Welcome to the American States Water Company conference call discussing the company's second quarter 2019 results. The call is being recorded. If you would like to listen to the replay of this call, it will begin this afternoon at approximately 5:00 P.M. Eastern Time and run through Tuesday, August 13th, 2019, on the company's website, www.aswater.com. The slides that the company will be referring to are also available on the website. To ask a question, you may press star then one on your touchtone phone. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. 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 or are 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.
Thanks, Brendan. Welcome, everyone, thank you for joining us today. I'll begin with some highlights for the quarter. Eva will then discuss some important 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. I'm very pleased to report that we delivered excellent earnings and performance during the second quarter for both of our subsidiaries, resulting in a 45% increase in adjusted earnings per share. In May, we received a final decision issued by the California Public Utilities Commission, or CPUC, on our water segment's general rate case. In July, a proposed decision was issued on our electric segment's general rate case, which adopted all the settlement terms jointly filed with the CPUC's Public Advocates Office.
Our newest military base privatization contract contributed nicely to earnings, and we remain well positioned to win new military base contracts. Last week the company raised the dividend by a sizable 10.9% and updated our dividend policy to target a compound annual growth rate in the dividend of more than 7% over the long term. As a result of these milestones and continued solid execution of our businesses, earnings were $0.72 per diluted share as reported, and $0.64 per share excluding the first quarter retroactive impact of our water rate case. This adjusted earnings amount represents an increase of $0.20 per share or 45% over the second quarter last year. Golden State Water Company continues to invest in the reliability of our water and electric systems.
During the first six months of 2019, we spent $70.7 million in company-funded capital expenditures and are on target to spend $115 million-$125 million for the year, about three times our expected annual depreciation expense. American States Utility Services, or ASUS, our contracted services business, saw its earnings double over last year as a result of the Fort Riley addition, as well as increased construction at other bases and an increase in management fees. All in all, it was a very productive and positive quarter while laying the groundwork for continued earnings growth. With that, I'll now turn the call over to Eva to review the important financial details for the quarter.
Thank you, Bob. Hello, everyone. Let me start with an overview of our second quarter financial results on slide eight. Consolidated earnings as reported for the quarter were $0.72 per share compared to $0.44 per share for the same period in 2018. As Bob mentioned, earnings at our water segment were positively impacted by the CPUC final decision on the general rate case, with the new rates retroactive to January 1, 2019. The retroactive impact of the decision was reflected in the results for the second quarter, and of the water segment's $0.59 earnings per share, $0.08 per share was related to the first quarter of this year, which is shown on a separate line in the table on this slide.
Further impacting the comparability of the water segment's earnings between the second quarter of 2019 versus 2018 was the recording of a $1.1 million reduction to the administrative and general expense, positively impact earnings by $0.02 per share. This is to reflect the recovery of costs previously incurred or expensed as incurred and trapped in memorandum accounts, which were approved in the CPUC's final decision in May. The remainder of the earnings increase at the water segment was due to a higher water gross margin from the new water rates, lower operating expenses, and an increase in gains on investments held to fund a retirement benefit plan. Our electric segment earnings for the second quarter of 2019 were $0.01 per share as compared to $0.02 per share for the second quarter of last year.
This was largely due to an increase in operating expenses without an increase in customer base rates. Billed electric revenue during the first six months of 2019 was still based on 2017 adopted rates, pending a final decision by the CPUC on the electric rate case application, which will be retroactive to January 1st, 2018. After receiving a proposed decision in July, which adopts the November 2018 settlement agreement with the CPUC's Public Advocates Office, we expect a final decision by the end of the third or fourth quarter of this year.
Had the new rates in the settlement agreement been approved by the CPUC and in place as of January 1, 2019, pre-tax income at the electric segment would have increased by approximately $1.7 million or $0.03 per share for the first six months of 2019, including $0.01 per share related to the second quarter of 2019 and an additional $2 million or $0.04 per share for the full year of 2018. We will record these increases to earnings when the PUC final decision is issued. Our contracted service segment saw a $0.06 per share increase in earnings due to the commencement of operations at Fort Riley in July of 2018, as well as an increase in management fees and construction activity at several of the other military bases. Consolidated revenues increased by $17.7 million due to increases at both the water and contracted services segments.
Water revenue for the second quarter this year increased by $11.4 million to $88.1 million due to the new water rates. The increase for the quarter includes $3.4 million related to the first three months of 2019 as a result of the retroactive CPUC decision. Electric revenue were down slightly, pending a final decision on the electric rate case from the CPUC. Again, billed electric revenue this year has been based on 2017 adopted rates, pending a final decision by the CPUC and will be retroactive to January 1, 2018. Contracted services revenues for the quarter increased $6.8 million as compared to the second quarter last year, largely due to Variety and increases in management fees and construction activity at several other military bases.
Looking at Slide 10, our water and electric supply costs were $29 million for the quarter, an increase of $5.3 million from the same period last year. This includes a $1.7 million increase, which relates to the first quarter of 2019 to reflect newly adopted water supply costs with corresponding revenues retroactive to January 1, 2019. Any changes in supply costs for both the water and electric segments as compared to the adopted supply costs are tracked in balancing accounts. Total operating expenses, including supply costs, decreased $1.4 million versus second quarter 2018 due to a $1.1 million reduction to reflect the CPUC's approval in its May decision for recovery of previously incurred costs that were being tracked in the memorandum account.
There was also a decrease in depreciation expense due to lower composite rates authorized in the water general rate case and maintenance expense due to differences in timing of maintenance activity. The lower authorized composite rate decreased depreciation expense and lowered adopted water gross margin, resulting in no impact to net earnings. These decreases were partially offset by an increase in construction expense at ASUS due to an overall increase in construction activity, including Fort Riley. Interest expense, net of other income, including investments held in a trust to fund a retirement benefit plan, was relatively flat compared to Q2 last year. An increase in gains on those investments was offset by an increase in the non-service cost components of pension and post-retirement costs recorded as non-operating expenses. Slide 11 shows the EPS bridge comparing the second quarter of 2019 with the same quarter of 2018. Moving on to slide 12.
This slide reflects our year-to-date earnings per share by segment. Fully diluted earnings for the six months ended June 30, 2019, were $1.07 per share, compared to $0.73 per share for the same period last year, or $0.37 per share increase in earnings, or 47%. The increase was largely due to the approval of the water general rate case for new rates retroactive to January 2019, the commencement of operations at Fort Riley in July of 2018, and higher construction activities at other military bases. For more details, please refer to yesterday's press release and the Form 10-Q. In terms of the company's liquidity, net cash provided by operating activities for the first six months of 2019 was $44.7 million as compared to $65.1 million for the same period in 2018.
The decrease was due primarily to lower water usage and the expiration of various surcharges related to Golden State Water's regulatory accounts. Had the new water customer rates been in place as of January 1st this year, cash flow for operations would have been higher. Golden State Water invested $70.7 million in company-funded capital projects during the first six months of 2019. Continuing our strong investment level, we expect to invest $115 million-$125 million in 2019. We plan to issue up to $115 million of long-term debt at Golden State Water by the end of this year to reduce its intercompany borrowings and American States Water's borrowings under its credit facility. At this time, we do not expect American States Water to issue additional equity. With that, I'll turn the call back to Bob.
Thank you, Eva. I'd like to provide an update on our recent regulatory activity. In May of this year, the CPUC issued a final decision on Golden State Water Company's water general rate case, which sets new water rates for the years 2019 through 2021, with rates retroactive to January 1st, 2019. The final decision approves in its entirety an August 2018 settlement agreement entered into between Golden State Water and the Public Advocates Office. As a result, the final decision authorizes Golden State Water to invest $334.5 million over the rate cycle, which includes $20.4 million of capital projects to be filed for revenue recovery through advice letters when those projects are completed.
Excluding the advice letter project revenues, the new rates approved will increase the 2019 water gross margin by approximately $7.1 million, adjusted for updated inflation index values since the August 2018 settlement, as compared to the 2018 adopted water gross margin. The 2019 water revenue requirement has been reduced to reflect a decrease of $7 million in depreciation expense compared to the adopted 2018 depreciation expense, due to a reduction in the overall composite depreciation rates based on a revised study filed in the general rate case. The decrease in depreciation expense lowers the water gross margin and is offset by a corresponding decrease in depreciation expense, resulting in no impact to net earnings.
In addition, the 2019 water revenue requirement includes a decrease of approximately $2.2 million for excess deferred tax refunds as a result of the 2017 Tax Cuts and Jobs Act, which has a corresponding decrease in income tax expense and also results in no impact to net earnings. Had depreciation expense remained the same as the 2018 adopted amount, and there were no excess deferred tax refunds that lowered the 2019 revenue requirement, the water gross margin for 2019 would have increased by approximately $16.3 million. The final decision also allows for potential additional water revenue increases in 2020 and 2021 of $9.6 million and $12 million, respectively, subject to the results of an earnings test and changes to the forecasted inflationary index values.
As to our electric general rate case, in July, the CPUC issued a proposed decision on this general rate case, approving in its entirety a settlement agreement between Golden State Water and the Public Advocates Office, entered into in November of last year. The settlement extends the rate cycle by one year through 2022. It also authorizes Golden State Water to construct all the capital projects requested in its application and provides additional funding for the fifth year added to the rate cycle, which are dedicated to improving system safety and reliability. These capital expenditures total $44 million over the five-year rate cycle.
Had the new rates in the settlement agreement been approved by the CPUC by December 31st, 2018, pre-tax income at the electric segment would have increased by approximately $2 million, or $0.04 per share, for the full year 2018, and $1.7 million, or $0.03 per share, for the first six months of 2019, including $0.01 per share related to the second quarter. We will record these increases to earnings when a final decision is issued, which is expected in the third or fourth quarter of 2019. Let's move on to ASUS on slide 15. ASUS's earnings contribution for the quarter was $0.12 per share, $0.06 per share higher than last year. The increased performance was partially due to the commencement of our contract at Fort Riley in July of 2018.
There was also an increase in management fee revenues and construction activity at several other military bases. The higher management fee revenues were the result of the successful resolution of various price adjustments. We reaffirm the guidance we have previously given to the market on ASUS's expected earnings contribution of $0.43 to $0.47 per share for 2019. We are still involved in various stages of the proposal process at a number of other bases considering privatization. The U.S. government is expected to release additional bases for bidding over the next several years. Due to our strong relationship with the U.S. government, as well as our expertise and experience in managing water and wastewater systems on military bases, we are well-positioned to compete for these new contracts. I'd like to turn our attention to dividends outlined on slide 16.
Our board of directors recently approved a 10.9% increase in the third quarter dividend from $0.275 per share to $0.305 per share on AWR's common shares. American States Water has paid dividends every year since 1931, increasing the dividends received by shareholders each calendar year for 65 consecutive years. It is important to note that our updated dividend policy is to achieve a compound annual growth rate in the dividend of more than 7% over the long term. The change in our dividend policy and the increase in our quarterly dividend reflect our board's confidence in the sustainability of the company's earnings at both our Golden State Water and ASUS subsidiaries, as well as the prospects for our future. A strong and increasing dividend allows the company to continue attracting capital to make necessary investments in the systems for the communities and military bases that we serve.
I'd like to conclude our prepared remarks by thanking you for your interest in American States Water, and we'll now turn the call over to the operator for questions.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Richard Verdi with Coker & Palmer. Please go ahead.
Hi, good afternoon, Bob and Eva, or actually good morning out there in California, Bob and Eva. How are you guys doing? Thank you.
Good, Richard.
Doing fine. Thank you.
Thank you.
Thanks for taking my call. First of all, very good quarter. I just have two quick questions. On the ASUS front, the guidance last quarter was $0.43 to $0.47 for 2019. It's the same this quarter for the year. We also had a very strong quarter in ASUS. Maybe Bob or Eva, can one of you please discuss a little bit about what goes into this quarter and what goes into the guidance in the sense of, was this quarter maybe stronger because of a weather push-out from Q1? Or maybe was there some activity that could have been expected later in the year that slid back up into the second quarter? Or just how can we think about this moving forward and maybe what went into this second quarter strength?
Sure, Richard, I'll take a stab at it and Eva, you can fill in the gaps if I miss something here. I would say 2019 is different from maybe the last couple of years in that we were doing more of our construction work in the first and second quarters in 2019 than we did in the prior years. Maybe you see more of a levelized quarterly contribution by ASUS for the four quarters of 2019. If you look at year to date, we're at $0.22 versus last year we were at $0.11. We made a pretty strong push the last six months of the year last year doing construction work. This year it's just going to be more normal quarterly construction.
Okay, that's great. Thank you for that, Bob. I appreciate it. Then just the second very quick question then I'll hand it back. For the dividend, Bob, you had mentioned in the prepared remarks how the company just increased the dividend 10.9%. The policy has been updated to 7% on a long-term CAGR basis. How should we think about the CAGR move-- or I'm sorry, I misspoke. How should we think about the dividend moving forward? Could we see that maybe moving the growth in the dividend may be moving in line with earnings growth, where it then sort of slows in the outer years so that we get a 7% CAGR? Could it be somewhat staggered?
I'm just trying to get some sort of sense of how this dividend could grow and maybe if it could be because of accelerated earnings strength here over the next couple of years, what have you.
Well, first of all, we plan to continue, as you know, to grow the earnings at our two subsidiaries, Golden State Water and ASUS. In thinking about the dividend, we're pretty comfortable with a growth rate that's more than 7% in looking out at our forecast. I don't think you need to necessarily think that we're going to back our dividend down going forward. I mean, it's just we're a pretty conservative company, and when we set a target of more than 7%, we expect to do that and probably more.
Okay, great. That's it for me. Hey, I appreciate the time, guys, and great quarter. Thank you very much.
Thank you, Richard.
Thank you.
As a reminder, if you have a question, please press star, then one. This concludes our question and answer session. I would like to turn the conference back over to Mr. Bob Sprowls for any closing remark.
Thank you, Brandon. I just wanted to close today by thanking everyone for their participation, and we look forward to speaking with everyone next quarter. Thank you.
This concludes today's American States Water Company conference call. You may now disconnect.