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,
	2020		2019		2020		2019
Operating revenues	$	1,079	$	1,013	$	2,854	$	2,708
Operating expenses:
Operation and maintenance	419		395		1,193		1,132
Depreciation and amortization	154		144		451		430
General taxes	73		68		225		209
(Gain) on asset dispositions and purchases	0		0		0		(9)
Total operating expenses, net	646		607		1,869		1,762
Operating income	433		406		985		946
Other income (expense):
Interest, net	(99)		(97)		(296)		(284)
Non-operating benefit costs, net	12		4		37		12
Other, net	6		5		17		23
Total other income (expense)	(81)		(88)		(242)		(249)
Income before income taxes	352		318		743		697
Provision for income taxes	88		78		179		174
Net income attributable to common shareholders	$	264	$	240	$	564	$	523

Basic earnings per share: (a)
Net income attributable to common shareholders	$	1.46	$	1.33	$	3.11	$	2.90
Diluted earnings per share: (a)
Net income attributable to common shareholders	$	1.46	$	1.33	$	3.11	$	2.89
Weighted-average common shares outstanding:
Basic	181		181		181		181
Diluted	182		181		181		181

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Operating revenues $ 936
$ 930
$ 2,536
$ 2,500
Operating expenses:
Operation and maintenance 324
432
1,010
1,131
Depreciation and amortization 128
119
378
350
General taxes 61
65
192
195
Gain on asset dispositions and purchases (7 ) (5 ) (9 ) (8 )
Total operating expenses, net 506
611
1,571
1,668
Operating income 430
319
965
832
Other income (expense):
Interest, net (89 ) (81 ) (259 ) (242 )
Loss on early extinguishment of debt (6 ) —
(6 ) —
Other, net 5
5
11
14
Total other income (expense) (90 ) (76 ) (254 ) (228 )
Income before income taxes 340
243
711
604
Provision for income taxes 137
95
284
237
Net income attributable to common stockholders $ 203
$ 148
$ 427
$ 367

Basic earnings per share: (a)

Net income attributable to common stockholders $ 1.14
$ 0.83
$ 2.39
$ 2.06
Diluted earnings per share:
Net income attributable to common stockholders $ 1.13
$ 0.83
$ 2.39
$ 2.05
Weighted-average common shares outstanding:
Basic 178
178
178
178
Diluted 179
178
179
179
Dividends declared per common share $ 0.415
$ 0.375
$ 0.83
$ 0.75


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

~~The accompanying notes are an integral part of these consolidated financial statements.~~

~~American Water Works Company, Inc. and Subsidiary Companies~~

~~Consolidated Statements of Comprehensive Income (Loss) (Unaudited)~~

~~(In millions)~~

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Net income attributable to common stockholders $ 203
$ 148
$ 427
$ 367
Other comprehensive income (loss), net of tax:
Pension amortized to periodic benefit cost:
Actuarial loss, net of tax of $1 for the three months and $3 for the nine months ended September 30, 2017 and 2016, respectively 1
1
5
4
Foreign currency translation adjustment —
—
(1 ) —
Unrealized loss on cash flow hedges, net of tax of $(3) and $(3) for the three months and $(4) and $(10) for the nine months ended September 30, 2017 and 2016, respectively (3 ) (4 ) (5 ) (15 )
Net other comprehensive income (loss) (2 ) (3 ) (1 ) (11 )
Comprehensive income (loss) attributable to common stockholders $ 201
$ 145
$ 426
$ 356
(a)Amounts may not calculate due to rounding.

The accompanying notes are an integral part of these ~~consolidated financial statements.~~Consolidated Financial Statements.

Table of Contents

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,
	2020		2019		2020		2019
Net income attributable to common shareholders	$	264	$	240	$	564	$	523
Other comprehensive income (loss), net of tax:
Defined benefit pension plan actuarial loss, net of tax of $1 and $0 for the three months ended September 30, 2020 and 2019, respectively and $1 and $1 for the nine months ended September 30, 2020 and 2019, respectively	1		1		2		2
Foreign currency translation adjustment	0		0		0		(1)
Unrealized loss on cash flow hedges, net of tax of $0 and $0 for the three months ended September 30, 2020 and 2019, respectively and $(1) and $(5) for the nine months ended September 30, 2020 and 2019, respectively	0		0		(4)		(13)
Net other comprehensive income (loss)	1		1		(2)		(12)
Comprehensive income attributable to common shareholders	$	265	$	241	$	562	$	511

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,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	564	$	523
Adjustments to reconcile to net cash flows provided by operating activities:
Depreciation and amortization	451		430
Deferred income taxes and amortization of investment tax credits	174		163
Provision for losses on accounts receivable	22		18
(Gain) on asset dispositions and purchases	0		(9)
Pension and non-pension postretirement benefits	(10)		13
Other non-cash, net	(37)		(51)
Changes in assets and liabilities:
Receivables and unbilled revenues	(121)		(54)
Pension and postretirement benefit contributions	(31)		(23)
Accounts payable and accrued liabilities	(17)		(16)
Other assets and liabilities, net	(7)		(49)
Net cash provided by operating activities	988		945
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(1,314)		(1,115)
Acquisitions, net of cash acquired	(59)		(85)
Proceeds from sale of assets	2		17
Removal costs from property, plant and equipment retirements, net	(75)		(71)
Net cash used in investing activities	(1,446)		(1,254)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt	1,250		1,191
Repayments of long-term debt	(266)		(153)
Proceeds from term loan	500		0

Net short-term borrowings with maturities less than three months	(242)		(491)
Proceeds from issuances of employee stock plans and direct stock purchase plan, net of taxes paid of $17 and $11 for the nine months ended September 30, 2020 and 2019, respectively	6		13
Advances and contributions for construction, net of refunds of $20 and $25 for the nine months ended September 30, 2020 and 2019, respectively	20		16
Debt issuance costs	(12)		(11)
Dividends paid	(290)		(263)
Anti-dilutive share repurchases	0		(36)
Net cash provided by financing activities	966		266
Net increase (decrease) in cash, cash equivalents and restricted funds	508		(43)
Cash, cash equivalents and restricted funds at beginning of period	91		159
Cash, cash equivalents and restricted funds at end of period	$	599	$	116
Non-cash investing activity:
Capital expenditures acquired on account but unpaid as of the end of period	$	236	$	245

For the Nine Months Ended September 30,
2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 427
$ 367
Adjustments to reconcile to net cash flows provided by operating activities:
Depreciation and amortization 378
350
Deferred income taxes and amortization of investment tax credits 264
243
Provision for losses on accounts receivable 21
18
Gain on asset dispositions and purchases (9 ) (8 )
Pension and non-pension postretirement benefits 44
43
Other non-cash, net (39 ) (48 )
Changes in assets and liabilities:
Receivables and unbilled revenues (34 ) (83 )
Pension and non-pension postretirement benefit contributions (36 ) (42 )
Accounts payable and accrued liabilities (22 ) 184
Other assets and liabilities, net (8 ) (79 )
Net cash provided by operating activities 986
945
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (964 ) (928 )
Acquisitions (10 ) (29 )
Proceeds from sale of assets and securities 9
5
Removal costs from property, plant and equipment retirements, net (51 ) (62 )
Net funds restricted (5 ) —
Net cash used in investing activities (1,021 ) (1,014 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 1,382
2
Repayments of long-term debt (334 ) (20 )
Net short-term borrowings with maturities less than three months (746 ) 322
Proceeds from issuances of employee stock plans and DRIP 21
22
Advances and contributions for construction, net of refunds of $16 and $17, respectively 23
16
Debt issuance costs (13 ) (1 )
Dividends paid (215 ) (194 )
Anti-dilutive stock repurchase (54 ) (65 )
Taxes paid related to employee stock plans (11 ) (12 )
Net cash provided by financing activities 53
70
Net increase in cash and cash equivalents 18
1
Cash and cash equivalents as of beginning of period 75
45
Cash and cash equivalents as of end of period $ 93
$ 46
Non-cash investing activity:
Capital expenditures acquired on account but unpaid as of end of period $ 175
$ 182
Acquisition financed by treasury stock $ 33
$ —

The accompanying notes are an integral part of these ~~consolidated financial statements.~~Consolidated Financial Statements.

Table of Contents

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Changes in ~~Stockholders’~~Shareholders’ Equity (Unaudited)

(In millions)


	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

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

Table of Contents

Common Stock Paid-in-Capital Accumulated Deficit Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders' Equity
Shares Par Value Shares At Cost
Balance as of December 31, 2016 181.8
$ 2
$ 6,388
$ (873 ) $ (86 ) (3.7 ) $ (213 ) $ 5,218
Cumulative effect of change in accounting principle —
—
—
21
—
—
—
21
Net income attributable to common stockholders —
—
—
427
—
—
—
427
Direct stock reinvestment and purchase plan 0.1
—
6
—
—
—
—
6
Employee stock purchase plan —
—
5
—
—
—
—
5
Stock-based compensation activity 0.5
—
18
—
—
(0.1 ) (7 ) 11
Acquisitions via treasury stock —
—
6
—
—
0.4
27
33
Repurchases of common stock —
—
—
—
—
(0.7 ) (54 ) (54 )
Net other comprehensive loss —
—
—
—
(1 ) —
—
(1 )
Dividends —
—
—
(148 ) —
—
—
(148 )
Balance as of September 30, 2017 182.4
$ 2
$ 6,423
$ (573 ) $ (87 ) (4.1 ) $ (247 ) $ 5,518

Common Stock Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders' Equity
Shares Par Value Paid-in-Capital Accumulated Deficit Shares At Cost
Balance as of December 31, 2015 180.9
$ 2
$ 6,351
$ (1,073 ) $ (88 ) (2.6 ) $ (143 ) $ 5,049
Net income attributable to common stockholders —
—
—
367
—
—
—
367
Direct stock reinvestment and purchase plan —
—
4
—
—
—
—
4
Employee stock purchase plan —
—
5
—
—
—
—
5
Stock-based compensation activity 0.8
—
28
—
—
(0.1 ) (6 ) 22
Repurchases of common stock —
—
—
—
—
(1.0 ) (65 ) (65 )
Net other comprehensive loss —
—
—
—
(11 ) —
—
(11 )
Dividends —
—
—
(133 ) —
—
—
(133 )
Balance as of September 30, 2016 181.7
$ 2
$ 6,388
$ (839 ) $ (99 ) (3.7 ) $ (214 ) $ 5,238


	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, 2018	185.4	$	2	$	6,657	$	(464)	$	(34)	(4.7)	$	(297)	$	5,864
Cumulative effect of change in accounting principle	—	—		—		(2)		—		—	—		(2)
Net income attributable to common shareholders	—	—		—		113		—		—	—		113
Common stock issuances (a)	0.2	—		11		—		—		(0.1)	(5)		6
Repurchases of common stock	—	—		—		—		—		(0.3)	(36)		(36)
Net other comprehensive loss	—	—		—		—		(13)		—	—		(13)
Balance as of March 31, 2019	185.6	$	2	$	6,668	$	(353)	$	(47)	(5.1)	$	(338)	$	5,932
Net income attributable to common shareholders	—	—		—		170		—		—	—		170
Common stock issuances (a)	0.1	—		15		—		—		—	—		15
Dividends ($0.50 declared per common share)	—	—		—		(90)		—		—	—		(90)
Balance as of June 30, 2019	185.7	$	2	$	6,683	$	(273)	$	(47)	(5.1)	$	(338)	$	6,027
Net income attributable to common shareholders	—	—		—		240		—		—	—		240
Common stock issuances (a)	0.2	—		12		—		—		—	—		12
Net other comprehensive loss	—	—		—		—		1		—	—		1
Dividends ($0.50 declared per common share)	—	—		—		(90)		—		—	—		(90)
Balance as of September 30, 2019	185.9	$	2	$	6,695	$	(123)	$	(46)	(5.1)	$	(338)	$	6,190

(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.~~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 provided~~Consolidated Financial Statements included in this report include the accounts of American Water Works Company, Inc. and all of its subsidiaries ~~(collectively,~~(the “Company” or “American Water” ~~or the “Company”~~), in which a controlling interest is maintained after the elimination of intercompany ~~accounts~~balances and transactions. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States ~~of America~~ (“GAAP”) for interim financial reporting, and ~~with~~ the rules and regulations for reporting on Quarterly Reports on Form ~~10-Q.~~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, ~~2017~~2020, 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 ~~Balance Sheet as of December 31, 2016 is derived from the Company’s audited consolidated financial statements as of December 31, 2016. The unaudited consolidated financial statements~~Financial Statements and ~~notes~~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, ~~2016~~2019 (“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 ~~primarily~~ to the seasonality of the Company’s operations.

Note 2: Significant Accounting Policies

New Accounting Standards

~~The~~Presented in the table below are new accounting standards that were adopted by the Company ~~adopted the following accounting standard on January 1, 2017:~~

in 2020:

Standard

Description

Date of

Adoption

Application

Effect on the Consolidated Financial Statements

~~(or Other Significant Matters)~~

~~Simplification of Employee Share-Based Payment Accounting~~

Simplified accounting and disclosure requirements for share-based payment awards. The updated guidance addresses simplification in areas such as: (i) the recognition of excess tax benefits and deficiencies; (ii) the classification of excess tax benefits and taxes paid on the Consolidated Statements of Cash Flows; (iii) election of an accounting policy for forfeitures; and (iv) the amount an employer can withhold to cover income taxes and still qualify for equity classification.

~~January 1, 2017~~

Modified retrospective for the recognition of excess tax benefits and deficiencies; full retrospective for the classification of excess tax benefits and taxes paid on the Consolidated Statements of Cash Flows

The cumulative effect of adoption increased retained earnings by $21, with an offsetting decrease to deferred income taxes, net. Adoption also increased cash flows from operating activities and decreased cash flows from financing activities by $17 and $20 for the nine months ended September 30, 2017 and 2016, respectively, on the Consolidated Statements of Cash Flows.

~~The following recently issued accounting standards are not yet required to be adopted by the Company as of September 30, 2017:~~



~~Standard~~	~~Description~~	~~Date of~~ ~~Adoption~~	~~Permitted Application~~	~~Estimated Effect on the Consolidated Financial Statements~~ ~~(or Other Significant Matters)~~
~~Revenue from Contracts with Customers~~	Changes the criteria for recognizing revenue from a contract with a customer. Replaces existing guidance on revenue recognition, including most industry specific guidance. The objective is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries and across capital markets. The underlying principle is that an entity will recognize revenue to depict the transfer of goods and services to customers at an amount the entity expects to be entitled to in exchange for those goods or services. The guidance also requires a number of disclosures regarding the nature, amount, timing and uncertainty of revenue and the related cash flows.	~~January 1, 2018; early adoption permitted~~	~~Full or modified retrospective~~	The Company has substantially completed its evaluation and does not expect a material change. The Company continues to monitor for new interpretative guidance, which could impact the current evaluation. The Company plans to adopt using the modified retrospective method.
~~Classification of Certain Cash Receipts and Cash Payments on the Statement of Cash Flows~~	Provides guidance on the presentation and classification in the statement of cash flows for the following cash receipts and payments: (i) debt prepayment or debt extinguishment costs; (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (iii) contingent consideration payments made after a business combination; (iv) proceeds from the settlement of insurance claims; (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (vi) distributions received from equity method investees; (vii) beneficial interests in securitization transactions and (viii) separately identifiable cash flows and application of the predominance principle.	~~January 1, 2018; early adoption permitted~~	~~Retrospective~~	The Company will reclassify a $34 make-whole premium payment from operating activities to financing activities on its Consolidated Statements of Cash Flows upon adoption. See Note 6: Long-Term Debt in the Notes to Consolidated Financial Statements for further information regarding this make-whole premium payment.
~~Presentation of Changes in Restricted Cash on the Statement of Cash Flows~~	Updates the accounting and disclosure guidance for the classification and presentation of changes in restricted cash on the statements of cash flows. The amended guidance requires that the statements of cash flows explain the change during the period in the total of cash, cash equivalents and amounts described as restricted cash or restricted cash equivalents. Restricted cash and restricted cash equivalents will now be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows.	~~January 1, 2018; early adoption permitted~~	~~Retrospective~~	~~The Company does not anticipate significant impacts on its Consolidated Statements of Cash Flows.~~
~~Clarifying the Definition of a Business~~	Updates the accounting guidance to clarify the definition of a business with the objective of assisting entities with evaluating whether transactions should be accounted for as acquisitions, or disposals, of assets or businesses.	~~January 1, 2018; early adoption permitted~~	~~Prospective~~	The update could result in more acquisitions being accounted for as asset acquisitions. The effect on the Company’s consolidated financial statements will be dependent on the acquisitions that close subsequent to adoption.
~~Gains and Losses from the Derecognition of Nonfinancial Assets~~	Updated the guidance to clarify the accounting for gains and losses resulting from the derecognition of nonfinancial assets and partial sale of nonfinancial assets. The guidance also clarifies the definition of an in-substance nonfinancial asset.	~~January 1, 2018; early adoption permitted~~	~~Full or modified retrospective~~	~~The Company does not expect the adoption to have a material impact on its consolidated financial statements. The Company plans to adopt using the modified retrospective method.~~
~~Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~	Updated authoritative guidance requires the service cost component of net periodic benefit cost to be presented in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. The remaining components of net periodic benefit cost are required to be presented separately from the service cost component in an income statement line item outside of operating income. Also, the guidance only allows for the service cost component to be eligible for capitalization. The updated guidance does not impact the accounting for net periodic benefit costs as regulatory assets or liabilities.	~~January 1, 2018; early adoption permitted~~	~~Retrospective for the presentation of net periodic benefit cost components in the income statement; prospective for the capitalization of net periodic benefit costs components in total assets~~	The Company will reclassify net periodic benefit cost components, other than the service cost component, to other, net in the Consolidated Statements of Operations. The Company will continue to capitalize and will record net periodic benefit costs probable of recovery from customers as a regulatory asset or liability, other than the service cost components.
~~Accounting for Leases~~	Updated the accounting and disclosure guidance for leasing arrangements. Under this guidance, a lessee will be required to recognize the following for all leases, excluding short-term leases, at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the guidance, lessor accounting is largely unchanged.	~~January 1, 2019; early adoption permitted~~	~~Modified retrospective~~	~~The Company is evaluating the effect on its consolidated financial statements.~~

~~Standard~~

~~Description~~

~~Date of~~

~~Adoption~~

~~Permitted Application~~

~~Estimated Effect on the Consolidated Financial Statements~~
~~(or Other Significant Matters)~~

~~Accounting for Hedging Activities~~

Updated the accounting and disclosure guidance for hedging activities, which allows for more financial and nonfinancial hedging strategies to be eligible for hedge accounting. Under this guidance, a qualitative effectiveness assessment is permitted for certain hedges if an entity can reasonably support an expectation of high effectiveness throughout the term of the hedge, provided that an initial quantitative test establishes that the hedge relationship is highly effective. Also, for cash flow hedges determined to be highly effective, all changes in the fair value of the hedging instrument will be recorded in other comprehensive income with a subsequent reclassification to earnings when the hedged item impacts earnings.

~~January 1, 2019; early adoption permitted~~

~~Modified retrospective for adjustments related to the measurement of ineffectiveness for cash flow hedges; prospective for the updated presentation and disclosure requirements~~

The Company does not expect the adoption to have a material impact on its consolidated financial statements based on the hedges held as of the balance sheet date. The Company is evaluating the timing of adoption.

~~Simplification of Goodwill Impairment Testing~~

Updated authoritative guidance which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the amendments in the update, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying value exceeds the reporting unit’s fair value, however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

~~January 1, 2020; early adoption permitted~~

~~Prospective~~

~~The Company is evaluating the impact on its consolidated financial statements, as well as the timing of adoption.~~

Measurement of Credit Losses on Financial Instruments

Updated the accounting guidance on reporting credit losses for financial assets held at amortized cost basis and available-for-sale debt securities. Under this guidance, expected credit losses are required to be measured based on historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount of financial assets. Also, this guidance requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a direct write-down.

January 1, ~~2020;~~2020

Modified retrospective

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

Changes to the Disclosure Requirements for Fair Value Measurement

Updated the disclosure requirements for fair value measurement. The guidance removes the requirements to disclose transfers between Level 1 and Level 2 measurements, the timing of transfers between levels, and the valuation processes for Level 3 measurements. Disclosure of transfers into and out of Level 3 measurements will be required. The guidance adds disclosure requirements for the change in unrealized gains and losses in other comprehensive income for recurring Level 3 measurements, as well as the range and weighted average of significant unobservable inputs used to develop Level 3 measurements.

January 1, 2020

Prospective for added disclosures and for the narrative description of measurement uncertainty; retrospective for all other amendments.

The standard did not have a material impact 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.

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Presented in the table below are recently issued accounting standards that have not yet been adopted by the Company as of September 30, 2020:

Standard

Description

Date of Adoption

Application

Estimated Effect 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; early adoption permitted

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 Company is evaluating ~~the~~any impact on its ~~consolidated financial statements,~~Consolidated Financial Statements, as well as the timing of adoption.

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 permitted but not before fiscal years beginning after December 15, 2020

Either modified retrospective or fully retrospective

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 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:


	2020		2019
Cash and cash equivalents	$	560	$	94
Restricted funds	39		22
Cash, cash equivalents and restricted funds as presented on the Consolidated Statements of Cash Flows	$	599	$	116

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, 2020 reflects the impacts from the current novel coronavirus (“COVID-19”) pandemic, including an increase in uncollectible accounts expense and a reduction in amounts written off due to shutoff moratoriums in place across the Company’s subsidiaries.

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


	2020		2019
Balance as of January 1	$	(41)	$	(45)
Amounts charged to expense	(22)		(18)
Amounts written off	9		22
Less: Allowance for uncollectible accounts included in assets held for sale (a)	2		0
Balance as of September 30	$	(52)	$	(41)

(a)This portion of the allowance for uncollectible accounts is related to the pending transactions contemplated by the Stock Purchase Agreement among the Company, the Company’s New York subsidiary and an affiliate of Liberty Utilities Co., and is included in assets held for sale on the Consolidated Balance Sheets. See Note 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: ~~Acquisitions~~Impact of Novel Coronavirus (COVID-19) Pandemic

~~During~~American Water continues to monitor the global outbreak of the COVID-19 pandemic. To date, the Company has experienced COVID-19 financial impacts, including an increase in uncollectible accounts expense, additional debt costs, and certain incremental operation and maintenance (“O&M”) expenses. The Company has also experienced decreased revenues as a result of the waiver of late fees and foregone reconnect fees. These impacts are collectively referred to as “financial impacts.”

As of November 4, 2020, American Water has commission orders authorizing deferred accounting for COVID-19 financial impacts in 11 of 14 jurisdictions, with proceedings in 3 jurisdictions pending. In addition to approving deferred accounting, to date, 2 regulatory jurisdictions have also approved cost recovery mechanisms for specified COVID-19 financial impacts. Regulatory actions to date are presented in the table below:

Commission Actions

Description

States

Orders issued

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

CA, HI, IA, IL, IN, MD, MO, NJ, PA, VA, WV

Cost recovery mechanisms

California’s Catastrophic Event Memorandum Account allows the Company to track and recover certain financial impacts related to the COVID-19 pandemic. Illinois has authorized cost recovery of COVID-19 financial impacts through a special purpose rider over a 24-month period, which was implemented by the Company’s Illinois subsidiary effective October 1, 2020.

CA, IL

Proceedings pending

Proceedings pending seeking commission orders authorizing deferred accounting for future cost recovery of COVID-19 financial impacts.

KY, NY, TN

Consistent with these regulatory orders, the Company recorded $29 million in regulatory assets and $3 million of regulatory liabilities for the financial impacts related to the COVID-19 pandemic on the Consolidated Balance Sheets as of September 30, 2020.

Note 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 market-based businesses that provide complementary services to residential and smaller commercial customers, the U.S. government on military installations, as well as municipalities, utilities and industrial customers, collectively presented as the “Market-Based Businesses.”

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Presented in the table below are operating revenues disaggregated for the three months ended September 30, 2020:


	Revenues from Contracts with Customers		Other Revenues Not from Contracts with Customers (a)		Total Operating Revenues
Regulated Businesses:
Water services:
Residential	$	562	$	0	$	562
Commercial	187		—		187
Fire service	37		—		37
Industrial	38		—		38
Public and other	58		—		58
Total water services	882		0		882
Wastewater services:
Residential	35		—		35
Commercial	8		—		8
Industrial	1		—		1
Public and other	4		—		4
Total wastewater services	48		—		48
Miscellaneous utility charges	10		—		10
Alternative revenue programs	—		2		2
Lease contract revenue	—		3		3
Total Regulated Businesses	940		5		945
Market-Based Businesses	139		—		139
Other	(5)		0		(5)
Total operating revenues	$	1,074	$	5	$	1,079

(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 months ended September 30, ~~2017,~~2020:


	Revenues from Contracts with Customers		Other Revenues Not from Contracts with Customers (a)		Total Operating Revenues
Regulated Businesses:
Water services:
Residential	$	1,435	$	0	$	1,435
Commercial	471		—		471
Fire service	110		—		110
Industrial	101		—		101
Public and other	148		—		148
Total water services	2,265		0		2,265
Wastewater services:
Residential	99		—		99
Commercial	25		—		25
Industrial	2		—		2
Public and other	11		—		11
Total wastewater services	137		—		137
Miscellaneous utility charges	28		—		28
Alternative revenue programs	—		30		30
Lease contract revenue	—		8		8
Total Regulated Businesses	2,430		38		2,468
Market-Based Businesses	399		—		399
Other	(12)		(1)		(13)
Total operating revenues	$	2,817	$	37	$	2,854

(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, 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 $27 million and $13 million are included in unbilled revenues on the Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, respectively. There were $43 million of contract assets added during the nine months ended September 30, 2020, and $29 million of contract assets were transferred to accounts receivable during the same period.

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, respectively. There were $91 million of contract liabilities added during the nine months ended September 30, 2020, and $82 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, 2020, the Company’s O&M and capital improvement contracts in the Market-Based Businesses have RPOs. Contracts with the U.S. government for work on various military installations expire between 2051 and 2070 and have RPOs of $6.3 billion as of September 30, 2020, 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 2021 and 2038 and have RPOs of $490 million as of September 30, 2020, 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 5: Acquisitions and Divestitures

During the nine months ended September 30, 2020, the Company closed on ~~14 acquisitions~~the acquisition of ~~various~~15 regulated water and wastewater systems for a total aggregate purchase price of $43. Included in this total was the Company’s acquisition of all the outstanding capital stock of the Shorelands Water Company, Inc. on April 3, 2017, for total consideration of $33, in the form of approximately 0.4 shares of the Company’s common stock.$59 million. Assets acquired ~~in the aforementioned~~from these acquisitions, principally utility plant, totaled ~~$40. Liabilities~~$81 million, and liabilities assumed totaled ~~$23,~~$27 million, including ~~$10~~$20 million of contributions in aid of construction and assumed debt of ~~$7.~~$6 million. The Company recorded additional goodwill of ~~$28 associated~~$5 million associated with ~~three~~ 2 of ~~the~~its acquisitions, which is reported in ~~the Company’s~~its Regulated Businesses ~~segment, and recognized a bargain purchase gain~~segment. Several of ~~$2 associated with one of~~these acquisitions were accounted for as business combinations, as the Company continues to grow its business through regulated acquisitions. The preliminary purchase price allocations related to ~~these~~ acquisitions accounted for as business combinations will be finalized once the valuation of assets acquired has been completed, no later than one year after their acquisition date.

~~During the first quarter of 2017,~~Subsequent to September 30, 2020, the Company ~~made~~closed on 5 regulated water and wastewater systems for a ~~non-escrowed deposit~~total aggregate purchase price of ~~$2 related~~$74 million.

Assets Held for Sale

On November 20, 2019, the Company and the Company’s New York subsidiary entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Liberty Utilities Co., which it subsequently assigned to ~~the asset~~its indirect, wholly owned subsidiary Liberty Utilities (Eastern Water Holdings) Corp. (“Liberty”), pursuant to which Liberty will purchase ~~agreement to acquire substantially~~ all of the ~~wastewater collection and treatment system assets~~capital stock of the ~~Municipal Authority~~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 customer connections 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 ~~City~~performance of ~~McKeesport, Pennsylvania for approximately $159. On October 26, 2017, a joint petition for settlement~~the obligations of ~~this acquisition was approved by~~Liberty under the ~~Pennsylvania Public Utility Commission.~~Stock Purchase Agreement. The ~~closing of this acquisition~~Stock Purchase is subject to ~~the satisfaction of~~ various conditions, including obtaining regulatory approvals and ~~covenants.~~satisfying or waiving other closing conditions. The Stock Purchase Agreement may be terminated by either party if the Stock Purchase is not completed by June 30, 2021, subject to extension for up to six months if all of the conditions to closing have been met, other than obtaining regulatory approvals. 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 New York subsidiary, taken as a whole. Progress toward completion of the transaction continues, and subject to satisfying or waiving the various conditions to closing and assuming the transaction is not terminated as described above prior to closing, the Company expects that the Stock Purchase will be completed in early 2021. Accordingly, the assets and related liabilities of the New York subsidiary were classified as held for sale on the Consolidated Balance Sheets as of September 30, 2020.

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Presented in the table below are the components of assets held for sale and liabilities related to ~~close this acquisition by~~assets held for sale of the ~~end~~New York subsidiary as of ~~2017.~~

September 30, 2020:


	September 30, 2020
Current assets	$	19
Property, plant and equipment	491
Regulatory assets	64
Goodwill	39
Other assets	5
Assets held for sale	$	618
Current liabilities	18
Deferred income taxes	68
Regulatory liabilities	41
Other liabilities	11
Liabilities related to assets held for sale	$	138

Note ~~4: Stockholders’~~6: Shareholders' Equity

Accumulated Other Comprehensive Loss

~~The following~~Presented in the table ~~presents~~below are the changes in accumulated other comprehensive loss by component, net of tax, for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively:


																				Defined Benefit Pension Plans									Foreign Currency Translation				Gain (Loss) on Cash Flow Hedges				Accumulated Other Comprehensive Loss
	Defined Benefit Plans							Foreign Currency Translation				Gain (Loss) on Cash Flow Hedges			Accumulated Other Comprehensive Loss					Employee Benefit Plan Funded Status					Amortization of Prior Service Cost		Amortization of Actuarial Loss
	Employee Benefit Plan Funded Status			Amortization of Prior Service Cost		Amortization of Actuarial Loss
Beginning balance as of December 31, 2016	$	(147	)	$	1	$	42			$	2								$	16		$	(86	)
Balance as of December 31, 2019																		Balance as of December 31, 2019		$	(94)				$	1	$	60			$	0			$	(3)			$	(36)
Other comprehensive loss before reclassifications	—			—		—		(1		)		(5		)	(6		)	Other comprehensive loss before reclassifications		—					—		—		—				(4)				(4)
Amounts reclassified from accumulated other comprehensive loss	—			—		5		—				—			5			Amounts reclassified from accumulated other comprehensive loss		—					—		2		—				—				2
Net other comprehensive income (loss)	—			—		5		(1		)		(5		)	(1		)	Net other comprehensive income (loss)		—					—		2		—				(4)				(2)
Ending balance as of September 30, 2017	$	(147	)	$	1	$	47	$	1			$	11		$	(87	)
Balance as of September 30, 2020																		Balance as of September 30, 2020		$	(94)				$	1	$	62	$	0			$	(7)			$	(38)

Beginning balance as of December 31, 2015	$	(126	)	$	1	$	36	$	2			$	(1	)	$	(88	)
Balance as of December 31, 2018																		Balance as of December 31, 2018		$	(102)				$	1	$	56	$	1			$	10			$	(34)
Other comprehensive loss before reclassifications	—			—		—		—				(15		)	(15		)	Other comprehensive loss before reclassifications		—					—		—		—				(13)				(13)
Amounts reclassified from accumulated other comprehensive loss	—			—		4		—				—			4			Amounts reclassified from accumulated other comprehensive loss		—					—		2		(1)				—				1
Net other comprehensive income (loss)	—			—		4		—				(15		)	(11		)	Net other comprehensive income (loss)		—					—		2		(1)				(13)				(12)
Ending balance as of September 30, 2016	$	(126	)	$	1	$	40	$	2			$	(16	)	$	(99	)
Balance as of September 30, 2019																		Balance as of September 30, 2019		$	(102)				$	1	$	58	$	0			$	(3)			$	(46)

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 ~~capitalized~~deferred as a regulatory asset. These accumulated other comprehensive ~~income~~ loss components are included in the computation of net periodic pension cost. ~~See Note 8— Pension and Other Postretirement Benefits.~~

The amortization of the ~~loss~~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.

~~Anti-dilutive Stock Repurchase Program~~Dividends

~~During the nine months ended~~On September ~~30, 2017,~~1, 2020, the Company ~~repurchased 0.7 shares~~paid a quarterly cash dividend of ~~common stock in the open market at an aggregate cost~~$0.55 per share to shareholders of ~~$54 under the anti-dilutive stock repurchase program authorized by~~record as of August 12, 2020.

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On October 26, 2020, the Company’s Board of Directors declared a quarterly cash dividend payment of $0.55 per share, payable on December 2, 2020 to shareholders of record as of November 10, 2020. 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 9—Shareholders' Equity in ~~2015. As~~the Notes to Consolidated Financial Statements in the Company’s Form 10-K for additional information regarding the payment of ~~September 30, 2017, there were 6.1 shares of~~dividends on the Company’s common ~~stock available for repurchase under the program.~~stock.

Note ~~5: Stock Based Compensation~~

On May 12, 2017, the Company’s stockholders approved the American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan (the “2017 Omnibus Plan”). A total of 7.2 shares of common stock may be issued under the 2017 Omnibus Plan. The 2017 Omnibus Plan provides that grants of awards may be in any of the following forms: incentive stock options, nonqualified stock options, stock appreciation rights, stock units, stock awards, other stock-based awards and dividend equivalents, which may be granted only on stock units or other stock-based awards.

~~Note 6:~~7: Long-Term Debt

~~The following long-term debt was issued during the nine months ended September 30, 2017:~~

Company Type Rate Maturity Amount
American Water Capital Corp. (a)
Senior Notes 2.95%-3.75% 2027-2047 $ 1,350
Other American Water subsidiaries Private activity bonds and government
funded debt—fixed rate 0.00%-3.92% 2020-2036 21
Other American Water subsidiaries Term Loan 4.48%-4.98% 2021 11
Total issuances $ 1,382


~~(a)~~	On April 14, 2020, American Water Capital Corp. (“AWCC”), which is a wholly owned subsidiary of the Company, has a support agreement with the Company that, under certain circumstances, is the functional equivalent of a parent company guarantee. This indebtedness is considered “debt” for purposes of this support agreement.

~~The following long-term debt was retired through sinking fund provisions, optional redemptions or payment at maturity during the nine months ended September 30, 2017:~~

Company Type Rate Maturity Amount
American Water Capital Corp. Senior Notes 5.62%-5.77% 2018-2021 $ 319
American Water Capital Corp. Private activity bonds and government
funded debt—fixed rate 1.79%-2.90% 2021-2031 1
Other American Water subsidiaries Private activity bonds and government
funded debt—fixed rate 0.00%-5.38% 2017-2041 12
Other American Water subsidiaries Term Loan 4.48%-4.98% 2021 1
Other American Water subsidiaries Mandatorily redeemable preferred stock 8.49% 2036 1
Total retirements and redemptions $ 334

~~On August 10, 2017, AWCC~~ completed a ~~$1,350~~$1.0 billion debt offering, which included the sale of ~~$600~~$500 million aggregate principal amount of its ~~2.95% Senior Notes~~2.80% senior notes due ~~in 2027~~2030 and ~~$750~~$500 million aggregate principal amount of its ~~3.75% Senior Notes~~3.45% senior notes due ~~in 2047.~~2050. At the closing of the offering, AWCC received, after deduction of underwriting discounts and ~~debt issuance costs, $1,333. On September 13, 2017,~~before deduction of offering expenses, net proceeds of $989 million. AWCC used the net proceeds ~~from~~of this offering: (i) to lend funds to parent company and its regulated subsidiaries; (ii) to fund sinking fund payments for, and to repay at maturity, $28 million in aggregate principal amount of outstanding long-term debt of AWCC and certain of the offering to: (i) prepay $138 of its outstanding 5.62% Series C Senior Notes due December 21, 2018 (“Series C Senior Notes”) and $181 of its outstanding 5.77% Series D Senior Notes due December 21, 2021 (“Series D Senior Notes”); (ii)Company’s regulated subsidiaries; (iii) to repay AWCC’s commercial paper ~~obligations;~~obligations and ~~(iii)~~short-term indebtedness under AWCC’s $2.25 billion unsecured revolving credit facility; and (iv) for general corporate purposes. ~~Subsequently, AWCC used proceeds from the offering to repay at maturity, $524 of its 6.085% Senior Notes on October 15, 2017. In addition,~~

During March 2020, the Company ~~repaid $33 of 7.08% subsidiary debt at maturity on November 1, 2017.~~

As a result of AWCC’s prepayment of the Series C and Series D Senior Notes and payment of a make-whole premium to the holders thereof of $34, the Company recorded an early debt extinguishment charge of $6, which was associated with the portion of the debt allocable to the Company’s parent. Substantially all of the early debt extinguishment costs allocable to the Company’s utility subsidiaries were recorded as regulatory assets that the Company believes are probable of recovery in future rates.

On August 7, 2017, the Company terminated four forward starting swap agreements with an aggregate notional amount of $300, realizing a gain of $19 to be amortized through interest, net over 30 years. The Company has one remaining forward starting swap agreement, which was entered into ~~on February 8, 2017,~~4 10-year treasury lock agreements, each with a notional amount of $100 million, to reduce interest rate exposure ~~for a portion of the expected refinancing of AWCC’s Series C Senior Notes. This forward starting swap agreement terminates in November 2018 and has~~on debt, which was subsequently issued on April 14, 2020. These treasury lock agreements had an average fixed rate of ~~2.67%~~0.94%. The Company ~~has~~ designated ~~this forward starting swap agreement~~these treasury lock agreements as a cash flow ~~hedge~~hedges, with ~~its~~their fair value recorded in accumulated other comprehensive gain or loss. ~~Upon termination,~~On April 8, 2020 the ~~cumulative gain or~~Company terminated these 4 treasury lock agreements with an aggregate notional amount of $400 million, realizing a net loss ~~recorded in accumulated other comprehensive gain or loss will~~of $6 million, to be amortized through interest, net over a 10 year period, in accordance with the ~~term~~terms of the $1.0 billion new ~~debt.~~

The Company has an interest rate swap to hedge $100 of its 6.085% Senior Notes maturing in the fourth quarter of 2017. The Company pays variable interest of six-month LIBOR plus 3.422% and has designated this interest rate swap as a fair value hedge accounted for at fair value with gains or losses, as well as the offsetting gains or lossesdebt issued on the hedged item, recognized in interest, net. The net gain and loss recognized by the Company for the three and nine months ended September 30, 2017 and 2016 was de minimis. This interest rate swap matured on October 15, 2017.

The Company has employed interest rate swaps to fix the interest cost on a portion of its variable-rate debt with an aggregate notional amount of $6. The Company has designated these interest rate swaps as economic hedges accounted for at fair value with gains or losses deferred as a regulatory asset or regulatory liability. The net gain recognized by the Company for the three and nine months ended September 30, 2017 and 2016 was de minimis.

NoApril 14, 2020. NaN ineffectiveness was recognized on hedging instruments for the three and nine months ended September 30, ~~2017~~2020 and ~~2016.~~2019.

~~The following table provides~~In addition to the senior notes issued by AWCC as described above, during the nine months ended September 30, 2020, AWCC and the Company’s regulated subsidiaries issued in the aggregate $250 million of senior notes, private activity bonds, and government funded debt in multiple transactions with annual interest rates ranging from 0.00% to 5.00%, with a ~~summary~~weighted average interest rate of 0.98%, maturing in 2020 through 2048. During the nine months ended September 30, 2020, AWCC and the Company’s regulated subsidiaries, retired or paid at maturity an aggregate of $266 million of various long-term debt issues with annual interest rates ranging from 0.00% to 12.25%, with a weighted average interest rate of 5.31%, maturing in 2020 through 2048.

Note 8: Short-Term Debt

To ensure adequate liquidity given the impacts of the ~~gross fair value~~COVID-19 pandemic on debt and capital markets, on March 20, 2020, AWCC entered into a Term Loan Credit Agreement, by and among American Water, AWCC and the lenders party thereto, which provides for a term loan facility of up to $750 million (the “Term Loan Facility”). On March 20, 2020, AWCC borrowed $500 million under the Term Loan Facility, the proceeds of which were used for general corporate purposes of AWCC and American Water, and to provide additional liquidity. The Term Loan Facility allowed for a single additional borrowing of up to $250 million, which expired unused on June 19, 2020. The Term Loan Facility commitments terminate on March 19, 2021. AWCC may prepay all or a portion of amounts due under the Term Loan Facility without any premium or penalty. Borrowings under the Term Loan Facility bear interest at a variable annual rate based on LIBOR, plus a margin of 0.80%. The credit agreement for the ~~Company’s derivative asset~~Term Loan Facility contains the same affirmative and ~~liabilities,~~negative covenants and events of default as ~~well as~~under AWCC’s $2.25 billion revolving credit facility. As of September 30, 2020, $500 million of principal was outstanding under the ~~location~~Term Loan Facility.

On April 1, 2020, the termination date of the ~~asset~~credit agreement with respect to AWCC’s revolving credit facility was extended, pursuant to the terms of the credit agreement, from March 21, 2024 to March 21, 2025. As of September 30, 2020, AWCC had 0 outstanding borrowings and ~~liability balances in~~$76 million of outstanding letters of credit under the ~~Consolidated Balance Sheets:~~revolving credit facility, and $545 million of outstanding commercial paper, with $1.63 billion available to fulfill short-term liquidity needs and to issue letters of credit. During the first six months of 2020, the Company borrowed and subsequently repaid $650 million under the revolving credit facility. The weighted-average interest rate on AWCC’s outstanding short-term borrowings, including $500 million of principal outstanding under the Term Loan Facility as of September 30, 2020, was approximately 0.55% and 1.86% at September 30, 2020 and December 31, 2019, respectively.

Derivative Instruments Derivative Designation Balance Sheet Classification September 30, 2017 December 31, 2016
Asset Derivative

Forward starting swaps Cash flow hedge Other current assets $ —
$ 27
Interest rate swap Fair value hedge Other current assets —
1

Liability Derivative

Interest rate swap Fair value hedge Current portion of long-term debt $ —
$ 1
Forward starting swaps Cash flow hedge Other long-term liabilities 2
—

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Note 7:9: Income Taxes

The Company’s effective income tax rate was ~~40.3%~~25.0% and ~~39.1%~~24.5% for the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively, and ~~39.9%~~24.1% and ~~39.2%~~25.0% for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively.

~~On April 11, 2017,~~The increase in the ~~State of New York enacted legislation that increased the state~~Company’s effective income tax rate onfor the three months ended September 30, 2020 was primarily due to a lower effective tax rate in 2019. The decrease in the Company’s ~~taxable income attributable to New York. This legislation eliminated the production of water as a qualified manufacturing activity in New York, which effectively increased the state~~effective income tax rate ~~in New York. As a result of~~for the ~~legislative change, the Company~~nine months ended September 30, 2020 was ~~required~~primarily due to ~~re-measure its cumulative deferred tax balances using the higher state income tax rate in the second quarter of 2017. This change in legislation was the primary cause of~~ an increase in the amortization of excess accumulated deferred income taxes due to regulatory orders resulting from the ~~Company’s unitary deferred tax liability of $11. The portion of this increase related to the Company’s New York subsidiary calculated on a stand-alone basis was $7,~~Tax Cuts and ~~was offset by a regulatory asset, as the Company believes it is probable of recovery in future rates. The remaining~~Jobs Act, and an increase in the deferred tax liability was calculated through state tax apportionment rates and recorded at the consolidated level, resulting in a non-cash, cumulative charge to earnings of $4 during the second quarter of 2017.stock based compensation benefits.

On July 7, 2017, the State of Illinois enacted legislation that increased, effective July 1, 2017, the state income tax rate on the Company’s taxable income attributable to Illinois from 7.75% to 9.5%. As a result of the legislative change, the Company was required to re-measure its cumulative deferred tax balances using the higher state income tax rate in the third quarter of 2017. This change in legislation was the primary cause of the increase to the Company’s unitary deferred tax liability of $7. The portion of this increase related to the Company’s Illinois subsidiary calculated on a stand-alone basis was $4, and was offset by a regulatory asset, as the Company believes it is probable of recovery in future rates. The remaining increase in the deferred tax liability was recorded at the consolidated level, resulting in a non-cash, cumulative charge of $3 during the third quarter of 2017.

Note 8:10: Pension and Other Postretirement Benefits

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


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Components of net periodic pension benefit cost:
Service cost	$	8	$	7	$	24	$	21
Interest cost	18		21		55		62
Expected return on plan assets	(28)		(23)		(84)		(68)
Amortization of prior service credit	(1)		(1)		(3)		(3)
Amortization of actuarial loss	7		8		23		24
Net periodic pension benefit cost before settlements	4		12		15		36
Settlements (a)	0		0		1		0
Net periodic pension benefit cost	$	4	$	12	$	16	$	36

Components of net periodic other postretirement benefit credit:
Service cost	$	1	$	1	$	3	$	3
Interest cost	3		4		9		11
Expected return on plan assets	(5)		(5)		(14)		(14)
Amortization of prior service credit	(9)		(9)		(25)		(26)
Amortization of actuarial loss	0		1		1		3
Net periodic other postretirement benefit credit	$	(10)	$	(8)	$	(26)	$	(23)

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Components of net periodic pension benefit cost
Service cost $ 8
$ 8
$ 25
$ 24
Interest cost 20
20
60
60
Expected return on plan assets (23 ) (24 ) (70 ) (72 )
Amortization of actuarial loss 9
7
27
21
Net periodic pension benefit cost $ 14
$ 11
$ 42
$ 33

Components of net periodic other postretirement benefit cost
Service cost $ 3
$ 3
$ 8
$ 9
Interest cost 7
7
20
22
Expected return on plan assets (7 ) (7 ) (20 ) (20 )
Amortization of prior service credit (5 ) (3 ) (14 ) (4 )
Amortization of actuarial loss 3
1
8
3
Net periodic other postretirement benefit cost $ 1
$ 1
$ 2
$ 10
(a)Due to the amount of lump sum payment distributions from the Company’s New York Water Service Corporation Pension Plan, settlement charges of less than $1 million and $1 million were recorded during the three and nine months ended September 30, 2020, respectively. There were 0 settlement charges recorded during the three and nine months ended September 30, 2019. In accordance with existing regulatory accounting treatment, the Company has maintained the settlement charges in regulatory assets on the Consolidated Balance Sheets. The amount is being amortized in accordance with existing regulatory practice.

The Company ~~made contributions~~contributed $9 million and $31 million for the funding of its defined benefit pension plans ~~of $11 and $8~~ for the three ~~months ended September 30, 2017~~ and ~~2016, respectively, and $31 and $25 for the~~ nine months ended September 30, ~~2017 and 2016,~~2020, respectively, and ~~expects to contribute~~contributed $9 ~~during~~million and $23 million for the ~~remainder~~funding of ~~2017. In addition,~~its defined benefit pension plans for the three and nine months ended September 30, 2019, respectively. The Company made 0 contributions for the funding of its other postretirement benefit plans for each of ~~$2 and $6 for~~ the three ~~months ended September 30, 2017~~ and ~~2016, respectively, and $5 and $17 for the~~ nine months ended September 30, ~~2017~~2020 and ~~2016, respectively, and~~2019. The Company expects to ~~contribute $1~~make pension contributions to the plan trusts of up to $8 million during the remainder of ~~2017.~~2020.

Note 9:11: Commitments and Contingencies

Contingencies

The Company is routinely involved in legal actions incident to the normal conduct of its business. As of September 30, ~~2017,~~2020, the Company has accrued ~~approximately $139~~ approximately $10 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 ~~$27.~~ $4 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 9,11—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

~~Background~~

On January 9, 2014, a chemical storage tank owned by Freedom Industries, Inc. leaked two substances, 4-methylcyclohexane methanol, or “MCHM”, and PPH/DiPPH, a mix of polyglycol ethers, into the Elk River near the West Virginia-American Water Company (“WVAWC”) treatment plant intake in Charleston, West Virginia. After having been alerted to the leak of MCHM by the West Virginia Department of Environmental Protection (“DEP”), WVAWC took immediate steps to gather more information about MCHM, augment its treatment process as a precaution, and begin consultations with federal, state and local public health officials. As soon as possible after it was determined that the augmented treatment process would not fully remove the MCHM, a joint decision was reached in consultation with the West Virginia Bureau for Public Health to issue a “Do Not Use” order for all of its approximately 93,000 customer accounts in parts of nine West Virginia counties served by the Charleston treatment plant. By January 18, 2014, none of WVAWC’s customers were subject to the Do Not Use order.

Following the Freedom Industries chemical spill, numerous lawsuits were filed against WVAWC and certain other Company affiliated entities (collectively, the “American Water Defendants”) with respect to this matter inJune 8, 2018, the U.S. District Court for the Southern District of West Virginia or West Virginia Circuit Courts in Kanawha, Boone and Putnam counties, and to date, 74 cases remain pending. Four of the cases pending before the U.S. district court were consolidated for purposes of discovery, and an amended consolidated class action complaint for those cases (the “Federal action”) was filed in December 2014 by several plaintiffs. On January 28, 2016, all of the then-filed state court cases were referred to West Virginia’s Mass Litigation Panel for further proceedings, which have been stayed pending the negotiation by the parties and approval by the court in the Federal action of a global agreement to settle all of such cases, as described below. On July 7, 2016, the court in the Federal action scheduled trial to begin on October 25, 2016, but the court has granted several continuances of the trial, which is currently postponed indefinitely in light of the preliminarily approved global settlement agreement described below. The Mass Litigation Panel has also stayed its proceedings until January 23, 2018.

~~Preliminary Approval of WVAWC Global Class Action Litigation Settlement~~

On October 31, 2016, the court in the Federal action approved the preliminary principles, terms and conditions of a binding global agreement in principle to settle claims among the American Water Defendants, and all class members, putative class members, claimants and potential claimants, arising out of the Freedom Industries chemical spill. On April 27, 2017, the parties filed with the court in the Federal action a proposed settlement agreement providing details of the terms of the settlement of these matters and requesting that the court in the Federal action grant preliminary approval of such settlement. On July 6, 2017, the court in the Federal action issued an opinion denying without prejudice the joint motion for preliminary approval of the Settlement. On August 25, 2017, the parties filed a proposed amended settlement agreement and related materials addressing the matters set forth in the July 6, 2017 order.

~~On September 21, 2017, the court in the Federal action issued an order granting preliminary~~final approval of a settlement class and ~~proposed~~global class action settlement (the “Settlement”~~) with respect to claims against the American Water Defendants by all putative class members (collectively, the “Plaintiffs”~~) 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.~~spill in West Virginia. The effective date of the Settlement ~~proposes a global resolution of all federal and state litigation and potential claims against the American Water Defendants and their insurers.~~was July 16, 2018. Under the terms and conditions of the Settlement, West Virginia-American Water Company (“WVAWC”) and certain other Company affiliated entities (collectively, the ~~proposed amended settlement agreement, the American~~“West Virginia-American Water ~~Defendants have~~Defendants”) did not ~~admitted,~~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 ~~to be~~that were resolved. Under federal class action rules, a claimant may elect to opt out of the final Settlement, in which case such claimant will not receive any benefit from or be bound by the terms of the Settlement. The American Water Defendants would have the right to withdraw from the Settlement if more than a certain number of putative class members opt out of the Settlement. The deadline imposed by the court in the Federal action for any Plaintiff to opt out of the Settlement or file an objection to the Settlement is December 8, 2017.

The ~~proposed~~ aggregate pre-tax amount ~~of the Settlement is $126, of which $43 would be~~ contributed by WVAWC ~~and the remainder would be contributed by certain~~ of the ~~Company’s general liability insurance carriers. The WVAWC contribution was reduced from $65 to $43 ($26 after tax) due to a settlement in the third quarter of 2017 with another~~$126 million portion of the Company’s general liability insurance carriers, as discussed below. The Company has general liability insurance under a series of policies underwritten by a number of individual carriers. Two of these insurance carriers, which provide an aggregate of $50 in insurance coverage to the Company under these policies, had been originally requested to participate in the Settlement at the time of the initial filing of the binding agreement in principle with the court in the Federal action, but did not agree to do so at that time. WVAWC filed a lawsuit against one of these carriers alleging that the carrier’s failure to agree to participate in the Settlement constituted a breach of contract. On September 19, 2017, the Company and the insurance carrier settled this lawsuit for $22, out of a maximum of $25 in potential coverage under the terms of the relevant policy, in exchange for a full release by the Company and WVAWC of all claims against the insurance carrier related to the Freedom Industries chemical spill. WVAWC and the settling insurer have agreed to stay this litigation pending final approval of the Settlement. The Company and WVAWC continue to pursue vigorously their rights to insurance coverage for contributions by WVAWC to the Settlement in mandatory arbitration with the remaining non-participating carrier. This arbitration proceeding remains pending.

The proposed Settlement would establish a two-tier settlement fund for the payment of claims, comprised of (i) a simple claim fund, which is also referred to as the “guaranteed fund,” of $76, of which $29 will be contributed by WVAWC, including insurance deductibles, and $47 would be contributed by two of the Company’s general liability insurance carriers, and (ii) an individual review claim fund of up to $50, of which up to $14 would be contributed by WVAWC and up to $36 would be contributed by a number of the Company’s general liability insurance carriers. Separately, up to $25 would be contributed to the guaranteed fund by another defendant to the Settlement. If any final approval order by the court in the Federal action with respect to the Settlement is appealed and such appeal would delay potential payment to claimants under the Settlement, WVAWC and the other defendant to the Settlement will contribute up to $50 and $25, respectively, to the Settlement (not including, in the case of WVAWC, any contributions by the Company’s general liability insurance carriers which would not be made until such time as a final, non-appealable order is issued) into an escrow account during the pendency of such appeals. For certain claims, WVAWC and the other defendant to the Settlement may, in lieu of these escrowed contributions, make advance payments of such claims if agreed to by the parties. All administrative expenses of the Settlement and attorneys’ fees of class counsel related thereto would be paid from the funds designated to pay claims covered by the Settlement.

~~As a result of these events, in the third quarter of 2016, the~~ Company, ~~recorded a charge to earnings,~~ net of insurance ~~receivables,~~recoveries, is $19 million. As of ~~$65 ($39 after-tax). Additionally, in~~September 30, 2020, $0.5 million of the ~~third quarter of 2017, the Company recorded a benefit of $22 ($13 after-tax) as an additional insurance receivable reflecting the settlement with the insurance carrier described above. The settlement~~aggregate Settlement amount of $126 ismillion has been reflected in ~~Accrued Liabilities~~accrued liabilities, and ~~the~~$0.5 million in offsetting insurance receivables ~~are~~have been reflected in ~~Other Current Assets in~~other current assets on the Consolidated Balance ~~Sheet~~Sheets. The amount reflected in accrued liabilities as of September 30, ~~2017.~~2020 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 ~~intends to fund~~funded WVAWC’s contributions to the Settlement through existing sources of liquidity, although no contribution by WVAWC will be required unless and until the terms of the Settlement are finally approved by the court in the Federal action. Furthermore, under the terms of the Settlement, WVAWC has agreed that it will not seek rate recovery from the Public Service Commission of West Virginia for approximately $4 in direct response costs expensed in 2014 by WVAWC relating to the Freedom Industries chemical spill as well as for amounts paid by WVAWC under the Settlement.

The Company’s insurance policies operate under a layered structure where coverage is generally provided in the upper layers after claims have exhausted lower layers of coverage. The $36 to be contributed by a number of the Company’s general liability insurance carriers to the individual review claim fund, as noted above, is from higher layers of the insurance structure than the insurance carrier that was requested, but presently has not agreed, to participate in the Settlement. Any recovery by WVAWC or the Company from the remaining non-participating carrier would reimburse WVAWC for its contributions to the guaranteed fund.

~~Other Related Proceedings~~

Additionally, investigations with respect to the matter have been initiated by the U.S. Chemical Safety and Hazard Investigation Board (the “CSB”), the U.S. Attorney’s Office for the Southern District of West Virginia, the West Virginia Attorney General, and the Public Service Commission of West Virginia (the “PSC”). As a result of the U.S. Attorney’s Office investigation, Freedom Industries and six former Freedom Industries employees (three of whom also were former owners of Freedom Industries), pled guilty to violations of the federal Clean Water Act.

In May 2014, the PSC issued an Order initiating a General Investigation into certain matters relating to WVAWC’s response to the Freedom Industries chemical spill. Three parties intervened in the proceeding, including the Consumer Advocate Division of the PSC and two attorney-sponsored groups, including one sponsored by some of the plaintiffs’ counsel involved in the civil litigation described above. On January 26, 2017, WVAWC and the other parties agreed to resolve the General Investigation and filed a joint stipulation with the PSC containing the terms of the settlement. The parties to the joint stipulation filed a proposed order with the PSC on February 8, 2017. On June 15, 2017, the PSC entered an order accepting the joint stipulation that had been filed by the parties in January 2017 as a reasonable basis for resolving the General Investigation and removing the proceeding from the docket. The PSC’s order did not require WVAWC to take any further action with respect to the matters covered by the General Investigation. The PSC order concludes the General Investigation.

The CSB is an independent investigatory agency with no regulatory mandate or ability to issue fines or citations; rather, the CSB can only issue recommendations for further action. In response to the Freedom Industries chemical spill, the CSB commenced an investigation shortly thereafter. On September 28, 2016, the CSB issued and adopted its investigation report in which it recommended that the Company conduct additional source water protection activities. The Company provided written comments to the CSB’s report suggesting that the recommendation made to the Company would be better directed to the U.S. Environmental Protection Agency in order to promote industry-wide implementation of the CSB’s recommendation. On February 15, 2017, the Company filed a response to the CSB’s recommendation. On April 4, 2017, the CSB indicated that the implementation by the Company of source water protection activities resolved the first two parts of the CSB’s recommendation. The CSB also noted that compliance by the Company with the third part of its recommendation is ongoing and that closure of this part is contingent upon completion of updated contingency planning for the Company’s water utilities outside of West Virginia. In light of public response to its original September 2016 investigation report, on May 11, 2017, the CSB issued a new version of this report. The primary substantive change addressed CSB’s factual evaluation of the duration and volume of contamination from the leaking tank, decreasing its estimate of the leak time but increasing the volume estimate by 10%. No substantive changes were made to the conclusions and recommendations in the original report.

On March 16, 2017, the Lincoln County (West Virginia) Commission (the “LCC”) passed a county ordinance entitled the “Lincoln County, WV Comprehensive Public Nuisance Investigation and Abatement Ordinance.” The ordinance establishes a mechanism that Lincoln County believes will allow it to pursue criminal or civil proceedings for the “public nuisance” it alleges was caused by the Freedom Industries chemical spill. On April 20, 2017, the LCC filed a complaint in Lincoln County state court against WVAWC and certain other defendants not affiliated with the Company, alleging that the Freedom Industries chemical spill caused a public nuisance in Lincoln County. On June 12, 2017, the Mass Litigation Panel entered an order granting a motion to transfer this case to its jurisdiction and stayed the case consistent with the existing stay order. The complaint seeks an injunction against WVAWC that would require the creation of various databases and public repositories of documents related to this chemical spill, as well as further study and risk assessments regarding the alleged exposure by Lincoln County residents to the released chemicals. WVAWC believes that the lawsuit is without merit and intends to vigorously contest the claims and allegations raised in the complaint.

~~California Public Utilities Commission Residential Rate Design Proceeding~~

In December 2016, the California Public Utilities Commission (the “CPUC”) issued a final decision in a proceeding involving California-American Water Company, the Company’s wholly owned subsidiary (“Cal Am”), adopting a new residential rate design for Cal Am’s Monterey District. The decision allowed for recovery by Cal Am of $32 in under-collections in the water revenue adjustment mechanism/modified cost balancing account (“WRAM/MCBA”) over a five-year period, plus interest, and modified existing conservation and rationing plans. In its decision, the CPUC noted concern regarding Cal Am’s residential tariff administration, specifically regarding the lack of verification of customer-provided information about the number of residents per household. This information was used for generating billing determinants under the tiered rate system. As a result, the CPUC kept this proceeding open to address several issues, including whether Cal Am’s residential tariff administration violated a statute, rule or CPUC decision, and if so, whether a penalty should be imposed.

On February 24, 2017, Cal Am, the Monterey Peninsula Water Management District, the CPUC’s Office of Ratepayer Advocates, and the Coalition of Peninsula Businesses filed for CPUC approval of a joint settlement agreement (the “Joint Settlement Agreement”), which among other things, proposed to resolve the CPUC’s residential tariff administration concerns by providing for a waiver by Cal Am of $0.5 of cost recovery for residential customers through the WRAM/MCBA in lieu of a penalty. Approval of the Joint Settlement Agreement, which is required for it to take effect, remains pending before the CPUC.

On March 28, 2017, the administrative law judge assigned to the proceeding issued a ruling stating there was sufficient evidence to conclude, on a preliminary basis, that Cal Am’s administration of the residential tariff violated certain provisions of the California Public Utilities Code and a CPUC decision. The ruling ordered Cal Am to show cause why it should not be penalized for these administrative violations and directed the settling parties to address whether the cost recovery waiver in the Joint Settlement Agreement was reasonable compared to a potential penalty range described by the administrative law judge. During hearings held on April 13-14, 2017, the administrative law judge clarified that this potential penalty range is $3 to $179 (calculated as a continuing violation dating back to 2000 and applying penalties of up to $20 thousand per day until January 1, 2012 and penalties of up to $50 thousand per day thereafter, reflecting a 2012 change to the relevant statute). The administrative law judge also noted that a per diem penalty may not be appropriate, as Cal Am’s monthly billing practices did not allow Cal Am to update customer-provided information for billing purposes on a daily basis. Hearings before the administrative law judge in this matter occurred in August and September 2017. Cal Am also submitted additional testimony on the issue of whether Cal Am should be penalized, and if so, the reasonable amount of any such penalty. A subsequent hearing in this proceeding is currently scheduled for November 27, 2017.

As of September 30, 2017, the portions of this loss contingency that are probable and/or reasonable possible have been determined to be immaterial to the Company and have been included in the aggregate maximum amounts described above in the first paragraph of “Contingencies” in this Note 9.

~~Missouri Infrastructure System Replacement Surcharge Litigation~~

In March 2016, the Western District of the Missouri Court of Appeals ruled that the Missouri Public Service Commission (“MoPSC”) did not have statutory authority to issue an order in June 2015 approving an infrastructure system replacement surcharge (“ISRS”) for Missouri-American Water Company (“MAWC”), a wholly owned subsidiary of the Company. The court held that the MoPSC’s June 2015 order authorizing the ISRS increase was invalid because St. Louis County did not have a population of at least one million residents, as required by the statute. MAWC believes that the MoPSC’s June 2015 order authorizing the collection of ISRS revenues is lawful. In June 2016, the Missouri Supreme Court granted MAWC’s application to transfer the case from the Court of Appeals to the Missouri Supreme Court, and as a result of that order, the March 2016 ruling of the Court of Appeals was vacated.

On March 14, 2017, in a unanimous decision, the Missouri Supreme Court dismissed the case as moot, finding that there were no longer any ISRS funds in dispute because MAWC had completed a rate case during the appellate process and the disputed charges were now incorporated in base rates. On May 30, 2017, the Missouri Supreme Court denied a Motion for Rehearing filed by the Missouri Office of Public Counsel, which action concluded the litigation in this matter.liquidity.

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 WVAWC’s West Relay pumping station located in the City of Dunbar. The failure of the main caused water outages and low pressure tofor 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 completed safely on June 30, 2015. Water service was fully restored onby July 1, 2015 to all customers affected by this event.

On June 2, 2017, a ~~class action~~ complaint captioned Jeffries, et al. v. West Virginia-American Water Company was filed in West Virginia Circuit Court in Kanawha County ~~against WVAWC~~ on behalf of ~~a purported~~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 October ~~12,~~ 2017, WVAWC filed with the court a motion seeking to dismiss all of the Jeffries plaintiffs’ counts alleging statutory and common law tort claims. Furthermore, WVAWC ~~asserts~~asserted that the Public Service Commission of West Virginia, and not the court, has primary jurisdiction over allegations involving violations of the applicable tariff, the public utility code and related rules. ~~This~~In May 2018, the court, at a hearing, denied WVAWC’s motion ~~remains pending.~~to apply the primary jurisdiction doctrine, and in October 2018, the court issued a written order to that effect. On February 21, 2019, the court issued an order denying WVAWC’s motion to dismiss the Jeffries plaintiffs’ tort claims.

On 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. A hearing on class certification was held on March 11, 2020, followed by a status conference on April 7, 2020. On June 11, 2020, the court ruled that it would partially grant the Jeffries plaintiffs’ motion for certification of an issues class and would deny the request for certification of a class to determine a punitive damages multiplier for the class.On July 14, 2020, the court entered an order reflecting its June 11, 2020 rulings, and on August 31, 2020, WVAWC filed a Petition for a Writ of Prohibition in the Supreme Court of Appeals of West Virginia seeking to vacate or remand the certification of the issues class. At the request of the parties, the trial court entered an order on September 10, 2020 to stay all matters in the class proceeding pending consideration of this petition. A trial date for the class proceeding has been set for April 12, 2021, but the Company believes that it will likely be delayed.

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. ~~Given the current stage of this proceeding, the~~The Company cannot ~~reasonably~~currently determine the likelihood of a loss, if any, or estimate the amount of any ~~reasonably possible losses~~loss or a range of such losses related to this proceeding.

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N~~ote 10:~~Chattanooga, Tennessee Water Main Break Class Action Litigation

On September 12, 2019, Tennessee-American Water Company, a wholly owned subsidiary of the Company (“TAWC”), experienced a break of 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 break by early morning on September 14, 2019, and restored full water service by the afternoon on September 15, 2019, with the boil water notice lifted for all customers on September 16, 2019.

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., a wholly owned subsidiary of the Company (“Service Company,” and, together with TAWC and the Company, collectively, the “Tennessee-American Water Defendants”), on behalf of an alleged class of individuals or entities who lost water service or suffered monetary losses as a result of the Chattanooga main break (the “Tennessee Plaintiffs”). The complaint as filed 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 filed, the Tennessee Plaintiffs are 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 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 complaint were dismissed, other than the breach of contract claims against TAWC. On October 16, 2020, TAWC answered the complaint, and the parties are commencing with discovery.

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.

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”).

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 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.

Cal Am’s ability to move forward on the Water Supply Project is subject to administrative review by the California Public Utilities Commission (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 costs plus an allowance for funds used during construction (“AFUDC”), subject to meeting certain criteria.

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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 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 in the first general rate case filed by Cal Am after it becomes operational. Cal Am has incurred $147 million in aggregate costs as of September 30, 2020 related to the Water Supply Project, including $33 million in AFUDC. 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.

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.

On August 25, 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. On September 16, 2020, Cal Am withdrew its original jurisdiction application to allow additional time to address the Coastal Commission staff’s environmental justice concerns, and Cal Am intends to refile this application with the Coastal Commission in November 2020. Once the application is refiled and the Coastal Commission deems it to be complete, it is required to process and take action on the application within 180 days. 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.

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Note 12: Earnings per Common Share

~~The following~~Presented in the table below is a reconciliation of the numerator and denominator for the basic and diluted ~~earnings per share~~EPS calculations:


										For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,					2020		2019		2020		2019
Numerator:									Numerator:
Net income attributable to common shareholders									Net income attributable to common shareholders	$	264	$	240	$	564	$	523
	2017		2016		2017		2016
Numerator
Net income attributable to common stockholders	$	203	$	148	$	427	$	367

Denominator
Denominator:									Denominator:
Weighted-average common shares outstanding—Basic	178		178		178		178		Weighted-average common shares outstanding—Basic	181		181		181		181
Effect of dilutive common stock equivalents	1		—		1		1		Effect of dilutive common stock equivalents	1		0		0		0
Weighted-average common shares outstanding—Diluted	179		178		179		179		Weighted-average common shares outstanding—Diluted	182		181		181		181

The effect of dilutive common stock equivalents is related to outstanding stock options, restricted stock units and performance stock units granted under the Company’s 2007 Omnibus Equity Compensation Plan and outstanding restricted stock units and performance stock units granted under the Company’s 2017 Omnibus Equity Compensation ~~Plans,~~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, 2020 and 2019, because their effect would have been anti-dilutive under the treasury stock method.

Note ~~11:~~13: Fair Value of Financial ~~Assets and Liabilities~~Information

Fair Value of Financial Instruments

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

Current assets and current liabilities—The carrying amounts reported inon the ~~accompanying~~ 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.

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. ~~The fair values of instruments classified as Level 2 and Level 3~~

Presented in the tables below are ~~determined by a valuation model that is based on a conventional discounted cash flow methodology and utilizes assumptions of current market rates. As a portion of~~ the Company’s debts do not trade in active markets, the Company calculated a base yield curve using a risk-free rate (a U.S. Treasury securities yield curve) plus a credit spread that is based on the following two factors: (i) an average of the Company’s own publicly-traded debt securities and (ii) the current market rates for U.S. Utility A debt securities. The Company used these yield curve assumptions to derive a base yield for the Level 2 and Level 3 securities. Additionally, the Company adjusted the base yield for specific features of the debt securities including call features, coupon tax treatment and collateral for the Level 3 instruments.

~~The~~ carrying amounts, including fair value adjustments previously recognized in acquisition purchase accounting, and ~~a fair value adjustment related to~~ the ~~Company’s interest rate swap fair value hedge (which is classified as Level 2 in the fair value hierarchy), and~~ fair values of the Company’s financial ~~instruments were as follows:~~instruments:


	Carrying Amount		At Fair Value as of September 30, 2020
			Level 1		Level 2		Level 3		Total
Preferred stock with mandatory redemption requirements	$	6	$	0	$	0	$	7	$	7
Long-term debt (excluding finance lease obligations)	9,644		9,477		418		1,726		11,621

	Carrying Amount		At Fair Value as of December 31, 2019
			Level 1		Level 2		Level 3		Total
Preferred stock with mandatory redemption requirements	$	7	$	0	$	0	$	9	$	9
Long-term debt (excluding finance lease obligations)	8,664		7,689		417		1,664		9,770

Carrying Amount At Fair Value as of September 30, 2017
Level 1 Level 2 Level 3 Total
Preferred stock with mandatory redemption requirements $ 11
$ —
$ —
$ 15
$ 15
Long-term debt (excluding capital lease obligations) 7,357
5,375
990
1,867
8,232

Carrying Amount At Fair Value as of December 31, 2016
Level 1 Level 2 Level 3 Total
Preferred stock with mandatory redemption requirements $ 12
$ —
$ —
$ 15
$ 15
Long-term debt (excluding capital lease obligations) 6,320
3,876
1,363
1,805
7,044

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Recurring Fair Value Measurements

~~The following table presents~~Presented in the tables below are assets and liabilities measured and recorded at fair value on a recurring basis and their level inwithin the fair value hierarchy:


	At Fair Value as of September 30, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Restricted funds	$	39	$	0	$	0	$	39
Rabbi trust investments	18		0		0		18
Deposits	4		0		0		4
Other investments	18		0		0		18
Total assets	79		0		0		79

Liabilities:
Deferred compensation obligations	23		0		0		23
Total liabilities	23		0		0		23
Total assets	$	56	$	0	$	0	$	56

At Fair Value as of September 30, 2017
Level 1 Level 2 Level 3 Total
Assets:
Restricted funds $ 29
$ —
$ —
$ 29
Rabbi trust investments 14
—
—
14
Deposits 4
—
—
4
Other investments 4
—
—
4
Total assets 51
—
—
51

Liabilities:
Deferred compensation obligations 16
—
—
16
Mark-to-market derivative liabilities —
2
—
2
Total liabilities 16
2
—
18
Total net assets (liabilities) $ 35
$ (2 ) $ —
$ 33


	At Fair Value as of December 31, 2016									At Fair Value as of December 31, 2019
	Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets:									Assets:
Restricted funds	$	24	$	—	$	—	$	24	Restricted funds	$	31	$	0	$	0	$	31
Rabbi trust investments	12		—		—		12		Rabbi trust investments	17		0		0		17
Deposits	3		—		—		3		Deposits	3		0		0		3
Mark-to-market derivative assets	—		28		—		28
Other investments	1		—		—		1		Other investments	8		0		0		8
Total assets	40		28		—		68		Total assets	59		0		0		59

Liabilities:									Liabilities:
Deferred compensation obligations	13		—		—		13		Deferred compensation obligations	21		0		0		21
Total liabilities	13		—		—		13		Total liabilities	21		0		0		21
Total net assets (liabilities)	$	27	$	28	$	—	$	55
Total assets									Total assets	$	38	$	0	$	0	$	38

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 ~~operations~~operation, maintenance and ~~maintenance~~repair projects. The proceeds of these financings are held in escrow until the designated expenditures are incurred. Long-term restricted funds of $1 and $4 were included in other long-term assets as of September 30, 2017 and December 31, 2016, respectively.

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.~~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.~~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 ~~asset~~assets and ~~liability—~~liabilities—The Company utilizes 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 also employs derivative financial instruments in the form of variable-to-fixed interest rate swaps and ~~forward starting interest rate swaps,~~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 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 has no significant mark-to-market derivatives outstanding as of September 30, 2020.

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

~~Deferred compensation obligations—~~

Note 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 39 years, six years, and five years, respectively. Certain lease agreements include variable rental payments adjusted periodically for inflation. The Company’s ~~deferred compensation plans allow participants to defer certain cash compensation into notional investment accounts.~~ lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company ~~includes such plans~~participates in ~~other long-term liabilities.~~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 ~~Company’s deferred compensation~~finance lease assets was $147 million as of September 30, 2020 and December 31, 2019. The Company determined that the finance lease obligations ~~is based~~and the investments in IDBs meet the conditions for offsetting, and as such, are reported net on the ~~market value~~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 ~~participants’ notional investment accounts.~~Partners’ assets in performing under the O&M agreements. The ~~notional investments~~O&M agreements are ~~comprised primarily~~recorded as operating leases, and future annual use fees of ~~mutual funds, which~~$4 million in 2020 through 2024, and $56 million thereafter, are ~~based~~included in operating lease ROU assets and operating lease liabilities on ~~observable market prices.~~the Consolidated Balance Sheets.

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

Presented in the table below is supplemental cash flow information:


	For the Three Months Ended September 30, 2020		For the Nine Months Ended September 30, 2020
Cash paid for amounts in lease liabilities (a)	$	3	$	11
Right-of-use assets obtained in exchange for new operating lease liabilities	1		2

(a)Includes operating and financing cash flows from operating and finance leases.

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Presented in the table below are the weighed-average remaining lease terms and the weighted-average discount rates for finance and operating leases:


	As of September 30, 2020
Weighted-average remaining lease term:
Finance lease	6 years
Operating leases	19 years

Weighted-average discount rate:
Finance lease	12	%
Operating leases	4	%

Presented in the table below are the future maturities of lease liabilities at September 30, 2020:


	Amount
2020	$	3
2021	13
2022	12
2023	8
2024	7
Thereafter	101
Total lease payments	144
Imputed interest	(50)
Total	$	94

Note ~~12:~~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 ~~conducts~~operates its ~~business~~businesses primarily through ~~one~~1 reportable segment, the Regulated Businesses segment. The Company also operates ~~several~~market-based businesses ~~that provide a broad range of related and complementary water and wastewater services in four operating segments~~ that, individually, do not meet the criteria of a reportable segment in accordance with ~~GAAP. These four non-reportable operating segments~~GAAP, and are collectively presented as the ~~Company’s “Market-Based~~Market-Based Businesses.” “Other” includes corporate costs that are not allocated to the Company’s operating segments, eliminations of inter-segment transactions, 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 ~~following~~adjustments related to the acquisitions are reported in Other as they are excluded from segment performance measures evaluated by management.

Presented in the tables ~~include the Company’s~~below is summarized segment information:


	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)		0		(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

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	As of or for the Three Months Ended September 30, 2017												As of or for the Three Months Ended September 30, 2019
	Regulated Businesses			Market-Based Businesses		Other			Consolidated				Regulated Businesses		Market-Based Businesses		Other		Consolidated
Operating revenues	$	842		$	100	$	(6	)	$	936		Operating revenues	$	883	$	136	$	(6)	$	1,013
Depreciation and amortization	121			5		2			128			Depreciation and amortization	132		9		3		144
Total operating expenses, net	433			80		(7		)	506			Total operating expenses, net	505		108		(6)		607
Interest, net	(67		)	1		(23		)	(89		)	Interest, net	(74)		1		(24)		(97)
Income before income taxes	347			21		(28		)	340			Income before income taxes	313		30		(25)		318
Provision for income taxes	135			7		(5		)	137			Provision for income taxes	77		7		(6)		78
Net income attributable to common stockholders	212			14		(23		)	203
Net income attributable to common shareholders												Net income attributable to common shareholders	236		23		(19)		240
Total assets	17,390			600		1,371			19,361			Total assets	19,787		1,060		1,391		22,238
Cash paid for capital expenditures												Cash paid for capital expenditures	399		2		2		403

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Regulatory Matters

~~The~~Presented in the table below ~~provides~~are annualized incremental revenues, ~~resulting from rate authorizations that became effective during the nine months ended September 30, 2017 for general rate cases,~~ assuming a constant water sales volume, ~~and infrastructure surcharge mechanisms. There were no~~resulting from general rate cases authorizations that became effective:


(In millions)	During the Three Months Ended September 30, 2020		During the Nine Months Ended September 30, 2020
General rate cases by state:
Indiana (a)	$	—	$	13
California (b)	—		5
Total general rate cases	$	—	$	18

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

(a)The Company’s Indiana subsidiary filed for and, on May 4, 2020, received approval to implement, a $13 million increase for the second rate year, effective ~~during~~May 1, 2020.

(b)The Company’s California subsidiary filed for the ~~three~~third year (2020) step increase, a request for $5 million associated with its most recent general case authorization. The $5 million request was approved and the step rates became effective on January 1, 2020.

(c)The Company’s Tennessee subsidiary received approval on May 11, 2020, for infrastructure surcharges for annualized incremental revenues of $2 million, effective January 1, 2020.

Due to the COVID-19 pandemic, on March 25, 2020, the NYSPSC approved the Company’s New York subsidiary’s request to postpone the subsidiary’s previously approved step increase, originally scheduled to go into effect April 1, 2020. Per the order, the rate increase was originally postponed for five months ~~ended~~until September ~~30, 2017.~~1, 2020, at which time the previously approved step increase would go into effect. The order further provided a make whole provision to recover the delayed revenues with no earnings impact. In addition to the rate increase postponement, the System Improvement Charge, normally scheduled to go into effect August 1, 2020, was also postponed until September 1, 2020. On September 1, 2020, the Company’s New York subsidiary filed an emergency petition to further postpone the authorized rate increase and other authorized charges until January 1, 2021, with no significant earnings impact. This request was in response to the ongoing COVID-19 pandemic and the related state of emergency declared by the Governor of New York on March 7, 2020. These delays impact rates for all metered and fire customers, which the Company is authorized to recover in a make-whole surcharge beginning April 1, 2021.

Effective October 1, 2020, the Company’s Pennsylvania subsidiary implemented infrastructure surcharges for annualized incremental revenues of $8 million.

Effective November 1, 2020, the Company’s New Jersey subsidiary implemented base rates for annualized incremental revenues of $39 million. Additionally, on October 28, 2020, the New Jersey Board of Public Utilities (“NJBPU”) approved a stipulation and settlement (the “TCJA Settlement”) that is intended to resolve the treatment of the remaining impacts of the TCJA on the rates and books of the Company’s New Jersey subsidiary. The TCJA Settlement identifies the Company’s New Jersey subsidiary’s excess accumulated deferred income taxes (“EADIT”) resulting from the TCJA’s reduction in the federal corporate income tax rate from 35% to 21%, and provides for the amortization and return to its customers of its unprotected EADIT balance of $133 million over a period of 15 years. The Company’s New Jersey subsidiary’s protected EADIT balance of $188 million will be amortized and returned to its customers pursuant to the average rate assumption method over the remaining life of the underlying assets. The TCJA Settlement also requires the Company’s New Jersey subsidiary to return to customers an aggregate of $52.9 million of EADIT through (i) base rates approved in the General Rate Case Settlement and (ii) $32.5 million in customer bill credits over a ten-month period beginning November 1, 2020.

(In millions) For the Nine Months Ended September 30, 2017
General rate cases by state:
New York (effective June 1, 2017)
$ 4
Virginia (a)
5
Iowa (effective March 27, 2017)
4
California (effective January 13, 2017 - February 2, 2017)
5
Illinois (effective January 1, 2017)
25
Total general rate cases $ 43

Infrastructure surcharges by state:
New Jersey (effective June 1, 2017)
$ 10
Indiana (effective March 22, 2017)
8
Tennessee (effective March 14, 2017)
2
Pennsylvania (effective January 1, 2017)
1
West Virginia (effective January 1, 2017)
2
Total infrastructure surcharges $ 23

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~~(a)~~	~~The effective date of the rate order was May 24, 2017, authorizing the implementation of interim rates as of April 1, 2016.~~

Pending General Rate Case Filings

On August 28, 2020, the Company’s Iowa subsidiary filed a general rate case requesting $3 million in annualized incremental revenues. Intervenor testimony is due December 17, 2020 with evidentiary hearings scheduled to start March 3, 2021. An order is expected by April 30, 2021 with rates effective by July 1, 2021.

On June 30, 2020, the Company’s Missouri subsidiary filed a general rate case requesting $78 million in annualized incremental revenues. On August 26, 2020, the Missouri Public Service Commission issued an order setting the test year and adopting a procedural schedule. Revenue requirement direct testimony is due November 24, 2020 for all non-Company parties, with a technical conference scheduled for December 3, 2020. Cost of ~~Capital Filings~~service and rate design direct testimony is due December 9, 2020 for all non-company parties, with a technical conference scheduled for December 15, 2020. Rebuttal testimony is due by all parties on January 15, 2021, and true-up data due January 29, 2021. A settlement conference is scheduled for February 15, 2021, with evidentiary hearings scheduled for February 22, 2021 through March 5, 2021. Initial briefs are due March 19, 2021 and reply and true-up briefs are due April 2, 2021. New rates are anticipated to be effective by May 31, 2021.

~~During~~On April 29, 2020, the ~~second quarter of 2017, our~~Company’s Pennsylvania subsidiary filed a general rate case requesting ~~$108~~$92 million and $46 million in ~~additional~~ annualized ~~water~~incremental revenues for rate year 1 and ~~wastewater revenues.~~rate year 2, respectively. On October ~~16, 2017, a proposed settlement agreement was entered into by our~~30, 2020, the Company’s Pennsylvania subsidiary and the ~~other~~Bureau of Investigation and Enforcement entered into a settlement agreement providing for a total annualized revenue increase of $71 million over a two-year period. The settlement agreement was filed with the Pennsylvania Public Utility Commission (the “PaPUC”) effective November 2, 2020. In November 2020, the Company’s Pennsylvania subsidiary and the remaining active parties in the case will present their positions in briefs to the ~~proceeding, providing for additional annualized water and wastewater revenues of $62 million, subject to approval by the administrative law judges assigned~~Administrative Law Judge, who will then issue to the ~~case and~~PaPUC a recommended decision, including a recommendation on the ~~PaPUC.~~settlement, on or before December 24, 2020. After its review of the matter, the PaPUC will issue a final order, which is currently expected to occur during the first quarter of 2021.

On ~~September 15, 2017, our New Jersey subsidiary filed a general rate case requesting $129 million in additional annualized water and wastewater revenues.~~

~~On June 30, 2017, our Missouri subsidiary filed a general rate case requesting $84 million in additional annualized water and wastewater revenues.~~

On April 3, 2017, our California subsidiary filed an application requesting a cost of capital of 8.49%, compared to 8.41% currently authorized. The results of this proceeding will not become effective until January 2018.

~~During~~July 1, 2019, the ~~third quarter of 2016, our~~Company’s California subsidiary filed a general rate case requesting ~~$35~~$26 million ~~in additional~~ annualized incremental revenues for 2021, and ~~an increase~~increases of $8$10 million and $11 million in the escalation year of ~~2019~~2022 and the attrition year of ~~2020. During~~2023, respectively. On October 11, 2019, the ~~fourth quarter~~Company filed its 100 day update for the same proceeding and updated the request to $27 million annualized incremental revenues for 2021, and increases of ~~2016, our California subsidiary filed an update to its general rate case, adjusting its request for additional annualized revenues to $32~~$10 million and ~~increasing its request to $9~~$10 million in the escalation year of ~~2019.~~2022 and the attrition year of 2023, respectively. As a result of the COVID-19 pandemic, the California Public Utilities Commission (the “CPUC”) suspended the procedural schedule in the general rate case and directed the parties to participate in an alternative dispute resolution process and provide a joint status conference statement by November 15, 2020. On September 10, 2020, 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 will have an effective date of January 1, 2021.

On January 22, 2020, the Company’s California subsidiary submitted a request to delay by one year its cost of capital filing and maintain its current authorized cost of capital through 2021. On March 12, 2020, the CPUC granted the request for a one year extension of the cost of capital filing. The current cost of capital parameters will remain unchanged in 2021 and the subsidiary may file a new cost of capital application by May 1, 2021, to set its authorized cost of capital beginning January 1, 2022.

In 2018, the Company’s Virginia subsidiary filed a general rate case requesting $5 million in annualized incremental revenues. On May 1, 2019, interim rates subject to refund were implemented and will remain in effect until a final decision is received on this general rate case filing. On June 18, 2020, the Company’s Virginia subsidiary, Virginia State Corporation Commission Staff, the Office of the Attorney General, Division of Consumer Counsel, and the City of Alexandria submitted a partial stipulation of settlement. On July 10, 2020, the hearing examiner recommended that the Commission approve the partial settlement. On July 31, 2020, the parties filed comments to the hearing examiner’s reports focused on the outstanding issues in the case, which include approval of the partial settlement and the appropriate capital structure to apply for the Company’s future earnings tests. The Company is awaiting a final decision by the Commission. Virginia does not have a statutory date for the Commission to make a final decision in this case.

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Pending Infrastructure Surcharge Filings

~~On October 31, 2017, our Virginia subsidiary filed for infrastructure surcharges requesting $1 million~~Presented in ~~additional annualized revenues.~~

~~On October 13, 2017, our New Jersey subsidiary filed for an~~the table below are the Company’s pending infrastructure surcharge ~~requesting $4 million in additional~~filings representing annualized ~~revenues.~~incremental revenues:


(In millions)	Date Filed	Amount
Pending infrastructure surcharge filings by state:
Missouri	August 28, 2020	$	2
West Virginia (a)	June 29, 2020	5
New York	May 29, 2020	1
Total pending infrastructure surcharge filings		$	8

~~During the second quarter of 2017, our~~(a)The Company’s West Virginia subsidiary amended its filing on September 22, 2020 to $5 million from the originally filed amount of $4 million.

Tax Matters

In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act includes certain tax relief provisions applicable to the Company including: (i) the immediate refund of the corporate alternative minimum tax credit; (ii) the ability to carryback net operating losses for five years for tax years 2018 through 2020; and (iii) delayed payment of employer payroll taxes. The Company does not expect the CARES Act to have a material impact on the Company’s Consolidated Financial Statements.

Legislative Updates

During 2020, the Company’s regulatory jurisdictions enacted the following legislation that has been approved and is effective as of November 4, 2020:

•Indiana House Enrolled Act 1131 establishes an appraisal process for non-municipal utilities to establish fair value and creates a presumption that the appraised value is a reasonable purchase price. Additionally, all new municipal systems will now be regulated for 10 years.

•Indiana Senate Enrolled Act 254 authorizes recovery without a full rate case for service enhancements for health, safety or environmental concerns for above ground infrastructure, ~~surcharge requesting $3 million in additional annualized revenues. On October 11, 2017, our~~ and exempts relocation from distribution system improvement charge recovery caps.

•West Virginia ~~subsidiary filed~~Senate Bill 551 allows for expanded asset valuation, combined water and wastewater ratemaking and the expansion of how municipalities can utilize proceeds from the sale of a ~~settlement agreement with~~water or wastewater system.

•West Virginia Senate Bill 739 allows the Public Service Commission of West Virginia ~~(“WVPSC”), whereby all parties~~to force utility management changes up to and including an acquisition of a distressed or failing water or wastewater system, based on financial, managerial and technical ability among other factors, by a neighboring system that has the ability to assume control and protect consumers. The bill also includes guidance for customer notification, commission orders, and new rate mechanisms for cost recovery of these acquisitions.

•Iowa amended HF2452 legislation, which gives the Iowa Utilities Board 180 days to approve acquisitions and allows systems to qualify as a distressed system when they do not have a certified operator.

•Missouri House Bill 2120 requires most small community water utilities to establish a cybersecurity plan and valve and hydrant inspection program with reporting to the Department of Natural Resources certifying compliance with these provisions upon request.

•Virginia Senate Bill 831 directs the Virginia State Corporation Commission to establish fair market value for the state, and the legislation authorizes a water or sewer public utility acquiring a water or sewer system to elect to have its rate base established by using the fair market value. The Virginia State Corporation Commission issued an order on August 27, 2020 adopting the proposed rules governing Water or Wastewater Utility Applications Seeking Fair Valuation of Acquisitions of Municipal Water or Wastewater Systems effective as of October 1, 2020.

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.

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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 ~~have agreed to an infrastructure surcharge that provides for approximately~~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 ~~requested increase amount~~law of the state or in ~~annualized revenues,~~the particular CPCN.

As such, the Regulated Businesses are periodically subject to ~~approval~~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 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.

On August 19, 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 it is in the public interest to acquire the Monterey system assets and sufficiently satisfy 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.

On November 6, 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 ~~WVPSC.~~MPWMD would be economically feasible. On June 12, 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, and on July 31, 2020, the Company’s California subsidiary submitted comments to this draft report. 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 issued a final environmental impact report (“FEIR”), and on October 29, 2020, the MPWMD’s board of directors certified the FEIR as drafted, which purports to analyze 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. The Company’s California subsidiary is reviewing the FEIR and is considering further action.

~~During~~The MPWMD will be required to file an application with the Local Agency Formation Commission of Monterey County (“LAFCO”) seeking approval to become a retail water provider and annex approximately 56 parcels of land into the MPWMD’s boundaries. 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 acquisition of the Monterey system assets is feasible, it would then need to file a multi-year eminent domain proceeding against the Company’s California subsidiary. In that proceeding, it would first need 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.

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’s Illinois subsidiary 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. Although the date of the valuation trial is not currently scheduled, it is not likely to commence until the second quarter of ~~2017, our Missouri subsidiary~~2021.

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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 ~~for an~~in connection with large-scale natural events such as wildfires. Some have included allegations that infrastructure ~~surcharge requesting $5 million~~of certain utilities triggered the natural event that resulted in ~~additional annualized revenues. On August 29, 2017, our Missouri subsidiary refiled and adjusted its request for additional annualized revenues~~damage to ~~$6 million.~~

~~Other Regulatory Filings~~

~~On August 4, 2017, our Illinois subsidiary filed a petition with Illinois Commerce Commission (“ICC”)~~the property. In some cases, the PUC has allowed certain costs or losses incurred by the utility to ~~place into effect revised depreciation~~be recovered from customers in rates, ~~applicable~~but in other cases such recovery in rates has been disallowed. Also, the utility may have obtained insurance that could respond to ~~depreciable water and wastewater plant resulting from a new depreciation study. The petition requested that these new rates~~some or all of such losses, although the utility would be ~~effective January 1, 2017. We expect~~at risk for any losses not ultimately subject to rate or insurance recovery or losses that exceed the ~~ICC to provide a final ruling on the petition in the fourth quarter~~limits of ~~2017. The estimated effect of the new study is to lower depreciation expense by approximately $16 million on an annualized basis.~~such insurance.

~~There is no assurance that all or any portion of these requests will be granted.~~

~~Other Tax Matters~~

On April 11, 2017, the State of New York enacted legislation that increased the state income tax rate on our taxable income attributable to New York. This legislation eliminated the production of water as a qualified manufacturing activity in New York, which effectively increased the state income tax rate in New York. As a result of the legislative change, we were required to re-measure our cumulative deferred tax balances using the higher state income tax rate in the second quarter of 2017. This change in legislation was the primary cause of an increase to our unitary deferred tax liability of $11 million. The portion of this increase related to our New York subsidiary calculated on a stand-alone basis was $7 million, and was offset by a regulatory asset, as we believe it is probable of recovery in future rates. The remaining increase in the deferred tax liability was calculated through state tax apportionment rates and recorded at the consolidated level, resulting in a non-cash, cumulative charge to earnings of $4 million during the second quarter of 2017.

On July 7, 2017, the State of Illinois enacted legislation that increased, effective July 1, 2017, the state income tax rate on our taxable income attributable to Illinois from 7.75% to 9.5%. As a result of the legislative change, we were required to re-measure our cumulative deferred tax balances using the higher state income tax rate in the third quarter of 2017. This change in legislation was the primary cause of an increase to our unitary deferred tax liability of $7 million. The portion of this increase related to our Illinois subsidiary calculated on a stand-alone basis was $4 million, and was offset by a regulatory asset, as we believe it is probable of recovery in future rates. The remaining increase in the deferred tax liability was recorded at the consolidated level, resulting in a non-cash, cumulative charge to earnings of $3 million during the third quarter of 2017.

During the second quarter of 2017, we were notified by the assessor for St. Louis County, Missouri, that it was changing its long standing practice of valuing regulated water and wastewater property located in the County using a seven-year life, and instead intends to use a twenty-year life for a substantial portion of this property. During the second quarter of 2017, we were also notified by the assessor for Platte County, Missouri, that it intended to change its long standing practice of valuing regulated water and wastewater property located in the County using a twenty-year life, and instead intends to use a fifty-year life for a substantial portion of this property. These changes in practice and the resulting valuations as assessed by the respective County, will increase our property tax obligation beginning in 2017. We have asked the Missouri regulator for an accounting recovery mechanism that would allow deferral of any increase in tax resulting from these changes in long standing practice, and we believe these increases are recoverable through future customer rates. As a result, during the second quarter of 2017, we recorded the additional estimated increase in property tax obligation of $2 million, with an offset to a regulatory asset. During the third quarter of 2017, we filed complaints with the Missouri State Tax Commission, seeking review of property assessments in Platte County.

Consolidated Results of Operations

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 Increase (Decrease) 2017 2016 Increase (Decrease)
(In millions)
Operating revenues $ 936
$ 930
$ 6
0.6 % $ 2,536
$ 2,500
$ 36
1.4 %
Operating expenses:
Operation and maintenance 324
432
(108 ) (25.0 )% 1,010
1,131
(121 ) (10.7 )%
Depreciation and amortization 128
119
9
7.6 % 378
350
28
8.0 %
General taxes 61
65
(4 ) (6.2 )% 192
195
(3 ) (1.5 )%
Gain on asset dispositions and purchases (7 ) (5 ) (2 ) 40.0 % (9 ) (8 ) (1 ) 12.5 %
Total operating expenses, net 506
611
(105 ) (17.2 )% 1,571
1,668
(97 ) (5.8 )%
Operating income 430
319
111
34.8 % 965
832
133
16.0 %
Other income (expenses):
Interest, net (89 ) (81 ) (8 ) 9.9 % (259 ) (242 ) (17 ) 7.0 %
Loss on extinguishment of debt (6 ) —
(6 ) 100.0%
(6 ) —
(6 ) 100.0%
Other, net 5
5
—
— % 11
14
(3 ) (21.4 )%
Total other income (expenses) (90 ) (76 ) (14 ) 18.4 % (254 ) (228 ) (26 ) 11.4 %
Income before income taxes 340
243
97
39.9 % 711
604
107
17.7 %
Provision for income taxes 137
95
42
44.2 % 284
237
47
19.8 %
Net income attributable to common stockholders $ 203
$ 148
$ 55
37.2 % $ 427
$ 367
$ 60
16.3 %

~~Comparison of Consolidated Results of Operations~~

~~Operating revenues.~~ ~~For the three months ended September 30, 2017, operating revenues increased primarilydue to a:~~

$16 million increase in our Regulated Businesses segment principally due to authorized rate increases to fund infrastructure investment growth, acquisitions and organic growth, partially offset by lower water services demand in 2017, including a $7 million reduction due to warmer weatherPresented in the ~~third quarter~~table below are the Company’s consolidated results of ~~2016; partially offset by a~~operations:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
(In millions)
Operating revenues	$	1,079	$	1,013	$	2,854	$	2,708
Operating expenses:
Operation and maintenance	419		395		1,193		1,132
Depreciation and amortization	154		144		451		430
General taxes	73		68		225		209
(Gain) on asset dispositions and purchases	—		—		—		(9)
Total operating expenses, net	646		607		1,869		1,762
Operating income	433		406		985		946
Other income (expense):
Interest, net	(99)		(97)		(296)		(284)
Non-operating benefit costs, net	12		4		37		12
Other, net	6		5		17		23
Total other income (expense)	(81)		(88)		(242)		(249)
Income before income taxes	352		318		743		697
Provision for income taxes	88		78		179		174
Net income attributable to common shareholders	$	264	$	240	$	564	$	523

The main factors contributing to the $24 million decrease in our Market-Based Businesses primarily due to lower capital upgrades in our Military Services Group, largely from reduced military base budgets, partially offset by incremental revenues in our Homeowner Services Group from customer growth and ~~price increases for existing customers.~~

~~For the nine months ended September 30, 2017, operating revenues increased primarily due to a:~~

~~$71~~$41 million increase in our Regulated Businesses segment principally due to authorized rate increases to fund infrastructure investment growth, acquisitions and organic growth, partially offset by lower water services demand in 2017, including a $12 million reduction due to overall warmer weather in 2016; partially offset by a

$32 million decrease in our Market-Based Businesses primarily due to lower capital upgrades in our Military Services Group, largely from reduced military base budgets and the completion of a large project in mid-2016 at Fort Polk, partially offset by incremental revenues in our Homeowner Services Group from customer growth and price increases for existing customers.

~~Operation and maintenance.~~ ~~For the three months ended September 30, 2017,operation and maintenance expense decreased primarily due to a:~~

$88 million decrease in our Regulated Businesses segment principally due to a $65 million charge recorded in the third quarter of 2016, resulting from the binding global agreement in principle to settle claims associated with the Freedom Industries chemical spill in West Virginia, and a $22 million benefit recorded in the third quarter of 2017, resulting from an insurance settlement with one of our general liability insurance carriers also related to this matter in West Virginia; partially offset by a

~~$17 million decrease in our Market-Based Businesses primarily due to lower capital upgrades in our Military Services Group, as discussed above.~~

~~For the nine months ended September 30, 2017,operation and maintenance expense decreased primarily due to a:~~

$87 million decrease in our Regulated Businesses segment due to a $65 million charge recorded in the third quarter of 2016, resulting from the binding global agreement in principle to settle claims associated with the Freedom Industries chemical spill in West Virginia, and a $22 million benefit recorded in the third quarter of 2017, resulting from an insurance settlement with one of our general liability insurance carriers also related to this matter in West Virginia; and a

~~$6 million increase in our Regulated Business segment principally due to~~ increases in ~~production costs, employee-related costs and operating supplies and services; partially offset by a~~

~~$38 million decrease in our Market-Based Businesses primarily due~~net income attributable to ~~lower capital upgrades in our Military Services Group, as discussed above, partially offset by incremental costs associated with growth in our Homeowner Services Group.~~

~~Depreciation and amortization.~~ ~~For~~common shareholders for the three and nine months ended September 30, ~~2017, depreciation and amortization~~2020, respectively, are described in “Segment Results of Operations” below. Partially offsetting these increases in net income was higher interest expense ~~increased primarily due to additional utility plant placed~~at parent company supporting growth in ~~service.~~

~~General taxes.~~ ~~For~~the business during the three and nine months ended September 30, ~~2017, general taxes decrease largely due to property tax refund credits in our Pennsylvania subsidiary.~~2020.

~~Other income (expenses).~~ For the three and nine months ended September 30, 2017, other income (expenses) increased principally due to: (i) an increase in interest expense from the issuance of long-term debt in the fourth quarter of 2016 and in the third quarter of 2017; (ii) a $6 million early debt extinguishment charge at the parent company; and (iii) additional interest expense incurred on long-term debt that was refinanced in August 2017, but did not mature until October 2017.

~~Provision for income taxes.~~ For the three and nine months ended September 30, 2017, our provision for income taxes increased primarily due to higher pretax income and two discrete tax adjustments of $4 million and $3 million recorded at the parent company in the second and third quarters of 2017, associated with legislative changes in the States of New York and Illinois impacting state tax apportionment.

Segment Results of Operations

~~Our~~The Company’s operating segments are ~~determined based on how we~~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 ~~our~~ resources. ~~We evaluate the performance of our segments and allocate resources based on several factors, with the primary measure being income from continuing operations.~~

~~We conduct our~~The Company operates its business primarily through one reportable segment, ~~our~~the Regulated Businesses segment. WeThe Company also ~~operate several~~operates market-based businesses ~~that provide a broad range of related and complementary water and wastewater services within four operating segments~~ that, individually, do not meet the criteria of a reportable segment in accordance with ~~GAAP. These four non-reportable operating segments~~GAAP, and are collectively presented as ~~our “Market-Based Businesses”,~~the Market-Based Businesses, which is consistent with how management assesses the results of ~~our~~these businesses.

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Regulated Businesses Segment

~~The following~~Presented in the table ~~summarizes certain~~below is financial information for ~~our~~the Regulated ~~Businesses segment:~~Businesses:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
(In millions)
Operating revenues	$	945	$	883	$	2,468	$	2,323
Operation and maintenance	335		310		932		875
Depreciation and amortization	138		132		417		394
General taxes	69		64		211		195
(Gain) on asset dispositions and purchases	—		(1)		(3)		(9)
Other income (expenses)	(56)		(64)		(166)		(196)
Income before income taxes	346		313		744		671
Provision for income taxes	85		77		183		169
Net income attributable to common shareholders	261		236		561		502

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 Increase (Decrease) 2017 2016 Increase (Decrease)
(In millions)
Operating revenues $ 842
$ 826
$ 16
1.9 % $ 2,247
$ 2,176
$ 71
3.3 %
Operation and maintenance 262
350
(88 ) (25.1 )% 800
881
(81 ) (9.2 )%
Total operating expenses, net 433
521
(88 ) (16.9 )% 1,327
1,385
(58 ) (4.2 )%
Net income attributable to common stockholders 212
152
60
39.5 % 446
374
72
19.3 %
Operating Revenues

~~Operating revenues~~.~~The following~~Presented in the tables ~~and discussion provide explanation~~below is information regarding the main components of the Regulated Businesses’ operating revenues, with explanations for material variances ~~related to~~provided in the ~~three components~~ensuing discussions:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
(In millions)
Water services:
Residential	$	562	$	504	$	1,435	$	1,297
Commercial	187		188		471		477
Fire service	37		37		110		106
Industrial	38		38		101		104
Public and other	60		63		178		183
Total water services	884		830		2,295		2,167
Wastewater services	48		43		137		123
Other (a)	13		10		36		33
Total operating revenues	$	945	$	883	$	2,468	$	2,323

(a)Includes other operating revenues consisting primarily of ~~operating revenues—water services revenues, wastewater services revenues~~miscellaneous utility charges, fees and ~~other revenues:~~rents.


	For the Three Months Ended September 30,		For the Nine Months Ended September 30,
	2020	2019	2020	2019
(Gallons in millions)
Billed water services volumes:
Residential	57,917	50,962	135,875	125,835
Commercial	23,556	24,207	56,434	60,840
Industrial	9,925	10,423	26,422	28,232
Fire service, public and other	14,783	14,541	37,414	37,751
Billed water services volumes	106,181	100,133	256,145	252,658

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For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 Increase (Decrease) 2017 2016 Increase (Decrease)
(In millions)
Billed water services:
Residential $ 477
$ 468
$ 9
1.9 % $ 1,244
$ 1,199
$ 45
3.8 %
Commercial 176
172
4
2.3 % 453
436
17
3.9 %
Industrial 37
38
(1 ) (2.6 )% 103
101
2
2.0 %
Public and other 96
94
2
2.1 % 262
253
9
3.6 %
Other water revenues 6
16
(10 ) (62.5 )% 31
42
(11 ) (26.2 )%
Billed water services 792
788
4
0.5 % 2,093
2,031
62
3.1 %
Unbilled water services —
(4 ) 4
(100.0 )% 8
23
(15 ) (65.2 )%
Total water services revenues 792
784
8
1.0 % 2,101
2,054
47
2.3 %
Wastewater services revenues 36
28
8
28.6 % 106
83
23
27.7 %
Other revenues 14
14
—
— % 40
39
1
2.6 %
Total operating revenues $ 842
$ 826
$ 16
1.9 % $ 2,247
$ 2,176
$ 71
3.3 %

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 Increase (Decrease) 2017 2016 Increase (Decrease)
(In millions)
Billed water services volumes:
Residential 53,928
55,108
(1,180 ) (2.1 )% 131,488
132,453
(965 ) (0.7 )%
Commercial 24,913
25,170
(257 ) (1.0 )% 61,793
62,273
(480 ) (0.8 )%
Industrial 10,661
11,013
(352 ) (3.2 )% 29,218
29,194
24
0.1 %
Public and other 15,085
14,512
573
3.9 % 38,920
37,983
937
2.5 %
Billed water services volumes 104,587
105,803
(1,216 ) (1.1 )% 261,419
261,903
(484 ) (0.2 )%

For the three months ended September 30, ~~2017,~~2020, operating revenues increased $62 million, primarily due ~~to a:~~

~~$20~~to: (i) $36 million increase from authorized rate increases, ~~and~~including infrastructure surcharges, principally to fund infrastructure investment ~~growth~~ in various states; ~~and a~~

~~$12~~(ii) $11 million increase ~~attributable to recent water and wastewater acquisitions, as well as organic growth in existing systems; partially offset by a~~

~~$19 million decrease due to lower water services demand, excluding the impact of completed acquisitions, including a $7 million reduction due to warmer weather in the third quarter of 2016.~~

~~For the nine months ended September 30, 2017, operating revenues increased primarily due to a:~~

~~$67 million increase~~ from ~~authorized rate increases and infrastructure surcharges to fund infrastructure investment growth in various states;~~

~~$31 million increase attributable to recent~~ water and wastewater acquisitions, as well as organic growth in existing systems; and a

$6(iii) $17 million increase in demand, including an estimated $14 million from warmer and drier than normal weather in the third quarter of 2020, and an estimated $10 million of favorable impact from theCOVID-19 pandemic, primarily from increased revenues from the Company’s residential customers.

For the nine months ended September 30, 2020, operating revenues increased $145 million, primarily due to: (i) $97 million increase from authorized rate increases, including infrastructure surcharges, principally to fund infrastructure investment in various states; (ii) $27 million increase from water and wastewater ~~services, excluding the impact of completed~~ acquisitions, ~~resulting from higher treatment volumes,~~ as well as anorganic growth in existing systems; (iii) $26 million increase in ~~private fire service connections; partially offset~~demand, primarily driven by a

~~$36~~weather, including warmer and drier than normal weather in the third quarter of 2020 and unusually wet weather conditions experienced in the Northeast and Midwest during the second quarter of 2019; and (iv) $5 million decrease in other operating revenues due to ~~lower water services demand, excluding~~ the ~~impact~~impacts of ~~completed acquisitions, including a $12 million reduction due to overall warmer weather in 2016.~~the TCJA.

Operation and ~~maintenance.~~ ~~The following~~Maintenance

Presented in the table ~~summarizes~~below is information regarding the main components of ~~operation~~the Regulated Businesses’ operating and maintenance ~~expense:~~expense, with explanations for material variances provided in the ensuing discussions:


	For the Three Months Ended September 30,										For the Nine Months Ended September 30,										For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2017			2016		Increase (Decrease)					2017		2016		Increase (Decrease)						2020		2019		2020		2019
(In millions)																				(In millions)
Employee-related costs																				Employee-related costs	$	125	$	116	$	369	$	348
Production costs	$	87		$	86	$	1		1.2	%	$	224	$	220	$	4		1.8	%	Production costs	100		95		253		239
Employee-related costs	112			107		5			4.7	%	334		328		6			1.8	%
Operating supplies and services	51			50		1			2.0	%	150		149		1			0.7	%	Operating supplies and services	65		57		175		168
Maintenance materials and supplies	15			16		(1		)	(6.3	)%	49		46		3			6.5	%	Maintenance materials and supplies	18		17		56		54
Customer billing and accounting	14			17		(3		)	(17.6	)%	37		41		(4		)	(9.8	)%	Customer billing and accounting	14		15		41		39
Other	(17		)	74		(91		)	(123.0	)%	6		97		(91		)	(93.8	)%	Other	13		10		38		27
Total	$	262		$	350	$	(88	)	(25.1	)%	$	800	$	881	$	(81	)	(9.2	)%	Total	$	335	$	310	$	932	$	875

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Cash Flows Provided by Operating Activities

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


	For the Nine Months Ended September 30,
	2020		2019
(In millions)
Net income	$	564	$	523
Add (less):
Depreciation and amortization	451		430
Deferred income taxes and amortization of investment tax credits	174		163
Other non-cash activities (a)	(25)		(29)
Changes in working capital (b)	(139)		(89)
Settlement of cash flow hedges	(6)		(30)
Pension and postretirement healthcare contributions	(31)		(23)
Net cash flows provided by operations	$	988	$	945

For the Nine Months Ended September 30,
2017 2016
(In millions)
Net income $ 427
$ 367
Add (less):
Non-cash activities (a)
659
598
Changes in working capital (b)
(64 ) 22
Pension and postretirement healthcare contributions (36 ) (42 )
Net cash flows provided by operations $ 986
$ 945
(a)Includes provision for losses on accounts receivable, (gain) on asset dispositions and purchases, 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.


~~(a)~~	Includes depreciation and amortization, deferred income taxes and amortization of deferred investment tax credits, provision for losses on accounts receivable, gain on asset dispositions and purchases, pension and non-pension postretirement benefits expense and other non-cash, net. Details of each component can be found in the Consolidated Statements of Cash Flows.


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

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

For the nine months ended September 30, ~~2017, the increase in~~2020, cash flows ~~from~~provided by operating activities ~~as compared to the same period in 2016, is~~increased $43 million, primarily due to an increase in net income ~~after non-cash adjustments.~~and the decrease in cash paid for the settlement of cash flow hedges in 2020 compared to the prior year in connection with AWCC’s 2020 and 2019 debt offerings. The main factors contributing to the increase in net income ~~increase~~ are described in ~~this section under “Comparison of Consolidated~~“Consolidated Results of Operations” and ~~included higher operating revenue and lower operation and maintenance expense. The increase~~“Segment Results of Operations” above. Partially offsetting these increases was a change in non-cash activities was mainly the result of an increase in depreciation and amortization attributable to infrastructure investment projects placed into service and an increase in deferred income taxes.

working capital. The change in working capital was primarily the result of the following: (i) ~~timing of~~an increase in accounts ~~payable and accrued liabilities, including the accrual recorded during the third quarter of 2016 for costs associated with the binding global agreement in principle as~~receivable, net due to ~~settlement of claims related~~increased revenues compared to the ~~Freedom Industries chemical spill~~same period in ~~West Virginia;~~the prior year and the impact of the COVID-19 pandemic in 2020; and (ii) the $34 million make-whole premium paid on early debt extinguishment associated with the prepayment of $138 million of outstanding Series C Senior Notes and $181 million of outstanding Series D Senior Notes; (iii) a ~~decrease~~increase in unbilled revenues as a result of ~~our Military Services Group~~MSG achieving significant capital project milestones during 2016; and (iv) change in other current assets and liabilities, including an increase in prepaid taxes, partially offset by the decrease of other current assets associated with the termination of our four forward starting swap agreements.2020.

Cash Flows Used in Investing Activities

~~The following~~Presented in the table ~~provides information regarding~~below is a summary of the major items affecting the Company’s cash flows used in ~~our~~ investing activities:


	For the Nine Months Ended September 30,
	2020		2019
(In millions)
Net capital expenditures	$	(1,314)	$	(1,115)
Acquisitions	(59)		(85)
Other investing activities, net (a)	(73)		(54)
Net cash flows used in investing activities	$	(1,446)	$	(1,254)

For the Nine Months Ended September 30,
2017 2016
(In millions)
Net capital expenditures $ (964 ) $ (928 )
Acquisitions (10 ) (29 )
Other investing activities, net (a)
(47 ) (57 )
Net cash flows used in investing activities $ (1,021 ) $ (1,014 )
(a)Includes removal costs from property, plant and equipment retirements and proceeds from sale of assets.


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

For the nine months ended September 30, ~~2017,~~2020, cash used in ~~investing~~investing activities increased $192 million, primarily due to continued investment across all infrastructure categories, mainly replacement and renewal of transmission and distribution infrastructure in ~~our~~the Company’s Regulated ~~Businesses, partially offset by decreased cash used~~Businesses. Additionally, proceeds from the sale of assets were higher in 2019 compared to 2020. Partially offsetting these increases was a decrease in acquisitions primarily due to the acquisition of the City of Alton, Illinois’ regional wastewater system for ~~acquisitions. We expect investments~~$55 million in the second quarter of 2019. The Company plans to invest approximately ~~$1.65~~$1.9 billion as planned across its footprint in ~~2017 for capital expenditures and acquisitions. Construction~~2020.

Table of our new corporate headquarters building in Camden, New Jersey is underway. The cost of construction is currently estimated to be up to $164 million, exclusive of any tax incentives, of which $72 million is expected to be incurred in 2017. During the nine months ended September 30, 2017, we spent approximately $36 million towards this construction.Contents

Cash Flows Provided by Financing Activities

~~The following~~Presented in the table ~~provides information regarding~~below is a summary of the major items affecting the Company’s cash flows provided by ~~our~~ financing activities:


	For the Nine Months Ended September 30,
	2020		2019
(In millions)
Proceeds from long-term debt	$	1,250	$	1,191
Repayments of long-term debt	(266)		(153)
Proceeds from term loan	500		—

Net repayments of short-term borrowings	(242)		(491)
Dividends paid	(290)		(263)
Anti-dilutive stock repurchases	—		(36)
Other financing activities, net (a)	14		18
Net cash flows provided by financing activities	$	966	$	266

For the Nine Months Ended September 30,
2017 2016
(In millions)
Proceeds from long-term debt $ 1,382
$ 2
Repayments of long-term debt (334 ) (20 )
Net proceeds from short-term borrowings (746 ) 322
Dividends paid (215 ) (194 )
Anti-dilutive stock repurchases (54 ) (65 )
Other financing activities, net (a)
20
25
Net cash flows provided by financing activities $ 53
$ 70
(a)Includes proceeds from issuances of common stock under various employee stock plans and the dividend reinvestment plan, net of taxes paid, and advances and contributions for construction, net of refunds.


~~(a)~~	Includes proceeds from issuances of common stock under various employee stock plans and our dividend reinvestment plan, advances and contributions for construction, net of refunds, taxes paid related to employee stock plans and debt issuance costs.

For the nine months ended September 30, ~~2017, the decrease in~~2020, cash flows provided by financing activities ~~as compared to the same period in 2016, is~~ increased $700 million, primarily due to the ~~increase~~$500 million borrowed under the Term Loan Facility during the first quarter of 2020, lower net repayments of commercial paper borrowings and no anti-dilutive stock repurchases in ~~cash used for dividend payments in 2017. Additionally, the Company issued approximately $1,333 million~~2020, partially offset by higher net repayments of long-term debt ~~after deduction of underwriting discounts~~ and debt issuance costs, as part of the August 10, 2017 debt financing, of which approximately $319 million was used for the early extinguishment of pre-existing long-term debt. Additional proceeds from the debt financing were used for the repayment of pre-existing short-term borrowings, resultinghigher dividends paid in ~~a net cash outflow for the nine months ended September 30, 2017 of $746 million.~~2020.

~~Credit Facilities and Short-Term Debt~~

The following table summarizes information regarding our aggregate credit facility commitments, letter of credit sub-limits and available funds under those revolving credit facilities, as well as outstanding amounts of commercial paper and outstanding borrowings under the respective facilities as of September 30, 2017:

Credit Facilities Commitment (a) Available Credit Facility Capacity (a) Letter of Credit Sublimit Available Letter of Credit Capacity Commercial Paper Limit Available Commercial Paper Capacity
(In millions)
September 30, 2017 $ 1,762
$ 1,669
$ 150
$ 86
$ 1,600
$ 1,497

~~(a)~~

Includes amounts related to the revolving credit facility of Keystone Clearwater Solutions, LLC (“Keystone”), our water management solutions subsidiary. As of September 30, 2017, the total commitment under the Keystone revolving credit facility was $12 million, of which $5 million was available for borrowing, subject to compliance with a collateral base calculation. At September 30, 2017, there were no outstanding borrowings under this credit facility.

The weighted-average interest rate on AWCC short-term borrowings for three months ended September 30, 2017 and 2016 was approximately 1.38% and 0.78%, respectively. The weighted-average interest rate on AWCC short-term borrowings for the nine months ended September 30, 2017 and 2016 was approximately 1.19% and 0.76%, respectively.

~~Capital Structure~~

~~The following table indicates the percentage of our capitalization represented by the components of our capital structure as of the dates set forth below:~~

September 30, 2017 December 31, 2016
Total common stockholders' equity 42.5 % 42.1 %
Long-term debt and redeemable preferred stock at redemption value 51.4 % 46.4 %
Short-term debt and current portion of long-term debt 6.1 % 11.5 %
100 % 100 %

Debt Covenants

~~Our~~The Company’s debt agreements contain financial and non-financial covenants. To the extent that ~~we are~~the Company is not in compliance with these covenants, an event of default may occur under one or more debt agreements and wethe Company or ~~our~~its subsidiaries may be restricted in ~~our~~its ability to pay dividends, issue new debt or access ~~our~~the revolving credit facility. ~~Our~~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. ~~Our failure~~Failure to comply with any of these covenants could accelerate repayment obligations.

Covenants in certain long-term notes, the Term Loan Facility and the revolving credit facility require usthe 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, ~~2017, our~~2020, the Company’s ratio was ~~0.58~~0.62 to 1.00 and therefore ~~we were~~the Company was in compliance with the covenants.

Security Ratings

Our access to the capital markets, including the commercial paper market, and respective financing costs in those markets, may be directly affected by our securities ratings. We primarily access the debt capital markets, including the commercial paper market, through AWCC. However, we have also issued debt through our regulated subsidiaries, primarilyPresented in the ~~form of tax exempt securities or borrowings under state revolving funds, to lower our overall cost of debt.~~

~~Our~~table below are long-term and short-term credit ratings and rating outlooks as of ~~September 30, 2017:~~

November 4, 2020 as issued by the following rating agencies:

Securities

Moody's
Investors Service

Standard & Poor's
Ratings Service

Rating outlook

Stable

Senior unsecured debt

A3Baa1

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 ~~our~~the ability to generate cash flows in an amount sufficient to service ~~our~~ debt and meet ~~our~~ investment plans. WeThe Company can provide no assurances that ~~our~~its ability to generate cash flows is sufficient to maintain ~~our~~its existing ratings. None of ~~our~~the Company’s borrowings are subject to default or prepayment as a result of athe downgrading of these security ratings, although such a downgrading could increase fees and interest charges under ~~our~~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 tax-exempt securities or borrowings under state revolving funds, to lower the overall cost of debt.

Dividends

~~On September 1, 2017, we paid a cash dividend of $0.415 per share to our stockholders of record as of August 9, 2017.~~

On October 31, 2017, our Board of Directors declared a quarterly cash dividend payment of $0.415 per share payable on December 1, 2017 to stockholders of record as of November 10, 2017. Future dividends, when and as declared at the discretionFor discussion 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 Part II, Item 7—Management’s Discussion and Analysis ofCompany’s dividends, see Note 6—Shareholders' Equity in the Notes to Consolidated Financial ~~Condition and Results of Operations—Liquidity and Capital Resources—Dividends in our Form 10-K~~Statements for ~~more information regarding restrictions on the payment of dividends on our common stock.~~additional information.

Application of Critical Accounting Policies and Estimates

~~Our financial~~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 ~~our~~the Company’s Form 10-K for a discussion of ~~our~~its critical accounting policies. Additionally, see Note 2—Significant Accounting Policies in the Notes to Consolidated Financial Statements for updates to the significant accounting policies previously disclosed in the Company’s Form 10-K.

Recent Accounting Standards

See Note 2—~~New~~Significant Accounting ~~Standards to~~Policies in the Notes to Consolidated Financial Statements ~~included in Part I, Item 1—Consolidated Financial Statements of this Quarterly Report on Form 10-Q~~ for a description of new accounting standards recently adopted or pending adoption.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~We are subject~~The Company is exposed to market ~~risks~~risk in the normal course of business, including changes in commodity prices, equity prices and interest ~~rates and equity prices.~~rates. For afurther discussion of ~~our~~its exposure to market risk, ~~refer to~~see Part II, Item 7A—Quantitative and Qualitative Disclosures about Market Risk ~~contained~~ in ~~our~~the Company’s Form 10-K. Except as described below, there have been no significant changes to ~~our~~the Company’s exposure to market risk since December 31, ~~2016.~~2019.

On ~~February~~April 8, ~~2017, we entered into a forward starting swap agreement~~2020, the Company terminated four treasury lock agreements with aan aggregate notional amount of ~~$100~~$400 million, ~~to reduce interest rate exposure on debt expected to be issued in 2018. This forward starting swap agreement terminates in November 2018~~ and ~~has an average fixed rate~~as a result, the Company had no significant derivative instruments outstanding as of 2.67%. A hypothetical one hundred basis point change in the forward starting swap rates would have resulted in a $21 million increase or decrease in fair value of this swap agreement for the nine months ended September 30, ~~2017.~~2020.

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 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.

~~Our~~The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness of ~~our~~its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of September 30, ~~2017.~~2020.

Based on that evaluation, ~~our~~the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, ~~2017, our~~2020, 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

WeThe Company concluded that there have been no changes in ~~our~~ internal control over financial reporting that occurred during the three months ended September 30, ~~2017,~~2020, that have materially affected, or are reasonably likely to materially affect, ~~our~~the Company’s internal control over financial ~~reporting (as defined in Rules 13a-15(f) and 15d-15(f)~~reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The following information updates and amends the information provided in ~~our~~the Company’s Form 10-K in Part I, Item 3—Legal Proceedings, and in ~~our~~its Quarterly ~~Reports~~Report on Form 10-Q for the ~~quarters~~quarter ended ~~March 31, 2017 and~~ June 30, ~~2017~~2020 in Part II, Item 1—Legal Proceedings. Capitalized terms used but not otherwise defined herein have the meanings set forth in ~~our~~the Company’s Form 10-K.

Alternative Water Supply in Lieu of Carmel River Diversions

~~Regional Desalination Project Litigation~~

Following the court’s disposition of a related issue in another case, MCWD’s petition to the Supreme Court of California for review of the CPUC approval of a settlement agreement resolving matters among the signatory parties has been remanded to the CPUC, and remains pending.

~~Trial has been set for June 18, 2018 in the consolidated action in San Francisco County Superior Court associated with the failure of the RDP.~~

Monterey Peninsula Water Supply Project

~~On January 12, 2017, the~~ CPUC ~~issued a Draft Environmental Impact Report/Environmental Impact Statement. The comment period for this report expired March 29, 2017 and a final report is expected to be issued in the first quarter~~Final Approval of ~~2018.~~Water Supply Project

~~The CPUC has set hearings for October 25 through November 3, 2017 on~~ Cal Am’s ~~request for a certificate of public convenience and necessity for the Water Supply Project.~~

~~After conducting a trial~~ability to move forward on August 30, 2017 for all matters raised in MCWD’s November 2015 challenge to the amendment of Cal Am’s coastal development permits for the test slant well, other than claims that had been denied by the court in September 2016, the court on October 3, 2017 denied all of MCWD’s claims with respect to these matters.

On July 13, 2017, the Coastal Commission adopted a consent agreement and cease and desist order requiring sand mining operations on the property on which intake wells will be located to cease by the end of 2020 and the property to be sold to either a non-profit or governmental entity. The consent agreement strictly limits future use of the property but preserves Cal Am’s existing property rights and allows uses consistent with existing easements and other rights of record. If the test slant well is to remain at the site and be used as part of the Water Supply Project, ~~as currently proposed,~~which is intended, among other things, to fulfill Cal ~~Am will likely need~~Am’s obligations under the 2009 Order and the 2016 Order, is subject to ~~seek an amendment~~administrative review by the CPUC and ~~extension of its coastal development permit to allow the test slant well to remain~~other government agencies, obtaining necessary permits, and be maintained in the interim period until the Water Supply Project is operational. Cal Am will also need to seek an extension of its current lease for the test slant well with the State Lands Commission. This lease expires on December 16, 2017. Cal Am has filed an application for extension of this lease with the State Lands Commission,intervention from other parties. The CPUC’s 2016 and ~~approval of the application is to be considered at its November 29, 2017 meeting.~~

~~Based on the foregoing, including the information contained in our Form 10-K~~2018 final decisions with respect to the Water Supply Project ~~(other than as updated in this Form 10-Q),~~permit recovery of all of Cal AmAm’s prudently incurred costs associated therewith and adopt Cal Am’s related cost estimates, ~~that~~which amounted to an aggregate of $279 million plus allowance for funds used during construction (“AFUDC”) at a rate representative of Cal Am’s actual financing cost, subject to the ~~earliest date by which~~frameworks related to cost caps, O&M costs, financing, ratemaking and contingency matters. The reasonableness of the Water Supply Project ~~desalination plant could~~costs will be ~~completed is sometime~~reviewed in ~~2021. There can be no assurance that~~the first general rate case filed by Cal ~~Am’s application for~~Am after it becomes operational. Cal Am has incurred $147 million in aggregate costs as of September 30, 2020 related to the Water Supply Project, ~~will be approved or~~including $33 million in AFUDC. 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 ~~will be completed on a timely basis, if ever. Furthermore,~~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. See Note 11—Commitments and Contingencies in the Notes to the Consolidated Financial Statements for further discussion.

On July 30, 2020, the Agencies advised Cal Am that the Performance Start Date under the water purchase agreement for the GWR Project is September 1, 2020. After June 30, 2021, Cal Am will determine the amount of advanced treated recycled water produced by the GWR Project and delivered to Cal Am during the first fiscal year of the water purchase agreement, to determine the Agencies’ compliance with their performance obligations thereunder.

Coastal Development Permit Application

On August 25, 2020, Coastal Commission staff 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. On September 16, 2020, Cal Am withdrew its original jurisdiction application to allow additional time to address Coastal Commission staff’s environmental justice concerns, and Cal Am intends to refile this application with the Coastal Commission in November 2020. Once the application is refiled and the Coastal Commission deems it to be complete, it is required to process and take action on the application within 180 days. 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 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 delays by the Coastal Commission and a stay issued by the Monterey Superior Court on physical construction of the desalination plant, which Cal Am believes are circumstances beyond its control, Cal Am has notified the SWRCB that interim 2020 milestones set forth in the 2016 Order for intake well drilling and construction of the plant related to the Water Supply Project will not be met. The failure by Cal Am to meet such milestones could trigger a diversion reduction requirement under the 2016 Order, but the SWRCB may waive the diversion reduction if it finds that the failure to meet the interim milestone was due to circumstances beyond Cal Am’s control. Cal Am and the SWRCB’s staff are discussing a process for requesting from the SWRCB such a waiver. Cal Am also believes that these circumstances beyond its control will cause it to be unable to fully comply with the ~~diversion reduction requirements~~remaining milestones in the 2016 Order, and may affect its ability to comply with other remaining requirements under the 2009 Order and the 2016 Order, including the 2021 Deadline. While the Company cannot currently predict the likelihood or ~~that~~result of any ~~such compliance will not~~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 or obligations to Cal Am, orincluding fines and penalties against Cal Am in the ~~Company.~~event of noncompliance with the 2009 Order and the 2016 Order. See Note 11—Commitments and Contingencies in the Notes to the Consolidated Financial Statements for further discussion.

~~California Public Utilities Commission Residential Rate Design Proceeding~~

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~~Hearings before~~Desalination Plant Development Permit

The Monterey County Superior Court has continued the ~~administrative law judge in this proceeding~~stay on the commencement of physical construction of the desalination plant until further notice. Hearing on MCWD’s petition took place on October 6, 2020, and the court took the matter under submission.

Water Supply Project Land Use Acquisition and Slant Well Site Use

A hearing on the City’s December 30, 2019 lawsuit filed in ~~August~~the Monterey County Superior Court challenging the County’s filing, and ~~September 2017, and a subsequent hearing is currently~~SDWR’s acceptance of the filing, as the exclusive GSA for the CEMEX site has been scheduled for ~~November 27, 2017. Cal Am also submitted additional testimony on the issue of whether Cal Am should be penalized, and if so, the reasonable amount of any such penalty.~~

~~West Virginia Elk River Freedom Industries Chemical Spill~~

~~Preliminary Approval of WVAWC Global Class Action Litigation Settlement~~March 29, 2021.

On September ~~21, 2017,~~14, 2020, Cal Am filed a separate but related complaint challenging the validity of actions taken by the City in adopting a groundwater sustainability plan for the CEMEX site, and the validity of the provisions of such plan. A case management conference has been set for January 12, 2021.

On May 8, 2020, the City filed a lawsuit, which it amended on June 29, 2020, in Monterey County Superior Court, naming Cal Am and CEMEX as defendants, and MCWRA and MCWD as real parties in interest. The lawsuit alleges a claim for breach of contract against CEMEX and seeks a declaration voiding the permanent easement to Cal Am and prohibiting extraction of water by Cal Am’s slant wells at the CEMEX site in excess of 500 acre-feet per year and the export of such water outside the groundwater basin. Cal Am is vigorously defending itself against the claims raised in the City’s lawsuit. To that effect, Cal Am has filed a demurrer and motion to strike, and each of CEMEX and MCWRA has also filed a demurrer. Arguments on the demurrers and motions to strike were heard at a hearing held on September 1, 2020. Following the hearing, on September 30, 2020, the court in(i) overruled the Federal action issued an order granting preliminary approval of a settlement class and proposed class action settlement (the “Settlement”) with respect to claims against the American Water Defendants by all putative class members (collectively, the “Plaintiffs”) for all claims and potential claims arising out of the January 9, 2014 Freedom Industries, Inc. chemical spill into the Elk River in West Virginia. Preliminary approval was granted after the partiesdemurrers as to the ~~Settlement filed with~~claim for declaratory relief, (ii) sustained the ~~court in~~demurrers as to the ~~Federal action a proposed amended global agreement and related materials on August 25, 2017 addressing~~breach of contract claim but permitted the ~~matters set forth in the court’s July 6, 2017 order denying without prejudice the joint motion for preliminary approval of the Settlement.~~

The Settlement covered by the order proposes a global resolution of all federal and state litigation and potential claims against the American Water Defendants and their insurers. Under the terms and conditions of the Settlement and the proposed amended settlement agreement, the American Water Defendants have not admitted, and will not admit, any fault or liability for any of the allegations made by the Plaintiffs in any of the actions to be resolved. Under federal class action rules, a claimant may elect to opt out of the final Settlement, in which case such claimant will not receive any benefit from or be bound by the terms of the Settlement. The American Water Defendants would haveplaintiff the right to ~~withdraw from~~amend its claim, and (iii) denied the ~~Settlement if more than~~motions to strike.

On August 4, 2020, MCWD filed a cross-complaint against Cal Am, CEMEX and MCWRA, alleging claims for specific performance of certain ~~number of putative class members opt out~~provisions of the ~~Settlement. The deadline imposed by the court in the Federal action for any Plaintiff to opt out of the Settlement or file an objection to the Settlement is December 8, 2017.~~

The proposed aggregate pre-tax amount of the Settlement with respect to the Company remains at $126 million. However, the aggregate portion of the Settlement to be contributed by WVAWC, net of insurance recoveries, has been reduced from $65 million to $43 million (approximately $26 million after-tax) due to the recent settlement with one of the Company’s general liability insurance carriers, as discussed below. This reduction will apply to WVAWC’s contributions to the guaranteed fund. The contribution by another defendant to the Settlement remains at $25 million. If any final approval order by the court with respect to the Settlement is appealed and such appeal would delay potential payment to claimants under the Settlement, WVAWC and the other defendant to the Settlement will contribute up to $50 million and $25 million, respectively, to the Settlement (not including, in the case of WVAWC, any contributions by the Company’s general liability insurance carriers which would not be made until such time as a final, non-appealable order is issued) into an escrow account during the pendency of such appeals. For certain claims, WVAWC and the other defendant to the Settlement may, in lieu of these escrowed contributions, make advance payments of such claims if agreed to by the parties. All administrative expenses of the Settlement and attorneys’ fees of class counsel related thereto would be paid from the funds designated to pay claims covered by the Settlement.

Notice of the terms of the Settlement to members of the settlement class commenced on October 11, 2017 and is expected to be completed by November 8, 2017. Following the notice period, the court will hold a fairness hearing to consider final approval of the Settlement, which is currently scheduled to be held on January 9, 2018. There can be no assurance that the Settlement will not be amended further or that the court will provide its final approval as to any1996 annexation agreement ~~negotiated between the parties reflecting the terms of the Settlement.~~

The court in the Federal action has currently postponed a trial indefinitely in light of the preliminary approval of the Settlement and the global settlement agreement described above, and the Mass Litigation Panel stayed its proceedings until January 23, 2018.

Two of the Company’s insurance carriers that provide an aggregate of $50 million in insurance coverage to the Company under its general liability policies, had been originally requested, but at the time of the initial filing of the binding agreement in principle with the court in the Federal action in October 2016, had not agreed, to participate in the Settlement. WVAWC had filed a lawsuit against one of these carriers alleging that the carrier’s failure to agree to participate in the Settlement constituted a breach of contract. On September 19, 2017, the Company and the insurance carrier settled this lawsuit for $22 million, out of a maximum of $25 million in potential coverage under the terms of the relevant policy, in exchange for a full release by the Company and WVAWC of all claims against the insurance carrier related to the ~~Freedom Industries chemical spill,~~property owned by CEMEX on which intake wells for the Water Supply Project will be located, water rights, nuisance, unreasonable water use, and declaratory relief. On September 9, 2020, Cal Am filed a demurrer and motion to strike challenging the claims asserted by MCWD. On October 14, 2020, the court sustained, with leave to amend, the demurrers as to the claims for specific performance, enjoinment of invasion of water rights, nuisance and unreasonable water use, and the ~~parties agreed to stay this litigation pending final approval of~~court overruled the ~~Settlement. The settlement with the insurance carrier reduced the total amount of WVAWC’s potential contributions~~demurrers as to the ~~Settlement from $65 million to $43 million. In the third quarter of 2017, WVAWC recorded an additional insurance receivable of $22 million, resulting in an after-tax benefit of $13 million.~~

~~The Company and WVAWC continue to pursue vigorously their rights to insurance coverage~~claim for contributions by WVAWC to the Settlement in mandatory arbitration with the remaining non-participating carrier. This arbitration proceeding remains pending. Despite these efforts, the Company may not ultimately be successful in obtaining further reimbursement under the remaining insurance policy for amounts that WVAWC may be required to contribute to the Settlement.declaratory relief.

Dunbar, West Virginia Water Main Break Class Action Litigation

On ~~October 12, 2017, WVAWC~~February 4, 2020, the Jeffries plaintiffs filed ~~with the court~~ 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. A hearing on class certification was held on March 11, 2020, followed by a status conference on April 7, 2020. On June 11, 2020, the court ruled that it would partially grant the Jeffries plaintiffs’ motion for certification of an issues class and would deny the request for certification of a class to determine a punitive damages multiplier for the class. On July 14, 2020, the court entered an order reflecting its June 11, 2020 rulings, and on August 31, 2020, WVAWC filed a Petition for a Writ of Prohibition in the Supreme Court of Appeals of West Virginia seeking to vacate or remand the certification of the issues class. At the request of the parties, the trial court entered an order on September 10, 2020 to stay all matters in the class proceeding pending consideration of this petition. A trial date for the class proceeding has been set for April 12, 2021, but the Company believes that it will likely be delayed.

Chattanooga, Tennessee Water Main Break Class Action Litigation

On November 22, 2019, the Tennessee-American Water Defendants filed a motion to dismiss ~~all of~~ the ~~plaintiffs’ counts alleging statutory~~complaint as filed for failure to state a claim upon which relief may be granted, and, common law tort claims. Furthermore, WVAWC asserts that the PSC, and not the court, has primary jurisdiction over allegations involving violations of the applicable tariff, the public utility code and related rules. This motion 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. While WVAWC and the Company are unable to predict the outcome of this matter, an adverse outcome could have a material adverse effect on the Company’s financial condition, results of operations, cash flows, liquidity and/or reputation.

~~Contract Operations Group -- East Palo Alto Water System Voluntary Report~~

By letter dated October 4, 2017, the SWRCB advised AWE that it is in compliance with all of the directives and relevant statutory and administrative provisions specified in the SWRCB’s June 15, 2017 citation. While AWE has completed all required compliance activities with respect to the ~~citation,~~Company, for lack of personal jurisdiction. Oral argument on the ~~SWRCB has previously reserved~~motion to dismiss took place on September 9, 2020. On September 18, 2020, the ~~right~~court (i) granted the motion to ~~take additional enforcement action. Proven violations~~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 ~~CSDWA may result~~Tennessee Plaintiffs, the court dismissed without prejudice all claims in ~~civil~~the Bruce complaint against the Company and ~~criminal penalties. AWE continues to cooperate~~Service Company. The impact of the September 2020 court orders was that all of the Tennessee Plaintiffs’ claims in this complaint were dismissed, other than the breach of contract claims against TAWC. On October 16, 2020, TAWC answered the complaint, and the parties are commencing with ~~the SWRCB, the City~~discovery.

Table of ~~East Palo Alto and other authorities regarding this matter.~~Contents

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, ~~you~~readers should carefully consider the factors discussed in Part I, Item 1A—Risk Factors in ~~our~~the Form 10-K, and in ~~our~~the Company’s other ~~public~~ filings with the SEC, which could materially affect ~~our~~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 ~~our~~the Form 10-K, other than as set forth below.

In this Item 1A, unless the context otherwise requires, references to “we,” “us,” “our,” and “American Water” mean American Water Works Company, Inc. and its subsidiaries, taken together as a whole. Capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Form 10-K.

Our utility operations are subject to extensive regulation by state PUCs and other regulatory agencies, which significantly affects our business, financial condition, results of operations and cash flows. Our utility operations also may be subject to fines, penalties and other sanctions for an inability to meet these regulatory requirements.

Our Regulated Businesses provide water and wastewater services to our customers through subsidiaries that are subject to regulation by state PUCs. This regulation affects the rates we charge our customers and has a significant impact on our business and results of operations. Generally, the state PUCs authorize us to charge rates that they determine are sufficient to recover our prudently incurred operating expenses, including, but not limited to, operating and maintenance costs, depreciation, financing costs and taxes, and provide us the opportunity to earn an appropriate rate of return on invested capital.

Our ability to successfully implement our business plan and strategy depends on the rates authorized by the various state PUCs. We periodically file rate increase applications with state PUCs. The ensuing administrative process may be lengthy and costly. Our rate increase requests may or may not be approved, or may be partially approved, and any approval may not occur in a timely manner. Moreover, a PUC may not approve a rate request to an extent that is sufficient to:

•cover our expenses, including purchased water and costs of chemicals, fuel and other commodities used in our operations;

•enable us to recover our investment; and

•provide us with an opportunity to earn an appropriate rate of return on our investment.

Approval of the PUCs is also required in connection with other aspects of our utilities’ operations. Some state PUCs are empowered to impose financial penalties, fines and other sanctions for non-compliance with applicable rules and regulations. Our utilities are also required to have numerous permits, approvals and certificates from the PUCs that regulate their businesses and authorize acquisitions, dispositions, and, in certain cases, affiliated transactions. Although we believe that each utility subsidiary has obtained or sought renewal of the material permits, approvals and certificates necessary for its existing operations, we are unable to predict the impact that future regulatory activities may have on our business.

The current COVID-19 pandemic may limit or curtail significantly or entirely the ability of PUCs to approve or authorize applications and other requests we may make with respect to our Regulated Businesses, including without limitation any or all types of approvals described above, as PUCs and their staffs seek to reduce, delay or streamline proceedings and other activities. PUCs and other governmental authorities have taken, and may continue to take, emergency or other actions in light of the pandemic that may impact us, including prohibiting the termination of service for non-payment during the current COVID-19 pandemic and extending or delaying procedural schedules in our regulatory proceedings. At this time, we are unable to predict the range of impacts that this pandemic or other related events may have on our ability to obtain these approvals as needed or requested by the Regulated Businesses in the ordinary course or at all, or the nature of any further emergency or other action that may be taken by the PUCs or other governmental authorities.

In any of these cases, our business, financial condition, results of operations, cash flows and liquidity may be adversely affected. Even if rates are sufficient, we face the risk that we will not achieve the rates of return on our invested capital to the extent permitted by state PUCs. This could occur if certain conditions exist, including, but not limited to, if water usage is less than the level anticipated in establishing rates, whether due to conservation efforts, impacts of the COVID-19 pandemic or otherwise, or if our investments or expenses prove to be higher than the level estimated in establishing rates.

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Service disruptions caused by severe weather conditions, climate variability patterns or natural or other disasters may disrupt our operations or reduce the demand for our water services, which could adversely affect our financial condition, results of operations, cash flows and liquidity.

Service interruptions due to severe weather, climate variability patterns and natural or other events are possible across all our businesses. These include, among other things, storms, freezing conditions, high wind conditions, hurricanes, tornadoes, earthquakes, landslides, drought, wildfires, coastal and intercoastal floods or high water conditions, including those in or near designated flood plains, pandemics (including COVID-19) and epidemics, severe electrical storms, sinkholes and solar flares. Weather and other natural events such as these may affect the condition or operability of our facilities, limiting or preventing us from delivering water or wastewater services to our customers, or requiring us to make substantial capital expenditures to repair any damage. Tariffs in place or cost recovery proceedings with respect to our Regulated Businesses may not provide reimbursement to us, in whole or in part, for any of these impacts.

Government restrictions on water use may also result in decreased use of water services, even if our water supplies are sufficient to serve our customers, which may adversely affect our financial condition, results of operations and cash flows. Seasonal drought conditions that may impact our water services are possible across all of our service areas. Governmental restrictions imposed in response to a drought may apply to all systems within a region independent of the supply adequacy of any individual system. Responses may range from voluntary to mandatory water use restrictions, rationing restrictions, water conservation regulations, and requirements to minimize water system leaks. While expenses incurred in implementing water conservation and rationing plans may generally be recoverable provided the relevant PUC determines they were reasonable and prudent, we cannot assure that any such expenses incurred will, in fact, be fully recovered. Moreover, reductions in water consumption, including those resulting from installation of equipment or changed consumer behavior, may persist even after drought restrictions are repealed and the drought has ended, which could adversely affect our business, financial condition, results of operations and cash flows.

A loss of one or more large industrial or commercial customers could have a material adverse impact upon the results of operations of one or more of our Regulated Businesses.

Adverse economic conditions, the COVID-19 pandemic or other factors may cause our customers, particularly industrial and large commercial customers, to curtail operations. A curtailment of operations by such a customer would typically result in reduced water usage by that customer. For example, during the first nine months of 2020, the Company has experienced a decrease in net customer demand related mainly to industrial and commercial customers, which the Company believes to be attributable to the impacts of the COVID-19 pandemic. In more severe circumstances, the decline in usage could be permanent. Any decrease in demand resulting from difficult economic conditions or the current COVID-19 pandemic affecting these customers could adversely affect our financial condition and results of operations. Tariffs in place with respect to our Regulated Businesses may not reimburse us, in whole or in part, for any of these impacts.

Our business has inherently dangerous workplaces. If we fail to maintain safe work sites, we may experience workforce injuries or loss of life, and be exposed to financial losses, including penalties and other liabilities.

Safety is a core value and a strategy at American Water. Our safety performance and continual progress to our ultimate desired goal of zero injuries is critical to our reputation. We maintain health and safety standards to protect our employees, customers, contractors, vendors and the public. Although we intend to adhere to such health and safety standards with a goal of achieving zero injuries, it is extremely challenging to eliminate all safety incidents at all times.

At our business sites, including construction and maintenance sites, our employees, contractors and others are often in close proximity to large pieces of equipment, moving vehicles, pressurized water, underground trenches and vaults, chemicals and other regulated materials. On many sites, we are responsible for safety and, accordingly, must implement important safety procedures and practices above what governmental regulations require. As an essential business that must continue to provide water and wastewater services during the current COVID-19 pandemic, we are keenly focused on the care and safety of our employees, contractors, vendors and others who work at or visit our worksites. In this regard, for example, we have instituted work-from-home guidelines for all employees who can work remotely, closed all customer payment locations, implemented social distancing for work-related activities at a worksite, and encouraged the practice of frequent hand-washing. If the procedures we implement are ineffective or are not followed by our employees or others, or we fail to implement procedures, our employees, contractors and others may experience illness, or minor, serious or fatal injuries. Unsafe work sites have the potential to increase employee turnover, expose us to litigation and raise our operating costs. Any of the foregoing could result in financial losses, which could have a material adverse impact on our business, financial condition, results of operations and cash flows.

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In addition, our operations can involve the delivery, handling and storage of hazardous chemicals, which, if improperly delivered, handled, stored or disposed of, could result in serious injury, death, environmental damage or property damage, and could subject us to penalties or other liabilities. We are also subject to regulations dealing with occupational health and safety. Although we maintain functional employee groups whose primary purpose is to ensure we implement effective health and, safety work procedures and practices throughout our organization, including construction sites and maintenance sites, the failure to comply with such regulations or procedures could subject us to liability.

Our indebtedness could affect our business adversely and limit our ability to plan for or respond to changes in our business, and we may be unable to generate sufficient cash flows to satisfy our liquidity needs.

As of September 30, 2020, our aggregate long-term and short-term debt balance (including preferred stock with mandatory redemption requirements) was $10.7 billion, and our working capital (defined as current assets less current liabilities) was in a deficit position. Our indebtedness could have important consequences, including:

•limiting our ability to obtain additional financing to fund future working capital requirements or capital expenditures;

•exposing us to interest rate risk with respect to the portion of our indebtedness that bears interest at variable rates;

•limiting our ability to pay dividends on our common stock or make payments in connection with our other obligations;

•impairing our access to the capital markets for debt and equity;

•requiring that an increasing portion of our cash flows from operations be dedicated to the payment of the principal and interest on our debt, thereby reducing funds available for future operations, dividends on our common stock or capital expenditures;

•limiting our ability to take advantage of significant business opportunities, such as acquisition opportunities, and to react to changes in market or industry conditions; and

•placing us at a competitive disadvantage compared to those of our competitors that have less debt.

In order to meet our capital expenditure needs, we may be required to borrow additional funds under the revolving credit facility or issue a combination of new short-term and long-term debt, and/or equity. We continue to assess our short- and long-term liquidity needs in light of the impact of the COVID-19 pandemic on the financial and capital markets, especially with respect to the market for corporate commercial paper, which has experienced recent volatility and shortages of liquidity. In response to these events, on March 20, 2020, we entered into the $750 million 364-day Term Loan Facility and immediately executed a $500 million draw thereunder to support our short-term liquidity by retaining that amount in cash. The Term Loan Facility allowed for a single additional borrowing of up to $250 million, which expired unused on June 19, 2020. During the first nine months of 2020, we also utilized our existing sources of liquidity, such as our current cash balances, cash flows from operations and borrowings under the revolving credit facility as necessary or desirable to meet our short-term liquidity requirements. We believe that existing sources of liquidity will be sufficient to meet our cash requirements for the foreseeable future. However, as the impacts of the COVID-19 pandemic on the economy, the financial and capital markets and our operations evolve, we will continue to assess our liquidity needs. In the event of a sustained market deterioration, we may need to obtain additional sources of liquidity, which would require us to evaluate available alternatives and take appropriate actions.

Moreover, additional borrowings may be required to refinance outstanding indebtedness. Other than debt with respect to the Term Loan Facility, debt maturities and sinking fund payments in 2021, 2022 and 2023 will be $315 million, $14 million and $356 million, respectively. We can provide no assurance that we will be able to access the debt or equity capital markets on favorable terms, if at all. Moreover, as new debt is added to our current debt levels, the related risks we now face could intensify, limiting our ability to refinance existing debt on favorable terms.

We have in the past (including during the first quarter of 2020) entered into, and in the future may enter into, financial derivative instruments, including without limitation, interest rate swaps, forward starting swaps, swaptions and U.S. Treasury lock agreements. However, these efforts may not be effective to fully mitigate interest rate risk, and may expose us to other risks and uncertainties, including quarterly “mark to market” valuation risk associated with these instruments, that could negatively and materially affect our financial condition, results of operations and cash flows.

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Our ability to pay our expenses and satisfy our debt service obligations depends in significant part on our future performance, which will be affected by the financial, business, economic, competitive, legislative (including tax initiatives and reforms, and other similar legislation or regulation), regulatory and other risk factors described in this section, many of which are beyond our control. If we do not have sufficient cash flows to pay the principal and interest on our outstanding debt, we may be required to refinance all or part of our existing debt, reduce capital investments, sell assets, borrow additional funds or sell additional equity. In addition, if our business does not generate sufficient cash flows from operations, or if we are unable to incur indebtedness sufficient to enable us to fund our liquidity needs, we may be unable to plan for or respond to changes in our business, which could cause our financial condition, operating results and prospects to be affected materially and adversely.

Our inability to access the capital or financial markets or other events could affect our ability to meet our liquidity needs at reasonable cost and our ability to meet long-term commitments, which could adversely affect our financial condition and results of operations.

In addition to cash from operations, we generally rely primarily on AWCC’s $2.25 billion revolving credit facility, its $2.1 billion commercial paper program, and the capital markets to satisfy our liquidity needs. On April 1, 2020, the termination date of the credit agreement with respect to AWCC’s revolving credit facility was extended pursuant to the terms of the credit agreement from March 21, 2024 to March 21, 2025. Historically, we have regularly used AWCC’s commercial paper program rather than this revolving credit facility as a principal source of short-term borrowing due to the generally more attractive rates we generally could obtain in the commercial paper market. In addition, on March 20, 2020, AWCC entered into the $750 million 364-day Term Loan Facility to provide additional short-term liquidity support. As of September 30, 2020, AWCC had no outstanding borrowings under the revolving credit facility, $545 million of commercial paper outstanding, $76 million in outstanding letters of credit and $500 million outstanding under the 364-day Term Loan Facility. There can be no assurance that AWCC will be able to continue to access its commercial paper program or its revolving credit facility, when, as and if desired, or that the amount of capital available thereunder will be sufficient to meet all of our liquidity needs at a reasonable, or any, cost.

Under the terms of the revolving credit facility and the 364-day Term Loan Facility, our consolidated debt cannot exceed 70% of our consolidated capitalization, as determined under the terms of those facilities. If our equity were to decline or debt were to increase to a level that causes us to exceed this limit, lenders under those facilities would be entitled to refuse any further extension of credit under the revolving credit facility and to declare all of the outstanding debt under the revolving credit facility and/or the Term Loan Facility immediately due and payable. To avoid such a default, a waiver or renegotiation of this covenant would be required, which would likely increase funding costs and could result in additional covenants that would restrict our operational and financing flexibility.

Our ability to comply with this and other covenants contained in the revolving credit facility, the Term Loan Facility and our other consolidated indebtedness is subject to various risks and uncertainties, including events beyond our control. For example, events that could cause a reduction in equity include, without limitation, a significant write-down of our goodwill. Even if we are able to comply with this or other covenants, the limitations on our operational and financial flexibility could harm our business by, among other things, limiting our ability to incur indebtedness or reduce equity in connection with financings or other corporate opportunities that we may believe would be in our best interests or the interests of our shareholders to complete.

Disruptions in the capital markets or changes in our credit ratings could also limit our ability to access capital on terms favorable to us or at all. For example, in April 2019, Moody’s Investors Service changed the Company’s senior unsecured debt rating to Baa1, from A3, with a stable outlook. While the lending banks that participate in the revolving credit facility have met all of their obligations under those facilities, disruptions in the credit markets, changes in our credit ratings, or deterioration of the banking industry’s financial condition could discourage or prevent lenders from meeting their existing lending commitments, extending the terms of such commitments, or agreeing to new commitments. These or other occurrences may cause our lenders to not meet their existing commitments, and we may not be able to access the commercial paper or loan or capital markets in the future on terms acceptable to us or at all. Furthermore, our inability to maintain, renew or replace commitments under our revolving credit facility could materially increase our cost of capital and adversely affect our financial condition, results of operations and liquidity. Longer-term disruptions in the capital and credit markets as a result of economic, legislative, political or other uncertainty, including as a result of the current COVID-19 pandemic, changes in U.S. tax and other laws, reduced financing alternatives, or failures of significant financial institutions could adversely affect our access to the liquidity needed for our business. Any significant disruption in the capital, debt or credit markets, or financial institution failures could require us to take measures to conserve cash until the market stabilizes or until alternative financing can be arranged. Such measures could include delaying or deferring capital expenditures, reducing or suspending dividend payments, and reducing other discretionary expenditures. Finally, there is no assurance that we will be able to access the equity capital markets to obtain financing when necessary or desirable and on terms that are reasonable or acceptable to us.

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Any of the foregoing events that impede our access to the capital markets, or the failure of any of our lenders to meet their commitments that result from financial market disruptions, could expose us to increased interest expense, require us to institute cash conservation measures or otherwise adversely and materially affect our business, financial condition, results of operations, cash flows and liquidity.

Market volatility and other conditions may impact the value of benefit plan assets and liabilities, as well as assumptions related to the benefit plans, which may require us to provide significant additional funding.

The performance of the capital markets affects the values of the assets that are held in trust to satisfy significant future obligations under our pension and postretirement benefit plans. The value of these assets is subject to market fluctuations and volatility, which may cause investment returns to fall below our projected return rates. Recently, in connection with the COVID-19 pandemic, the stock market generally has experienced significant day-to-day fluctuations in market prices. We are currently unable to predict the effect, if any, of the COVID-19 pandemic on the valuation of our pension assets and liabilities. A decline in the market value of our pension and postretirement benefit plan assets as of the measurement date can increase the funding requirements under our pension and postretirement benefit plans. Additionally, our pension and postretirement benefit plan liabilities are sensitive to changes in interest rates. In connection with the COVID-19 pandemic, interest rates have experienced volatility and are subject to potential further adjustments based on the actions of the U.S. Federal Reserve, and others. If interest rates are lower at the measurement date, our liabilities would increase, potentially increasing benefit expense and funding requirements. Further, changes in demographics, such as increases in life expectancy assumptions and increasing trends in health care costs may also increase our funding requirements. Future increases in pension and other postretirement costs as a result of reduced plan assets may not be fully recoverable in rates, in which case our results of operations and financial position could be negatively affected.

In addition, market factors can affect assumptions we use in determining funding requirements with respect to our pension and postretirement plans. For example, a relatively modest change in our assumptions regarding discount rates can materially affect our calculation of funding requirements. To the extent that market data compels us to reduce the discount rate used in our assumptions, our benefit obligations could be materially increased, which could adversely affect our financial position, results of operations and cash flows.

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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, ~~2017.~~2020. From April 1, 2015, the date repurchases under the anti-dilutive stock repurchase program commenced, through September 30, ~~2017,~~2020, the Company repurchased an aggregate of ~~3,950,000~~4,860,000 shares of common stock under the program, leaving an aggregate of ~~6,050,000~~5,140,000 shares available for repurchase under this program.

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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
~~3.1~~#2.1		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).
3.1		Restated Certificate of Incorporation of American Water Works Company, Inc. (incorporated by reference to Exhibit 3.1 to the Company’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 3.2 to the Company’s Quarterly Report on Form 10-Q, File No. 001-34028, filed August 5, 2015).
~~4.1~~*10.1		~~Officers’ Certificate of American Water Capital Corp.,~~Offer Letter for Employment, dated August ~~10, 2017, establishing the terms of its 2.95% Senior Notes due 2027 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, File No. 001-34028, filed August 10, 2017).~~
~~4.2~~	Officers’ Certificate of American Water Capital Corp., dated August 10, 2017, establishing the terms of its 3.75% Senior Notes due 2047 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, File No. 001-34028, filed August 10, 2017).
~~10.1~~	5, 2020, between American Water Works Company, Inc. and its Designated Subsidiaries 2017 Nonqualified Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8, File No. 333-219682, filed August 4, 2017).Adam Noble.
*~~31.1~~10.2		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2020 Restricted Stock Unit Grant (for Adam Noble).
*31.1		Certification of ~~Susan N. Story,~~Walter J. Lynch, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act.
*31.2		Certification of ~~Linda G. Sullivan,~~M. Susan Hardwick, Executive Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act.
**32.1		Certification of ~~Susan N. Story,~~Walter J. Lynch, President and Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act.
**32.2		Certification of ~~Linda G. Sullivan,~~M. Susan Hardwick, Executive Vice President and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act.
*101101.INS		~~The following financial statements from American Water Works Company, Inc.’s Quarterly Report on Form 10-Q for~~XBRL Instance Document - the ~~quarterly period ended September 30, 2017, filed~~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 ~~the Securities and Exchange Commission on November 1, 2017, formatted~~applicable taxonomy extension information contained in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows; (v) the Consolidated Statements of Changes in Stockholders’ Equity; and (vi) the Notes to Consolidated Financial Statements.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; provided, however, that the Company may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any exhibits or schedules so furnished.

* Filed herewith.

** Furnished ~~herewith.~~herewith

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The Stock Purchase Agreement filed as Exhibit 2.1 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 Stock Purchase Agreement (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 the Stock Purchase 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 the Stock Purchase 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 the Stock Purchase 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 the Stock Purchase 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 the Stock Purchase Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures. The Stock Purchase Agreement should not be read alone, but should instead be read in conjunction with the other information regarding the Company and its New York subsidiary 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 ~~1st~~4th day of November, ~~2017.~~

2020.



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

4457



Delaware		51-0063696
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
~~1025 Laurel Oak Road, Voorhees, NJ~~	~~08043~~
~~(Address of principal executive offices)~~	~~(Zip Code)~~


			Page
Forward-Looking Statements			1
		Part I. Financial Information
Item 1.		Consolidated Financial Statements	3
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.		Controls and Procedures	44
		Part II. Other Information
Item 1.		Legal Proceedings	46
Item 1A.		Risk Factors	48
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3.		Defaults Upon Senior Securities	54
Item 4.		Mine Safety Disclosures	54
Item 5.		Other Information	54
Item 6.		Exhibits	55

~~Class~~Signatures				~~Outstanding as of October 26, 2017~~
~~Common Stock, $0.01 par value per share~~	~~178,375,400 shares~~ ~~(excludes 4,064,010 treasury shares as of October 26, 2017)~~57



~~FORWARD LOOKING STATEMENTS~~	1

~~PART I. FINANCIAL INFORMATION~~	3

~~ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS~~	3
~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~	23
~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~	38
~~ITEM 4. CONTROLS AND PROCEDURES~~	38

~~PART II. OTHER INFORMATION~~	39

~~ITEM 1. LEGAL PROCEEDINGS~~	39
~~ITEM 1A. RISK FACTORS~~	42
~~ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~	42
~~ITEM 3. DEFAULTS UPON SENIOR SECURITIES~~	42
~~ITEM 4. MINE SAFETY DISCLOSURES~~	42
~~ITEM 5. OTHER INFORMATION~~	42
~~ITEM 6. EXHIBITS~~	43

~~SIGNATURES~~	44


	September 30, 2017			December 31, 2016				September 30, 2020		December 31, 2019
ASSETS	ASSETS						ASSETS
Property, plant and equipment	$	20,946		$	19,954		Property, plant and equipment	$	25,133	$	23,941
Accumulated depreciation	(5,265		)	(4,962		)	Accumulated depreciation	(5,866)		(5,709)
Property, plant and equipment, net	15,681			14,992			Property, plant and equipment, net	19,267		18,232
Current assets:							Current assets:
Cash and cash equivalents	93			75			Cash and cash equivalents	560		60
Restricted funds	28			20			Restricted funds	39		31
Accounts receivable, net	312			269
Accounts receivable, net of allowance for uncollectible accounts of $52 and $41, respectively							Accounts receivable, net of allowance for uncollectible accounts of $52 and $41, respectively	358		294
Unbilled revenues	234			263			Unbilled revenues	201		172
Materials and supplies	42			39			Materials and supplies	49		44
Assets held for sale							Assets held for sale	618		566
Other	151			118			Other	142		118
Total current assets	860			784			Total current assets	1,967		1,285
Regulatory and other long-term assets:							Regulatory and other long-term assets:
Regulatory assets	1,374			1,289			Regulatory assets	1,144		1,128
Operating lease right-of-use assets							Operating lease right-of-use assets	97		103
Goodwill	1,373			1,345			Goodwill	1,504		1,501
Postretirement benefit assets							Postretirement benefit assets	155		159
Intangible assets							Intangible assets	58		67
Other	73			72			Other	202		207
Total regulatory and other long-term assets	2,820			2,706			Total regulatory and other long-term assets	3,160		3,165
TOTAL ASSETS	$	19,361		$	18,482
Total assets							Total assets	$	24,394	$	22,682


	September 30, 2017			December 31, 2016				September 30, 2020		December 31, 2019
CAPITALIZATION AND LIABILITIES	CAPITALIZATION AND LIABILITIES						CAPITALIZATION AND LIABILITIES
Capitalization:							Capitalization:
Common stock ($0.01 par value, 500,000,000 shares authorized, 182,437,980 and 181,798,555 shares issued, respectively)	$	2		$	2
Common stock ($0.01 par value; 500,000,000 shares authorized; 186,437,589 and 185,903,727 shares issued, respectively)							Common stock ($0.01 par value; 500,000,000 shares authorized; 186,437,589 and 185,903,727 shares issued, respectively)	$	2	$	2
Paid-in-capital	6,423			6,388			Paid-in-capital	6,739		6,700
Accumulated deficit	(573		)	(873		)
Retained earnings (accumulated deficit)							Retained earnings (accumulated deficit)	157		(207)
Accumulated other comprehensive loss	(87		)	(86		)	Accumulated other comprehensive loss	(38)		(36)
Treasury stock, at cost (4,064,010 and 3,701,867 shares, respectively)	(247		)	(213		)
Total common stockholders' equity	5,518			5,218
Treasury stock, at cost (5,168,086 and 5,090,855 shares, respectively)							Treasury stock, at cost (5,168,086 and 5,090,855 shares, respectively)	(348)		(338)
Total common shareholders' equity							Total common shareholders' equity	6,512		6,121
Long-term debt	6,672			5,749			Long-term debt	9,580		8,639
Redeemable preferred stock at redemption value	9			10			Redeemable preferred stock at redemption value	4		5
Total long-term debt	6,681			5,759			Total long-term debt	9,584		8,644
Total capitalization	12,199			10,977			Total capitalization	16,096		14,765
Current liabilities:							Current liabilities:
Short-term debt	103			849			Short-term debt	1,044		786
Current portion of long-term debt	687			574			Current portion of long-term debt	67		28
Accounts payable	144			154			Accounts payable	162		203
Accrued liabilities	498			609			Accrued liabilities	505		596
Taxes accrued	61			31
Interest accrued	103			63
Accrued taxes							Accrued taxes	64		46
Accrued interest							Accrued interest	101		84
Liabilities related to assets held for sale							Liabilities related to assets held for sale	138		128
Other	151			112			Other	179		174
Total current liabilities	1,747			2,392			Total current liabilities	2,260		2,045
Regulatory and other long-term liabilities:							Regulatory and other long-term liabilities:
Advances for construction	279			300			Advances for construction	262		240
Deferred income taxes, net	2,862			2,596
Deferred investment tax credits	23			23
Deferred income taxes and investment tax credits							Deferred income taxes and investment tax credits	2,060		1,893
Regulatory liabilities	408			403			Regulatory liabilities	1,777		1,806
Operating lease liabilities							Operating lease liabilities	83		89
Accrued pension expense	421			419			Accrued pension expense	386		411
Accrued postretirement benefit expense	84			87
Other	74			67			Other	79		78
Total regulatory and other long-term liabilities	4,151			3,895			Total regulatory and other long-term liabilities	4,647		4,517
Contributions in aid of construction	1,264			1,218			Contributions in aid of construction	1,391		1,355
Commitments and contingencies (see Note 9)
TOTAL CAPITALIZATION AND LIABILITIES	$	19,361		$	18,482
Commitments and contingencies (See Note 11)							Commitments and contingencies (See Note 11)
Total capitalization and liabilities							Total capitalization and liabilities	$	24,394	$	22,682



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



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



Company	Type	Rate	Maturity	Amount
American Water Capital Corp. (a)	Senior Notes	2.95%-3.75%	2027-2047	$	1,350
Other American Water subsidiaries	Private activity bonds and government funded debt—fixed rate	0.00%-3.92%	2020-2036	21
Other American Water subsidiaries	Term Loan	4.48%-4.98%	2021	11
Total issuances				$	1,382



	Carrying Amount		At Fair Value as of September 30, 2017
	Carrying Amount		Level 1		Level 2		Level 3		Total
Preferred stock with mandatory redemption requirements	$	11	$	—	$	—	$	15	$	15
Long-term debt (excluding capital lease obligations)	7,357		5,375		990		1,867		8,232

	Carrying Amount		At Fair Value as of December 31, 2016
	Carrying Amount		Level 1		Level 2		Level 3		Total
Preferred stock with mandatory redemption requirements	$	12	$	—	$	—	$	15	$	15
Long-term debt (excluding capital lease obligations)	6,320		3,876		1,363		1,805		7,044


	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


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


	For the Twelve Months Ended September 30,
(Dollars in millions)	2020			2019
Total operation and maintenance expenses	$	1,605		$	1,526
Less:
Operation and maintenance expenses—Market-Based Businesses	386			398
Operation and maintenance expenses—Other	(20)			(49)
Total operation and maintenance expenses—Regulated Businesses	1,239			1,177
Less:
Regulated purchased water expenses	146			133
Allocation of non-operation and maintenance expenses	34			32
Adjusted operation and maintenance expenses—Regulated Businesses (i)	$	1,059		$	1,012

Total operating revenues	$	3,756		$	3,558
Less:
Operating revenues—Market-Based Businesses	536			540
Operating revenues—Other	(18)			(22)
Total operating revenues—Regulated Businesses	3,238			3,040
Less:
Regulated purchased water revenues (a)	146			133
Adjusted operating revenues—Regulated Businesses (ii)	$	3,092		$	2,907

Adjusted O&M efficiency ratio—Regulated Businesses (i) / (ii)	34.2		%	34.8		%


~~(a)~~	~~Includes binding agreement in principle in 2016 and settlement with general liability insurance carrier in 2017.~~


~~(b)~~	~~Calculation assumes purchased water revenues approximate purchased water expenses.~~


	Commercial Paper Limit		Letters of Credit		Total (a)
(In millions)
Total availability	$	2,100	$	150	$	2,250
Outstanding commercial paper	(545)		—		(545)
Outstanding letters of credit	—		(76)		(76)
Total outstanding	(545)		(76)		(621)
Remaining availability as of September 30, 2020	$	1,555	$	74	$	1,629


	Cash and Cash Equivalents		Availability on Revolving Credit Facility		Total Available Liquidity
(In millions)
Available liquidity as of September 30, 2020	$	560	$	1,629	$	2,189



	Credit Facilities Commitment (a)		Available Credit Facility Capacity (a)		Letter of Credit Sublimit		Available Letter of Credit Capacity		Commercial Paper Limit		Available Commercial Paper Capacity
(In millions)
September 30, 2017	$	1,762	$	1,669	$	150	$	86	$	1,600	$	1,497