American States Water Company Announces Favorable Ruling by the California Supreme Court Vacating the CPUC’s Prior Decision to Discontinue Use of a Full Revenue Decoupling Mechanism by Water Utilities

Rhea-AI Summary

American States Water Company (NYSE: AWR) announced that the California Supreme Court has vacated a prior decision by the California Public Utilities Commission (CPUC) to end the Water Revenue Adjustment Mechanism (WRAM). The WRAM, in place since 2008, decouples water utilities' revenue from water consumption, promoting conservation through tiered pricing. This mechanism and the tiered rates resulted in a 41.6% reduction in water use per customer by 2023 compared to 2007. AWR had contested the CPUC's 2020 decision along with other water utilities, leading to the favorable ruling. The decision sustains financial stability for AWR, aiding in infrastructure investment and dividend growth.

Positive

• California Supreme Court overturned CPUC's decision to discontinue WRAM.
• WRAM and tiered rates reduced water use per customer by 41.6% from 2007 to 2023.
• The decision supports AWR's financial stability and infrastructure investments.
• Continued use of WRAM facilitates dividend growth for shareholders.

Negative

• None.

Insights

Legal Expert

The California Supreme Court's ruling vacating the CPUC’s prior decision is a significant legal outcome for American States Water Company (AWR) and other investor-owned water utilities. This ruling reinstates the Water Revenue Adjustment Mechanism (WRAM), which decouples revenue from water consumption. By overturning the CPUC's decision, the Court has essentially affirmed the utility's legal standing and their ability to use WRAM as a financial stability tool.

From a legal perspective, this decision may set a precedent for future regulatory challenges faced by utilities. It underscores the importance of robust legal strategies when contesting regulatory decisions that might impact operational models and financial stability. Investors can view this ruling as a reinforcement of the company’s ability to influence regulatory outcomes favorably through legal avenues, which can be reassuring in an industry heavily governed by regulation.

Financial Analyst

From a financial standpoint, the reinstatement of the WRAM is highly pertinent. Decoupling revenue from water sales helps mitigate the risk associated with fluctuating water usage, which can be influenced by external factors like weather conditions and conservation efforts. This mechanism ensures predictable revenue streams, enhancing financial stability and potentially leading to more reliable earnings reports.

The ability to maintain tiered rates coupled with decoupled revenues supports the company's financial health, which is essential for ongoing infrastructure investments. This stability can make AWR a more attractive investment, as it suggests a lower risk profile and more predictable dividend growth for shareholders. Investors should note the potential for improved financial performance and sustained dividend payouts as highlights of this ruling.

Market Research Analyst

The reinstatement of the WRAM is likely to have ripple effects in the market for water utilities. By encouraging conservation while ensuring financial stability, AWR can better align with state mandates for environmental sustainability without sacrificing economic performance. This dual benefit can enhance the company's reputation among environmentally conscious investors while also stabilizing its market position.

Furthermore, the confirmation by the Court supports the broader trend of regulatory bodies and legal systems recognizing and validating mechanisms that balance conservation with economic needs. The market might view this positively, not only because it bodes well for AWR but also because it signals potential support for similar measures across other regions and sectors.

SAN DIMAS, Calif.--(BUSINESS WIRE)-- American States Water Company (AWR: NYSE) announced today that the California Supreme Court (the “Court”) issued a ruling on July 8, 2024 that set aside a previously issued order by the California Public Utilities Commission (“CPUC”) in August 2020, which had mandated the discontinuation of an existing full revenue decoupling mechanism known as the Water Revenue Adjustment Mechanism (“WRAM”) used by investor owned water utilities since 2008 that, in conjunction with tiered rates, incentivizes water conservation. In response to the CPUC’s order, AWR’s regulated water utility, Golden State Water Company (“GSWC”), three other investor-owned water utilities and the California Water Association each separately filed a petition in 2021 with the Court to review the CPUC’s decision-making processes that resulted in discontinuing the use of the WRAM. As a result of the Court’s decision, portions of the CPUC’s August 2020 order, including the accompanying findings and conclusions that eliminated the water utilities’ abilities to request the WRAM, are being vacated.

To encourage water conservation, the CPUC in 2008 recommended that water utilities implement tiered rates, where customers pay more per unit of water used as they use more water. In exchange for implementing the tiered rates, the CPUC allowed water utilities, including GSWC, to “decouple” revenue from the amount of water sold and authorized the use of the WRAM. Since their implementation in 2008, the tiered rates and the WRAM have promoted conservation while mitigating fluctuations in GSWC’s earnings due to changes in water consumption by its customers. In August 2023, GSWC filed a general rate case application for all its water regions and the general office that will determine new water rates for the years 2025 – 2027. Among other things, GSWC had requested the continuation of tiered rates and mechanisms to accommodate fully decoupled revenues and sales.

“We are very pleased with the Court’s decision and its positive impact on conservation in California,” stated Robert J. Sprowls, President and CEO of American States Water Company. “We have seen the favorable effects on conservation since implementing the tiered rates and this decoupling mechanism in 2008. Water usage per customer by GSWC customers was 41.6% lower in 2023 than in 2007, without compromising the financial stability of GSWC. This stability allows the company to attract capital for investments in its infrastructure that enable us to provide safe and reliable services to our customers, and permits continued growth of our dividends paid to shareholders.”

Forward-Looking Statements

Certain matters discussed in this press release with regard to the company’s expectations may be forward-looking statements that involve risks and uncertainties. The assumptions and risk factors that could cause actual results to differ materially include those described in the company’s most recent Form 10-Q and Form 10-K filed with the Securities and Exchange Commission.

About American States Water Company

American States Water Company is the parent of Golden State Water Company, Bear Valley Electric Service, Inc. and American States Utility Services, Inc., serving over one million people in ten states. Through its water utility subsidiary, Golden State Water Company, the company provides water service to approximately 264,200 customer connections located within more than 80 communities in Northern, Coastal and Southern California. Through its electric utility subsidiary, Bear Valley Electric Service, Inc., the company distributes electricity to approximately 24,800 customer connections in the City of Big Bear Lake and surrounding areas in San Bernardino County, California. Through its contracted services subsidiary, American States Utility Services, Inc., the company provides operations, maintenance and construction management services for water distribution, wastewater collection, and treatment facilities located on twelve military bases throughout the country under 50-year privatization contracts with the U.S. government and one military base under a 15-year contract.

American States Water Company has paid dividends to shareholders every year since 1931, increasing the dividends received by shareholders each calendar year for 69 consecutive years, which places it in an exclusive group of companies on the New York Stock Exchange that have achieved that result. The company has achieved an 8.1% compound annual growth rate in its calendar year dividend payments from 2013 – 2023.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240710103189/en/

Eva G. Tang

Senior Vice President-Finance, Chief Financial Officer,

Corporate Secretary and Treasurer

Telephone: (909) 394-3600, ext. 707

Source: American States Water Company

FAQ

What was the California Supreme Court's decision regarding AWR on July 8, 2024?

The California Supreme Court vacated a prior CPUC decision to discontinue the Water Revenue Adjustment Mechanism (WRAM), which promotes water conservation.

How has WRAM impacted water usage for AWR?

Since implementing WRAM and tiered rates in 2008, water usage per customer has decreased by 41.6% by 2023.

What is WRAM, and how does it benefit AWR?

The Water Revenue Adjustment Mechanism (WRAM) decouples revenue from water sales, mitigating earnings fluctuations and promoting conservation, thereby ensuring financial stability for AWR.

How does the Supreme Court's decision affect AWR's financial stability?

The decision to continue WRAM sustains AWR's financial stability by allowing continued revenue decoupling, supporting infrastructure investment and dividend growth.

What was the outcome of AWR's petition to the California Supreme Court?

The petition led to the California Supreme Court vacating the CPUC's 2020 decision, restoring the WRAM mechanism.