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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, 2023
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 20, 2023
Common Stock, par value $0.01 per share194,643,611


TABLE OF CONTENTS
Page
1
Part I. Financial Information
Item 1.
4
Item 2.
30
Item 3.
43
Item 4.
44
Part II. Other Information
Item 1.
45
Item 1A.
45
Item 2.
45
Item 3.
46
Item 4.
46
Item 5.
46
Item 6.
46
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)47

*    *    *
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.
The Company maintains a website at https://amwater.com, an Investor Relations website at https://ir.amwater.com, and a Diversity and Inclusion website at https://diversityataw.com. Information contained on the Company’s websites, including its Sustainability Report, its Inclusion, Diversity and Equity Reports, and other reports or documents, shall not be deemed incorporated into, or to be a part of, this report, and any website references included herein are not intended to be made through active hyperlinks.
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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



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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, including the timing and amount of the Company’s future public equity issuances; 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 (“GHG”) 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 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 customer rates;
•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 and energy, such as may result from conservation efforts;efforts, 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 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 and have delivered adequate and cost-effective supplies of pipe, equipment (including personal protective equipment), chemicals, electricity,power and other 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 systemssuccessfully integrating regulated operations;
•the Company’s Military Services Group (“MSG”) entering into our regulated operations, and enter intonew 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”), 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 under the seller note when due; and
•the ability of the Company to redeploy successfully and timely the net proceeds of this transaction into the Company’s Regulated Businesses;
•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,customers;
•the ability of energy providers, state governments and other third parties to achieve or fulfill their GHG emission reduction goals, including for example, our water management solutions that are focused on customers in the natural gas explorationwithout limitation through stated renewable portfolio standards and production market;carbon transition plans;
•changes in general economic, political, business and financial market conditions;
•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;rates, and the Company’s ability to address or mitigate the impacts thereof;
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, or assumptions and estimates related to, its benefit plan assets and liabilities, including with respect to its pension and other post-retirement benefit plans, that could increase our costexpenses and plan funding requirements;
•changes in federal or state general, income and other tax laws, including (i) future significant tax reform,legislation or regulations, and (ii) the availability of, or the Company’s compliance with, the terms of applicable tax credits and tax abatement programs, and our ability to utilize our U.S. and state net operating loss carryforwards;programs;
•migration of customers into or out of ourthe Company’s service territories;territories and changes in water and energy consumption resulting therefrom;
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•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, changes in fair value and other adjustments related to ourthe Company’s goodwill or the value of its other assets;
•labor actions, including work stoppages and strikes;
•the Company’s ability to retain and attract highly qualified employees;and skilled employees and/or diverse talent;
•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.
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 (“Form2022 (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, 2023December 31, 2022
ASSETSASSETSASSETS
Property, plant and equipment$20,946
 $19,954
Property, plant and equipment$30,214 $29,736 
Accumulated depreciation(5,265) (4,962)Accumulated depreciation(6,582)(6,513)
Property, plant and equipment, net15,681
 14,992
Property, plant and equipment, net23,632 23,223 
Current assets: 
  
Current assets:  
Cash and cash equivalents93
 75
Cash and cash equivalents213 85 
Restricted funds28
 20
Restricted funds29 32 
Accounts receivable, net312
 269
Accounts receivable, net of allowance for uncollectible accounts of $55 and $60, respectivelyAccounts receivable, net of allowance for uncollectible accounts of $55 and $60, respectively318 334 
Income tax receivableIncome tax receivable96 114 
Unbilled revenues234
 263
Unbilled revenues289 275 
Materials and supplies42
 39
Materials and supplies103 98 
Other151
 118
Other290 312 
Total current assets860
 784
Total current assets1,338 1,250 
Regulatory and other long-term assets: 
  
Regulatory and other long-term assets:  
Regulatory assets1,374
 1,289
Regulatory assets1,004 990 
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 assets83 82 
Goodwill1,373
 1,345
Goodwill1,143 1,143 
Other73
 72
Other366 379 
Total regulatory and other long-term assets2,820
 2,706
Total regulatory and other long-term assets3,316 3,314 
TOTAL ASSETS$19,361
 $18,482
Total assetsTotal assets$28,286 $27,787 
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, 2023December 31, 2022
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; 200,058,247 and 187,200,539 shares issued, respectively)Common stock ($0.01 par value; 500,000,000 shares authorized; 200,058,247 and 187,200,539 shares issued, respectively)$2 $2 
Paid-in-capital6,423
 6,388
Paid-in-capital8,519 6,824 
Accumulated deficit(573) (873)
Retained earningsRetained earnings1,437 1,267 
Accumulated other comprehensive loss(87) (86)Accumulated other comprehensive loss(23)(23)
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 (5,414,795 and 5,342,477 shares, respectively)Treasury stock, at cost (5,414,795 and 5,342,477 shares, respectively)(388)(377)
Total common shareholders' equityTotal common shareholders' equity9,547 7,693 
Long-term debt6,672
 5,749
Long-term debt10,485 10,926 
Redeemable preferred stock at redemption value9
 10
Redeemable preferred stock at redemption value2 3 
Total long-term debt6,681
 5,759
Total long-term debt10,487 10,929 
Total capitalization12,199
 10,977
Total capitalization20,034 18,622 
Current liabilities: 
  
Current liabilities:  
Short-term debt103
 849
Short-term debt— 1,175 
Current portion of long-term debt687
 574
Current portion of long-term debt727 281 
Accounts payable144
 154
Accounts payable193 254 
Accrued liabilities498
 609
Accrued liabilities561 706 
Taxes accrued61
 31
Interest accrued103
 63
Accrued taxesAccrued taxes74 49 
Accrued interestAccrued interest114 91 
Other151
 112
Other223 255 
Total current liabilities1,747
 2,392
Total current liabilities1,892 2,811 
Regulatory and other long-term liabilities: 
  
Regulatory and other long-term liabilities:  
Advances for construction279
 300
Advances for construction321 316 
Deferred income taxes, net2,862
 2,596
Deferred investment tax credits23
 23
Deferred income taxes and investment tax creditsDeferred income taxes and investment tax credits2,483 2,437 
Regulatory liabilities408
 403
Regulatory liabilities1,568 1,590 
Operating lease liabilitiesOperating lease liabilities70 70 
Accrued pension expense421
 419
Accrued pension expense215 235 
Accrued postretirement benefit expense84
 87
Other74
 67
Other192 202 
Total regulatory and other long-term liabilities4,151
 3,895
Total regulatory and other long-term liabilities4,849 4,850 
Contributions in aid of construction1,264
 1,218
Contributions in aid of construction1,511 1,504 
Commitments and contingencies (see Note 9)

 

TOTAL CAPITALIZATION AND LIABILITIES$19,361
 $18,482
Commitments and contingencies (See Note 11)Commitments and contingencies (See Note 11)
Total capitalization and liabilitiesTotal capitalization and liabilities$28,286 $27,787 
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,
 20232022
Operating revenues$938 $842 
Operating expenses:  
Operation and maintenance393 364 
Depreciation and amortization172 158 
General taxes78 74 
Total operating expenses, net643 596 
Operating income295 246 
Other income (expense):  
Interest expense(115)(100)
Interest income14 13 
Non-operating benefit costs, net9 19 
Other, net11 15 
Total other (expense) income(81)(53)
Income before income taxes214 193 
Provision for income taxes44 35 
Net income attributable to common shareholders$170 $158 
Basic earnings per share:  
Net income attributable to common shareholders$0.91 $0.87 
Diluted earnings per share:  
Net income attributable to common shareholders$0.91 $0.87 
Weighted-average common shares outstanding:  
Basic186 182 
Diluted186 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,
 20232022
Net income attributable to common shareholders$170 $158 
Other comprehensive income, net of tax:  
Defined benefit pension plan actuarial loss, net of tax of $0 for the three months ended March 31, 2023 and 2022— 1 
Unrealized loss on cash flow hedges, net of tax of $0 for the three months ended March 31, 2023 and 2022(2)— 
Unrealized gain on available-for-sale fixed-income securities, net of tax of $0 for the three months ended March 31, 2023 and 2022, respectively2 — 
Net other comprehensive income— 1 
Comprehensive income attributable to common shareholders$170 $159 
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,
 20232022
CASH FLOWS FROM OPERATING ACTIVITIES  
Net income$170 $158 
Adjustments to reconcile to net cash flows provided by operating activities:  
Depreciation and amortization172 158 
Deferred income taxes and amortization of investment tax credits26 (61)
Provision for losses on accounts receivable3 4 
Pension and non-pension postretirement benefits1 (12)
Other non-cash, net(36)(3)
Changes in assets and liabilities:  
Receivables and unbilled revenues(1)(6)
Pension and non-pension postretirement benefit contributions(10)(19)
Accounts payable and accrued liabilities(60)(110)
Accrued taxes44 113 
Other assets and liabilities, net(24)(68)
Net cash provided by operating activities285 154 
CASH FLOWS FROM INVESTING ACTIVITIES  
Capital expenditures(526)(424)
Acquisitions, net of cash acquired(4)(5)
Net proceeds from sale of assets— 608 
Removal costs from property, plant and equipment retirements, net(31)(20)
Net cash (used in) provided by in investing activities(561)159 
CASH FLOWS FROM FINANCING ACTIVITIES  
Proceeds from long-term debt8 11 
Repayments of long-term debt(4)(5)
Net proceeds from common stock financing1,688 — 
Net short-term borrowings (repayments) with maturities less than three months(1,175)(263)
Advances and contributions in aid of construction, net of refunds of $7 and $3 for the three months ended March 31, 2023 and 2022, respectively10 21 
Dividends paid(119)(109)
Other, net(7)(8)
Net cash provided by (used in) financing activities401 (353)
Net increase (decrease) in cash, cash equivalents and restricted funds125 (40)
Cash, cash equivalents and restricted funds at beginning of period117 136 
Cash, cash equivalents and restricted funds at end of period$242 $96 
Non-cash investing activity:  
Capital expenditures acquired on account but unpaid as of the end of period$338 $315 
 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, 2022187.4 $2 $6,824 $1,267 $(23)(5.4)$(377)$7,693 
Net income attributable to common shareholders— — — 170 — — — 170 
Common stock issuances (a)12.7 — 1,695 — — — (11)1,684 
Net other comprehensive income— — — — — — — — 
Balance as of March 31, 2023200.1 $2 $8,519 $1,437 $(23)(5.4)$(388)$9,547 
(a)Includes stock-based compensation, employee stock purchase plan and dividend reinvestment and direct stock purchase plan activity.
 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 dividend reinvestment and direct stock 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, 2023, 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, 20162022 (“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 2023:
StandardDescription
Date of
Adoption
Application
Effect on the Consolidated Financial Statements
(or Other Significant Matters)
Simplification of Employee Share-Based Payment Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
Simplified accountingThe guidance requires an acquirer recognize and disclosure requirementsmeasure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification Topic 606, as if it had originated the contracts. The amendments in this update also provide certain practical expedients for share-based payment awards. The updated guidance addresses simplificationacquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in areas such as: (i) the recognition of excess tax benefits and deficiencies; (ii) the classification of excess tax benefits and taxes paida business combination.
January 1, 2023ProspectiveThis standard did not have a material impact on the Consolidated Financial Statements
Troubled Debt Restructurings and Vintage DisclosuresThe main provisions of Cash Flows; (iii) electionthis standard eliminate the receivables accounting guidance for troubled debt restructurings (“TDRs”) by creditors while enhancing disclosure requirements when a borrower is experiencing financial difficulty. Entities must apply the loan refinancing and restructuring guidance for receivables to determine whether a modification results in a new loan or a continuation of an accounting policyexisting loan. Additionally, the amendments in this update require that an entity disclose current-period gross write-offs by year of origination for forfeitures;financing receivables and (iv) the amount an employer can withhold to cover income taxes and still qualify for equity classification.

net investment in leases.		January 1, 20172023
ModifiedProspective, with a modified retrospective option for amendments related to the recognition and measurement of excess tax benefits and deficiencies; full retrospective for the classification of excess tax benefits and taxes paidTDRs.
This standard did not have a material impact on the Consolidated Financial 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.



Property, Plant and Equipment
The following recently issued accounting standards are not yet required to be adopted byNew Jersey Economic Development Authority (“NJEDA”) determined that the Company was qualified to receive $161 million in tax credits in connection with its capital investment in its corporate headquarters in Camden, New Jersey. The Company was qualified to receive the tax credits over a 10-year period commencing in 2019.
In March 2023, the NJEDA issued the utilization certificate for the 2020 tax credits to the Company in the amount of $16 million. The Company sold these tax credits to external parties in March 2023 for $15 million. As a result, the Company had assets of $32 million and $97 million in Other current assets and Other long-term assets, respectively, on the Consolidated Balance Sheets as of September 30, 2017:March 31, 2023. The Company has made the necessary annual filing for the years ended December 31, 2021 and 2022.
Allowance for Uncollectible Accounts
Allowances for uncollectible accounts are maintained for estimated probable losses resulting from the Company’s inability to collect receivables from customers. Accounts that are outstanding longer than the payment terms are considered past due. A number of factors are considered in determining the allowance for uncollectible accounts, including the length of time receivables are past due, previous loss history, current economic and societal conditions and reasonable and supportable forecasts that affect the collectability of receivables from customers. The Company generally writes off accounts when they become uncollectible or are over a certain number of days outstanding.
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Presented in the table below are the changes in the allowance for uncollectible accounts for the three months ended March 31:
20232022
Balance as of January 1$(60)$(75)
Amounts charged to expense(3)(4)
Amounts written off5 8 
Other, net (a)3 (1)
Balance as of March 31$(55)$(72)
(a)This portion of the allowance for uncollectible accounts is primarily related to COVID-19 related regulatory asset activity.
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
Presented in the table below are annualized incremental revenues, including reductions for the amortization of the excess accumulated deferred income taxes (“EADIT”) that are generally offset in income tax expense, assuming a constant water sales volume and customer count, resulting from general rate case authorizations that became effective during 2023:
Standard(In millions)Effective DateDescription
Date of
Adoption
Permitted Application
Estimated Effect on the Consolidated Financial Statements
(or Other Significant Matters)
Amount
Revenue from Contracts with CustomersGeneral rate cases by state:
Changes the criteria for recognizing revenue from a contract with a customer. Replaces existing guidance on revenue recognition, including most industry specific guidance. The objective is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries and across capital markets. The underlying principle is that an entity will recognize revenue to depict the transfer of goods and services to customers at an amount the entity expects to be entitled to in exchange for those goods or services. The guidance also requires a number of disclosures regarding the nature, amount, timing and uncertainty of revenue and the related cash flows.

VirginiaApril 24, 2023 (a)$11 
PennsylvaniaJanuary 28, 2023138 
IllinoisJanuary 1, 2018; early adoption permitted2023Full or modified retrospective67 
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 FlowsCalifornia, Step IncreaseProvides 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 permitted2023Retrospective13 
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 FlowsTotal general rate case authorizationsUpdates 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 permitted229 RetrospectiveThe 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.



(a)Interim rates were effective May 1, 2022, and the difference between interim and final approved rates is subject to refund. The Virginia State Corporation Commission issued its final Order on April 24, 2023.

On April 24, 2023, the Virginia State Corporation Commission issued an order approving the settlement of the rate case filed on September 26, 2022, by the Company’s Virginia subsidiary. The general rate case order approved an $11 million annualized increase in water and wastewater revenues. Interim rates in this proceeding were effective on May 1, 2022, and the order requires that the difference between interim and the final approved rates is subject to refund within 90 days of the order issuance. The order approves the settlement terms with a return on equity of 9.7% and a common equity ratio of 40.7%. The annualized revenue increase is driven primarily by significant incremental capital investments since the Virginia subsidiary’s 2020 rate case order that have been completed or are planned through April 30, 2023, increases in pension and other postretirement benefits expense and increases in production costs, including chemicals, fuel and power costs. The general rate case order includes recovery of the Company’s Virginia subsidiary’s COVID-19 deferral balance. It also includes approval of the accounting deferral of deviations in pension and other postretirement benefits expense from those established in base rates, until the Company’s Virginia subsidiary’s next base rate case.
On December 8, 2022, the Pennsylvania Public Utility Commission issued an order approving the joint settlement of the rate case filed on April 29, 2022, by the Company’s Pennsylvania subsidiary. The general rate case order approved a $138 million annualized increase in water and wastewater revenues, excluding $24 million for previously approved infrastructure filings, and authorizes implementation of the new water and wastewater rates effective January 28, 2023. The rate case proceeding was resolved through a “black box” settlement agreement and did not specify an approved return on equity. The annualized revenue increase is driven primarily by significant incremental capital investments since the Pennsylvania subsidiary’s 2021 rate case order that will be completed through December 31, 2023, increases in pension and other postretirement benefits expense and increases in production costs, including chemicals, fuel and power costs. The general rate case order also includes recovery of the Company’s Pennsylvania subsidiary’s COVID-19 deferral balance.
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On December 15, 2022, the Illinois Commerce Commission issued an order approving the adjustment of base rates requested in a rate case filed on February 10, 2022, by the Company’s Illinois subsidiary. As updated in the Illinois subsidiary’s June 29, 2022 rebuttal filing, the request sought $83 million in additional annualized revenues, excluding previously recovered infrastructure surcharges. The general rate case order approved a $67 million annualized increase in water and wastewater system revenues, excluding previously recovered infrastructure surcharges of $18 million, effective January 1, 2023, based on an authorized return on equity of 9.8%, authorized rate base of $1.64 billion, a common equity ratio of 49.0% and a debt ratio of 51.0%. The annualized revenue increase is being driven primarily by significant water and wastewater system capital investments since the Illinois subsidiary’s 2017 rate case order that have been completed or are planned through December 31, 2023, expected higher pension and other postretirement benefit costs, and increases in production costs, including chemicals, fuel and power costs.
Pending General Rate Case Filings
On March 31, 2023, the Company’s Indiana subsidiary filed a general rate case requesting $87 million in additional annualized revenues, excluding $41 million of revenue from infrastructure filings already approved, which includes three step increases, with $43 million of the increase to be included in rates in January 2024, $18 million in May 2024, and $26 million in May 2025. The general rate case is expected to be completed by the end of January 2024.
On July 1, 2022, the Company’s Missouri subsidiary filed a general rate case requesting an increase of $105 million in additional annualized revenues, excluding infrastructure surcharges at the time of filing of approximately $40 million. Subsequent to the filing of the general rate case, the Company’s Missouri subsidiary filed its semi-annual request for recovery of defined infrastructure investments within its Water and Sewer Infrastructure Rate Adjustment, which adjusted the amount of revenue recovered in the infrastructure surcharges to $51 million and a net annualized revenue increase request of $95 million in the general rate case. On March 3, 2023, a settlement agreement was filed with the Missouri Public Service Commission, reflecting a proposed increase of $44 million in additional annualized revenues, excluding $51 million for infrastructure surcharges. A final decision on this matter is expected in the second quarter of 2023.
On July 1, 2022, the Company’s California subsidiary filed a general rate case requesting an increase in 2024 revenue of $56 million and a total increase in revenue over the 2024 to 2026 period of $95 million, all as compared to 2022 revenues. The Company updated its filing in January 2023 to capture the authorized step increase effective January 1, 2023. The filing was also updated to incorporate a decoupling proposal and a revision to the Company’s sales and associated variable expense forecast. The revised filing requested additional annualized revenues for the test year 2024 of $37 million, compared to 2023 revenues. This excludes the proposed step rate and attrition rate increase for 2025 and 2026 of $20 million and $19 million, respectively. The total revenue requirement request for the three-year rate case cycle, incorporating updates to present rate revenues and forecasted demand, is $76 million.
The Company’s California subsidiary submitted its application on May 3, 2021, to set its cost of capital for 2022 through 2024. On March 21, 2023, the California Public Utilities Commission (“CPUC”) issued a decision extending the deadline to August 10, 2023, for the cost of capital proceeding.
Infrastructure Surcharges
A number of states have authorized the use of regulatory mechanisms that permit rates to be adjusted outside of a general rate case for certain costs and investments, such as infrastructure surcharge mechanisms that permit recovery of capital investments to replace aging infrastructure. Presented in the table below are annualized incremental revenues, assuming a constant water sales volume and customer count, resulting from infrastructure surcharge authorizations that became effective during 2023:
Standard(In millions)Effective DateDescription
Date of
Adoption
Permitted ApplicationEstimated Effect on the Consolidated Financial Statements
(or Other Significant Matters)Amount
Accounting for Hedging Activities

Infrastructure surcharges by state:
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.

Indiana
(a)
$26 
MissouriJanuary 16, 202314 
PennsylvaniaJanuary 1, 2019; early adoption permitted

2023
Modified retrospective for adjustments related to the measurement of ineffectiveness for cash flow hedges; prospective for the updated presentation and disclosure requirements

3 
The Company does not expect the adoption to have a material impact on its consolidated financial statements based on the hedges held as of the balance sheet date. The Company is evaluating the timing of adoption.

Simplification of Goodwill Impairment TestingWest VirginiaUpdated 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 permitted2023Prospective7 
The Company is evaluating the impact on its consolidated financial statements, as well as the timing of adoption.

Measurement of Credit LossesTotal infrastructure surcharge authorizationsUpdated the accounting guidance on reporting credit losses for financial assets held at amortized cost basis and available-for-sale debt securities. Under this guidance, expected credit losses are required to be measured based on historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount of financial assets. Also, this guidance requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a direct write-down.$January 1, 2020; early adoption permitted50 Modified retrospectiveThe Company is evaluating the impact on its consolidated financial statements, as well as the timing of adoption.
(a)In 2023, $20 million was effective March 23 and $6 million was effective March 8.
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Table of Contents
Pending Infrastructure Surcharge Filings
On March 15, 2023, the Company’s New Jersey subsidiary filed an infrastructure surcharge proceeding requesting $16 million in additional annualized revenues.
On March 1, 2023, the Company’s Kentucky subsidiary filed an infrastructure surcharge proceeding requesting $4 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 required 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. On May 18, 2022, the California Supreme Court issued a writ of review for the Company’s California subsidiary’s petition and the petitions filed by other entities challenging the decision. Independent of the judicial challenge, California passed Senate Bill 1469, which allows the CPUC to consider and authorize the implementation of a mechanism that separates the water corporation’s revenue and its water sales. Legislation was signed by the Governor on September 30, 2022, and became effective on January 1, 2023. In response to the legislation, on January 27, 2023, the Company’s California subsidiary filed an updated application requesting the CPUC to consider a Water Resources Sustainability Plan decoupling mechanism in its pending 2022 general rate case, which would be effective 2024 through 2026.
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 (“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’s New Jersey subsidiary filed its brief in support of the appeal on March 4, 2022. Response and Reply briefs were filed on June 22, 2022, and August 4, 2022, respectively. Oral argument was held on March 22, 2023, and the Company expects a decision by the end of 2023. 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.
Note 3:4: 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 businesses that provide water and wastewater services to the U.S. government on military installations, as well as municipalities, collectively presented throughout this Form 10-Q within “Other.”
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Presented in the table below are operating revenues disaggregated for the three months ended March 31, 2023:
Revenues from Contracts with CustomersOther Revenues Not from Contracts with Customers (a)Total Operating Revenues
Regulated Businesses:
Water services:
Residential$460 $1 $461 
Commercial170 1 171 
Fire service39 — 39 
Industrial38 — 38 
Public and other56 — 56 
Total water services763 2 765 
Wastewater services:
Residential54 — 54 
Commercial14 — 14 
Industrial2 — 2 
Public and other6 — 6 
Total wastewater services76 — 76 
Miscellaneous utility charges8 — 8 
Alternative revenue programs— 9 9 
Lease contract revenue— 2 2 
Total Regulated Businesses847 13 860 
Other78 — 78 
Total operating revenues$925 $13 $938 
(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, 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 
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 ASC 606,and accounted for under other existing GAAP.
Contract Balances
Contract assets and contract liabilities are the result of timing differences between revenue recognition, billings and cash collections. In the Company’s Military Services Group (“MSG”), 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 are recognized as revenue when the associated performance obligations are satisfied.
Contract assets of $100 million and $86 million are included in unbilled revenues on the Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022, respectively. There were $23 million of contract assets added during the three months ended March 31, 2023, and $9 million of contract assets were transferred to accounts receivable during the same period. 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.
Contract liabilities of $85 million and $91 million are included in other current liabilities on the Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022, respectively. There were $27 million of contract liabilities added during the three months ended March 31, 2023, and $33 million of contract liabilities were recognized as revenue during the same period. 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.
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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, 2023, the Company’s operation and maintenance (“O&M”) and capital improvement contracts in the MSG and the Contract Services Group have RPOs. Contracts with the U.S. government for work on various military installations expire between 2051 and 2073 and have RPOs of $7.1 billion as of March 31, 2023, 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 2026 and 2038 and have RPOs of $576 million as of March 31, 2023, 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
Closed Acquisitions
During the ninethree months ended September 30, 2017,March 31, 2023, the Company closed on 14 five acquisitions of various regulated water and wastewater systems for a total aggregate purchase price of $43. Included in this total was$3 million,which added approximately 1,400 water and wastewater customers. These transactions were accounted for as asset acquisitions, principally consisting of utility plant.
Pending Acquisitions
On April 6, 2023, the Company’s acquisition of allIllinois subsidiary entered into an agreement to acquire the outstanding capital stockassets of the Shorelands Water Company, Inc. on April 3, 2017,wastewater treatment plant from the City of Granite City for total consideration of $33,$83 million, subject to adjustment as provided for 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 theagreement. This system provides wastewater collection and treatment system assets of the Municipal Authority of the City of McKeesport, Pennsylvaniaservice for approximately $159. On October 26, 2017, a joint petition for settlement of this acquisition was approved by the Pennsylvania Public Utility Commission. The closing of this acquisition is subject to the satisfaction of various conditions and covenants.26,000 customer connections. The Company expects to close this acquisition by the end of 2017.

2023 or early 2024, pending regulatory approval.

Effective March 24, 2023, the Company’s Pennsylvania subsidiary acquired the rights to buy the wastewater system assets of the Township of Towamencin, for an aggregate purchase price of $104 million, subject to adjustment as provided in the asset purchase agreement. This system provides wastewater services to approximately 6,300 customer connections in seven townships in Montgomery County, Pennsylvania. The Company expects to close this acquisition by mid-year 2024, pending regulatory approval.
On October 11, 2022, the Company’s Pennsylvania subsidiary entered into an agreement to acquire the wastewater assets of the Butler Area Sewer Authority for a total purchase price of $232 million in cash, subject to adjustment as provided for in the asset purchase agreement. This system provides wastewater service for approximately 14,700 customer connections. The Company expects to close this acquisition by the end of 2023, pending regulatory approval.
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 2023.
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Note 4: Stockholders’6: Shareholders’ Equity
Common Stock Offering
On March 3, 2023, the Company completed an underwritten public offering of an aggregate of 12,650,000 shares of its common stock. Upon closing of this offering, the Company received, after deduction of the underwriting discount and before deduction of offering expenses, net proceeds of approximately $1,688 million. The Company used the net proceeds of the offering to repay short-term commercial paper obligations of American Water Capital Corp. (“AWCC”), the wholly owned finance subsidiary of American Water, and for general corporate purposes.
Accumulated Other Comprehensive Loss
The followingPresented in the table presentsbelow are the changes in accumulated other comprehensive loss by component, net of tax, for the ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, respectively:
 Defined Benefit Plans Foreign Currency Translation Gain (Loss) on Cash Flow Hedges Accumulated Other Comprehensive Loss
 Employee
Benefit Plan
Funded Status		 Amortization
of Prior
Service Cost		 Amortization
of Actuarial
Loss		   
Beginning balance as of December 31, 2016$(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) $(99)
 Defined Benefit Pension PlansLoss on Cash Flow HedgesGain on Fixed-Income SecuritiesAccumulated Other Comprehensive Loss
 Employee Benefit Plan Funded StatusAmortization of Prior Service CostAmortization of Actuarial Loss
Balance as of December 31, 2022$(93)$1 $70 $(1)$— $(23)
Other comprehensive income (loss) before reclassifications— — — (2)2 — 
Amounts reclassified from accumulated other comprehensive loss— — — — — — 
Net other comprehensive income (loss)— — — (2)2 — 
Balance as of March 31, 2023$(93)$1 $70 $(3)$2 $(23)
Balance as of December 31, 2021$(107)$1 $67 $(6)$— $(45)
Other comprehensive income (loss) before reclassifications— — — — — — 
Amounts reclassified from accumulated other comprehensive loss— — 1 — — 1 
Net other comprehensive income (loss)— — 1 — — 1 
Balance as of March 31, 2022$(107)$1 $68 $(6)$— $(44)
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 ProgramAn unrealized gain (loss) on available-for-sale fixed-income securities is reclassified to net income upon sale of the securities as a realized gain or loss and is included in Other, net in the accompanying Consolidated Statements of Operations.
During the nine months ended September 30, 2017,Dividends
On March 1, 2023, the Company repurchased 0.7 sharespaid a quarterly cash dividend of common stock in the open market at an aggregate cost$0.6550 per share to shareholders of $54 under the anti-dilutive stock repurchase program authorized byrecord as of February 7, 2023.
On April 26, 2023, the Company’s Board of Directors declared a quarterly cash dividend payment of $0.7075 per share, payable on June 1, 2023, to shareholders of record as of May 9, 2023. Future dividends, when and as declared at the discretion of the Board of Directors, will be dependent upon future earnings and cash flows, compliance with various regulatory, financial and legal requirements, and other factors. See Note 9—Shareholders’ Equity in 2015. 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 sharesdividends on the Company’s common stock.
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Table of common stock available for repurchase under the program.Contents
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, 2023, the Company’s regulated subsidiaries issued in the aggregate $8 million of private activity bonds and government funded debt was retiredin multiple transactions with annual interest rates ranging from 0.00% to 0.74%, with a weighted average interest rate of 0.01%, maturing in 2025 through 2041. During the three months ended March 31, 2023, 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$4 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 3.12%, a weighted average interest rate of 1.12%, and $750 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. On September 13, 2017, AWCC used proceedsmaturity dates ranging 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 offering2024 to repay at maturity, $524 of its 6.085% Senior Notes on October 15, 2017. In addition, the Company repaid $33 of 7.08% subsidiary debt at maturity on November 1, 2017.2051.
As a result of AWCC’s prepayment of the Series C and Series D Senior Notes and payment of a make-whole premium to the holders thereof of $34, the Company recorded an early debt extinguishment charge of $6, which was associated with the portion of the debt allocable to the Company’s parent. Substantially all of the early debt extinguishment costs allocable to the Company’s utility subsidiaries were recorded as regulatory assets that the Company believes are probable of recovery in future rates.
On August 7, 2017, the Company terminated four forward starting swap agreements with an aggregate notional amount of $300, realizing a gain of $19 to be amortized through interest, net over 30 years. The Company has one remaining forward starting swap agreement, which was entered into on February 8, 2017,eleven 10-year treasury lock agreements, with a notional amount of $100amounts totaling $300 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 20182023. These treasury lock agreements terminate in January 2024, and hashave an average fixed rate of 2.67%3.47%. 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.
The Company has an interest rate swap to hedge $100 of its 6.085% Senior Notes maturing in the fourth quarter of 2017. The Company pays variable interest of six-month LIBOR plus 3.422% and has designated this interest rate swap as a fair value hedge accounted for at fair value with gains or losses, as well as the offsetting gains or losses on the hedged item, recognized in interest, net. The net gain and loss recognized by the Company for the three and nine months ended September 30, 2017 and 2016 was de minimis. This interest rate swap matured on October 15, 2017.


The Company has employed interest rate swaps to fix the interest cost on a portion of its variable-rate debt with an aggregate notional amount of $6. The Company has designated these interest rate swaps as economic hedges accounted for at fair value with gains or losses deferred as a regulatory asset or regulatory liability. The net gain recognized by the Company for the three and nine months ended September 30, 2017 and 2016 was de minimis.
No ineffectiveness was recognized on hedging instruments for the three and nine months ended September 30, 2017March 31, 2023 or 2022.
Note 8: Short-Term Debt
Liquidity needs for capital investment, working capital and 2016.
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 and issuances of equity. The following tablerevolving credit facility provides $2.75 billion in aggregate total commitments from a summarydiversified group of financial institutions. The termination date of the gross fair valuecredit agreement with respect to AWCC’s revolving credit facility is October 2027. The revolving credit facility is used principally to support AWCC’s commercial paper program, to provide additional liquidity support and to provide a sub-limit of up to $150 million for letters of credit. As of March 31, 2023 and December 31, 2022, there were noborrowings and $78 million of outstanding letters of credit under the Company’s derivative assetrevolving credit facility.
At March 31, 2023, there was no outstanding short-term debt as the proceeds of the common stock offering were used to repay the short-term commercial paper obligations, see Note 6—Shareholders’ Equity for additional information relating to the common stock offering.
At December 31, 2022, short-term debt consisting of commercial paper borrowings totaled $1,177 million, or net of discount $1,175 million. The weighted-average interest rate on AWCC’s outstanding short-term borrowings was approximately 4.41% and liabilities,there were nocommercial paper borrowings outstanding with maturities greater than three months.
Presented in the tables below is the aggregate credit facility commitments, commercial paper limit and letter of credit availability under the revolving credit facility, as well as the locationavailable capacity for each:
As of March 31, 2023
Commercial Paper LimitLetters of CreditTotal (a)
(In millions)
Total availability$2,600 $150 $2,750 
Outstanding debt— (78)(78)
Remaining availability as of March 31, 2023$2,600 $72 $2,672 
(a)Total remaining availability of the asset and liability balances$2.67 billion as of March 31, 2023, may be accessed through revolver draws.
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As of December 31, 2022
Commercial Paper LimitLetters of CreditTotal (a)
(In millions)
Total availability$2,600 $150 $2,750 
Outstanding debt(1,177)(78)(1,255)
Remaining availability as of December 31, 2022$1,423 $72 $1,495 
(a)Total remaining availability of $1.50 billion as of December 31, 2022, may be accessed through revolver draws.
Presented in the Consolidated Balance Sheets:table below is the Company’s total available liquidity as of March 31, 2023 and December 31, 2022, respectively:
Cash and Cash EquivalentsAvailability on Revolving Credit FacilityTotal Available Liquidity
(In millions)
Available liquidity as of March 31, 2023$213 $2,672 $2,885 
Available liquidity as of December 31, 2022$85 $1,495 $1,580 
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%20.6% and 39.1%18.1% for the three months ended September 30, 2017March 31, 2023 and 2016, respectively, and 39.9% and 39.2% for2022, respectively. The increase in the nine months ended September 30, 2017 and 2016, respectively. 
On April 11, 2017, the State of New York enacted legislation that increased the stateCompany’s effective income tax rate onfor the Company’s taxablethree months ended March 31, 2023, was primarily due to the decrease in the amortization of EADIT pursuant to regulatory orders. The amortization of EADIT is generally offset with reduction in revenue.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into law. The IRA contains a Corporate Alternative Minimum Tax (“CAMT”) provision, effective January 1, 2023. To determine if a company is considered an applicable corporation subject to CAMT, the company’s average adjusted financial statement income attributable(“AFSI”) for the three consecutive years preceding the tax year must exceed $1 billion. An applicable corporation must make several adjustments to New York. This legislation eliminatednet income when determining AFSI. During the productionfirst quarter of water as a qualified manufacturing activity in New York, which effectively increased2023, the state income tax rate in New York. As a resultCompany evaluated the potential impacts of the legislative change,CAMT provision within 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,IRA and was offset by a regulatory asset, as the Company believes it does not exceed the $1 billion AFSI threshold, and therefore, is probable of recoverynot currently subject to CAMT in future rates.2023. The remaining increase inCompany is continuing to assess 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.
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 resultimpact of the legislative change,initial guidance regarding 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 causeapplication of the increaseCAMT and will continue to the Company’s unitary deferred tax liabilitymonitor as additional guidance is released.
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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, 20232022
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 cost (credit):Components of net periodic pension benefit cost (credit):
Service cost$3
 $3
 $8
 $9
Service cost$4 $8 
Interest cost7
 7
 20
 22
Interest cost22 16 
Expected return on plan assets(7) (7) (20) (20)Expected return on plan assets(23)(31)
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 loss4 5 
Net periodic other postretirement benefit cost$1
 $1
 $2
 $10
Net periodic pension benefit cost (credit)Net periodic pension benefit cost (credit)$6 $(3)
Components of net periodic other postretirement benefit credit:Components of net periodic other postretirement benefit credit:
Service costService cost$1 $1 
Interest costInterest cost4 3 
Expected return on plan assetsExpected return on plan assets(3)(5)
Amortization of prior service creditAmortization of prior service credit(8)(8)
Amortization of actuarial lossAmortization of actuarial loss1 — 
Net periodic other postretirement benefit creditNet periodic other postretirement benefit credit$(5)$(9)
The Company made contributionscontributed $10 million and $9 million for the funding of its defined benefit pension plans of $11 and $8 for the three months ended September 30, 2017March 31, 2023 and 2016, respectively, and $31 and $25 for the nine months ended September 30, 2017 and 2016, respectively, and2022, respectively. The Company expects to contribute $9make pension contributions to the plan trusts of $29 million during the remainder of 2017. In addition, the Company made2023.
There were no contributions for the funding of its other postretirement plans of $2 and $6 for the three months ended September 30, 2017March 31, 2023 and 2016, respectively, and $5 and $17$10 million of contributions for the ninethree months ended September 30, 2017 and 2016, respectively, and expects to contribute $1 duringMarch 31, 2022 for the remainderfunding of 2017.the Company’s other postretirement benefit plans.
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, 2023, 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.$5 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 in the U.S. District Court for the Southern District of West Virginia or West Virginia Circuit Courts in Kanawha, Boone and Putnam counties, and to date, 74 cases remain pending. Four of the cases pending before the U.S. district court were consolidated for purposes of discovery, and an amended consolidated class action complaint for those cases (the “Federal action”) was filed in December 2014 by several plaintiffs. On January 28, 2016, all of the then-filed state court cases were referred to West Virginia’s Mass Litigation Panel for further proceedings, which have been stayed pending the negotiation by the parties and approval by the court in the Federal action of a global agreement to settle all of such cases, as described below. On July 7, 2016, the court in the Federal action scheduled trial to begin on October 25, 2016, but the court has granted several continuances of the trial, which is currently postponed indefinitely in light of the preliminarily approved global settlement agreement described below. The Mass Litigation Panel has also stayed its proceedings until January 23, 2018.
Preliminary Approval of WVAWC Global Class Action Litigation Settlement
On October 31, 2016, the court in the Federal action approved the preliminary principles, terms and conditions of a binding global agreement in principle to settle claims among the American Water Defendants, and all class members, putative class members, claimants and potential claimants, arising out of the Freedom Industries chemical spill. On April 27, 2017, the parties filed with the court in the Federal action a proposed settlement agreement providing details of the terms of the settlement of these matters and requesting that the court in the Federal action grant preliminary approval of such settlement. On July 6, 2017, the court in the Federal action issued an opinion denying without prejudice the joint motion for preliminary approval of the Settlement. On August 25, 2017, the parties filed a proposed amended settlement agreement and related materials addressing the matters set forth in the July 6, 2017 order.
On September 21, 2017, the court in the Federal action issued an order granting preliminary 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 Freedom Industries chemical spill. The Settlement proposes a global resolution of all federal and state litigation and potential claims against the American Water Defendants and their insurers. Under the terms and conditions of the Settlement and the proposed amended settlement agreement, the American Water Defendants have not admitted, and will not admit, any fault or liability for any of the allegations made by the Plaintiffs in any of the actions to be resolved. Under federal class action rules, a claimant may elect to opt out of the final Settlement, in which case such claimant will not receive any benefit from or be bound by the terms of the Settlement. The American Water Defendants would 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 of the Company’s general liability insurance carriers, as discussed below. The Company has general liability insurance under a series of policies underwritten by a number of individual carriers. Two of these insurance carriers, which provide an aggregate of $50 in insurance coverage to the Company under these policies, had been originally requested to participate in the Settlement at the time of the initial filing of the binding agreement in principle with the court in the Federal action, but did not agree to do so at that time. WVAWC filed a lawsuit against one of these carriers alleging that the carrier’s failure to agree to participate in the Settlement constituted a breach of contract. On September 19, 2017, the Company and the insurance carrier settled this lawsuit for $22, out of a maximum of $25 in potential coverage under the terms of the relevant policy, in exchange for a full release by the Company and WVAWC of all claims against the insurance carrier related to the Freedom Industries chemical spill. WVAWC and the settling insurer have agreed to stay this litigation pending final approval of the Settlement. The Company and WVAWC continue to pursue vigorously their rights to insurance coverage for contributions by WVAWC to the Settlement in mandatory arbitration with the remaining non-participating carrier. This arbitration proceeding remains pending.
The proposed Settlement would establish a two-tier settlement fund for the payment of claims, comprised of (i) a simple claim fund, which is also referred to as the “guaranteed fund,” of $76, of which $29 will be contributed by WVAWC, including insurance deductibles, and $47 would be contributed by two of the Company’s general liability insurance carriers, and (ii) an individual review claim fund of up to $50, of which up to $14 would be contributed by WVAWC and up to $36 would be contributed by a number of the Company’s general liability insurance carriers. Separately, up to $25 would be contributed to the guaranteed fund by another defendant to the Settlement. If any final approval order by the court in the Federal action with respect to the Settlement is appealed and such appeal would delay potential payment to claimants under the Settlement, WVAWC and the other defendant to the Settlement will contribute up to $50 and $25, respectively, to the Settlement (not including, in the case of WVAWC, any contributions by the Company’s general liability insurance carriers which would not be made until such time as a final, non-appealable order is issued) into an escrow account during the pendency of such appeals. For certain claims, WVAWC and the other defendant to the Settlement may, in lieu of these escrowed contributions, make advance payments of such claims if agreed to by the parties. All administrative expenses of the Settlement and attorneys’ fees of class counsel related thereto would be paid from the funds designated to pay claims covered by the Settlement.


As a result of these events, in the third quarter of 2016, the Company recorded a charge to earnings, net of insurance receivables, 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. The Company intends to fund WVAWC’s contributions to the Settlement through existing sources of liquidity, although no contribution by WVAWC will be required unless and until the terms of the Settlement are finally approved by the court in the Federal action. Furthermore, under the terms of the Settlement, WVAWC has agreed that it will not seek rate recovery from the Public Service Commission of West Virginia for approximately $4 in direct response costs expensed in 2014 by WVAWC relating to the Freedom Industries chemical spill as well as for amounts paid by WVAWC under the Settlement.
The Company’s insurance policies operate under a layered structure where coverage is generally provided in the upper layers after claims have exhausted lower layers of coverage. The $36 to be contributed by a number of the Company’s general liability insurance carriers to the individual review claim fund, as noted above, is from higher layers of the insurance structure than the insurance carrier that was requested, but presently has not agreed, to participate in the Settlement. Any recovery by WVAWC or the Company from the remaining non-participating carrier would reimburse WVAWC for its contributions to the guaranteed fund.
Other Related Proceedings
Additionally, investigations with respect to the matter have been initiated by the U.S. Chemical Safety and Hazard Investigation Board (the “CSB”), the U.S. Attorney’s Office for the Southern District of West Virginia, the West Virginia Attorney General, and the Public Service Commission of West Virginia (the “PSC”). As a result of the U.S. Attorney’s Office investigation, Freedom Industries and six former Freedom Industries employees (three of whom also were former owners of Freedom Industries), pled guilty to violations of the federal Clean Water Act.
In May 2014, the PSC issued an Order initiating a General Investigation into certain matters relating to WVAWC’s response to the Freedom Industries chemical spill. Three parties intervened in the proceeding, including the Consumer Advocate Division of the PSC and two attorney-sponsored groups, including one sponsored by some of the plaintiffs’ counsel involved in the civil litigation described above. On January 26, 2017, WVAWC and the other parties agreed to resolve the General Investigation and filed a joint stipulation with the PSC containing the terms of the settlement. The parties to the joint stipulation filed a proposed order with the PSC on February 8, 2017. On June 15, 2017, the PSC entered an order accepting the joint stipulation that had been filed by the parties in January 2017 as a reasonable basis for resolving the General Investigation and removing the proceeding from the docket. The PSC’s order did not require WVAWC to take any further action with respect to the matters covered by the General Investigation. The PSC order concludes the General Investigation.
The CSB is an independent investigatory agency with no regulatory mandate or ability to issue fines or citations; rather, the CSB can only issue recommendations for further action. In response to the Freedom Industries chemical spill, the CSB commenced an investigation shortly thereafter. On September 28, 2016, the CSB issued and adopted its investigation report in which it recommended that the Company conduct additional source water protection activities. The Company provided written comments to the CSB’s report suggesting that the recommendation made to the Company would be better directed to the U.S. Environmental Protection Agency in order to promote industry-wide implementation of the CSB’s recommendation. On February 15, 2017, the Company filed a response to the CSB’s recommendation. On April 4, 2017, the CSB indicated that the implementation by the Company of source water protection activities resolved the first two parts of the CSB’s recommendation. The CSB also noted that compliance by the Company with the third part of its recommendation is ongoing and that closure of this part is contingent upon completion of updated contingency planning for the Company’s water utilities outside of West Virginia. In light of public response to its original September 2016 investigation report, on May 11, 2017, the CSB issued a new version of this report. The primary substantive change addressed CSB’s factual evaluation of the duration and volume of contamination from the leaking tank, decreasing its estimate of the leak time but increasing the volume estimate by 10%. No substantive changes were made to the conclusions and recommendations in the original report.
On March 16, 2017, the Lincoln County (West Virginia) Commission (the “LCC”) passed a county ordinance entitled the “Lincoln County, WV Comprehensive Public Nuisance Investigation and Abatement Ordinance.” The ordinance establishes a mechanism that Lincoln County believes will allow it to pursue criminal or civil proceedings for the “public nuisance” it alleges was caused by the Freedom Industries chemical spill. On April 20, 2017, the LCC filed a complaint in Lincoln County state court against WVAWC and certain other defendants not affiliated with the Company, alleging that the Freedom Industries chemical spill caused a public nuisance in Lincoln County. On June 12, 2017, the Mass Litigation Panel entered an order granting a motion to transfer this case to its jurisdiction and stayed the case consistent with the existing stay order. The complaint seeks an injunction against WVAWC that would require the creation of various databases and public repositories of documents related to this chemical spill, as well as further study and risk assessments regarding the alleged exposure by Lincoln County residents to the released chemicals. WVAWC believes that the lawsuit is without merit and intends to vigorously contest the claims and allegations raised in the complaint.


California Public Utilities Commission Residential Rate Design Proceeding
In December 2016, the California Public Utilities Commission (the “CPUC”) issued a final decision in a proceeding involving California-American Water Company, the Company’s wholly owned subsidiary (“Cal Am”), adopting a new residential rate design for Cal Am’s Monterey District. The decision allowed for recovery by Cal Am of $32 in under-collections in the water revenue adjustment mechanism/modified cost balancing account (“WRAM/MCBA”) over a five-year period, plus interest, and modified existing conservation and rationing plans. In its decision, the CPUC noted concern regarding Cal Am’s residential tariff administration, specifically regarding the lack of verification of customer-provided information about the number of residents per household. This information was used for generating billing determinants under the tiered rate system. As a result, the CPUC kept this proceeding open to address several issues, including whether Cal Am’s residential tariff administration violated a statute, rule or CPUC decision, and if so, whether a penalty should be imposed.
On February 24, 2017, Cal Am, the Monterey Peninsula Water Management District, the CPUC’s Office of Ratepayer Advocates, and the Coalition of Peninsula Businesses filed for CPUC approval of a joint settlement agreement (the “Joint Settlement Agreement”), which among other things, proposed to resolve the CPUC’s residential tariff administration concerns by providing for a waiver by Cal Am of $0.5 of cost recovery for residential customers through the WRAM/MCBA in lieu of a penalty. Approval of the Joint Settlement Agreement, which is required for it to take effect, remains pending before the CPUC.
On March 28, 2017, the administrative law judge assigned to the proceeding issued a ruling stating there was sufficient evidence to conclude, on a preliminary basis, that Cal Am’s administration of the residential tariff violated certain provisions of the California Public Utilities Code and a CPUC decision. The ruling ordered Cal Am to show cause why it should not be penalized for these administrative violations and directed the settling parties to address whether the cost recovery waiver in the Joint Settlement Agreement was reasonable compared to a potential penalty range described by the administrative law judge. During hearings held on April 13-14, 2017, the administrative law judge clarified that this potential penalty range is $3 to $179 (calculated as a continuing violation dating back to 2000 and applying penalties of up to $20 thousand per day until January 1, 2012 and penalties of up to $50 thousand per day thereafter, reflecting a 2012 change to the relevant statute). The administrative law judge also noted that a per diem penalty may not be appropriate, as Cal Am’s monthly billing practices did not allow Cal Am to update customer-provided information for billing purposes on a daily basis. Hearings before the administrative law judge in this matter occurred in August and September 2017. Cal Am also submitted additional testimony on the issue of whether Cal Am should be penalized, and if so, the reasonable amount of any such penalty. A subsequent hearing in this proceeding is currently scheduled for November 27, 2017.
As of September 30, 2017, the portions of this loss contingency that are probable and/or reasonable possible have been determined to be immaterial to the Company and have been included in the aggregate maximum amounts described above in the first paragraph of “Contingencies” in this Note 9.
Missouri Infrastructure System Replacement Surcharge Litigation
In March 2016, the Western District of the Missouri Court of Appeals ruled that the Missouri Public Service Commission (“MoPSC”) did not have statutory authority to issue an order in June 2015 approving an infrastructure system replacement surcharge (“ISRS”) for Missouri-American Water Company (“MAWC”), a wholly owned subsidiary of the Company. The court held that the MoPSC’s June 2015 order authorizing the ISRS increase was invalid because St. Louis County did not have a population of at least one million residents, as required by the statute. MAWC believes that the MoPSC’s June 2015 order authorizing the collection of ISRS revenues is lawful. In June 2016, the Missouri Supreme Court granted MAWC’s application to transfer the case from the Court of Appeals to the Missouri Supreme Court, and as a result of that order, the March 2016 ruling of the Court of Appeals was vacated.
On March 14, 2017, in a unanimous decision, the Missouri Supreme Court dismissed the case as moot, finding that there were no longer any ISRS funds in dispute because MAWC had completed a rate case during the appellate process and the disputed charges were now incorporated in base rates. On May 30, 2017, the Missouri Supreme Court denied a Motion for Rehearing filed by the Missouri Office of Public Counsel, which action concluded the litigation in this matter.
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 the Company’s West Virginia subsidiary (“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.

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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 seeking to vacate or remand the Circuit Court’s order certifying the issues class. In January 2021, the Supreme Court of Appeals remanded the case back to the 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 5, 2022, the Circuit Court entered an order again certifying a class to address at trial certain liability issues but not to consider damages. On August 26, 2022, WVAWC filed another Petition for Writ of Prohibition in the Supreme Court of Appeals of West Virginia challenging the West Virginia Circuit Court’s July 5, 2022 order. The Writ Petition has been supported by an amicus brief filed by certain water and notutility industry trade groups. On February 9, 2023, the court, has primary jurisdiction over allegations involving violationsSupreme Court of Appeals accepted the applicable tariff, the public utility codeWrit Petition by issuing a Rule to Show Cause and related rules. This motion remains pending.scheduling oral argument for April 26, 2023.
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. On January 12, 2023, after hearing oral argument, the court issued an oral ruling denying the Tennessee Plaintiffs’ motion for class certification. On February 9, 2023, the Tennessee Plaintiffs sought reconsideration of the ruling by the court, and any final ruling is appealable to the Tennessee Court of Appeals, as allowed under Tennessee law.
TAWC and the Company believe that TAWC has meritorious defenses to the claims raised in this class action complaint, and TAWC is vigorously defending itself against these allegations. The Company cannot currently determine the likelihood of a loss, if any, or estimate the amount of any loss or a range of such losses related to this proceeding.
Alternative Water Supply in Lieu of Carmel River Diversions
Compliance with Orders to Reduce Carmel River Diversions—Monterey Peninsula Water Supply Project
Under a 2009 order (the “2009 Order”) of the State Water Resources Control Board (the “SWRCB”), the Company’s California subsidiary (“Cal Am”) is required to decrease significantly its yearly diversions of water from the Carmel River according to a set reduction schedule. In 2016, the SWRCB issued an order (the “2016 Order,” and, together with the 2009 Order, the “Orders”) approving a deadline of December 31, 2021, for Cal Am’s compliance with these prior orders.
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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 Orders.
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 is also required to implement mitigation measures to avoid, minimize or offset significant environmental impacts from the construction and operation of the Water Supply Project and comply with a mitigation monitoring and reporting program, a reimbursement agreement for CPUC costs associated with that program, and reporting requirements on plant operations following placement of the Water Supply Project in service. Cal Am has incurred $218 million in aggregate costs as of March 31, 2023 related to the Water Supply Project, which includes $60 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 in November 2021, Cal Am filed an application with the CPUC that sought review and approval of the amended and restated water purchase agreement. Cal Am also requested 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 requested 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.
On December 5, 2022, the CPUC issued a final decision that authorizes Cal Am to enter into the amended water purchase agreement, and specifically to increase pumping capacity and reliability of groundwater extraction from the Seaside Groundwater Basin. The final decision sets the cost cap for the proposed facilities at approximately $62 million. Cal Am may seek recovery of amounts above the cost cap in a subsequent rate filing or general rate case. Additionally, the final decision authorizes AFUDC at Cal Am’s actual weighted average cost of debt for most of the facilities.
On December 30, 2022, Cal Am filed with the CPUC an application for rehearing of the CPUC’s December 5, 2022 final decision. On March 30, 2023, the CPUC issued a decision denying Cal Am’s application for rehearing, but adopting its proposed AFUDC for already incurred and future costs. The decision also provides Cal Am the opportunity to serve supplemental testimony to increase its cost cap for certain of the Water Supply Project’s extraction wells. The amended water purchase agreement and a memorandum of understanding to negotiate certain milestones related to the expansion of the GWR Project have been signed by the relevant parties.
While Cal Am believes that its expenditures to date have been prudent and necessary to comply with the Orders, as well as relevant final decisions of the CPUC related thereto, 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 $112 million in aggregate construction costs, plus applicable AFUDC, previously approved by the CPUC in its 2016 final decision and its December 2022 final decision, as amended by its March 30, 2023 rehearing decision.
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Coastal Development Permit Application
In 2018, Cal Am submitted a coastal development permit application (the “Marina 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 the Marina Application. Thereafter, Cal Am appealed this decision to the Coastal Commission, as permitted under the City’s code and the California Coastal Act. At the same time, Cal Am submitted an application (the “Original Jurisdiction Application”) to the Coastal Commission for a coastal development permit for those project components located within the Coastal Commission’s original jurisdiction. After Coastal Commission staff issued reports recommending denial of the Original Jurisdiction Application, noting potential impacts on environmentally sensitive habitat areas and wetlands and possible disproportionate impacts to communities of concern, in September 2020, Cal Am withdrew the Original Jurisdiction Application in order to address the staff’s environmental justice concerns. The withdrawal of the Original Jurisdiction Application did not impact Cal Am’s appeal of the City’s denial of the Marina Application, which remains pending before the Coastal Commission. In November 2020, Cal Am refiled the Original Jurisdiction Application.
On October 5, 2022, Cal Am announced a phasing plan for the proposed desalination plant component of the Water Supply Project. The desalination plant and slant wells originally approved by the CPUC would produce up to 6.4 million gallons of desalinated water per day. Under the phased approach, the facilities would initially be constructed to produce up to 4.8 million gallons per day of desalinated water, enough to meet anticipated demand through about 2030, and would limit the number of slant wells initially constructed. As demand increases in the future, desalination facilities would be expanded to meet the additional demand. The phased approach seeks to meet near-term demand by allowing for additional supply as it becomes needed, while also providing an opportunity for regional future public participation and was developed by Cal Am based on feedback received from the community.
On November 18, 2022, the Coastal Commission approved the Marina Application and the Original Jurisdiction Application with respect to the phased development of the proposed desalination plant, subject to compliance with a number of conditions, all of which Cal Am expects to satisfy. On December 29, 2022, the City, Marina Coast Water District (“MCWD”), MCWD’s groundwater sustainability agency, and the MPWMD jointly filed a petition for writ of mandate in Monterey County Superior Court against the Coastal Commission, alleging that the Coastal Commission violated the California Coastal Act and the California Environmental Quality Act in issuing a coastal development permit to Cal Am for construction of the slant wells. Cal Am is named as a real party in interest. This matter remains pending.
Following the issuance of the coastal development permit, Cal Am continues to work constructively with all appropriate agencies to provide necessary information in connection with obtaining the remaining required permits 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. For the year ended December 31, 2022, Cal Am has complied with the diversion limitations contained in the 2016 Order. Continued compliance with the diversion limitations in 2023 and future years may be impacted by a number of factors, including, without limitation, continued drought conditions in California and the exhaustion of water supply reserves, and will require successful development of alternate water supply sources sufficient to meet customer demand. The Orders 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 Orders 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 Orders.
West Virginia Elk River Freedom Industries Chemical Spill
On June 8, 2018, the U.S. District Court for the Southern District of West Virginia granted final approval of a settlement class and global class action settlement (the “Settlement”) for all claims and potential claims by all class members (collectively, the “West Virginia Plaintiffs”) arising out of the January 2014 Freedom Industries, Inc. chemical spill in West Virginia. The effective date of the Settlement was July 16, 2018. Under the terms and conditions of the Settlement, WVAWC and certain other Company affiliated entities did not admit, and will not admit, any fault or liability for any of the allegations made by the West Virginia Plaintiffs in any of the actions that were resolved.
As of March 31, 2023, $0.5 million of the aggregate Settlement amount of $126 million remains reflected in accrued liabilities, and $0.5 million in an offsetting insurance receivable remains reflected in other current assets on the Consolidated Balance Sheets pending resolution of all asserted actual or potential claims associated with this matter. The amount reflected in accrued liabilities reflects the status of the liability and the offsetting insurance receivable reflected in other current assets, each as of as of March 31, 2023.
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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 share (“EPS”) calculations:
For the Three Months Ended March 31,
For the Three Months Ended September 30, For the Nine Months Ended September 30, 20232022
Numerator:Numerator:
Net income attributable to common shareholdersNet income attributable to common shareholders$170 $158 
2017 2016 2017 2016
Numerator       
Net income attributable to common stockholders$203
 $148
 $427
 $367
       
Denominator 
  
  
  
Denominator:Denominator:
Weighted-average common shares outstanding—Basic178
 178
 178
 178
Weighted-average common shares outstanding—Basic186 182 
Effect of dilutive common stock equivalents1
 —
 1
 1
Effect of dilutive common stock equivalents— — 
Weighted-average common shares outstanding—Diluted179
 178
 179
 179
Weighted-average common shares outstanding—Diluted186 182 
The effect of dilutive common stock equivalents is related to outstanding 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 one million share-based awards were excluded from the computation of diluted EPS for the three months ended March 31, 2023 and 2022, 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 the Homeowner Services Group (“HOS”) — The carrying amount reported on the Consolidated Balance Sheets for the seller promissory note, included as part of the consideration from the sale of HOS, is $720 million as of March 31, 2023 and December 31, 2022. This amount represents the principal amount owed under the seller note, for which the Company expects to receive full payment. The accounting fair value measurement of the seller note approximated $696 million and $686 million as of March 31, 2023 and December 31, 2022, respectively. The accounting fair value measurement is an estimate that is reflective of changes in benchmark interest rates. 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
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Table of instruments classified as Level 2 and Level 3Contents
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, 2023
Carrying Amount At Fair Value as of September 30, 2017Carrying AmountAt Fair Value
 Level 1 Level 2 Level 3 Total Level 1Level 2Level 3Total
Preferred stock with mandatory redemption requirements$11
 $—
 $—
 $15
 $15
Preferred stock with mandatory redemption requirements$3 $— $— $3 $3 
Long-term debt (excluding capital lease obligations)7,357
 5,375
 990
 1,867
 8,232
Long-term debt (excluding finance lease obligations)Long-term debt (excluding finance lease obligations)11,211 8,814 50 1,440 10,304 
         As of December 31, 2022
Carrying Amount At Fair Value as of December 31, 2016 Carrying AmountAt Fair Value
 Level 1 Level 2 Level 3 Total Level 1Level 2Level 3Total
Preferred stock with mandatory redemption requirements$12
 $—
 $—
 $15
 $15
Preferred stock with mandatory redemption requirements$3 $— $— $3 $3 
Long-term debt (excluding capital lease obligations)6,320
 3,876
 1,363
 1,805
 7,044
Long-term debt (excluding finance lease obligations)Long-term debt (excluding finance lease obligations)11,207 8,599 49 1,427 10,075 
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, 2023
 Level 1Level 2Level 3Total
Assets:    
Restricted funds$29 $— $— $29 
Rabbi trust investments20 — — 20 
Deposits8 — — 8 
Other investments
Money market and other54 — — 54 
Fixed-Income Securities148 7 — 155 
Contingent cash payment from the sale of HOS— — 72 72 
Total assets259 7 72 338 
Liabilities:    
Deferred compensation obligations24 — — 24 
Mark-to-market derivative liability— 2 — 2 
Total liabilities24 2 — 26 
Total assets$235 $5 $72 $312 
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 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, 2022
Level 1 Level 2 Level 3 Total Level 1Level 2Level 3Total
Assets:       Assets:    
Restricted funds$24
 $—
 $—
 $24
Restricted funds$32 $— $— $32 
Rabbi trust investments12
 —
 —
 12
Rabbi trust investments21 — — 21 
Deposits3
 —
 —
 3
Deposits7 — — 7 
Mark-to-market derivative assets—
 28
 —
 28
Other investments1
 —
 —
 1
Other investments
Money market and otherMoney market and other61 — — 61 
Fixed-Income SecuritiesFixed-Income Securities147 6 — 153 
Contingent cash payment from the sale of HOSContingent cash payment from the sale of HOS— — 72 72 
Mark-to-market derivative assetMark-to-market derivative asset— 1 — 1 
Total assets40
 28
 —
 68
Total assets268 7 72 347 
       
Liabilities:       Liabilities:    
Deferred compensation obligations13
 —
 —
 13
Deferred compensation obligations24 — — 24 
Total liabilities13
 —
 —
 13
Total liabilities24 — — 24 
Total net assets (liabilities)$27
 $28
 $—
 $55
Total assetsTotal assets$244 $7 $72 $323 
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.
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 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.
Other investments—OtherThe Company maintains a Voluntary Employees’ Beneficiary Association trust for purposes of paying active union employee medical benefits (“Active VEBA”). The investments in the Active VEBA trust primarily representconsist of money market funds used for active employee benefits. and available-for-sale fixed income securities.
The money market and other investments have original maturities of three months or less when purchased. The fair value measurement of the money market and other investments is based on observable market prices and therefore included in the recurring fair value measurements hierarchy as Level 1.
The available-for-sale fixed income securities are primarily investments in U.S. Treasury securities and government bonds. The majority of U.S. Treasury securities and government bonds have been categorized as Level 1 because they trade in highly-liquid and transparent markets. Certain U.S. Treasury securities are based on prices that reflect observable market information, such as actual trade information of similar securities, and are therefore categorized as Level 2, because the valuations are calculated using models which utilize actively traded market data that the Company can corroborate.
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The Company includes other investments measured and recorded at fair value on the Consolidated Balance Sheets of $64 million and $67 million in Other current assets, as of March 31, 2023 and December 31, 2022, respectively, and $146 million and $147 million in Other long-term assets, as of March 31, 2023 and December 31, 2022, respectively. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and reported in other current assets.comprehensive income until realized.
Deferred compensation obligations—The Company’s deferred compensation plans allow participants to defer certain cash compensation into notional investment accounts. following tables summarize the unrealized positions for available-for-sale fixed income securities as of March 31, 2023 and December 31, 2022:
As of March 31, 2023
Amortized Cost BasisGross unrealized gainsGross unrealized lossesFair Value
Available-for-sale fixed-income securities$153 $6 $4 $155 
As of December 31, 2022
Amortized Cost BasisGross unrealized gainsGross unrealized lossesFair Value
Available-for-sale fixed-income securities$153 $— $— $153 
The Company includes such plans in other long-term liabilities. Thefair value of the Company’s deferred compensation obligationsavailable-for-sale fixed income securities, summarized by contractual maturities, as of March 31, 2023, is basedas follows:
Amount
Other investments - Available-for-sale fixed-income securities
Less than one year$61 
1 year - 5 years80 
5 years - 10 years3 
Greater than 10 years11 
Total$155 
Contingent cash payment from the sale of HOS—The Company’s contingent cash payment derivative included as part of the consideration from the sale of HOS, payable upon satisfaction of certain conditions on or before December 31, 2023, is included in other current assets on the marketConsolidated Balance Sheets. The accounting fair value measurement of the contingent cash payment approximated $72 million, which is reflective of changes in the benchmark interest rate and 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 sole discretion. Renewal options that the Company was reasonably certain to exercise are included in the Company’s right-of-use (“ROU”) assets. Certain operating leases contain the option to purchase the leased property. The operating leases for real property, vehicles and equipment will expire over the next 37 years, five years, and four 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 $144 million and $145 million as of March 31, 2023 and December 31, 2022, respectively. 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 are excluded from the 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 2023, $4 million in 2024 through 2027, and $45 million thereafter, are included in operating lease ROU assets and operating lease liabilities on the Consolidated Balance Sheets.
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Rental expenses under operating leases were $3 million and $3 million for each of the three months ended March 31, 2023 and March 31, 2022, respectively.
For the three months ended March 31, 2023, cash paid for amounts in lease liabilities, which are based on observable market prices.includes operating cash flows from operating leases, were $3 million. For the three months ended March 31, 2023, there were ROU assets obtained in exchange for new operating lease liabilities of $2 million.
As of March 31, 2023, the weighted-average remaining lease term of the operating leases was 17 years, and the weighted-average discount rate of the operating leases was 4%.
The future maturities of lease liabilities as of March 31, 2023 were $8 million in 2023, $9 million in 2024, $9 million in 2025, $8 million in 2026, $6 million in 2027, and $76 million thereafter. As of March 31, 2023, imputed interest was $38 million.
Note 12:15: Segment Information
The Company’s operating segments are comprised of its businesses which generate revenue, incur expense and have separate financial information which is regularly used by management to make operating decisions, assess performance and allocate resources. The Company conductsoperates its businessbusinesses primarily through one reportable segment, the Regulated Businesses segment. The Regulated Businesses segment also includes inter-segment revenues, costs and interest which are eliminated to reconcile to the Consolidated Statements of Operations.
The Company also operates severalother businesses, primarily MSG, 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 segmentsGAAP, and are collectively presented asthroughout this Form 10-Q within “Other,” which is consistent with how management assesses the Company’s “Market-Based Businesses.” “Other”results of these businesses. Other also includes corporate costs that are not allocated to the Company’s operating segments,Regulated Businesses, interest income related to the seller promissory note and income from the revenue share agreement from the sale of HOS, 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 segmentsRegulated Businesses segment. The adjustments related to the acquisitions are reported in Other as they are excluded from segment performance measures evaluated by management.
The seller promissory note from the sale of HOS 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 from the seller note for evaluationeach of performancethe three months ended March 31, 2023 and allocation2022.
The Company recognized $3 million and $2 million of resource purposes. The followingincome during the three months ended March 31, 2023 and 2022, respectively, from the revenue share agreements from the sale of HOS, which is included in Other, net on the Consolidated Statements of Operations.
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Presented in the tables include the Company’sbelow is summarized segment information:
 As of or for the Three Months Ended March 31, 2023
 Regulated BusinessesOtherConsolidated
Operating revenues$860 $78 $938 
Depreciation and amortization169 3 172 
Total operating expenses, net572 71 643 
Interest expense(87)(28)(115)
Interest income1 13 14 
Provision (benefit) for income taxes46 (2)44 
Net income (loss) attributable to common shareholders174 (4)170 
Total assets25,626 2,660 28,286 
Cash paid for capital expenditures524 2 526 
 As of or for the Three Months Ended March 31, 2022
 Regulated BusinessesOtherConsolidated
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 
Provision (benefit) for income taxes36 (1)35 
Net income (loss) attributable to common shareholders160 (2)158 
Total assets22,973 2,721 25,694 
Cash paid for capital expenditures422 2 424 
29
 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


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 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, 2022. 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 businesses that provide a broad range of related and complementary water and wastewater services that are not subject to economic regulation by state utility commissions or other entities engaged in utility regulation. We presentPUCs that provide water and wastewater services to the results of these businessesU.S. government on military installations, as our “Market-Based Businesses.well as municipalities, collectively presented throughout this Form 10-Q within “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 $1.13March 31, 2023, diluted earnings per diluted share, prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), were $0.91, an increase of $0.30 per diluted share, or 36.1%, over$0.04, as compared to 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 $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.prior year. This increase was primarily due to continued growthdriven by the implementation of new rates in ourthe Regulated Businesses segment, largely drivenfor the recovery of capital and acquisition investments, offset somewhat by infrastructure investment, acquisitionsimpacts from inflationary pressures on production costs and organichigher interest costs.
Growth Through Capital Investment in Infrastructure and Regulated Acquisitions
The Company continues to grow its businesses, with the majority of its growth combined with growth in our Market-Based Businesses from our Homeowner Services Group. These increases were partially offset by warmer weatherto be achieved in the third quarter of 2016 and a discrete tax adjustment recorded at the parent company associated with legislative changesRegulated Businesses through (i) continued capital investment in the State of Illinois impacting state tax apportionment.
For the nine months ended September 30, 2017, net income attributableCompany’s infrastructure 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 relatedprovide safe, clean, reliable and affordable water and wastewater services 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(ii) regulated acquisitions 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 innovationexpand the Company’s services to make our business more effective and efficient.new customers. The progress that we have made during the first nine months of 2017 with respectCompany plans to growth and improvementinvest approximately $2.9 billion across its footprint in our operational efficiency ratio is described below.
Growth—Infrastructure improvements, acquisitions and strategic capital investments
2023. During the first ninethree months of 2017, we made capital investments of approximately $1.0 billion, focused2023,the Company invested $538 million, primarily in two key areas:
$963 million of which the majority was in our Regulated Businesses, segmentas discussed below:
Regulated Businesses - Growth and Optimization
•$532 million capital investment in the Regulated Businesses, the substantial majority for infrastructure improvements;improvements and replacements; and
•$433 million to fund acquisitions in ourthe 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 million1,400 customers, in the form of 438,211 shares of our common stock. Shorelands, which is now a part of our New Jersey subsidiary, provides water serviceaddition to approximately 11,0004,000 customers in Monmouth County, New Jersey.added through organic growth.
ForEffective March 24, 2023, 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 ourCompany’s Pennsylvania subsidiary acquired the rights to acquire substantially all ofbuy the wastewater collection and treatment system assets of the Municipal AuthorityTownship of the CityTowamencin, for an aggregate purchase price of McKeesport, Pennsylvania for approximately $159$104 million, subject to certain adjustmentsadjustment as provided in the asset purchase agreement. This system provides wastewater services to approximately 6,300 customer connections in seven townships in Montgomery County, Pennsylvania. The system currently represents approximately 22,000Company expects to close this acquisition by mid-year 2024, pending regulatory approval.
On October 11, 2022, the Company’s Pennsylvania subsidiary entered into an agreement to acquire the wastewater customers. In connection withassets of the executionButler Area Sewer Authority for a total purchase price of this agreement, $7$232 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 iscash, subject to adjustment as provided for in the satisfaction of various conditions and covenants.  We are expectingasset purchase agreement. This system provides wastewater service for approximately 14,700 customer connections. The Company expects to close this acquisition by the end of 2017.2023, pending regulatory approval.
On SeptemberMarch 29, 2017, our Military Services Group was awarded a contract for ownership, operation and maintenance of2021, 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 at Wright-Patterson Air Force Base,currently serve approximately 1,500 customers each, or 3,000 combined, and are being sold through the largest single-site employerNew Jersey Water Infrastructure Protection Act process. The Company expects to close this acquisition in 2023.
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As of March 31, 2023, the Company has entered into 27 agreements for pending acquisitions in the stateRegulated Businesses, including the agreements discussed above, to add approximately 48,200 additional customers.
On April 6, 2023, the Company’s Illinois subsidiary entered into an agreement to acquire the assets of Ohio. The contract award includes estimated revenuesthe wastewater treatment plant from the City of approximately $490Granite City for $83 million, over a 50-year period, subject to an annual economic price adjustment. Withadjustment as provided for in the additionasset purchase agreement. This system provides wastewater service for approximately 26,000 customer connections. The Company expects to close this acquisition by the end of this base, our backlog2023 or early 2024, pending regulatory approval.
Other Matters
Environmental, Health and Safety, and Water Quality Regulation
On March 14, 2023, the United States Environmental Protection Agency (“EPA”) announced the proposed National Primary Drinking Water Regulation (“NPDWR”) for six per- and polyfluoroalkyl substances (“PFAS”) including perfluorooctanoic acid (“PFOA”), perfluorooctane sulfonic acid (“PFOS”), perfluorononanoic acid (“PFNA”), hexafluoropropylene oxide dimer acid (“HFPO-DA”, commonly known as “GenX Chemicals”), perfluorohexane sulfonic acid (“PFHxS”), and perfluorobutane sulfonic acid (“PFBS”). The proposed regulations would establish legally enforceable levels for PFAS in drinking water. While the Company has been anticipating the rulemaking, the Company is carefully reviewing the NPDWR to assess the four parts per trillion requirements for PFAS and the application of revenue associated with our military contractsthe Hazard Index approach for PFNA, PFBS, PFHxS, and GenX Chemicals. The Company’s review will inform the comments on the proposed rulemaking it plans to submit to the EPA by May 30, 2023.
The Company is approximately $3.5 billionevaluating the estimated capital expenditures for additional treatment over their remaining contract terms.the next three to five years, including additional estimated operating expenses. The Company supports sound policies that will ensure compliance by all water utilities while protecting customers and communities from the costly burden of monitoring and mitigating PFAS. The Company continues to strongly advocate for policies that hold polluters accountable and is currently part of Multi-District Litigation against multiple PFAS manufacturers to ensure that the ultimate responsibility for the cleanup of these contaminants is attributed to the polluters.
Technology &
Operational Efficiency—Continuing Improvement in Adjusted OperationExcellence
The Company’s adjusted regulated operation and Maintenancemaintenance (“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 ratiowas 33.6% for the twelve months ended September 30, 2017 was 34.2%,March 31, 2023, as compared to 34.9%33.9% for the twelve months ended September 30, 2016.March 31, 2022. The improvement in this ratio for the twelve months ended September 30, 2017, as compared to the same period in 2016, was primarily attributable toreflects 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, as well as the continued focus on operating costs.
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.

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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)20232022
Total operation and maintenance expenses$1,619 $1,723 
Less:
Operation and maintenance expenses—Other258 403 
Total operation and maintenance expenses—Regulated Businesses1,361 1,320 
Less:
Regulated purchased water expenses153 155 
Allocation of non-operation and maintenance expenses26 29 
Adjusted operation and maintenance expenses—Regulated Businesses (i)
$1,182 $1,136 
Total operating revenues$3,889 $3,881 
Less:
Operating revenues—Other302 474 
Total operating revenues—Regulated Businesses3,587 3,407 
Less:
Regulated purchased water revenues (a)
153 155 
Revenue reductions from the amortization of EADIT(85)(102)
Adjusted operating revenues—Regulated Businesses (ii)
$3,519 $3,354 
Adjusted O&M efficiency ratio—Regulated Businesses (i) / (ii)
33.6 %33.9 %
(a)The calculation assumes regulated purchased water revenues approximate regulated purchased water expenses.
32
 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.

Table of Contents

Regulatory Matters
TheGeneral Rate Cases
Presented in the table below providesare annualized incremental revenues, resulting from rate authorizationsincluding reductions for the amortization of the 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 and infrastructure surcharge mechanisms. There were nocustomer count, resulting from general rate case authorizations that became effective during the three months ended September 30, 2017.2023:
(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)(In millions)The effective date of theEffective DateAmount
General rate order was Maycases by state:
VirginiaApril 24, 2017, authorizing the implementation of interim rates as of April2023 (a)$11 
PennsylvaniaJanuary 28, 2023138 
IllinoisJanuary 1, 2016.202367 
California, Step IncreaseJanuary 1, 202313 
Total general rate case authorizations$229 
(a)Interim rates were effective May 1, 2022, and the difference between interim and final approved rates is subject to refund. The Virginia State Corporation Commission issued its final Order on April 24, 2023.
On April 24, 2023, the Virginia State Corporation Commission issued an order approving the settlement of the rate case filed on September 26, 2022, by the Company’s Virginia subsidiary. The general rate case order approved an $11 million annualized increase in water and wastewater revenues. Interim rates in this proceeding were effective on May 1, 2022, and the order requires that the difference between interim and the final approved rates is subject to refund within 90 days of the order issuance. The order approves the settlement terms with a return on equity of 9.7% and a common equity ratio of 40.7%. The annualized revenue increase is driven primarily by significant incremental capital investments since the Virginia subsidiary’s 2020 rate case order that have been completed or are planned through April 30, 2023, increases in pension and other postretirement benefits expense and increases in production costs, including chemicals, fuel and power costs. The general rate case order includes recovery of the Company’s Virginia subsidiary’s COVID-19 deferral balance. It also includes approval of the accounting deferral of deviations in pension and other postretirement benefits expense from those established in base rates, until the Company’s Virginia subsidiary’s next base rate case.
On December 8, 2022, the Pennsylvania Public Utility Commission issued an order approving the joint settlement of the rate case filed on April 29, 2022, by the Company’s Pennsylvania subsidiary. The general rate case order approved a $138 million annualized increase in water and wastewater revenues, excluding $24 million for previously approved infrastructure filings, and authorizes implementation of the new water and wastewater rates effective January 28, 2023. The rate case proceeding was resolved through a “black box” settlement agreement and did not specify an approved return on equity. The annualized revenue increase is driven primarily by significant incremental capital investments since the Pennsylvania subsidiary’s 2021 rate case order that will be completed through December 31, 2023, increases in pension and other postretirement benefits expense and increases in production costs, including chemicals, fuel and power costs. The general rate case order also includes recovery of the Company’s Pennsylvania subsidiary’s COVID-19 deferral balance.
On December 15, 2022, the Illinois Commerce Commission issued an order approving the adjustment of base rates requested in a rate case filed on February 10, 2022, by the Company’s Illinois subsidiary. As updated in the Illinois subsidiary’s June 29, 2022 rebuttal filing, the request sought $83 million in additional annualized revenues, excluding previously recovered infrastructure surcharges. The general rate case order approved a $67 million annualized increase in water and wastewater system revenues, excluding previously recovered infrastructure surcharges of $18 million, effective January 1, 2023, based on an authorized return on equity of 9.8%, authorized rate base of $1.64 billion, a common equity ratio of 49.0% and a debt ratio of 51.0%. The annualized revenue increase is being driven primarily by significant water and wastewater system capital investments since the Illinois subsidiary’s 2017 rate case order that have been completed or are planned through December 31, 2023, expected higher pension and other postretirement benefit costs, and increases in production costs, including chemicals, fuel and power costs.
Pending General Rate Case and Cost of Capital Filings
DuringOn March 31, 2023, the second quarter of 2017, our PennsylvaniaCompany’s Indiana subsidiary filed a general rate case requesting $108$87 million in additional annualized waterrevenues, excluding $41 million of revenue from infrastructure filings already approved, which includes three step increases, with $43 million of the increase to be included in rates in January 2024, $18 million in May 2024, and wastewater revenues. On October 16, 2017, a proposed settlement agreement was entered into by our Pennsylvania subsidiary and the other parties to the proceeding, providing for additional annualized water and wastewater revenues of $62$26 million subject to approval by the administrative law judges assigned to the case and the PaPUC.
On September 15, 2017, our New Jersey subsidiary filed ain May 2025. The general rate case requesting $129 million in additional annualized water and wastewater revenues.is expected to be completed by the end of January 2024.
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Table of Contents
On June 30, 2017, ourJuly 1, 2022, the Company’s Missouri subsidiary filed a general rate case requesting $84an increase of $105 million in additional annualized waterrevenues, excluding infrastructure surcharges at the time of filing of approximately $40 million. Subsequent to the filing of the general rate case, the Company’s Missouri subsidiary filed its semi-annual request for recovery of defined infrastructure investments within its Water and wastewater revenues.Sewer Infrastructure Rate Adjustment, which adjusted the amount of revenue recovered in the infrastructure surcharges to $51 million and a net annualized revenue increase request of $95 million in the general rate case. On March 3, 2023, a settlement agreement was filed with the Missouri Public Service Commission, reflecting a proposed increase of $44 million in additional annualized revenues, excluding $51 million for infrastructure surcharges. A final decision on this matter is expected in the second quarter of 2023.
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.
DuringJuly 1, 2022, the third quarter of 2016, ourCompany’s California subsidiary filed a general rate case requesting $35an increase in 2024 revenue of $56 million and a total increase in revenue over the 2024 to 2026 period of $95 million, all as compared to 2022 revenues. The Company updated its filing in January 2023 to capture the authorized step increase effective January 1, 2023. The filing was also updated to incorporate a decoupling proposal and a revision to the Company’s sales and associated variable expense forecast. The revised filing requested additional annualized revenues for the test year 2024 of $37 million, compared to 2023 revenues. This excludes the proposed step rate and anattrition rate increase for 2025 and 2026 of $8$20 million inand $19 million, respectively. The total revenue requirement request for the escalation year of 2019three-year rate case cycle, incorporating updates to present rate revenues and the attrition year of 2020. During the fourth quarter of 2016, ourforecasted demand, is $76 million.
The Company’s California subsidiary filed an updatesubmitted its application on May 3, 2021, to set its cost of capital for 2022 through 2024. On March 21, 2023, the California Public Utilities Commission (“CPUC”) issued a decision extending the deadline to August 10, 2023, for the cost of capital proceeding.
Infrastructure Surcharges
A number of states have authorized the use of regulatory mechanisms that permit rates to be adjusted outside of a general rate case adjusting its request for additional annualized revenuescertain costs and investments, such as infrastructure surcharge mechanisms that permit recovery of capital investments to $32 million and increasing its request to $9 millionreplace aging infrastructure. Presented in the escalation year of 2019.table below are annualized incremental revenues, assuming a constant water sales volume and customer count, resulting from infrastructure surcharge authorizations that became effective during 2023:
(In millions)Effective DateAmount
Infrastructure surcharges by state:
Indiana(a)$26 
MissouriJanuary 16, 202314 
PennsylvaniaJanuary 1, 20233 
West VirginiaJanuary 1, 20237 
Total infrastructure surcharge authorizations$50 
(a)In 2023, $20 million was effective March 23 and $6 million was effective March 8.
Pending Infrastructure Surcharge Filings
On October 31, 2017, our VirginiaMarch 15, 2023, the Company’s New Jersey subsidiary filed foran infrastructure surchargessurcharge proceeding requesting $1$16 million in additional annualized revenues.
On October 13, 2017, our New JerseyMarch 1, 2023, the Company’s Kentucky subsidiary filed for an infrastructure surcharge proceeding requesting $4 million in additional annualized revenues.

34

During the second quarterTable of 2017, our West Virginia subsidiary filed for an infrastructure surcharge 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.Contents
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 required 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 Commissionthe California Supreme Court on October 27, 2021. On May 18, 2022, the California Supreme Court issued a writ of review for the Company’s California subsidiary’s petition and the petitions filed by other entities challenging the decision. Independent of the judicial challenge, California passed Senate Bill 1469, which allows the CPUC to consider and authorize the implementation of a mechanism that separates the water corporation’s revenue and its water sales. Legislation was signed by the Governor on September 30, 2022, and became effective on January 1, 2023. In response to the legislation, on January 27, 2023, the Company’s California subsidiary filed an updated application requesting the CPUC to consider a Water Resources Sustainability Plan decoupling mechanism in its pending 2022 general rate case, which would be effective 2024 through 2026.
On March 2, 2021, an administrative law judge (“ICC”ALJ”) to place into effect revised depreciation rates applicable to depreciablein the Office of Administrative Law of New Jersey filed an initial decision with the New Jersey Board of Public Utilities (“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 plant resulting fromsystems 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 new depreciation study.Notice of Appeal with the New Jersey Appellate Division on September 10, 2021. The petition requested that these new rates would be effective January 1, 2017. We expect the ICC to provide a final ruling on the petitionCompany’s New Jersey subsidiary filed its brief in the fourth quarter of 2017. The estimated effectsupport of the new study is to lower depreciation expenseappeal on March 4, 2022. Response and Reply briefs were filed on June 22, 2022, and August 4, 2022, respectively. Oral argument was held on March 22, 2023, and the Company expects a decision by approximately $16 million on an annualized basis.
the end of 2023. There is no assurance that all or any portion of these requests will be granted.
Other Tax Matters
On April 11, 2017,financial impact to the State of New York enacted legislation that increased the state income tax rate on our taxable income attributable to New York. This legislation eliminated the production of waterCompany as a qualified manufacturing activity in New York, which effectively increased the state income tax rate in New York. As a result of the legislative change, we were required to re-measure our cumulative deferred tax balances usingNJBPU’s order, since the higher state income tax rate inacquisition adjustments are currently recorded as goodwill on the second quarter of 2017. This change in legislation was the primary cause of an increase to our unitary deferred tax liability of $11 million. The portion of this increase related to our New York subsidiary calculated on a stand-alone basis was $7 million, and was offset by a regulatory asset, as we believe it is probable of recovery in future rates. The remaining increase in the deferred tax liability was calculated through state tax apportionment rates and recorded at the consolidated level, resulting in a non-cash, cumulative charge to earnings of $4 million during the second quarter of 2017.Consolidated Balance Sheets.
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,
 20232022
(In millions)
Operating revenues$938 $842 
Operating expenses:
Operation and maintenance393 364 
Depreciation and amortization172 158 
General taxes78 74 
Total operating expenses, net643 596 
Operating income295 246 
Other income (expense):
Interest expense(115)(100)
Interest income14 13 
Non-operating benefit costs, net9 19 
Other, net11 15 
Total other (expense) income(81)(53)
Income before income taxes214 193 
Provision for income taxes44 35 
Net income attributable to common shareholders$170 $158 
For the nine months ended September 30, 2017, operating revenues increased primarily due to a:
35
$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
Table of a large project in mid-2016 at Fort Polk, partially offset by incremental revenues in our Homeowner Services Group from customer growth and price increases for existing customers.Contents
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 its businesses which generate revenue, incur expense and have separate financial information which is 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. WeThe Company also operate severaloperates other businesses, primarily MSG, that provide a broad range of related and complementary water and wastewater services within four operating segments that individually do not meet the criteria of a reportable segment in accordance with GAAP. These four non-reportable operating segmentsGAAP, and are collectively presented as our “Market-Based Businesses”throughout this Form 10-Q within “Other.” Other also includes corporate costs that are not allocated to the Company’s Regulated Businesses, whichinterest income related to the seller promissory note and income from the revenue share agreement from the sale of HOS, eliminations of inter-segment transactions and fair value adjustments related to acquisitions that have not been allocated to the Regulated Businesses segment. This presentation is consistent with how management assesses the results of ourthese businesses.
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,
 20232022
(In millions)
Operating revenues$860 $778 
Operation and maintenance330 315 
Depreciation and amortization169 155 
General taxes73 68 
Other income (expenses)(68)(44)
Provision for income taxes46 36 
Net income attributable to common shareholders174 160 
 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,
 20232022
(In millions)
Water services:
Residential$461 $428 
Commercial171 153 
Fire service39 36 
Industrial38 36 
Public and other65 59 
Total water services774 712 
Wastewater services:
Residential54 41 
Commercial14 10 
Industrial2 1 
Public and other6 3 
Total wastewater services76 55 
Other (a)
10 11 
Total operating revenues$860 $778 
(a)Includes other operating revenues consisting primarily of operating revenues—water services revenues, wastewater services revenuesmiscellaneous utility charges, fees and other revenues:rents.
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Table of Contents
 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 March 31,
For the Three Months Ended September 30, For the Nine Months Ended September 30, 20232022
2017 2016 Increase (Decrease) 2017 2016 Increase (Decrease)
(In millions)               
(Gallons in millions)(Gallons in millions)
Billed water services volumes:               Billed water services volumes:
Residential53,928
 55,108
 (1,180) (2.1)% 131,488
 132,453
 (965) (0.7)%Residential33,808 34,160 
Commercial24,913
 25,170
 (257) (1.0)% 61,793
 62,273
 (480) (0.8)%Commercial16,836 16,339 
Industrial10,661
 11,013
 (352) (3.2)% 29,218
 29,194
 24
 0.1 %Industrial8,840 8,619 
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)%
Fire service, public and otherFire service, public and other11,688 11,756 
Total billed water services volumesTotal billed water services volumes71,172 70,874 
For the three months ended September 30, 2017,March 31, 2023, operating revenues increased $82 million, primarily due to a:
$20a $71 million increase from authorized rate increases, andincluding infrastructure surcharges, principally to fund infrastructure investment growth in various states;states and a
$12an $11 million increase attributable to recentfrom water and wastewater acquisitions, as well as organic growth in existing systems; partially offset by asystems.
$19 million decrease due to lower water services demand, excluding the impact of completed acquisitions, including a $7 million reduction due to warmer weatherOperation and Maintenance
Presented in the third quarter of 2016.
For the nine months ended September 30, 2017, operating revenues increased primarily due to a:
$67 million increase from authorized rate increases and infrastructure surcharges to fund infrastructure investment growth in various states;
$31 million increase attributable to recent water and wastewater acquisitions, as well as organic growth in existing systems; and a
$6 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 summarizesbelow is information regarding the main components of the Regulated Businesses’ operation and maintenance expense:
For the Three Months Ended September 30, For the Nine Months Ended September 30, For the Three Months Ended March 31,
2017 2016 Increase (Decrease) 2017 2016 Increase (Decrease) 20232022
(In millions)               (In millions)
Employee-related costsEmployee-related costs$129 $126 
Production costs$87
 $86
 $1
 1.2 % $224
 $220
 $4
 1.8 %Production costs93 84 
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 %Operating supplies and services57 57 
Maintenance materials and supplies15
 16
 (1) (6.3)% 49
 46
 3
 6.5 %Maintenance materials and supplies22 22 
Customer billing and accounting14
 17
 (3) (17.6)% 37
 41
 (4) (9.8)%Customer billing and accounting13 13 
Other(17) 74
 (91) (123.0)% 6
 97
 (91) (93.8)%Other16 13 
Total$262
 $350
 $(88) (25.1)% $800
 $881
 $(81) (9.2)%Total$330 $315 
For the three months ended September 30, 2017,March 31, 2023, operation and maintenance expense decreasedincreased $15 million, primarily due to a:inflationary pressures which resulted in increased fuel, power, and chemicals costs.
$91 million decrease in other operationDepreciation 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.Amortization
For the ninethree 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, 2023, depreciation and amortization expense of $10increased $14 million, and $29 million, respectively,primarily due to additional utility plant placed in service.

service from capital infrastructure investments and acquisitions.

Market-Based Businesses
The following table summarizes certain financial information 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 decreased primarily due to a:
$12 million decrease in our Military Services Group principally due to lower capital upgrades in 2017, largely from reduced military base budgets; partially offset by a
$5 million increase in our Homeowner Services Group from customer growth and price increases 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)%
General Taxes
For the three months ended September 30, 2017, operation and maintenance expense decreasedMarch 31, 2023, general taxes increased $5 million, primarily due to a:
$12 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 a
$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 expensethe New Jersey Gross Receipts Tax and billing and collection fees, primarily in our Homeowner Services Group.incremental property taxes.
Other Income (Expenses)
For the ninethree months ended SeptemberMarch 31, 2023, other (expenses) increased $24 million, primarily due to higher interest expense as a result of an $800 million long-term debt issuance in May 2022 and higher interest rates on short-term debt. The increase was also due to higher net periodic pension and other postretirement benefit costs in the current period.
Provision for Income Taxes
For the three months ended March 31, 2023, the Regulated Businesses’ provision for income taxes increased $10 million. The Regulated Businesses’ effective income tax rate was 20.9% and 18.4% for the three months ended March 31, 2023 and 2022, respectively. The increase was primarily due to the decrease in the amortization of EADIT pursuant to regulatory orders. The amortization of EADIT is generally offset with a reduction in revenue.
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Other
Presented in the table below is information for Other:
 For the Three Months Ended March 31,
 20232022
(In millions)  
Operating revenues$78 $64 
Operation and maintenance63 50 
Depreciation and amortization3 3 
Interest expense(28)(30)
Interest income13 13 
Provision (benefit) for income taxes(2)(1)
Net loss attributable to common shareholders(4)(2)
Operating Revenues
For the three months ended March 31, 2023, operating revenues increased $14 million, due primarily to the increase in capital projects in MSG, primarily at the United States Military Academy at West Point, New York and revenue for Naval Station Mayport in Jacksonville, Florida, awarded on June 30, 2017,2022, with the performance start date for operation on March 1, 2023.
Operation and Maintenance
For the three months ended March 31, 2023, operation and maintenance expense decreasedincreased $13 million, primarily due to a:
$44 million decreasecost associated with increased capital projects in operating suppliesMSG and services primarily due to lower capital upgrades in our Military Services Group in 2017,expenses for Naval Station Mayport, as discussed above,above.
Legislative Updates
During 2023, the Company’s regulatory jurisdictions enacted the following legislation that has been approved and is effective as wellof April 26, 2023:
•California passed Senate Bill 1469, which allows the CPUC to consider and authorize the implementation of a mechanism that separates the water corporation’s revenue and its water sales. Legislation was signed by the Governor on September 30, 2022 and was effective on January 1, 2023.
•Indiana passed House Bill 1417, which allows for deferred accounting and subsequent recovery through rates of regulatory assets, with or without Indiana Utility Regulatory Commission (the “IURC”) approval. There are several requirements: (i) the costs must be deferred as lower advertisinga regulatory asset, (ii) only incremental costs may be deferred, and marketing expense(iii) the IURC must find the costs to be reasonable and prudent. Legislation was signed by the Governor and became effective on April 20, 2023.
During 2023, the Company’s regulatory jurisdictions passed the following legislation, which is not yet effective as of April 26, 2023:
•Indiana passed Senate Bill 180, which allows for consolidated revenue to support post-acquisition capital improvements in our Homeowners Services Group; partially offsetwastewater systems via a service enhancement improvement recovery mechanism.
Condemnation and Eminent Domain
All or portions of the Regulated Businesses’ utility assets could be acquired by state, municipal or other government entities through one or more of the following methods: (i) eminent domain (also known as condemnation); (ii) the right of purchase given or reserved by a municipality or political subdivision when the original certificate of public convenience and necessity (“CPCN”) was granted; and (iii) the right of purchase given or reserved under the law of the state in which the utility subsidiary was incorporated or from which it received its CPCN. The acquisition consideration related to such a proceeding initiated by a local government may be determined consistent with applicable eminent domain law, or may be negotiated or fixed by appraisers as prescribed by the law of the state or the jurisdiction of the particular CPCN.
$5
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As such, the Regulated Businesses are periodically subject to condemnation proceedings in the ordinary course of business. For example, the Monterey water service system assets (the “Monterey system assets”) of the Company’s California subsidiary (“Cal Am”) are the subject of a potential condemnation action by the Monterey Peninsula Water Management District (the “MPWMD”) stemming from a November 2018 public ballot initiative. In 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, increase(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 2020, the MPWMD certified a final environmental impact report, 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. In December 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. 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.
By letter dated October 3, 2022, the MPWMD notified Cal Am of a decision to appraise the Monterey system assets and requesting access to a number of Cal Am’s properties and documents to assist the MPWMD with such an appraisal. Cal Am responded by letter on October 24, 2022, denying the request for access, stating that the MPWMD does not have the right to appraise Cal Am’s system without LAFCO approval to become a retail water provider. Notwithstanding the denial by LAFCO of the MPWMD’s application seeking to be a retail water provider, the MPWMD notified Cal Am by letter dated April 3, 2023, of its offer to purchase the Monterey system assets for $448.8 million. Cal Am’s response is due by April 30, 2023, and it currently plans to reject the offer. The MPWMD has reserved its right to determine whether to acquire the Monterey system assets through the exercise of eminent domain. For more information on the lawsuit against LAFCO, see Item 3—Legal Proceedings in the Form 10-K and Part II, Item 1—Legal Proceedings—Proposed Acquisition of Monterey System Assets—Local Area Formation Commission Litigation in this Form 10-Q.
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. During a valuation trial held in January 2023, the parties settled the lawsuit and the water agency dismissed the eminent domain case, and as a result the Company will retain the pipeline. As part of the dismissal, the Company’s Illinois subsidiary and another subsidiary entered into a settlement agreement with the water agency agreeing to, among other things, maintain through December 31, 2027, the utility-specific wholesale water rate passed through to customers of the pipeline, such that the rate, exclusive of other pass-through charges, remains no higher than the current rate.
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, for example, 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 operationcases such recovery in rates has been disallowed. Also, the utility may have obtained insurance that could respond to some or all of such losses, although the utility would be at risk for any losses not ultimately subject to rate or insurance recovery or losses that exceed the limits of such insurance.
Tax Matters
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into law. The IRA contains a Corporate Alternative Minimum Tax (“CAMT”) provision, effective January 1, 2023. To determine if a company is considered an applicable corporation subject to CAMT, the company’s average adjusted financial statement income (“AFSI”) for the three consecutive years preceding the tax year must exceed $1 billion. An applicable corporation must make several adjustments to net income when determining AFSI. During the first quarter of 2023, the Company evaluated the potential impacts of the CAMT provision within the IRA and maintenance expense largely duebelieves it does not exceed the $1 billion AFSI threshold, and therefore, is not currently subject to an increaseCAMT in customer uncollectible expense2023. The Company is continuing to assess the impact of the initial guidance regarding the application of the CAMT and billing and collection fees, principally in our Homeowner Services Group.

will continue to monitor as additional guidance is released.


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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.’s (“AWCC”) revolving credit facility. facility, and 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 issuances, in addition to the remaining proceeds from the sale of HOS. The remaining proceeds from the sale of HOS include receipt of a seller promissory note, plus interest, and a contingent cash payment payable upon satisfaction of certain conditions on or before December 31, 2023. 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.
On March 3, 2023, the Company completed an underwritten public offering of an aggregate of 12,650,000 shares of its common stock. Upon closing of this offering, the Company received, after deduction of the underwriting discount and before deduction of offering expenses, net proceeds of approximately $1,688 million. The Company used the net proceeds of the offering to repay short-term commercial paper obligations of AWCC, the wholly owned finance subsidiary of American Water, and for general corporate purposes.
The Company’s revolving credit facility provides $1.75$2.75 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$2.60 billion. Subject to satisfying certain conditions, the credit agreement also permits AWCC to increase the maximum commitment under the facility by our revolving credit facility.up to an aggregate of $500 million. As of September 30, 2017, AWCC hadMarch 31, 2023 and December 31, 2022, there were no outstanding borrowings and $86$78 million of outstanding letters of credit under the revolving credit facility. At March 31, 2023, there was no outstanding short-term debt as the proceeds of the equity securities offering were used to repay the short-term commercial paper obligations. At December 31, 2022, the weighted-average interest rate on AWCC’s outstanding short-term borrowings was approximately 4.41%.
Presented in the tables below is the aggregate credit facility with $1.66 billion available to fulfill our short-term liquidity needscommitments, commercial paper limit and to issue lettersletter of credit. As of September 30, 2017,credit availability under the revolving credit facility supported $103 millionas of March 31, 2023 and December 31, 2022, as well as the available capacity for each:
As of March 31, 2023
Commercial Paper LimitLetters of CreditTotal (a)
(In millions)
Total availability$2,600 $150 $2,750 
Outstanding debt— (78)(78)
Remaining availability as of March 31, 2023$2,600 $72 $2,672 
(a)Total remaining availability of $2.67 billion as of March 31, 2023, may be accessed through revolver draws.
As of December 31, 2022
Commercial Paper LimitLetters of CreditTotal (a)
(In millions)
Total availability$2,600 $150 $2,750 
Outstanding debt(1,177)(78)(1,255)
Remaining availability as of December 31, 2022$1,423 $72 $1,495 
(a)Total remaining availability of $1.50 billion as of December 31, 2022, may be accessed through revolver draws.
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Presented in outstanding commercial paper. We believethe table below is the Company’s total available liquidity as of March 31, 2023 and December 31, 2022, respectively:
Cash and Cash EquivalentsAvailability on Revolving Credit FacilityTotal Available Liquidity
(In millions)
Available liquidity as of March 31, 2023$213 $2,672 $2,885 
Available liquidity as of December 31, 2022$85 $1,495 $1,580 
The Company believes that ourits ability to access the debt and equity capital markets, ourthe 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.See Note 8—Short-Term Debt in the Notes to Consolidated Financial Statements for additional information.
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, theThe 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 swaphas entered into eleven 10-year treasury lock agreements, with an aggregate notional amount ofamounts totaling $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 theon debt expected refinancing of AWCC’s Series C Senior Notes. This forward starting swap agreement terminatesto be issued in November 20182023. These treasury lock agreements terminate in January 2024, and hashave an average fixed rate of 2.67%3.47%. We haveThe Company 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.
On October 15, 2017, our interest rate swap to hedge $100 million of AWCC’s 6.085% Senior Notes matured. See Note 6—Long-Term Debt inNo ineffectiveness was recognized on hedging instruments for the Notes to Consolidated Financial Statements for further information.



three months ended March 31, 2023 or 2022.
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 cash flows provided by our operating activities:
 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 depreciation and amortization, deferred income taxes and amortization of deferred investment tax credits, provision for losses on accounts receivable, gain on asset dispositions and purchases, pension and non-pension postretirement benefits expense and other non-cash, net. Details of each component can be found in the Consolidated Statements of Cash Flows.
(b)Changes in working capital include changes to receivables and unbilled revenues, accounts payable and accrued liabilities, and other current assets and liabilities, net.
For the nine months ended September 30, 2017, the increase inCompany’s cash flows from operating activities, as compared toactivities:
 For the Three Months Ended March 31,
 20232022
(In millions)  
Net income$170 $158 
Add (less):
Depreciation and amortization172 158 
Deferred income taxes and amortization of investment tax credits26 (61)
Other non-cash activities (a)
(32)(11)
Changes in working capital (b)
(41)(71)
Pension and non-pension postretirement benefit contributions(10)(19)
Net cash provided by operating activities$285 $154 
(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 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 “ComparisonConsolidated Statements 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.Cash Flows.
The change(b)Changes in working capital was primarily the result of the following: (i) timing ofinclude changes to receivables and unbilled revenues, 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 Notesaccrued taxes, 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, including an increasenet.
For the three months ended March 31, 2023, cash provided by operating activities increased $131 million, primarily due to changes in prepaiddeferred taxes partiallyand working capital. The change in deferred taxes was driven by the settlement of the deferred tax liability related to the Company’s New York regulated operations that was sold in the first quarter of 2022. Partially offset by the decreasechange in other non-cash activities including activity in regulatory accounts and pension and non-pension postretirement benefits.
41
Table of other current assets associated with the termination of our four forward starting swap agreements.Contents
Cash Flows Used infrom Investing Activities
The followingPresented in the table provides information regardingbelow is a summary of the major items affecting the Company’s cash flows used in ourfrom investing activities:
 For the Three Months Ended March 31,
 20232022
(In millions)  
Net capital expenditures$(526)$(424)
Acquisitions, net of cash acquired(4)(5)
Net proceeds from sale of assets— 608 
Other investing activities, net (a)
(31)(20)
Net cash (used in) provided by investing activities$(561)$159 
 For the Nine Months Ended September 30,
 2017 2016
(In millions)   
Net capital expenditures$(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, 2023, cash used in investing activities increased $720 million, primarily due to continued investment across all infrastructure categories, mainly replacementproceeds received from the sale of the Company's New York operations in the first quarter of 2022 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 2017increased payments for capital expenditures and acquisitions. Construction of our new corporate headquarters buildingThe Company plans to invest approximately $2.9 billion across its footprint 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.


2023.
Cash Flows Provided byfrom Financing Activities
The followingPresented in the table provides information regardingbelow is a summary of the major items affecting the Company’s cash flows provided by ourfrom financing activities:
 For the Three Months Ended March 31,
 20232022
(In millions)  
Proceeds from long-term debt$8 $11 
Repayments of long-term debt(4)(5)
Net proceeds from common stock financing1,688 — 
Net short-term borrowings (repayments) with maturities less than three months(1,175)(263)
Dividends paid(119)(109)
Other financing activities, net (a)
3 13 
Net cash provided by (used in) financing activities$401 $(353)
 For the Nine Months Ended September 30,
 2017 2016
(In millions)   
Proceeds from long-term debt$1,382
 $2
Repayments of long-term debt(334) (20)
Net proceeds from short-term borrowings(746) 322
Dividends paid(215) (194)
Anti-dilutive stock repurchases(54) (65)
Other financing activities, net (a)
20
 25
Net cash flows provided by financing activities$53
 $70
(a)Includes proceeds from issuances of common stock under various employee stock plans and the Company’s dividend reinvestment and direct stock purchase plan, net of taxes paid, and advances and contributions in aid of construction, net of refunds.
(a)Includes proceeds from issuances of common stock under various employee stock plans and our dividend reinvestment plan, advances and contributions for construction, net of refunds, taxes paid related to employee stock plans and debt issuance costs.
For the ninethree months ended September 30, 2017, the decrease inMarch 31, 2023, cash flows provided by financing activities as compared to the same period in 2016, isincreased $754 million, primarily due to the increasecommon stock offering. This was partially offset by repayment 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 partfull 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 amounts of commercial paper and outstanding borrowings underobligations during the respective facilities asfirst quarter of September 30, 2017:2023.
 Credit Facilities Commitment (a) Available Credit Facility Capacity (a) Letter of Credit Sublimit Available Letter of Credit Capacity Commercial Paper Limit Available Commercial Paper Capacity
(In millions)           
September 30, 2017$1,762
 $1,669
 $150
 $86
 $1,600
 $1,497
(a)Includes amounts related to the revolving credit facility of Keystone Clearwater Solutions, LLC (“Keystone”), our water management solutions subsidiary. As of September 30, 2017, the total commitment under the Keystone revolving credit facility was $12 million, of which $5 million was available for borrowing, subject to compliance with a collateral base calculation. At September 30, 2017, there were no outstanding borrowings under this credit facility.
The weighted-average interest rate on AWCC short-term borrowings for three months ended September 30, 2017 and 2016 was approximately 1.38% and 0.78%, respectively. The weighted-average interest rate on AWCC short-term borrowings for the nine months ended September 30, 2017 and 2016 was approximately 1.19% and 0.76%, respectively.
Capital Structure
The following table indicates the percentage of our capitalization represented by the components of our capital structure as of the dates set forth below:
 September 30, 2017 December 31, 2016
Total common stockholders' 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, 2023, the Company’s ratio was 0.580.54 to 1.00 and therefore we werethe Company was in compliance with the covenants.
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Table of Contents
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 26, 2023, as issued by Moody’s Investors Service on December 19, 2022, and S&P Global Ratings on February 6, 2023:
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, as reflected in the Company’s Consolidated Financial statements, 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, 2016.2022.
On February 8, 2017, we entered into a forward starting swap agreement with a notional amount
43
Table 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 rate of 2.67%. A hypothetical one hundred basis point change in the forward starting swap rates would have resulted in a $21 million increase or decrease in fair value of this swap agreement for the nine months ended September 30, 2017.Contents
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
American Water maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.objective.
OurThe Company’s management, including the 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, 2023.
Based on that evaluation, ourthe Chief Executive Officer and the Chief Financial Officer have concluded that, as of September 30, 2017, ourMarch 31, 2023, 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, 2023, 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.
44
Table of the Exchange Act).Contents


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
CPUC Final Approval of Water Supply Project
On January 12, 2017,March 30, 2023, 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 ondecision denying Cal Am’s requestapplication for a certificate of public conveniencerehearing, but adopting its proposed AFUDC for already incurred and necessityfuture costs. The decision also provides Cal Am the opportunity to serve supplemental testimony to increase its cost cap 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 partcertain of the Water Supply Project’s extraction wells. The amended water purchase agreement and a memorandum of understanding to negotiate certain milestones related to the expansion of the GWR Project as currently proposed,have been signed by the relevant parties.
While Cal Am will likely needbelieves that its expenditures to seek an amendmentdate have been prudent and extensionnecessary to comply with the 2009 Order and the 2016 Order, as well as relevant final decisions of the CPUC related thereto, Cal Am cannot currently predict its ability to recover all of its coastal development permit to allow the test slant well to remaincosts and be maintained in the interim period untilexpenses associated with 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 withrecover all of such costs and expenses in excess of the diversion reduction requirements$112 million in aggregate construction costs, plus applicable AFUDC, previously approved by the CPUC in its 2016 final decision and other remaining requirements underits December 2022 final decision, as amended by its March 30, 2023 rehearing decision.
Test Slant Well Permitting
The application for extension of the 2009 OrderState Lands Commission lease was approved, and the 2016 Order, or that any such compliancelease will not result in material additional costs or obligations to Cal Am ornow expire on December 16, 2027.
Proposed Acquisition of Monterey System Assets — Local Area Formation Commission Litigation
Notwithstanding 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 Defendantsdenial by all putative class members (collectively, the “Plaintiffs”) for all claims and potential claims arising outLAFCO 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.


The Settlement covered by the order proposes a global resolution of all federal and state litigation and potential claims against the American Water Defendants and their insurers. Under the terms and conditions of the Settlement and the proposed amended settlement agreement, the American Water Defendants have not admitted, and will not admit, any fault or liability for any of the allegations made by the Plaintiffs in any of the actionsMPWMD’s application seeking 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 by November 8, 2017. Following the notice period, the court will hold a fairness hearing to consider final approval of the Settlement,retail water provider, 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 releasebeing challenged by the Company and WVAWC of all claims againstMPWMD, the insurance carrier 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 contributions to the Settlement from $65 million to $43 million. In the third quarter of 2017, WVAWC recorded an additional insurance receivable of $22 million, resulting in an after-tax benefit of $13 million.
The Company and WVAWC continue to pursue vigorously their rights to insurance coverage for contributionsMPWMD notified Cal Am 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,April 3, 2023, of its offer to purchase the SWRCB advised AWE thatMonterey system assets for $448.8 million. Cal Am’s response is due by April 30, 2023, and it is in compliance with all ofcurrently plans to reject the directives and relevant statutory and administrative provisions specified in the SWRCB’s June 15, 2017 citation. While AWEoffer. The MPWMD has completed all required compliance activities with respect to the citation, the SWRCB has previously reserved theits right to take additional enforcement action. Proven violationsdetermine whether to acquire the Monterey system assets through the exercise 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.

eminent domain.

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 and direct stock purchase plan and 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, 2023. From April 1, 2015, the date repurchases under the anti-dilutive stock repurchase program commenced, through September 30, 2017,March 31, 2023, 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.
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Table of Contents
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.


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 August 10, 2017)December 8, 2022).
4.2*10.1
Officers’ CertificateForm 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 2023 Restricted Stock Unit Grant.
10.1*10.2
Form of American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2023 Restricted Stock Unit Grant (for CEO, CFO and COO).
*10.3
American Water Works Company, Inc. and its Designated Subsidiaries 2017 Nonqualified EmployeeOmnibus Equity Compensation Plan 2023 Performance Stock Purchase Plan (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement onUnit Grant Form S-8, File No. 333-219682, filed August 4, 2017).A-1.
*31.110.4
American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2023 Performance Stock Unit Grant Form A-2 (for CEO, CFO and COO).
*10.5
American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2023 Performance Stock Unit Grant Form B-1.
*10.6
American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2023 Performance Stock Unit Grant Form B-2 (for CEO, CFO and COO).
*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,John C. Griffith, 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,John C. Griffith, 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 1st26th day of November, 2017.
April, 2023.
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. SULLIVANJOHN C. GRIFFITH
Linda G. Sullivan
John C. Griffith
Executive Vice President and Chief Financial Officer

(Principal Financial Officer)
By/s/ MELISSA K. WIKLE
Melissa K. Wikle

Senior Vice President and Controller
Chief Accounting Officer
(Principal Accounting Officer)


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