SAN DIMAS, Calif. - The California Supreme Court has overturned a previous ruling from the California Public Utilities Commission (CPUC), allowing American States Water Company (NYSE:AWR) and its subsidiary, Golden State Water Company (GSWC), to continue using a revenue decoupling mechanism that promotes water conservation. The decision, announced on July 8, 2024, reinstates the Water Revenue Adjustment Mechanism (WRAM), which had been in place since 2008.
WRAM, in combination with tiered water rates, was designed to encourage customers to use less water by charging more per unit as consumption increases while protecting the utility's financial stability from fluctuating water sales. This system has been credited with a significant reduction in water usage per customer, with GSWC reporting a 41.6% decrease in 2023 compared to 2007 levels.
The CPUC's August 2020 order to discontinue WRAM was met with opposition from GSWC and three other investor-owned water utilities, leading to petitions for the California Supreme Court to review the decision-making process. With the Court's ruling, the CPUC's findings that had eliminated the water utilities' abilities to request WRAM have been vacated.
Robert J. Sprowls, President and CEO of American States Water Company, expressed satisfaction with the Court's decision, emphasizing the positive impact on conservation efforts in California and the financial stability it provides for GSWC. This stability is crucial for attracting capital investments in infrastructure, ensuring safe and reliable water services, and supporting the growth of dividends for shareholders.
American States Water Company, through its subsidiaries, serves over one million people in ten states and has a longstanding history of dividend payments to shareholders, with a record of 69 consecutive years of dividend increases.
This development comes as GSWC has filed a general rate case application for the years 2025-2027, seeking to continue the use of tiered rates and mechanisms like WRAM to maintain revenue decoupling. The ruling may influence the outcome of this rate case, which will set new water rates for the upcoming years.
The information for this article is based on a press release statement from American States Water Company.
In other recent news, American States Water Company has reported mixed Q1 2024 results. The company's diluted earnings per share showed a decrease compared to Q1 of 2023, while adjusted earnings per share saw an increase. The company's subsidiary, Golden State Water, experienced an increase in its authorized return on equity and rate base at the start of 2024.
The company is also navigating new PFAS drinking water regulations, which are expected to lead to significant capital expenditures over the next five years. In addition, the company has begun water and wastewater operations at two new military bases.
These recent developments also include ASUS, another subsidiary, being awarded a $4.1 million task order for transitioning water and wastewater systems at a military base. The company's average rate base has shown significant growth, from $752.2 million in 2018 to $1,357.5 million in 2024.
Lastly, the company's quarterly dividend rate has grown at a 9.4% compound annual growth rate over the last five years. However, it's important to note that the pending rate case does not currently include anticipated PFAS-related capital expenditures.
InvestingPro Insights
The recent California Supreme Court decision in favor of American States Water Company (NYSE:AWR) not only reinforces the company's commitment to sustainable water usage but also aligns with its strong financial performance and stability. According to real-time data from InvestingPro, American States Water Company boasts a market capitalization of $2.74 billion, underscoring its significant presence in the utility sector.
The company's adherence to financial prudence is reflected in its P/E ratio, which stands at 23.97, indicating investor confidence in its earning potential. This is further supported by a solid gross profit margin of 59.81% over the last twelve months as of Q1 2024, showcasing efficient operations and strong management of resources.
InvestingPro Tips highlight American States Water Company's impressive track record of dividend reliability, with dividends raised for 31 consecutive years and maintained for 54 years in total. This consistency is a testament to the company's financial health and its ability to generate steady returns for its shareholders, which is critical for those seeking stable income streams. Moreover, the company's liquid assets exceed its short-term obligations, providing a buffer for any unforeseen financial needs.
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