The $0.26 per share increase in reported diluted earnings for the third quarter of 2009, as compared to the same period of 2008, included a $0.13 per share unrealized loss on purchased power contracts during the three months ended September 30, 2008. The following table provides diluted earnings per share ("EPS"), as adjusted (a non-GAAP financial measure), for 2008 to remove the effects of the unrealized loss on purchased power contracts.

                                               Third Quarter                                                                       
                                               2009   2008                                                                         
 Diluted EPS, as reported                      $0.52  $0.26                                                                        
 Unrealized loss on purchased power contracts  -      0.13                                                                         
 Diluted EPS, as adjusted *                    $0.52  $0.39                                                                        
                                                                                                                                   
 *Diluted EPS, as adjusted, is a non-GAAP financial measure and excludes an unrealized loss on purchased power contracts for 2008. 


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The purchased power contracts expired on December31,2008 and effective January 1, 2009, the Company began taking delivery of power under a new contract. Pursuant to a decision issued in May 2009 by the California Public Utilities Commission ("CPUC"), AWR's subsidiary, Golden State Water Company ("GSWC") will defer all unrealized gains and losses resulting from the new purchased power contract on a monthly basis into a regulatory memorandum account that will track the changes in fair value of the derivative throughout the term of the contract. As of September 30, 2009, $7.0 million of a cumulative unrealized loss has been included in this memorandum account; therefore not impacting GSWC's earnings in 2009.

Diluted EPS was $0.52 for the three months ended September 30, 2009 and, removing the effects of the item discussed above, diluted EPS, as adjusted, would have been $0.39 for the same period in 2008, an increase of $0.13 per share. Impacting the comparability in the results of the two periods are the following significant items:

The dollar water margin increased by $4.7 million, or $0.15 per share, primarily due to higher water revenues, as more fully discussed below.

Operating expenses, other than supply costs, increased at the Company's water and electric utilities by $2.2 million, or $0.07 per share, due primarily to an increase in pension expense of approximately $829,000, an increase of $721,000 in water treatment costs, and an increase in depreciation and amortization expense of $514,000.

Pretax operating income through AWR's contracted services subsidiary, American States Utility Services, Inc. ("ASUS"), increased by $3.9 million, or $0.12 per share, as compared to the third quarter of 2008 due primarily to an increase in special construction projects at Fort Bliss and the military bases in Virginia, and improved performance at Fort Jackson and Fort Bragg military bases. Furthermore, in September 2009, ASUS received a contract modification for a $1.1 million equitable adjustment which was recorded as construction revenues during the three months ended September 30, 2009. This modification provides reimbursement for emergency construction costs previously incurred at Fort Jackson, South Carolina. The majority of the costs on these projects at Fort Jackson had been previously recognized by ASUS as construction expense in 2008. The recognition of construction revenues was pending the approval of the Request for Equitable Adjustment ("REA") by the U.S. government.

The recording of a loss on settlement for removal of wells of $760,000, or $0.02 per share, which reversed a previously recorded gain by Chaparral City Water Company ("CCWC"), a subsidiary of AWR in Arizona, resulting from a decision issued by the Arizona Corporation Commission ("ACC") on October 8, 2009.

An increase in net interest expense (interest expense less interest income) of $553,000, or $0.02 per share, due to an increase in long-term debt resulting from the issuance of $40.0 million of notes in March 2009 and the recording of $159,000 in the interest rate balancing account approved in July 2009 in GSWC's cost of capital proceeding.

A decrease of $0.03 per share due to an increase in the weighted average number of common shares outstanding resulting from the issuance of 1.1 million shares of AWR's Common Stock in a public offering completed in May 2009.

Operating revenues increased by $16.2 million to $101.5 million for the third quarter of 2009, compared to $85.3 million recorded in the third quarter of 2008, an increase of 19.0%. The table below sets forth summaries of operating revenues by segment:

    (in thousands)              2009        2008       $ Change       % Change     
    Water                       $78,297     $69,365    $8,932         12.9      %  
    Electric                    6,563       6,743      (180      )    (2.7      %) 
    Contracted services         16,641      9,153      7,488          81.8      %  
    Total operating revenues    $101,501    $85,261    $16,240        19.0      %  


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Water revenues for the third quarter of 2009 increased by $8.9 million or 12.9%, due primarily to: (i) higher customer rates approved by the CPUC effective January 1, 2009, which added approximately $2.9 million to water revenues in the third quarter of 2009; (ii) the recording of $8.6 million of additional revenues to adjust the 2009 third quarter revenues to the consumption levels adopted by the CPUC as a result of the implementation of the Water Revenue Adjustment Mechanism ("WRAM") account for Regions II and III in late November of 2008 and September 2009 for Region I; and (iii) the recording of $1.8 million due to surcharges approved by the CPUC in effect to recover under-collections in supply costs. These increases were partially offset by $4.4 million resulting from a decrease in actual consumption of approximately 9% when compared to the third quarter of 2008.

Although the recording of the WRAM added $8.6 million of water revenues, this favorable impact to earnings was reduced by $1.6 million of water supply over-collection costs tracked in the Modified Cost Balancing Account ("MCBA"), also implemented in late November 2008 for Regions II and III and in September 2009 for Region I. The over-collection in the MCBA account is due to: (i) lower consumption in the third quarter of 2009 as compared to the consumption level adopted by the CPUC, and (ii) a lower percentage of purchased water in the supply mix during 2009 when compared to the supply mix included in customer rates, partially offset by increases in rates charged by GSWC's suppliers.

Electric revenues from GSWC's Bear Valley Electric Division decreased by 2.7% to $6.6 million compared to $6.7 million for the three months ended September 30, 2008 due primarily to a decrease in electric usage.

Contracted services revenues are composed of construction revenues (including renewals and replacements) and management fees for operating and maintaining the water and/or wastewater systems at certain military bases. Such revenues increased by $7.5 million, or 81.8%, during the third quarter of 2009 primarily due to an increase in construction revenues. Construction revenues increased by $7.3 million primarily related to special projects at Fort Bliss and the military bases in Virginia. In addition, an REA for $1.1 million was approved by the U.S.