American States Water Co: Form 10-Q for the period ended Sep 30, 2025

General

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 earnings divided by AWR’s weighted average number of diluted Common Shares. All of the measures discussed 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.

AWR uses earnings per share by business segment 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. A reconciliation to AWR’s consolidated diluted earnings per share prepared in accordance with GAAP is included in the discussion under the section titled “Summary of Third Quarter Results by Segment.”

Overview

Factors affecting our financial performance are summarized under “Risk Factors” in our Form 10-K for the period ended December 31, 2024 filed with the SEC.

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 indicated 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 the timing of their implementation, whether the U.S. government ultimately imposes additional tariffs, 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 recovery of their 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 approved settlement authorizes 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 that we expect to file for revenue recovery during the second and third year attrition increases when those projects are completed. For all of the advice letter projects, GSWC will be allowed to accrue interest during construction at the adopted cost of debt and recover the full rate of return, including all applicable components of the revenue requirement after the assets are placed in service up until the assets are formally included in customer rate calculations. 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 are projected to increase by approximately $23 million as compared to the 2024 adopted operating revenues less water supply costs.

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 orders 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 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. 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 quantity rate had been in effect. The ICBA for supply costs tracks differences between the authorized per-unit prices of water production costs and actual per-unit prices of water production costs. The M-WRAM and ICBA were effective January 1, 2025. GSWC will not be able to recognize under-collections of revenue caused by fluctuations in consumption or changes in water supply cost mix beginning in 2025. However, the final 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.

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 nine months ended September 30, 2025 that resulted in an increase in recorded revenues of $29.3 million largely from the new rates and an increase in recorded water supply costs of $11.7 million, which combined is an increase of $17.6 million, compared to the same period in 2024. GSWC’s earnings during the three and nine months ended September 30, 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. Generally, the variable cost of producing water from wells is less than the cost of water purchased from wholesale suppliers. GSWC obtains its water supplies from a variety of sources, which vary among its water systems and will fluctuate depending on the available source. Furthermore, the demand for water varies by season. For instance, water consumption tends to be higher during the third quarter of each year when weather in California is hotter and dryer. During cooler periods, such as the first six months, GSWC’s customers generally use less water, and as a result, GSWC’s pumped water sources are capable of meeting a greater portion of customer demand. The overall favorable water supply source mix experienced during the first nine months may or may not continue during the remainder of the 2025 year, and without a full cost balancing account for water supply, 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.

Water Cost of Capital (“COC”) Proceeding:

Investor-owned water utilities serving California are required to file their cost of capital applications on a triennial basis. 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. On January 14, 2025, the CPUC approved the request to defer the cost of capital application by another year. 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.

Electric General Rate Case for the 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 approves the settlement agreement reached between BVES, Cal Advocates and another intervenor in its entirety. Among other things, the settlement agreement, (i) settles and adopts the revenue requirements for each of the four years 2023 through 2026, (ii) authorizes 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) adopts a cost of capital that increases BVES’s adopted return on equity from 9.6% to 10.0%, lowers the cost of debt from 6.6% to 5.51%, and maintains the capital structure of 57% equity and 43% debt, and (iv) approves for recovery the requested capital expenditures and other incremental operating costs already incurred 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. Due to the delay in finalizing the electric general rate case, billed electric revenues for the years 2023 and 2024, were based on 2022 adopted rates. The general rate case memorandum account tracks the revenue differences between the 2022 adopted rates and the 2023 and 2024 new rates authorized by the CPUC for future recovery. As of September 30, 2025, the aggregate cumulative under-collection in retroactive revenues related to the full year of 2023 and 2024 amounted to $8.9 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 provides for an increase in adopted operating revenues of $2.2 million for 2025 and $3.3 million in 2026. The rate increases for 2024 - 2026 are not subject to an earnings test. 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. In the settlement agreement, the parties agreed to remove portions of the requested capital budgets from rates until they were completed and placed in service. For all of the advice letter projects, BVES will be allowed to accrue AFUDC during the construction period at the adopted rate of return, which will be added to the cost of the assets and recovered in customer rates when the assets are placed in service. On April 1, 2025, BVES implemented new base rates to recover the revenue requirement associated with $11.6 million of capital projects approved for recovery through advice letters.

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 the nine months ended September 30, 2025, ASUS was awarded approximately $28.7 million in new construction projects, which are expected to be completed beginning in 2025 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. Amid the current U.S. government shutdown, the subsidiaries of ASUS have not experienced and are not expected to experience any earnings impact to their existing operations and maintenance and renewal and replacement services, as utility privatization contracts are an “excepted service.” Management expects that 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 the U.S. government shutdown extends for an unprecedented and much longer period, ASUS’s liquidity and earnings could be impacted.

Summary of Third Quarter Results by Segment

The table below sets forth the third quarter diluted earnings per share by business segment and for the parent company:

For the three months ended September 30, 2025, AWR’s recorded consolidated diluted earnings were $1.06 per share, as compared to $0.95 per share for the same period in 2024, an increase of $0.11 per share, primarily generated from higher construction activities that resulted in higher earnings at the contracted services segment, and higher earnings at the water and electric utility segments resulting from the implementation of new customer rates. AWR’s consolidated diluted earnings for the third quarter of 2025 were negatively impacted by approximately $0.03 per share due to the continued dilutive effects from the issuance of equity under AWR’s at-the-market (“ATM”) offering program.

The following is a computation and reconciliation of diluted earnings per share from the measure of net income (loss) by business segment and for the parent company as disclosed in Note 10 to the Unaudited Consolidated Financial Statements to AWR’s consolidated fully diluted earnings per common share (as recorded), for the three months ended September 30, 2025 and 2024:

(in thousands, except per share amounts)

Water Segment:

For the three months ended September 30, 2025, recorded diluted earnings from the water utility segment were $0.86 per share, as compared to $0.84 per share for the same period in 2024, an increase of $0.02 per share. The discussion below presents the major variances in earnings for the two periods.

• An increase in water operating revenues of $8.3 million was largely as a result of the CPUC-authorized new rate increases effective January 1, 2025. 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 $3.5 million, which consist of purchased water, purchased power for pumping, groundwater production assessments and changes in the water supply cost balancing accounts. The increase in water supply costs compared to the same period in 2024 is largely due to an increase in the overall per-unit purchased water costs covered in customer rates. As a result of transitioning from a full cost balancing account for water supply to the ICBA, GSWC’s earnings will be subject to future volatility from 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 $2.2 million (excluding supply costs) due primarily to increases in (i) overall labor costs, (ii) maintenance expense, (iii) depreciation and amortization expenses, which is impacted by increases in capital additions placed in service and are reflected and recovered in customer rates, and (iv) property and other non-income taxes; partially offset by a decrease in administrative and general expenses (excluding labor) primarily due to lower outside services costs, insurance reserves, and other employee-related benefits as compared to the same period in 2024.
• An overall decrease in interest expense (net of interest income) of $0.3 million resulting largely from an overall decrease in average borrowing levels and interest rates as well as 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; partially offset by a decrease in interest income earned on regulatory assets due to decreasing regulatory balances as GSWC recovers the amounts through surcharges.
• An overall increase in other income (net of other expense) of $0.5 million due largely to gains totaling $2.5 million generated on investments held to fund one of the company’s retirement plans during the three months ended September 30, 2025, as compared to gains on investments of $2.1 million recorded during the same period in 2024 due to financial market conditions.
• Changes in certain flowed-through income taxes and permanent items included in GSWC’s income tax expense for the three months ended September 30, 2025 as compared to the same period in 2024 unfavorably 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 $0.02 per share due to the dilutive effects from the issuance of equity under AWR’s ATM offering program beginning in February 2024. Under the ATM offering 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 $68 million currently remaining available for sale. Through September 30, 2025, AWR has sold 1,680,979 Common Shares through this ATM offering program.

Electric Segment:

Diluted earnings from the electric utility segment increased $0.02 per share for the third quarter of 2025 as compared to the same period in 2024 largely resulting from an increase in revenues from new rates implemented in 2025 as a result of receiving a final decision from the CPUC in connection with BVES’s general rate case proceeding that set new rates for 2023 - 2026 (retroactive to January 1, 2023), as compared to 2022 rates used to record revenues during the same period of 2024.

The new rates resulted in an increase in electric revenues that supports, among other things, the growth in rate base and higher operating costs related to BVES’s wildfire mitigation plans that were previously not included in customer rates and not expensed during the third quarter of 2024 because they were being tracked in memorandum accounts. Therefore, the increase in revenues was partially offset by overall increases in operating expenses due, in large part, to higher expenses recorded in connection with BVES’s vegetation management and other wildfire mitigation activities, as well as an increase in outside services related to various regulatory filings, partially offset by a decrease in interest expense (net of interest income).

Contracted Services Segment:

Diluted earnings from the contracted services segment increased $0.08 per share for the third quarter of 2025 when compared to the same period in 2024 largely resulting from an increase in (i) construction activities, from timing of when work is performed, (ii) management fee revenues resulting from the resolution of various economic price adjustments, and (iii) lower interest expense from lower borrowing levels, partially offset by higher overall operating expenses (excluding construction expenses). The contracted services segment is expected to contribute $0.59 to $0.63 per share for the full 2025 year.

AWR (Parent):

For the three months ended September 30, 2025, diluted losses from AWR (parent) increased by $0.01 per share when compared to the same period in 2024 due largely to an increase in interest expense resulting from higher borrowing levels under AWR’s credit facility, partially offset by lower average interest rates.

Summary of Year-to-Date Results by Segment

The table below sets forth the year-to-date diluted earnings per share by business segment and for the parent company:

Note: Certain amounts in the table above may not foot or crossfoot due to rounding.

For the nine months ended September 30, 2025, AWR’s recorded consolidated diluted earnings were $2.63 per share, as compared to $2.42 per share recorded for the same period in 2024, an increase of $0.21 per share, primarily generated from higher earnings at the water and electric utility segments resulting largely from the implementation of new customer rates. AWR’s consolidated diluted earnings for the nine months ended September 30, 2025 were negatively impacted by approximately $0.08 per share due to the continued dilutive effects from the issuance of equity under AWR’s ATM offering program.

The following is a computation and reconciliation of diluted earnings per share from the measure of net income (loss) by business segment and for the parent company as disclosed in Note 10 to the Unaudited Consolidated Financial Statements, to AWR’s consolidated fully diluted earnings per common share, for the nine months ended September 30, 2025 and 2024:

(in thousands, except per share amounts)

Note: Certain amounts in the table above may not foot or crossfoot due to rounding.

Water Segment:

For the nine months ended September 30, 2025, recorded diluted earnings from the water utility segment were $2.11 per share, as compared to $1.99 per share for the same period in 2024, an increase of $0.12 per share. The discussion below presents the major variances in earnings for the two periods.

• An increase in water operating revenues of approximately $29.3 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 $11.7 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 during the nine months ended September 30, 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. During the nine months ended September 30, 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 $7.4 million (excluding supply costs) mainly due to increases in (i) overall labor costs, (ii) maintenance expense, (iii) depreciation and amortization expenses, which are impacted by increasing capital additions placed in service and are reflected and recovered in customer rates, and (iv) property and other non-income taxes; partially offset by a decrease in administrative and general expenses (excluding labor) primarily due to lower outside services costs including those related to regulatory filings as compared to the same period in 2024.
• An overall decrease in other income (net of other expenses) of $0.4 million due primarily to gains of $4.6 million generated on investments held to fund one of the Company’s retirement plans as compared to gains of $5.1 million recorded during the same period in 2024, due to financial market conditions.
• A decrease in earnings of approximately $0.06 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 $68 million currently remaining available for sale. Through September 30, 2025, AWR has sold 1,680,979 Common Shares through this ATM offering program.

Electric Segment:

Diluted earnings from the electric utility segment increased $0.07 per share for the nine months ended September 30, 2025 as compared to the same period in 2024, largely resulting from an increase in revenues from the new rates implemented in 2025 as a result of receiving a final decision from the CPUC in connection with BVES’s general rate case proceeding that set new rates for 2023 - 2026 (retroactive to January 1, 2023), as compared to 2022 rates used to record revenues during the same period of 2024.

The new rates resulted in an increase in electric revenues that supports, among other things, the growth in rate base and higher operating costs related to BVES’s wildfire mitigation plans that were previously not included in customer rates and not expensed during the nine months of 2024 because they were being tracked in memorandum accounts. Therefore, the increase in revenues was partially offset by overall increases in operating expenses due, in large part, to higher expenses recorded in connection with BVES’s vegetation management and other wildfire mitigation activities, as well as an increase in outside services related to various regulatory filings, partially offset by a decrease in interest expense (net of interest income).

Contracted Services Segment:

Diluted earnings from the contracted services segment increased $0.01 per share for the nine months ended September 30, 2025 as compared to the same period in 2024, largely due to (i) an increase in management fee revenue 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, and (ii) lower interest expense from lower borrowing levels; partially offset by higher overall operating expenses (excluding construction expenses) and a decrease in construction activity. Furthermore, there was 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. During the nine months ended September 30, 2025, construction activities were negatively impacted by unfavorable weather conditions and timing, which were less impactful to construction activities during the same period of 2024. The majority of these issues have been resolved as of September 30, 2025 and the contracted services segment is still expected to contribute $0.59 to $0.63 per share for the full 2025 year.

AWR (Parent):

For the nine months ended September 30, 2025, the diluted loss from AWR (parent) decreased by $0.01 per share compared to the same period in 2024 due, in part, to a decrease in overall interest expense from borrowings made under AWR’s revolving credit facility, compared to the same period in 2024.

The following discussion and analysis for the three and nine months ended September 30, 2025 and 2024 provides information on AWR’s consolidated operations and, where necessary, includes specific references to AWR’s individual segments and subsidiaries: GSWC, BVES, and ASUS and its subsidiaries.

Consolidated Results of Operations — Three Months Ended September 30, 2025 and 2024 (amounts in thousands, except per share amounts):

38

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 plant. 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 three months ended September 30, 2025, revenues from water operations increased by $8.3 million to $132.3 million as compared to the same period in 2024. The increase in water revenues during the third quarter of 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. There was also an increase in CPUC-approved surcharges billed in 2025 compared to the same period in 2024 to recover previously incurred costs. These surcharges are largely offset by corresponding increases in operating expenses, resulting in no impact to earnings. Billed water consumption for the third quarter of 2025 was consistent as compared to the same period in 2024. 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 three months ended September 30, 2025 increased by $4.3 million to $13.3 million largely resulting from an increase in revenues from third-year electric rate increases implemented in 2025, as compared to 2022 rates used to record revenues during the same period of 2024. A final decision from the CPUC issued in January 2025 in connection with BVES’s general rate case proceeding set new rates for 2023 - 2026 (retroactive to January 1, 2023).

Electric usage for the third quarter of 2025 was 3.1% lower than the same period in 2024. Due to the CPUC-approved Base Revenue Requirement Adjustment Mechanism, 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 water and/or wastewater systems at various military bases. For the three months ended September 30, 2025, revenues from contracted services increased by $8.4 million to $37.1 million as compared to $28.7 million for the same period in 2024. The increase was primarily due to an increase in construction activities largely due to timing and an increase in management fees from economic price adjustments.

ASUS’s subsidiaries expect to continue to enter into U.S. government-awarded contract modifications, agreements with third-party prime contractors for new construction projects at the military bases served and task order agreements. Earnings and cash flows from modifications to the initial 15- and 50-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 34.8% and 35.7% of total operating expenses for the three months ended September 30, 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. The overall actual percentages of purchased water for the three months ended September 30, 2025 and 2024 were 44.2% and 43.2%, respectively.

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 three months ended September 30, 2025 and 2024, water supply costs consisted of the following amounts (in thousands):

* The sum of the water and electric supply-cost balancing accounts are shown on AWR’s Consolidated Statements of Income and totaled $(0.4) million for both the three months ended September 30, 2025 and 2024, respectively.

Purchased water costs for the third quarter of 2025 increased to $27.7 million as compared to $24.1 million for the same period in 2024 primarily due to an increase in wholesale water costs. There was a decrease in power purchased for pumping due to lower production.

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 three months ended September 30, 2025 and 2024, electric supply costs consisted of the following amounts (in thousands):

* The sum of the water and electric supply-cost balancing accounts are shown on AWR’s Consolidated Statements of Income and totaled $(0.4) million for both the three months ended September 30, 2025 and 2024, respectively.

** not meaningful

For the three months ended September 30, 2025, the cost of power purchased for resale to BVES’s electric customers increased by $0.8 million to $3.3 million as compared to $2.5 million during the same period in 2024 due to higher overall average prices per megawatt-hour that include all fixed costs. The change in the electric supply cost balancing account in 2025 when compared to 2024 is also due to increases in energy prices.

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 systems, including the costs associated with water 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 three months ended September 30, 2025 and 2024, other operation expenses by business segment consisted of the following (dollar amounts in thousands):

The increase in other operation expenses at the water segment was primarily due to an increase of $0.6 million in billed surcharges to recover previously incurred costs that had been tracked in CPUC-authorized memorandum accounts, partially offset by lower chemical and water treatment costs. Increases in revenues from billed surcharges have a corresponding and offsetting increase in other operation expenses, resulting in no impact to earnings. Excluding the impact of an increase in billed surcharges, administrative and general expenses at the water segment decreased $0.4 million due to lower chemical and water treatment costs incurred as compared to the same period in 2024.

The increase in other operation expenses at the electric segment was primarily due to higher operation-related labor costs and an increase in bad debt expense.

The increase at the contracted services segment was due to higher labor costs and an increase in chemical and water treatment costs.

Administrative and General

Administrative and general expenses include payroll costs 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 three months ended September 30, 2025 and 2024, administrative and general expenses by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):

At the water segment, increases in billed surcharges of $0.5 million to recover previously incurred administrative and general expenses that had been tracked in CPUC-authorized memorandum accounts were largely offset by lower outside services costs including those related to regulatory filings as compared to the same period in 2024.

Administrative and general expenses increased at the electric segment due primarily to higher outside-services costs incurred related to BVES’s wildfire mitigation activities and various regulatory filings. Higher expenses related to the wildfire mitigation activities are reflected and recovered in the new customer rates implemented in 2025. As previously mentioned, costs to support BVES’s wildfire mitigation plans were not included in customer rates and not expensed during the third quarter of 2024 because they were being tracked in memorandum accounts prior to receiving the approved general rate case decision in January 2025. In addition, there was an increase of $0.5 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.

Depreciation and Amortization

For the three months ended September 30, 2025 and 2024, depreciation and amortization by business segment consisted of the following (dollar amounts in thousands):

Depreciation and amortization expense increased at the water and contracted services segments due largely to capital additions to utility plant and other fixed assets placed in service.

Overall depreciation and amortization expense is consistent at the electric segment with a decrease from an overall lower composite depreciation rate supported by the latest depreciation study adopted in the final decision in the electric general rate case largely offset by an increase in depreciation and amortization expense from additions to utility plant and other fixed assets placed in service. The lower adopted depreciation expense levels from the updated study is also reflected in the new revenue requirements, resulting in no significant impact to earnings.

Maintenance

For the three months ended September 30, 2025 and 2024, maintenance expense by business segment consisted of the following (dollar amounts in thousands):

* not meaningful

Overall maintenance expense increased at the water segment due to higher maintenance-related activities as compared to the same period in 2024 due to timing.

At the electric segment, higher vegetation management costs contributed to the majority of the increase compared to the same period in 2024. Higher expenses related to vegetation management costs are reflected and recovered in the new customer rates implemented in 2025. As discussed, vegetation management costs were not previously included in customer rates and not expensed during the third quarter of 2024 because they were being tracked in memorandum accounts prior to receiving the approved general rate case decision in January 2025. In addition, there was an increase of $0.7 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.

Property and Other Taxes

For the three months ended September 30, 2025 and 2024, property and other taxes by business segment consisted of the following (dollar amounts in thousands):

Property and other taxes increased at the water segment due largely to an increase in franchise fees from higher revenues and property taxes from capital additions. The increase at the electric segment was due to higher property taxes resulting from capital additions and related higher assessed values. Increases at the contracted services segment was due to higher gross receipts taxes resulting from higher revenues.

ASUS Construction

For the three months ended September 30, 2025, construction expenses for contracted services were $16.5 million, an increase of $4.8 million compared to the same period in 2024, primarily resulting from an increase in construction activity as compared to the same period of 2024 due to timing.

Interest Expense

For the three months ended September 30, 2025 and 2024, interest expense by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):

AWR’s borrowings consist of revolving credit facilities, while GSWC and BVES borrowings consist of revolving credit facilities and long-term debt issuances. Interest expense at the regulated utilities and contracted services segment decreased as compared to the same period in 2024 resulting primarily from an overall decrease in interest rates and lower total average borrowing levels at the water and contracted services segments. 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. Lastly, the increase in interest expense at AWR (parent) was attributed to higher average net borrowings on its credit facility compared to the same period in 2024, partially offset by lower average interest rates when compared to the same period in 2024. The overall combined average interest rates were 5.06% and 5.36% for the three months ended September 30, 2025 and 2024, respectively.

Interest Income

For the three months ended September 30, 2025 and 2024, interest income by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):

* not meaningful

For the three months ended September 30, 2025, interest income decreased at the water segment when compared to the same period in 2024 due primarily to a decrease in interest income earned on regulatory assets. Regulatory asset balances will decrease as surcharges are approved and implemented. Interest income increased at the electric segment when compared to the same period in 2024 primarily due to higher levels of regulatory asset balances earning interest.

Other Income and (Expenses), net

For the three months ended September 30, 2025 and 2024, other income and (expenses), net by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):

* not meaningful

For the three months ended September 30, 2025, other income (net of other expense) increased largely because of gains of $2.5 million recorded on investments held to fund one of the Company’s retirement plans in 2025, compared to gains of $2.1 million recorded in 2024. The increase in other income for the electric segment is due primarily to AFUDC (equity) earned on certain CPUC-approved advice letter projects while under construction. The increase in other income for AWR (parent) is due primarily to an increase in non-regulated-related activities.

Income Tax Expense

For the three months ended September 30, 2025 and 2024, income tax expense by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):

* not meaningful

AWR’s ETR was 23.9% and 21.9% for the three months ended September 30, 2025 and 2024, respectively. GSWC’s ETR was 24.6% and 22.6% for each of the periods ended September 30, 2025 and 2024, respectively. The increase in the ETRs during the three months ended September 30, 2025 was primarily due to changes in certain flowed-through income taxes at the regulated utilities.

Consolidated Results of Operations — Nine Months Ended September 30, 2025 and 2024 (amounts in thousands, except per share amounts):

45

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 plant. 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 can be negatively impacted if ASUS’s subsidiaries do not receive adequate rate relief or adjustments in a timely manner. ASUS’s earnings are also impacted by the level of additional construction projects at its subsidiaries, which may or may not continue at current levels in future periods.

Water

For the nine months ended September 30, 2025, revenues from water operations increased by $29.3 million to $354.0 million as compared to the same period in 2024. The increase in water revenues during the nine months of 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 the same period in 2024. There was also an increase in CPUC-approved surcharges billed in 2025 compared to the same period in 2024 to recover previously incurred costs. These surcharges are largely offset by corresponding increases in operating expenses, resulting in no impact to earnings. Billed water consumption for the nine months ended September 30, 2025 was higher by 5.7% as compared to the same period in 2024 due primarily to lower amounts of seasonal precipitation for the nine months of 2025 as compared to the same period in 2024. 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 nine months ended September 30, 2025 increased by $11.3 million to $41.3 million largely resulting from an increase in revenues from third-year electric rate increases implemented in 2025, as compared to 2022 rates used to record revenues during the same period of 2024. A final decision from the CPUC issued in January 2025 in connection with BVES’s general rate case proceeding set new rates for 2023 - 2026 (retroactive to January 1, 2023).

Electric usage for the nine months ended September 30, 2025 was lower by 1.3% compared to the same period in 2024. Due to the CPUC-approved Base Revenue Requirement Adjustment Mechanism, 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 nine months ended September 30, 2025, revenues from contracted services increased by $0.8 million to $98.5 million as compared to $97.7 million for the same period in 2024. There was 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, partially offset by a decrease in construction activities largely due to timing and weather delays.

ASUS’s subsidiaries expect to continue to enter into U.S. government-awarded contract modifications, agreements with third-party prime contractors for new construction projects at the military bases served and task order agreements. Earnings and cash flows from modifications to the initial 15- and 50-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 31.2% of total operating expenses for the nine months ended September 30, 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. The overall actual percentages of purchased water for the nine months ended September 30, 2025 and 2024 were approximately 42.7% and 41.7%, respectively.

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 nine months ended September 30, 2025 and 2024, water supply costs consisted of the following amounts (in thousands):

* The sum of the water and electric supply-cost balancing accounts are shown on AWR’s Consolidated Statements of Income and totaled $(2.2) million and $2.4 million for the nine months ended September 30, 2025 and 2024, respectively.

Purchased water costs during the nine months ended September 30, 2025 increased to $68.0 million as compared to $55.8 million for the same period in 2024 largely due to increases in wholesale water costs. There was also an overall increase in well production costs compared to the same period in 2024 due to an increase in customer water usage and an increase in pump tax rates. These increases were partially offset by lower power purchased for pumping due to changes of certain electricity provider rates.

For the nine months ended September 30, 2025, the water supply cost balancing account had a $0.7 million over-collection as compared to a $2.1 million over-collection during the same period 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 nine months ended September 30, 2025 and 2024, electric supply costs consisted of the following amounts (in thousands):

* The sum of the water and electric supply-cost balancing accounts are shown on AWR’s Consolidated Statements of Income and totaled $(2.2) million and $2.4 million for the nine months ended September 30, 2025 and 2024, respectively.

** not meaningful

For the nine months ended September 30, 2025, the cost of power purchased for resale to BVES’s electric customers increased to $12.8 million as compared to $8.3 million during the same period in 2024 primarily due to higher overall average prices per megawatt-hour including fixed costs. The change in the electric supply cost balancing account during the nine months ended September 30, 2025 compared to the same period in 2024 was due primarily to increases in energy prices.

Other Operation

The primary components of other operation expenses include payroll costs, materials and supplies, chemicals and water treatment costs and outside-services costs of operating the regulated water systems, including the costs associated with water 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 nine months ended September 30, 2025 and 2024, other operation expenses by business segment consisted of the following (dollar amounts in thousands):

For the nine months ended September 30, 2025, the increase in other operation expenses at the water segment was due, in part, from an increase of $1.3 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 other operation expenses, resulting in no impact to earnings. There was also an increase in operation-related labor.

The increase at the electric segment was due primarily due to higher operation-related labor costs and an increase in 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 labor costs.

Administrative and General

Administrative and general expenses include payroll costs 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 nine months ended September 30, 2025 and 2024, administrative and general expenses by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):

Administrative and general expenses increased at the water segment due, in part, to an increase of $0.9 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 costs, partially offset by a decrease in outside services costs including those related to regulatory filings as compared to the same period in 2024.

Administrative and general expenses increased at the electric segment primarily due to higher outside-services costs incurred related to BVES’s wildfire mitigation activities and various regulatory filings. Higher expenses related to the wildfire mitigation activities are reflected and recovered in the new customer rates implemented in 2025. As previously mentioned, costs to support BVES’s wildfire mitigation plans were not included in customer rates and not expensed during the nine months of 2024 because they were being tracked in memorandum accounts prior to receiving the approved general rate case decision in January 2025. In addition, there was 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.

Administrative and general expenses increased at the contracted services segment due to higher labor costs, employee-related benefits, and insurance costs at the legacy bases, 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 nine months ended September 30, 2025 and 2024, depreciation and amortization by business segment consisted of the following (dollar amounts in thousands):

Depreciation and amortization expense increased at the water and contracted services segments due largely to capital additions to utility plant and other fixed assets placed in service.

Depreciation and amortization expense is consistent at the electric segment due to an overall lower composite depreciation rate supported by the latest depreciation study adopted in the final decision in the electric general rate case that was largely offset by higher depreciation and amortization expenses from additions to utility plant and other fixed assets placed in service. The lower adopted depreciation expense levels from the updated study are also reflected in the new revenue requirements, resulting in no significant impact to earnings.

Maintenance

For the nine months ended September 30, 2025 and 2024, maintenance expense by business segment consisted of the following (dollar amounts in thousands):

* not meaningful

Overall maintenance expense increased at the water segment due to an increase in maintenance activities when compared to the same period in 2024.

At the electric segment, higher vegetation management costs contributed to the majority of the increase compared to the same period in 2024. Higher expenses related to vegetation management costs are reflected and recovered in the new customer rates implemented in 2025. As previously discussed, vegetation management costs were not previously included in customer rates and not expensed during the nine months of 2024 because they were being tracked in memorandum accounts prior to receiving the approved general rate case decision in January 2025. In addition, there was an increase of $1.4 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 the same period in 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 nine months ended September 30, 2025 and 2024, property and other taxes by business segment consisted of the following (dollar amounts in thousands):

49

Property and other taxes increased at the water and electric segments due largely to an increase in franchise fees from higher revenues and property taxes from capital additions.

ASUS Construction

For the nine months ended September 30, 2025, construction expenses for contracted services were $42.3 million, a decrease of $1.3 million compared to the same period in 2024 primarily resulting from a decrease in construction activity as compared to the same period of 2024 due to timing and delays caused by weather conditions.

Interest Expense

For the nine months ended September 30, 2025 and 2024, interest expense by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):

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 the same period in 2024 resulting primarily from overall lower average interest rates, partially offset by an increase in total average borrowing levels to support, among other things, the capital expenditures program at the regulated utilities. The overall combined average interest rates were 5.10% and 5.42% for the nine months ended September 30, 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.

Interest Income

For the nine months ended September 30, 2025 and 2024, interest income by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):

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.

Other Income and (Expenses), net

For the nine months ended September 30, 2025 and 2024, other income and (expenses), net by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):

* not meaningful

For the nine months ended September 30, 2025, other income (net of other expenses) decreased at the water segment largely because of gains of $4.6 million recorded on investments held to fund one of the Company’s retirement plans in 2025, compared to gains of $5.1 million recorded in 2024. The increase in other income for the electric segment is due primarily to AFUDC (equity) earned on certain CPUC-approved advice letter projects while under construction. The increase in other income for AWR (parent) is due primarily to an increase in non-regulated-related activities.

Income Tax Expense

For the nine months ended September 30, 2025 and 2024, income tax expense by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):

Consolidated income tax expense for the nine months ended September 30, 2025 increased by $3.8 million primarily due to the increase in consolidated pretax income as compared to the same period in 2024. AWR’s ETR was 23.7% and 23.4% for the nine months ended September 30, 2025 and 2024, respectively. GSWC’s ETR was 24.6% and 24.0% for the nine months ended September 30, 2025 and 2024, respectively. The increase in GSWC’s ETR was due largely due to changes in certain flowed-through income taxes.

Critical Accounting Policies and Estimates

Critical accounting policies and estimates are those that are important to the portrayal of Registrant’s financial condition, results of operations and cash flows and require the most difficult, subjective or complex judgments of Registrant’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. These judgments are based on Registrant’s historical experience, terms of existing contracts, its observance of trends in the industry, and information available from other outside sources, as appropriate. Actual results may differ from these estimates under different assumptions or conditions.

The critical accounting policies used in the preparation of Registrant’s financial statements are ones that it believes affect the more significant judgments and estimates used in the preparation of its consolidated financial statements presented in this report and are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” included in Registrant’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC. There have been no material changes to Registrant’s critical accounting policies.

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 $901.9 million was available for GSWC to pay dividends to AWR on September 30, 2025. Approximately $107.6 million was available for BVES to pay dividends to AWR as of September 30, 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. AWR intends to use 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. During the nine months ended September 30, 2025, AWR sold 535,760 Common Shares through this ATM offering program and raised net proceeds of $40.2 million, bringing the total raised through September 30, 2025 to $130.0 million, net of $2.0 million of commissions paid under the terms of the Equity Distribution Agreement. As of September 30, 2025, approximately $68.0 million remained available for sale under the ATM offering program.

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. As of September 30, 2025, the credit agreements, as amended, provide AWR and GSWC unsecured revolving credit facilities with borrowing capacities of $195.0 million and $200.0 million, respectively. Under the terms of the credit agreements, as of September 30, 2025, 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 September 30, 2025, AWR’s outstanding borrowings under its credit facility of $119.0 million have been classified as non-current liabilities on AWR’s Consolidated Balance Sheet. As of September 30, 2025, there were no outstanding borrowings under GSWC’s facility.

In January 2024, GSWC filed a new financing application with the CPUC that requests authorization for the issuance and sale of additional long-term debt and equity securities of up to $750.0 million. A final decision was adopted at the March 13, 2025 voting meeting approving GSWC’s requests in its application. 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 aggregate principal amount of Series A Senior Notes at a coupon rate of 5.30% due May 29, 2032, and (ii) $25.0 million aggregate principal amount of Series B Senior Notes 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 under GSWC’s credit agreement.

BVES has a separate revolving credit facility without a parent guaranty that supports its electric operations and capital expenditures with a current borrowing capacity of $65.0 million that matures on July 1, 2026. Currently, the credit agreement provides BVES an option to increase the borrowing capacity of the facility by an additional $10.0 million. BVES plans to renew its revolving credit facility prior to its maturity. 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 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 at the time of issuing the notes satisfying the CPUC’s requirement. As of September 30, 2025, there was $5.0 million outstanding borrowings under BVES’s credit facility, which have been classified as current liabilities in AWR’s Consolidated Balance Sheet.

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 is expected to 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 $600.0 million and $88.0 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.

On July 4, 2025, the One Big Beautiful Bill Act (the “Act”) was signed into federal law. Among other things, the Act extends or makes permanent several of the tax law changes enacted as part of the Tax Cuts and Jobs Act of 2017, and impacts the future of renewable energy tax credits enacted by the Inflation Reduction Act of 2022. The Act leaves the U.S. corporate tax rate unchanged at 21%. Registrant continues to evaluate the provisions of the new tax law and the potential impact, if any, on its consolidated financial statements as the U.S. Treasury and the IRS issue further guidance. Registrant does not expect the Act to have a material impact on its financial position, results of operations and/or cash flows.

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 and delays in receiving rate case decisions 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 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 October 28, 2025, AWR’s Board of Directors approved a fourth quarter dividend of $0.5040 per share on AWR’s Common Shares. Dividends on the Common Shares will be paid on December 2, 2025 to shareholders of record at the close of business on November 14, 2025. Registrant has paid Common Share 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 fourth quarter of 2020, 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 capital 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, among other things, utility regulation; delays in receiving approvals of general rate cases, changes in tax law; maintenance expenses; inflation; newly imposed tariffs; compliance with 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; the 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. For further information regarding the risks faced by Registrant, see Item 1A, Risk Factors, in our annual report on Form 10-K for the period ended December 31, 2024.

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.

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 $202.0 million for the nine months ended September 30, 2025 as compared to $134.2 million for the same period in 2024. The increase in operating cash flows 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. The increase in cash flows from operating activities also resulted from 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. In addition, during the third quarter, AWR received approximately $5 million in PFAS contamination litigation proceeds as plaintiffs in class action lawsuits. Finally, the timing of income tax payments have also contributed to an increase in operating cash flows as a result of wildfire tax relief legislation, which allowed for the postponement of income tax payment deadlines until October 15, 2025, which did not happen in 2024.

Cash Flows from Investing Activities:

Net cash used in investing activities was $172.7 million for the nine months ended September 30, 2025 as compared to $172.9 million for the same period 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 and electric 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.

For the year 2025, the regulated utilities’ company-funded capital expenditures are expected to be between $180 million and $210 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 banks, 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 primarily used to support AWR (parent) and its contracted services subsidiary, and borrowings on GSWC and BVES’s credit facilities are used to fund GSWC and BVES capital expenditures, respectively, until long-term financing is arranged. AWR may also from time to time make equity contributions to GSWC and to 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 $29.9 million for the nine months ended September 30, 2025 as compared to cash provided of $41.0 million during the same period in 2024. The decrease in cash provided by financing activities 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 its operations and ongoing capital expenditure programs. In addition, for the nine months ended September 30, 2025, AWR sold 535,760 Common Shares through its ATM offering program and raised proceeds net of issuance costs of $40.2 million, while during the nine months ended September 30, 2024, AWR sold 791,097 Common Shares through its ATM offering program and raised proceeds net of issuance costs of $59.3 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, among other things, factors such as weather patterns, conservation efforts, environmental regulation, litigation, changes in tax law and deferred taxes, 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 may also be impacted by delays in receiving payments from GSWC customers. For further information regarding the risks faced by Registrants, see Item 1A, Risk Factors, in our annual report on Form 10-K for the period ended December 31, 2024.

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.

On January 22, 2024, GSWC filed a new financing application with the CPUC that requests authorization for the issuance and sale of additional long-term debt and equity securities of up to $750.0 million. A final decision was adopted at the March 13, 2025 voting meeting approving all of GSWC’s requests in its application. Following approval of the new financing application, 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 aggregate principal amount of Series A Senior Notes at a coupon rate of 5.30% due May 29, 2032, and (ii) $25.0 million aggregate principal amount of Series B Senior Notes 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 under GSWC’s credit agreement. Under the current financing application authorized by the CPUC, GSWC has $600.0 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 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 $156.0 million for the nine months ended September 30, 2025 as compared to $106.1 million for the same period in 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 recent 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) the timing of income tax payments made to AWR (parent) as a result of wildfire tax relief legislation, which allowed for the postponement of income tax payment deadlines until October 15, 2025, which did not happen in 2024. In addition, during the third quarter, GSWC received approximately $3.8 million in PFAS contamination litigation proceeds as a plaintiff in a class action lawsuit. This was partially offset by GSWC’s receipt in March 2024 of $3.5 million in additional COVID-19 relief funds from the state of California that provided 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 $148.2 million for the nine months ended September 30, 2025 as compared to $146.8 million for the same period in 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 used by financing activities was $11.2 million for the nine months ended September 30, 2025 as compared to $40.2 million net cash provided for the same period in 2024. The decrease in 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. There was also an increase in dividends paid to AWR during 2025 of $37.5 million as compared $17.5 million of dividend paid during the same period in 2024. During 2025, GSWC issued long-term debt of $100.0 million and issued common shares to AWR (parent) in exchange for contribution of $50.0 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.

Contractual Obligations and Other 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 an annual sinking fund or other principal payments. Registrant believes that it will be able to refinance debt instruments at their maturity through public issuance, or private placement, of debt or equity. Annual payments to service debt are generally made from cash flows from operations.

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 at the time of issuing the notes.

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 aggregate principal amount of Series A Senior Notes at a coupon rate of 5.30% due May 29, 2032, and (ii) $25.0 million aggregate principal amount of Series B Senior Notes at a coupon rate of 5.65% due May 29, 2037. GSWC used the proceeds from the issuance of the notes to pay down outstanding borrowings under GSWC’s credit agreement.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations and Commitments” section of the Registrant’s Form 10-K for the year ended December 31, 2024 filed with the SEC for a discussion of contractual obligations and other commitments. Besides BVES’s debt issuance described above, there have been no material changes to Registrant’s contractual obligations and other commitments.

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 also amid the current U.S. government shutdown, the subsidiaries of ASUS have not experienced and are not expected to 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. Management expects that 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 the U.S. government shutdown extends for an unprecedented and much longer period, ASUS’s liquidity and earnings could be impacted.

At times, the Defense Contract Auditing Agency and/or the Defense Contract Management Agency 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.

Regulatory Matters

An update on various regulatory matters is included in the discussion under the section titled “Overview” in this Form 10-Q’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The discussion below focuses on key regulatory matters and developments.

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 nine months ended September 30, 2025.

Expansion of GSWC’s Water Operations:

In 2014, the CPUC issued a final decision granting GSWC the authority to provide water utility services 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 2025, the CPUC issued a final decision authorizing initial water service rates covering the new development for the years 2026 through 2028.

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 nine months ended September 30, 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 recent 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 September 30, 2025, BVES has a total of approximately $13.0 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.

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. The settlement agreement is pending approval by the CPUC with a proposed decision expected by the first quarter of 2026. If approved, the costs associated with the projects would be recoverable in customer rates at the time the projects are completed and in service.

See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Regulatory Matters” section of the Registrant’s Form 10-K for the year-ended December 31, 2024 filed with the SEC for a discussion of other regulatory matters.

Environmental Matters

AWR’s subsidiaries are subject to stringent environmental regulations. GSWC is required to comply with the safe drinking water standards established by the U.S. Environmental Protection Agency (“U.S. EPA”) and the Division of Drinking Water (“DDW”), under the State Water Resources Control Board (“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.

Per- and Polyfluoroalkyl Substances (“PFAS”) Contamination Litigation Proceeds Memorandum Account:

GSWC has been a plaintiff in class action lawsuits related to PFAS contamination affecting public water systems. Pursuant to a class settlement agreement, during the second quarter of 2025, GSWC was notified that it will receive from 3M Company approximately $19 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 $3.8 million in August, and the remainder of the $12.5 million in October 2025. 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. Accordingly, in the second quarter of 2025, GSWC recognized a $12.5 million receivable along with a corresponding regulatory liability (as discussed below) as the amount was realizable and collection is virtually certain. Based on the settlement agreement with 3M Company, GSWC expects to be paid the remaining settlement payments of approximately $6.5 million during 2026 – 2033. Furthermore, 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.

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 litigation against 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 the 3M Company class action lawsuit. The amounts in the memorandum account as of September 30, 2025 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 for PFAS compounds in accordance with final U.S. EPA regulations. Proceeds received from 3M Company 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.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Environmental Matters” section of the Registrant’s Form 10-K for the year-ended December 31, 2024 filed with the SEC for a discussion of environmental matters applicable to AWR and its subsidiaries.

Water Supply

Water year 2024-25 (“WY2025”), which ended on September 30, 2025, started out with normal conditions but became increasingly drier as the water year has progressed. Water year 2025-26 (“WY2026”) began on October 1, 2025, with the State’s major reservoirs at the following capacities: Lake Oroville at 60% capacity, San Luis Reservoir at 78% capacity and Diamond Valley Lake at 95% capacity. In addition, the Northern Sierra and Central Sierra snowpacks peaked in April 2025, snowpack in the northern Sierra is at 118% of normal and in the southern Sierra is at 82% of normal. Statewide precipitation is currently at 32.6 inches which is 81% of the average for the 2025 water year.

The State Water Project (“SWP”) allocation for WY2025 was set at 50% as of April 29, 2025. The SWP allocation for WY2026 typically will be set in early December. 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. These mussels can severely clog pipes and other water infrastructure. 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 has begun with drier conditions than in WY2025 and as of October 28, 2025, the U.S. Drought Monitor reported that 1.1% of California was in extreme drought with 9.6% identified as “severe drought” as compared to a year ago with 4.3% listed in “severe drought” and 12.3% listed in “moderate drought.” The southern third of the State is currently experiencing these dry conditions disproportionately as compared to the northern portion of the State with dry conditions progressively moving into the central portion of the State.

Prolonged drought conditions continue in the Colorado River System, which has experienced historically low reservoir levels in Lake Mead and Lake Powell since 2023. Lake Powell and Lake Mead are at 30% and 31 % capacity as of September 30, 2025, respectively, which is slightly lower as compared to a year ago. 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. Both Lake Powell and Lake Mead could reach critical elevations where power generation is limited which may result in increased upstream releases or large reductions in water diversions. 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”). On October 1, 2024, a multi-year agreement known as the “California Colorado River Contractor Forbearance Agreement for 2024-2026” was put in place by Imperial Irrigation District, Coachella Valley Water District, Metropolitan Water District of Southern California, 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 GSWC.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Water Supply” section of Registrant’s Form 10-K for the year-ended December 31, 2024 filed with the SEC for a discussion of water supply issues. The discussion above focuses on significant matters and changes since December 31, 2024.

Other Climate Change Matters

Climate change is one area that we focus on as we develop and execute our business strategy and financial planning, both in the short- and long-term. The risks posed by climate variability increase the need for us to plan for and address supply resiliency. Climate change has also impacted electric utilities in California increasing wildfire risks and require the need to develop robust wildfire mitigation plans. We address these and other climate change risks by planning, assessing, mitigating, and investing in our infrastructure for the long-term benefit of our communities. See “Item 1. Business Overview” section of Registrant’s Form 10-K for the year ended December 31, 2024 filed with the SEC for a discussion of climate change planning, risks and opportunities.

Cybersecurity Matters

Cyberattacks represent a threat to water, wastewater and electric utility systems and thereby the safety and security of our communities. We continue to increase our investments in information and operational technology to monitor and address threats and attempted cyberattacks to improve our posture in addressing security vulnerabilities. See “Item 1A. Risk Factors” and “Item 1C. Cybersecurity” section of Registrant’s Form 10-K for the year-ended December 31, 2024 filed with the SEC for a discussion of cybersecurity matters.

New Accounting Pronouncements

Registrant is subject to newly issued requirements as well as changes in existing requirements issued by the Financial Accounting Standards Board. See Note 1 to the Financial Statements.

Registrant is exposed to certain market risks, including fluctuations in interest rates, commodity price risk primarily relating to changes in the market price of electricity at BVES, and other economic conditions. Market risk is the potential loss arising from adverse changes in prevailing market rates and prices.

The quantitative and qualitative disclosures about market risk are discussed in Item 7A-Quantitative and Qualitative Disclosures About Market Risk, contained in Registrant’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC.

There have been no material changes to our quantitative and qualitative disclosures about market risk from what was previously disclosed in Registrant’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC.

(a) Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Registrant has carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer (“CEO”) and its Chief Financial Officer (“CFO”), of the effectiveness, as of the end of the fiscal quarter covered by this report, of the design and operation of Registrant’s “disclosure controls and procedures” as defined in Rule 13a-15(e) and 15d-15(e) promulgated by the SEC under the Exchange Act. Based upon that evaluation, the CEO and the CFO concluded that Registrant’s disclosure controls and procedures, as of the end of such fiscal quarter, were adequate and effective to ensure that information required to be disclosed by Registrant in the reports that Registrant files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Registrant’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Controls over Financial Reporting

There has been no change in Registrant’s internal control over financial reporting during the quarter ended September 30, 2025, that has materially affected or is reasonably likely to materially affect Registrant’s internal control over financial reporting.

There have been no significant changes in the risk factors disclosed in our 2024 Annual Report on Form 10-K filed with the SEC.