American Water Works Company Inc

Previous wording

For the three and six months ended June 30, 2024, diluted earnings per share, prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), were $1.42 and $2.37, respectively, compared to $1.44 and $2.37 per share in the same periods in 2023. Results for the three and six months ended June 30, 2024, include the implementation of new rates in the Regulated Businesses from its capital and acquisition investments. Results also reflect some increased production and employee related costs and higher financing costs to fund the current capital investment plan. Results for the three and six months ended June 30, 2024, compared to the same periods in 2023, reflect a net unfavorable impact of weather of $0.04 per share, including an estimated $0.03 and $0.07 per share, respectively, of impact due to warm, dry weather in the second quarter of 2024, primarily in New Jersey, and in the second quarter of 2023 in the Northeast and Midwest. Results for the three and six months ended June 30, 2024, include additional interest income of $0.02 and $0.04 per share, respectively, resulting from the early 2024 amendment to the secured seller note from the sale of the former HOS business.

Current wording

For the three and nine months ended September 30, 2024, diluted earnings per share, prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), were $1.80 and $4.17, respectively, compared to $1.66 and $4.03 per share in the same periods in 2023. Results for the three and nine months ended September 30, 2024, include increased revenues from the implementation of new rates in the Regulated Businesses from capital and acquisition investments. Results also reflect increased production and employee related costs, increased depreciation and higher financing costs used to fund the current capital investment plan. Results for the three and nine months ended September 30, 2024, reflect the net favorable impact of warmer, drier weather compared to normal, estimated at $0.04 and $0.07 per share, respectively. Results for the three and nine months ended September 30, 2023, reflect the net favorable impact of weather compared to normal, estimated at $0.04 and $0.11 per share, respectively. Results for the three and nine months ended September 30, 2024, include additional interest income of $0.03 and $0.07 per share, respectively, resulting from the early 2024 amendment to the secured seller note from the sale of the former HOS business.

Previous wording

The Company continues to grow its businesses, with the substantial majority of its growth to be achieved in the Regulated Businesses through (i) continued capital investment in the Company’s infrastructure to provide safe, clean, reliable and affordable water and wastewater services to its customers, (ii) regulated acquisitions to expand the Company’s services to new customers and (iii) the addition of approximately 9,600 new customers through organic growth in existing systems. The Company plans to invest approximately $3.1 billion in these growth strategies in 2024. During the first six months of 2024, the Company invested $1.4 billion, in the Regulated Businesses, as discussed below.

Current wording

The Company continues to grow its businesses, with the substantial majority of its growth to be achieved in the Regulated Businesses through (i) continued capital investment in the Company’s infrastructure to provide safe, clean, reliable and affordable water and wastewater services to its customers, (ii) regulated acquisitions to expand the Company’s services to new customers and (iii) organic growth in existing systems. The Company now plans to invest approximately $3.3 billion in these growth strategies in 2024. During the first nine months of 2024, the Company invested $2.0 billion, in the Regulated Businesses, as discussed below.

Previous wording

•$1.3 billion capital investment in the Regulated Businesses for infrastructure improvements and replacements; and

Current wording

•$1.9 billion capital investment in the Regulated Businesses for infrastructure improvements and replacements; and

Previous wording

On October 11, 2022, the Company’s Pennsylvania subsidiary entered into an agreement to acquire the public wastewater collection and treatment system assets (the “System Assets”) from the Butler Area Sewer Authority. On November 9, 2023, the Pennsylvania Public Utility Commission (the “PaPUC”) approved a settlement agreement without modification with respect to the Company’s Pennsylvania subsidiary’s application to acquire the System Assets from the Butler Area Sewer Authority for a purchase price of $230 million, subject to adjustment as provided for in the asset purchase agreement. This system provides wastewater service for approximately 15,000 customer connections. On December 14, 2023, Center Township and Summit Township filed appeals with the Pennsylvania Commonwealth Court seeking to reverse the order entered by the PaPUC approving the sale of the System Assets. On December 29, 2023, the Company’s Pennsylvania subsidiary filed applications with the Commonwealth Court seeking to dismiss the appeals and requesting expedited consideration. By order dated February 1, 2024, the Commonwealth Court deferred deciding the application to dismiss the appeals and directed that the issues raised by the applications to dismiss are to be considered as part of the merits of the appeals and that the disposition of the appeals was to be expedited. The Company awaits a decision from the Commonwealth Court to proceed with closing.

Current wording

On September 26, 2024, the Pennsylvania Commonwealth Court issued an order dismissing the appeals of Center Township and Summit Township, which sought to reverse the November 9, 2023, order entered by the PaPUC which approved a settlement agreement without modification with respect to the Company’s Pennsylvania subsidiary’s application to acquire the wastewater collection and treatment system assets (the “System Assets”) from the Butler Area Sewer Authority. On October 29, 2024, the Pennsylvania subsidiary acquired the System Assets from the Butler Area Sewer Authority for a purchase price of $230 million, in cash. This system provides wastewater service for approximately 15,000 customer connections. The acquisition will be accounted for as a business combination in the fourth quarter of 2024 and the preliminary purchase price allocation consists primarily of utility plant.

Previous wording

As of June 30, 2024, the Company had entered into 22 agreements with a total aggregate purchase price of $483 million for pending acquisitions in the Regulated Businesses, including the agreements discussed above, to add approximately 59,000 additional customers. Two of these 22 agreements, representing an aggregate purchase price of $236 million (including Butler Area Sewer Authority, discussed above) and serving approximately 16,000 customers, have received commission approval. The remaining pending acquisitions, including 13,400 customers under Act 12, require regulatory approval to complete.

Current wording

As of October 30, 2024, the Company had entered into 22 agreements with a total aggregate purchase price of $169 million for pending acquisitions in the Regulated Businesses, to add approximately 43,400 additional customers.

Previous wording

On April 10, 2024, the U.S. Environmental Protection Agency (“EPA”) announced a final National Primary Drinking Water Regulation (“NPDWR”) for six PFAS, including perfluorooctanoic acid (“PFOA”), perfluorooctane sulfonic acid (“PFOS”), perfluorononanoic acid (“PFNA”), hexafluoropropylene oxide dimer acid (“HFPO-DA”, commonly known as “GenX Chemicals”), perfluorohexane sulfonic acid (“PFHxS”), and perfluorobutane sulfonic acid (“PFBS”). The NPDWR establishes legally enforceable levels, called Maximum Contaminant Levels (“MCLs”), for PFAS in drinking water. Utilities will be required to complete their initial monitoring for PFAS by 2027, followed by ongoing compliance monitoring. Utilities will be required to comply with the new MCLs by April 2029, implementing solutions to reduce PFAS levels where needed. Beginning in April 2029, utilities that exceed any of the PFAS MCLs will be required to provide notification to the public of the violation.

Current wording

On April 10, 2024, the U.S. Environmental Protection Agency (“EPA”) announced a final National Primary Drinking Water Regulation (“NPDWR”) for six PFAS, including perfluorooctanoic acid (“PFOA”), perfluorooctane sulfonic acid (“PFOS”), perfluorononanoic acid (“PFNA”), hexafluoropropylene oxide dimer acid (“HFPO-DA”, commonly known as “GenX Chemicals”), perfluorohexane sulfonic acid (“PFHxS”), and perfluorobutane sulfonic acid (“PFBS”). The NPDWR for PFAS establishes legally enforceable levels, called Maximum Contaminant Levels (“MCLs”), for PFAS in drinking water. Utilities will be required to complete their initial monitoring for PFAS by 2027, followed by ongoing compliance monitoring. Utilities will be required to comply with the new MCLs by April 2029, implementing solutions to reduce PFAS levels where needed. Beginning in April 2029, utilities that exceed any of the PFAS MCLs will be required to provide notification to the public of the violation.

Previous wording

As previously disclosed, the Company estimates an investment of approximately $1.0 billion of capital expenditures to install additional treatment facilities over a five-year period in order to comply with the new regulations. Additionally, the Company estimates that it will incur annual operating expenses of up to approximately $50 million related to testing and treatment, with the majority of the operating expenses beginning after the April 2029 compliance deadline. The actual expenses may differ from these estimates and will be dependent upon market dynamics upon implementation of solutions to comply with the NPDWR.

Current wording

As previously disclosed, the Company estimates an investment of approximately $1 billion of capital expenditures to install additional treatment facilities over a five-year period in order to comply with the new regulations. Additionally, the Company estimates that it will incur annual operating expenses of up to approximately $50 million related to testing and treatment, with the majority of the operating expenses beginning after the April 2029 compliance deadline. The actual level of capital investment and expenses may differ from these estimates and will be dependent upon market dynamics upon implementation of solutions to comply with the NPDWR for PFAS.

Previous wording

The Company supports sound policies and compliance with the NPDWR by all water utilities, while protecting customers and communities from the costly burden of monitoring and mitigating PFAS contamination in water systems. The Company continues to advocate for policies that hold polluters accountable and is participating in the multi-district litigation and other lawsuits filed against certain PFAS manufacturers seeking damages and reimbursement of costs incurred and continuing to be incurred to address contamination of public water supply systems by PFAS. For more information on the PFAS multi-district litigation, see Part II, Item 1—Legal Proceedings—PFAS Multi-District Litigation.

Current wording

The Company supports sound policies and compliance with the NPDWR for PFAS by all water utilities, while protecting customers and communities from the costly burden of monitoring and mitigating PFAS contamination in water systems. The Company continues to advocate for policies that hold polluters accountable and is participating in the multi-district litigation and other lawsuits filed against certain PFAS manufacturers seeking damages and reimbursement of costs incurred and continuing to be incurred to address contamination of public water supply systems by PFAS. For more information on the PFAS multi-district litigation, see Part II, Item 1—Legal Proceedings—PFAS Multi-District Litigation, in the Company’s Form 10-Q for the quarter ended June 30, 2024.

Previous wording

On April 19, 2024, the EPA issued a final rule to designate PFOA and PFOS as hazardous substances under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”). American Water is evaluating the final rule. The Company, along with a coalition (Water Coalition Against PFAS) of many other water and wastewater organizations, is actively advocating for and supporting bipartisan legislation that would provide PFAS liability protections under CERCLA for water and wastewater systems, as passive receivers of PFAS, and to hold polluters, and not the public or customers, accountable for PFAS related liability.

Current wording

On April 19, 2024, the EPA issued a final rule to designate PFOA and PFOS as hazardous substances under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”). The Company, along with a coalition (Water Coalition Against PFAS) of many other water and wastewater organizations, is actively advocating for and supporting bipartisan legislation that would provide PFAS liability protections under CERCLA for water and wastewater systems, as passive receivers of PFAS, and to hold polluters, and not the public or customers, accountable for PFAS related liability.

Previous wording

On July 22, 2024, the PaPUC released an order approving the adjustment of base rates requested in a general rate case filed by the Company’s Pennsylvania subsidiary on November 8, 2023. The PaPUC approved a $99 million annualized increase in the Pennsylvania subsidiary’s water and wastewater system revenues, excluding previously recovered infrastructure surcharges of $20 million, based on (i) an authorized return on equity of 9.45%, (ii) an authorized rate base of $5.8 billion, which reflects, as requested and included in the general rate case, approximately $1.0 billion in capital investments to be made through mid-2025, (iii) a common equity ratio of 55.30%, and (iv) a long-term debt ratio of 44.70%. Certain acquisitions that remain pending, including the acquisition of the wastewater collection and treatment system of the Butler Area Sewer Authority, were excluded from authorized base rates. The new rates will take effect on August 7, 2024, except that new wastewater rates for two recently acquired systems, including the City of York, will take effect during the first half of 2025 in accordance with the terms of the relevant acquisition agreements. As part of its approval of this rate adjustment, the PaPUC initiated an investigation into certain reported water service and water quality issues in the Pennsylvania subsidiary’s Northeastern service territory, which reports had been provided during public input hearings convened in the general rate case.

Current wording

On July 22, 2024, the PaPUC released an order approving the adjustment of base rates requested in a general rate case filed by the Company’s Pennsylvania subsidiary on November 8, 2023. The PaPUC approved a $99 million annualized increase in the Pennsylvania subsidiary’s water and wastewater system revenues, excluding previously recovered infrastructure surcharges of $20 million, based on (i) an authorized return on equity of 9.45%, (ii) an authorized rate base of $5.8 billion, which reflects, as requested and included in the general rate case, approximately $1.0 billion in capital investments to be made through mid-2025, (iii) a common equity ratio of 55.30%, and (iv) a long-term debt ratio of 44.70%. Certain acquisitions that were or remain pending, including the acquisition of the wastewater collection and treatment system of the Butler Area Sewer Authority, were excluded from authorized base rates. The new rates were effective on August 7, 2024, except that new wastewater rates for two recently acquired systems, including the City of York, will take effect during the first half of 2025 in accordance with the terms of the relevant acquisition agreements. As part of its approval of this rate adjustment, the PaPUC initiated an investigation into certain reported water service and water quality issues in the Pennsylvania subsidiary’s Northeastern service territory, which reports had been provided during public input hearings convened in the general rate case.

Previous wording

On May 3, 2024, the Kentucky Public Service Commission (the “KPSC”) issued an order approving the adjustment of base rates requested in a rate case filed on June 30, 2023, by the Company’s Kentucky subsidiary. The general rate case order approved an $11 million annualized increase in water revenues, excluding infrastructure surcharge revenues of $10 million which continue to be recovered in the Kentucky subsidiary’s approved infrastructure mechanism. The annualized increase is based upon an authorized return on equity of 9.70%, authorized rate base of $489 million, which reflects capital investments through January 31, 2025, and a capital structure with a common equity ratio of 52.22%. Interim rates in this proceeding were effective on February 6, 2024, and the order required that the difference between interim and final approved rates is subject to refund no later than August 26, 2024. On May 16, 2024, the Kentucky subsidiary filed with the KPSC a petition for rehearing of the KPSC’s order, seeking clarification and/or correction of certain computational inconsistencies that the Kentucky subsidiary believes are reflected in the KPSC’s order with respect to the authorized amount of annualized revenues to be received by the Kentucky subsidiary. The petition for rehearing also requested that any revisions become effective February 6, 2024, with any difference between the adjusted amount and initial approved rates subject to refund or collection. On May 28, 2024, the KPSC granted the request for rehearing, and the Kentucky subsidiary expects resolution of this proceeding later in 2024.

Current wording

On May 3, 2024, the Kentucky Public Service Commission (the “KPSC”) issued an order approving the adjustment of base rates requested in a rate case filed on June 30, 2023, by the Company’s Kentucky subsidiary. The general rate case order approved an $11 million annualized increase in water revenues, excluding infrastructure surcharge revenues of $10 million which continue to be recovered in the Kentucky subsidiary’s approved infrastructure mechanism. The annualized increase is based upon an authorized return on equity of 9.70%, authorized rate base of $489 million, which reflects capital investments through January 31, 2025, and a capital structure with a common equity ratio of 52.22%. Interim rates in this proceeding were effective on February 6, 2024, and the order required that the difference between interim and final approved rates be subject to refund no later than August 26, 2024. On May 16, 2024, the Kentucky subsidiary filed with the KPSC a petition for rehearing of the KPSC’s order, seeking clarification and/or correction of certain computational inconsistencies that the Kentucky subsidiary believes are reflected in the KPSC’s order with respect to the authorized amount of annualized revenues to be received by the Kentucky subsidiary. The petition for rehearing also requested that any revisions become effective February 6, 2024, with any difference between the adjusted amount and initial approved rates subject to refund or collection. On May 28, 2024, the KPSC granted the request for rehearing, and the Kentucky subsidiary expects resolution of this proceeding later in 2024.

Previous wording

On July 1, 2024, the Company’s Missouri subsidiary filed a general rate case requesting approximately $148 million in annualized incremental revenues. The request is based on a return on equity of 10.75% and a capital structure with an equity component of 50.54% and a long-term debt component of 49.46%. The requested annualized incremental revenue is driven primarily by $1.5 billion of incremental capital investments completed and planned by the Missouri subsidiary from January 2023 through May 2026. The Missouri subsidiary anticipates that the general rate case proceeding will be completed by mid-2025.

Current wording

On August 2, 2024, the Company’s Hawaii subsidiary filed a general rate case requesting approximately $2 million in annualized incremental revenues, which is based on a proposed return on equity of 10.67% and a capital structure with an equity component of 52.11% and debt component of 47.89%. The requested annualized incremental revenue is driven primarily by approximately $41 million in capital investments made and to be made by the Hawaii subsidiary through 2025. The Hawaii subsidiary anticipates that the general rate case proceeding will be completed by mid-2025.

Previous wording

On May 1, 2024, the Company’s Iowa subsidiary filed a general rate case requesting approximately $21 million in additional annualized revenues, which is based on a proposed return on equity of 10.75% and a capital structure with an equity component of 52.57% and debt component of 47.43%. The requested annualized revenue increase is driven primarily by approximately $157 million in capital investments made and to be made by the Iowa subsidiary through March 2026. Interim rates became effective May 11, 2024, with the difference between interim and final approved rates subject to refund.

Current wording

On May 1, 2024, the Company’s Iowa subsidiary filed a general rate case requesting approximately $21 million in additional annualized revenues, which is based on a proposed return on equity of 10.75% and a capital structure with an equity component of 52.57% and debt component of 47.43%. The requested annualized revenue increase is driven primarily by approximately $157 million in capital investments made and to be made by the Iowa subsidiary through March 2026. Interim rates became effective May 11, 2024, with the difference between interim and final approved rates subject to refund. On August 29, 2024, the Iowa subsidiary submitted supplemental testimony consistent with the procedural schedule, which was subsequently challenged by the parties in the proceeding. On October 4, 2024, the Iowa Utilities Commission issued an order that granted the inclusion of the supplemental filing and extended the procedural schedule in the case beyond the statutory ten-month period. The Iowa subsidiary now expects resolution of this proceeding by May 2025.

Previous wording

On January 25, 2024, the Company’s Illinois subsidiary filed tariffs for new water and wastewater rates. The request seeks a two-step rate increase consisting of aggregate annualized incremental revenue, based on a proposed return on equity of 10.75%, of (i) approximately $132 million, excluding infrastructure surcharges of $5 million, effective January 1, 2025, based on a future test year through December 31, 2025, with average rate base and a capital structure with an equity component of 52.27% and a debt component of 47.73%, and (ii) approximately $16 million effective January 1, 2026, based on a future test year to include end of period rate base and a capital structure with an equity component of 54.43% and a debt component of 45.57%. The requested increases are driven primarily by an estimated $557 million in capital investments to be made by the Illinois subsidiary from January 2024 through December 2025. The request also proposes a treatment and compliance rider to address recovery of future environmental compliance investments, and a modification to the existing volume balancing account mechanism to include full production cost recovery. The requested increase was subsequently updated in the Illinois subsidiary’s June 20, 2024, rebuttal filing, with the first step request adjusted to $140 million in additional annualized revenues.

Current wording

On January 25, 2024, the Company’s Illinois subsidiary filed tariffs for new water and wastewater rates. The request seeks a two-step rate increase consisting of aggregate annualized incremental revenue, based on a proposed return on equity of 10.75%, of (i) approximately $132 million, excluding infrastructure surcharges of $5 million, effective January 1, 2025, based on a future test year through December 31, 2025, with average rate base and a capital structure with an equity component of 52.27% and a debt component of 47.73%, and (ii) approximately $16 million effective January 1, 2026, based on a future test year to include end of period rate base and a capital structure with an equity component of 54.43% and a debt component of 45.57%. The requested increases are driven primarily by an estimated $557 million in capital investments to be made by the Illinois subsidiary from January 2024 through December 2025. The request also proposes a treatment and compliance rider to address recovery of future environmental compliance investments, and a modification to the existing volume balancing account mechanism to include full production cost recovery. The requested increase was subsequently updated in the Illinois subsidiary’s June 20, 2024, rebuttal filing, with the first step request adjusted to $140 million in additional annualized revenues. On October 24, 2024, a proposed order was issued by the administrative law judge in the proceeding, recommending a 9.84% return on equity and a capital structure with an equity component of 49.00% and a debt component of 51.00%. In addition, the proposed order recommended against the Illinois subsidiary’s second-step increase. The recommendations in the proposed order may be accepted, modified or rejected by the Illinois Commerce Commission. A final order in the case is expected no later than December 17, 2024, with new rates implemented January 1, 2025.

Previous wording

On November 1, 2023, the Company’s Virginia subsidiary filed a general rate case requesting $20 million in additional annualized revenues. The request is based on a proposed return on equity of 10.95% and a capital structure with an equity component of 45.67% and a debt and other component of 54.33%. The requested increase is driven by approximately $110 million in capital investments between May 2023 and April 2025. The request also proposed a revenue decoupling mechanism and seeks deferral of certain production cost adjustments. Interim rates became effective May 1, 2024, with the difference between interim and final approved rates subject to refund.

Current wording

On November 1, 2023, the Company’s Virginia subsidiary filed a general rate case requesting $20 million in additional annualized revenues. The request is based on a proposed return on equity of 10.95% and a capital structure with an equity component of 45.67% and a debt and other component of 54.33%. The requested increase is driven by approximately $110 million in capital investments between May 2023 and April 2025. The request also proposed a revenue decoupling mechanism and seeks deferral of certain production cost adjustments. Interim rates became effective May 1, 2024, with the difference between interim and final approved rates subject to refund. On September 20, 2024, the Virginia subsidiary filed with the Virginia State Corporation Commission (the “SCC”) a “black box” stipulation of settlement which agreed to a $15 million annualized increase in the Virginia subsidiary’s revenues. The stipulation of settlement also agreed, solely for purposes of the Virginia subsidiary’s future filings requiring a stated cost of capital and/or capital structure (including its annual information and water and wastewater infrastructure surcharge filings), that its return on equity will be 9.70% and its capital structure will consist of an equity component of 45.67% and a debt and other component of 54.33%. The stipulation of settlement remains subject to SCC review and approval.

Previous wording

On July 1, 2022, the Company’s California subsidiary filed a general rate case requesting an increase in 2024 revenue of $56 million and a total increase in revenue over the 2024 to 2026 period of $95 million, all as compared to 2022 revenues. The Company updated its filing in January 2023 to capture the authorized step increase effective January 1, 2023. The filing was also updated to incorporate a decoupling proposal and a revision to the Company’s sales and associated variable expense forecast. The revised filing requested additional annualized revenues for the test year 2024 of $37 million, compared to 2023 revenues. This excludes the proposed step rate and attrition rate increase for 2025 and 2026 of $20 million and $19 million, respectively. The total revenue requirement request for the three-year rate case cycle, incorporating updates to present rate revenues and forecasted demand, is $76 million. On November 17, 2023, the California subsidiary filed with the CPUC a partial settlement agreement reached with the CPUC’s Public Advocates Office, which would determine the amount of incremental annualized water and wastewater revenue to be received by the California subsidiary to be$20 million in the 2024 test year,$16 million in the 2025 escalation year, and$15 million in the 2026 attrition year. The partial settlement agreement addresses the California subsidiary’s revenue requirement request but does not address rate design or certain other matters, such as the requested inclusion and implementation of a revenue stability mechanism to separate the California subsidiary’s revenue and water sales. New rates would be implemented retroactively to January 1, 2024, upon a final decision issued by the CPUC approving the partial settlement agreement and resolving the other issues not addressed by the partial settlement agreement, which is expected to occur in the second half of 2024.

Current wording

On July 1, 2022, the Company’s California subsidiary filed a general rate case requesting an increase in 2024 revenue of $56 million and a total increase in revenue over the 2024 to 2026 period of $95 million, all as compared to 2022 revenues. The Company updated its filing in January 2023 to capture the authorized step increase effective January 1, 2023. The filing was also updated to incorporate a decoupling proposal and a revision to the Company’s sales and associated variable expense forecast. The revised filing requested additional annualized revenues for the test year 2024 of $37 million, compared to 2023 revenues. This excludes the proposed step rate and attrition rate increase for 2025 and 2026 of $20 million and $19 million, respectively. The total revenue requirement request for the three-year rate case cycle, incorporating updates to present rate revenues and forecasted demand, is $76 million. On November 17, 2023, the California subsidiary filed with the CPUC a partial settlement agreement reached with the CPUC’s Public Advocates Office, which would determine the amount of incremental annualized water and wastewater revenue to be received by the California subsidiary to be$20 million in the 2024 test year,$16 million in the 2025 escalation year, and$15 million in the 2026 attrition year. The partial settlement agreement addresses the California subsidiary’s revenue requirement request but does not address rate design or certain other matters, such as the requested inclusion and implementation of a revenue stability mechanism to separate the California subsidiary’s revenue and water sales. On August 27, 2024, a proposed decision was issued in the proceeding which, among other provisions, recommended adoption by the CPUC of the partial settlement agreement and recommended denial of the California subsidiary’s proposed Water Resources Sustainability Plan decoupling mechanism and its currently effective Annual Consumption Adjustment Mechanism. On September 16, 2024, and September 23, 2024, the California subsidiary submitted comments in the proceeding continuing to support its position and recommending the CPUC revise the proposed decision to approve the Water Resource Sustainability Plan decoupling mechanism and maintain the Annual Consumption Adjustment Mechanism. The CPUC will consider the proposed decision and all responsive comments and will issue a final decision in the proceeding, which is currently scheduled for December 5, 2024, with new rates implemented retroactively to January 1, 2024.

Previous wording

Independent of the judicial challenge, California passed Senate Bill 1469, which allows the CPUC to consider and authorize the implementation of a mechanism that separates the water corporation’s revenue and its water sales. Legislation was signed by the Governor on September 30, 2022, and became effective on January 1, 2023. In response to the legislation, on January 27, 2023, the Company’s California subsidiary filed an updated application requesting the CPUC to consider a Water Resources Sustainability Plan decoupling mechanism in its pending 2022 general rate case, which, if adopted, will become effective upon receiving an order in the current pending rate case.

Current wording

Independent of the judicial challenge, California passed Senate Bill 1469, which allows the CPUC to consider and authorize the implementation of a mechanism that separates the water corporation’s revenue and its water sales. Legislation was signed by the Governor on September 30, 2022, and became effective on January 1, 2023. In response to the legislation, on January 27, 2023, the Company’s California subsidiary filed an updated application requesting the CPUC to consider a Water Resources Sustainability Plan decoupling mechanism in its pending 2022 general rate case, which, if adopted, will become effective upon receiving an order in the current pending rate case, as discussed above.

Previous wording

For the three and six months ended June 30, 2024, operating revenues increased $52 million and $120 million, respectively, primarily due to increases of $42 million and $100 million, respectively, from authorized rate increases, including infrastructure surcharges, principally to recover infrastructure investment in various states. In addition, operating revenues increased $10 million and $18 million for the three and six months ended June 30, 2024, respectively, from water and wastewater acquisitions, as well as organic growth in existing systems. Also, operating revenues were $5 million and $10 million higher for the three and six months ended June 30, 2024, respectively, as a result of reduced amortization of EADIT, primarily in the Company’s Missouri subsidiary. These increases were partially offset by a $10 million estimated net decrease for the three and six months ended June 30, 2024, due to warm, dry weather in the second quarter of 2023.

Current wording

For the three and nine months ended September 30, 2024, operating revenues increased $124 million and $244 million, respectively, primarily due to increases of $83 million and $183 million, respectively, from authorized rate increases, including infrastructure surcharges, principally to recover infrastructure investment in various states. In addition, operating revenues increased $11 million and $29 million for the three and nine months ended September 30, 2024, respectively, from water and wastewater acquisitions, as well as organic growth in existing systems. Also, operating revenues were $7 million and $17 million higher for the three and nine months ended September 30, 2024, respectively, as a result of reduced amortization of EADIT, primarily in the Company’s Missouri subsidiary. For the three and nine months ended September 30, 2024, operating revenues increased $20 million from strong demand. For the nine months ended September 30, 2024, these increases were partially offset by a $8 million estimated net decrease due to warm, dry weather in 2023.

Previous wording

For the three and six months ended June 30, 2024, operation and maintenance expense increased $11 million and $32 million, respectively, due to increased production costs from higher purchased water cost and usage, increased employee related costs to support growth and increases in other operating expenses.

Current wording

For the three and nine months ended September 30, 2024, operation and maintenance expense increased $34 million and $66 million, respectively, due to increased production costs primarily from higher purchased water cost and usage, increased employee related costs to support growth and increases in other operating expenses.

Previous wording

For the three and six months ended June 30, 2024, depreciation and amortization increased $17 million and $32 million, respectively, primarily due to additional utility plant placed in service from capital infrastructure investments.

Current wording

For the three and nine months ended September 30, 2024, depreciation and amortization increased $22 million and $54 million, respectively, primarily due to additional utility plant placed in service from capital infrastructure investments.

Previous wording

For the three and six months ended June 30, 2024, general taxes increased $9 million and $12 million, respectively, primarily due to incremental property taxes and New Jersey Gross Receipts Tax.

Current wording

For the three and nine months ended September 30, 2024, general taxes increased $7 million and $19 million, respectively, primarily due to incremental property taxes and New Jersey Gross Receipts Tax.

Previous wording

For the three and six months ended June 30, 2024, other expenses increased $14 million and $25 million, respectively, primarily due to higher interest expense from the issuance of incremental long-term debt in June 2023 and February 2024. These increases were partially offset by decreases in interest expense as a result of lower average commercial paper borrowings and from the repayment of AWCC’s 3.850% Senior Notes in March 2024.

Current wording

For the three and nine months ended September 30, 2024, other expenses increased $18 million and $43 million, respectively, primarily due to higher interest expense from the issuance of incremental long-term debt and a decrease in allowance for funds used during construction in the current periods. These increases were partially offset by decreases in interest expense as a result of lower average commercial paper borrowings and from the repayment of American Water Capital Corp.’s (“AWCC”) 3.850% Senior Notes in March 2024.

Previous wording

For the three and six months ended June 30, 2024, the Regulated Businesses’ provision for income taxes increased $5 million and $12 million, respectively. The Regulated Businesses’ effective income tax rate was 22.2% for the three and six months ended June 30, 2024, and 20.8% for the three and six months ended June 30, 2023. The increase was primarily due to the decrease in the amortization of EADIT pursuant to regulatory orders.

Current wording

For the three and nine months ended September 30, 2024, the Regulated Businesses’ provision for income taxes increased $18 million and $30 million, respectively. The Regulated Businesses’ effective income tax rate was 22.3% and 20.2% for the three months ended September 30, 2024 and 2023, respectively, and 22.2% and 20.6% for the nine months ended September 30, 2024 and 2023, respectively. The increase was primarily due to the decrease in the amortization of EADIT pursuant to regulatory orders.

Previous wording

For the three and six months ended June 30, 2024, interest income increased $11 million and $19 million, respectively, primarily due to the increased interest rate on the amended secured seller promissory note from the sale of HOS. See Note 5—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements for additional information.

Current wording

For the nine months ended September 30, 2024, interest income increased $19 million, primarily due to the increased interest rate and higher principal balance on the amended secured seller promissory note from the sale of HOS. See Note 5—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements for additional information.

Previous wording

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into law. The IRA contains a 15% Corporate Alternative Minimum Tax (“CAMT”) provision on applicable corporations effective January 1, 2023. To determine if a company is considered an applicable corporation subject to CAMT, the company’s average adjusted financial statement income (“AFSI”) for the three consecutive years preceding the tax year must exceed $1.0 billion. An applicable corporation must make several adjustments to net income when determining AFSI. A corporation paying CAMT is eligible for a future tax credit, which can be utilized when regular tax exceeds CAMT. Based on current guidance, the Company is an applicable corporation subject to CAMT beginning in 2024 and expects to owe CAMT in excess of the regular tax liability. On June 13, 2024, the Internal Revenue Service (“IRS”) and the U.S. Treasury issued Notice 2024-47, allowing corporate taxpayers to exclude amounts attributable to the CAMT liability, without penalty, from estimated tax payments due on or before August 15, 2024. In the absence of a similar extension, the Company will include the CAMT liability in its estimated tax payments starting in the third quarter of 2024. The Company will continue to assess the impacts of the IRA as the U.S. Treasury and the IRS provide further guidance.

Current wording

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into law. The IRA contains a 15% Corporate Alternative Minimum Tax (“CAMT”) provision on applicable corporations effective January 1, 2023. To determine if a company is considered an applicable corporation subject to CAMT, the company’s average adjusted financial statement income (“AFSI”) for the three consecutive years preceding the tax year must exceed $1.0 billion. An applicable corporation must make several adjustments to net income when determining AFSI. A corporation paying CAMT is eligible for a future tax credit, which can be utilized when regular tax exceeds CAMT. Based on current guidance, the Company is an applicable corporation subject to CAMT beginning in 2024 and expects to owe CAMT in excess of the regular tax liability. On September 12, 2024, the Internal Revenue Service (“IRS”) and the U.S. Treasury issued Notice 2024-66, allowing corporate taxpayers to exclude amounts attributable to the CAMT liability, without penalty, from estimated tax payments with respect to a taxable year that begins during 2024. The Company will include the CAMT liability in its 2024 extension payment due April 15, 2025. The Company will continue to assess the impacts of the IRA as the U.S. Treasury and the IRS provide further guidance.

Previous wording

Liquidity needs for capital investment, working capital and other financial commitments are generally funded through cash flows from operations, public and private debt offerings, commercial paper markets, future issuances of equity, and, if and to the extent necessary, borrowings under American Water Capital Corp.’s (“AWCC”) revolving credit facility.

Current wording

Liquidity needs for capital investment, working capital and other financial commitments are generally funded through cash flows from operations, public and private debt offerings, commercial paper markets, future issuances of equity, and, if and to the extent necessary, borrowings under AWCC’s revolving credit facility.

Previous wording

AWCC’s revolving credit facility provides $2.75 billion in aggregate total commitments from a diversified group of financial institutions. The revolving credit facility is used principally to support AWCC’s commercial paper program, to provide additional liquidity support, and to provide a sub limit for the issuance of up to $150 million in letters of credit. The maximum aggregate principal amount of short-term borrowings authorized for issuance under AWCC’s commercial paper program is $2.6 billion. The termination date of the credit agreement with respect to AWCC’s revolving credit facility is October 26, 2028. Subject to satisfying certain conditions, the credit agreement permits AWCC to increase the maximum commitment by up to an aggregate of $500 million and to request extensions of its expiration date for up to two one-year periods, as to which one such extension request remains. As of June 30, 2024, and December 31, 2023, there were no borrowings under the revolving credit facility. As of June 30, 2024, and December 31, 2023, there were $75 million of outstanding letters of credit under the revolving credit facility.

Current wording

AWCC’s revolving credit facility provides $2.75 billion in aggregate total commitments from a diversified group of financial institutions. The revolving credit facility is used principally to support AWCC’s commercial paper program, to provide additional liquidity support, and to provide a sub limit for the issuance of up to $150 million in letters of credit. The maximum aggregate principal amount of short-term borrowings authorized for issuance under AWCC’s commercial paper program is $2.6 billion. On October 28, 2024, the termination date of the credit agreement with respect to AWCC’s revolving credit facility was extended, as permitted by the terms of the credit agreement, from October 2028 to October 2029. Subject to satisfying certain conditions, the credit agreement permits AWCC to increase the maximum commitment by up to an aggregate of $500 million. As of September 30, 2024, and December 31, 2023, there were no borrowings under the revolving credit facility. As of September 30, 2024, and December 31, 2023, there were $75 million of outstanding letters of credit under the revolving credit facility.

Previous wording

(a)Total remaining availability of $2.7 billion as of June 30, 2024, was accessible through revolver draws.

Current wording

(a)Total remaining availability of $2.5 billion as of September 30, 2024, was accessible through revolver draws.

Previous wording

The weighted-average interest rate on AWCC’s outstanding short-term borrowings was approximately 5.51% at December 31, 2023.

Current wording

The weighted-average interest rate on AWCC’s outstanding short-term borrowings was approximately 4.90% and 5.51% at September 30, 2024, and December 31, 2023, respectively.

Previous wording

No ineffectiveness was recognized on hedging instruments for the three and six months ended June 30, 2024 or 2023.

Current wording

No ineffectiveness was recognized on hedging instruments for the three and nine months ended September 30, 2024 or 2023.

Previous wording

(b)Changes in working capital include changes to receivables and unbilled revenues, income tax receivable, accounts payable, accrued liabilities, accrued taxes and other assets and liabilities, net.

Current wording

(b)Changes in assets and liabilities include changes to receivables and unbilled revenues, income tax receivable, accounts payable, accrued liabilities, accrued taxes and other assets and liabilities, net.

Previous wording

For the six months ended June 30, 2024, cash provided by operating activities increased $13 million, due to an increase in net income and other non-cash activities, partially offset by changes in deferred income taxes and working capital, which is mainly due to a decrease in accounts payable due to the timing of payments.

Current wording

For the nine months ended September 30, 2024, cash provided by operating activities increased $59 million, due to an increase in net income and other non-cash activities, offset by changes in deferred income taxes and an increase in other long-term assets.

Previous wording

For the six months ended June 30, 2024, cash used in investing activities increased $207 million, primarily due to increased payments for capital expenditures and acquisitions.

Current wording

For the nine months ended September 30, 2024, cash used in investing activities increased $231 million, primarily due to increased payments for capital expenditures and acquisitions.

Previous wording

For the six months ended June 30, 2024, cash provided by financing activities decreased $779 million, primarily due to the repayment of long-term debt in the current period and the proceeds from the common stock financing in March 2023. These decreases were partially offset by a higher issuance of long-term debt and lower repayments of short-term commercial paper borrowings compared to the prior period.

Current wording

For the nine months ended September 30, 2024, cash provided by financing activities decreased $559 million, primarily due to the repayment of long-term debt in the current period and the proceeds from the common stock financing in March 2023. These decreases were partially offset by a higher issuance of long-term debt and lower repayments of short-term commercial paper borrowings compared to the prior period.

Previous wording

Presented in the table below are long-term and short-term credit ratings and rating outlooks as of July 31, 2024, as issued by Moody’s Investors Service on January 29, 2024, and S&P Global Ratings on March 4, 2024:

Current wording

Presented in the table below are long-term and short-term credit ratings and rating outlooks as of October 30, 2024, as issued by Moody’s Ratings on January 29, 2024, and S&P Global Ratings on March 4, 2024: