SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2005 or

o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________ to ___________

Commission file number 001-14431

American States Water Company

(Exact Name of Registrant as Specified in Its Charter)

California		95-4676679
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

630 East Foothill Boulevard, San Dimas		91773
(Address of Principal Executive Offices)		(Zip Code)

(909) 394-3600

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Commission file number 001-12008

Southern California Water Company

(Exact Name of Registrant as Specified in Its Charter)

California		95-1243678
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

630 East Foothill Boulevard, San Dimas		91773
(Address of Principal Executive Offices)		(Zip Code)

(909) 394-3600
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

		American States Water Company		Yes þ		No o
		Southern California Water Company		Yes þ		No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.).

		American States Water Company		Yes þ		No o
		Southern California Water Company		Yes o		No þ

As of August 5, 2005, the number of Common Shares outstanding, of American States Water Company was 16,779,869 shares.

As of August 5, 2005, all of the 122 outstanding Common Shares of Southern California Water Company were owned by American States Water Company.

 

 

AMERICAN STATES WATER COMPANY
and

SOUTHERN CALIFORNIA WATER COMPANY
FORM 10-Q

INDEX

			Page
Part I Financial Information
Item 1: Financial Statements			2
Consolidated Balance Sheets of American States Water Company as of June 30, 2005 and December 31, 2004			3-4
Consolidated Statements of Income of American States Water Company for the Three Months Ended June 30, 2005 and 2004			5
Consolidated Statements of Income of American States Water Company for the Six Months Ended June 30, 2005 and 2004			6
Consolidated Statements of Cash Flow of American States Water Company for the Six Months Ended June 30, 2005 and 2004			7
Consolidated Balance Sheets of Southern California Water Company as of June 30, 2005 and December 31, 2004			8-9
Consolidated Statements of Income of Southern California Water Company for the Three Months Ended June 30, 2005 and 2004			10
Consolidated Statements of Income of Southern California Water Company for the Six Months Ended June 30, 2005 and June 30, 2004			11
Consolidated Statements of Cash Flow of Southern California Water Company for the Six Months Ended June 30, 2005 and June 30, 2004			12
Notes to Consolidated Financial Statements			13-26
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations			27-46
Item 3: Quantitative and Qualitative Disclosures About Market Risks			46
Item 4: Controls and Procedures			46
Part II Other Information
Item 1: Legal Proceedings			47
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds			47
Item 3: Defaults Upon Senior Securities			47
Item 4: Submission of Matters to a Vote of Security Holders			48
Item 5: Other Information			48
Item 6: Exhibits			49
Signature			49
Exhibit 31.1
Exhibit 31.1.1
Exhibit 31.2
Exhibit 31.2.1
Exhibit 32.1
Exhibit 32.2

PART I

Item 1. Financial Statements

          General

          The basic financial statements included herein have been prepared by Registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.

          Certain information and footnote disclosures normally included in financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments consisting of normal recurring items and estimates necessary for a fair statement of results for the interim period have been made.

          It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto in the latest Annual Report on Form 10-K of American States Water Company and its wholly owned subsidiary, Southern California Water Company.

          Filing Format

          This quarterly report on Form 10-Q is a combined report being filed by two separate Registrants: American States Water Company (hereinafter “AWR”) and Southern California Water Company (hereinafter “SCW”). For more information, please see Note 1 to the Notes to Consolidated Financial Statements and the heading entitled General in Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operation. References in this report to “Registrant” are to AWR and SCW collectively, unless otherwise specified. SCW makes no representations as to the information contained in this report relating to AWR and its subsidiaries, other than SCW.

CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)

		June 30,				December 31,
(in thousands)		2005				2004
Utility Plant, at cost
Water		$	791,595			$	778,238
Electric			58,549				58,667
			850,144				836,905
Less — Accumulated depreciation			(253,106	)			(241,717	)
			597,038				595,188
Construction work in progress			90,386				68,977
Net utility plant			687,424				664,165
Other Property and Investments
Goodwill			11,883				11,925
Other property and investments			9,814				9,792
Total other property and investments			21,697				21,717
Current Assets
Cash and cash equivalents			5,104				4,303
Accounts receivable-customers (less allowance for doubtful accounts of $757 in 2005 and $782 in 2004)			11,950				10,970
Unbilled revenue			17,633				13,743
Other accounts receivable (less allowance for doubtful accounts of $234 in 2005 and $201 in 2004)			3,092				3,384
Income taxes receivable			—				5,833
Materials and supplies, at average cost			1,436				1,496
Regulatory assets — current			5,428				7,104
Prepayments and other current assets			3,364				3,466
Deferred income taxes — current			1,736				2,725
Total current assets			49,743				53,024
Regulatory and Other Assets
Regulatory assets			53,621				54,404
Other accounts receivable			8,607				8,400
Other			8,708				8,567
Total regulatory and other assets			70,936				71,371
Total Assets		$	829,800			$	810,277

The accompanying notes are an integral part of these consolidated financial statements

CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
(Unaudited)

		June 30,				December 31,
(in thousands)		2005				2004
Capitalization
Common shares, no par value, no stated value		$	165,922			$	165,270
Earnings reinvested in the business			91,408				89,454
Accumulated other comprehensive loss			(3,259	)			(3,259	)
Total common shareholders’ equity			254,071				251,465
Long-term debt			228,892				228,902
Total capitalization			482,963				480,367
Current Liabilities
Notes payable to banks			49,000				45,000
Long-term debt — current			658				880
Accounts payable			18,782				18,206
Income taxes payable			3,356				—
Accrued employee expenses			4,744				4,260
Accrued interest			1,877				1,670
Regulatory liabilities — current			3,697				3,441
Other			10,263				12,879
Total current liabilities			92,377				86,336
Other Credits
Advances for construction			83,300				81,351
Contributions in aid of construction — net			76,223				73,100
Deferred income taxes			60,993				59,839
Unamortized investment tax credits			2,564				2,609
Accrued pension and other postretirement benefits			12,518				8,793
Regulatory liabilities			10,545				9,731
Other			8,317				8,151
Total other credits			254,460				243,574
Commitments and Contingencies (Note 10)			—				—
Total Capitalization and Liabilities		$	829,800			$	810,277

The accompanying notes are an integral part of these consolidated financial statements

CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED JUNE 30, 2005 AND 2004
(Unaudited)

		Three Months Ended
		June 30,
(in thousands, except per share amounts)		2005				2004
Operating Revenues
Water		$	53,551			$	53,576
Electric			6,091				5,449
Other			854				319
			60,496				59,344
Operating Expenses
Water purchased			12,277				12,802
Power purchased for pumping			2,184				2,415
Power purchased for resale			2,710				2,538
Unrealized (gain) loss on purchased power contracts			(459	)			76
Gain on sale of water rights			—				(5,675	)
Groundwater production assessment			1,843				1,338
Supply cost balancing accounts			(550	)			3,598
Other operating expenses			5,218				5,283
Administrative and general expenses			11,495				11,497
Depreciation and amortization			5,696				5,073
Maintenance			2,522				2,609
Taxes on income			4,808				5,086
Other taxes			2,221				2,105
Total operating expenses			49,965				48,745
Operating Income			10,531				10,599
Other Income (Loss)
Other income (loss), net			(121	)			851
Taxes on other income (loss)			69				(313	)
Total other income (loss), net			(52	)			538
Interest Charges
Interest on long-term debt			4,054				4,052
Other interest and amortization of debt expense			690				375
Total interest charges			4,744				4,427
Net Income		$	5,735			$	6,710
Weighted Average Number of Shares Outstanding			16,773				15,248
Basic Earnings Per Common Share		$	0.34			$	0.44
Weighted Average Number of Diluted Shares			16,834				15,269
Fully Diluted Earnings Per Share		$	0.34			$	0.44
Dividends Declared Per Common Share		$	0.225			$	0.221

The accompanying notes are an integral part of these consolidated financial statements

CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED
JUNE 30, 2005 AND 2004
(Unaudited)

		Six Months Ended
		June 30,
(in thousands, except per share amounts)		2005				2004
Operating Revenues
Water		$	95,048			$	92,318
Electric			13,561				13,076
Other			1,681				601
			110,290				105,995
Operating Expenses
Water purchased			19,963				21,683
Power purchased for pumping			3,671				4,132
Power purchased for resale			6,847				7,367
Unrealized gain on purchased power contracts			(3,474	)			(481	)
Gain on settlement for removal of wells			(760	)			—
Gain on sale of water rights			—				(5,675	)
Groundwater production assessment			3,764				3,160
Supply cost balancing accounts			528				3,819
Other operating expenses			10,287				9,720
Administrative and general expenses			21,624				20,576
Depreciation and amortization			11,331				10,250
Maintenance			4,988				4,936
Taxes on income			8,024				6,028
Other taxes			4,493				4,331
Total operating expenses			91,286				89,846
Operating Income			19,004				16,149
Other Income (Loss)
Other income (loss)			(242	)			669
Taxes on other income (loss)			141				(214	)
Total other income (loss)			(101	)			455
Interest Charges
Interest on long-term debt			8,106				8,102
Other interest and amortization of debt expense			1,298				646
Total interest charges			9,404				8,748
Net Income		$	9,499			$	7,856
Weighted Average Number of Shares Outstanding			16,769				15,236
Basic Earnings Per Common Share		$	0.57			$	0.52
Weighted Average Number of Diluted Shares			16,821				15,265
Fully Diluted Earnings Per Share		$	0.56			$	0.51
Dividends Declared Per Common Share		$	0.450			$	0.442

The accompanying notes are an integral part of these consolidated financial statements

CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(Unaudited)

		Six Months Ended
		June 30,
(in thousands)		2005				2004
Cash Flows From Operating Activities:
Net income		$	9,499			$	7,856
Adjustments for non-cash items:
Depreciation and amortization			11,331				10,250
Provision for doubtful accounts			235				257
Deferred income taxes and investment tax credits			3,219				651
Unrealized gain on purchased power contracts			(3,474	)			(481	)
Impairment loss on assets removed from rate-base			—				482
Non-cash compensation expense on stock units issued			97				778
Other — net			(107	)			970
Changes in assets and liabilities:
Accounts receivable — customers			(1,182	)			(479	)
Unbilled revenue			(3,890	)			(2,059	)
Other accounts receivable			52				8,282
Materials and supplies			60				(107	)
Prepayments and other current assets			1,549				1,820
Regulatory assets — supply cost balancing accounts			528				3,819
Other assets			336				(46	)
Accounts payable			576				(3,247	)
Income taxes receivable/payable			9,189				5,135
Other liabilities			4,871				(4,802	)
Net cash provided			32,889				29,079
Cash Flows From Investing Activities:
Construction expenditures			(35,834	)			(30,592	)
Net cash used			(35,834	)			(30,592	)
Cash Flows From Financing Activities:
Proceeds from issuance of common shares			555				1,204
Receipt of advances for and contributions in aid of construction			8,128				5,175
Refunds on advances for construction			(2,372	)			(2,287	)
Repayments of long-term debt			(353	)			(331	)
Net change in notes payable to banks			4,000				(2,000	)
Cash received on financing portion of purchased power contracts			1,333				658
Dividends paid			(7,545	)			(6,732	)
Net cash provided (used)			3,746				(4,313	)
Net increase (decrease) in cash and cash equivalents			801				(5,826	)
Cash and cash equivalents, beginning of period			4,303				12,775
Cash and cash equivalents, end of period		$	5,104			$	6,949

The accompanying notes are an integral part of these consolidated financial statements

BALANCE SHEETS
ASSETS
(Unaudited)

		June 30,				December 31,
(in thousands)		2005				2004
Utility Plant, at cost
Water		$	747,710			$	734,662
Electric			58,549				58,667
			806,259				793,329
Less — Accumulated depreciation			(240,502	)			(229,664	)
			565,757				563,665
Construction work in progress			84,487				65,136
Net utility plant			650,244				628,801
Other Property and Investments			7,438				7,419
Current Assets
Cash and cash equivalents			3,323				2,702
Accounts receivable-customers (less allowance for doubtful accounts of $720 in 2005 and $758 in 2004)			11,814				10,818
Unbilled revenue			17,255				13,466
Inter-company receivable			707				1,126
Other accounts receivable (less allowance for doubtful accounts of $234 in 2005 and $201 in 2004)			2,053				2,465
Income taxes receivable from Parent			—				4,187
Materials and supplies, at average cost			1,410				1,473
Regulatory assets — current			5,428				7,104
Prepayments and other current assets			3,192				3,248
Deferred income taxes — current			1,791				2,795
Total current assets			46,973				49,384
Regulatory and Other Assets
Regulatory assets			53,292				54,219
Other accounts receivable			8,607				8,400
Other			7,884				8,053
Total regulatory and other assets			69,783				70,672
Total Assets		$	774,438			$	756,276

The accompanying notes are an integral part of these financial statements

BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
(Unaudited)

		June 30,				December 31,
(in thousands)		2005				2004
Capitalization
Common shares, no par value		$	159,387			$	159,290
Earnings reinvested in the business			89,793				87,817
Accumulated other comprehensive loss			(3,259	)			(3,259	)
Total common shareholder’s equity			245,921				243,848
Long-term debt			221,687				221,697
Total capitalization			467,608				465,545
Current Liabilities
Long-term debt — current			229				282
Accounts payable			17,430				17,196
Inter-company payable			29,383				23,925
Income taxes payable to Parent			3,792				—
Accrued employee expenses			4,400				3,951
Accrued interest			1,796				1,636
Regulatory liabilities — current			3,697				3,441
Other			9,945				12,601
Total current liabilities			70,672				63,032
Other Credits
Advances for construction			71,271				70,206
Contributions in aid of construction-net			75,393				72,574
Deferred income taxes			57,431				56,684
Unamortized investment tax credits			2,564				2,609
Accrued pension and other postretirement benefits			12,518				8,793
Regulatory liabilities			9,785				9,731
Other			7,196				7,102
Total other credits			236,158				227,699
Commitments and Contingencies (Note 10)			—				—
Total Capitalization and Liabilities		$	774,438			$	756,276

The accompanying notes are an integral part of these financial statements

STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED JUNE 30, 2005 AND 2004
(Unaudited)

		Three Months Ended
		June 30,
(in thousands)		2005				2004
Operating Revenues
Water		$	51,797			$	51,897
Electric			6,091				5,449
			57,888				57,346
Operating Expenses
Water purchased			12,100				12,609
Power purchased for pumping			2,045				2,294
Power purchased for resale			2,710				2,538
Unrealized (gain) loss on purchased power contracts			(459	)			76
Gain on sale of water rights			—				(5,675	)
Groundwater production assessment			1,878				1,338
Supply cost balancing accounts			(550	)			3,598
Other operating expenses			4,697				4,914
Administrative and general expenses			9,653				9,418
Depreciation and amortization			5,415				4,835
Maintenance			2,304				2,375
Taxes on income			5,207				6,024
Other taxes			2,112				2,015
Total operating expenses			47,112				46,359
Operating Income			10,776				10,987
Other Income (Loss)
Other income (loss), net			(140	)			851
Taxes on other income (loss)			77				(322	)
Total other income (loss), net			(63	)			529
Interest Charges
Interest on long-term debt			3,956				3,939
Other interest and amortization of debt expense			460				258
Total interest charges			4,416				4,197
Net Income		$	6,297			$	7,319

The accompanying notes are an integral part of these financial statements

STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED
JUNE 30, 2005 AND 2004
(Unaudited)

		Six Months Ended
		June 30,
(in thousands)		2005				2004
Operating Revenues
Water		$	91,951			$	89,358
Electric			13,561				13,076
			105,512				102,434
Operating Expenses
Water purchased			19,670				21,329
Power purchased for pumping			3,457				3,935
Power purchased for resale			6,847				7,367
Unrealized gain on purchased power contracts			(3,474	)			(481	)
Gain on sale of water rights			—				(5,675	)
Groundwater production assessment			3,799				3,160
Supply cost balancing accounts			528				3,819
Other operating expenses			9,310				9,007
Administrative and general expenses			18,472				17,154
Depreciation and amortization			10,772				9,772
Maintenance			4,613				4,628
Taxes on income			8,386				7,360
Other taxes			4,272				4,140
Total operating expenses			86,652				85,515
Operating Income			18,860				16,919
Other Income (Loss)
Other income (loss), net			(264	)			664
Taxes on other income (loss)			150				(221	)
Total other income (loss), net			(114	)			443
Interest Charges
Interest on long-term debt			7,903				7,874
Other interest and amortization of debt expense			867				450
Total interest charges			8,770				8,324
Net Income		$	9,976			$	9,038

The accompanying notes are an integral part of these financial statements

CASH FLOW STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(Unaudited)

		Six Months Ended
		June 30,
(in thousands)		2005				2004
Cash Flows From Operating Activities:
Net income		$	9,976			$	9,038
Adjustments for non-cash items:
Depreciation and amortization			10,772				9,772
Provision for doubtful accounts			218				240
Deferred income taxes and investment tax credits			2,782				354
Unrealized gain on purchased power contracts			(3,474	)			(481	)
Impairment loss on assets removed from rate-base			—				482
Non-cash compensation expense on stock units issued			97				778
Other — net			95				1,028
Changes in assets and liabilities:
Accounts receivable — customers			(1,181	)			(553	)
Unbilled revenue			(3,789	)			(2,030	)
Other accounts receivable			172				8,348
Materials and supplies			63				(108	)
Prepayments and other current assets			1,503				1,864
Regulatory assets — supply cost balancing accounts			528				3,819
Other assets			501				(118	)
Accounts payable			234				(2,579	)
Inter-company receivable/payable			(2,423	)			(1,533	)
Income taxes receivable/payable from/to Parent			7,979				6,788
Other liabilities			3,920				(5,074	)
Net cash provided			27,973				30,035
Cash Flows From Investing Activities:
Construction expenditures			(33,437	)			(29,266	)
Net cash used			(33,437	)			(29,266	)
Cash Flows From Financing Activities:
Receipt of advances for and contributions in aid of construction			7,013				5,170
Refunds on advances for construction			(2,377	)			(2,274	)
Repayments of long-term debt			(184	)			(174	)
Net change in intercompany borrowings			8,300				—
Cash received on financing portion of purchased power contracts			1,333				658
Dividends paid			(8,000	)			(7,700	)
Net cash provided (used)			6,085				(4,320	)
Net increase (decrease) in cash and cash equivalents			621				(3,551	)
Cash and cash equivalents, beginning of period			2,702				8,306
Cash and cash equivalents, end of period		$	3,323			$	4,755

The accompanying notes are an integral part of these financial statements

AND

SOUTHERN CALIFORNIA WATER COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

          Note 1 — Summary of Significant Accounting Policies

          General: American States Water Company (“AWR”) is the parent company of Southern California Water Company (“SCW”), American States Utility Services, Inc. (“ASUS”) and its subsidiary, Fort Bliss Water Services Company (“FBWS”), and Chaparral City Water Company (“CCWC”). More than 90% of AWR’s assets consist of the common stock of SCW. SCW is a public utility engaged principally in the purchase, production, distribution and sale of water in three regions in California. SCW also distributes electricity in the Big Bear Lake area in California. The California Public Utilities Commission (“CPUC”) regulates SCW’s water and electric businesses, including properties, rates, services, facilities and other matters. CCWC is a public utility regulated by the Arizona Corporation Commission (“ACC”). ASUS performs water related services and operations on a contract basis. On October 1, 2004, ASUS’s wholly-owned subsidiary, FBWS, commenced operation of the water and wastewater systems at Fort Bliss located near El Paso, Texas pursuant to the terms of a 50-year contract with the U.S. Government. FBWS holds a Certificate of Convenience and Necessity from the Texas Commission on Environmental Quality (“TCEQ”). There is no direct regulatory oversight by either the CPUC or the ACC of the operation or rates of ASUS’s contracted services or AWR. Unless otherwise stated in this report, the term Registrant applies to both AWR and SCW, collectively.

          Basis of Presentation: The consolidated financial statements of AWR include the accounts of AWR and its wholly-owned subsidiaries SCW, ASUS, FBWS and CCWC, and are prepared in conformity with accounting principles generally accepted in the United States of America. Inter-company transactions and balances have been eliminated in the AWR consolidated financial statements. The consolidated financial statements included herein have been prepared by Registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America for annual financial statements have been condensed or omitted pursuant to such rules and regulations. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, all adjustments, consisting of normal recurring items and estimates necessary for a fair statement of the results for the interim periods, have been made. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Form 10-K for the year ended December 31, 2004 filed with the SEC. Certain prior year amounts have been reclassified to conform to current year presentation. None of these reclassifications had an impact on Registrant’s Shareholders’ Equity or Net Income.

          SCW’s Related Party Transactions: SCW and other subsidiaries provide and receive various services to and from their parent, AWR, and among themselves. In addition, AWR has an $85 million syndicated credit facility. AWR borrows under this facility and provides funds to SCW in support of its operations. Amounts owed to AWR for borrowings under this facility represent the majority of SCW’s inter-company payables on SCW’s balance sheets as of June 30, 2005 and December 31, 2004. Interest is charged to SCW in an amount sufficient to cover AWR’s interest cost under the credit facility. SCW also allocates certain corporate office administrative and general costs to its affiliates using CPUC approved allocation factors.

          Note 2 — Regulatory Matters: In accordance with accounting principles for rate-regulated enterprises, Registrant records regulatory assets, which represent probable future revenue associated with certain costs that will be recovered from customers through the rate-making process, and regulatory liabilities, which represent probable future reductions in revenue associated with amounts that are to be credited to customers through the rate-making process. At June 30, 2005, Registrant had $24.5 million of regulatory assets not accruing carrying costs. Of this amount, $15.1 million relates to the regulatory asset for costs deferred on the Aerojet matter disclosed below as a “non-yielding” regulatory asset. In addition, other regulatory assets not accruing carrying costs include a deferred income tax balance of $6.7 million representing accelerated tax benefits previously flowed-through to ratepayers, which will be included in rates concurrently with recognition of the associated tax expense. Finally, there are other expenses that Registrant recovers in rates over a short period that do not provide for recovery of carrying costs. At June 30, 2005, $2.7 million was recorded as other regulatory assets for such costs to be recovered.

          Regulatory assets, less regulatory liabilities, included in the consolidated balance sheets are as follows:

		June 30,				December 31,
(In thousands)		2005				2004
SCW
Supply cost balancing accounts		$	21,923			$	23,537
Costs deferred for future recovery on Aerojet case			15,122				15,347
Flow-through taxes, net			6,658				7,733
Electric transmission line abandonment costs			3,488				3,546
Asset retirement obligations			3,230				3,038
Low income balancing accounts			2,436				2,134
General rate case memorandum accounts			1,424				2,168
Refund of water right lease revenues			(6,199	)			(5,889	)
Revenues subject to refund			(3,518	)			(3,487	)
Supply cost memorandum accounts net over-collections			(643	)			(1,818	)
Other regulatory assets			1,317				1,842
Total SCW		$	45,238			$	48,151
CCWC
Asset retirement obligations		$	43			$	41
Other regulatory assets/liabilities, net			(474	)			144
Total AWR		$	44,807			$	48,336

Supply Cost Balancing Accounts:

          Electric Supply Cost Balancing Account — Electric power costs incurred by SCW’s Bear Valley Electric division continue to be charged to its electric supply cost balancing account. The under-collection in the electric supply cost balancing account is $21.6 million at June 30, 2005 which was mostly incurred during the energy crisis in late 2000 and early 2001. The CPUC has authorized SCW to collect a surcharge from its customers of 2.2¢ per kilowatt hour through August 2011, to enable SCW to recover the under-collection. SCW sold 30,120,267 and 29,204,086 kilowatt hours of electricity to its Bear Valley Electric division customers for the three months ended June 30, 2005 and 2004, respectively, and 70,314,814 and 69,955,975 kilowatt hours for the six months ended June 30, 2005 and 2004, respectively. SCW anticipates electricity sales to be sufficient for it to recover the amount of the under-collection by August 2011. SCW records both purchased energy and power system delivery costs in the supply cost balancing account. By terms of the settlement with the CPUC, the purchased energy costs that are recorded in the supply cost balancing account are subject to a price cap. SCW is allowed to include only up to a weighted annual energy purchase cost of $77 per MWh each year through August 2011 in its electric supply cost balancing account for purchased energy costs. To the extent that the actual weighted average annual cost for power purchased exceeds the $77 per MWh amount, SCW will not be able to include these amounts in its balancing account and such amounts will be expensed. During the six months ended June 30, 2005 and 2004, SCW expensed approximately $48,100 and $224,400, respectively, for costs over $77 per MWh.

          Note 2 — Regulatory Matters (Continued):

Water Memorandum Supply Cost Accounts:

          In a CPUC decision issued on June 19, 2003 related to memorandum supply cost accounts, all water utilities regulated by the CPUC are required to seek review of under- and over- collections by filing an advice letter annually. As of June 30, 2005, SCW has filed advice letters for Regions I and II for the period from November 29, 2001 to December 31, 2004 with respect to an approximate $1.8 million cumulative net over-collection, which has been recorded as a regulatory liability. In June 2005, the CPUC approved these advice letters, as filed, for the 2001, 2002 and 2003 years totaling $1.4 million over-collection which has been transferred to the supply cost balancing accounts. The advice letter for the 2004 year is awaiting approval. An additional $223,000 of net over-collection related to the six months ended June 30, 2005 has also been recorded as a regulatory liability at June 30, 2005.

          SCW also filed advice letters with the CPUC for review of the activity in the Region III memorandum supply cost account for the period from November 29, 2001 to December 31, 2004 totaling a cumulative $4.3 million under-collection. A regulatory asset with respect to this under-collection is not recorded until receipt of a CPUC decision authorizing the recovery of the under-collection. In June 2005, the CPUC approved the transfer of an approximate $1.3 million under-collection in Region III’s 2004 memorandum supply cost account into the water supply cost balancing account as of June 30, 2005. The advice letters for the 2001-2003 years are awaiting approval.

Costs Deferred for Future Recovery:

          SCW sued Aerojet-General Corporation (“Aerojet”) for causing the contamination of the Sacramento County Groundwater Basin, which affected certain SCW wells. On a related matter, SCW also filed a lawsuit against the State of California (the “State”). The CPUC authorized memorandum accounts to allow for recovery, from customers, of costs incurred by SCW in prosecuting the cases against Aerojet and the State, less any recovery from the defendants or others. On October 30, 2003, SCW, in its Region I abbreviated general rate case, filed for recovery of the cumulative balance of approximately $22 million in its memorandum account. This balance consisted primarily of deferred litigation costs and carrying costs. The filing with the CPUC requested recovery of the balance over a 20-year amortization period. As of June 30, 2005, approximately $15.1 million has been recorded as a non-yielding regulatory asset representing primarily the legal costs incurred to date in connection with prosecuting the cases. The difference between the amount filed with the CPUC for recovery in rates and those recorded primarily relate to previously incurred carrying costs pertaining to certain capital investments required to restore the water supply.

          On July 21, 2005, the CPUC authorized SCW to collect the balance of the Aerojet litigation memorandum account of approximately $21.3 million, through a rate surcharge, which will continue for no longer than 20 years. As a result of this decision, SCW, among other things, was ordered to: (i) impose a surcharge in the Arden-Cordova customer service area to amortize the balance totaling $21.3 million in the memorandum account and consequently, SCW will reflect an increase of approximately $6.2 million in its regulatory assets to include previously expensed carrying costs and record a corresponding gain in its results of operations during the third quarter of 2005; (ii) restore the appropriate plant accounts by approximately $1.1 million with a corresponding decrease in depreciation expense during the third quarter of 2005, due to the full reimbursement from Aerojet on capital expenditures, and (iii) keep the memorandum account open until it is fully amortized; however, no costs shall be added to the memorandum account, other than cumulative interest charges approved by the decision. It is management’s intention to offset any settlement proceeds from Aerojet that may occur from these actions against the balance in the memorandum account at the time of settlement. See Note 10 for further discussion on the Aerojet matter.

          Note 2 — Regulatory Matters (Continued):

Refund of Water Right Lease Revenues:

          In 1994, SCW entered into a contract to lease to the City of Folsom, 5,000 acre-feet per year of water rights from the American River. SCW included all associated revenues in a non-operating income account. In a decision issued on March 16, 2004, the CPUC ordered SCW to refund 70 percent of the total amount of lease revenues received since 1994, plus interest, to customers. Pursuant to the order, SCW recorded a $6.2 million regulatory liability with a corresponding charge against non-operating income, net of taxes, during the fourth quarter of 2003. A final amount of the refund was approved by the CPUC in June 2004 and SCW adjusted its estimate to the approved refund amount of $5.2 million. Management disagreed with the CPUC’s decision and filed an appeal to the decision. The CPUC denied SCW’s request for an appeal. SCW filed with the Supreme Court of California to hear the matter, which was also denied in February of 2005. Subsequently, the Company filed a petition for writ of certiorari with the Supreme Court of the United States.

          Pursuant to the order, the apportionment of any lease revenues that SCW may collect from January 2004 forward, will be determined by a later decision. Therefore, beginning in the first quarter of 2004, all amounts billed to the City of Folsom are included in a regulatory liability account and no amounts have been recognized as revenue for 2004 and 2005 until all uncertainties about this matter are resolved with the CPUC. For the three and six months ended June 30, 2005, SCW recorded an additional $286,000 and $572,000 in the regulatory liability account, respectively. In addition, in 2004 SCW began making refunds to customers pursuant to the March 16, 2004 CPUC order. Refunds of approximately $142,000 and $261,000 were provided to customers during the three and six months ended June 30, 2005, respectively. The refunds will be made over a 9-year period.

CCWC Other Regulatory Assets/Liabilities:

          Fountain Hills Sanitary District (“FHSD”) is a political subdivision of the State of Arizona that provides sanitary sewer service to customers residing within CCWC’s water service area. In connection with its sanitary system, FHSD constructed a recharge system whereby it recharges treated effluent through multiple aquifer storage and recovery wells. In order for FHSD to secure an Aquifer Protection Permit for its recharge system, FHSD requested CCWC to permanently cease using one of its wells. As a possible replacement for this well, FHSD constructed a new well adjacent to the community center (“Community Center Well”). However, this well was not able to produce an equivalent amount of water to CCWC’s well that was taken out of production. Accordingly, in February 2005, CCWC entered into an agreement with FHSD whereby CCWC agreed to permanently remove from service this well and in return CCWC received a settlement fee of $1,520,000 from FHSD. Pursuant to the agreement, CCWC will: (i) permanently remove from service and cap this well, and cap another well which had never been used as a potable source of supply; (ii) relinquish any legal claim or interest that CCWC may otherwise possess in the Community Center Well; and (iii) grant an option to FHSD to acquire one of the wells at a future date at fair market value. The removal of these two wells from service did not have a significant impact on CCWC’s water supply.

          For the six months ended June 30, 2005, CCWC has recognized a net gain of $760,000 related to this settlement agreement and has established a regulatory liability for the remaining $760,000 pending Arizona Corporation Commission’s (“ACC”) review of this matter.

          Except as discussed above, there were no other significant changes in regulatory matters during the three and six months ended June 30, 2005.

16

17

18

19

20

21

22

23

24

25

*		Includes amounts from AWR and ASUS’s contracted services. Beginning on October 1, 2004, it also includes ASUS’s wholly-owned subsidiary FBWS.

26