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Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company Conference Call discussing the company's Third Quarter 2021 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 o'clock p.m. Eastern Time and run through Tuesday, November 9, 2021, on the company's website, www.aswater.com. The slides that the company will be referring to are also available on the website. This call will be limited to an hour.
Presenting today from American States Water Company is 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 intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Please review a description of the company's risks and uncertainties in our most recent Form 10-K and Form 10-Q on file with the Securities and Exchange Commission.
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.
Thank you, Anthony, and welcome, everyone, and thank you for joining us today. I'll begin with some brief comments on the quarter. Eva will then discuss some financial details, and then I'll wrap it up with some updates on regulatory filings, ASUS and dividends and then we'll take your questions. For the third quarter, we achieved consolidated earnings of $0.76 per share versus $0.72 last year, an increase of $0.04 per share or 5.6%.
Included in the results for the third quarter of 2021 were minimal gains on investments held to fund one of the company's retirement plans as compared to $0.02 per share of gains included in the third quarter of 2020. Excluding these gains from both periods, adjusted diluted earnings for the third quarter of 2021 were $0.76 per share as compared to adjusted earnings of $0.70 per share for the third quarter of 2020, an increase of $0.06 per share or 8.6%. Eva will discuss the quarter in more detail.
The third quarter contributed to a strong 2021 year-to-date, where we've achieved 11.7% earnings per share growth over last year or 10.7% on an adjusted basis. Regarding the pending general rate case covering rates for the years 2022 through 2024 at our water utility subsidiary, Golden State Water Company, we're pleased to report that we have reached a settlement in principle with the Public Advocates Office of the California Public Utilities Commission, or CPUC for short, on nearly all the items in the case. I'll touch on this a little more after Eva's updates.
On the electric side of the business, we were pleased that in September, the CPUC approved Bear Valley Electric Service's most recent wildfire mitigation plan. While also in September, the Office of Energy Infrastructure Safety under the California Natural Resources Agency approved Bear Valley Electric Service's latest safety certification filing. The company remains in a strong position. We have successfully navigated the pandemic by continuing to deliver excellent service to our customers while prioritizing the health and safety of our workforce in compliance with existing government guidelines. We continue to invest in needed infrastructure that results in high water quality, reliable delivery, systems safety and a commitment to preserving the precious resources that are in our care.
I will now turn the call over to Eva to review the financial results for the quarter.
Thank you, Bob, and hello, everyone. Let me start with our third quarter financial results on Slide 8. This slide presents our reported results before adjustments. Consolidated earnings for the third quarter of 2021 were $0.76 per share as compared to $0.72 per share in 2020. As Bob mentioned, excluding the gains on investments held to fund one of our retirement plans from both periods, adjusted diluted earnings for the third quarter were $0.76 per share as compared to adjusted earnings of $0.70 per share for the third quarter of 2020. This represents an increase of $0.06 per share or 8.6% compared to the adjusted earnings last year.
Our water segment's reported earnings were $0.62 per share as compared to $0.57 per share last year. Excluding the gains on investments incurred in both quarters, adjusted earnings at the water segment were $0.62 per share for the third quarter as compared to adjusted earnings of $0.55 per share for the third quarter of last year. This adjusted increase of $0.07 per share was largely due to higher water operating revenues less supply cost as a result of new rates for 2021 authorized by the public – by the California Public Utilities Commission.
Our electric segment's earnings were $0.04 per share for both periods. An increase in electric operating revenues less electric supply cost was largely offset by higher operating expenses. Earnings from our contracted services segment increased $0.01 per share for the quarter due to a decrease in operating expenses. Diluted earnings from AWR parent decreased $0.02 per share due to changes in state unitary taxes as compared to the same period in 2020.
Our consolidated revenue for the quarter increased by $3.1 million as compared to the same period in 2020, while the revenues increased $4.1 million due to the third year step increases for 2021 as a result of passing earnings tax. The increase in electric revenues was largely due to CPUC-approved rate increases for 2021. Contracted services revenues decreased to $1.3 million, largely due to lower construction activity, partially offset by increases in management fees due to the successful resolution of various economic price adjustments.
Turning to Slide 10. Our water and electric supply costs were $33.3 million for the quarter, an increase of $1 million from last year. Any changes in supply cost for both the water and electric segments as compared to the adopted supply costs are tracked in balancing accounts. Looking at total operating expenses other than supply costs, consolidated expenses decreased $800,000 as compared to the third quarter of last year. This was primarily due to a decrease in construction costs at our contracted services segment.
Interest expense net of interest income and other increased by $600,000 due to lower gains generated on investments held for retirement plan during the quarter as previously discussed. The lower investment gains were partially offset by a decrease in interest expense largely due to the early redemption of private placement notes with a high coupon rates in May of this year.
Slide 11 shows the EPS bridge comparing the third quarter of 2021 with last year's third quarter. This slide reflects our year-to-date earnings per share by segment as reported. Fully diluted earnings for the nine months ended September 30, 2021 were $2 as compared to $1.79 for the same period in 2020. Included in these results were gains on investments held to fund a retirement plan, which increased the earnings by $0.04 per share and $0.02 per share for the nine months ended September 30, 2021 and 2020, respectively. Excluding these gains from both periods, adjusted year-to-date earnings for 2021 were $1.96 per share as compared to adjusted year-to-date earnings of $1.77 per share for 2020. This results in a 10.7% increase in adjusted EPS. For more details, please refer to yesterday's press release and Form 10-Q.
Turning to liquidity. Net cash provided by operating activities was $81.9 million for the first nine months of 2021 as compared to $87.8 million in 2020. The decrease was partially due to different timing of income tax installment payments between the two periods. In addition, there was a decrease in build surcharges to recover on the collections recorded in Golden State Water's water revenue adjustment mechanism and modified cost balancing account. The decrease in operating cash flow was also due to the timing of building of and cash receipts for construction work at military bases. This was partially offsets by an improvement in cash from accounts receivable related to utility customers due in part to improved economic conditions as compared to the first nine months of 2020 because of the COVID-19 pandemic.
Our regulated utility invested $105.4 million in company-funded capital projects during the nine months – first nine months this year and we estimate our full year 2021 company-funded capital expenditure to be $130 million to $140 million. At this time, we do not expect American State Water to issue additional equity for at least the next nine years to fund its current businesses.
With that, I'll turn the call back to Bob.
Thank you, Eva. I will now provide updates on the California drought and our recent regulatory activity. Currently, the majority of California is considered to be in extreme drought. The Governor of California has now proclaimed a state of emergency for all 58 counties within the state and signed an executive order asking all Californians to voluntarily reduce water usage by 15% as compared to 2020.
CPUC has called on all California investor-owned water utilities to implement voluntary conservation measures to meet this goal. In response, Golden State Water has increased its communication with customers regarding the need for conservation, implemented voluntary conservation efforts in nearly all of its rate-making areas, and mandatory water reduction in a few small customer service areas on the coast. We have also established a CPUC-approved water conservation memorandum account to track incremental drought-related costs for future recovery.
As we discussed in our prior calls, Golden State Water filed a general rate case application for all of its water regions and the general office in July 2020. This general rate case will determine new water rates for the years 2022 through 2024. Among other things, Golden State Water requested capital budgets of approximately $450.6 million for the three-year rate cycle and another $11.4 million of capital projects to be filed for revenue recovery through advice letters when those projects are completed.
Golden State Water and the Public Advocates Office of the CPUC have reached the settlement agreement in principle on the majority of the items in this general rate case application. The unsettled matters are Golden State Water's request for: one, a medical cost balancing account; two, a general liability insurance cost balancing account; and three, the consolidation of two of Golden State Water's customer service areas. The date to file a joint motion for approval of settlement agreement to the CPUC has been proposed for November 23, 2021.
As a result of this proposed timing, a final decision in the case from the CPUC is now expected in 2022. When a final decision is issued in 2022, the new rates adopted in the final decision will be effective retroactive to January 1, 2022.
Since we are still in the process of drafting the settlement agreement with the Public Advocates Office, we cannot share any further details at this time. As a reminder, the administrative law judge assigned to this rate case has previously clarified that Golden State Water can continue using the water revenue adjustment mechanism, or WRAM, and the modified cost balancing account, also known as the MCBA, until our next general rate case application covering the years 2025 through 2027.
Regarding our cost of capital application, which was filed in May of this year, we requested a capital structure of 57% equity and 43% debt, which is our currently adopted capital structure, a return on equity of 10.5% and a return on rate base of 8.18%. There was a prehearing conference held in September, but the scoping memo with an official schedule has not been published. Final decision is expected in the first half of 2022, with an effective date retroactive to January 1, 2022.
As part of the response to the COVID-19 pandemic, Golden State Water and Bear Valley Electric Service have suspended service disconnections for nonpayment pursuant to CPUC orders. On July 15 of this year, the CPUC issued a final decision on the second phase of the water utility low-income affordability rulemaking, which, among other things, extended the existing moratorium on water service disconnections due to nonpayment until the earlier of February 1, 2022 or pursuant to further CPUC guidance on the matter.
On June 24 of this year, the CPUC issued a final decision to extend the moratorium on electric disconnections until September 30 of this year. Under the terms of CPUC adopted payment plans, actual electric service disconnections for nonpayment will not occur until approximately December 1 of this year.
For Golden State Water and Bear Valley Electric Service, we are tracking incremental costs, including bad debt expense in excess of what is included in their respective revenue requirements incurred as a result of the pandemic and CPUC-approved COVID-19-related memorandum accounts, which are to be filed with the CPUC for future recovery. CPUC requires that amounts tracked in the company's COVID-19 memorandum accounts for unpaid customer bills be offset by any federal and state relief for water utility bill debt and customer payments through payment plan arrangements prior to receiving recovery from customers.
On July 12 of this year, the Governor of California approved almost $1 billion in relief funding for overdue water customer bills and almost $1 billion in relief funding for overdue electric customer bills. Both Golden State Water and Bear Valley Electric service intend to seek recovery of overdue amounts from all available funding sources. Funds for both water and electric utility relief are expected to be distributed to utilities during the fourth quarter of 2021, for the first quarter of 2022.
Turning our attention to Slide 18. This slide presents the growth in Golden State Water's rate base as authorized by the CPUC for 2018 through 2021. The adopted weighted average water rate base has grown from $752.2 million in 2018 to $980.4 million in 2021, a compound annual growth rate of 9.2%. The rate base amounts for 2021 do not include any rate recovery for advice letter projects.
Let's move on to ASUS on Slide 19. ASUS' earnings contribution increased by $0.01 per share to $0.11 during the third quarter of 2021 as compared to the same quarter last year, largely due to a decrease in overall operating expenses. For the year-to-date September 30, 2021, ASUS' earnings contribution is $0.05 per share higher than last year, primarily due to an overall increase in construction activity and management fee revenue as well as a decrease in overall operating expenses, including lower legal and other outside services costs, labor costs and maintenance expense. The increase in construction activity was largely due to timing differences of when work was performed as compared to the first nine months of 2020.
We reaffirm our projection that ASUS will contribute $0.45 to $0.49 per share for 2021. We continue to work closely with the U.S. government for contract modifications relating to potential capital upgrade work for improvement of the water and wastewater infrastructure at the military bases we serve.
However, the continuing volatility of prices for materials and slower-than-anticipated recovery in the supply of materials from the COVID-19 pandemic could cause delays in construction activity for existing projects and are likely to result in deferrals of government procurement to award new capital upgrade projects. Given the uncertainties, we project ASUS to contribute the same range of earnings, $0.45 to $0.49 per share for 2022.
The U.S. government is expected to release additional bases for bidding over the next several years. We are actively involved in various stages of the proposal process at a number of bases currently considering privatization, continue to have a good relationship with the U.S. government as well as a strong history and expertise in managing water and wastewater systems on military bases. And we are – we believe we are well positioned to compete for these new contracts.
I would like to turn our attention to dividends, which is a compelling part of the company's investment story. Last week, the Board of Directors approved a fourth quarter dividend of $0.365 per common share. If you recall, last quarter, the Board of Directors approved a 9% increase in the annual dividend from $1.34 per share to $1.46 per share. Currently, our dividend policy is to provide a compound annual growth rate of more than 7% over the long term.
Compound annual dividend growth rate for the quarterly dividend is 9% over the last five years, and nearly 10% over the last 10 years. Our long and consistent history of dividend payments dates back to 1931, in addition to an unbroken 67-year history of annual calendar year dividend increases.
I'd like to conclude our prepared remarks by thanking you for your interest in American States Water, and I will now turn the call over to the operator for questions.
[Operator Instructions] We will begin with Angie Storozynski with Macquarie. Ma’am, you may go ahead.
Thank you. It's actually with Seaport. But anyway, okay. So firstly, I wanted to ask a question about inflation in material and other expenses. You've mentioned that in connection to the ASUS. How do you see that for your regulated operations? And is it in anyway reflected in your pending GRC filings?
Yes. So for Golden State, first of all, hi Angie, thanks for joining the call. Yes. So for Golden State, we are seeing some price increases there as well. Those price increases are not necessarily included in the GRC given that was filed in July of 2020. So we're working to spend the dollars on the projects that we have filed in the GRC. Of course, it's kind of in that limbo, if you will, where the case has not been approved, but we're having to spend dollars, because 2021 is one of the years in the CapEx program.
But I think we're managing it very well. And our belief is if some of the projects end up costing a little more, we'll be able to present that to the PUC in our next rate case. I think they'll – they typically are pretty understanding about such things. So we're start with we are seeing higher costs on the utility side as well.
If I may add, Angie, when we file the settlement with the CPUC at end of November, as Bob mentioned, the inflation rate will be updated file. So we'll use the most current inflation rate published by the commission to update our costs. And for 2023 and 2024, the second and third tax year, when we file the step increases, we'll also use the most updated inflation rate during that time. So it will be somewhat covered in our filing.
Okay. Secondly, this $0.02 hit year-over-year for higher unitary state taxes. I know you don't provide guidance, but what – I mean is this something new? Or is it just something that you've always expected to show up in this year's result and it's just more about timing?
I think we have unitary taxes, Angie, recorded in AWR parent, because that's impacted by the consolidation and the proportion of business that we do in California. So we'll change a little bit year-over-year. But I think in general, we've been reporting from zero to $0.01 at AWR historically. So it won't be too much off that. So for California, it is a unitary state for state taxes. That means the state taxes imposed on a portion of the consolidated AWR pretax income on the basis of the revenue generated by Golden State and BVE. So it doesn't just look at the pretax income of Golden State and BVE, but look at the consolidated and apply a proportion on that. So we changed a little bit over year-over-year, but it won't be material, I would say.
Okay. And my last question, I understand you have a pending settlements or pending filing of the settlements. Just this one portion that the settlement doesn't cover, the consolidation of those two service territories. I mean just from the modeling perspective, if that were to happen, is that – I don't know, is that a driver of some additional O&M efficiencies? I mean, what's the reason why you would want to do it? I'm talking about financially more than the operational benefits.
Right. The consolidation is purely for ratemaking purposes. Right now, we have eight ratemaking areas and we were looking to go down to seven to improve the efficiencies with regard to filing these rate cases as well as some of these smaller rate-making areas get burdened if they have significant water supply challenges. It then helps to sort of spread that to more customers if you can consolidate the rate-making area.
Okay, understood. Thank you.
Thank you, Angie.
Thank you.
[Operator Instructions] Our next question comes from Jonathan Reeder with Wells Fargo. You may go ahead.
Hey, Bob and Eva. How are you all today?
Hey, Jonathan, how about you?
Thank you.
I'm not too bad. Yes, thanks. So pretty straightforward clean quarter. So congrats on that. Just wanted to make sure I was clear, the flat ASUS guidance range for 2022, that is inclusive of your expectations that some project – construction project work could be delayed or deferred due to the supply chain and cost pressures. Is that right, Bob?
It is, yes.
Okay. So absent that, we might have seen a bump up in the range is what we, I guess, should conclude?
Yes. I would say that's a fair statement. It's a – we were kind of working through COVID and the effects of it, and it has had a bit of an impact there. But yes, I'd say that's accurate.
Okay. And then on the regulated side, what is your understanding of why things are just taking so long to issue the official scoping memo on the cost of capital? I mean it just seems so odd since I thought all those dates were hashed out in the prehearing conference, and basically, we'll be heading up to, I think, the evidentiary hearings in a couple of weeks if we would have been adhering to that schedule. What's going on there?
Yes, I could just speculate, Jonathan, it probably wouldn't be helpful. I mean the commission has got a lot on their plate, I think, and the water side of things is sort of it takes a backseat to other things, as you know, given just the sheer size the electric utilities versus the water utilities. That would just – that would be my speculation, and that's purely that. We don't think there's anything else causing the delay here.
Okay. And then I mean, once the intervener testimony is filed, remind us, do you have a chance to kind of refresh the numbers in your case if you want to for current interest rate environment, stuff like that? Or is it far more historical looking taking a three-year average or something like that? How should we be viewing the ability, I guess, to – for swings in interest rates to kind of impact how that eventually settles out particularly as, I guess, the proceeding falls further and further behind?
Hey Jonathan, it's Eva. I haven't experienced any cost of capital proceeding that we can update our request in terms of interest rate or ROE, and we can argue that the trend is going up. And therefore, that the minimum issue gives to us. But I don't believe we'll have a chance to update all the stack cost and ROE we requested in the case. So we have to stick to our original testimony and argue that those points. And if ORA or PA issued their report, we can remodel their report item by item, showing more current information. But I don't believe we can refresh our requested numbers.
Got it. Okay. All right. No, just mind-boggling how long some things take on that side. So hopefully, we get some movement here soon, and hopefully, things trend in your direction. But I appreciate the time today.
Thank you.
Thank you, Jonathan.
This concludes our question-and-answer session. I would like to turn the conference back over to Bob Sprowls for any closing remarks.
Yes, I just would like to wrap it up today by thanking you all for your participation, and we look forward to speaking with you next quarter. I wish you a good holiday season as we move through those. So thank you all very much.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.