American States Water Company Stock

Welcome to the American States Water Company conference call discussing the company's second quarter 2026 results. The call is being recorded. If you would like to listen to the replay of this call, it will begin this afternoon at 5:00 p.m. Eastern Time and run through August 13 on the company's website, www.aswater.com. The slides that the company will be referring to are also available on the website.

Presenting today from American States Water Company are Bob Sprowls, President and Chief Executive Officer; and Eva Tang, Senior Vice President of Finance and Chief Financial Officer.

As a reminder, certain matters discussed during this conference call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees or assurances of any outcomes, financial results, levels of activity, performance or achievements, and listeners are cautioned not to place undue reliance upon them.

Forward-looking statements are subject to estimates and assumptions and known and unknown risks, uncertainties and other factors. Listeners should review the description of the company's risks and uncertainties that could affect the forward-looking statements in our most recent Form 10-K and Form 10-Q on file with the Securities and Exchange Commission.

Statements made on this conference call speak only as of the date of this call, and except as required by law, the company does not undertake any obligation to publicly update or revise any forward-looking statements. In addition, this conference call will include a discussion of certain measures that are not prepared in accordance with generally accepted accounting principles in the United States and constitute non-GAAP financial measures.

These non-GAAP financial measures are derived from consolidated financial information but are not presented in our financial statements that are prepared in accordance with GAAP. For more details, please refer to the press release.

At this time, I will turn the call over to Bob Sprowls, President and Chief Executive Officer of American States Water Company.

Thank you, Bailey. Welcome, everyone, and thank you for joining us today. I'll begin with a discussion of the quarter. Eva will discuss some financial details, and then I'll wrap it up with updates on regulatory activity, ASUS and dividends, and then we will take your questions.

We are pleased to report an excellent quarter with financial results that reflected strong execution across our business. The company's performance highlights our effective management and the constructive regulatory framework in which we operate.

Our reported earnings per share for the second quarter was $1.09 compared to $0.87 for the same quarter in 2025, an increase of $0.22 or 25.3%. All 3 of our operating business segments performed well and reported year-over-year increases resulting from new customer rates implemented in 2026 at our regulated utilities to cover our infrastructure investments and an increase in construction activities at our Contracted Services segment.

In particular, the earnings growth was largely driven by the Water segment's strong second quarter performance that was led by new customer rate increases effective January 1, 2026. A 4% increase in water consumption and a lower reliance on purchased water further supported the quarter's solid performance compared to the same quarter in 2025.

However, it is uncertain whether these favorable conditions experienced in the second quarter will continue through the remainder of 2026 or if their positive earnings impact will reverse as we will discuss later. I'm also pleased to report that last week, our Board approved a significant dividend increase of 8.2%, resulting in an annualized dividend rate of $2.18 per share.

This reflects our Board's confidence in the company's ability to achieve long-term sustainable earnings growth. We believe a growing dividend allows the company to attract capital for investments in its infrastructure that enables us to provide safe and reliable services to our customers and return value to our shareholders.

American States Water has paid dividends every year since 1931, increasing the dividends received by shareholders each calendar year now for 72 consecutive years, which places it in an exclusive group of companies on the New York Stock Exchange that have achieved that result.

We continue to seek opportunities to expand our regulated water operations. In July, Golden State Water Company and the Public Advocates Office at the California Public Utilities Commission, or Cal Advocates, filed a joint settlement to approve the acquisition of an existing water system that serves almost 900 customer connections located in the city of Norwalk in Los Angeles County.

Our regulated utilities are on pace to invest $185 million to $220 million in infrastructure investments this year as we continue to invest in our water, wastewater and electric utility systems for the long-term benefit of our customers.

We filed a new electric general rate case in January for customer rates covering 2027 through 2030 and a new water general rate case in July, covering rates for 2028 through 2030. We successfully completed our at-the-market equity offering program in June, reaching the maximum aggregate offering capacity of $200 million in gross proceeds raised since the program was first established in February 2024.

We have no plans to issue additional equity through at least the end of 2029 to support our current operations. Lastly, we were once again recognized on TIME's list of Best Companies in 2026 and we're 1 of only 2 investor-owned water utilities on the list. This recognition reflects the company's disciplined execution of its strategic growth plans, strong financial performance, commitment to our workforce and robust environmental, social responsibility and governance practices.

With that, I will turn the call over to Eva to discuss earnings and liquidity.

Thank you, Bob, and hello, everyone. Let me start on Slide 7. As Bob mentioned, we delivered excellent financial results this quarter. Our consolidated earnings were $1.09 per share compared to $0.87 per share for the second quarter of 2025. Our water utility, Golden State Water, reported earnings of $0.91 per share compared to $0.73 per share for the second quarter of last year.

The $0.18 per share increase was largely due to new water rates for 2026, including additional revenues associated with approved advice letter capital project in late 2025 and higher gains generated on investments for a retirement plan, partially offset by an increase in water supply costs, interest expense net of interest income and the effective income tax rate.

Lastly, there was a decrease in earnings of $0.02 per share due to the dilutive effect from the share issuances under the parent company's at-the-market offering program. Our Electric segment's reported earnings were $0.04 per share for the quarter as compared to $0.03 per share for the same quarter last year.

The $0.01 per share increase is primarily related to rate increases, partially offset by higher overall operating and interest expenses. Earnings from ASUS were $0.16 per share for the quarter compared to $0.13 per share for the same quarter last year, an increase of $0.03 per share, largely due to higher construction activities, an increase in management fee revenues from the resolution of various economic price adjustments and lower interest expenses, partially offset by an increase in operating expenses.

This slide shows that consolidated revenue for the second quarter increased by $18.2 million compared to the same quarter of 2025. Revenues increased by $11.4 million in the Water segment and $700,000 in the Electric segment, driven largely by the new 2026 rates and additional revenues generated from advice letter projects approved in 2025.

Revenues from ASUS increased $6.2 million, primarily due to higher construction activities and management fee revenues. Turning to Slide 9. Looking at supply costs first. The increase in supply costs primarily related to our water utility segment.

Due to an overall increase in per unit water supply cost covers in rates and an increase in the production of water resulting from higher customer consumption, partially offset by the favorable impact of an actual water supply source mix that included less purchased water during the quarter compared to the same period last year due to wells being brought back online in certain customer service areas.

The remaining consolidated operating expenses increased by $4.6 million compared to 2025, largely due to higher ASUS construction expenses from an increase in construction activity and an overall increase in operating expenses.

Interest expense net of interest income also increased largely from capitalization of debt costs related to certain advice letter projects approved by the CPUC in the latest water GRC effective January 1, 2025, which was recorded in 2025 with no similar items this year and reduced interest income from a decrease in regulatory asset balances for both regulated utilities.

Lastly, other income increased during the quarter due to higher gains generated from investment to fund a retirement plan. Slide 10 shows the EPS bridge comparing reported EPS for the second quarter of 2026 against last year's second quarter.

Consolidated earnings for the 6 months ended June 2026 were $1.86 per share compared to $1.57 per share for the same period in 2025, an increase of $0.29 per share. As Bob mentioned, all 3 of our operating business unit segments performed very well and reported year-over-year increases.

Turning to liquidity on this slide. Net cash provided by operating activities were $116.6 million for year-to-date 2026 as compared to $109.6 million for the same period last year. The increase is largely related to new rates implemented at our regulated utilities as well as various approved surcharges and additional revenues from approved advice letter projects.

In addition, the increase also results from PFAS litigation proceeds received during the year. For investing activities, our regulated utility invested $91.7 million on company-funded capital projects during the first half of the year, and we expect company-funded capital expenditures to total between $185 million to $200 million for the full year 2026.

For financing activities, American States Water under at-the-market offering program raised proceeds of $39.9 million during the first half of the year, net of issuance costs and legal costs. As Bob mentioned earlier, we have completed the equity offering program and do not expect to issue additional equity through at least the end of 2029.

Last month, Standard & Poor's affirmed the company's strong credit ratings of A for American States Water with a stable outlook and A+ for Golden State Water also with a stable outlook. These are some of the highest credit ratings in the U.S. investor-owned water utility industry.

With that, I'll turn the call back over to Bob.

Thank you, Eva. Turning now to updates on the regulatory front, starting with the latest water general rate case application that set new rates for the years 2025 through 2027. In December, Golden State Water received approval from the CPUC to implement its full second year and other rate increases, which were effective January 1 of this year.

This approval results in higher adopted operating revenues less water supply costs for the full year 2026 of $32 million compared to adopted operating revenues less water supply cost for 2025. Included in the 2026 increase is nearly $11 million related to advice letter capital projects.

The advice letter projects were added to the adopted rate base for inclusion in the revenue requirement effective January 1, 2026. In comparison, the net change in adopted operating revenues less water supply costs in 2025 over 2024 adopted levels was $23 million.

As a reminder, due to the CPUC's required use of a modified revenue decoupling mechanism and an incremental water supply cost balancing account effective January 1, 2025, Golden State Water's earnings face future volatility from consumption fluctuations and water supply mix changes.

As I mentioned earlier, Golden State Water's second quarter earnings benefited from higher customer consumption of 4% and a favorable water supply source mix that included less purchased water than in the same period of 2025. This improvement in the supply mix was due in part to certain wells that have been temporarily offline during the first quarter, returning to service in the second quarter.

It remains uncertain whether these favorable conditions in the second quarter will continue through the remainder of 2026 or if their positive earnings impact will reverse. Customer consumption can fluctuate due to factors like climate change, conservation efforts and weather conditions.

For example, El Niño or La Niña weather events could significantly affect precipitation levels and outdoor water use. Additionally, water supply mix changes can occur due to unforeseen groundwater quality issues and changes in the operating conditions of groundwater basins and associated pumping facilities.

Any of these factors could have a direct impact on Golden State Water's future net earnings. Next, we review pending and future regulatory proceedings at the Water segment. On July 1, Golden State Water filed a general rate case application for all of its water regions and the general office.

This general rate case will determine new water rates for the years 2028 through 2030. Golden State Water requested capital budgets of approximately $1 billion for the 3-year rate cycle and among other things, requested to reinstate the regulatory mechanisms for full revenue decoupling and a full supply cost balancing account for water supply.

The decision in this rate case is scheduled for the fourth quarter of 2027. Also, as mentioned on prior earnings calls, the CPUC approved a request by Golden State Water and 3 other large investor-owned California water utilities to defer the cost of capital application by another year.

CPUC's approval postponed the filing date of the application by 1 year until May 1, 2027, with a corresponding effective date of January 1, 2028. The CPUC also approved the joint party's request to leave the current water cost of capital mechanism in place through the 1-year deferral period.

Golden State Water's current authorized rate of return on rate base is 7.93% based on its weighted average cost of capital, which includes a return on equity of 10.06% and a capital structure with 57% equity and 43% debt, which will continue in effect through December 31, 2027.

Furthermore, as I previously highlighted, on July 13, Golden State Water and Cal Advocates filed a joint motion seeking approval of the settlement agreement to acquire a water system in Norwalk, California. If the settlement agreement is approved by the CPUC, system will be incorporated into one of Golden State Water's existing ratemaking areas and will result in an increase to water revenues.

A proposed decision is expected in the fourth quarter of this year. Turning our attention to Slide 15. We present the growth in Golden State Water's adopted average water rate base from 2021 through 2026, which increased from $980.4 million in 2021 to $1,673.2 million in 2026.

That represents a compound annual growth rate of 11.3% over the 5-year period. Golden State Water anticipates a robust and sustained growth in its rate base over the next few years. The annual increase in rate base reflects, among other factors, the net effect of capital investments less depreciation.

The higher increase in 2026 as compared to the increases in the prior years represents the effects of the advice letter projects completed prior to 2026 that were included in rate base effective January 1, 2026. Please see the first footnote at the bottom of the slide.

The affordability of our customer bills is always something that our company takes very seriously. We remain focused on balancing our need for continued investment in system reliability and resiliency with the impact on customer bills.

CPUC evaluates affordability using metrics such as the affordability ratio, which measures essential utility bills relative to household income, particularly for low-income customers. The majority of our water service areas perform well under the CPUC's affordability metrics.

For a very few smaller service areas where affordability challenges exist, we are either implementing or have proposed measures to address those concerns. Our electric customer bills and affordability metrics remain within a manageable range.

Now turning our attention to Bear Valley Electric, which continues to be a strong contributor to the company's results. The current general rate case set rates for 2023 through 2026. In January, Bear Valley Electric implemented new rates for 2026, which is the last year of its 4-year rate cycle.

There were also additional increases in revenues in 2025 and 2026 associated with $27.9 million of capital projects, including AFUDC approved for recovery through advice letters that were completed and placed in service.

In January of this year, Bear Valley Electric filed a general rate case application that will determine new electric rates for the years 2027 through 2030. Among other things, Bear Valley Electric requested capital budgets of approximately $133 million for the 4-year rate cycle and another approximately $17 million plus AFUDC for capital projects to be filed for revenue recovery through advice letters when the projects are completed.

A return on equity of 11.30%, and embedded cost of debt of 5.92%, capital structure of 60% equity and 40% debt and a return on rate base of 9.15%. Let's continue to ASUS, which contributed earnings of $0.16 per share for the quarter, which was $0.03 per share higher than last year. This was a result of an increase in construction activities, higher management fee revenues resulting from the resolution of various economic price adjustments and lower interest expense from lower borrowing levels and lower average interest rates, partially offset by higher overall operating expenses.

ASUS is projected to contribute $0.63 to $0.67 per share this year. In addition, we remain confident that we can effectively compete for new military base contract awards in the future based on our expertise and strong reputation with the military.

I would like to turn our attention to dividends, which I touched on earlier. Last week, we announced an 8.2% increase in the third quarter dividend. This increase is consistent with our policy to achieve a compound annual growth rate in the dividend of more than 7% over the long term.

Our strong dividend history is something that the company is proud of and is a continued asset to our shareholders. This strong track record has allowed us to achieve an 8.4% compound annual growth rate in our quarterly dividend rate to shareholders over the last 5 years since the third quarter of 2021, and the company is on pace to achieve a 10-year compound annual growth rate of 8.7% in its calendar year dividend payments through 2026.

I'd like to conclude our prepared remarks by thanking you for your interest in American States Water, and we'll now turn the call over to the operator for questions.

[Operator Instructions] At this time, there are no questions. I would like to turn the conference back over to Bob Sprowls for closing remarks.

Thank you, Bailey. I just want to pass on my thanks to all of you for your participation today, and we look forward to speaking with you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Ladies and gentlemen, thank you for standing by, and welcome to the American States Water Company conference call discussing the company's first quarter 2026 results. This call is being recorded. If you would like to listen to the replay of this call, it will begin this afternoon at 5:00 p.m. Eastern Time and run through May 14 on the company's website at www.aswater.com.

The slides that the company will be referring to are also available on the website. [Operator Instructions] This call will be limited to 1 hour. Presenting today from American States Water company are Mr. Bob Sprowls, President and Chief Executive Officer; and Ms. Eva Tang, Senior Vice President of Finance and Chief Financial Officer. As a reminder, certain matters discussed during the conference call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are not guarantees or assurances of any outcomes, financial results, levels of activity, performance or achievements, and listeners are cautioned not to place undue reliance upon them. Forward-looking statements are subject to estimates and assumptions and known to unknown risks, uncertainties and other factors. Listeners should review the description of the company's risks and uncertainties that could affect the forward-looking statements in our most recent Form 10-K and Form 10-Q on file with the Securities and Exchange Commission.

Statements made on this conference call speak only as the date of this call and expect as required by law. The company does not undertake any obligation to publicly update or revise any forward-looking statements.

In addition, this conference call will include a discussion of certain measures that are not prepared in accordance with generally accepted accounting principles, or GAAP, in the United States and constitute non-GAAP financial measures under SEC rules. These non-GAAP financial measures are derived from consolidated financial information but are not presented in our financial statements that are prepared in accordance with GAAP.

For more details, please refer to the press release. At this time, I would like to turn the call over to Mr. Bob Sprowls, President and Chief Executive Officer of American States Water Company. Please go ahead, sir.

Thank you, Chuck. Welcome, everyone, and thank you for joining us today. I'll begin with a discussion of the quarter. Eva will discuss some financial details, and then I'll wrap it up with updates on regulatory activity, ASUS and dividends, and then we'll take your questions.

We started 2026 with strong financial results, and I'm pleased to report consolidated earnings per share for the quarter of $0.76 compared to $0.70 for the same quarter in 2025, an increase of 8.6%. All 3 of our operating business segments performed well and reported year-over-year increases.

Our regulated utilities are on pace to invest a combined $185 million to $225 million in infrastructure investments this year as we continue to invest in our water, wastewater and electric utility systems for the long-term benefit of our customers. We saw the benefits this quarter of step rate increases for both our water and electric utilities.

We filed a new electric general rate case in January covering 2027 through 2030 and are poised to file a new water general rate case in July covering 2028 through 2030. In addition, our cost of capital application was deferred for another year, which I'll discuss later.

Our Contracted Services segment performed much higher construction activity during the quarter, and we continue to have strong water utility, electric utility and contracted services businesses.

American States Water remains a leader with our strong earned return on equity and dividend histories, and we continue to deliver value and returns to our shareholders. Lastly, we were recently recognized on Newsweek's list of most trustworthy companies in America and ranked #1 in the energy and utilities industry.

It is an honor to be recognized based on the views of our key stakeholders made up of customers, employees and investors. With that, I'll turn the call over to Eva to discuss earnings and liquidity.

Thank you, Bob. Let me start with our first quarter results. Reported consolidated earnings were $0.76 per share as compared to $0.70 per share for the first quarter of 2025. For our water utility, Golden State Water, reported earnings were $0.55 per share compared to $0.52 per share for the first quarter of last year.

The $0.03 per share increase was largely due to new water rates for 2026, including additional revenues associated with advice letter capital project approved last year, partially offset by higher water supply costs, overall operating expenses, interest expense, net of interest income, other expense, net of other income and income taxes.

Lastly, there was a decrease in earnings of $0.01 per share due to the dilutive effect from share issued under the parent company's at-the-market offering program. Our Electric segment reported earnings were $0.08 per share for the quarter as compared to $0.07 per share for the same quarter last year.

The $0.01 per share increase is primarily related to rate increases, partially offset by higher overall operating and interest expenses. Earnings from ASUS were $0.15 per share for the quarter compared to $0.13 per share for the same quarter last year, an increase of $0.02 per share, largely due to higher construction activities and lower interest expenses, partially offset by an increase in operating expenses.

Slide 8 shows consolidated revenue for the first quarter. The revenue increased by $21.2 million when compared to the same quarter of 2025. Revenue for the Water segment increased by $11.1 million, largely due to new 2026 water rates.

Revenue for the Electric segment also increased by $3.7 million, mainly due to fourth year rate increases and additional revenues from approved advice letter projects in 2025. Revenues from ASUS increased $6.4 million, largely driven by higher construction activities during the quarter due to timing.

Turning to Slide 9. Supply costs increased by $5.1 million, mostly driven by higher overall per unit purchased water cost included in water rates in 2026 with no impact to net earnings and higher purchased water volume when compared to the same quarter last year.

Looking at the total operating expenses other than supply costs, consolidated expenses increased by $10.2 million compared to 2025. The increase was still too higher ASUS construction expenses resulting from an increase in construction activity and overall increase to operating expenses, some of which is due to timing.

In addition, there was an increase in interest expense, net of interest income, largely from the impact of capitalizing debt costs related to certain advice letter projects approved by the CPUC in the latest water generate case that was recorded in 2025 with no similar items in 2026 and reduced interest income from a decrease in regulatory asset balances for both regulated utilities, partially offset by a decrease in overall interest expense.

Slide 10 shows the earnings per share bridge, comparing reported earnings per share for the first quarter of 2026 against the same period for 2025. Turning to liquidity on this slide. Net cash provided by operating activity was $71.6 million for the first quarter of 2026 compared to $45.1 million for the same period in 2025.

The increase is largely related to the implementation of new rates at our regulated utilities from approved general rate case proceedings as well as various approved surcharges and additional base rate from advice letter filings.

In addition, the increase also resulted from billing and cash receipts for work at ASUS' military bases and timing of its vendor payments. For investing activities, our regulated utility invested $42.1 million on company-funded capital projects in the first quarter of this year. We project company-funded capital expenditure to reach $185 million to $225 million for the full year of 2026.

For financing activities, American State Water under its at-the-market offering program raised proceeds of $6.2 million during the quarter, net of issuance and legal costs, leaving a remaining balance of $34.3 million available for issuance under the program.

We do not expect to continue the ATM program once the remaining balance has been fully utilized. With that, I'll turn the call back to Bob.

Thank you, Eva. On the regulatory front, we are in the process of preparing our next water rate case expected to be filed by July 1. As a reminder, the California Public Utilities Commission, or CPUC, issued a final decision on January 30, 2025, on Golden State Water's prior general rate case, requiring the company to transition from a full revenue decoupling mechanism and a full supply cost balancing account for water supply, which were requested again in that general rate case application to a modified rate adjustment mechanism known as the Monterey-style Water Revenue Adjustment Mechanism, or MRAM, and an incremental cost balancing account for supply costs effective January 1, 2025.

As a result, the company may be subject to future volatility in revenues and earnings as a result of fluctuations in water consumption by its customers and changes in water supply source mix. Golden State Water's earnings have been and 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.

Golden State Water's earnings for this first quarter were impacted by an actual water supply source mix that included more purchased water than in the same period of 2025 due in part to certain wells being temporarily offline in a few service areas.

In December of last year, Golden State Water received approval from the CPUC to implement its full second year rate increases, which were effective January 1 of this year. This approval results in higher adopted operating revenues less water supply cost for 2026 of approximately $32.0 million compared to 2025's adopted operating revenues less water supply cost.

Included in the 2026 increase is nearly $11 million related to advice letter capital projects. Under the approved settlement agreement that Golden State Water had with the Public Advocates Office at the CPUC on the general rate case.

Beginning in 2025, all of the advice letter projects were allowed to accrue in a memorandum account interest during the construction period at Golden State Water's adopted cost of debt until the assets are in service and the full rate of return that includes the debt and equity component and all applicable components of the revenue requirement for the projects from the period the assets are in service until the date of the filings for the step increases.

The assets from the advice letter projects and the related amounts in the memorandum account were added to the adopted rate base for inclusion in the revenue requirement effective January 1, 2026. In comparison, the net change in adopted operating revenues less water supply cost in 2025 over 2024 adopted levels was $23 million.

Also, as mentioned on prior earnings calls, the CPUC approved a request by Golden State Water and the 3 other large investor-owned California water utilities to defer the cost of capital application by another year.

CPUC's approval postponed the filing date of the application by 1 year until May 1, 2027, with a corresponding effective date of January 1, 2028. CPUC also approved the joint party's request to leave the current water cost of capital mechanism in place through the 1-year deferral period. Golden State Water's current authorized rate of return on rate base is 7.93%, which includes a return on equity of 10.06% and a capital structure with 57% equity and 43% debt.

Based on its weighted average cost of capital, which will continue in effect through December 31, 2027. Turning our attention to Slide 14. We present the growth in Golden State Water's adopted average water rate base from 2021 through 2026. which increased from $980.4 million in 2021 to $1.673.2 billion in 2026.

That represents a compound annual growth rate of 11.3% over the 5-year period using 2021 as the base year for the calculation. Golden State Water anticipates a robust and sustained growth in its rate base over the next few years.

The annual increase in rate base reflects, among other factors, the net effect of capital investments less depreciation. The water general rate case decision issued in early 2025 authorized the company to invest $573.1 million in capital infrastructure, which includes $17.7 million of advice letter projects for the 2025 through 2027 rate cycle.

In addition, the decision required Golden State Water to treat $58.2 million of capital projects as additional advice letter projects rather than including them in the base rates for 2025. Some of these projects had been under construction since 2023. As a result, you don't see a higher increase in rate base from 2024 to 2025 as these projects were not included in rate base in 2025.

However, as noted earlier, all advice letter projects were permitted to accrue either a full rate of return or interest expense in a memorandum account prior to the filing for recovery. As agreed to in settlement, Golden State Water completed these projects and filed them concurrently with the step increase filings in November 2025.

CPUC approved the filings in December. As a result, the project costs and accumulated memorandum account balances totaling $80 million have been added to the 2026 adopted rate base, generating an incremental revenue requirement of approximately $11 million beginning in 2026 and onwards.

Accordingly, you see a healthy increase in rate base in 2026. Now turning our attention to Bear Valley Electric, which continues to be a strong contributor to the company's results. The current general rate case set rates for 2023 through 2026.

In January, Bear Valley Electric implemented new rates for 2026, which is the last year of its 4-year rate cycle. There were also increases in base rates in 2025 to recover the revenue requirement associated with $23.8 million for capital projects approved for recovery through advice letters that were completed and placed in service, including allowance for funds used during construction or AFUDC.

In January of this year, Bear Valley Electric filed a general rate case application that will determine new electric rates for the years 2027 through 2030. Among other things, Bear Valley Electric requested capital budgets of approximately $133 million for the 4-year rate cycle and another approximately $17 million plus AFUDC for capital projects to be filed for revenue recovery through advice letter projects when the projects are completed.

A requested return on equity of 11.3% and embedded cost of debt of 5.92%, capital structure of 60% equity and 40% debt and a requested return on rate base of 9.15%. Let's continue to ASUS, which contributed earnings of $0.15 per share for the quarter, which was $0.02 per share higher than last year.

This was a result of an increase in construction activities, higher management fee revenues resulting from the resolution of various economic price adjustments and lower interest expense from lower borrowing levels and lower average interest rates, partially offset by higher overall operating expenses.

ASUS is projected to contribute $0.63 to $0.67 per share for this year. In addition, we remain confident that we can effectively compete for new military base contract awards in the future based on our strong reputation with the military and our expertise.

I would like to turn our attention to dividends. Our quarterly dividend rate has grown at a compound annual growth rate or CAGR of 8.5% over the last 5 years. We continue to exceed our policy goal of achieving a compound annual growth rate in the dividend of more than 7% over the long term.

I'd like to conclude our prepared remarks by thanking you for your interest in American States Water, and we'll now turn the call over to the operator for questions.

[Operator Instructions] as there are no questions, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Bob Sprowls for any closing remarks.

Thank you, Chuck. Thank you all for your participation today, and we look forward to speaking with you next quarter. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company conference call discussing the company's fourth quarter and full year 2025 results. The call is being recorded. If you would like to listen to the replay of this call, it will begin this afternoon at 5:00 p.m. Eastern Time and run through February 26 on the company's website, www.aswater.com.

The slides that the company will be referring to are also available on the website. [Operator Instructions] This call will be limited to an hour. Presenting today from American States Water Company are Bob Sprowls, President and Chief Executive Officer; and Eva Tang, Senior Vice President of Finance and Chief Financial Officer.

As a reminder, certain matters discussed during this conference call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees or assurances of any outcomes, financial results, levels of activity, performance or achievements and listeners are cautioned not to place undue reliance upon them. Forward-looking statements are subject to estimates and assumptions and known and unknown risks, uncertainties and other factors. Listeners should review the description of the company's risks and uncertainties that could affect the forward-looking statements in our most recent Form 10-K and Form 10-Q on file with the Securities and Exchange Commission.

Securities made on this conference call speak only as of the date of this call and expect as required by law. The company does not undertake any obligation to publicly update or revise any forward-looking statement. In addition, this conference call will include a discussion of certain measures that are not prepared in accordance with generally accepted accounting principles or GAAP in the United States and constitute non-GAAP financial measures under SEC rules. These non-GAAP financial measures are derived from consolidated financial information but are not presented in our financial statements that are prepared in accordance with GAAP. For more details, please refer to the press release.

At this time, I will turn the call over to Bob Sprowls, President and Chief Executive Officer of American States Water Company. Please go ahead, sir.

Thank you, Chloe. Welcome, everyone, and thank you for joining us today. I'll begin with a discussion of the year. Eva will then discuss some financial details for both the fourth quarter and the year and then I'll wrap it up with updates on regulatory activity, ASUS and dividends, and then we'll take your questions.

2025 was a very productive and positive year for the company. January, the company's water utility Golden State Water Company received the final decision from the California Public Utilities Commission, or CPUC, on its general rate case setting rates for 2025 through 2027. Our electric subsidiary also received its final decision in January of 2025 for new rates covering the period 2023 through 2026. Both decisions represent constructive regulatory outcomes and position us to continue investing in our utility infrastructure for safe and reliable services for generations to come.

In addition, our contracted services business, American States Utility Services, or ASUS, contributed a significant increase in earnings for the year. As a result, I'm pleased to announce we delivered strong financial results for 2025 with reported earnings that were $0.20 per share higher compared to 2024 or $0.33 per share higher as adjusted. Included in the company's reported earnings in 2024 was a tax benefit of $0.13 per share for Golden State Water following the final decision in its general rate case. Excluding this item, adjusted earnings for 2024 were $3.04 per share as compared to $3.37 per share for 2025.

In 2025, we invested $210.9 million in infrastructure at our regulated utilities reflecting our continued strong ability to execute our capital plan. In addition, we continue to seek opportunities to expand our regulated water operations. During the year, Golden State Water completed a transaction with a developer to own and operate the water and wastewater systems assets, serving a new plan community to be built out over time which is expected to have approximately 1,300 customer connections, generating 2 revenue streams for delivering water and wastewater services to this community for many years to come.

In addition, during the fourth quarter, we received CPUC approval to provide water services at another new planned community that will be built out over time with the first development expected to serve up to 3,800 customer connections during the next 5 years. And over the long term, 20-plus years allows for the construction of 17,500 total dwelling units at full build-out.

Also, Golden State Water has signed an agreement with the city of Norwalk in Los Angeles County, to acquire its water system assets, serving about 900 residential customers. In January 2026, Golden State Water filed an application with the CPUC to expand its existing Region 2 ratemaking area and include the $5.25 million purchase price in rate base.

ASUS continues to enter into U.S. government awarded contract modifications for new construction projects and was awarded $29.4 million in new capital upgrade construction projects during 2025. These newly awarded projects are expected to be completed through 2028. In 2025, we increased our quarterly cash dividend by 8.3%. This is our 71st consecutive year of annual dividend increases. And we remain proud of our dividend history and continued growth.

With that, I will turn the call over to Eva to discuss earnings and liquidity.

Thank you, Bob. Hello, everyone. Let me start with our fourth quarter results. Adjusted earnings for AWR consolidated increased $0.18 per share over the prior year when excluding the impact of a onetime tax benefit recorded in the fourth quarter of 2024, resulting from the water general rate case decision and the retroactive rates related to 2023 and the first 9 months of 2024 recorded in the fourth quarter of 2024 as a result of receiving the final CPUC decision on the electric general rate case.

Reported consolidated earnings were $0.74 per share as compared to $0.75 per share for the fourth quarter of 2024 or $0.56 per share as adjusted for that quarter. For our water utility Golden State Water reported earnings were $0.50 per share for the quarter as compared to $0.52 per share in 2014 or $0.39 per share as adjusted. Included in 2024 reported earnings was the previously mentioned $0.13 per share tax benefit recorded in the fourth quarter as a result of the final CPUC decision on the water GRC.

Excluding this item, the $0.11 per share increase as adjusted was largely due to new water rates for 2025, higher gains generated on investments held to fund a retirement plan, lower interest expense and a lower effective income tax rate from changes in certain flow-through income tax items, partially offset by higher operating expenses. Lastly, there was a decrease in earnings of $0.01 per share due to the dilutive effect from share issuance under the parent company's ad market offering program.

Our Electric segment reported earnings were $0.11 per share for the quarter as compared to $0.13 per share for 2024, a $0.02 per share decrease or a $0.04 per share increase as adjusted. As previously noted, included in 2024, reported electric earnings is the impact of retroactive rates related to the full year of 2023 and the first 9 months of 2024 of $0.06 per share recorded in the fourth quarter of 2024 as a result of receiving the final CPUC decision on the electric GRC. Excluding these items, the $0.04 per share increase primarily related to third year rate increases, partially offset by higher overall operating and interest expenses.

Earnings from ASUS were $0.16 per share for the quarter compared to $0.11 per share for the same quarter last year, an increase of $0.05 per share. Bob will discuss the details later in the call. Lastly, losses from our parent company were $0.03 per share for the quarter as compared to losses of $0.02 per share for the same quarter in 2024, largely due to an increase in interest expense resulting from higher borrowing levels from AWR's credit facility partially offset by lower average interest rates.

Consolidated revenue for the quarter increased by $21.2 million when compared to 2024. Revenues for the water segment increased $17.4 million, largely due to new 2025 water rates. Revenue for the Electric segment decreased by $5.7 million Included in the revenues for the quarter of 2024 were $9.2 million of retroactive rate as a result of receiving the final decision as mentioned earlier. Excluding these items, the increase in revenues was partially due to third year rate increases. Revenue from U.S. increased $9.5 million primarily due to higher construction activities during the quarter due to timing.

Turning to Slide 10. Supply costs increased by $10.7 million mostly due to higher overall per unit purchase broader cost included in customer rates in 2025. Looking at total operating expenses other than supply costs, Consolidated expenses increased by $4.2 million compared to 2024. This increase is partially offset by the impact of the electric generated decision which authorized higher operating expenses for vegetation management and other wildfire mitigation efforts that were retroactive to January 1, 2023, and recorded in the fourth quarter of 2024.

These costs were partially -- were previously excluded from customer rates and not expensed prior to receiving the approved general rate case decision as they were being tracked in memorandum accounts. They are now included in adopted electric revenues. In addition, the increase was due to higher ASUS construction expenses and higher overall operating expenses.

There was also an increase in interest spend net of interest income, primarily due to reduced interest income from a decrease in regulatory asset balances, partially offset by lower interest expense. Lastly, there was an increase in other income, net of other expense due largely to higher gains generated on investments held to fund a retirement plan during the quarter as compared to the same period in 2024 due to financial market conditions.

Slide 11 shows the EPS bridge comparing reported EPS for the fourth quarter of 2025 with the same period in 2024. This slide reflects our full year earnings per share by segment as reported and adjusted. Consolidated earnings for the full year of 2025, as reported were $3.37 per share as compared to $3.17 per share for 2024. Included in the results in 2024 was $0.13 per share related to the impact of a onetime tax benefit recorded in 2024 related to our water segment.

Excluding this item from 2024's earnings, reported earnings for 2025 was $3.37 per share as compared to adjusted earnings of $3.04 per share for 2024. That is an increase of $0.33 per share or 10.9%. The increase is largely generated from higher earnings at our regulated utilities due mostly to implementation of new rates and higher earnings at ASUS from increased management fee revenue, higher construction activities and lower interest expenses.

Turning to liquidity. Net cash provided by operating activity was $229.7 million for 2025 as compared to $198.7 million for 2024 with increase largely related to the implementation of new rates at our regulated utilities from approved general rate cases as well as various approved surcharges for additional base rates from advice letter filings. In addition, the increase also resulted from settlement proceeds received related to PFAS contamination litigation as plaintiffs in class action lawsuit, billing and cash receipts for construction work at military bases at ASUS and the timing of vendor payments.

For investing activities, our regulated utility invested $210.9 million on company-funded capital projects in 2025, and we project company funded capital expenditures to reach $185 million to $225 million this year. For financing activities, American States Water under its at-the-market offering program raised proceeds of $67 million during the year net of issuance costs and legal fees, leaving a remaining balance of $40.7 million available for issuance under the program. We do not expect to continue the ATM program whilst the remaining balance has been fully utilized.

With that, I'll turn the call back to Bob.

Thank you, Eva. On the regulatory front, as previously mentioned, in January of 2025, the CPUC issued a final decision in connection with the recent water general rate case that covers rates for 2025 through 2027. We have discussed the details of this rate case decision in our prior earnings releases and calls. We have begun preparation for our next water rate case expected to be filed by July 1, 2026.

As a reminder, the final decision ordered Golden State Water to transition from a full decoupling mechanism and a full supply cost balancing account, which were requested again in the general rate case application to a modified rate adjustment mechanism known as the Monterey-Style Water Revenue Adjustment Mechanism or MRAM and an incremental cost balancing account for supply cost effective January 1, 2025. Without the continuation of a full revenue decoupling mechanism and a full cost balancing account for water supply, the company may be subject to future volatility in revenues and earnings as a result of fluctuations in water consumption by its customers and changes in water supply source mix.

Golden State Water's 2025 earnings 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 which was partially offset by the negative impact from a nearly 4% decrease in water consumption compared to amounts adopted in the final general rate case. As a result, the combined impact from the changes in water supply source mix compared to adopted levels and fluctuations in consumption did not have a material impact on Golden State Water's 2025 earnings.

In December of 2025, Golden State Water received approval from the CPUC to implement its full second year rate increases, which were effective January 1, 2026. This approval results in higher adopted operating revenues, less water supply cost for 2026 of approximately $32 million compared to 2025 adopted operating revenues less water supply costs.

Included in the 2026 increase is nearly $11 million related to advice letter capital projects. Under the approved settlement agreement, beginning in 2025, all of the advice letter projects were allowed to accrue in a memorandum account interest during the construction period at Golden State Water's adopted cost of debt until the assets are in service and the full rate of return that includes a debt and equity component and all applicable components of the revenue requirement for the projects on the period, the assets are in service until the date of the attrition filings. The assets from the advice letter projects and the related amounts in the memorandum account were added to the adopted rate base for inclusion in the revenue requirement effective January 1, 2026.

In November 2025, the CPUC approved a request by Golden State Water and 3 other investor-owned California water utilities to defer the cost of capital application by another year. CPUC's approval postponed the filing date of the application by 1 year until May 1, 2027 with a corresponding effective date of January 1, 2028. CPUC also approved the joint party's request to leave the current water cost of capital mechanism in place through the 1-year deferral period. Golden State Water's current authorized rate of return on rate base is 7.93%. Based on its weighted cost of capital, which will continue in effect through December 31, 2027.

In August 2023, Golden State Water entered into an agreement to purchase from a developer of water and wastewater system assets in a development located in California Central Coast region. This is a new planned community, which will serve up to approximately 1,300 customers at full build-out which is anticipated to occur by 2034 under the current construction schedule, borrowing any future delays. This development will be handled under the incremental acquisition approach where Golden State Water will take ownership of the incremental water and wastewater distribution assets in phases as they are completed and ready to accommodate new connections.

In December 2024, the CPUC approved a final decision granting Golden State Water's certificates of public convenience and necessity that established rates for water and sewer services, including the company's recovery of the purchase price of the incremental assets through future customer rates in this new San Juan Oaks service area. In May 2025, after receiving CPUC approval and finalizing other closing procedures, the parties completed the closing of the transaction which included the initial installation and conveyance of backbone, water and wastewater system assets of $10.7 million by the developer.

In the future, Golden State Water will take ownership of the incremental water and wastewater system assets in phases as they are completed and ready to accommodate new connections. In addition, Golden State Water and the Public Advocates Office of the CPUC filed a joint motion with the PUC in March of last year, to adopt the settlement agreement to authorize initial rates for water service in the new Sutter Pointe service area.

In October of last year, the CPUC approved a settlement agreement in its entirety. The approval establishes initial water service rates for 2026 through 2028 and authorizes various balancing and memorandum accounts for the area. This new planned community in Northern California will be built out over time with the first development expected to serve up to 3,800 customer connections during the next 5 years. And over the long term, 2-plus years allows for the construction of 17,500 total dwelling units at full build-out as part of the overall plan that was approved by the respective counting.

This development will also be handled under the incremental acquisition approach where Golden State Water will take ownership of the incremental water distribution assets in phases as they are completed and ready to accommodate new connections.

Lastly, in January of this year, Golden State Water filed an application with the CPUC to acquire the water system assets from Norwalk, a city located within Los Angeles County. The application requested the expansion of its certificate of public convenience and necessity to incorporate the new service area into one of Golden State Water's existing rate-making areas and to include the $5.25 million purchase price in rate base. The acquisition is forecasted to increase revenues by approximately $1 million if approved as filed. City's service area serves almost 900 primary residential customers.

Turning our attention to Slide 17. We present the growth in Golden State Water's adopted average water rate base from 2021 through 2026 which increased from $980.4 million in 2021 to $1.673.2 billion in 2026. That represents a compound annual growth rate of 11.3% over the 5-year period using 2021 as the base year for the calculation. Golden State Water anticipates a robust and sustained growth in its rate base over the next few years.

The annual increases in rate base reflect, among other factors, the net effect of capital investments less depreciation. The water general rate case decision issued in early 2025, authorized the company to invest $573.1 million in capital infrastructure, which includes $17.7 million of advice layer projects.

In addition, the decision required Golden State Water to treat $58.2 million of capital projects as additional advice letter projects rather than including them in base rates for 2025. Some of these projects began construction in 2023. As a result, you don't see a higher increase in rate base from 2024 to 2025, and as these projects were not included in rate base in 2025. However, as noted earlier, all advice letter projects were permitted to accrue either a full rate of return or interest expense in a memorandum account prior to the filing for recovery as agreed to in settlement, Golden State Water completed these projects and filed them concurrently with the step increase filings in November 2025.

CPUC approved the filings in December. As a result, project cost and accumulated memorandum account balance since totaling $80 million were added to the 2026 adopted rate base generating an incremental revenue requirement of approximately $11 million beginning in 2026 and forward. Accordingly, you see a healthy increase in rate base from 2025 to 2026.

Turning our attention to Bear Valley Electric. As previously noted, in January of 2025, CPUC issued a final decision on the electric general rate case that sets rates for 2023 through 2026. Like the water utility rate case, we have discussed the details of the electric rate case in our prior earnings releases and calls. This past April, Bear Valley Electric also implemented new base rates to recover the revenue requirement associated with $11.6 million of capital projects approved for recovery through advice letters.

On January 30, 2026, Bear Valley Electric filed a general rate case application that will determine new electric rates for the years 2027 through 2030. Among other things, Bear Valley Electric requested capital budgets of approximately $133 million for the 4-year rate cycle and another approximately $17 million plus allowance for funds used during construction or AFUDC for capital projects to be filed for revenue recovery through advice letters when the projects are completed. A return on equity of 11.3% and embedded cost of debt of 5.92%, a capital structure of 60% equity and 40% debt and a return on rate base of 9.15%.

Lastly, in December 2025, we received a final decision approving a settlement agreement between Bear Valley Electric and the Public Advocates Office of the CPUC authorizing construction of the solar and battery storage projects totaling $28 million plus AFUDC. Solar generation project will help Bear Valley Electric beat approximately 18% of its renewables portfolio standard requirement. These facilities will also help enable Bear Valley Electric to better control its energy and energy-related costs through self-supply from a local generation resource and also provide energy shifting capabilities and additional capacity during emergencies in peak load conditions. Costs associated with the projects are recoverable in customer rates at the time the projects are completed and in service.

Let's continue to ASUS, which contributed earnings of $0.61 per share in 2025 and as compared to $0.55 per share for 2024, an 11% increase. The increase was a result of higher management fee revenue resulting from the commencement of operations at the joint base Cape Cod and Naval Air Station Patuxent River new bases for a full year in 2025 and resolution of various economic price adjustments, an increase in construction activities and lower interest expense from lower borrowing levels partially offset by higher overall operating expenses and lower earnings due to the dilutive effects of shares issued under AWR's at the market offering program.

ASUS was awarded $29.4 million in new capital upgrade construction projects to be completed through 2028. As we look ahead to 2026, we project that ASUS will contribute $0.63 to $0.67 per share. We remain confident that we can effectively compete for new military-based contract awards.

I'd like to turn our attention to dividends. In the third quarter of 2025, we raised our dividend by 8.3% and our quarterly dividend rate has grown at a compound annual growth rate or CAGR of 8.5%. Over the last 5 years since the first quarter of 2021, these increases are consistent with our policy to achieve a compound annual growth rate in the dividend of more than 7% over the long term. Our unrivaled dividend history since 1931 is something the company is proud of and will continue to be an asset to our shareholders.

I'd like to conclude our prepared remarks by thanking you for your interest in American States Water, and we'll now turn the call over to the operator for questions.

[Operator Instructions] At this time, there is no one in our queue. So this concludes our question-and-answer session. I'd like to turn the conference back over to Bob Sprowls for any closing remarks.

Thank you, Chloe. I just want to wrap up today by thanking you all for your participation, and we look forward to speaking with you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company conference call discussing the company's third quarter 2025 results. The call is being recorded. If you would like to listen to the replay of this call, it will begin this afternoon at 5:00 p.m. Eastern Time and run through November 13 on the company's website, www.aswater.com. The slides that the company will be referring to are also available on the website. [Operator Instructions] This call will be limited to an hour. Presenting today from American States Water Company are Bob Sprowls, President and Chief Executive Officer; and Eva Tang, Senior Vice President of Finance and Chief Financial Officer.

As a reminder, certain matters discussed during this conference call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees or assurances of any outcomes, financial results, levels of activity, performance or achievements, and listeners are cautioned not to place undue reliance upon them. Forward-looking statements are subject to estimates and assumptions and known and unknown risks uncertainties and other factors. Listeners should review the description of the company's risks and uncertainties that could affect the forward-looking statements in our most recent Form 10-K and Form 10-Q on file with the Securities and Exchange Commission.

Statements made on this conference call speak only as of the date of this call, and except as required by law, the company does not undertake any obligation to publicly update or revise any forward-looking statements. In addition, this conference call will include a discussion of certain measures that are not prepared in accordance with generally accepted accounting principles or GAAP in the United States and constitute non-GAAP financial measures under SEC rules. These non-GAAP financial measures are derived from consolidated financial information but are not presented in our financial statements that are prepared in accordance with GAAP. For more details, please refer to the press release.

At this time, I will turn the call over to Bob Sprowls, President and Chief Executive Officer of American States Water Company. Please proceed.

Thank you, Bailey. Welcome, everyone, and thank you for joining us today. I'll begin with brief highlights to our quarter, Eva will discuss some financial details, and then I'll wrap it up with updates on regulatory activity, ASUS, dividends and then we'll take your questions.

I'm pleased to report that recorded earnings per share for the third quarter were $0.11 per share higher compared to the third quarter of last year, an increase of 11.6%. Favorable variance is attributable to the receipt of final decisions from the California Public Utilities Commission or CPUC in January 2025 for our regulated water and electric utilities general rate cases which authorized new water rates for 2025 to 2027 and authorized new electric rates for 2023 to 2026 and higher earnings for our contracted services business, American States Utility Services, or ASUS, of $0.08 per share, due mostly to increases in construction activities during the quarter.

For the year-to-date September 30, earnings were $2.63 per share, $0.21 per share higher than last year or 8.7%. We continue to invest in our water and electric utility systems for the long-term benefit of our customers. Our regulated utilities are on pace to invest a combined $180 million to $210 million in infrastructure investments this year. In addition, our water utility recently received CPUC approval to provide water services at another new planned community that will be built out over time with the first development expected to serve up to 3,800 customer connections during the next 5 years. And over the longer term, 20-plus years, allows for the construction of 17,500 total dwelling units at full build-out.

ASUS continues to enter into U.S. government awarded contract modifications for new construction projects and was awarded $28.7 million in new capital upgrade construction projects during the 9 months ended September 30 of this year. These newly awarded projects are expected to be completed through 2028.

I'd also like to mention that we are pleased to be recognized on Times America's Best Midsize Companies 2025 list and are 1 of only 2 investor-owned water utilities on the list. Companies are ranked by revenue growth, employee satisfaction and sustainability transparency. In addition, American States Water Company is the only water utility included in Barron's 100 Most Sustainable Companies for 2025.

Companies were scored across 230 environmental, social and governance performance indicators from workplace diversity to greenhouse gas emissions. We believe these recognitions reflect our strategic growth plans, commitment to our workforce and focus on our initiatives and disclosures in the sustainability areas and these will remain priorities for the company.

With that, I will turn the call over to Eva to discuss earnings and liquidity.

Thank you, Bob. Hello, everyone. Let me start with our third quarter results. Recorded consolidated earnings were $1.06 per share for the quarter as compared to $0.95 per share for the third quarter of 2024. For our water utility Golden State Water reported earnings were $0.86 per share as compared to $0.84 per share last year. The $0.02 per share increase in 2025 was largely due to new 2025 water rates as a result of receiving a final decision in Golden State Water's general rate case proceeding.

Higher gain generated on investments held to fund a retirement plan and lower interest expense, partially offset by higher operating expenses and a higher effective income tax rate. Lastly, there was a decrease in earnings of $0.02 per share due to the dilutive effect from the insurance of equities under AWR ad market offering program.

Our Electric segment earnings were $0.04 per share for the quarter as compared to $0.02 per share for the same quarter last year, a $0.02 per share increase primarily due to receiving the final CPUC decision on the electric general rate case with the new 2025 electric rates as compared to 2022 rate used to record revenues during the third quarter of last year.

Earnings from ASUS were $0.19 per share for the quarter compared to $0.11 per share for the same quarter last year. That is an increase of $0.08 per share, which Bob will discuss further later. Lastly, losses from our parent company were $0.03 per share for the quarter when compared to losses of $0.02 per share for the same quarter last year, due largely to an increase in interest expense resulting from higher borrowing levels from AWR's credit facility.

Consolidated revenue for the third quarter increased by $21 million when compared to the same quarter of 2024. Revenues for the water segment increased by $8.3 million, largely as a result of receiving the final decision in Golden State Water's general rate case with new rates effective January 1, 2025.

Revenues for Electric segment increased by $4.3 million, mainly due to new 2025 electric rates as compared to 2022 rates used to record revenue during the same quarter of 2024. Revenues from ASUS increased $8.4 million, primarily due to higher construction activity during the quarter due to timing.

Turning to Slide 9. Supply costs increased by $4 million, mostly due to higher overall per-unit purchased water cost included in customer rates in 2025. Looking at total operating expenses other than supply costs. Consolidated expenses increased by $10.3 million compared to 2024. This increase includes the impact of the Electric general rate case decision issued in January which authorized higher operating expenses, primarily for vegetation management and other wildfire mitigation efforts.

These costs were previously excluded from customer rates and are not expensed -- were not expensed in the third quarter of last year, as they were being tracked in memorandum accounts. They are now included in adopted Electric revenue. In addition, the increase was due to higher ASUS construction expenses and higher overall operating expenses. These higher expenses were partially offset by lower interest expense, net of interest income, primarily due to decreases in interest rates and overall borrowing levels partially offset by reduced interest income from a decrease in regulatory asset balances.

Lastly, there was an increase in other income net of other expense due largely to higher gains generated on investments held to fund a retirement plan during the quarter as compared to the same period in 2024 due to financial market conditions.

Slide 10 shows the EPS bridge comparing reported EPS for the third quarter of 2025 against the same period for 2024. Moving on to Slide 11. Consolidated earnings for the 9 months ended September were $2.63 per share compared to $2.42 per share for the same period in 2024, an increase of $0.21 per share. The increase is largely generated from higher earnings at our regulated utilities.

Turning to liquidity on Slide 12. Net cash provided by operating activities was $202 million for the year-to-date September compared to $134.2 million for the same period last year, with the increase largely related to the implementation of new rates at our regulated utility funds approved to generate proceedings as well as various approved surcharges or additional base rate from advice letter filings. In addition, the increase also resulted from differences in timing of income tax payments, billing and cash receipts for construction work at military basis at ASUS and the timing of its vendor payments.

For investing activities, our regulated utility invested $151.8 million on company-funded capital projects in the first 9 months of this year and we project to be on target to reach $180 million to $210 million for this year. For financing activities, American States Water under its ad market offering program raised the proceeds of $40.2 million during the 9 months ended September 30, net of issuing cost and legal costs, leaving a remaining balance of $68 million available for issuance under the program.

In July, Standard & Poor's Global Ratings affirmed a credit rating of A stable for American States Water and A+ stable rating for Golden State Water. These are some of the highest credit rating in the U.S. investor-owned water utility industry.

With that, I'll turn the call back to Bob.

Thank you, Eva. On the regulatory front, as previously mentioned, in January of this year, the CPUC issued a final decision in connection with the recent water general rate case that covers rates for 2025 through 2027. We have discussed the details of this rate case decision in our prior earnings releases and calls. We have begun preparation for our next water rate case expected to be filed by July 1, 2026.

As a reminder, the final decision ordered Golden State Water to transition from a full decoupling mechanism and a full supply cost balancing account, which were requested again in the general rate case application to a modified rate adjustment mechanism known as the Monterey-Style Water Revenue Adjustment Mechanism, or MRAM and an incremental cost balancing account for supply cost effective January 1, 2025.

Without the continuation of a full revenue decoupling mechanism and a full cost balancing account for water supply, the company may be subject to future volatility in revenues and earnings as a result of fluctuations in water consumption by its customers and changes in water supply source mix. Final decision adopted the company's MRAM rate design proposal, which authorizes Golden State Water to increase the revenue requirement in the fixed services charges to between 45% and 48% of the revenue requirement depending on the rate making area, representing approximately 65% and of the water utilities fixed cost in aggregate.

It also approved Golden State Water's sales forecast and its request for the continuation of a sales reconciliation mechanism, which would allow the company to adjust its sales forecast throughout the general rate cycle to address significant fluctuations in consumption.

In August 2023, Golden State Water entered into an agreement which was subject to CPUC approval to purchase from a developer, the water and wastewater system assets in a development located in California's Central Coast region. This is a new planned community, which will serve up to approximately 1,300 customer connections at full build-out, which is anticipated to occur by 2034 under the current construction schedule, barring any future delays.

On December 5, 2024, the CPUC approved a final decision granting Golden State Water's certificate of public convenience and necessity that establish rates for water and sewer services, including the company's recovery of the purchase price through future customer rates in this new San Juan Oaks and service area.

After receiving CPUC approval and finalizing other closing procedures, in May of this year, the parties completed the closing of the transaction, which included the initial installation and conveyance of water and wastewater system assets of $10.7 million by the developer a noncash transaction to Golden State Water recorded during the second quarter of 2025. That resulted in an increase in the company's utility plant with corresponding increases in advances and contributions in aid of construction.

In the future, Golden State Water will take ownership of the incremental water and wastewater system assets in phases as they are completed and ready to accommodate new connections. In addition, Golden State Water and the Public Advocates Office of the CPUC filed a joint motion with the CPUC in March to adopt a settlement agreement to authorize initial rates for water service in the new Sutter Pointe service area.

Last week, the CPUC approved the settlement agreement in its entirety. The approval establishes initial water service rates for 2026 through 2028 and authorizes various balancing and memorandum accounts for this area. This new planned community in Northern California will be built out over time with the first development expected to serve up to 3,800 customer connections during the next 5 years. And over the longer term, 20-plus years allows for the construction of 17,500 total dwelling units at full build-out, as part of the overall plan approved by the respective counting.

Turning our attention to Slide 15. We present the growth in Golden State Water's adopted average water rate base from 2021 through 2025 which increased from $980.4 million in 2021 to $1,455.8 million in 2025. That represents a compound annual growth rate of 10.4% over the 4-year period using 2021 as the base share for the calculation.

Golden State Water anticipates a robust and sustained growth in its rate base over the next few years as a result of receiving its recent general rate case decision that not only authorizes it to invest $573.1 million in capital infrastructure. But in addition to that, capital investments of certain projects through advice their filings upon completion that will contribute to a further growth in rate base in the second and third year of this cycle.

Turning our attention to Bear Valley Electric. As previously noted, in January of this year, the CPUC issued a final decision on the electric general rate case that set rates for 2023 through 2026. Like the water utility rate case, we have discussed the details of the electric rate case in our prior earnings releases and calls. We are working to file our next electric rate case in the first quarter of 2026.

This past April, Bear Valley Electric also implemented new base rates to recover the revenue requirement associated with $11.6 million of capital projects approved for recovery through advice layers.

In July, Bear Valley Electric and the Public Advocates Office of the CPUC filed a joint motion with the CPUC to adopt the settlement agreement resolving all issues in Bear Valley electric application to construct solar energy generation and battery storage facilities. The solar energy generation project will help Bear Valley Electric meet approximately 18% of its renewables portfolio standard requirement.

These facilities will also help enable Bear Valley Electric to better control its energy and energy-related costs through self-supply from a local generation resource and also provide energy shifting capabilities and additional capacity during emergencies and peak load conditions.

Among other things, the settlement agreement authorizes the construction of the facilities for a total combined cost of $28 million plus allowance for funds used during construction. Settlement agreement is pending approval by the CPUC to the 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.

Let's continue to ASUS, which contributed earnings of $0.19 per share in the third quarter of 2025 as compared to $0.11 per share for 2024. The increase was a result of higher construction activity due to the timing of when the work was performed. Management fee revenues resulting from the resolution of various economic price adjustments and lower interest expense from lower borrowing levels partially offset by higher overall operating expenses.

During the quarter, ASUS made substantial progress on its construction activities with year-to-date earnings of $0.45 per share as compared to $0.44 per share for the same period of 2024. We continue to project ASUS to contribute $0.59 to $0.63 per share this year, representing an increase of 7.3% to 14.5% year-over-year. ASUS was awarded $28.7 million in new capital upgrade construction projects through the year-to-date September of this year to be completed through 2028.

As we look ahead to 2026, we project that ASUS will contribute $0.63 to $0.67 per share. In addition, we remain confident that we can effectively compete for new military-based contract awards.

I would like to turn our attention to dividends. In the third quarter, we raised our dividend by 8.3% and our quarterly dividend rate has grown at a compound annual growth rate or CAGR of 8.5% over the last 5 years. These increases are consistent with our policy to achieve a compound annual growth rate in the dividend of more than 7% over the long term. Our unrivaled dividend history since 1931 is something that the company is proud of and will continue to be an asset to our shareholders.

I'd like to conclude our prepared remarks by thanking you for your interest in American States Water. And we'll now turn the call over to the operator for questions.

[Operator Instructions] Our first question comes from Ian Rapp with Bank of America.

Congrats on the good quarter. I'm just curious on ASUS, obviously, a good quarter and a good contract announcement there. If I look at the incremental contract, I'm just curious if you could provide a little color on the timing and when we might see that further into EPS over the -- I think you said '25 to '28 period. I'm just looking at the ASUS guidance for '26, and it looks like year-over-year a little bit down relative to the last 3 years. So just curious if that's just contracts rolling off or what the earnings power looks like going forward there?

Yes. I mean it's a pretty good step up, I think, in the earnings from $0.59 to $0.63 to the $0.63 to $0.67. It's -- but would just talk a little bit about the new capital upgrades. Those have been an important part of our overall performance and getting almost $29 million of new capital upgrades a pretty good year for us. Additionally, last year, we had a fairly significant amount of new capital upgrades relative to our history in the neighborhood of $55 million. So between those 2, we've got a pretty good backlog to do new capital upgrade work in '26 and beyond. We also have the renewal and replacement work that we're doing.

So it's, I would say, a pretty good year, recognizing we don't -- we're not adding any new bases in that number. It's -- I think, as you know, Ian, there's a transition period we typically have to go through once we were awarded a contract. And so the expectation is we likely won't have a new contract to deal with in 2026 just because of that transition period and where we think the government might be on privatizations.

Okay. Got it. Yes, that makes a lot of sense. And then just on the new announcements or, I guess, the new approvals on the new customer connection growth, it looks like some robust activity around the new development projects. I'm just curious like if you look at these numbers, should we think about translating that -- those new customer connections to rate base based on looking at your Golden State rate base relative to your customer base or as a rule of thumb? Or should we think about it more just on the capital that you've applied for? Just any color as to how we should think about the rate base translation would be helpful.

Yes. I guess the one difficult thing with those new customers is it is a function of people wanting to buy homes and a developer signing them up to buy homes. And so looking at the potential there. It is under this incremental acquisition approach. So as phases are done, the company will buy the infrastructure. I think the way to think about it maybe is the distribution infrastructure for these houses.

And that's a pretty favorable activity for both the company and the developer because typically, the developer would have had to advance those facilities to the company to be then paid back over 4 years. So we will be acquiring new systems there. And I'm not exactly sure what to tell you about how you bake that into your rate base forecast because I do think the figuring out when those customers are going to be added is a challenge.

Right. Okay. That's helpful color. And with that growth, maybe just one more if I could squeeze it in. Obviously, the big thematic these days is corporate M&A. As you look out at your growth profile, do you feel like gaining scale in California or other places would be beneficial? Or I'm really just curious to hear your thoughts on how you're thinking about M&A as investor attention kind of shifts toward it.

Yes. I mean we were a bit surprised by the announcement of the merger between American Water and Essential Utilities, which I think that's what you're sort of asking about. However, we don't really think that merger will impact our company's strategic direction going forward. We are optimistic about the future of our company. The rate bases at both of our regulated utilities continue to grow at strong rates of growth, and our ASUS business also continues to grow at a good pace.

We noted in our presentation materials, the 10.4% 4-yea CAGR on our rate base for 2025 -- sorry, 2022 to 2025 at Golden State Water in our presentation and Bear Valley Electric's rate base has been growing at a faster rate than that. And then, of course, we will see additional customer growth, we believe, through the 2 new developments that we've mentioned, San Juan Oaks and Sutter Pointe over time.

So I think generally, we're happy with our growth plan. That's not to say if a good deal came along. We wouldn't try to buy some systems that are in places where we believe the regulatory framework is neutral to positive. Does that answer your question?

Yes, that's super helpful. And that all makes a lot of sense. I appreciate you guys walking me through and congrats again on the quarter and I'll echo your confidence on the growth rate. It looks promising.

Our next question comes from Angie Storozynski with Seaport

Okay. So you added your rate base projection for 2025 on Slide 15. It is actually a little bit lower than I would have implied it from just the pace of CapEx less depreciation. I mean, Eva is there any reason why again, just assuming that you're spending about, I don't know, $190 million, right, and around $30 million something of the depreciation that would have implied a slightly higher rate base for '25 versus '24, no?

So Angie, we talk about -- we have tons of advice letter yet to be filed toward end of this year in the rate case decision, we will authorize about $76 million of advice letter that we can file by end of this year to get new rates effective 1/1 next year. So we are preparing the documentation and close the job and to get the final number in Q4. So we anticipate that should be approved for rate effect is 1/1 of next year. So after 2025, those actual advice letter project amount will be added to the rate base. So that's maybe something...

And that $573 million, that number, does that include the advise letters? No...

Does not including the advice letter that was started to do prior to the rate case cycle. So there are $58 million I would think advice letter coming from the prior rate case that were allowed to added to rate starting next year. So in total, $573 million, I believe, including $17 million of new advice letter project, but we have another $58 million project that come in from the prior rate case. So both of which can be added to our rate base starting next year.

Yes. I mean -- and again, I don't want to nickel and dime you here, but it's just that, that would imply this $573 million number, right, that I'm spending about, again, assuming that it's ratable, $190 million a year, right, if I divide it just by 3 simple math and then subtract $30 million or say $35 million, that would still suggest that, that rate base should have grown by about $150-something million versus the $100 million that is shown of a growth between '24 and '25. So is it deferred taxes, again, just like simplistically.

Our actual spending is about that amount. I was just talking about the adopted rate base.

We are spending a little ahead of the rate cycle because we do have an earnings test in California that we have to meet. And you are predisposed to try to spend early because it's a 13-month average. So that may be contributing a little bit. I don't know, Eva, what do you...

Yes, I think that will definitely contribute. And we want to make sure we can finish advice letter project so we can file this year. So we've been spending the $76 million that authorized us to file .

And that wouldn't count towards the right base? Because my point is that the rate base is lower than it would have been implied from the approved CapEx minus depreciation.

Yes, it will count as the actual rate base. It's just not -- currently not in the revenue requirement based on the adopted rate base. We'll have a new rate next year to cover what we spent so far. Does that makes sense?

Yes. Okay. And even though you have gone through the GRC for the water business, you will not show the projected rate base for '26 and '27?

We will show that next time for sure, because we want to make sure we have the exact number of what we can file by end of this year for those advice letter even though we are also right $76 million, not sure that's exactly the number will be in the adopted rate base. So we're very conservative. We like to have a pretty certain number before announce [indiscernible]. So definitely, we'll announce that next quarter earnings.

Okay. Okay. I've been asking. So I'm just repeating the question. Okay. I have...

Yes, I can probably share with you the [indiscernible] number for next year, but I don't have the information right now. But it's public information, so I can shoot you an e-mail, Angie.

This concludes our question-and-answer session. I would like to turn the conference back over to Bob Sprowls for any closing remarks.

Thank you, Bailey. Just want to wrap up by thanking you all for your participation today, letting you know that we look forward to speaking with you next quarter and then wishing all of you a happy holiday season. Thank you very much.

The conference has now concluded. You may disconnect.