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We deliver American States Water Company 2016 Annual Report 2016 AMERICAN STATES WATER COMPANY American States Water Company is the parent of Golden State Water Company and American States Utility Services, Inc. Through its utility subsidiary, Golden State Water Company, the Company provides water service to customers located within communities in Northern, Coastal and Southern California. The Company’s Bear Valley Electric Service, a division of Golden State Water Company, distributes electricity to customers in the City of Big Bear 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 and wastewater systems located on U.S. military bases. American States Water Company common stock trades on the New York Stock Exchange under the symbol AWR. Dependably dependable Year in, year out, we deliver. By pipe. By power line. By phone from our customer service centers. By the muscle and grit of our infrastructure crews. And by the returns we consistently provide to shareholders. Since 1929, we have been there with results when it counts. That’s why customers and investors alike rely on us. They know that quietly but dependably we’ll get the job done. 1 AWR.01 GSWC Water Utility 70% ASUS $302,931 22% $97,385 Total Operating Revenues $436,087 GSWC Electric Utility 8% $35,771 2 We deliver peace of mind Through our subsidiaries—Golden State Water Company (GSWC) and American States Utility Services, Inc. (ASUS)— we deliver essential water, wastewater and electricity services that reach more than one million people in eight states. Countless times every day, our customers turn a faucet or flip a light switch without giving it a thought. Our ongoing infrastructure improvements and dedicated customer service teams help ensure that they never will. AWR.02 We deliver value Year after year, we aim to deliver a reasonable return 3 to shareholders. We focus on fundamentals like operational efficiency, customer growth and ongoing needed infrastructure improvements resulting in steady long-term growth and safe, reliable systems, making our company fundamental for many investors’ portfolios. Increasing dividends for 62 straight years makes us attractive to investors as well. 10-Year Compound Annual Return S&P 500 6.9% AWR 12.0% AWR.03 4 We deliver on our commitment to communities Through our water, wastewater and electrical systems, we’re literally embedded in towns, cities and military bases around the country. That’s a privilege we take seriously, and we strive to be an outstanding neighbor and exemplary corporate citizen. Investment In 2016, the Company enhanced its support of local non-profit per Customer organizations, giving to the organizations our employees $5,909 tell us are making a difference where they live. We deepened 2016 our dialogue with municipalities and the military to increase 2015 $5,600 collaboration and find mutually beneficial ways of serving local residents. 2014 $5,334 AWR.04 American States Water Company’s financial highlights (in thousands, except per share amounts) 2016 2015 Variance Change INCOME STATEMENT INFORMATION Total Operating Revenues $ 436,087 $ 458,641 $ (22,554) -4.9% Total Operating Expenses 321,371 340,152 (18,781) -5.5% Operating Income 114,716 118,489 (3,773) -3.2% Interest Charges (Net) 21,235 20,630 605 2.9% Net Income from Operations 59,743 60,484 (741) -1.2% Basic Earnings per Common Share $ 1.63 $ 1.61 $ 0.02 1.2% Fully Diluted Earnings per Common Share 1.62 1.60 0.02 1.3% Dividends Paid per Common Share 0.914 0.874 0.04 4.6% Average Number of Shares Outstanding 36,552 37,389 (837) -2.2% Average Number of Diluted Shares Outstanding 36,750 37,614 (864) -2.3% BALANCE SHEET INFORMATION Total Assets $ 1,470,493 $ 1,343,959 $ 126,534 9.4% Net Utility Plant 1,150,926 1,060,794 90,132 8.5% Common Shareholders’ Equity 494,297 465,945 28,352 6.1% Long-Term Debt 320,981 320,900 81 0.0% Total Capitalization 815,278 786,845 28,433 3.6% Book Value per Common Share $ 13.52 $ 12.76 $ 0.76 6.0% AWR.05 Letter to our shareholders DEAR SHAREHOLDERS, • ASUS was awarded a 50-year contract by the U.S. A utility is a unique kind of business. We have a responsibility, government to operate, maintain and provide construction first and foremost, to deliver safe and dependable service to management services for the water and wastewater systems the households we serve. In addition, like any company, it’s at Eglin Air Force Base, bringing the total number of bases also our job to deliver value to those who hold our stock. that we serve to ten. Eglin is the largest Air Force installation in the continental United States in terms of land mass. The For eighty-seven years, American States Water has strived initial value of the contract award is $510 million over the to deliver on both counts—as a dependable service provider life of the contract. We expect to begin managing the water woven into the fabric of communities around the country and and wastewater systems by mid-2017. This is an important a consistently rewarding investment. Year in and year out, milestone in American States Water Company’s growth strategy. the men and women of American States and its subsidiaries have gotten the job done, proudly delivering on their respon- • GSWC has a culture of cost containment and continues sibility to their neighbors as they also deliver reasonable to drive operational excellence. This was further evidenced financial returns to shareholders. This year is no exception. in 2016. Excluding supply costs and depreciation expenses, We are pleased to share the following highlights from 2016. operating expenses for 2016 were approximately $900,000 lower than 2015. Management continues to focus on FINANCIAL RESULTS controlling its staffing levels. In fact, total employment American States Water produced another year of solid at GSWC has declined by approximately 6% since 2011. financial performance from its two first-tier subsidiaries: Golden State Water Company (GSWC), our regulated water • Although delayed, in December the California Public Utilities and electric utility, and American States Utility Services, Inc. Commission (CPUC) approved the general rate case for (ASUS), our contracted services business. We earned $1.62 the water segment of GSWC, which determines rates for the per fully diluted share and achieved a consolidated return on years 2016 – 2018. The new rates approved by the CPUC equity for the year of 12.4%, all while increasing our dividend are retroactive to January 1, 2016. Among other things, the by 8%, continuing a record of 62 consecutive years of annual CPUC approved the vast majority of GSWC’s infrastructure dividend increases. Looking ahead, we plan to continue to capital requests, which will help ensure the continued quality grow our water utility business in California and our military and reliability of the services we provide to our customers. base presence around the country. • We successfully defended against an eminent domain 2016 KEY DEVELOPMENTS lawsuit filed by the City of Claremont (the City) to seize • Our water and electric utilities continue to invest in GSWC’s water system in Claremont. In December 2016, maintaining and improving the reliability of our systems. the presiding judge issued a decision in the six week right During 2016, GSWC invested $120.7 million in infrastructure, to take trial, rejecting Claremont’s attempt to take over the well above the $91.1 million spent in 2015. Capital water system. In rejecting the City’s lawsuit, the judge’s expenditures at Bear Valley Electric Service accounted decision emphasizes GSWC’s excellent record of water for $7.4 million of the 2016 amount, reflecting our electric quality and service reliability. However, the City has filed division’s work on one large project along with numerous an appeal to the decision and the Company will continue smaller projects. The Company reinvested nearly all of its to defend itself against this lawsuit. cash from operations into infrastructure during 2016. AWR.06 • ASUS continued to play a significant role for the Company ABOVE-MARKET RETURNS TO SHAREHOLDERS during the year, contributing $0.33 per share, or approximately OVER THE LONG TERM 20% and 22% of consolidated earnings and revenues, Our common stock achieved a total shareholder return respectively, and achieving a higher return on investment of 11.0% for 2016. Though slightly below the S&P 500’s than our well-performing regulated utilities. 2016 return of 12.0%, our common stock has achieved a compound annual return of 24.3% over the five year period • During the year, GSWC continued to successfully implement (2012-2016), significantly above the 14.7% annual return the mandatory water-use reductions imposed by the California achieved by the S&P 500 over that same time period. Governor’s April 1, 2015 executive order in response to the state’s drought. In October 2016, the National Association 62ND CONSECUTIVE YEAR OF DIVIDEND INCREASES of Water Companies (NAWC) named GSWC as the winner 2016 marked the 62nd consecutive year of increases in our of the 2016 NAWC Management Innovation Awards for its annual dividend, placing us in an exclusive group of companies water conservation communications program, the “Collabo- on the New York Stock Exchange that have achieved that rative Conservation Education Campaign.” GSWC adjusted result. Earnings from ASUS have grown significantly over the its communications approach to better engage with its past five years and have contributed to our recent increases customers about the importance of using water responsibly in the annual dividend.