UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2021~~March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number: 001-34028

AMERICAN WATER WORKS COMPANY, INC.

(Exact name of registrant as specified in its charter)


Delaware			51-0063696
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

1 Water Street, Camden, NJ 08102-1658

(Address of principal executive offices) (Zip Code)

(856) 955-4001

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock, par value $0.01 per share

AWK

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). ☐ Yes ☒ No

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class

Shares Outstanding as of ~~October 27, 2021~~April 21, 2022

Common Stock, par value $0.01 per share

~~181,537,748~~181,753,276

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* * *

Throughout this Quarterly Report on Form 10-Q (“Form 10-Q”), unless the context otherwise requires, references to the “Company” and “American Water” mean American Water Works Company, Inc. and all of its subsidiaries, taken together as a whole. References to the “parent company” mean American Water Works Company, Inc., without its subsidiaries.

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FORWARD-LOOKING STATEMENTS

Statements included in Part I, Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations and in other sections of this Form 10-Q are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. In some cases, these forward-looking statements can be identified by words with prospective meanings such as “intend,” “plan,” “estimate,” “believe,” “anticipate,” “expect,” “predict,” “project,” “propose,” “assume,” “forecast,” “likely,” “uncertain,” “outlook,” “future,” “pending,” “goal,” “objective,” “potential,” “continue,” “seek to,” “may,” “can,” “should,” “will” and “could” or the negative of such terms or other variations or similar expressions. Forward-looking statements may relate to, among other things: the Company’s future financial performance, liquidity and cash flows; the timing and amount of rate and revenue adjustments, including through general rate case filings, filings for infrastructure surcharges and other governmental agency authorizations and proceedings, and filings to address regulatory lag; the Company’s growth and portfolio optimization strategies, including the timing and outcome of pending or future acquisition activity; the ability to complete the announced sales of the Company’s New York subsidiary and its Homeowner Services Group (“HOS”) (including the ability to obtain required regulatory approvals and required consents), the accounting, financial and other impacts of each of these transactions (including impacts on the Company’s current and short- and long-term expectations, guidance and plans with respect to its current and future debt and equity capital needs, capital expenditures, dividends, earnings, earnings per share, growth, future regulatory outcomes, rate base growth, and other financial and operational plans), the amount and timing of proceeds anticipated to be received therefrom, and the ability to achieve the Company’s regulatory and other strategies, benefits, plans and goals related to the transactions; the ability of the Company’s California subsidiary to obtain adequate alternative water supplies in lieu of diversions from the Carmel ~~River and to comply with certain regulatory orders and interpretations thereof with respect to such diversions;~~River; the amount and allocation of projected capital expenditures and related funding requirements; the Company’s ability to repay or refinance debt; the future impacts of increased or increasing financing costs, inflation and interest rates; the Company’s ability to execute its current and long-term business, operational and capital expenditures strategies; ~~its~~the Company’s ability to finance current operations, capital expenditures and growth initiatives by accessing the debt and equity capital markets; the outcome and impact on the Company of governmental and regulatory ~~investigations and~~ proceedings and related potential fines, penalties and other sanctions; the ability to meet or exceed the Company’s stated environmental and sustainability goals, including its greenhouse gas emission reduction, water delivery efficiency and water system resiliency goals; the ability to complete, and the timing and efficacy of, the design, development, implementation and improvement of technology and other strategic initiatives; the impacts to the Company of the ~~pandemic health event resulting from COVID-19;~~COVID-19 pandemic; the ability to capitalize on existing or future utility privatization opportunities; trends in the water and wastewater industries in which the Company operates, including macro trends with respect to the Company’s efforts related to customer, technology and work execution; regulatory, legislative, tax policy or legal developments; and impacts that future significant tax legislation may have on the Company and on its business, results of operations, cash flows and liquidity.

Forward-looking statements are predictions based on the Company’s current expectations and assumptions regarding future events. They are not guarantees or assurances of any outcomes, financial results, levels of activity, performance or achievements, and readers are cautioned not to place undue reliance upon them. These forward-looking statements are subject to a number of estimates, assumptions, known and unknown risks, uncertainties and other factors. The Company’s actual results may vary materially from those discussed in the forward-looking statements included herein as a result of the following important factors:

•the decisions of governmental and regulatory bodies, including decisions to raise or lower customer rates and regulatory responses to the ongoing COVID-19 pandemic;

•the timeliness and outcome of regulatory commissions’ and other authorities’ actions concerning rates, capital structure, authorized return on equity, capital investment, system acquisitions and dispositions, taxes, permitting, water supply and management, and other decisions;

•changes in customer demand for, and patterns of use of, water, such as may result from conservation efforts, impacts of the COVID-19 pandemic, or otherwise;

•limitations on the availability of the Company’s water supplies or sources of water, or restrictions on its use thereof, resulting from allocation rights, governmental or regulatory requirements and restrictions, drought, overuse or other factors;

•a loss of one or more large industrial or commercial customers due to adverse economic conditions, the COVID-19 pandemic, or other factors;

•changes in laws, governmental regulations and policies, including with respect to the environment, health and safety, data and consumer privacy, security and ~~data privacy,~~protection, water quality and water quality accountability, contaminants of emerging concern, public utility and tax regulations and policies, and impacts resulting from U.S., state and local elections and changes in federal, state and local executive administrations;

•the Company’s ability to collect, distribute, use, secure and store consumer data in compliance with current or future governmental laws, regulations and policies with respect to data and consumer privacy, security and protection;

•weather conditions and events, climate variability patterns, and natural disasters, including drought or abnormally high rainfall, prolonged and abnormal ice or freezing conditions, strong winds, coastal and intercoastal flooding, pandemics (including COVID-19) and epidemics, earthquakes, landslides, hurricanes, tornadoes, wildfires, electrical storms, sinkholes and solar flares;

•the outcome of litigation and similar governmental and regulatory proceedings, investigations or actions;

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•the risks associated with the Company’s aging infrastructure, and its ability to appropriately improve the resiliency of or maintain and replace, current or future infrastructure and systems, including its technology and other assets, and manage the expansion of its businesses;

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•exposure or infiltration of the Company’s technology and critical infrastructure systems, including the disclosure of sensitive, personal or confidential information contained therein, through physical or cyber attacks or other means;

•the Company’s ability to obtain permits and other approvals for projects and construction of various water and wastewater facilities;

•changes in the Company’s capital requirements;

•the Company’s ability to control operating expenses and to achieve operating efficiencies;

•the intentional or unintentional actions of a third party, including contamination of the Company’s water supplies or the water provided to its customers;

•the Company’s ability to obtain adequate and cost-effective supplies of pipe, equipment (including personal protective equipment), chemicals, electricity, fuel, water and other raw ~~materials;~~materials, and to address or mitigate supply chain constraints that may result in delays or shortages in, as well as increased costs of, supplies, products and materials that are critical to or used in the Company’s business operations;

•the Company’s ability to successfully meet its operational growth projections, ~~for the Regulated Businesses and the Market-Based Businesses (each as defined in this Form 10-Q),~~ either individually or in the aggregate, and capitalize on growth opportunities, including, among other things, with respect to:

•acquiring, closing and successfully integrating regulated operations and market-based businesses;

•the Company’s Military Services Group (“MSG”) entering into new military installation contracts, price redeterminations, and other agreements and contracts with ~~or otherwise obtaining, new customers or partnerships in~~ the ~~Market-Based Businesses;~~U.S. government; and

•realizing anticipated benefits and synergies from new acquisitions;

•risks and uncertainties ~~associated with~~following the completion of the sale of the Company’s ~~potential sale of HOS,~~Homeowner Services Group (“HOS”) and its New York subsidiary, including:

•the ability to obtain the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”)), and other required consents, and to make timely all required closing deliveries;

•~~closing and post-closing adjustments to the consideration to be received in the transaction, as well as the tax impacts thereof;~~

•the Company’s ability to receive any contingent consideration provided for in the ~~transaction,~~HOS sale, as well as amounts due, payable and owing to the Company from time to time under the seller promissory note ~~to be issued pursuant thereto;~~when due; and

•the ability of the Company to redeploy successfully and timely the net proceeds of ~~the transaction~~these transactions into the Company’s Regulated ~~Businesses;~~

•~~unexpected costs, liabilities or delays associated with this transaction; and~~

•~~regulatory, legislative, local or municipal actions affecting the home warranty services and the water and wastewater industries;~~Businesses (as defined below);

•risks and uncertainties associated with contracting with the U.S. government, including ongoing compliance with applicable government procurement and security regulations;

•cost overruns relating to improvements in or the expansion of the Company’s operations;

•the Company’s ability to successfully develop and implement new technologies and to protect related intellectual property;

•the Company’s ability to maintain safe work sites;

•the Company’s exposure to liabilities related to environmental laws and similar matters resulting from, among other things, water and wastewater service provided to customers;

•changes in general economic, political, business and financial market conditions, including without limitation conditions and collateral consequences associated with the COVID-19 ~~pandemic health event;~~pandemic;

•access to sufficient debt and/or equity capital on satisfactory terms and when and as needed to support operations and capital expenditures;

•fluctuations in inflation or interest rates;

•the ability to comply with affirmative or negative covenants in the current or future indebtedness of the Company or any of its subsidiaries, or the issuance of new or modified credit ratings or outlooks ~~or other communications~~ by credit rating agencies with respect to the Company or any of its subsidiaries (or any current or future indebtedness thereof), which could increase financing costs or funding requirements and affect the Company’s or its subsidiaries’ ability to issue, repay or redeem debt, pay dividends or make distributions;

•fluctuations in the value of benefit plan assets and liabilities that could increase the Company’s cost and funding requirements;

•changes in federal or state general, income and other tax laws, including (i) future significant tax legislation, (ii) further rules, regulations, interpretations and guidance by the U.S. Department of the Treasury and state or local taxing authorities related to the enactment of the Tax Cuts and Jobs Act of 2017 (the “TCJA”), (iii) the availability of, or the Company’s compliance with, the terms of applicable tax credits and tax abatement programs, and ~~(iv)~~(iii) the Company’s ability to utilize its ~~U.S. federal and~~ state income tax net operating loss carryforwards;

•migration of customers into or out of the Company’s service territories;

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•the use by municipalities of the power of eminent domain or other authority to condemn the systems of one or more of the Company’s utility subsidiaries, or the assertion by private landowners of similar rights against such utility subsidiaries;

•any difficulty or inability to obtain insurance for the Company, its inability to obtain insurance at acceptable rates and on acceptable terms and conditions, or its inability to obtain reimbursement under existing or future insurance programs and coverages for any losses sustained;

•the incurrence of impairment charges related to the Company’s goodwill or other assets;

•labor actions, including work stoppages and strikes;

•the Company’s ability to retain and attract qualified employees;

•civil disturbances or unrest, or terrorist threats or acts, or public apprehension about future disturbances, unrest, or terrorist threats or acts; and

•the impact of new, and changes to existing, accounting standards.

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These forward-looking statements are qualified by, and should be read together with, the risks and uncertainties set forth above, and the risk factors and other statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 (the “Form 10-K”) and in this Form 10-Q, and readers should refer to such risks, uncertainties and risk factors in evaluating such forward-looking statements. Any forward-looking statements the Company makes shall speak only as of the date this Form 10-Q was filed with the U.S. Securities and Exchange Commission (“SEC”). Except as required by the federal securities laws, the Company does not have any obligation, and it specifically disclaims any undertaking or intention, to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or otherwise. New factors emerge from time to time, and it is not possible for the Company to predict all such factors. Furthermore, it may not be possible to assess the impact of any such factor on the Company’s businesses, either viewed independently or together, or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. The foregoing factors should not be construed as exhaustive.

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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Balance Sheets (Unaudited)

(In millions, except share and per share data)


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Property, plant and equipment	Property, plant and equipment	$	26,877	$	25,614	Property, plant and equipment	$	27,781	$	27,413
Accumulated depreciation	Accumulated depreciation	(6,292)		(5,904)		Accumulated depreciation	(6,383)		(6,329)
Property, plant and equipment, net	Property, plant and equipment, net	20,585		19,710		Property, plant and equipment, net	21,398		21,084
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	70		547		Cash and cash equivalents	75		116
Restricted funds	Restricted funds	30		29		Restricted funds	21		20
Accounts receivable, net of allowance for uncollectible accounts of $76 and $60, respectively		348		321
Accounts receivable, net of allowance for uncollectible accounts of $72 and $75, respectively						Accounts receivable, net of allowance for uncollectible accounts of $72 and $75, respectively	266		271
Unbilled revenues	Unbilled revenues	249		206		Unbilled revenues	254		248
Materials and supplies	Materials and supplies	53		47		Materials and supplies	71		57
Assets held for sale	Assets held for sale	678		629		Assets held for sale	—		683
Other	Other	162		127		Other	166		159
Total current assets	Total current assets	1,590		1,906		Total current assets	853		1,554
Regulatory and other long-term assets:	Regulatory and other long-term assets:					Regulatory and other long-term assets:
Regulatory assets	Regulatory assets	1,128		1,127		Regulatory assets	1,049		1,051
Seller promissory note from the sale of the Homeowner Services Group						Seller promissory note from the sale of the Homeowner Services Group	720		720
Operating lease right-of-use assets	Operating lease right-of-use assets	95		95		Operating lease right-of-use assets	91		92
Goodwill	Goodwill	1,511		1,504		Goodwill	1,139		1,139
Postretirement benefit assets	Postretirement benefit assets	175		173		Postretirement benefit assets	203		193
Intangible assets		47		55
Other	Other	202		196		Other	241		242
Total regulatory and other long-term assets	Total regulatory and other long-term assets	3,158		3,150		Total regulatory and other long-term assets	3,443		3,437
Total assets	Total assets	$	25,333	$	24,766	Total assets	$	25,694	$	26,075

The accompanying notes are an integral part of these Consolidated Financial Statements.

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American Water Works Company, Inc. and Subsidiary Companies

Consolidated Balance Sheets (Unaudited)

(In millions, except share and per share data)


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
CAPITALIZATION AND LIABILITIES	CAPITALIZATION AND LIABILITIES					CAPITALIZATION AND LIABILITIES
Capitalization:	Capitalization:					Capitalization:
Common stock ($0.01 par value; 500,000,000 shares authorized; 186,795,975 and 186,466,707 shares issued, respectively)		$	2	$	2
Common stock ($0.01 par value; 500,000,000 shares authorized; 187,095,267 and 186,880,413 shares issued, respectively)						Common stock ($0.01 par value; 500,000,000 shares authorized; 187,095,267 and 186,880,413 shares issued, respectively)	$	2	$	2
Paid-in-capital	Paid-in-capital	6,772		6,747		Paid-in-capital	6,796		6,781
Retained earnings	Retained earnings	500		102		Retained earnings	1,083		925
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(45)		(49)		Accumulated other comprehensive loss	(44)		(45)
Treasury stock, at cost (5,260,279 and 5,168,215 shares, respectively)		(363)		(348)
Treasury stock, at cost (5,342,229 and 5,269,324 shares, respectively)						Treasury stock, at cost (5,342,229 and 5,269,324 shares, respectively)	(377)		(365)
Total common shareholders' equity	Total common shareholders' equity	6,866		6,454		Total common shareholders' equity	7,460		7,298
Long-term debt	Long-term debt	10,349		9,329		Long-term debt	10,347		10,341
Redeemable preferred stock at redemption value	Redeemable preferred stock at redemption value	3		4		Redeemable preferred stock at redemption value	3		3
Total long-term debt	Total long-term debt	10,352		9,333		Total long-term debt	10,350		10,344
Total capitalization	Total capitalization	17,218		15,787		Total capitalization	17,810		17,642
Current liabilities:	Current liabilities:					Current liabilities:
Short-term debt	Short-term debt	684		1,282		Short-term debt	321		584
Current portion of long-term debt	Current portion of long-term debt	48		329		Current portion of long-term debt	57		57
Accounts payable	Accounts payable	175		189		Accounts payable	175		235
Accrued liabilities	Accrued liabilities	520		591		Accrued liabilities	538		701
Accrued taxes	Accrued taxes	73		50		Accrued taxes	285		176
Accrued interest	Accrued interest	103		88		Accrued interest	102		88
Liabilities related to assets held for sale	Liabilities related to assets held for sale	78		137		Liabilities related to assets held for sale	—		83
Other	Other	163		215		Other	170		217
Total current liabilities	Total current liabilities	1,844		2,881		Total current liabilities	1,648		2,141
Regulatory and other long-term liabilities:	Regulatory and other long-term liabilities:					Regulatory and other long-term liabilities:
Advances for construction	Advances for construction	284		270		Advances for construction	300		284
Deferred income taxes and investment tax credits	Deferred income taxes and investment tax credits	2,285		2,113		Deferred income taxes and investment tax credits	2,381		2,421
Regulatory liabilities	Regulatory liabilities	1,660		1,770		Regulatory liabilities	1,577		1,600
Operating lease liabilities	Operating lease liabilities	81		81		Operating lease liabilities	78		80
Accrued pension expense	Accrued pension expense	346		388		Accrued pension expense	276		285
Other	Other	180		83		Other	175		180
Total regulatory and other long-term liabilities	Total regulatory and other long-term liabilities	4,836		4,705		Total regulatory and other long-term liabilities	4,787		4,850
Contributions in aid of construction	Contributions in aid of construction	1,435		1,393		Contributions in aid of construction	1,449		1,442
Commitments and contingencies (See Note 12)		0		0
Commitments and contingencies (See Note 11)						Commitments and contingencies (See Note 11)	0		0
Total capitalization and liabilities	Total capitalization and liabilities	$	25,333	$	24,766	Total capitalization and liabilities	$	25,694	$	26,075

The accompanying notes are an integral part of these Consolidated Financial Statements.

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American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Operations (Unaudited)

(In millions, except per share data)


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
Operating revenues	Operating revenues	$	1,092	$	1,079	$	2,979	$	2,854	Operating revenues		$	842	$	888
Operating expenses:	Operating expenses:									Operating expenses:
Operation and maintenance	Operation and maintenance	436		419		1,286		1,193		Operation and maintenance		364		419
Depreciation and amortization	Depreciation and amortization	161		154		476		451		Depreciation and amortization		158		157
General taxes	General taxes	78		73		241		225		General taxes		74		83
Total operating expenses, net	Total operating expenses, net	675		646		2,003		1,869		Total operating expenses, net		596		659
Operating income	Operating income	417		433		976		985		Operating income		246		229
Other income (expense):	Other income (expense):									Other income (expense):
Interest, net		(101)		(99)		(300)		(296)
Interest expense										Interest expense		(100)		(98)
Interest income										Interest income		13		—
Non-operating benefit costs, net	Non-operating benefit costs, net	20		12		59		37		Non-operating benefit costs, net		19		20
Other, net	Other, net	4		6		11		17		Other, net		15		4
Total other (expense) income	Total other (expense) income	(77)		(81)		(230)		(242)		Total other (expense) income		(53)		(74)
Income before income taxes	Income before income taxes	340		352		746		743		Income before income taxes		193		155
Provision for income taxes	Provision for income taxes	62		88		128		179		Provision for income taxes		35		22
Net income attributable to common shareholders	Net income attributable to common shareholders	$	278	$	264	$	618	$	564	Net income attributable to common shareholders		$	158	$	133

Basic earnings per share: (a)
Basic earnings per share:										Basic earnings per share:
Net income attributable to common shareholders	Net income attributable to common shareholders	$	1.53	$	1.46	$	3.40	$	3.11	Net income attributable to common shareholders		$	0.87	$	0.73
Diluted earnings per share: (a)
Diluted earnings per share:										Diluted earnings per share:
Net income attributable to common shareholders	Net income attributable to common shareholders	$	1.53	$	1.46	$	3.40	$	3.11	Net income attributable to common shareholders		$	0.87	$	0.73
Weighted-average common shares outstanding:	Weighted-average common shares outstanding:									Weighted-average common shares outstanding:
Basic	Basic	182		181		182		181		Basic		182		181
Diluted	Diluted	182		182		182		181		Diluted		182		182

~~(a)Amounts may not calculate due to rounding.~~

The accompanying notes are an integral part of these Consolidated Financial Statements.

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American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Comprehensive Income (Unaudited)

(In millions)

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 2021 2020
Net income attributable to common shareholders $ 278 $ 264 $ 618 $ 564
Other comprehensive income (loss), net of tax:
Defined benefit pension plan actuarial loss, net of tax of $0 and $1 for the three months ended September 30, 2021 and 2020, respectively and $1 and $1 for the nine months ended September 30, 2021 and 2020, respectively 1 1 3 2
Unrealized gain (loss) on cash flow hedges, net of tax of $0 and $0 for the three months ended September 30, 2021 and 2020, respectively and $0 and $(1) for the nine months ended September 30, 2021 and 2020, respectively — — 1 (4)
Net other comprehensive income (loss) 1 1 4 (2)
Comprehensive income attributable to common shareholders $ 279 $ 265 $ 622 $ 562


	For the Three Months Ended March 31,
		2022		2021
Net income attributable to common shareholders		$	158	$	133
Other comprehensive income, net of tax:
Defined benefit pension plan actuarial loss, net of tax of $0 for each of the three months ended March 31, 2022 and 2021		1		1
Net other comprehensive income		1		1
Comprehensive income attributable to common shareholders		$	159	$	134

The accompanying notes are an integral part of these Consolidated Financial Statements.

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American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Cash Flows (Unaudited)

(In millions)


		For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2021		2020			2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES	CASH FLOWS FROM OPERATING ACTIVITIES					CASH FLOWS FROM OPERATING ACTIVITIES
Net income	Net income	$	618	$	564	Net income	$	158	$	133
Adjustments to reconcile to net cash flows provided by operating activities:	Adjustments to reconcile to net cash flows provided by operating activities:					Adjustments to reconcile to net cash flows provided by operating activities:
Depreciation and amortization	Depreciation and amortization	476		451		Depreciation and amortization	158		157
Deferred income taxes and amortization of investment tax credits	Deferred income taxes and amortization of investment tax credits	121		174		Deferred income taxes and amortization of investment tax credits	(61)		26
Provision for losses on accounts receivable	Provision for losses on accounts receivable	28		22		Provision for losses on accounts receivable	4		11
Pension and non-pension postretirement benefits	Pension and non-pension postretirement benefits	(31)		(10)		Pension and non-pension postretirement benefits	(12)		(10)
Other non-cash, net	Other non-cash, net	(34)		(37)		Other non-cash, net	(3)		(41)
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Receivables and unbilled revenues	Receivables and unbilled revenues	(103)		(121)		Receivables and unbilled revenues	(6)		26
Pension and postretirement benefit contributions		(31)		(31)
Pension and non-pension postretirement benefit contributions						Pension and non-pension postretirement benefit contributions	(19)		(9)
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	28		(17)		Accounts payable and accrued liabilities	(110)		(57)
Other assets and liabilities, net	Other assets and liabilities, net	(43)		(7)		Other assets and liabilities, net	45		(57)
Net cash provided by operating activities	Net cash provided by operating activities	1,029		988		Net cash provided by operating activities	154		179
CASH FLOWS FROM INVESTING ACTIVITIES	CASH FLOWS FROM INVESTING ACTIVITIES					CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	Capital expenditures	(1,205)		(1,314)		Capital expenditures	(424)		(342)
Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	(78)		(59)		Acquisitions, net of cash acquired	(5)		(3)
Proceeds from sale of assets		—		2
Net proceeds from sale of assets						Net proceeds from sale of assets	608		—
Removal costs from property, plant and equipment retirements, net	Removal costs from property, plant and equipment retirements, net	(70)		(75)		Removal costs from property, plant and equipment retirements, net	(20)		(18)
Net cash used in investing activities		(1,353)		(1,446)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	159		(363)
CASH FLOWS FROM FINANCING ACTIVITIES	CASH FLOWS FROM FINANCING ACTIVITIES					CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt	Proceeds from long-term debt	1,113		1,250		Proceeds from long-term debt	11		2
Repayments of long-term debt	Repayments of long-term debt	(370)		(266)		Repayments of long-term debt	(5)		(25)
(Repayments of) proceeds from term loan		(500)		500
Net short-term borrowings with maturities less than three months		(97)		(242)
Proceeds from issuances of employee stock plans and direct stock purchase plan, net of taxes paid of $15 and $17 for the nine months ended September 30, 2021 and 2020, respectively		(4)		6
Advances and contributions for construction, net of refunds of $17 and $20 for the nine months ended September 30, 2021 and 2020, respectively		50		20
Debt issuance costs and make-whole premium on early debt redemption		(26)		(12)
Repayments of term loan						Repayments of term loan	—		(500)
Net short-term (repayments) borrowings with maturities less than three months						Net short-term (repayments) borrowings with maturities less than three months	(263)		334
Remittances from issuances of employee stock plans and direct stock purchase plan, net of taxes paid of $12 and $15 for the three months ended March 31, 2022 and 2021, respectively						Remittances from issuances of employee stock plans and direct stock purchase plan, net of taxes paid of $12 and $15 for the three months ended March 31, 2022 and 2021, respectively	(8)		(11)
Advances and contributions in aid of construction, net of refunds of $3 and $6 for the three months ended March 31, 2022 and 2021, respectively						Advances and contributions in aid of construction, net of refunds of $3 and $6 for the three months ended March 31, 2022 and 2021, respectively	21		7
Dividends paid	Dividends paid	(318)		(290)		Dividends paid	(109)		(100)
Net cash (used in) provided by financing activities		(152)		966
Net (decrease) increase in cash, cash equivalents and restricted funds		(476)		508
Net cash used in financing activities						Net cash used in financing activities	(353)		(293)
Net decrease in cash, cash equivalents and restricted funds						Net decrease in cash, cash equivalents and restricted funds	(40)		(477)
Cash, cash equivalents and restricted funds at beginning of period	Cash, cash equivalents and restricted funds at beginning of period	576		91		Cash, cash equivalents and restricted funds at beginning of period	136		576
Cash, cash equivalents and restricted funds at end of period	Cash, cash equivalents and restricted funds at end of period	$	100	$	599	Cash, cash equivalents and restricted funds at end of period	$	96	$	99
Non-cash investing activity:	Non-cash investing activity:					Non-cash investing activity:
Capital expenditures acquired on account but unpaid as of the end of period	Capital expenditures acquired on account but unpaid as of the end of period	$	238	$	236	Capital expenditures acquired on account but unpaid as of the end of period	$	315	$	223

The accompanying notes are an integral part of these Consolidated Financial Statements.

Table of Contents

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(In millions)

Common Stock Paid-in-Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Shareholders' Equity
Shares Par Value Shares At Cost
Balance as of December 31, 2020 186.5 $ 2 $ 6,747 $ 102 $ (49) (5.2) $ (348) $ 6,454
Net income attributable to common shareholders — — — 133 — — — 133
Common stock issuances (a) 0.2 — 10 — — (0.1) (15) (5)
Net other comprehensive loss — — — — 1 — — 1
Balance as of March 31, 2021 186.7 $ 2 $ 6,757 $ 235 $ (48) (5.3) $ (363) $ 6,583
Net income attributable to common shareholders — — — 207 — — — 207
Common stock issuances (a) 0.1 — 8 — — — — 8
Net other comprehensive loss — — — — 2 — — 2
Dividends ($0.6025 declared per common share) — — — (110) — — — (110)
Balance as of June 30, 2021 186.8 $ 2 $ 6,765 $ 332 $ (46) (5.3) $ (363) $ 6,690
Net income attributable to common shareholders — — — 278 — — — 278
Common stock issuances (a) — — 7 — — — — 7
Net other comprehensive loss — — — — 1 — — 1
Dividends ($0.6025 declared per common share) — — — (110) — — — (110)
Balance as of September 30, 2021 186.8 $ 2 $ 6,772 $ 500 $ (45) (5.3) $ (363) $ 6,866


	Common Stock			Paid-in-Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock			Total Shareholders' Equity
	Shares	Par Value								Shares	At Cost
Balance as of December 31, 2021	186.9	$	2	$	6,781	$	925	$	(45)	(5.3)	$	(365)	$	7,298
Net income attributable to common shareholders	—	—		—		158		—		—	—		158
Common stock issuances (a)	0.2	—		15		—		—		—	(12)		3
Net other comprehensive income	—	—		—		—		1		—	—		1
Balance as of March 31, 2022	187.1	$	2	$	6,796	$	1,083	$	(44)	(5.3)	$	(377)	$	7,460

(a)Includes stock-based compensation, employee stock purchase plan and direct stock reinvestment and purchase plan activity.

Common Stock Paid-in-Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Loss Treasury Stock Total Shareholders' Equity
Shares Par Value Shares At Cost
Balance as of December 31, 2019 185.9 $ 2 $ 6,700 $ (207) $ (36) (5.1) $ (338) $ 6,121
Net income attributable to common shareholders — — — 124 — — — 124
Common stock issuances (a) 0.3 — 13 — — (0.1) (10) 3
Net other comprehensive loss — — — — (5) — — (5)
Balance as of March 31, 2020 186.2 $ 2 $ 6,713 $ (83) $ (41) (5.2) $ (348) $ 6,243
Net income attributable to common shareholders — — — 176 — — — 176
Common stock issuances (a) 0.2 — 17 — — — — 17
Net other comprehensive loss — — — — 2 — — 2
Dividends ($0.55 declared per common share) — — — (100) — — — (100)
Balance as of June 30, 2020 186.4 $ 2 $ 6,730 $ (7) $ (39) (5.2) $ (348) $ 6,338
Net income attributable to common shareholders — — — 264 — — — 264
Common stock issuances (a) — — 9 — — — — 9
Net other comprehensive loss — — — — 1 — — 1
Dividends ($0.55 declared per common share) — — — (100) — — — (100)
Balance as of September 30, 2020 186.4 $ 2 $ 6,739 $ 157 $ (38) (5.2) $ (348) $ 6,512


	Common Stock			Paid-in-Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock			Total Shareholders' Equity
	Shares	Par Value								Shares	At Cost
Balance as of December 31, 2020	186.5	$	2	$	6,747	$	102	$	(49)	(5.2)	$	(348)	$	6,454
Net income attributable to common shareholders	—	—		—		133		—		—	—		133
Common stock issuances (a)	0.2	—		10		—		—		(0.1)	(15)		(5)
Net other comprehensive income	—	—		—		—		1		—	—		1
Balance as of March 31, 2021	186.7	$	2	$	6,757	$	235	$	(48)	(5.3)	$	(363)	$	6,583

(a)Includes stock-based compensation, employee stock purchase plan and direct stock reinvestment and purchase plan activity.

The accompanying notes are an integral part of these Consolidated Financial Statements.

Table of Contents

American Water Works Company, Inc. and Subsidiary Companies

Notes to Consolidated Financial Statements (Unaudited)

(Unless otherwise noted, in millions, except per share data)

Note 1: Basis of Presentation

The unaudited Consolidated Financial Statements included in this report include the accounts of American Water Works Company, Inc. and all of its subsidiaries (the “Company” or “American Water”), in which a controlling interest is maintained after the elimination of intercompany balances and transactions. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting, and the rules and regulations for reporting on Quarterly Reports on Form 10-Q (“Form 10-Q”). Accordingly, they do not contain certain information and disclosures required by GAAP for comprehensive financial statements. In the opinion of management, all adjustments necessary for a fair statement of the financial position as of ~~September 30, 2021,~~March 31, 2022, and the results of operations and cash flows for all periods presented, have been made. All adjustments are of a normal, recurring nature, except as otherwise disclosed.

The unaudited Consolidated Financial Statements and Notes included in this report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 (“Form 10-K”), which provides a more complete discussion of the Company’s accounting policies, financial position, operating results and other matters. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the year, primarily due to the seasonality of the Company’s operations.

Note 2: Significant Accounting Policies

New Accounting Standards

Presented in the table below are new accounting standards that were adopted by the Company in ~~2021:~~2022:

Standard

Description

Date of Adoption

Application

Effect on the Consolidated Financial Statements

~~Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~

Provided optional guidance for a limited time to ease the potential accounting burden associated with the transition from London Interbank Offered Rate (“LIBOR”). The guidance contains optional expedients and exceptions for contract modifications, hedging relationships, and other transactions that reference LIBOR or other reference rates expected to be discontinued. The expedients elected must be applied for all eligible contracts or transactions, with the exception of hedging relationships, which can be applied on an individual basis.

~~March 12, 2020 through December 31, 2022~~

~~Prospective for contract modifications and hedging relationships; applied as of January 1, 2020.~~

~~The standard did not have a material impact on the Consolidated Financial Statements.~~

~~Simplifying the Accounting for Income Taxes~~

The guidance removes exceptions related to the incremental approach for intraperiod tax allocation, the requirement to recognize a deferred tax liability for changes in ownership of a foreign subsidiary or equity method investment, and the general methodology for calculating income taxes in an interim period when the year-to-date loss exceeds the anticipated loss. The guidance adds requirements to reflect changes to tax laws or rates in the annual effective tax rate computation in the interim period in which the changes were enacted, to recognize franchise or other similar taxes that are partially based on income as an income-based tax and any incremental amounts as non-income-based tax, and to evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction.

~~January 1, 2021~~

Modified retrospective for amendments related to changes in ownership of a foreign subsidiary or equity method investment; modified retrospective or retrospective for amendments related to taxes partially based on income; prospective for all other amendments.

~~The standard did not have a material impact on the Consolidated Financial Statements.~~

~~Table of~~ ~~Contents~~

~~Presented in the table below are recently issued accounting standards that have not yet been adopted by the Company as of September 30, 2021:~~

~~Standard~~

~~Description~~

~~Date of Adoption~~

~~Application~~

~~Estimated Effect on the Consolidated Financial Statements~~

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity

Simplification of financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. The standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock. This will result in fewer embedded conversion features being separately recognized from the host contract. Earnings per share (“EPS”) calculations have been simplified for certain instruments.

January 1, ~~2022; early adoption is not permitted before fiscal years beginning after December 15, 2020~~2022

Either modified retrospective or fully ~~retrospective.~~retrospective

The standard did not have a material impact on its Consolidated Financial Statements.

Disclosures by Business Entities about Government Assistance

The amendments in this update require additional disclosures regarding government grants and contributions. These disclosures require information on the following three items about government transactions to be provided: information on the nature of transactions and related accounting policy used to account for transactions, the line items on the balance sheet and income statement affected by these transactions including amounts applicable to each line, and significant terms and conditions of the transactions, including commitments and contingencies.

January 1, 2022

Either prospective or retrospective

The standard did not have a material impact on its Consolidated Financial Statements.

Presented in the table below are recently issued accounting standards that have not yet been adopted by the Company as of March 31, 2022:

Standard

Description

Date of Adoption

Application

Estimated Effect on the Consolidated Financial Statements

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

The guidance requires an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification Topic 606, as if it had originated the contracts. The amendments in this update also provide certain practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination.

January 1, 2023; early adoption permitted

Prospective

The Company is evaluating any impact on its Consolidated Financial Statements, as well as the timing of adoption.

~~Accounting for Contract Assets~~Troubled debt restructurings and ~~Contract Liabilities from Contracts with Customers~~vintage disclosures

~~Enhances~~The main provisions of this standard eliminate the receivables accounting guidance for ~~acquired revenue contracts with customers~~troubled debt restructurings (“TDRs”) by creditors while enhancing disclosure requirements when a borrower is experiencing financial difficulty. Entities must apply the loan refinancing and restructuring guidance for receivables to determine whether a modification results in a ~~business combination by addressing diversity in practice and inconsistency related to the recognition~~new loan or a continuation of an ~~acquired contract liability,~~existing loan. Additionally, the amendments in this update require that an entity disclose current-period gross write-offs by year of origination for financing receivables and ~~payment terms and their effect on subsequent revenue recognized by the acquirer.~~net investment in leases.

January 1, 2023; early adoption permitted

Prospective, with a modified retrospective option for amendments related to ~~business combinations occurring on or after~~ the ~~effective date~~recognition and measurement of ~~the amendments~~TDRs.

The Company is evaluating any impact on its Consolidated Financial Statements, as well as the timing of adoption.

~~Cash, Cash Equivalents and Restricted Funds~~

~~Presented in the table below is a reconciliation~~

Table of the cash and cash equivalents and restricted funds amounts as presented on the Consolidated Balance Sheets to the sum of such amounts presented on the Consolidated Statements of Cash Flows for the periods ended September 30:Contents

2021 2020
Cash and cash equivalents (a) $ 70 $ 560
Restricted funds 30 39
Cash, cash equivalents and restricted funds as presented on the Consolidated Statements of Cash Flows $ 100 $ 599

~~(a)~~The majority of the change in the cash and cash equivalents balance is due to the repayment, at maturity, of the $500 million in outstanding principal under the Term Loan Facility (as defined below). See Note 9—Short-Term Debt for additional information.

Allowance for Uncollectible Accounts

Allowances for uncollectible accounts are maintained for estimated probable losses resulting from the Company’s inability to collect receivables from customers. Accounts that are outstanding longer than the payment terms are considered past due. A number of factors are considered in determining the allowance for uncollectible accounts, including the length of time receivables are past due, previous loss history, current economic and societal conditions and reasonable and supportable forecasts that affect the collectability of receivables from customers. The Company generally writes off accounts when they become uncollectible or are over a certain number of days outstanding. An increase in the allowance for uncollectible accounts for the period ending September 30, 2021 reflects the impacts from the COVID-19 pandemic, including an increase in uncollectible accounts expense and a reduction in amounts written off due to shutoff moratoria in place in certain of the Company’s subsidiaries.

~~Table of~~ ~~Contents~~

Presented in the table below are the changes in the allowance for uncollectible accounts for the ~~nine~~three months ended ~~September 30:~~March 31:


		2021		2020			2022		2021
Balance as of January 1	Balance as of January 1	$	(60)	$	(41)	Balance as of January 1	$	(75)	$	(60)
Amounts charged to expense	Amounts charged to expense	(28)		(22)		Amounts charged to expense	(4)		(11)
Amounts written off	Amounts written off	7		9		Amounts written off	7		—
Less: Allowance for uncollectible accounts included in assets held for sale (a)	Less: Allowance for uncollectible accounts included in assets held for sale (a)	5		2		Less: Allowance for uncollectible accounts included in assets held for sale (a)	—		4
Balance as of September 30		$	(76)	$	(52)
Balance as of March 31						Balance as of March 31	$	(72)	$	(67)

(a)This portion of the allowance for uncollectible accounts is related to the ~~pending transactions contemplated by the Stock Purchase Agreement among the Company,~~sale of the Company’s New York subsidiary, ~~and Liberty (as defined below),~~which was completed on January 1, 2022, and is included in assets held for sale on the Consolidated Balance ~~Sheets.~~Sheets as of December 31, 2021. See Note 6—5—Acquisitions and Divestitures for additional information.

Reclassifications

Certain reclassifications have been made to prior periods in the Consolidated Financial Statements and Notes to conform to the current presentation.

~~Note 3: Impact of the COVID-19 Pandemic~~

American Water continues to monitor the COVID-19 pandemic and has experienced financial impacts since the start of the pandemic resulting from lower revenues from the suspension of late fees and foregone reconnect fees in certain states, certain incremental operation and maintenance (“O&M”) expenses, an increase in uncollectible accounts expense and additional debt costs. These impacts are collectively referred to as “financial impacts.”

As of November 2, 2021, American Water has commission orders authorizing deferred accounting or cost recovery for COVID-19 financial impacts in 11 of 14 jurisdictions, with proceedings in New York and Tennessee pending. NaN jurisdiction, Kentucky, issued an order denying a request to defer to a regulatory asset the financial impacts related to the COVID-19 pandemic. Other regulatory actions to date are presented in the table below:

~~Commission Actions~~

~~Description~~

~~States~~

~~Orders issued with deferred accounting~~

~~Allows the Company to establish regulatory assets to record certain financial impacts related to the COVID-19 pandemic.~~

~~HI, IN, MD, NJ, PA, VA, WV~~

~~Orders issued with cost recovery~~

California’s Catastrophic Event Memorandum Account allows the Company’s California subsidiary to track certain financial impacts related to the COVID-19 pandemic for future recovery requests. Iowa issued a base rate case order on June 28, 2021, authorizing recovery in rates of the COVID-19 financial impacts deferred within its annual non-recurring expense rider. Illinois has authorized cost recovery of the COVID-19 financial impacts through a special purpose rider over a 24-month period, which was implemented effective October 1, 2020. Additionally, Illinois approved a bad debt rider tariff on December 16, 2020, allowing collection of actual bad debt expense over last authorized beginning April 2021 through February 2023. Illinois approved a stipulation in March 2021 to allow the rider to be extended through the end of 2023. Missouri issued a base rate case order on April 7, 2021, authorizing recovery in rates of the COVID-19 financial impacts deferred through March 31, 2021 over a ~~three-year period.~~

~~CA, IA, IL, MO~~

~~Proceedings pending~~

~~Pending proceedings considering deferred accounting authorization for the future recovery of COVID-19 financial impacts.~~

~~NY, TN~~

The Company’s Pennsylvania subsidiary filed for a request with the Pennsylvania Public Utility Commission (the “PaPUC”) to defer as a regulatory asset all identified COVID-19 financial impacts. On September 15, 2021, the PaPUC issued an order approving the request to defer, with carrying costs, incremental uncollectible expense and other incremental costs net of savings attributed to the COVID-19 pandemic. The PaPUC order denied the request to include lost revenues attributed to the waiver of late fees and reconnect fees and expenses associated with additional interest costs. Additionally, the PaPUC order approved the request to allow for the continuation of the deferral of financial impacts, rejecting proposals from the intervening parties to define an end date to the deferral in 2021. As a result of the order discussed above, the Company recorded a net $7 million reduction to its regulatory assets and corresponding impacts to revenue, interest expense and uncollectible expense during the third quarter of 2021. The Company continues to evaluate options within its next base rate case to address these denied items and the resulting financial impact.

~~Table of~~ ~~Contents~~

On July 28, 2021, the Company’s Tennessee subsidiary filed a stipulation and settlement agreement with the Consumer Advocate Unit in the Financial Division of the Office of the Tennessee Attorney General, which reflected agreement on the deferral of COVID-19-related financial impacts through April 30, 2021. On August 9, 2021, the Tennessee Public Utility Commission denied the stipulation and settlement agreement and moved to address the Company’s Tennessee subsidiary’s petition to defer the COVID-19 financial impacts in a future hearing. On August 26, 2021, the Company’s Tennessee subsidiary filed a motion to withdraw its pending petition, preserving its right to seek recovery of the COVID-19 financial impacts in a future proceeding.

Consistent with these regulatory orders, the Company has recorded $39 million in regulatory assets and $6 million of regulatory liabilities for the financial impacts related to the COVID-19 pandemic on the Consolidated Balance Sheets as of September 30, 2021.

~~As of November 2, 2021, 3 states continue moratoria on the suspension of service disconnections due to non-payment. The moratoria on disconnects have expired in 11 states.~~

Note 4:3: Regulatory Matters

General Rate Cases and Infrastructure Surcharges

Presented in the table below are annualized incremental revenues, excluding reductions for the amortization of excess accumulated deferred income tax (“EADIT”) that are generally offset in income tax expense, assuming a constant water sales volume, resulting from general rate case authorizations and infrastructure surcharge authorizations that became effective in the current period:

During the Three Months Ended September 30, During the Nine Months Ended September 30,
(In millions) 2021 2020 2021 2020
General rate cases by state:
Missouri (effective May 28, 2021) $ — $ — $ 22 $ —
New York (effective May 1, 2021) — — 7 —
Pennsylvania (effective January 28, 2021) — — 70 —
Indiana (effective May 1, 2020) — — — 13
California (effective January 1, 2020) — — — 5
Total general rate cases $ — $ — $ 99 $ 18
Infrastructure surcharges by state:
Kentucky (effective July 1, 2021 and July 1, 2020) $ 1 $ 1 $ 1 $ 1
New Jersey (effective June 28, 2021, June 29, 2020 and January 1, 2020) — — 14 20
Indiana (effective March 17, 2021) — — 8 —
Pennsylvania (effective January 1, 2021, July 1, 2020, April 1, 2020 and January 1, 2020) — 4 8 19
Illinois (effective January 1, 2021 and January 1, 2020) — — 7 7
West Virginia (effective January 1, 2021 and January 1, 2020) — — 5 3
Tennessee (effective January 1, 2021 and January 1, 2020) — — 3 2
Missouri (effective June 27, 2020) — — — 10
Total infrastructure surcharges $ 1 $ 5 $ 46 $ 62


	During the Three Months Ended March 31,
(In millions)		2022		2021
General rate cases by state:
West Virginia (effective February 25, 2022)		$	15	$	—
California (effective January 1, 2022 and January 1, 2021)		13		22
Pennsylvania (effective January 1, 2022 and January 28, 2021)		20		70
Total general rate cases		$	48	$	92

Infrastructure surcharges by state:
Indiana (effective March 21, 2022 and March 17, 2021)		$	8	$	8
West Virginia (effective March 1, 2022 and January 1, 2021)		3		5
Missouri (effective February 1, 2022)		12		—
Illinois (effective January 1, 2022 and January 1, 2021)		6		7
Pennsylvania (effective January 1, 2021)		—		8
Tennessee (effective January 1, 2021)		—		3
Total infrastructure surcharges		$	29	$	31

Effective ~~October 7, 2021,~~April 1, 2022, the Company’s ~~Missouri~~Pennsylvania subsidiary implemented infrastructure surcharges for annualized incremental revenues of $7$2 million.

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Table of Contents

On ~~August 28, 2020,~~February 24, 2022, the Company’s ~~Iowa~~West Virginia subsidiary ~~filed a~~(“WVAWC”) was authorized additional annual revenues of $15 million in its general rate case, requesting $3 million in annualized incremental revenues. An order was issued on June 28, 2021 authorizing an increase of $1 million. On July 9, 2021, the Company’s Iowa subsidiary filed a Motion for Clarification with respect to the required accelerated flow back of unprotected EADIT over a three-year period to recognize the increase to rate base and incremental revenues as the unprotected EADIT is amortized. On September 21, 2021, that motion was denied. The Company’s Iowa subsidiary filed tariffs consistent with the order on September 23, 2021. Effective October 11, 2021, the Iowa Utilities Board approved the tariffs and implemented the new rates.

~~On April 7, 2021, the Company’s Missouri subsidiary was authorized additional annualized revenues of $22 million,~~ effective ~~May 28, 2021,~~February 25, 2022, excluding agreed to reductions for EADIT as a result of the Tax Cuts and Jobs Act of 2017 (the “TCJA”). The EADIT reduction in revenues is ~~$25~~$2 million and the exclusion for infrastructure surcharges is $10 million. Staff of the WV Public Service Commission moved for reconsideration of the Commission's final order on several grounds. The Company filed its response to the Staff's Petition for Reconsideration on March 28, 2022 in support of the Commission authorized revenue requirement.The matter is currently pending before the Commission for its consideration.

On November 18, 2021, the California Public Utilities Commission (the “CPUC”) unanimously approved a final decision in the test year 2021 general rate case filed by the Company’s California subsidiary, which is retroactive to January 1, 2021. The Company’s California subsidiary received authorization for additional annualized water and wastewater revenues of $22 million, excluding agreed to reductions for EADIT as a result of the TCJA. The EADIT reduction in revenues is $4 million and is offset by a like reduction in income tax expense. ~~The protected EADIT balance~~On February 16, 2022, the Company’s California subsidiary received approval to increase rates by $13 million in 2022 escalation increases, excluding $4 million of ~~$72 million~~reductions related to the TCJA, which is ~~being returned~~retroactive to customers using the average rate assumption method (“ARAM”), and the unprotected EADIT balance of $74 million is being returned to customers over 10 years. The $25 million EADIT reduction includes both the protected and unprotected catch-up period EADIT of $13 million. The catch-up period of January 1, ~~2018 through May 31, 2021 covers the period from when the lower federal corporate income tax rate went into effect until new base rates went into effect and will be amortized over 2.5 years.~~2022.

On March 2, 2021, an administrative law judge (“ALJ”) in the Office of Administrative Law of New Jersey filed an initial decision with the New Jersey Board of Public Utilities (the “NJBPU”) that recommended denial of a petition filed by the Company’s New Jersey subsidiary, which sought approval of acquisition adjustments in rate base of $29 million associated with the acquisitions of Shorelands Water Company, Inc. in 2017 and the Borough of Haddonfield’s water and wastewater systems in 2015. On July 29, 2021, the NJBPU issued an order adopting the ALJ’s initial decision without modification. The Company’s New Jersey subsidiary filed a Notice of Appeal with the New Jersey Appellate Division on September 10, 2021. ~~A scheduling order was issued~~The Company filed its brief in support of the appeal on ~~October 18, 2021 establishing a briefing schedule through January~~March 4, 2022. Response briefs are due by May 23, 2022. There is no financial impact to the Company as a result of the NJBPU’s order, since the acquisition adjustments are currently recorded as goodwill on the Consolidated Balance Sheets.

On February 25, 2021, the Company’s Pennsylvania subsidiary was authorized additional annualized revenues of $90 million, effective January 28, 2021, excluding agreed to reductions in revenues of $19 million for EADIT as a result of the ~~TCJA, over two steps. The EADIT reduction in revenues is $19 million.~~TCJA. The overall increase, net of TCJA reductions, is $71 million in revenues combined over two steps. The first step was effective January 28, 2021 in the amount of $70 million ($51 million including TCJA reductions) and the second step ~~will be~~was effective January 1, 2022 in the amount of $20 million. The protected EADIT balance of $200 million is being returned to customers using the ~~ARAM,~~average rate assumptions method, and the unprotected EADIT balance of $116 million is being returned to customers over 20 years. The $19 million ~~annually includes~~annual reduction to revenue is comprised of both the protected and unprotected EADIT amortizations and a portion of catch-up period EADIT. A bill credit of $11 million annually for two years returns to customers the remainder of the EADIT catch-up period amortization. The catch-up period of January 1, 2018 through December 31, 2020 covers the period from when the lower federal corporate income tax rate went into effect until new base rates went into effect and will be amortized over two years.

Pending General Rate Case Filings

On February 10, 2022, the Company’s Illinois subsidiary filed a general rate case requesting $71 million in additional annualized revenues excluding proposed reductions for EADIT as a result of TCJA and infrastructure surcharges.

On January 14, 2022, the Company’s New Jersey subsidiary filed a general rate case requesting $110 million in additional annualized revenues excluding proposed reductions for EADIT as a result of TCJA and infrastructure surcharges. Public hearings were held on April 6, 2022.Settlement conferences are scheduled to commence in May 2022 with evidentiary hearings expected to begin in September 2022.

On December 1, 2021, the Company’s Kentucky subsidiary filed a wastewater rate case requesting additional revenues of $1 million, excluding proposed reductions for EADIT as a result of TCJA. The Company’s Kentucky subsidiary requested a four-step rate increase for their wastewater operations with effective dates of June 1, 2022, June 1, 2023, June 1, 2024 and June 1, 2025 for annual amounts of less than $1 million each year. The Company’s Kentucky subsidiary filed their wastewater case under the alternative rate filing process for smaller utilities which calculates an operating ratio of 88% rather than a return on equity.

On November 15, 2021, the Company’s Virginia subsidiary filed a general rate case requesting $15 million in additional annualized revenues excluding proposed reductions for EADIT as a result of TCJA.

On August 18, 2021, the Company’s Hawaii subsidiary filed a general rate case requesting $2 million in additional annualized ~~revenues.~~

~~On April 30, 2021, the Company’s West Virginia subsidiary filed a general rate case requesting $32 million in annualized incremental~~ revenues excluding proposed reductions for EADIT as a result of ~~TCJA and infrastructure surcharges. The proposed EADIT reduction in revenues is $1 million~~TCJA. On April 11, 2022, the Company and the ~~exclusion for infrastructure surcharges is $10 million. Intervenor testimony was received on September 20, 2021. The Company’s rebuttal testimony was filed on October 5, 2021. Hearings are scheduled~~Division of Consumer Advocacy submitted a joint letter to ~~start November 3, 2021.~~the Hawaii Public Utilities Commission indicating that the parties had, in principle, reached a settlement that would resolve all disputed issues in the case. In the joint letter, the parties also requested revisions to the procedural schedule.

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On July 1, 2019, the Company’s California subsidiary filed a general rate case requesting $29 million in annualized incremental revenues for 2021, and increases of $10 million and $11 million in the escalation year of 2022 and the attrition year of 2023, respectively. On October 11, 2019, the Company filed its 100-day update for the same proceeding and updated the request to $27 million in annualized incremental revenues for 2021, and increases of $10 million in both the escalation year of 2022 and the attrition year of 2023, respectively. On September 10, 2020, the California Public Utilities Commission (the “CPUC”) approved the Company’s California subsidiary’s motion for interim rates, establishing a memorandum account to track the difference between interim and final rates adopted by the CPUC in this proceeding, which were effective on January 1, 2021. Following settlement discussions among all parties to the proceeding, on January 22, 2021, January 25, 2021, and February 11, 2021, the Company’s California subsidiary filed with the CPUC comprehensive settlements entered into among the Company’s California subsidiary, the Public Advocates Office, and other intervenors. These settlement agreements resolved all matters in dispute among the parties to the settlements, with the exception of a few disputed items between the Company’s California subsidiary and the Monterey Peninsula Water Management District (the “MPWMD”). On October 19, 2021, the CPUC issued a proposed decision in the general rate case proceeding for rates effective January 1, 2021. With minor exceptions, the proposed decision would adopt the comprehensive settlements reached with the Public Advocates Office, and other intervenors. Comments on the proposed decision are due November 8, 2021 and reply comments are due November 15, 2021. The earliest the decision could be adopted is November 18, 2021 at the CPUC’s voting meeting. The Company expects a final decision by December 31, 2021.

On January 5, 2021, the Company’s California subsidiary submitted a request to delay by one year its cost of capital filing and maintain the authorized cost of capital through 2022. On February 22, 2021, the CPUC denied the request to further delay the cost of capital filing. The Company’s California subsidiary submitted its ~~cost of capital~~ application on May 3, ~~2021. Once approved by~~2021 to set its cost of capital for 2022 through 2024. According to the ~~CPUC,~~CPUC’s procedural schedule, a decision setting the ~~new~~ authorized cost of capital ~~will~~is expected to be ~~effective January 1,~~issued in the fourth quarter of 2022.

Pending Infrastructure Surcharge Filings

On ~~September 3, 2021,~~March 4, 2022, the Company’s Missouri subsidiary filed ~~for~~ an infrastructure surcharge proceeding requesting ~~$11~~$19 million in additional annualized revenues.

On ~~June 30, 2021,~~March 1, 2022, the Company’s ~~West Virginia~~Kentucky subsidiary filed ~~for~~ an infrastructure surcharge proceeding requesting $3 million in additional annualized revenues.

Other Regulatory Matters

In September 2020, the CPUC released a decision under its Low-Income Rate Payer Assistance program rulemaking that will require the Company’s California subsidiary to file a proposal to alter its water revenue adjustment mechanism in its next general rate case filing in 2022, which would become effective in January 2024. On October 5, 2020, the Company’s California subsidiary filed an application for rehearing of the decision and following the CPUC’s denial of its rehearing application in September 2021, the Company’s California subsidiary filed a petition for writ of review with the California Supreme Court on October 27, 2021.

Note 5:4: Revenue Recognition

Disaggregated Revenues

The Company’s primary business involves the ownership of utilities that provide water and wastewater services to residential, commercial, industrial, public authority, fire service and sale for resale customers, collectively presented as the “Regulated Businesses.” The Company also operates other market-based businesses that provide water ~~wastewater~~ and ~~other~~wastewater services to ~~residential and smaller commercial customers,~~ the U.S. government on military installations, as well as municipalities, and utility customers, collectively ~~presented as the~~included within “Market-Based ~~Businesses.~~Businesses and Other.”

~~Table of~~ ~~Contents~~

Presented in the table below are operating revenues disaggregated for the three months ended ~~September 30, 2021:~~March 31, 2022:


		Revenues from Contracts with Customers		Other Revenues Not from Contracts with Customers (a)		Total Operating Revenues			Revenues from Contracts with Customers		Other Revenues Not from Contracts with Customers (a)		Total Operating Revenues
Regulated Businesses:	Regulated Businesses:							Regulated Businesses:
Water services:	Water services:							Water services:
Residential	Residential	$	545	$	—	$	545	Residential	$	428	$	—	$	428
Commercial	Commercial	197		—		197		Commercial	153		—		153
Fire service	Fire service	38		—		38		Fire service	36		—		36
Industrial	Industrial	39		—		39		Industrial	36		—		36
Public and other	Public and other	72		—		72		Public and other	57		—		57
Total water services	Total water services	891		—		891		Total water services	710		—		710
Wastewater services:	Wastewater services:							Wastewater services:
Residential	Residential	38		—		38		Residential	41		—		41
Commercial	Commercial	10		—		10		Commercial	10		—		10
Industrial	Industrial	1		—		1		Industrial	1		—		1
Public and other	Public and other	4		—		4		Public and other	3		—		3
Total wastewater services	Total wastewater services	53		—		53		Total wastewater services	55		—		55
Miscellaneous utility charges	Miscellaneous utility charges	2		—		2		Miscellaneous utility charges	9		—		9
Alternative revenue programs	Alternative revenue programs	—		(4)		(4)		Alternative revenue programs	—		2		2
Lease contract revenue	Lease contract revenue	—		2		2		Lease contract revenue	—		2		2
Total Regulated Businesses	Total Regulated Businesses	946		(2)		944		Total Regulated Businesses	774		4		778
Market-Based Businesses		152		—		152
Other		(4)		—		(4)
Market-Based Businesses and Other								Market-Based Businesses and Other	64		—		64
Total operating revenues	Total operating revenues	$	1,094	$	(2)	$	1,092	Total operating revenues	$	838	$	4	$	842

(a)Includes revenues associated with provisional rates, alternative revenue programs, lease contracts and intercompany rent, which are outside the scope of Accounting Standards Codification Topic 606, Revenue From Contracts With Customers (“ASC 606”), and accounted for under other existing GAAP.

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Presented in the table below are operating revenues disaggregated for the ~~nine~~three months ended ~~September 30,~~March 31, 2021:


		Revenues from Contracts with Customers		Other Revenues Not from Contracts with Customers (a)		Total Operating Revenues			Revenues from Contracts with Customers		Other Revenues Not from Contracts with Customers (a)		Total Operating Revenues
Regulated Businesses:	Regulated Businesses:							Regulated Businesses:
Water services:	Water services:							Water services:
Residential	Residential	$	1,466	$	—	$	1,466	Residential	$	430	$	—	$	430
Commercial	Commercial	511		—		511		Commercial	144		—		144
Fire service	Fire service	112		—		112		Fire service	37		—		37
Industrial	Industrial	105		—		105		Industrial	32		—		32
Public and other	Public and other	172		—		172		Public and other	44		—		44
Total water services	Total water services	2,366		—		2,366		Total water services	687		—		687
Wastewater services:	Wastewater services:							Wastewater services:
Residential	Residential	112		—		112		Residential	36		—		36
Commercial	Commercial	28		—		28		Commercial	9		—		9
Industrial	Industrial	3		—		3		Industrial	1		—		1
Public and other	Public and other	12		—		12		Public and other	4		—		4
Total wastewater services	Total wastewater services	155		—		155		Total wastewater services	50		—		50
Miscellaneous utility charges	Miscellaneous utility charges	18		—		18		Miscellaneous utility charges	8		—		8
Alternative revenue programs	Alternative revenue programs	—		12		12		Alternative revenue programs	—		9		9
Lease contract revenue	Lease contract revenue	—		5		5		Lease contract revenue	—		1		1
Total Regulated Businesses	Total Regulated Businesses	2,539		17		2,556		Total Regulated Businesses	745		10		755
Market-Based Businesses		435		—		435
Other		(11)		(1)		(12)
Market-Based Businesses and Other								Market-Based Businesses and Other	133		—		133
Total operating revenues	Total operating revenues	$	2,963	$	16	$	2,979	Total operating revenues	$	878	$	10	$	888

(a)Includes revenues associated with provisional rates, alternative revenue programs, lease contracts and intercompany rent, which are outside the scope of ASC 606, and accounted for under other existing GAAP.

Contract Balances

Contract assets and contract liabilities are the result of timing differences between revenue recognition, billings and cash collections. In ~~the Company’s~~ Market-Based Businesses and Other, certain contracts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. Contract assets are recorded when billing occurs subsequent to revenue recognition and are reclassified to accounts receivable when billed and the right to consideration becomes unconditional. Contract liabilities are recorded when the Company receives advances from customers prior to satisfying contractual performance obligations, particularly for construction contracts and home warranty protection program contracts, and are recognized as revenue when the associated performance obligations are satisfied.

Contract assets of ~~$68~~$78 million and ~~$39~~$71 million are included in unbilled revenues on the Consolidated Balance Sheets as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020, respectively. Contract assets of $27 million and $13 million are included in unbilled revenues on the Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019,~~2021, respectively. There were ~~$60~~$18 million of contract assets added during the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, and ~~$31~~$11 million of contract assets were transferred to accounts receivable during the same period. There were ~~$43~~$19 million of contract assets added during the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, and ~~$29~~$8 million of contract assets were transferred to accounts receivable during the same period.

Contract liabilities of ~~$39~~$20 million and ~~$35~~$19 million are included in other current liabilities on the Consolidated Balance Sheets as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020, respectively. Contract liabilities of $36 million and $27 million are included in other current liabilities on the Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019,~~2021, respectively. There were ~~$141~~$36 million of contract liabilities added during the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, and ~~$137~~$35 million of contract liabilities were recognized as revenue during the same period. There were ~~$91~~$57 million of contract liabilities added during the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, and ~~$82~~$48 million of contract liabilities were recognized as revenue during the same period.

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Remaining Performance Obligations

Remaining performance obligations (“RPOs”) represent revenues the Company expects to recognize in the future from contracts that are in progress. The Company enters into agreements for the provision of services to water and wastewater facilities for the U.S. military, municipalities and other customers. As of ~~September 30, 2021,~~March 31, 2022, the Company’s operation and maintenance (“O&M&M”) and capital improvement contracts in ~~the~~ Market-Based Businesses and Other have RPOs. Contracts with the U.S. government for work on various military installations expire between 2051 and 2071 and have RPOs of ~~$6.4~~$6.2 billion as of ~~September 30, 2021,~~March 31, 2022, as measured by estimated remaining contract revenue. Such contracts are subject to customary termination provisions held by the U.S. government, prior to the agreed-upon contract expiration. Contracts with municipalities and commercial customers expire between 2022 and 2038 and have RPOs of ~~$603~~$580 million as of ~~September 30, 2021,~~March 31, 2022, as measured by estimated remaining contract revenue. Some of the Company’s long-term contracts to operate and maintain the federal government’s, a municipality’s or other party’s water or wastewater treatment and delivery facilities include responsibility for certain maintenance for some of those facilities, in exchange for an annual fee. Unless specifically required to perform certain maintenance activities, the maintenance costs are recognized when the maintenance is performed.

Note 6:5: Acquisitions and Divestitures

Regulated Businesses

During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, the Company closed on the acquisition of 134 regulated water and wastewater systems for a total aggregate purchase price of ~~$56 million, including the acquisition of the East Pasadena Water Company in California on September 23, 2021 for $34~~$5 million. Assets acquired from these acquisitions consisted principally of utility plant, totaled $57 million and liabilities assumed totaled $1 million. NaN of these acquisitions were accounted for as a business combination. The preliminary purchase price allocations related to an acquisition accounted for as a business combination will be finalized once the valuation of assets acquired has been completed, no later than one year after its acquisition date.plant.

On April 6, 2021, the Company’s Pennsylvania subsidiary entered into an ~~agreement to acquire the wastewater assets of~~Asset Purchase Agreement with the York City Sewer Authority (the “Seller”) and the City of York, with respect to the purchase of the Seller’s public wastewater collection and treatment system assets (the “System Assets”). On April 14, 2022, the Pennsylvania Public Utility Commission (“PaPUC”) approved the Company’s Pennsylvania subsidiary’s application to acquire the System Assets from the Seller for a purchase price of $235 million, plus an amount of average daily revenue calculated for the period between the final meter reading and the date of closing. ~~This system,~~The System Assets serve, directly and indirectly through bulk contracts, ~~serves~~ more than 45,000 customers. ~~In connection with the execution~~Assuming no successful contest of the ~~acquisition agreement, the Company’s Pennsylvania subsidiary paid~~PaPUC’s approval occurs within 30 days thereafter, this approval would satisfy a ~~$20 million deposit~~significant remaining condition to the ~~seller on April 30, 2021, which is refundable in the event the agreement is terminated prior to~~ closing of the ~~acquisition. The Company expects~~transaction, which is expected to ~~close this acquisition in the first half of 2022, pending regulatory approval.~~occur by or before mid-June 2022.

On March 29, 2021, the Company’s New Jersey subsidiary entered into an agreement to acquire the water and wastewater assets of Egg Harbor City for $22 million. The water and wastewater systems currently serve approximately 1,500 customers each, or 3,000 combined, and are being sold through the New Jersey Water Infrastructure Protection Act process. The Company expects to close this acquisition in the ~~first~~second half of 2022, pending regulatory approval.

~~Assets Held for~~ Sale of New York American Water Company, Inc.

On ~~November 20, 2019,~~January 1, 2022, the Company ~~and~~completed the ~~Company’s~~previously disclosed sale of its regulated utility operations in New York ~~subsidiary, entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Liberty Utilities Co., which it subsequently assigned~~ to ~~its indirect, wholly owned subsidiary~~ Liberty Utilities (Eastern Water Holdings) Corp. (“Liberty”), ~~pursuant to which~~an indirect, wholly owned subsidiary of Algonquin Power & Utilities Corp. Liberty ~~will purchase~~purchased from the Company all of the capital stock of the New York subsidiary (the “Stock Purchase”) for an aggregate purchase price of approximately $608 million in cash, subject to adjustment as provided in the Stock Purchase Agreement. The Company’s regulated New York operations have approximately 125,000 customers in the State of New York. Algonquin Power & Utilities Corp., Liberty’s ultimate parent company, executed and delivered an absolute and unconditional guaranty of the performance of all of the obligations of Liberty under the Stock Purchase Agreement. The Stock Purchase is subject to various conditions, including obtaining approvals and satisfying or waiving other closing conditions. The Stock Purchase Agreement as originally executed provided for an initial termination date of June 30, 2021 (the “Closing End Date”). On June 29, 2021, the parties mutually agreed to extend the Closing End Date to December 31, 2021 in accordance with the terms of the Stock Purchase Agreement, and agreed to extend further the Closing End Date to January 3, 2022 as December 31, 2021 is a federal holiday. No other provision of the Stock Purchase Agreement was modified by this mutual agreement. Liberty may also terminate the Stock Purchase Agreement if any governmental authority initiates a condemnation or eminent domain proceeding against a majority of the consolidated properties of the Company’s New York subsidiary ~~taken as~~for a ~~whole. The assets and related liabilities~~purchase price of $608 million in cash. During the first quarter of 2022, the Company recognized a loss on sale of $2 million.

Sale of Michigan American Water Company

On February 4, 2022, the Company completed the sale of its operations in Michigan for $6 million.

Sale of Homeowner Services Group

On December 9, 2021, the Company sold all of the equity interests in subsidiaries that comprised the Company’s ~~New York~~Homeowner Services Group (“HOS”) to a wholly owned subsidiary ~~were classified as held~~of funds advised by Apax Partners LLP, a global private equity advisory firm (the “Buyer”), for total consideration of approximately $1.275 billion, resulting in pre-tax gain on sale of $748 million during the fourth quarter of 2021. The consideration was comprised of $480 million in cash, a seller promissory note issued by the Buyer in the principal amount of $720 million, and a contingent cash payment of $75 million payable upon satisfaction of certain conditions on or before December 31, 2023. See Note 13—Fair Value of Financial Information for additional information relating to the seller promissory note and contingent cash payment. During the first quarter of 2022, the Company recorded a post-close adjustment totaling approximately $10 million pre-tax, which is included in Other, net on the Consolidated ~~Balance Sheets as~~Statements of ~~September 30, 2021.~~Operations.

The seller note has a five-year term, is payable in cash, and bears interest at a rate of 7.00% per year during the term. The Company recognized $13 million of interest income during the first quarter of 2022 from the seller note.

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~~Presented in~~The Company and the ~~table below are~~Buyer also entered into a revenue share agreement, pursuant to which the ~~components of assets held for sale and liabilities related~~Company is to ~~assets held for sale~~receive 10% of the ~~New York~~revenue generated from customers who are billed for home warranty services through an applicable Company subsidiary as(an “on-bill” arrangement), and 15% of ~~September 30, 2021:~~the revenue generated from any future on-bill arrangements entered into after the closing. Unless earlier terminated, this agreement has a term of up to 15 years, which may be renewed for up to 2 five-year periods. The Company recognized $2 million of income during the first quarter of 2022 from the revenue share agreement, which is included in Other, net on the Consolidated Statements of Operations.


	~~September 30, 2021~~
~~Property, plant and equipment~~	$	~~546~~
~~Current assets~~	20
~~Regulatory assets~~	78
~~Goodwill~~	27
~~Other assets~~	7
~~Assets held for sale~~	$	~~678~~
~~Current liabilities~~	$	16
~~Regulatory liabilities~~	46
~~Other liabilities~~	16
~~Liabilities related to assets held for sale~~	$	78

The pro forma impact of the Company’s acquisitions was not material to the Consolidated Statements of Operations for the periods ended March 31, 2022 and 2021.

Note ~~7: Shareholders'~~6: Shareholders’ Equity

Accumulated Other Comprehensive Loss

Presented in the table below are the changes in accumulated other comprehensive loss by component, net of tax, for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively:

Defined Benefit Pension Plans Gain (Loss) on Cash Flow Hedges Accumulated Other Comprehensive Loss
Employee Benefit Plan Funded Status Amortization of Prior Service Cost Amortization of Actuarial Loss
Balance as of December 31, 2020 $ (106) $ 1 $ 63 $ (7) $ (49)
Other comprehensive income before reclassifications — — — 1 1
Amounts reclassified from accumulated other comprehensive loss — — 3 — 3
Net other comprehensive income (loss) — — 3 1 4
Balance as of September 30, 2021 $ (106) $ 1 $ 66 $ (6) $ (45)
Balance as of December 31, 2019 $ (94) $ 1 $ 60 $ (3) $ (36)
Other comprehensive loss before reclassifications — — — (4) (4)
Amounts reclassified from accumulated other comprehensive loss — — 2 — 2
Net other comprehensive income (loss) — — 2 (4) (2)
Balance as of September 30, 2020 $ (94) $ 1 $ 62 $ (7) $ (38)


	Defined Benefit Pension Plans						Loss on Cash Flow Hedges		Accumulated Other Comprehensive Loss
	Employee Benefit Plan Funded Status		Amortization of Prior Service Cost		Amortization of Actuarial Loss
Balance as of December 31, 2021	$	(107)	$	1	$	67	$	(6)	$	(45)
Amounts reclassified from accumulated other comprehensive loss	—		—		1		—		1
Net other comprehensive income	—		—		1		—		1
Balance as of March 31, 2022	$	(107)	$	1	$	68	$	(6)	$	(44)

Balance as of December 31, 2020	$	(106)	$	1	$	63	$	(7)	$	(49)
Amounts reclassified from accumulated other comprehensive loss	—		—		1		—		1
Net other comprehensive income	—		—		1		—		1
Balance as of March 31, 2021	$	(106)	$	1	$	64	$	(7)	$	(48)

The Company does not reclassify the amortization of defined benefit pension cost components from accumulated other comprehensive loss directly to net income in its entirety, as a portion of these costs have been deferred as a regulatory asset. These accumulated other comprehensive loss components are included in the computation of net periodic pension cost.

The amortization of the gain (loss) on cash flow hedges is reclassified to net income during the period incurred and is included in interest, net in the accompanying Consolidated Statements of Operations.

Dividends

On ~~September~~March 1, ~~2021,~~2022, the Company paid a quarterly cash dividend of $0.6025 per share to shareholders of record as of ~~August 10, 2021.~~

~~Table of~~ ~~Contents~~

February 8, 2022.

On ~~October 28, 2021,~~April 27, 2022, the Company’s Board of Directors declared a quarterly cash dividend payment of ~~$0.6025~~$0.6550 per share, payable on ~~December~~June 1, ~~2021~~2022 to shareholders of record as of ~~November~~May 10, ~~2021.~~2022. Future dividends, when and as declared at the discretion of the Board of Directors, will be dependent upon future earnings and cash flows, compliance with various regulatory, financial and legal requirements, and other factors. See Note 10—Shareholders' Equity in the Notes to Consolidated Financial Statements in the Company’s Form 10-K for additional information regarding the payment of dividends on the Company’s common stock.

Note 8:7: Long-Term Debt

~~On May 10, 2021,~~During the three months ended March 31, 2022, American Water Capital Corp. (“AWCC”) ~~completed a $1.1 billion~~and the Company’s regulated subsidiaries issued in the aggregate $11 million of private activity bonds and government funded debt ~~offering, which included~~in multiple transactions with annual interest rates of0.74%, maturing in 2041. During the ~~sale of $550~~three months ended March 31, 2022, AWCC and the Company’s regulated subsidiaries made sinking fund payments for, or repaid at maturity, $5 million in aggregate principal amount of ~~its 2.30% senior notes due 2031~~outstanding long-term debt, with annual interest rates ranging from 0.00% to 12.25%, a weighted average interest rate of 3.06%, and ~~$550 million aggregate principal amount~~maturity dates ranging from 2022 to 2048.

Table of its 3.25% senior notes due 2051. At the closing of the offering, AWCC received, after deduction of underwriting discounts and before deduction of offering expenses, net proceeds of $1,086 million. AWCC used the net proceeds of this offering: (i) to lend funds to parent company and its regulated subsidiaries; (ii) to prepay $251 million aggregate principal amount of AWCC’s outstanding 5.77% Series D Senior Notes due December 21, 2021 (the “Series D Notes”) and $76 million aggregate principal amount of AWCC’s outstanding 6.55% Series H Senior Notes due May 15, 2023 (the “Series H Notes,” and together with the Series D Notes, the “Series Notes”); (iii) to repay AWCC’s commercial paper obligations; and (iv) for general corporate purposes. After the prepayments described above, none of the Series D Notes, and approximately $14 million aggregate principal amount of the Series H Notes, remain outstanding. As a result of AWCC’s prepayment of the Series Notes, a make-whole premium of $15 million was paid to the holders thereof on June 14, 2021. Substantially all of the early debt extinguishment costs were allocable to the Company’s utility subsidiaries and recorded as regulatory assets, as the Company believes they are probable of recovery in future rates.Contents

~~On May 6, 2021,~~In April 2022, the Company entered into 2several 10-year treasury lock agreements, with notional amounts ~~of $125 million and $150~~totaling $375 million, to reduce interest rate exposure on debt ~~which was subsequently~~expected to be issued ~~on May 10, 2021.~~in 2022. These treasury lock agreements ~~had~~have an average fixed interest rate of ~~1.58%~~2.89%. The Company designated these treasury lock agreements as cash flow hedges, with their fair value recorded in accumulated other comprehensive gain or loss. ~~On May 10, 2021,~~Upon termination, the ~~Company terminated these 2 treasury lock agreements with an aggregate notional amount of $275 million, realizing a net~~cumulative gain ~~of less than $1 million, to~~or loss recorded in accumulated other comprehensive gain or loss will be amortized through interest, net over ~~a 10-year period, in accordance with~~ the ~~terms~~term of the ~~$1.1 billion~~ new ~~debt issued on May 10, 2021. No ineffectiveness was recognized on hedging instruments for the three and nine months ended September 30, 2021 and 2020.~~

~~In addition to the senior notes issued and retired by AWCC as described above, during the nine months ended September 30, 2021, the Company’s regulated subsidiaries issued in the aggregate~~ ~~$13 million~~ ~~of private activity bonds and government funded debt in multiple transactions with annual interest rates ranging from~~ ~~0.00% to 5.00%, with a weighted average interest rate of~~ ~~0.05%, maturing in~~ ~~2022 through 2047. During the nine months ended September 30, 2021, AWCC and the Company’s regulated subsidiaries made sinking fund payments for, or repaid at maturity,~~ ~~$43 million~~ ~~in aggregate principal amount of outstanding long-term debt, with annual interest rates ranging from~~ ~~0.00%~~ to ~~12.25%, a weighted average interest rate of 7.37%, and maturity dates ranging from~~ ~~2021 to 2048~~.debt.

Note 9:8: Short-Term Debt

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 and, if and to the extent necessary, borrowings under the AWCC revolving credit facility. Additionally, proceeds from the aforementioned sales of HOS and the Company’s New York subsidiary will be used primarily for capital investment in the Regulated Businesses. The revolving credit facility provides $2.25 billion in aggregate total commitments from a diversified group of financial institutions. The termination date of the credit agreement with respect to AWCC’s revolving credit facility is March 21, 2025. The facility is used principally to support AWCC’s commercial paper program, to provide additional liquidity support and to provide a sub-limit of up to $150 million for letters of credit. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, there were no borrowings outstanding under the revolving credit facility.

On March 20, 2020, AWCC entered into a Term Loan Credit Agreement, by and among parent company, AWCC and the lenders party thereto (the “Term Loan Facility”). As of December 31, 2020, $500 million of principal was outstanding under the Term Loan Facility. The Term Loan Facility commitments terminated at maturity on March 19, 2021 and the Term Loan Facility was repaid in full. Borrowings under the Term Loan Facility bore interest at a variable annual rate based on LIBOR, plus a margin of 0.80%.

Short-term debt consists of commercial paper and credit facility borrowings totaling ~~$684~~$321 million and ~~$786~~$584 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. The weighted-average interest rate on AWCC’s outstanding short-term borrowings ~~including as of December 31, 2020, $500 million of outstanding principal on the Term Loan Facility,~~ was approximately ~~0.13%~~0.26% and ~~0.53%~~0.25% at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, there were no commercial paper or credit facility borrowings outstanding with maturities greater than three months.

~~Table of~~ ~~Contents~~

Presented in the tables below is the aggregate credit facility commitments, commercial paper limit and letter of credit availability under the revolving credit facility, as well as the available capacity for each:


		As of September 30, 2021							As of March 31, 2022
		Commercial Paper Limit		Letters of Credit		Total (a)			Commercial Paper Limit		Letters of Credit		Total (a)
(In millions)	(In millions)							(In millions)
Total availability	Total availability	$	2,100	$	150	$	2,250	Total availability	$	2,100	$	150	$	2,250
Outstanding debt	Outstanding debt	(684)		(76)		(760)		Outstanding debt	(321)		(76)		(397)
Remaining availability as of September 30, 2021		$	1,416	$	74	$	1,490
Remaining availability as of March 31, 2022								Remaining availability as of March 31, 2022	$	1,779	$	74	$	1,853

(a)Total remaining availability of ~~$1.49~~$1.85 billion as of ~~September 30, 2021~~March 31, 2022 may be accessed through revolver draws.


		As of December 31, 2020							As of December 31, 2021
		Commercial Paper Limit		Letters of Credit		Total (a)			Commercial Paper Limit		Letters of Credit		Total (a)
(In millions)	(In millions)							(In millions)
Total availability	Total availability	$	2,100	$	150	$	2,250	Total availability	$	2,100	$	150	$	2,250
Outstanding debt	Outstanding debt	(786)		(76)		(862)		Outstanding debt	(584)		(76)		(660)
Remaining availability as of December 31, 2020		$	1,314	$	74	$	1,388
Remaining availability as of December 31, 2021								Remaining availability as of December 31, 2021	$	1,516	$	74	$	1,590

(a)Total remaining availability of $1.59 billion as of December 31, 2021 may be accessed through revolver draws.

Presented in the table below is the Company’s total available liquidity as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively:

Cash and Cash Equivalents Availability on Revolving Credit Facility Total Available Liquidity
(In millions)
Available liquidity as of September 30, 2021 $ 70 $ 1,490 $ 1,560
Available liquidity as of December 31, 2020 $ 547 $ 1,388 $ 1,935


	Cash and Cash Equivalents		Availability on Revolving Credit Facility		Total Available Liquidity
(In millions)
Available liquidity as of March 31, 2022	$	75	$	1,853	$	1,928
Available liquidity as of December 31, 2021	$	116	$	1,590	$	1,706

Note ~~10:~~9: Income Taxes

The Company’s effective income tax rate was ~~18.2%~~18.1% and ~~25.0%~~14.2% for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and 17.2% and 24.1% for the nine months ended September 30, 2021 and 2020,~~ respectively. The ~~decrease in the~~ Company’s effective income tax rate ~~for the three and nine months ended September 30, 2021 was primarily due to an increase in~~reflects the amortization of EADIT ~~resulting from the TCJA,~~ pursuant to regulatory orders.

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Note ~~11:~~10: Pension and Other Postretirement Benefits

Presented in the table below are the components of net periodic benefit ~~cost (credit):~~credit:


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
Components of net periodic pension benefit cost:
Components of net periodic pension benefit credit:										Components of net periodic pension benefit credit:
Service cost	Service cost	$	9	$	8	$	27	$	24	Service cost		$	8	$	9
Interest cost	Interest cost	16		18		49		55		Interest cost		16		17
Expected return on plan assets	Expected return on plan assets	(31)		(28)		(95)		(84)		Expected return on plan assets		(31)		(32)
Amortization of prior service credit	Amortization of prior service credit	(1)		(1)		(2)		(3)		Amortization of prior service credit		(1)		(1)
Amortization of actuarial loss	Amortization of actuarial loss	7		7		20		23		Amortization of actuarial loss		5		7
Net periodic pension benefit (credit) cost before settlements		—		4		(1)		15
Settlements		—		—		—		1
Net periodic pension benefit (credit) cost		$	—	$	4	$	(1)	$	16
Net periodic pension benefit credit										Net periodic pension benefit credit		$	(3)	$	—

Components of net periodic other postretirement benefit credit:	Components of net periodic other postretirement benefit credit:									Components of net periodic other postretirement benefit credit:
Service cost	Service cost	$	1	$	1	$	3	$	3	Service cost		$	1	$	1
Interest cost	Interest cost	2		3		6		9		Interest cost		3		2
Expected return on plan assets	Expected return on plan assets	(5)		(5)		(15)		(14)		Expected return on plan assets		(5)		(5)
Amortization of prior service credit	Amortization of prior service credit	(8)		(9)		(24)		(25)		Amortization of prior service credit		(8)		(8)
Amortization of actuarial loss		—		—		—		1
Net periodic other postretirement benefit credit	Net periodic other postretirement benefit credit	$	(10)	$	(10)	$	(30)	$	(26)	Net periodic other postretirement benefit credit		$	(9)	$	(10)

The Company contributed ~~$10 million and $28~~$9 million for the funding of its defined benefit pension plans for each of the three ~~and nine~~ months ended ~~September 30, 2021, respectively,~~March 31, 2022 and ~~contributed $9~~2021. There were $10 million ~~and $31 million~~of contributions for the funding of ~~its defined benefit pension plans for~~ the ~~three and nine months ended September 30, 2020, respectively. The Company contributed $3 million for the funding of its~~Company’s other postretirement benefit plans for the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022 and ~~the Company made~~ no such contributions for the ~~funding of its other postretirement benefit plans for the~~ three ~~and nine~~ months ended ~~and September 30, 2020.~~March 31, 2021. The Company expects to make pension contributions to the plan trusts of $9$28 million during the remainder of ~~2021. No postretirement contributions to the plan trusts are expected to be made during the remainder of 2021.~~

No settlement charges were recorded during the three months ended September 30, 2021. Due to the amount of lump sum payment distributions from the Company’s New York Water Service Corporation Pension Plan, a settlement charge of less than $1 million was recorded during the nine months ended September 30, 2021, and settlement charges of less than $1 million and $1 million were recorded during the three and nine months ended September 30, 2020, respectively. In accordance with existing regulatory accounting treatment, the Company has maintained the settlement charge in regulatory assets. The amount is being amortized in accordance with existing regulatory practice.2022.

Note ~~12:~~11: Commitments and Contingencies

Contingencies

The Company is routinely involved in legal actions incident to the normal conduct of its business. As of ~~September 30, 2021,~~March 31, 2022, the Company has accrued approximately$4 $6 million of probable loss contingencies and has estimated that the maximum amount of losses associated with reasonably possible loss contingencies that can be reasonably estimated is ~~$2 million~~.$3 million. For certain matters, claims and actions, the Company is unable to estimate possible losses. The Company believes that damages or settlements, if any, recovered by plaintiffs in such matters, claims or actions, other than as described in this Note ~~12—~~11—Commitments and Contingencies, will not have a material adverse effect on the Company.

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West Virginia Elk River Freedom Industries Chemical Spill

On June 8, 2018, the U.S. District Court for the Southern District of West Virginia granted final approval of a settlement class and global class action settlement (the “Settlement”) for all claims and potential claims by all class members (collectively, the “West Virginia Plaintiffs”) arising out of the January 2014 Freedom Industries, Inc. chemical spill in West Virginia. The effective date of the Settlement was July 16, 2018. Under the terms and conditions of the Settlement, ~~the Company’s West Virginia subsidiary (“WVAWC”)~~WVAWC and certain other Company-affiliated entities did not admit, and will not admit, any fault or liability for any of the allegations made by the West Virginia Plaintiffs in any of the actions that were resolved.

The aggregate pre-tax amount contributed by WVAWC of the $126 million portion of the Settlement with respect to the Company, net of insurance recoveries, is $19 million. As of ~~September 30, 2021,~~March 31, 2022, $0.5 million of the aggregate Settlement amount of $126 million has been reflected in accrued liabilities, and $0.5 million in offsetting insurance receivables have been reflected in other current assets on the Consolidated Balance Sheets. The amount reflected in accrued liabilities as of ~~September 30, 2021~~March 31, 2022 reflects reductions in the liability and appropriate reductions to the offsetting insurance receivable reflected in other current assets, associated with payments made to the Settlement fund, the receipt of a determination by the Settlement fund’s appeal adjudicator on all remaining medical claims and the calculation of remaining attorneys’ fees and claims administration costs. The Company funded WVAWC’s contributions to the Settlement through existing sources of liquidity.

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Dunbar, West Virginia Water Main Break Class Action Litigation

On the evening of June 23, 2015, a 36-inch pre-stressed concrete transmission water main, installed in the early 1970s, failed. The water main is part of the West Relay pumping station located in the City of Dunbar, West Virginia and owned by WVAWC. The failure of the main caused water outages and low pressure for up to approximately 25,000 WVAWC customers. In the early morning hours of June 25, 2015, crews completed a repair, but that same day, the repair developed a leak. On June 26, 2015, a second repair was completed and service was restored that day to approximately 80% of the impacted customers, and to the remaining approximately 20% by the next morning. The second repair showed signs of leaking, but the water main was usable until June 29, 2015 to allow tanks to refill. The system was reconfigured to maintain service to all but approximately 3,000 customers while a final repair was being completed safely on June 30, 2015. Water service was fully restored by July 1, 2015 to all customers affected by this event.

On June 2, 2017, a complaint captioned Jeffries, et al. v. West Virginia-American Water Company was filed in West Virginia Circuit Court in Kanawha County on behalf of an alleged class of residents and business owners who lost water service or pressure as a result of the Dunbar main break. The complaint alleges breach of contract by WVAWC for failure to supply water, violation of West Virginia law regarding the sufficiency of WVAWC’s facilities and negligence by WVAWC in the design, maintenance and operation of the water system. The Jeffries plaintiffs seek unspecified alleged damages on behalf of the class for lost profits, annoyance and inconvenience, and loss of use, as well as punitive damages for willful, reckless and wanton behavior in not addressing the risk of pipe failure and a large outage.

OnIn February 4, 2020, the Jeffries plaintiffs filed a motion seeking class certification on the issues of breach of contract and negligence, and to determine the applicability of punitive damages and a multiplier for those damages if imposed. OnIn July ~~14,~~ 2020, the Circuit Court entered an order granting the Jeffries plaintiffs’ motion for certification of a class regarding certain liability issues but denying certification of a class to determine a punitive damages multiplier. OnIn August ~~31,~~ 2020, WVAWC filed a Petition for Writ of Prohibition in the Supreme Court of Appeals of West Virginia seeking to vacate or remand the Circuit ~~Court~~Court’s order certifying the issues class. At the request of the parties, on September 10, 2020, the Circuit Court ordered the stay of all matters in the class proceeding pending consideration of this petition. On December 3, 2020, the Supreme Court of Appeals issued an order to show cause stating that there are sufficient grounds for oral argument to consider prohibiting the class certification order. On January 28, 2021, the Supreme Court of Appeals ~~granted a motion by the~~ ~~Jeffries~~ ~~plaintiffs to remand~~remanded the case back to the Circuit Court for further consideration in light of a ~~recent Supreme Court of Appeals~~ decision issued in another case relating to the class certification issues ~~raised. A briefing schedule has been set and, following briefing~~raised on appeal. On July 16, 2021, oral argument was heard by ~~all parties, oral argument~~the Circuit Court on the issue of ~~class certification was heard on July 16, 2021.~~addressing the Supreme Court of Appeals’ remand. This matter remains pending.

The Company and WVAWC believe that WVAWC has valid, meritorious defenses to the claims raised in this class action complaint. WVAWC is vigorously defending itself against these allegations. The Company cannot currently determine the likelihood of a loss, if any, or estimate the amount of any loss or a range of such losses related to this proceeding.

Chattanooga, Tennessee Water Main Break Class Action Litigation

On September 12, 2019, the Company’s Tennessee subsidiary (“TAWC”), experienced a leak in a 36-inch water transmission main, which caused service fluctuations or interruptions to TAWC customers and the issuance of a boil water notice. TAWC repaired the main by early morning on September 14, 2019, and restored full water service by the afternoon of September 15, 2019, with the boil water notice lifted for all customers on September 16, 2019.

~~Table of~~ ~~Contents~~

On September 17, 2019, a complaint captioned Bruce, et al. v. American Water Works Company, Inc., et al. was filed in the Circuit Court of Hamilton County, Tennessee against TAWC, the Company and American Water Works Service Company, Inc. (“Service Company” and, together with TAWC and the Company, collectively, the “Tennessee-American Water Defendants”), on behalf of a proposed class of individuals or entities who lost water service or suffered monetary losses as a result of the Chattanooga incident (the “Tennessee Plaintiffs”). The complaint alleged breach of contract and negligence against the Tennessee-American Water Defendants, as well as an equitable remedy of piercing the corporate veil. In the complaint as originally filed, the Tennessee Plaintiffs were seeking an award of unspecified alleged damages for wage losses, business and economic losses, out-of-pocket expenses, loss of use and enjoyment of property and annoyance and inconvenience, as well as punitive damages, attorneys’ fees and pre- and post-judgment interest.

On November 22, 2019, the Tennessee-American Water Defendants filed a motion to dismiss the complaint for failure to state a claim upon which relief may be granted, and, with respect to the Company, for lack of personal jurisdiction. Oral argument on the motion to dismiss took place on In September ~~9, 2020. On September 18,~~ 2020, the court (i) granted the motion to dismiss the Tennessee Plaintiffs’ negligence claim against all Tennessee-American Water Defendants, (ii) denied the motion to dismiss the breach of contract claim against TAWC, (iii) held in abeyance the motion to dismiss the breach of contract claims against the Company and Service Company pending a further hearing and (iv) held in abeyance the Company’s motion to dismiss the complaint for lack of personal jurisdiction. On September 24, 2020, at the request of the Tennessee Plaintiffs, the court dismissed ~~without prejudice all claims in the~~ ~~Bruce~~ ~~complaint against the Company and Service Company. The impact of the September 2020 court orders was that~~ all of the Tennessee Plaintiffs’ claims in ~~this~~their complaint, ~~were dismissed, other than~~except for the breach of contract claims against ~~TAWC. On~~TAWC, which remain pending. In October ~~16,~~ 2020, TAWC answered the complaint, and the parties ~~are conducting~~have been engaging in discovery. The court has entered an agreed scheduling order, which sets a hearing in October 2022 to address the question of class certification.

TAWC and the Company believe that TAWC has meritorious defenses to the claims raised in this class action complaint, and TAWC is vigorously defending itself against these allegations. The Company cannot currently determine the likelihood of a loss, if any, or estimate the amount of any loss or a range of such losses related to this proceeding.

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Alternative Water Supply in Lieu of Carmel River Diversions

Compliance with Orders to Reduce Carmel River Diversions—Monterey Peninsula Water Supply Project

Under a 2009 order (the “2009 Order”) of the State Water Resources Control Board (the “SWRCB”), the Company’s California subsidiary (“Cal Am”) is required to decrease significantly its yearly diversions of water from the Carmel River according to a set reduction schedule. In 2016, the SWRCB issued an order (the “2016 Order”) approving a deadline of December 31, 2021 for Cal Am’s compliance with these prior ~~orders (the “2021 Deadline”).~~orders.

Cal Am is currently involved in developing the Monterey Peninsula Water Supply Project (the “Water Supply Project”), which includes the construction of a desalination plant, to be owned by Cal Am, and the construction of wells that would supply water to the desalination plant. In addition, the Water Supply Project also includes Cal Am’s purchase of water from a groundwater replenishment project (the “GWR Project”) between Monterey One Water and the ~~MPWMD.~~Monterey Peninsula Water Management District (the “MPWMD”). The Water Supply Project is intended, among other things, to fulfill Cal Am’s obligations under the 2009 Order and the 2016 Order. In September 2021, Cal Am, Monterey One Water and the MPWMD reached an agreement on Cal Am’s purchase of additional water from an expansion to the GWR Project, which is not expected to produce additional water until 2024 at the earliest.~~The amended and restated water purchase agreement for the GWR Project expansion is subject to review and approval of the California Public Utilities Commission (the “CPUC”).~~

Cal Am’s ability to move forward on the Water Supply Project is subject to administrative review by the CPUC and other government agencies, obtaining necessary permits, and intervention from other parties. In September 2016, the CPUC unanimously approved a final decision to authorize Cal Am to enter into a water purchase agreement for the GWR Project and to construct a pipeline and pump station facilities and recover up to ~~the incurred~~ $50 million in associated incurred costs plus an allowance for funds used during construction (“AFUDC”), subject to meeting certain criteria.

~~Table of~~ ~~Contents~~

In September 2018, the CPUC unanimously approved another final decision finding that ~~(i)~~ the Water Supply Project meets the CPUC’s requirements for a certificate of public convenience and necessity ~~(ii) the issuance of the final decision should not be delayed,~~ and ~~(iii)~~ an additional procedural phase was not necessary to consider alternative projects. The CPUC’s 2018 decision concludes that the Water Supply Project is the best project to address estimated future water demands in Monterey, and, in addition to the cost recovery approved in its 2016 decision, adopts Cal Am’s cost estimates for the Water Supply Project, which amounted to an aggregate of $279 million plus AFUDC at a rate representative of Cal Am’s actual financing costs. The 2018 final decision specifies the procedures for recovery of all of Cal Am’s prudently incurred costs associated with the Water Supply Project upon its completion, subject to the frameworks included in the final decision related to cost caps, operation and maintenance costs, financing, ratemaking and contingency matters. The reasonableness of the Water Supply Project costs will be reviewed by the CPUC when Cal Am seeks cost recovery for the Water Supply Project. Cal Am has incurred ~~$176~~$192 million in aggregate costs as of ~~September 30, 2021~~March 31, 2022 related to the Water Supply Project, which includes ~~$44~~$50 million in AFUDC.

In September 2021, Cal Am, Monterey One Water and the MPWMD reached an agreement on Cal Am’s purchase of additional water from an expansion to the GWR Project, which is not expected to produce additional water until 2024 at the earliest.The amended and restated water purchase agreement for the GWR Project expansion is subject to review and approval of the CPUC, and on November 29, 2021, Cal Am filed an application with the CPUC seeking review and approval of the amended and restated water purchase agreement. Cal Am is also requesting rate base treatment of the additional capital investment for certain Cal Am facilities required to maximize the water supply from the expansion to the GWR Project and a related Aquifer Storage and Recovery Project, totaling approximately $81 million. This amount is in addition to, and consistent in regulatory treatment with, the prior $50 million of cost recovery for facilities associated with the original water purchase agreement, which was approved by the CPUC in its 2016 final decision.

While Cal Am believes that its expenditures to date have been prudent and necessary to comply with the 2009 Order and the 2016 Order, as well as the CPUC’s 2016 and 2018 final decisions, Cal Am cannot currently predict its ability to recover all of its costs and expenses associated with the Water Supply Project and there can be no assurance that Cal Am will be able to recover all of such costs and expenses in excess of the $50 million in construction costs previously approved by the CPUC in its 2016 final decision.

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Coastal Development Permit Application

In June 2018, Cal Am submitted a coastal development permit application to the City of Marina (the “City”) for those project components of the Water Supply Project located within the City’s coastal zone. Members of the City’s Planning Commission, as well as City councilpersons, have publicly expressed opposition to the Water Supply Project. In May 2019, the City issued a notice of final local action based upon the denial by the Planning Commission of Cal Am’s coastal development permit application. Thereafter, Cal Am appealed this decision to the California Coastal Commission (the “Coastal Commission”), as permitted under the City’s code and the California Coastal Act. At the same time, Cal Am submitted an application to the Coastal Commission for a coastal development permit for those project components located within the Coastal Commission’s original jurisdiction. In October 2019, staff of the Coastal Commission issued a report recommending a denial of Cal Am’s application for a coastal development permit with respect to the Water Supply Project, largely based on a memorandum prepared by the general manager of the MPWMD that contradicted findings made by the CPUC in its final decision approving the Water Supply Project. In November 2019, discussions between staffs of the Coastal Commission and the CPUC took place regarding the Coastal Commission staff recommendation, at which time the CPUC raised questions about the Coastal Commission staff’s findings on water supply and demand, groundwater impacts and the viability of a project that the Coastal Commission staff believes may be a possible alternative to the Water Supply Project.

In August 2020, the staff of the Coastal Commission released a report again recommending denial of Cal Am’s application for a coastal development permit. Although the report concluded that the Water Supply Project would have a negligible impact on groundwater resources, the report also concluded it would impact other coastal resources, such as environmentally sensitive habitat areas and wetlands, and that the Coastal Commission staff believes that a feasible alternative project exists that would avoid those impacts. The staff’s report also noted disproportionate impacts to communities of concern. In September 2020, Cal Am withdrew its original jurisdiction application to allow additional time to address the Coastal Commission staff’s environmental justice concerns. The withdrawal of the original jurisdiction application did not impact Cal Am’s appeal of the City’s denial, which remains pending before the Coastal Commission. Cal Am refiled the original jurisdiction application in November 2020. In December 2020, the Coastal Commission sent to Cal Am a notice of incomplete application, identifying certain additional information needed to consider the application complete. In March 2021, Cal Am provided responses to the Coastal Commission’s notice of incomplete application. On June 18, 2021, the Coastal Commission responded, acknowledging the responses and requesting certain additional information before the application could be considered complete. Cal Am responded with the requested additional information on January 11, 2022, and on February 8, 2022, the Coastal Commission requested additional information. The original jurisdiction application remains pending.

Cal Am continues to work constructively with all appropriate agencies to provide necessary information in connection with obtaining required approvals for the Water Supply Project. However, ~~based on the foregoing,~~ there can be no assurance that the Water Supply Project in its current configuration will be completed on a timely basis, if ever. ~~Due to the delay~~Beginning in ~~the approval schedule for the Water Supply Project,~~January 2022, Cal Am ~~currently does not expect that it will~~expects to be able to comply with the diversion reduction ~~requirement schedule~~requirements contained in the 2016 Order, ~~until January 2022.~~but continued compliance with the diversion reduction requirements for 2023 and future years will depend on successful development of alternate water supply sources, sufficient to meet customer demand. The 2009 Order and the 2016 Order remain in effect until Cal Am certifies to the SWRCB, and the SWRCB concurs, that Cal Am has obtained a permanent supply of water to substitute for past unauthorized Carmel River diversions. While the Company cannot currently predict the likelihood or result of any adverse outcome associated with these matters, further attempts to comply with the 2009 Order and the 2016 Order ~~or the 2021 Deadline,~~ may result in material additional costs and obligations to Cal Am, including fines and penalties against Cal Am in the event of noncompliance with the 2009 Order and the 2016 Order.

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Note ~~13:~~12: Earnings per Common Share

Presented in the table below is a reconciliation of the numerator and denominator for the basic and diluted EPS calculations:


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
Numerator:	Numerator:									Numerator:
Net income attributable to common shareholders	Net income attributable to common shareholders	$	278	$	264	$	618	$	564	Net income attributable to common shareholders		$	158	$	133

Denominator:	Denominator:									Denominator:
Weighted-average common shares outstanding—Basic	Weighted-average common shares outstanding—Basic	182		181		182		181		Weighted-average common shares outstanding—Basic		182		181
Effect of dilutive common stock equivalents	Effect of dilutive common stock equivalents	—		1		—		—		Effect of dilutive common stock equivalents		—		1
Weighted-average common shares outstanding—Diluted	Weighted-average common shares outstanding—Diluted	182		182		182		181		Weighted-average common shares outstanding—Diluted		182		182

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The effect of dilutive common stock equivalents is related to outstanding stock options, restricted stock units (“RSUs”) and performance stock units (“PSUs”) granted under the Company’s 2007 Omnibus Equity Compensation Plan and outstanding RSUs and PSUs granted under the Company’s 2017 Omnibus Equity Compensation Plan, as well as estimated shares to be purchased under the Company’s 2017 Nonqualified Employee Stock Purchase Plan. Less than 1000000 share-based awards were excluded from the computation of diluted EPS for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ because their effect would have been anti-dilutive under the treasury stock method.

Note ~~14:~~13: Fair Value of Financial Information

Fair Value of Financial Instruments

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Current assets and current liabilities—The carrying amounts reported on the Consolidated Balance Sheets for current assets and current liabilities, including revolving credit debt, due to the short-term maturities and variable interest rates, approximate their fair values.

Seller promissory note from the sale of HOS — The carrying amount reported on the Consolidated Balance Sheets for the seller promissory note from the sale of HOS is $720 million as of March 31, 2022 and December 31, 2021. This amount represents the principal amount owed under the loan. The fair values of the seller note, including any impact of interest rates, approximated $700 million and $720 million as March 31, 2022 and December 31, 2021, respectively. The seller note is classified as Level 3 within the fair value hierarchy.

Preferred stock with mandatory redemption requirements and long-term debt—The fair values of preferred stock with mandatory redemption requirements and long-term debt are categorized within the fair value hierarchy based on the inputs that are used to value each instrument. The fair value of long-term debt classified as Level 1 is calculated using quoted prices in active markets. Level 2 instruments are valued using observable inputs and Level 3 instruments are valued using observable and unobservable inputs.

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Presented in the tables below are the carrying amounts, including fair value adjustments previously recognized in acquisition purchase accounting, and the fair values of the Company’s financial instruments:


		As of September 30, 2021											As of March 31, 2022
		Carrying Amount		At Fair Value									Carrying Amount		At Fair Value
				Level 1		Level 2		Level 3		Total					Level 1		Level 2		Level 3		Total
Preferred stock with mandatory redemption requirements	Preferred stock with mandatory redemption requirements	$	4	$	—	$	—	$	6	$	6	Preferred stock with mandatory redemption requirements	$	3	$	—	$	—	$	3	$	3
Long-term debt (excluding finance lease obligations)	Long-term debt (excluding finance lease obligations)	10,395		10,241		61		1,657		11,959		Long-term debt (excluding finance lease obligations)	10,404		9,104		55		1,522		10,681

		As of December 31, 2020											As of December 31, 2021
		Carrying Amount		At Fair Value									Carrying Amount		At Fair Value
				Level 1		Level 2		Level 3		Total					Level 1		Level 2		Level 3		Total
Preferred stock with mandatory redemption requirements	Preferred stock with mandatory redemption requirements	$	5	$	—	$	—	$	7	$	7	Preferred stock with mandatory redemption requirements	$	4	$	—	$	—	$	6	$	6
Long-term debt (excluding finance lease obligations)	Long-term debt (excluding finance lease obligations)	9,656		9,639		415		1,753		11,807		Long-term debt (excluding finance lease obligations)	10,396		10,121		60		1,637		11,818

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Recurring Fair Value Measurements

Presented in the tables below are assets and liabilities measured and recorded at fair value on a recurring basis and their level within the fair value hierarchy:


		As of September 30, 2021									As of March 31, 2022
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:
Restricted funds	Restricted funds	$	30	$	—	$	—	$	30	Restricted funds	$	21	$	—	$	—	$	21
Rabbi trust investments	Rabbi trust investments	23		—		—		23		Rabbi trust investments	22		—		—		22
Deposits	Deposits	26		—		—		26		Deposits	27		—		—		27
Other investments	Other investments	14		—		—		14		Other investments	19		—		—		19
Contingent cash payment from the sale of HOS										Contingent cash payment from the sale of HOS	—		—		72		72
Total assets	Total assets	93		—		—		93		Total assets	89		—		72		161

Liabilities:	Liabilities:									Liabilities:
Deferred compensation obligations	Deferred compensation obligations	27		—		—		27		Deferred compensation obligations	25		—		—		25
Total liabilities	Total liabilities	27		—		—		27		Total liabilities	25		—		—		25
Total assets	Total assets	$	66	$	—	$	—	$	66	Total assets	$	64	$	—	$	72	$	136

As of December 31, 2020
Level 1 Level 2 Level 3 Total
Assets:
Restricted funds $ 29 $ — $ — $ 29
Rabbi trust investments 19 — — 19
Deposits 4 — — 4
Other investments 11 — — 11
Total assets 63 — — 63
Liabilities:
Deferred compensation obligations 24 — — 24
Total liabilities 24 — — 24
Total assets $ 39 $ — $ — $ 39

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	As of December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Restricted funds	$	21	$	—	$	—	$	21
Rabbi trust investments	23		—		—		23
Deposits	27		—		—		27
Other investments	17		—		—		17
Contingent cash payment from the sale of HOS	—		—		72		72
Total assets	88		—		72		160

Liabilities:
Deferred compensation obligations	27		—		—		27
Total liabilities	27		—		—		27
Total assets	$	61	$	—	$	72	$	133

Restricted funds—The Company’s restricted funds primarily represent proceeds received from financings for the construction and capital improvement of facilities and from customers for future services under operation, maintenance and repair projects.

Rabbi trust investments—The Company’s rabbi trust investments consist of equity and index funds from which supplemental executive retirement plan benefits and deferred compensation obligations can be paid. The Company includes these assets in other long-term assets on the Consolidated Balance Sheets.

Deposits—Deposits include escrow funds and certain other deposits held in trust. The Company includes cash deposits in other current assets on the Consolidated Balance Sheets.

Deferred compensation obligations—The Company’s deferred compensation plans allow participants to defer certain cash compensation into notional investment accounts. The Company includes such plans in other long-term liabilities on the Consolidated Balance Sheets. The value of the Company’s deferred compensation obligations is based on the market value of the participants’ notional investment accounts. The notional investments are comprised primarily of mutual funds, which are based on observable market prices.

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Mark-to-market derivative assets and liabilities—The Company employs derivative financial instruments in the form of variable-to-fixed interest rate swaps and treasury lock agreements, classified as economic hedges and cash flow hedges, respectively, in order to fix the interest cost on existing or forecasted debt. The Company may use fixed-to-floating interest rate swaps, typically designated as fair-value hedges, to achieve a targeted level of variable-rate debt as a percentage of total debt. The Company uses a calculation of future cash inflows and estimated future outflows, which are discounted, to determine the current fair value. Additional inputs to the present value calculation include the contract terms, counterparty credit risk, interest rates and market volatility. The Company had no significant mark-to-market derivatives outstanding as of ~~September 30, 2021.~~March 31, 2022.

Other investments—Other investments primarily represent money market funds used for active employee benefits. The Company includes other investments in other current assets on the Consolidated Balance Sheets.

Contingent cash payment from the sale of HOS—The Company’s contingent cash payment derivative included as part of the consideration from the sale of HOS is included in other long-term assets on the Consolidated Balance Sheets. The fair value of the contingent cash payment is estimated using the probability of the outcome of receipt of the $75 million, a Level 3 input.

Note ~~15:~~14: Leases

The Company has operating and finance leases involving real property, including facilities, utility assets, vehicles, and equipment. Certain operating leases have renewal options ranging from one to 60 years. The exercise of lease renewal options is at the Company’s sole discretion. Renewal options that the Company was reasonably certain to exercise are included in the Company’s right-of-use (“ROU”) assets. Certain operating leases contain the option to purchase the leased property. The operating leases for real property, vehicles and equipment will expire over the next 38 years, ~~six~~five years, and five years, respectively.

The Company participates in a number of arrangements with various public entities (“Partners”) in West Virginia. Under these arrangements, the Company transferred a portion of its utility plant to the Partners in exchange for an equal principal amount of Industrial Development Bonds (“IDBs”) issued by the Partners under the Industrial Development and Commercial Development Bond Act. The Company leased back the utility plant under agreements for a period of 30 to 40 years. The Company has recorded these agreements as finance leases in property, plant and equipment, as ownership of the assets will revert back to the Company at the end of the lease term. The carrying value of the finance lease assets was $146 million ~~and $147 million~~ as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020, respectively.~~2021. The Company determined that the finance lease obligations and the investments in IDBs meet the conditions for offsetting, and as such, are reported net on the Consolidated Balance Sheets and excluded from the finance lease disclosure presented below.

The Company also enters into O&M agreements with the Partners. The Company pays an annual fee for use of the Partners’ assets in performing under the O&M agreements. The O&M agreements are recorded as operating leases, and future annual use fees of $1$3 million in ~~2021~~2022 and $4 million in ~~2022~~2023 through ~~2025,~~2026, and ~~$52~~$48 million thereafter, are included in operating lease ROU assets and operating lease liabilities on the Consolidated Balance Sheets.

Rental expenses under operating and finance leases were $3 million ~~and $3 million~~ for the three months ended ~~September 30,~~March 31, 2022 and March 31, 2021, ~~and September 30, 2020, respectively, and $10 million and $10 million~~ ~~for the nine months ended September 30, 2021 and September 30, 2020,~~ respectively.

For the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, cash paid for amounts in lease liabilities, which includes operating and financing cash flows from operating and finance leases, ~~were~~was $3 ~~million and $10 million, respectively.~~million. For the three months ended ~~September 30, 2021, there were $4 million ROU assets obtained in exchange for new operating lease liabilities. For the nine months ended September 30, 2021,~~March 31, 2022, there were ROU assets obtained in exchange for new operating lease liabilities of ~~$10~~$1 million.

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As of ~~September 30, 2021,~~March 31, 2022, the weighted-average remaining lease term of the finance lease and operating leases were ~~five~~four years and 18 years, respectively, and the weighted-average discount rate of the finance lease and operating leases were 12% and 4%, respectively.

The future maturities of lease liabilities at ~~September 30, 2021~~March 31, 2022 are ~~$3 million in 2021, $12~~$9 million in 2022, $9 million in 2023, $8 million in 2024, $8 million in 2025, $7 million in 2026 and ~~$96~~$88 million thereafter. At ~~September 30, 2021,~~March 31, 2022, imputed interest was ~~$46~~$43 million.

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Note ~~16:~~15: Segment Information

The Company’s operating segments are comprised of the revenue-generating components of its businesses for which separate financial information is internally produced and regularly used by management to make operating decisions, assess performance and allocate resources. The Company operates its businesses primarily through 1 reportable segment, the Regulated Businesses segment. ~~The Company also operates~~“Market-Based Businesses and Other” includes market-based businesses that, individually, do not meet the criteria of a reportable segment in accordance with GAAP, ~~and are collectively presented as the Market-Based Businesses. “Other” includes~~ corporate costs that are not allocated to the Company’s operating segments, eliminations of inter-segment transactions and fair value adjustments and associated income and deductions related to ~~the~~ acquisitions that have not been allocated to the operating segments for evaluation of performance and allocation of resource purposes. The adjustments related to the acquisitions are reported in Market-Based Businesses and Other as they are excluded from segment performance measures evaluated by management.

~~Table~~As a result of ~~Contents~~

the sale of HOS, the categories which were previously shown as “Market-Based Businesses” and “Other” have been combined and shown as “Market-Based Businesses and Other.” Segment results for the three months ended March 31, 2021 have been adjusted retrospectively to reflect this change.

Presented in the tables below is summarized segment information:


		As of or for the Three Months Ended September 30, 2021									As of or for the Three Months Ended March 31, 2022
		Regulated Businesses		Market-Based Businesses		Other		Consolidated			Regulated Businesses		Market-Based Businesses and Other		Consolidated
Operating revenues	Operating revenues	$	944	$	152	$	(4)	$	1,092	Operating revenues	$	778	$	64	$	842
Depreciation and amortization	Depreciation and amortization	151		6		4		161		Depreciation and amortization	155		3		158
Total operating expenses, net	Total operating expenses, net	563		121		(9)		675		Total operating expenses, net	538		58		596
Interest, net		(73)		(1)		(27)		(101)
Interest expense										Interest expense	(70)		(30)		(100)
Interest income										Interest income	—		13		13
Income before income taxes	Income before income taxes	332		31		(23)		340		Income before income taxes	196		(3)		193
Provision for income taxes	Provision for income taxes	60		8		(6)		62		Provision for income taxes	36		(1)		35
Net income attributable to common shareholders	Net income attributable to common shareholders	273		23		(18)		278		Net income attributable to common shareholders	160		(2)		158
Total assets	Total assets	22,818		900		1,615		25,333		Total assets	22,973		2,721		25,694
Cash paid for capital expenditures	Cash paid for capital expenditures	447		3		3		453		Cash paid for capital expenditures	422		2		424

As of or for the Three Months Ended September 30, 2020
Regulated Businesses Market-Based Businesses Other Consolidated
Operating revenues $ 945 $ 139 $ (5) $ 1,079
Depreciation and amortization 138 7 9 154
Total operating expenses, net 543 108 (5) 646
Interest, net (72) — (27) (99)
Income before income taxes 346 31 (25) 352
Provision for income taxes 85 7 (4) 88
Net income attributable to common shareholders 261 23 (20) 264
Total assets 21,946 1,110 1,338 24,394
Cash paid for capital expenditures 442 1 1 444


		As of or for the Nine Months Ended September 30, 2021									As of or for the Three Months Ended March 31, 2021
		Regulated Businesses		Market-Based Businesses		Other		Consolidated			Regulated Businesses		Market-Based Businesses and Other		Consolidated
Operating revenues	Operating revenues	$	2,556	$	435	$	(12)	$	2,979	Operating revenues	$	755	$	133	$	888
Depreciation and amortization	Depreciation and amortization	449		17		10		476		Depreciation and amortization	147		10		157
Total operating expenses, net	Total operating expenses, net	1,658		354		(9)		2,003		Total operating expenses, net	543		116		659
Interest, net		(216)		(3)		(81)		(300)
Interest expense										Interest expense	(71)		(27)		(98)
Interest income										Interest income	—		—		—
Income before income taxes	Income before income taxes	752		79		(85)		746		Income before income taxes	163		(8)		155
Provision for income taxes	Provision for income taxes	130		20		(22)		128		Provision for income taxes	28		(6)		22
Net income attributable to common shareholders	Net income attributable to common shareholders	623		59		(64)		618		Net income attributable to common shareholders	135		(2)		133
Total assets	Total assets	22,818		900		1,615		25,333		Total assets	22,032		2,493		24,525
Cash paid for capital expenditures	Cash paid for capital expenditures	1,191		7		7		1,205		Cash paid for capital expenditures	338		4		342

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As of or for the Nine Months Ended September 30, 2020
Regulated Businesses Market-Based Businesses Other Consolidated
Operating revenues $ 2,468 $ 399 $ (13) $ 2,854
Depreciation and amortization 417 20 14 451
Total operating expenses, net 1,558 309 2 1,869
Interest, net (218) 1 (79) (296)
Income before income taxes 744 91 (92) 743
Provision for income taxes 183 23 (27) 179
Net income attributable to common shareholders 561 68 (65) 564
Total assets 21,946 1,110 1,338 24,394
Cash paid for capital expenditures 1,303 7 4 1,314

~~Note 17: Subsequent Events~~

~~Sale of Homeowner Services Group~~

On October 28, 2021, the Company and the subsidiaries comprising its Homeowner Services Group (“HOS”) entered into a purchase agreement with a wholly owned subsidiary of funds advised by Apax Partners LLP (the “Buyer”), to sell all of the equity interests of the HOS subsidiaries to the Buyer for total estimated consideration of approximately $1.275 billion. Apax Partners LLP is a global private equity advisory firm. The consideration is comprised of $480 million in cash (subject to customary closing and post-closing adjustments and tax withholdings), a five-year secured seller promissory note to be issued at closing in the principal amount of $720 million, and a contingent cash payment of $75 million payable upon satisfaction of certain conditions on or before December 31, 2023. Closing of the sale is subject to certain customary conditions, including, among others, the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”). The Company and the Buyer may terminate the purchase agreement under certain circumstances, including if the closing does not occur by December 27, 2021, subject to an extension by either the Company or the Buyer for up to an additional nine months in the event of any law or order preventing the closing or if the expiration or termination of the applicable waiting period under the HSR Act has not occurred.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read together with the unaudited Consolidated Financial Statements and the Notes thereto included elsewhere in this Form 10-Q, and in the Company’s Form 10-K for the year ended December 31, ~~2020.~~2021. This discussion contains forward-looking statements that are based on management’s current expectations, estimates and projections about the Company’s business, operations and financial performance. The cautionary statements made in this Form 10-Q should be read as applying to all related forward-looking statements whenever they appear in this Form 10-Q. The Company’s actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those that are discussed under “Forward-Looking Statements” and elsewhere in this Form 10-Q. The Company has a disclosure committee consisting of members of senior management and other key employees involved in the preparation of the Company’s SEC reports. The disclosure committee is actively involved in the review and discussion of the Company’s SEC filings.

Overview

American Water is the largest and most geographically diverse, publicly traded water and wastewater utility company in the United States, as measured by both operating revenues and population served. The Company’s primary business involves the ownership of utilities that provide water and wastewater services to residential, commercial, industrial, public authority, fire service and sale for resale customers, collectively presented as the “Regulated Businesses.” Services provided by the Company’s utilities are subject to regulation by multiple state utility commissions or other entities engaged in utility regulation, collectively referred to as public utility commissions (“PUCs”). The Company also operates other market-based businesses not subject to economic regulation by state PUCs that provide water ~~wastewater~~ and ~~other~~wastewater services to ~~residential and smaller commercial customers,~~ the U.S. government on military installations, as well as municipalities, and utility customers, collectively ~~presented as the~~included within “Market-Based ~~Businesses.” These Market-Based~~ Businesses ~~are not subject to economic regulation by state PUCs.~~and Other.” See Part I, Item 1—Business in the Company’s Form 10-K for additional information.

~~COVID-19 Pandemic Update~~

American Water continues to monitor the COVID-19 pandemic and has taken steps since the beginning of the pandemic to mitigate adverse impacts to the Company. The Company has three main areas of focus as part of its response to COVID-19: the care and safety of its employees; the safety of its customers and the communities it serves; and the execution of its business continuity plan. American Water continues to work with its vendors to prevent disruptions in its supply chain, and, at this time, has not experienced, and does not anticipate, any material negative impacts. The Company also continues to monitor the impacts of the COVID-19 pandemic on the capital markets, including impacts that could increase its cost of capital.

The Company has experienced financial impacts since the beginning of the pandemic resulting from lower revenues from the suspension of late fees and foregone reconnect fees in certain states, certain incremental operation and maintenance (“O&M”) expenses, an increase in uncollectible accounts expense and additional debt costs.These impacts are collectively referred to as “financial impacts.” See Note 3—Impact of the COVID-19 Pandemic in the Notes to Consolidated Financial Statements for additional information. The extent to which the COVID-19 pandemic may further impact American Water, including without limitation, its liquidity, financial condition, and results of operations, will depend on future developments, which presently cannot be predicted.

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As of November 2, 2021, American Water has commission orders authorizing deferred accounting or cost recovery for COVID-19 financial impacts in 11 of 14 jurisdictions, with proceedings in New York and Tennessee pending. One jurisdiction, Kentucky, issued an order denying a request to defer to a regulatory asset the financial impacts related to the COVID-19 pandemic. Other regulatory actions to date are presented in the table below:

~~Commission Actions~~

~~Description~~

~~States~~

~~Orders issued with deferred accounting~~

~~Allows the Company to establish regulatory assets to record certain financial impacts related to the COVID-19 pandemic.~~

~~HI, IN, MD, NJ, PA, VA, WV~~

~~Orders issued with cost recovery~~

~~CA, IA, IL, MO~~

~~Proceedings pending~~

~~Pending proceedings considering deferred accounting authorization for the future recovery of COVID-19 financial impacts.~~

~~NY, TN~~

As of November 2, 2021, three states continue moratoria on the suspension of service disconnections due to non-payment. The moratoria on disconnects have expired in 11 states. The Company continues to monitor the COVID-19 pandemic and will continue to comply with the current ordered moratoria and any future moratoria implemented.

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~~Sale of Homeowner Services Group~~

On October 28, 2021, the Company and the subsidiaries comprising HOS entered into a purchase agreement with a wholly owned subsidiary of funds advised by Apax Partners LLP (the “Buyer”), to sell all of the equity interests of the HOS subsidiaries to the Buyer for total estimated consideration of approximately $1.275 billion (an estimated $1.0 billion net of tax). Apax Partners LLP is a global private equity advisory firm. The consideration is comprised of $480 million in cash (subject to customary closing and post-closing adjustments and tax withholdings), a seller promissory note to be issued by the Buyer at closing in the principal amount of $720 million, and a contingent cash payment of $75 million payable upon satisfaction of certain conditions on or before December 31, 2023. Closing of the sale is subject to certain customary conditions, including, among others, the expiration or termination of the waiting period under the HSR Act. The Company and/or the Buyer may terminate the purchase agreement under certain circumstances, including if the closing does not occur by December 27, 2021, subject to an extension by either the Company or the Buyer for up to an additional nine months in the event of any law or order preventing the closing or if the expiration or termination of the applicable waiting period under the HSR Act has not occurred. The Company expects the closing to occur in the fourth quarter of 2021. The structure of the transaction enables the initial cash proceeds to be redeployed into the Regulated Businesses to fund near-term incremental capital investments, while interest on the seller note will provide a stream of earnings during its term. Upon maturity, the proceeds from the repayment of the seller note are expected to be used to fund capital investment in the Regulated Businesses. This proposed sale further narrows the focus of the Company’s Market-Based Businesses primarily to its Military Services Group (“MSG”).

The seller note will have a five-year term, will be payable in cash, and will bear interest at a rate of 7.00% per year during the term. The repayment obligations of the Buyer under the seller note will be secured by a first priority security interest in certain property of the Buyer and the HOS subsidiaries, including their cash and securities accounts, as well as a pledge of the equity interests in each of those subsidiaries, subject to certain limitations and exceptions. The seller note will require compliance with affirmative and negative covenants (subject to certain conditions, limitations and exceptions), including a covenant limiting the incurrence by the Buyer and certain affiliates of additional indebtedness in excess of certain thresholds, but will not include any financial maintenance covenants.

Beginning on the 36th month after closing, the Company has a put right pursuant to which it may require the seller note to be repaid in full at par, plus accrued and unpaid interest, except that upon the occurrence of a disruption event in the broadly syndicated term loan “B” debt financing market, repayment by the Buyer pursuant to the Company’s exercise of the put right will be delayed until the market disruption event ends.

The seller note may not be prepaid at the Buyer’s election except in certain limited circumstances before the fourth anniversary of the closing date. If the Buyer seeks to repay the seller note in breach of this non-call provision, an event of default will occur under the seller note and the Company may, among other actions, demand repayment in full together with a premium ranging from 105.5% to 107.5% of the outstanding principal amount of the loan and a customary “make-whole” payment.

The Company and the Buyer will enter into, at closing, a revenue share agreement, pursuant to which the Company will receive 10% of the revenue generated from customers who are billed for home warranty services through an applicable Company subsidiary (an “on-bill” arrangement), and 15% of the revenue generated from any future on-bill arrangements entered into after the closing. Unless earlier terminated, this agreement has a term of up to 15 years, which may be renewed for up to two five-year periods.

~~Financing Activities~~

On May 10, 2021, American Water Capital Corp. (“AWCC”) completed a $1.1 billion debt offering, which included the sale of $550 million aggregate principal amount of its 2.30% senior notes due 2031 and $550 million aggregate principal amount of its 3.25% senior notes due 2051. Net proceeds of this offering were used to lend funds to parent company and its regulated subsidiaries, to prepay $327 million in aggregate principal amount of AWCC’s outstanding senior notes, to repay AWCC’s commercial paper obligations and for general corporate purposes. See Note 8—Long-Term Debt in the Notes to Consolidated Financial Statements for additional information.

As a result of AWCC’s prepayment of the various senior notes, a make-whole premium of $15 million was paid to the holders thereof on June 14, 2021. Substantially all of the early debt extinguishment costs were allocable to the Company’s utility subsidiaries and recorded as regulatory assets, as the Company believes they are probable of recovery in future rates.

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Financial Results

For the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, diluted earnings per share, prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), were ~~$1.53 and $3.40, respectively,~~$0.87, an increase of ~~$0.07 and $0.29~~$0.14 per diluted share, ~~respectively,~~ as compared to the same ~~periods~~period in the prior year. ~~These increases were~~This increase was primarily driven by continued growth in the Regulated Businesses from infrastructure investment, acquisitions and organic growth. ~~These increases were offset somewhat by~~Also, included in 2022 results is $0.06 per share from interest income earned on the ~~impacts~~seller note and income earned on the revenue share agreement from ~~weather~~the sale of HOS. See Note 5—Acquisitions and Divestitures in ~~both 2021~~the Notes to Consolidated Financial Statements for additional information.

Growth Through Capital Investment in Infrastructure and ~~2020, which decreased revenue by an estimated $17 million and $11 million for the three and nine months ended September 30, 2021, respectively.~~Regulated Acquisitions

The Company ~~expects to continue~~continues to grow its businesses, with the 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, and (ii) regulated acquisitions to expand the Company’s services to new customers. The Company plans to invest approximately ~~$1.9~~$2.5 billion across its footprint in ~~2021.~~2022. During the first ~~nine~~three months of ~~2021,~~2022, the Company invested ~~$1.3 billion,~~$437 million, primarily in the Regulated Businesses, as discussed below:

Regulated Businesses - Growth and Optimization

•$~~1.2 billion~~430 million capital investment in the Regulated Businesses, the majority for infrastructure improvements and replacements; and

•$785 million to fund acquisitions ~~including deposits discussed below,~~ in the Regulated Businesses, which added approximately ~~6,900~~1,800 water and wastewater customers, ~~through the nine months ended September 30, 2021,~~ in addition to approximately ~~12,600~~3,700 customers added through organic ~~growth through the nine months ended September 30, 2021.~~growth.

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As of ~~November 2, 2021,~~March 31, 2022, the Company has entered into agreements for pending acquisitions in the Regulated Businesses, including the York City Sewer Authority and Egg Harbor City agreements discussed above, to add approximately ~~82,700~~77,300 additional customers.

Sale of New York American Water Company, Inc.

On ~~November 20, 2019,~~January 1, 2022, the Company ~~and~~completed the ~~Company’s~~previously disclosed sale of its regulated utility operations in New York ~~subsidiary entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Liberty Utilities Co., which it subsequently assigned~~ to ~~its indirect, wholly owned subsidiary~~ Liberty Utilities (Eastern Water Holdings) Corp. (“Liberty”), ~~pursuant to which~~an indirect, wholly owned subsidiary of Algonquin Power & Utilities Corp. Liberty ~~will purchase~~purchased from the Company all of the capital stock of the New York subsidiary (the “Stock Purchase”) for an aggregate purchase price of approximately $608 million in cash, subject to adjustment as provided in the Stock Purchase Agreement. The Company’s regulated New York operations have approximately 125,000 customers in the State of New York. Algonquin Power & Utilities Corp., Liberty’s ultimate parent company, executed and delivered an absolute and unconditional guaranty of the performance of all of the obligations of Liberty under the Stock Purchase Agreement. The Stock Purchase is subject to various conditions, including obtaining approvals and satisfying or waiving other closing conditions. The Stock Purchase Agreement as originally executed provided for an initial termination date of June 30, 2021 (the “Closing End Date”). On June 29, 2021, the parties mutually agreed to extend the Closing End Date to December 31, 2021 in accordance with the terms of the Stock Purchase Agreement, and agreed to extend further the Closing End Date to January 3, 2022 as December 31, 2021 is a federal holiday. No other provision of the Stock Purchase Agreement was modified by this mutual agreement. Liberty may also terminate the Stock Purchase Agreement if any governmental authority initiates a condemnation or eminent domain proceeding against a majority of the consolidated properties of the Company’s New York subsidiary ~~taken as~~for a ~~whole.~~purchase price of $608 million in cash.

~~Table~~Sale of ~~Contents~~

Michigan American Water Company

In 2020, the Governor of New York proposed legislation that, among other things, required the New York State Department of Public Service (“NYSDPS”) to study whether private water suppliers should be placed under municipal control. On February ~~3, 2021,~~4, 2022, the ~~Governor issued a press release announcing that he directed~~Company completed the NYSDPS Special Counsel to commence and lead a municipalization feasibility study (the “Study”). The Study was released on March 29, 2021 finding that municipalization was feasible and in the public interest. The Study focused primarily on the imminent need for tax relief for the Company’s New York subsidiary’s customers and included recommendations to eliminate the Special Franchise Tax and create a new public authority to potentially acquire all or a portion of the system. Despite the Study’s findings, the legislative session ended without passage of legislation to eliminate the Special Franchise Tax. However, the New York State Senate and New York State Assembly passed legislation creating the North Shore Water Authority (“NSWA”) and the South Shore Water Authority (“SSWA”). The NSWA relates to a small portion of the New York subsidiary’s service area (about 4,700 customers) while the SSWA relates to the largest portionsale of its service territory (about 120,000 customers). Both bills were delivered to the Governor but have not yet been signed into law. The Company’s New York subsidiary continues to work constructively with the NYSDPS, including through ongoing settlement discussions among all parties to the proceeding, and to take all actions necessary to facilitate the completion of the Stock Purchase. Subject to satisfying or waiving the various conditions to closing, and assuming no prior termination of the Stock Purchase Agreement by Liberty as described above, the Company remains confident that the Stock Purchase will be completed.

~~The assets and related liabilities of the Company’s New York subsidiary were classified as held~~operations in Michigan for ~~sale on the Consolidated Balance Sheets as of September 30, 2021. See Note 6—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements for additional information.~~$6 million.

Operational Excellence

The Company’s adjusted regulated O&M efficiency ratio, which is used as a measure of the operating performance of the Regulated Businesses, was 33.9% for the twelve months ended ~~September 30, 2021,~~March 31, 2022, as compared to ~~34.2%~~34.1% for the twelve months ended ~~September 30, 2020.~~March 31, 2021. The ~~improvement in this~~ ratio reflects the continued focus on operating costs, as well as an increase in operating revenues for the Regulated Businesses after considering the adjustment for the amortization of the excess accumulated deferred income taxes (“EADIT”) shown in the table below.

The Company’s adjusted regulated O&M efficiency ratio is a non-GAAP measure, and is defined by the Company as its operation and maintenance expenses from the Regulated Businesses, divided by the operating revenues from the Regulated Businesses, where both operation and maintenance expenses and operating revenues were adjusted to eliminate purchased water expense. Operating revenues were further adjusted to exclude reductions for the amortization of the EADIT. Also excluded from operation and maintenance expenses is the allocable portion of non-O&M support services costs, mainly depreciation and general taxes, which is reflected in the Regulated Businesses segment as operation and maintenance expenses, but for consolidated financial reporting purposes, is categorized within other line items in the accompanying Consolidated Statements of Operations. The items discussed above were excluded from the O&M efficiency ratio calculation as they are not reflective of management’s ability to increase the efficiency of the Regulated Businesses.

The Company evaluates its operating performance using this ratio, and believes it is useful to investors because it directly measures improvement in the operating performance and efficiency of the Regulated Businesses. This information is derived from the Company’s consolidated financial information but is not presented in its financial statements prepared in accordance with GAAP. This information supplements and should be read in conjunction with the Company’s GAAP disclosures, and should be considered as an addition to, and not a substitute for, any GAAP measure. The Company’s adjusted regulated O&M efficiency ratio (i) is not an accounting measure that is based on GAAP; (ii) is not based on a standard, objective industry definition or method of calculation; (iii) may not be comparable to other companies’ operating measures; and (iv) should not be used in place of the GAAP information provided elsewhere in this Form 10-Q.

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Presented in the table below is the calculation of the Company’s adjusted regulated O&M efficiency ratio and a reconciliation that compares operation and maintenance expenses and operating revenues, each as determined in accordance with GAAP, to those amounts utilized in the calculation of its adjusted O&M efficiency ratio:


		For the Twelve Months Ended September 30,							For the Twelve Months Ended March 31,
(Dollars in millions)	(Dollars in millions)	2021			2020			(Dollars in millions)	2022			2021
Total operation and maintenance expenses	Total operation and maintenance expenses	$	1,715		$	1,605		Total operation and maintenance expenses	$	1,723		$	1,658
Less:	Less:							Less:
Operation and maintenance expenses—Market-Based Businesses		436			386
Operation and maintenance expenses—Other		(30)			(20)
Operation and maintenance expenses—Market-Based Businesses and Other								Operation and maintenance expenses—Market-Based Businesses and Other	403			378
Total operation and maintenance expenses—Regulated Businesses	Total operation and maintenance expenses—Regulated Businesses	1,309			1,239			Total operation and maintenance expenses—Regulated Businesses	1,320			1,280
Less:	Less:							Less:
Regulated purchased water expenses	Regulated purchased water expenses	154			146			Regulated purchased water expenses	155			152
Allocation of non-operation and maintenance expenses	Allocation of non-operation and maintenance expenses	41			34			Allocation of non-operation and maintenance expenses	29			43
Adjusted operation and maintenance expenses—Regulated Businesses (i)	Adjusted operation and maintenance expenses—Regulated Businesses (i)	$	1,114		$	1,059		Adjusted operation and maintenance expenses—Regulated Businesses (i)	$	1,136		$	1,085

Total operating revenues	Total operating revenues	$	3,902		$	3,756		Total operating revenues	$	3,881		$	3,822
Less:	Less:							Less:
Operating revenues—Market-Based Businesses		575			536
Operating revenues—Other		(16)			(18)
Operating revenues—Market-Based Businesses and Other								Operating revenues—Market-Based Businesses and Other	474			532
Total operating revenues—Regulated Businesses	Total operating revenues—Regulated Businesses	3,343			3,238			Total operating revenues—Regulated Businesses	3,407			3,290
Less:	Less:							Less:
Regulated purchased water revenues (a)	Regulated purchased water revenues (a)	154			146			Regulated purchased water revenues (a)	155			152
Revenue reductions for the amortization of EADIT		(93)			—
Revenue reductions from the amortization of EADIT								Revenue reductions from the amortization of EADIT	(102)			(46)
Adjusted operating revenues—Regulated Businesses (ii)	Adjusted operating revenues—Regulated Businesses (ii)	$	3,282		$	3,092		Adjusted operating revenues—Regulated Businesses (ii)	$	3,354		$	3,184

Adjusted O&M efficiency ratio—Regulated Businesses (i) / (ii)	Adjusted O&M efficiency ratio—Regulated Businesses (i) / (ii)	33.9		%	34.2		%	Adjusted O&M efficiency ratio—Regulated Businesses (i) / (ii)	33.9		%	34.1		%

(a)The calculation assumes regulated purchased water revenues approximate regulated purchased water expenses.

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Regulatory Matters

General Rate Cases and Infrastructure Surcharges

Presented in the table below are annualized incremental revenues, excluding reductions for the amortization of EADIT that are generally offset in income tax expense, assuming a constant water sales volume, resulting from general rate case authorizations and infrastructure surcharge authorizations that became effective in the current period:


	During the Three Months Ended March 31,
(In millions)		2022		2021
General rate cases by state:
West Virginia (effective February 25, 2022)		$	15	$	—
California (effective January 1, 2022 and January 1, 2021)		13		22
Pennsylvania (effective January 1, 2022 and January 28, 2021)		20		70
Total general rate cases		$	48	$	92

Infrastructure surcharges by state:
Indiana (effective March 21, 2022 and March 17, 2021)		$	8	$	8
West Virginia (effective March 1, 2022 and January 1, 2021)		3		5
Missouri (effective February 1, 2022)		12		—
Illinois (effective January 1, 2022 and January 1, 2021)		6		7
Pennsylvania (effective January 1, 2021)		—		8
Tennessee (effective January 1, 2021)		—		3
Total infrastructure surcharges		$	29	$	31

Effective ~~October 7, 2021,~~April 1, 2022, the Company’s ~~Missouri~~Pennsylvania subsidiary implemented infrastructure surcharges for annualized incremental revenues of $7$2 million.

On ~~August 28, 2020,~~February 24, 2022, the Company’s Iowa subsidiary filed a general rate case requesting $3 million in annualized incremental revenues. An order was issued on June 28, 2021 authorizing an increase of $1 million. On July 9, 2021, the Company’s Iowa subsidiary filed a Motion for Clarification with respect to the required accelerated flow back of unprotected EADIT over a three-year period to recognize the increase to rate base and incremental revenues as the unprotected EADIT is amortized. On September 21, 2021, that motion was denied. The Company’s Iowa subsidiary filed tariffs consistent with the order on September 23, 2021. Effective October 11, 2021, the Iowa Utilities Board approved the tariffs and implemented the new rates.

~~On April 7, 2021, the Company’s Missouri~~West Virginia subsidiary was authorized additional annual revenues of $15 million in its general rate case, effective February 25, 2022, excluding agreed to reductions for EADIT as a result of the Tax Cuts and Jobs Act of 2017 (the “TCJA”). The EADIT reduction in revenues is $2 million and the exclusion for infrastructure surcharges is $10 million. Staff of the WV Public Service Commission moved for reconsideration of the Commission's final order on several grounds. The Company filed its response to the Staff's Petition for Reconsideration on March 28, 2022 in support of the Commission authorized revenue requirement.The matter is currently pending before the Commission for its consideration.

On November 18, 2021, the California Public Utilities Commission (the “CPUC”) unanimously approved a final decision in the test year 2021 general rate case filed by the Company’s California subsidiary, which is retroactive to January 1, 2021. The Company’s California subsidiary received authorization for additional annualized water and wastewater revenues of $22 million, ~~effective May 28, 2021,~~ excluding agreed to reductions for EADIT as a result of the TCJA. The EADIT reduction in revenues is ~~$25~~$4 million and is offset by a like reduction in income tax expense. ~~The protected EADIT balance~~On February 16, 2022, the Company’s California subsidiary received approval to increase rates by $13 million in 2022 escalation increases, excluding $4 million of ~~$72 million~~reductions related to the TCJA, which is ~~being returned~~retroactive to customers using the average rate assumption method (“ARAM”), and the unprotected EADIT balance of $74 million is being returned to customers over 10 years. The $25 million EADIT reduction includes both the protected and unprotected catch-up period EADIT of $13 million. The catch-up period of January 1, ~~2018 through May 31, 2021 covers the period from when the lower federal corporate income tax rate went into effect until new base rates went into effect and will be amortized over 2.5 years.~~

~~Table of~~ ~~Contents~~

2022.

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Pending General Rate Case Filings

On August 18, 2021, the Company’s Hawaii subsidiary filed a general rate case requesting $2 million in additional annualized ~~revenues.~~

~~On July 1, 2019,~~ the Company’s California subsidiary filed a general rate case requesting $29 million in annualized incremental revenues for 2021, and increases of $10 million and $11 million in the escalation year of 2022 and the attrition year of 2023, respectively. On October 11, 2019, the Company filed its 100-day update for the same proceeding and updated the request to $27 million in annualized incremental revenues for 2021, and increases of $10 million in both the escalation year of 2022 and the attrition year of 2023, respectively. On September 10, 2020, the CaliforniaHawaii Public Utilities Commission ~~(the “CPUC”) approved~~indicating that the ~~Company’s California subsidiary’s motion for interim rates, establishing~~parties had, in principle, reached a ~~memorandum account to track~~settlement that would resolve all disputed issues in the ~~difference between interim and final rates adopted by~~case. In the ~~CPUC in this proceeding, which were effective on January 1, 2021. Following settlement discussions among all~~joint letter, the parties also requested revisions to the proceeding, on January 22, 2021, January 25, 2021, and February 11, 2021, the Company’s California subsidiary filed with the CPUC comprehensive settlements entered into among the Company’s California subsidiary, the Public Advocates Office, and other intervenors. These settlement agreements resolved all matters in dispute among the parties to the settlements, with the exception of a few disputed items between the Company’s California subsidiary and the Monterey Peninsula Water Management District (the “MPWMD”). On October 19, 2021, the CPUC issued a proposed decision in the general rate case proceeding for rates effective January 1, 2021. With minor exceptions, the proposed decision would adopt the comprehensive settlements reached with the Public Advocates Office, and other intervenors. Comments on the proposed decision are due November 8, 2021 and reply comments are due November 15, 2021. The earliest the decision could be adopted is November 18, 2021 at the CPUC’s voting meeting. The Company expects a final decision by December 31, 2021.procedural schedule.

Pending Infrastructure Surcharge Filings

On ~~September 3, 2021,~~March 4, 2022, the Company’s Missouri subsidiary filed ~~for~~ an infrastructure surcharge proceeding requesting ~~$11~~$19 million in additional annualized revenues.

On ~~June 30, 2021,~~March 1, 2022, the Company’s ~~West Virginia~~Kentucky subsidiary filed ~~for~~ an infrastructure surcharge proceeding requesting $3 million in additional annualized revenues.

Other Regulatory Matters

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Legislative Updates

During ~~2021, the Company’s regulatory jurisdictions enacted the following legislation that has been approved and is effective as of November 2, 2021:~~

•The Kentucky General Assembly adopted House Bill 465 relating to the acquisition of water and wastewater utilities. The legislation affirms a method in valuing water and wastewater systems above net book value and establishes a timeline of 60 days for Public Service Commission approval of an acquisition.

•~~Indiana House Enrolled Act 1287 creates a mechanism that reduces the required upfront cost to new customers for a water or wastewater utility to extend service to underserved areas.~~

•Indiana House Enrolled Act 349 establishes a tax rider for water and wastewater utilities based upon a change in state or federal income tax law. The legislation also requires the Indiana Finance Authority to prioritize loans that secure long-term benefits over shorter term projects.

•New Jersey passed Lead Service Line Replacement Bill, Senate Bill 3398/Assembly Bill 5343, which provides for the replacement of lead service lines within 10 years of the effective date of the bill and authorizes cost recovery of customer-owned lead service lines as an O&M expense plus interest through a semi-annual surcharge.

•Missouri passed the Water and Sewer Infrastructure Act, Senate Bill 44/House Bill 397, to establish a new statewide surcharge mechanism program which covers replacement of aging water distribution and sewer collection infrastructure. This legislation broadens the eligible projects covered by the current Infrastructure System Replacement Surcharge mechanism and expands its applicability to projects across the state.

•Illinois passed House Bill 414, Low Income Water & Sewer Financial Assistance Program, which authorizes the state’s Department of Commerce and Economic Opportunity to institute a water and sewer assistance program for customers of privately and publicly owned systems. The program is modeled off the existing energy supplemental state Low Income Home Energy Assistance Program.

~~During 2021,~~2022, the Company’s regulatory jurisdictions enacted the following legislation that has been approved but is not yet effective as of ~~November 2, 2021:~~April 27, 2022:

•~~New Jersey~~Indiana passed Senate ~~Bill 647/House Bill 4825,~~Enrolled Act 272, which ~~strengthens the state’s existing Water Quality Accountability Act (“WQAA”) by requiring the Department~~requires public reporting of ~~Environmental Protection to adopt regulations to implement the WQAA, enhancing~~a non-jurisdictional utility’s asset management ~~plans~~programs and ~~reporting, upgrading cyber security standards and adding criminal penalties for falsifying reports. Legislation is awaiting the Governor’s signature.~~

•~~California passed electronic payment legislation, Assembly Bill 1058, which permanently changes state law to allow investor-owned~~creates a water and wastewater research and extension program at a state university to serve as a repository for data collected from utilities. Additionally, the legislation establishes oversight and a receivership program in the Indiana Utility Regulatory Commission for non-jurisdictional utilities ~~to accept electronic payments, including credit~~with violations that create environmental or human health and ~~debit cards, without charging processing fees to customers.~~safety issues. Legislation was signed by the Governor ~~with an~~on March 7, 2022 and becomes effective ~~date of January~~on July 1, 2022.

•~~California~~Indiana passed ~~CPUC consolidation timeline~~water and wastewater utility asset financing legislation, ~~Assembly Bill 1250,~~Senate Enrolled Act 273, which ~~requires~~authorizes the ~~CPUC~~recovery of property tax in Distribution System Improvement Charge filings. The legislation also permits the Indiana Utility Regulatory Commission to ~~make timely decisions on applications~~allow recovery through tracking mechanisms for changes in property tax and for costs attributable to ~~acquire systems. Consolidations of less than $5 million are to be processed within 180 days and those more than $5 million are required to be processed within 12 months.~~referenda or action by elected or appointed individuals. Legislation was signed by the Governor on March 10, 2022 and becomes effective on July 1, 2022.

•Virginia passed Senate Bill 500 and House Bill 182 which requires the Virginia State Corporation Commission, in any future ratemaking proceeding for an investor-owned water/wastewater utility, to evaluate the utility on a stand-alone basis and utilize the utility’s actual end-of-test period capital structure and cost of capital without regard to the cost of capital, capital structure, or investments of any other entities with anwhich the utility may be affiliated. Legislation was signed by the Governor on April 11, 2022 and becomes effective ~~date of January~~on July 1, 2022.

Condemnation and Eminent Domain

All or portions of the Regulated Businesses’ utility assets could be acquired by state, municipal or other government entities through one or more of the following methods: (i) eminent domain (also known as condemnation); (ii) the right of purchase given or reserved by a municipality or political subdivision when the original certificate of public convenience and necessity (a “CPCN”) was granted; and (iii) the right of purchase given or reserved under the law of the state in which the utility subsidiary was incorporated or from which it received its CPCN. The acquisition consideration related to such a proceeding initiated by a local government may be determined consistent with applicable eminent domain law, or may be negotiated or fixed by appraisers as prescribed by the law of the state or in the particular CPCN.

As such, the Regulated Businesses are periodically subject to condemnation proceedings in the ordinary course of business. For example, a citizens group in Monterey, California successfully added “Measure J” to the November 2018 election ballot asking voters to decide whether the ~~MPWMD~~Monterey Peninsula Water Management District (the “MPWMD”) should conduct a feasibility study concerning the potential purchase of the Monterey water service system assets (the “Monterey system assets”) of the Company’s California subsidiary, and, if feasible, to proceed with a purchase of those assets without an additional public vote. This service territory represents approximately 40,000 customers. In November 2018, Measure J was certified to have passed.

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In August 2019, the MPWMD’s General Manager issued a report that recommends that the MPWMD board (1) develop criteria to determine which water systems should be considered for acquisition; (2) examine the feasibility of acquiring the Monterey system assets and consider public ownership of smaller systems only if the MPWMD becomes the owner of a larger system; (3) evaluate whether the acquisition of the Monterey system assets by the MPWMD is in the public interest and sufficiently satisfies the criterion of “feasible” as provided in Measure J; (4) ensure there is significant potential for cost savings before agreeing to commence an acquisition; and (5) develop more fully alternate operating plans before deciding whether to consider a Resolution of Necessity.

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In November 2019, the MPWMD issued a preliminary valuation and cost of service analysis report, finding in part that (1) an estimate of the Monterey system assets’ total value plus adjustments would be approximately $513 million, (2) the cost of service modeling results indicate significant annual reductions in revenue requirements and projected monthly water bills, and (3) the acquisition of the Monterey system assets by the MPWMD would be economically feasible. ~~On June 12,~~In November 2020, the MPWMD issued a draft environmental impact report for the potential acquisition of the Monterey system assets and a related district boundary adjustment that would be required if the MPWMD were to acquire and operate certain of the Monterey system assets located outside the MPWMD’s boundaries. On September 15, 2020, the MPWMD gave notice of its intention to appraise the Monterey system assets and related property interests. On September 29, 2020, the Company’s California subsidiary declined to make the Monterey system assets and related property interests available for inspection or to comply with any of the other requests contained in the MPWMD’s notice. On October 7, 2020, the MPWMD issuedcertified a final environmental impact report (“FEIR”), ~~and on November 4, 2020, the MPWMD certified the FEIR, which purports to analyze~~analyzing the environmental impacts of the MPWMD’s project to (1) acquire the Monterey system assets through the power of eminent domain, if necessary, and (2) expand its geographic boundaries to include all parts of this system. On November 25, 2020, the Company’s California subsidiary filed a petition challenging this certification in court. A hearing on the matter was held on August 30, 2021, and a decision from the court remains pending. See Item 3—Legal Proceedings—Challenge of Certification — Proposed Monterey System Final Environmental Impact Report in the Company’s Form 10-K, and Part II, Item 1—Legal Proceedings in this Form 10-Q.

OnIn February ~~26,~~ 2021, the MPWMD filed an application with the Local Agency Formation Commission of Monterey County (“LAFCO”) seeking approval to become a retail water provider and annex approximately 58 parcels of land into the MPWMD’s boundaries. OnIn June ~~28,~~ 2021, LAFCO’s ~~board of directors~~commissioners voted to require a third-party independent financial study as to the feasibility of an acquisition by the MPWMD of the Monterey system assets. ~~By letter dated July 30,~~On December 6, 2021, ~~LAFCO notified~~LAFCO’s commissioners denied the MPWMD’s application to become a retail water provider, determining that the MPWMD ~~that its application was complete and would be considered for action at~~does not have the authority to proceed with a public hearing, which will now take place on December 6, 2021. LAFCO also indicated that, in accordance with the LAFCO board of directors’ directive, a consultant was engaged to perform an independent financial review of the application, which will support LAFCO’s analysis of the application at the public hearing. Approval by LAFCO is a precondition to the MPWMD’s ability to file an eminent domain proceeding against the Company’s California subsidiary to acquire the Monterey system assets. If the MPWMD were to make a final determination that an acquisitioncondemnation of the Monterey system assets, ~~is feasible, it would then need~~and on January 5, 2022, LAFCO’s commissioners confirmed the denial. On February 28, 2022, LAFCO’s commissioners voted to ~~file~~deny the MPWMD’s application for reconsideration of LAFCO’s confirmation of denial. On April 1, 2022, the MPWMD filed a ~~multi-year eminent domain proceeding~~lawsuit against LAFCO challenging its decision to deny the ~~Company’s California subsidiary. In that proceeding, it would first need~~MPWMD’s application seeking approval to establish its right to take the Monterey system assets. If such right is established, the amount of just compensation to be paid to the California subsidiary for such assets would then need to be determined. The MPWMD has stated that it anticipates filing such an eminent domain proceeding in late 2021 or early 2022.become a retail water provider.

Also, five municipalities in the Chicago, Illinois area (approximately 30,300 customers in total) formed a water agency and filed an eminent domain lawsuit against the Company in January 2013, seeking to condemn the water pipeline that serves those five municipalities. Before filing its eminent domain lawsuit, the water agency made an offer of $38 million for the pipeline. The parties have filed with the court updated valuation reports. A valuation trial ~~that~~ was originally scheduled for October 2021 but has been continued to June 2022.

Furthermore, the law in certain jurisdictions in which the Regulated Businesses operate provides for eminent domain rights allowing private property owners to file a lawsuit to seek just compensation against a public utility, if a public utility’s infrastructure has been determined to be a substantial cause of damage to that property. In these actions, the plaintiff would not have to prove that the public utility acted negligently. In California, lawsuits have been filed in connection with large-scale natural events such as wildfires. Some of these lawsuits have included allegations that infrastructure of certain utilities triggered the natural event that resulted in damage to the property. In some cases, the PUC has allowed certain costs or losses incurred by the utility to be recovered from customers in rates, but in other cases such recovery in rates has been disallowed. Also, the utility may have obtained insurance that could respond to some or all of such losses, although the utility would be at risk for any losses not ultimately subject to rate or insurance recovery or losses that exceed the limits of such insurance.

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Consolidated Results of Operations

Presented in the table below are the Company’s consolidated results of operations:


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
(In millions)	(In millions)									(In millions)
Operating revenues	Operating revenues	$	1,092	$	1,079	$	2,979	$	2,854	Operating revenues		$	842	$	888
Operating expenses:	Operating expenses:									Operating expenses:
Operation and maintenance	Operation and maintenance	436		419		1,286		1,193		Operation and maintenance		364		419
Depreciation and amortization	Depreciation and amortization	161		154		476		451		Depreciation and amortization		158		157
General taxes	General taxes	78		73		241		225		General taxes		74		83
Total operating expenses, net	Total operating expenses, net	675		646		2,003		1,869		Total operating expenses, net		596		659
Operating income	Operating income	417		433		976		985		Operating income		246		229
Other income (expense):	Other income (expense):									Other income (expense):
Interest, net		(101)		(99)		(300)		(296)
Interest expense										Interest expense		(100)		(98)
Interest income										Interest income		13		—
Non-operating benefit costs, net	Non-operating benefit costs, net	20		12		59		37		Non-operating benefit costs, net		19		20
Other, net	Other, net	4		6		11		17		Other, net		15		4
Total other income (expense)	Total other income (expense)	(77)		(81)		(230)		(242)		Total other income (expense)		(53)		(74)
Income before income taxes	Income before income taxes	340		352		746		743		Income before income taxes		193		155
Provision for income taxes	Provision for income taxes	62		88		128		179		Provision for income taxes		35		22
Net income attributable to common shareholders	Net income attributable to common shareholders	$	278	$	264	$	618	$	564	Net income attributable to common shareholders		$	158	$	133

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Segment Results of Operations

The Company’s operating segments are comprised of the revenue-generating components of its business for which separate financial information is internally produced and regularly used by management to make operating decisions, assess performance and allocate resources. The Company operates its ~~business~~businesses primarily through one reportable segment, the Regulated Businesses segment. ~~The Company also operates~~“Market-Based Businesses and Other” includes market-based businesses that, individually, do not meet the criteria of a reportable segment in accordance with GAAP, corporate costs that are not allocated to the Company’s operating segments, eliminations of inter-segment transactions, and fair value adjustments and associated income and deductions related to acquisitions that have not been allocated to the operating segments for evaluation of performance and allocation of resource purposes. The adjustments related to the acquisitions are ~~collectively presented as the~~reported in Market-Based Businesses ~~which~~and Other as they are excluded from segment performance measures evaluated by management. This presentation is consistent with how management assesses the results of these businesses.

As a result of the sale of HOS, the categories which were previously shown as “Market-Based Businesses” and “Other” have been combined and shown as “Market-Based Businesses and Other.” Segment results for the three months ended March 31, 2021 have been adjusted retrospectively to reflect this change.

Regulated Businesses Segment

Presented in the table below is financial information for the Regulated Businesses:


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
(In millions)	(In millions)									(In millions)
Operating revenues	Operating revenues	$	944	$	945	$	2,556	$	2,468	Operating revenues		$	778	$	755
Operation and maintenance	Operation and maintenance	338		335		983		932		Operation and maintenance		315		320
Depreciation and amortization	Depreciation and amortization	151		138		449		417		Depreciation and amortization		155		147
General taxes	General taxes	74		69		226		211		General taxes		68		76
(Gain) on asset dispositions and purchases		—		—		—		(3)
Other income (expenses)	Other income (expenses)	(49)		(56)		(146)		(166)		Other income (expenses)		(44)		(48)
Income before income taxes	Income before income taxes	332		346		752		744		Income before income taxes		196		163
Provision for income taxes	Provision for income taxes	60		85		130		183		Provision for income taxes		36		28
Net income attributable to common shareholders	Net income attributable to common shareholders	273		261		623		561		Net income attributable to common shareholders		160		135

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Operating Revenues

Presented in the tables below is information regarding the main components of the Regulated Businesses’ operating revenues:


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
(In millions)	(In millions)									(In millions)
Water services:	Water services:									Water services:
Residential	Residential	$	545	$	562	$	1,466	$	1,435	Residential		$	428	$	430
Commercial	Commercial	197		187		511		471		Commercial		153		144
Fire service	Fire service	38		37		112		110		Fire service		36		37
Industrial	Industrial	39		38		105		101		Industrial		36		32
Public and other	Public and other	68		60		184		178		Public and other		59		53
Total water services	Total water services	887		884		2,378		2,295		Total water services		712		696
Wastewater services:	Wastewater services:									Wastewater services:
Residential	Residential	38		35		112		99		Residential		41		36
Commercial	Commercial	10		8		28		25		Commercial		10		9
Industrial	Industrial	1		1		3		2		Industrial		1		1
Public and other	Public and other	4		4		12		11		Public and other		3		4
Total wastewater services	Total wastewater services	53		48		155		137		Total wastewater services		55		50
Other (a)	Other (a)	4		13		23		36		Other (a)		11		9
Total operating revenues	Total operating revenues	$	944	$	945	$	2,556	$	2,468	Total operating revenues		$	778	$	755

(a)Includes other operating revenues consisting primarily of miscellaneous utility charges, fees and rents.


		For the Three Months Ended September 30,		For the Nine Months Ended September 30,			For the Three Months Ended March 31,
		2021	2020	2021	2020			2022	2021
(Gallons in millions)	(Gallons in millions)					(Gallons in millions)
Billed water services volumes:	Billed water services volumes:					Billed water services volumes:
Residential	Residential	53,526	57,917	133,282	135,875	Residential		34,160	36,859
Commercial	Commercial	23,981	23,556	58,559	56,434	Commercial		16,339	15,898
Industrial	Industrial	10,400	9,925	26,843	26,422	Industrial		8,619	8,069
Fire service, public and other	Fire service, public and other	14,978	14,783	38,385	37,414	Fire service, public and other		11,756	10,863
Total billed water services volumes	Total billed water services volumes	102,885	106,181	257,069	256,145	Total billed water services volumes		70,874	71,689

~~For~~Included in operating revenues for the three months ended ~~September 30,~~March 31, 2021 was $23 million related to the Company’s New York operations. Excluding the Company’s New York operations, for the three months ended March 31, 2022, operating revenues ~~decreased $1~~increased $46 million, primarily due to a ~~$56~~$40 million increase from authorized rate increases, including infrastructure surcharges, principally to fund infrastructure investment in various states and a $6$5 million increase from water and wastewater acquisitions, as well as organic growth in existing systems. These increases were offset by an estimated net decrease of $17 million from weather in both 2021 and 2020, and a $24 million decrease in revenues due to the amortization of EADIT, which is generally offset with a reduction in income tax expense. There was an estimated $11 million decrease in 2021 due to higher demand in the third quarter of 2020 as a result of the COVID-19 pandemic, which had no estimated net impact on revenue for the full year 2020. Additionally, there was an $8 million decrease in revenue due to the denial of recovery of certain COVID-19 financial impacts based on the PaPUC order received by the Company’s Pennsylvania subsidiary. See Note 3—Impact of the COVID-19 Pandemic in the Notes to Consolidated Financial Statements for additional information.

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For the nine months ended September 30, 2021, operating revenues increased $88 million, primarily due to $152 million increase from authorized rate increases, including infrastructure surcharges, principally to fund infrastructure investment in various states, and a $22 million increase from water and wastewater acquisitions, as well as organic growth in existing systems. These increases were offset by an estimated net decrease of $11 million from weather in both 2021 and 2020, and a $68 million decrease in revenues due to the amortization of EADIT, which is generally offset with a reduction in income tax expense. Additionally, there was an $8 million decrease in revenue due to the denial of recovery of certain COVID-19 financial impacts based on the PaPUC order received by the Company’s Pennsylvania subsidiary. See Note 3—Impact of the COVID-19 Pandemic in the Notes to Consolidated Financial Statements for additional information.

Operation and Maintenance

Presented in the table below is information regarding the main components of the Regulated Businesses’ operating and maintenance expense:


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
(In millions)	(In millions)									(In millions)
Employee-related costs	Employee-related costs	$	132	$	125	$	391	$	369	Employee-related costs		$	126	$	130
Production costs	Production costs	101		100		268		253		Production costs		84		78
Operating supplies and services	Operating supplies and services	56		65		171		175		Operating supplies and services		57		57
Maintenance materials and supplies	Maintenance materials and supplies	19		18		66		56		Maintenance materials and supplies		22		24
Customer billing and accounting	Customer billing and accounting	17		14		49		41		Customer billing and accounting		13		17
Other	Other	13		13		38		38		Other		13		14
Total	Total	$	338	$	335	$	983	$	932	Total		$	315	$	320

~~For~~Included in operation and maintenance expense for the three months ended ~~September 30,~~March 31, 2021 was $12 million related to the Company’s New York operations. Excluding the Company’s New York operations, operation and maintenance expense increased ~~$3 million primarily due to a~~ $7 million increase in employee-related costs from higher headcount and related compensation expense in support of the growth in the business and a $3 million increase in customer billing and accounting primarily due to higher call volumes experienced at our customer service centers. These increases were partially offset by a $9 million decrease in operating supplies and services due to timing of expenses.

For the nine months ended September 30, 2021, operation and maintenance expense increased $51 million, primarily due to a $22 million increase in employee-related costs from higher headcount and related compensation expense in support of the growth in the business and higher pension expense due to higher service costs. There was a $15 million increase in production costs primarily due to higher purchased water usage in the Company’s California subsidiary and increased ~~fuel and power~~chemicals costs across several subsidiaries and a $10 million increase in maintenance materials and supplies due to timing of maintenance and tank painting projects in the Company’s New Jersey subsidiary and increased paving costs from a higher volume of main breaks.subsidiaries.

Depreciation and Amortization

For the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, depreciation and amortization increased ~~$13~~$8 million, ~~and $32 million, respectively,~~ primarily due to additional utility plant placed in service from capital infrastructure investments and acquisitions.

General Taxes

~~For~~Included in general taxes for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 was $12 million related to the Company’s New York operations. Excluding the Company’s New York operations, general taxes increased $5$4 million ~~and $15 million, respectively,~~ primarily due to increased capital investments, including acquisitions and an increase in the New Jersey Gross Receipts Tax.

~~Other Income (Expenses)~~

For the three and nine months ended September 30, 2021, other income (expenses) increased $7 million and $20 million, respectively, primarily due to the reduction in the non-service cost components of pension and other postretirement benefits expense resulting from higher asset returns.

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Provision for Income Taxes

For the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, the Regulated Businesses’ provision for income taxes ~~decreased $25 million and $53 million, respectively.~~increased $8 million. The Regulated Businesses’ effective income tax rate was ~~18.1%~~18.4% and ~~24.6%~~17.2% for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and 17.3% and 24.6% for the nine months ended September 30, 2021 and 2020,~~ respectively. The ~~decrease in the~~ Regulated Businesses’ effective income tax rate for the three ~~and nine~~ months ended ~~September 30, 2021 was primarily due to an increase in~~March 31, 2022 reflects the amortization of EADIT ~~resulting from the TCJA,~~ pursuant to regulatory orders. ~~The amortization of EADIT is generally offset with reductions in revenue.~~

Market-Based Businesses and Other

Presented in the table below is information for ~~the~~ Market-Based ~~Businesses:~~Businesses and Other:


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
(In millions)	(In millions)									(In millions)
Operating revenues	Operating revenues	$	152	$	139	$	435	$	399	Operating revenues		$	64	$	133
Operation and maintenance	Operation and maintenance	113		99		332		284		Operation and maintenance		50		99
Depreciation and amortization	Depreciation and amortization	6		7		17		20		Depreciation and amortization		3		10
Interest expense										Interest expense		(30)		(27)
Interest income										Interest income		13		—
Income before income taxes	Income before income taxes	31		31		79		91		Income before income taxes		(3)		(8)
Provision for income taxes	Provision for income taxes	8		7		20		23		Provision for income taxes		(1)		(6)
Net income attributable to common shareholders	Net income attributable to common shareholders	23		23		59		68		Net income attributable to common shareholders		(2)		(2)

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Operating Revenues

For the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, operating revenues ~~increased $13~~decreased $69 million, ~~and $36 million, respectively,~~ due primarily to ~~an increase in capital and O&M projects in~~ the ~~MSG, across several~~sale of ~~the Company’s military bases, primarily at the United States Military Academy at West Point, New York, Fort Hood and Joint Base San Antonio.~~HOS.

Operation and Maintenance

For the three months ended ~~September 30, 2021,~~March 31, 2022, operation and maintenance expense ~~increased $14~~decreased $49 million primarily due to ~~costs associated with MSG from increased capital~~the sale of HOS.

Depreciation and ~~O&M projects as discussed above and an increase in additional O&M costs related to the Contract Services Group (“CSG”).~~Amortization

For the ~~nine~~three months ended ~~September 30, 2021, operation~~March 31, 2022, depreciation and ~~maintenance expense increased $48~~amortization decreased $7 million primarily due to ~~costs associated with MSG from~~the sale of HOS.

Interest Income

For the three months ended March 31, 2022, interest income increased ~~capital and O&M projects as discussed above; additional costs associated with an increase of claims in 2021 in HOS, including from extreme cold weather across~~$13 million due to interest recognized on the ~~country during the first quarter of 2021, primarily in Texas and Illinois; and an increase in additional O&M costs~~seller note related to ~~CSG.~~the sale of HOS. See Note 5—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements for additional information.

Liquidity and Capital Resources

For a general overview of the sources and uses of capital resources, see the introductory discussion in Part II, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources in the Company’s Form 10-K.

The Company expects to fund future maturities of long-term debt through a combination of external debt and, to the extent available, cash flows from operations. Since the Company expects its capital investments over the next few years to be greater than its cash flows from operating activities, the Company currently plans to fund the excess of its capital investments over its cash flows from operating activities for the next five years through a combination of long-term debt and equity in addition to the proceeds from the sales of HOS and the Company’s New York subsidiary. If necessary, the Company may delay certain capital investments or other funding requirements, or pursue financing from other sources to preserve liquidity. In this event, the Company believes it can rely upon cash flows from operations to meet its obligations and fund its minimum required capital investments for an extended period of time.

The Company’s revolving credit facility provides $2.25 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 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 $2.10 billion. Subject to satisfying certain conditions, the credit agreement also permits AWCC to increase the maximum commitment under the facility by up to an aggregate of $500 million. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, there were noborrowings outstanding under the revolving credit facility. The weighted-average interest rate on AWCC’s outstanding short-term borrowings ~~including as of December 31, 2020, $500 million of outstanding principal on the Term Loan Facility (as defined below),~~ was approximately ~~0.13%~~0.26% and ~~0.53%~~0.25% at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

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To ensure adequate liquidity given the impacts of the COVID-19 pandemic on debt and capital markets, on March 20, 2020, AWCC entered into a Term Loan Credit Agreement, by and among parent company, AWCC and the lenders party thereto (the “Term Loan Facility”). The proceeds were used for general corporate purposes of AWCC and American Water and to provide additional liquidity. As of December 31, 2020, $500 million of principal was outstanding under the Term Loan Facility. The Term Loan Facility commitments terminated at maturity on March 19, 2021 and the Term Loan Facility was repaid in full.


		As of September 30, 2021							As of March 31, 2022
		Commercial Paper Limit		Letters of Credit		Total (a)			Commercial Paper Limit		Letters of Credit		Total (a)
(In millions)	(In millions)							(In millions)
Total availability	Total availability	$	2,100	$	150	$	2,250	Total availability	$	2,100	$	150	$	2,250
Outstanding debt	Outstanding debt	(684)		(76)		(760)		Outstanding debt	(321)		(76)		(397)
Remaining availability as of September 30, 2021		$	1,416	$	74	$	1,490
Remaining availability as of March 31, 2022								Remaining availability as of March 31, 2022	$	1,779	$	74	$	1,853

(a)Total remaining availability of $~~1.49~~1.85 billion as of ~~September 30, 2021~~March 31, 2022 may be accessed through revolver draws.

As of December 31, 2020
Commercial Paper Limit Letters of Credit Total (a)
(In millions)
Total availability $ 2,100 $ 150 $ 2,250
Outstanding debt (786) (76) (862)
Remaining availability as of December 31, 2020 $ 1,314 $ 74 $ 1,388

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	As of December 31, 2021
	Commercial Paper Limit		Letters of Credit		Total (a)
(In millions)
Total availability	$	2,100	$	150	$	2,250
Outstanding debt	(584)		(76)		(660)
Remaining availability as of December 31, 2021	$	1,516	$	74	$	1,590

(a)Total remaining availability of $1.59 billion as of December 31, 2021 may be accessed through revolver draws.

Presented in the table below is the Company’s total available liquidity as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively:


	Cash and Cash Equivalents		Availability on Revolving Credit Facility		Total Available Liquidity
(In millions)
Available liquidity as of March 31, 2022	$	75	$	1,853	$	1,928
Available liquidity as of December 31, 2021	$	116	$	1,590	$	1,706

The Company believes that ~~existing sources~~its ability to access the debt and equity capital markets, the revolving credit facility and cash flows from operations will generate sufficient cash to fund the Company’s short-term requirements. The Company believes it has sufficient liquidity and the ability to manage its expenditures, should there be a disruption of ~~liquidity are sufficient to meet its cash requirements for~~ the ~~foreseeable future. Though not currently anticipated, no assurances~~capital and credit markets. However, there can be ~~provided~~no assurance that the lenders will be able to meet existing commitments to AWCC under the revolving credit facility, or that AWCC will be able to access the commercial paper or loan markets in the future on acceptable ~~terms.~~terms or at all. See Note 9—8—Short-Term Debt in the Notes to Consolidated Financial Statements for additional information.

On May 10, 2021, AWCC completed a $1.1 billion debt offering, which included the sale of $550 million aggregate principal amount of its 2.30% senior notes due 2031 and $550 million aggregate principal amount of its 3.25% senior notes due 2051. At the closing of the offering, AWCC received, after deduction of underwriting discounts and before deduction of offering expenses, net proceeds of $1,086 million. AWCC used the net proceeds of this offering: (i) to lend funds to parent company and its regulated subsidiaries; (ii) to prepay $251 million aggregate principal amount of AWCC’s outstanding 5.77% Series D Senior Notes due December 21, 2021 (the “Series D Notes”) and $76 million aggregate principal amount of AWCC’s outstanding 6.55% Series H Senior Notes due May 15, 2023 (the “Series H Notes,” and together with the Series D Notes, the “Series Notes”); (iii) to repay AWCC’s commercial paper obligations; and (iv) for general corporate purposes. After the prepayments described above, none of the Series D Notes, and approximately $14 million aggregate principal amount of the Series H Notes, remain outstanding. As a result of AWCC’s prepayment of the Series Notes, a make-whole premium of $15 million was paid to the holders thereof on June 14, 2021. Substantially all of the early debt extinguishment costs were allocable to the Company’s utility subsidiaries and recorded as regulatory assets, as the Company believes they are probable of recovery in future rates.

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On May 6, 2021, the Company entered into two 10-year treasury lock agreements, with notional amounts of $125 million and $150 million, to reduce interest rate exposure on debt, which was subsequently issued on May 10, 2021. These treasury lock agreements had an average fixed rate of 1.58%. The Company designated these treasury lock agreements as cash flow hedges, with their fair value recorded in accumulated other comprehensive gain or loss. On May 10, 2021, the Company terminated these two treasury lock agreements with an aggregate notional amount of $275 million, realizing a net gain of less than $1 million, to be amortized through interest, net over a 10-year period, in accordance with the terms of the $1.1 billion new debt issued on May 10, 2021. No ineffectiveness was recognized on hedging instruments for the three and nine months ended September 30, 2021 and 2020.

Cash Flows ~~Provided by~~from Operating Activities

Cash flows ~~provided by~~from operating activities primarily result from the sale of water and wastewater services and, due to the seasonality of demand, are generally greater during the warmer months. Presented in the table below is a summary of the major items affecting the Company’s cash flows provided by operating activities:


		For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2021		2020			2022		2021
(In millions)	(In millions)					(In millions)
Net income	Net income	$	618	$	564	Net income	$	158	$	133
Add (less):	Add (less):					Add (less):
Depreciation and amortization	Depreciation and amortization	476		451		Depreciation and amortization	158		157
Deferred income taxes and amortization of investment tax credits	Deferred income taxes and amortization of investment tax credits	121		174		Deferred income taxes and amortization of investment tax credits	(61)		26
Other non-cash activities (a)	Other non-cash activities (a)	(37)		(25)		Other non-cash activities (a)	(11)		(40)
Changes in working capital (b)	Changes in working capital (b)	(118)		(145)		Changes in working capital (b)	(71)		(88)
Pension and postretirement healthcare contributions		(31)		(31)
Net cash flows provided by operating activities		$	1,029	$	988
Pension and non-pension postretirement benefit contributions						Pension and non-pension postretirement benefit contributions	(19)		(9)
Net cash provided by operating activities						Net cash provided by operating activities	$	154	$	179

(a)Includes provision for losses on accounts receivable, pension and non-pension postretirement benefits and other non-cash, net. Details of each component can be found on the Consolidated Statements of Cash Flows.

(b)Changes in working capital include changes to receivables and unbilled revenues, accounts payable and accrued liabilities ~~the settlement of cash flow hedges~~ and other current assets and liabilities, net.

For the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, cash ~~flows~~ provided by operating activities ~~increased $41~~decreased $25 million, primarily due to changes in working capital including the contribution of $45 million to the American Water Charitable Foundation which was authorized and accrued in the fourth quarter of 2021 and paid in the first quarter of 2022, partially offset by an increase in net income, an increase in depreciation and amortization primarily due to additional utility plant placed in service from capital infrastructure investments and acquisitions and changes in working capital, partially offset by aincome. The decrease in deferred income taxes from the sale of the Company's New York operations is offset in current taxes payable within other assets and ~~amortization~~liabilities.

Table of ~~investment tax credits primarily driven by an increase in the amortization of EADIT.~~Contents

Cash Flows ~~Used in~~from Investing Activities

Presented in the table below is a summary of the major items affecting the Company’s cash flows used in investing activities:


		For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2021		2020			2022		2021
(In millions)	(In millions)					(In millions)
Net capital expenditures	Net capital expenditures	$	(1,205)	$	(1,314)	Net capital expenditures	$	(424)	$	(342)
Acquisitions	Acquisitions	(78)		(59)		Acquisitions	(5)		(3)
Net proceeds from sale of assets						Net proceeds from sale of assets	608		—
Other investing activities, net (a)	Other investing activities, net (a)	(70)		(73)		Other investing activities, net (a)	(20)		(18)
Net cash flows used in investing activities		$	(1,353)	$	(1,446)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	$	159	$	(363)

(a)Includes removal costs from property, plant and equipment ~~retirements and proceeds from sale of assets.~~retirements.

For the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, cash ~~used in~~provided by investing activities ~~decreased $93~~increased $522 million, primarily due to proceeds of $608 million received from the ~~timing~~sale of the Company's New York operations offset by increased payments for capital expenditures. ~~Partially, offsetting this decrease was an increase in acquisitions primarily due to the acquisition of the East Pasadena Water Company in California for $34 million during the third quarter of 2021.~~ The Company plans to invest approximately ~~$1.9~~$2.5 billion across its footprint in ~~2021.~~

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2022.

Cash Flows from Financing Activities

Presented in the table below is a summary of the major items affecting the Company’s cash flows ~~provided by~~from financing activities:


		For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2021		2020			2022		2021
(In millions)	(In millions)					(In millions)
Proceeds from long-term debt	Proceeds from long-term debt	$	1,113	$	1,250	Proceeds from long-term debt	$	11	$	2
Repayments of long-term debt	Repayments of long-term debt	(370)		(266)		Repayments of long-term debt	(5)		(25)
(Repayments of) proceeds from term loan		(500)		500
Net short-term borrowings with maturities less than three months		(97)		(242)
Debt issuance costs and make-whole premium on early debt redemption		(26)		(12)
Repayments of term loan						Repayments of term loan	—		(500)
Net short-term (repayments) borrowings with maturities less than three months						Net short-term (repayments) borrowings with maturities less than three months	(263)		334
Dividends paid	Dividends paid	(318)		(290)		Dividends paid	(109)		(100)
Other financing activities, net (a)	Other financing activities, net (a)	46		26		Other financing activities, net (a)	13		(4)
Net cash flows (used in) provided by financing activities		$	(152)	$	966
Net cash used in financing activities						Net cash used in financing activities	$	(353)	$	(293)

(a)Includes proceeds from issuances of common stock under various employee stock plans and the Company’s dividend reinvestment plan, net of taxes paid, and advances and contributions in aid of construction, net of refunds.

For the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, cash ~~flows provided by~~used in financing activities ~~decreased $1,118~~increased $60 million, primarily due to ~~the $500 million borrowed under the Term Loan Facility~~net repayments of commercial paper borrowings during the first quarter of ~~2020 which was repaid~~2022 offset by the repayment in full at maturity ~~in 2021, an increase in repayments~~ of ~~long-term debt due to~~ the ~~prepayment of $327~~$500 million ~~in aggregate principal amount of AWCC’s outstanding senior notes~~term loan during the ~~second~~first quarter of ~~2021 and higher dividends paid in 2021, partially offset by lower net repayments of commercial paper borrowings.~~2021.

Debt Covenants

The Company’s debt agreements contain financial and non-financial covenants. To the extent that the Company is not in compliance with these covenants, an event of default may occur under one or more debt agreements and the Company, or its subsidiaries, may be restricted in its ability to pay dividends, issue new debt or access the revolving credit facility. The long-term debt indentures contain a number of covenants that, among other things, prohibit or restrict the Company from issuing debt secured by the Company’s assets, subject to certain exceptions. Failure to comply with any of these covenants could accelerate repayment obligations.

Covenants in certain long-term notes and the revolving credit facility require the Company to maintain a ratio of consolidated debt to consolidated capitalization (as defined in the relevant documents) of not more than 0.70 to 1.00. On ~~September 30, 2021,~~March 31, 2022, the Company’s ratio was ~~0.62~~0.59 to 1.00 and therefore the Company was in compliance with the covenants.

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Security Ratings

Presented in the table below are long-term and short-term credit ratings and rating outlooks as of ~~November 2, 2021~~April 27, 2022 as issued by the following rating agencies:

Securities

~~Moody's~~Moody’s Investors Service

Standard & ~~Poor's~~Poor’s Ratings Service

Rating outlook

Stable

Senior unsecured debt

Baa1

Commercial paper

P-2

A-1

A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency, and each rating should be evaluated independently of any other rating. Security ratings are highly dependent upon the ability to generate cash flows in an amount sufficient to service debt and meet investment plans. The Company can provide no assurances that its ability to generate cash flows is sufficient to maintain its existing ratings. None of the Company’s borrowings are subject to default or prepayment as a result of the downgrading of these security ratings, although such a downgrading could increase fees and interest charges under its credit facility.

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As part of its normal course of business, the Company routinely enters into contracts for the purchase and sale of water, energy, chemicals and other services. These contracts either contain express provisions or otherwise permit the Company and its counterparties to demand adequate assurance of future performance when there are reasonable grounds for doing so. In accordance with the contracts and applicable contract law, if the Company is downgraded by a credit rating agency, especially if such downgrade is to a level below investment grade, it is possible that a counterparty would attempt to rely on such a downgrade as a basis for making a demand for adequate assurance of future performance, which could include a demand that the Company must provide collateral to secure its obligations. The Company does not expect to post any collateral which will have a material adverse impact on the Company’s results of operations, financial position or cash flows.

Access to the capital markets, including the commercial paper market, and respective financing costs in those markets, may be directly affected by the Company’s securities ratings. The Company primarily accesses the debt capital markets, including the commercial paper market, through AWCC. However, the Company has also issued debt through its regulated subsidiaries, primarily in the form of mortgage bonds and tax-exempt securities or borrowings under state revolving funds, to lower the overall cost of debt.

Dividends

For discussion of the Company’s dividends, see Note ~~7—Shareholders'~~6—Shareholders’ Equity in the Notes to Consolidated Financial Statements for additional information.

Application of Critical Accounting Policies and Estimates

Financial condition of the Company, results of operations and cash flows are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. See Part II, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates in the Company’s Form 10-K for a discussion of its critical accounting policies. Additionally, see Note 2—Significant Accounting Policies in the Notes to Consolidated Financial Statements for updates, if any, to the significant accounting policies previously disclosed in the Company’s Form 10-K.

Recent Accounting Standards

See Note 2—Significant Accounting Policies in the Notes to Consolidated Financial Statements for a description of new accounting standards recently adopted or pending adoption.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk in the normal course of business, including changes in commodity prices, equity prices and interest rates. For further discussion of its exposure to market risk, see Part II, Item 7A—Quantitative and Qualitative Disclosures about Market Risk in the Company’s Form 10-K. There have been no significant changes to the Company’s exposure to market risk since December 31, ~~2020.~~2021.

The Company had no significant derivative instruments, which are exposed to market risk, outstanding as of ~~September 30, 2021.~~March 31, 2022.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

American Water maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s President, Chief Executive Officer and ~~the~~ Chief Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control ~~objectives.~~objective.

The Company’s management, including the Company’s President, Chief Executive Officer and ~~the~~ Chief Financial Officer, conducted an evaluation of the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of ~~September 30, 2021.~~March 31, 2022.

Based on that evaluation, the Company’s President, Chief Executive Officer and Chief Financial Officer, ~~have~~has concluded that, as of ~~September 30, 2021,~~March 31, 2022, the Company’s disclosure controls and procedures were effective at a reasonable level of assurance.

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Changes in Internal Control over Financial Reporting

The Company concluded that there have been no changes in internal control over financial reporting that occurred during the three months ended ~~September 30, 2021,~~March 31, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

5040

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The following information updates and amends the information provided in the Company’s Form 10-K in Part I, Item 3—~~Legal Proceedings, and in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 in Part II, Item 1—~~Legal Proceedings. Capitalized terms used but not otherwise defined herein have the meanings set forth in the Company’s Form 10-K. In accordance with the SEC’s disclosure rules, the Company has elected to disclose environmental proceedings involving the Company and a governmental authority if the amount of potential monetary sanctions, exclusive of interest and costs, that the Company reasonably believes will result from such proceeding is $1 million or more.

Alternative Water Supply in Lieu of Carmel River Diversions

Monterey Peninsula Water Supply Project

Water Supply Project Land Acquisition and Slant Well Site Use

OnThe SWRCB has scheduled hearings in late October ~~7, 2021,~~and early November 2022 related to the ~~court granted a motion filed~~referral by Cal Am ~~related~~ to ~~MCWD’s cross-complaint against Cal Am, CEMEX and MCWRA, which motion requested a referral~~the SWRCB of certain issues ~~related to MCWD’s water rights and unreasonable use claims to~~for the ~~SWRCB for its~~SWRCB’s expert advisory opinion.

~~Challenge of Certification — Proposed Monterey System Acquisition Final Environmental Impact Report~~

~~On November 25, 2020, the Company’s California subsidiary filed a petition for writ of mandate in~~ The Monterey County Superior Court ~~challenging certification~~has set a trial date of ~~the issuance of a FEIR by MPWMD~~October 23, 2023 for the ~~potential acquisition of the Monterey system assets. A hearing on the matter was held on August 30, 2021, and a decision from the court remains pending.~~

~~Other Matters~~

On April 2, 2021, American Water Resources, LLC (“AWR”), an indirect, wholly owned subsidiary of parent company, and one of the entities comprising HOS, received a grand jury subpoena for certain of its records in connection with an investigation by the U.S. Attorney’s Office for the Eastern District of New York (the “EDNY”).~~The subpoena seeks information about AWR’s operations and its contractor network in the New York City metropolitan area.In connection with the proposed sale of HOS to the Buyer, the Company, AWR and the Buyer will enter into, at the closing,a Common Interest and Cooperation Agreement (the “Cooperation Agreement”), in order to facilitate a common defense for, and to share information concerning, this investigation~~ and any legal or regulatory inquiries or proceedings related to or resulting from it or the subject matter in the subpoena (collectively, the “Covered Matters”). The Company will, on behalf of AWR, defend any Covered Matter, using commercially reasonable efforts to resolve it on a reasonably expedient basis. Further, the Company will be required to consult with the Buyer in specified circumstances and obtain its prior written consent (which consent may not be unreasonably withheld, conditioned or delayed) before entering into any resolution of any Covered Matter that imposes non-monetary provisions or undertakings or any other terms for which there will be no indemnification under the Cooperation Agreement. In addition, for 39 months after the date of the closing, the Company will indemnify the Buyer for any monetary losses or out-of-pocket damages (as described in the Cooperation Agreement) incurred by the Buyer or certain of the HOS subsidiaries to the extent directly arising in connection with, or directly resulting from, any Covered Matter.

~~Based on the subpoena and discussions with the EDNY, the investigation does not appear to be focused on the parent company or the operations of any of its other subsidiaries.AWR is fully cooperating with the investigation.~~While it is not possible at this time to predict the outcome of the investigation or determine the amount, if any, of fines, penalties or other liabilities that may be incurred in connection with it, the Company does not currently believe that the investigation will have a material adverse effect on the Company’s results of operations, financial condition or liquidity.City’s lawsuit seeking declaratory relief.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, readers should carefully consider the factors discussed in Part I, Item 1A—Risk Factors in the Form 10-K, and in the Company’s other filings with the SEC, which could materially affect the Company’s business, financial condition, cash flows or future results. There have been no material changes from the risk factors previously disclosed in Part I, Item 1A—Risk Factors in the Form 10-K.

~~Table of~~ ~~Contents~~

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In February 2015, the Board of Directors authorized an anti-dilutive stock repurchase program to mitigate the dilutive effect of shares issued through the Company’s dividend reinvestment, employee stock purchase and executive compensation activities. The program allows the Company to purchase up to 10 million shares of its outstanding common stock over an unrestricted period of time in the open market or through privately negotiated transactions. The program is conducted in accordance with Rule 10b-18 of the Exchange Act, and, to facilitate these repurchases, the Company enters into Rule 10b5-1 stock repurchase plans with a third-party broker, which allow the Company to repurchase shares of its common stock at times when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. Subject to applicable regulations, the Company may elect to amend or cancel the program or the stock repurchase parameters at its discretion to manage dilution.

The Company did not repurchase shares of common stock during the three months ended ~~September 30, 2021.~~March 31, 2022. From April 1, 2015, the date repurchases under the anti-dilutive stock repurchase program commenced, through ~~September 30, 2021,~~March 31, 2022, the Company repurchased an aggregate of 4,860,000 shares of common stock under the program, leaving an aggregate of 5,140,000 shares available for repurchase under this program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS


Exhibit Number						Exhibit Description
~~#2.1.1~~						Stock Purchase Agreement, dated November 20, 2019, by and among American Water Works Company, Inc., New York American Water Company, Inc. and Liberty Utilities Co. (incorporated by reference to Exhibit 2.1 to American Water Works Company, Inc.’s Current Report on Form 8-K, File No. 001-34028, filed November 20, 2019).
~~2.1.2~~						Letter Agreement, dated June 29, 2021, by and among the Company, New York American Water Company, Inc., and Liberty Utilities (Eastern Water Holdings) Corp. (incorporated by reference to Exhibit 2.1 to American Water Works Company, Inc.’s Current Report on Form 8-K, File No. 001-34028, filed June 29, 2021).
~~#2.2~~						Membership Interest Purchase Agreement, dated as of October 28, 2021, by and among American Water Works Company, Inc., American Water Enterprises, LLC, American Water (USA), LLC, American Water Resources, LLC, Pivotal Home Solutions, LLC, American Water Resources Holdings, LLC and Lakehouse Buyer Inc. (incorporated by reference to Exhibit 2.1 to American Water Works Company, Inc.’s Current Report on Form 8-K, File No. 001-34028, filed October 29, 2021).
3.1						Restated Certificate of Incorporation of American Water Works Company, Inc. (incorporated by reference to Exhibit 3.1 to ~~the Company’s~~American Water Works Company, Inc.’s Quarterly Report on Form 10-Q, File No. 001-34028, filed November 6, 2008).
3.2						Amended and Restated Bylaws of American Water Works Company, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, File No. 001-34028, filed December 10, 2020).
~~4.1~~						Indenture, dated as of December 4, 2009, between American Water Capital Corp. and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.1 to American Water Works Company, Inc.’s Current Report on Form 8-K, File No. 001-34028, filed December 3, 2010).
~~4.2~~						Officers’ Certificate of American Water Capital Corp., dated May 14, 2021, establishing the terms and authorizing the issuance of the 2.300% Senior Notes due 2031 (incorporated by reference to Exhibit 4.1 to American Water Works Company, Inc.’s Current Report on Form 8-K, File No. 001-34028, filed May 14, 2021).
~~4.3~~						Officers’ Certificate of American Water Capital Corp., dated May 14, 2021, establishing the terms and authorizing the issuance of the 3.250% Senior Notes due 2051 (incorporated by reference to Exhibit 4.2 to American Water Works Company, Inc.’s Current Report on Form 8-K, File No. 001-34028, filed May 14, 2021).
*10.1						American Water Works Company, Inc. Executive Severance Policy, as amended and restated as of July 27, 2021 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, File No. 001-34028, filed August 2, 2021).2017 Omnibus Equity Compensation Plan 2022 Restricted Stock Unit Grant.
*10.2						American Water Works Company, Inc. ~~Change of Control Severance Policy,~~2017 Omnibus Equity Compensation Plan 2022 Restricted Stock Unit Grant (for M. Susan Hardwick).
*10.3						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2022 Restricted Stock Unit Grant (for Cheryl Norton).
*10.4						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2022 Performance Stock Unit Grant Form A.
*10.5						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2022 Performance Stock Unit Grant Form A (for M. Susan Hardwick).
*10.6						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2022 Performance Stock Unit Grant Form A (for Cheryl Norton).
*10.7						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2022 Performance Stock Unit Grant Form B.
*10.8						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2022 Performance Stock Unit Grant Form B (for M. Susan Hardwick).
*10.9						American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2022 Performance Stock Unit Grant Form B (for Cheryl Norton).
10.10						Offer Letter for Employment, dated as of ~~July 27, 2021~~February 2 , 2022, between American Water Works Company, Inc. and M. Susan Hardwick (incorporated by reference to Exhibit 10.3 to American Water Works Company, Inc.’s Annual Report on Form 10-K, File No. 001-34028, filed February 16, 2022).
*10.11						Offer Letter for Employment, dated January 21, 2022, between American Water Works Company, Inc. and James H. Gallegos.
10.12						Separation Agreement and General Release, dated as of February 2, 2022, between American Water Works Service Company, Inc. and Walter J. Lynch (incorporated by reference to Exhibit ~~10.3~~10.7 to ~~the Company’s Quarterly~~American Water Works Company, Inc.’s Annual Report on Form ~~10-Q,~~10-K, File No. 001-34028, filed ~~August 2, 2021)~~February 16, 2022).
22.1						Guaranteed Securities (incorporated by reference to Exhibit 22.1 to American Water Works Company, Inc.’s Registration S tatement on Form S-3, File No. 333-263068, filed February 28, 2022).
*31.1						Certification of ~~Walter J. Lynch,~~M. Susan Hardwick, President, ~~and~~ Chief Executive Officer ~~pursuant to Section 302 of the Sarbanes-Oxley Act.~~
*31.2						~~Certification of M. Susan Hardwick, Executive Vice President~~ and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act.
**32.1						Certification of ~~Walter J. Lynch,~~M. Susan Hardwick, President, ~~and~~ Chief Executive Officer ~~pursuant to Section 906 of the Sarbanes-Oxley Act.~~
**32.2						~~Certification of M. Susan Hardwick, Executive Vice President~~ and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act.
101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH						Inline XBRL Taxonomy Extension Schema Document.
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104						Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

# Certain schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish the omitted schedules and exhibits to the SEC upon request.

* Filed herewith.

** Furnished ~~herewith~~herewith.

~~Table of Contents~~

The agreements filed as Exhibits 2.1.1 and 2.2 hereto has been included to provide investors and security holders with information regarding its terms. It is not intended to provide any other factual information about the parties thereto, or any of their respective subsidiaries or affiliates. The representations, warranties and covenants contained in the agreements (i) were made by the parties thereto only for purposes of that agreement and as of specific dates; (ii) were made solely for the benefit of the parties to each agreement; (iii) may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures exchanged between the parties in connection with the execution of each agreement (such disclosures include information that has been included in public disclosures, as well as additional non-public information); (iv) may have been made for the purposes of allocating contractual risk between the parties to each agreement instead of establishing these matters as facts; and (v) may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors.

Investors should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the parties thereto, or any of their respective subsidiaries or affiliates. Additionally, the representations, warranties, covenants, conditions and other terms of each agreement may be subject to subsequent waiver or modification. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of each agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures. Each agreement should not be read alone, but should instead be read in conjunction with the other information regarding the Company that is or will be contained in, or incorporated by reference into, the reports and other documents that are filed by the Company with the SEC.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the ~~2nd~~27th day of ~~November, 2021.~~April, 2022.


			AMERICAN WATER WORKS COMPANY, INC.
			(REGISTRANT)
By			/s/ ~~WALTER J. LYNCH~~
			Walter J. Lynch President and Chief Executive Officer (Principal Executive Officer)
By			~~/s/~~ M. SUSAN HARDWICK
			M. Susan Hardwick President, Chief Executive ~~Vice President~~Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)
By			/s/ MELISSA K. WIKLE
			Melissa K. Wikle ~~Vice President and Controller~~Chief Accounting Officer (Principal Accounting Officer)

5543


		Page
Forward-Looking Statements		1
	Part I. Financial Information
Item 1.	Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3226
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4939
Item 4.	Controls and Procedures	4940
	Part II. Other Information
Item 1.	Legal Proceedings	5141
Item 1A.	Risk Factors	5141
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5241
Item 3.	Defaults Upon Senior Securities	5241
Item 4.	Mine Safety Disclosures	5241
Item 5.	Other Information	5241
Item 6.	Exhibits	5342

Signatures		5543


	Common Stock			Paid-in-Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Loss		Treasury Stock			Total Shareholders' Equity
	Shares	Par Value								Shares	At Cost
Balance as of December 31, 2019	185.9	$	2	$	6,700	$	(207)	$	(36)	(5.1)	$	(338)	$	6,121
Net income attributable to common shareholders	—	—		—		124		—		—	—		124
Common stock issuances (a)	0.3	—		13		—		—		(0.1)	(10)		3
Net other comprehensive loss	—	—		—		—		(5)		—	—		(5)
Balance as of March 31, 2020	186.2	$	2	$	6,713	$	(83)	$	(41)	(5.2)	$	(348)	$	6,243
Net income attributable to common shareholders	—	—		—		176		—		—	—		176
Common stock issuances (a)	0.2	—		17		—		—		—	—		17
Net other comprehensive loss	—	—		—		—		2		—	—		2
Dividends ($0.55 declared per common share)	—	—		—		(100)		—		—	—		(100)
Balance as of June 30, 2020	186.4	$	2	$	6,730	$	(7)	$	(39)	(5.2)	$	(348)	$	6,338
Net income attributable to common shareholders	—	—		—		264		—		—	—		264
Common stock issuances (a)	—	—		9		—		—		—	—		9
Net other comprehensive loss	—	—		—		—		1		—	—		1
Dividends ($0.55 declared per common share)	—	—		—		(100)		—		—	—		(100)
Balance as of September 30, 2020	186.4	$	2	$	6,739	$	157	$	(38)	(5.2)	$	(348)	$	6,512


	2021		2020
Cash and cash equivalents (a)	$	70	$	560
Restricted funds	30		39
Cash, cash equivalents and restricted funds as presented on the Consolidated Statements of Cash Flows	$	100	$	599


	During the Three Months Ended September 30,				During the Nine Months Ended September 30,
(In millions)	2021		2020		2021		2020
General rate cases by state:
Missouri (effective May 28, 2021)	$	—	$	—	$	22	$	—
New York (effective May 1, 2021)	—		—		7		—
Pennsylvania (effective January 28, 2021)	—		—		70		—
Indiana (effective May 1, 2020)	—		—		—		13
California (effective January 1, 2020)	—		—		—		5
Total general rate cases	$	—	$	—	$	99	$	18

Infrastructure surcharges by state:
Kentucky (effective July 1, 2021 and July 1, 2020)	$	1	$	1	$	1	$	1
New Jersey (effective June 28, 2021, June 29, 2020 and January 1, 2020)	—		—		14		20
Indiana (effective March 17, 2021)	—		—		8		—
Pennsylvania (effective January 1, 2021, July 1, 2020, April 1, 2020 and January 1, 2020)	—		4		8		19
Illinois (effective January 1, 2021 and January 1, 2020)	—		—		7		7
West Virginia (effective January 1, 2021 and January 1, 2020)	—		—		5		3
Tennessee (effective January 1, 2021 and January 1, 2020)	—		—		3		2
Missouri (effective June 27, 2020)	—		—		—		10
Total infrastructure surcharges	$	1	$	5	$	46	$	62


	Defined Benefit Pension Plans						Gain (Loss) on Cash Flow Hedges		Accumulated Other Comprehensive Loss
	Employee Benefit Plan Funded Status		Amortization of Prior Service Cost		Amortization of Actuarial Loss
Balance as of December 31, 2020	$	(106)	$	1	$	63	$	(7)	$	(49)
Other comprehensive income before reclassifications	—		—		—		1		1
Amounts reclassified from accumulated other comprehensive loss	—		—		3		—		3
Net other comprehensive income (loss)	—		—		3		1		4
Balance as of September 30, 2021	$	(106)	$	1	$	66	$	(6)	$	(45)

Balance as of December 31, 2019	$	(94)	$	1	$	60	$	(3)	$	(36)
Other comprehensive loss before reclassifications	—		—		—		(4)		(4)
Amounts reclassified from accumulated other comprehensive loss	—		—		2		—		2
Net other comprehensive income (loss)	—		—		2		(4)		(2)
Balance as of September 30, 2020	$	(94)	$	1	$	62	$	(7)	$	(38)