Note 13 - Business Risks and Commitments

GSWC is engaged in supplying water and electric service to the public. Registrant is required to provide service and grant credit to customers within its defined service areas. Although Registrant has a diversified base of residential, industrial and other customers, revenues derived from commercial and residential water customers accounted for approximately 90% of total water revenues in 2012, which is about the same percentage as in 2011 and 2010. Registrant faces additional risks associated with weather conditions, adequacy and quality of water supplies, regulatory decisions, pronouncements and laws, water-related litigation, and general business conditions.

GSWC’s Water Supply:

GSWC obtains its water supply from its operating wells and purchases from others, principally member agencies of the Metropolitan Water District of Southern California (“MWD”). MWD is a public agency and quasi-municipal corporation created in 1928 by a vote of the electorates of several Southern California cities. MWD’s primary purpose was and is to provide a supplemental supply of water for domestic and municipal uses and purposes at wholesale rates to its member public agencies. GSWC has connections to MWD’s water distribution facilities and those of other member water agencies. MWD’s principal sources of water are the State Water Project and the Colorado River.

GSWC has contracts to purchase water or water rights for an aggregate amount of $6.4 million as of December 31, 2012. Included in the $6.4 million is a remaining commitment of $4.0 million under an agreement with the City of Claremont (“the City”) to lease water rights that were ascribed to the City as part of the Six Basins adjudication. The initial term of the agreement expires in 2028. GSWC can exercise an option to renew this agreement for 10 additional years. The remaining amounts of $2.4 million are commitments for purchased water with various third parties which expire commencing in 2013 through 2038.

GSWC’s estimated future minimum payments under these purchased water supply commitments at December 31, 2012 are as follows (in thousands):

2013	$	558
2014	346
2015	347
2016	347
2017	346
Thereafter	4,466
Total	$	6,410

Bear Valley Electric:

GSWC purchases power from Shell Energy North America (US), LP (“Shell”) at a fixed cost. The main product under the contract with Shell provides for 13 MWs of electric energy at an average fixed-price of $67.15 per MWh beginning January 1, 2009 through November 30, 2013. The contract also provided for additional electric energy during certain months of the year to meet peak demands at an average fixed-price of $66.40 per MWh beginning January 1, 2009 through December 31, 2011. For the years ended December 31, 2012, 2011 and 2010, GSWC purchased approximately $7.8 million, $9.0 million and $9.0 million, respectively, under the fixed-price products of the Shell contract. GSWC’s total fixed-price commitment under this agreement amounts to $41.3 million, of which $7.1 million remains outstanding as of December 31, 2012.

On January 12, 2012, GSWC executed a purchase power master agreement with EDF Trading North America, LLC (“EDF”). The agreement is subject to CPUC approval and, if approved, would enable GSWC to purchase from EDF 12 MWs of base load energy at a fixed-price to be negotiated upon CPUC approval of the master agreement. GSWC plans to file for approval of the agreement with the CPUC in 2013 and will also request a regulatory asset and liability memorandum account for the EDF contract to offset the entries required by the accounting guidance on derivatives, similar to the memorandum account for the Shell agreement.

The average minimum load at GSWC’s BVES customer service area has been approximately 14 MWs. The average winter load has been 20 MWs with a winter peak of 44 MWs when the snowmaking machines at the ski resorts are operating. In addition to the purchased power contracts, GSWC buys additional energy to meet peak demand and sells surplus power as needed. GSWC owns a natural gas-fueled 8.4 MW generation facility that became commercially operational in 2005, and assists GSWC in meeting demand.

The ability of GSWC to deliver purchased power to customers in its BVES service area is limited by the ability of the transmission facilities owned by Edison to transmit this power.

Operating Leases:

Registrant leases equipment and facilities primarily for its Regional and District offices and ASUS operations under non-cancelable operating leases with varying terms, provisions, and expiration dates. Rent expense for leases that contain scheduled rent increases are recorded on a straight-line basis. During 2012, 2011 and 2010, Registrant’s consolidated rent expense was approximately $3,098,000, $2,900,000 and $3,437,000, respectively. Registrant’s future minimum payments under long-term non-cancelable operating leases at December 31, 2012 are as follows (in thousands):

2013	$	2,973
2014	2,012
2015	936
2016	827
2017	688
Thereafter	1,589
Total	$	9,025

There is no material difference between the consolidated operations of AWR and the operations of GSWC in regards to the future minimum payments under long-term non-cancelable operating leases.