
| ** **                                           | ** ** | **For the Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------|------------|-------------------------------------------|------------|
| **(dollars in thousands)**                           | ** ** | **2009**                                  | ** ** | **2008** | ** ** |
| Balance, at  beginning of the period                 |       | $                                         | —     |   | $ | (1,554 | ) |
| Unrealized (loss)/gain  on purchased power contracts |       | (8,428                                    | )          | 2,843 |   |
| Balance, at end  of the period                       |       | $                                         | (8,428     | ) | $ | 1,289 |   |

 

Forthe three months ended March 31, 2009, the unrealized loss was included inregulatory assets.  For the three monthsended March 31, 2008, the unrealized gain was included in operating expenses.

 

**Note 5 —Income Taxes:**

 

As aregulated utility, GSWC treats certain temporary differences as flow-throughadjustments in computing its income tax provision consistent with the incometax approach approved by the CPUC for ratemaking purposes. Flow-through adjustmentsincrease or decrease tax expense in one period, with an offsetting increase ordecrease occurring in another period. Giving effect to these temporarydifferences as flow-through adjustments typically results in a greater variancebetween the effective tax rate (“ETR”) and the statutory federal income taxrate in any given period than would otherwise exist if GSWC were not requiredto account for its income taxes as a regulated enterprise.

 

Registrant’spolicy is to classify interest on income tax over/underpayments in interestincome/expense and penalties in operating expenses.

 

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On February 20,2009, California’s governor signed two bills into law that amended and addedseveral new provisions to California’s Revenue and Taxation Code.  One of the provisions in these bills changedthe manner by which most taxpayers may compute the portion of their incomederived from multiple jurisdictions that is subject to Californiataxation.  During the first quarter of2009, AWR applied the changes in tax law resulting from enactment of the billsbased on its understanding of the legislature’s intent, which is to permittaxpayers to apply an alternative apportionment method commencing with the 2011tax year.  As a result of management’sintention to apply the alternative method, AWR adjusted its deferred taxbalances at March 31, 2009 to reflect the expected amount at which it willrealize its California deferred taxes consistent with the changes in tax law,as well as refining certain related estimates. This resulted in the recording of a benefit of approximately $918,000during the first quarter of 2009. While the effect of the tax law change willcontinue to affect AWR’s state taxes, the future effects may be beneficial ordetrimental depending on a combination of the profitability of AWR’snon-California activities as well as the relative proportion of the factor(s) appliedby its apportionment method.  Quarterly,management will assess its intention to apply the alternative method and willadjust its deferred tax balances accordingly.

 

GSWC continues to computeits state tax provision as if it were autonomous and not a member of AWR’sunitary group.  This approach isconsistent with the methodology used for ratemaking purposes.  Given that 100 percent of GSWC’s activitiesare conducted within California, GSWC’s state tax provision does not reflectapportionment of its income; consequently, the change in California law has hadno effect upon GSWC’s state taxes.

 

**Note 6 — Employee Benefit Plans:**

 

The components of netperiodic benefit costs, before allocation to the overhead pool, for Registrant’spension plan, postretirement plan, and Supplemental Executive Retirement Plan (“SERP”)for the three months ended March 31, 2009 and 2008 are as follows:

 
| ** **                                     | ** ** | **Pension Benefits** | ** ** | **Other  Postretirement  Benefits** | ** ** | **SERP** | ** ** |
|------------------------------------------------|------------|---------------------------|------------|-------------------------------------|------------|----------|------------|
| **(dollars in thousands)**           | ** ** | **2009**                  | ** ** | **2008**                            | ** ** | **2009** | ** ** | **2008** | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Components  of Net Periodic Benefits Cost:** |       |                      |       |                                |       |     |       |   |   |   |   |   |   |
| Service cost                                   |       | $                         | 1,044      |                                | $          | 909      |       | $ | 86 |   | $ | 86 |   | $ | 93 |   | $ | 60 |   |
| Interest cost                                  |       | 1,444                     |       | 1,342                               |       | 160      |       | 161 |   | 86 |   | 63 |   |
| Expected return  on plan assets                |       | (971                      | )          | (1,235                              | )          | (52      | )          | (63 | ) | — |   | — |   |
| Amortization of  transition                    |       | —                    |       | —                              |       | 105      |       | 105 |   | — |   | — |   |
| Amortization of  prior service cost (benefit)  |       | 30                        |       | 30                                  |       | (50      | )          | (50 | ) | 40 |   | 230 |   |
| Amortization of  actuarial loss (gain)         |       | 572                       |       | —                              |       | —   |       | — |   | — |   | (14 | ) |
| Net periodic  pension cost                     |       | $                         | 2,119      |                                | $          | 1,046    |       | $ | 249 |   | $ | 239 |   | $ | 219 |   | $ | 339 |   |

 

Registrantexpects to contribute a minimum of approximately $8,476,000 and $725,000 topension and postretirement medical plans in 2009, respectively.  No contributions were made during the threemonths ended March 31, 2009.  Therewas a significant increase in the underfunded status of the pension plan during2008.  This was primarily due to asignificant decrease in the fair value of plan assets due to market conditionsduring 2008.  The increase in theunderfunded status of the pension plan resulted in higher pension costs duringthe three months ended March 31, 2009 compared to the same period in 2008.

 

Inaddition, during the four months ended April 30, 2009, the fair value ofthe pension plan assets declined further by approximately 1% since December 31,2008.  Continued decreases in plan assetvalues will: (i) result in an increase in Registrant’s underfundedpositions on the balance sheet with a corresponding increase in regulatoryassets for pensions and other postretirement obligations at year-end; (ii) potentiallyincrease pension and postretirement expense in the next fiscal year, to theextent the effects are not offset by the effects of a change in the discountrate, and (iii) potentially require greater cash contributions in 2010 andsubsequent years.

 

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**Note 7 — Contingencies:**

 

***WaterQuality-Related Litigation******:***

 

Perchlorate and/orVolatile Organic Compounds (“VOC”) have been detected in five wells servicingGSWC’s South San Gabriel System. GSWC filed suit in federal court, along withtwo other affected water purveyors and the San Gabriel Basin Water QualityAuthority (“WQA”), against some of those allegedly responsible for thecontamination of two of these wells. Some of the other potential defendantssettled with GSWC, other water purveyors and the WQA (the “Water Entities”), onVOC related issues prior to the filing of the lawsuit. In response to thefiling of the lawsuit, the Potentially Responsible Party (“PRP”) defendantsfiled motions to dismiss the suit or strike certain portions of the suit. Thejudge issued a ruling on April 1, 2003 granting in part and denying inpart the PRP’s motions. A key ruling of the court was that the water purveyors,including GSWC, by virtue of their ownership of wells contaminated withhazardous chemicals are themselves PRPs under the Comprehensive EnvironmentalResponse, Compensation, and Liability Act (“CERCLA”).

 

GSWC has, pursuant topermission of the court, amended its suit to claim certain affirmative defensesas an “innocent” party under CERCLA. Registrant is presently unable to predictthe outcome of this ruling on its ability to fully recover from the PRPs futurecosts associated with the treatment of these wells. In this same suit, the PRPshave filed cross-complaints against the Water Entities, the Metropolitan WaterDistrict, the Main San Gabriel Basin Watermaster and others on the theory thatthey arranged for and did transport contaminated water into the Main SanGabriel Basin for use by GSWC and the other two affected water purveyors andfor other related claims.

 

On August 29, 2003,the US Environmental Protection Agency (“EPA”) issued Unilateral AdministrativeOrders (“UAO”) against 41 parties deemed responsible for polluting thegroundwater in that portion of the San Gabriel Valley from which the twoimpacted GSWC wells draw water. GSWC was not named as a party to the UAO. TheUAO requires that these parties remediate the contamination. The judge in thelawsuit has appointed a special master to oversee mandatory settlementdiscussions between the PRPs and the Water Entities. EPA is also conductingsettlement discussions with several PRPs regarding the UAO. The Water Entitiesand EPA are working to coordinate their settlement discussions under thespecial master in order to arrive at a complete resolution of all issuesaffecting the lawsuit and the UAO. Settlements with a number of the PRPs arebeing finalized; however, Registrant is presently unable to predict theultimate outcome of these settlement discussions.

 

***Condemnation ofProperties******:***

 

The laws of the State ofCalifornia and the State of Arizona provide for the acquisition of publicutility property by governmental agencies through their power of eminentdomain, also known as condemnation, where doing so is necessary and in thepublic interest. In addition, however, the laws of California provide: (i) thatthe owner of utility property may contest whether the condemnation is actuallynecessary and in the public interest, and (ii) that the owner is entitledto receive the fair market value of its property if the property is ultimatelytaken.

 

Although the City ofClaremont, California (the “City”) located in GSWC’s Region III, has notinitiated the formal condemnation process pursuant to California law, the Cityhas expressed various concerns to GSWC about the rates charged by GSWC and theeffectiveness of the CPUC’s rate-setting procedures. The City hired aconsultant to perform an appraisal of the value of GSWC’s water system servingthe City. The value was estimated in 2004 by the City’s consultant at$40—$45 million. GSWC disagrees with the consultant’s valuationassessment. As of March 31, 2009, management believes that the fair marketvalue of the Claremont water system exceeds the $41.5 million recorded net bookvalue and also exceeds the consultant’s estimates of its value. The councilmembers agreed that the acquisition of GSWC’s water system was to remain apriority and authorized staff to obtain updated appraisals for the value of thewater systems.  In  meetings held in 2008, the Claremont CityCouncil stated that they had decided to authorize additional studies of theacquisition of GSWC’s water system and planned to move forward on this matter.

 

The Town of Apple Valley(the “Town”) abandoned its activities related to a potential condemnation ofGSWC’s water system serving the Town in 2007. However, in April 2009, theTown announced that it will again consider a potential takeover of GSWC’s AppleValley water systems.  The Town hasapproved the cost to perform a feasibility study which will be used by the Townin making a determination whether to move forward with an eminent domainaction.

 

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Except for the City of Claremontand the Town of Apple Valley, Registrant has not been, within the last threeyears, involved in activities related to the potential condemnation of any ofits water customer service areas or in its BVES customer service area. Noformal condemnation proceedings have been filed against any of the Registrant’sservice areas during the past three years.

 

***Santa MariaGroundwater Basin Adjudication******:***

 

In1997, the Santa Maria Valley Water Conservation District (“plaintiff”) filed alawsuit against multiple defendants, including GSWC, the City of Santa Maria,and several other public water purveyors. The plaintiff’s lawsuit sought anadjudication of the Santa Maria Groundwater Basin (the “Basin”). A stipulatedsettlement of the lawsuit has been reached, subject to CPUC approval.  The settlement, among other things, ifapproved by the CPUC, would preserve GSWC’s historical pumping rights andsecure supplemental water rights for use in case of drought or other reductionsin the natural yield of the Basin. GSWC, under the stipulation, has a right to10,000 acre-feet of groundwater replenishment provided by the TwitchellProject, a storage and flood control reservoir project operated by the SantaMaria Valley Conservation District.  A monitoring and annual reportingprogram has been established to allow the parties to responsibly manage theBasin and to respond to shortage conditions.  If severe water shortageconditions are found over a period of five years, the management areaengineer will make findings and recommendations to alleviate suchshortages.  In the case that the Basin experiences severe shortageconditions, the court has the authority to limit GSWC’s groundwaterproduction to 10,248 acre-feet per year, based on developedwater in the Basin.

 

OnFebruary 11, 2008, the court issued its final judgment, which approves andincorporates the stipulation.  The judgment awards GSWC prescriptiverights to groundwater against the non-stipulating parties.  In addition,the judgment grants GSWC the right to use the Basin for temporary storage andto recapture 45 percent of the return flows that are generated from itsimportation of State Water Project water.  Pursuant to this judgment, thecourt retains jurisdiction over all of the parties to make supplemental ordersor to amend the judgment as necessary. On March 20, 2008, the non-stipulating parties filed notices ofappeal.  Registrant is unable to predictthe outcome of the appeal.

 

***Aerojet Note Receivable:***

 

Pursuant to thesettlement agreement with Aerojet, GSWC has an $8.0 million notereceivable, plus $2.3 million of accrued interest, guaranteed by Aerojet.  This note, plus interest on the unpaidbalance, is scheduled to be paid by Aerojet in installments over five yearsbeginning in December 2009.  In January 2009,Moody’s Investors Service downgraded the corporate family ratings of GenCorpInc., Aerojet’s parent, further to B3 from B2 and its probability of defaultrating to Caa1 from B2.  Obligationsrated “B” by Moody’s are considered speculative by Moody’s and are, in Moody’sview, subject to high credit risk and have generally poor credit quality.  Obligations rated Caa1 are judged by Moody’sto be of poor credit standing and are, in Moody’s view, subject to very highcredit risk and have extremely poor credit quality.   On March 31, 2009, Standard &Poor’s Ratings Services, or S&P, lowered its ratings on GenCorp to CCC+from B+ with a developing outlook.  AnS&P rating of “CCC” indicates a current identifiable vulnerability todefault by S&P that is, in S&P’s view, dependent upon favorablebusiness, financial and economic conditions to meet timely payment of interestand repayment of principal.  At thistime, management believes the note receivable from Aerojet is still fullycollectible and has not provided a reserve for uncollectible amounts as of March 31,2009.  GSWC will continue to assessrecoverability of this note receivable.

 

***Air QualityManagement District******:***

 

In 1998, the South CoastAir Quality Management District (“AQMD”) issued a permit to GSWC for theinstallation and use of air stripping equipment at one of GSWC’s groundwatertreatment systems in its Region II service area. In 2005, the AQMD conducted aninspection of this facility (“Watson Well”) and issued a Notice of Violation (“NOV”)for exceeding the amount of groundwater permitted to be treated by thetreatment system during calendar year 2004. In 2007, GSWC reached a settlementof the NOV with the AQMD.  As part of thesettlement, GSWC agreed to install and operate granular activated carbon (“GAC”)filters at the facility. Installation of the filters will eliminate the use ofthe air stripping equipment at the facilities involved with the NOV and thusimprove air quality. The AQMD accepted this agreement and assessed a nominalpenalty.  In February 2009, GSWCbegan operating the permanent GAC treatment system at the Watson Plant.  Management believes that GSWC has fulfilled

 

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its obligations under thesettlement with AQMD and no further penalties are expected to be assessed. UponAQMD inspection and approval, GSWC will be deemed released from any and allclaims or penalties arising from the NOV. GSWC has spent approximately $1.1 million as of March 31, 2009 onthe GAC treatment system. Management also believes it is probable that thecapital costs incurred on this project will be approved in rate-base by theCPUC.

 

***EnvironmentalClean-Up and Remediation******:***

 

Chadron Plant: GSWC has been involved in environmentalremediation and clean-up at a plant site (“Chadron Plant”) that contained anunderground storage tank which was used to store gasoline for its vehicles.This tank was removed from the ground in July 1990 along with thedispenser and ancillary piping. Since then, GSWC has been involved in variousremediation activities at this site. Recent site assessments have been conducted which showed that there was more gasoline at higherconcentrations spread over a larger area than previously measured.  Remediation is estimated to take two more years, followed by at least oneyear of monitoring and reporting.  As of March 31,2009, the total spent to clean-up and remediate GSWC’s plant facility isapproximately $2.1 million, of which $1.5 million has been paid by theState of California Underground Storage Tank Fund and $600,000 has beenincluded in rate-base and approved by the CPUC for recovery.

 

As of March 31, 2009, GSWC has an accruedliability for the estimated additional cost of $1.3 million to complete theclean-up at the site. The ultimate cost may vary as there are many unknowns inremediation of underground gasoline spills and this is an estimate based oncurrently available information. Management also believes it is probable thatthe additional costs of remediation will be approved in rate-base by the CPUC.

 

Ballona Plant: During the first quarter of 2008,hydrocarbon contaminated soil was found at a plant site (“Ballona Plant”)located in GSWC’s Southwest customer service area where an abandoned water tankwas demolished.  The contaminationappears to be shallow and is believed likely to be the result of past corrosioncontrol practices. An initial investigation and characterization of thecontaminated area has been conducted. The investigation report indicates that contamination levels are belownormal cleanup goals.  GSWC is contactingthe local agency to get direction on what cleanup, if any, is required.  Historically, the cost for this type of clean-uphas been included in rates as approved by the CPUC.

 

***Other Litigation******:***

 

Two former officers ofGSWC filed a lawsuit against both AWR and GSWC alleging among other things,wrongful termination and retaliation against the former officers. Managementbelieves that the allegations are without merit and intends to vigorouslydefend against them. Based on management’s understanding of all the claims,management does not believe that the ultimate resolution of this matter willhave a material adverse effect on AWR’s and GSWC’s financial position, resultsof operations, or cash flows.

 

Registrant is alsosubject to other ordinary routine litigation incidental to its business.Management believes that rate recovery, proper insurance coverage and reservesare in place to insure against property, general liability and workers’compensation claims incurred in the ordinary course of business. Registrant isunable to predict an estimate of the loss, if any, resulting from any pendingsuits or administrative proceedings.

 

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**Note 8 — Business Segments:**

 

AWR has three reportablesegments, water, electric and contracted services, whereas GSWC has twosegments, water and electric. Within the segments, AWR has three principalbusiness units: water and electric service utility operations conducted throughGSWC, a water-service utility operation conducted through CCWC, and a contractedservices unit conducted through ASUS and its subsidiaries. All activities ofGSWC are geographically located within California. All activities of CCWC arelocated in the state of Arizona. Activities of ASUS and its subsidiaries havebeen conducted in California, Maryland, New Mexico, North Carolina, SouthCarolina, Texas and Virginia.  Both GSWCand CCWC are rate-regulated utilities. ASUS’ wholly-owned subsidiaries are regulated by the respective state inwhich the military base on which they operate is located.  On a stand-alone basis, AWR has no materialassets other than its investments in its subsidiaries. The tables below setforth information relating to GSWC’s operating segments, CCWC, ASUS and itssubsidiaries, and AWR Parent. Certain assets, revenues and expenses have beenallocated in the amounts set forth. The identifiable assets are net ofrespective accumulated provisions for depreciation. Capital additions reflectcapital expenditures paid in cash and exclude property installed by developersand conveyed to GSWC or CCWC.

 
| ** **                             | ** ** | **As Of And For The Three Months Ended March 31, 2009** | ** ** |
|----------------------------------------|------------|-----------------------------------------------------------------------------------------------------------|------------|
| ** **                             | ** ** | **GSWC**                                                                                                  | ** ** | **CCWC** | ** ** | **ASUS** | ** ** | **AWR** | ** ** | **Consolidated** | ** ** |
| **(dollars in thousands)**   | ** ** | **Water**                                                                                                 | ** ** | **Electric** | ** ** | **Water** | ** ** | **Contracts** | ** ** | **Parent** | ** ** | **AWR** | ** ** |
| Operating  revenues                    |       | $                                                                                                         | 55,178     |   | $ | 8,632 |   | $ | 1,616 |   | $ | 14,183 |   | $ | — |   | $ | 79,609 |   |
| Operating income  (loss)               |       | 11,167                                                                                                    |       | (544 | ) | (223 | ) | 1,068 |   | (50 | ) | 11,418 |   |
| Interest  expense, net                 |       | 4,286                                                                                                     |       | 511 |   | 105 |   | 99 |   | 91 |   | 5,092 |   |
| Identifiable  assets                   |       | 751,745                                                                                                   |       | 37,466 |   | 45,127 |   | 2,164 |   | — |   | 836,502 |   |
| Depreciation and  amortization expense |       | 7,148                                                                                                     |       | 565 |   | 486 |   | 162 |   | — |   | 8,361 |   |
| Capital  additions                     |       | 16,865                                                                                                    |       | 311 |   | 488 |   | 18 |   | — |   | 17,682 |   |
|                                        |            |                                                                                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                             | ** ** | **As Of And For The Three Months Ended March 31, 2008** | ** ** |
|----------------------------------------|------------|-----------------------------------------------------------------------------------------------------------|------------|
| ** **                             | ** ** | **GSWC**                                                                                                  | ** ** | **CCWC** | ** ** | **ASUS** | ** ** | **AWR** | ** ** | **Consolidated** | ** ** |
| **(dollars in thousands)**   | ** ** | **Water**                                                                                                 | ** ** | **Electric** | ** ** | **Water** | ** ** | **Contracts** | ** ** | **Parent** | ** ** | **AWR** | ** ** |
| Operating  revenues                    |       | $                                                                                                         | 50,506     |   | $ | 8,803 |   | $ | 1,583 |   | $ | 8,050 |   | $ | — |   | $ | 68,942 |   |
| Operating income  (loss)               |       | 11,763                                                                                                    |       | 3,410 | (1) | (68 | ) | (541 | ) | (102 | ) | 14,462 |   |
| Interest  expense, net                 |       | 4,179                                                                                                     |       | 516 |   | 117 |   | 230 |   | (25 | ) | 5,017 |   |
| Identifiable  assets                   |       | 701,396                                                                                                   |       | 38,180 |   | 43,550 |   | 1,662 |   | — |   | 784,788 |   |
| Depreciation and  amortization expense |       | 6,690                                                                                                     |       | 552 |   | 460 |   | 91 |   | — |   | 7,793 |   |
| Capital  additions                     |       | 15,840                                                                                                    |       | 199 |   | 871 |   | 309 |   | — |   | 17,219 |   |
|                                        |            |                                                                                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)          Includes $2,843,000 unrealized gain on purchased powercontracts

 

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**Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

# **General**

#  

American States WaterCompany (“AWR”) is the parent company of Golden State Water Company (“GSWC”),Chaparral City Water Company (“CCWC”) and American States Utility Services, Inc.(“ASUS”) and its subsidiaries (Fort Bliss Water Services Company (“FBWS”),Terrapin Utility Services, Inc. (“TUS”), Old Dominion Utility Services, Inc.(“ODUS”), Palmetto State Utility Services, Inc. (“PSUS”) and Old NorthUtility Services, Inc. (“ONUS”)). AWR was incorporated as a Californiacorporation in 1998 as a holding company. AWR has three reportable segments: water, electric and contractedservices. Within the segments, AWR has three principal business units: waterand electric service utility operations conducted through GSWC, a water-serviceutility operation conducted through CCWC, and a contracted services unitconducted through ASUS and its subsidiaries. FBWS, TUS, ODUS, PSUS and ONUS maybe referred to herein collectively as the “Military Utility PrivatizationSubsidiaries”.

 

GSWC is a Californiapublic utility company engaged principally in the purchase, production and distributionof water. GSWC also distributes electricity in one customer service area. GSWCis regulated by the California Public Utilities Commission (“CPUC”) and wasincorporated as a California corporation on December 31, 1929. GSWC isorganized into one electric customer service area and three water serviceregions operating within 75 communities in 10 counties in the State ofCalifornia and provides water service in 21 customer service areas. Region Iconsists of 7 customer service areas in northern and central California; RegionII consists of 4 customer service areas located in Los Angeles County; andRegion III consists of 10 customer service areas in eastern Los Angeles County,and in Orange, San Bernardino and Imperial counties. GSWC also provides electricservice to the City of Big Bear Lake and surrounding areas in San BernardinoCounty through its Bear Valley Electric Service (“BVES”) division.

 

GSWCserved 254,451 water customers and 23,094 electric customers at March 31,2009, or a total of 277,545 customers, compared with 254,364 water customersand 23,141 electric customers, or a total of 277,505 customers at March 31,2008. GSWC’s utility operations exhibit seasonal trends. Although GSWC’s waterutility operations have a diversified customer base, residential and commercialcustomers account for the majority of GSWC’s water sales and revenues. Revenuesderived from commercial and residential water customers accounted forapproximately 90% oftotal water revenues for the three months ended March 31,2009 and 2008.

 

CCWC is an Arizona publicutility company serving 13,405 customers at March 31, 2009, compared with13,482 customers at March 31, 2008. Located in the town of Fountain Hills,Arizona and a portion of the City of Scottsdale, Arizona, the majority of CCWC’scustomers are residential. The Arizona Corporation Commission (“ACC”) regulatesCCWC.

 

ASUS, through itswholly-owned subsidiaries, has contracted with the U.S. government to providewater and/or wastewater services, including both the operation and maintenanceand renewal and replacement of the water and/or wastewater systems pursuant to50-year fixed price contracts, which are subject to periodic prospective priceredeterminations and modifications for changes in circumstances.  All of the contracts with the U.S. governmentmay be terminated, in whole or in part, prior to the end of the 50-year termfor convenience of the U.S. government or as a result of default ornonperformance by the subsidiary performing the contract. In either event, theMilitary Utility Privatization Subsidiary is entitled to recover the remainingamount of its capital investment pursuant to the terms of a terminationsettlement with the U.S. government at the time of termination as provided forin each of the contracts. The contract price for each of these contracts issubject to redetermination two years after commencement of operations and everythree years thereafter under the terms of these contracts. Prices are subjectto equitable adjustment based upon changes in circumstances, changes in lawsand/or regulations, and changes in wages and fringe benefits to the extentprovided in each of the contracts. Pursuant to the terms of these contracts, the Military Utility PrivatizationSubsidiaries operate, as of the effective date of their respective contracts,the following water and wastewater systems:

 

·                  FBWS- water and wastewater systems at Fort Bliss located near El Paso, Texaseffective October 1, 2004;

·                  TUS- water and wastewater systems at Andrews Air Force Base in Maryland effective February 1,2006;

·                  ODUS- wastewater systems at Fort Lee in Virginia effective February 23, 2006and the water and wastewater systems at Fort Eustis, Fort Monroe and Fort Storyin Virginia effective April 3, 2006 (collectively, the “TRADOC bases”);

 

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·                  PSUS- water and wastewater systems at Fort Jackson in South Carolina effective February 16,2008; and

·                  ONUS- water and wastewater systems at Fort Bragg, Pope Air Force Base and CampMacKall, North Carolina effective March 1, 2008.

 

ASUS and GSWC have alsobeen pursuing opportunities to provide retail water services within the servicearea of the Natomas Central Mutual Water Company (“Natomas”).  Natomas isa California mutual water company which currently provides water service to itsshareholders, primarily for agricultural irrigation in portions of Sacramentoand Sutter counties in northern California. GSWC and Natomas have entered intovarious agreements including the purchase of certain water and water rightsthat may allow GSWC the ability to serve portions of Sutter county in thefuture.

 

**Overview**

 

Registrant’s revenues,operating income and cash flows are earned primarily through delivering potablewater to homes and businesses through approximately 2,900 miles of waterdistribution pipelines and the delivery of electricity in the Big Bear area ofSan Bernardino county. Rates charged to customers of GSWC and CCWC aredetermined by the CPUC and ACC, respectively. These rates are intended to allowrecovery of operating costs and a reasonable rate of return on capital.  Factors affecting financial performance ofour regulated utilities include the process and timing of setting rates chargedto customers; the ability to recover, and the process for recovering in rates,the costs of distributing water and electricity and our overhead costs;weather; the impact of increased water quality standards and environmentalregulations on the cost of operations and capital expenditures; pressures onwater supply caused by population growth, more stringent water qualitystandards, deterioration in water quality and water supply from a variety ofcauses; capital expenditures needed to upgrade water systems and increasedcosts; and risks associated with litigation relating to water quality and watersupply, including suits initiated by Registrant to protect its water supply.

 

Operating revenues andincome from contracted services at ASUS and its subsidiaries are earnedprimarily from the operation and maintenance and renewal and replacement of thewater and/or wastewater systems for the U.S. government at various militarybases. All of the operations and maintenance contracts with the U.S. governmentare 50-year firm, fixed-price contracts with prospective priceredeterminations. ASUS also may generate revenues from the construction ofinfrastructure improvements at these bases pursuant to the terms of these50-year contracts or pursuant to supplemental contracts.  Additional revenues generated by contractoperations are primarily dependent on these new construction activities.  As a result, ASUS is subject to risks thatare different than those of Registrant’s regulated water and electricutilities.  ASUS plans to continueseeking contracts for the operation and maintenance and renewal and replacementof water and/or wastewater services at military bases.  Factors affecting the financial performanceof our Military Utility Privatization Subsidiaries include delays in receivingpayments from the U.S. government and the redetermination and equitableadjustment of prices under contracts with the U.S. government.

 

Registrant plans tocontinue to seek additional rate increases in future years to recover operatingand supply costs and receive reasonable returns on invested capital. Capitalexpenditures in future years are expected to remain at much higher levels thandepreciation expense. Cash solely from operations is not expected to besufficient to fund Registrant’s needs for capital expenditures, dividends,investments in Registrant’s contract business and other cash requirements.Registrant expects to fund a portion of these needs through common stockofferings over the next twelve months depending on market conditions. On August 25,2008, AWR amended its $85 million syndicated credit facility, to increase itsaggregate bank commitments by $30 million to $115 million.  Inaddition, GSWC issued a senior note in the amount of $40.0 million on March 10,2009, to CoBank, ACB(“CoBank”). The proceeds are being used to pay down GSWC’s intercompanyshort-term borrowings and to fund capital expenditures.

 

For three months ended March 31,2009, net income was $4.9 million compared to $5.3  million in the same period of 2008, adecrease of 7.0%. Diluted earnings per share for the three months ended March 31,2009 were $0.28 compared to $0.30 in the same period of 2008.  The decrease in earnings is due primarily to:(i) a $2.8 million pretax unrealized gain on purchased power contracts, or$0.10 per share, for the three months ended March 31, 2008 with nocorresponding entry in 2009, as more fully discussed below; and (ii) higheroperating expenses at GSWC of $2.5 million, or $0.08 per share.  These decreases to earnings were partiallyoffset by: (i) an increase of $0.03 per share in the dollar water margindue to higher customer rates approved by the CPUC and effective January 1,2009;  (ii) the improved financialperformance of the Military Utility Privatization Subsidiaries resulting in anincrease in ASUS’ pretax operating income of $1.6 million, or $0.05 per share,during the three months ended

 

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March 31, 2009when compared to 2008; and (ii) an overall decrease in the effectiveincome tax rate due to changes in enacted state law as well as refining certainrelated estimates, and changes between book and taxable income that are treatedas flow-through adjustments in accordance with regulatory requirements, all ofwhich favorably impacted earnings by $0.08 per share during the first quarterof 2009.

 

Unrealized gains andlosses on previous purchased power contracts impacted GSWC’s earnings if thecontracts qualified as derivative instruments under SFAS No. 133, *“Accounting for Derivative Instruments and Hedging Activities.”*Powerpurchased contracts that qualified as derivative instruments terminated at December 31,2008. GSWC filed anapplication with the CPUC to review its new purchased power contract, effectiveafter December 31, 2008.  Thispurchased power contract was subject to CPUC approval and is also subject toderivative accounting.  In connection with the filing to reviewand approve the new contract, GSWC also requested that the CPUC authorize theestablishment of a memorandum account to track the changes in the fair market value of thecontracts resulting in unrealized gains and losses.

 

In 2009, the CPUCissued a proposed decision approving the new purchase power contract andauthorizing GSWC to establish the memorandum account to track unrealized gainsand losses on the new contract throughout the term of the contract.   Accordingly, during the three months ended March 31,2009, there was an $8.4 million unrealized loss which has been included in thememorandum account therefore not impacting GSWC’s earnings.  There was a $2.8 million pretax unrealized gain onpurchased power contracts included in earnings for the three months ended March 31,2008.  Diluted earnings for the threemonths ended March 31, 2008 were $0.30 per share.  Eliminating the effects of the unrealizedderivative gains, adjusted diluted earnings per share for the three monthsended March 31, 2008 would have decreased by $0.10 per share to $0.20 pershare compared to recorded diluted earnings per share of $0.28 for the threemonths ended March 31, 2009, which did not contain any unrealized gains orlosses on purchased power contracts in earnings.

 

**Summary Results by Segment**

 

AWR has three reportable segments: water,electric and contracts operation. Within the segments, AWR has three principalbusiness units: water and electric service utility operations conducted throughGSWC, a water-service utility operation conducted through CCWC, and acontracted services unit through ASUS and its subsidiaries.  The tables below set forth summaries of theresults by segment (amounts in thousands):

 
| ** **             | ** ** | **Operating Revenues** | ** ** | **Pretax Operating Income** | ** ** |
|------------------------|------------|------------------------|------------|-----------------------------|------------|
| ** **             | ** ** | **3 Months**           | ** ** | **3 Months**                | ** ** | ** ** | ** ** | ** ** | ** ** | **3 Months** | ** ** | **3 Months** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **             | ** ** | **Ended**              | ** ** | **Ended**                   | ** ** | **$** | ** ** | **%** | ** ** | **Ended** | ** ** | **Ended** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **             | ** ** | **3/31/2009**          | ** ** | **3/31/2008**               | ** ** | **CHANGE** | ** ** | **CHANGE** | ** ** | **3/31/2009** | ** ** | **3/31/2008** | ** ** | **CHANGE** | ** ** | **CHANGE** | ** ** |
|                   |       |                   |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Water                  |       | $                      | 56,794     |                        | $          | 52,089 |   | $ | 4,705 |   | 9.0 | % | $ | 10,944 |   | $ | 11,695 |   | $ | (751 | ) | -6.4 | % |
| Electric               |       | 8,632                  |       | 8,803                       |       | (171 | ) | -1.9 | % | (544 | ) | 3,410 |   | (3,954 | ) | -116.0 | % |
| Contracted  services   |       | 14,183                 |       | 8,050                       |       | 6,133 |   | 76.2 | % | 1,068 |   | (541 | ) | 1,609 |   | 297.4 | % |
| AWR parent             |       | —                 |       | —                      |       | — |   | — |   | (50 | ) | (102 | ) | 52 |   | 51.0 | % |
| Totals from  operation |       | $                      | 79,609     |                        | $          | 68,942 |   | $ | 10,667 |   | 15.5 | % | $ | 11,418 |   | $ | 14,462 |   | $ | (3,044 | ) | -21.0 | % |

 

***Water-***Pretaxoperating income for water decreased by 6.4% due to higher operating expensesof $1.5 million, as more fully described later.   Higher operating expenses were partiallyoffset by an increase in the dollar water margin of $755,000.  Higher water rates approved by the CPUCeffective January 1, 2009 increased water revenues by $1.8 million,partially offset by a 3.5% decrease in actual consumption, or $1.0 million,when compared to the first quarter of 2008, mostly due to the continued effectsof statewide customer conservation efforts. However, as a result of the implementation of a Water Revenue AdjustmentMechanism (“WRAM”) account for Regions II and Region III in late November of2008, GSWC recorded $3.7 million in additional revenues in the WRAM account toadjust the first quarter 2009 revenues to consumption levels approved by theCPUC.

 

Althoughthe recording of the WRAM added $3.7 million of water revenues, this favorableimpact to earnings was reduced by $1.1 million of water supply over-collectioncosts tracked in the Modified Cost Balancing Account (“MCBA”) account, alsoimplemented in late November 2008. The over-collection in the MCBA account is due to: (i) lowerconsumption in the first quarter 2009 as compared to the consumption levelapproved by the CPUC, and (ii) a lower percentage of purchased water inthe supply mix during 2009 when compared to the supply mix included in customerrates, partially offset by increases in rates charged by GSWC’s suppliers. The

 

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implementation of the WRAM and MCBA help mitigatefluctuations in the Company’s earnings caused by changes in the volume of watersold and supply costs.

 

The CPUC also approved anadvice letter filing in a separate proceeding to allow GSWC to create andimplement a Water Conservation Memorandum Account (“WCMA”) to track theextraordinary expenses and revenue shortfall associated with conservationmeasures in conjunction with the declared drought in California.  The WCMA was effective August 18, 2008and was used to track the revenue shortfall until the WRAM was implemented on November 25,2008.  At November 24, 2008,approximately $1.9 million of net under-collections was included in the WCMAfor Regions II and III prior to the implementation of the WRAM.

 

 Unlike the WRAM which is probable for recoveryaccording to the August 2008 CPUC decision, the recovery of the WCMA wasless certain and therefore GSWC did not record the under-collection as of March 31,2009.  On April 16, 2009, the CPUCapproved the advice letter filed by GSWC to recover $1.9 million included inthe WCMA and authorized GSWC to establish a 12-month surcharge to customers’bills. The surcharge went into effect on April 21, 2009.  Accordingly, GSWC established a $1.9 millionregulatory asset, which will result in a corresponding increase to income forthe second quarter of 2009 of $0.07 per share.

 

***Electric–***For thethree months ended March 31, 2009, pretax operating income from electricoperations decreased by $4.0 million due in large part to a decrease of $2.8million in the pretax unrealized gain on purchased power contracts.  The unrealized gain on purchased powercontracts increased operating income by approximately $2.8 million during thefirst quarter of 2008, or $0.10 per share, with no corresponding gain in2009.  As previously discussed, thepurchased power contract that resulted in unrealized gains and losses to BVES’earnings terminated at December 31, 2008. The remainder of the decrease in pretax operating income was due to anincrease in operating expenses including higher outsideconsulting and legal costs related to the general rate case, as well as anincrease in the allocation of costs from the corporate headquarters’ to BVESpursuant to CPUC requirements.

 

***ContractedServices -***Forthe three months ended March 31, 2009, pretax operating income forcontracted services increased by $1.6 million, or $0.05 per share.  This was primarily due to an increase in newconstruction projects at Fort Bliss and the TRADOC bases.  Pretax operating income increased $1.6million at these bases.  Earnings andcash flows from amendments and modifications to the original 50-year contractswith the U.S. government are sporadic and may or may not continue in the futureperiods.  There was also an increase ofapproximately $338,000 to pretax operating income related to TUS and ASUS’corporate office resulting from lower legal and consulting fees.  Partially offsetting these increases werecontinued losses incurred at military bases under the PSUS and ONUS contracts.  ASUS began operating and maintaining thewater and wastewater systems under these contracts in North Carolina and SouthCarolina in March and January of 2008, respectively.  Pretax operating losses at these two basesincreased by $319,000 due to increased maintenance expenses at both basescoupled with the fact that expenses for ONUS in 2009 reflect a full quarterwhereas in 2008 it reflected only one month. In September 2008, PSUS submitted a Request forEquitable Adjustment (“REA”) for the water and wastewater systems at FortJackson, South Carolina requesting a contract modification for initial capitalupgrades and emergency construction costs incurred during 2008 due topre-existing conditions that were not anticipated at the time the contract wasexecuted.  The aggregate value of the REArelating to construction work is approximately $1.6 million.  The REA has not yet been approved by the U.S.government.

 

The timely receipt ofprice redeterminations continues to be critical in order for ASUS to recoverincreasing costs for operating and maintaining the water and wastewater systemsat the military bases.  In addition,higher allocations of corporate headquarters’ expenses to ASUS and itswholly-owned subsidiaries by the CPUC were not contemplated at the time thecontracts with the U.S. government were negotiated and will be addressed infuture price redeterminations.  Under theterms of these contracts, the contract price is subject to priceredetermination two years after commencement of operations and every threeyears thereafter.  Redeterminations havebeen submitted and are under review by the U.S. government for  operations of ODUS and TUS in Virginia andMaryland, respectively.   The priceredeterminations are expected to be completed in 2009.  Pending redetermination of prices, ASUS hasreceived interim inflation adjustments during 2008 to the management fees foroperating and maintaining the water and wastewater systems at Fort Eustis, FortStory and Fort Monroe in Virginia, and the wastewater system at Fort Lee alsoin Virginia effective on the second anniversary of the date when ASUS beganoperating these bases (February 23, 2008 for Fort Lee and April 3,2008 for the other three bases).  InMarch 2009, ONUS filed a REA related to a joint inventory report at Fort Bragg,North Carolina.  The report indicated thequantity of the Fort Bragg infrastructure to be about 40% greater than what wasassumed under the original 50-year contract. The REA is expected to be resolved by the third quarter of 2009.

 

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FBWS has experienceddelays in the redetermination of prices at Fort Bliss following completion ofthe first two years of operation in October 2006.  At Fort Bliss, management fees for operationand maintenance of the water and wastewater systems are based on cost levelsprevailing in 2003 when the contract with the U.S. government was bid.   Further, the contract pricing was also basedon assumptions about the size and age of the infrastructure to be operated andmaintained over the 50-year contract.  AnREA has been filed as a claim with the U.S. government to adequately reflectthe amount of assets included in the infrastructure at Fort Bliss, which issubstantially more than originally estimated by the U.S. government as part ofits solicitation for this contract.  In December 2008,the U.S. government approved an interim adjustment at Fort Bliss whichincreased the monthly water and wastewater fees by 50% and 59%, respectively,related to operating and maintaining the Fort Bliss systems. The increase wasretroactive to October 1, 2008 and expired on March 31, 2009.  The U.S. government has prepared amodification extending the interim increases through September 30,2009.  FBWS is continuing negotiationswith Fort Bliss to finalize the adjustment necessary due to the increasedinfrastructure.  FBWS  also intends to file a price redeterminationrequest for Fort Bliss by mid-2009.

 

These priceredeterminations and equitable adjustments, which include adjustments toreflect changes in operating conditions and infrastructure levels from thatassumed at the time of the execution of the contracts, as well as inflation incosts, are expected to provide added revenues prospectively to help offsetincreased costs and provide Registrant the opportunity to generate positiveoperating income at its Military Utility Privatization Subsidiaries.  As of March 31, 2009, ASUS has $1.1million of goodwill, which may be at risk for potential impairment if requestedprice redeterminations and equitable adjustments that have not yet beenapproved, are not received.

 

The following discussionand analysis provides information on AWR’s consolidated operations and assetsand where necessary, includes specific references to AWR’s individual segmentsand/or other subsidiaries: GSWC, CCWC, ASUS and its subsidiaries.

 

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***ConsolidatedResults of Operations — Three Months Ended March 31, 2009 and 2008(amounts in thousands):***

 
| ** **                                        | ** ** | **3 Months**  | ** ** | **3 Months**  | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|---------------|------------|---------------|------------|------------|------------|------------|------------|
| ** **                                        | ** ** | **Ended**     | ** ** | **Ended**     | ** ** | **$**      | ** ** | **%**      | ** ** |
| ** **                                        | ** ** | **3/31/2009** | ** ** | **3/31/2008** | ** ** | **CHANGE** | ** ** | **CHANGE** | ** ** |
| OPERATING  REVENUES                               |       |          |       |          |       |       |       |       |       |
| Water                                             |       | $             | 56,794     |          | $          | 52,089     |       | $          | 4,705      |   | 9.0 | % |
| Electric                                          |       | 8,632         |       | 8,803         |       | (171       | )          | -1.9       | %          |
| Contracted  services                              |       | 14,183        |       | 8,050         |       | 6,133      |       | 76.2       | %          |
| Total operating  revenues                         |       | 79,609        |       | 68,942        |       | 10,667     |       | 15.5       | %          |
|                                              |       |          |       |          |       |       |       |       |       |
| OPERATING  EXPENSES                               |       |          |       |          |       |       |       |       |       |
| Water purchased                                   |       | 8,214         |       | 7,953         |       | 261        |       | 3.3        | %          |
| Power purchased  for pumping                      |       | 1,688         |       | 1,680         |       | 8          |       | 0.5        | %          |
| Groundwater  production assessment                |       | 2,517         |       | 2,375         |       | 142        |       | 6.0        | %          |
| Power purchased  for resale                       |       | 3,962         |       | 4,239         |       | (277       | )          | -6.5       | %          |
| Unrealized gain  on purchased power contracts     |       | —        |       | (2,843        | )          | 2,843      |       | -100.0     | %          |
| Supply cost  balancing accounts                   |       | 3,528         |       | (107          | )          | 3,635      |       | 3397.2     | %          |
| Other operating  expenses                         |       | 7,153         |       | 7,996         |       | (843       | )          | -10.5      | %          |
| Administrative  and general expenses              |       | 16,865        |       | 14,827        |       | 2,038      |       | 13.7       | %          |
| Depreciation and  amortization                    |       | 8,361         |       | 7,793         |       | 568        |       | 7.3        | %          |
| Maintenance                                       |       | 4,073         |       | 3,772         |       | 301        |       | 8.0        | %          |
| Property and  other taxes                         |       | 3,400         |       | 2,920         |       | 480        |       | 16.4       | %          |
| Construction  expenses                            |       | 8,445         |       | 3,875         |       | 4,570      |       | 117.9      | %          |
| Net gain on sale  of property                     |       | (15           | )          | —        |       | (15        | )          | 100.0      | %          |
| Total operating  expenses                         |       | 68,191        |       | 54,480        |       | 13,711     |       | 25.2       | %          |
|                                              |       |          |       |          |       |       |       |       |       |
| OPERATING INCOME                                  |       | 11,418        |       | 14,462        |       | (3,044     | )          | -21.0      | %          |
|                                              |       |          |       |          |       |       |       |       |       |
| OTHER INCOME AND  EXPENSES                        |       |          |       |          |       |       |       |       |       |
| Interest expense                                  |       | (5,294        | )          | (5,378        | )          | 84         |       | -1.6       | %          |
| Interest income                                   |       | 202           |       | 361           |       | (159       | )          | -44.0      | %          |
| Other                                             |       | (30           | )          | 114           |       | (144       | )          | -126.3     | %          |
|                                              |       | (5,122        | )          | (4,903        | )          | (219       | )          | 4.5        | %          |
|                                              |       |          |       |          |       |       |       |       |       |
| INCOME FROM  OPERATIONS BEFORE INCOME TAX EXPENSE |       | 6,296         |       | 9,559         |       | (3,263     | )          | -34.1      | %          |
|                                              |       |          |       |          |       |       |       |       |       |
| Income tax  expense                               |       | 1,364         |       | 4,255         |       | (2,891     | )          | -67.9      | %          |
|                                              |       |          |       |          |       |       |       |       |       |
| NET INCOME                                        |       | $             | 4,932      |          | $          | 5,304      |       | $          | (372       | ) | -7.0 | % |

 

Netincome for the three months ended March 31, 2009 was $4.9 million,equivalent to $0.28 per common share on a basic and fully diluted basis,compared to $5.3 million or $0.31 and $0.30 per common share on a basic and fullydiluted basis, respectively, for the three months ended March 31, 2008, areduction of 7.0%.

 

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Impactingthe comparability in the results of the two periods on a diluted per sharebasis are the following significant items:

 

·                  An unrealized gain on purchased power contracts in2008 which increased pretax income by $2.8 million, or $0.10 per share.  These purchased power contracts expired on December 31,2008 and GSWC began taking delivery of power under a new contract effective January 1,2009.  As previously discussed, the CPUCissued a proposed decision approving the new contract and authorizing GSWC to establish thememorandum account to track unrealized gains and losses on the new contractthroughout the term of the contract.  Accordingly, during the three months ended March 31, 2009, therewas an $8.4 million unrealized loss which has been included in the memorandumaccount, therefore not impacting GSWC’s earnings.

 

·                  The water margin increased by $755,000, or $0.03 pershare, during the first quarter of 2009 due to higher water rates approved bythe CPUC effective January 1, 2009, partially offset by a 3.5% decrease inconsumption compared to first quarter of 2008. However, due to the implementation of a WRAM account for Regions II andIII in November 2008, GSWC recorded additional revenues during the firstquarter of 2009 to adjust to adopted consumptionlevels.  These additional revenues werereduced by an over-collection in the MCBA account caused by lower consumptionin the first quarter 2009 as compared to the consumption level approved by theCPUC, and a lower percentage of purchased water in the supply mix during 2009when compared to the supply mix included in customer rates, partially offset byincreases in rates charged by GSWC’s suppliers.

 

·                  Other operating expenses, including administrative andgeneral expenses, increased at GSWC by $2.5 million, or $0.08 per share, forthe first quarter of 2009 due to an increase in pension expenses and anincrease in outside services costs primarily associated with GSWC’s currentrate cases.

 

·                  Pretax operating income for contracted servicesincreased by $1.6 million, or $0.05 per share, during the first quarter of 2009due primarily to an increase in special construction projects at Fort Bliss andmilitary bases in Virginia.

 

·                  A decrease in the effective income tax rate during thethree months ended March 31, 2009 as compared to the same period in 2008,due primarily to: (i) a tax benefit resulting from new California apportionmentlaws as well as refining certain related estimates and, (ii) changes betweenbook and taxable income that are treated as flow-through adjustments inaccordance with regulatory requirements, favorably impacted earnings by $0.08per share during the first quarter of 2009.

 

***Operating Revenues***

 

*Water*

 

For the three months ended March 31, 2009,revenues from water operations increased by 9.0% to $56.8 million,compared to $52.1 million for the three months ended March 31, 2008.Contributing to this increase were rate increases approved by the CPUCeffective January 1, 2009, which added approximately $1.8 million in thefirst quarter of 2009 to water revenues. The rateincreases were partially offset by $1.0 million resulting from a decrease inactual consumption of 3.5% when compared to the first quarter of 2008.  Although precipitation was overall lowerduring the first quarter of 2009 compare to the same period in 2008, waterconsumption was down due to the continued effects of state-wide customerconservation efforts.  However, as aresult of the implementation of the WRAM account for Regions II andRegion III in late November of 2008, GSWCrecorded $3.7 million of additional revenues to adjust the 2009 first quarterrevenues to the consumption levels approved by the CPUC.

 

   *Electric*

 

Forthe three months ended March 31, 2009, revenues from electric operationsdecreased by 1.9% to $8.6 million compared to $8.8 million for the three monthsended March 31, 2008 due primarily to a decrease in electric usage.

 

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*Contracted Services*

 

Revenuesfrom contracted services are comprised of construction revenues (includingrenewals and replacements) and management fees for operating and maintainingthe water and/or wastewater systems at military bases.  For the three months ended March 31,2009, revenues from contracted services increased by $6.1 million, or 76.2%, to$14.2 million compared to $8.1 million for the three months ended March 31,2008 primarily due to higher construction revenues.  Construction revenues increased by $5.9million primarily related to special projects at Fort Bliss and the TRADOCbases which increased by $4.5 million and $3.1 million, respectively.  Construction revenues at these bases werepartially offset by lower construction revenues of $2.5 million at Andrews AirForce Base.  Earnings and cash flows fromamendments and modifications to the original 50-year contracts with the U.S.government are sporadic and may or may not continue in future periods.

 

Therewere also additional revenues during 2009 generated from operating andmaintaining the water and wastewater systems under the two most recentcontracts in North Carolina and South Carolina, both of which began during thefirst quarter of 2008.  Approximately$933,000 in new revenue was generated from management fees for operating andmaintaining the water and wastewater systems under these two new contractsalong with $800,000 of construction revenues at these two bases.  The increases were offset by $1.1 million oftransition revenues recorded in 2008 for these bases.

 

 In December 2008, the U.S. governmentauthorized an interim adjustment at Fort Bliss which increased the monthlywater and wastewater fees by 50% and 59%, respectively, pending resolution ofFBWS’s REA filed as a claim, due to inventory adjustments.  This resulted in an increase of approximately$294,000 to Fort Bliss’ management fees for operating and maintaining thesystem for the first quarter of 2009 as compared to the first quarter of 2008.

 

Registrantrelies upon rate approvals by state regulatory agencies in California andArizona to provide for a return on invested and borrowed capital used to fundutility plant, and price redeterminations and equitable adjustments by the U.S.government in order to recover operating expenses and profit margin. Ifadequate rate relief and price redeterminations and adjustments are not grantedin a timely manner, operating revenues and earnings can be negatively impacted.

 

***Operating Expenses:***

 

***Supply Costs***

 

Supplycosts for the water segment consist of purchased water, purchased power for pumping,groundwater production assessments and water supply cost balancing accounts.Supply costs for the electric segment consist of purchased power for resale(including the cost of natural gas) and the electric supply cost balancingaccount*.* Water and electric margins arecomputed by taking total revenues, less total supply costs. Registrant usesthese margins and related percentages as an important measure in evaluating itsoperating results. Registrant believes this measure is a useful internal benchmarkin evaluating the utility business performance within its water and electricsegments. Registrant reviews these measurements regularly and compares them tohistorical periods and to our operating budget as approved. However, thismeasure, which is not presented in accordance with Generally AcceptedAccounting Principles (“GAAP”), may not be comparable to similarly titledmeasures used by other entities and should not be considered as an alternativeto operating income, which is determined in accordance with GAAP, as anindicator of operating performance.

 

Totalsupply costs comprise the largest segment of total operating expenses. Supplycosts accounted for approximately 30% of total operating expenses for the threemonths ended March 31, 2009 and 2008, respectively.

 

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Thetable below provides the amount of increases (decreases), percent changes insupply costs, and margins during the three months ended March 31, 2009 and2008 (amounts in thousands):

 
| ** **                                       | ** ** | **3 Months**  | ** ** | **3 Months**  | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|---------------|------------|---------------|------------|------------|------------|------------|------------|
| ** **                                       | ** ** | **Ended**     | ** ** | **Ended**     | ** ** | **$**      | ** ** | **%**      | ** ** |
| ** **                                       | ** ** | **3/31/2009** | ** ** | **3/31/2008** | ** ** | **CHANGE** | ** ** | **CHANGE** | ** ** |
| WATER OPERATING  REVENUES **(1)**                |       | $             | 56,794     |          | $          | 52,089     |       | $          | 4,705      |   | 9.0 | % |
| WATER SUPPLY  COSTS:                             |       |          |       |          |       |       |       |       |       |
| Water purchased **(1)**                          |       | $             | 8,214      |          | $          | 7,953      |       | $          | 261        |   | 3.3 | % |
| Power purchased  for pumping **(1)**             |       | 1,688         |       | 1,680         |       | 8          |       | 0.5        | %          |
| Groundwater  production assessment **(1)**       |       | 2,517         |       | 2,375         |       | 142        |       | 6.0        | %          |
| Water supply  cost balancing accounts **(1)**    |       | 2,377         |       | (1,162        | )          | 3,539      |       | -304.6     | %          |
| TOTAL WATER  SUPPLY COSTS                        |       | $             | 14,796     |          | $          | 10,846     |       | $          | 3,950      |   | 36.4 | % |
| WATER MARGIN**(2)**                              |       | $             | 41,998     |          | $          | 41,243     |       | $          | 755        |   | 1.8 | % |
| PERCENT MARGIN -  WATER                          |       | 73.9          | %          | 79.2          | %          |       |       |       |       |
|                                             |       |          |       |          |       |       |       |       |       |
| ELECTRIC  OPERATING REVENUES **(1)**             |       | $             | 8,632      |          | $          | 8,803      |       | $          | (171       | ) | -1.9 | % |
| ELECTRIC SUPPLY  COSTS:                          |       |          |       |          |       |       |       |       |       |
| Power purchased  for resale **(1)**              |       | $             | 3,962      |          | $          | 4,239      |       | (277       | )          | -6.5 | % |
| Electric supply  cost balancing accounts **(1)** |       | 1,151         |       | 1,055         |       | 96         |       | 9.1        | %          |
| TOTAL ELECTRIC  SUPPLY COSTS                     |       | $             | 5,113      |          | $          | 5,294      |       | $          | (181       | ) | -3.4 | % |
| ELECTRIC MARGIN **(2)**                          |       | $             | 3,519      |          | $          | 3,509      |       | $          | 10         |   | 0.3 | % |
| PERCENT MARGIN -  ELECTRIC                       |       | 40.8          | %          | 39.9          | %          |       |       |       |       |

 

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(1)                                  As reported on AWR’s ConsolidatedStatements of Income, except for supply cost balancing accounts. The sum ofwater and electric supply cost balancing accounts in the table above are shownon AWR’s Consolidated Statements of Income and totaled $3,528,000 and($107,000) for the three months ended March 31, 2009 and 2008,respectively.

 

(2)                                  Water and electric margins do not includeany depreciation and amortization, maintenance expense, unrealized gains andlosses on purchased power contracts, or other operating expenses.

 

Two of the principalfactors affecting water supply costs and gross margin are the amount of waterproduced and the source of the water. Generally, the variable cost of producingwater from wells is less than the cost of water purchased from wholesalesuppliers. In addition, GSWC is authorized to establish water and electricsupply cost balancing accounts for increases and/or decreases in costs due tochanges in rates charged by its suppliers which provide purchased water andpurchased power, and by agencies assessing groundwater related pump taxes forwater service areas in California. Higher or lower actual costs as compared to costs authorized by the CPUCwill either be recovered from or refunded to customers in the future.

 

Priorto November 2008, changes in the water resource mix between water suppliedfrom purchased sources and that supplied from Registrant’s wells wouldincrease/decrease actual supply-related costs relative to the mix approved forrecovery through rates, thereby impacting earnings either negatively orpositively.   On August 21, 2008,the CPUC issued a final decision for Regions II and III which approved theestablishment of a modified cost balancing account that allows recovery ofsupply costs for changes in water supply mix. GSWC implemented the MCBA in November 2008 prospectively inconnection with the new conservation rate design and the implementation of aWRAM.  Under the MCBA, GSWC began trackingadopted expense levels for purchased water, purchased power and pump taxes, asestablished by the CPUC. Variances (which include the effects of

 

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changes in both rate andvolume) between adopted and actual purchased water, purchased power, and pumptax expenses are recorded as a component of the supply cost balancing accountprovision.  The amount of such varianceswill be recovered from or refunded to GSWC’s customers at a later date. This isreflected with an offsetting entry to a regulatory asset or liability balancingaccount (tracked individually for Regions II and III).

 

Forthe three months ended March 31, 2009, 36.6% of the Company’s water supplymix was purchased as compared to 37.9% purchased for the three months ended March 31,2008.  However, as noted above, in November 2008GSWC implemented the MCBA for Regions II and III which eliminates the effectson earnings of changes in the water supply mix prospectively.  The adopted percentage of purchased water forthe three months ended March 31, 2009 at Regions II and III was 58.6% and37.6%, respectively, as compared to actual purchased water of 39.5% and 32.0%,respectively, for the first quarter of 2009. The significant improvement in Regions II and III’s actual mix comparedto the mix approved by the CPUC resulted in an over-collection in the MCBAaccount. This caused an overall decrease in the water margin percent to 73.9%in the first quarter of 2009 compared to 79.2% in the same period of 2008 sinceGSWC no longer receives any benefit from a more favorable supply mix than thatapproved by the CPUC. Furthermore, the percent water margin of 79.2% in thefirst quarter of 2008 resulted from an unusually favorable supply mix change atRegions II and III as compared to the percent margins that we have experiencedin recent years of 76.7%, 75.8% and 74.5% for the first quarters of 2007, 2006and 2005, respectively.

 

Purchasedwater costs for the three months ended March 31, 2009 increased by 3.3% to$8.2 million as compared to $8.0 million in the same period of 2008.  The increase in purchased water costs was dueto higher water rates charged from wholesale suppliers, partially offset bylower customer usage.

 

Forthe three months ended March 31, 2009, power purchased for pumpingremained flat at $1.7 million.  Increasesin supplier rates were offset by lower customer demand and changes in theactual supply mix, as discussed above. Groundwater production assessments were higher by 6.0% due to increasedpumped volume and increases in assessment rates (pump tax rates) levied againstgroundwater production, effective July 2008.  Average pump tax rates increased in RegionsII and III by approximately 3% and 6%, respectively, between the twoperiods.  These increases in groundwaterproduction assessments were partially offset by lower customer demand.   The MCBA tracks the increases in pump taxrates for future recovery in water rates.

 

Anincrease of $3.5 million in the water supply cost balancing account provisionduring the three months ended March 31, 2009 as compared to the sameperiod in 2008 was primarily caused by: (i) a $1.9 million increase in theamortization of the water supply cost balancing accounts for surchargescurrently in effect; (ii) the recording of $1.1 million in the MCBAaccounts effective November 25, 2008, and (iii) a net decrease of$536,000 of under-collections in 2009 (only related to Region I in 2009)compared to the same period in 2008.

 

Forthe three months ended March 31, 2009, the cost of power purchased forresale to customers in GSWC’s BVES division decreased by 6.5% to $4.0 millioncompared to $4.2 million for the three months ended March 31, 2008 reflectinglower customer demand.  In addition, GSWC began receiving powerunder a new purchased power contract in January 1, 2009.  The main product under the new contractprovides for 13 MWs of electric energy at a fixed price of $63.75 per MWhduring 2009 as compared to $74.65 during 2008. The decrease in the price of purchased power is reflected in theelectric supply cost balancing account resulting in no change to thedollar margin for electric services.

 

***Unrealized (Gain) Loss on Purchased PowerContracts***

 

Pursuantto SFAS No. 133, the unrealized gain on purchased power contracts during2008 represented gains recorded for GSWC’s purchased power agreements withMorgan Stanley Capital Group, Inc. There was a $2.8 million pretax unrealizedgain on purchased power contracts for the three months ended March 31,2008. These contracts terminated at December 31, 2008. GSWC filed an application with the CPUC toreview the new purchased power contracts, effective after December 31,2008.  GSWC also sought the CPUC’sauthorization of a memorandum account to track the changes in the fair marketvalue of the contracts resulting in unrealized gains and losses.  In 2009, the CPUC issued a proposed decisionapproving the contract and authorizing the memorandum account to trackunrealized gains and losses. Accordingly, an unrealized loss of $8.4 during the three months ended March 31,2009 has been included in the memorandum account and did not impact earnings.

 

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***Other Operating Expenses***

 

Theprimary components of other operating expenses include payroll, materials andsupplies, chemicals and water treatment, and outside service costs of operatingthe regulated water systems, including the costs associated with watertransmission and distribution, pumping, water quality, meter reading, billing,and operations of district offices. Registrant’s electric and contracted services operations incur many ofthe same types of costs as well.  For thethree months ended March 31, 2009 and 2008, other operating expenses bysegment consisted of the following (amounts in thousands):

 
| ** **                      | ** ** | **3 Months**  | ** ** | **3 Months**  | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------|------------|---------------|------------|---------------|------------|------------|------------|------------|------------|
| ** **                      | ** ** | **Ended**     | ** ** | **Ended**     | ** ** | **$**      | ** ** | **%**      | ** ** |
| ** **                      | ** ** | **3/31/2009** | ** ** | **3/31/2008** | ** ** | **CHANGE** | ** ** | **CHANGE** | ** ** |
| Water Services                  |       | $             | 5,622      |          | $          | 5,702      |       | $          | (80        | ) | -1.4 | % |
| Electric  Services              |       | 641           |       | 587           |       | 54         |       | 9.2        | %          |
| Contracted  Services            |       | 890           |       | 1,707         |       | (817       | )          | -47.9      | %          |
| Total other  operating expenses |       | $             | 7,153      |          | $          | 7,996      |       | $          | (843       | ) | -10.5 | % |

 

Forthe three months ended March 31, 2009, other operating expenses for waterservices decreased by 1.4% due primarily to lower chemicals and water treatmentcosts, including supplies and materials, of approximately $647,000, largely inRegions II and III. This was partially offset by an increase in: (i) laborcosts of $165,000 due to higher wages and related benefits; (ii)  outsideservices of $289,000 including legal and consulting costs, and (iii) baddebt expense of $136,000.

 

Therewas an increase of $54,000 in other operating expenses for electric servicesprimarily due to increases of $26,000 in bad debt expense and $28,000 in otheroperating expenses.

 

Contracted services experienceddecreases in other operating expenses of $817,000 primarily due to transitioncosts of $701,000 incurred in the first quarter of 2008 due to the commencementof the operation of water and wastewater systems at military bases in NorthCarolina and South Carolina.  There wasalso a decrease of approximately $251,000 in outside services costsattributable to payments to a subcontractor that provided wastewater services to certain of ASUS’subsidiaries in 2008. On January 31, 2008, ASUS and its subsidiariesagreed to buy out all current and future rights which this subcontractor had toprovide wastewater services at any bases operated by ASUS and any of itspresent and/or future subsidiaries.  For the quarter ended March 31,2009, most of these services were performed internally at lower cost, some of whichis recorded in labor costs within maintenance expense.

 

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***Administrative and General Expenses***

 

Administrativeand general expenses include payroll related to administrative and generalfunctions, all employee benefits charged to expense accounts, insuranceexpenses, outside legal and consulting fees, regulatory utility commissionexpenses, expenses associated with being a public company, and generalcorporate expenses. For the three months ended March 31, 2009 and 2008, administrativeand general expenses by segment, including AWR (parent), consisted of thefollowing (amounts in thousands):

 
| ** **                                 | ** ** | **3 Months**  | ** ** | **3 Months**  | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|---------------|------------|---------------|------------|------------|------------|------------|------------|
| ** **                                 | ** ** | **Ended**     | ** ** | **Ended**     | ** ** | **$**      | ** ** | **%**      | ** ** |
| ** **                                 | ** ** | **3/31/2009** | ** ** | **3/31/2008** | ** ** | **CHANGE** | ** ** | **CHANGE** | ** ** |
| Water Services                             |       | $             | 11,937     |          | $          | 10,742     |       | $          | 1,195      |   | 11.1 | % |
| Electric  Services                         |       | 2,437         |       | 1,522         |       | 915        |       | 60.1       | %          |
| Contracted  Services                       |       | 2,442         |       | 2,461         |       | (19        | )          | -0.8       | %          |
| AWR (parent)                               |       | 49            |       | 102           |       | (53        | )          | -52.0      | %          |
| Total  administrative and general expenses |       | $             | 16,865     |          | $          | 14,827     |       | $          | 2,038      |   | 13.7 | % |

 

For thethree months ended March 31, 2009, administrative and general expenses increased by$1.2 million in water services compared to the three months ended March 31,2008 due primarily to an increase of $703,000 in pension expenses resultingfrom a reduction in the fair value of plan assets in 2008 caused by marketconditions.  There was a significantincrease in the underfunded status of the pension plan during 2008.  The increase in the underfunded status of thepension plan resulted in higher pension costs during the three months ended March 31,2009 compared to the same period in 2008. There was also an increase in: (i) labor costs and other employeebenefits of $172,000 dueto higher wages largely related to Registrant’s annual performance-based salaryreview program; (ii) an increase of $205,000 in outside services includinglegal, tax and consulting costs, and (iii)  an increase of approximately$115,000 in other expenses.

 

For thethree months ended March 31, 2009, administrative and general expensesincreased by $915,000 in electric services compared to the three months ended March 31,2008 due primarily to: (i) a $533,000 increase in outside consulting,legal and other services resulting from the current general rate case; (ii) a$177,000 increase in labor costs and employee related benefits as discussedabove in water services; (iii) an increase of $84,000 in regulatorycommission expenses, and (iv) an increase of $108,000 in allocation ofcosts from the corporate headquarters’ to BVES.

 

Increases in labor costs and related employee benefitsof $514,000 for contracted services were mostly offset by a decrease of$360,000 in outside services for legal and consulting work and a decrease of$173,000 in other miscellaneous expenses.

 

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***Depreciation and Amortization***

 

For the three monthsended March 31, 2009 and 2008, depreciation and amortization by segmentconsisted of the following (amounts in thousands):

 
| ** **                           | ** ** | **3 Months**  | ** ** | **3 Months**  | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------|------------|---------------|------------|---------------|------------|------------|------------|------------|------------|
| ** **                           | ** ** | **Ended**     | ** ** | **Ended**     | ** ** | **$**      | ** ** | **%**      | ** ** |
| ** **                           | ** ** | **3/31/2009** | ** ** | **3/31/2008** | ** ** | **CHANGE** | ** ** | **CHANGE** | ** ** |
| Water Services                       |       | $             | 7,634      |          | $          | 7,150      |       | $          | 484        |   | 6.8 | % |
| Electric  Services                   |       | 565           |       | 552           |       | 13         |       | 2.4        | %          |
| Contracted  Services                 |       | 162           |       | 91            |       | 71         |       | 78.0       | %          |
| Total depreciation  and amortization |       | $             | 8,361      |          | $          | 7,793      |       | $          | 568        |   | 7.3 | % |

 

For the three monthsended March 31, 2009, depreciation and amortization expense for water andelectric services increased by $497,000 to $8.2 million compared to $7.7million for the three months ended March 31, 2008 reflecting, among otherthings, the approximately $73.6 million of additions to utility plant during2008, depreciation on which began in January 2009.  Registrant anticipates that depreciationexpense will continue to increase due to ongoing construction at its regulatedsubsidiaries. Registrant believes that depreciation expense related to propertyadditions approved by the appropriate regulatory agency will be recoveredthrough water and electric rates.

 

There was also anincrease in depreciation and amortization expense for contracted services dueto the commencement of the operation of water and wastewater systems atmilitary bases in North Carolina and South Carolina that began during the firstquarter of 2008.  As a result of these newbases, depreciation and amortization expense increased by $41,000 during thethree months ended March 31, 2009. There were also increases of approximately $30,000 at the other militarybases and at ASUS’ corporate office due to the addition of fixed assets.

 

***Maintenance***

 

For the three monthsended March 31, 2009 and 2008, maintenance expense by segment consisted ofthe following (amounts in thousands):

 
| ** **           | ** ** | **3 Months**  | ** ** | **3 Months**  | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------|------------|---------------|------------|---------------|------------|------------|------------|------------|------------|
| ** **           | ** ** | **Ended**     | ** ** | **Ended**     | ** ** | **$**      | ** ** | **%**      | ** ** |
| ** **           | ** ** | **3/31/2009** | ** ** | **3/31/2008** | ** ** | **CHANGE** | ** ** | **CHANGE** | ** ** |
| Water Services       |       | $             | 3,016      |          | $          | 3,226      |       | $          | (210       | ) | -6.5 | % |
| Electric  Services   |       | 202           |       | 173           |       | 29         |       | 16.8       | %          |
| Contracted  Services |       | 855           |       | 373           |       | 482        |       | 129.2      | %          |
| Total  maintenance   |       | $             | 4,073      |          | $          | 3,772      |       | $          | 301        |   | 8.0 | % |

 

For the three monthsended March 31, 2009, maintenance expense for water services decreased by$210,000 to $3.0 million compared to $3.2 million for the three months ended March 31,2008 due principally to timing differences of work on GSWC’s wells and watersupply sources during 2009, primarily at Region III.  Certain maintenance work has been deferred tolater in the 2009 year.  Region III’smaintenance expense decreased by $243,000 during the first quarter of 2009, butis expected to increase in the remaining quarters of 2009.  This decrease was partially offset by anincrease of $103,000 in maintenance expense at CCWC.

 

There was an increase of$29,000 in maintenance expenses for electric services related to the 8.4 MWnatural gas-fueled generation plant.

 

There was an increase of$482,000 in contracted services maintenance expense due primarily to thecommencement of the operation of water andwastewater systems at military bases in North Carolina and South

 

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Carolina that began during the first quarter of 2008, whichadded $419,000 in maintenance expense for the three months ended March 31,2009 compared to the same period in 2008. The level of maintenance costs at these bases also reflects the size,age and condition of the infrastructure at these bases.  There was also increased maintenance expenseof $67,000 at Fort Bliss due primarily to higher internal labor costsassociated with wastewater activity previously provided by the subcontractorthat provided wastewater services prior to February 2008.

 

***Property and Other Taxes***

 

For the three monthsended March 31, 2009 and 2008, property and other taxes by segmentconsisted of the following (amounts in thousands):

 
| ** **                      | ** ** | **3 Months**  | ** ** | **3 Months**  | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------|------------|---------------|------------|---------------|------------|------------|------------|------------|------------|
| ** **                      | ** ** | **Ended**     | ** ** | **Ended**     | ** ** | **$**      | ** ** | **%**      | ** ** |
| ** **                      | ** ** | **3/31/2009** | ** ** | **3/31/2008** | ** ** | **CHANGE** | ** ** | **CHANGE** | ** ** |
| Water Services                  |       | $             | 2,861      |          | $          | 2,730      |       | $          | 131        |   | 4.8 | % |
| Electric  Services              |       | 218           |       | 107           |       | 111        |       | 103.7      | %          |
| Contracted  Services            |       | 321           |       | 83            |       | 238        |       | 286.7      | %          |
| Total property  and other taxes |       | $             | 3,400      |          | $          | 2,920      |       | $          | 480        |   | 16.4 | % |

 

For the three monthsended March 31, 2009, property and other taxes for water and electricservices increased by $242,000.  Therewere additional property taxes resulting from higher assessed values and anincrease in payroll taxes based on increased labor costs.

 

Property and other taxeswere higher in contracted services due to thecommencement of the operation of water and wastewater systems at military basesin North Carolina and South Carolina that began during the first quarter of2008.  As a result of these new bases,property and other taxes increased by $96,000 during the three months ended March 31,2009 as compared to same period in 2008. This is partially due to the fact thatoperations in North Carolina did not commence until March 1, 2009.  There was also an increase of $142,000 atASUS and the other military bases primarily from higher payroll taxes and grossreceipt taxes.

 

***Construction Expenses***

 

For the three monthsended March 31, 2009 construction expenses were $8.4 million, increasing$4.6 million compared to the same period in 2008 due primarily to newconstruction projects at Fort Bliss and bases in Virginia, which had increases of $3.7 million and $2.3 million,respectively, over the same period in 2008. This increase was partially offset by a $2.0 million decrease inconstruction expense at Andrews Air Force Base. Construction expense at the two bases in North Carolina and SouthCarolina increased $530,000 collectively during the three months ended March 31,2009 as compared to the same period in 2008.

 

***Net Gain on Sale of Property***

 

For the three months ended March 31, 2009, waterservices recorded a pre-tax gain of $15,000 on the sale of property.  There was no similar gain in the same periodof 2008.  Earnings and cash flows fromthese transactions are sporadic and may or may not continue in future periods.

 

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***Interest Expense***

 

For the three monthsended March 31, 2009 and 2008, interest expense by segment, including AWR(parent) consisted of the following (amounts in thousands):

 
| ** **                   | ** ** | **3 Months**  | ** ** | **3 Months**  | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------|------------|---------------|------------|---------------|------------|------------|------------|------------|------------|
| ** **                   | ** ** | **Ended**     | ** ** | **Ended**     | ** ** | **$**      | ** ** | **%**      | ** ** |
| ** **                   | ** ** | **3/31/2009** | ** ** | **3/31/2008** | ** ** | **CHANGE** | ** ** | **CHANGE** | ** ** |
| Water and Electric  Services |       | $             | 5,101      |          | $          | 5,122      |       | $          | (21        | ) | -0.4 | % |
| Contracted  Services         |       | 102           |       | 231           |       | (129       | )          | -55.8      | %          |
| AWR (parent)                 |       | 91            |       | 25            |       | 66         |       | 264.0      | %          |
| Total interest  expense      |       | $             | 5,294      |          | $          | 5,378      |       | $          | (84        | ) | -1.6 | % |

 

Overall, interest expense slightly decreased in 2009reflecting a decrease in interest rates. The average interest rates onshort-term borrowings for the three months ended March 31, 2009 was 1.3%as compared to an average of 4.4% during the same period of 2008.  This decrease was partially offset by anincrease in short-term cash borrowings. Average bank loan balances outstandingunder the AWR credit facility for the three months ended March 31, 2009were approximately $74 million, as compared to an average of $42 million duringthe same period of 2008.

 

***Interest Income***

 

For the three monthsended March 31, 2009 and 2008, interest income by segment consisted of thefollowing (amounts in thousands):

 
|                         | ** ** | **3 Months**  | ** ** | **3 Months**  | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------|------------|---------------|------------|---------------|------------|------------|------------|------------|------------|
|                         | ** ** | **Ended**     | ** ** | **Ended**     | ** ** | **$**      | ** ** | **%**      | ** ** |
|                         | ** ** | **3/31/2009** | ** ** | **3/31/2008** | ** ** | **CHANGE** | ** ** | **CHANGE** | ** ** |
| Water and  Electric Services |       | $             | 199        |          | $          | 360        |       | $          | (161       | ) | -44.7 | % |
| Contracted  Services         |       | 3             |       | 1             |       | 2          |       | 200.0      | %          |
| Total interest  income       |       | $             | 202        |          | $          | 361        |       | $          | (159       | ) | -44.0 | % |

 

Interest income decreasedby $159,000 for the three months ended March 31, 2009 due primarily to adecrease of $127,000 in interest accrued on the uncollected balance of theAerojet litigation memorandum account authorized by the CPUC due to lowerinterest rates. There was also less interest earned on short-term cash surplus.

 

***Other***

 

For the three months ended March 31, 2009 and 2008, Registrantrecorded other loss of $30,000 and other income of $114,000, respectively, as aresult of Registrant’s equity interest in an investment.

 

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***Income Tax Expense***

 

For the three months March 31,2009 and 2008, income tax expense by segment, including AWR (parent), consistedof the following (amounts in thousands):

 
|                         | ** ** | **3 Months**  | ** ** | **3 Months**  | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------|------------|---------------|------------|---------------|------------|------------|------------|------------|------------|
|                         | ** ** | **Ended**     | ** ** | **Ended**     | ** ** | **$**      | ** ** | **%**      | ** ** |
|                         | ** ** | **3/31/2009** | ** ** | **3/31/2008** | ** ** | **CHANGE** | ** ** | **CHANGE** | ** ** |
| Water and  Electric Services |       | $             | 1,982      |          | $          | 4,573      |       | $          | (2,591     | ) | -56.7 | % |
| Contracted  Services         |       | 360           |       | (298          | )          | 658        |       | 220.8      | %          |
| AWR (parent)                 |       | (978          | )          | (20           | )          | (958       | )          | -4790.0    | %          |
| Total income tax  expense    |       | $             | 1,364      |          | $          | 4,255      |       | $          | (2,891     | ) | -67.9 | % |

 

For the three monthsended March 31, 2009, income tax expense for water and electric servicesdecreased by 56.7% to $2.0 million compared to $4.6 million for the threemonths ended March 31, 2008 due primarily to a decrease in pretax incomeand a lower effective tax rate (“ETR”). The ETR for water and electric services for the three months ended March 31,2009 was 36.2% as compared to a 44.1% ETR applicable to the three months ended March 31,2008.  The ETR deviates from the federalstatutory rate primarily due to state taxes and changes between book andtaxable income that are treated as flow-through adjustments in accordance withregulatory requirements (principally plant-, rate-case- and compensation-relateditems).  Flow-through adjustmentsincrease or decrease tax expense in one period, with an offsetting increase ordecrease occurring in another period.

 

Income tax expense forcontracted services increased to $360,000 compared to a tax benefit of $298,000for the three months ended March 31, 2008 due primarily to an increase inpretax income.  The ETR for contractedservices for the year three months ended March 31, 2009 was 37.1% ascompared to a 38.7% ETR applicable to the three months ended March 31,2008.

 

AWR (parent) receives atax benefit for expenses incurred at the parent-company level.  For the three months ended March 31,2009, the taxes recorded at AWR (parent) also include the effect of a change inCalifornia law during the first quarter of 2009.  On February 20, 2009, California’sgovernor signed two bills into law that amended and added several newprovisions to California’s Revenue and Taxation Code.  One of the provisions in these bills changedthe manner by which most taxpayers may compute the portion of their incomederived from multiple jurisdictions that is subject to Californiataxation.  During the first quarter of2009, AWR applied the changes in tax law resulting from enactment of the billsbased on its understanding of the legislature’s intent, which is to permit taxpayersto apply an alternative apportionment method commencing with the 2011 tax year.As a result of management’s intention to apply the alternative method, AWRadjusted its deferred tax balances at March 31, 2009 to reflect theexpected amount at which it will realize its California deferred taxesconsistent with the changes in tax law, as well as refining certain relatedestimates.  This resulted in therecording of a benefit of approximately $918,000, or $0.05 per share, duringthe first quarter of 2009. While the effect of the tax law change will continueto affect AWR’s state taxes, the future effects may be beneficial ordetrimental depending on a combination of the profitability of AWR’snon-California activities as well as the relative proportion of the factor(s) appliedby its apportionment method.  On aquarterly basis, management will assess its intention to apply the alternativemethod and will adjust its deferred tax balances accordingly.  Absent this tax benefit, the consolidated ETRfor the three months ended March 31, 2009 would have been 36.2%.

 

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**CriticalAccounting Policies and Estimates**

 

Critical accountingpolicies and estimates are those that are important to the portrayal of AWR’sfinancial condition, results of operations and cash flows, and require the mostdifficult, subjective or complex judgments of AWR’s management. The need tomake estimates about the effect of items that are uncertain is what makes thesejudgments difficult, subjective and/or complex. Management makes subjectivejudgments about the accounting and regulatory treatment of many items. Thesejudgments are based on AWR’s historical experience, terms of existingcontracts, AWR’s observance of trends in the industry, information provided bycustomers and information available from other outside sources, as appropriate.Actual results may differ from these estimates under different assumptionsor conditions.

 

The critical accounting policies used in the preparation of the Registrant’s financial statements that it believes affect the more significant judgments and estimates used in the preparation of its consolidated financial statements presented in this report are described in *“Management’s Discussion and Analysis of Financial Condition and Results of Operation”* included in Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008. There have been no material changes to the critical accounting policies.

 

**Liquidityand Capital Resources**

 

***AWR***

 

Registrant’s regulatedbusiness (primarily that of GSWC), is capital intensive and requiresconsiderable capital resources. A portion of these capital resources areprovided by internally generated cash flows from operations. When necessary,Registrant obtains funds from external sources in the capital markets andthrough bank borrowings. Access to external financing on reasonable termsdepends on Registrant’s credit ratings and current business conditions,including that of the water utility industry in general as well as conditionsin the debt or equity capital markets. If these business and market conditionsdeteriorate to the extent that AWR no longer has access to the capital marketsat reasonable terms, Registrant has access to a revolving credit facility thatis currently utilized to support operations.  On August 25, 2008, AWR amended its $85million syndicated credit facility, to increase the aggregate bank commitmentsby $30 million to $115 million. Up to $20 million of this facility may be usedfor letters of credit. As of March 31, 2009, an aggregate of $54.4 millionin cash borrowings were included in current liabilities and approximately $11.3million of letters of credit were outstanding under this facility.  As of March 31, 2009, AWR hadapproximately $49.3 million available to borrow under the credit facility.

 

AWR also has aRegistration Statement on file with the Securities and Exchange Commission (“SEC”)for the sale from time to time of debt and equity securities. As of March 31,2009, $150.0 million was available for issuance under this RegistrationStatement which will expire in August 2009. AWR is planning on issuingcommon shares in 2009 depending on market conditions.  Proceeds from the issuance of common sharesare expected to be used to pay down short-term borrowings. Inaddition, a senior note was issued by GSWC on March 10, 2009, to CoBank, ACB (“CoBank”). Under theterms of this senior note, CoBank purchased a 6.7% Senior Note due March 10,2019 in the aggregate principal amount of $40.0 million from GSWC. Thisnote  bears interest at the rate of  6.7%. Under the terms of the note, GSWC shares in the profits of CoBank undera patronage arrangement.  If CoBankcontinues to pay the current amount of patronage, the annual cost of the notewill be at or below 6.0%. The proceeds from the sale of the note to CoBank havebeen used to pay down short-term borrowings, pending their use to fund capitalexpenditures.

 

During the four monthsended April 30, 2009, the fair value of the pension plan assets declinedfurther by approximately 1% since December 31, 2008.  Continued decreases in plan asset valueswill: (i) result in an increase in Registrant’s underfunded positions onthe balance sheet with a corresponding increase in regulatory assets forpensions and other postretirement obligations at year-end; (ii) potentiallyincrease pension and postretirement expense in the next fiscal year, to theextent the effects are not offset by the effects of a change in the discountrate, and (iii) potentially require greater cash contributions in 2010 andsubsequent years.

 

*CashFlows from Operating Activities*:

 

Net cash provided byoperating activities was $19.8 million for the quarter ended March 31,2009 as compared to $11.2 million for the same period ended March 31,2008. The overall increase of $8.6 million was primarily attributable to anincrease in water revenues at GSWC due to higher water rates charged tocustomers that were approved by the CPUC, and an increase in constructionrevenues at ASUS primarily for new projects at Fort

 

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Bliss and the Virginiabases. The timing of cash receipts and disbursements related to working capitalitems, including rate recovery from customers of regulatory assets and changesin days sales outstanding, also affected the changes in net cash provided byoperating activities.  Changes in cashflows from operating activities were generally consistent with changes in theresults of operations as adjusted by changes in working capital in the normalcourse of business.

 

*CashFlows from Investing Activities*:

 

Net cash used ininvesting activities, which consists primarily of capital expenditures at GSWC,decreased to $17.7 million for the three months ended March 31, 2009 ascompared to $19.5 million for the same period in 2008.  The decrease was due to a businessacquisition in 2008.  In the firstquarter of 2008, ASUS completed the acquisition of contracts with asubcontractor and substantially all assets of the subcontractor used to providewastewater services for certain of the Military Utility PrivatizationSubsidiaries for an aggregate purchase price of $2.3 million. Capitalexpenditures remained at the same level as in 2008 and are consistent withRegistrant’s capital investment plan for 2009.

 

Cash flows used ininvesting activities are expected to maintain at similar levels during 2009.Capital expenditures are expected to be approximately $75 million during 2009.Registrant intends to invest capital prudently to provide essential services toits regulated customer base, while working with its regulators to have theopportunity to earn a fair rate of return on investment. Registrant’sinfrastructure investment plan consists of both infrastructure renewalprograms, where infrastructure is replaced, as needed, and major capitalinvestment projects, where new water treatment and delivery facilities will beconstructed.  Projected capitalexpenditures and other investments are subject to periodic review and revisionto reflect changes in economic conditions and other factors.

 

*Cash Flows from Financing Activities*:

 

Net cash provided byfinancing activities was $15.5 million for the three months ended March 31,2009 as compared to $7.4 million for the same period in 2008. The increase of$8.1 million in net cash provided by financing activities was primarily due tothe issuance of $40 million in long-term debt partially offset by decreases of$30.7 million in notes payable to banks to fund operations and $1.5 million inadvances for and contributions in aid of construction.

 

***GSWC***

 

GSWC funds the majority of its operating expenses,payments on its debt, and dividends on its outstanding common shares and aportion of its construction expenditures through internal sources and shortterm and long term borrowings. Internal sources of cash flow are providedprimarily 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 regulatorydecisions affecting GSWC’s ability to recover these supply costs, timing ofrate relief, increases in maintenance expenses and capital expenditures.  GSWC has $100 million available for issuanceof debt or equity securities under a Registration Statement that becameeffective in February 2009.

 

*CashFlows from Operating Activities*:

 

Net cash provided byoperating activities was $18.7 million for the three months ended March 31,2009 as compared to $15.0 million for the same period in 2008. The increase of$3.7 million is primarily attributable to increased water revenues resultingfrom higher water rates charged to customers that were approved by the CPUC,and the timing of cash receipts and disbursements related to working capitalitems affecting the changes in net cash provided by operating activities,including rate recovery from customers of GSWC’s regulatory assets and changesto the days sales outstanding.  Changesin cash flows from operating activities were generally consistent with changesin the results of operations in the normal course of business.

 

*CashFlows from Investing Activities*:

 

Net cash used ininvesting activities, which consists primarily of capital expenditures,increased to $17.2 million for the three months ended March 31, 2009 ascompared to $16.0 million for the same period in 2008.  Capital expenditures are consistent withRegistrant’s capital investment plan for 2009.

 

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*Cash Flows from Financing Activities*:

 

Net cash provided byfinancing activities was $17.1 million for the three months ended March 31,2009 as compared to $449,000 for the same period in 2008. The increase of $16.7million in net cash provided by financing activities was primarily due to theissuance of $40 million in long-term debt partially offset by: (i) adecrease of $17.8 million in intercompany borrowings to fund operations, (ii) anincrease of $4.4 million in dividends paid, and (iii) a decrease of $1.4 millionin advances for and contributions in aid of construction.

 

***CCWCand ASUS***

 

CCWC funds the majority of its operating expenses, paymentson its debt and dividends, if any, through internal operating sources orshort-term borrowings from AWR. CCWC also relies on external sources, includinglong-term debt, contributions-in-aid-of-construction, advances for constructionand install-and-convey advances, to fund the majority of its constructionexpenditures. ASUSfunds its operating expenses primarily through management fees and investmentsby or loans from AWR.  ASUS, in turn,provides funding to its subsidiaries.

 

**Contractual Obligations and Other Commitments**

 

Registrant hasvarious contractual obligations which are recorded as liabilities in theconsolidated financial statements. Other items, such as certain purchasecommitments and operating leases are not recognized as liabilities in theconsolidated financial statements, but are required to be disclosed. Inaddition to contractual maturities, Registrant has certain debt instrumentsthat contain annual sinking fund or other principal payments. Registrantbelieves that it will be able to refinance debt instruments at their maturitythrough public issuance, or private placement, of debt or equity. Annual principaland interest payments are generally made from cash flow from operations.

 

On March 10,2009, GSWC issued a 6.7% senior note in the amount of $40.0 million due onMarch 10, 2019.

 

There have been no other material changes to AWR’s contractual obligations and other commitments since December 31, 2008. See *“Managements’ Discussion and Analysis of Financial Condition and Results of Operation—Contractual Obligations, Commitments and Off Balance Sheet Arrangements”*section of the Registrant’s Form 10-K for the year-ended December 31, 2008 for a detailed discussion of contractual obligations and other commitments.

 

**RegulatoryMatters**

 

***Recent Changes in Rates***

 

*Rateincreases in 2009:*

 

In January 2009, theCPUC approved escalation/attrition year rate increases for all three GSWC waterratemaking areas effective January 1, 2009.  The authorized rate increases are expected toprovide GSWC with additional annual revenues of approximately $256,000 forRegion I.  The authorized rate changesare expected to provide GSWC additional annual revenues of approximately $5.1million for Region II, representing the third year of a three-year rate caseincrease approved by the CPUC in 2007. The interim rate changes for Region IIIare expected to provide GSWC with additional revenues of approximately $4.0million  in 2009. These estimates ofadditional revenues are based upon normalized sales levels approved by theCPUC, effective January 1, 2009.

 

*Rateincreases in 2008:*

 

In January 2008, theCPUC approved rate increases of $6.4 million for the seven ratemaking areas inthe Region I customer service area based on an authorized return on equity of10.2%.  On March 3, 2008, the DRAfiled an application for rehearing of the Region I General Rate Case (“GRC”)decision on various legal grounds.  Aspermitted by the CPUC, GSWC filed a response to DRA’s application.  In September 2008, the CPUC granted alimited rehearing in order to consider whether it is reasonable to include inRegion I’s rate base approximately $3.7 million of costs incurred in connectionwith the La Serena Plant Improvement Project. The project is currently in rate base and the earnings have beenincluded in rates since January 1, 2008.  At this time, managementbelieves it is probable that the costs of this project will be allowed toremain in rate base.  The finalresolution of this issue is expected in the fourth quarter of 2009.

 

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In January 2008, theCPUC also approved attrition year rate increases for Regions II and Region IIIcustomer service areas effective January 1, 2008 designed to generateannual revenues of approximately $3.6 million and $3.0 million based on anauthorized return on equity of 10.1% and 9.8%, respectively.

 

The combined rateincreases for Regions I, II and III discussed above are designed togenerate approximately $13.0 million in revenues annually, based uponnormalized sales levels approved by the CPUC, effective January 1, 2008.

 

***PendingRate Requests***

 

*GSWC*

 

GSWC filed its generalrate case for Regions II and III plus the general office on July 1,2008.  The new rates are to be effectivefor 2010, 2011 and 2012. If the rate increases are approved as filed, the rateincreases are expected to generate approximately $20.3 million in annualrevenues starting in 2010, $2.6 million in 2011 and $4.2 million in 2012 for RegionII, and increases of $30.0 million starting in 2010, $1.7 million in 2011 and$3.7 million in 2012 for Region III.

 

In June 2008, GSWC’sBVES division filed its general rate case with the CPUC’s electricdivision.  The filing was the first fullgeneral rate case for BVES since 1996.  Costs incurred in connection with theconstruction of BVES’ 8.4 megawatt generating facility are expected to bereviewed by the CPUC as part of the 2008 general rate case.  The filing requests an overall annual revenue increase of $6.8million for 2009.  In addition to the2009 increases, there are incremental increases for the years 2010, 2011 and2012 which, if approved, are expected to generate approximately $3.7 million ofrevenues through 2012.  All of theincrease is to the base rate portion of BVES’ rates.  The $6.8 millionincrease represents an overall increase of approximately 23% over currentrates.  BVES has included a request for aphased-in implementation of the rate increase. The proposed phase in plan would recognize the full rate increase in thefirst year for financial reporting purposes, but defer the revenue recovery toa subsequent year.  In the application,BVES has requested an ROE of 11.7%.

 

During the third quarterof 2008, BVES filed an amended application to request CPUC approval of a newpurchased power contract addressing the revenue requirement for the purchasedpower component of rates and also requesting regulatory accounting treatmentfor all unrealized gains and losses on the new contract due to derivativeaccounting.  A final decision on thisapplication is expected in the second quarter of 2009.

 

*CCWC*

 

CCWC filed a rate casewith the ACC in August 2004 for its water system in Fountain Hills,Arizona. In September 2005, the ACC approved a rate increase for CCWC. Therate increase was effective on October 1, 2005 and was expected togenerate additional annual revenues of approximately $1.1 million, an 18%increase over 2004 revenues. During this GRC, CCWC sought to have its ratesdetermined using a fair value rate base. The ACC elected not to use fair valuein setting the rates. CCWC appealed the ACC’s use of only original cost lessdepreciation rate base to determine the revenue requirement with the ArizonaCourt of Appeals. Because CCWC’s fair value rate base was higher, the use oforiginal cost exclusively to determine the revenue requirement deprived CCWC ofa substantial amount of operating income. On February 13, 2007, theArizona Court of Appeals upheld CCWC’s challenge to the ACC’s failure to usefair value rate base in the determination of operating income. The process theACC utilized was found to be in violation of the Arizona Constitution. However,the Court also held that the ACC’s determination of the return on equity, whilenot well-explained, was made based on the evidence, was a matter within theagency’s substantial discretion and was lawful. The ACC decided to not seek review, and the matter was returned to theACC on remand for modification of the original ACC decision consistent with thedecision of the Court of Appeals. Testimony was filed by ACC staff and theResidential Utility Consumer Office.  TheACC conducted evidentiary hearings on the remanded case in January 2008.  The ACC rendered its final decision on July 17,2008.  The decision reduced the ROE fromthe 9.3% in the original decision by 200 basis points resulting in a return onfair value rate base of only 6.4%. Under this decision, CCWC’s annual revenueswould only be expected to increase by $12,000. CCWC has filed an appeal of  thisdecision.

 

During the course ofremand proceedings in the 2004 rate case, in the fourth quarter of 2007, CCWCfiled its new general rate case with the ACC. Unlike California, there is not a three-year cycle in Arizona.  The only filing requirement is that a utilitycannot have two applications pending at the same time.  In the 2007 filing, CCWC requested rateincreases which are expected to generate approximately $3.1 million inadditional annual revenues.

 

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The processing of thiscase was expected to take approximately 18 months.  However, the ACC suspended processing of the2007 rate case until completion of the proceedings on remand of the 2004 ratecase.  Evidentiary hearings on the 2007GRC filing were held in December 2008 for all issues other than the rateof return. Evidentiary hearings on the rate of return issue were held in January 2009.  Parties have submitted briefs and replybriefs.

 

As of March 31,2009, CCWC has $3.5 million of goodwill which may be at risk for potentialimpairment if the requested rate increases are not granted by the ACC.

 

***Other Regulatory Matters***

 

See *“Managements’ Discussion and Analysis of Financial Condition andResults of Operation—Regulatory Matters”*section of theRegistrant’s Form 10-K for the year-ended December 31, 2008 for adetailed discussion of other regulatory matters. The discussion below focuseson significant matters and changes since December 31, 2008.

 

**Cost ofCapital**

 

Under the new rate caseplan adopted by the CPUC in May 2007, GSWC is required to file a separateapplication to review the rate of return authorized by the CPUC.  In prior years, the rate of return wasdetermined as part of the general rate case process along with all otheroperating costs.  This new procedure toseparate the rate of return from the general rate case is the same process thatthe CPUC utilizes to determine the rate of return for energy companies underCPUC jurisdiction.

 

GSWC filed its first costof capital application under the new rate case plan on May 1, 2008.  The application requests the CPUC to adopt areturn on equity (“ROE”) of 12.1%.   Thescoping memo for this proceeding bifurcated the proceeding into twophases.  Phase I will establishROEs.  Phase II will address automaticadjustment mechanisms for ROE/RORB between rate cases.  In May 2009, the CPUC issued a finaldecision in the Phase I cost of capital proceeding.  The final decision authorized an ROE of10.2%.  In January 2009, the CPUCissued a revised scoping memo for Phase II of the proceeding which directed theparties to submit testimony addressing the effect of the current financialmarket crisis on the utilities ability to attract and retain capital.  Testimony was filed on February 2, 2009and a hearing on that subject was held on February 12, 2009.  On February 23, 2009, GSWC signed asettlement agreement with DRA and the other utilities in Phase II of the costof capital proceeding regarding the automatic adjustment mechanism.  That settlement, if adopted by the CPUC,would establish the index for adjusting the adopted ROE, the “trigger” for anadjustment, and the frequency and timing for possible adjustments.  A final decision on Phase II is expected latein the second quarter or early third quarter of 2009.

 

**ConservationRate Design and Revenue Adjustment Mechanisms**

 

On August 21, 2008,the CPUC issued a final decision which authorized GSWC to implement anincreasing block rate design in GSWC’s Regions II and III as a means toencourage water conservation.  It alsodirected GSWC to file a tiered rate design for Region I, which has been filedby GSWC.   In addition, GSWC wasauthorized to establish a WRAM to track revenue shortfalls for subsequentrecovery from customers, and an MCBA that would include recovery for changes inwater supply mix. The decision further defers to the cost of capitalproceeding, the issue of whether the adoption of the WRAM should affect GSWC’sROE.

 

In accordance with theCPUC’s administrative processing rules, GSWC implemented two-tiered increasingblock rates in late November 2008 and began recording in the WRAM accountsthe difference between what is billed to its regulated customers in Regions IIand III and that which is authorized by the CPUC. GSWC has provided customerswith conservation rate notices as a bill insert and explained to customers theimpact of conservation rates on customers’ bills.

 

GSWC also implemented theMCBA in November 2008 that will permit GSWC to recover supply costsrelated to changes in water supply mix. This account replaced the water supplycost balancing account procedure for costs incurred after the modified supplycost balancing account was implemented.

 

The CPUC also approved anadvice letter filing in a separate proceeding to allow GSWC to create andimplement a Water Conservation Memorandum Account (“WCMA”) to track theextraordinary expenses and revenue shortfall associated with the conservationmeasures in conjunction with the declared drought in California.  The WCMA was effective August 18, 2008and was used to track the revenue shortfall until the WRAM was

 

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implemented on November 25,2008.  At November 24, 2008,approximately $1.9 million of net under-collection had been included in theWCMA for Regions II and III prior to the implementation of the WRAM.  However, unlike the WRAM which is probablefor recovery according to the August 2008 CPUC decision, the recovery ofthe WCMA was less certain and therefore GSWC had not recorded theunder-collection as of March 31, 2009. In January 2009, GSWC filed an advice letter with the CPUC seekingauthorization to recover the amounts included in the WCMA.  On April 16, 2009, the CPUC approved theWCMA and authorized GSWC to establish a 12-month surcharge to customers’ bills.The surcharge went into effect on April 21, 2009.  Accordingly, GSWC established a $1.9 millionregulatory asset with a corresponding increase to income during the secondquarter of 2009.  GSWC continues to trackunder-collections for Region I in the WCMA and will do so until a WRAM isestablished in Region I.  On May 7, 2009,the CPUC approved tiered rates for Region I and the establishment of a WRAM andMCBA which will go into effect on or about September 1, 2009.

 

**CPUCSubpoena**

 

On February 15,2007, the CPUC issued a subpoena to GSWC in connection with an investigation ofcertain work orders and charges paid to a specific contractor used by GSWC fornumerous construction projects totaling approximately $18.0 million. The CPUC’sinvestigation focuses on whether GSWC was overcharged for these constructionprojects and whether these overcharges were approved in customer rates.  The construction projects completed by thisspecific contractor related primarily to work on water treatment and pumpingplants which have been placed in service and are used and useful.  In June 2007, GSWC received notificationfrom the CPUC that it was instituting an audit. The purpose of the audit was toexamine for the period 1994 to the present, GSWC’s policies, procedures, andpractices throughout all of its Regions regarding the granting or awarding ofconstruction contracts or jobs.  GSWC iscurrently responding to data requests submitted by the CPUC including recentdata requests which asked for information prior to 1994. Management cannotpredict the outcome of the investigation or audit at this time.

 

In January 2009, theACC staff requested information regarding the CPUC subpoena and on-goingaudit.  GSWC has been working with theACC staff to provide responsive materials that are relevant to CCWC.  Management cannot predict the outcome of theACC’s request and whether it could affect the processing of CCWC’s GRC.

 

**PensionCosts Memorandum Account**

 

There was a significantincrease in the underfunded status of the pension plan during 2008.  This was partially due to an increase in theprojected benefit obligation in 2008 caused primarily from a decrease in thediscount rate, as well as a significant decrease in the fair value of planassets.  As a result of this increase inthe underfunded status, Registrant will experience higher costs than have beenestimated for inclusion in customer rates in 2009 and, if asset performance donot improve or applicable discount rates do not change in the future,Registrant may experience such a shortfall in future years, as well.

 

In March 2009, GSWC filed an advice letter with theCPUC requesting authorization to establish a Pension Costs MemorandumAccount.  If this account is approved,GSWC will track the difference between the pension costs authorized by the CPUCand included in customer rates, and actual pension costs.  GSWC will notrecord the amounts in this account as a regulatory asset until they arereviewed and approved by the CPUC.  If approved by the CPUC, GSWC willthen establish a regulatory asset with a corresponding increase to earnings.Until then, Registrant expects that its earnings will be negatively affected byincreasing pension costs.  In April 2009,the CPUC’s Water Division rejected our filing. GSWC has filed an appeal.  At thistime, management cannot predict the outcome of this matter as it relates to2009.  GSWC also amended its current ratecase application to request a two-way balancing account to track fluctuationsin the forecasted annual pension expense adopted in rates and the actual annualexpense to be recorded by GSWC in 2010, 2011 and 2012 in accordance with SFAS No. 87,*“Employers’Accounting for Pensions”*.  If approved as filed, GSWC will establish aregulatory asset with a corresponding increase to earnings in those years, forany shortfalls.

 

**Mandatory Conservation and RationingMemorandum Account**

 

GSWC serves approximately 4,800 customers in the City ofBay Point in Region I.  The majority ofthe water supply for the Bay Point customer service area is obtained from theContra Costa Water District (“CCWD”).  On March 4, 2009, CCWD made afinding that a water supply shortage existed within CCWD service territoriesand detailed a plan for significant conservation efforts.  Accordingly,GSWC filed an advice letter with the CPUC seeking authority to implement CPUC’sRule No. 14.1, which details water conservation and rationing in itsBay

 

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Point customer service area.  GSWC will implement water rationing, restrictions, and excessusage charges to its customers, as needed. GSWC also filed a separate advice letter seekingauthorization to establish a Mandatory Conservation and Rationing MemorandumAccount (“MCRMA”) to track the additional administrative costs, operatingcosts, and revenue shortfall not otherwise recoverable through any othermechanism recognized by the CPUC.  Bothadvice letters are currently under review by the CPUC.

 

**Bear Valley Electric**

 

GSWCpreviously filed a complaint with the Federal Energy Regulatory Commission (“FERC”)seeking to reduce the $95 per MWh rate in the contract with Mirant AmericasEnergy Marketing (“Mirant Marketing”) to a just and reasonable price. The FERCdenied GSWC’s complaint and GSWC appealed the denial. On December 19,2006, the United States Court of Appeals for the Ninth Circuit issued anopinion granting the petition filed by GSWC for a review of the orders that theFERC issued.  The Court’s opinion remandedthe case back to the FERC, finding that the FERC applied the wrong legalstandard and ignored relevant factors in denying the Company’s complaint.Neither the FERC nor Mirant Marketing filed a petition with the Supreme Courtof the United States for review of the Court of Appeals’ judgment in GSWC’scase, making the Court of Appeals’ judgment final. Other sellers of energy,however, sought Supreme Court review of the Ninth Circuit’s judgment remandingto the FERC similar complaints brought against them by other utilities. TheSupreme Court affirmed the Ninth Circuit’s judgment remanding those cases, buton narrower grounds than in the Ninth Circuit’s opinion. The Ninth Circuitvacated its opinion in all the cases, including GSWC’s case, in light of theSupreme Court’s decision and remanded the cases to the FERC. The FERC hasstayed the proceedings to allow the parties an opportunity to engage insettlement discussions.

 

InMay 2009, GSWC reached a settlement agreement with Mirant Energy Trading,LLC, which acquired the power contract from Mirant Marketing as a result ofbankruptcy reorganization. Pursuant to that settlement agreement, GSWC filedwith the FERC a notice of the withdrawal of its complaint. The settlementagreement requires Mirant Energy Trading to pay $1 million as a cash settlementto GSWC after the withdrawal of the complaint at the FERC becomes effective.Absent the objection of another party to the case or a FERC order rejecting thewithdrawal of the complaint, the withdrawal will become effective in 15 days,or on May 20, 2009. If an objection to the withdrawal of the complaint isfiled, the withdrawal of the complaint will become effective only upon an orderby the FERC approving the withdrawal.

 

**Environmental Matters**

 

AWR’s subsidiaries are subject to increasinglystringent environmental regulations including the 1996 amendments to theFederal Safe Drinking Water Act; enhanced surface water treatmentrules; regulation of disinfectant/disinfection by-products; and the long-term enhanced surface watertreatment rules; ground water treatmentrule; contaminant regulation of radon and arsenic; and unregulatedcontaminants monitoring rule.

 

There have been no material changes to AWR’s environmental matters since December 31, 2008. See *“Managements’ Discussion and Analysis of Financial Condition and Results of Operation-Environmental Matters”*section of the Registrant’s Form 10-K for the year-ended December 31, 2008 for a detailed discussion of environmental matters.

 

**WaterSupply**

 

***StateWater Project***

 

GSWC manages a portfolioof water supplies, including groundwater production, use of treated surfacewater and arrangements with water wholesalers to insure the reliability,quality and affordability of water.  Forexample, GSWC has contracts with various governmental entities,principally Metropolitan Water District’s member agencies (“MWD”), and otherparties to purchase water for distribution to customers.  The MWD is a public agency organized and managed toprovide a supplemental, imported supply of water to its member publicagencies.  GSWC has 46 connections to MWD’swater distribution facilities and those of member agencies.  The Company purchases MWD water through sixseparate member agencies aggregating more than 62,000 acre-feet annually. MWD’sprincipal sources of water are the Colorado River via the Colorado RiverAqueduct and northern California supplies via the State Water Project (“SWP”).

 

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Water supplies availableto MWD through the SWP have historically varied from year to year based onweather.  However, MWD has generally beenable to provide sufficient quantities of water to satisfy the needs of itsconstituents.

 

A key link in the SWP isthe Sacramento/San Joaquin River Delta adjacent to the San Francisco Bay (“Delta”).  The fresh water pathway through the Delta issupported by earthen levees, and the reliability of those levees has been calledinto question based on post hurricane Katrina assessments by various federal,state and local agencies.  A significantfailure of the Delta levee system would substantially interfere with waterexports, thus potentially disrupting the water supply available to GSWC fromnorthern California via MWD.  Inaddition, the environmental health of the Delta has been called into question,citing declining levels of particular fish species.  In light of these risks and environmentalconcerns, the state Department of Water Resources (“DWR”) and the Governor haveconvened a series of interdisciplinary task forces to develop proposals topreserve the environmental viability of the Delta and safeguard the watersupply.  GSWC continues to participate inand monitor developments related to the Delta and efforts to craft a workablesolution to the risks presented by reliance on the Delta for water supplies insouthern California.

 

The SWP faces particularchallenges to the operation of its pumping plant located at the southern end ofthe Delta which naturally drains to the Pacific Ocean through the San FranciscoBay. Because of its diversion of water for export to central, coastal andsouthern California through the pumping plant, the SWP is subject to a varietyof operating limitations and permitting processes designed, collectively, tobalance the need for water exports with the need to restore and protect theDelta environment.  In late 2007, a Federal judge issued a decision in thecase *Natural Resources Defense Council v.Kempthorne*, Case No. 05-CV-1207 (U.S. Dist. Ct., E.D.) finding,among other things, that the Biological Opinion (“BiOp”) issued by the U.S.Fish and Wildlife Service (the “Service”) was legally insufficient and failedto consider recent declines in delta smelt fish populations.  A new BiOp,responsive to recent scientific findings and to the judge’s order, was filed December 15,2008.  The BiOp, which sets theparameters for a new operating procedure for the SWP, could result in permanentrestrictions on water deliveries through the Delta, reducing deliveries in someyears by up to 50%.

 

  At the start of each year, DWR issues aconservative initial allocation estimate that is typically increased as thewater year progresses. Due to declining storage levels in the State’sreservoirs, DWR has established a 30% delivery level through the SWP for2009.  Final 2009 allocations to SWPcontractors will be set in May 2009, and, if that percentage remains at30%, it will match the lowest delivery level in SWP history. The board of MWDvoted on April 14, 2009 to implement its Water Supply Allocation Plan toeffectively reduce water deliveries across the region by 10% beginning July 1,2009.  MWD plans to achieve the reductionby imposing significant penalty charges to its member agencies who do notachieve stated reductions.  GSWCpurchases MWD water through these member agencies, and expects the memberagencies to implement similar penalty structures to GSWC to ensure commensurateconservation levels.  MWD has alsoannounced an 8.8%  basic rate increase aswell as a $69 per-acre-foot Delta surcharge. These two elements result in a combined average increase of 19.7%effective September 1, 2009.  As aresult of the water supply shortages, GSWC may implement water rationing, restrictions,and excess usage charges to its customers, as needed.  In May 2009, GSWC filed an advice letterwith the CPUC to implement water conservation andrationing in its Bay Point customer service area.  GSWC will consider similar action in othercustomer service areas as needed.

 

Statewide waterconditions have improved in recent months but they remain below average for thethird consecutive year.  Total waterstorage in the Colorado River basin is also slightly better than last year.  But average water storage is at 54% ofoverall capacity as a result of a persistent drought in the basin.  Lake Mead, which supplies SouthernCalifornia, is at 46% of its full capacity, although it may receive more waterfrom upstream Lake Powell as the season progresses.

 

Additional information onwater supply issues are described in *“Management’s Discussionand Analysis of**Financial Condition andResults of Operation”* included in our 2008 Annual Report on Form 10-Kfor the year ended December 31, 2008.

 

**New AccountingPronouncements**

 

Registrant is subject tonewly issued requirements as well as changes in existing requirements issued bythe Financial Accounting Standards Board. Differences in financial reportingbetween periods could occur unless and until the CPUC and the ACC approve suchchanges for conformity through regulatory proceedings. See *Note 1**of Unaudited Notes to Consolidated FinancialStatements.*

 

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**Item 3.Quantitative and Qualitative Disclosures About Market Risk**

 

Registrant is exposed tocertain market risks, including fluctuations in interest rates, commodity pricerisk primarily relating to changes in the market price of electricity and theimpact of the current financial crisis. Market risk is the potential lossarising from adverse changes in prevailing market rates and prices.

 

The financial crisiscontinues to affect the fair value of Registrant’s assets in the pension andpostretirement plans.  During the fourmonths ended April 30, 2009, the fair value of the pension plan assetsdeclined further by approximately 1% since December 31, 2008.

 

There have been no othermaterial changes regarding Registrant’s market risk position from theinformation provided in its Annual Report on Form 10-K for the year ended December 31,2008. The quantitative and qualitative disclosures about market risk arediscussed in *Item 7A-Quantitative and QualitativeDisclosures About Market Risk*, contained in Registrant’s AnnualReport on Form 10-K.

 

**Item 4. Controls and Procedures**

 

**(a) Evaluationof Disclosure Controls and Procedures**

 

As required by Rule 13a-15(b) underthe Securities and Exchange Act of 1934 (the “Exchange Act”), we have carriedout an evaluation, under the supervision and with the participation of ourmanagement, including our Chief Executive Officer (“CEO”) and our ChiefFinancial Officer (“CFO”), of the effectiveness, as of the end of the fiscalquarter covered by this report, of the design and operation of our “disclosurecontrols and procedures” as defined in Rule 13a-15(e) and 15d-15(e) promulgatedby the Securities and Exchange Commission (“SEC”) under the Exchange Act. Basedupon that evaluation, the CEO and the CFO concluded that disclosure controlsand procedures, as of the end of such fiscal quarter, were adequate andeffective to ensure that information required to be disclosed by us in thereports that we file or submit under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the SEC’s rules andforms and that such information is accumulated and communicated to ourmanagement, including our CEO and CFO, as appropriate to allow timely decisionsregarding required disclosure.

 

**(b) Changesin Internal Controls over Financial Reporting**

 

There has been no changein our internal control over financial reporting during the quarter ended March 31,2009, that has materially affected or is reasonably likely to materially affectour internal control over financial reporting.

 

**Item 4T. Controls and Procedures**

 

Not applicable.

 

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**PART II**

 

**Item 1. Legal Proceedings**

 

There have been no material developments in any of thelegal proceedings described in our 2008 Annual Report on Form10-K.

 

Registrant is subject to ordinary routine litigationincidental to its business. Other than those disclosed in Registrant’s Form 10-Kfor the year ended December 31, 2008, no other legal proceedings arepending, which are believed to be material. Management believes that rate recovery, properinsurance coverage and reserves are in place to insure against property,general liability and workers’ compensation claims incurred in the ordinarycourse of business.

 

**Item 1A. Risk Factors**

 

Therehave been no significant changes in the risk factors disclosed in our 2008Annual Report on Form 10-K.

 

**Item 2.Unregistered Sales of Equity Securities and Use of Proceeds**

 

The shareholders of AWR have approved the material featuresof all equity compensation plans under which AWR directly issues equitysecurities. AWR did not directly issue any unregistered equity securitiesduring the first quarter of 2009.  Thefollowing table provides information about repurchases of common shares by AWRduring the first quarter of 2009:

 
| **Period**                      | ** ** | **Total Number of  Shares  Purchased** | ** ** | **Average Price Paid  per Share** | ** ** | **Total Number of  Shares Purchased as  Part of Publicly  Announced Plans or  Programs (1)** | ** ** | **Maximum Number  of Shares That May  Yet Be Purchased  under the Plans or  Programs** | ** ** |
|---------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------|------------|
| January 1 - 31, 2009       |       | 211                                              |       | $                                                | 32.04      |                                                                                                                                 | —     |                                                                                                                                | NA         |   |
| February 1 – 28, 2009 |       | 43                                               |       | $                                                | 34.78      |                                                                                                                                 | —     |                                                                                                                                | NA         |   |
| March 1 - 31, 2009         |       | 50                                               |       | $                                                | 32.84      |                                                                                                                                 | —     |                                                                                                                                | NA         |   |
| Total                           |       | 304                                              | (2)        | $                                                | 32.56      |                                                                                                                                 | —     |                                                                                                                                | NA         | (3) |

 

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(1)          None of the common shares were purchasedpursuant to any publicly announced stock repurchase program.

 

(2)          All of the common shares were acquired onthe open market for participants in the Company’s Common Share Purchase andDividend Reinvestment Plan.

 

(3)          None of these plans contain a maximumnumber of common shares that may be purchased in the open market under theplans.

 

**Item 3. Defaults Upon Senior Securities**

 

None

 

**Item 4. Submission of Matters toa Vote of Security Holders**

 

Noitems were submitted during the first quarter of the fiscal year covered bythis report to a vote of security holders through the solicitation of proxiesor otherwise.

 

**Item 5. Other Information**

 

(a)          OnApril 30, 2009, the Board of Directors of AWR declared a regular quarterlydividend of $0.250 per common share. The dividend will be paid on June 1,2009 to shareholders of record as of the close of business on May 11,2009.

 

(b)         Therehave been no material changes during the first quarter of 2009 to theprocedures by which shareholders may nominate persons to the Board ofDirectors of AWR.

 

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## **Item 6. Exhibits**

##  

(a)          The following documents are filed asExhibits to this report:

 
| 3.1    | Bylaws of American States Water Company  (incorporated by reference to the Form 8-K filed on November 5, 2008) (1)    |
|--------|-----------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                  |
| 31.1   | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 for AWR (1)  |
|   |                                                                                                                  |
| 31.1.1 | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 for GSWC (1) |
|   |                                                                                                                  |
| 31.2   | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 for AWR (1)  |
|   |                                                                                                                  |
| 31.2.1 | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 for GSWC (1) |
|   |                                                                                                                  |
| 32.1   | Certification of Chief Executive Officer pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 (2)          |
|   |                                                                                                                  |
| 32.2   | Certification of Chief Financial Officer pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 (2)          |

 

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(1)          Filed concurrently herewith

 

(2)          Furnished concurrently herewith

 

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#### **SIGNATURE**

####  

Pursuantto the requirements of Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized and as its principal financial officer.

 
|   |            | AMERICAN STATES WATER COMPANY (“AWR”):                                           |
|--------|-----------------|--------------------------------------------------------------------------------------------|
|   |            |                                                                                       |
|   | By:   | /s/ EVA G. TANG                                                                            |
|   |            | Senior Vice President-Finance, Chief Financial Officer,  Corporate Secretary and Treasurer |
|   |            |                                                                                       |
|   |            | GOLDEN STATE WATER COMPANY (“GSWC”):                                             |
|   |            |                                                                                       |
|   | By:             | /s/ EVA G. TANG                                                                            |
|   |            | Senior Vice President-Finance, Chief Financial Officer  and Secretary                      |
|   |            |                                                                                       |
|   | Date:      | May 11, 2009                                                                          |

 

52

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