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Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.05pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-0.05pp
Flat
Net-tone change vs last year's 10-K.
MD&A
-0.05pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
adverse+5
volatility+3
claims+2
inaccurate+2
incomplete+2
Positive rising
enhance+2
improvements+1
enabled+1
Risk Factors (Item 1A)
13,808 words
Item 1A. Risk Factors
You should carefully read the risks described below and other information in this Form 10-K in order to understand certain risks of our business.
Overview of Risk Factors
We have three business segments, water utility, electric utility and contracted services, each of which are subject to different risks as further discussed below. We are also subject to risks frequently encountered by businesses of our size.
Regulated Water and Electric Utility Operations
GSWC’s and BVES’s revenues depend substantially on the rates and charges we are permitted to recover from our customers and the timing of that recovery as authorized by the CPUC. Decisions of the CPUC could result in impairment charges and customer refunds, and delays in recovering costs in rates. Some of the factors impacting our ability to obtain rate recovery on a timely basis include opposition to rate increases arising out of increased costs for replacing aging infrastructure and increased costs associated with addressing climate change and weather event risks, such as drought, storms and wildfires in California, costs incurred in connection with complying with water quality regulations, costs incurred in connection with obtaining and complying with franchise agreements with local governmental agencies and costs of obtaining permits from local, state and federal governmental agencies. There may also be increased customer to rate increases due to customer with conservation rate structures and public safety power .
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
shutdown+6
delays+5
litigation+5
volatility+3
plaintiffs+2
Positive rising
gains+4
favorably+2
favorable+2
greater+1
satisfying+1
MD&A (Item 7)
21,144 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provides information on AWR’s consolidated operations and assets, and includes specific references to (i) GSWC, AWR’s regulated water utility segment, (ii) BVES, AWR’s regulated electric utility segment, (iii) ASUS and its subsidiaries, collectively, AWR’s contracted services segment, and (iv) AWR (parent) where applicable.
Included in the following analysis is a discussion of Registrant’s operations in terms of earnings per share by business segment and AWR (parent), which equals each business segment’s recorded earnings and adjusted earnings (if applicable) divided by AWR’s weighted average number of diluted Common Shares. The impact of a one-time tax benefit recorded in 2024 at the water segment has been excluded in the analysis when communicating AWR’s consolidated and water segment results for the years ended December 31, 2025 and 2024. This adjustment has been excluded from the analysis to help facilitate comparisons of AWR’s performance from period to period.
All of the measures discussed above are derived from consolidated financial information of Registrant, but are not presented in our financial statements that are prepared in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”). These items constitute “non-GAAP financial measures” under Securities and Exchange Commission rules, which supplement our GAAP disclosures but should not be considered as an alternative to the respective GAAP measures. Furthermore, the non-GAAP financial measures may not be comparable to similarly titled non-GAAP financial measures of other registrants.
Our water and electric utility services are provided in California. As a result, our financial results are largely subject to political, water supply, labor, utility cost and regulatory risks, economic conditions, natural disasters (which may increase as a result of climate change), and other risks affecting California businesses. Our assets are also subject to condemnation in California.
Contract Services Operations
All of our utility privatization contract services are provided to the U.S. government pursuant to the terms of firm-fixed-price contracts subject to annual economic price adjustments. ASUS may also, from time to time, perform construction services on military bases as a subcontractor or pursuant to task order agreements. These contracts may be terminated or services suspended at any time for convenience of the U.S. government. We are subject to penalties for failure to conform or comply with U.S. government regulations and the terms of our contracts, and may be suspended or debarred for such failure to comply. The fees that we may charge are adjusted annually and in response to our requests for equitable adjustments. We have experienced delays in obtaining price and equitable adjustments, as well as delays in being paid by the U.S. government.
We are also responsible for complying with water quality and wastewater quality regulations on military bases, which are expected to increase costs as a result of increased water quality regulations.
We compete with other companies in bidding on providing utility services on military bases. We submit bids on new U.S. government contracts for military bases based on estimates of cost and potential profit. Our estimates and judgment are important, for in the event we overpay to obtain a contract, we could incur losses on it.
Other Business Risks
We may be subject to financial losses, penalties and other liabilities if we fail to operate and maintain safe work sites, equipment and facilities, or experience losses, damages, penalties and other liabilities arising from natural disasters such as wildfires, other natural disasters and cybersecurity incidents or terrorist activities. We may not be able to recover all these losses from insurance or from ratepayers or may experience delays in obtaining recovery for these losses.
We are also subject to other business risks typical of our business, including:
• Cybersecurity incidents or information and operational technology outages, including incidents and outages caused by third party solutions that support operational and business processes, could disrupt and adversely impact our operations and critical technology systems, resulting in an increase of costs, liabilities to third parties and damage to our reputation;
• Physical security risks of our infrastructure, critical assets, and data critical to our business, employees, customers and vendors could also disrupt our operations and critical systems, resulting in reputational damage and adversely impact our financial performance;
• Failure to attract, train, develop and transition key employees with the necessary skills to replace employees who are retiring or otherwise terminate employment or to fill new positions needed to respond to the increase in public utility and environmental regulations and overall needs of our operations and continued capital investments;
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• Failure to make accurate estimates about financing and accounting matters, and in filing requests for rate increases with the CPUC or requests for price adjustments with the U.S. government or in bids on military base contracts or obtain new task orders from the U.S. government;
• Our ability to finance significant capital expenditures required by our businesses, which could be adversely impacted by general economic and market conditions, delays in receiving decisions from the CPUC on our general rate cases or delays in receiving payment from the U.S. government;
• Volatility in economic conditions such as changes to inflation, short-term interest rate volatility, tariffs, and other market conditions may adversely impact our financial performance;
• Changes in accounting, public utility, environmental and tax laws and regulations impacting our business;
• Our inability to comply with debt covenants in our debt agreements; and
• Final determination of our income tax liability by the federal and applicable state governments.
As a holding company, AWR is dependent upon dividends from its subsidiaries to pay dividends to its shareholders. The ability of its subsidiaries to pay dividends is dependent upon compliance with state laws governing the payment of dividends and the terms of the debt agreements with the applicable subsidiary.
Climate Change
Climate change has resulted in increased frequency and duration of droughts, volatility in rainfall, potential degradation of water quality, and changes in demand for services. More frequent and extended California drought conditions may cause increased stress on surface water supplies and groundwater basins, as well as allocations of water from the State Water Project and the Colorado River. Wholesale water suppliers may not have adequate supply during extended periods of drought, which may result in increases in prices for water delivered to us. In addition, GSWC could experience an increased use of reclaimed or recycled water by GSWC customers, in lieu of GSWC supplying potable water to these customers. Reclaimed water generally has lower tariff rates than potable water and may be provided by other companies or government entities in GSWC’s service territory. Prolongeddroughts may also result in state-ordered mandatory or voluntary conservation efforts by customers, changes in customer conservation patterns and imposition of new regulations impacting such things as landscaping and irrigation patterns.
California has established long-term indoor and outdoor water use standards to address the impact of climate change on California water resources. These standards, which were adopted by the California State Water Resources Board and effective January 1, 2025, require all urban water retailers to meet certain water use standards on a system-by-system basis. The extended drought in the Colorado River watershed has resulted in a short-term agreement between Arizona, California and Nevada and the Bureau of Reclamation to reduce the amount of water taken from the Colorado River by 10% through the end of 2026. The impact to GSWC as a result of the short-term agreement is not known at this time.
Drought conditions have contributed to increases in wildfires, which has resulted in new California legislation requiring electric utilities to adopt and implement wildfire mitigation plans and water utilities to enhance plans to ensure water infrastructure remains functional during wildfire events. GSWC and BVES are incurring increased capital expenditures and, when applicable, other operating costs related to the creation, implementation and maintenance of ongoing requirements of these plans. We anticipate that the costs of capital improvements necessary to sustain this program will continue to increase. BVES is also required to implement a public safety power shut-off program during high wildfire threat conditions. Shut-offs can reduce BVES’s liquidity and decrease customer satisfaction. Abnormal weather patterns created by climate change can also impact electricity demand at BVES. The demand for electricity at our electric segment is greatly affected by winter snow levels. An increase in winter snow levels reduces the use of snow-making machines at ski resorts in the Big Bear area and, as a result, also reduces BVES’s liquidity. Likewise, unseasonably warm weather during a skiing season may result in temperatures too high for snow making conditions, which also reduces our liquidity.
More extreme weather events which may result in significant rainfall, flash flooding, mudslides, high winds and wildfires could damage our infrastructure and our customers’ and/or suppliers’ property. The wildfires of recent years that devastated communities in southern California may result in legislative and regulatory actions that may impose additional reporting requirements and capital investment requirements for our regulated utilities and water system operation requirements for GSWC. For instance, recent California legislation has required electric utilities to adopt and implement wildfire mitigation plans, and certain local counties in California have required water utilities to enhance plans to ensure water infrastructure remains functional during wildfire events. As a result of such events, it may increase our cost of maintaining our infrastructure and adversely impact our ability to provide water or electric service to our customers. The cost of damage to our infrastructure may be somewhat mitigated if the CPUC permits us to establish a catastrophic emergency memorandum account that enables us to recover the costs incurred. Furthermore, potential future legislative efforts to ban gas powered power plants as a response to climate change may require BVES to replace its 8.4 MW natural gas-powered generator before its useful life is completed.
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Lastly, with extreme weather events and conditions comes volatility in water demand and usage of our customers. Without the continuation of a full revenue decoupling mechanism such as the WRAM and a full supply cost decoupling balancing account such as the MCBA as discussed further later, Registrant may be subject to future volatility in revenues and earnings as a result of fluctuations in water consumption by our customers and changes in water supply cost mix.
Risks Associated with Regulated Public Utility and Contracted Services Operations
Our businesses are heavily regulated and, as a result, decisions by regulatory agencies or the U.S. government can significantly affect our businesses
GSWC’s and BVES’s revenues depend substantially on the rates and fees they charge their customers and their ability to recover costs on a timely basis as authorized by the CPUC, including the ability to recover the costs of purchased water, groundwater assessments, electricity, natural gas, chemicals, water treatment, security at water facilities and preventative maintenance and emergency repairs. Any delays by the CPUC in granting rate relief to cover increased operating and capital costs at our public utilities or delays in obtaining approval of our requests at ASUS for economic price or equitable adjustments for contracted services from the U.S. government may adversely affect our year-over-year financial performance, liquidity and cash flows. We may file for interim rates in California in situations where there may be delays in granting final rate relief during a general rate case proceeding. If the CPUC approves lower rates than the interim rates we were permitted to adopt, the CPUC will require us to refund to customers the difference between the interim rates and the rates approved by the CPUC. Similarly, if the CPUC approves rates that are higher than the interim rates, the CPUC may authorize us to recover the difference between the interim rates and the final rates.
Regulatory decisions affecting GSWC and/or BVES may also impact prospective revenues and earnings, affect the timing of the recognition of revenues and expenses, may overturn past decisions used in determining our revenues and expenses, and could result in impairment charges and customer refunds. Negative decisions made by the CPUC may have an adverse effect on GSWC’s or BVES’s results of operations, financial position or cash flows and affect the ability of the regulated utilities to recover costs and an appropriate return on the capital investments being made.
In August 2020, the CPUC issued a final decision in the first phase of the CPUC’s Order Instituting Rulemaking evaluating the low income ratepayer assistance and affordability objectives contained in the CPUC’s 2010 Water Action Plan, addressing the continued use of the WRAM and the MCBA by California water utilities. As a result of this decision, these mechanisms implemented by GSWC in 2008 would be discontinued for years after 2024. Furthermore, in September 2022, the governor of California signed Senate Bill (“SB”) 1469, which allowed Class A water utilities, including GSWC, to continue requesting the use of a revenue decoupling mechanism in their next general rate case.
Accordingly, GSWC requested the continued use of the WRAM and MCBA in its general rate case application filed in August 2023 that establishes new rates for the years 2025 – 2027. In January 2025, GSWC received a final decision that rejected GSWC’s request for continuation of the WRAM and MCBA and instead ordered GSWC to transition to a modified rate adjustment mechanism (a Monterey-style WRAM or “M-WRAM”) and an incremental cost balancing account for supply costs. The final CPUC decision did approve GSWC’s request for the continuation of a sales reconciliation mechanism, which would allow GSWC to adjust its sales forecast throughout the general rate case cycle to address significant fluctuations in consumption. However, without the continuation of a full revenue decoupling mechanism such as the WRAM and a full supply cost decoupling balancing account such as the MCBA, Registrant may be subject to future volatility in revenues and earnings as a result of fluctuations in water consumption by our customers and changes in water supply cost mix.
Our regulated utilities’ ongoing financial results depend on their ability to recover costs from their customers, including costs such as water or electricity purchased for its customers, through rates charged and billed to its customers as approved by the CPUC. Both GSWC’s and BVES’s financial results depend on its ability to earn a reasonable return on capital, from its credit facilities, long-term debt and equity as well as the recovery of costs such as operations and maintenance expense that are incurred. Our ability to recover costs and earn a reasonable rate of return can be affected by time lags or delays in receiving approvals on general rate case decisions from the CPUC to authorize recovery of customers’ rates and differences between authorized rates and the actual costs incurred, due to increased levels of inflation, which each could adversely impact our financial condition and cash flows. In addition, our regulated utilities may be prevented from cost-recovery by the CPUC as a result of customer affordability concerns and desires to avoid rate increases.
Management continually evaluates the anticipated recovery of regulatory assets, settlement of liabilities and revenues subject to refund and provides for allowances and reserves as deemed necessary. In the event that our assessment of the probability of recovery or settlement through the ratemaking process is incorrect, we will adjust the associated regulatory asset or liability to reflect the change in our assessment or any regulatory disallowances. A change in our evaluation of the probability over the recovery of regulatory assets including a future disallowance of previously granted regulatory mechanisms, or a regulatory disallowance of all or a portion of our costs could have a material adverse effect on our financial results.
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We are also, in some cases, required to estimate future expenses and, in others, we are required to incur the expense before receiving approval to recover the costs. As a result, our revenues and earnings may fluctuate depending on the accuracy of our estimates, the timing of our investments or expenses or other factors. If expenses increase significantly over a short period, we may experience delays in recovery of these expenses and the inability to recover the carrying costs for the expenses, which increases risks of regulatory disallowances or write-offs.
Additional information related to the CPUC’s adopted final decision in connection with GSWC’s general rate case proceeding is discussed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operation” under the section titled “ Overview .”
Delays in obtaining approval of general rate cases could adversely impact our liquidity
We have experienced delays in obtaining CPUC approval of our general rate cases. As a result, we have previously needed, and may need in the future, to undertake capital improvements described in our rate case filings before we receive CPUC approval to recover these costs in rates. BVES is required to file wildfire mitigation plans with OEIS for regulatory approval by the OEIS and the CPUC and, once approved, for BVES to make the capital improvements described in the wildfire mitigation plan. However, the CPUC does not approve recovery of any of the costs of implementing approved wildfire mitigation plans until it approves the next general rate case filed by BVES after the approval of the wildfire mitigation plans. As a result, there may be a delay in recovering costs associated with capital improvements required to be made by wildfire mitigation plans, and the CPUC may not approve all costs incurred in connection with the implementation of these plans that are incurred prior to obtaining CPUC approval of these costs in a general rate case.
Changes in laws, regulations and policies of regulatory agencies can significantly affect our business
Regulatory agencies may also change their rules and policies, which may adversely affect our profitability and cash flows. We are subject to regulations under U.S. federal and state regulations and policies including from the CPUC, Federal Energy Regulatory Commission and other regulatory agencies. Regulations and laws affect almost all aspects of our businesses and changes to such regulations are continuous and ongoing. There can be no assurance that laws, regulations and policies of regulatory agencies will not be changed in ways that will materially impact our results of operations, financial position or cash flows.
Changes in policies of the U.S. government may adversely affect one or more of ASUS’s subsidiaries. In certain circumstances, the U.S. government may be unwilling or unable to appropriate funds to pay costs mandated by changes in rules and policies of federal or state regulatory agencies. The U.S. government may disagree with the increases that we request and may delay approval of requests for equitable adjustment or economic price adjustments, which could adversely affect our anticipated rates of return at our contracted services business.
We may also be subject to fines or penalties if a regulatory agency or the U.S. government determine that we have failed to comply with laws, regulations or orders applicable to our businesses, unless we successfully appeal such an adverse determination. Regulatory agencies may disallow recovery of certain costs if they determine they may no longer be recovered in rates, or if audit findings determine that we have failed to comply with our policies and procedures for procurement or other practices.
Additional information regarding water quality regulations is discussed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the section titled “ Environmental Matters .”
Our assets at our regulated utilities are subject to condemnation
Municipalities and other governmental subdivisions may, in certain circumstances, seek to acquire certain of our assets through eminent domain proceedings. It is generally our practice to contest these proceedings, which may be costly and may temporarily divert the attention of management from the operation of our business. If a municipality or other governmental subdivision succeeds in acquiring our assets, there is a risk that we will not receive adequate compensation for the assets taken or be able to recover all charges associated with the condemnation of such assets. In addition, we would no longer be entitled to any portion of the revenues generated from the use of such assets.
Our costs of obtaining and complying with the terms of franchise agreements are increasing
Cities and counties in which GSWC and BVES operate have granted them franchises to construct, maintain and use pipes, wires and appurtenances in or along public streets and rights of way. The costs of obtaining, renewing and complying with the terms of these franchise agreements have been increasing as cities and counties attempt to regulate our operations within the boundaries of the city or unincorporated areas of the counties in which we operate. Our regulated utilities may also be required from time to time to relocate existing infrastructure in order to accommodate local infrastructure improvement projects. Cities and counties have also been imposing new fees on our operations, including pipeline abandonment fees and road-cut or other types of capital improvement fees. At the same time, there is increasing opposition from consumer groups to rate increases that may be necessary to compensate GSWC and BVES for the increased costs of regulation by local
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governments. These trends may adversely affect our ability to recover in rates the costs of providing water and electric services and to efficiently manage capital expenditures and operating and maintenance expenses within CPUC-authorized levels.
We have also experienced instances of increased costs and delays in obtaining permits that we need in order to install, maintain, repair, and replace some of our aging water and electric utility infrastructure and upgrades needed to comply with changes in laws and regulations or otherwise necessary to harden our infrastructure as a result of drought, wildfires and increases in the frequency and duration of more extreme weather events due to climate change.
Our liquidity and earnings may be adversely affected by maintenance costs at our regulated utilities
Some of our infrastructure in California is aging. We have experienced leaks and mechanical problems in some of these older systems. In addition, infrastructure maintenance expenses are affected by labor and material costs, inflationary or tariff changes impacting such costs, supply chain disruptions and more stringent environmental regulations. Our electrical systems have also required upgrades due to aging and new wildfire safety and other compliance requirements. While we spend significant amounts on maintenance each year, these costs can increase substantially and unexpectedly. There could be an increase in infrastructure damage if California experiences more extreme weather events resulting in damage to our property.
We include estimated increases in maintenance costs for future years in each water and electric general rate case filed by GSWC and BVES, respectively, for possible recovery. To the extent that these estimates understate our actual costs, we may be unable to recover all maintenance costs in rates.
Adverse publicity and reputational risks can lead to increased regulatory oversight or sanctions
As a utility company, we have a large customer base and are therefore, subject to public criticism regarding, among other things, the quality and reliability of our water and electricity services, and the accuracy, timeliness and format of bills that are provided to our customers for such services. Adverse publicity and negative customer sentiment may cause regulatory authorities, including the CPUC, and other governing bodies to view us unfavorably and cause us to be susceptible to increased oversight and more stringent regulations and economic requirements.
Risks Associated with Health, Safety and Liability Matters
Our liquidity and earnings may be adversely affected by wildfires
It is possible that wildfires may occur more frequently, be of longer duration or impact larger areas as a result of drought-damaged plants and trees, lower humidity or higher winds that may occur as result of changing weather patterns. Our liquidity, earnings and operations may be materially and adversely affected by wildfires. We may be required to (i) incur greater costs to relocate lines or increase our trimming of trees and other plants near our electric or water facilities to avoid wildfires, (ii) make significant additional capital expenditures to fund the projects in BVES’s wildfire and safety mitigation plans, and (iii) bear the costs of damages to property or injuries to the public if it is determined that our power lines or other electrical or water equipment was a cause of such damages or injuries. In addition, wildfires may result in reduced demand if structures are destroyed or unusable following a wildfire and may adversely affect our ability to provide water or electric service in our service areas due to public safety power shutdowns or if any of our water or electric utility infrastructure is damaged by a wildfire.
Losses by insurance companies resulting from wildfires in California have caused insurance coverage for wildfire risks to become more expensive and the number of insurance companies willing to issue policies without an exclusion for losses due to wildfires to decrease. As a result, coverage could become unavailable on reasonable terms or without exclusions for losses due to wildfires, and our insurance may be inadequate to recover all our losses incurred in a wildfire. We might not be allowed to recover in our rates any increased costs of wildfire insurance or the costs of any uninsured wildfire losses.
Electric utilities in California are authorized to shut off power for public safety reasons, such as during periods of extreme fire hazard, if the utility reasonably believes that there is an imminent and significant risk that strong winds may topple power lines or cause vegetation to come into contact with power lines leading to increased risk of fire. Shut-offs can reduce BVES’s liquidity and decrease customer satisfaction.
These shut-offs can also adversely affect GSWC’s water utility operations if the electric utilities that provide electric service to GSWC’s water operations shut off power lines that deliver electricity to GSWC’s water plant and equipment, thereby adversely affecting its ability to provide water service to its customers.
We may, in certain circumstances, be held strictly liable for damages to property caused by our equipment even if we are not negligent
Utilities in California may be held strictly liable, in certain circumstances, for damages caused by their property, such as mains, fire hydrants, power lines and other equipment, even though they were not negligent in the operation and maintenance of that property, under a doctrine known as inverse condemnation. Furthermore, the wildfires of recent years have increased the focus on water utilities and their ability to provide adequate services during such an event. Water utilities may be held
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strictly liable under inverse condemnationclaims for fire damage in the event the water system did not operate as designed, including being damaged by the fire itself, even if the fire is no fault of the water utility. Our liquidity, earnings and operations may be adversely affected if we are unable to recover the costs of paying claims for damages caused by the non-negligent operation and maintenance of our property from customers or through insurance.
We may be subject to financial losses, penalties and other liabilities if we fail to maintain safe work sites, equipment or facilities
Our safety record is critical to our reputation. We maintain health and safety standards to protect our employees, customers, vendors and the public. Although we aim to comply with such health and safety standards, it is unlikely that we will be able to avoid all accidents or other events resulting in damage to property or the public.
Our business sites, including construction and maintenance sites, often put our employees and others in close proximity with large pieces of equipment, moving vehicles, pressurized water, chemicals and other regulated materials. On many sites, we are responsible for safety and, accordingly, must implement safety procedures. If we fail in any respect to implement such procedures or if the procedures we implement are ineffective or are not followed by our employees or others, our employees and others may be injured or die. Unsafe work sites also have the potential to increase our operating costs. Any of the foregoing could result in financial losses, which could have a material adverse impact on our business, financial condition, and results of operations.
Our operations involve the handling and storage of hazardous chemicals that, if improperly handled, stored or disposed of, could subject us to penalties or other liabilities. We are also subject to regulations dealing with occupational health and safety. Although we maintain functional employee groups whose primary purpose is to ensure that we implement effective health, safety, and environmental work procedures throughout our organization, including construction sites and maintenance sites, a failure to comply with such regulations in any respect could subject us to liability.
The generation, transmission and distribution of electricity are dangerous and involve inherent risks of damage to private property and injury to employees and the general public
Electricity is dangerous for employees and the general public should they come in contact with electrical current or equipment, including through downed power lines, sparking during high-wind events or equipment malfunctions. Injuries and property damage caused by such events may subject BVES to significant liabilities that may not be covered or fully covered by insurance. Additionally, the CPUC has delegated to its staff the authority to issue citations, which carry a fine of $50,000 per-violation per day, to electric utilities subject to its jurisdiction for violations of safety rules found in statutes, regulations, and the General Orders, rules and regulations, of the CPUC.
We may sustain losses that exceed or are excluded from our insurance coverage or for which we are not insured
We are, from time to time, parties to legal or regulatory proceedings. These proceedings may pertain to regulatory investigations, employment matters or other disputes. Management periodically reviews its assessment of the probable outcome of these proceedings, the costs and expenses reasonably expected to be incurred, and the availability and extent of insurance coverage. On the basis of this review, management establishes reserves for such matters. We may, however, from time to time be required to pay fines, penalties or damages that exceed our insurance coverage and/or reserves if our estimate of the probable outcome of such proceedings proves to be inaccurate.
We maintain insurance coverage as part of our overall legal and risk management strategy to minimize our potential liabilities. Generally, our insurance policies cover property, workers’ compensation, general liability, automobile liability, and other risks. Insurance coverage may not cover certain claims involving punitivedamages. Each policy includes deductibles or self-insured retentions and policy limits for covered claims. Our insurance policies also contain exclusions and other limitations that may not cover our potential liabilities. Furthermore, due to insurance market conditions, including the prevalence of wildfires in recent years, resulting in tighter underwriting and increased premiums along with reductions in capacity, we have experienced increased costs and difficulties in obtaining certain insurance coverages, particularly along the general liability, umbrella and cyber insurance lines. We may experience further increased insurance costs and/or coverage reductions in future years. As a result, we may sustain losses that exceed or that are excluded from our insurance coverage or for which we are not insured.
Uninsuredlosses and increases in the cost of insurance may not be recoverable or fully recoverable in customer rates. A loss which is not insured or not fully insured or cannot be recovered in customer rates could materially affect our financial condition and results of operations.
We operate in areas subject to natural disasters
We operate in areas that are prone to earthquakes, wildfires, mudslides, hurricanes, tornadoes, high winds, storms, flooding or other natural disasters. While we maintain insurance policies to help reduce our financial exposure, a significant seismic event in southern California, where our regulated water and electric operations are concentrated, wildfires or other
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natural disasters in any of the areas that we serve could adversely impact our ability to deliver water and electricity or provide wastewater service, and adversely affect our costs of operations. Any losses not covered by insurance could have an adverse effect on the results of operations, financial position, cash flows and reputation of our regulated utilities. In addition, such events may cause increases to the cost of the applicable insurance. With respect to GSWC and BVES, the CPUC has historically allowed utilities to establish a catastrophic emergency memorandum account (“CEMA”) to potentially recover incremental costs not covered in rates caused by catastrophic emergency events. With respect to ASUS’s subsidiaries, costs associated with responding to natural disasters have been recoverable through requests for equitable adjustment.
Our operations may be the target of terrorist activities
As our operations support a Critical Infrastructure Sector of the United States, one that is vital to the United States where disruption in any of the sectors could have a debilitating effect on security, national economic security, or national public health or safety, terrorists could seek to disrupt service to our customers by targeting our assets through physical or cybersecurity events. We also may be prevented from providing water and/or wastewater services at the military bases we serve in times of military crisis affecting these bases. If our operations were the subject of a terrorist or cybersecurity attack, it could have a material adverse effect on our business, results of operations and financial condition.
Water Quality Regulatory Risks
Our costs involved in maintaining water quality and complying with environmental regulation have increased and are expected to continue to increase
Capital and operating costs at GSWC are expected to increase substantially as a result of increases in environmental regulation arising from increases in the cost of upgrading and building new water treatment plants, disposing of residuals from our water treatment plants, handling and storing hazardous chemicals, compliance-monitoring and testing activities and securing alternative supplies when necessary. GSWC may be able to recover these costs from customers through the ratemaking process. We may also be able to recover a portion of these costs from certain third parties under settlement and contractual arrangements. During 2025, GSWC received class settlement payments associated with class action claims related to PFAS contamination, as discussed further in Item 7, “ Environmental Matters .” These funds may be used for future capital investments or operations and maintenance expenses related to PFAS water contamination to its water systems.
However, GSWC expects to incur additional capital costs and operating costs to maintain and improve the quality of water delivered to its customers in light of anticipated stress on water resources associated with watershed and aquifer pollution, drought impacts, as well as to meet future water quality standards and consumer expectations. The CPUC ratemaking process provides GSWC with the opportunity to recover prudently incurred capital and operating costs in future filings associated with achieving water quality standards. If we are unable to recover these costs at all or in a timely manner, it could have a material adverse effect on our business, results of operations and financial condition.
During 2024, the U.S. EPA announced several final regulations that include established maximum contaminant levels (“MCLs”) for six perfluoroalkyl substances (“PFAS”) compounds in drinking water, designation of PFOA and PFOS as CERCLA hazardous substances, Lead and Copper Rule Improvements and California State Division of Drinking Water adopted a MCL of 10 parts per billion for Hexavalent Chromium, as further described, along with additional information regarding other changes to water quality regulations, in Item 7, “ Environmental Matters .” Such regulations are expected to increase GSWC’s capital investments and operations and maintenance expenses over the next decade. In addition, due to the volatility of the supply chain and demand for PFAS or other treatment components, both the capital investments and operations and maintenance expenses are likely to further increase. In May 2025, U.S. EPA announced its intention to extend the deadline for drinking water systems to comply with the new PFAS maximum contaminant levels by two years to 2031, but it has not yet issued regulations to put this extension into effect. Separately, in September 2025, U.S. EPA requested the D.C. Circuit vacate the maximum contaminant levels that were established for four PFAS compounds, which the D.C. Circuit Court has unanimously rejected in January 2026. Each of these potential changes to the regulations, if enacted, could affect the cost or timing of GSWC’s associated capital investments and operations and maintenance expenses.
Our operating costs may increase as a result of groundwater contamination
Our operations can be impacted by groundwater contamination in our service territories. Historically, we have taken a number of steps to address contamination, including the removal of wells from service, decreasing the amount of groundwater pumped from wells in order to facilitate remediation of plumes of contaminated water, constructing water treatment facilities and securing alternative sources of supply from other areas not affected by the contamination. In emergency situations, we have supplied our customers with bottled water until the emergency situation has been resolved.
Our ability to recover these types of costs depends upon a variety of factors, including approval of rate increases, the willingness of potentially responsible parties to settle litigation and otherwise address the contamination, and the extent and magnitude of the contamination. We may recover costs from certain third parties that may be responsible, or potentially responsible, for groundwater contamination. However, we often experience delays in obtaining recovery of these costs and
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incur additional costs associated with seeking recovery from responsible or potentially responsible parties, which may adversely impact our liquidity. In some events, we may be unable to recover all of these costs from third parties due to the inability to identify the potentially responsible parties, the lack of financial resources of responsible parties or the high litigation costs associated with obtaining recovery from responsible or potentially responsible parties.
We can give no assurance regarding the adequacy of any such recovery to offset the costs associated with contamination or the cost of recovery of any legal costs. To date, the CPUC has permitted us to establish memorandum accounts for potential recovery of these types of costs when they have arisen.
Management believes that rate recovery, proper insurance coverage and reserves are in place to appropriately manage these types of contamination issues. However, such issues, if ultimately resolved unfavorably to us, could, in the aggregate, have a material adverse effect on our results of operations and financial condition.
Water Supply Risks
The adequacy of our water supplies depends upon weather and a variety of other uncontrollable factors
The adequacy of our water supplies varies from year to year depending upon a variety of factors, including:
• rainfall, groundwater basin replenishment, flood control, snowpack levels in California and the West, reservoir levels and availability of reservoir storage;
• availability of Colorado River water and imported water from the State Water Project;
• the amount of usable water stored in reservoirs and groundwater basins;
• the amount of water used by our customers and others;
• water quality and changes to water quality regulations;
• legal limitations on production, diversion, storage, conveyance and use; and
• climate change.
Although there have been improvements in drought conditions over this past year, California drought conditions in recent years and changes in weather patterns have caused an increased stress on surface water supplies and groundwater basins. In addition, low or no allocations of water from the State Water Project and court-ordered pumping restrictions on water obtained from the Sacramento-San Joaquin Delta decrease or eliminate the amount of water that the Metropolitan Water District of Southern California (“MWD”) and other state water contractors are able to import from northern California.
We have implemented tiered rates and other practices, as appropriate, in order to encourage water conservation. We have also implemented programs to assist customers in complying with water usage reductions. Over the long term, we are acting to secure additional supplies, which may include supplies from desalination, increased use of reclaimed water, and direct potable re-use where appropriate and feasible. We cannot predict the extent to which these efforts to reduce stress on our water supplies will be successful or sustainable, or the extent to which these efforts will enable us to continue to satisfy all of the water needs of our customers. Water shortages at GSWC may:
• adversely affect our supply mix, for instance, by causing increased reliance upon more expensive water sources;
• adversely affect our operating costs, for instance, by increasing the cost of producing water from more highly contaminated aquifers or requiring us to transport water over longer distances, truck water to water systems or adopt other emergency measures to enable us to continue to provide water service to our customers;
• result in an increase in our capital expenditures over the long term, for example, by requiring future construction of pipelines to connect to alternative sources of supply, new wells to replace those that are no longer in service or are otherwise inadequate to meet the needs of our customers, and other facilities to conserve or reclaim water;
• adversely affect the volume of water sold as a result of such factors as mandatory or voluntary conservation efforts by customers, changes in customer conservation patterns, recycling of water by customers and imposition of new regulations impacting such things as landscaping and irrigation patterns;
• adversely affect aesthetic water quality if we are unable to flush our water systems as frequently due to water shortages or drought restrictions; and
• result in customer dissatisfaction and harm to our reputation if water service is reduced, interrupted or otherwise adversely affected as a result of drought, water contamination or other causes.
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Our liquidity may be adversely affected by changes in water supply costs
We obtain our water supplies for GSWC from a variety of sources, which vary among our water systems. Certain systems obtain all of their supply from water that is pumped from aquifers within our service areas; some systems purchase all of their supply from wholesale suppliers; some systems obtain their supply from treating surface water sources; and other systems obtain their supply from a combination of wells, surface water sources and/or wholesale suppliers. The cost of obtaining these supplies varies, and overall costs can be impacted as use within a system varies from time to time. As a result, our cost of providing, distributing and treating water for our customers’ use can vary significantly.
Furthermore, imported water wholesalers, such as MWD, may not always have an adequate supply of water to sell to us. Wholesale water suppliers may increase their prices for water delivered to us based on factors that affect their operating costs. Purchased water rate increases are beyond our control.
Since 2008, GSWC implemented a modified supply cost balancing account, the MCBA, to track the difference between actual supply cost and the supply cost adopted in water rates. The MCBA is a full decoupling balancing account for supply cost. It tracks the difference between actual and adopted supply cost due to change in supply mix, wholesale suppliers’ rates, and production volume. However, cash flows from operations can be significantly affected since much of the balance we recognize in the MCBA was collected from or refunded to customers primarily through surcharges or surcredits, respectively, generally over twelve- to twenty-four-months. Beginning in 2025, the MCBA was discontinued. The final decision issued on January 30, 2025 in GSWC’s latest general rate case application rejected GSWC’s request to continue the use of WRAM and MCBA. Instead of a MCBA, the Commission directed GSWC to implement an incremental cost balancing account, as further described in Item 7. “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” under the heading “ Overview .” Without a full decoupling supply cost balancing account, Registrant’s earnings may be subject to future volatility as a result of changes in water supply cost mix. In addition, cash flows from operations can be affected since much of the balance we recognize in the ICBA may be collected from or refunded to customers through surcharges or surcredits in future periods based on CPUC approval.
Our liquidity and earnings may be adversely affected by our conservation efforts
Our water utility business is heavily dependent upon revenue generated from rates charged to our customers based on the volume of water used. The rates we charge for water are regulated by the CPUC and may not be adequately adjusted to reflect changes in demand. Declining usage also negatively impacts our long-term operating revenues if we are unable to secure rate increases or if growth in the customer base does not occur to the extent necessary to offset per-customer usage decline.
Conservation by all customer classes at GSWC is a top priority. However, customer conservation will result in lower volumes of water sold. We may experience a decline in per-customer water usage due to factors such as:
• conservation efforts to reduce costs;
• drought conditions resulting in additional water conservation;
• the use of more efficient household fixtures and appliances by customers to save water;
• voluntary or mandatory changes in landscaping and irrigation patterns;
• recycling of water by our customers;
• mandated water-use restrictions; and
• excessive rainfall events.
These types of changes may result in short term as well as permanent decreases in demand even if our water supplies are sufficient to meet higher levels of demand after a drought ends. In addition, governmental restrictions on water usage during drought conditions may result in a decreased demand for water, even if our sources of supply are sufficient to serve our customers during such drought conditions. California has established long-term indoor and outdoor water use standards to address the impact of climate change on California water resources and mandate water conservation requirements on all Californians. These standards will require all urban water retailers to meet certain water use standards on a system-by-system basis.
From 2008 until 2024, we implemented the CPUC-approved WRAM at GSWC, which had the effect of stabilizing revenues at the adopted level thereby reducing the potential adverse earnings impact of our customers’ conservation efforts. Cash flows from operations can be significantly affected since much of the balance we recognize in the WRAM account is collected from or refunded to customers generally over twelve-, eighteen- or twenty-four-month periods. The final decision, issued January 30, 2025, in the water general rate case rejected GSWC’s request for the continued use of a full sales and revenue decoupling mechanism such as the WRAM and orders GSWC to transition to a modified rate adjustment
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mechanism, M-WRAM, which tracks the difference between the revenue based on actual metered sales through a tiered volumetric rate and the revenue that would have been received with the same actual metered sales if a blended tier standard single quantity rate had been in effect. The final decision also approved GSWC’s request for the continuation of a sales reconciliation mechanism, which would allow GSWC to adjust its sales forecast throughout the general rate case cycle to address significant fluctuations in customer water consumption. However, without the continuation of a full revenue decoupling mechanism such as the WRAM, Registrant may be subject to future volatility in revenues and earnings as a result of fluctuations in water consumption by our customers.
Electric Segment Operations Risks
Our electric segment operates in a high wildfire risk area
Drought conditions in recent years and historically as well as shifting weather patterns in California as a result of climate change have created dry vegetation and higher risks of wildfire in California. Severe wildfires can pose a material risk for BVES in the event of the occurrence of a wildfire. There is no assurance that losses incurred through a wildfire event will not exceed the coverage limits of BVES’s insurance coverage. Any losses not fully insured by BVES’s insurance coverage may not be approved by the CPUC for future cost recovery and may have a material adverse effect on our business, results of operations, and financial condition.
BVES is required to adopt and implement a wildfire mitigation plan (“WMP”) that is submitted periodically to, and subject to the approval of, the CPUC. In November 2025, the Office of Energy Infrastructure Safety approved BVES’s 2026-2028 Base WMP. The CPUC is expected to ratify this WMP in the first quarter of 2026. The recovery of costs incurred to implement the plan are not approved by the CPUC at the time of its approval of the plan but will only be approved by the CPUC in a subsequent general rate case. We anticipate that the costs of capital improvements necessary to implement this program will increase substantially.
BVES is also required to implement a public safety power shut-off program during high wildfire threat conditions. The CPUC may assess penalties if BVES shuts-down power to its customers and the CPUC determines that the shutdown was not reasonably necessary in the circumstances. As a result of shutting-down power to its customers, BVES’s cash flows may be negatively affected due to a reduction in electricity sold. However, BVES has implemented a CPUC-approved revenue decoupling mechanism that mitigates the impact of customer usage fluctuations to earnings.
BVES has also obtained a safety certificate, which must be renewed annually by the CPUC. Even with an approved safety certificate, BVES could be found liable for deaths, injuries and property damage if BVES’s electric equipment is found to have caused a catastrophic wildfire and it is determined by the CPUC that BVES did not act reasonably in operating and maintaining its equipment. BVES may not be able to recover the costs of all liabilities from such a wildfire from insurance or from ratepayers.
Our liquidity may be adversely affected by increases in electricity and natural gas prices in California
We purchase most of the electric energy sold to customers in our electric customer service area from others under purchased power contracts. In addition to purchased power contracts, we purchase additional energy from the spot market to meet peak demand and following the expiration of purchased power contracts if there are delays in obtaining CPUC authorization of new purchased power contracts. We may sell surplus power to the spot market during times of reduced energy demand. As a result, our cash flow may be affected by increases in spot market prices of electricity purchased and decreases in spot market prices for electricity sold. However, BVES has implemented a CPUC-approved supply-cost balancing account to mitigate the impact to earnings from fluctuations in supply costs.
Unexpected generator downtime at our 8.4 megawatt natural-gas-fueled generator or a failure to perform by any of the counterparties to our electric and natural gas purchase contracts could further increase our exposure to fluctuating natural gas and electricity prices.
Changes in electricity prices also affect the unrealized gains and losses on our block forward purchased power contracts that qualify as derivative instruments since we adjust the asset or liability on these contracts to reflect the fair market value of the contracts at the end of each month. The CPUC has authorized us to establish a memorandum account to track the changes in the fair market value of our purchased power contracts. As a result, unrealized gains and losses on these types of purchased power contracts do not impact earnings.
We may not be able to procure sufficient renewable energy resources to comply with CPUC rules
We are required to procure a portion of our electricity for BVES from renewable energy resources to meet the CPUC’s renewable procurement requirements. We have agreements with third parties to purchase renewable energy credits, which has enabled us to meet these requirements through 2024. The next RPS compliance period is years 2025-2027. In the event that the third parties fail to perform in accordance with the terms of the agreement, we may not be able to obtain sufficient resources to
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meet the renewable procurement requirements. We may be subject to fines and penalties by the CPUC if it determines that we are not in compliance with the renewable resource procurement rules.
Utility Privatization Contract Risks
Our contracts for servicing military bases create certain risks that are different from our public utility operations
We have entered into contracts to provide water and/or wastewater services at military bases primarily pursuant to initial 50-year, firm fixed-priced contracts, one 15-year contract, additional firm fixed-price contracts and task order contracts, subject to termination, in whole or in part, for the convenience of the U.S. government. We also from time to time enter into contracts with third party prime contractors on military bases. The U.S. government may stop work under the terms of one or more of these contracts, not provide additional task orders, delay performance of our obligations under the contracts, or modify the contracts at its convenience.
Our contract pricing is based on a number of assumptions, including assumptions about the condition and amount of infrastructure at the military bases, prices and availability of labor, equipment and materials. We may be unable to recover all costs if any of these assumptions are inaccurate or if all costs incurred in connection with performing the work were not considered. Our contracts are also subject to annual economic price adjustments, adjustments as task orders are issued or other changes permitted by the terms of the contracts. Prices are also subject to equitable adjustment based upon changes in circumstances, laws or regulations and service-requirement changes to the extent provided in each of the contracts.
We are required to record all costs under our military base contracts as they are incurred. As a result, we may record losses associated with unanticipated conditions that result in higher than estimated costs, higher than anticipated infrastructure levels, and required emergency work at the time such expenses occur. We recognize additional revenue for such work as, and to the extent that, our economic price adjustments and/or requests for equitable adjustments are approved. Delays in obtaining approval of economic price adjustments and/or equitable adjustments can negatively impact our results of operations and cash flows.
Certain payments under these contracts are subject to appropriations by Congress. We may experience delays in receiving payment or delays in price adjustments due to canceled or delayed appropriations specific to our projects, reductions in government spending for the military generally or military-base operations specifically or other delays in Congress approving appropriations. Appropriations and the timing of payment may be influenced by, among other things, the state of the economy, competing political priorities, budget constraints, the timing and amount of tax receipts, government shutdowns and the overall level of government expenditures.
We may experience delays in receiving payments for services rendered in military bases due to delays in Congressional appropriation bills, extended government shutdowns, or other factors affecting the available funds to pay contractors. During 2025, the U.S. government experienced the longest government shutdown in its history. In the event the U.S. government shuts down for a longer period, our liquidity and earnings could be impacted.
Our contracts for the construction of infrastructure improvements on military bases create risks that are different from those of our public utility operations and maintenance activities
We have entered into contract modifications with the U.S. government and agreements with third parties for the construction of new water and/or wastewater infrastructure at the military bases on which we operate. Most of these contracts are firm fixed-price contracts. Under firm fixed-price contracts, we will benefit from cost savings, but are generally unable (except for changes in scope or circumstances approved by the U.S. government or third party) to recover any cost overruns to the approved contract price. Under most circumstances, the U.S. government or third party has approved increased-cost change orders due to changes in scope of work performed.
We generally recognize contract revenues from these types of contracts over time using input methods to measure progress towards satisfying a performance obligation. The measurement of performance over time is based on cost incurred relative to total estimated costs, or the physical completion of the construction projects. The earnings or losses recognized on individual contracts are based on periodic estimates of contract revenues, costs and profitability as these construction projects progress.
We establish prices for these types of firm fixed-price contracts and the overall contract taken as a whole, based, in part, on cost estimates that are subject to a number of assumptions, including assumptions regarding future economic conditions. If these estimates prove inaccurate or circumstances change, cost overruns could have a material adverse effect on our contracted business operations and results of operations.
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We may be adversely affected by disputes with the U.S. government regarding our performance of contracted services on military bases
Entering into contracts with the U.S. government subjects us to a number of operational and compliance risks over our performance of contracted services on military bases. We are periodically audited or reviewed by the Defense Contract Auditing Agency (“DCAA”), the Defense Contract Management Agency (“DCMA”), the Department of Labor, the Defense Logistics Agency Energy, and/or the Department of Justice for compliance with federal acquisition regulations, cost-accounting standards and other laws, regulations and standards that are not applicable to the operations of GSWC or BVES. During the course of these audits/reviews, the U.S. government may question our incurred project costs or the manner in which we have accounted for such costs and recommend to our U.S. government administrative contracting officer that such costs be disallowed. If there is a dispute with the U.S. government regarding performance under these contracts or the amounts owed to us, the U.S. government may delay, reject or withhold payment, delay price adjustments or assert its right to offset damagesagainst amounts owed to us. If we are unable to collect amounts owed to us on a timely basis or the U.S. government asserts its offset rights, profits and cash flows could be adversely affected.
Moreover, we are subject to potential government investigations of our business practices and compliance with government procurement statutes and security regulations. If we are charged with wrongdoing as a result of an investigation, or if we fail to comply with the terms of one or more of our U.S. government contracts, other agreements with the U.S. government or U.S. government statutes and regulations, our existing contracts could be terminated or we could be suspended or barred from future U.S. government contracts for a period of time, and be subject to possible damages, fines and penalties as well as damage to our reputation in the water and wastewater industry, which could have a material adverse effect on our results of operations and cash flows.
We depend, to some extent, upon subcontractors to assist us in the performance of contracted services on military bases
We rely, to some extent, on subcontractors to assist us in the operation and maintenance of the water and wastewater systems at military bases. The failure of any of these subcontractors to perform services for us in accordance with the terms of our contracts with the U.S. government could result in the termination of our contract to provide water and/or wastewater services at the affected base(s), and/or a loss of revenues, or increases in costs, to correct a subcontractor’s performance failures.
We are also required to make a good faith effort to achieve our small business subcontracting plan goals pursuant to U.S. government regulations. If we fail to use good faith efforts to meet these goals, the U.S. government may assess damagesagainst us at the end of the contract. The U.S. government has the right to offset claimed damagesagainst any amounts owed to us.
We also rely on third-party manufacturers, as well as third-party subcontractors, to complete our construction projects. To the extent that we cannot engage subcontractors or acquire equipment or materials, our ability to complete a project in a timely fashion or at a profit may be impaired. If the amount of costs we incur for these projects exceeds the amount we have estimated in our bids, we could experience reduced profits or losses in the performance of these contracts. In addition, if a subcontractor or manufacturer is unable to deliver its services, equipment or materials according to the negotiated terms for any reason, including the deterioration of its financial condition, we may be required to purchase the services, equipment or materials from another source at a higher price. This may reduce the profit to be realized or result in a loss on a project for which the services, equipment or materials were needed.
If subcontractors fail to perform services to be provided to us or fail to provide us with the proper equipment or materials, we may be penalized for their failure to perform; however, our contracts with subcontractors include certain protective provisions, which may include the assessment of liquidateddamages. We also mitigate these risks by requiring our subcontractors, as appropriate, to obtain performance bonds and to compensate us for any penalties we may be required to pay as a result of their failure to perform.
We may not be fully reimbursed for all of our construction costs or may only receive payment on a delayed basis
Unlike GSWC and BVES, who recover their capital investments from customers over the life of the assets through annual depreciation and earn a return on such investments through the ratemaking process, ASUS is reimbursed for the cost of ongoing renewal and replacement construction projects plus a profit through the collection of a monthly cash stream under each of the 50-year and 15-year contracts with the U.S. government. ASUS also receives funding from the U.S. government for initial and other new construction projects at the military bases it serves that, in many cases, are outside the scope of contracts with the U.S. government and are granted through firm-fixed contract modifications. ASUS’s subsidiaries expect to continue incurring significant construction costs. Reimbursement by the U.S government for these construction costs may not be fully reimbursable if the costs incurred are greater than the amounts estimated and approved by the U.S. government, or payments may be delayed awaiting government funding and processing, which could significantly affect our cash flows from operations.
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Other Contracted Services Segment Risks
Risks associated with wastewater systems are different from those of our water distribution operations
The wastewater-collection-system operations of our ASUS subsidiaries providing wastewater services on military bases are subject to substantial regulation and involve significant environmental risks. If collection, treatment or disposal systems fail, overflow or do not operate properly, untreated wastewater or other contaminants could spill onto nearby properties or into nearby streams and rivers, causing damage to persons or property, injury to aquatic life and economic damages. The cost of addressing such damages may not be recoverable. This risk is most acute during periods of substantial rainfall or flooding, which are common causes of sewer overflows and system failures. These risks may be increased as a result of an increase in the duration and frequency of storms due to climate change. Liabilities resulting from such damage could adversely and materially affect our business, results of operations and financial condition. In the event that we are deemed liable for any damage caused by overflows, our losses may not be recoverable under our contracts with the U.S. government or covered by insurance policies. We may also find it difficult to secure insurance for this business in the future at acceptable rates.
We may have responsibility for water quality at the military bases we serve
While it is the responsibility of the U.S. government to provide the source of water supply to meet ASUS’s subsidiaries water distribution system requirements under their contracts with the U.S. government, ASUS’s subsidiaries, as the water system permit holders for most of the bases they serve, are responsible for ensuring the continued compliance of the provided source of supply with all federal, state and local regulations, including water quality regulations. We believe, however, that the terms of the contracts between ASUS’s subsidiaries and the U.S. government provide the opportunity for us to recover costs incurred in the treatment or remediation of any quality issue that arises from the source of water supply. We may also be subject to fines and penalties if found negligent and non-compliant to federal, state, and local regulations.
Our earnings may be affected, to some extent, by weather during different seasons
Seasonal weather conditions, such as hurricanes, heavy rainfall or significant winter storms, occasionally cause temporary office closures and/or result in temporary halts to construction activity at military bases. To the extent that our construction activities are impeded by these events, we will experience a delay in recognizing revenues from these construction projects.
We continue to incur costs associated with the expansion of our military base contract activities
We continue to incur additional costs in connection with the expansion of our contract operations associated with the preparation of bids for new contract operations on prospective and existing military bases. Our ability to recover these costs and to earn a profit on our contract operations will depend upon the extent to which we are successful in obtaining new contracts and recovering these costs and other costs from new contract revenues.
We face intense competition for new military base contracts
An important part of our growth strategy is the expansion of our contracted services business through new contract awards to serve additional military bases for the U.S. government. ASUS competes with other investor-owned utilities, municipalities, and other entities for these contracts.
Additionally, the U.S. government periodically reviews the cost and overall effectiveness of the military privatization program. Should these reviews prompt a decision to curtail or eliminate the issuance of solicitations for future military base contract awards, the potential for growth in this segment could be negatively impacted.
Information Technology Risk Factors
We must successfully maintain and/or upgrade our information technology systems as we are increasingly dependent on the continuous and reliable operation of these systems
We rely on various information and operational technology systems to manage our operations, including those provided by third party solutions that support our operational and business processes. Such systems require periodic modifications, upgrades and/or replacement, which subject us to inherent costs and risks, including potential disruption of our internal control structure, substantial capital expenditures, additional administrative and operating expenses, retention of sufficiently skilled personnel to implement and operate the new systems, and other risks and costs of delays or difficulties in transitioning to new systems or of integrating new systems into our current systems. In addition, the difficulties with implementing new technology systems may cause disruptions in our business operations and have an adverse effect on our business and operations, if not anticipated and appropriately mitigated.
We rely on our information and operational technology systems in connection with the operation of our business, especially with respect to customer service and billing, accounting and the monitoring and operation of our treatment, storage and pumping facilities. Our information and operational technology systems and operations could be damaged or interrupted by weather, natural disasters, telecommunications failures, cyberattacks or acts of war or terrorism or similar events or
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disruptions. Outages caused by third party information and operational technology solutions are often beyond our ability to control. Any of these or other events could cause system interruption, delays and loss of critical data, delay or prevent operations or delay in notification of system failures or emergencies and adversely affect our financial results and could result in liabilities not covered by insurance or recoverable in rates for misappropriation of assets or sensitive information, corruption of data and the impact of operational disruptions on our customers.
Use of Artificial Intelligence ( “ AI ” ) by our employees, subcontractors and third parties engaged by us could have an adverse impact on our business and operations.
As of the date of this filing, we have developed a policy regarding the use of AI and predictive analytics tools. These tools presently include, without limitation, generative text models (such as ChatGPT, Claude, and Co-Pilot). There is a risk that such AI tools (or AI tools used without Company approval) will be used in a manner that does not adhere to our AI policy and/or may be misused by our employees, subcontractors, or other third parties engaged by us. This, in turn, could result in the loss of confidential or proprietary information and subject us to competitive or reputational harm, as well as potential regulatory investigations/actions and/or legal liability. Additionally, we may not be able to control, and may lack visibility into, how third-party AI tools, or AI features incorporated into third-party products, are developed or maintained, or how such tools use, disclose and/or protect the data we input, even where we have sought contractual protections with respect to these matters. Further, AI algorithms may be flawed, and the data used to train AI tools may be inaccurate, incomplete, or biased. As a result, the content, analysis or recommendations that these tools produce may be inaccurate, incomplete, or biased, and the use of this information by our employees, subcontractors, or other third parties engaged by us may have a material adverse effect on our business, results of operations and financial condition.
Cybersecurity incidents could disrupt our internal operations, and any such disruption could increase our expenses, damage our reputation and adversely affect our stock price
There continues to be an increasing number of cyberattacks on companies around the world, which have caused operational failures or compromised sensitive corporate or customer data. These attacks have occurred over the internet, through malware, viruses or attachments to e-mails, or through persons inside the organization or with access to systems inside the organization and may be heightened with the increased use and prevalence of artificial intelligence. Although we do not believe that our systems are at a materially greater risk of cybersecurity attacks when compared to other similar organizations, our information technology systems remain at risk to damage or interruption from the following among other types of cybersecurity risks:
• Supply Chain Attacks;
• Malicious Software;
• Credential Loss or Theft;
• Supervisory Control and Data Acquisition System Takeover;
• Equipment Theft;
• Ransomware;
• Actions of Employees (Intentional or Accidental);
• Phishing Attacks;
• Identity-Based Attacks; and
• Denial-of-Service Attacks.
• Artificial Intelligence enabled Attacks
We believe a breach of customer personally identifiable information is one of the most significant financial risks to us as the costs incurred could exceed the amount of our cybersecurity insurance coverage and these costs may increase if we fail to comply with federal and state privacy regulations such as the California Consumer Privacy Act (“CCPA”), a state statute that became effective January 1, 2020, which enhances the privacy rights and consumer protections for California residents. Among other things, the CCPA establishes statutory damages for victims of data security breaches, and provides additional rights for consumers to obtain their data from any business that has their personally identifying information. Any actual or perceived failure to comply with the CCPA could lead to investigations, claims, and proceedings by governmental entities and private parties, damages for breach, and other significant costs, penalties, and other liabilities, as well as harm to our reputation.
We have implemented security measures and will continue to devote significant resources to improve our security posture to address any security vulnerabilities in an effort to prevent cyberattacks. Despite our efforts, due to the evolving nature of cyberattacks and vulnerabilities, we cannot be assured that a cyberattack will not cause water, wastewater or electric system problems, disrupt service to our customers, compromise important data or systems or result in unintended release of customer or employee information. Moreover, if a security breach affects our systems or results in the unauthorized release of
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sensitive data, our reputation could be materially damaged. We may not discover any security breach and loss of information for a significant period of time after the security breach. We could also be exposed to a risk of loss or litigation and possible liability. Pursuant to U.S. government regulations regarding cybersecurity of government contractors, we might be subject to fines, penalties or other actions, including debarment, with respect to current contracts or with respect to future contract opportunities.
We maintain cybersecurity insurance to provide coverage for a portion of the losses and damages that may result from a security breach, but such insurance is subject to a number of exclusions and may not cover the total loss caused by a breach. Other costs associated with cyber incidents may not be covered by insurance or recoverable in rates. The market for cybersecurity insurance continues to evolve and may affect the future availability of cyber insurance at reasonable rates.
Additional information regarding cybersecurity and risk management associated with cybersecurity is provided in Item 1C. “ Cybersecurity. ”
Human Capital Management Risks
Failure to attract, retain, train, motivate, develop and transition key employees could adversely affect our business
In order to be successful, we must attract, retain, train, motivate, and develop key employees, including those in managerial, operational, financial, regulatory, business development and information technology support positions. Our regulated businesses and contracted services operations are complex. Attracting and retaining high quality staff allows us to minimize the cost of providing quality service. In order to attract and retain key employees in a competitive marketplace, we must provide a competitive compensation package and be able to effectively recruit qualified candidates. This is especially challenging for us since approximately 38% of our employees will be eligible to retire in the next five years. The failure to successfully hire key employees or the loss of a material number of key employees could have a significant impact on the quality of our operations in the short term. Further, changes in our management team may be disruptive to our business, and any failure to successfully transition key new hires or promoted employees could adversely affect our business and results of operations.
Failure of our employees to maintain required certifications and licenses or to complete required compliance training could adversely impact our ability to operate and maintain our utility systems and provide services to our customers
Many of our employees must have specialized certifications and licenses in order to perform their duties and periodically complete required compliance training. Our business could be adversely affected if our employees do not maintain their certifications and licenses or we are unable to attract employees with the necessary certifications and licenses.
Other Business Risk Factors
The accuracy of our judgments and estimates about financial and accounting matters will impact our operating results and financial condition
The quality and accuracy of estimates and judgments used have an impact on our operating results and financial condition. If our estimates are not accurate, we will be required to make an adjustment in a future period. We make certain estimates and judgments in preparing our financial statements regarding, among others:
• timing of recovering M-WRAM, WRAM, ICBA, MCBA and BRRAM regulatory assets;
• regulatory recovery of deferred items;
• amounts to set aside for uncollectible accounts receivable, inventory obsolescence and uninsuredlosses;
• our legal exposure and the appropriate accrual for claims, including general liability and workers’ compensation claims;
• future costs and assumptions for pensions and other post-retirement benefits; and
• possible tax uncertainties.
Market conditions and demographic changes may adversely impact the value of our benefit plan assets and liabilities
Market factors can affect assumptions we use in determining funding requirements with respect to our pension and other post-retirement benefit plans. For example, a relatively modest change in our assumptions regarding discount rates can materially affect our calculation of funding requirements. To the extent that market data compels us to reduce the discount rate used in our assumptions, our benefit obligations could materially increase, which could adversely affect our financial position and cash flows. Further, changes in demographics, such as increases in life expectancy assumptions may also increase the funding requirements of our obligations related to our pension and other post-retirement benefit plans.
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Market conditions also affect the values of the assets that are held in trusts to satisfy significant future obligations under our pension and other post-retirement benefit plans. These assets are subject to market fluctuations, which may cause investment returns to fall below our projected rates of return. A decline in the market value of our pension and other post-retirement benefit plan assets will increase the funding requirements under these plans if future returns on these assets are insufficient to offset the decline in value. Future increases in pension and other post-retirement costs as a result of the reduced value of plan assets may not be fully recoverable in rates, and our results of operations and financial position could be negatively affected. These risks are mitigated to some extent by the two-way pension balancing accounts authorized by the CPUC, which permits us to track differences between forecasted annual pension expense adopted in water and electric rates and actual pension expenses for future recovery or refund to customers.
Our business requires significant capital expenditures and our inability to access the capital or financial markets could affect our ability to meet our liquidity needs and long-term commitments, which could adversely impact our operations and financial results
The utility business is capital intensive. We spend significant sums of money for additions to, or replacement of, our property, plant and equipment at our water and electric regulated utilities. We obtain funds for these capital projects from operations, contributions by developers and others, and refundable advances from developers (which are repaid over a period of time). We periodically borrow money or issue equity or debt securities for these purposes. In addition, we have revolving credit facilities that are used for capital expenditure programs with our utilities and operations. We cannot provide assurance that these sources will continue to be adequate or that the cost of funds will remain at levels permitting us to earn a reasonable rate of return.
As our capital investment program continues to increase, coupled with the elimination of bonus depreciation for regulated utilities due to tax reform, we will need access to external financing more often, which increases our exposure to market conditions. In addition to cash flow from operations, we rely primarily on our credit facilities and long-term debt to satisfy our liquidity needs. We also may from time to time issue Common Shares, including pursuant to our at-the-market offering program, to support our capital investment program. Changes in market conditions, including events beyond our control such as increases to interest rates, could limit our ability to access capital on terms favorable to us or at all, including obtaining credit facilities with the borrowing capacities needed as well as issuing equity or debt securities. As a result, the amount of capital available may not be sufficient to meet all our liquidity needs at a reasonable cost at all of our subsidiaries.
Payment of our debt may be accelerated if we fail to comply with restrictive covenants in our debt agreements
Our failure to comply with restrictive covenants in our debt agreements could result in an event of default. If the default is not cured or waived, we may be required to repay or refinance the debt before it becomes due. Even if we are able to obtain waivers from our creditors, we may only be able to do so on unfavorable terms. Our ability to comply with the financial covenants in our debt agreements may be adversely affected by delays in obtaining CPUC approval of our general rate case filings.
The price of our Common Shares may be volatile and may be affected by market conditions beyond our control
The trading price of our Common Shares may fluctuate in the future because of the volatility of the stock market and a variety of other factors, many of which are beyond our control. Factors that could cause fluctuations in the trading price of our Common Shares include: changes in interest rates; regulatory developments, decisions and delays of decisions; general economic conditions and trends; price and volume fluctuations in the overall stock market; actual or anticipated changes or fluctuations in our results of operations; actual or anticipated changes in the expectations of investors or securities analysts; actual or anticipated developments in other utilities’ businesses or the general competitive landscape; litigation involving us or our industry; major catastrophic events; sales of large blocks of our stock and the other risks described herein.
AWR is a holding company that depends on cash flow from its subsidiaries to meet its financial obligations and to pay dividends on its Common Shares
As a holding company, our subsidiaries conduct substantially all operations and our only significant assets are investments in our subsidiaries. This means that we are dependent on distributions of funds from our subsidiaries to meet our debt service obligations and to pay dividends on our Common Shares.
Our subsidiaries are separate and distinct legal entities and generally have no obligation to pay any amounts due on AWR’s credit facility. Our subsidiaries only pay dividends if and when declared by the respective subsidiary board. Moreover, GSWC and BVES are obligated to give first priority to their own capital requirements and to maintain capital structures consistent with those determined to be reasonable by the CPUC in its most recent decisions on capital structure for both GSWC and BVES in order for customers to not be adversely affected by the holding company structure. Furthermore, our right to receive cash or other assets in the unlikely event of liquidation or reorganization of any of our subsidiaries is generally subject to the prior claims of creditors of that subsidiary. If we are unable to obtain funds from a subsidiary in a timely manner, we may be unable to meet our financial obligations, make additional investments or pay dividends.
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The final determination of our income tax liability may be materially different from our income tax provision
Significant judgment is required in determining our provision for income taxes. Our calculation of the provision for income taxes is subject to our interpretation of applicable tax laws in the jurisdictions in which we file. In addition, our income tax returns are subject to periodic examination by the Internal Revenue Service and other taxing authorities.
Although we believe our income tax estimates are appropriate, there is no assurance that the final determination of our current taxes payable will not be materially different, either higher or lower, from the amounts reflected in our financial statements. In the event we are assessed additional income taxes, our financial condition and cash flows could be adversely affected.
Our operations are geographically concentrated in California
Although we operate water and wastewater facilities in a number of states under our contracted services business, our regulated water and electric operations are concentrated in California, particularly Southern California. As a result, our financial results are largely subject to political, water supply, labor, utility cost and regulatory risks, economic conditions, natural disasters (which may increase as a result of climate change) and other risks affecting California. Our financial results may also be impacted by population growth or decline in our service areas.
AWR uses earnings per share by business segment and AWR (parent), a non-GAAP financial measure, as an important measure in evaluating its operating results and believes it provides investors with clarity surrounding the performance of its segments. AWR reviews this measurement regularly and compares it to historical periods and to its operating budget. Reconciliations of this measure and of diluted earnings per share as adjusted to AWR’s consolidated diluted earnings per share prepared in accordance with GAAP are included in the discussion under the section titled “ Summary Results by Segment . ”
Overview
Factors affecting our financial performance are summarized under the Overview section in Item 1. Business and Item 1A. Risk Factors .
The U.S. government announced a comprehensive set of tariffs in the second quarter. Following the pause of certain of these tariffs, the majority of the previously announced tariffs have been implemented. The U.S. government has continued to indicate that they could impose additional tariffs on particular countries and to impose global tariffs on certain goods. Such tariffs could impact our results of operations by increasing the costs of various goods, including construction materials. Management is actively engaged with vendors and business partners to reduce financial risks of tariffs; however, the impact of such tariffs is subject to uncertainties regarding whether the U.S. government ultimately imposes additional tariffs, the timing of their implementation, the magnitude of such tariffs and possible exemption for certain goods, among other unknowns.
Water and Electric Segments:
GSWC’s revenues, operating income and cash flows are earned primarily through delivering potable water to homes and businesses in California. BVES’s revenues, operating income and cash flows are primarily earned through delivering electricity in the Big Bear area of San Bernardino County, California. Rates charged to GSWC and BVES customers are authorized by the CPUC. These rates are intended to allow recovery of operating costs and a reasonable rate of return on invested capital. GSWC and BVES plan to continue seeking additional rate increases in future years from the CPUC to recover operating and supply costs, and receive reasonable returns on invested capital. Capital expenditures in future years at GSWC and BVES are expected to remain at substantially higher levels than depreciation expense. When necessary, GSWC and BVES may obtain funds from external sources in the capital markets and through bank borrowings.
General Rate Case Filings and Other Matters :
Water General Rate Case for the years 2025–2027
On January 30, 2025, the CPUC issued a final decision in GSWC’s general rate case application for all its water regions and the general office, which determines new water rates for the years 2025 - 2027. Among other things, the final decision adopted a settlement agreement between GSWC and the Public Advocates Office at the CPUC, which authorized GSWC to invest approximately $573.1 million in capital infrastructure over the three-year capital cycle. The $573.1 million of infrastructure investment includes $17.7 million of advice letter capital investments to be filed for revenue recovery during the second- and third-year attrition increases when those projects are completed. In addition, the approved settlement agreement includes $58.2 million of advice letter capital investments that began construction in 2023 to be filed for revenue recovery during the second- and third-year attrition increases when those projects are completed. Under the approved settlement agreement, beginning in 2025, all of the advice letter projects were allowed to accrue in a memorandum account (i) interest
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during the construction period at GSWC’s adopted cost of debt until the assets are in service, and (ii) the full rate of return that includes a debt and equity component and all applicable components of the revenue requirement for the projects from the period the assets are in service until the date of the attrition filings.
Excluding revenues for all of the advice letter capital projects discussed above, under the terms of the settlement agreement, GSWC’s adopted operating revenues less water supply costs for 2025 increased by approximately $23 million as compared to the 2024 adopted operating revenues less water supply costs. In December, 2025, GSWC received approval from the CPUC to implement its full second-year rate increases, effective January 1, 2026, that will result in higher adopted operating revenues less water supply cost for 2026 of approximately $32.0 million compared to 2025’s adopted operating revenues less water supply cost. Included in the 2026 increase is nearly $11 million related to the advice letter capital projects previously discussed. The assets from the advice letter projects and the related amounts in the memorandum account were added to the adopted rate base for inclusion in the revenue requirement effective January 1, 2026.
The final decision also addressed GSWC’s request for various regulatory mechanisms that were litigated during the proceeding. Among other things, the final decision rejected GSWC’s request for the continuation of a full sales and revenue decoupling mechanism such as the WRAM and a full cost balancing account for water supply such as the MCBA, and instead ordered GSWC to transition to a modified rate adjustment mechanism (a Monterey-style WRAM or “M-WRAM”) and an incremental cost balancing account (“ICBA”) for supply costs. The final decision also adopted GSWC’s M-WRAM rate design proposal authorizing GSWC to increase the revenue requirement recovery in its fixed service charges to between 45-48% of the revenue requirement depending on the ratemaking area representing approximately 65% of GSWC’s fixed costs in aggregate, and approved GSWC’s request for the continuation of a sales reconciliation mechanism that would allow GSWC to adjust its sales forecast throughout the general rate case cycle to address significant fluctuations in consumption. The M-WRAM tracks the difference between the revenue based on actual metered sales through a tiered volumetric rate and the revenue that would have been received with the same actual metered sales if a standard single quantity rate had been in effect. The ICBA for supply costs tracks differences between the authorized per-unit prices and actual per-unit prices for each supply cost (purchased water, pump tax, and purchased power). The M-WRAM and ICBA were effective January 1, 2025.
Without the WRAM and MCBA, GSWC’s earnings in 2025 were favorably impacted from an actual water supply source mix that included less purchased water than what was authorized in the general rate case and included in the revenue requirement, which was partially offset by the negative impact from a nearly 4% decrease in water consumption compared to amounts adopted in the final general rate case. As a result, the combined impact from changes in water supply source mix compared to adopted levels and fluctuations in consumption did not have a material impact on GSWC’s 2025 earnings. The new 2025 rates and the implementation of the new M-WRAM and ICBA regulatory mechanisms approved in the final decision have been reflected in GSWC’s earnings for the year ended December 31, 2025 that resulted in an increase in recorded revenues of $46.7 million largely from the new rates and an increase in recorded water supply costs of $21.9 million, which combined is an increase of $24.8 million, compared to 2024. GSWC’s future earnings will continue to be subject to volatility as a result of fluctuations in consumption and/or changes in water supply source mix compared to adopted levels.
Water Cost of Capital ( “ COC ” ) Proceeding
2026 COC Application
Investor-owned water utilities serving California are required to file their cost of capital applications on a triennial basis. In November 2025, GSWC, along with three other investor-owned California water utilities, requested a further extension of the date by which each of them must file their cost of capital applications. In November 2025, the CPUC approved the request to defer the cost of capital application by another year. The CPUC’s approval postponed the filing date by one year until May 1, 2027, with a corresponding effective date of January 1, 2028. The CPUC also approved the joint parties’ request to leave the current Water Cost of Capital Mechanism (“WCCM”) in place through the one-year deferral period. GSWC’s current authorized rate of return on rate base is 7.93%, based on its weighted cost of capital, which will continue in effect through December 31, 2027. The 7.93% return on rate base includes a return on equity of 10.06%, an embedded cost of debt of 5.1%, and a capital structure with 57% equity and 43% debt.
Electric General Rate Cases:
General Rate Case for Years 2023 – 2026
On January 16, 2025, the CPUC adopted a final decision in BVES’s general rate case proceeding that set new electric rates retroactive to January 1, 2023 and approved the settlement agreement reached between BVES, Cal Advocates and another intervenor in its entirety. Among other things, the settlement agreement, (i) settled and adopted the revenue requirements for each of the four years 2023 through 2026, and the rate increases for 2024 through 2026 are not subject to an earnings test, (ii) authorized BVES to invest approximately $52.5 million in capital infrastructure included in base rates over the four-year rate cycle and at least an additional $23.1 million (plus an allowance for funds used during construction, or “AFUDC”) to be filed for revenue recovery through advice letters when the projects are completed; (iii) adopted a cost of capital that increased BVES’s adopted return on equity from 9.6% to 10.0%, lowered the cost of debt from 6.6% to 5.51%, and maintained the capital structure of 57% equity and 43% debt, and (iv) approved for recovery the requested capital expenditures and other incremental
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operating costs already incurred prior to 2023 in connection with BVES’s wildfire mitigation plans that were previously not included in customer rates.
The new electric rates were implemented on March 1, 2025. BVES was also authorized by the CPUC to establish a general rate case memorandum account that made the new rates retroactive to January 1, 2023. The general rate case memorandum account tracked the revenue differences between the 2022 adopted rates and the 2023 and 2024 new rates authorized by the CPUC for future recovery. As of December 31, 2025, the aggregate cumulative under-collection in retroactive revenues related to the full year of 2023 and 2024 amounted to $8.2 million. On April 1, 2025, BVES implemented surcharges to recover the retroactive amounts accumulated related to the new rates, as well as recovery of incremental operating costs incurred prior to 2023 in connection with BVES’s wildfire mitigation plans that were being tracked in memorandum accounts prior to the new rate cycle.
The final decision provided for an increase in adopted operating revenues of $2.2 million for 2025. Furthermore, the previously mentioned advice letter projects of at least $23.1 million are expected to generate additional annual operating revenues of approximately $3 million when the respective projects are completed, placed in service, and filed for recovery in customer rates. These projects also accrue AFUDC during construction that will further increase the revenue requirement. On April 1, 2025, BVES implemented new base rates to recover the revenue requirement associated with $11.6 million (including AFUDC) of capital projects approved for recovery through advice letters. In addition, effective October 1, 2025, BVES began to recover the revenue requirement as a result of an additional advice letter capital project totaling approximately $12.2 million (including AFUDC) that was completed and placed in service.
General Rate Case for Years 2027 – 2030
On January 30, 2026, BVES filed a new general rate case application that will determine new electric rates for the years 2027 through 2030. Among other things, BVES requested (i) capital budgets of approximately $133 million for the four-year rate cycle, and another approximately $17 million, plus AFUDC, for capital projects to be filed for revenue recovery through advice letters when the projects are completed, and (ii) a capital structure for BVES of 60% equity and 40% debt, a return on equity of 11.30%, an embedded cost of debt of 5.92%, and a return on rate base of 9.15%.
Contracted Services Segment:
ASUS’s revenues, operating income and cash flows are earned by providing water and/or wastewater services, including operation and maintenance services and construction of facilities for the water and/or wastewater systems at various military installations, pursuant to an initial 50-year, firm-fixed-price contract, additional firm-fixed-price contracts, task order agreements and subcontracts with third party prime contractors on military bases. Currently, ASUS has one subsidiary that has entered into a task order agreement with the U.S. government that has a term of 15 years. The contract prices for each of the contracts and recurring task order agreements are subject to annual economic price adjustments. Additional revenues generated by contract operations are primarily dependent on annual economic price adjustments, and new construction activities under contract modifications with the U.S. government or agreements with other third-party prime contractors.
During 2025, ASUS was awarded approximately $29.4 million in new construction projects, some of which were completed in 2025 and the remainder of which are expected to be completed through 2028. ASUS’s subsidiaries expect to continue to enter into U.S. government-awarded contract modifications and agreements with third-party prime contractors for new construction projects at the military bases served.
Effective October 1, 2025, the U.S. government announced its shutdown, which officially ended on November 12, 2025. Amid the U.S. government shutdown, the subsidiaries of ASUS did not experience any earnings impact to their existing operations and maintenance and renewal and replacement services, as utility privatization contracts are an “excepted service.” In the event of a future shutdown, management expects that an impact on ASUS and its operations through its subsidiaries would likely be limited to (a) the timing of funding to pay for services rendered, (b) delays in the processing of EPAs and/or REAs, (c) the timing of the issuance of contract modifications for new construction work not already funded by the U.S. government, (d) the timing of construction work associated with delays in receiving construction permits from furloughs at government agencies, and/or (e) delays in solicitation for and/or awarding of new contracts under the Department of Defense contracting programs. However, in the event a future U.S. government shutdown extends for an unprecedented and much longer period, ASUS’s liquidity and earnings could be impacted.
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Summary Results by Segment
The table below sets forth a comparison of the diluted earnings per share by business segment and for the parent company:
Diluted Earnings per Share
Year Ended
CHANGE
Water
Electric
Contracted services
AWR (parent)
Consolidated diluted earnings per share, as recorded (GAAP)
Adjustment to GAAP measure:
Impact of a tax benefit recorded in the fourth quarter of 2024 resulting from a final decision in the water general rate case *
Consolidated diluted earnings per share, as adjusted (Non-GAAP)
Water diluted earnings per share, as adjusted (Non-GAAP)*
Note: Certain amounts in the table above may not foot or crossfoot due to rounding.
* The water segment’s adjusted earnings for 2024 exclude the impact of a one-time tax benefit of $0.13 per share recorded during the fourth quarter of 2024 as a result of receiving a final decision from the CPUC in the water general rate case.
For the year ended December 31, 2025, AWR’s recorded consolidated diluted earnings were $3.37 per share, as compared to $3.17 per share for 2024, an increase of $0.20 per share. Excluding the impact of a one-time tax benefit shown separately in the table above and discussed below, adjusted consolidated diluted earnings for 2024 were $3.04 per share as compared to recorded diluted earnings of $3.37 per share for 2025, an adjusted increase of $0.33 per share largely from the implementation of new customer rates at the regulated utilities, and higher earnings at the contracted services segment largely from an increase in management fee revenues and construction activities. AWR’s consolidated diluted earnings in 2025 were negatively impacted by approximately $0.10 per share from the higher number of dilutive shares in 2025 compared to 2024 due to the continued issuance of equity under AWR’s ATM offering program.
Included in the consolidated results for 2024 was a tax benefit of $5.0 million, or $0.13 per share, resulting from the final decision issued by the CPUC on January 30, 2025 in connection with GSWC’s latest general rate case proceeding. The final decision adopted a settlement agreement between GSWC and Cal Advocates, which excluded from customer rates certain excess deferred income tax balances generated by activities outside of ratemaking that were previously recorded as regulatory liabilities as a result of the 2017 Tax Cuts and Jobs Act that reduced the corporate income tax rate from 35% to 21%. GSWC recorded the tax benefit to reflect a change in estimate that decreased its regulatory liabilities associated with excess deferred income tax balances as of December 31, 2024.
The following is a computation and reconciliation of diluted earnings per share from the measure of net income (loss) by business segment as disclosed in Note 17 to the Consolidated Financial Statements, to AWR’s consolidated fully diluted earnings per common share for the year ended December 31, 2025 and 2024:
Water
Electric
Contracted Services
AWR (Parent)
Consolidated (GAAP)
In 000's except per share amounts
Net income (loss) (Note 17)
Weighted Average Number of Diluted Shares
Diluted earnings per share
Note: Certain amounts in the table above may not foot or crossfoot due to rounding.
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Water Segment:
For the year ended December 31, 2025, recorded diluted earnings from the water utility segment were $2.61 per share, as compared to $2.51 per share for 2024, an increase of $0.10 per share, which included the impact of a one-time tax benefit of $0.13 per share as previously discussed above. Excluding the impact of this item from 2024, adjusted diluted earnings at the water segment would be $2.38 per share for 2024 as compared to recorded diluted earnings of $2.61 per share for 2025, an adjusted increase at the water segment of $0.23 per share. The discussion below presents the major variances in earnings for the two periods:
• An increase in water operating revenues of approximately $46.7 million largely as a result of the CPUC-authorized new rate increases effective January 1, 2025 in connection with the approved general rate case. GSWC transitioned from a full revenue decoupling mechanism to the M-WRAM effective January 1, 2025. As a result, GSWC’s revenues and earnings may be subject to future volatility from significant fluctuations in customer consumption compared to adopted levels.
• An increase in water supply costs of $21.9 million primarily related to higher overall per-unit purchased water costs covered in rates. As a result of transitioning from a full cost balancing account for water supply to the ICBA, GSWC’s earnings for the year ended December 31, 2025 were favorably impacted by an actual water supply source mix that included less purchased water than what was authorized in the general rate case and included in the revenue requirement. For the year ended December 31, 2025, GSWC’s pumped water sources, which cost less than purchased water, were capable of meeting a greater portion of customer demand when compared to a higher purchased water mix being recovered in the new adopted rates. GSWC’s earnings will be subject to future volatility as a result of favorable and unfavorable changes in the water supply source mix compared to the adopted mix incorporated in the revenue requirement.
• An overall increase in operating expenses of $10.0 million (excluding supply costs) mainly due to increases in (i) overall labor costs, (ii) maintenance expense, (iii) insurance-related costs, (iv) depreciation and amortization expenses, which are impacted by increasing capital additions placed in service and are reflected and recovered in customer rates, and (v) non-income taxes; partially offset by a decrease in other operation-related costs including lower chemicals and water treatment costs, administrative and general expenses (excluding labor) primarily due to lower outside services costs including those related to regulatory filings as compared to 2024, and property taxes resulting from favorable true-ups in assessed property values. Lastly, as a result of receiving a final decision on its general rate case, GSWC was authorized to recover certain costs through various memorandum accounts that were recorded in 2024 and did not recur in 2025.
• An overall increase in other income (net of other expense) of $0.3 million due primarily to gains of $5.5 million generated on investments held to fund one of the Company’s retirement plans as compared to gains of $5.3 million recorded during 2024.
• Excluding the one-time tax benefit of $5.0 million recorded in 2024, an overall decrease in the effective income tax rate due to changes in certain flowed-through income taxes and permanent items included in GSWC’s income tax expense for the year ended December 31, 2025 as compared to 2024 favorably impacted the water segment’s earnings. As a regulated utility, GSWC treats certain temporary differences as being flowed-through in computing its income tax expense consistent with the income tax method used in its CPUC-jurisdiction rate making. Changes in the magnitude of flowed-through items either increase or decrease tax expense, thereby affecting diluted earnings per share.
• A decrease in earnings of approximately $0.07 per share due to the dilutive effects from the issuance of equity under AWR’s ATM offering program. Under the program, AWR may offer and sell its Common Shares, with an aggregate gross offering price of up to $200 million, from time to time at its sole discretion, with $40.7 million currently remaining available for sale. Through December 31, 2025, AWR has sold 2,048,988 Common Shares through this ATM offering program.
Electric Segment:
Diluted earnings from the electric utility segment increased $0.04 per share for the year ended December 31, 2025 as compared to 2024, largely resulting from an increase in revenues from the third-year rate increases in 2025 as a result of receiving a final decision approved by the CPUC in connection with BVES’s general rate case proceeding that set new rates for 2023 - 2026 (retroactive to January 1, 2023), as well as receiving approval in 2025 of certain advice letter projects that increased base rates to recover the revenue requirement associated with these capital projects. In addition, there was an overall decrease in the effective income tax rate due to changes in certain flowed-through income taxes as compared to 2024 that favorably impacted the electric segment’s earnings. These increases in the electric segment’s earnings were partially offset by an overall increase in operating expenses. There was also a decrease in earnings of approximately $0.01 per share due to the dilutive effects from the issuance of equity under AWR’s ATM offering program.
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Contracted Services Segment:
Diluted earnings from the contracted services segment increased $0.06 per share for the year ended December 31, 2025 as compared to 2024, largely due to (i) an increase in management fee revenues resulting from the commencement of operations in April 2024 at the new bases (Naval Air Station Patuxent River and Joint Base Cape Cod) and the resolution of various economic price adjustments, (ii) an increase in construction activities, and (iii) lower interest expense resulting from lower borrowing levels and interest rates; partially offset by higher overall operating expenses (excluding construction expenses), and a decrease in earnings of approximately $0.02 per share due to the dilutive effects from the issuance of equity under AWR’s ATM offering program.
AWR (Parent):
For the year ended December 31, 2025, the diluted loss from AWR (parent) decreased $0.01 per share compared to 2024 due to higher income from the lease of AWR’s water rights; partially offset by higher interest expense resulting from higher average borrowing levels under AWR’s credit facility.
The following discussion and analysis for the years ended December 31, 2025 and 2024 provide information on AWR’s consolidated operations and assets and, where necessary, includes specific references to AWR’s individual segments and subsidiaries: GSWC, BVES and ASUS and its subsidiaries.
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Consolidated Results of Operations — Years Ended December 31, 2025 and 2024 (amounts in thousands, except per share amounts) :
Year Ended
Year Ended
CHANGE
CHANGE
OPERATING REVENUES
Water
Electric
Contracted services
Total operating revenues
OPERATING EXPENSES
Water purchased
Power purchased for pumping
Groundwater production assessment
Power purchased for resale
Supply cost balancing accounts
Other operation
Administrative and general
Depreciation and amortization
Maintenance
Property and other taxes
ASUS construction
Total operating expenses
OPERATING INCOME
OTHER INCOME AND EXPENSES
Interest expense
Interest income
Other, net
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE
Income tax expense
NET INCOME
Basic earnings per Common Share
Fully diluted earnings per Common Share
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Operating Revenues
General
GSWC and BVES rely upon approvals by the CPUC of rate increases to recover operating expenses and to provide for a return on invested and borrowed capital used to fund utility plants. ASUS relies on economic price and equitable adjustments by the U.S. government in order to recover operating expenses and provide a profit margin for ASUS. Current operating revenues and earnings may be negatively impacted if ASUS’s subsidiaries do not receive adequate price adjustments in a timely manner. ASUS’s earnings are also impacted by the level of construction projects at its subsidiaries, which may or may not continue at current levels in future periods.
Water
For the year ended December 31, 2025, revenues from water operations increased to $464.1 million, an increase of $46.7 million compared to 2024. The increase in water revenues during 2025 is primarily a result of the CPUC-approved new 2025 rate increases effective January 1, 2025 in connection with the recently approved general rate case, as well as an increase in water consumption compared to 2024. There was also an increase in CPUC-approved surcharges billed in 2025 compared to 2024 to recover previously incurred costs. These surcharges are largely offset by corresponding increases in operating expenses, resulting in no impact to earnings.
While billed water consumption for the year ended December 31, 2025 was higher by 1.9% compared to 2024 due primarily to lower amounts of seasonal precipitation for 2025 compared to 2024, 2025 consumption was nearly 4% lower as compared to consumption amounts adopted in the final general rate case. Prior to 2025, changes in consumption had not had a significant impact on recorded revenues due to the CPUC-approved full revenue decoupling mechanism, known as the WRAM, which adjusted volumetric revenues to adopted levels authorized by the CPUC. As previously discussed, the final decision in the latest general rate case rejected GSWC’s request for the continuation of the WRAM, and instead ordered GSWC to transition to a modified rate adjustment mechanism (a Monterey-style WRAM or “M-WRAM”). Without having a full revenue decoupling mechanism, GSWC’s revenues and earnings will be subject to future volatility as a result of significant fluctuations in customer consumption compared to adopted levels.
Electric
Electric revenues for the year ended December 31, 2025 increased by $5.6 million to $57.2 million largely resulting from an increase in revenues from third-year electric rate increases implemented in 2025.
Electric usage for the year ended December 31, 2025 was 1.1% lower than 2024. Due to the CPUC-approved BRRBA, which adjusts certain revenues to adopted levels authorized by the CPUC, changes in usage do not have a significant impact on earnings.
Contracted Services
Revenues from contracted services are composed of construction revenues (including renewal and replacements) and management fees for operating and maintaining the water and/or wastewater systems at various military bases. For the year ended December 31, 2025, revenues from contracted services increased $10.3 million to $136.7 million as compared to $126.4 million for 2024. The increase was primarily due to an increase in management fee revenue from annual economic price adjustments and the new operations at Joint Base Cape Cod and Naval Air Station Patuxent River and an increase in construction activities.
ASUS’s subsidiaries continue to enter into U.S. government-awarded contract modifications and agreements with third-party prime contractors for new construction projects at the military bases served. Earnings and cash flows from modifications to the initial 50- and 15-year contracts with the U.S. government and agreements with third-party prime contractors for additional construction projects may or may not continue at current levels in future periods.
Operating Expenses:
Supply Costs
Total supply costs at the regulated utilities comprise the largest portion of total consolidated operating expenses. Supply costs accounted for approximately 32.3% and 30.0% of total operating expenses for the years ended December 31, 2025 and 2024, respectively.
Water segment supply costs
Two of the principal factors affecting water supply costs are the amount of water produced and the source of the water. Generally, the variable cost of producing water from wells is less than the cost of water purchased from wholesale suppliers.
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Since the implementation in 2008 of the previously CPUC-approved MCBA, GSWC was able to track adopted and actual expense levels for purchased water, power purchased for pumping and pump taxes. GSWC recorded the variances (which include the effects of changes in both rate and volume) between adopted and actual purchased water, purchased power and pump tax expenses as a regulatory asset or liability. GSWC recovered from, or refunded to, customers the amount of such variances. Without the MCBA mechanism in place, beginning in 2025, there may be volatility to Registrant’s earnings as a result of changes in water supply source mix. The MCBA has been replaced with an incremental supply cost balancing account that will not include the impact from changes in water supply source mix compared to the adopted mix incorporated in the revenue requirement, but allows GSWC to track differences between the authorized per-unit prices of water production costs and actual per-unit prices of water production costs.
Supply costs for the water segment consist of purchased water, purchased power for pumping, groundwater production assessments and changes in the water supply cost balancing accounts. For the years ended December 31, 2025 and 2024, water supply costs consisted of the following amounts (in thousands):
Year
Ended
Year
Ended
CHANGE
CHANGE
Water purchased
Power purchased for pumping
Groundwater production assessment
Water supply cost balancing accounts *
Total water supply costs
* The sum of water and electric supply-cost balancing accounts are shown on AWR’s Consolidated Statements of Income and totaled $(5.0) million and $(1.9) million for 2025 and 2024, respectively.
Purchased water costs for the year ended December 31, 2025 increased to $98.2 million as compared to $74.3 million for 2024. The overall actual percentages for purchased water for the years ended December 31, 2025 and 2024 were 48% and 41%, respectively, resulting in higher purchased water volume and costs in 2025. The increase in purchased water costs was also due to increases in wholesale water prices. Power purchased for pumping and groundwater production assessment both decreased due, in part, to the shift in actual supply source mix resulting in lower production volume in 2025 as compared to 2024. These decreases were partially offset by increases in pump tax rates and electricity provider rates.
For the year ended December 31, 2025, the water supply cost balancing account had a $0.1 million under-collection as compared to a $1.6 million under-collection in 2024. The change in water supply cost balancing accounts was primarily due to a change in the supply cost recovery mechanisms, as previously described. Unlike the MCBA, the incremental supply cost balancing account only tracks differences between the authorized per-unit prices of water production costs and actual per-unit prices of water production costs.
Electric segment supply costs
Supply costs for the electric segment consist primarily of purchased power for resale, the cost of natural gas used by BVES’s generating unit, the cost of renewable energy credits and changes in the electric supply cost balancing account . For the years ended December 31, 2025 and 2024, electric supply costs consisted of the following amounts (in thousands):
Year
Ended
Year
Ended
CHANGE
CHANGE
Power purchased for resale
Electric supply cost balancing account *
Total electric supply costs
* The sum of water and electric supply-cost balancing accounts are shown on AWR’s Consolidated Statements of Income and totaled $(5.0) million and $(1.9) million for 2025 and 2024, respectively.
** not meaningful
For the year ended December 31, 2025, the cost of power purchased for resale to BVES’s customers increased to $18.1 million as compared to $11.6 million for 2024 primarily due to higher overall average prices per megawatt-hour. The change in the electric supply balancing account in 2025 when compared to 2024 was due primarily to increases in energy prices.
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Other Operation
The primary components of other operation expenses include payroll costs, materials and supplies, chemicals and water treatment costs, and outside service costs of operating the regulated water and electric systems, including the costs associated with transmission and distribution, pumping, water quality, meter reading, billing, and operations of district offices and the electric system. Registrant’s contracted services operations incur many of the same types of expenses. For the years ended December 31, 2025 and 2024, other operation expenses by business segment consisted of the following amounts (in thousands):
Year
Ended
Year
Ended
CHANGE
CHANGE
Water Services
Electric Services
Contracted Services
Total other operation
For the year ended December 31, 2025, the increase in other operation expenses at the water segment was due, in part, from an increase of $1.6 million in billed surcharges to recover previously incurred costs that had been tracked in CPUC-authorized memorandum accounts. Increases in revenues from billed surcharges have a corresponding and offsetting increase in other operation expenses, resulting in no impact to earnings. Furthermore, for the year ended December 31, 2024, there was a reduction of $2.0 million as a result of receiving the final decision in the recent water general rate case that authorized the recovery of previously incurred operation-related costs that were being tracked in CPUC-authorized memorandum accounts and which became probable of future recovery. There was no similar item in 2025. There was also an increase in operation-related labor cost, partially offset by a decrease in chemicals and water treatment costs.
The increase at the electric segment was due primarily to higher operation-related labor costs, transportation costs, and bad debt expense.
The increase at the contracted services segment was due primarily to the new operations at Joint Base Cape Cod and Naval Air Station Patuxent and higher operation-related labor costs.
Administrative and General
Administrative and general expenses include payroll related to administrative and general functions, all employee-related benefits, insurance expenses, outside legal and consulting fees, regulatory utility commission expenses, expenses associated with being a public company and general corporate expenses charged to expense accounts. For the years ended December 31, 2025 and 2024, administrative and general expenses by business segment, including AWR (parent), consisted of the following amounts (in thousands):
Year
Ended
Year
Ended
CHANGE
CHANGE
Water Services
Electric Services
Contracted Services
AWR (parent)
Total administrative and general
Administrative and general expenses increased at the water segment due, in large part, to an increase of $1.0 million in billed surcharges to recover previously incurred costs that had been tracked in CPUC-authorized memorandum accounts. Increases in revenues from billed surcharges have a corresponding and offsetting increase in administrative and general expenses, resulting in no impact to earnings. There was also an increase in labor and insurance-related costs, partially offset by a decrease in outside services costs including those related to regulatory filings as compared to 2024.
Administrative and general expenses decreased at the electric segment primarily due to the approval of the final decision in the electric general rate case proceeding with rates retroactive to 2023 but recorded in 2024. Higher costs incurred to support BVES’s wildfire mitigation plans of $1.3 million related to the full year 2023 were expensed during the fourth quarter of 2024 as the costs prior to 2023 were being tracked in memorandum accounts prior to receiving the approved general rate case decision at the time. Higher expenses related to the wildfire mitigation activities are reflected and recovered in the new customer rates implemented. There was also a decrease in outside services costs. These decreases were partially offset by an increase of $1.6 million in billed surcharges in 2025 to recover previously incurred costs that had been tracked in CPUC-
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authorized memorandum accounts. Increases in revenues from billed surcharges have a corresponding and offsetting increase in administrative and general expenses, resulting in no impact to earnings.
Administrative and general expenses increased at the contracted services segment due to higher labor costs, employee-related benefits, and from the new operations at Joint Base Cape Cod and Naval Air Station Patuxent River, partially offset by lower overall legal costs.
Depreciation and Amortization
For the years ended December 31, 2025 and 2024, depreciation and amortization expense by segment consisted of the following amounts (in thousands):
Year
Ended
Year
Ended
CHANGE
CHANGE
Water Services
Electric Services
Contracted Services
Total depreciation and amortization
The overall increase in depreciation and amortization expense resulted primarily from capital additions to utility plant and other fixed assets placed in service.
Maintenance
For the years ended December 31, 2025 and 2024, maintenance expense by segment consisted of the following amounts (in thousands):
Year
Ended
Year
Ended
CHANGE
CHANGE
Water Services
Electric Services
Contracted Services
Total maintenance
Overall maintenance expense increased at the water segment due to an increase in maintenance activities when compared to 2024.
Maintenance expense decreased at the electric segment primarily due to the approval of the final decision in the electric general rate case proceeding with rates retroactive to 2023 but recorded in 2024. Higher maintenance costs incurred to support BVES’s vegetation management activities of $2.4 million related to the full year 2023 were expensed during the fourth quarter of 2024 as the costs prior to 2023 were being tracked in memorandum accounts prior to receiving the approved general rate case decision at the time. Higher expenses related to vegetation management activities are reflected and recovered in the new customer rates implemented. This decrease was largely offset by an increase of $2.3 million in billed surcharges to recover previously incurred costs that had been tracked in CPUC-authorized memorandum accounts. Increases in revenues from billed surcharges have a corresponding and offsetting increase in maintenance expenses, resulting in no impact to earnings.
Overall maintenance expense increased at the contracted services segment due to higher planned and unplanned maintenance-related activities compared to 2024. Furthermore, the new operations at Joint Base Cape Cod and Naval Air Station Patuxent River also contributed to the higher maintenance expense.
Property and Other Taxes
For the years ended December 31, 2025 and 2024, property and other taxes by segment, consisted of the following amounts (in thousands):
Year
Ended
Year
Ended
CHANGE
CHANGE
Water Services
Electric Services
Contracted Services
Total property and other taxes
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Property and other taxes increased at the water segment due largely to an increase in franchise fees from higher revenues, partially offset by an overall decrease in property taxes resulting from favorable true-ups in assessed property values.
Property and other taxes increased at the electric segment due largely to higher property taxes from capital additions and an increase in franchise fees from higher revenues.
Property and other taxes increased at the contracted services segment largely as a result of an increase in payroll taxes due, in part, from the operations at the new bases.
ASUS Construction
For the year ended December 31, 2025, construction expenses for contracted services were $60.6 million, increasing by $6.1 million compared to 2024 primarily due to an increase in construction activity as compared to 2024.
Interest Expense
For the years ended December 31, 2025 and 2024, interest expense by segment, including AWR (parent), consisted of the following amounts (in thousands):
Year
Ended
Year
Ended
CHANGE
CHANGE
Water Services
Electric Services
Contracted Services
AWR (parent)
Total interest expense
AWR’s borrowings consist of bank notes under revolving credit facilities, while GSWC and BVES borrowings consist of revolving credit facilities and long-term debt issuances. Consolidated interest expense decreased as compared to 2024 resulting primarily from overall lower average interest rates. The overall combined average interest rates were 5.07% and 5.36% for the year ended December 31, 2025 and 2024, respectively. In addition, the decrease in the water segment’s interest expense was also attributed to the impact of capitalizing debt costs related to certain advice letter projects approved by the CPUC in the latest general rate case effective January 1, 2025. The increase at the electric segment was due to higher average borrowings, partially offset by lower average interest rates. The decrease at the contracted services segment was largely attributed to lower borrowings and lower average interest rates.
The combination of debt and equity financing is used to support, among other things, the capital expenditures program at the regulated utilities. Total average borrowing levels in 2025 increased slightly as compared to 2024. That is because during 2025 and 2024, AWR raised proceeds (net of commissions) of $67.3 million and $89.5 million, respectively, under its ATM offering program, and used the proceeds to pay down borrowings under its credit facility and make equity contributions to its regulated subsidiaries in support of their operations and capital expenditures.
Interest Income
For the years ended December 31, 2025 and 2024, interest income by business segment, including AWR (parent), consisted of the following amounts (in thousands):
Year
Ended
Year
Ended
CHANGE
CHANGE
Water Services
Electric Services
Contracted Services
AWR (parent)
Total interest income
The decrease in interest income at the water segment was due primarily to a decrease in interest income earned on regulatory assets. Regulatory asset balances will decrease as surcharges are approved and implemented. The increase at the electric segment was due to higher levels of regulatory asset balances earning interest income.
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Other Income and (Expense), net
For the years ended December 31, 2025 and 2024, other income and (expense) by business segment, including AWR (parent), consisted of the following amounts (in thousands):
Year
Ended
Year
Ended
CHANGE
CHANGE
Water Services
Electric Services
Contracted Services
AWR (parent)
Total other income and (expenses), net
For the year ended December 31, 2025, other income (net of other expense) increased due primarily to gains of $5.5 million generated on investments held to fund one of the Company’s retirement plans as compared to gains of $5.3 million recorded in 2024, due to financial market conditions. The decrease in other income (net of other expense) in the electric segment is due primarily to lower AFUDC (equity) earned on certain CPUC-approved advice letter projects while under construction compared to 2024. The increase in other income for AWR (parent) is due primarily to an increase in non-regulated-related activities.
Income Tax Expense
For the years ended December 31, 2025 and 2024, income tax expense by segment, including AWR (parent), consisted of the following amounts (in thousands):
Year
Ended
Year
Ended
CHANGE
CHANGE
Water Services
Electric Services
Contracted Services
AWR (parent)
Total income tax expense
Consolidated income tax expense for the year ended December 31, 2025 increased by $9.2 million primarily due to the increase in consolidated pretax income as compared to 2024. AWR’s ETRs were 23.2% and 20.2% for the years ended December 31, 2025 and 2024, respectively. GSWC’s ETR was 23.8% for the year ended December 31, 2025 as compared to 19.5% for 2024. The increase in GSWC’s ETR was due largely due to a one-time tax benefit of $5.0 million recorded in 2024 as a result of receiving the final decision in the water general rate case as previously discussed. There was no similar item recorded in 2025. This was partially offset by changes in certain flowed-through income taxes and permanent items.
Information comparing the consolidated results of operations for fiscal years 2024 and 2023 can be found under Item 7, Management’s Discussion and Analysis under the headings “Summary Results by Segment” and “Consolidated Results of Operations-Years Ended December 31, 2024 and 2023” in AWR’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 filed with the SEC.
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Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that are important to the portrayal of AWR’s financial condition, results of operations and cash flows, and require the most difficult, subjective or complex judgments of AWR’s management. The need to make estimates about the effect of items that are uncertain is what makes these judgments difficult, subjective and/or complex. Management makes subjective judgments about the accounting and regulatory treatment of many items. The following are accounting policies and estimates that are critical to the financial statements of AWR. For more information regarding the significant accounting policies of Registrant, see Note 1 of “ Notes to Financial Statements ” included in Part II, Item 8, in Financial Statements and Supplementary Data.
Accounting for Rate Regulation — Because GSWC and BVES operate extensively in regulated businesses, they are subject to the authoritative guidance for accounting for the effects of certain types of regulation. Application of this guidance requires accounting for certain transactions in accordance with regulations adopted by the regulatory commissions of the states in which rate-regulated operations are conducted. Utility companies defer costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that those costs and credits will be recognized in the ratemaking process in a period different from the period in which they would have been reflected in income by an unregulated company. These deferred regulatory assets and liabilities are then reflected in the income statement in the period in which the same amounts are reflected in the rates charged for service.
Regulation and the effects of regulatory accounting have the most significant impact on the financial statements of GSWC and BVES. When either files for adjustments to rates, the capital assets, operating costs and other matters are subject to review, and disallowances may occur. In the event that a portion of either GSWC’s or BVES’s operations are no longer subject to the accounting guidance for the effects of certain types of regulation, they are required to write-off related regulatory assets that are not specifically recoverable and determine if other assets might be impaired. If the CPUC determines that a portion of either GSWC’s or BVES’s assets are not recoverable in customer rates, management is required to determine if it has suffered an asset impairment that would require a write-down in the asset valuation. Management continually evaluates the anticipated recovery, settlement or refund of regulatory assets, liabilities, and revenues subject to refund and provides for allowances and/or reserves that it believes to be necessary. In the event that management’s assessment as to the probability of the inclusion in the ratemaking process is incorrect, the associated regulatory asset or liability will be adjusted to reflect the change in assessment or the impact of regulatory approval of rates. Reviews by the CPUC may also result in additional regulatory liabilities to refund previously collected revenues to customers if the CPUC disallows costs included in the ratemaking process.
Registrant also reviews its utility plant in-service for possible impairment in accordance with accounting guidance for regulated entities for abandonments and disallowances of plant costs.
Revenue Recognition — GSWC and BVES record water and electric utility operating revenues when the service is provided to customers. Operating revenues include unbilled revenues that are earned (i.e., the service has been provided) but not billed by the end of each accounting period. Unbilled revenues are calculated based on the number of days and total usage from each customer’s most recent billing record that was billed prior to the end of the accounting period and is used to estimate unbilled consumption as of the year-end reporting period. Unbilled revenues are recorded for both monthly and bi-monthly customers.
In 2008, the CPUC granted GSWC the authority to implement revenue decoupling mechanisms through the adoption of the WRAM. With the adoption of this alternative revenue program, GSWC adjusts revenues in the WRAM for the difference between what is billed to its water customers and that which is authorized by the CPUC. GSWC’s request, in its most recent general rate case, to continue using a revenue decoupling mechanism, similar to the WRAM, has been denied by the CPUC. The CPUC has ordered GSWC to transition to a modified rate adjustment mechanism (a Monterey-style WRAM) effective January 1, 2025. The M-WRAM tracks the difference between the revenue based on actual metered sales through a tiered volumetric rate and the revenue that would have been received with the same actual metered sales if a standard single quantity rate had been in effect. The CPUC also granted BVES a revenue decoupling mechanism through the BRRBA. BVES adjusts revenues in the BRRBA for the difference between what is billed to its electric customers and that which is authorized by the CPUC.
As required by the accounting guidance for alternative revenue programs, GSWC and BVES are required to collect their M-WRAM/WRAM and BRRBA balances, respectively, within 24 months following the year in which they are recorded. The CPUC has set the recovery period for under-collected balances that are up to 15% of adopted annual revenues at 18 months or less. For net WRAM under-collected balances greater than 15%, the recovery period is 19 to 36 months. As a result of the accounting guidance and CPUC-adopted recovery periods, Registrant must estimate if any WRAM and BRRBA revenues will be collected beyond the 24-month period. This can affect the timing of when such revenues are recognized.
ASUS’s firm-fixed-price contracts with the U.S. government are considered service concession arrangements under ASC 853 Service Concession Arrangements . Accordingly, the services under these contracts are accounted for under Topic 606 Revenue from Contracts with Customers and the water and/or wastewater systems are not recorded as Property, Plant and
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Equipment on AWR’s consolidated balance sheet. Revenues for ASUS’s operations and maintenance contracts are recognized when services have been rendered to the U.S. government pursuant to the initial 50-year contract and additional contracts thereafter. Revenues from construction activities are recognized as performance obligations are satisfied. Performance obligations related to firm-fixed-price contracts are satisfied over time as ASUS’s performance typically creates or enhances an asset that the U.S. government controls. ASUS recognizes revenue on its firm-fixed-price contracts as performance obligations are satisfied and control of the promised good and/or service is transferred to the U.S. government by measuring the progress toward complete satisfaction of the performance obligation(s) using an input method. Revenues for construction activities are recognized over time, with progress toward completion measured based on the input method using costs incurred relative to the total estimated costs (cost-to-cost method). Due to the nature of these construction projects, ASUS has determined the cost-to-cost input measurement to be the best method to measure progress towards satisfying its construction contract performance obligations, as compared to using an output measurement such as units produced. Changes in job performance, job conditions, change orders and estimated profitability, including those arising from any contract penalty provisions, and final contract settlements may result in revisions to costs and income, and are recognized in the period in which the revisions are determined. Unbilled receivables from the U.S. government represent amounts to be billed for construction work completed and/or for services rendered pursuant to the initial 50-year contract and additional contracts with the U.S government, which are not presently billable but which will be billed under the terms of the contracts.
Income Taxes — Registrant’s income tax calculations require estimates due principally to the regulated nature of the operations of GSWC and BVES, the multiple states in which Registrant operates, and potential future tax rate changes. Registrant uses the asset and liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. Changes in regulatory treatment, or significant changes in tax-related estimates, assumptions or law, could have a material impact on the financial position and results of operations of Registrant.
As regulated utilities, GSWC and BVES treat certain temporary differences as flowed-through adjustments in computing their income tax expense consistent with the income tax approach approved by the CPUC for ratemaking purposes. Flowed-through adjustments increase or decrease tax expense in one period, with an offsetting decrease or increase occurring in another period. Giving effect to these temporary differences as flowed-through adjustments typically results in a greater variance between the effective tax rate and the statutory federal income tax rate in any given period than would otherwise exist if GSWC or BVES were not required to account for their income taxes as regulated enterprises. As of December 31, 2025, Registrant’s total amount of unrecognized tax benefits was zero.
Pension Benefits — Registrant’s pension benefit obligations and related costs are calculated using actuarial concepts within the framework of accounting guidance for employers’ accounting for pensions and post-retirement benefits other than pensions. Two critical assumptions, the discount rate and the expected return on plan assets, are important elements of expense and/or liability measurement. We evaluate these critical assumptions annually. Other assumptions include employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increase. The discount rate enables Registrant to state expected future cash payments for benefits as a present value on the measurement date. The guideline for setting this rate is a high-quality, long-term corporate bond rate. Registrant’s discount rates were determined by considering the average of pension yield curves constructed using a large population of high-quality corporate bonds. The resulting discount rates reflect the matching of plan liability cash flows to the yield curves. A lower discount rate increases the present value of benefit obligations and increases periodic pension expense. Conversely, a higher discount rate decreases the present value of benefit obligations and decreases periodic pension expense. To determine the expected long-term rate of return on the plan assets, Registrant considers the current and expected asset allocation, as well as historical and expected returns on each plan asset class. A lower expected rate of return on plan assets will increase pension expense. The long-term expected return on the pension plan’s assets was 6.00% for 2025 and 2024.
For the pension plan obligation, Registrant decreased the discount rate to 5.57% as of December 31, 2025 from 5.70% as of December 31, 2024 to reflect market interest-rate conditions at December 31, 2025. A hypothetical 25-basis point decrease in the assumed discount rate would have decreased total net periodic pension expense for 2025 by approximately $0.1 million, which includes an increase in service cost that was more than offset by the decrease in interest cost, and would have increased the projected benefit obligation and accumulated benefit obligation at December 31, 2025 by a total of $5.6 million. A 25-basis point decrease in the long-term return on pension-plan-asset assumption would have increased 2025 pension cost by approximatel y $0.5 million.
In addition, changes in the fair value of plan assets will impact future pension cost and the Plan’s funded status. Changes in market conditions can affect the value of plan assets held to fund future long-term pension benefits. Any reductions in the value of plan assets will result in increased future expense, a decrease in the overfunded position, and increase the required future contributions.
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The CPUC has authorized GSWC and BVES to each maintain a two-way balancing account to track differences between their forecasted annual pension expenses adopted in rates and the actual annual expense to be recorded in accordance with the accounting guidance for pension costs. As of December 31, 2025, GSWC has a $2.1 million over-collection in its two-way pension balancing account for the general office and water regions. As of December 31, 2025, BVES has an insignificant balance in its two-way pension balancing account.
Funding requirements for qualified defined benefit pension plans are determined by government regulations. In establishing the contribution amount, Registrant has considered the potential impact of funding-rule changes under the Pension Protection Act of 2006. Registrant contributes the minimum required contribution as determined by government regulations or the forecasted annual pension cost authorized by the CPUC and included in customer rates, whichever is higher. In accordance with this funding policy, for 2026, the pension contribution is not expected to be significant given its current funded status. Any differences between the forecasted annual pension costs in rates and the actual pension costs are included in the two-way pension balancing accounts. Additionally, market factors can affect assumptions we use in determining funding requirements with respect to our pension plan. For example, a relatively modest change in our assumptions regarding discount rates can materially affect our calculation of funding requirements. To the extent that market data compels us to reduce the discount rate used in our assumptions, our benefit obligations could materially increase.
Changes in demographics, including increased numbers of retirees or increases in life expectancy assumptions may also increase the funding requirements of our obligations related to the pension plan. Mortality assumptions are a critical component of benefit obligation amounts and a key factor in determining the expected length of time for annuity payments. Assuming no changes in actuarial assumptions or plan amendments, the costs over the long term are expected to decrease due to the closure of Registrant’s defined benefit pension plan to new employees as of January 1, 2011. Employees hired or rehired after December 31, 2010 are eligible to participate in a defined contribution plan instead of the pension plan.
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Liquidity and Capital Resources
AWR
AWR’s regulated business is capital intensive and requires considerable capital resources. A portion of these capital resources is provided by internally generated cash flows from operations. AWR anticipates that interest expense will increase in future periods due to the need for additional external capital to fund construction programs at its regulated utilities and if market interest rates increase. In addition, as the capital investment program continues to increase, AWR and its subsidiaries anticipate they will need to access external financing more often. External financing may also be needed to cover costs incurred in connection with capital investments that are not covered in rates due to delays in obtaining approval of general rate cases by the CPUC.
AWR funds its operating expenses and pays dividends on its outstanding Common Shares primarily through dividends from its wholly owned subsidiaries. The ability of GSWC and BVES to pay dividends to AWR is restricted by California law. Under these restrictions, approximately $933.7 million was available for GSWC to pay dividends to AWR on December 31, 2025. Approximately $117.7 million was available for BVES to pay dividends to AWR as of December 31, 2025. ASUS’s ability to pay dividends to AWR is dependent upon state laws in which each ASUS subsidiary operates, as well as ASUS’s ability to pay dividends under California law.
When necessary, AWR obtains funds from external sources through the capital markets and from bank borrowings. Access to external financing on reasonable terms depends on the credit ratings of AWR and GSWC and current business conditions, including that of the water utility industry in general as well as conditions in the debt or equity capital markets.
On February 27, 2024, AWR entered into an Equity Distribution Agreement with third-party sales agents, under which AWR may offer and sell Common Shares, from time to time at its sole discretion, through an ATM offering program having an aggregate gross offering price of up to $200 million over a three-year period and pursuant to AWR’s effective shelf registration statement on Form S-3. In 2024, AWR began raising proceeds under its ATM offering program and has used the net proceeds from these sales, after deducting commissions on such sales and offering expenses, for general corporate purposes, including, but not limited to, repayment of debt and making equity contributions to its subsidiaries. Through this ATM offering program, d uring 2025 and 2024 , AWR raised proceeds of $67.3 million, net of approximately $1.0 million in commissions paid and $89.5 million, net of $1.4 million in commissions paid, respectively. As of December 31, 2025, approximately $40.7 million remained available for sale under the ATM offering program which are expected to be fully used by the end of 2026.
In June 2023, AWR and GSWC each entered into credit agreements with an original term of five years provided by a syndicate of banks and financial institutions. Both credit agreements, as amended, are now scheduled to mature in June 2029. The credit agreements provide AWR and GSWC unsecured revolving credit facilities with current borrowing capacities of $195.0 million and $200.0 million, respectively. Under the terms of the credit agreements, the borrowing capacities for AWR and GSWC may be expanded up to an additional $30.0 million and $75.0 million, respectively, subject to the lenders’ approval. AWR’s credit facility primarily provides support to AWR (parent) and ASUS, while GSWC’s credit agreement provides support to its water operations and capital expenditures. As of December 31, 2025, AWR’s and GSWC’s outstanding borrowings under the credit facilities were $124.0 million and $13.0 million, respectively. As of December 31, 2025, AWR’s borrowings under its credit facility have been classified as non-current liabilities on AWR’s Consolidated Balance Sheet. The CPUC requires GSWC to completely pay off all borrowings under its revolving credit facility within a 24-month period after which GSWC may again borrow under its facility. GSWC’s pay-off period for its credit facility ends in December 2027. Accordingly, GSWC’s outstanding borrowings under its credit facility as of December 31, 2025 have been classified as non-current liabilities in both AWR’s Consolidated Balance Sheet and GSWC’s Balance Sheet.
In March 2025, the CPUC issued a final decision in GSWC’s financing application, which among other things, approved GSWC’s request to issue up to $750.0 million of additional long-term debt and equity securities. Subsequently, on May 29, 2025, GSWC executed a note purchase agreement for the issuance of unsecured private placement notes totaling $100.0 million. In connection with the transaction, GSWC issued (i) $75.0 million at a coupon rate of 5.30% due May 29, 2032, and (ii) $25.0 million at a coupon rate of 5.65% due May 29, 2037. In addition, on May 30, 2025, GSWC issued 3.6500 common shares to its parent in exchange for a contribution of $50.0 million. GSWC used the proceeds from both the issuance of the notes and equity to fully pay down all outstanding borrowings as of May 31, 2025 under GSWC’s credit agreement. In December 2025, GSWC issued an additional 0.9750 of common shares to AWR for total proceeds of approximately $12.0 million. GSWC again used the proceeds from the stock issuance to pay down outstanding borrowings under its revolving credit facility and to fund its operations and capital expenditures.
In August 2024, the CPUC issued a final decision in BVES’s financing application, which among other things, approved BVES’s request to issue up to $120 million of new long-term debt and equity securities. On February 12, 2025, BVES completed the issuance of $50.0 million in unsecured private-placement notes with a coupon rate of 6.12% maturing on February 12, 2030. BVES used the proceeds from the notes to pay down all amounts under its revolving credit facility outstanding satisfying the CPUC’s requirement at that time.
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BVES has a separate revolving credit facility without a parent guaranty that supports its electric operations and capital expenditures, which provides a borrowing capacity, as amended, of $65.0 million and expires on December 19, 2028. Under BVES’s amended credit agreement, executed on December 19, 2025, BVES extended the term of its credit facility to 2028 and also expanded the borrowing capacity of up to an additional $25.0 million , subject to lender’s approval. BVES’s revolving credit facility is considered a short-term debt arrangement by the CPUC. Therefore, pursuant to the CPUC’s requirements, borrowings under this credit facility are required to be fully paid off within a 24 month period, after which, BVES may borrow under the credit facility again. BVES’s next pay-off period ends in June 2027. As of December 31, 2025, the outstanding balance under BVES’s credit facility of $4.0 million has been classified as a non-current liability in AWR’s Consolidated Balance Sheet.
Furthermore, in December 2025, BVES issued 3.33 common shares to AWR for total proceeds of $6.0 million. BVES used the proceeds from the stock issuance to pay down outstanding borrowings under its revolving credit facility and to fund its operations and capital expenditures.
Our primary sources of liquidity to fund operations continue to be from the recovery of costs charged to customers at our regulated utilities and the collection of payments from the U.S government. We believe that capital investment costs associated with our capital programs at our regulated utilities will continue to be recovered through water and electric rates charged to customers, as well as funds from credit facilities from our regulated utilities. In addition, AWR’s credit facility will continue to be used to support ASUS’s operations and AWR (parent). The long-term capital-intensive nature of our regulated utilities have required us to continually seek future financing opportunities beyond the short-term. Future long-term financing at GSWC and BVES will consist of both long-term debt and equity issuances in order to manage to the CPUC-authorized capital structure. Under the current financing applications authorized by the CPUC, GSWC and BVES have $588.0 million and $82.0 million, respectively, remaining and available under each utility’s authorized applications that provide for long-term financing and which are expected to be used over the next 2-6 years to pay down outstanding borrowings under their respective credit facilities and support operations.
Management believes that AWR’s and GSWC’s sound capital structures and strong credit ratings, combined with its financial discipline, will enable AWR to access the debt and equity markets. However, unpredictable financial market conditions in the future may limit its access or impact the timing of when to access the market, in which case AWR may choose to temporarily reduce its capital spending.
AWR’s ability to pay cash dividends on its Common Shares outstanding depends primarily upon cash flows from its subsidiaries. AWR intends to continue paying quarterly cash dividends on or about March 1, June 1, September 1 and December 1, subject to earnings and financial conditions, regulatory requirements and such other factors as the Board of Directors may deem relevant. On February 10, 2026, AWR’s Board of Directors approved a first quarter dividend of $0.5040 per share on AWR’s Common Shares. Dividends on the Common Shares will be paid on March 5, 2026 to shareholders of record at the close of business on February 23, 2026. AWR has paid common dividends every year since 1931, and has increased the dividends received by shareholders each calendar year for 71 consecutive years, which places it in an exclusive group of companies on the New York Stock Exchange that have achieved that result. AWR’s quarterly dividend rate has grown at a compound annual growth rate (“CAGR”) of 8.5% over the last five years since the first quarter of 2021, and has achieved a 10-year CAGR of 8.3% in its calendar year dividend payments through 2025. AWR’s current policy is to achieve a CAGR in the dividend of more than 7% over the long-term.
Cash Flows from Operating Activities :
Cash flows from operating activities have generally provided sufficient cash to fund operating requirements, including a portion of construction expenditures at GSWC and BVES, and construction expenses at ASUS, and to pay dividends. AWR’s future cash flows from operating activities are expected to be affected by a number of factors, including utility regulation; delays in receiving approvals of general rate cases, changes in tax law; maintenance expenses; inflation; newly imposed tariffs; compliance with water quality regulations and environmental, health and safety standards; production costs; customer growth; per-customer usage of water and electricity; weather and seasonality; conservation efforts; compliance with local governmental requirements, including mandatory restrictions on water use; its customers’ ability to pay utility bills; and required cash contributions to pension and post-retirement plans. Future cash flows from contracted services subsidiaries will depend on new business activities, existing operations, the construction of new and/or replacement infrastructure at military bases, timely economic price and equitable adjustment of prices, and timely collection of payments from the U.S. government and other prime contractors operating at the military bases, and any adjustments arising out of an audit or investigation by federal governmental agencies.
ASUS funds its operating expenses primarily through internal operating sources, which include U.S. government funding under 15- and 50-year contracts for operations and maintenance costs and construction activities, as well as investments by, or loans from, AWR. ASUS, in turn, provides funding to its subsidiaries. ASUS’s subsidiaries may also from time to time provide funding to ASUS or other subsidiaries of ASUS.
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Cash flows from operating activities are primarily generated by net income, adjusted for non-cash expenses such as depreciation and amortization, and deferred income taxes. Cash generated by operations varies during the year. Net cash provided by operating activities of AWR was $229.7 million for 2025 as compared to $198.7 million for 2024. The increase in operating cash flow was largely due to the timing of cash receipts and disbursements related to working capital items. In particular, the implementation of new rates and surcharges at our regulated utilities added to cash flows from operations. In addition, in 2025, GSWC and one of ASUS’s subsidiaries received combined approximately $17 million in PFAS contamination litigation proceeds as plaintiffs in class action lawsuits. The increase in cash flows from operating activities is partially offset by the differences at ASUS in the timing of vendor payments and the receipt of cash for construction work at military bases. The billings (and cash receipts) for this construction work generally occur at completion of the work or in accordance with a billing schedule contractually agreed to with the U.S. government and/or other prime contractors. Thus, cash flow from construction-related activities may fluctuate from period to period with such fluctuations representing timing differences of when the work is being performed and when the cash is received for payment of the work. Furthermore, in March 2024, as a result of the Extended Arrearage Program, GSWC received $3.5 million in COVID-19 relief funds from the State of California to provide assistance to customers for delinquent water customer bills incurred during the pandemic. There were no similar relief funds received during 2025.
Cash Flows from Investing Activities :
Net cash used in investing activities was $237.5 million for the year ended December 31, 2025 as compared to $232.8 million in 2024, which is mostly related to capital expenditures at the regulated utilities. GSWC and BVES invest capital to provide essential services to their regulated customer bases, while working with the CPUC to have the opportunity to earn a fair rate of return on investment. AWR’s infrastructure investment plan consists of both infrastructure renewal programs (to replace infrastructure, including those to mitigate wildfire risk) and major capital investment projects (to construct new water treatment, supply and delivery facilities). The regulated utilities may also be required from time to time to relocate existing infrastructure in order to accommodate local infrastructure improvement projects. Projected capital expenditures and other investments are subject to periodic review and revision.
During 2026, the regulated utilities’ company-funded capital expenditures are estimated to be approximately $185 – $225 million, barring any delays resulting from changes in capital improvement schedules due to unfavorable weather conditions and supply chain issues.
Cash Flows from Financing Activities :
AWR’s financing activities include primarily: (i) the proceeds from the issuance of Common Shares, (ii) the issuance and repayment of long-term debt and notes payable to financial institutions, and (iii) the payment of dividends on Common Shares. In order to finance new infrastructure, GSWC also receives customer advances (net of refunds) for, and contributions in aid of, construction. Borrowings on AWR’s credit facility are used to support AWR (parent) and its contracted services subsidiary, and borrowings on GSWC’s and BVES’s credit facilities are used to fund GSWC and BVES capital programs, respectively, until long-term financing is arranged. AWR may also from time to time make equity contributions to GSWC and BVES. Overall debt levels are expected to increase to fund the costs of the capital expenditures that will be made by the regulated utilities.
Net cash used by financing activities was $26,000 for the year ended December 31, 2025 as compared to cash provided of $46.6 million for 2024. The change in cash from financing activities in 2025 was due primarily to a decrease in total net borrowings required in 2025 as compared to 2024 due, in large part, to an increase in cash flows from operating activities. Financing activities in 2025 included the issuance of long-term debt of $50.0 million by BVES and $100.0 million by GSWC, and the proceeds were used to pay down outstanding borrowings under their respective credit facilities. Credit facilities have been used to support their operations and ongoing capital expenditure programs. In June 2024, GSWC completed the issuance of $65.0 million in unsecured private placement notes. The proceeds from the private placement notes were used by GSWC for general corporate purposes including the repayment of outstanding borrowings under its credit facility and the support of its operations and capital expenditures. During 2025, AWR had net payments on its credit facilities of $148.0 million, while during 2024 , AWR had net payments on its credit facilities of $44.5 million. In addition, during 2025, AWR sold 903,769 Common Shares through its ATM offering program and raised net of issuance cost of $67.0 million, while during 2024, AWR sold 1,145,219 Common Shares through its ATM offering program and raised proceeds net of issuance cost of $88.7 million.
GSWC
GSWC funds its operating expenses, payments on its debt, dividends to AWR on its outstanding common shares, and a portion of its construction expenditures through internal sources. Internal sources of cash flow are provided primarily by retention of a portion of earnings from operating activities. Internal cash generation is influenced by factors such as weather patterns, conservation efforts, environmental and water quality regulations, litigation, changes in tax law and deferred taxes,
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changes in supply costs and regulatory decisions affecting GSWC’s ability to recover these supply costs, timing of rate relief, increases in maintenance expenses and capital expenditures, surcharges authorized by the CPUC to enable GSWC to recover expenses previously incurred from customers, and CPUC requirements to refund amounts previously charged to customers. Internal cash flows have also been impacted by delays in receiving payments from GSWC customers.
GSWC may, at times, utilize external sources for long-term financing, as well as obtain funds from equity investments from its parent, AWR, to help fund a portion of its operations and construction expenditures. GSWC has its own separate credit agreement that provides for a $200.0 million unsecured revolving credit facility to support GSWC’s operations and capital expenditures. GSWC’s borrowing capacity under this credit agreement may be expanded up to an additional $75.0 million , subject to the lenders’ approval.
In March 2025, the CPUC issued a final decision in GSWC’s financing application, which among other things, approved GSWC's request to issue up to $750.0 million of additional long-term debt and equity securities. Subsequently, on May 29, 2025, GSWC executed a note purchase agreement for the issuance of unsecured private placement notes totaling $100.0 million. In connection with the transaction, GSWC issued (i) $75.0 million at a coupon rate of 5.30% due May 29, 2032, and (ii) $25.0 million at a coupon rate of 5.65% due May 29, 2037. In addition, during 2025, GSWC issued a total of 4.6250 common shares to AWR for total proceeds of approximately $62.0 million. Under the current financing application authorized by the CPUC, GSWC has $588.0 million remaining and available that provides for long-term financing and which are expected to be used over the next 2 to 6 years to pay down portions of the outstanding borrowings under GSWC’s credit facility and support its operations and capital program.
In addition, GSWC also receives advances and contributions from customers, home builders and real estate developers to fund construction necessary to extend service to new areas. Advances for construction are generally refundable at a rate of 2.5% in equal annual installments over 40 years. Utility plant funded by advances and contributions is excluded from rate base. GSWC amortizes contributions in aid of construction at the same composite rate of depreciation for the related property.
Cash Flows from Operating Activities :
Net cash provided by operating activities was $183.3 million for the year ended December 31, 2025 as compared to $158.6 million for 2024. The increase in operating cash flow was due primarily to (i) new water rates implemented effective January 1, 2025 that were approved in the latest general rate case proceeding, (ii) the implementation, in May 2025, of the WRAM/MCBA surcharges related to the recovery of all pre-2025 revenue and supply cost activity with the majority to be recovered over 18 months, (iii) the implementation of other surcharges during the year, and (iv) receipt of approximately $14.7 million in PFAS contamination litigation proceeds as plaintiffs in class action lawsuits. In March 2024, GSWC received $3.5 million in COVID-19 relief funds from the State of California to provide assistance to customers for delinquent water customer bills incurred during the pandemic, which did not recur in 2025. The timing of cash receipts and disbursements related to other working capital items also affected the change in net cash provided by operating activities.
Cash Flows from Investing Activities :
Net cash used in investing activities was $204.1 million for the year ended December 31, 2025 as compared to $198.8 million for 2024, which is mostly related to spending under GSWC’s infrastructure investment plans that are consistent with capital budgets authorized in its general rate cases.
Cash Flows from Financing Activities :
Net cash provided by financing activities was $19.4 million for the year ended December 31, 2025 as compared to $48.3 million for 2024. The decrease in net cash provided by financing activities was due primarily to a decrease in total capital (debt and equity) raised in 2025 as compared to 2024 due, in large part, to an increase in cash flows from operating activities. During 2025, GSWC issued long-term debt of $100.0 million and issued common shares to AWR (parent) in exchange for contribution of $62.0 million used. GSWC used the proceeds from both issuances to pay down outstanding borrowings under its credit facility that is used to support its water operations and capital expenditures program. In 2024, GSWC completed the issuance of $65.0 million in unsecured private placement notes and issued common shares to AWR (parent) in exchange for contribution of approximately $40.0 million. Finally, GSWC paid $37.5 million in dividends to AWR during 2025 as compared to $35.1 million during 2024.
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Contractual Obligations and Commitments
Registrant has various contractual obligations, which are recorded as liabilities in the consolidated financial statements. Other items, such as certain purchase commitments, are not recognized as liabilities in the consolidated financial statements but are required to be disclosed. In addition to contractual maturities, Registrant has certain debt instruments that contain annual sinking funds or other principal payments. Registrant believes that it will be able to refinance debt instruments at their maturity through public issuance or private placement of debt or equity. Annual payments to service debt are generally made from cash flows from operations.
The following table reflects Registrant’s contractual obligations and commitments to make future payments pursuant to contracts as of December 31, 2025. The table reflects only financial obligations and commitments. Therefore, performance obligations associated with our initial 50-year, firm-fixed-price contract and additional firm-fixed-price contracts with the U.S. government at our contracted services segment are not included in the amounts below.
Payments/Commitments Due (1)
($ in thousands)
Total
Less than 1
Year
Notes/Debentures (2)
Private Placement Notes (3)
Tax-Exempt Obligations (4)
Other Debt Instruments (5)
Total AWR Long-Term Debt
Credit Facilities (6)
Interest on Long-Term Debt (7)
Advances for Construction (8)
Renewable Energy Credit Agreements (9)
Purchased Power Contracts (10)
Capital Expenditures (11)
Water Purchase Agreements (12)
Operating Leases (13)
SUB-TOTAL
Other Commitments (14)
TOTAL
(1) Excludes dividends and facility fees.
(2) The notes and debentures have been issued by GSWC under an Indenture dated September 1, 1993, as amended in December 2008. The notes and debentures do not contain any financial covenants that Registrant believes to be material or any cross-default provisions.
(3) Consists of GSWC senior private placement notes of $510.0 million and BVES unsecured private placement notes of $85.0 million, totaling $595.0 million issued to various banks and financial institutions. GSWC’s most recent private placement notes include $65.0 million issued in June 2024 and $100.0 million issued in May 2025. Under the terms of each of the senior notes, GSWC may not incur any additional debt or pay any distributions to its shareholders if, after giving effect thereto, it would have a debt to capitalization ratio in excess of 0.6667-to-1 or a debt to earnings before interest, taxes, depreciation and amortization ratio of more than 8-to-1. Under the terms of its amended credit agreement and unsecured private placement notes, BVES must maintain a minimum interest coverage ratio of 3.0 times its interest expense. BVES is also required to maintain a maximum consolidated total debt to consolidated total capitalization ratio of 0.65 to 1.00. GSWC and BVES were in compliance with all of its covenant provisions as of December 31, 2025. GSWC and BVES do not currently have any outstanding mortgages or other liens on indebtedness on their properties.
(4) Consists of obligations at GSWC related to (i) a loan agreement supporting $7.7 million in outstanding debt issued by the California Pollution Control Financing Authority, and (ii) $2.5 million of obligations with respect to GSWC’s 500 acre-foot entitlement to water from the State Water Project (“SWP”). These obligations do not contain any financial covenants believed to be material to Registrant or any cross-default provisions. In regard to its SWP entitlement, GSWC has entered into agreements with various developers for a portion of its 500 acre-foot entitlement to water from the SWP.
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(5) Consists of the outstanding debt portion of funds received under the American Recovery and Reinvestment Act for reimbursements of capital costs related to the installation of meters for conversion of non-metered service to metered service in GSWC’s Arden-Cordova District.
(6) Credit facilities consists of (i) a $195.0 million revolving credit facility under AWR, of which $124.0 million was outstanding as of December 31, 2025; (ii) a $200.0 million revolving credit facility under GSWC, of which $13.0 million was outstanding as of December 31, 2025; and (iii) a $65.0 million revolving credit facility under BVES, of which $4.0 million was outstanding as of December 31, 2025.
(7) Consists of expected interest expense payments based on the assumption that GSWC’s long-term debt remains outstanding until maturity.
(8) Advances for construction represent contract refunds mostly from GSWC to developers for the cost of water systems paid for by the developers. The advances are generally refundable in equal annual installments over 40-year periods.
(9) Consists of agreements executed by BVES to purchase renewable energy credits through 2035. These renewable energy credits are used to meet California’s renewables portfolio standard.
(10) Consists of BVES fixed-cost purchased power contracts executed in July 2023 and in May 2025 with Shell Energy North America (US), L.P and Morgan Stanley Capital Group Inc., respectively.
(11) Consists primarily of capital expenditures estimated to be required under signed contracts at GSWC and BVES as of December 31, 2025.
(12) Water purchase agreements consist of (i) a remaining amount of $0.9 million under an agreement expiring in 2028 to use water rights from a third party, and (ii) an aggregate amount of $1.1 million of water purchase commitments with other third parties, which expire between 2026 through 2038.
(13) Reflects future minimum payments under noncancelable operating leases for both GSWC and ASUS.
(14) Other commitments consist primarily of (i) $11.4 million in asset retirement obligations of GSWC that reflect the retirement of wells by GSWC, which by law need to be properly capped at the time of removal; (ii) irrevocable letters of credit in the amount of $1.0 million for the deductible in Registrant’s business automobile insurance policies; and (iii) a $15,000 irrevocable letter of credit issued on behalf of GSWC pursuant to a franchise agreement with the City of Rancho Cordova. All of the letters of credit are issued pursuant to AWR’s revolving credit facility.
Information comparing the liquidity and capital resources for fiscal years 2024 and 2023 can be found under Item 7, Management’s Discussion and Analysis under the heading “ Liquidity and Capital Resources ” in AWR’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 filed with the SEC.
BVES Power-Supply Arrangements
BVES purchases power pursuant to purchase power contracts approved by the CPUC. In May 2025, the CPUC approved a new power purchase contract between BVES and a third party. The new contract provides for the purchase of electricity during a delivery period from June 1, 2025 through December 31, 2028 and is subject to the accounting guidance for derivatives and requires mark-to-market accounting. In addition, BVES continues to procure renewable portfolio standard eligible energy and renewable energy credits as a bundled product through a contract that delivers through December 31, 2035. In addition to the purchased power contracts, BVES buys additional energy to meet peak demand as needed and sells surplus power when necessary. BVES is pursuing short- and long-term renewable energy contracts to replace any power purchase agreements that have expired in addition to satisfying its requirements related to its resource portfolio for the next compliance period (2025 - 2027) and beyond. The average price per MWh, including fixed costs, increased to $125.61 per MWh in 2025 from $71.89 per MWh in 2024. BVES has an electric-supply-cost balancing account, as approved by the CPUC, to alleviate any impacts to earnings.
Construction Program
GSWC maintains an ongoing water distribution main replacement program throughout its customer service areas based on the age and type of distribution-system materials, priority of leaks detected, remaining productive life of the distribution system and an underlying replacement schedule. In addition, GSWC and BVES upgrade their facilities in accordance with industry standards, local and CPUC requirements and new legislation. California requires investor-owned electric utilities to submit an annual wildfire mitigation plan to the CPUC for approval, and requires all electric utilities to prepare plans on constructing, maintaining, and operating their electrical lines and equipment to minimize the risk of catastrophic wildfires.
As of December 31, 2025, GSWC and BVES have unconditional purchase obligations for capital projects of approximately $106.1 million. During the years ended December 31, 2025, 2024 and 2023, GSWC and BVES had capital
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expenditures of $223.3 million, $244.0 million and $182.7 million, respectively. A portion of these capital expenditures was funded by developers through contributions in aid of construction, which are not required to be repaid, and refundable advances. During the years ended December 31, 2025, 2024 and 2023, capital expenditures funded by developers were $12.5 million, $8.5 million and $7.0 million, respectively. During 2026, the water and electric segments’ company-funded capital expenditures are estimated to be approximately $185 - 225 million, barring any delays resulting from changes in capital improvement schedules due to unfavorable weather conditions and supply chain issues. These amounts include approximately $13.2 million estimated to be spent by BVES on wildfire mitigation projects.
Contracted Services
Under the terms of the contracts with the U.S. government, each contract’s price is subject to an economic price adjustment (“EPA”) on an annual basis. In the event that ASUS (i) is managing more assets at specific military bases than were included in the U.S. government’s request for proposal, (ii) is managing assets that are in substandard condition as compared to what was disclosed in the request for proposal, (iii) prudently incurs costs not contemplated under the terms of the contract, and/or (iv) becomes subject to new regulatory requirements, such as more stringent water-quality standards, ASUS is permitted to file, and has filed, requests for equitable adjustment (“REAs”). The timely filing for and receipt of EPAs and/or REAs continues to be critical in order for ASUS’s subsidiaries to recover increasing costs of operating, maintaining, renewing and replacing the water and/or wastewater systems at the military bases it serves.
During sequestration or automatic spending cuts, and the U.S. government shutdown, the subsidiaries of ASUS did not experience any earnings impact to their existing operations and maintenance and renewal and replacement services, as utility privatization contracts are an “excepted service.” With the expiration of sequestration, similar issues including further sequestration pursuant to the Balanced Budget and Emergency Deficit Control Act may arise as part of the fiscal uncertainty and/or future debt-ceiling limits imposed by Congress. Any future impact on ASUS and its operations through its subsidiaries will likely be limited to (a) the timing of funding to pay for services rendered, (b) delays in the processing of EPAs and/or REAs, (c) the timing of the issuance of contract modifications for new construction work not already funded by the U.S. Government, (d) the timing of construction work associated with delays in receiving construction permits from furloughs at government agencies, and/or (e) delays in solicitation for and/or awarding of new contracts under the Department of Defense contracting programs. In the event a future U.S. government shutdown extends for an unprecedented and much longer period, ASUS’s liquidity and earnings could be impacted.
At times, the DCAA and/or the DCMA may, at the request of a contracting officer, perform audits/reviews of contractors for compliance with certain government guidance and regulations, such as the Federal Acquisition Regulations and Defense Federal Acquisition Regulation Supplements. Certain audit/review findings, such as system deficiencies for government-contract-business-system requirements, may result in delays in the resolution of filings submitted to and/or the ability to file new proposals with the U.S. government.
Below is a summary of current and projected EPA filings for price adjustments to operations and maintenance fees and renewal and replacement fees for ASUS’s subsidiaries in fiscal 2026.
Military Base
EPA period
Filing Date
Fort Bliss (FBWS)
October 2026 - September 2027
Third Quarter 2026
Fort Lee (ODUS)
February 2026 - January 2027
Fourth Quarter 2025
Joint Base Langley Eustis and Joint Expeditionary Base Little Creek Fort Story (ODUS)
April 2026 - March 2027
First Quarter of 2026
Joint Base Andrews (TUS)
February 2026 - January 2027
Fourth Quarter 2025
Fort Jackson (PSUS)
February 2026 - January 2027
Fourth Quarter 2025
Fort Bragg (ONUS)
March 2026 - February 2027
First Quarter 2026
Eglin Air Force Base (ECUS)
June 2026 - May 2027
Second Quarter 2026
Fort Riley (FRUS)
July 2026 - June 2027
Second Quarter 2026
Joint Base Cape Cod (BSUS)
April 2026 - March 2027
First Quarter 2026
Naval Air Station Patuxent River (PRUS)
April 2026 - March 2027
First Quarter 2026
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Regulatory Matters
A discussion on various regulatory matters is included in the section titled “Overview” in this Form 10-K ’ s “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The discussion below focuses on other regulatory matters and developments.
Certificates of Public Convenience and Necessity
GSWC and BVES hold Certificates of Public Convenience and Necessity (“CPCN”) granted by the CPUC in each of the ratemaking areas they serve. ASUS subsidiaries are regulated, if applicable, by the state in which it primarily conducts water and/or wastewater operations. FBWS holds a CPCN from the Public Utilities Commission of Texas. The Virginia State Corporation Commission exercises jurisdiction over ODUS as a public service company. The Maryland Public Service Commission approved the right of TUS to operate as a water and wastewater utility at Joint Base Andrews, Maryland, and may exercise its jurisdiction over the water and wastewater utility operation at Naval Air Station Patuxent River, Maryland. The South Carolina Public Service Commission exercises jurisdiction over PSUS as a public service company. ONUS is regulated by the North Carolina Public Service Commission. ECUS, FRUS and BSUS are not subject to regulation by their respective states’ utility commissions.
GSWC and BVES are subject to regulation by the CPUC which has broad authority over service and facilities, rates, classification of accounts, valuation of properties, the purchase, disposition and mortgaging of properties necessary or useful in rendering public utility service, the issuance of securities, the granting of certificates of public convenience and necessity as to the extension of services and facilities and various other matters.
Rates that GSWC and BVES are authorized to charge are determined by the CPUC in general rate cases and are derived using rate base, cost of service and cost of capital, as projected for a future test year. Rates charged to customers vary according to customer class and rate jurisdiction and are generally set at levels allowing for recovery of prudently incurred costs, including a fair return on rate base. Rate base generally consists of the original cost of utility plant in service, plus certain other assets, such as working capital and inventory, less accumulated depreciation on utility plant in service, deferred income tax liabilities and certain other deductions.
GSWC is required to file a water general rate case application every three years according to a schedule established by the CPUC. General rate cases typically include an increase in the test year with inflation-rate adjustments for expenses in the second and third years of the rate case cycle. For capital projects, there are two test years. Rates are based on a forecast of expenses and capital costs for each test year. GSWC’s cost of capital is determined in a separate proceeding. Investor-owned water utilities serving California are required to file their cost of capital applications on a triennial basis. BVES’s general rate cases are typically filed every four years, which also includes a determination of BVES’s cost of capital. Rates may also be increased by offsets for certain expense increases, including, but not limited to, supply-cost offset and balancing-account amortization, advice letter filings related to certain plant additions and other operating cost increases.
Neither the operations of AWR nor the operations and rates of ASUS are directly regulated by the CPUC. The CPUC does, however, regulate certain transactions between GSWC, BVES and ASUS and between GSWC and BVES and AWR.
General Rate Cases and Other Regulatory Matters
Water Segment
Recent Changes in Rates:
Rates that GSWC is authorized to charge are determined by the CPUC in general rate cases. In January 2025, the CPUC issued a final decision in GSWC’s latest general rate case proceeding that will set new rates for the years 2025 - 2027. Accordingly, new water rates for 2025 have been implemented and reflected in GSWC’s results for the year ended December 31, 2025.
In December 2025, GSWC received approval from the CPUC to implement its full second-year rate increases, effective January 1, 2026, that will result in higher adopted operating revenues less water supply cost for 2026 of approximately $32.0 million compared to 2025’s adopted operating revenues less water supply cost. Included in the 2026 increase is nearly $11 million related to advice letter capital projects. The assets from the advice letter projects and the related amounts in the memorandum account were added to the adopted rate base for inclusion in the revenue requirement effective January 1, 2026.
Expansion of GSWC’s Water Operations:
In 2014, the CPUC issued a final decision granting GSWC the authority to provide water utility service to a new area to be developed near Sacramento called Sutter Pointe, in Sutter County, California. Specific plans for the new development have been approved by Sutter County that will allow for the construction of 17,500 total dwelling units at full buildout, which is currently expected to occur over the next 20 or more years. Among other things, the final decision in 2014 ordered GSWC to file a separate application before the commencement of any construction in order to establish initial water service rates. The first phase of the new development has begun and is expected to occur over the next five years, and will serve up to 3,800 customer connections. Accordingly, in August 2024, GSWC filed an application prior to the start of construction. In October
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2025, the CPUC issued a final decision authorizing initial water service rates covering the new development for the years 2026 through 2028.
On January 27, 2026, GSWC filed an application with the CPUC to acquire the water system assets from a city located within Los Angeles County. The application requested the expansion of GSWC’s CPCN to incorporate the new service area into one of GSWC’s existing ratemaking areas, and to include the $5.25 million purchase price in rate base. The acquisition is forecasted to increase revenues by approximately $1.0 million, if approved as filed. The city's service area serves almost 900 primarily residential customers.
Electric Segment
Recent Changes in Rates:
Rates that BVES is authorized to charge are determined by the CPUC in general rate cases. In January 2025, the CPUC issued a final decision in BVES’s general rate case proceeding that set new rates for the years 2023 - 2026, retroactive to January 1, 2023. Accordingly, new electric rates for 2025, which is the third year in the rate cycle, have been implemented and reflected in BVES results for the year ended December 31, 2025. As a result of receiving the final decision, the impact from retroactive rates for the full year of 2023 and from the second-year rate increases for the full year of 2024 were reflected in BVES’s 2024 fourth quarter results.
Among other things, the final decision also approved for recovery the requested capital expenditures and other incremental operating costs already incurred prior to 2023 in connection with BVES’s wildfire mitigation plans (“WMP”s) that were not included in customer rates prior to receiving a CPUC final decision on its latest general rate case. The decision approved BVES’s recovery of incremental vegetation management costs and other wildfire mitigation and prevention costs incurred prior to 2023 that were being tracked in memorandum accounts for future recovery and were recorded as regulatory assets. As of December 31, 2025, BVES has a total of approximately $11.3 million in regulatory assets related to these memorandum accounts. During the first quarter of 2025, BVES filed an advice letter to recover all pre-2023 costs included in the vegetation management and other WMP memorandum accounts, which will be recovered over a period of 24 to 36 months through surcharges that were implemented on March 1, 2025 and April 1, 2025.
General Rate Case for Years 2027 – 2030:
On January 30, 2026, BVES filed a general rate case application that will determine new electric rates for the years 2027 through 2030. Among other things, BVES requested (i) capital budgets of approximately $133 million for the four-year rate cycle, and another approximately $17 million, plus AFUDC, for capital projects to be filed for revenue recovery through advice letters when the projects are completed, and (ii) a capital structure for BVES of 60% equity and 40% debt, a return on equity of 11.30%, an embedded cost of debt of 5.92%, and a return on rate base of 9.15%.
BVES Solar Energy and Battery Storage Projects:
In May 2024, BVES filed an application with the CPUC for approval to construct the solar energy and battery storage projects that will provide BVES with its first solar power generation facility and battery energy storage system. In July 2025, BVES and the Public Advocates Office filed a joint motion with the CPUC to adopt a settlement agreement resolving all issues in the proceeding. Among other things, the settlement agreement authorizes BVES to construct the solar energy and battery storage facility and system for a total combined cost of approximately $28.0 million, plus additional funds used during construction. In December 2025, BVES received a final decision approving the settlement agreement and authorizing construction of the solar and battery projects. The costs associated with the projects are recoverable in customer rates at the time the projects are completed and in service.
For more information regarding significant regulatory matters, see Note 3 of “Notes to Financial Statements” included in Part II, Item 8, in Financial Statements and Supplementary Data.
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Environmental Matters
AWR’s subsidiaries are subject to stringent environmental regulations. GSWC and ASUS are required to comply with the safe drinking water standards established by the U.S. EPA. GSWC is also required to comply with the safe drinking water standards by the Division of Drinking Water (“DDW”), under the SWRCB. The DDW, acting on behalf of the U.S. EPA, administers the U.S. EPA’s program in California. Similarly, ASUS is required to comply with the drinking water standards that are administered by the relevant state agencies in the states in which it operates. The U.S. EPA regulates contaminants that may have adverse health effects that are known or likely to occur at levels of public health concern, and the regulation of which will provide a meaningful opportunity for health risk reduction.
GSWC and ASUS currently test their water supplies and water systems according to, among other things, requirements listed in the Federal Safe Drinking Water Act. They work proactively with third parties and governmental agencies to address issues relating to known contamination threatening their water sources. They also incur operating costs for testing to determine the levels, if any, of the constituents in their sources of supply, and additional expenses to treat contaminants in order to meet the federal and state maximum contaminant level standards and consumer demands. GSWC expects to incur additional capital costs as well as increased operating costs to maintain or improve the quality of water delivered to its customers in light of anticipated stress on water resources associated with watershed and aquifer pollution, drought impacts, and consumer expectations. Both GSWC and ASUS will see increased operating costs to meet newly established and future water quality standards. The CPUC ratemaking process provides GSWC with the opportunity to recover prudently incurred capital and operating costs in future filings associated with achieving water quality standards. The request for equitable adjustment process and capital funding request mechanism provide ASUS with the opportunity to recover prudently incurred operating costs and capital investment requirement in future filings associated with achieving water quality standards. Management believes that such incurred and expected future costs should be authorized for recovery by the CPUC and the U.S. government.
Perfluoroalkyl Substances (“PFAS”)
PFAS have negatively impacted water systems across the country including those of GSWC. PFAS were used in fire suppression agents, certain fabric and other materials and used in various industrial processes. In July 2018, DDW issued drinking water notification levels for certain fluorinated organic chemicals. Notification levels are health-based advisory levels established for contaminants in drinking water for which maximum contaminant levels have not been established. Notification to consumers and stakeholders is required when the advisory levels or notification levels are exceeded. Assembly Bill 756, signed into law in July 2019 and effective in January 2020, requires, among other things, additional notifications by water systems when they detect levels of PFAS above response levels.
PFAS Drinking Water Maximum Contaminant Levels
On April 10, 2024, the U.S. EPA announced the final regulations that established maximum contaminant levels (“MCLs”) for six PFAS compounds in drinking water. The regulation established MCLs for perfluorooctanoic acid (“PFOA”), perfluorooctane sulfonic acid (“PFOS”), and several other contaminants with individual MCLs that range from 4 ppt to 10 ppt. In addition, the regulation established a MCL for PFAS mixtures containing at least two of the regulated PFAS compounds for the combined and co-occurring levels of these PFAS in drinking water. The final rule requires public water systems to implement PFAS monitoring and reporting within three years (2027), and where exceedances are identified, to implement solutions within five years (2029) to reduce PFAS levels to below the MCLs. In May 2025, U.S. EPA announced its intention to extend the deadline for drinking water systems to comply with the new PFAS maximum contaminant levels by two years to 2031, but it has not yet issued regulations to put this extension into effect.
Currently, there are more than 35 sources at GSWC and 7 sources at ASUS that have exceeded one or more of the PFAS MCLs. These new MCLs will increase capital investment expenditures over the next five years and increase operation and maintenance expenses over the long-term. The CPUC has authorized GSWC to track incremental expenses, including laboratory testing and monitoring costs, customer and public notification costs, and chemical and operating treatment costs, incurred as a result of PFAS contamination in a memorandum account to be filed with the CPUC for future recovery.
Hexavalent Chromium
California State Division of Drinking Water adopted an MCL of 10 parts per billion for Hexavalent Chromium, which went into effect on October 1, 2024. Depending on the size of the water system, water systems will have two to four years from the effective date to come into compliance with the MCL. Currently, there are approximately eight sources at GSWC that exceed or are within eighty percent of the MCL. These MCLs are also expected to increase GSWC’s capital investments and operations and maintenance expenses.
The CPUC ratemaking process provides GSWC with the opportunity to recover prudently incurred capital and operating costs in future filings associated with achieving water quality standards. Management believes that such incurred and expected future costs should be authorized for recovery by the CPUC for both PFAS compounds and hexavalent chromium.
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Per- and Polyfluoroalkyl Substances (“PFAS”) Contamination Litigation Proceeds Memorandum Account
GSWC has been a plaintiff in class action lawsuits (against 3M Company, DuPont, and others) related to PFAS contamination affecting public water systems. The class settlement agreement among 3M Company and the class of eligible public water systems was entered into on June 22, 2023 and resolved any claims for PFAS contamination with 3M Company. The class settlement agreement between the parties was approved by an order issued by the Federal District Court of South Carolina on March 29, 2024. As a result of the settlement, GSWC was notified in the second quarter of 2025 that it will receive from 3M Company approximately $19.0 million, net of legal fees. In June 2025, 3M Company paid a portion of this amount into a qualified settlement fund totaling approximately $12.5 million to be administered by a custodian for the benefit of GSWC. GSWC received the first payment of approximately $3.8 million into this settlement fund in August, and the remainder of the $12.5 million was received in October 2025. GSWC expects to be paid the remaining settlement payments totaling approximately $6.5 million during 2026 – 2033. One of ASUS’s subsidiaries is also a participant in this class settlement agreement with 3M Company and is expected to receive approximately $2 million of settlement payments during 2025 – 2033. During the fourth quarter, GSWC and one of ASUS’s subsidiaries received class settlement payments of $2.2 million and $0.3 million, net of legal and other costs, respectively, from DuPont pursuant to respective class settlement agreements.
Settlement proceeds received by GSWC may be used for future capital investments or operations and maintenance expenses related to PFAS water contamination to its water systems or any PFAS related litigationagainst its water systems, which benefit GSWC’s customers. The CPUC has authorized GSWC to track in a memorandum account the settlement payments received by GSWC from lawsuits related to PFAS contamination in its water systems, which include the proceeds received for participation in class action lawsuits. The amounts in the memorandum account have been recorded as a regulatory liability to be used in the future to offset incremental investments in replacement and treatment of property, as well as operations and maintenance expenses and other direct expenses related to PFAS contamination.
GSWC continues to monitor contaminant levels in its water for PFAS compounds in accordance with final U.S. EPA regulations. Proceeds received from the defendants will not be sufficient to pay for all PFAS-related liabilities that will ultimately be incurred by GSWC, whether related to capital investments, operation and maintenance expenses, or litigation brought against GSWC. However, the CPUC has also authorized GSWC to track incremental expenses, including laboratory testing and monitoring costs, customer and public notification costs and chemical and operating treatment costs, incurred as a result of PFAS contamination in a separate memorandum account to be filed with the CPUC for future recovery.
Matters Relating to Environmental Cleanup
GSWC has been involved in environmental remediation and cleanup at one of its plant sites that contained an underground storage tank which was used to store gasoline for its vehicles. This tank was removed from the ground in July 1990 along with the dispenser and ancillary piping. Since then, GSWC has been involved in various remediation activities at this site.
As of December 31, 2025, the total amount spent to clean up and remediate GSWC’s plant facility was approximately $6.9 million, of which $1.5 million has been paid by the State of California Underground Storage Tank Fund. Amounts paid by GSWC have been included in rate base and approved by the CPUC for recovery. As of December 31, 2025, GSWC has a regulatory asset and an accrued liability for the estimated remaining cost of $1.3 million to complete the site remediation project. The estimate includes costs for continued activities to monitor groundwater, conduct soil gas sampling, and appropriate decommissioning/destruction of the wells after case closure approval. The ultimate cost may vary depending on additional monitoring or remediation required for case closure. The estimate is based on best available information at this time. Management also believes it is probable that the estimated additional costs will continue to be approved in rate base by the CPUC as approved historically.
Lead and Copper Rule Revisions
On October 30, 2024, the U.S. EPA published its final Lead and Copper Rule Improvements. The rule went into effect on December 30, 2024. The rule sets a 10-year requirement for replacing lead service lines in drinking water systems, changes sampling requirements and reduces the lead action level from 15 parts per billion to 10 parts per billion. Although no lead service lines have been found yet in GSWC and ASUS and their customer service lines, the changes in this regulation are expected to increase expenses related to sampling, public education, and lead service line field verification activities. The CPUC has authorized GSWC to track any incremental expenses and carrying costs on capital investments incurred by GSWC as a result of the Lead and Copper Rule revisions in a memorandum account to be filed with the CPUC for future recovery.
Matters Relating to Military Base Contracts
Each of the ASUS’s subsidiaries is responsible for testing the water and wastewater systems on the military bases on which it operates in accordance with applicable federal, state and local requirements. Each of the ASUS’s subsidiaries has the right to seek an equitable adjustment to its contract in the event that there are changes in environmental laws, a change in the quality of water used in providing water service or wastewater discharged by the U.S. government, or contamination of the air
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or soil not caused by the fault or negligence of ASUS’s subsidiary. These changes can impact operations and maintenance and renewal and replacement costs under the contracts. The U.S. government is responsible for environmental contamination due to its fault or negligence and for environmental contamination that occurred prior to the execution of a contract.
Security Issues
We have physical and information security policies throughout our operations. Training on these matters begins during employee orientation and is ongoing through a series of training courses in addition to periodic, unannounced training exercises. We collaborate with various agencies, associations and third parties regarding information on possible threats and security measures for our operations. Risk assessments are conducted periodically to evaluate the effectiveness of existing security controls. These assessments provide areas for additional security focus, new controls, and policy changes.
Both GSWC and BVES have security systems and infrastructure in place intended to prevent unlawfulintrusion, service disruption and cyberattacks. GSWC and BVES utilize a variety of physical security measures to protect their facilities. These measures consider advances in security and emergency preparedness technology and relevant industry developments in developing their respective capital improvement plans, and both intend to seek approval of the CPUC to recover any additional costs that either may incur in enhancing the security, reliability and resiliency of their utility systems.
On October 23, 2018, America’s Water Infrastructure Act became law. GSWC must now conduct additional risk and resilience assessments and develop emergency response plans for each of its water systems. These assessments and plans include natural hazards as well as malevolent acts. The first such assessments were completed in 2020. They will be reviewed and must be resubmitted every five years.
ASUS’s subsidiaries operate facilities within the boundaries of military bases, which provide limited access to the general public. To further enhance security, in prior years, certain upgrades, such as key card requirements at all access points and security camera systems, were completed at military bases through contract modifications funded by the U.S. government.
Registrant has evaluated its cybersecurity systems and continues to address identified areas of improvement with respect to U.S. government regulations regarding cybersecurity of government contractors. These improvements include the physical security at all of the office and employee facilities it operates.
Despite its efforts, Registrant cannot guarantee that intrusions, cybersecurity incident or other attacks will not cause water, wastewater or electric system problems, disrupt service to customers, compromise important data or systems or result in unintended release of customer or employee information.
Water Supply
GSWC
During 2025, GSWC delivered approximately 57.5 million hundred cubic feet (“ccf”) of water to its customers, which is an average of about 362 acre-feet per day or 118 million gallons per day (an acre-foot is approximately 435.6 ccf or 326,000 gallons). Approximately 50% of GSWC’s supply came from groundwater produced from wells situated throughout GSWC’s service areas. GSWC supplemented its groundwater production with wholesale purchases from MWD member agencies and regional water suppliers (roughly 48% of total demand) and with authorized diversions from rivers (roughly 2%) under agreements with the United States Bureau of Reclamation and the Sacramento Municipal Utility District. GSWC also utilizes recycled water supplies to serve recycled water customers in several service areas. GSWC continually assesses its water rights and groundwater storage assets to maximize use of lower cost groundwater sources where available.
Groundwater
GSWC has a diverse water supply portfolio which includes adjudicated groundwater rights, surface water rights, and a number of unadjudicated water rights to help meet supply requirements. The productivity of GSWC’s groundwater resources varies from year to year depending upon a variety of factors, including natural replenishment from snow-melt or rainfall, the availability of imported replenishment water, the amount of water previously stored in groundwater basins, natural or man-made contamination, legal production limitations, and the amount and seasonality of water use by GSWC’s customers and others. GSWC actively participates in efforts to protect groundwater basins from over-use and from contamination. In some periods, these efforts may require reductions in groundwater pumping and increased reliance on alternative water resources. GSWC also participates in the implementation of California’s Sustainable Groundwater Management Act.
From time to time, GSWC may purchase or temporarily use water rights from others for delivery to customers. GSWC has contracts to purchase water or water rights for an aggregate amount of $2.0 million as of December 31, 2025. Included in the $2.0 million is a remaining commitment of $0.9 million under an agreement with the City of Claremont to lease water rights that were ascribed to the City as part of the Six Basins adjudication. The initial term of the agreement expires in 2028. GSWC may exercise an option to renew this agreement for ten additional years. The remaining $1.1 million is for commitments for purchased water with other third parties, which expire through 2038.
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Imported Water
GSWC also manages a portfolio of water supply arrangements with water wholesalers who may import water from outside the immediate service area. GSWC purchases water from various governmental entities and other parties through a total of 61 connections for distribution to customers, in addition to numerous emergency connections. The largest water wholesaler that GSWC interacts with is the Metropolitan Water District of Southern California (“MWD”), which is a public agency organized and managed to provide a supplemental, imported supply to its member public agencies in the Southern California region. There are 26 such member agencies, consisting of 14 cities, 11 municipal water districts and one county water authority. Out of the 61 connections mentioned, 46 connections are to MWD’s water distribution facilities and those of member agencies. GSWC purchases MWD water through six separate member agencies aggregating 51,534 acre-feet annually. MWD sources its supplies from Northern California via the State Water Project and the Colorado River through the Colorado River Aqueduct, which it owns and operates, and from local programs and transfer arrangements.
Drought Impact
The California Legislature passed two bills in 2018 to establish a framework for long-term water-use efficiency standards and drought planning and resiliency. The framework sets aggressive water use objective standards and performance metrics that water suppliers will be required to meet by the year 2040. The framework includes an indoor water use standard that is reduced over time, with 42 gallons per capita per day (gpcd) by 2030 being the final indoor water use standard. Each Urban Water Supplier will have an overall water use objective that will include both an indoor standard as well as outdoor use standards.
Water year 2024-25 (“WY2025”), which ended on September 30, 2025, started out with normal conditions but became increasingly drier as the water year progressed. Water year 2025-26 (“WY2026”) began on October 1, 2025. As of January 28, 2026, the average level for the State’s major reservoirs is at 125% of the historical average for this time of the year. The Northern Sierra and Central Sierra snowpacks as of February 4, 2026 are trending below normal with the snowpack in the northern Sierra at 41% of normal and in the southern Sierra at 75% of normal. The northern Sierra precipitation is currently at 32.8 inches which is 139% of the average for the 2026 water year.
The State Water Project (“SWP”) allocation for WY2026 increased from 10% to 30% as of January 29, 2026. Invasive Golden Mussels were detected in the SWP conveyance network in mid-2025 which may impact groundwater basin spreading operations that are critical water recharge facilities used to manage groundwater extractions in Southern California. As such, the Los Angeles County Department of Public Works, which owns and operates key spreading facilities in the San Gabriel Basin have already placed a moratorium on allowing SWP into their spreading basins. Basin agencies are working on mitigation plans to address this impact to basin management. The WY2026 began with drier conditions than in WY2025, but a series of November and December precipitation events has improved state conditions. As of February 10, 2026, the U.S. Drought Monitor reported that 1% of California was in an “Abnormally Dry” condition, as compared to a year ago where nearly 21% of California was considered to be in “Extreme Drought.”
Prolongeddrought conditions continue in the Colorado River System, which has experienced historically low reservoir levels in Lake Mead and Lake Powell since 2023. Projected 2026 inflow scenarios for the Colorado River at continued low flow levels are expected and a Level 1 Shortage Condition will continue into 2026 that will impose mandatory water reductions to the lower Colorado River States. Urgent action to reduce water demand on the lower river by 2 to 4 million acre feet annually has been requested by the US Bureau of Reclamation (the “Bureau”) which resulted in a multi-year agreement known as the “California Colorado River Contractor Forbearance Agreement for 2024-2026” by the Imperial Irrigation District, Coachella Valley Water District, MWD, Palo Verde Irrigation District and the City of Needles. This agreement commits to collective Colorado River water savings of 300,000 acre-feet annually with a three-year cap of 700,000 acre feet. Operational agreements on how the Colorado River is managed will expire in 2026. The Bureau is working with both the upper and lower states on a revised set of agreements and a consensus has not yet been reached. GSWC will continue to monitor developments related to the Colorado River System and assess its impact on MWD and GSWC's systems that utilized water sources provided by MWD member agencies.
Military Base Operations
The U.S. government is responsible for providing the source of supply for all water on each of the bases served by ASUS’s subsidiaries at no cost to ASUS’s subsidiaries. Once received from the U.S. government, ASUS’s subsidiaries are responsible for ensuring the compliance with all federal, state and local regulations. Furthermore, ASUS’s subsidiaries are responsible for ensuring compliance with the reduction and/or removal of all constituents as required under its wastewater treatment plant operating permits. ASUS works closely with state regulators and industry associations to stay current with emergent issues and proactively addresses any change in wastewater treatment regulation to ensure permit compliance.
New Accounting Pronouncements
Registrant is subject to newly issued accounting requirements as well as changes in existing requirements issued by the Financial Accounting Standards Board. See Note 1 of Notes to Consolidated Financial Statements.
