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 o'clock p. M. Eastern Time and run through Tuesday, August 13, 2019, 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 ks 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, Brannen. Welcome everyone and 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 will take your questions. I am very pleased to report that we delivered excellent earnings and performance during the Q2 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.
And 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 based privatization contract contributed nicely to earnings and we remain well positioned to win new military based contracts. In addition, 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 1st quarter retroactive impact of our water rate case. This adjusted earnings amount represents an increase of $0.20 per share or 45% over the Q2 last year.
In addition, Golden State Water Company continues to invest in the reliability of our water and electric systems. During the 1st 6 months of 2019, we spent $70,700,000 in company funded capital expenditures and are on target to spend $115,000,000 to $125,000,000 for the year, about 3 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 Q2 financial results on Slide 8. 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 January case, with the new rates retroactive to January 1, 2019.
The retroactive impact of the decision was reflected in the results for the Q2 and after water segment's $0.59 earnings per share, dollars 0.08 per share was related to the Q1 of this year, which is shown on a separate line in the table on this slide. Further impacting the comparability of the Wireless segment's earnings between the Q2 of 2019 versus 2018 was the recording of a $1,100,000 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 tracked in memorandum count, 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's earnings for Q2 of 2019 were $0.01 per share as compared to $0.02 per share for the Q2 of last year.
This was largely due to an increase in operating expenses without an increase in customer base rates. Billed electric revenues during the 1st 6 months of 2019 were 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 1, 2018. After receiving a proposed decision in July, which adopts the November 2018 settlement agreement with the CPUC Public Advocates Office, we expect a final decision by the end of the 3rd or Q4 of this year. Had the new rates in the settlement agreement being approved by the CPUC and in place as of January 1, 2019, pretax income at the electric segment would have increased by approximately $1,700,000 or $0.03 per share for the 1st 6 months of 2019, including $0.01 per share related to the Q2 of 2019 and an additional $2,000,000 or $0.04 per share for the full year of 2018. We will record these increases to earnings when the 2C final decisions 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 20 18, as well as an increase in management fees and construction activity at several of the other military bases. Consolidated revenues increased by $17,700,000 due to increases at both the Water and Contracted Services segments. Water revenue for the Q2 this year increased by $11,400,000 to $88,100,000 due to the new water rates. The increase for the quarter includes $3,400,000 related to the 1st 3 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 CTUC, and will be retroactive to January 1, 2018. Contracted services revenues for the quarter increased $6,800,000 as compared to the Q2 last year, largely due to variety as well as and increases in management fees and construction activity at several other military bases. Looking at Slide 10, our water and electric supply costs were $29,000,000 for the quarter, an increase of $5,300,000 from the same period last year. This includes a $1,700,000 increase, which relates to the Q1 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 $1,400,000 versus Q2 2018 due to a $1,100,000 reduction to reflect the CPUC's approval in its May decision for recovery of previously incurred costs that were being tracked in the memorandum of ending accounts. 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 activities, including variety. 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.
The 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 Q2 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 6 months ended June 30, 2019 were $1.07 per share compared to $0.73 per share for the same period last year, a $0.37 per share increase in earnings or 47%.
The increase was largely due to the approval of the Wallet 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 Form 10 Q. In terms of the company's liquidity, net cash provided by operating activities for the 1st 6 months of 2019 was $44,700,000 as compared to $65,100,000 for the same period in 2018. The decrease was due primarily to lower water usage usage and the expiration of various surcharges related to Golden State Water's regulatory accounts. In addition, had the new water customer rate seen in place as of January 1 this year, cash flow for operations would have been higher.
Golden State Water invested $70,700,000 in company funded capital projects during the 1st 6 months of 2019. Continuing our strong investment level, we expect to invest $115,000,000 to $125,000,000 in 20 19. We plan to issue up to $115,000,000 of long term debt at Golden State Water by the end of this year to reduce its intercompany borrowings and American State 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 1, 2019. The final decision approves in its entirety an August 2018 settlement agreement entered into between Golden State Water and the PUC's Public Advocates Office. As a result, final decision authorizes Golden State Water to invest $334,500,000 over the rate cycle, which includes $20,400,000 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 $7,100,000 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 $7,000,000 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 $2,200,000 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. Head 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 $16,300,000 The final decision also allows for potential additional water revenue increases in 2020 2021 of $9,600,000 and $12,000,000 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. Settlement extends the rate cycle by 1 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 5th year added to the rate cycle, which are dedicated to improving system safety and reliability. These capital expenditures totaled $44,000,000 over the 5 year rate cycle. Had the new rates in the settlement agreement been approved by the CPUC by December 31, 2018, pre tax income at the electric segment would have increased by approximately $2,000,000 or $0.04 per share for the full year 2018 and $1,700,000 or $0.03 per share for the 1st 6 months of 2019, including $0.01 per share relates to the Q2.
We will record these increases to earnings when a final decision is issued, which is expected in the 3rd or Q4 of 2019. Let's move on to ASUS on slide 15. ASUS's earnings contribution for the quarter was 0 point dollars per share, dollars 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 3rd quarter dividend from 0.275 dollars per share to $0.30 5 per share on AWR's common shares. American States Waters 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 Water. And we'll now turn the call over to the operator for questions.
Thank you. We will now begin the question and answer Our first question comes from Richard Verdi with Coker and 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. Good. 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, excuse me, so the guidance last quarter was $0.43 to $0.47 for 2019. It's the same this quarter for the year, but then we also had a very strong quarter in ASYS.
And so 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 Q2? Or just how can we think about this moving forward and maybe what went into the 2nd quarter strength?
Sure, Richard. I'll take a stab at it and Eva you can fill in the gaps if I missed 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 1st and second quarters in 2019 than we did in the prior years. So maybe you see more of a levelized quarterly contribution by ASUS for the 4 quarters of 2019. So 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 6 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. And 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. So 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 maybe moving in line with earnings growth where it then sort of slows in the outer years so that we get a 7% CAGR or 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 2 subsidiaries, Golden State Water and ASUS. And in thinking about the dividend, we're pretty comfortable with a growth rate that's more than 7% and looking out at our forecast. I wouldn't 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 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.
Sprowls for any closing remarks.
Thank you, Brannen. I just wanted to close today by thanking everyone for their