American States Water Company (AWR)

Environmental Matters

AWR’s subsidiaries are subject to increasingly stringent environmental regulations including the 1996 amendments to the Federal Safe Drinking Water Act; enhanced surface water treatment rules; regulation of disinfectant/disinfection by-products; and the long-term enhanced surface water treatment rules; ground water treatment rule; contaminant regulation of radon and arsenic; and unregulated contaminants monitoring rule.

There have been no material changes to AWR’s environmental matters since December 31, 2008. See “Managements’ Discussion and Analysis of Financial Condition and Results of Operation-Environmental Matters” section of the Registrant’s Form 10-K for the year-ended December 31, 2008 for a detailed discussion of environmental matters.

Environmental Matters

The EPA regulates contaminants that may have adverse health effects, are known or likely to occur at levels of public health concern, and the regulation of which will provide a meaningful opportunity for health risk reduction. The California Department of Public Health (“CDPH”), acting on behalf of the EPA, administers the EPA’s program in California. Similar state agencies administer these rules in the other states in which we operate.

GSWC and CCWC currently test their water supplies and water systems according to, among other things, requirements listed in the Federal Safe Drinking Water Act (“SDWA”). In compliance with the SDWA and to assure a safe drinking water supply to its customers, GSWC and CCWC have incurred increased operating costs for testing to determine the levels, if any, of the constituents in their sources of supply and additional expense to treat contaminants in order to meet the MCL standards and also to meet state and local standards and consumer demands. GSWC and CCWC expect to incur additional capital costs as well as increased operating costs to maintain or improve the quality of water delivered to their customers in light of anticipated stress on water resources associated with watershed and aquifer pollution as well as to meet future water quality standards. The CPUC and ACC ratemaking processes provide GSWC and CCWC with the opportunity to recover prudently incurred capital and operating costs in future filings associated with achieving water quality standards. Management believes that such incurred and expected future costs should be authorized for recovery by the CPUC and ACC, as applicable.

Pursuant to their respective contracts, the Military Utility Privatization Subsidiaries of ASUS test their water and wastewater systems according to applicable regulations and intend to seek recovery of unanticipated capital costs required to comply with future changes in law or regulation or to meet water quality challenges based on changes in circumstances on the bases’ water supplies, if necessary.  Under the contracts, the U. S. government may recognize recovery of such costs as an equitable adjustment to the fee for providing services at each of the bases served by these subsidiaries.

Environmental Matters

The
EPA regulates contaminants that may have adverse health effects, are known or
likely to occur at levels of public health concern, and the regulation of which
will provide a meaningful opportunity for health risk reduction. The California
Department of Public Health (“CDPH”), acting on behalf of the EPA, administers
the EPA’s program in California. Similar state agencies administer these rules in
the other states in which we operate.

GSWC
and CCWC currently test their water supplies and water systems according to,
among other things, requirements listed in the Federal Safe Drinking Water Act
(“SDWA”). In compliance with the SDWA and to assure a safe drinking water
supply to its customers, GSWC and CCWC have incurred increased operating costs
for testing to determine the levels, if any, of the constituents in their
sources of supply and additional expense to treat contaminants in order to meet
the MCL standards and also to meet state and local standards and consumer
demands. GSWC and CCWC expect to incur additional capital costs as well as
increased operating costs to maintain or improve the quality of water delivered
to their customers in light of anticipated stress on water resources associated
with watershed and aquifer pollution as well as to meet future water quality
standards. The CPUC and ACC ratemaking processes provide GSWC and CCWC with the
opportunity to recover prudently incurred capital and operating costs in future
filings associated with achieving water quality standards. Management believes
that such incurred and expected future costs should be authorized for recovery
by the CPUC and ACC, as applicable.

Pursuant
to their respective contracts, the Military Utility Privatization Subsidiaries
of ASUS test their water and wastewater systems according to applicable
regulations and intend to seek recovery of unanticipated capital costs required
to comply with future changes in law or regulation or to meet water quality
challenges based on changes in circumstances on the bases’ water supplies, if
necessary.  Under the contracts, the U.
S. government may recognize recovery of such costs as an equitable adjustment
to the fee for providing services at each of the bases served by these
subsidiaries.

Environmental Matters

AWR’s subsidiaries are subject to increasingly stringent environmental regulations including the 1996 amendments to the Federal Safe Drinking Water Act; enhanced surface water treatment rules; regulation of disinfectant/disinfection by-products; and the long-term enhanced surface water treatment rules; ground water treatment rule; contaminant regulation of radon and arsenic; and unregulated contaminants monitoring rule.

Drinking Water Standard:

During the first quarter of 2008, one of GSWC’s water systems located in northern California violated a drinking water standard.  GSWC routinely monitors for the presence of drinking water contaminants including total trihalomethanes (“TTHM”).  The TTHM samples taken in the first quarter of 2008 indicated that this water system exceeded the maximum contaminant level (“MCL”) for TTHM. During the first quarter, GSWC implemented various operational changes and conducted increased monitoring over the quarter in an attempt to identify and control the factors leading to the formation of TTHM in the distribution system.  The results of these studies indicate that source water quality is the predominate factor in this situation. Water imported from the Sacramento-San Joaquin Delta experienced salt water intrusion and had high levels of organic compounds from agricultural drainage during the first quarter. These compounds form TTHM during the treatment process.  GSWC has no control over the quality of the source water that is purchased from the Contra Costa Canal.  To remedy the situation,  GSWC increased the purchase of chloraminated water from the Contra Costa Water District beginning in March 2008 and throughout the second and third quarters of 2008.  Chloramination is an accepted and widely used method to mitigate TTHM.  Based on the results of recent compliance samples, GSWC is now in compliance of the TTHM MCL.  GSWC has filed an advice letter with the CPUC to allow the establishment of a memorandum account to recover future additional costs associated with the purchase of chloraminated water.

Environmental Clean-Up and Remediation:

During the first quarter of 2008, hydrocarbon contaminated soil was found at a plant site (“Ballona Plant”)  located in GSWC’s Southwest customer service area where an abandoned water tank was demolished.  The contamination appears to be shallow and likely the result of past corrosion control practices.  An initial investigation and characterization of the contaminated area has been conducted.  However, at this time, GSWC is unable to reasonably estimate the cost of clean-up.  Historically, this type of clean-up cost has been included in rates as approved by the CPUC.

Additional information on these requirements and other significant environmental matters is described in “Management’s Discussion and Analysis of Financial Condition and Results of Operation” included in Registrant’s 2007 Annual Report on Form 10-K for the year ended December 31, 2007. There have been no other material changes in any of the environmental matters discussed in the Form 10-K since December 31, 2007.

Environmental Matters

AWR’s subsidiaries are subject to increasingly stringent environmental regulations including the 1996 amendments to the Federal Safe Drinking Water Act; enhanced surface water treatment rules; regulation of disinfectant/disinfection by-products; and the long-term enhanced surface water treatment rules; ground water treatment rule; contaminant regulation of radon and arsenic; and unregulated contaminants monitoring rule.

Drinking Water Standard:

During the first quarter of 2008, one of GSWC’s water systems located in northern California violated a drinking water standard.  GSWC routinely monitors for the presence of drinking water contaminants including total trihalomethanes (“TTHM”).  The TTHM samples taken in the first quarter of 2008 indicated that this water system exceeded the maximum contaminant level (“MCL”) for TTHM. During the first quarter, GSWC implemented various operational changes and conducted increased monitoring over the quarter in an attempt to identify and control the factors leading to the formation of TTHM in the distribution system.  The results of these studies indicate that source water quality is the predominate factor in this situation. Water imported from the Sacramento-San Joaquin Delta experienced salt water intrusion and had high levels of organic compounds from agricultural drainage during the first quarter. These compounds form TTHM during the treatment process.  GSWC has no control over the quality of the source water that is purchased from the Contra Costa Canal.  To remedy the situation,  GSWC increased the purchase of chloraminated water from the Contra Costa Water District beginning in March 2008 and throughout the second and third quarters of 2008.  Chloramination is an accepted and widely used method to mitigate TTHM.  Based on the results of recent compliance samples, GSWC is now in compliance of the TTHM MCL.  GSWC has filed an advice letter with the CPUC to allow the establishment of a memorandum account to recover future additional costs associated with the purchase of chloraminated water.

Environmental Clean-Up and Remediation:

During the first quarter of 2008, hydrocarbon contaminated soil was found at a plant site (“Ballona Plant”)  located in GSWC’s Southwest customer service area where an abandoned water tank was demolished.  The contamination appears to be shallow and likely the result of past corrosion control practices.  An initial investigation and characterization of the contaminated area has been conducted.  However, at this time, GSWC is unable to reasonably estimate the cost of clean-up.  Historically, this type of clean-up cost has been included in rates as approved by the CPUC.

Additional information on these requirements and other significant environmental matters is described in “Management’s Discussion and Analysis of Financial Condition and Results of Operation” included in Registrant’s 2007 Annual Report on Form 10-K for the year ended December 31, 2007. There have been no other material changes in any of the environmental matters discussed in the Form 10-K since December 31, 2007.

Environmental Matters

AWR’s subsidiaries are subject to increasingly stringent environmental regulations including the 1996 amendments to the Federal Safe Drinking Water Act; enhanced surface water treatment rules; regulation of disinfectant/disinfection by-products; and the long-term enhanced surface water treatment rules; ground water treatment rule; contaminant regulation of radon and arsenic; and unregulated contaminants monitoring rule.

Drinking Water Standard:

During the first quarter of 2008, one of GSWC’s water systems located in northern California violated a drinking water standard.  GSWC routinely monitors for the presence of drinking water contaminants including total trihalomethanes (“TTHM”).  The TTHM samples taken in the first quarter of 2008 indicated that this water system exceeded the maximum contaminant level (“MCL”) for TTHM.   During the first quarter, GSWC implemented various operational changes and conducted increased monitoring over the quarter in an attempt to identify and control the factors leading to the formation of TTHM in the distribution system.  The results of these studies indicate that source water quality is the predominate factor in this situation. Water imported from the Sacramento-San Joaquin Delta experienced salt water intrusion and had high levels of organic compounds from agricultural drainage during the first quarter. These compounds form TTHM during the treatment process.  GSWC has no control over the quality of the source water that is purchased from the Contra Costa Canal.  To remedy the situation, GSWC has initiated the change to use chloramines as disinfectant. Chloramination is an accepted and widely used method to mitigate TTHM. Before the treatment process could be converted to chloramination, GSWC increased the purchase of chloraminated water from the Contra Costa Water District beginning in March 2008 and throughout the second quarter of 2008. Based on the results of recent compliance samples, GSWC is now in compliance of the TTHM MCL. The purchase of treated water has resulted in  incremental costs. GSWC has filed an advice letter with the CPUC to allow the establishment of a memorandum account to recover future additional costs.

Environmental Clean-Up and Remediation:

During the first quarter of 2008, hydrocarbon contaminated soil was found at a plant site (“Ballona Plant”)  located in GSWC’s Southwest customer service area where an abandoned water tank was demolished. The contamination appears to be shallow and likely the result of past corrosion control practices. An initial investigation and characterization will be completed to determine the extent of contamination before any soil extraction is initiated. At this time, GSWC is unable to reasonably estimate the cost of clean-up. Historically, this type of clean-up cost has been included in rates as approved by the CPUC.

Additional information on these requirements and other significant environmental matters is described in “Management’s Discussion and Analysis of Financial Condition and Results of Operation” included in Registrant’s 2007 Annual Report on Form 10-K for the year ended December 31, 2007. There have been no other material changes in any of the environmental matters discussed in the Form 10-K since December 31, 2007.

Environmental Matters

AWR’s subsidiaries are subject to increasingly stringent environmental regulations including the 1996 amendments to the Federal Safe Drinking Water Act; enhanced surface water treatment rules; regulation of disinfectant/disinfection by-products; and the long-term enhanced surface water treatment rules; ground water treatment rule; contaminant regulation of radon and arsenic; and unregulated contaminants monitoring rule.

Drinking Water Standard:

During the first quarter of 2008, one of GSWC’s water systems located in Northern California violated a drinking water standard.  GSWC routinely monitors for the presence of drinking water contaminants including total trihalomethanes (“TTHM”).  The TTHM samples taken in the first quarter of 2008 indicated that this water system exceeded the maximum contaminant level (“MCL”) for TTHM.   During the first quarter, GSWC implemented various operational changes and conducted increased monitoring over the quarter in an attempt to identify and control the factors leading to the formation of TTHM in the distribution system.  The results of these studies indicate that source water quality is the predominate factor in this situation. Water imported from the Sacramento-San Joaquin Delta experienced salt water intrusion and had high levels of organic compounds from agricultural drainage during the first quarter. These compounds form TTHM during the treatment process.  GSWC has no control over the quality of the source water that is purchased from the Contra Costa Canal.  To remedy the situation, GSWC is changing its treatment process. Switching to chloramination as an alternative disinfectant appears to be the best overall option.  Chloramination is an accepted and widely used method to mitigate TTHM. The Department of Public Health permit amendment process has been initiated and the change to chloramines requires a public notice which was distributed on May 1, 2008.  The change to chloramines is expected to increase water treatment costs in the future.

Environmental Clean-Up and Remediation:

During the first quarter of 2008, hydrocarbon contaminated soil was found at a plant site (“Ballona Plant”)  located in GSWC’s Southwest customer service area where an abandoned water tank was demolished.  The contamination is shallow and likely the result of past corrosion control practices and is not due to a leaking pipe of the tank.  An initial investigation and characterization will be completed during the second quarter of 2008 to determine the extent of contamination before any soil extraction is initiated.  At this time, GSWC is unable to reasonably estimate the cost of clean-up.  Historically, this type of clean-up cost has been included in rates as approved by the CPUC.

Additional information on these requirements and other significant environmental matters is described in “Management’s Discussion and Analysis of Financial Condition and Results of Operation” included in Registrant’s 2007 Annual Report on
Form 10-K for the year ended December 31, 2007. There have been no other material changes in any of the environmental matters discussed in the Form 10-K since December 31, 2007.

Environmental Matters

        AWR's subsidiaries are subject to increasingly stringent environmental regulations including the 1996 amendments to the Federal Safe Drinking Water Act; enhanced surface water treatment rules; regulation of disinfectant/disinfection by-products; the long-term enhanced surface water treatment rules; groundwater treatment rules; regulation of radon and arsenic; and unregulated contaminants monitoring rules.

        In September 2006, the California Department of Public Health adopted new regulations setting a drinking water maximum contaminant level (MCL) for perchlorate. The perchlorate MCL is 0.006 mg/L (6 ppb). The new perchlorate regulations became effective on October 18, 2007. Registrant is providing treatment to meet the new standard on some wells that contain perchlorate above the MCL currently supplying customers, and has removed some wells from service pending completion of the proposed treatment remedy.

Environmental Matters

AWR’s subsidiaries are subject to increasingly stringent environmental regulations including the 1996 amendments to the Federal Safe Drinking Water Act; enhanced surface water treatment rules; regulation of disinfectant/disinfection by-products; the long-term enhanced surface water treatment rules; groundwater treatment rules; contaminant regulation of radon and arsenic; and unregulated contaminants monitoring rules.

In 1998, the South Coast Air Quality Management District (“AQMD”) issued a permit to GSWC for the installation and use of air stripping equipment at one of GSWC’s groundwater treatment systems in its Region II service area.   In 2005, the AQMD conducted an inspection of this facility and issued a Notice of Violation (“NOV”) for exceeding the amount of groundwater permitted to be treated by the treatment system during calendar year 2004.  Since receiving the NOV, changes in GSWC procedures have avoided additional violations at the facility.  The AQMD could have assessed penalties associated with an NOV that can range from $10,000 up to $75,000 per day of violation.  GSWC estimates that it was in violation approximately 180 days in 2004.  GSWC met with AQMD on numerous occasions to resolve the NOV and to ensure future compliance.  As part of this process, GSWC also submitted an application to amend the permit, because an amendment may have been necessary for continued operation of the subject air stripping equipment.

GSWC finalized a settlement of the NOV with the AQMD in June 2007.  As part of the settlement, GSWC agreed to withdraw its application for an amended air discharge permit and perform a Supplemental Environmental Program (“SEP”).  A SEP typically involves capital expenditures resulting in a change of process, equipment, material, or indirect source reduction for the purposes of eliminating or reducing air contaminant emissions.  The SEP prepared by GSWC involves installation and operation of granular activated carbon filters at the facility.  Installation of the filters will eliminate the use of the air stripping equipment at the facilities involved with the NOV and thus improve air quality.  The AQMD accepted the SEP and assessed a nominal penalty of $25,000.  During the six months ended June 30, 2007, GSWC paid the penalty of $25,000 and agreed to perform its obligations under the SEP.  It is estimated that the total capital cost of the SEP will be approximately $1.8 million with a required estimated completion date of April 30, 2009.  Upon timely performance of all its obligations under the SEP, GSWC shall be deemed released from any and all claims or penalties arising from the NOV.  Management believes that GSWC will be able to timely fulfill its obligations under the SEP and no further penalties are expected to be assessed.  Management also believes it is probable that the capital costs of the SEP will be approved in rate base by the CPUC.

Additional information on these requirements and other significant environmental matters is described in “Management’s Discussion and Analysis of Financial Condition and Results of Operation” included in Registrant’s 2006 Annual Report on Form 10-K for the year ended December 31, 2006. There have been no other material changes in any of the environmental matters discussed in the Form 10-K since December 31, 2006.

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Environmental Matters

AWR’s subsidiaries are subject to increasingly stringent environmental regulations including the 1996 amendments to the Federal Safe Drinking Water Act; enhanced surface water treatment rules; regulation of disinfectant/disinfection by-products; and the long-term enhanced surface water treatment rules; ground water treatment rule; contaminant regulation of radon and arsenic; and unregulated contaminants monitoring rule.

Additional information on these requirements and other significant environmental matters is described in “Management’s Discussion and Analysis of Financial Condition and Results of Operation” included in Registrant’s 2006 Annual Report on Form 10-K for the year ended December 31, 2006. There have been no material changes in any of the environmental matters discussed in the Form 10-K since December 31, 2006.

Environmental Matters

Registrant’s subsidiaries are subject to increasingly stringent environmental regulations including the 1996 amendments to the Federal Safe Drinking Water Act; enhanced surface water treatment rules; regulation of disinfectant/disinfection by-products; the long-term enhanced surface water treatment rules; ground water treatment rule; contaminant regulation of radon and arsenic; and unregulated contaminants monitoring rule.

Additional information on these requirements and other significant environmental matters are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operation” included in our 2005 Annual Report on Form 10-K for the year ended December 31, 2005.

In 1998, the South Coast Air Quality Management District (“AQMD”) issued a permit to GSWC for the installation and use of air stripping equipment at one of GSWC’s groundwater treatment systems in its Region II service area.   In 2005, the AQMD conducted an inspection of this facility and issued a Notice of Violation (“NOV”) for exceeding the amount of groundwater permitted to be treated by the treatment system during calendar year 2004.  Since receiving the NOV, changes in GSWC procedures have prevented additional violations at the facility.  The AQMD could assess penalties associated with an NOV that can range from $10,000 up to $75,000 per day of violation.  GSWC estimates that it was in violation approximately 180 days in 2004.  GSWC has met with AQMD to ensure future compliance and resolve the NOV.  As part of this, GSWC also promptly submitted an application to amend the permit as an amendment may have been necessary for continued operation of the subject air stripping equipment.

The AQMD has recently recommended that GSWC be allowed to pursue a Supplemental Environmental Program (“SEP”) as part of the settlement of the NOV. A SEP typically involves capital expenditures resulting in a change of process, equipment, material, or indirect source reduction for the purposes of eliminating or reducing air contaminant emissions.  As part of going forward with its permit amendment application, GSWS would amend its current application to also include the addition of additional controls to the facility to reduce emissions.  The

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penalties which GSWC has been informed might be assessed, could likely be reduced or avoided through the settlement of this matter based on the possible funding of a SEP.  In October 2006, GSWC submitted initial capital cost estimates to the AQMD for the installation and operation of granular activated carbon filters at the facility as a proposed SEP which would eliminate the use of the air stripping equipment.  Initial discussions indicate that AQMD staff has favorably received GSWC’s proposal and if approved, it could result in the imposition of only a nominal monetary penalty.  However, until further notice from the AQMD on the proposed SEP, GSWC cannot reasonably estimate the amount of penalties which might be assessed. 

There have been no other material changes in any of the environmental matters discussed in the Form 10-K since December 31, 2005.

Environmental Matters

Registrant’s subsidiaries are subject to increasingly stringent environmental regulations including the 1996 amendments to the Federal Safe Drinking Water Act; enhanced surface water treatment rules; regulation of disinfectant/disinfection by-products; and the long-term enhanced surface water treatment rules; ground water treatment rule; contaminant regulation of radon and arsenic; and unregulated contaminants monitoring rule.

Additional information on these requirements and other significant environmental matters are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operation” included in our 2005 Annual Report on Form 10-K for the year ended December 31, 2005.  There have been no material changes in any of the environmental matters discussed in the Form 10-K since December 31, 2005.

Environmental Matters

Our subsidiaries are subject to increasingly stringent environmental regulations including the 1996 amendments to the Federal Safe Drinking Water Act; enhanced surface water treatment rules; regulation of disinfectant/disinfection by-products; and the long-term enhanced surface water treatment rules; ground water treatment rule; contaminant regulation of radon and arsenic; and unregulated contaminants monitoring rule.

Additional information on these requirements and other significant environmental matters are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operation” included in our 2005 Annual Report on Form 10-K for the year ended December 31, 2005. There have been no material changes in any of the environmental matters discussed in the Form 10-K since December 31, 2005.

Environmental Matters

Our subsidiaries are subject to increasingly stringent environmental regulations including the 1996 amendments to Federal Safe Drinking Water Act; enhanced surface water treatment rules; regulation of disinfectant/disinfection by-products; and the long-term enhanced surface water treatment rules; ground water treatment rule; contaminant regulation of radon and arsenic; and unregulated contaminants monitoring rule.

Additional information on these requirements and other significant environmental matters are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operation” included in our 2004 Annual Report on Form 10-K for the year ended December 31, 2004.  Construction activities at the new treatment plant in the Calipatria-Niland customer service area were completed in the second quarter of 2005.  As a result, management believes that all surface water plants in GSWC and CCWC are in compliance with the Enhanced Surface Water Treatment Rule which becomes effective on June 1, 2006. Except for this matter, there have been no other material changes in any of the environmental matters discussed in the Form 10-K since December 31, 2004.

Under the terms of contracts executed by the Military Utility Privatization Subsidiaries with the U.S. Army and U.S. Air Force, the U.S. Government continues to be responsible for environmental contamination caused by its fault or negligence and for environmental contamination that occurred prior to execution of the contract. In addition, each of the Military Utility Privatization Subsidiaries has the right to seek an equitable adjustment to its contract in the event that there are changes in environmental laws, a change in the quality of water used in providing water service or wastewater discharged by the U.S. Government or contamination of the air or soil not caused by the fault or negligence of the Military Utility Privatization Subsidiary. Following the end of a transition period, one of the Military Utility Privatization Subsidiaries will assume responsibility for operation and maintenance of the water and wastewater systems at Fort Eustis, Virginia. The U.S. Government has entered into a consent order with the Department of Health of the Commonwealth of Virginia relating to exceedances of the non-acute primary maximum contaminant level for total coliform bacteria, which appears to be due to biological growth in the distribution system. This Military Utility Privatization Subsidiary will be undertaking a number of improvements to the water system at Fort Eustis to address this problem. Until these improvements are completed, there may be additional exceedances of the non-acute primary maximum contaminant level for total coliform bacteria at Fort Eustis.