Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2022
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from______to ______
Commission file numbernumber: 001-34028
AMERICAN WATER WORKS COMPANY, INC.
(Exact name of registrant as specified in its charter)
 
Delaware51-0063696
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1025 Laurel Oak Road, Voorhees, NJ08043
(Address of principal executive offices)(Zip Code)
1 Water Street, Camden, NJ 08102-1658
(Address of principal executive offices) (Zip Code)
(856) 346-8200955-4001
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, par value $0.01 per shareAWKNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐Non-accelerated filer☐
Non-accelerated filerSmaller reporting company☐Smaller reporting company☐
(Do not check if a smaller reporting company)Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.).  ☐ Yes  ☒ No
Indicate the number of shares outstanding of each of the issuer’sregistrant’s classes of common stock, as of the latest practicable date.
ClassShares Outstanding as of April 21, 2022
Common Stock, par value $0.01 per share181,753,276


TABLE OF CONTENTS
Page
1
Part I. Financial Information
Item 1.
4
Item 2.
26
Item 3.
39
Item 4.
40
Part II. Other Information
Item 1.
41
Item 1A.
41
Item 2.
41
Item 3.
41
Item 4.
41
Item 5.
41
Item 6.
42
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)43

*    *    *
Throughout this Quarterly Report on Form 10-Q (“Form 10-Q”), unless the context otherwise requires, references to the “Company” and “American Water” mean American Water Works Company, Inc. and all of its subsidiaries, taken together as a whole. References to the “parent company” mean American Water Works Company, Inc., without its subsidiaries.
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TABLE OF CONTENTS
AMERICAN WATER WORKS COMPANY, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2017
INDEX
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



i


FORWARD-LOOKING STATEMENTS
We have made statementsStatements included in Part I, Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations and in other sections of this Quarterly Report on Form 10-Q (“Form 10-Q”), that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. In some cases, these forward-looking statements can be identified by words with prospective meanings such as “intend,” “plan,” “estimate,” “believe,” “anticipate,” “expect,” “predict,” “project,” “propose,” “assume,” “forecast,” “likely,” “uncertain,” “outlook,” “future,” “pending,” “goal,” “objective,” “potential,” “continue,” “seek to,” “may,” “can,” “should,” “will” and “could” or the negative of such terms or other variations or similar expressions. Forward-looking statements may relate to, among other things, ourthings: the Company’s future financial performance, including our adjusted operationliquidity and maintenance (“O&M”) efficiency ratio, cash flows, our growthflows; the timing and portfolio optimization strategies, our projected capital expendituresamount of rate and related funding requirements, our ability to repay debt, our projected strategy to finance current operations and growth initiatives, the impact of legal proceedings and potential fines and penalties, business process and technology improvement initiatives, trends in our industry, regulatory, legislative, political, tax policy or legal developments or raterevenue adjustments, including through general rate case filings, filings for infrastructure surcharges and other governmental agency authorizations and proceedings, and filings to address regulatory lag.lag; the Company’s growth and portfolio optimization strategies, including the timing and outcome of pending or future acquisition activity; the ability of the Company’s California subsidiary to obtain adequate alternative water supplies in lieu of diversions from the Carmel River; the amount and allocation of projected capital expenditures and related funding requirements; the Company’s ability to repay or refinance debt; the future impacts of increased or increasing financing costs, inflation and interest rates; the Company’s ability to execute its current and long-term business, operational and capital expenditures strategies; the Company’s ability to finance current operations, capital expenditures and growth initiatives by accessing the debt and equity capital markets; the outcome and impact on the Company of governmental and regulatory proceedings and related potential fines, penalties and other sanctions; the ability to meet or exceed the Company’s stated environmental and sustainability goals, including its greenhouse gas emission reduction, water delivery efficiency and water system resiliency goals; the ability to complete, and the timing and efficacy of, the design, development, implementation and improvement of technology and other strategic initiatives; the impacts to the Company of the COVID-19 pandemic; the ability to capitalize on existing or future utility privatization opportunities; trends in the water and wastewater industries in which the Company operates, including macro trends with respect to the Company’s efforts related to customer, technology and work execution; regulatory, legislative, tax policy or legal developments; and impacts that future significant tax legislation may have on the Company and on its business, results of operations, cash flows and liquidity.
Forward-looking statements are predictions based on ourthe Company’s current expectations and assumptions regarding future events. They are not guarantees or assurances of any outcomes, financial results, or levels of activity, performance or achievements, and youreaders are cautioned not to place undue reliance upon them. These forward-looking statements are subject to a number of estimates, and assumptions, and known and unknown risks, uncertainties and other factors. OurThe Company’s actual results may vary materially from those discussed in the forward-looking statements included herein as a result of the following important factors:
•the decisions of governmental and regulatory bodies, including decisions to raise or lower rates;customer rates and regulatory responses to the ongoing COVID-19 pandemic;
•the timeliness and outcome of regulatory commissions’ and other authorities’ actions concerning rates, capital structure, authorized return on equity, capital investment, system acquisitions and dispositions, taxes, permitting, water supply and management, and other decisions;
•changes in customer demand for, and patterns of use of, water, such as may result from conservation efforts;efforts, impacts of the COVID-19 pandemic, or otherwise;
•limitations on the availability of the Company’s water supplies or sources of water, or restrictions on its use thereof, resulting from allocation rights, governmental or regulatory requirements and restrictions, drought, overuse or other factors;
•a loss of one or more large industrial or commercial customers due to adverse economic conditions, the COVID-19 pandemic, or other factors;
•changes in laws, governmental regulations and policies, including environmental,with respect to the environment, health and safety, data and consumer privacy, security and protection, water quality and water quality accountability, contaminants of emerging concern, public utility and tax regulations and policies, and impacts resulting from U.S., state and local elections;elections and changes in federal, state and local executive administrations;
•the Company’s ability to collect, distribute, use, secure and store consumer data in compliance with current or future governmental laws, regulations and policies with respect to data and consumer privacy, security and protection;
•weather conditions and events, climate changevariability patterns, and natural disasters, including drought or abnormally high rainfall, prolonged and abnormal ice or freezing conditions, strong winds, coastal and intercoastal flooding, pandemics (including COVID-19) and epidemics, earthquakes, landslides, hurricanes, tornadoes, wildfires, electrical storms, sinkholes and solar flares;
•the outcome of litigation and similar government actions, including matters related to governmental and regulatory proceedings, investigations or actions;
•the Freedom Industries chemical spill in West Virginiarisks associated with the Company’s aging infrastructure, and the preliminarily approved global class action settlement agreement related to this chemical spill;
ourits ability to appropriately improve the resiliency of or maintain and replace, current or future infrastructure and systems, including our operationalits technology and information technology (“IT”) systems,other assets, and manage the expansion of our business;its businesses;
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•exposure or infiltration of ourthe Company’s technology and critical infrastructure operational technology and IT systems, including the disclosure of sensitive, personal or confidential information contained therein, through physical or cyber attacks or other disruptions;means;
our•the Company’s ability to obtain permits and other approvals for projects;projects and construction of various water and wastewater facilities;
•changes in ourthe Company’s capital requirements;
our•the Company’s ability to control operating expenses and to achieve efficiencies in our operations;operating efficiencies;
•the intentional or unintentional actions of a third party, including contamination of ourthe Company’s water supplies or the water provided to ourits customers;
our•the Company’s ability to obtain adequate and cost-effective supplies of pipe, equipment (including personal protective equipment), chemicals, electricity, fuel, water and other raw materials, and to address or mitigate supply chain constraints that may result in delays or shortages in, as well as increased costs of, supplies, products and materials that are needed for ourcritical to or used in the Company’s business operations;
our•the Company’s ability to successfully meet its operational growth projections, for our businesseither individually or in the aggregate, and capitalize on growth opportunities, including, our ability to, among other things, acquirewith respect to:
•acquiring, closing and integrate water and wastewater systems into oursuccessfully integrating regulated operations and entermarket-based businesses;
•the Company’s Military Services Group (“MSG”) entering into new military installation contracts, price redeterminations, and other agreements and contracts with or otherwise obtain,the U.S. government; and
•realizing anticipated benefits and synergies from new customersacquisitions;
•risks and uncertainties following the completion of the sale of the Company’s Homeowner Services Group (“HOS”) and its New York subsidiary, including:
•the Company’s ability to receive any contingent consideration provided for in our market-based businesses;the HOS sale, as well as amounts due, payable and owing to the Company from time to time under the seller promissory note when due; and
•the ability of the Company to redeploy successfully and timely the net proceeds of these transactions into the Company’s Regulated Businesses (as defined below);
•risks and uncertainties associated with contracting with the U.S. government, including ongoing compliance with applicable government procurement and security regulations;
•cost overruns relating to improvements in or the expansion of ourthe Company’s operations;
our•the Company’s ability to successfully develop and implement new technologies and to protect related intellectual property;
•the Company’s ability to maintain safe work sites;


our•the Company’s exposure to liabilities related to environmental laws and similar matters resulting from, among other things, water and wastewater service provided to customers, including, for example, our water management solutions that are focused on customers in the natural gas exploration and production market;customers;
•changes in general economic, political, business and financial market conditions;conditions, including without limitation conditions and collateral consequences associated with the COVID-19 pandemic;
•access to sufficient debt and/or equity capital on satisfactory terms and when and as needed to support operations and capital expenditures;
•fluctuations in inflation or interest rates;
restrictive•the ability to comply with affirmative or negative covenants in or changes to the credit ratings on our current or future debt thatindebtedness of the Company or any of its subsidiaries, or the issuance of new or modified credit ratings or outlooks by credit rating agencies with respect to the Company or any of its subsidiaries (or any current or future indebtedness thereof), which could increase our financing costs or funding requirements and affect the Company’s or affect ourits subsidiaries’ ability to borrow,issue, repay or redeem debt, pay dividends or make payments on debt or pay dividends;distributions;
•fluctuations in the value of benefit plan assets and liabilities that could increase ourthe Company’s cost and funding requirements;
•changes in federal or state general, income and other tax laws, including (i) future significant tax reform,legislation, (ii) the availability of, or the Company’s compliance with, the terms of applicable tax credits and tax abatement programs, and our(iii) the Company’s ability to utilize our U.S. andits state income tax net operating loss carryforwards;
•migration of customers into or out of ourthe Company’s service territories;
•the use by municipalities of the power of eminent domain or other authority to condemn our systems;
difficulty in obtaining,the systems of one or more of the Company’s utility subsidiaries, or the assertion by private landowners of similar rights against such utility subsidiaries;
•any difficulty or inability to obtain insurance for the Company, its inability to obtain insurance at acceptable rates and on acceptable terms and conditions, or anits inability to obtain reimbursement under existing or future insurance programs and coverages for any losses sustained;
•the incurrence of impairment charges related to ourthe Company’s goodwill or other assets;
•labor actions, including work stoppages and strikes;
•the Company’s ability to retain and attract qualified employees;
•civil disturbances or unrest, or terrorist threats or acts, or public apprehension about future disturbances, unrest, or terrorist threats or acts; and
•the impact of new, and changes to existing, accounting standards.
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These forward-looking statements are qualified by, and should be read together with, the risks and uncertainties set forth above, and the risk factors and other statements contained in ourthe Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (“Form2021 (the “Form 10-K”), and in this Form 10-Q, and youreaders should refer to such risks, uncertainties and risk factors in evaluating such forward-looking statements. Any forward-looking statements we makethe Company makes shall speak only as of the date this Form 10-Q was filed with the U.S. Securities and Exchange Commission (“SEC”). Except as required by the federal securities laws, we dothe Company does not have any obligation, and weit specifically disclaimdisclaims any undertaking or intention, to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or otherwise. New factors emerge from time to time, and it is not possible for usthe Company to predict all such factors. Furthermore, it may not be possible to assess the impact of any such factor on ourthe Company’s businesses, either viewed independently or together, or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. The foregoing factors should not be construed as exhaustive.

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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
American Water Works Company, Inc. and Subsidiary Companies
Consolidated Balance Sheets (Unaudited)
(In millions, except share and per share data)
September 30, 2017 December 31, 2016 March 31, 2022December 31, 2021
ASSETSASSETSASSETS
Property, plant and equipment$20,946
 $19,954
Property, plant and equipment$27,781 $27,413 
Accumulated depreciation(5,265) (4,962)Accumulated depreciation(6,383)(6,329)
Property, plant and equipment, net15,681
 14,992
Property, plant and equipment, net21,398 21,084 
Current assets: 
  
Current assets:  
Cash and cash equivalents93
 75
Cash and cash equivalents75 116 
Restricted funds28
 20
Restricted funds21 20 
Accounts receivable, net312
 269
Accounts receivable, net of allowance for uncollectible accounts of $72 and $75, respectivelyAccounts receivable, net of allowance for uncollectible accounts of $72 and $75, respectively266 271 
Unbilled revenues234
 263
Unbilled revenues254 248 
Materials and supplies42
 39
Materials and supplies71 57 
Assets held for saleAssets held for sale— 683 
Other151
 118
Other166 159 
Total current assets860
 784
Total current assets853 1,554 
Regulatory and other long-term assets: 
  
Regulatory and other long-term assets:  
Regulatory assets1,374
 1,289
Regulatory assets1,049 1,051 
Seller promissory note from the sale of the Homeowner Services GroupSeller promissory note from the sale of the Homeowner Services Group720 720 
Operating lease right-of-use assetsOperating lease right-of-use assets91 92 
Goodwill1,373
 1,345
Goodwill1,139 1,139 
Postretirement benefit assetsPostretirement benefit assets203 193 
Other73
 72
Other241 242 
Total regulatory and other long-term assets2,820
 2,706
Total regulatory and other long-term assets3,443 3,437 
TOTAL ASSETS$19,361
 $18,482
Total assetsTotal assets$25,694 $26,075 
The accompanying notes are an integral part of these consolidated financial statements.Consolidated Financial Statements.

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American Water Works Company, Inc. and Subsidiary Companies
Consolidated Balance Sheets (Unaudited)
(In millions, except share and per share data)
September 30, 2017 December 31, 2016 March 31, 2022December 31, 2021
CAPITALIZATION AND LIABILITIESCAPITALIZATION AND LIABILITIESCAPITALIZATION 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; 187,095,267 and 186,880,413 shares issued, respectively)Common stock ($0.01 par value; 500,000,000 shares authorized; 187,095,267 and 186,880,413 shares issued, respectively)$2 $2 
Paid-in-capital6,423
 6,388
Paid-in-capital6,796 6,781 
Accumulated deficit(573) (873)
Retained earningsRetained earnings1,083 925 
Accumulated other comprehensive loss(87) (86)Accumulated other comprehensive loss(44)(45)
Treasury stock, at cost (4,064,010 and 3,701,867 shares, respectively)(247) (213)
Total common stockholders' equity5,518
 5,218
Treasury stock, at cost (5,342,229 and 5,269,324 shares, respectively)Treasury stock, at cost (5,342,229 and 5,269,324 shares, respectively)(377)(365)
Total common shareholders' equityTotal common shareholders' equity7,460 7,298 
Long-term debt6,672
 5,749
Long-term debt10,347 10,341 
Redeemable preferred stock at redemption value9
 10
Redeemable preferred stock at redemption value3 3 
Total long-term debt6,681
 5,759
Total long-term debt10,350 10,344 
Total capitalization12,199
 10,977
Total capitalization17,810 17,642 
Current liabilities: 
  
Current liabilities:  
Short-term debt103
 849
Short-term debt321 584 
Current portion of long-term debt687
 574
Current portion of long-term debt57 57 
Accounts payable144
 154
Accounts payable175 235 
Accrued liabilities498
 609
Accrued liabilities538 701 
Taxes accrued61
 31
Interest accrued103
 63
Accrued taxesAccrued taxes285 176 
Accrued interestAccrued interest102 88 
Liabilities related to assets held for saleLiabilities related to assets held for sale— 83 
Other151
 112
Other170 217 
Total current liabilities1,747
 2,392
Total current liabilities1,648 2,141 
Regulatory and other long-term liabilities: 
  
Regulatory and other long-term liabilities:  
Advances for construction279
 300
Advances for construction300 284 
Deferred income taxes, net2,862
 2,596
Deferred investment tax credits23
 23
Deferred income taxes and investment tax creditsDeferred income taxes and investment tax credits2,381 2,421 
Regulatory liabilities408
 403
Regulatory liabilities1,577 1,600 
Operating lease liabilitiesOperating lease liabilities78 80 
Accrued pension expense421
 419
Accrued pension expense276 285 
Accrued postretirement benefit expense84
 87
Other74
 67
Other175 180 
Total regulatory and other long-term liabilities4,151
 3,895
Total regulatory and other long-term liabilities4,787 4,850 
Contributions in aid of construction1,264
 1,218
Contributions in aid of construction1,449 1,442 
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)00
Total capitalization and liabilitiesTotal capitalization and liabilities$25,694 $26,075 
The accompanying notes are an integral part of these consolidated financial statements.Consolidated Financial Statements.

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American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Operations (Unaudited)
(In millions, except per share data)
 For the Three Months Ended March 31,
 20222021
Operating revenues$842 $888 
Operating expenses:  
Operation and maintenance364 419 
Depreciation and amortization158 157 
General taxes74 83 
Total operating expenses, net596 659 
Operating income246 229 
Other income (expense):  
Interest expense(100)(98)
Interest income13 — 
Non-operating benefit costs, net19 20 
Other, net15 4 
Total other (expense) income(53)(74)
Income before income taxes193 155 
Provision for income taxes35 22 
Net income attributable to common shareholders$158 $133 
Basic earnings per share:  
Net income attributable to common shareholders$0.87 $0.73 
Diluted earnings per share:  
Net income attributable to common shareholders$0.87 $0.73 
Weighted-average common shares outstanding:  
Basic182 181 
Diluted182 182 
 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 maintenance324
 432
 1,010
 1,131
Depreciation and amortization128
 119
 378
 350
General taxes61
 65
 192
 195
Gain on asset dispositions and purchases(7) (5) (9) (8)
Total operating expenses, net506
 611
 1,571
 1,668
Operating income430
 319
 965
 832
Other income (expense):       
Interest, net(89) (81) (259) (242)
Loss on early extinguishment of debt(6) —
 (6) —
Other, net5
 5
 11
 14
Total other income (expense)(90) (76) (254) (228)
Income before income taxes340
 243
 711
 604
Provision for income taxes137
 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:       
Basic178
 178
 178
 178
Diluted179
 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, respectively1
 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

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

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American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Comprehensive Income (Unaudited)
(In millions)
 For the Three Months Ended March 31,
 20222021
Net income attributable to common shareholders$158 $133 
Other comprehensive income, net of tax:  
Defined benefit pension plan actuarial loss, net of tax of $0 for each of the three months ended March 31, 2022 and 20211 1 
Net other comprehensive income1 1 
Comprehensive income attributable to common shareholders$159 $134 
The accompanying notes are an integral part of these Consolidated Financial Statements.
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American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Cash Flows (Unaudited)
(In millions)
 For the Three Months Ended March 31,
 20222021
CASH FLOWS FROM OPERATING ACTIVITIES  
Net income$158 $133 
Adjustments to reconcile to net cash flows provided by operating activities:  
Depreciation and amortization158 157 
Deferred income taxes and amortization of investment tax credits(61)26 
Provision for losses on accounts receivable4 11 
Pension and non-pension postretirement benefits(12)(10)
Other non-cash, net(3)(41)
Changes in assets and liabilities:  
Receivables and unbilled revenues(6)26 
Pension and non-pension postretirement benefit contributions(19)(9)
Accounts payable and accrued liabilities(110)(57)
Other assets and liabilities, net45 (57)
Net cash provided by operating activities154 179 
CASH FLOWS FROM INVESTING ACTIVITIES  
Capital expenditures(424)(342)
Acquisitions, net of cash acquired(5)(3)
Net proceeds from sale of assets608 — 
Removal costs from property, plant and equipment retirements, net(20)(18)
Net cash provided by (used in) investing activities159 (363)
CASH FLOWS FROM FINANCING ACTIVITIES  
Proceeds from long-term debt11 2 
Repayments of long-term debt(5)(25)
Repayments of term loan— (500)
Net short-term (repayments) borrowings with maturities less than three months(263)334 
Remittances from issuances of employee stock plans and direct stock purchase plan, net of taxes paid of $12 and $15 for the three months ended March 31, 2022 and 2021, respectively(8)(11)
Advances and contributions in aid of construction, net of refunds of $3 and $6 for the three months ended March 31, 2022 and 2021, respectively21 7 
Dividends paid(109)(100)
Net cash used in financing activities(353)(293)
Net decrease in cash, cash equivalents and restricted funds(40)(477)
Cash, cash equivalents and restricted funds at beginning of period136 576 
Cash, cash equivalents and restricted funds at end of period$96 $99 
Non-cash investing activity:  
Capital expenditures acquired on account but unpaid as of the end of period$315 $223 
 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 amortization378
 350
Deferred income taxes and amortization of investment tax credits264
 243
Provision for losses on accounts receivable21
 18
Gain on asset dispositions and purchases(9) (8)
Pension and non-pension postretirement benefits44
 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 activities986
 945
CASH FLOWS FROM INVESTING ACTIVITIES   
Capital expenditures(964) (928)
Acquisitions(10) (29)
Proceeds from sale of assets and securities9
 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 debt1,382
 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 DRIP21
 22
       Advances and contributions for construction, net of refunds of $16 and $17, respectively23
 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 activities53
 70
Net increase in cash and cash equivalents18
 1
Cash and cash equivalents as of beginning of period75
 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.
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American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(In millions)
Common StockPaid-in-CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury StockTotal Shareholders' Equity
 SharesPar ValueSharesAt Cost
Balance as of December 31, 2021186.9 $2 $6,781 $925 $(45)(5.3)$(365)$7,298 
Net income attributable to common shareholders— — — 158 — — — 158 
Common stock issuances (a)0.2 — 15 — — — (12)3 
Net other comprehensive income— — — — 1 — — 1 
Balance as of March 31, 2022187.1 $2 $6,796 $1,083 $(44)(5.3)$(377)$7,460 
(a)Includes stock-based compensation, employee stock purchase plan and direct stock reinvestment and purchase plan activity.
 Common StockPaid-in-CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury StockTotal Shareholders' Equity
 SharesPar ValueSharesAt Cost
Balance as of December 31, 2020186.5 $2 $6,747 $102 $(49)(5.2)$(348)$6,454 
Net income attributable to common shareholders— — — 133 — — — 133 
Common stock issuances (a)0.2 — 10 — — (0.1)(15)(5)
Net other comprehensive income— — — — 1 — — 1 
Balance as of March 31, 2021186.7 $2 $6,757 $235 $(48)(5.3)$(363)$6,583 
(a)Includes stock-based compensation, employee stock purchase plan and direct stock reinvestment and purchase plan activity.
The accompanying notes are an integral part of these consolidated financial statements.



American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(In millions)Financial Statements.
9
 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, 2016181.8
 $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 plan0.1
 —
 6
 —
 —
 —
 —
 6
Employee stock purchase plan—
 —
 5
 —
 —
 —
 —
 5
Stock-based compensation activity0.5
 —
 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, 2017182.4
 $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, 2015180.9
 $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 activity0.8
 —
 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, 2016181.7
 $2
 $6,388
 $(839) $(99) (3.7) $(214) $5,238
The accompanying notes are an integral part
Table of these consolidated financial statements.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 providedConsolidated 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 accountsbalances 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, 2017March 31, 2022, and the results of operations and cash flows for all periods presented, have been made. All adjustments are of a normal, recurring nature, except as otherwise disclosed.
The unaudited Consolidated 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 statementsFinancial Statements and notesNotes 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, 20162021 (“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
ThePresented in the table below are new accounting standards that were adopted by the Company adopted the following accounting standard on January 1, 2017:
in 2022:
StandardDescription
Date of
Adoption
Application
Effect on the Consolidated Financial Statements
(or Other Significant Matters)
Accounting for Convertible Instruments and Contracts in an Entity’s Own EquitySimplification of Employee Share-Based Payment Accountingfinancial 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.
Simplified accountingJanuary 1, 2022
Either modified retrospective or fully retrospectiveThe standard did not have a material impact on its Consolidated Financial Statements.
Disclosures by Business Entities about Government AssistanceThe amendments in this update require additional disclosures regarding government grants 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 paidcontributions. These disclosures require information on the Consolidated Statementsfollowing three items about government transactions to be provided: information on the nature of Cash Flows; (iii) election of antransactions and related accounting policy used to account for forfeitures;transactions, the line items on the balance sheet and (iv)income statement affected by these transactions including amounts applicable to each line, and significant terms and conditions of the amount an employer can withhold to cover income taxestransactions, including commitments and still qualify for equity classification.

contingencies.		January 1, 20172022
ModifiedEither prospective or retrospective for the recognition of excess tax benefits and deficiencies; full retrospective for the classification of excess tax benefits and taxes paid
The standard did not have a material impact on theits 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.

Financial Statements.


The followingPresented in the table below are recently issued accounting standards arethat have not yet required to bebeen adopted by the Company as of September 30, 2017:
March 31, 2022:
StandardDescription
Date of
Adoption
Permitted Application
Estimated Effect on the Consolidated Financial Statements
(or Other Significant Matters)
RevenueAccounting for Contract Assets and Contract Liabilities 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 requires an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification Topic 606, as if it had originated the contracts. The amendments in this update also requiresprovide certain practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a number of disclosures regarding the nature, amount, timing and uncertainty of revenue and the related cash flows.

business combination.		January 1, 2018;2023; early adoption permittedFull or modified retrospectiveProspective
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 FlowsProvides 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 permittedRetrospective
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 FlowsUpdates 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 permittedRetrospectiveThe Company does not anticipate significant impacts on its Consolidated Statements of Cash Flows.
Clarifying the Definition of a BusinessUpdates 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 permittedProspectiveThe 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 AssetsUpdated 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 permittedFull 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 CostUpdated 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 permittedRetrospective 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.




StandardDescription
Date of
Adoption
Permitted ApplicationEstimated 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 materialany 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 TestingUpdated 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 permittedProspective
The Company is evaluating the impact on its consolidated financial statements,Consolidated Financial Statements, as well as the timing of adoption.

MeasurementTroubled debt restructurings and vintage disclosuresThe main provisions of Credit LossesUpdatedthis standard eliminate the receivables accounting guidance on reporting credit losses for troubled debt restructurings (“TDRs”) by creditors while enhancing disclosure requirements when a borrower is experiencing financial assets held at amortized cost basisdifficulty. Entities must apply the loan refinancing and available-for-sale debt securities. Underrestructuring guidance for receivables to determine whether a modification results in a new loan or a continuation of an existing loan. Additionally, the amendments in this guidance, expected credit losses are required to be measured based on historical experience, current conditionsupdate require that an entity disclose current-period gross write-offs by year of origination for financing receivables 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.net investment in leases.January 1, 2020;2023; early adoption permittedModifiedProspective, with a modified retrospective option for amendments related to the recognition and measurement of TDRs.The Company is evaluating theany impact on its consolidated financial statements,Consolidated Financial Statements, as well as the timing of adoption.
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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.
Presented in the table below are the changes in the allowance for uncollectible accounts for the three months ended March 31:
20222021
Balance as of January 1$(75)$(60)
Amounts charged to expense(4)(11)
Amounts written off7 — 
Less: Allowance for uncollectible accounts included in assets held for sale (a)— 4 
Balance as of March 31$(72)$(67)
(a)This portion of the allowance for uncollectible accounts is related to the sale of the Company’s New York subsidiary, which was completed on January 1, 2022, and is included in assets held for sale on the Consolidated Balance Sheets as of December 31, 2021. 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: Regulatory Matters
General Rate Cases and Infrastructure Surcharges
Presented in the table below are annualized incremental revenues, excluding reductions for the amortization of excess accumulated deferred income tax (“EADIT”) that are generally offset in income tax expense, assuming a constant water sales volume, resulting from general rate case authorizations and infrastructure surcharge authorizations that became effective in the current period:
During the Three Months Ended March 31,
(In millions)20222021
General rate cases by state:
West Virginia (effective February 25, 2022)$15 $— 
California (effective January 1, 2022 and January 1, 2021)13 22 
Pennsylvania (effective January 1, 2022 and January 28, 2021)20 70 
Total general rate cases$48 $92 
Infrastructure surcharges by state:
Indiana (effective March 21, 2022 and March 17, 2021)$8 $8 
West Virginia (effective March 1, 2022 and January 1, 2021)3 5 
Missouri (effective February 1, 2022)12 — 
Illinois (effective January 1, 2022 and January 1, 2021)6 7 
Pennsylvania (effective January 1, 2021)— 8 
Tennessee (effective January 1, 2021)— 3 
Total infrastructure surcharges$29 $31 
Effective April 1, 2022, the Company’s Pennsylvania subsidiary implemented infrastructure surcharges for annualized incremental revenues of $2 million.
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On February 24, 2022, the Company’s West Virginia subsidiary (“WVAWC”) was authorized additional annual revenues of $15 million in its general rate case, effective February 25, 2022, excluding agreed to reductions for EADIT as a result of the Tax Cuts and Jobs Act of 2017 (the “TCJA”). The EADIT reduction in revenues is $2 million and the exclusion for infrastructure surcharges is $10 million. Staff of the WV Public Service Commission moved for reconsideration of the Commission's final order on several grounds. The Company filed its response to the Staff's Petition for Reconsideration on March 28, 2022 in support of the Commission authorized revenue requirement.The matter is currently pending before the Commission for its consideration.
On November 18, 2021, the California Public Utilities Commission (the “CPUC”) unanimously approved a final decision in the test year 2021 general rate case filed by the Company’s California subsidiary, which is retroactive to January 1, 2021. The Company’s California subsidiary received authorization for additional annualized water and wastewater revenues of $22 million, excluding agreed to reductions for EADIT as a result of the TCJA. The EADIT reduction in revenues is $4 million and is offset by a like reduction in income tax expense. On February 16, 2022, the Company’s California subsidiary received approval to increase rates by $13 million in 2022 escalation increases, excluding $4 million of reductions related to the TCJA, which is retroactive to January 1, 2022.
On March 2, 2021, an administrative law judge (“ALJ”) in the Office of Administrative Law of New Jersey filed an initial decision with the New Jersey Board of Public Utilities (the “NJBPU”) that recommended denial of a petition filed by the Company’s New Jersey subsidiary, which sought approval of acquisition adjustments in rate base of $29 million associated with the acquisitions of Shorelands Water Company, Inc. in 2017 and the Borough of Haddonfield’s water and wastewater systems in 2015. On July 29, 2021, the NJBPU issued an order adopting the ALJ’s initial decision without modification. The Company’s New Jersey subsidiary filed a Notice of Appeal with the New Jersey Appellate Division on September 10, 2021. The Company filed its brief in support of the appeal on March 4, 2022. Response briefs are due by May 23, 2022. There is no financial impact to the Company as a result of the NJBPU’s order, since the acquisition adjustments are currently recorded as goodwill on the Consolidated Balance Sheets.
On February 25, 2021, the Company’s Pennsylvania subsidiary was authorized additional annualized revenues of $90 million, effective January 28, 2021, excluding agreed to reductions in revenues of $19 million for EADIT as a result of the TCJA. The overall increase, net of TCJA reductions, is $71 million in revenues combined over two steps. The first step was effective January 28, 2021 in the amount of $70 million ($51 million including TCJA reductions) and the second step was effective January 1, 2022 in the amount of $20 million. The protected EADIT balance of $200 million is being returned to customers using the average rate assumptions method, and the unprotected EADIT balance of $116 million is being returned to customers over 20 years. The $19 million annual reduction to revenue is comprised of both the protected and unprotected EADIT amortizations and a portion of catch-up period EADIT. A bill credit of $11 million annually for two years returns to customers the remainder of the EADIT catch-up period amortization. The catch-up period of January 1, 2018 through December 31, 2020 covers the period from when the lower federal corporate income tax rate went into effect until new base rates went into effect and will be amortized over two years.
Pending General Rate Case Filings
On February 10, 2022, the Company’s Illinois subsidiary filed a general rate case requesting $71 million in additional annualized revenues excluding proposed reductions for EADIT as a result of TCJA and infrastructure surcharges.
On January 14, 2022, the Company’s New Jersey subsidiary filed a general rate case requesting $110 million in additional annualized revenues excluding proposed reductions for EADIT as a result of TCJA and infrastructure surcharges. Public hearings were held on April 6, 2022.Settlement conferences are scheduled to commence in May 2022 with evidentiary hearings expected to begin in September 2022.
On December 1, 2021, the Company’s Kentucky subsidiary filed a wastewater rate case requesting additional revenues of $1 million, excluding proposed reductions for EADIT as a result of TCJA. The Company’s Kentucky subsidiary requested a four-step rate increase for their wastewater operations with effective dates of June 1, 2022, June 1, 2023, June 1, 2024 and June 1, 2025 for annual amounts of less than $1 million each year. The Company’s Kentucky subsidiary filed their wastewater case under the alternative rate filing process for smaller utilities which calculates an operating ratio of 88% rather than a return on equity.
On November 15, 2021, the Company’s Virginia subsidiary filed a general rate case requesting $15 million in additional annualized revenues excluding proposed reductions for EADIT as a result of TCJA.
On August 18, 2021, the Company’s Hawaii subsidiary filed a general rate case requesting $2 million in additional annualized revenues excluding proposed reductions for EADIT as a result of TCJA. On April 11, 2022, the Company and the Division of Consumer Advocacy submitted a joint letter to the Hawaii Public Utilities Commission indicating that the parties had, in principle, reached a settlement that would resolve all disputed issues in the case. In the joint letter, the parties also requested revisions to the procedural schedule.
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The Company’s California subsidiary submitted its application on May 3, 2021 to set its cost of capital for 2022 through 2024. According to the CPUC’s procedural schedule, a decision setting the authorized cost of capital is expected to be issued in the fourth quarter of 2022.
Pending Infrastructure Surcharge Filings
On March 4, 2022, the Company’s Missouri subsidiary filed an infrastructure surcharge proceeding requesting $19 million in additional annualized revenues.
On March 1, 2022, the Company’s Kentucky subsidiary filed an infrastructure surcharge proceeding requesting $3 million in additional annualized revenues.
Other Regulatory Matters
In September 2020, the CPUC released a decision under its Low-Income Rate Payer Assistance program rulemaking that will require the Company’s California subsidiary to file a proposal to alter its water revenue adjustment mechanism in its next general rate case filing in 2022, which would become effective in January 2024. On October 5, 2020, the Company’s California subsidiary filed an application for rehearing of the decision and following the CPUC’s denial of its rehearing application in September 2021, the Company’s California subsidiary filed a petition for writ of review with the California Supreme Court on October 27, 2021.
Note 4: Revenue Recognition
Disaggregated Revenues
The Company’s primary business involves the ownership of utilities that provide water and wastewater services to residential, commercial, industrial, public authority, fire service and sale for resale customers, collectively presented as the “Regulated Businesses.” The Company also operates other market-based businesses that provide water and wastewater services to the U.S. government on military installations, as well as municipalities, and utility customers, collectively included within “Market-Based Businesses and Other.”
Presented in the table below are operating revenues disaggregated for the three months ended March 31, 2022:
Revenues from Contracts with CustomersOther Revenues Not from Contracts with Customers (a)Total Operating Revenues
Regulated Businesses:
Water services:
Residential$428 $— $428 
Commercial153 — 153 
Fire service36 — 36 
Industrial36 — 36 
Public and other57 — 57 
Total water services710 — 710 
Wastewater services:
Residential41 — 41 
Commercial10 — 10 
Industrial1 — 1 
Public and other3 — 3 
Total wastewater services55 — 55 
Miscellaneous utility charges9 — 9 
Alternative revenue programs— 2 2 
Lease contract revenue— 2 2 
Total Regulated Businesses774 4 778 
Market-Based Businesses and Other64 — 64 
Total operating revenues$838 $4 $842 
(a)Includes revenues associated with provisional rates, alternative revenue programs, lease contracts and intercompany rent, which are outside the scope of Accounting Standards Codification Topic 606, Revenue From Contracts With Customers (“ASC 606”),and accounted for under other existing GAAP.
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Presented in the table below are operating revenues disaggregated for the three months ended March 31, 2021:
Revenues from Contracts with CustomersOther Revenues Not from Contracts with Customers (a)Total Operating Revenues
Regulated Businesses:
Water services:
Residential$430 $— $430 
Commercial144 — 144 
Fire service37 — 37 
Industrial32 — 32 
Public and other44 — 44 
Total water services687 — 687 
Wastewater services:
Residential36 — 36 
Commercial9 — 9 
Industrial1 — 1 
Public and other4 — 4 
Total wastewater services50 — 50 
Miscellaneous utility charges8 — 8 
Alternative revenue programs— 9 9 
Lease contract revenue— 1 1 
Total Regulated Businesses745 10 755 
Market-Based Businesses and Other133 — 133 
Total operating revenues$878 $10 $888 
(a)Includes revenues associated with provisional rates, alternative revenue programs, lease contracts and intercompany rent, which are outside the scope of ASC 606,and accounted for under other existing GAAP.
Contract Balances
Contract assets and contract liabilities are the result of timing differences between revenue recognition, billings and cash collections. In Market-Based Businesses and Other, certain contracts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. Contract assets are recorded when billing occurs subsequent to revenue recognition and are reclassified to accounts receivable when billed and the right to consideration becomes unconditional. Contract liabilities are recorded when the Company receives advances from customers prior to satisfying contractual performance obligations, particularly for construction contracts and home warranty protection program contracts, and are recognized as revenue when the associated performance obligations are satisfied.
Contract assets of $78 million and $71 million are included in unbilled revenues on the Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021, respectively. There were $18 million of contract assets added during the three months ended March 31, 2022, and $11 million of contract assets were transferred to accounts receivable during the same period. There were $19 million of contract assets added during the three months ended March 31, 2021, and $8 million of contract assets were transferred to accounts receivable during the same period.
Contract liabilities of $20 million and $19 million are included in other current liabilities on the Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021, respectively. There were $36 million of contract liabilities added during the three months ended March 31, 2022, and $35 million of contract liabilities were recognized as revenue during the same period. There were $57 million of contract liabilities added during the three months ended March 31, 2021, and $48 million of contract liabilities were recognized as revenue during the same period.
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Remaining Performance Obligations
Remaining performance obligations (“RPOs”) represent revenues the Company expects to recognize in the future from contracts that are in progress. The Company enters into agreements for the provision of services to water and wastewater facilities for the U.S. military, municipalities and other customers. As of March 31, 2022, the Company’s operation and maintenance (“O&M”) and capital improvement contracts in Market-Based Businesses and Other have RPOs. Contracts with the U.S. government for work on various military installations expire between 2051 and 2071 and have RPOs of $6.2 billion as of March 31, 2022, as measured by estimated remaining contract revenue. Such contracts are subject to customary termination provisions held by the U.S. government, prior to the agreed-upon contract expiration. Contracts with municipalities and commercial customers expire between 2022 and 2038 and have RPOs of $580 million as of March 31, 2022, as measured by estimated remaining contract revenue. Some of the Company’s long-term contracts to operate and maintain the federal government’s, a municipality’s or other party’s water or wastewater treatment and delivery facilities include responsibility for certain maintenance for some of those facilities, in exchange for an annual fee. Unless specifically required to perform certain maintenance activities, the maintenance costs are recognized when the maintenance is performed.
Note 5: Acquisitions and Divestitures
Regulated Businesses
During the ninethree months ended September 30, 2017,March 31, 2022, the Company closed on 14 acquisitionsthe acquisition of various4 regulated water and wastewater systems for a total aggregate purchase price of $43. Included in this total was$5 million. Assets acquired from these acquisitions consisted principally of utility plant.
On April 6, 2021, the Company’s acquisitionPennsylvania subsidiary entered into an Asset Purchase Agreement with the York City Sewer Authority (the “Seller”) and the City of allYork, with respect to the outstanding capital stockpurchase 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. Assets acquired in the aforementioned acquisitions, principally utility plant, totaled $40. Liabilities assumed totaled $23, including $10 of contributions in aid of construction and assumed debt of $7. The Company recorded additional goodwill of $28 associated with three of the acquisitions, which is reported in the Company’s Regulated Businesses segment, and recognized a bargain purchase gain of $2 associated with one of the acquisitions. The preliminary purchase price allocations related to these acquisitions 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, the Company made a non-escrowed deposit of $2 related to the asset purchase agreement to acquire substantially all of theSeller’s public wastewater collection and treatment system assets of the Municipal Authority of the City of McKeesport, Pennsylvania for approximately $159.(the “System Assets”). On October 26, 2017, a joint petition for settlement of this acquisition was approved byApril 14, 2022, the Pennsylvania Public Utility Commission.Commission (“PaPUC”) approved the Company’s Pennsylvania subsidiary’s application to acquire the System Assets from the Seller for a purchase price of $235 million, plus an amount of average daily revenue calculated for the period between the final meter reading and the date of closing. The System Assets serve, directly and indirectly through bulk contracts, more than 45,000 customers. Assuming no successful contest of the PaPUC’s approval occurs within 30 days thereafter, this approval would satisfy a significant remaining condition to the closing of this acquisitionthe transaction, which is subjectexpected to occur by or before mid-June 2022.
On March 29, 2021, the satisfactionCompany’s New Jersey subsidiary entered into an agreement to acquire the water and wastewater assets of various conditionsEgg Harbor City for $22 million. The water and covenants.wastewater systems currently serve approximately 1,500 customers each, or 3,000 combined, and are being sold through the New Jersey Water Infrastructure Protection Act process. The Company expects to close this acquisition in the second half of 2022, pending regulatory approval.
Sale of New York American Water Company, Inc.
On January 1, 2022, the Company completed the previously disclosed sale of its regulated utility operations in New York to Liberty Utilities (Eastern Water Holdings) Corp. (“Liberty”), an indirect, wholly owned subsidiary of Algonquin Power & Utilities Corp. Liberty purchased from the Company all of the capital stock of the Company’s New York subsidiary for a purchase price of $608 million in cash. During the first quarter of 2022, the Company recognized a loss on sale of $2 million.
Sale of Michigan American Water Company
On February 4, 2022, the Company completed the sale of its operations in Michigan for $6 million.
Sale of Homeowner Services Group
On December 9, 2021, the Company sold all of the equity interests in subsidiaries that comprised the Company’s Homeowner Services Group (“HOS”) to a wholly owned subsidiary of funds advised by Apax Partners LLP, a global private equity advisory firm (the “Buyer”), for total consideration of approximately $1.275 billion, resulting in pre-tax gain on sale of $748 million during the fourth quarter of 2021. The consideration was comprised of $480 million in cash, a seller promissory note issued by the endBuyer in the principal amount of 2017.

$720 million, and a contingent cash payment of $75 million payable upon satisfaction of certain conditions on or before December 31, 2023. See Note 13—Fair Value of Financial Information for additional information relating to the seller promissory note and contingent cash payment. During the first quarter of 2022, the Company recorded a post-close adjustment totaling approximately $10 million pre-tax, which is included in Other, net on the Consolidated Statements of Operations.

The seller note has a five-year term, is payable in cash, and bears interest at a rate of 7.00% per year during the term. The Company recognized $13 million of interest income during the first quarter of 2022 from the seller note.
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The Company and the Buyer also entered into a revenue share agreement, pursuant to which the Company is to receive 10% of the revenue generated from customers who are billed for home warranty services through an applicable Company subsidiary (an “on-bill” arrangement), and 15% of the revenue generated from any future on-bill arrangements entered into after the closing. Unless earlier terminated, this agreement has a term of up to 15 years, which may be renewed for up to 2 five-year periods. The Company recognized $2 million of income during the first quarter of 2022 from the revenue share agreement, which is included in Other, net on the Consolidated Statements of Operations.
The pro forma impact of the Company’s acquisitions was not material to the Consolidated Statements of Operations for the periods ended March 31, 2022 and 2021.
Note 4: Stockholders’6: Shareholders’ Equity
Accumulated Other Comprehensive Loss
The followingPresented in the table presentsbelow are the changes in accumulated other comprehensive loss by component, net of tax, for the ninethree months ended September 30, 2017March 31, 2022 and 2016,2021, respectively:
 Defined Benefit Plans Foreign Currency Translation Gain (Loss) on Cash Flow Hedges Accumulated Other Comprehensive Loss
 Employee
Benefit Plan
Funded Status		 Amortization
of Prior
Service Cost		 Amortization
of Actuarial
Loss		   
Beginning balance as of December 31, 2016$(147) $1
 $42
 $2
 $16
 $(86)
Other comprehensive loss before reclassifications—
 —
 —
 (1) (5) (6)
Amounts reclassified from accumulated other comprehensive loss—
 —
 5
 —
 —
 5
Net other comprehensive income (loss)—
 —
 5
 (1) (5) (1)
Ending balance as of September 30, 2017$(147) $1
 $47
 $1
 $11
 $(87)
            
Beginning balance as of December 31, 2015$(126) $1
 $36
 $2
 $(1) $(88)
Other comprehensive loss before reclassifications—
 —
 —
 —
 (15) (15)
Amounts reclassified from accumulated other comprehensive loss—
 —
 4
 —
 —
 4
Net other comprehensive income (loss)—
 —
 4
 —
 (15) (11)
Ending balance as of September 30, 2016$(126) $1
 $40
 $2
 $(16) $(99)
 Defined Benefit Pension PlansLoss on Cash Flow HedgesAccumulated Other Comprehensive Loss
 Employee Benefit Plan Funded StatusAmortization of Prior Service CostAmortization of Actuarial Loss
Balance as of December 31, 2021$(107)$1 $67 $(6)$(45)
Amounts reclassified from accumulated other comprehensive loss— — 1 — 1 
Net other comprehensive income— — 1 — 1 
Balance as of March 31, 2022$(107)$1 $68 $(6)$(44)
Balance as of December 31, 2020$(106)$1 $63 $(7)$(49)
Amounts reclassified from accumulated other comprehensive loss— — 1 — 1 
Net other comprehensive income— — 1 — 1 
Balance as of March 31, 2021$(106)$1 $64 $(7)$(48)
The Company does not reclassify the amortization of defined benefit pension cost components from accumulated other comprehensive loss directly to net income in its entirety, as a portion of these costs have been capitalizeddeferred 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 lossgain (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 ProgramDividends
During the nine months ended September 30, 2017,On March 1, 2022, the Company repurchased 0.7 sharespaid a quarterly cash dividend of common stock in the open market at an aggregate cost$0.6025 per share to shareholders of $54 under the anti-dilutive stock repurchase program authorized byrecord as of February 8, 2022.
On April 27, 2022, the Company’s Board of Directors declared a quarterly cash dividend payment of $0.6550 per share, payable on June 1, 2022 to shareholders of record as of May 10, 2022. Future dividends, when and as declared at the discretion of the Board of Directors, will be dependent upon future earnings and cash flows, compliance with various regulatory, financial and legal requirements, and other factors. See Note 10—Shareholders' Equity in 2015. Asthe 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 ofdividends 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 duringDuring the ninethree 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)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-termMarch 31, 2022, American Water Capital Corp. (“AWCC”) and the Company’s regulated subsidiaries issued in the aggregate $11 million of private activity bonds and government funded debt was retired throughin multiple transactions with annual interest rates of0.74%, maturing in 2041. During the three months ended March 31, 2022, AWCC and the Company’s regulated subsidiaries made sinking fund provisions, optional redemptionspayments for, or paymentrepaid 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 debt offering which included the sale of $600$5 million in aggregate principal amount of its 2.95% Senior Notes due in 2027outstanding long-term debt, with annual interest rates ranging from 0.00% to 12.25%, a weighted average interest rate of 3.06%, and $750 aggregate principal amountmaturity dates ranging from 2022 to 2048.
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Table of its 3.75% Senior Notes due in 2047. At the closing of the offering, AWCC received, after deduction of underwriting discounts and debt issuance costs, $1,333. On September 13, 2017, AWCC used proceeds from 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) repay commercial paper obligations; and (iii) 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. Contents
In addition,April 2022, 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 swapentered into several 10-year treasury lock 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, with a notional amount of $100amounts totaling $375 million, to reduce interest rate exposure for a portion of theon debt expected refinancing of AWCC’s Series C Senior Notes. This forward starting swap agreement terminatesto be issued in November 2018 and has2022. These treasury lock agreements have an average fixed interest rate of 2.67%2.89%. The Company has designated this forward starting swap agreementthese treasury lock agreements as a cash flow hedgehedges, with itstheir fair value recorded in accumulated other comprehensive gain or loss. Upon termination, the cumulative gain or loss recorded in accumulated other comprehensive gain or loss will be amortized through interest, net over the term of the new debt.
Note 8: Short-Term Debt
Liquidity needs for capital investment, working capital and other financial commitments are generally funded through cash flows from operations, public and private debt offerings, commercial paper markets and, if and to the extent necessary, borrowings under the AWCC revolving credit facility. Additionally, proceeds from the aforementioned sales of HOS and the Company’s New York subsidiary will be used primarily for capital investment in the Regulated Businesses. The Company has anrevolving credit facility provides $2.25 billion in aggregate total commitments from a diversified group of financial institutions. The termination date of the credit agreement with respect to AWCC’s revolving credit facility is March 21, 2025. The facility is used principally to support AWCC’s commercial paper program, to provide additional liquidity support and to provide a sub-limit of up to $150 million for letters of credit. As of March 31, 2022 and December 31, 2021, there were noborrowings outstanding under the revolving credit facility.
Short-term debt consists of commercial paper and credit facility borrowings totaling $321 million and $584 million as of March 31, 2022 and December 31, 2021, respectively. The weighted-average interest rate swap to hedge $100on AWCC’s outstanding short-term borrowings was approximately 0.26% and 0.25% at March 31, 2022 and December 31, 2021, respectively. As of its 6.085% Senior Notes maturingMarch 31, 2022 and December 31, 2021, there were no commercial paper or credit facility borrowings outstanding with maturities greater than three months.
Presented in the fourth quartertables below is the aggregate credit facility commitments, commercial paper limit and letter 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,credit availability under the revolving credit facility, as well as the offsetting gains or losses onavailable capacity for each:
As of March 31, 2022
Commercial Paper LimitLetters of CreditTotal (a)
(In millions)
Total availability$2,100 $150 $2,250 
Outstanding debt(321)(76)(397)
Remaining availability as of March 31, 2022$1,779 $74 $1,853 
(a)Total remaining availability of $1.85 billion as of March 31, 2022 may be accessed through revolver draws.
As of December 31, 2021
Commercial Paper LimitLetters of CreditTotal (a)
(In millions)
Total availability$2,100 $150 $2,250 
Outstanding debt(584)(76)(660)
Remaining availability as of December 31, 2021$1,516 $74 $1,590 
(a)Total remaining availability of $1.59 billion as of December 31, 2021 may be accessed through revolver draws.
Presented in the 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.
No ineffectiveness was recognized on hedging instruments for the three and nine months ended September 30, 2017 and 2016.
The following table provides a summary of the gross fair value forbelow is the Company’s derivative assettotal available liquidity as of March 31, 2022 and liabilities, as well as the location of the asset and liability balances in the Consolidated Balance Sheets:December 31, 2021, respectively:
Cash and Cash EquivalentsAvailability on Revolving Credit FacilityTotal Available Liquidity
(In millions)
Available liquidity as of March 31, 2022$75 $1,853 $1,928 
Available liquidity as of December 31, 2021$116 $1,590 $1,706 
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
 —
Note 7:9: Income Taxes
The Company’s effective income tax rate was 40.3%18.1% and 39.1%14.2% for the three months ended September 30, 2017March 31, 2022 and 2016, respectively, and 39.9% and 39.2% for the nine months ended September 30, 2017 and 2016,2021, respectively.
On April 11, 2017, the State of New York enacted legislation that increased the stateThe Company’s effective income tax rate onreflects the Company’s taxable income attributableamortization of EADIT pursuant to New York. This legislation eliminated the productionregulatory orders.
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Table 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, the Company was required 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 to 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, 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 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.Contents
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 followingPresented in the table providesbelow are the components of net periodic benefit costs:credit:
For the Three Months Ended March 31,
For the Three Months Ended September 30, For the Nine Months Ended September 30, 20222021
2017 2016 2017 2016
Components of net periodic pension benefit cost       
Service cost$8
 $8
 $25
 $24
Interest cost20
 20
 60
 60
Expected return on plan assets(23) (24) (70) (72)
Amortization of actuarial loss9
 7
 27
 21
Net periodic pension benefit cost$14
 $11
 $42
 $33
       
Components of net periodic other postretirement benefit cost       
Components of net periodic pension benefit credit:Components of net periodic pension benefit credit:
Service cost$3
 $3
 $8
 $9
Service cost$8 $9 
Interest cost7
 7
 20
 22
Interest cost16 17 
Expected return on plan assets(7) (7) (20) (20)Expected return on plan assets(31)(32)
Amortization of prior service credit(5) (3) (14) (4)Amortization of prior service credit(1)(1)
Amortization of actuarial loss3
 1
 8
 3
Amortization of actuarial loss5 7 
Net periodic other postretirement benefit cost$1
 $1
 $2
 $10
Net periodic pension benefit creditNet periodic pension benefit credit$(3)$— 
Components of net periodic other postretirement benefit credit:Components of net periodic other postretirement benefit credit:
Service costService cost$1 $1 
Interest costInterest cost3 2 
Expected return on plan assetsExpected return on plan assets(5)(5)
Amortization of prior service creditAmortization of prior service credit(8)(8)
Net periodic other postretirement benefit creditNet periodic other postretirement benefit credit$(9)$(10)
The Company made contributionscontributed $9 million for the funding of its defined benefit pension plans for each of $11the three months ended March 31, 2022 and $82021. There were $10 million of contributions for the funding of the Company’s other postretirement benefit plans for the three months ended September 30, 2017March 31, 2022 and 2016, respectively, and $31 and $25 for the nine months ended September 30, 2017 and 2016, respectively, and expects to contribute $9 during the remainder of 2017. In addition, the Company madeno such contributions for the funding of its other postretirement plans 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 and 2016, respectively, andMarch 31, 2021. The Company expects to contribute $1make pension contributions to the plan trusts of $28 million during the remainder of 2017.2022.
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,March 31, 2022, the Company has accrued approximately $139approximately $6 million of probable loss contingencies and has estimated that the maximum amount of losses associated with reasonably possible loss contingencies that can be reasonably estimated is $27.$3 million. For certain matters, claims and actions, the Company is unable to estimate possible losses. The Company believes that damages or settlements, if any, recovered by plaintiffs in such matters, claims or actions, other than as described in this Note 9,11—Commitments and Contingencies, will not have a material adverse effect on the Company.
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 preliminaryfinal approval of a settlement class and proposedglobal 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, WVAWC and the proposed amended settlement agreement, the American Water Defendants havecertain other Company-affiliated entities 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 bethat 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 Company, net of insurance recoveries, is $19 million. As of March 31, 2022, $0.5 million of the aggregate Settlement is appealedamount of $126 million has been reflected in accrued liabilities, and such appeal would delay potential payment$0.5 million in offsetting insurance receivables have been reflected in other current assets on the Consolidated Balance Sheets. The amount reflected in accrued liabilities as of March 31, 2022 reflects reductions in the liability and appropriate reductions to claimants under the Settlement, WVAWC and theoffsetting insurance receivable reflected in other defendantcurrent assets, associated with payments made to the Settlement will contribute up to $50 and $25, respectively, tofund, the receipt of a determination by 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 certainfund’s appeal adjudicator on all remaining medical claims WVAWC and the other defendant to the Settlement may, in lieucalculation of these escrowed contributions, make advance payments of such claims if agreed to by the parties. All administrative expenses of the Settlement andremaining attorneys’ fees of class counsel related thereto would be paid from the funds designated to payand 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, of $65 ($39 after-tax). Additionally, in 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 amount of $126 is reflected in Accrued Liabilities and the offsetting insurance receivables are reflected in Other Current Assets in the Consolidated Balance Sheet as of September 30, 2017.administration costs. The Company intends to fundfunded WVAWC’s contributions to the Settlement through existing sources of liquidity, although no contribution by WVAWC will be required unless and until the termsliquidity.
18
Table 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.Contents
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.
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’sthe West Relay pumping station located in the City of Dunbar.Dunbar, West Virginia and owned by WVAWC. 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 being 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 purportedan 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.
On October 12, 2017, WVAWCIn February 2020, the Jeffries plaintiffs filed with the court a motion seeking class certification on the issues of breach of contract and negligence, and to dismiss alldetermine the applicability of punitive damages and a multiplier for those damages if imposed. In July 2020, the Circuit Court entered an order granting the Jeffriesplaintiffs’ counts alleging statutory and common law tort claims. Furthermore,motion for certification of a class regarding certain liability issues but denying certification of a class to determine a punitive damages multiplier. In August 2020, WVAWC asserts thatfiled a Petition for Writ of Prohibition in the Public Service CommissionSupreme Court of Appeals of West Virginia and notseeking to vacate or remand the court, has primary jurisdiction over allegations involving violationsCircuit Court’s order certifying the issues class. On January 28, 2021, the Supreme Court of Appeals remanded the applicable tariff,case back to the public utility code and related rules.Circuit Court for further consideration in light of a decision issued in another case relating to the class certification issues raised on appeal. On July 16, 2021, oral argument was heard by the Circuit Court on the issue of addressing the Supreme Court of Appeals’ remand. This motionmatter 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. Given the current stage of this proceeding, theThe Company cannot reasonablycurrently determine the likelihood of a loss, if any, or estimate the amount of any reasonably possible lossesloss or a range of such losses related to this proceeding.
Chattanooga, Tennessee Water Main Break Class Action Litigation
Note 10:On September 12, 2019, the Company’s Tennessee subsidiary (“TAWC”), experienced a leak in a 36-inch water transmission main, which caused service fluctuations or interruptions to TAWC customers and the issuance of a boil water notice. TAWC repaired the main by early morning on September 14, 2019, and restored full water service by the afternoon of September 15, 2019, with the boil water notice lifted for all customers on September 16, 2019.
On September 17, 2019, a complaint captioned Bruce, et al. v. American Water Works Company, Inc., et al. was filed in the Circuit Court of Hamilton County, Tennessee against TAWC, the Company and American Water Works Service Company, Inc. (“Service Company” and, together with TAWC and the Company, collectively, the “Tennessee-American Water Defendants”), on behalf of a proposed class of individuals or entities who lost water service or suffered monetary losses as a result of the Chattanooga incident (the “Tennessee Plaintiffs”). The complaint alleged breach of contract and negligence against the Tennessee-American Water Defendants, as well as an equitable remedy of piercing the corporate veil. In the complaint as originally filed, the Tennessee Plaintiffs were seeking an award of unspecified alleged damages for wage losses, business and economic losses, out-of-pocket expenses, loss of use and enjoyment of property and annoyance and inconvenience, as well as punitive damages, attorneys’ fees and pre- and post-judgment interest. In September 2020, the court dismissed all of the Tennessee Plaintiffs’ claims in their complaint, except for the breach of contract claims against TAWC, which remain pending. In October 2020, TAWC answered the complaint, and the parties have been engaging in discovery. The court has entered an agreed scheduling order, which sets a hearing in October 2022 to address the question of class certification.
TAWC and the Company believe that TAWC has meritorious defenses to the claims raised in this class action complaint, and TAWC is vigorously defending itself against these allegations. The Company cannot currently determine the likelihood of a loss, if any, or estimate the amount of any loss or a range of such losses related to this proceeding.
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Alternative Water Supply in Lieu of Carmel River Diversions
Compliance with Orders to Reduce Carmel River Diversions—Monterey Peninsula Water Supply Project
Under a 2009 order (the “2009 Order”) of the State Water Resources Control Board (the “SWRCB”), the Company’s California subsidiary (“Cal Am”) is required to decrease significantly its yearly diversions of water from the Carmel River according to a set reduction schedule. In 2016, the SWRCB issued an order (the “2016 Order”) approving a deadline of December 31, 2021 for Cal Am’s compliance with these prior orders.
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 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 $50 million in associated incurred costs plus an allowance for funds used during construction (“AFUDC”), subject to meeting certain criteria.
In September 2018, the CPUC unanimously approved another final decision finding that the Water Supply Project meets the CPUC’s requirements for a certificate of public convenience and necessity and an additional procedural phase was not necessary to consider alternative projects. The CPUC’s 2018 decision concludes that the Water Supply Project is the best project to address estimated future water demands in Monterey, and, in addition to the cost recovery approved in its 2016 decision, adopts Cal Am’s cost estimates for the Water Supply Project, which amounted to an aggregate of $279 million plus AFUDC at a rate representative of Cal Am’s actual financing costs. The 2018 final decision specifies the procedures for recovery of all of Cal Am’s prudently incurred costs associated with the Water Supply Project upon its completion, subject to the frameworks included in the final decision related to cost caps, operation and maintenance costs, financing, ratemaking and contingency matters. The reasonableness of the Water Supply Project costs will be reviewed by the CPUC when Cal Am seeks cost recovery for the Water Supply Project. Cal Am has incurred $192 million in aggregate costs as of March 31, 2022 related to the Water Supply Project, which includes $50 million in AFUDC.
In September 2021, Cal Am, Monterey One Water and the MPWMD reached an agreement on Cal Am’s purchase of additional water from an expansion to the GWR Project, which is not expected to produce additional water until 2024 at the earliest.The amended and restated water purchase agreement for the GWR Project expansion is subject to review and approval of the CPUC, and on November 29, 2021, Cal Am filed an application with the CPUC seeking review and approval of the amended and restated water purchase agreement. Cal Am is also requesting rate base treatment of the additional capital investment for certain Cal Am facilities required to maximize the water supply from the expansion to the GWR Project and a related Aquifer Storage and Recovery Project, totaling approximately $81 million. This amount is in addition to, and consistent in regulatory treatment with, the prior $50 million of cost recovery for facilities associated with the original water purchase agreement, which was approved by the CPUC in its 2016 final decision.
While Cal Am believes that its expenditures to date have been prudent and necessary to comply with the 2009 Order and the 2016 Order, as well as the CPUC’s 2016 and 2018 final decisions, Cal Am cannot currently predict its ability to recover all of its costs and expenses associated with the Water Supply Project and there can be no assurance that Cal Am will be able to recover all of such costs and expenses in excess of the $50 million in construction costs previously approved by the CPUC in its 2016 final decision.
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Coastal Development Permit Application
In June 2018, Cal Am submitted a coastal development permit application to the City of Marina (the “City”) for those project components of the Water Supply Project located within the City’s coastal zone. Members of the City’s Planning Commission, as well as City councilpersons, have publicly expressed opposition to the Water Supply Project. In May 2019, the City issued a notice of final local action based upon the denial by the Planning Commission of Cal Am’s coastal development permit application. Thereafter, Cal Am appealed this decision to the California Coastal Commission (the “Coastal Commission”), as permitted under the City’s code and the California Coastal Act. At the same time, Cal Am submitted an application to the Coastal Commission for a coastal development permit for those project components located within the Coastal Commission’s original jurisdiction. In October 2019, staff of the Coastal Commission issued a report recommending a denial of Cal Am’s application for a coastal development permit with respect to the Water Supply Project, largely based on a memorandum prepared by the general manager of the MPWMD that contradicted findings made by the CPUC in its final decision approving the Water Supply Project. In November 2019, discussions between staffs of the Coastal Commission and the CPUC took place regarding the Coastal Commission staff recommendation, at which time the CPUC raised questions about the Coastal Commission staff’s findings on water supply and demand, groundwater impacts and the viability of a project that the Coastal Commission staff believes may be a possible alternative to the Water Supply Project.
In August 2020, the staff of the Coastal Commission released a report again recommending denial of Cal Am’s application for a coastal development permit. Although the report concluded that the Water Supply Project would have a negligible impact on groundwater resources, the report also concluded it would impact other coastal resources, such as environmentally sensitive habitat areas and wetlands, and that the Coastal Commission staff believes that a feasible alternative project exists that would avoid those impacts. The staff’s report also noted disproportionate impacts to communities of concern. In September 2020, Cal Am withdrew its original jurisdiction application to allow additional time to address the Coastal Commission staff’s environmental justice concerns. The withdrawal of the original jurisdiction application did not impact Cal Am’s appeal of the City’s denial, which remains pending before the Coastal Commission. Cal Am refiled the original jurisdiction application in November 2020. In December 2020, the Coastal Commission sent to Cal Am a notice of incomplete application, identifying certain additional information needed to consider the application complete. In March 2021, Cal Am provided responses to the Coastal Commission’s notice of incomplete application. On June 18, 2021, the Coastal Commission responded, acknowledging the responses and requesting certain additional information before the application could be considered complete. Cal Am responded with the requested additional information on January 11, 2022, and on February 8, 2022, the Coastal Commission requested additional information. The original jurisdiction application remains pending.
Cal Am continues to work constructively with all appropriate agencies to provide necessary information in connection with obtaining required approvals for the Water Supply Project. However, there can be no assurance that the Water Supply Project in its current configuration will be completed on a timely basis, if ever. Beginning in January 2022, Cal Am expects to be able to comply with the diversion reduction requirements contained in the 2016 Order, but continued compliance with the diversion reduction requirements for 2023 and future years will depend on successful development of alternate water supply sources, sufficient to meet customer demand. The 2009 Order and the 2016 Order remain in effect until Cal Am certifies to the SWRCB, and the SWRCB concurs, that Cal Am has obtained a permanent supply of water to substitute for past unauthorized Carmel River diversions. While the Company cannot currently predict the likelihood or result of any adverse outcome associated with these matters, further attempts to comply with the 2009 Order and the 2016 Order may result in material additional costs and obligations to Cal Am,including fines and penalties against Cal Am in the event of noncompliance with the 2009 Order and the 2016 Order.
Note 12: Earnings per Common Share
The followingPresented in the table below is a reconciliation of the numerator and denominator for the basic and diluted earnings per shareEPS calculations:
 For the Three Months Ended March 31,
 20222021
Numerator:
Net income attributable to common shareholders$158 $133 
Denominator:
Weighted-average common shares outstanding—Basic182 181 
Effect of dilutive common stock equivalents— 1 
Weighted-average common shares outstanding—Diluted182 182 
21
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
Numerator       
Net income attributable to common stockholders$203
 $148
 $427
 $367
        
Denominator 
  
  
  
Weighted-average common shares outstanding—Basic178
 178
 178
 178
Effect of dilutive common stock equivalents1
 —
 1
 1
Weighted-average common shares outstanding—Diluted179
 178
 179
 179
The effect of dilutive common stock equivalents is related to outstanding stock options, restricted stock units (“RSUs”) and performance stock units (“PSUs”) granted under the Company’s 2007 Omnibus Equity Compensation Plan and outstanding RSUs and PSUs granted under the Company’s 2017 Omnibus Equity Compensation 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 months ended March 31, 2022 and 2021, because their effect would have been anti-dilutive under the treasury stock method.
Note 11:13: Fair Value of Financial Assets and LiabilitiesInformation
Fair Value of Financial Instruments
The Company used the following methods and assumptions to estimatewere 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.
Seller promissory note from the sale of HOS — The carrying amount reported on the Consolidated Balance Sheets for the seller promissory note from the sale of HOS is $720 million as of March 31, 2022 and December 31, 2021. This amount represents the principal amount owed under the loan. The fair values of the seller note, including any impact of interest rates, approximated $700 million and $720 million as March 31, 2022 and December 31, 2021, respectively. The seller note is classified as Level 3 within the fair value hierarchy.
Preferred stock with mandatory redemption requirements and long-term debt—The fair values of preferred stock with mandatory redemption requirements and long-term debt are categorized within the fair value hierarchy based on the inputs that are used to value each instrument. The fair value of long-term debt classified as Level 1 is calculated using quoted prices in active markets. Level 2 instruments are valued using observable inputs and Level 3 instruments are valued using observable and unobservable inputs. 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:
As of March 31, 2022
Carrying AmountAt Fair Value
 Level 1Level 2Level 3Total
Preferred stock with mandatory redemption requirements$3 $— $— $3 $3 
Long-term debt (excluding finance lease obligations)10,404 9,104 55 1,522 10,681 
As of December 31, 2021
 Carrying AmountAt Fair Value
 Level 1Level 2Level 3Total
Preferred stock with mandatory redemption requirements$4 $— $— $6 $6 
Long-term debt (excluding finance lease obligations)10,396 10,121 60 1,637 11,818 
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 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
Recurring Fair Value Measurements
The following table presentsPresented 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:
As of March 31, 2022
 Level 1Level 2Level 3Total
Assets:    
Restricted funds$21 $— $— $21 
Rabbi trust investments22 — — 22 
Deposits27 — — 27 
Other investments19 — — 19 
Contingent cash payment from the sale of HOS— — 72 72 
Total assets89 — 72 161 
Liabilities:    
Deferred compensation obligations25 — — 25 
Total liabilities25 — — 25 
Total assets$64 $— $72 $136 
 At Fair Value as of September 30, 2017
 Level 1 Level 2 Level 3 Total
Assets:       
Restricted funds$29
 $—
 $—
 $29
Rabbi trust investments14
 —
 —
 14
Deposits4
 —
 —
 4
Other investments4
 —
 —
 4
Total assets51
 —
 —
 51
        
Liabilities:       
Deferred compensation obligations16
 —
 —
 16
Mark-to-market derivative liabilities—
 2
 —
 2
Total liabilities16
 2
 —
 18
Total net assets (liabilities)$35
 $(2) $—
 $33
At Fair Value as of December 31, 2016As of December 31, 2021
Level 1 Level 2 Level 3 Total Level 1Level 2Level 3Total
Assets:       Assets:    
Restricted funds$24
 $—
 $—
 $24
Restricted funds$21 $— $— $21 
Rabbi trust investments12
 —
 —
 12
Rabbi trust investments23 — — 23 
Deposits3
 —
 —
 3
Deposits27 — — 27 
Mark-to-market derivative assets—
 28
 —
 28
Other investments1
 —
 —
 1
Other investments17 — — 17 
Contingent cash payment from the sale of HOSContingent cash payment from the sale of HOS— — 72 72 
Total assets40
 28
 —
 68
Total assets88 — 72 160 
       
Liabilities:       Liabilities:    
Deferred compensation obligations13
 —
 —
 13
Deferred compensation obligations27 — — 27 
Total liabilities13
 —
 —
 13
Total liabilities27 — — 27 
Total net assets (liabilities)$27
 $28
 $—
 $55
Total assetsTotal assets$61 $— $72 $133 
Restricted funds—The Company’s restricted funds primarily represent proceeds received from financings for the construction and capital improvement of facilities and from customers for future services under operationsoperation, maintenance and maintenancerepair 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.
23
Mark-to-market derivative assetassets 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 may use fixed-to-floating interest rate swaps, typically designated as fair-value hedges, to achieve a targeted level of variable-rate debt as a percentage of total debt. The Company uses a calculation of future cash inflows and estimated future outflows, which are discounted, to determine the current fair value. Additional inputs to the present value calculation include the contract terms, counterparty credit risk, interest rates and market volatility. The Company had no significant mark-to-market derivatives outstanding as of March 31, 2022.
Other investments—Other investments primarily represent money market funds used for active employee benefits. The Company includes other investments in other current assets.assets on the Consolidated Balance Sheets.
Deferred compensation obligations—Contingent cash payment from the sale of HOS—The Company’s deferred compensation plans allow participants to defer certaincontingent cash compensation into notional investment accounts. The Company includes such planspayment derivative included as part of the consideration from the sale of HOS is included in other long-term liabilities.assets on the Consolidated Balance Sheets. The fair value of the contingent cash payment is estimated using the probability of the outcome of receipt of the $75 million, a Level 3 input.
Note 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 deferred compensation obligations is based onsole discretion. Renewal options that the marketCompany was reasonably certain to exercise are included in the Company’s right-of-use (“ROU”) assets. Certain operating leases contain the option to purchase the leased property. The operating leases for real property, vehicles and equipment will expire over the next 38 years, five years, and five years, respectively.
The Company participates in a number of arrangements with various public entities (“Partners”) in West Virginia. Under these arrangements, the Company transferred a portion of its utility plant to the Partners in exchange for an equal principal amount of Industrial Development Bonds (“IDBs”) issued by the Partners under the Industrial Development and Commercial Development Bond Act. The Company leased back the utility plant under agreements for a period of 30 to 40 years. The Company has recorded these agreements as finance leases in property, plant and equipment, as ownership of the assets will revert back to the Company at the end of the lease term. The carrying value of the participants’ notional investment accounts.finance lease assets was $146 million as of March 31, 2022 and December 31, 2021. The notionalCompany determined that the finance lease obligations and the investments in IDBs meet the conditions for offsetting, and as such, are comprised primarilyreported net on the Consolidated Balance Sheets and excluded from the finance lease disclosure presented below.
The Company also enters into O&M agreements with the Partners. The Company pays an annual fee for use of mutual funds,the Partners’ assets in performing under the O&M agreements. The O&M agreements are recorded as operating leases, and future annual use fees of $3 million in 2022 and $4 million in 2023 through 2026, and $48 million thereafter, are included in operating lease ROU assets and operating lease liabilities on the Consolidated Balance Sheets.
Rental expenses under operating and finance leases were $3 million for the three months ended March 31, 2022 and March 31, 2021, respectively.
For the three months ended March 31, 2022, cash paid for amounts in lease liabilities, which includes operating and financing cash flows from operating and finance leases, was $3 million. For the three months ended March 31, 2022, there were ROU assets obtained in exchange for new operating lease liabilities of $1 million.
As of March 31, 2022, the weighted-average remaining lease term of the finance lease and operating leases were four years and 18 years, respectively, and the weighted-average discount rate of the finance lease and operating leases were 12% and 4%, respectively.
The future maturities of lease liabilities at March 31, 2022 are based on observable market prices.$9 million in 2022, $9 million in 2023, $8 million in 2024, $8 million in 2025, $7 million in 2026 and $88 million thereafter. At March 31, 2022, imputed interest was $43 million.
24
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 conductsoperates its businessbusinesses primarily through one1 reportable segment, the Regulated Businesses segment. The Company also operates several“Market-Based Businesses and Other” includes 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 are collectively presented as the Company’s “Market-Based Businesses.” “Other” includesGAAP, corporate costs that are not allocated to the Company’s operating segments, eliminations of inter-segment transactions and fair value adjustments and associated income and deductions related to acquisitions that have not been allocated to the operating segments for evaluation of performance and allocation of resource purposes. The followingadjustments related to the acquisitions are reported in Market-Based Businesses and Other as they are excluded from segment performance measures evaluated by management.
As a result of the sale of HOS, the categories which were previously shown as “Market-Based Businesses” and “Other” have been combined and shown as “Market-Based Businesses and Other.” Segment results for the three months ended March 31, 2021 have been adjusted retrospectively to reflect this change.
Presented in the tables include the Company’sbelow is summarized segment information:
 As of or for the Three Months Ended March 31, 2022
 Regulated BusinessesMarket-Based Businesses and OtherConsolidated
Operating revenues$778 $64 $842 
Depreciation and amortization155 3 158 
Total operating expenses, net538 58 596 
Interest expense(70)(30)(100)
Interest income— 13 13 
Income before income taxes196 (3)193 
Provision for income taxes36 (1)35 
Net income attributable to common shareholders160 (2)158 
Total assets22,973 2,721 25,694 
Cash paid for capital expenditures422 2 424 
 As of or for the Three Months Ended March 31, 2021
 Regulated BusinessesMarket-Based Businesses and OtherConsolidated
Operating revenues$755 $133 $888 
Depreciation and amortization147 10 157 
Total operating expenses, net543 116 659 
Interest expense(71)(27)(98)
Interest income— — — 
Income before income taxes163 (8)155 
Provision for income taxes28 (6)22 
Net income attributable to common shareholders135 (2)133 
Total assets22,032 2,493 24,525 
Cash paid for capital expenditures338 4 342 
25
 As of or for the Three Months Ended September 30, 2017
 Regulated
Businesses		 Market-Based
Businesses		 Other Consolidated
Operating revenues$842
 $100
 $(6) $936
Depreciation and amortization121
 5
 2
 128
Total operating expenses, net433
 80
 (7) 506
Interest, net(67) 1
 (23) (89)
Income before income taxes347
 21
 (28) 340
Provision for income taxes135
 7
 (5) 137
Net income attributable to common stockholders212
 14
 (23) 203
Total assets17,390
 600
 1,371
 19,361


 As of or for the Three Months Ended September 30, 2016
 Regulated
Businesses		 Market-Based
Businesses		 Other Consolidated
Operating revenues$826
 $109
 $(5) $930
Depreciation and amortization111
 4
 4
 119
Total operating expenses, net521
 98
 (8) 611
Interest, net(64) —
 (17) (81)
Income before income taxes246
 12
 (15) 243
Provision for income taxes94
 5
 (4) 95
Net income attributable to common stockholders152
 7
 (11) 148
Total assets16,020
 545
 1,406
 17,971
 As of or for the Nine Months Ended September 30, 2017
 Regulated
Businesses		 Market-Based
Businesses		 Other Consolidated
Operating revenues$2,247
 $306
 $(17) $2,536
Depreciation and amortization357
 13
 8
 378
Total operating expenses, net1,327
 263
 (19) 1,571
Interest, net(200) 2
 (61) (259)
Income before income taxes731
 46
 (66) 711
Provision for income taxes285
 17
 (18) 284
Net income attributable to common stockholders446
 29
 (48) 427
Total assets17,390
 600
 1,371
 19,361
 As of or for the Nine Months Ended September 30, 2016
 Regulated
Businesses		 Market-Based
Businesses		 Other Consolidated
Operating revenues$2,176
 $338
 $(14) $2,500
Depreciation and amortization328
 11
 11
 350
Total operating expenses, net1,385
 300
 (17) 1,668
Interest, net(191) 1
 (52) (242)
Income before income taxes610
 44
 (50) 604
Provision for income taxes236
 18
 (17) 237
Net income attributable to common stockholders374
 26
 (33) 367
Total assets16,020
 545
 1,406
 17,971



ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with the unaudited consolidated financial statementsConsolidated Financial Statements and the notesNotes thereto included elsewhere in this Form 10-Q.10-Q, and in the Company’s Form 10-K for the year ended December 31, 2021. This discussion contains forward-looking statements that are based on management’s current expectations, estimates and projections about ourthe Company’s business, operations and financial performance. The cautionary statements made in this Form 10-Q should be read as applying to all related forward-looking statements whenever they appear in this Form 10-Q. OurThe Company’s actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those we discussthat are discussed under “Forward-Looking Statements,”Statements” and elsewhere in this Form 10-Q. The Company has a disclosure committee consisting of members of senior management and other key employees involved in the preparation of the Company’s SEC reports. The disclosure committee is actively involved in the review and discussion of the Company’s SEC filings.
GeneralOverview
Through its subsidiaries, American Water Works Company, Inc. (“American Water” or the “Company”) is the largest and most geographically diverse, investor-owned publicly-tradedpublicly traded water and wastewater utility company in the United States, as measured by both operating revenuerevenues and population served. OurThe Company’s primary business involves the ownership of utilities that provide water and wastewater services to residential, commercial, industrial, public authority, fire service and other customers, including sale for resale and public authority customers. Ourcustomers, collectively presented as the “Regulated Businesses.” Services provided by the Company’s utilities are generally subject to economic regulation by certainmultiple state utility commissions or other entities engaged in utility regulation. We report the results of our utilities in our Regulated Businesses segment. Weregulation, collectively referred to as public utility commissions (“PUCs”). The Company also operate severaloperates other market-based businesses that provide a broad range of related and complementary water and wastewater services that are not subject to economic regulation by state PUCs that provide water and wastewater services to the U.S. government on military installations, as well as municipalities, and utility commissions or other entities engaged in utility regulation. We present the results of these businesses as ourcustomers, collectively included within “Market-Based Businesses.Businesses and Other.” For further description of our businesses, seeSee Part I, Item 1—Business in ourthe Company’s Form 10-K.
You should read the following discussion in conjunction with our Consolidated Financial Statements and related Notes included elsewhere in this Form 10-Q and in our Form 10-K.10-K for additional information.
Financial Results
Highlights of our diluted earnings per share and adjusted diluted earnings per share (a non-GAAP measure) for the three and nine months ended September 30, 2017 are as follows:
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
Diluted earnings per share (GAAP):       
Net income attributable to common stockholders$1.13
 $0.83
 $2.39
 $2.05
Non-GAAP adjustments:       
Impact of Freedom Industries settlement activities(0.12) 0.36
 (0.12) 0.36
Income tax impact0.05
 (0.14) 0.05
 (0.14)
Net non-GAAP adjustment(0.07) 0.22
 (0.07) 0.22
        
Early debt extinguishment at the parent company0.03
 —
 0.03
 —
Income tax impact(0.01) —
 (0.01) —
Net non-GAAP adjustment0.02
 —
 0.02
 —
        
Total net non-GAAP adjustments(0.05) 0.22
 (0.05) 0.22
        
Adjusted diluted earnings per share (non-GAAP)$1.08
 $1.05
 $2.34
 $2.27
For the three months ended September 30, 2017, net income attributable to common stockholders was $1.13 per diluted share, an increase of $0.30 per diluted share, or 36.1%, over the same period in 2016. Included in the 2017 amount was an after-tax benefit of $13 million, or $0.07 per diluted share, resulting from an insurance settlement with one of our general liability insurance carriers related to the Freedom Industries matter and an after-tax charge of $4 million, or $(0.02) per diluted share, resulting from an early debt extinguishment charge at the parent company. Included in the 2016 amount was an after-tax charge of $39 million, or $(0.22) per diluted share, resulting from the binding global agreement in principle to settle claims associated with the Freedom Industries chemical spill.


Excluding these items, adjustedMarch 31, 2022, diluted earnings per share, (a non-GAAP measure) was $1.08 for the three months ended September 30, 2017, an increase of $0.03 per diluted share, or 2.9% over the same period in 2016. This increase was primarily due to continued growth in our Regulated Businesses segment, largely driven by infrastructure investment, acquisitions and organic growth, combined with growth in our Market-Based Businesses from our Homeowner Services Group. These increases were partially offset by warmer weather in the third quarter of 2016 and a discrete tax adjustment recorded at the parent company associated with legislative changes in the State of Illinois impacting state tax apportionment.
For the nine months ended September 30, 2017, net income attributable to common stockholders was $2.39 per diluted share, an increase of $0.34 per diluted share, or 16.6% over the same period in 2016. Included in the 2017 amount was an after-tax benefit of $13 million, or $0.07 per diluted share, resulting from an insurance settlement with one of our general liability insurance carriers related to the Freedom Industries matter and an after-tax charge of $4 million, or $(0.02) per diluted share, resulting from an early debt extinguishment charge at the parent company. Included in the 2016 amount was an after-tax charge of $39 million, or $(0.22) per diluted share, resulting from the binding global agreement in principle to settle claims associated with the Freedom Industries chemical spill.
Excluding these items, adjusted diluted earnings per share (a non-GAAP measure) was $2.34 for the nine months ended September 30, 2017, an increase of $0.07 per diluted share, or 3.1%, over the same period in 2016. This increase was primarily due to continued growth in our Regulated Businesses segment, largely driven by infrastructure investment, acquisitions and organic growth, combined with growth in our Market-Based Businesses from our Homeowner Services Group. These increases were partially offset by overall warmer weather in 2016 and two discrete tax adjustments recorded at the parent company associated with legislative changes in the States of New York and Illinois impacting state tax apportionment.
Adjusted diluted earnings per share represents a non-GAAP financial measure and means diluted earnings per share, calculated in accordance with U.S. GAAP, excluding the impact of (1) the September 2017 insurance settlement related to the Freedom Industries chemical spill, (2) the debt extinguishment charge incurred in September 2017 with respect to the early extinguishment of debt allocated to the parent company and (3) the October 2016 binding global agreement in principle to settle claims related to the Freedom Industries chemical spill. We believe that this non-GAAP measure provides investors with useful information by excluding certain matters that may not be indicative of our ongoing operating results, and that providing this non-GAAP measure will allow investors to understand better our businesses’ operating performance and facilitate a meaningful year-to-year comparison of our results of operations. Although management uses this non-GAAP financial measure internally to evaluate our results of operations, we do not intend results excluding the adjustments to represent results as defined by U.S. GAAP, and the reader should not consider them as indicators of performance. This non-GAAP financial measure is derived from our consolidated financial information but is not presented in our financial statements prepared in accordance with U.S. GAAP, and thus it should be considered in addition to, and not as a substitute for, measures of financial performance prepared in accordance with U.S. GAAP. In addition, this non-GAAP financial measure as defined and used above may not be comparable to similarly titled non-GAAP measures used by other companies, and, accordingly, it may have significant limitations on its use.
Focusing on Central Themes
For 2017, our focus continues to be anchored on our five central themes: 1) Safety, 2) Customers, 3) People, 4) Growth and 5) Technology and Operational Efficiency. We continue our focus on operating our business responsibly and managing our operating and capital costs in a manner that benefits our customers and produces long-term value for our stockholders. Additionally, we continue to execute on our ongoing strategy that ensures a safe workplace for our employees, emphasizes public safety for our customers and communities, and leverages our human resources, processes and technology innovation to make our business more effective and efficient. The progress that we have made during the first nine months of 2017 with respect to growth and improvement in our operational efficiency ratio is described below.
Growth—Infrastructure improvements, acquisitions and strategic capital investments
During the first nine months of 2017, we made capital investments of approximately $1.0 billion, focused in two key areas:
$963 million of which the majority was in our Regulated Businesses segment for infrastructure improvements; and
$43 million to fund acquisitions in our Regulated Businesses segment, which added approximately 16,000 water and wastewater customers. This includes the acquisition on April 3, 2017, of all the outstanding capital stock of Shorelands Water Company, Inc. (“Shorelands”), for total consideration of $33 millionaccounting principles generally accepted in the formUnited States (“GAAP”), were $0.87, an increase of 438,211 shares of our common stock. Shorelands, which is now a part of our New Jersey subsidiary, provides water service to approximately 11,000 customers in Monmouth County, New Jersey.
For the full year of 2017, our capital investment, including regulated acquisitions, is expected to be approximately $1.65 billion.


Included in this range is the asset purchase agreement signed by our Pennsylvania subsidiary to acquire substantially all of the wastewater collection and treatment system assets of the Municipal Authority of the City of McKeesport, Pennsylvania for approximately $159 million, subject to certain adjustments provided in the agreement. The system currently represents approximately 22,000 wastewater customers. In connection with the execution of this agreement, $7 million in non-escrowed deposits have been made to the seller. On October 26, 2017, the Pennsylvania Public Utility Commission approved a joint petition for settlement of this acquisition. The closing of this acquisition is subject to the satisfaction of various conditions and covenants.  We are expecting to close this acquisition by the end of 2017.
On September 29, 2017, our Military Services Group was awarded a contract for ownership, operation and maintenance of the water and wastewater systems at Wright-Patterson Air Force Base, the largest single-site employer in the state of Ohio. The contract award includes estimated revenues of approximately $490 million over a 50-year period, subject to an annual economic price adjustment. With the addition of this base, our backlog of revenue associated with our military contracts is approximately $3.5 billion over their remaining contract terms.
Technology & Operational Efficiency—Continuing Improvement in Adjusted Operation and Maintenance (“O&M”) Efficiency Ratio for our Regulated Businesses
We continued to improve on our adjusted O&M efficiency ratio (a non-GAAP measure). Our adjusted O&M efficiency ratio for the twelve months ended September 30, 2017 was 34.2%, compared to 34.9% for the twelve months ended September 30, 2016. The improvement in this ratio for the twelve months ended September 30, 2017,$0.14 per diluted share, as compared to the same period in 2016,the prior year. This increase was primarily attributabledriven by continued growth in the Regulated Businesses from infrastructure investment, acquisitions and organic growth. Also, included in 2022 results is $0.06 per share from interest income earned on the seller note and income earned on the revenue share agreement from the sale of HOS. See Note 5—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements for additional information.
Growth Through Capital Investment in Infrastructure and Regulated Acquisitions
The Company continues to grow its businesses, with the majority of its growth to be achieved in the Regulated Businesses through (i) continued capital investment in the Company’s infrastructure to provide safe, clean, reliable and affordable water and wastewater services to its customers, and (ii) regulated acquisitions to expand the Company’s services to new customers. The Company plans to invest approximately $2.5 billion across its footprint in 2022. During the first three months of 2022,the Company invested $437 million, primarily in the Regulated Businesses, as discussed below:
Regulated Businesses - Growth and Optimization
•$430 million capital investment in the Regulated Businesses, the majority for infrastructure improvements and replacements; and
•$5 million to fund acquisitions in the Regulated Businesses, which added approximately 1,800 water and wastewater customers, in addition to approximately 3,700 customers added through organic growth.
On April 6, 2021, the Company’s Pennsylvania subsidiary entered into an Asset Purchase Agreement with the York City Sewer Authority (the “Seller”) and the City of York, with respect to the purchase of the Seller’s public wastewater collection and treatment system assets (the “System Assets”). On April 14, 2022, the Pennsylvania Public Utility Commission (“PaPUC”) approved the Company’s Pennsylvania subsidiary’s application to acquire the System Assets from the Seller for a purchase price of $235 million, plus an amount of average daily revenue calculated for the period between the final meter reading and the date of closing. The System Assets serve, directly and indirectly through bulk contracts, more than 45,000 customers. Assuming no successful contest of the PaPUC’s approval occurs within 30 days thereafter, this approval would satisfy a significant remaining condition to the closing of the transaction, which is expected to occur by or before mid-June 2022.
On March 29, 2021, the Company’s New Jersey subsidiary entered into an agreement to acquire the water and wastewater assets of Egg Harbor City for $22 million. The water and wastewater systems currently serve approximately 1,500 customers each, or 3,000 combined, and are being sold through the New Jersey Water Infrastructure Protection Act process. The Company expects to close this acquisition in the second half of 2022, pending regulatory approval.
26
As of March 31, 2022, the Company has entered into agreements for pending acquisitions in the Regulated Businesses, including the York City Sewer Authority and Egg Harbor City agreements discussed above, to add approximately 77,300 additional customers.
Sale of New York American Water Company, Inc.
On January 1, 2022, the Company completed the previously disclosed sale of its regulated utility operations in New York to Liberty Utilities (Eastern Water Holdings) Corp. (“Liberty”), an indirect, wholly owned subsidiary of Algonquin Power & Utilities Corp. Liberty purchased from the Company all of the capital stock of the Company’s New York subsidiary for a purchase price of $608 million in cash.
Sale of Michigan American Water Company
On February 4, 2022, the Company completed the sale of its operations in Michigan for $6 million.
Operational Excellence
The Company’s adjusted regulated O&M efficiency ratio, which is used as a measure of the operating performance of the Regulated Businesses, was 33.9% for the twelve months ended March 31, 2022, as compared to 34.1% for the twelve months ended March 31, 2021. The ratio reflects the continued focus on operating costs, as well as an increase in regulated operating revenue.revenues for the Regulated Businesses after considering the adjustment for the amortization of the excess accumulated deferred income taxes (“EADIT”) shown in the table below.
OurThe Company’s adjusted regulated O&M efficiency ratio is a non-GAAP measure, and is defined by the Company as our regulatedits operation and maintenance expenses from the Regulated Businesses, divided by regulatedthe operating revenues from the Regulated Businesses, where both operation and maintenance expenses and operating revenues were adjusted to eliminate purchased water expense. Additionally,Operating revenues were further adjusted to exclude reductions for the amortization of the EADIT. Also excluded from operation and maintenance expenses we excludedis the allocable portion of non-operation and maintenancenon-O&M support services cost,costs, mainly depreciation and general taxes, that arewhich is reflected in ourthe Regulated Businesses segment as operation and maintenance expenses, but for consolidated financial reporting purposes, areis categorized within other line items in the accompanying Consolidated Statements of Operations. In addition toThe items discussed above were excluded from the standard adjustments to our adjusted O&M efficiency ratio for 2016 and 2017, we have also excluded from operation and maintenance expenses the impact of certain Freedom Industries chemical spill settlement activities. We excluded all the above items from the calculation as we believe such itemsthey are not reflective of management’s ability to increase the efficiency of our regulated operations.the Regulated Businesses.
We evaluate ourThe Company evaluates its operating performance using this ratio, and believes it is useful to investors because we believe it directly measures improvement in the operating performance and efficiency of our regulated operations.the Regulated Businesses. This information is intendedderived from the Company’s consolidated financial information but is not presented in its financial statements prepared in accordance with GAAP. This information supplements and should be read in conjunction with the Company’s GAAP disclosures, and should be considered as an addition to, enhance an investor’s overall understanding of our operating performance. Ourand not a substitute for, any GAAP measure. The Company’s adjusted regulated O&M efficiency ratio (i) is not an accounting measure that is based on GAAP; (ii) is not based on a GAAP financial measure,standard, objective industry definition or method of calculation; (iii) may not be comparable to other companies’ operating measuresmeasures; and (iv) should not be used in place of the GAAP information provided elsewhere in this report.Form 10-Q.

27

The followingPresented in the table providesbelow is the calculation of ourthe Company’s adjusted regulated O&M efficiency ratio and a reconciliation that compares operation and maintenance expenses and operating revenues, each as determined in accordance with GAAP, to those amounts utilized in the calculation of ourits adjusted O&M efficiency ratio, for the twelve months ended September 30, 2017 as compared to the same period in 2016:ratio:
For the Twelve Months Ended March 31,
(Dollars in millions)20222021
Total operation and maintenance expenses$1,723 $1,658 
Less:
Operation and maintenance expenses—Market-Based Businesses and Other403 378 
Total operation and maintenance expenses—Regulated Businesses1,320 1,280 
Less:
Regulated purchased water expenses155 152 
Allocation of non-operation and maintenance expenses29 43 
Adjusted operation and maintenance expenses—Regulated Businesses (i)
$1,136 $1,085 
Total operating revenues$3,881 $3,822 
Less:
Operating revenues—Market-Based Businesses and Other474 532 
Total operating revenues—Regulated Businesses3,407 3,290 
Less:
Regulated purchased water revenues (a)
155 152 
Revenue reductions from the amortization of EADIT(102)(46)
Adjusted operating revenues—Regulated Businesses (ii)
$3,354 $3,184 
Adjusted O&M efficiency ratio—Regulated Businesses (i) / (ii)
33.9 %34.1 %
(a)The calculation assumes regulated purchased water revenues approximate regulated purchased water expenses.
28
 For the twelve months ended September 30,
(In millions)2017 2016
Total operation and maintenance expenses$1,383
 $1,511
Less:   
Operation and maintenance expenses—Market-Based Businesses334
 391
Operation and maintenance expenses—Other(46) (42)
Total operation and maintenance expenses—Regulated Businesses1,095
 1,162
Less:   
Regulated purchased water expenses124
 120
Allocation of non-operation and maintenance expenses29
 29
Impact of Freedom Industries settlement activities (a)
(22) 65
Adjusted operation and maintenance expenses—Regulated Businesses (i)
$964
 $948
    
Total operating revenues$3,338
 $3,283
Less:   
Operating revenues—Market-Based Businesses419
 464
Operating revenues—Other(23) (17)
Total regulated operating revenues—Regulated Businesses2,942
 2,836
Less:   
Regulated purchased water revenues (b)
124
 120
Adjusted operating revenues—Regulated Businesses (ii)
$2,818
 $2,716
    
Adjusted operation and maintenance efficiency ratio—Regulated Businesses (i) / (ii)
34.2% 34.9%
(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.


Regulatory Matters
TheGeneral Rate Cases and Infrastructure Surcharges
Presented in the table below providesare annualized incremental revenues, resulting from rate authorizationsexcluding reductions for the amortization of EADIT that became effective during the nine months ended September 30, 2017 for general rate cases,are generally offset in income tax expense, assuming a constant water sales volume, resulting from general rate case authorizations and infrastructure surcharge mechanisms. There were no rate authorizations that became effective duringin the three months ended September 30, 2017.current period:
During the Three Months Ended March 31,
(In millions)20222021
General rate cases by state:
West Virginia (effective February 25, 2022)$15 $— 
California (effective January 1, 2022 and January 1, 2021)13 22 
Pennsylvania (effective January 1, 2022 and January 28, 2021)20 70 
Total general rate cases$48 $92 
Infrastructure surcharges by state:
Indiana (effective March 21, 2022 and March 17, 2021)$8 $8 
West Virginia (effective March 1, 2022 and January 1, 2021)3 5 
Missouri (effective February 1, 2022)12 — 
Illinois (effective January 1, 2022 and January 1, 2021)6 7 
Pennsylvania (effective January 1, 2021)— 8 
Tennessee (effective January 1, 2021)— 3 
Total infrastructure surcharges$29 $31 
(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
(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 and Cost of Capital Filings
DuringEffective April 1, 2022, the second quarter of 2017, ourCompany’s Pennsylvania subsidiary filed aimplemented infrastructure surcharges for annualized incremental revenues of $2 million.
On February 24, 2022, the Company’s West Virginia subsidiary was authorized additional annual revenues of $15 million in its general rate case, requesting $108effective February 25, 2022, excluding agreed to reductions for EADIT as a result of the Tax Cuts and Jobs Act of 2017 (the “TCJA”). The EADIT reduction in revenues is $2 million in additional annualized water and wastewater revenues. On October 16, 2017, a proposed settlement agreement was entered into by our Pennsylvania subsidiary and the other partiesexclusion for infrastructure surcharges is $10 million. Staff of the WV Public Service Commission moved for reconsideration of the Commission's final order on several grounds. The Company filed its response to the proceeding, providingStaff's Petition for Reconsideration on March 28, 2022 in support of the Commission authorized revenue requirement.The matter is currently pending before the Commission for its consideration.
On November 18, 2021, the California Public Utilities Commission (the “CPUC”) unanimously approved a final decision in the test year 2021 general rate case filed by the Company’s California subsidiary, which is retroactive to January 1, 2021. The Company’s California subsidiary received authorization for additional annualized water and wastewater revenues of $62$22 million, subjectexcluding agreed to reductions for EADIT as a result of the TCJA. The EADIT reduction in revenues is $4 million and is offset by a like reduction in income tax expense. On February 16, 2022, the Company’s California subsidiary received approval to increase rates by $13 million in 2022 escalation increases, excluding $4 million of reductions related to the TCJA, which is retroactive to January 1, 2022.
On March 2, 2021, an administrative law judge (“ALJ”) in the Office of Administrative Law of New Jersey filed an initial decision with the New Jersey Board of Public Utilities (the “NJBPU”) that recommended denial of a petition filed by the administrative law judges assignedCompany’s New Jersey subsidiary, which sought approval of acquisition adjustments in rate base of $29 million associated with the acquisitions of Shorelands Water Company, Inc. in 2017 and the Borough of Haddonfield’s water and wastewater systems in 2015. On July 29, 2021, the NJBPU issued an order adopting the ALJ’s initial decision without modification. The Company’s New Jersey subsidiary filed a Notice of Appeal with the New Jersey Appellate Division on September 10, 2021. The Company filed its brief in support of the appeal on March 4, 2022. Response briefs are due by May 23, 2022. There is no financial impact to the caseCompany as a result of the NJBPU’s order, since the acquisition adjustments are currently recorded as goodwill on the Consolidated Balance Sheets.
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On February 25, 2021, the Company’s Pennsylvania subsidiary was authorized additional annualized revenues of $90 million, effective January 28, 2021, excluding agreed to reductions in revenues of $19 million for EADIT as a result of the TCJA. The overall increase, net of TCJA reductions, is $71 million in revenues combined over two steps. The first step was effective January 28, 2021 in the amount of $70 million ($51 million including TCJA reductions) and the PaPUC.second step was effective January 1, 2022 in the amount of $20 million. The protected EADIT balance of $200 million is being returned to customers using the average rate assumptions method, and the unprotected EADIT balance of $116 million is being returned to customers over 20 years. The $19 million annual reduction to revenue is comprised of both the protected and unprotected EADIT amortizations and a portion of catch-up period EADIT. A bill credit of $11 million annually for two years returns to customers the remainder of the EADIT catch-up period amortization. The catch-up period of January 1, 2018 through December 31, 2020 covers the period from when the lower federal corporate income tax rate went into effect until new base rates went into effect and will be amortized over two years.
Pending General Rate Case Filings
On September 15, 2017, ourFebruary 10, 2022, the Company’s Illinois subsidiary filed a general rate case requesting $71 million in additional annualized revenues excluding proposed reductions for EADIT as a result of TCJA and infrastructure surcharges.
On January 14, 2022, the Company’s New Jersey subsidiary filed a general rate case requesting $129$110 million in additional annualized waterrevenues excluding proposed reductions for EADIT as a result of TCJA and wastewater revenues.infrastructure surcharges. Public hearings were held on April 6, 2022.Settlement conferences are scheduled to commence in May 2022 with evidentiary hearings expected to begin in September 2022.
On December 1, 2021, the Company’s Kentucky subsidiary filed a wastewater rate case requesting additional revenues of $1 million, excluding proposed reductions for EADIT as a result of TCJA. The Company’s Kentucky subsidiary requested a four-step rate increase for their wastewater operations with effective dates of June 30, 2017, our Missouri1, 2022, June 1, 2023, June 1, 2024 and June 1, 2025 for annual amounts of less than $1 million each year. The Company’s Kentucky subsidiary filed their wastewater case under the alternative rate filing process for smaller utilities which calculates an operating ratio of 88% rather than a return on equity.
On November 15, 2021, the Company’s Virginia subsidiary filed a general rate case requesting $84$15 million in additional annualized water and wastewater revenues.revenues excluding proposed reductions for EADIT as a result of TCJA.
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.
DuringAugust 18, 2021, the third quarter of 2016, our CaliforniaCompany’s Hawaii subsidiary filed a general rate case requesting $35$2 million in additional annualized revenues excluding proposed reductions for EADIT as a result of TCJA. On April 11, 2022, the Company and an increasethe Division of $8 millionConsumer Advocacy submitted a joint letter to the Hawaii Public Utilities Commission indicating that the parties had, in principle, reached a settlement that would resolve all disputed issues in the escalation yearcase. In the joint letter, the parties also requested revisions to the procedural schedule.
The Company’s California subsidiary submitted its application on May 3, 2021 to set its cost of 2019 andcapital for 2022 through 2024. According to the attrition yearCPUC’s procedural schedule, a decision setting the authorized cost of 2020. Duringcapital is expected to be issued in the fourth quarter of 2016, our California subsidiary filed an update to its general rate case, adjusting its request for additional annualized revenues to $32 million and increasing its request to $9 million in the escalation year of 2019.2022.
Pending Infrastructure Surcharge Filings
On October 31, 2017, our VirginiaMarch 4, 2022, the Company’s Missouri subsidiary filed foran infrastructure surchargessurcharge proceeding requesting $1$19 million in additional annualized revenues.
On October 13, 2017, our New JerseyMarch 1, 2022, the Company’s Kentucky subsidiary filed for an infrastructure surcharge requesting $4 million in additional annualized revenues.


During the second quarter of 2017, our West Virginia subsidiary filed for an infrastructure surchargeproceeding requesting $3 million in additional annualized revenues. On October 11, 2017, our West Virginia subsidiary filed a settlement agreement with the Public Service Commission of West Virginia (“WVPSC”), whereby all parties to the proceeding have agreed to an infrastructure surcharge that provides for approximately the requested increase amount in annualized revenues, subject to approval by the WVPSC.
During the second quarter of 2017, our Missouri subsidiary filed for an infrastructure surcharge requesting $5 million in additional annualized revenues. On August 29, 2017, our Missouri subsidiary refiled and adjusted its request for additional annualized revenues to $6 million. 
Other Regulatory FilingsMatters
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 August 4, 2017, our IllinoisOctober 5, 2020, the Company’s California subsidiary filed an application for rehearing of the decision and following the CPUC’s denial of its rehearing application in September 2021, the Company’s California subsidiary filed a petition for writ of review with Illinois Commerce Commission (“ICC”) to place into effect revised depreciation rates applicable to depreciablethe California Supreme Court on October 27, 2021.
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Legislative Updates
During 2022, the Company’s regulatory jurisdictions enacted the following legislation that has been approved but is not yet effective as of April 27, 2022:
•Indiana passed Senate Enrolled Act 272, which requires public reporting of a non-jurisdictional utility’s asset management programs and creates a water and wastewater plant resultingresearch and extension program at a state university to serve as a repository for data collected from utilities. Additionally, the legislation establishes oversight and a new depreciation study. The petition requested that these new rates would be effective January 1, 2017. We expect the ICC to provide a final ruling on the petitionreceivership program in the fourth quarterIndiana Utility Regulatory Commission for non-jurisdictional utilities with violations that create environmental or human health and safety issues. Legislation was signed by the Governor on March 7, 2022 and becomes effective on July 1, 2022.
•Indiana passed water and wastewater utility asset financing legislation, Senate Enrolled Act 273, which authorizes the recovery of 2017.property tax in Distribution System Improvement Charge filings. The estimated effect oflegislation also permits the new study isIndiana Utility Regulatory Commission to lower depreciation expense by approximately $16 million on an annualized basis.
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 incomeallow recovery through tracking mechanisms for changes in property tax rate on our taxable incomeand for costs attributable to New York. This legislation eliminatedreferenda or action by elected or appointed individuals. Legislation was signed by the production of water as a qualified manufacturing activityGovernor on March 10, 2022 and becomes effective on July 1, 2022.
•Virginia passed Senate Bill 500 and House Bill 182 which requires the Virginia State Corporation Commission, in New York, which effectively increasedany future ratemaking proceeding for an investor-owned water/wastewater utility, to evaluate 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 calculatedutility on a stand-alone basis and utilize the utility’s actual end-of-test period capital structure and cost of capital without regard to the cost of capital, capital structure, or investments of any other entities with which the utility may be affiliated. Legislation was $7 million,signed by the Governor on April 11, 2022 and was offsetbecomes effective on July 1, 2022.
Condemnation and Eminent Domain
All or portions of the Regulated Businesses’ utility assets could be acquired by state, municipal or other government entities through one or more of the following methods: (i) eminent domain (also known as condemnation); (ii) the right of purchase given or reserved by a regulatory asset,municipality or political subdivision when the original certificate of public convenience and necessity (a “CPCN”) was granted; and (iii) the right of purchase given or reserved under the law of the state in which the utility subsidiary was incorporated or from which it received its CPCN. The acquisition consideration related to such a proceeding initiated by a local government may be determined consistent with applicable eminent domain law, or may be negotiated or fixed by appraisers as we believe itprescribed by the law of the state or in the particular CPCN.
As such, the Regulated Businesses are periodically subject to condemnation proceedings in the ordinary course of business. For example, a citizens group in Monterey, California successfully added “Measure J” to the November 2018 election ballot asking voters to decide whether the 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.
In August 2019, the MPWMD’s General Manager issued a report that recommends that the MPWMD board (1) develop criteria to determine which water systems should be considered for acquisition; (2) examine the feasibility of acquiring the Monterey system assets and consider public ownership of smaller systems only if the MPWMD becomes the owner of a larger system; (3) evaluate whether the acquisition of the Monterey system assets by the MPWMD is probablein the public interest and sufficiently satisfies the criterion of “feasible” as provided in Measure J; (4) ensure there is significant potential for cost savings before agreeing to commence an acquisition; and (5) develop more fully alternate operating plans before deciding whether to consider a Resolution of Necessity.
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In November 2019, the MPWMD issued a preliminary valuation and cost of service analysis report, finding in part that (1) an estimate of the Monterey system assets’ total value plus adjustments would be approximately $513 million, (2) the cost of service modeling results indicate significant annual reductions in revenue requirements and projected monthly water bills, and (3) the acquisition of the Monterey system assets by the MPWMD would be economically feasible. In November 2020, the MPWMD certified a final environmental impact report (“FEIR”), analyzing the environmental impacts of the MPWMD’s project to (1) acquire the Monterey system assets through the power of eminent domain, if necessary, and (2) expand its geographic boundaries to include all parts of this system. In February 2021, the MPWMD filed an application with the Local Agency Formation Commission of Monterey County (“LAFCO”) seeking approval to become a retail water provider and annex approximately 58 parcels of land into the MPWMD’s boundaries. In June 2021, LAFCO’s commissioners voted to require a third-party independent financial study as to the feasibility of an acquisition by the MPWMD of the Monterey system assets. On December 6, 2021, LAFCO’s commissioners denied the MPWMD’s application to become a retail water provider, determining that the MPWMD does not have the authority to proceed with a condemnation of the Monterey system assets, and on January 5, 2022, LAFCO’s commissioners confirmed the denial. On February 28, 2022, LAFCO’s commissioners voted to deny the MPWMD’s application for reconsideration of LAFCO’s confirmation of denial. On April 1, 2022, the MPWMD filed a lawsuit against LAFCO challenging its decision to deny the MPWMD’s application seeking approval to become a retail water provider.
Also, five municipalities in the Chicago, Illinois area (approximately 30,300 customers in total) formed a water agency and filed an eminent domain lawsuit against the Company in January 2013, seeking to condemn the water pipeline that serves those five municipalities. Before filing its eminent domain lawsuit, the water agency made an offer of $38 million for the pipeline. The parties have filed with the court updated valuation reports. A valuation trial was originally scheduled for October 2021 but has been continued to June 2022.
Furthermore, the law in certain jurisdictions in which the Regulated Businesses operate provides for eminent domain rights allowing private property owners to file a lawsuit to seek just compensation against a public utility, if a public utility’s infrastructure has been determined to be a substantial cause of damage to that property. In these actions, the plaintiff would not have to prove that the public utility acted negligently. In California, lawsuits have been filed in connection with large-scale natural events such as wildfires. Some of these lawsuits have included allegations that infrastructure of certain utilities triggered the natural event that resulted in damage to the property. In some cases, the PUC has allowed certain costs or losses incurred by the utility to be recovered from customers in rates, but in other cases such recovery in future rates. The remaining increase inrates has been disallowed. Also, the deferred tax liability was calculated through state tax apportionment rates and recordedutility may have obtained insurance that could respond to some or all of such losses, although the utility would be at risk for any losses not ultimately subject to rate or insurance recovery or losses that exceed the consolidated level, resulting in a non-cash, cumulative charge to earningslimits of $4 million during the second quarter of 2017.such insurance.
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 maintenance324
 432
 (108) (25.0)% 1,010
 1,131
 (121) (10.7)%
Depreciation and amortization128
 119
 9
 7.6 % 378
 350
 28
 8.0 %
General taxes61
 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, net506
 611
 (105) (17.2)% 1,571
 1,668
 (97) (5.8)%
Operating income430
 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, net5
 5
 —
 — % 11
 14
 (3) (21.4)%
Total other income (expenses)(90) (76) (14) 18.4 % (254) (228) (26) 11.4 %
Income before income taxes340
 243
 97
 39.9 % 711
 604
 107
 17.7 %
Provision for income taxes137
 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 quartertable below are the Company’s consolidated results of 2016; partially offset by aoperations:
$9 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 Three Months Ended March 31,
 20222021
(In millions)
Operating revenues$842 $888 
Operating expenses:
Operation and maintenance364 419 
Depreciation and amortization158 157 
General taxes74 83 
Total operating expenses, net596 659 
Operating income246 229 
Other income (expense):
Interest expense(100)(98)
Interest income13 — 
Non-operating benefit costs, net19 20 
Other, net15 4 
Total other income (expense)(53)(74)
Income before income taxes193 155 
Provision for income taxes35 22 
Net income attributable to common shareholders$158 $133 
For the nine months ended September 30, 2017, operating revenues increased primarily due to a:
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$71 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
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 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 the three and nine months ended September 30, 2017, depreciation and amortization expense increased primarily due to additional utility plant placed in service.
General taxes. For the three and nine months ended September 30, 2017, general taxes decrease largely due to property tax refund credits in our Pennsylvania subsidiary.
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
OurThe Company’s operating segments are determined based on how wecomprised 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 businessThe Company operates its businesses primarily through one reportable segment, ourthe Regulated Businesses segment. We also operate several“Market-Based Businesses and Other” includes 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-reportableGAAP, corporate costs that are not allocated to the Company’s operating segments, eliminations of inter-segment transactions, and fair value adjustments and associated income and deductions related to acquisitions that have not been allocated to the operating segments for evaluation of performance and allocation of resource purposes. The adjustments related to the acquisitions are collectively presentedreported in Market-Based Businesses and Other as our “Market-Based Businesses”, whichthey are excluded from segment performance measures evaluated by management. This presentation is consistent with how management assesses the results of ourthese businesses.
As a result of the sale of HOS, the categories which were previously shown as “Market-Based Businesses” and “Other” have been combined and shown as “Market-Based Businesses and Other.” Segment results for the three months ended March 31, 2021 have been adjusted retrospectively to reflect this change.
Regulated Businesses Segment
The followingPresented in the table summarizes certainbelow is financial information for ourthe Regulated Businesses segment:Businesses:
 For the Three Months Ended March 31,
 20222021
(In millions)
Operating revenues$778 $755 
Operation and maintenance315 320 
Depreciation and amortization155 147 
General taxes68 76 
Other income (expenses)(44)(48)
Income before income taxes196 163 
Provision for income taxes36 28 
Net income attributable to common shareholders160 135 
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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)               
Operating revenues$842
 $826
 $16
 1.9 % $2,247
 $2,176
 $71
 3.3 %
Operation and maintenance262
 350
 (88) (25.1)% 800
 881
 (81) (9.2)%
Total operating expenses, net433
 521
 (88) (16.9)% 1,327
 1,385
 (58) (4.2)%
Net income attributable to common stockholders212
 152
 60
 39.5 % 446
 374
 72
 19.3 %
Operating Revenues


Operating revenues.The followingPresented in the tables and discussion provide explanationbelow is information regarding the main components of the variances related to the three componentsRegulated Businesses’ operating revenues:
 For the Three Months Ended March 31,
 20222021
(In millions)
Water services:
Residential$428 $430 
Commercial153 144 
Fire service36 37 
Industrial36 32 
Public and other59 53 
Total water services712 696 
Wastewater services:
Residential41 36 
Commercial10 9 
Industrial1 1 
Public and other3 4 
Total wastewater services55 50 
Other (a)
11 9 
Total operating revenues$778 $755 
(a)Includes other operating revenues consisting primarily of miscellaneous utility charges, fees and rents.
 For the Three Months Ended March 31,
 20222021
(Gallons in millions)
Billed water services volumes:
Residential34,160 36,859 
Commercial16,339 15,898 
Industrial8,619 8,069 
Fire service, public and other11,756 10,863 
Total billed water services volumes70,874 71,689 
Included in operating revenues—water services revenues wastewater services revenues and other revenues:
 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 %
Commercial176
 172
 4
 2.3 % 453
 436
 17
 3.9 %
Industrial37
 38
 (1) (2.6)% 103
 101
 2
 2.0 %
Public and other96
 94
 2
 2.1 % 262
 253
 9
 3.6 %
Other water revenues6
 16
 (10) (62.5)% 31
 42
 (11) (26.2)%
Billed water services792
 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 revenues792
 784
 8
 1.0 % 2,101
 2,054
 47
 2.3 %
Wastewater services revenues36
 28
 8
 28.6 % 106
 83
 23
 27.7 %
Other revenues14
 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:               
Residential53,928
 55,108
 (1,180) (2.1)% 131,488
 132,453
 (965) (0.7)%
Commercial24,913
 25,170
 (257) (1.0)% 61,793
 62,273
 (480) (0.8)%
Industrial10,661
 11,013
 (352) (3.2)% 29,218
 29,194
 24
 0.1 %
Public and other15,085
 14,512
 573
 3.9 % 38,920
 37,983
 937
 2.5 %
Billed water services volumes104,587
 105,803
 (1,216) (1.1)% 261,419
 261,903
 (484) (0.2)%
Forfor the three months ended September 30, 2017,March 31, 2021 was $23 million related to the Company’s New York operations. Excluding the Company’s New York operations, for the three months ended March 31, 2022, operating revenues increased $46 million, primarily due to a:
$20a $40 million increase from authorized rate increases, andincluding infrastructure surcharges, principally to fund infrastructure investment growth in various states;states and a
$12 $5 million increase attributable to recentfrom water and wastewater acquisitions, as well as organic growth in existing systems; partially offset by asystems.
$19
34
Operation and Maintenance
Presented in the table below is information regarding the main components of the Regulated Businesses’ operating and maintenance expense:
 For the Three Months Ended March 31,
 20222021
(In millions)
Employee-related costs$126 $130 
Production costs84 78 
Operating supplies and services57 57 
Maintenance materials and supplies22 24 
Customer billing and accounting13 17 
Other13 14 
Total$315 $320 
Included in operation and maintenance expense for the three months ended March 31, 2021 was $12 million decrease duerelated to lower water services demand, excluding the impact of completed acquisitions, including aCompany’s New York operations. Excluding the Company’s New York operations, operation and maintenance expense increased $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:higher purchased water usage in the Company’s California subsidiary and increased chemicals costs across several subsidiaries.
$67 million increase from authorized rate increasesDepreciation 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 million increase in wastewater services, excluding the impact of completed acquisitions, resulting from higher treatment volumes, as well as an increase in private fire service connections; partially offset by a
$36 million decrease due to lower water services demand, excluding the impact of completed acquisitions, including a $12 million reduction due to overall warmer weather in 2016.


Operation and maintenance. The following table summarizes information regarding the components of operation and maintenance expense:
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 Increase (Decrease) 2017 2016 Increase (Decrease)
(In millions)               
Production costs$87
 $86
 $1
 1.2 % $224
 $220
 $4
 1.8 %
Employee-related costs112
 107
 5
 4.7 % 334
 328
 6
 1.8 %
Operating supplies and services51
 50
 1
 2.0 % 150
 149
 1
 0.7 %
Maintenance materials and supplies15
 16
 (1) (6.3)% 49
 46
 3
 6.5 %
Customer billing and accounting14
 17
 (3) (17.6)% 37
 41
 (4) (9.8)%
Other(17) 74
 (91) (123.0)% 6
 97
 (91) (93.8)%
Total$262
 $350
 $(88) (25.1)% $800
 $881
 $(81) (9.2)%
Amortization
For the three months ended September 30, 2017, operation and maintenance expense decreased primarily due to a:
$91 million decrease in other operation and maintenance expense 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; as well as lower casualty insurance expense attributable to a decrease in historical claims experience; and a
$3 million decrease in customer billing and accounting largely due to a decrease in customer uncollectible expense resulting from focused collection efforts; partially offset by a
$5 million increase in employee-related costs primarily due to higher pension expense resulting from a decrease in the discount rate and increased plan obligations, as well as higher other postretirement benefit plan expense resulting from plan amendments approved in the third quarter of 2016; and a
$1 million increase in operating supplies and services principally due to a $5 million write-off recorded in the third quarter of 2016, related to timekeeping system costs that were previously capitalized, partially offset by higher contracted services expense.
For the nine months ended September 30, 2017, operation and maintenance expense decreased primarily due to a:
$91 million decrease in other operation and maintenance expense 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; as well as lower casualty insurance expense attributable to a decrease in historical claims experience; and a
$4 million decrease in customer billing and accounting largely due to a decrease in customer uncollectible expense resulting from focused collection efforts; partially offset by a
$4 million increase in production costs primarily due to purchased water price and usage increases in our California subsidiary, as well as fuel and power price increases;
$6 million increase in employee-related costs primarily due to higher pension expense resulting from a decrease in the discount rate and increased plan obligations, as well as higher compensation expense in support of the growth of the business;
$1 million increase in operating supplies and services principally due to a $5 million write-off of timekeeping system costs that were previously capitalized and a $7 million judgment in litigation, both recorded in the third quarter of 2016, partially offset by higher contracted services expense; and a
$3 million increase in maintenance materials and supplies largely due to the timing of maintenance activities.
Operating expenses, net. For the three and nine months ended September 30, 2017, operating expenses, net decreased primarily due to the decrease in operating and maintenance expense as explained above, as well a $3 million decrease in property taxes in our Pennsylvania subsidiary from credit refunds and a $7 million gain recognized on a land sale in our Kentucky subsidiary, partially offset by higherMarch 31, 2022, depreciation and amortization expense of $10increased $8 million, and $29 million, respectively,primarily due to additional utility plant placed in service.

service from capital infrastructure investments and acquisitions.

General Taxes
Market-Based Businesses
The following table summarizes certain financial informationIncluded in general taxes for our Market-Based Businesses:
 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$100
 $109
 $(9) (8.3)% $306
 $338
 $(32) (9.5)%
Operation and maintenance75
 92
 (17) (18.5)% 247
 285
 (38) (13.3)%
Total operating expenses, net80
 98
 (18) (18.4)% 263
 300
 (37) (12.3)%
Net income attributable to common
stockholders		14
 7
 7
 100.0 % 29
 26
 3
 11.5 %
Operating revenues. For the three months ended September 30, 2017, operating revenues decreasedMarch 31, 2021 was $12 million related to the Company’s New York operations. Excluding the Company’s New York operations, general taxes increased $4 million primarily due to a:
$12 million decrease in our Military Services Group principally due to lowerincreased capital upgrades in 2017, largely from reduced military base budgets; partially offset by a
$5 millioninvestments, including acquisitions and an increase in our Homeowner Services Group from customer growth and price increasesthe New Jersey Gross Receipts Tax.
Provision for existing customers.
For the nine months ended September 30, 2017, operating revenues decreased primarily due to a:
$49 million decrease in our Military Services Group principally due to lower capital upgrades in 2017, largely from reduced military base budgets, and the completion of a large project in mid-2016 at Fort Polk; partially offset by a
$15 million increase in our Homeowner Services Group from customer growth and price increases for existing customers.
Operation and maintenance. The following table summarizes information regarding the components of operation and maintenance expense:
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 Increase (Decrease) 2017 2016 Increase (Decrease)
(In millions)               
Production costs$9
 $10
 $(1) (10.0)% $28
 $27
 $1
 3.7 %
Employee-related costs21
 24
 (3) (12.5)% 69
 72
 (3) (4.2)%
Operating supplies and services26
 38
 (12) (31.6)% 84
 128
 (44) (34.4)%
Maintenance materials and supplies13
 18
 (5) (27.8)% 54
 51
 3
 5.9 %
Other6
 2
 4
 200.0 % 12
 7
 5
 71.4 %
Total$75
 $92
 $(17) (18.5)% $247
 $285
 $(38) (13.3)%
Income Taxes
For the three months ended September 30, 2017,March 31, 2022, the Regulated Businesses’ provision for income taxes increased $8 million. The Regulated Businesses’ effective income tax rate was 18.4% and 17.2% for the three months ended March 31, 2022 and 2021, respectively. The Regulated Businesses’ effective income tax rate for the three months ended March 31, 2022 reflects the amortization of EADIT pursuant to regulatory orders.
Market-Based Businesses and Other
Presented in the table below is information for Market-Based Businesses and Other:
 For the Three Months Ended March 31,
 20222021
(In millions)  
Operating revenues$64 $133 
Operation and maintenance50 99 
Depreciation and amortization3 10 
Interest expense(30)(27)
Interest income13 — 
Income before income taxes(3)(8)
Provision for income taxes(1)(6)
Net income attributable to common shareholders(2)(2)
35
Operating Revenues
For the three months ended March 31, 2022, operating revenues decreased $69 million, due primarily to the sale of HOS.
Operation and Maintenance
For the three months ended March 31, 2022, operation and maintenance expense decreased $49 million primarily due to a:the sale of HOS.
$12Depreciation and Amortization
For the three months ended March 31, 2022, depreciation and amortization decreased $7 million decrease in operating supplies and services primarily due to lower capital upgrades in our Military Services Group in 2017, as discussed above, as well as lower advertising and marketing expense in our Homeowners Services Group; and athe sale of HOS.
$5 million decrease in maintenance materials and supplies principally due to the timing of claims activity in our Homeowners Services Group, as well as the volume and timing of specific maintenance activities; partially offset by a
$4 million increase in other operation and maintenance expense largely due to an increase in customer uncollectible expense and billing and collection fees, primarily in our Homeowner Services Group.Interest Income
For the ninethree months ended September 30, 2017, operation and maintenance expense decreased primarilyMarch 31, 2022, interest income increased $13 million due to a:interest recognized on the seller note related to the sale of HOS. See Note 5—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements for additional information.
$44 million decrease in operating supplies and services primarily due to lower capital upgrades in our Military Services Group in 2017, as discussed above, as well as lower advertising and marketing expense in our Homeowners Services Group; partially offset by a
$5 million increase in other operation and maintenance expense largely due to an increase in customer uncollectible expense and billing and collection fees, principally in our Homeowner Services Group.


Liquidity and Capital Resources
For a general overview of ourthe sources and uses of capital resources, see the introductory discussion in Part II, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources contained in ourthe Company’s Form 10-K.
We fund liquidityLiquidity needs for capital investment, working capital and other financial commitments are generally funded through cash flows from operations, public and private debt offerings, commercial paper markets, and, if and to the extent necessary, borrowingborrowings under the American Water Capital Corp. (“AWCC”)AWCC’s revolving credit facility. facility, and, in the future, issuances of equity.
The Company expects to fund future maturities of long-term debt through a combination of external debt and, to the extent available, cash flows from operations. Since the Company expects its capital investments over the next few years to be greater than its cash flows from operating activities, the Company currently plans to fund the excess of its capital investments over its cash flows from operating activities for the next five years through a combination of long-term debt and equity in addition to the proceeds from the sales of HOS and the Company’s New York subsidiary. If necessary, the Company may delay certain capital investments or other funding requirements, or pursue financing from other sources to preserve liquidity. In this event, the Company believes it can rely upon cash flows from operations to meet its obligations and fund its minimum required capital investments for an extended period of time.
The Company’s revolving credit facility provides $1.75$2.25 billion in aggregate total commitments from a diversified group of financial institutions with an expiration dateinstitutions. The revolving credit facility is used principally to support AWCC’s commercial paper program, to provide additional liquidity support, and to provide for the issuance of June 2020 (subject to extension by us for up to two one-year periods). We regularly evaluate the capital markets and closely monitor the financial condition$150 million in letters of the financial institutions with contractual commitments in our revolving credit facility.
In order to meet ourcredit. The maximum aggregate principal amount of short-term liquidity needs, we, through AWCC, our wholly owned financing subsidiary, issueborrowings authorized for issuance under AWCC’s commercial paper whichprogram is supported$2.10 billion. Subject to satisfying certain conditions, the credit agreement also permits AWCC to increase the maximum commitment under the facility by ourup to an aggregate of $500 million. As of March 31, 2022 and December 31, 2021, there were no borrowings outstanding under the revolving credit facility. AsThe weighted-average interest rate on AWCC’s outstanding short-term borrowings was approximately 0.26% and 0.25% at March 31, 2022 and December 31, 2021, respectively.
Presented in the tables below is the aggregate credit facility commitments, commercial paper limit and letter of September 30, 2017, AWCC had no outstanding borrowings and $86 million of outstanding letters of credit availability under the revolving credit facility, with $1.66as well as the available capacity for each:
As of March 31, 2022
Commercial Paper LimitLetters of CreditTotal (a)
(In millions)
Total availability$2,100 $150 $2,250 
Outstanding debt(321)(76)(397)
Remaining availability as of March 31, 2022$1,779 $74 $1,853 
(a)Total remaining availability of $1.85 billion as of March 31, 2022 may be accessed through revolver draws.
36
As of December 31, 2021
Commercial Paper LimitLetters of CreditTotal (a)
(In millions)
Total availability$2,100 $150 $2,250 
Outstanding debt(584)(76)(660)
Remaining availability as of December 31, 2021$1,516 $74 $1,590 
(a)Total remaining availability of $1.59 billion as of December 31, 2021 may be accessed through revolver draws.
Presented in the table below is the Company’s total available liquidity as of March 31, 2022 and December 31, 2021, respectively:
Cash and Cash EquivalentsAvailability on Revolving Credit FacilityTotal Available Liquidity
(In millions)
Available liquidity as of March 31, 2022$75 $1,853 $1,928 
Available liquidity as of December 31, 2021$116 $1,590 $1,706 
The Company believes that its ability to fulfill our short-term liquidity needsaccess the debt and to issue letters of credit. As of September 30, 2017,equity capital markets, the revolving credit facility supported $103 million in outstanding commercial paper. We believe that our ability to access the capital markets, our revolving credit facility and our cash flows from operations will generate sufficient cash to fund ourthe Company’s short-term requirements. The Company believes it has sufficient liquidity and the ability to manage its expenditures, should there be a disruption of the capital and credit markets. However, wethere can providebe no assurancesassurance that the lenders will be able to meet their existing commitments to AWCC under the revolving credit facility, or that weAWCC will be able to access the commercial paper or loan markets in the future on terms acceptable to usterms or at all.
On August 10, 2017, AWCC completed a $1,350 million debt offering which included the sale of $600 million aggregate principal amount of its 2.95% Senior Notes due in 2027 and $750 million aggregate principal amount of its 3.75% Senior Notes due in 2047. At the closing of the offering, AWCC received, after deduction of underwriting discounts and debt issuance costs, $1,333 million. On September 13, 2017, AWCC used proceeds from the offering: (i) to prepay $138 million of its outstanding 5.62% Series C Senior Notes due December 21, 2018 (“Series C Senior Notes”) and $181 million of its outstanding 5.77% Series D Senior Notes due December 21, 2021 (“Series D Senior Notes”); (ii) to repay commercial paper obligations; and (iii) for general corporate purposes. Subsequently, AWCC used proceeds from the offering to repay at maturity, $524 million of its 6.085% Senior Notes on October 15, 2017. In addition, the Company repaid $33 million 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 million, we recorded an early debt extinguishment charge of $6 million, which was associated with the portion of the debt allocable to our parent company. Substantially all of the early debt extinguishment costs allocable to our utility subsidiaries were recorded as regulatory assets that we believe are probable of recovery in future rates.
On August 7, 2017, we terminated four forward starting swap agreements with an aggregate notional amount of $300 million, realizing a gain of $19 million to be amortized through interest, net over 30 years. We have one remaining forward swap agreement, which was entered into on February 8, 2017, 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 an average fixed rate of 2.67%. We have designated this forward starting swap agreement as a cash flow hedge with its fair value recorded in accumulated other comprehensive gain or loss. Upon termination, the cumulative gain or loss recorded in accumulated other comprehensive gain or loss will be amortized through interest, net over the term of the new debt.
On October 15, 2017, our interest rate swap to hedge $100 million of AWCC’s 6.085% Senior Notes matured. See Note 6—Long-Term8—Short-Term Debt in the Notes to Consolidated Financial Statements for furtheradditional information.



Cash Flows Provided byfrom Operating Activities
Cash flows provided byfrom 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 followingwarmer months. Presented in the table providesbelow is a summary of the major items affecting the Company’s cash flows provided by our operating activities:
 For the Three Months Ended March 31,
 20222021
(In millions)  
Net income$158 $133 
Add (less):
Depreciation and amortization158 157 
Deferred income taxes and amortization of investment tax credits(61)26 
Other non-cash activities (a)
(11)(40)
Changes in working capital (b)
(71)(88)
Pension and non-pension postretirement benefit contributions(19)(9)
Net cash provided by operating activities$154 $179 
 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, 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)
(b)Changes in working capital include changes to receivables and unbilled revenues, accounts payable and accrued liabilities, and other current assets and liabilities, net.
For the nine months ended September 30, 2017, the increase in cash flows from operating activities, as compared to the same period in 2016, is primarily due to an increase in net income after non-cash adjustments. The main factors contributing to the net income increase are described in this section under “Comparison of Consolidated Results of Operations” and included higher operating revenue and lower operation and maintenance expense. The increase 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.
The change in working capital was primarily the result of the following: (i) timing of 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 to settlement of claims related to the Freedom Industries chemical spill in West Virginia; (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 in unbilled revenues as a result of our Military Services Group achieving significant capital project milestones during 2016; and (iv) change in other current assets and liabilities, net.
For the three months ended March 31, 2022, cash provided by operating activities decreased $25 million, primarily due to changes in working capital including the contribution of $45 million to the American Water Charitable Foundation which was authorized and accrued in the fourth quarter of 2021 and paid in the first quarter of 2022, partially offset by an increase in prepaidnet income. The decrease in deferred income taxes partiallyfrom the sale of the Company's New York operations is offset by the decreasein current taxes payable within other assets and liabilities.
37
Cash Flows Used infrom Investing Activities
The followingPresented in the table provides information regardingbelow is a summary of the major items affecting the Company’s cash flows used in our investing activities:
 For the Three Months Ended March 31,
 20222021
(In millions)  
Net capital expenditures$(424)$(342)
Acquisitions(5)(3)
Net proceeds from sale of assets608 — 
Other investing activities, net (a)
(20)(18)
Net cash provided by (used in) investing activities$159 $(363)
 For the Nine Months Ended September 30,
 2017 2016
(In millions)   
Net capital expenditures$(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.
(a)Includes removal costs from property, plant and equipment retirements, net, proceeds from sale of assets and net funds restricted.
For the ninethree months ended September 30, 2017,March 31, 2022, cash provided by investing activities increased $522 million, primarily due to proceeds of $608 million received from the sale of the Company's New York operations offset by increased payments for capital expenditures. The Company plans to invest approximately $2.5 billion across its footprint in 2022.
Cash Flows from Financing Activities
Presented in the table below is a summary of the major items affecting the Company’s cash flows from financing activities:
 For the Three Months Ended March 31,
 20222021
(In millions)  
Proceeds from long-term debt$11 $2 
Repayments of long-term debt(5)(25)
Repayments of term loan— (500)
Net short-term (repayments) borrowings with maturities less than three months(263)334 
Dividends paid(109)(100)
Other financing activities, net (a)
13 (4)
Net cash used in financing activities$(353)$(293)
(a)Includes proceeds from issuances of common stock under various employee stock plans and the Company’s dividend reinvestment plan, net of taxes paid, and advances and contributions in aid of construction, net of refunds.
For the three months ended March 31, 2022, cash used in investingfinancing activities increased $60 million, primarily due to continued investment across all infrastructure categories, mainly replacement and renewal of transmission and distribution infrastructure in our Regulated Businesses, partially offset by decreased cash used for acquisitions. We expect investments of approximately $1.65 billion in 2017 for capital expenditures and acquisitions. Construction 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.


Cash Flows Provided by Financing Activities
The following table provides information regarding cash flows provided by our financing activities:
 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 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 cash flows provided by financing activities, as compared to the same period in 2016, is primarily due to the increase in cash used for dividend payments in 2017. Additionally, the Company issued approximately $1,333 million 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, resulting in a net cash outflow for the nine months ended September 30, 2017 of $746 million.
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 amountsrepayments of commercial paper and outstanding borrowings underduring the respective facilities asfirst quarter 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 represented2022 offset by the components of our capital structure asrepayment in full at maturity of the dates set forth below:$500 million term loan during the first quarter of 2021.
 September 30, 2017 December 31, 2016
Total common stockholders' equity42.5% 42.1%
Long-term debt and redeemable preferred stock at redemption value51.4% 46.4%
Short-term debt and current portion of long-term debt6.1% 11.5%
 100% 100%


Debt Covenants
OurThe Company’s debt agreements contain financial and non-financial covenants. To the extent that we arethe Company is not in compliance with these covenants, an event of default may occur under one or more debt agreements and wethe Company, or ourits subsidiaries, may be restricted in ourits ability to pay dividends, issue new debt or access ourthe revolving credit facility. OurThe 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 failureFailure to comply with any of these covenants could accelerate repayment obligations.
Covenants in certain long-term notes 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, ourMarch 31, 2022, the Company’s ratio was 0.580.59 to 1.00 and therefore we werethe Company was in compliance with the covenants.
38
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.
Ourtable below are long-term and short-term credit ratings and rating outlooks as of September 30, 2017:
April 27, 2022 as issued by the following rating agencies:
SecuritiesMoody's
Moody’s Investors Service		Standard & Poor's
Poor’s Ratings Service
Rating outlookStableStable
Senior unsecured debtA3Baa1A
Commercial paperP-2A-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 ourthe 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 ourits ability to generate cash flows is sufficient to maintain ourits existing ratings. None of ourthe 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 ourits credit facility.
As part of its normal course of business, the Company routinely enters into contracts for the purchase and sale of water, energy, chemicals and other services. These contracts either contain express provisions or otherwise permit the Company and its counterparties to demand adequate assurance of future performance when there are reasonable grounds for doing so. In accordance with the contracts and applicable contract law, if the Company is downgraded by a credit rating agency, especially if such downgrade is to a level below investment grade, it is possible that a counterparty would attempt to rely on such a downgrade as a basis for making a demand for adequate assurance of future performance, which could include a demand that the Company must provide collateral to secure its obligations. The Company does not expect to post any collateral which will have a material adverse impact on the Company’s results of operations, financial position or cash flows.
Access to the capital markets, including the commercial paper market, and respective financing costs in those markets, may be directly affected by the Company’s securities ratings. The Company primarily accesses the debt capital markets, including the commercial paper market, through AWCC. However, the Company has also issued debt through its regulated subsidiaries, primarily in the form of mortgage bonds and tax-exempt securities or borrowings under state revolving funds, to lower the overall cost of debt.
Dividends
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-KStatements for more information regarding restrictions on the payment of dividends on our common stock.additional information.
Application of Critical Accounting Policies and Estimates
Our financialFinancial 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 ourthe Company’s Form 10-K for a discussion of ourits critical accounting policies. Additionally, see Note 2—Significant Accounting Policies in the Notes to Consolidated Financial Statements for updates, if any, to the significant accounting policies previously disclosed in the Company’s Form 10-K.
Recent Accounting Standards
See Note 2—NewSignificant Accounting Standards toPolicies 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 subjectThe Company is exposed to market risksrisk in the normal course of business, including changes in commodity prices, equity prices and interest rates and equity prices.rates. For afurther discussion of ourits exposure to market risk, refer tosee Part II, Item 7A—Quantitative and Qualitative Disclosures about Market Risk contained in ourthe Company’s Form 10-K. Except as described below, thereThere have been no significant changes to ourthe Company’s exposure to market risk since December 31, 2016.2021.
On February 8, 2017, we entered into a forward starting swap agreement with a notional amountThe Company had no significant derivative instruments, which are exposed to market risk, outstanding as of $100 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 rateMarch 31, 2022.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
American Water maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s President, Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.objective.
OurThe Company’s management, including the Company’s President, Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness of ourits disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of September 30, 2017.March 31, 2022.
Based on that evaluation, ourthe Company’s President, Chief Executive Officer and Chief Financial Officer, havehas concluded that, as of September 30, 2017, ourMarch 31, 2022, the Company’s disclosure controls and procedures were effective at a reasonable level of assurance.
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,March 31, 2022, that have materially affected, or are reasonably likely to materially affect, ourthe 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 ourthe Company’s Form 10-K in Part I, Item 3—Legal Proceedings, and in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017 in Part II, Item 1—Legal Proceedings. Capitalized terms used but not otherwise defined herein have the meanings set forth in ourthe Company’s Form 10-K. In accordance with the SEC’s disclosure rules, the Company has elected to disclose environmental proceedings involving the Company and a governmental authority if the amount of potential monetary sanctions, exclusive of interest and costs, that the Company reasonably believes will result from such proceeding is $1 million or more.
Alternative Water Supply in Lieu of Carmel River Diversions
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 of 2018.
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 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, Cal Am will likely need to seek an amendmentLand Acquisition and extension of its coastal development permit to allow the test slant well to remain 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, 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 with respect to the Water Supply Project (other than as updated in this Form 10-Q), Cal Am estimates that the earliest date by which the Water Supply Project desalination plant could be completed is sometime in 2021. There can be no assurance that Cal Am’s application for the Water Supply Project will be approved or that the Water Supply Project will be completed on a timely basis, if ever. Furthermore, there can be no assurance that Cal Am will be able to comply with the diversion reduction requirements and other remaining requirements under the 2009 Order and the 2016 Order, or that any such compliance will not result in material additional costs or obligations to Cal Am or the Company.
California Public Utilities Commission Residential Rate Design Proceeding
Hearings before the administrative law judge in this proceeding took place in August and September 2017, and a subsequent hearing is currently 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
On September 21, 2017, the court in 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 parties to the Settlement filed with the court in the Federal action a proposed amended global agreement and related materials on August 25, 2017 addressing the matters set forth in the court’s July 6, 2017 order denying without prejudice the joint motion for preliminary approval of the Settlement.


Slant Well Site Use
The Settlement covered by the order proposes a global resolution of all federalSWRCB has scheduled hearings in late October 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 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 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 byearly 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 any 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 carrier2022 related to the Freedom Industries chemical spill, and the parties agreed to stay this litigation pending final approval of the Settlement. The settlement with the insurance carrier reduced the total amount of WVAWC’s potential contributionsreferral by Cal Am to the Settlement from $65 million to $43 million. In the third quarterSWRCB 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 coveragecertain issues 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.
Dunbar, West Virginia Water Main Break Class Action Litigation
On October 12, 2017, WVAWC filed with the court a motion seeking to dismiss all of the plaintiffs’ counts alleging statutory 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 AWEexpert advisory opinion. The Monterey County Superior Court has completed all required compliance activities with respect toset a trial date of October 23, 2023 for the citation, the SWRCB has previously reserved the right to take additional enforcement action. Proven violations of the CSDWA may result in civil and criminal penalties. AWE continues to cooperate with the SWRCB, the City of East Palo Alto and other authorities regarding this matter.

City’s lawsuit seeking declaratory relief.

ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, youreaders should carefully consider the factors discussed in Part I, Item 1A—Risk Factors in ourthe Form 10-K, and in ourthe Company’s other public filings with the SEC, which could materially affect ourthe 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 ourthe Form 10-K.
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.March 31, 2022. From April 1, 2015, the date repurchases under the anti-dilutive stock repurchase program commenced, through September 30, 2017,March 31, 2022, the Company repurchased an aggregate of 3,950,0004,860,000 shares of common stock under the program, leaving an aggregate of 6,050,0005,140,000 shares available for repurchase under this program.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.

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Table of Contents
ITEM 6. EXHIBITS
 Exhibit NumberExhibit Description
3.1
Restated Certificate of Incorporation of American Water Works Company, Inc. (incorporated by reference to Exhibit 3.1 to the Company’sAmerican Water Works Company, Inc.’s Quarterly Report on Form 10-Q, File No. 001-34028, filed November 6, 2008).
3.2
Amended and Restated Bylaws of American Water Works Company, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q, File No. 001-34028, filed August 5, 2015).
4.1
Officers’ Certificate of American Water Capital Corp., dated August 10, 2017, establishing the terms of its 2.95% Senior Notes due 2027 (incorporated by reference to Exhibit 4.13.1 to the Company’s Current Report on Form 8-K, File No. 001-34028, filed AugustDecember 10, 2017)2020).
4.2*10.1
Officers’ Certificate of American Water Capital Corp., dated August 10,Works Company, Inc. 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).Omnibus Equity Compensation Plan 2022 Restricted Stock Unit Grant.
10.1*10.2
American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2022 Restricted Stock Unit Grant (for M. Susan Hardwick).
*10.3
American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2022 Restricted Stock Unit Grant (for Cheryl Norton).
*10.4
American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2022 Performance Stock Unit Grant Form A.
*10.5
American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2022 Performance Stock Unit Grant Form A (for M. Susan Hardwick).
*10.6
American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2022 Performance Stock Unit Grant Form A (for Cheryl Norton).
*10.7
American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2022 Performance Stock Unit Grant Form B.
*10.8
American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2022 Performance Stock Unit Grant Form B (for M. Susan Hardwick).
*10.9
American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2022 Performance Stock Unit Grant Form B (for Cheryl Norton).
 10.10
Offer Letter for Employment, dated as of February 2, 2022, between American Water Works Company, Inc. and its Designated Subsidiaries 2017 Nonqualified Employee Stock Purchase PlanM. Susan Hardwick(incorporated by reference to Exhibit 10.3 to American Water Works Company, Inc.’s Annual Report on Form 10-K, File No. 001-34028, filed February 16, 2022).
*10.11
Offer Letter for Employment, dated January 21, 2022, between American Water Works Company, Inc. and James H. Gallegos.
 10.12
Separation Agreement and General Release, dated as of February 2, 2022, between American Water Works Service Company, Inc. and Walter J. Lynch (incorporated by reference to Exhibit 4.110.7 to the Company’s Registration StatementAmerican Water Works Company, Inc.’s Annual Report on Form S-8,10-K, File No. 333-219682,001-34028, filed August 4, 2017)February 16, 2022).
*31.122.1
Guaranteed Securities(incorporated by reference to Exhibit 22.1 to American Water Works Company, Inc.’s Registration Statement on Form S-3, File No. 333-263068, filed February 28, 2022).
*31.1
Certification of M. Susan N. Story,Hardwick, President, and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
*31.2
Certification of Linda G. Sullivan, Executive Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act.
**32.1
Certification of M. Susan N. Story,Hardwick, President, and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act.
**32.2
Certification of Linda G. Sullivan, Executive Vice President and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act.
*101101.INSThe following financial statements from American Water Works Company, Inc.’s Quarterly Report on Form 10-Q forXBRL Instance Document - the quarterly period ended September 30, 2017, filedinstance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File (formatted as Inline XBRL with the Securities and Exchange Commission on November 1, 2017, formattedapplicable 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).
*    Filed herewith.
**    Furnished herewith.




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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 1st27th day of November, 2017.
April, 2022.
AMERICAN WATER WORKS COMPANY, INC.
(REGISTRANT)
By/s/ M. SUSAN N. STORYHARDWICK
M. Susan N. Story
Hardwick
President, and Chief Executive Officer
(Principal Executive Officer)
By/s/ LINDA G. SULLIVAN
Linda G. Sullivan
Executive Vice President and Chief Financial Officer

(Principal Executive Officer and Principal Financial Officer)
By/s/ MELISSA K. WIKLE
Melissa K. Wikle
Vice President and Controller

Chief Accounting Officer
(Principal Accounting Officer)


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