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American States Water Co has a market cap of $781.5 million; its shares were traded at around $41.57 with a P/E ratio of 17.3 and P/S ratio of 1.9. The dividend yield of American States Water Co stocks is 2.7%. American States Water Co had an annual average earning growth of 5.6% over the past 10 years. GuruFocus rated American States Water Co the business predictability rank of 3.5-star.
Highlight of Business Operations:For the three months ended June 30, 2012, diluted earnings from electric operations were $0.04 per share as compared to $0.03 per share for the same period of 2011. An increase in the electric gross margin of $492,000, or $0.02 per share, as compared to the same period in 2011, was partially offset by a $249,000, or $0.01 per share increase in operating expenses.
For the six months ended June 30, 2012, diluted earnings from electric operations increased by $0.08 per share as compared to the same period in 2011 due, in large part, to the CPUC’s approval of GSWC’s application to recover $1.2 million in legal and outside services costs incurred from September 2007 through March 2011 in connection with its efforts to procure renewable energy resources. As a result, in March 2012 GSWC recorded a $1.2 million, or $0.04 per share, reduction in legal and outside services costs which had previously been expensed as incurred. Excluding the impact of this item, electric earnings increased by $0.04 per share during the six months ended June 30, 2012 due primarily to an increase in the electric gross margin of $1.1 million, or $0.03 per share, as compared to the same period in 2011, and a decrease in the effective income tax rate increasing earnings by approximately $0.01 per share.
For the three months ended June 30, 2012, 35.0% of GSWC’s water supply mix was purchased as compared to 35.7% purchased for the three months ended June 30, 2011. However, as noted above, the implementation of the MCBA for GSWC’s water regions eliminates the effects of changes in the water supply mix on earnings. The overall adopted percentages of purchased water for the three months ended June 30, 2012 was approximately 42.7% as compared to overall actual purchased water of 35.0%. The overall water margin percent was 71.0% in the second quarter of 2012 as compared to 71.3% in the same period of 2011.
For the six months ended June 30, 2012, 34.6% of GSWC’s water supply mix was purchased as compared to 34.2% purchased for the six months ended June 30, 2011. However, GSWC implemented the MCBA for all its water regions which eliminates the effects of changes in the water supply mix on earnings. The overall adopted percentages of purchased water for the six months ended June 30, 2012 was approximately 40.8% as compared to overall actual purchased water of 34.6%. The difference in actual mix compared to the mix approved by the CPUC resulted in an over-collection in the MCBA account. The overall water margin percent was 72.8% for the six months ended June 30, 2012 as compared to 72.6% in the same period of 2011.
On June 21, 2012, GSWC filed a motion to adopt a settlement agreement between GSWC, the DRA, and The Utility Reform Network (“TURN”) in connection with the water General Rate Case (“GRC”) filing made in July 2011. The proposed settlement, if approved by the CPUC, resolves almost all of the issues in the GRC application and would generate approximately $9 million in additional annual revenues starting in 2013 as compared to 2012 adopted revenues. The proposed rate increases for 2014 over 2013 are $8 million or 3%, and the 2015 proposed rate increases over 2014 amount to $6.5 million, or 2%. While the increase in 2013 revenues would be $9 million under the settlement agreement, the increase in the adopted water gross margin is approximately $18 million, or 8.4%, when compared to the 2012 adopted water gross margin. Supply costs, which are a pass-through, are projected to decrease by approximately $9 million in 2013 as compared to 2012 adopted supply costs resulting primarily from lower customer consumption as compared to 2012 adopted consumption levels. In addition, the CPUC requested GSWC, DRA and TURN to file additional testimony to justify the reasonableness of the Water Revenue Adjustment Mechanism (“WRAM”) and address the CPUC’s questions regarding the WRAM. In July 2012, all three parties filed additional testimony addressing the WRAM. The settlement agreement for the GRC is subject to an acceptable resolution regarding the WRAM matter.
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