AMERICAN STATES WATER CO

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. Water revenues billed to customers for theyear ended December 31, 2024 were based on 2024 adopted rates. However, due to a delay in receiving a final decision on GSWC’s water general rate application that determined new water rates for 2022 and 2023, retroactive to January 1, 2022 and January 1, 2023, GSWC recorded the cumulative retroactive rate differences to CPUC-authorized general rate case memorandum accounts recognized as regulatory assets, which through December 31, 2024 totaled$37.7 million. In October 2023, GSWC also filed for the recovery of all retroactive amounts for 2022 and 2023 accumulated up to the effective date of the new 2023 rates, July 30, 2023, with surcharges implemented in October 2023.

Water General Rate Case for the years 2025–2027:

On August 14, 2023, GSWC filed a general rate case application for all its water regions and the general office. This general rate case will determine new water rates for the years 2025 – 2027. On July 12, 2024, GSWC and Cal Advocates of the CPUC filed a joint motion to adopt a settlement agreement between GSWC and Cal Advocates in connection with the water utility general rate case. On January 30, 2025, the CPUC adopted a decision approving the settlement agreement and establishing new rates retroactive to January 1, 2025. GSWC filed an advice letter on January 31, 2025 to implement new rates effective February 1, 2025. GSWC had filed with the CPUC to establish memorandum accounts to track interim rates, which made the new 2025 rates retroactive to January 1, 2025.

Cost of Capital Proceeding for the years 2022–2024:

On June 29, 2023, a final decision was adopted by the CPUC in the cost of capital proceeding that, among other things, (i) adopts GSWC’s requested capital structure; (ii) adopts a cost of debt of 5.1% for GSWC as compared to 6.6% previously authorized; (iii) adopts a return on equity of 8.85% for GSWC as compared to 8.9% previously authorized; (iv) allows for the continuation of the WCCM through December 31, 2024; and (v) adopts the new cost of capital for the three-year period commencing January 1, 2022 through December 31, 2024. Based on the final decision issued in June, all adjustments to rates were prospective and not retroactive. GSWC filed an advice letter that implemented the new cost of capital effective July 31, 2023.

On June 30, 2023, GSWC filed an advice letter to establish the WCCM for 2023, which was approved by the CPUC and increased the 8.85% adopted return on equity in the decision to 9.36% effective July 31, 2023. Additionally, on October 12, 2023, GSWC filed an advice letter to establish the WCCM for 2024, which has been approved by the CPUC, and increased GSWC’s 9.36% adopted return on equity to 10.06% effective January 1, 2024.

2024-2025 COC Application:

Investor-owned water utilities serving California are required to file their cost of capital applications on a triennial basis. After receiving an extension in February 2024, GSWC’s next cost of capital application was scheduled to be filed on May 1, 2025 effective for the years 2026 - 2028. On January 14, 2025, the CPUC approved a request to defer the cost of capital application by another year. In December 2024, 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. The CPUC’s approval postponed this filing date by one year until May 1, 2026, with a corresponding effective date of January 1, 2027. The CPUC also approved the joint parties’ request to leave the current 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, 2026. 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.

San Juan Oaks Mutual Acquisition:

In August 2023, GSWC entered into an agreement to purchase the water and wastewater system assets from San Juan Oaks Mutual Water Company in San Benito County, California. The new master-planned community, known as San Juan Oaks, will serve up to an estimated 1,300 customers once the community is built as planned. The transaction is subject to CPUC approval. In December 2023, GSWC filed an application to establish the new service area and to set water and sewer rates for the San Juan Oaks service area in San Benito County, California. On December 5, 2024, the CPUC approved a final decision granting GSWC’s CPCN and establishing rates for water and sewer service.

Electric Segment

Recent Changes in Rates:

On August 30, 2022, BVES filed a new general rate case application with the CPUC to determine new rates for the years 2023–2026. Electric revenues billed to customers for 2024 and 2023 were based on 2022 adopted rates and remained in effect until finalization of the pending general rate case application. On December 15, 2022, the CPUC approved a decision for BVES to establish a general rate case memorandum account that makes the new 2023 rates effective and retroactive to January 1, 2023. On January 16, 2025, the CPUC adopted a final decision in connection with the pending general rate case proceeding that adopts the settlement agreement in its entirety and will determine new electric rates for the years 2023 - 2026. The new rates will be effective and retroactive to January 1, 2023 and are expected to go into effect on March 1, 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 have been reflected in the 2024 fourth quarter results.

Vegetation Management, Wildfire Mitigation Plans and Legislation:

The CPUC adopted regulations intended to enhance the fire safety of overhead electric power lines. Those regulations included increased minimum clearances around electric power lines. BVES was authorized to track incremental costs incurred to implement the regulations in a fire hazard prevention memorandum account for the purpose of obtaining cost recovery in a future general rate case. On January 16, 2025, the CPUC issued a final decision in the electric general rate case, which set new rates through the year 2026. Costs related to vegetation management, such as costs for increased minimum clearances around electric power lines, have been included in the revenue requirement for the years 2023 through 2026. Among other things, the decision authorizes BVES to record incremental costs related to vegetation management in a CPUC-approved balancing account for future recovery up to a capped amount. In addition, the decision approves BVES’s recovery of vegetation management costs incurred and recorded prior to 2023 through a surcharge. As of December 31, 2024, BVES has approximately $9.9 million in incremental vegetation management costs recorded as a regulatory asset.

California legislation enacted in September 2018 requires all investor-owned electric utilities to have a wildfire mitigation plan (“WMP”) approved by the Office of Energy Infrastructure Safety (“OEIS”) and ratified by the CPUC. The WMP must include a utility’s plans on constructing, maintaining, and operating its electrical lines and equipment to minimize the risk of catastrophic wildfire. In the fourth quarter of 2024, OEIS approved BVES’s 2025 WMP Update to its 2023-2025 WMP, which was ratified by the CPUC on January 16, 2025. The general rate case decision approved by the CPUC on January 16, 2025 also included costs related to BVES’s WMP in BVES’s revenue requirement. Furthermore, the decision allows for continued tracking of incremental costs related to wildfire mitigation activities through WMP memorandum accounts. As of December 31, 2024, BVES recorded approximately $4.8 million as regulatory assets related to expenses accumulated in its WMP memorandum accounts for future recovery.

Additionally, the governor of California approved AB 1054 in July 2019 that, among other things, changed the burden of proof applicable in CPUC proceedings for an electric utility with a valid safety certification seeking to recover wildfire costs. Previously, an electric utility seeking to recover costs had the burden to prove that it acted reasonably. Under AB 1054, if an electric utility has a valid safety certification, it will be presumed to have acted reasonably unless a party to the relevant proceeding creates a “serious doubt” as to the reasonableness of the utility’s conduct. In December 2024, OEIS issued a renewal of the safety certification for BVES for 12 months.

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.